-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JepLlqU4sLZmCw585Pn+oZ7gFp6MVix95nUcRfnJ4kYCkzJCogCqGvB5q/jRzbNt G8HM0DaIQXXQF6dGb/czDg== 0000912057-96-021658.txt : 19961002 0000912057-96-021658.hdr.sgml : 19961002 ACCESSION NUMBER: 0000912057-96-021658 CONFORMED SUBMISSION TYPE: S-11 PUBLIC DOCUMENT COUNT: 20 FILED AS OF DATE: 19961001 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BASIC US REIT INC CENTRAL INDEX KEY: 0001023812 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-11 SEC ACT: 1933 Act SEC FILE NUMBER: 333-13153 FILM NUMBER: 96637673 BUSINESS ADDRESS: STREET 1: 2235 SHEPPARD AVE EATRIA II STREET 2: STE 904 CITY: TORONTO STATE: A6 ZIP: 00000 MAIL ADDRESS: STREET 1: 2235 SHEPPARD AVE STREET 2: EATRIA II STE 904 CITY: TORONTO STATE: A6 ZIP: 00000 S-11 1 S-11 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 1, 1996. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-11 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ BASIC U.S. REIT, INC. (Exact name of registrant as specified in governing instruments) 7850 NORTHWEST 146TH STREET SUITE 308 MIAMI, FLORIDA 33016 (Address of principal executive office) CARL MAYNARD PRESIDENT BASIC U.S. REIT, INC. 7850 NORTHWEST 146TH STREET SUITE 308 MIAMI, FLORIDA 33016 305-556-7162 (Name and address of agent for service) ------------------------ COPIES OF COMMUNICATIONS TO: CLINTON A. STUNTEBECK Schnader Harrison Segal & Lewis Suite 3600, 1600 Market Street Philadelphia, PA 19103 215-751-2034 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT HAS BECOME EFFECTIVE. ------------------------ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF TITLE OF SECURITIES BEING REGISTERED REGISTERED PER SHARE (1) OFFERING PRICE REGISTRATION FEE Common Stock, $.01 par value......... 2,740,000 $10.00 $27,400,000 $9,448.27
(1) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as amended. ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BASIC U.S. REIT, INC. CROSS-REFERENCE SHEET SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-11 REGISTRATION STATEMENT
ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS - ---------------------------------------------------------------- ----------------------------------------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus..................... Outside Front Cover Page 2. Inside Front and Outside Back Cover Pages of Prospectus......................................... Inside Front and Outside Back Cover Pages of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges.......................... Outside Front Cover Page; Prospectus Summary; Risk Factors 4. Determination of Offering Price...................... Plan of Distribution 5. Dilution............................................. ** 6. Selling Security Holders............................. Not Applicable 7. Plan of Distribution................................. Outside Front Cover Page; Plan of Distribution 8. Use of Proceeds...................................... Prospectus Summary: Use of Proceeds 9. Selected Financial Data.............................. Pro Forma Selected Financial Information 10. Management's Discussion and Analysis of Financial Condition and Results of Operations................ Management's Discussion and Analysis of Pro Forma Results of Operations and Pro Forma Financial Condition 11. General Information as to Registrant................. Prospectus Summary; Business; Certain Provisions of Maryland Law and of the Corporation's Amended and Restated Articles of Incorporation; Additional Information 12. Policy With Respect to Certain Activities............ Prospectus Summary; Policies With Respect to Certain Activities; Description of Capital of the Corporation; Additional Information 13. Investment Policies of Registrant.................... Prospectus Summary; Business; Policies With Respect to Certain Activities 14. Description of Real Estate........................... Prospectus Summary; The Properties 15. Operating Data....................................... Prospectus Summary; The Properties 16. Tax Treatment of Registrant and Its Security Holders............................................ Prospectus Summary; U.S. Federal Income Tax Considerations; Canadian Federal Income Tax Considerations 17. Market Price of and Dividends on the Registrant's Common Equity and Related Stockholder Matters...... Prospectus Summary; Risk Factors; Policies With Respect to Certain Activities; U.S. Federal Income Tax Considerations; Distribution Policy
ITEM NUMBER AND HEADING LOCATION IN PROSPECTUS - ---------------------------------------------------------------- ----------------------------------------------------- 18. Description of Registrant's Securities............... Description of Capital of the Corporation 19. Legal Proceedings.................................... Legal Proceedings 20. Security Ownership of Certain Beneficial Owners and Management......................................... Security Ownership of Certain Beneficial Owners and Management 21. Directors and Executive Officers..................... Management 22. Executive Compensation............................... Management 23. Certain Relationships and Related Transactions....... Management 24. Selection, Management and Custody of Registrant's Investments Management............................. Outside Front Cover Page of Prospectus; Prospectus Summary; Policies with Respect to Certain Activities; Management 25. Policies With Respect to Certain Transactions........ Conflicts of Interest; Certain Provisions of Maryland Law and of the Corporation's Amended and Restated Articles of Incorporation and Bylaws 26. Limitations of Liability............................. Risk Factors; Certain Provisions of Maryland Law and of the Corporation's Amended and Restated Articles of Incorporation and Bylaws 27. Financial Statements and Information................. Pro Forma Selected Financial Information; Financial Statements 28. Interests of Named Experts and Counsel............... Experts; Legal Matters 29. Disclosure of Commission Position on indemnification of Securities Act Liabilities...................... Certain Provisions of Maryland Law and of the Corporation's Amended and Restated Articles of Incorporation and Bylaws
SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED SEPTEMBER 30, 1996 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. 2,740,000 SHARES BASIC U.S. REIT, INC. COMMON STOCK ------------------ Basic U.S. REIT, Inc., a Maryland corporation (the "Corporation"), intends to qualify as a real estate investment trust ("REIT") under United States federal income tax laws. The Corporation will sell 2,740,000 shares (the "Offering") of its common stock (the "Common Stock") for $27,400,000. ALL REFERENCES TO DOLLAR AMOUNTS IN THIS PROSPECTUS SHALL BE TO UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED. The Corporation has been formed to engage in the business of investing in a diversified portfolio of income-producing commercial real property throughout the United States, focusing initially on neighborhood and community shopping centers with nationally recognized anchor tenants. The Corporation intends to continue to acquire only shopping centers until the aggregate of the acquisition prices of all properties owned by the Corporation exceeds $100 million. Basic Advisors, Inc. (the "Advisor") will provide the day-to-day management for the Corporation. Basic Acquisitions, Inc., as nominee for the Corporation, has entered into acquisition agreements to purchase a community shopping center located in Chico, California and a neighborhood shopping center located in Dade County, Florida (the "Properties"). Upon closing of the Offering (the "Closing") and application of the net proceeds therefrom, the Corporation will own the Properties with an aggregate gross leasable area of approximately 358,000 square feet. The Corporation will acquire these Properties by assuming the mortgage on one property, and paying the balance of the purchase price on a cash basis and acquiring the second property by paying the purchase price on a cash basis. The Corporation intends to hold the Properties for an indefinite length of time. See "Prospectus Summary." All of the shares of Common Stock of the Corporation offered hereby are being offered by the Corporation. Prior to this Offering, there has been no public trading market for the Common Stock. It is a condition to the closing of the Offering that the Common Stock be listed on a United States Stock Exchange which is a "prescribed stock exchange" for the purposes of the Income Tax Act (Canada), and which is either registered under the Securities Exchange Act of 1934, as amended or is listed on an "over-the-counter market" within the meaning of applicable United States federal income tax regulations, and that the Properties be acquired contemporaneously with the completion of this Offering. The Corporation's Articles of Amendment and Restatement (the "Amended and Restated Articles of Incorporation") limit the number of shares of Common Stock that may be owned by any single person or affiliated group to 9.5% of the lesser of the aggregate number or value of the outstanding shares of Common Stock. See "Description of Capital of the Corporation--Excess Stock--Restrictions on Transfer." The minimum required purchase of Common Stock is 250 shares ($2,500). This Offering involves certain risks, including: - Lack of prior market for the Common Stock and effect of interest rates on the price of the Common Stock. - The Corporation has limited diversification. - The Corporation has no operating history. - The Advisor will receive fees based upon a fixed percentage of assets of the Corporation. See "Management--The Advisor." Such compensation will be payable to the Advisor regardless of Corporation profitability. - Market risks associated with investments in real estate, including the potential for a decrease in the value of the Properties and adverse changes to the financial status of tenants. - The Advisor and various entities related to it will be subject to various conflicts of interest with the Corporation. - Adverse tax consequences of failure to qualify as a REIT under the U.S. Internal Revenue Code. - Potential amendment to tax legislation or the Canada-U.S. Income Tax Convention, as amended by a revised protocol entered into force November 9, 1995. SEE "RISK FACTORS" BEGINNING ON PAGE 12 FOR A COMPLETE DISCUSSION OF CERTAIN MATERIAL FACTORS RELEVANT TO AN INVESTMENT IN THE COMMON STOCK. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PRICE TO THE AGENTS' PROCEEDS TO THE PUBLIC (1) COMMISSIONS (2) CORPORATION (3) Per Share.................................................... $10 $.75 $9.25 Total........................................................ $27,400,000 $2,055,000 $25,345,000
(1) The price of the Common Stock was determined by negotiation between the Corporation and the Agents. (2) The Corporation has agreed to indemnify the Agents against certain liabilities. See "Plan of Distribution." (3) Before deducting estimated expenses of $440,000 payable by the Corporation, including the Agents' expense allowance not to exceed $175,000 (CDN). ------------------------------ The Common Stock is being offered conditionally, on a best efforts basis, in the provinces of Ontario, British Columbia and Alberta, Canada by Porthmeor Securities Inc., Octagon Capital Canada Corporation and First Marathon Securities Limited (the "Agents"), as agents of the Corporation subject to prior sale, when, if and as issued by the Corporation in accordance with the Agency Agreement referred to under "Plan of Distribution," and subject to approval of certain legal matters on behalf of the Corporation by Chaiton & Chaiton, Barristers and Solicitors, Toronto, and Schnader Harrison Segal & Lewis, Philadelphia, and as to Canadian taxation matters by Smith Lyons, Barristers and Solicitors, and subject to approval of certain legal matters on behalf of the Agents by Fogler, Rubinoff, Barristers & Solicitors, Toronto and Skadden, Arps, Slate, Meagher and Flom, New York and Toronto. Subscriptions will be received subject to rejection or allotment, in whole or in part and the right is reserved to close the subscription books at any time without notice. It is expected that the closing of this Offering will occur on January 3, 1997 or on another date acceptable to the Corporation and the Agents, but not later than January 31, 1997. The Closing of this Offering of Common Stock is subject to certain conditions precedent. See "Prospectus Summary." ------------------------------ PORTHMEOR SECURITIES INC. OCTAGON CAPITAL CANADA CORPORATION FIRST MARATHON SECURITIES LIMITED The date of this Prospectus is , 1996. INSIDE FRONT COVER OF PROSPECTUS The inside front cover of the prospectus contains a graphical depiction of the lease expiration summary for the Properties on an aggregate basis and three photographical depictions of the Gardens Square shopping center showing the entrance to the center including its parking lot and two views of the pedestrian walkways and tenant storefronts. 2 TABLE OF CONTENTS
PAGE NO. ---- PROSPECTUS SUMMARY........................................................ 6 RISK FACTORS.............................................................. 12 General Risks........................................................... 12 General Real Estate Investment Risks.................................... 13 Risk of Leverage and Default............................................ 15 Potential Borrowings to Make Distributions to Qualify as a REIT......... 16 Joint Venture Investments--Risks of Conflicting Interests and Impasse... 16 U.S. Federal Income Tax Risks........................................... 16 Limitations on Changes in Control....................................... 17 Responsibilities of Directors and Advisor--Possible Inadequacy of Remedies.............................................................. 18 Advisor May Purchase Shares............................................. 18 Dilution................................................................ 19 Benefits from Formation of Corporation and the Offering................. 19 Compensation To Affiliates.............................................. 19 Conflicts of Interest................................................... 19 Restrictions on Transfer and Limitation on Ownership of Common Stock.... 20 Shares of Common Stock Available for Future Sale........................ 20 No Prior Market for Common Stock........................................ 20 Effect of Market Interest Rates on Price of Common Stock................ 20 Enforcing Rights Against Foreign Corporation, Directors and Officers.... 21 USE OF PROCEEDS........................................................... 21 CAPITALIZATION............................................................ 22 PRO FORMA SELECTED FINANCIAL INFORMATION.................................. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE PRO FORMA RESULTS OF OPERATIONS AND PRO FORMA FINANCIAL CONDITION............................ 31 BUSINESS.................................................................. 34 The Corporation......................................................... 34 Investment Objectives................................................... 34 POLICIES WITH RESPECT TO CERTAIN ACTIVITIES............................... 35 Investment Policies..................................................... 35 Investment Restrictions................................................. 36 Financing Policies...................................................... 37 THE PROPERTIES............................................................ 37 Chico Crossroads Center................................................. 38 Description of Property................................................. 39 Key Factors in Corporation's Decision to Acquire........................ 42
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PAGE NO. ---- Chico, California....................................................... 42 Gardens Square.......................................................... 43 Description of Property................................................. 44 Key Factors in Corporation's Decision to Acquire........................ 46 Dade County, Florida.................................................... 47 MANAGEMENT................................................................ 48 Directors and Executive Officers of the Corporation..................... 48 Compensation............................................................ 50 Stock Option Plan....................................................... 50 The Promoters........................................................... 50 The Advisor............................................................. 51 Term of the Advisory Agreement.......................................... 52 Fees and Expenses....................................................... 53 Other Activities........................................................ 54 Property Management and Other Services.................................. 55 Directors and Executive Officers of the Advisor......................... 55 Interest of Management and Others in Material Transactions.............. 55 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT............ 56 LEGAL PROCEEDINGS......................................................... 57 DESCRIPTION OF CAPITAL OF THE CORPORATION................................. 57 General................................................................. 57 Common Stock............................................................ 57 Preferred Stock......................................................... 58 Power to Issue Additional Common Stock and Preferred Stock.............. 58 Excess Stock--Restrictions on Transfer.................................. 58 Dividend Reinvestment Program........................................... 60 Transfer Agent and Registrar............................................ 61 CERTAIN PROVISIONS OF MARYLAND LAW AND THE CORPORATION'S AMENDED AND RESTATED ARTICLES OF INCORPORATION AND BYLAWS........................... 61 Number of Directors..................................................... 61 Business Combinations................................................... 61 Control Share Acquisitions.............................................. 62 Amendment to the Amended and Restated Articles of Incorporation......... 62 Dissolution of the Corporation.......................................... 62 Advance Notice of Directors Nominations and New Business................ 62 Meetings of Stockholders................................................ 62 Limitation of Liability and Indemnification............................. 63
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PAGE NO. ---- SEC Position on Indemnification......................................... 64 Insurance............................................................... 64 U.S. FEDERAL INCOME TAX CONSIDERATIONS.................................... 64 General................................................................. 64 Taxation of the Corporation............................................. 65 Investments Through Partnerships........................................ 68 Taxation of Non-U.S. Stockholders....................................... 69 Taxation of U.S. Stockholders........................................... 73 Other Tax Consequences.................................................. 74 CANADIAN FEDERAL INCOME TAX CONSIDERATIONS................................ 74 Taxation of Dividends................................................... 75 Dispositions............................................................ 75 Qualification for Investment............................................ 76 DISTRIBUTION POLICY....................................................... 76 PLAN OF DISTRIBUTION...................................................... 76 EXPERTS................................................................... 77 LEGAL MATTERS............................................................. 77 ADDITIONAL INFORMATION.................................................... 77 GLOSSARY.................................................................. 78 INDEX TO FINANCIAL STATEMENTS............................................. F-1
5 PROSPECTUS SUMMARY This summary is qualified in its entirety by the more detailed information appearing elsewhere in this Prospectus. Certain terms used in this Prospectus are defined in the Glossary. ALL REFERENCES TO DOLLAR AMOUNTS IN THIS PROSPECTUS SHALL BE TO UNITED STATES DOLLARS UNLESS OTHERWISE INDICATED. OFFERING: 2,740,000 shares of Common Stock PRICE: $10.00 per share of Common Stock MINIMUM SUBSCRIPTION: $2,500 (250 shares of Common Stock)
THE CORPORATION: Basic U.S. REIT, Inc. is a corporation incorporated under the laws of the State of Maryland for the purposes of making equity investments in income-producing commercial real property in the United States. An objective of the Corporation is to provide investors with a favorable yield on their investment in Common Stock. The Corporation intends to qualify as a real estate investment trust ("REIT") for the purposes of the U.S. Internal Revenue Code of 1986, as amended (the "Code") (see "U.S. Federal Income Tax Considerations"). The executive office of the Corporation is at 7850 Northwest 146th Street, Suite 308, Miami, Florida 33106, telephone number 305-556-7162. PROMOTERS: Basic Capital Funds, an Ontario limited partnership, and Maynard Rich/Abraham Inc., a Florida corporation, have taken the initiative in structuring this Offering and may therefore be viewed as the promoters. The sole director and officer of Basic Capital Funds Inc., the general partner of Basic Capital Funds, is Ronald L. Bernbaum. Maynard Rich/Abraham Inc. is controlled by Carl Maynard and Richard Schwartz. INVESTMENT OBJECTIVES: The Corporation intends to make equity investments in income-producing commercial real property. The Corporation's objectives in acquiring properties are: a) to own and operate such real property; b) to generate income for distribution; c) to preserve and increase the Corporation's equity through appreciation of the value of its assets; and d) to increase the Corporation's equity through amortization of mortgage financing. The Corporation will initially implement these objectives by purchasing neighborhood and community shopping centers. The Corporation intends to continually enhance returns through an ongoing acquisition program designed to provide economies of scale and to reduce risk through geographic and property diversification. The Corporation also intends to manage its portfolio to maintain and over time enhance the value of its properties. INVESTMENT POLICIES AND RESTRICTIONS: The bylaws of the Corporation contain certain restrictions on the investments of the Corporation, which may only be amended with the majority approval of the Board of Directors of the Corporation, such majority to include a majority of the independent directors, and by the majority of the votes cast at a meeting of holders of the Common Stock of the Corporation. The Advisory Agreement contains certain general investment policies which are guidelines for the Advisor in presenting investment prospects for the Corporation. Such investment policies may be amended from time to time by the majority approval of the Board of Directors of the Corporation, such majority to include a majority of independent directors. Initially, the Corporation intends to acquire income producing shopping centers anchored by national retailers, dominant regional retailers or other quality creditworthy anchor tenants (see "Business--Investment Objectives" and "Policies With Respect to Certain Activities"). 6 USE OF PROCEEDS: The Corporation will use the net proceeds of this Offering, after deducting Agents' commissions and expenses of this Offering, to acquire the Properties on Closing (including the repayment of deposits advanced by the Promoters or the Advisor and the payment of acquisition costs), to pay mortgage assumption and financing fees, acquisition fees (in the amount of $455,438) to the Advisor, and for working capital. The following table sets forth an allocation of the use of net proceeds. The principal amount of the mortgage and the acquisition expenses are estimated and any increase or reduction will result in an increase or reduction in the proceeds available for working capital. Until required, proceeds allocated to working capital will be invested by the Corporation in Authorized Investments.
ESTIMATED ACQUISITION FEES AND PROPERTIES PURCHASE PRICE MORTGAGE EXPENSES USE OF PROCEEDS - --------------------------------------------------- -------------- ---------- --------------- --------------- Chico Crossroads Center............................ $ 20,912,500 -- $ 420,000 $ 21,332,500 Gardens Square..................................... 9,450,000 6,710,000 216,000 2,956,000 Estimated Mortgage Assumption and Financing Fees... 68,000 Working Capital.................................... 548,500 --------------- NET PROCEEDS..................................... $ 24,905,000 --------------- ---------------
PROPERTIES: Basic Acquisitions, Inc. (the "Nominee"), a corporation controlled by the Advisor, as nominee for the Corporation, has entered into agreements to acquire interests in real property which will be assigned to the Corporation prior to the Closing for nominal consideration. Upon assignment, the Corporation shall reimburse the Nominee for all deposits paid under the acquisition agreement assigned. a) The Nominee has entered into an agreement with Chico Crossroads Center, Ltd., a California limited partnership, to acquire the Chico Crossroads Center, an approximately 267,000 square foot shopping center in northern California, between Sacramento and Redding for the purchase price of $20,912,500. The Corporation will pay the purchase price in cash. The center has five anchor tenants who have signed long term leases which expire in the years 2008 to 2014, accounting for approximately 85% of the gross leasable area of the center. These anchors are Home Base, Office Depot, Food 4 Less, Circuit City and Barnes & Noble. In addition to these anchor tenants, the center has national tenants who account for an additional 11.5% of the gross leasable area of the center including Hometown Buffet, Blockbuster Video, Petco, Nevada Bob's Golf, Play It Again Sports and Avco Financial. Chico Crossroads Center is approximately 99% leased as of the date of this Prospectus. b) The Nominee has entered into an agreement with Miami Gardens Associates, a New Jersey general partnership, to acquire Gardens Square, an approximately 90,000 square foot shopping center located in Dade County, Florida, for the purchase price of $9,450,000. The purchase price will be paid by the assumption of a mortgage in the principal amount of approximately $6,710,000 with the balance in cash. The mortgage bears interest at the rate of 7.94% per annum and is due on December 21, 2002 with payments based upon a 25 year amortization. The anchor tenants are Publix Super Markets, Inc. and Eckerd Drug Store who account for approximately 57% of the gross leasable area of the center. Gardens Square is approximately 96% leased as of the date of this Prospectus. TAX STATUS: The Corporation will elect to be taxed as a real estate investment trust ("REIT") under Sections 856 through 859 of the Code, commencing with the taxable year ending December 31, 1997. As a REIT, the Corporation generally will not be subject to federal income tax at the corporate level to the extent it annually distributes its net income and capital gains to its stockholders. REITs are subject to a number of organizational and operational requirements. If the Corporation fails to qualify as a REIT in any taxable year, the Corporation may be subject to U.S. Federal income tax (including any applicable 7 alternative minimum tax) on its taxable income at regular corporate rates. Even if the Corporation qualifies for taxation as a REIT, the Corporation may still be subject to certain state and local taxes on its income and property and federal income and excise tax on its undistributed income. It is the intention of the Corporation not to conduct business in any state in which the income tax treatment of a REIT, does not conform to the U.S. Federal income tax treatment of a REIT. Once listed on a stock exchange that is a "prescribed stock exchange" for the purposes of the INCOME TAX ACT (Canada), the Common Stock will be qualified investments for Registered Retirement Savings Plans, Registered Retirement Income Funds and Deferred Profit Sharing Plans. However, the Common Stock will be considered to be foreign property for such plans and for other taxpayers subject to the foreign property limitations in Part XI of the INCOME TAX ACT (Canada). The closing of this Offering is conditional upon the Corporation listing the Common Stock for trading on a United States Stock Exchange that is a "prescribed stock exchange" for the purposes of the INCOME TAX ACT (Canada) and which is either registered under the Securities Exchange Act of 1934 or is listed on an "over-the-counter market" within the meaning of applicable United States Federal income tax regulations. See "Canadian Federal Income Tax Considerations," "U.S. Federal Income Tax Considerations" and "Risk Factors." DISTRIBUTIONS: The Corporation intends to pay regular quarterly dividends to its stockholders and more frequently if the Board of Directors of the Corporation so determines. To qualify as a REIT, the Corporation generally must distribute at least 95% of its REIT taxable income (as defined in the Code) each year, even if such amount is in excess of cash flow. Unless the Board of Directors otherwise decides, the Corporation intends to distribute a minimum of 100% of its taxable income. The Corporation intends to implement a dividend reinvestment program under which its stockholders may elect automatically to reinvest their dividends in additional shares of Common Stock. ADVISOR: Basic Advisors, Inc., a corporation incorporated under the laws of the State of Delaware, will be the advisor of the Corporation pursuant to the Advisory Agreement. The Advisor will act as investment advisor to the Corporation with respect to real property investments and will provide or arrange for the provision of research, accounting, transfer agency and management services. The Advisor is entitled to the following fees under the Advisory Agreement: a) an asset management fee: an annual fee based upon the aggregate of the net proceeds received by the Corporation for its issued and outstanding shares after the payment of any commission and direct expenses paid by the Corporation for the issuance of such shares ("Share Capital") payable monthly and calculated at the following rates:
SHARE CAPITAL RATE - ----------------------------------------------------------------- ----------- Up to $35 million................................................ 1.50% On the amount over $35 million and up to $125 million............ 1.25% On the amount over $125 million and up to $200 million........... 1.00% On the amount in excess of of $200 million....................... 0.75%
Each of the foregoing annual rates is applicable to the portion of the Share Capital which falls within the rate attributable to such capital. Assuming the Offering closes on or about January 1997, the annual fee payable under the Advisory Agreement for the year ending December 31, 1997 will be approximately $374,000 if no other shares are issued through December 31, 1997; 8 b) an acquisition fee: a fee of 1.5% of the cost of any real property payable upon the purchase of any real property; c) a disposition fee: a fee of 0.25% of the sale proceeds from the disposition of any real property payable upon the disposition of such real property; and d) a financing fee: a fee of 0.25% of the principal amount of any financing or refinancing arranged, renewed, extended or increased in respect of any real property payable upon completion of such financing or refinancing. If and to the extent that the Advisor or any person affiliated with the Advisor provides services to the Corporation in addition to those specifically required under the Advisory Agreement, such services will be compensated separately on the basis of industry standard rates for comparable services and activities. The outstanding and issued stock of the Advisor are owned directly or indirectly 75% by Knightsbridge Financial Services, Ltd. ("Knightsbridge"), an affiliate of Basic Capital Funds, an Ontario limited partnership, of which Ronald L. Bernbaum is the sole director and President of the corporate general partner; 12.5% by Carl Maynard; and 12.5% by Richard Schwartz. Knightsbridge is an investment holding company with the same beneficial owners as Basic Capital Funds. Basic Capital Funds and Maynard Rich/Abraham Inc., a Florida corporation, are the promoters of this Offering. Basic Capital Funds in its capacity as principal or promotor, identifies, structures and funds capital projects and start-up companies and has been responsible for the funding, acquisition and management of over $100 million of real estate assets and the funding of $150 million of software development and numerous software companies. Its staff of chartered accountants and lawyers have considerable expertise and experience in tax, real estate, intellectual property, securities and corporate commercial transactions. Since 1988, Maynard Rich/Abraham, Inc. and its affiliate companies, Maynard Rich Management Corp., a California corporation, and Maynard Rich Properties Corp., a Florida corporation (Maynard Rich/Abraham Inc., Maynard Rich Management Corp. and Maynard Rich Properties Corp. are collectively hereinafter referred to as "The Maynard Rich Companies"), have performed various real estate services for foreign and domestic institutional and individual investors including initiating mortgage debt financing for shopping centers, office buildings and net leased properties, performing workout services for both retail and residential properties, representing owners in bankruptcy proceedings, managing portfolios totaling in excess of $100 million in value and engaging in real estate brokerage transactions totaling in excess of $150 million in value. See "Management--The Promoters, the Advisor, Term of Advisory Agreement and Fees and Expenses." U.S. REIT STATUS: The Code sets out specific organizational, investment, income and distribution requirements in order for an entity to qualify as a REIT. In general: ORGANIZATIONAL - The REIT must be a corporation, business trust or association which would otherwise be taxable as a corporation. - The REIT must be managed by a board of trustees or directors. - The REIT's shares must be transferable. - There must be at least 100 beneficial stockholders during at least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year. 9 - Not more than 50% of the shares may be held directly or indirectly by any group of five or fewer individuals during the last half of the REIT's taxable year. - The REIT must have a taxable year which is a calendar year. INVESTMENT - The REIT must invest at least 75% of the value of its total assets in real estate assets (including mortgages and shares in other REITs), cash and government securities. For purposes of this test, a REIT is treated as holding directly a proportionate share of any real estate assets of a partnership in which it holds an interest. - The REIT must not own more than 10% of the outstanding voting shares of any one issuer (other than a qualified REIT subsidiary). - Not more than 25% of the value of the REIT's total assets may be invested in securities and no more than 5% of the value of its total assets may consist of securities of one issuer (other than certain government securities and stock of a qualified REIT subsidiary). INCOME - The REIT must derive at least 75% of its gross income from rents from real property, interest on obligations secured by mortgages on real property, gains from the sale of real property, dividends or gains from investments in other qualified REITs, abatements and refunds of property taxes and mortgage or purchase commitment fees ("The 75% Income Test"). - The REIT must derive at least 95% of its gross income from sources qualifying under The 75% Income Test, gains from sales of securities, dividends and interest. - The REIT must derive less than 30% of its gross income from the sale or disposition of securities held for less than one year, from the sale of property in a prohibited transaction, or from the sale of real property held for less than four years. DISTRIBUTION - The REIT must distribute at least 95% of REIT taxable income annually, excluding net capital gains. The Corporation must file with its U.S. tax return an election to be treated as a REIT for tax purposes and comply with the foregoing qualification requirements. CROSS BORDER TAX TREATMENT: The Corporation has been structured with a view to minimizing the U.S. and Canadian taxes that will be payable on the income of the Corporation, distributions made to Canadian holders of Common Stock, and any gains realized by Canadian holders on the disposition of Common Stock. The use of a corporation that qualifies as a REIT for U.S. tax purposes should substantially eliminate U.S. tax at the corporate level. In addition, investors who are resident in Canada for the purposes of the Canada--U.S. Income Tax Convention (the "Treaty"), as amended by a revised protocol that entered into force November 9, 1995 (the "Protocol") may benefit from the reduction or elimination of U.S. tax on distributions from the Corporation and, in appropriate circumstances, will not be taxed in the U.S. on gains realized on the disposition of Common Stock. See "U.S. Federal Income Tax Considerations." PRO FORMA SELECTED FINANCIAL INFORMATION: The following table sets forth pro forma selected financial information of the Corporation and should be read in conjunction with the audited and unaudited statements of Revenue and Certain Expenses for the year ended December 31, 1995 and the six months ended June 30, 1996 and 1995, respectively, for Chico Crossroads Center, Ltd. and Miami Gardens 10 Associates and the notes thereto, and of the unaudited pro forma financial information of the Corporation contained herein. The following pro forma selected financial information is based on the unaudited pro forma statements of income for the six months ended June 30, 1996 and for the year ended December 31, 1995 respectively, and the unaudited pro forma balance sheet as of June 30, 1996 giving effect to the adjustments referred to in the notes to the unaudited pro forma statements of income and balance sheet. The data for the six months ended June 30, 1996 includes, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim period. See "Management's Discussion and Analysis of the Pro Forma Results of Operations and Pro Forma Financial Condition." The pro forma financial data has been prepared giving effect to the acquisition of the Properties, the assumption of the mortgage secured by the Gardens Square property and the issuance of common stock as described elsewhere in this Prospectus (see Note 1 to the pro forma financial data).
SIX MONTHS ENDED JUNE YEAR ENDED 30, 1996 DECEMBER 31, 1995 ------------- ----------------- (UNAUDITED) PRO FORMA OPERATING DATA Rental Income (excluding operating expense reimbursement).................... $ 1,525,432 $ 2,928,727 Pro Forma Net Income U.S. GAAP.................................................................. 536,164 930,764 CDN GAAP................................................................... 725,694 1,309,829 Pro Forma Funds From Operations (1).......................................... 859,888 1,578,212 Pro Forma Net Income Per Share (2)........................................... U.S. GAAP.................................................................. $.20 $.34 CDN GAAP................................................................... $.26 $.48 PRO FORMA BALANCE SHEET DATA Rental Properties............................................................ $ 30,998,500 Total Debt................................................................... 6,710,000 Stockholders' Equity......................................................... 24,906,000
- ------------------------ (1) Industry analysts generally consider funds from operations to be an appropriate measure of the performance of an equity REIT. Funds from operations is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of property plus amortization of real estate assets. Amortization of deferred financing costs and amortization of non real estate assets are not added back to net income to arrive at funds from operations. Funds from operations should not be considered as an alternative to net income as a measure of profitability nor is it comparable to cash flow provided by operating activities determined in accordance with generally accepted accounting principles. (2) The Pro Forma Net Income Per Share calculation assumes that no additional Common Stock was issued during the periods under the Corporation's intended dividend reinvestment plan or by the exercise of options to purchase 20,000 shares of Common Stock of the Corporation by Mr. Bernbaum or the exercise of options to purchase 10,000 shares of Common Stock by each of Messrs. Maynard, Thrall, Witterick, Peterson, Schwartz, McCrae, Kwinta and Dickerson. "See Management--Stock Option Plan." 11 RISK FACTORS This Prospectus contains forward looking statements which involve risks and uncertainties. The Corporation's actual results may differ significantly from the results discussed in the forward looking statements. Factors that might cause such a difference include, but are not limited to, those discussed below. An investment in the Common Stock involves various risks. Prospective investors should carefully consider the following information in conjunction with the other information contained in this Prospectus before purchasing Common Stock in the Offering. GENERAL RISKS LACK OF OPERATING HISTORY--Neither the Corporation nor the Advisor has any operating history. Except for the Properties the Corporation indicates it intends to acquire and describes in this Prospectus or in a supplement to this Prospectus, purchasers of Common Stock will not have an opportunity to evaluate the terms of any future transaction or the relevant economic or financial data affecting the future investments to be acquired by the Corporation. Moreover, the ability of the Corporation to accomplish its stated objectives and the timing of the receipt by stockholders of dividends are dependent upon the success and timing of management's acquisition of investments for the Corporation. There can be no assurance that the Properties will increase in value, or that income-producing properties will be available or can be acquired on economically attractive terms. DEPENDENCE ON TENANTS--The financial failure of a tenant could result in the termination of its lease which, in turn, might cause a reduction of the cash flow of the Corporation and/or decrease the value of the applicable property. If a tenant defaults on its lease payments, the Corporation would lose the net cash flow from such tenant, but might be able to use cash generated from other properties to meet the mortgage payments, if any, on the applicable property in order to prevent a foreclosure. If a lease is terminated, there can be no assurance that the Corporation will be able to re-lease the property (or portion thereof) for the rent previously received or sell the property without incurring a loss. The Corporation could also experience delays in enforcing its rights against tenants. The financial failure of a tenant could cause the tenant to become the subject of bankruptcy proceedings. Under bankruptcy law, a tenant has the option of continuing or terminating any unexpired lease. If the tenant terminates the lease, the Corporation's claim for damages resulting from the termination (absent collateral securing the claim) would be treated as a general unsecured claim. The amount of that claim would be capped at the amount owed for unpaid pre-petition lease payments unrelated to the termination, plus the greater of one year's lease payments or 15% of the remaining lease payments payable under the lease (but not to exceed the amount of three year's lease payments). INVESTMENT COMPANY ACT OF 1940--The Board of Directors intends to conduct the operations of the Corporation so that it will not be subject to regulation under the Investment Company Act of 1940, as amended. As a result, the Corporation may have to forego certain investments which could produce a more favorable return to the Corporation. If the Corporation fails to qualify for an exemption from registration as an investment company, it will be subject to numerous restrictions under the Investment Company Act. A failure to qualify for an exemption under the Investment Company Act could have a material adverse affect on the Corporation and its stockholders. RELIANCE ON MANAGEMENT--Stockholders will not have any active participation in the management of the Corporation or the investment of the proceeds of this Offering; rather, they must rely on the management and acquisition expertise provided by the Board of Directors of the Corporation and by the Advisor. Thus, no person should purchase any of the Common Stock offered hereby unless he is willing to entrust all aspects of the management of the Corporation to the Board of Directors and the Advisor. POSSIBLE CHANGES IN INVESTMENT OBJECTIVES AND POLICIES--Subject to limited restrictions in the Corporation's bylaws, the Amended and Restated Articles of Incorporation and applicable law, the Board of 12 Directors has significant discretion to modify the investment objectives and policies of the Corporation, as stated in this Prospectus. The exercise of such discretion could result in the Corporation adopting new investment objectives and policies which differ materially from those described in this Prospectus. FOREIGN INVESTMENT--An investment in the Common Stock by a non-U.S. investor will be subject to the risks associated with carrying on business in a foreign country, including the possibility of future changes in foreign control legislation, possible limitations on the amount of foreign currency that can be taken out of the country, possible currency exchange rate fluctuations or devaluations, possible changes in tax and rental laws and regulations, the possible expropriation of private property, war, riot, insurrection and acts of terrorism. GENERAL REAL ESTATE INVESTMENT RISKS Real property investments are subject to varying degrees of risk. Real estate values and the income generated from real estate investments may be affected by a number of factors, including changes in the general economic climate, local conditions (such as an oversupply of or a reduction in demand for certain types of real property in an area), the quality and philosophy of management, competition from other available space, the ability of the owner to provide adequate maintenance and insurance, and variable operating costs (including real estate taxes). Real estate values and the income from real properties are also affected by such factors as the costs associated with government regulations, interest rate levels, the availability of financing and potential liability under and changes in environmental and other laws. Since substantially all of the Corporation's income will be derived from rental income from real property, the Corporation's income would be adversely affected if the Corporation's tenants were unable to meet their obligations to the Corporation, or if the Corporation were unable to lease on economically favorable terms a significant amount of space in its properties. In the event of default by a tenant, the Corporation may experience delays in enforcing, and incur substantial costs to enforce, its rights as landlord. In addition, certain significant expenditures associated with ownership of real estate (such as mortgage payments, real estate taxes and maintenance costs) are generally not reduced when circumstances cause a reduction in income from the investment. Upon the expiration of leases, such leases may not be renewed, the space not relet or the terms of renewal or reletting (including rental rates, the costs of leasing commissions, required renovations or concessions to tenants) may be less favorable than current lease terms. If any or all of these events occur, the Corporation's cash flow from operations and ability to make expected distributions to stockholders could be adversely affected. The Corporation's cash flow from operations also would be adversely affected if tenants leasing a significant amount of space fail to pay rent if for any other reason, such rents could not be collected. Moreover, to the extent a tenant defaults on a lease, the Corporation may experience delays and costs in enforcing its rights as landlord. Further, the Corporation may be adversely affected by various facts and events over which the Corporation will have no control, such as a change in the demand in the markets in which the properties are located, the possible unavailability of prospective tenants and the possibility of economic or physical decline of the areas in which the properties are located or physical damage to the properties that would make them less attractive to tenants. OPERATING RISKS--The Properties will be subject to all operating risks common to shopping centers. Such risks include: competition from other shopping centers; excessive building of comparable properties or increases in unemployment in the areas in which the properties are located, either of which might adversely affect occupancy and/or rental rates; increases in operating costs due to inflation, increases in property taxes, increases in casualty insurance premiums and other factors, which increases may not necessarily be offset by increased rents; inability or unwillingness of lessees to pay rent increases; and future enactment of laws regulating public places, including present and possible future laws relating to access by disabled persons. If operating expenses increase, the local rental market may limit the extent to which rents may be increased to meet increased expenses without decreasing occupancy rates. If any of the 13 above occurred, the Corporation's ability to make distributions to holders of the Common Stock could be adversely affected. SIZE/LACK OF DIVERSITY OF INITIAL PORTFOLIO--At the conclusion of this Offering, the Corporation will have only the two Properties in its portfolio. Consequently, any event which negatively effects either of the Properties may have a negative impact on the Corporation and may adversely affect its ability to make distributions to holders of the Common Stock. ILLIQUIDITY OF REAL ESTATE--Equity real estate investments are relatively illiquid and therefore may tend to limit the ability of the Corporation to react promptly in response to changes in economic or other conditions. Further, the Code places limits on a REIT's ability to sell properties held for fewer than four years, which may affect the Corporation's ability to sell properties without adversely affecting returns to holders of the Common Stock. The Corporation intends to hold its properties as long-term investments and does not have any present intent to sell any of the Properties. EFFECT OF UNINSURED LOSS ON PERFORMANCE--The Corporation will carry comprehensive liability, fire, extended coverage and rental loss insurance with respect to its properties with policy specifications and insured limits customarily carried for similar properties. There are, however, certain types of losses (such as from wars, earthquakes, floods or windstorms, including without limitation, hurricanes) which may be either uninsurable or insurable only at costs which are not economically justifiable. Should an uninsured loss occur, the Corporation could lose both its invested capital in, and anticipated profits from, the property and would continue to be obligated to repay any recourse mortgage indebtedness on the property. RISKS OF ACQUISITION ACTIVITIES--The Corporation intends to pursue acquisitions of additional shopping centers. Acquisitions of additional properties and development activities entail risks that investments will fail to perform in accordance with expectations, as well as general risks associated with any new real estate investment. In addition, the fact that the Corporation must distribute 95% of its REIT taxable income in order to maintain its qualification as a REIT will limit its ability to rely upon lease income from the Properties to finance acquisitions. The Corporation anticipates that future acquisitions will be financed, in whole or in part, through equity issues and forms of secured or unsecured debt financing. Such financing may be available only on disadvantageous terms, if at all. If financing is not available on acceptable terms for new acquisitions, further acquisitions might be curtailed, cash available for distribution might be adversely affected and foreclosures on acquired properties could occur. Further, if any particular property is not successful, the Corporation's losses could exceed its investment in the property. COMPETITION--There are numerous developers and real estate companies that compete with the Corporation in seeking properties for acquisition and tenants for properties. The Corporation may be adversely affected by the fact that the availability of high quality properties for acquisition may diminish within the Corporation's markets and elsewhere. There can be no assurance that the Corporation will continue to acquire properties. In connection with the making of investments, the Corporation may experience significant competition from banks, insurance companies, savings and loan associations, mortgage bankers, pension funds, limited partnerships, other REITs and other entities with objectives similar to those of the Corporation and which may have greater financial resources or experience. An increase in the availability of funds for real estate investment may increase competition in the making of investments and may reduce the yields available to the Corporation. POSSIBLE ENVIRONMENTAL LIABILITIES--Under various U.S. Federal, state and local laws, ordinances and regulations relating to the protection of the environment (collectively, "Environmental Laws"), a current or previous owner or operator of real property may be liable for the cost of removal or remediation of certain hazardous or toxic substances disposed, stored, released, generated, manufactured or discharged from, on, at, onto, under or in such property. Environmental Laws often impose such liability without regard to whether the owner or operator knew of, or was responsible for, the presence or release of such 14 hazardous or toxic substances. In addition, the presence of any such substances or the failure to properly remediate such substances when present, released or discharged, may adversely affect the owner's ability to sell or rent such property or to borrow using such property as collateral. The cost of any required remediation and the liability of the owner or operator therefor as to any property is generally not limited under such Environmental Laws and could exceed the value of the property and/or the aggregate assets of the owner or operator. In addition to any action required by federal, state or local authorities, the presence of hazardous or toxic substances on any of the properties of the Corporation, or on any properties acquired hereafter, could result in plaintiffs bringing claims for personal injury or other causes of action. In connection with the ownership and operation of the properties of the Corporation, and on any properties acquired hereafter, the Corporation may be potentially liable for remediation, release or injury. Further, various Environmental Laws impose on owners or operators the requirement of on-going compliance with rules and regulations regarding business-related activities that may affect the environment. Failure to comply with such requirements could result in difficulty in the lease or sale of any affected property or the imposition of monetary penalties and fines in addition to the costs required to attain compliance. The Properties have been the subject of Phase I Environmental Assessments ("Phase I Assessments"). The Phase I Assessments did not reveal, nor is the Corporation aware of, any noncompliance with Environmental Laws, environmental liability or other environmental claim that the Corporation believes would likely have a material adverse affect on the Corporation's financial condition or results of operations. No assurance can be given that the Phase I Assessments revealed all potential environmental liabilities, that no prior owner or operator created any material adverse environmental condition not known to the Corporation or that no environmental liabilities have developed since the Phase I Assessments were prepared. AMERICANS WITH DISABILITIES ACT--The Properties and any additional acquisitions must comply with Title III of the Americans with Disabilities Act of 1990, as amended (the "ADA"). Compliance with ADA requirements could require removal of structural, architectural or communication barriers to disabled access and utilization in certain public areas of the Corporation's properties. Noncompliance could result in injunctive relief, imposition of fines or an award of damages to private litigants. The Corporation has not been notified by any regulatory authority of any noncompliance, claim or liability under the ADA or applicable state laws, nor has the Corporation been notified of any claim by a private litigant in connection with conditions at the Properties. The Corporation is not aware of any failure to comply with the ADA or applicable state law with respect to any of the Properties that management believes would have a material adverse effect on the Corporation's financial condition or results of operations. If changes are required to bring any of the Properties into compliance with the ADA, the Corporation's ability to make expected distributions could be adversely affected. The Corporation believes that its competitors face similar costs to comply with the requirements of the ADA. RISK OF LEVERAGE AND DEFAULT The Corporation will be subject to the risks normally associated with debt financing, including the risk that the Corporation's funds from operations will be insufficient to meet required payments of principal and interest, the risk that the Corporation will not be able to pay or refinance indebtedness on the Properties or that the terms of a refinancing will not be as favorable as the terms of existing indebtedness. If prevailing interest rates or other factors at the time of refinancing result in higher interest rates on refinancing, the Corporation's interest expense would increase, which would adversely affect the Corporation's funds from operations and its ability to make distributions to holders of the Common Stock. In addition, in the event the Corporation was unable to secure refinancing of such indebtedness on acceptable terms, the Corporation might be forced to dispose of properties upon disadvantageous terms, which might result in losses to the Corporation and might adversely affect the Corporation's funds from operations. In addition, if a property or properties are mortgaged to secure payment of indebtedness and the Corporation 15 is unable to meet mortgage payments, the property could be foreclosed upon by or otherwise transferred to the mortgagee with a consequent loss of income and asset value to the Corporation. POTENTIAL BORROWINGS TO MAKE DISTRIBUTIONS TO QUALIFY AS A REIT In order to qualify as a REIT, the Corporation generally will be required each year to distribute to its stockholders at least 95% of its net taxable income (excluding any net capital gain.) In addition, the Corporation shall be subject to a four percent non-deductible excise tax on the amount, if any, by which certain distributions paid by it with respect to any calendar year are less than the sum of (i) 85% of its ordinary income, (ii) 95% of its capital gains net income for that year and (iii) 100% of its undistributed taxable income from prior years. The Corporation intends to make distributions to stockholders to comply with the distribution provisions of the Code necessary to maintain qualification as a REIT and to avoid U.S. Federal income taxes and the non-deductible excise tax. Timing fluctuations in the receipt of income and the payment of expenses and the effect of required debt amortization payments, if any, may require the Corporation to borrow funds to meet the distribution requirements necessary to achieve the tax benefits associated with qualifying as a REIT, even if the Corporation's management believes that then prevailing market conditions are not generally favorable for such borrowings or that such borrowings would not be advisable in the absence of such tax considerations. JOINT VENTURE INVESTMENTS--RISKS OF CONFLICTING INTERESTS AND IMPASSE Under certain circumstances, the Corporation may participate with an entity in jointly acquiring an investment property. In every instance such joint ventures will be arm's-length transactions. Any joint venture investment of the Corporation would be subject to the same conditions, limitations and restrictions applicable to a Corporation investment not undertaken as a joint venture, and the use of a joint venture structure would not itself be designed to alter or expand the investment objectives and policies of the Corporation. However, investment through a joint venture could, for example, permit the Corporation to invest in a property which is too large for the Corporation to acquire by itself. The investment by the Corporation through a joint venture could subject the Corporation to risks not otherwise present, including: (i) the possibility that the joint venture participant will have economic interests different from the Corporation and that the participant might be in a position to take actions contrary to the instructions of the Corporation and contrary to the interests of the Corporation; and (ii) special tax risks (see "U.S. Federal Income Tax Considerations--Investments through Partnerships"). In addition, in joint venture investments there is a potential risk of impasse on decisions if neither joint venture partner controls the venture and a potential risk that if the Corporation has a right of first refusal to purchase the joint venture partner's interest, it may not have the resources to do so. U.S. FEDERAL INCOME TAX RISKS FAILURE TO ACHIEVE OR MAINTAIN REIT STATUS. The Corporation intends to conduct its operations in a manner that will permit it to qualify as a REIT for U.S. Federal income tax purposes, commencing with its taxable year ending December 31, 1997. The Corporation has not requested, and does not expect to request, a ruling from the IRS that it will qualify as a REIT. Qualification as a REIT involves the application of technical and complex provisions of the Code for which there are only limited judicial or administrative interpretations. The determination of various factual matters and circumstances not entirely within the Corporation's control may affect its ability to qualify as a REIT, including default by a lessee under, and a termination of, a lease. In addition, no assurance can be given that new legislation, regulations, administrative interpretations or court decisions will not significantly change the rules applicable to the Corporation with respect to its qualification as a REIT, the U.S. Federal income tax consequences of such qualification or the treatment of Canadian residents under the Treaty and Protocol. 16 The Corporation believes that based upon an opinion of Schnader Harrison Segal & Lewis it will so qualify. The REIT qualification opinion represents only the view of counsel to the Corporation based on counsel's review and analysis of existing law, and upon certain assumptions and representations described in "U.S. Federal Income Tax Considerations," that the Corporation will qualify as a REIT under the Code commencing with its taxable year ending December 31, 1997. Investors should be aware, however, that opinions of counsel are not binding on the IRS or the courts. Both the opinion and the continued qualification of the Corporation as a REIT will depend on the Corporation's continuing ability to meet various requirements (some on an annual and quarterly basis) concerning, among other things, the ownership of its outstanding shares of Common Stock, the nature of its assets, the sources of its income and the amount of its distributions to stockholders. If in any taxable year the Corporation were to fail to qualify as a REIT, the Corporation would not be allowed a deduction for distributions to stockholders in computing its taxable income and would be subject to U.S. Federal income tax (including any applicable minimum tax) on its taxable income at regular corporate rates. Moreover, unless entitled to relief under certain Code provisions, the Corporation also would be disqualified from treatment as a REIT for the four taxable years following the year in which such qualification was lost, and if the Corporation subsequently requalified as a REIT, it might be required to pay a full corporate-level tax on any unrealized gain in its assets as of the date of requalification and to make distributions at the time equal to any earnings accumulated during the period of non-REIT status. As a result, such additional taxes would reduce the funds available for distribution to stockholders for each of the years involved. In addition, during the period in which the Corporation has lost its REIT status, the Corporation would no longer be required by the Code to make any distributions to stockholders. Although the Corporation intends to operate in a manner designed to qualify as a REIT, it is possible that: (i) future economic, market, legal, tax or other considerations may cause the Corporation, with the consent of the holders of a majority of the votes cast at a meeting of the holders of Common Stock of the Corporation, to revoke the election for the Corporation to be taxed as a REIT; or (ii) the Corporation will fail to qualify as a REIT and its election to be taxed as a REIT will be terminated by such failure. See "U.S. Federal Income Tax Consequences--Taxation of the Corporation--General." LIMITATIONS ON CHANGES IN CONTROL OWNERSHIP LIMIT--In order to protect its status as a REIT, the Corporation must satisfy certain conditions including the condition that no more than 50% in value of the outstanding Common Stock may be owned, directly or indirectly, by five or fewer individuals during the last half of a taxable year (other than the first year) or during a proportionate part of a shorter taxable year (the "Five or Fewer Test"). The Five or Fewer Test is applied using certain constructive ownership and attribution rules of the Code. To this end, the Corporation's Amended and Restated Articles of Incorporation, among other things, prohibit any holder from owning more than 9.5% of the Corporation's outstanding Common Stock without the consent of the Board of Directors of the Corporation. This limitation may have the effect of precluding acquisition of control of the Corporation by a third party without the consent of the Board of Directors of the Corporation even when such a change in control could be beneficial to the Corporation's stockholders. PREFERRED STOCK--The Amended and Restated Articles of Incorporation authorize the Board of Directors to issue preferred stock and to establish the preferences and rights of any shares issued. The issuance of preferred stock could have the effect of delaying or preventing a change of control of the Corporation, even if a change in control were in the stockholders' interest. No such shares will be issued or outstanding as of the closing of the Offering. CONTROL SHARE ACQUISITIONS--Under the Maryland General Corporation Law (the "MGCL"), "control shares" acquired in a "control share acquisition" have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter. The bylaws of the Corporation provide that the Corporation has elected not to be governed by the control share acquisition provisions of the MGCL. 17 MARYLAND BUSINESS COMBINATION STATUTE--Under the MGCL, certain business combinations between a Maryland corporation and any person or affiliate thereof who is the beneficial owner of ten percent or more of the voting power of the Corporation's shares (an "Interested Shareholder") are prohibited for five years after the most recent date on which the Interested Shareholder became an Interested Shareholder. Thereafter, the business combination must be approved by the affirmative vote of at least (i) 80% of the votes entitled to be cast by holders of outstanding voting shares of the Company and (ii) 66 2/3% of the vote entitled to be cast by holders of outstanding voting shares held by persons other than the Interested Shareholder with whom the business combination is to be effected, subject to certain exceptions. The Amended and Restated Articles of Incorporation of the Corporation provide that the Maryland Business Combination provisions of the MGCL do not apply to the Corporation. RESPONSIBILITIES OF DIRECTORS AND ADVISOR--POSSIBLE INADEQUACY OF REMEDIES The Advisor and the directors of the Corporation are accountable to the Corporation and its stockholders as fiduciaries and consequently must exercise good faith and integrity in handling the Corporation's affairs. However, the MGCL and the Amended and Restated Articles of Incorporation of the Corporation exculpate each director in certain actions by or in the right of the Corporation from liability unless the director has (i) breached his duty of loyalty to the Corporation; (ii) has engaged in an act or omission not in good faith or which involved intentional misconduct or a knowing violation of law; or (iii) has engaged in any transaction from which the director derived an improper personal benefit. Further, the Advisory Agreement exculpates the Advisor from liability unless the Advisor has engaged in gross negligence or willful misconduct. The Advisory Agreement also provides that the Corporation will indemnify a present or former director and the Advisor against expense or liability in an action if the directors (other than the indemnified party) determine in good faith that the person to be indemnified was acting in good faith within what he or it reasonably believed to be the scope of his or its authority and for a purpose which is or reasonably believed to be in the best interests of the Corporation or its stockholders and that such liability was not the result of reckless disregard of duties or a violation of the criminal law on the part of the person to be indemnified. As a result of the exculpation and indemnification provisions of the Corporation's Amended and Restated Articles of Incorporation and the Advisory Agreement, a stockholder may have a more limited right of action than he would otherwise have had in the absence of such provisions. The exculpation and indemnification provisions in the Amended and Restated Articles of Incorporation and the Advisory Agreement have been adopted to help induce the beneficiaries of such provisions to agree to serve on behalf of the Corporation or the Advisor by providing a degree of protection from liability for alleged mistakes in making decisions and taking actions. Such exculpation and indemnification provisions have been adopted, in part, in response to a perceived increase generally in stockholders' litigation alleging director misconduct. The Corporation intends to purchase insurance policies under which directors, officers and other agents of the Corporation will be insured against liability or loss arising out of actual or asserted misfeasance or nonfeasance in the performance of their duties, to the extent such insurance is available at reasonable rates. ADVISOR MAY PURCHASE SHARES The Advisor, the Promoters, their principals and officers may purchase shares in the Offering, subject to the restrictions on accumulation of Common Stock contained in the Corporation's Amended and Restated Articles of Incorporation, which generally prohibit accumulation by any person or entity of more than 9.5% of all of the Corporation's outstanding Common Stock. In addition to the foregoing, the Corporation has adopted a stock option plan for the benefit of the directors and officers of the Corporation (see "Management - Stock Option Plan"). The aggregate number 18 of shares of Common Stock of the Corporation reserved for issuance under the plan is 250,000 shares of Common Stock. DILUTION The Board of Directors is authorized, without stockholder approval, to issue additional Common Stock of the Corporation or to raise capital through the issuance of shares, options, warrants and other rights, on such terms and at such prices as the Board of Directors in its sole discretion may in good faith determine. Any such issuance could result in dilution of the equity of the stockholders of the Corporation. The Corporation has adopted a stock option plan for the benefit of the directors and officers of the Corporation (see "Management--Stock Option Plan"). The effect of the exercise of such options could be to dilute the value of the stockholders' investments to the extent of any difference between the exercise price of an option and the value of the Common Stock purchased at the time of the exercise of the option. Further, the Corporation may in the future seek to raise additional capital to acquire additional properties. Issuance of securities for this purpose may also result in dilution of the equity of the stockholders. BENEFITS FROM FORMATION OF CORPORATION AND THE OFFERING Ronald L. Bernbaum will realize certain benefits from the formation of the Corporation and the Offering. He owns 100 shares of Common Stock of the Corporation prior to completion of the Offering, for which he paid $1,000. COMPENSATION TO AFFILIATES The Advisor will receive substantial compensation from the Corporation in exchange for various services it has agreed to render to the Corporation. (See "Management--The Advisor--Fees and Expenses"). This compensation has been established without the benefit of arm's-length negotiation, and the payment of such compensation from proceeds of the Offering and property revenues will reduce the amount of proceeds available for investment in properties or the cash available for dividends, and will therefore reduce the return on stockholders' investments. In addition, such compensation is generally payable regardless of Corporation profitability, and is generally payable prior to, and without regard to whether the Corporation has sufficient cash for, distribution of dividends. CONFLICTS OF INTEREST The affiliates of the Advisor and the Promoters will be subject to various conflicts of interest in their dealings with the Corporation. Generally, such conflicts of interest arise because certain directors and officers of the Corporation (i) are also principals in other companies which will enter into contracts with the Corporation (principally for asset management and property management, acquisition and disposition services); and (ii) are, and will in the future be, principals in other real estate investment programs which may compete with the Corporation. Other possible transactions involving conflicts of interest would include the Corporation's acquisition of properties from any of the affiliates (or any of their affiliates) and the Corporation borrowing from any of the affiliates (or any of their affiliates). Although the Advisory Agreement contains certain policies and procedures designed to eliminate or ameliorate the effects of potential conflicts of interest, certain potential conflicts of interest are not easily susceptible to resolution, and stockholders will bear the risks associated with such potential conflicts. In general, if a person with responsibilities both to the Corporation and to an entity contracting with the Corporation, or both to the Corporation and to a program in competition with the Corporation, were to resolve a potential conflict of interest in such dual capacity against the interest of the Corporation, the operation of the Corporation could be adversely affected. 19 RESTRICTIONS ON TRANSFER AND LIMITATION ON OWNERSHIP OF COMMON STOCK For the Corporation to qualify as a REIT in any taxable year (other than the first year for which the Corporation elects to be taxed as a REIT), no more than 50% in value of its outstanding capital stock may be owned directly, or indirectly by attribution, by five or fewer stockholders at any time during the second half of the Corporation's taxable year. As a result of the Revenue Reconciliation Act of 1993 (U.S.), under certain circumstances the owners of U.S. pension funds and certain other tax exempt entities are deemed to be the stockholders of the REIT for purposes of this ownership test. In addition (other than the first year for which the Corporation elects to be treated as a REIT), the outstanding stock must be owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportional part of a shorter taxable year. To help ensure compliance with the share ownership requirements applicable to REITs, the Corporation's Amended and Restated Articles of Incorporation contains restrictions on transfer of its Common Stock and certain specific exceptions to these restrictions. These restrictions require the Board of Directors to refuse to transfer Common Stock to any person or entity if as a result of a transfer such person or entity would beneficially own Common Stock in excess of 9.5% of the lesser of the aggregate number or value of the outstanding Common Stock ("Excess Stock"), or to hold the Excess Stock in trust without dividends or voting rights, until the Excess Stock is acquired by an eligible person for the lesser of the transfer price or the market price. These provisions may inhibit market activity and the resulting opportunity for holders of the Common Stock to realize a premium for their Common Stock that might otherwise exist if a holder of the Common Stock were attempting to assemble a block of Common Stock in excess of 9.5% of the lesser of the aggregate number or value of the outstanding Common Stock. Also, there can be no assurance that these provisions will in fact prevent the Corporation from failing to meet the share ownership requirements. These provisions would also make the Common Stock an unsuitable investment for any person or entity seeking to obtain ownership of more than 9.5% of the lesser of the aggregate number or value of the outstanding Common Stock. SHARES OF COMMON STOCK AVAILABLE FOR FUTURE SALE Sales of substantial amounts of Common Stock of the Corporation (including shares issued upon the exercise of stock options), or the perception that sales could occur, could adversely affect the prevailing market price for the Common Stock. The Corporation and its directors and officers have agreed, subject to certain limited exceptions, not to offer, sell, contract to sell or otherwise dispose of any Common Stock for a period of ninety days after the date of this Prospectus. NO PRIOR MARKET FOR COMMON STOCK Prior to the Offering, there has been no public market for the Common Stock. Although it is a condition to the Closing that the Common Stock be listed on an United States Stock Exchange which is a "prescribed stock exchange" for the purposes of the Income Tax Act (Canada) and which is either registered under the Securities Exchange Act or is listed on an "over-the-counter market" within the meaning of applicable United States federal income tax regulations, there can be no assurance that an active trading market will develop. There also can be no assurances that, upon listing on an United States Stock Exchange, the Corporation will continue to meet the criteria for continued listing of the Common Stock on such Exchange. In addition, the initial public offering price may not be indicative of the market price for the Common Stock after the Offering. The initial public offering price of the Common Stock was determined by negotiation between the Agents and the Corporation. EFFECT OF MARKET INTEREST RATES ON PRICE OF COMMON STOCK One of the factors that may influence the price of the Corporation's Common Stock in public markets will be the annual yield on the price paid for shares from distributions by the Corporation. Thus, an 20 increase in market interest rates may lead purchasers of Common Stock to demand a higher annual yield, which could adversely affect the market price of the Common Stock. ENFORCING RIGHTS AGAINST FOREIGN CORPORATION, DIRECTORS AND OFFICERS Certain directors and officers of the Corporation and certain other persons, who may be subject to the civil liability provisions of the Securities Act (Ontario), the Securities Act (Alberta) and the Securities Act (British Columbia) for a misrepresentation contained in this Prospectus will be resident or located outside Canada and it may not be possible to effect service of process upon such persons in Canada. All or a substantial portion of the assets of the Corporation and certain of its directors and officers and certain other persons, which parties may be subject to the civil liability provisions of the Securities Act (Ontario), the Securities Act (Alberta) and the Securities Act (British Columbia) for a misrepresentation contained in the Prospectus, will be located outside Canada and there may be difficulties in enforcing against the Corporation and the said directors and officers and other certain persons the civil liability provisions of the Securities Act (Ontario), the Securities Act (Alberta) and the Securities Act (British Columbia) for any misrepresentation that may be contained in this Prospectus. Ronald Bernbaum has been appointed agent for the Corporation for service of process in Canada at 2235 Sheppard Avenue East, Suite 904, Willowdale, Ontario. USE OF PROCEEDS The net proceeds to the Corporation from the sale of the 2,740,000 shares offered hereby are estimated to be $24,905,000 after deduction of the Agents' commissions ($2,055,000) and estimated expenses of the Offering ($440,000). The Corporation will use the net proceeds of the Offering, after deducting Agents' commissions and expenses of the Offering, to acquire the Properties on Closing (including the repayment of deposits advanced by the Promoters or the Advisor and the payment of acquisition costs) to pay mortgage assumption and financing fees, the acquisition fees to the Advisor (in the amount of $455,438), and for working capital. The following table sets forth an allocation of the use of net proceeds. The principal amount of the mortgage and the acquisition expenses are estimates and any increase or reduction will result in an increase or reduction in the proceeds available for working capital. Until required, proceeds allocated to working capital will be invested by the Corporation in Authorized Investments.
ESTIMATED ACQUISITION FEES PROPERTIES PURCHASE PRICE MORTGAGE AND EXPENSES USE OF PROCEEDS - --------------------------------------------------- -------------- ---------- --------------- --------------- Chico Crossroads Center........................................... $ 20,912,500 -- $ 420,000 $ 21,332,500 Gardens Square..................................... 9,450,000 6,710,000 216,000 2,956,000 Estimated Mortgage Assumption and Financing Fees................................... 68,000 Working Capital.................................... 548,500 --------------- NET PROCEEDS....................................... $ 24,905,000 --------------- ---------------
21 CAPITALIZATION The pro forma capitalization of the Corporation as at September 30, 1996, and as adjusted to reflect the purchase of the Properties, the assumption of the mortgage secured by the Gardens Square property, the issuance and sale of the Common Stock pursuant to an assumed public offering price of $10.00 per share, after deducting the estimated Agents' commissions and offering expenses payable by the Corporation, is as follows:
ACTUAL PRO FORMA SEPTEMBER 30, 1996 AS ADJUSTED ------------------- ------------- Mortgage Payable............................................................... $ 6,710,000 ------------- STOCKHOLDERS' EQUITY Common Stock, $.01 par value per share; 100 million shares authorized; 100 shares issued and outstanding (immediately prior to the Offering) 2,740,100 shares issued and outstanding as adjusted (1)................................................................. $ 1 27,401 Excess Stock, $.01 par value per share, 50 million shares authorized, none issued or outstanding.................................................................. Preferred Stock, $.01 par value per share, 1,500,000 shares authorized, none issued or outstanding........................................................ Additional paid in capital (2)................................................. 999 24,878,599 ------ ------------- TOTAL STOCKHOLDERS' EQUITY 1,000 24,906,000 ------ ------------- Total.......................................................................... $ 1,000 $ 31,616,000 ------ ------------- ------ -------------
- ------------------------ (1) Excludes 250,000 shares of Common Stock reserved for issuance under the Corporation's 1996 Stock Option Plan, of which 100,000 shares were subject to outstanding options as of September 25, 1996 at an exercise price of $10 per share. (2) Agents' commissions and expenses of the issuance of $2,495,000 have been deducted from additional paid in capital. 22 PRO FORMA SELECTED FINANCIAL INFORMATION The following table sets forth pro forma selected financial information of the Corporation and should be read in conjunction with the audited and unaudited statements of Revenue and Certain Expenses for the year ended December 31, 1995 and the six months ended June 30, 1996 and 1995 respectively, for Chico Crossroads Center, Ltd. and Miami Gardens Associates and the notes thereto, and of the unaudited pro forma financial information of the Corporation contained herein. The following pro forma selected financial information is based on the unaudited pro forma statements of income for the six months ended June 30, 1996 and for the year ended December 31, 1995 and the unaudited pro forma balance sheet as of June 30, 1996 giving effect to the adjustments referred to in the notes to the unaudited pro forma statements of income and balance sheet. The data for the six months ended June 30, 1996 includes, in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair statement of the results for the unaudited interim period. See "Management's Discussion and Analysis of the Pro Forma Results of Operations and Pro Forma Financial Condition." The pro forma financial data has been prepared giving effect to the acquisition of the Properties, the assumption of the mortgage secured by the Gardens Square property and the issuance of Common Stock as described elsewhere in this Prospectus (see note 1 to the pro forma financial data).
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 ------------- ----------------- (UNAUDITED) PRO FORMA OPERATING DATA Rental Income (excluding operating expense reimbursement)..................................................... $ 1,525,432 $ 2,928,727 Pro Forma Net Income U.S. GAAP.................................................................. 536,164 930,764 CDN GAAP................................................................... 725,694 1,309,829 Pro Forma Funds From Operations (1).......................................... 859,888 1,578,212 Pro Forma Net Income Per Share (2) U.S. GAAP.................................................................. $ .20 $ .34 CDN GAAP................................................................... $ .26 $ .48 PRO FORMA BALANCE SHEET DATA Rental Properties............................................................ $ 30,998,500 Total Debt................................................................... 6,710,000 Stockholders' Equity......................................................... $ 24,906,000
- ------------------------ (1) Industry analysts generally consider funds from operations to be an appropriate measure of the performance of an equity REIT. Funds from operations is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of property plus amortization of real estate assets. Amortization of deferred financing costs and amortization of non real estate assets are not added back to net income to arrive at funds from operations. Funds from operations should not be considered as an alternative to net income as a measure of profitability nor is it comparable to cash flow provided by operating activities determined in accordance with generally accepted accounting principles. (2) The Pro Forma Net Income Per Share calculation assumes that no additional Common Stock was issued during the periods under the Corporation's intended dividend reinvestment plan or by the exercise of options to purchase 20,000 shares of Common Stock of the Corporation by Mr. Bernbaum or the exercise of options to purchase 10,000 shares of Common Stock by each of Messrs. Maynard, Thrall, Witterick, Peterson, Schwartz, McCrae, Kwinta and Dickerson. "See Management--Stock Option Plan." 23 UNAUDITED PRO FORMA FINANCIAL DATA BASIC U.S. REIT, INC. PRO FORMA STATEMENT OF INCOME YEAR ENDED DECEMBER 31, 1995 (UNAUDITED)
HISTORICAL -------------------------- PRO FORMA CHICO GARDENS PRO FORMA BASIC U.S. CROSSROADS SQUARE ADJUSTMENTS NOTES REIT, INC. ------------ ------------ ------------ ----- ------------ Revenue Rental........................................ $ 2,014,435 $ 904,292 $ 10,000 2(a) $ 2,928,727 Operating expense reimbursement............... 377,749 316,745 54,000 2(b) 748,494 Other......................................... 5,500 10,542 15,000 2(c) 31,042 ------------ ------------ ------------ ------------ 2,397,684 1,231,579 79,000 3,708,263 ------------ ------------ ------------ ------------ Operating Expenses Rental........................................ 186,136 235,534 21,000 2(d) 442,670 Real estate taxes............................. 248,214 139,711 107,000 2(e) 494,925 Amortization.................................. 647,448 2(f) 647,448 Asset management fees......................... 373,575 2(g) 373,575 General and administration.................... 280,000 2(h) 280,000 ------------ ------------ ------------ ------------ 434,350 375,245 1,429,023 2,238,618 ------------ ------------ ------------ ------------ Excess of revenue over certain expenses......... $ 1,963,334 $ 856,334 1,350,023 1,469,645 ------------ ------------ ------------ ------------ Interest expense................................ 538,881 2(i) 538,881 ------------ ------------ Net Income...................................... $ 1,888,904 $ 930,764 ------------ ------------ ------------ ------------ Pro forma net income per share.................. 2(j) $ 0.34 ------------ ------------ Weighted average number of shares............... 2,740,100 ------------ ------------
24 BASIC U.S. REIT, INC. PRO FORMA STATEMENT OF INCOME SIX MONTHS ENDED JUNE 30, 1996 (UNAUDITED)
HISTORICAL ------------------------ PRO FORMA CHICO GARDENS PRO FORMA BASIC U.S. CROSSROADS SQUARE ADJUSTMENTS NOTES REIT, INC. ------------ ---------- ----------- ----- ------------ Revenue Rental.......................................... $ 1,053,744 $ 466,688 $ 5,000 2(a) $ 1,525,432 Operating expense reimbursement................. 209,000 159,400 27,000 2(b) 395,400 Other........................................... 1,820 7,500 2(c) 9,320 ------------ ---------- ----------- ------------ 1,262,744 627,908 39,500 1,930,152 ------------ ---------- ----------- ------------ Operating Expenses Rental.......................................... 94,000 111,000 10,500 2(d) 215,500 Real estate taxes............................... 138,000 70,000 53,500 2(e) 261,500 Amortization.................................... 323,724 2(f) 323,724 Asset management fees........................... 186,788 2(g) 186,788 General and administration...................... 140,000 2(h) 140,000 ------------ ---------- ----------- ------------ 232,000 181,000 714,512 1,127,512 ------------ ---------- ----------- ------------ Excess of revenue over certain expenses........... $ 1,030,744 $ 446,908 675,012 802,640 ------------ ---------- ------------ ---------- Interest expense.................................. 266,476 2(i) 266,476 ----------- ------------ Net Income........................................ $ 941,488 $ 536,164 ----------- ------------ ----------- ------------ Pro forma net income per share.................... 2(j) $ 0.20 ------------ ------------ Weighted average number of shares................. 2,740,100 ------------ ------------
25 BASIC U.S. REIT, INC. PRO FORMA BALANCE SHEET AS AT JUNE 30, 1996 (UNAUDITED) ASSETS Cash........................................................................... $ 549,500 Rental properties (Note 3(a)).................................................. 30,998,500 Deferred financing costs (Note 3(b))........................................... 68,000 ---------- $31,616,000 ---------- ---------- LIABILITIES AND STOCKHOLDERS' EQUITY Mortgage payable (Note 3(b))................................................... $6,710,000 ---------- Stockholders' Equity (Note 3(c)) Preferred Stock $0.01 par value Authorized 1,500,000 Issued None Excess Stock $0.01 par value Authorized 50,000,000 Issued None Common Stock, $0.01 par value Authorized 100,000,000 Issued 2,740,100........................................................... 27,401 Additional paid in capital................................................... 24,878,599 ---------- 24,906,000 ---------- $31,616,000 ---------- ----------
26 BASIC U.S. REIT, INC. NOTES TO PRO FORMA STATEMENTS OF INCOME AND PRO FORMA BALANCE SHEET (UNAUDITED) 1. BASIS OF PRESENTATION The pro forma statements of income have been prepared in U.S. dollars by management from the separate audited statements of revenue and certain expenses for the properties to be acquired from Chico Crossroads Center, Ltd. and Miami Gardens Associates known as Chico Crossroads and Gardens Square, respectively (the "Properties") for the year ended December 31, 1995 and the unaudited statements of revenue and certain expenses for the six months ended June 30, 1996 giving effect to the acquisition of the Properties, the assumption of the mortgage secured by the Gardens Square property and the issuance of Common Stock as though these transactions had been completed on January 1, 1995 and January 1, 1996, respectively. The Corporation had no operations during the periods. The pro forma balance sheet has been prepared in U.S. dollars giving effect to the acquisition of the Properties, the assumption of the mortgage secured by the Gardens Square property and the issuance of Common Stock as though these transactions had been completed on June 30, 1996. The Corporation's cash of $1,000 and stockholder's equity of $1,000 at the date of incorporation have also been included. The pro forma financial statements are not necessarily indicative of what the Corporation's financial position or results of operations would have been assuming the completion of the transactions on such date or at the beginning of the periods indicated, nor do they purport to project the Corporation's financial position or results of operations at any future date or for any future period. These statements should also be read in conjunction with the description of the transactions and financial statements appearing elsewhere in this Prospectus. It is the intention of the Corporation to distribute a minimum of 100% of its taxable income to stockholders and to qualify as a REIT for U.S. tax purposes. 2. PRO FORMA STATEMENTS OF INCOME The pro forma statements of income include the following adjustments: a) rental revenue has been increased to reflect the calculation of straight line rents as though the acquisitions were completed on January 1, 1995 and January 1, 1996, respectively; b) operating expense reimbursement has been increased by the portion of the realty tax increase (resulting from the acquisitions of the Properties by the Corporation) that can be collected from existing tenants (see note 2(e)); c) other income has been increased to reflect interest the Corporation would have earned during the period through the investment of available cash; d) rental expense has been increased by the proposed increase in property management fees; e) real estate taxes have been increased to reflect the maximum increase resulting from the acquisitions of the Properties by the Corporation; f) amortization expense includes (i) amortization of the buildings acquired calculated on a straight line basis over the estimated useful lives of 40 years; and (ii) amortization of land improvements acquired calculated on a straight line basis over the estimated useful lives of 20 years; 27 BASIC U.S. REIT, INC. NOTES TO PRO FORMA STATEMENTS OF INCOME (CONTINUED) AND PRO FORMA BALANCE SHEET (UNAUDITED) 2. PRO FORMA STATEMENTS OF INCOME (CONTINUED) g) asset management fees have been calculated in accordance with the Advisory Agreement at 1.5% of the net proceeds received by the Corporation from the Offering; h) general and administration costs include the estimated costs of operating the Corporation, including legal, accounting, reporting and directors' expenses. Management has obtained quotations from service providers with respect to these services; i) interest expense includes interest related to the mortgage financing and amortization of deferred financing costs referred to in Note 3b; and j) pro forma net income per share has been calculated on the assumption that additional Common Stock was not issued during the periods. The issuance of Common Stock under the dividend reinvestment plan or by exercising options granted to certain individuals to purchase common stock would not have had a material impact on the calculation of pro forma net income per share. 3. PRO FORMA BALANCE SHEET The pro forma balance sheet gives effect to the acquisition of the Properties, the assumption of the mortgage secured by the Gardens Square property and the issuance of Common Stock as follows: a) ACQUISITIONS OF PROPERTIES The Properties will be purchased at a total cost of $30,998,500 including acquisition fees and expenses of $636,000 of which $455,438 is payable to Basic Advisors, Inc. in accordance with the Advisory Agreement; b) ASSUMPTION OF MORTGAGE The Corporation will assume the mortgage payable secured by the Gardens Square property in the amount of $6,710,000. The mortgage bears interest at a rate of 7.94% per annum, which is assumed to approximate current market rates at the Closing of the Offering, and is due on December 21, 2002 with monthly payments based on a 25 year amortization. The Corporation will be required to pay a mortgage assumption fee of approximately $68,000 which will be amortized over the remaining term of the mortgage; and c) ISSUANCE OF COMMON STOCK Upon completion of the Offering Stockholders' Equity will consist of the following:
NUMBER OF SHARES PROCEEDS ---------- ------------- At date of incorporation.......................................... 100 $ 1,000 Completion of offering............................................ 2,740,000 27,400,000 Agents' fees and costs of issue................................... (2,495,000) ---------- ------------- 2,740,100 $ 24,906,000 ---------- ------------- ---------- -------------
28 BASIC U.S. REIT, INC. NOTES TO PRO FORMA STATEMENTS OF INCOME (CONTINUED) AND PRO FORMA BALANCE SHEET (UNAUDITED) 4. RECONCILIATION TO CANADIAN GENERALLY ACCEPTED ACCOUNTING PRINCIPLES The pro forma statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in the United States ("U.S.") which are, in all material respects, consistent with Canadian GAAP except that amortization of the buildings over the useful lives of 40 years would be calculated on a sinking fund basis under Canadian GAAP using a compound rate of 5% per annum. This difference would have resulted in a reduction of amortization expense and an increase in pro forma net income in the amount of $379,065 for the year ended December 31, 1995 ($189,530 for the six months ended June 30, 1996). Pro forma net income per share under Canadian GAAP would have been $.48 for the year ended December 31, 1995 ($.26 for the six months ended June 30, 1996). 29 BASIC U.S. REIT, INC. ESTIMATED TWELVE MONTH PRO FORMA STATEMENT OF TAXABLE NET OPERATING INCOME AND OPERATING FUNDS AVAILABLE YEAR ENDED DECEMBER 31, 1995 (UNAUDITED) The following unaudited statement is a pro forma estimate for a twelve month period of taxable income and funds available from operation of the Corporation. This statement does not purport to forecast actual operating results for any period in the future. This statement is based on the pro forma statements previously presented and should be read in conjunction with the audited statements of Revenue and Certain Expenses for the year ended December 31, 1995 for Chico Crossroads Center, Ltd. and Miami Gardens Associates and the notes thereto. ESTIMATE OF TAXABLE NET OPERATING INCOME: Pro forma net income.......................................................... $ 930,764 Net adjustment for tax basis rental revenue recognition (Note 1).............. (36,600) --------- Pro forma taxable income before allocation for dividends deduction............ 894,164 Estimated dividends deduction................................................. (894,164) --------- Pro forma taxable net operating income........................................ $ 0 --------- --------- ESTIMATE OF OPERATING FUNDS AVAILABLE: Pro forma taxable income before allocation for dividends deduction............ $ 894,164 Add pro forma amortization of real estate assets and deferred financing costs....................................................................... 657,034 --------- Estimated pro forma operating funds available (Note 2)........................ $1,551,198 --------- ---------
- ------------------------ (1) Represents the net adjustment to reverse the effect of rental revenue recognition on a straight line basis. (2) Operating funds available does not represent cash generated from operating activities in accordance with generally accepted accounting principles and is not necessarily indicative of cash available to fund cash needs. 30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE PRO FORMA RESULTS OF OPERATIONS AND PRO FORMA FINANCIAL CONDITION OVERVIEW The Corporation was incorporated on July 30, 1996 under the laws of the State of Maryland and intends to qualify as a real estate investment trust under the United States federal tax laws. The Corporation has been formed to engage in the business of investing in a diversified portfolio of income producing commercial real property throughout the United States, focusing initially on neighborhood and community shopping centers with nationally recognized anchor tenants. The Corporation has not conducted operations prior to the closing of the Offering and the acquisition of the Properties and accordingly had no revenues during the last two fiscal years. See "Business" for a general discussion of the plan of operation of the Corporation, including without limitation, discussion of the Properties, acquisition of the Properties and the Corporation's relationship with the Advisor. Management believes that the Corporation, after receiving the net proceeds from the Offering, will be able to satisfy its cash requirements for the next twelve months without having to raise additional funds. The following discussions are based on the unaudited Pro Forma Statements of Income for the six months ended June 30, 1996 and for the year ended December 31, 1995 and the unaudited Pro Forma Balance Sheet, as at June 30, 1996 giving effect to the adjustments referred to in the Notes to the unaudited Pro Forma Statements of Income and Pro Forma Balance Sheet. As at June 30, 1996, Chico Crossroads Center and Gardens Square (the "Properties") on a combined average basis were 98.3% leased, essentially unchanged from December 31, 1995. Over 83% of the gross leasable area of the Properties is leased to tenants whose leases expire between the years 2007 and 2015. As of January 1, 1996, minimum future rental payments exclusive of percentage rents, operating expense reimbursements, Consumer Price Index ("CPI") increases and assuming that none of the lease renewal options are exercised, are in excess of $36,195,000. RESULTS OF OPERATIONS The retail leases for the Properties provide for minimum rents with periodic increases. The retail tenants at the Properties pay a majority of the on-site operating expenses. The following is an analysis of operating expenses which were not recovered at Chico Crossroads Center and Gardens Square during the six months ended June 30, 1996 and the year ended December 31, 1995.
SIX MONTHS ENDED YEAR ENDED JUNE 30, 1996 DECEMBER 31, 1995 ----------------- ----------------- CHICO CROSSROADS CENTER Management Fees....................................... $ 14,500 $ 36,000 Municipal Assessment.................................. 7,700 15,460 Operating expenses related to vacant space............ 800 5,141 ------- -------- 23,000 56,601 ------- -------- GARDENS SQUARE Management Fees....................................... 2,800 5,400 Expenses absorbed by Landlord......................... 8,000 23,300 Operating expenses related to vacant space............ 10,800 29,800 ------- -------- 21,600 58,500 ------- -------- $ 44,600 $ 115,101 ------- -------- ------- --------
31 Real estate tax authorities are expected to reassess the Properties as a result of the acquisition by the Corporation. Management has calculated the maximum impact of a reassessment based on the purchase price of each property. Over 50% of the increase will be passed through to the tenants in accordance with their leases. The following is a summary of the maximum increase in real estate taxes and the portion which can be recovered as a result of the acquisition of the Properties by the Corporation:
ANNUAL INCREASE RECOVERABLE IN REAL ESTATE PORTION OF TAXES (1) INCREASE --------------- ----------------- Chico Crossroads Center.................................. $ 60,000 $ 29,000 Gardens Square........................................... 47,000 25,000 --------------- ------- $ 107,000 $ 54,000 --------------- ------- --------------- -------
- ------------------------ (1) Pertaining to reassessment resulting from the acquisition by the Corporation. The pro forma statements of income have been adjusted to reflect both the increase in real estate taxes and the recoverable portion of the increase. The nonrecoverable portion of the increase in real estate taxes at the Chico Crossroads Center relates to a tenant whose lease specifies that they are not required to pay any increase in real estate taxes which result from the sale of the property for the first five years after a sale of the Property. The pro forma statements of income have also been adjusted for the proposed increase in property management fees in the amount of $21,000 per annum. This increase will not be recoverable from tenants. Over 39% of the gross leasable area of the Properties is leased to tenants whose leases contain percentage rent clauses which call for additional rents based on tenant sales. Chico Crossroads Center has two tenants who have paid percentage rent for several years. Rental revenue for the six months ended June 30, 1996 includes $50,000 of percentage rent and rental income for the year ended December 31, 1995 includes approximately $134,000 of percentage rent. Over $112,000 of the percentage rent for the year ended December 31, 1995 was received from a tenant who benefitted from the closure of a competitor in 1995. In 1994 this tenant paid $78,000 in percentage rent and its percentage rent for 1996 is expected to decline with the introduction of a new competitor in 1996. Aside from the two tenants currently paying percentage rent, none of the other tenants with percentage rent clauses are expected to attain sales sufficient to generate percentage rent in 1996 or 1997. Amortization is based on the Corporation's acquisition price calculated as if the Corporation had purchased the Properties at the beginning of the periods. Amortization includes (i) amortization of the buildings acquired calculated on a straight line basis over the estimated useful lives of 40 years, and (ii) amortization of land improvements calculated on a straight line basis over the estimated useful lives of 20 years. Interest expense is based on the Mortgage the Corporation will assume on the acquisition of the Properties. The interest rate on this mortgage is fixed at 7.94% through to December 21, 2002. Interest expense includes the amortization of the mortgage assumption fee over the remaining term of the mortgage. General and administration expense reflects the estimated general and administration expense of the Corporation based upon fee quotations obtained from various service providers. Asset management fees are based on the Advisory Agreement. Pro forma net income per share was $.34 for the year ended December 31, 1995 and $.20 for the six months ended June 30, 1996. CALCULATION OF FUNDS FROM OPERATIONS Industry analysts generally consider funds from operations to be an appropriate measure of the performance of an equity REIT. Funds from operations is defined by the National Association of Real Estate Investment Trusts ("NAREIT") as net income (computed in accordance with generally accepted accounting principles) excluding gains (or losses) from debt restructuring and sales of property plus amortization of real estate assets. Amortization of deferred financing costs and amortization of non real estate assets are not added back to net income to arrive at funds from operations. Funds from operations should not be considered an alternative to net income as a measure of profitability nor is it comparable to cash flows provided by operating activities determined in accordance with generally accepted accounting 32 principles. The reconciliation of pro forma net income to pro forma funds from operations under NAREIT is as follows: FOR THE SIX MONTHS ENDED JUNE 30, 1996: Pro forma net income.................................. $ 536,164 Amortization of real estate assets.................... 323,724 --------- Pro forma funds from operations....................... $ 859,888 --------- --------- FOR THE YEAR ENDED DECEMBER 31, 1995: Pro forma net income.................................. $ 930,764 Amortization of real estate assets.................... 647,448 --------- Pro forma funds from operations....................... $1,578,212 --------- ---------
LIQUIDITY AND CAPITAL RESOURCES The Corporation will acquire the Properties with a combination of equity raised through this Offering and mortgage financing. Upon completion of the offering, the Corporation expects to have acquired rental properties with a total cost of approximately $30,998,500, and assumed a mortgage payable in the amount of $6,710,000. The Corporation's debt immediately following the closing of the Offering will be approximately 21% of total debt plus stockholders' equity. The Corporation may increase the level of debt to as high as 60% of total debt plus equity. The proceeds from any additional debt would be used to acquire additional properties. In addition, the Corporation may make additional acquisitions through a combination of equity and mortgage and other debt financing. A significant portion of the Corporation's net cash provided by operating activities will be distributed to stockholders. Accordingly capital outlays for major repairs, and debt repayments may require funding from borrowings or equity offerings to the extent that cash reserves are insufficient. The Corporation is expected to have cash balances of approximately $549,500 after the closing of the Offering. The Corporation will assume the mortgage financing on Gardens Square. Under the terms of the mortgage the Corporation will be required to pay real estate taxes into an escrow account with the lender. Real estate taxes on Gardens Square are payable annually in November. Although shop tenants are required to escrow real estate taxes with the landlord two anchor tenants are not required to pay their real estate taxes until they receive proof of payment from the landlord. Gardens Square real estate taxes for 1997 are estimated to be $187,000 and the Corporation will escrow 8.3% of this amount each month. The Corporation will receive less than 3% of this amount each month from shop tenants. The Corporation has had engineering studies performed on the Properties as part of its acquisition due diligence. These studies concluded that the buildings and sites are in good condition and that any immediate repairs required are immaterial. The Corporation recognizes minimum base rents on a straight line basis over the terms of the leases. Rental income for the six months ended June 30, 1996 includes approximately $18,000 of rent in excess of amounts currently owed under the leases. Rental income for the year ended December 31, 1995 includes approximately $37,000 of such rent. The Corporation also recognizes lease termination revenue in the period that the tenant terminates its rights and benefits under the terms of the lease and vacates the premises. Under the terms of a lease termination agreement signed in March 1996 a tenant was required to make regular minimum lease payments through to September 1, 1996. Rental revenue for the six months ended June 30, 1996 includes lease termination revenue which is collectable subsequent to June 30, 1996 in the amount of approximately $55,000. The related space has been re-leased. INFLATION The Corporation believes that inflation should not have a material adverse effect on the Corporation. Although increases in the rate of inflation may increase interest rates which the Corporation may be required to pay on borrowed funds, the Corporation intends to stagger the maturity of mortgage financing to limit the impact of such increases in any one year. 33 BUSINESS THE CORPORATION Basic U.S. REIT, Inc. is a corporation incorporated under the laws of the State of Maryland on July 30, 1996. The Corporation has been incorporated to invest in a diversified portfolio of income producing commercial real property in the United States with the objective of maximizing the yield to its stockholders while providing for long-term stability and growth. The Advisor has identified the Properties as opportunities for the Corporation and the Corporation intends to acquire additional properties with a view to enhancing the income yield of the Corporation to its stockholders. Initially the Corporation will focus on community and neighborhood shopping centers. During this phase, the Corporation will look for properties with a significant percentage of national and regional tenants, with reputation and marketing clout that will attract significant traffic to the center, providing business for itself and also to smaller tenants. The Corporation will seek properties with anchor tenants who are among the leaders in their respective fields or whose operations are national or regional in scope. The Corporation intends to utilize as sources for its future acquisitions available working capital, proceeds from future equity financing and mortgage or debt financing. See "Policies With Respect To Certain Activities--Financing Policies." A purpose of the Corporation is to provide investors with a favorable yield on their investment in the Common Stock through participation in a diversified portfolio of income producing real property investments in the United States. To the extent that the funds of the Corporation are not invested by the Corporation in real property investments from time to time, they will be invested in Authorized Investments. The Corporation intends to qualify as a REIT for the purposes of the Code commencing with its taxable year ending December 31, 1997. A corporation which qualifies as a REIT under the Code will be entitled to deduct dividends paid in calculating taxable income for U.S. purposes so that the REIT may be able to reduce or eliminate taxable income and flow through to investors in the REIT the pre-tax income derived from the underlying investment assets. The Corporation has no operating history, has no material net worth, has not declared dividends on its outstanding shares and has not paid any cash remuneration to its directors or officers as of the date of this Prospectus. The Board of Directors is responsible for the general control and direction of the Corporation, including decisions regarding the acquisition and disposition of the Corporation's assets (subject to certain restrictions contained in the Amended and Restated Articles of Incorporation and the bylaws of the Corporation). See "Management" and "Certain Provisions of Maryland Law and the Corporation's Amended and Restated Articles of Incorporation and Bylaws." The Corporation may retain affiliated property managers of the Properties who will be responsible for the on-site and property specific aspects of the management of the Corporation's real properties. The Advisor will, on a continuing basis, present investment opportunities to the Corporation, act as investment advisor to the Corporation and administer certain of the day-to-day operations of the Corporation. See "Management--The Advisor." The executive office of the Corporation is located at 7850 Northwest 146th Street, Suite 308, Miami, Florida 33016, telephone number 305-556-7162. INVESTMENT OBJECTIVES The Corporation has been created to provide investors with the opportunity to make equity investments in income producing real property in the U.S. The types of real property which the Corporation intends to acquire have traditionally been acquired by institutional investors due to the large financial commitments which are necessary to acquire such properties. The benefit offered by the Corporation is that it provides the individual investor with an opportunity to invest in such real estate as a result of the pooling of investment funds with other investors. The Corporation will utilize the services of the Advisor. The Board of Directors and the Advisor are responsible for the supervision of the management and operation of the Corporation and its properties, 34 thereby providing a convenience to the investors not normally found in direct property investments. The Advisor will provide, retain and supervise property managers who will provide day-to-day management of the properties of the Corporation. The Corporation's objectives are: - to own and operate income producing real property; - to generate income for distribution; - to preserve and increase the Corporation's equity through appreciation of the value of its assets; and - to increase the Corporation's equity through amortization of mortgage financing. The Corporation intends to continually enhance returns through an ongoing acquisition program designed to provide economies of scale through the decline of general and administrative expenses and fees as a percentage of assets and revenues and to reduce risk through geographic and portfolio diversification. The Corporation believes that the diversification inherent in the pooling of real estate assets in a REIT should result in significant risk reduction relevant to direct ownership of specific real estate. The Corporation will seek additional properties which are expected to have long-term predictability of income, where credit-worthy tenants with net leases will be a majority of the occupants. The Corporation's assets are expected to appreciate through scheduled increases in rental income and the Corporation intends to manage its portfolio to maintain and enhance the value of its properties. POLICIES WITH RESPECT TO CERTAIN ACTIVITIES INVESTMENT POLICIES The Corporation intends to acquire controlling interests (possibly with joint venture partners) in income producing commercial real properties located in the United States utilizing a combination of funds derived from available working capital, proceeds from future equity financing and mortgage and other debt financing if available. These acquisitions are intended to be completed in phases, with the initial phase consisting of the acquisition of neighborhood and community shopping centers. The portfolio of properties will offer as much geographic diversification as practical, given the size of the REIT. The Advisory Agreement contains certain general investment policies which are guidelines for the Advisor in presenting investment prospects for the Corporation. Such investment policies may be amended from time to time by a majority of the Board of Directors, such majority to include a majority of the independent directors. The bylaws of the Corporation set forth restrictions on the Corporation's investments which may only be amended with the majority approval of the Board of Directors of the Corporation, such majority to include a majority of the independent directors, and by the majority of the votes cast at a meeting of the holders of the Common Stock of the Corporation. Initially, the Corporation will focus on neighborhood and community shopping centers. These properties will offer the advantage of a basic minimum rent, substantially net of such expenses as maintenance and taxes and potentially the percentage share of sales volume of the retail outlets. The Corporation will consider acquiring shopping centers that satisfy a combination of some or all of the following eight factors in making its initial property analysis. Priority will be given to centers: (1) with anchor tenants, such as department stores, supermarkets and national retail chains, to ensure the quality of retail services offered by the center, the quality of its tenants and the desired return on sales; (2) which, if combined with the other real property investments of the Corporation, provide the Corporation with a diversified tenant base with the anchor tenants accounting for a minimum of sixty percent (60%) of the gross leasable area of the Corporation's portfolio of shopping centers; The anchor tenants should be dominant enough to establish the shopping center as a destination center; (3) where the average anchor lease extends for a minimum of ten (10) years from the date of acquisition by the Corporation; (4) in a 35 strategic location in a strong market area with convenient access and visibility to a high traffic area; (5) with construction materials which are of sufficiently high quality to require no more than industry standard levels of maintenance; (6) with convenient access for both shoppers and tenants; (7) where rental rates are on average at or lower than comparable market rates in the area (to reduce the possibility of losing tenants to other sites and to create the potential to increase rates in the future); and (8) in a location experiencing above average growth in retail sales provided that the growth in the retail sector for that area will not outpace economic growth in the area. The Corporation will obtain an independent third party appraisal, an environmental assessment and an engineering report for each center. It may participate with other entities (not including affiliates) in property ownership, through joint ventures or other types of ownership. The Corporation may seek mortgage financing for its real estate investments and other debt financing which is non-recourse to the Corporation (other than obligations relating to environmental matters, waste to property, frauds or misrepresentations, taxes or other assessments, tenant prepayments, condemnation and insurance proceeds, grossly negligent violations of law and net revenue obligations and other obligations customarily retained in non-recourse financing). The Corporation may consider cross-collateralized loans to reduce borrowing costs and may also take on recourse obligations such as lines of credit and loans for property expansion. The Corporation intends to continue to acquire only shopping centers until the aggregate of the acquisition prices of all properties owned by the Corporation exceeds $100 million. Although the Corporation will emphasize direct wholly owned investments in its properties, it may, subject to the restrictions set forth below, in its discretion invest in joint ventures, mortgages and other real estate securities or interests, consistent with its qualification as a REIT. The Corporation may invest in real estate joint ventures if it concludes that by doing so it may benefit from the participation of coventurers or that the opportunity of the Corporation to participate in the investment is contingent on the use of a joint venture structure. The Corporation may not invest in hotels, nursing homes or similar real estate which includes the operation of a business separate and distinct from the operation of income producing property. The Board of Directors will review the investment policies before any new acquisition phase is commenced and modify the policy as necessary to maximize stockholder value. The Board of Directors is authorized to amend the investment policies to include industrial, office, residential rental and mixed-use properties. However, any amendment of the investment policies will require the approval of a majority of the Board, such majority to include a majority of the independent directors. INVESTMENT RESTRICTIONS In accordance with the objectives of the Corporation and to limit financial and other risks, the Corporation intends to comply with the following restrictions which are set out in the bylaws of the Corporation and which may only be amended, revised or terminated with the majority approval of the Board of Directors of the Corporation, such majority to include a majority of the independent directors, and by the majority of the votes cast at a meeting of the holders of the Common Stock of the Corporation: - the Corporation will not make any investment that would result in its ceasing to qualify as a REIT under the Code; - the Corporation may not incur indebtedness if the aggregate outstanding principal amount of all indebtedness of the Corporation exceeds sixty percent (60%) of the greater of the aggregate acquisition prices or the current fair market value of all properties of the Corporation. For purposes of the foregoing determination, the fair market value of all properties of the Corporation is required to be determined by an independent third party appraisal; 36 - the Corporation may not engage in construction or development of real property except to the extent to maintain its properties in good repair, for expansion of an existing property or to otherwise enhance the income-producing ability of the properties; - except as otherwise permitted by the Code for investments from proceeds of financings, pending investment or reinvestment, cash on hand will be invested in Authorized Investments; - the Corporation may not invest in mortgages, unless the underlying security is income-producing property or is in the process of being developed as income-producing property, all such mortgages in the aggregate do not exceed 10% of the aggregate cost of assets of the Corporation, the mortgage is a first mortgage and the term of the mortgage is five (5) years or less and the amortization period is thirty (30) years or less; - after the acquisition of the Properties, the Corporation may not acquire any single investment in real property if the cost to the Corporation of such acquisition will exceed (1) $25 million until the aggregate acquisition prices of all properties owned by the Corporation inclusive of the proposed investment exceeds $100 million and (2) after the aggregate acquisition prices of all properties owned by the Corporation exceeds $100 million, twenty-five percent (25%) of the aggregate acquisition prices of all properties inclusive of the proposed investment; and - the Corporation may not grant or assume a mortgage on any office property if the aggregate outstanding principal amount of the mortgage and of all other mortgages granted or assumed by the Corporation secured against its office properties or any part thereof exceeds fifty percent (50%) of the aggregate acquisition prices of all office properties of the Corporation. FINANCING POLICIES While one of the Corporation's objectives will be the acquisition of additional shopping centers and other properties, the number of different properties the Corporation can acquire will be affected by future equity and forms of mortgage and other debt financing. Such financing may be available only on disadvantageous terms, if at all. If financing is not available on acceptable terms for new acquisitions, further acquisitions might be curtailed and cash available for distribution might be adversely affected. The net proceeds to the Corporation after application of all Offering expenses and costs and the cash purchase prices of the Properties will be approximately $549,000. The Corporation currently intends to employ financing policies in pursuit of its growth strategies consistent with limitations imposed in the Corporation's organizational documents. The Corporation currently intends to pursue its growth strategies while maintaining a capital structure whereby its debt will not exceed 60% of its total debt and equity. The Corporation may from time to time reevaluate and modify its current borrowing policies in light of then current economic conditions, relative costs of debt and equity capital, market values of properties, growth and acquisition opportunities and other factors and may decrease its ratio of debt to equity accordingly. THE PROPERTIES Basic Acquisitions, Inc. (the "Nominee"), a Delaware corporation controlled by the Advisor, has entered into agreements to acquire the Properties, which will be assigned to the Corporation prior to the Closing for nominal consideration. Upon assignment, the Corporation will reimburse the Nominee for all 37 deposits paid under the acquisition agreements assigned. The following table sets forth aggregate lease and rental information concerning the Properties.
GROSS AVERAGE LEASABLE ANNUAL BASE RENT PURCHASE PERCENTAGE AREA ANNUAL BASE PERCENTAGE PER SQ. PRICE PER CENTER LEASED (1) ("GLA") RENT (2) RENT (3) FT. (4) SQ. FT. (5) - ------------------------------------------- ----------- --------- ------------ ----------- --------- ----------- Chico Crossroads Center ................... 99.6% 267,496 $ 1,980,559 $ 133,856 $ 7.43 $ 79.75 Chico, California Gardens Square ............................ 96.5% 90,258 $ 946,883 -- $ 10.87 $ 107.09 Dade County, Florida Weighted Average........................... $ 8.28 $ 86.65
- ------------------------ (1) As of September 30, 1996. (2) Annualized base rent is calculated based on the minimum base rent payable under the leases in place as of September 1, 1996 and excludes percentage rents, CPI increases and reimbursement of operating expenses. (3) For the year ended December 31, 1995. (4) Calculated on gross leased area. (5) Purchase price includes acquisition fees and expenses. CHICO CROSSROADS CENTER ACQUISITION AGREEMENT The Nominee has entered into an agreement with Chico Crossroads Center, Ltd., a California limited partnership, to acquire the Chico Crossroads Center, an approximately 267,000 square foot community shopping center in northern California, between Sacramento and Redding for the purchase price of $20,912,500. The Advisor has paid the deposits under the acquisition agreement aggregating $500,000 and the balance of the purchase price is payable in cash on the date of acquisition. Prior to closing, the Nominee will assign its rights and obligations under the Chico Acquisition Agreement to the Corporation. On closing, the Corporation will reimburse the Advisor for the deposits paid. The Chico Acquisition Agreement provides the purchaser with the right to inspect the property and to conduct various investigations including the compliance with zoning requirements, analysis of tenants and environmental matters prior to closing. The Nominee has given notice to Chico Crossroads Center, Ltd., that it is satisfied with its investigations and accordingly the Corporation will be obligated to complete the acquisition upon: a) receipt of the proper deed, bill of sale, assignment of leases and other similar documentation; b) receipt of a title insurance policy with coverage equal to the acquisition price of $20,912,500 showing title vested in the purchaser subject to encumbrances or exceptions permitted in the Chico Acquisition Agreement; c) the representations and warranties of Chico Crossroads Center, Ltd. being true as of the date of acquisition; and d) receipt of estoppel certificates executed by certain of the tenants. There are various representations and warranties of the seller contained in the Chico Acquisition Agreement which are usual in a transaction of this nature. However, it is uncertain whether Chico Crossroads Center, Ltd., will retain significant assets after the completion of the transaction to satisfy any 38 action by the Corporation for misrepresentation. The Corporation has performed an investigation of the property and believes that any misrepresentation by the seller would not require any material capital expenditure by the Corporation, but no assurance can be given that such a capital expenditure will not be necessary. The total cost of the property (purchase price and acquisition fees and expenses) will be allocated for Federal tax purposes as follows:
FEDERAL TAX DEPRECIATION FOR TAX BASIS PURPOSE ---------------- --------------------------- Land........................................... $ 4,500,000 Nil Land improvements.............................. 1,200,000 20 year straight line Building....................................... 15,632,500 40 year straight line ---------------- $ 21,332,500 ---------------- ----------------
The Corporation will elect to use the depreciation methods provided for earnings and profits purposes for regular tax purposes. DESCRIPTION OF PROPERTY VICINITY Chico Crossroads Center is located in the southeast section of Chico on the southwest corner of the major interchange of Route 99 and East 20th Street. The center was built in 1989 on the 20.75 acre site and has parking for approximately 1,000 vehicles. The center backs onto and is clearly visible from Route 99 and the center has four entrances off Whitman Avenue which runs parallel to Route 99. Whitman Avenue is easily accessed from East 20th Street or Park Avenue, both of which are accessible from Route 99 off ramps. The core of the retail market in Chico is the Route 99 and East 20th Street interchange. Most of the nationally recognized retailers operating in Butte County are represented within a few miles of the interchange thereby attracting consumers to the area. On the southeast corner of Route 99 and East 20th Street is an approximately 225,000 square foot strip center anchored by Toys 'R' Us and Target with a free-standing Wal-Mart store adjacent to it along Route 99. On the northeast corner of the interchange is the Chico Mall, an enclosed mall of approximately 435,000 square feet anchored by J.C. Penney, Sears, Gottschalks and Troutman's. The Chico Mall has a tenant mix including Copeland Sporting Goods, The Limited, GAP, Payless Shoes, Hallmark and B. Dalton Books. Next to the Chico Mall is a free-standing Waremart Food Store. On the west side of Whitman Avenue diagonally across from Chico Crossroads Center is a free-standing Costco store, with an 8 acre parcel of land zoned industrial. Next to the Chico Crossroads Center is a 12 acre parcel of vacant land zoned commercial, which has not been developed. The rent per square foot in the vicinity for community shopping centers ranges from approximately $7.00 to $15.00 and occupancy rates for community shopping centers range from 88% to 100%. 39 OCCUPANCY The table below sets forth certain information with respect to the occupancy rate at the Chico Crossroads Center for the time an unaffiliated third party had owned the property and the annual rent per square foot received for the period. The information, supplied by the seller of Chico Crossroads Center to the Corporation, is unaudited.
ANNUAL RENTS RECEIVED PER YEAR ENDED DECEMBER 31 OCCUPANCY RATE SQUARE FOOT* - --------------------------------------------------- ------------------ --------------------------- 1995............................................... 99.2% $ 7.03 1994............................................... 99.6% $ 7.01 1993............................................... 92.2% $ 5.20 1992............................................... 92.0% $ 5.47 1991............................................... 90.7% $ 5.55
- ------------------------ * Based on minimum base rents payable under the leases and excludes percentage rents received and reimbursement of operating expenses. LEASE EXPIRATION SUMMARY The following lease expiration summary is based on leases in place as of September 30, 1996.
AVERAGE PERCENT OF PERCENT OF APPROX. BASE RENT TOTAL BUILDING ANNUAL BASE GLA OF EXP. ANNUAL BASE PER SQUARE GLA RENT LEASES RENT OF FOOT UNDER REPRESENTED BY REPRESENTED BY NUMBER OF (SQUARE EXPIRING EXPIRING EXPIRING EXPIRING YEAR ENDED DEC. 31 LEASES EXP. FEET) LEASES* LEASES LEASES LEASES - --------------------------- --------------- ----------- ------------ ----------- ---------------- --------------- 1996....................... 0 0 $ 0 $ 0.00 0.00% 0.00% 1997....................... 2 4,800 50,476 10.52 1.79% 2.55% 1998....................... 3 3,600 39,715 11.03 1.35% 2.00% 1999....................... 3 4,200 47,448 11.30 1.57% 2.40% 2000....................... 0 0 0 0 0.00% 0.00% 2001....................... 1 1,200 13,680 11.40 0.45% 0.69% 2002-2005.................. 0 0 0 0 0.00% 0.00% 2006....................... 1 6,681 80,172 12.00 2.50% 4.05% 2007-2010.................. 4 189,743 1,164,178 6.14 70.93% 58.78% 2011-2015.................. 3 56,272 584,890 10.39 21.04% 29.53% ----------- ------------ ----------- ----- ------ Leased..................... 17 266,496 $ 1,980,559 $ 7.43 99.63% 100.00% ----------- ------------ ----------- ----- ------ ------------ ----------- Vacant..................... 1,000 0.37% ----------- ----- Total...................... 267,496 100.0% ----------- ----- ----------- -----
- ------------------------ * Annual base rent includes minimum base rents payable under the leases and excludes percentage rents, CPI increases and operating expense reimbursement and assumes that none of the renewal options are exercised. 40 LEASE SUMMARY The following lease summary is based on base rent payable under the leases in place as of September 30, 1996.
(SQUARE CURRENT RENT PER LEASE FEET) ANNUAL SQUARE EXPIRY RENEWAL TENANTS LEASED BASE RENT FOOT DATE OPTIONS*** - -------------------------------------------------- ------------ ------------ ----------- --------- ------------- Waban Corp. (operating as Home Base)**............ 103,904 $ 537,210 $ 5.17 11/30/08 4X5 Office Depot Inc.................................. 22,000 141,460 6.43 10/30/09 3X5 Netco Foods Inc. (Food 4 Less).................... 54,239 379,668 7.00 2/28/09 3X5 Circuit City...................................... 23,014 230,131 10.00 10/31/14 5X5 Barnes & Noble Superstore Inc..................... 24,660 239,202 9.70 8/1/11 3X5 Blockbuster Video**............................... 6,681 80,172 12.00 9/1/06 3X5 Hometown Buffet................................... 9,600 105,840 11.03 12/31/08 2X5 Petco............................................. 8,598 115,557 13.44 11/30/14 3X5 Norwest Financial................................. 1,500 15,300 10.20 11/7/99 1X5 Avco Financial.................................... 1,200 12,096 10.08 4/30/98 1X5 Check X Change (Rowan Management Inc.)............ 1,200 14,400 12.00 11/30/98 1X3 Fantastic Sam's................................... 1,200 13,248 11.04 4/1/99 1X5 Nevada Bob's Golf*................................ 2,400 23,904 9.96 9/30/97 1X6 Play It Again Sports*............................. 2,400 26,572 11.07 7/20/97 1X5 Patty Tang Chinese................................ 1,200 13,219 11.02 4/1/98 1X5 Dry Cleaners...................................... 1,500 18,900 12.60 10/1/99 1X5 Vacant............................................ 1,000 0 0 TCBY Yogurt*...................................... 1,200 13,680 11.40 4/28/01 1X5 ------------ ------------ TOTAL......................................... 267,496 $ 1,980,559 ------------ ------------ ------------ ------------
- ------------------------ * These tenants are franchisees and the franchisor is not a party to the lease. ** Several of these leases are guaranteed by parent companies as follows: Home Base is guaranteed by TJX Inc. Blockbuster Video is guaranteed by Viacom Inc. *** Number of renewal options times renewal period. The leases are substantially net leases and tenants pay a majority of the operating expenses. Real estate taxes are passed through to tenants with the exception of a portion of the real estate taxes allocated to one of the tenants. This tenant is not required to pay: a) real estate tax increases due to reassessment on the sale of the property for the first five years following the sale. The cost to the Corporation is expected to be approximately $31,000 for each of the next five years; and b) a portion of the realty taxes relating to a special assessment for road expansion. The Corporation is responsible for the portion of this assessment allocated to this tenant in excess of $20,000. The cost to the Corporation will be approximately $15,500 annually. Real estate taxes are currently $275,000 and are expected to increase, as a result of the anticipated reassessment of the property on acquisition, to $335,000. Property management fees are currently set at $39,000 per year. The property management fees are expected to increase to $60,000 per annum in 1997. Only $3,000 of the property management fees were recovered from tenants in 1995. The leases however provide for the recovery of over $10,000 of the property management fees. 41 KEY FACTORS IN CORPORATION'S DECISION TO ACQUIRE The Corporation's decision to acquire Chico Crossroads Center was based on a variety of factors including the following: a) STRONG GROWTH IN CHICO RETAIL SALES: According to the City of Chico, Chico retail sales have grown 130% from 1985 to 1995. Chico is a university town as well as the retail center for the local agricultural area. b) TENANT MIX: Over 96% of the center is occupied by national or regional retailers. These anchors include Home Base, Office Depot, Food 4 Less, Circuit City, Barnes and Noble, Blockbuster Video, Petco and Hometown Buffet. c) LONG TERM LEASES: Over 90% of the building area is leased to tenants whose leases expire between the years 2007 - 2015. As at January 1, 1997, future minimum rental payments excluding CPI increases, percentage rents, operating expense reimbursement and lease renewals total $25,724,000. d) LEASE TERMS: The leases provide for regular increases in base rental payments which over a 10 year period should result in an increase in base rental payments of over 17%. In addition, two of the tenants have been paying percentage rent under percentage rent clauses. e) LOCATION OF THE CENTER: The property is located next to the major intersection of Route 99 and East 20th Street in the middle of the area in the city with the largest number of nationally and regionally recognized retailers. The proximity to the Chico Mall and other retailers in the area assists in attracting traffic to this location. f) RENTAL RATES: Lease rental rates for the property vary from approximately $5 per square foot to over $13 per square foot currently averaging $7.43 per square foot. These rates are in the low end of the range of $7 to $15 in the vicinity. g) LOCAL OCCUPANCY RATES: Local occupancy rates range from 88% in some centers in the northern part of the city to closer to 100% in the immediate vicinity. CHICO, CALIFORNIA The City of Chico is located in Butte County, which is located in northern California. Chico is approximately 90 miles north of Sacramento. Chico is a major commercial center between Sacramento and Redding. Chico has a growing population which has sparked growth in retail sales. Chico has a population of approximately 47,000 which increased over 55% between 1985 and 1995. During that same period retail sales increased over 130% from approximately $300 million to approximately $700 million. Chico also has become a regional service center for Butte County which has a population in excess of 200,000. The long-term demographic trends of Chico indicate continued retail growth as the population of Chico is becoming more mature. Chico is home to a California State University campus, with approximately 16,000 students enrolled, and to Butte College, with approximately 12,000 students enrolled. Manufacturing employers in the Chico area include 3M Corporation, Aero Union Corporation, Chico Nut Corporation, Dole Nut Corporation and Quaker Oats. 42 GARDENS SQUARE ACQUISITION AGREEMENT The Nominee has entered into an agreement with Miami Gardens Associates, a New Jersey general partnership, to acquire Gardens Square, an approximately 90,000 square foot neighborhood shopping center located in Dade County, Florida. The Advisor has paid deposits of $200,000 towards the purchase price of $9,450,000. The balance of the purchase price will be paid by the payment of $2,540,000 on acquisition and the assumption of the first mortgage loan in the amount of $6,710,000 currently payable to Life Investors Insurance Corporation of America. The first mortgage loan bears interest at a rate of 7.94% per annum and requires monthly payments of principal and interest in the amount of $52,214, based on a twenty-five year amortization. The loan is secured by a first mortgage on the property and is due on December 21, 2002. One hundred fifty thousand dollars of the purchase price will be paid into an interest bearing escrow account. The funds in the escrow account will be released to the purchaser 90 days after closing if the seller is not successful in obtaining a five year option and lease agreement for a transmission tower on the property with Bell South Mobility, Inc. or Majorco, L.P. ("Sprint") for a minimum net rent of $16,000 per year. If the seller is successful in obtaining the lease, it will have 455 days from closing of the purchase to obtain all necessary regulatory approvals. If it is successful in obtaining the regulatory approvals and Bell South or Sprint exercises the option, the escrowed funds together with interest thereon will be released to the seller; otherwise the escrowed funds together with interest thereon will be released to the purchaser. Prior to closing, the Nominee will assign its rights and obligations under the Gardens Square Acquisition Agreement to the Corporation. On closing, the Corporation will reimburse the Advisor for the deposits paid. The Gardens Square Acquisition Agreement provides the purchaser with the right to inspect the property and to conduct various investigations including the compliance with zoning requirements, analysis of tenants and environmental matters prior to closing. The Nominee has given notice to Miami Gardens Associates that it is satisfied with its investigations and accordingly the Corporation will be obligated to complete the acquisition upon: a) receipt of the proper deed, bill of sale, assignment of leases and other similar documentation; b) receipt of a title insurance policy with coverage equal to the acquisition price of $9,450,000 showing title vested in the purchaser subject to encumbrances or exceptions permitted in the Gardens Square Agreement; c) the representations and warranties of Miami Gardens Associates being true as of the date of acquisition; and d) receipt of estoppel certificates executed by certain of the tenants. There are various representations and warranties of the seller contained in the Gardens Square Acquisition Agreement which are usual in a transaction of this nature. However, it is uncertain whether Miami Gardens Associates will retain significant assets after the completion of the transaction to satisfy any action by the Corporation for misrepresentation. The Corporation has performed an investigation of the property and believes that any misrepresentation by the seller would not require any material capital expenditure by the Corporation, but no assurance can be given that such a capital expenditure will not be necessary. 43 The total cost of the property (purchase price and acquisition fees and expenses) will be allocated for Federal tax purposes as follows:
FEDERAL TAX DEPRECIATION FOR TAX BASIS PURPOSE ---------------- -------------------------- Land............................................ $ 2,400,000 Nil Land Improvements............................... 600,000 20 year straight line Building........................................ 6,666,000 40 year straight line ---------------- $ 9,666,000 ---------------- ----------------
The Corporation will elect to use the depreciation methods provided for earnings and profits purposes for regular tax purposes. DESCRIPTION OF PROPERTY VICINITY Gardens Square is a neighborhood shopping center located at the northeast corner of Miami Gardens Drive and N.W. 87th Avenue, approximately one mile east of Interstate 75. The neighborhood is bounded on the north by the Florida Turnpike and the Broward County line, on the south by the Palmetto Expressway (S.R. 826), to the east by N.W. 57th Avenue and on the west by I-75. The east portion of the neighborhood is almost fully developed while the western half of the neighborhood is currently used for agricultural purposes. The site consists of approximately 8.7 acres and has parking for 423 vehicles. It has approximately 300 feet of frontage along the north side of Miami Gardens Drive and 436 feet of frontage on N.W. 87th Avenue. The site includes two parcels which are not being acquired, one on the southwest corner which is operating as a Chevron station and the other on the southeast corner which is operating as a McDonald's restaurant. The site is accessible from two entrances on Miami Gardens Drive and from two entrances on N.W. 87th Avenue. The intersection of Miami Gardens Drive and N.W. 87th Avenue is signalized and Miami Gardens Drive is a four lane divided highway. The neighborhood is experiencing a significant amount of low and medium density residential development. Two nearby parcels totaling 116 acres are scheduled for residential development. The neighborhood is predominantly middle and upper middle income class. The neighborhood has a population of 49,000 which increased from 43,500 to 49,000 between 1990 and 1995. The median household income is $47,138. There are five other neighborhood shopping centers within a five mile radius of Gardens Square. These centers account for approximately 717,000 square feet of retail space and are each anchored by a grocery store. There is one community center located three miles from Gardens Square. That community center consists of approximately 244,000 square feet and is anchored by K-Mart. The rent per square foot in the vicinity ranges from $14.00 to $18.00 and occupancy rates for neighborhood and community shopping centers range from 92% to 96%. 44 OCCUPANCY The table below sets forth certain information with respect to the occupancy rate at the Gardens Square property for the time an unaffiliated third party had owned the property and the annual rent per square foot received for the period. The information, supplied by the seller of Miami Gardens Center to the Corporation, is unaudited.
ANNUAL RENTS RECEIVED PER YEAR ENDED DECEMBER 31 OCCUPANCY RATE SQUARE FOOT** - --------------------------------------------------- ----------------- ------------------------- 1995............................................... 95% $ 10.54 1994............................................... 95% $ 10.32 1993............................................... 84% $ 10.12 1992............................................... 84% $ 9.94 1991*.............................................. 77% $ 9.30
- ------------------------ * Year of completion. ** Based on minimum base rents payable under the leases and excludes percentage rents and reimbursement of operating expenses. LEASE EXPIRATION SUMMARY The following lease expiration is based on leases in place as of September 30, 1996.
AVERAGE APPROX . BASE RENT PERCENT OF PERCENT OF GLA OF EXP. ANNUAL PER SQUARE TOTAL BUILDING ANNUAL BASE LEASES BASE RENT FOOT UNDER GLA REPRESENTED RENT NUMBER OF (SQUARE EXPIRING EXPIRING BY EXPIRING REPRESENTED BY YEAR ENDED DEC. 31 LEASES EXP. FEET) LEASES* LEASES LEASES EXPIRING LEASES - -------------------------------- ------------- ----------- ---------- ----------- --------------- --------------- 1996............................ 0 0 $ 0 $ 0 0% 0% 1997............................ 3 4,068 69,890 17.18 4.51% 7.38% 1998............................ 4 7,750 132,141 17.05 8.59% 13.96% 1999............................ 2 2,709 43,236 15.96 3.00% 4.56% 2000............................ 2 5,058 66,945 13.24 5.60% 7.07% 2001............................ 10 13,750 238,427 17.34 15.23% 25.18% 2002-2005....................... 0 0 0 0 0.00% 0.00% 2006............................ 1 1,900 28,500 15.00 2.11% 3.01% 2007-2010....................... 0 0 0 0 0.00% 0.00% 2011-2015....................... 2 51,873 367,744 7.09 57.47% 38.84% -- ----------- ---------- ----------- ------ ------ Leased.......................... 24 87,108 $ 946,883 $ 10.87 96.51% 100.00% -- -- ----------- ---------- ----------- ------ ------ ---------- ----------- ------ Vacant.......................... 3,150 3.49% ----------- ------ Total........................... 90,258 100.00% ----------- ------ ----------- ------
- ------------------------ * Annual base rent includes minimum base rents payable under the leases and excludes percentage rents, CPI increases and operating expense reimbursements and assumes that none of the renewal options are exercised. 45 LEASE SUMMARY The following lease summary is based on base rent payable under the leases in place as of September 30, 1996.
(SQUARE CURRENT LEASE FEET) ANNUAL RENT PER EXPIRY RENEWAL TENANTS LEASED BASE RENT SQUARE FOOT DATE OPTIONS* - ----------------------------------------------------- ----------- ---------- ----------- --------- -------------- Publix Super Markets, Inc............................ 42,112 $ 263,200 $ 6.25 8/30/11 4X5 Jack Eckerd Corporation.............................. 9,761 104,544 10.71 7/17/11 4X5 Lakes Preschool...................................... 4,800 82,272 17.14 7/24/98 1X3 & 1X5 Blockbuster Video.................................... 3,850 65,450 17.00 6/30/01 2X5 Lady of America...................................... 3,858 48,225 12.50 11/3/00 1X5 Vacant............................................... 3,150 0 0 -- -- Pak Mail............................................. 1,200 18,720 15.60 3/19/00 1X5 Hair Cuttery......................................... 1,200 20,400 17.00 12/13/01 Dryclean USA......................................... 1,200 21,573 17.98 7/14/01 1X5 Gardens Square Liquors............................... 1,200 23,363 19.47 7/14/01 1X5 Lakes Nutrition, Inc................................. 1,268 21,826 17.21 1/26/97 1X5 Dollar Show Corp..................................... 1,574 25,530 16.22 5/5/99 1X5 Tomlinson Ins. Group/Alls............................ 1,600 25,600 16.00 11/30/97 1X3 Jon B. Gallinatti, DPM/Podiatrist.................... 1,200 22,464 18.72 3/29/97 1X5 Eric Pantaleon MD/Pediatrics......................... 1,135 17,706 15.60 8/11/99 1X5 Gardens Sq. Animal Hospital.......................... 1,900 31,977 16.83 8/28/98 Garden Sq Restaurant Inc............................. 1,900 28,500 15.00 12/31/06 Delux Framing........................................ 1,050 15,750 15.00 4/30/01 1X5 Hair Discovery....................................... 1,050 18,136 17.27 6/24/01 1X5 Country General Insurance............................ 1,050 18,171 17.31 8/22/01 Sunshine Chiropractic................................ 1,050 18,712 17.82 12/11/01 Georgia Hernandez, Dentist........................... 1,050 17,892 17.04 12/31/98 1X3 Enchanted Travel..................................... 1,050 17,814 16.97 9/16/01 Subway Restaurant.................................... 1,050 19,058 18.15 6/2/01 1X5 ----------- ---------- TOTAL................................................ 90,258 $ 946,883 -- -- -- ----------- ---------- ----------- ----------
- ------------------------ * Number of renewal options times renewal period. The leases are substantially net leases and the tenants pay a majority of the operating expenses. Realty taxes are passed through to tenants. The only exception to this is any realty tax increase attributed to the space leased by Publix Super Markets resulting from the acquisition of the property. Realty taxes are currently $140,000 per annum and are expected to increase to $187,000 per annum. The Corporation anticipates it will be required to pay approximately $22,000 per annum relating to the Publix Super Markets space. KEY FACTORS IN CORPORATION'S DECISION TO ACQUIRE The Corporation's decision to acquire Gardens Square was based on a variety of factors including the following: a) TENANT MIX Publix Super Markets is the largest regional grocery chain, Eckerd is a regionally recognized drug store and Blockbuster Video is a nationally recognized video and entertainment store. Publix, Eckerd and Blockbuster account for over 60% of the gross leasable area of the center. The remainder of the tenants 46 provide a service center for the neighborhood community. These tenants include a liquor store, doctors, a dentist, a chiropractor, a nursery, restaurants, insurance companies and hair salons. b) LOCAL DEVELOPMENT The key to a neighborhood center is the status and future development in the three to five mile radius of the center. The population in the three mile radius is approximately 49,000 and the Corporation expects that the immediate area will see strong growth over the next few years as the available residential land around the center is either presently zoned for or designated in the Dade County Master Plan for an additional 11,000 residential units. c) ANCHORS PERFORMANCE Although anchors do not yet pay percentage rent both anchors report strong sales which exceed national average sales per square foot for comparable operations. d) LONG TERM LEASES The Publix Super Markets and Eckerd Corporation leases expire in 2011. As at January 1, 1997 future minimum rental payments excluding CPI increases, percentage rents, operating expense reimbursements and lease renewals total $7,647,000. The non-anchor tenants traditionally have shorter term leases which range from three to ten years. All of the leases of the non-anchor tenants provide for annual CPI increases or minimum annual increases. e) FINANCING The property has an assumable mortgage which bears interest at a rate of 7.94%. The mortgage is due December 21, 2002. DADE COUNTY, FLORIDA Dade County is located along the southeastern tip of Florida. The primary cities in Dade County include Miami, Hialeah, Miami Beach and Coral Gables. Dade County has a population in excess of two million people and accounts for over 14% of Florida's population. Dade County's employment base is broad; however, the service sector and international trade still dominate. Major private employers include American Airlines, Jackson Memorial Hospital, University of Miami, Southern Bell, Bell South Telecommunications, Burger King Corporation, Florida Power & Light Corporation, Business Department Store, Columbia/HCA Healthcare Corp., K-Mart, Publix Super Markets and Winn Dixie. 47 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS OF THE CORPORATION The initial Board of Directors will consist of five members, the majority of whom will be independent and will not be affiliated with the Advisor. The names and municipalities of residence of the directors and officers of the Corporation, the offices held by them with the Corporation and their principal occupations are as follows:
NAME AND MUNICIPALITY AGE OFFICE PRINCIPAL OCCUPATION - ------------------------------------ --- -------------------------- ----------------------------------------- Ronald L. Bernbaum ................. 45 Chairman of Board President, Basic Capital Funds North York, Ontario Carl Maynard ....................... 61 Director, President and Principal, The Maynard Rich Companies; Miami, Florida Chief Executive Officer President, Basic Advisors, Inc. Larry Thrall * ..................... 55 Director Chairman, Monterrey Partners Los Angeles, California Robert G. Witterick, Q.C.* ......... 53 Director Partner, Smith Lyons, Toronto North York, Ontario Nils Peterson * .................... 60 Director President, Hygate Management Marblehead, Massachusetts Richard Schwartz ................... 46 Vice President Principal, The Maynard Rich Companies Miami, Florida Terry McCrae ....................... 44 Treasurer, Chief Financial Vice President, Investments Basic Capital Mississauga, Ontario Officer and Vice Funds; Vice President, Basic Advisors, President, Finance Inc. Aran Kwinta ........................ 38 Secretary Lawyer, Chaiton & Chaiton Toronto, Ontario Richard Dickerson .................. 40 Vice President President, Maynard Rich Management Corp. Pasadena, California
- ------------------------ * Messrs. Thrall, Witterick and Peterson are independent of the Advisor and its affiliates. Each of the directors and officers of the Corporation has held the principal occupations set out above for the last five years except with respect to the Corporation and the Advisor which were organized in 1996 and except as set forth below: Ronald L. Bernbaum has been the President of Basic Capital Funds and its predecessor Medstar Properties Inc. since 1989. Basic Capital Funds provides funding and management to companies in the real estate and software development industries. In this capacity he has been responsible for the funding, acquisition and management of over $100 million of real estate assets and $150 million of software development and the funding of numerous start-up companies. Mr. Bernbaum is a graduate of Osgoode Hall Law School, North York, Ontario. Carl Maynard has been a principal of The Maynard Rich Companies since 1988. The Maynard Rich Companies provide real estate asset management, property identification and evaluation, and property management services to foreign and domestic institutional and individual investors. Mr. Maynard has over 34 years of real estate experience and served as Executive Vice President and Chief Operating Officer from 1980 to 1984 of HMG Property Investors Corp., a U.S. Real Estate Investment Trust listed on The 48 American Stock Exchange. Mr. Maynard has a Bachelor Degree in Electrical Engineering from Union College. Larry Thrall has been the Chairman of Monterrey Partners, a California real estate developer, since 1990. Prior to joining Monterrey Partners Mr. Thrall was President, Chief Executive Officer and a Director of a private real estate company. Mr. Thrall continues to serve on the Board of this real estate company and is a member of the Board of Directors of several other private companies. Mr. Thrall also served as Vice-Chairman of the Board for Hon Fed Savings Bank, Southern California Savings and Loan, and Western Savings and Loan. Robert Witterick has been a partner of Smith Lyons, Barristers and Solicitors, specializing in taxation and corporate/commercial law, with particular emphasis on the taxation and structuring of real estate syndications. Mr. Witterick is currently a Director of a REIT listed on the Toronto Stock Exchange which invests primarily in Canadian real estate. Mr. Witterick is a graduate of Osgoode Hall Law School, North York, Ontario. Nils Peterson has been the President of Hygate Management, an investment management company, since 1991. From 1974 to 1990, Mr. Peterson was the Chief Investment Officer of Harvard Management Corporation, the investment advisor of the Harvard University endowment fund. Mr. Peterson is currently a Director of Eastern Bank, Boston Mutual Life Insurance Corporation and Edge Petroleum Corporation. Richard Schwartz has been a Principal of The Maynard Rich Companies since 1988. Prior to joining The Maynard Rich Companies, Mr. Schwartz served as Chief Executive Officer of the Courtrust Companies, a real estate investment firm, and as Executive Vice President of First Capital Financial Corp., a NASDAQ listed sponsor of public real estate partnerships with over $400 million of real estate assets. Mr. Schwartz has a M.B.A. from New York University and has over 18 years of real estate experience. Terry McCrae joined Basic Capital Funds as Vice President, Investments in November, 1995. Prior to joining Basic Capital Funds, Mr. McCrae served from May, 1994 to November, 1995 as the Chief Financial Officer of Advanced Material Resources Limited, a Canadian public corporation listed on the Toronto Stock Exchange with manufacturing plants in China and distribution facilities in the United States, Japan, and Europe. Mr. McCrae was President of T J McCrae & Associates Inc., which provided management consulting services, from August, 1993 to May, 1994 and was the Chief Financial Officer and Vice President of Finance of a private real estate corporation, Martin Atkins Limited, and its related development, management and investment companies from May, 1987 to August, 1993. Mr. McCrae is a Canadian Chartered Accountant. Aran Kwinta is a lawyer with the law firm of Chaiton & Chaiton, Barristers & Solicitors, practicing primarily corporate and commercial law. Prior to joining Chaiton & Chaiton in 1996, Mr. Kwinta was a partner with the law firm of Gordon Traub, Barristers & Solicitors, from February 1, 1990 to August 31, 1996. Mr. Kwinta is currently a director of Dimensional Media, Inc. Mr. Kwinta is a graduate of Osgoode Hall Law School, North York, Ontario. Richard Dickerson has been President of Maynard Rich Management Corporation, a GNMA and HUD approved property management company since 1994. Prior to that, Mr. Dickerson was President of Greenfield Management, Inc. from 1992-1994 and President of T.O.P. Manager, Inc. from 1987-1992. In his capacity as President of three property management companies, he was responsible for the management of over 1,300 apartment units, 300,000 square feet of office space and 600,000 square feet of retail space. He also served on the Board of Directors of Century City Savings and Loan from 1986 to 1989. Prior to 1987, Mr. Dickerson was a partner in a C.P.A. firm which specialized in real estate syndication and tax work. He has a B.A. in Accounting from the University of Southern California, where he also taught as a Lecturer of Accounting for 2 years. 49 COMPENSATION The independent directors will receive annual compensation of $7,500. In addition, they will receive $350 for each board meeting or committee meeting they attend, together with reasonable travel costs incurred. The officers of the Corporation are not paid cash compensation by the Corporation. Such officers are officers of the Advisor, and its affiliates, which entities are entitled to certain fees for services rendered by them to the Corporation. See "Management--The Advisor, Terms of the Advisory Agreement, Fees and Expenses." STOCK OPTION PLAN The Corporation has reserved 250,000 shares of common stock of the Corporation to be granted to officers, directors and employees of the Corporation and the Advisor for issuance under a stock option plan. Under the terms of the stock option plan, the maximum number of options granted and outstanding cannot exceed 10% of the issued and outstanding Common Stock. The stock option plan allows for the grant of options that are exercisable at fair market value of the Common Stock at the date of grant as established by the Board of Directors. The Board of Directors has the authority under the stock option plan to determine the terms of options granted including, among other things, the individuals who will receive options, the times when they will receive them, whether an incentive stock option will be granted, the number of shares to be subject to each option and the date or dates each option will become exercisable. The Board of Directors also has the authority to grant options upon the condition that the individual agrees to cancel all or a part of a previously granted option. The exercise price and term of each option are fixed by the Board of Directors provided, however, that the exercise price must be at least equal to the fair market value of the Common Stock on the date of grant and the term cannot exceed five years. There is no limit on the number of options that may be granted to any one individual, provided that the grant of the options may not cause the Corporation to fail to qualify as a REIT for U.S. Federal income tax purposes. On September 25, 1996, the Corporation granted to Mr. Bernbaum options to purchase 20,000 shares of Common Stock and to each of Messrs. Maynard, Thrall, Witterick, Peterson, Schwartz, McCrae, Kwinta and Dickerson, options to purchase 10,000 shares of Common Stock of the Corporation. Such options will be exercisable at the initial public offering price and may not be exercised prior to the sixth month anniversary of the closing of the Offering. THE PROMOTERS The promoters of this Offering are Basic Capital Funds, a limited partnership formed under the laws of the Province of Ontario on December 29, 1993, and Maynard Rich/Abraham Inc., a corporation incorporated under the laws of the State of Florida in 1995 (collectively, the "Promoters"). Basic Capital Funds Inc., the general partner of Basic Capital Funds, is a corporation incorporated under the laws of the Province of Ontario. Basic Capital Funds in its capacity as principal or promoter, identifies, structures and funds capital projects and start up companies. In many instances, Basic Capital Funds' investments include those which attract enhanced tax benefits pursuant to the Income Tax Act of Canada. Its staff of chartered accountants and lawyers have considerable experience in, tax, real estate, intellectual property, securities and corporate commercial transactions. For the start up company, Basic Capital Funds provides "turn-key" assistance from finance to accounting and marketing. It seeks to bridge the gap between venture capital and hands on management assistance in operations. Ronald L. Bernbaum is the sole director and President of the general partner of Basic Capital Funds. Mr. Bernbaum has been the President of Basic Capital Funds and its predecessor Medstar Properties Inc. since 1989. In this capacity, he has been responsible for the funding, acquisition and management of over 50 $100 million of real estate assets and the funding of $150 million of software development and the funding of numerous software companies. Mr. Bernbaum is a graduate of Osgoode Hall Law School 1977. Maynard Rich/Abraham Inc. and its affiliate companies were formed in 1988. They have performed various real estate services for institutional and individual investors, both foreign and domestic. They have initiated mortgage debt financing for shopping centers, office buildings and net leased properties, performed workout services for both retail and residential (apartment and townhouse) properties, represented owners in Chapter 11 proceedings, managed portfolios totaling in excess of $100 million in value and been engaged in real estate brokerage transactions in excess of $150 million in value involving both improved and unimproved properties. Maynard Rich/Abraham's primary office is in South Florida, with other corporate or affiliate offices in Los Angeles, San Francisco and Boston. Carl Maynard and Richard Schwartz are directors, officers and controlling stockholders of Maynard Rich/Abraham Inc. Mr. Maynard, an engineer with a Bachelors Degree in Electrical Engineering from Union College, has served as managing partner in the design and development of office and industrial parks and as chief operating officer of HMG Properties, Inc., an American Stock Exchange listed REIT with approximately $75 million in assets. Previously Mr. Maynard was President of Westminster Properties Corp., a subsidiary of Industrial National Corp. (now Fleet/Norstar). Westminster acted as investment advisor to Realty Income Trust, a publicly owned REIT. Mr. Maynard also served as a Real Estate Investment Officer with New England Mutual Life Insurance Corporation (The New England). Richard Schwartz has a B.A. in Accounting from Lehigh University where he graduated Phi Beta Kappa. He also has an M.B.A. in Finance from New York University. After serving with L.F. Rothschild, a NYSE member firm, as an arbitrage trader, he entered the real estate securities field. He has served as Executive Vice President of First Capital Financial, a NASDAQ listed sponsor of public real estate limited partnerships. Mr. Schwartz was directly involved with the acquisition of over 65 commercial properties with a total value of $400 million. Mr. Schwartz has also served as Chief Executive Officer of the Courtrust Companies, a real estate investment firm. The Promoters will benefit from the Advisor receiving fees under the Advisory Agreement. In addition, Maynard Rich/Abraham Inc. and its affiliates will receive approximately $192,000 in commissions from the sellers of the Properties that the Corporation will acquire. THE ADVISOR Pursuant to the Advisory Agreement, the Advisor, which was incorporated on March 27, 1996 under the laws of the State of Delaware, will on a continuing basis present investment opportunities to the Corporation, act as investment and financial advisor to the Corporation and administer the day-to-day operations of the Corporation. The day to day operations include the purchase and disposition of real property, the arranging of mortgage financing for such real properties and the supervision of property management, leasing and operation of the Corporation's real property investments. The specific services to be performed by the Advisor are summarized below. This summary is qualified in its entirety by reference to the copy of the form of Advisory Agreement filed as an exhibit to the Registration Statement of which this Prospectus is a part. In performing such services, the Advisor will, at all times, be subject to the continuing and exclusive authority and direction of the Board of Directors of the Corporation. The Advisor will: a) provide or arrange for the provision of research and other data in connection with the Corporation's investments and investment policies; b) act as the Corporation's real property investment manager and consultant, and in so doing make recommendations to the Board of Directors of the Corporation with respect to the acquisition and disposition of investments, perform or arrange for the performance of such inspections and 51 investigations in connection therewith as are deemed appropriate and, upon request of the Board of Directors of the Corporation, supervise closings in respect thereof; c) from time to time arrange for mortgage financing on behalf of the Corporation for its real property investments, provided the Advisor may retain mortgage brokers at the expense of the Corporation to assist in the arrangement of such mortgage financing; d) obtain and review appraisal reports and title opinions or reports from counsel in connection with real property investments made or proposed to be made by the Corporation, review property location, the building and its physical characteristics, the relevant rental market, financial and character data relating to the property and the vendor or purchaser, applicable environmental, zoning and other governmental regulations, the character of tenant mix and quality of tenants, insurance coverage, the long term anticipated total return to the Corporation and other factors in connection with the Corporation's investments; e) supervise the performance of all property management, maintenance and other customary services related to the ownership of the Corporation's real estate investments; f) manage the Corporation's short-term investments; g) supervise the performance of the day-to-day administrative functions in connection with the management of the Corporation; h) deal with, retain or employ other persons on behalf of the Corporation in connection with its investments, including solicitors, consultants, property managers, leasing agents, finders, lenders, brokers, insurers, banks, builders, developers and other investment participants; i) arrange for the provision to the Corporation of any information required in order to report to stockholders; j) arrange for the preparation of budgets; k) arrange for the provision to the Corporation of such services by others, as the Board of Directors may reasonably request in connection with the activities of the Corporation; and l) from time to time, report to the Board of Directors with respect to its performance of the foregoing services. TERM OF THE ADVISORY AGREEMENT The Advisory Agreement has an initial term of five years and, subject to early termination, will be renewed thereafter for further periods of five years upon the majority approval of the Board of Directors of the Corporation, such majority to include a majority of the independent directors, and the approval of a majority of the votes cast at a meeting of the holders of the Common Stock of the Corporation held prior to the termination date of the applicable term. The Advisory Agreement is non-assignable except with the consent of both parties thereto. The Advisor may be removed as advisor to the Corporation in the event of a material default by the Advisor in the performance of any of its obligations or duties under the Advisory Agreement if such default is not rectified within 30 days after the giving of notice thereof to the Advisor. In addition, the Advisor will cease to be entitled to act as Advisor in the event that it becomes bankrupt or insolvent, passes a resolution for its winding-up or dissolution or is ordered dissolved or makes a general assignment for the benefit of its creditors. If the Advisor is removed by the Corporation for the foregoing causes, the Advisor will only be entitled to usual fees payable under the Advisory Agreement to the date of termination. In addition, the Corporation may, without cause, remove the Advisor at any time upon the payment of all amounts owing by the Corporation to the Advisor to the date of termination, together with an amount equal to triple the asset management fees for the last twelve months prior to termination plus an amount 52 equal to the average annual acquisition and disposition fees paid by the Corporation during the three year period prior to termination. Such termination will only be effective upon approval of such termination and alternative management arrangements by two-thirds of the outstanding shares of the Common Stock of the Corporation at a meeting of stockholders called for such purpose. Upon removal, the Advisor will thereupon be released from all obligations under the Advisory Agreement (but without prejudice to any liability existing on such date) and the Corporation will indemnify it against all actions, claims, costs, demands, losses and expenses with respect to events which occur in relation to the Corporation after the effective date of such removal. The Advisor is only liable to the Corporation by reason of acts constituting bad faith, wilful malfeasance, gross negligence or reckless disregard of its duties. FEES AND EXPENSES The Advisor will be entitled to the following fees for its services under the Advisory Agreement: a) an asset management fee: an annual fee based up on the aggregate of the net proceeds received by the Corporation for its issued and outstanding shares after the payment of any commission and direct expenses paid by the Corporation for the issuance of such shares ("Share Capital"), payable monthly and calculated at the following rates:
SHARE CAPITAL RATE - ----------------------------------------------------------------- ----------- Up to $35 Million................................................ 1.50% On the amount over $35 Million and up to $125 Million............ 1.25% On the amount over $125 Million and up to $200 Million........... 1.00% On the amount in excess of of $200 Million....................... 0.75%
Each of the foregoing annual rates is applicable to the portion of the Share Capital which falls within the rate attributable to such capital. Assuming the Offering closes on or about January, 1997, the annual fee payable under the Advisory Agreement for the year ending December 31, 1997 will be approximately $374,000 if no other shares are issued through December 31, 1997; b) an acquisition fee: a fee of 1.5% of the cost of any real property upon the purchase of any real property; c) a disposition fee: a fee of 0.25% of the sale proceeds from the disposition of any real property upon the disposition of such real property; and d) a financing fee: a fee of 0.25% of the principal amount of any financing or refinancing arranged, renewed, extended or increased in respect of any real property upon condition of such financing or refinancing. The Corporation is required to reimburse the Advisor for the fees and expenses directly incurred by the Advisor in performing any of the services required of it under the Advisory Agreement, including all expenses incurred and fees payable to third parties in connection with the acquisition, disposition, improvement and management of investments of the Corporation, but excluding the Advisor's overhead, including without limitation administrative expenses and salaries. In addition to the fees and expenses payable to the Advisor, the Corporation is responsible for all of the expenses of the Corporation including the following: a) interest and other costs of borrowed money; 53 b) taxes and assessments on real property and income, if applicable; c) fees and expenses of lawyers, accountants, appraisers, property managers and other agents or consultants employed by or on behalf of the Corporation; d) expenses of managing, leasing and maintaining real property; e) expenses of servicing mortgages; f) insurance as required; g) expenses in connection with distributions to the stockholders; h) expenses in connection with communications to stockholders and other bookkeeping and clerical work necessary in maintaining relations with stockholders; i) expenses of maintaining books and records; j) registration, custodial, administrative and other fees and expenses in connection with the securities of the Corporation; k) all fees and expenses in connection with the acquisition, disposition and ownership of its investments, including property management fees; l) all fees and expenses of listing and maintaining the listing of the securities of the Corporation on any exchange; m) all fees and expenses of the registrar and transfer agent appointed by the Corporation for its securities; and n) all fees and expenses of the Corporation complying with applicable securities legislation. If and to the extent that the Advisor or any affiliate of the Advisor renders services to the Corporation in addition to those specifically required to be rendered under the Advisory Agreement, the Advisor or such affiliate will be compensated on the basis of fees no less favorable to the Corporation than fees competitive with those generally charged for comparable services and activities. Neither the Advisor nor any of its affiliates will be entitled to charge the Corporation any fee in connection with real estate purchases, sales or mortgage financing transactions undertaken by the Corporation other than as approved unanimously by the Board of Directors. The Advisor or its affiliates may without such approval receive commissions from vendors in connection with real estate purchases by the Corporation and any commission in excess of 1% of the acquisition price to the Corporation will reduce the fee otherwise payable by the Corporation to the Advisor for the purchase of such real property. The majority of the Corporation's independent directors must approve every listing broker for the sale of any real property of the Corporation. The Advisor is responsible for the employment expenses of its personnel, rent and other office expenses and miscellaneous administrative expenses relating to the performance of its functions under the Advisory Agreement. OTHER ACTIVITIES The Advisor, its affiliates and associates may engage in real estate activities for their own account and for the account of others, however they have agreed in the Advisory Agreement not to form or directly or indirectly act as advisors or managers of another REIT without the consent of a majority of the votes cast at a meeting of the holders of the Common Stock of the Corporation. The Advisor, its affiliates and associates are also obligated to present all investment opportunities which fall within the Corporation's then applicable investment policies to the Corporation prior to presenting such opportunities to others or investing in such property for their own account. 54 PROPERTY MANAGEMENT AND OTHER SERVICES If approved by the Board of Directors in any particular case, property management services may be performed by an affiliate of the Advisor, including without limitation Maynard Rich Management Corp. Subject to the supervision of the Advisor, the Corporation is responsible for the payment of all fees and expenses incurred in connection with the ownership of its investments, including property management fees. Such fees, if paid to the Advisor or its affiliates, will be set at commercially competitive rates. Property management fees vary depending on the type, size and location of a property. DIRECTORS AND EXECUTIVE OFFICERS OF THE ADVISOR The names and municipalities of residence of the directors and officers of the Advisor, the offices held by them with the Advisor and their principal occupations are set forth in the following table. See "Management--Directors and Executive Officers of the Corporation and the Promoters."
NAME AND MUNICIPALITIES OFFICE PRINCIPAL OCCUPATION - ------------------------------------- ------------------------------------ ------------------------------------- Ronald L. Bernbaum .................. Chairman of the Board President, Basic Capital Funds North York, Ontario Carl Maynard ........................ Director, President and Chief Principal, The Maynard Rich Miami, Florida Executive Officer Companies; President, Basic Advisors, Inc. Richard Schwartz .................... Director, Vice President Principal, The Maynard Rich Companies Miami, Florida Terry McCrae ........................ Director, Chief Financial Officer Vice President, Investments Basic Mississauga, Ontario and Vice President Finance Capital Funds; Vice President, Basic Advisors, Inc. Aran Kwinta ......................... Secretary Lawyer, Chaiton & Chaiton Toronto, Ontario Richard Dickerson ................... Vice President President, Maynard Rich Management Pasadena, California Corp.
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS Except for the Advisory Agreement and as described below, there have been no material transactions within the three (3) years prior to the date hereof and there are no proposed transactions which in either case have materially affected or will materially affect the Corporation in which the Advisor or any director or officer of the Advisor or any director or officer of the Corporation or any associate or affiliate of any of the foregoing had or has any material interest, direct or indirect. Various conflicts of interest exist between the Corporation and the Advisor and its affiliates. Some of these conflicts arise as a result of the commonality of directorship and management of these entities. The Advisor is expected to benefit and profit from the Advisory Agreement described herein. As well, directors, officers and affiliates of the Corporation and the Advisor are engaged in a wide range of real estate and other business activities and it is unlikely that the Corporation will explore investment opportunities beyond those presented directly or indirectly to the Board of Directors of the Corporation by the Advisor. However, the Advisor has agreed in the Advisory Agreement that it will not form or directly or indirectly act as an advisor or manager of a REIT while it is the advisor to the Corporation without the consent of a majority of the votes cast at a meeting of the holders of the Common Stock of the Corporation. Associates or affiliates of the Advisor, including The Maynard Rich Companies, may receive or have an indirect interest in brokerage commissions or other fees paid by a vendor of real property purchased by the Corporation and may receive or have an indirect interest in brokerage commissions paid 55 by the Corporation if and when the Corporation should determine to sell its real property. The Advisory Agreement provides that the brokerage fees paid to the Advisor or its affiliates by a vendor of real property purchased by the Corporation may only exceed 1% if there is a reduction in the fee payable to the Advisor for the transaction for the excess, and that a majority of the Corporation's independent directors must approve every listing broker for the sale of any real property of the Corporation. The Advisor or its associates or affiliates may derive income from the Corporation for property management services rendered to properties owned by the Corporation or for other real estate business services not included in the services provided under the Advisory Agreement. Maryland corporate law requires directors and officers of the Corporation to disclose to the Corporation any interest in a material contract or proposed material contract. The directors, officers and employees of the Corporation and the Advisor will devote so much of their time to the Corporation as in their judgment is reasonably required and they may have conflicts of interest in allocating time, services and functions among the Corporation and their other activities. Investment in the Corporation will not carry with it the right for the Corporation or any stockholder to invest in any other property or venture of the Promoters or the Advisor or their respective associates or affiliates or to share in any profit therefrom or any interest therein. See "Management--The Promoters, The Advisor and Directors and Executive Officers of the Corporation." SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the number and percentage of shares of Common Stock which, according to information supplied to the Corporation, are beneficially owned by: (i) each person who is the beneficial owner of more than 5% of the Common Stock; (ii) each of the directors, and named executive officers of the Corporation individually; and (iii) all current directors and executive officers of the Corporation as a group. Under rules adopted by the Securities and Exchange Commission, a person is deemed to be a beneficial owner of Common Stock with respect to which he has or shares voting power (which includes the power to vote or to direct the voting of the security), or investment power (which includes the power to dispose of, or to direct the disposition of, the security). A person is also deemed to be the beneficial owner of shares with respect to which he could obtain voting or investment power within 60 days of the date of this Prospectus, such as upon the exercise of options or warrants.
NUMBER OF SHARES PERCENTAGE OF NAME OF BENEFICIAL OWNER (1) BENEFICIALLY OWNED BENEFICIAL OWNERSHIP - ------------------------------------------------------------------------- --------------------- ----------------------- Ronald L. Bernbaum....................................................... 100 100% All Directors and Executive Officers as a Group.......................... 100 100%
- ------------------------ (1) The address of Mr. Bernbaum is c/o Basic U.S. REIT, Inc., 7850 Northwest 146th Street, Suite 308, Miami, Florida 33016. The following table sets forth all options to purchase shares of Common Stock currently held by the directors and executive officers of the Corporation. All of the options are exercisable at a price per share 56 equal to the initial public offering price and may not be exercised prior to the six month anniversary of the closing of the Offering. Such options expire on September 25, 2001.
NUMBER OF SHARES DIRECTOR/EXECUTIVE OFFICER UNDERLYING OPTIONS - ---------------------------------------------------------------- ------------------- Ronald L. Bernbaum.............................................. 20,000 Carl Maynard.................................................... 10,000 Larry Thrall.................................................... 10,000 Robert G. Witterick............................................. 10,000 Nils Peterson................................................... 10,000 Richard Schwartz................................................ 10,000 Terry McCrae.................................................... 10,000 Aran Kwinta..................................................... 10,000 Richard Dickerson............................................... 10,000
LEGAL PROCEEDINGS The Corporation and the Properties are not presently subject to any material litigation. Nor, to the Corporation's knowledge, is any material litigation threatened against the Corporation or the Properties, other than routine litigation arising in the ordinary course of business and which is expected to be covered by liability insurance. DESCRIPTION OF CAPITAL OF THE CORPORATION The following summary of the terms of the Corporation's stock does not purport to be complete and is subject to and qualified in its entirety by reference to the Corporation's Amended and Restated Articles of Incorporation and bylaws. See "Additional Information." GENERAL The Amended and Restated Articles of Incorporation provides that the Corporation may issue up to 100,000,000 shares of common stock, $0.01 par value per share ("Common Stock"), 1,500,000 shares of preferred stock, $0.01 par value per share ("Preferred Stock"), and 50,000,000 shares of excess stock, $0.01 par value per share ("Excess Stock"). As of September 30, 1996, 100 shares of Common Stock were issued and outstanding to Ronald L. Bernbaum and no Preferred Stock or Excess Stock was issued and outstanding. Upon completion of this Offering, 2,740,100 shares of Common Stock will be issued and outstanding and there will be no Preferred Stock or Excess Stock outstanding. Except as otherwise may be determined by the Board of Directors with respect to any series of Preferred Stock, no shares will have preference, conversion, exchange, sinking fund, redemption or preemptive rights. COMMON STOCK All Common Stock offered hereby have been duly authorized, and will be fully paid and non-assessable. Subject to the preferential rights of any other shares or series of stock and to the provisions of the Amended and Restated Articles of Incorporation regarding Excess Stock, holders of Common Stock are entitled to receive dividends on such stock if and when authorized and declared by the Board of Directors out of assets legally available therefor and to share ratably in the assets of the Corporation legally available for distribution to its stockholders in the event of its liquidation, dissolution or winding up after payment of or adequate provision for all known debts and liabilities of the Corporation. The Corporation intends to make regular quarterly distributions. See "Distribution Policy." Subject to the provisions of the Amended and Restated Articles of Incorporation regarding Excess Stock, each share of outstanding Common Stock entitles the holder to one vote on all matters submitted to a vote of stockholders, including the election of directors, and, except as provided with respect to any other 57 class or series of stock, the holders of such shares will possess the exclusive voting power. There is no cumulative voting in the election of directors, which means that the holders of a majority of outstanding shares of Common Stock can elect all of the directors then standing for election and the holders of the remaining shares will not be able to elect any directors. Any nominee for director must have been selected pursuant to the nominating provisions contained in the bylaws. Holders of Common Stock have no preference, conversion, exchange, sinking fund, redemption or appraisal rights and have no preemptive rights to subscribe for any securities of the Corporation. Subject to the provisions of the Amended and Restated Articles of Incorporation regarding Excess Stock, Common Stock will have equal dividend, liquidation and other rights. The Amended and Restated Articles of Incorporation provides that the Corporation may not dissolve, amend its charter, merge, sell all or substantially all of its assets, engage in a share exchange or engage in similar transactions outside the ordinary course of business unless approved by the affirmative vote of stockholders holding at least two-thirds of the shares entitled to vote on the matter, except in the case of provisions in the Amended and Restated Articles of Incorporation regarding the nomination and election of directors, which must be approved by the affirmative vote of stockholders holding at least 80% of the shares entitled to vote thereon. PREFERRED STOCK The Amended and Restated Articles of Incorporation authorizes the Board of Directors to classify any unissued Preferred Stock and to reclassify any previously classified but unissued Preferred Stock of any series. Prior to issuance of shares of each series, the Board is required to designate the terms, preferences, conversion or other rights, voting powers, restrictions, limitations and restrictions on ownership, limitations as to dividends or other distributions, qualifications and terms or conditions of redemption for each such series. Accordingly, the Board of Directors could authorize the issuance of Preferred Stock with terms and conditions which could have the effect of delaying, deferring or preventing a transaction or a change in control of the Corporation that might involve a premium price for holders of Common Stock or otherwise be in their best interest. As of the date hereof, no shares of Preferred Stock are outstanding and the Corporation has no present plans to issue any Preferred Stock. POWER TO ISSUE ADDITIONAL COMMON STOCK AND PREFERRED STOCK The Corporation believes that the power of the Board of Directors to issue additional authorized but unissued Common Stock or Preferred Stock and to reclassify any unissued Common Stock and classify or reclassify any unissued Preferred Stock and thereafter cause the Corporation to issue such classified or reclassified shares will provide the Corporation with increased flexibility in structuring possible future financings and acquisitions and in meeting other corporate objectives. The additional classes or series, as well as the Common Stock, will be available for issuance without further action by the Corporation's stockholders, unless such action is required by applicable law or the rules of any stock exchange or automated quotation system on which the Corporation's securities may be listed or traded. Although the Board of Directors has no intention at the present time of doing so, it could authorize the Corporation to issue a class or series that could, depending upon the terms of such class or series, delay, defer or prevent a transaction or a change of control of the Corporation that might involve a premium price for holders of Common Stock or otherwise be in their best interests. EXCESS STOCK--RESTRICTIONS ON TRANSFER For the Corporation to qualify as a REIT under the Code, among other things, not more than 50% in value of its outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of a taxable year (other than the first year) or during a proportionate part of a shorter taxable year (the "Five or Fewer Test"), and such capital stock must be beneficially owned by 100 or more 58 persons during at least 335 days of a taxable year of 12 months (other than the first year) or during a proportionate part of a shorter taxable year. The Five or Fewer Test is applied using certain constructive ownership and attribution rules of the Code. In order to protect the Corporation against the risk of losing its status as a REIT due to concentration of ownership among its stockholders, the Amended and Restated Articles of Incorporation, subject to certain exceptions, provide that no stockholder may own, or be deemed to own by virtue of the attribution provisions of the Code, more than 9.5% (the "Ownership Limit") of the lesser of the aggregate number or value of the Corporation's outstanding Common Stock. In the event the Corporation issues Preferred Stock, it may, in the certificate of designation creating such Preferred Stock, determine a limit on the ownership of such shares. Any direct or indirect ownership of shares in excess of the Ownership Limit or that would result in the disqualification of the Corporation as a REIT, including any transfer that results in capital stock being owned by fewer than 100 persons or results in the Corporation being "closely held" within the meaning of Section 856(h) of the Code, shall be null and void, and the intended transferee will acquire no rights to the capital stock. The foregoing restrictions on transferability and ownership will not apply if the Board of Directors determines that it is no longer in the best interests of the Corporation to attempt to qualify, or to continue to qualify, as a REIT and a majority of the Corporation's voting stockholders approve such determination by the Board. The Board of Directors may, in its sole discretion, waive the Ownership Limit if evidence satisfactory to the Board of Directors and the Corporation's tax counsel is presented that the changes in ownership will not then or in the future jeopardize the Corporation's REIT status and the Board of Directors otherwise decides that such action is in the best interests of the Corporation. Any person who acquires or attempts to acquire any capital stock of the Corporation in violation of the Ownership Limit or which would result in the disqualification of the Corporation as a REIT, and any person who is or attempts to become a transferee of capital stock of the Corporation such that Excess Stock results, must immediately give written notice, or, in the event of a proposed or attempted transfer, at least 15 days prior written notice, to the Corporation of such event and must provide the Corporation with such other information as the Corporation may request in order to determine the effect, if any, of such acquisition or transfer, whether consummated or attempted, on the Corporation's status as a REIT. Shares owned, or deemed to be owned, or transferred to a stockholder in excess of the Ownership Limit will automatically be converted into Excess Stock that will be transferred, by operation of law, to the trustee of a trust for the exclusive benefit of one or more charitable organizations described in Section 170(b)(1)(A), 170(c) and 501(c)(3) of the Code (the "Charitable Beneficiary"). The trustee of the trust will be deemed to own the Excess Stock for the benefit of the Charitable Beneficiary on the date of the violative transfer to the original transferee-stockholder. Any dividend or distribution paid to the original transferee-stockholder of Excess Stock prior to discovery by the Corporation that shares have been transferred in violation of the provisions of the Corporation's Amended and Restated Articles of Incorporation shall be repaid to the trustee upon demand. Any dividend or distribution authorized and declared but unpaid shall be rescinded as void ab initio with respect to the original transferee-stockholder and shall instead be paid to the trustee of the trust for the benefit of the Charitable Beneficiary. Any vote cast by an original transferee-stockholder of shares constituting Excess Stock prior to the discovery by the Corporation that shares of capital stock have been transferred in violation of the provisions of the Corporation's Amended and Restated Articles of Incorporation shall be void ab initio. While the Excess Stock is held in trust, the original transferee-stockholder will be deemed to have given an irrevocable proxy to the trustee to vote the capital stock for the benefit of the Charitable Beneficiary. The trustee of the trust may transfer the interest in the trust representing the Excess Stock to any person whose ownership of the shares converted into such Excess Stock would be permitted under the Ownership Limit. If such transfer is made, the interest of the Charitable Beneficiary shall terminate and the proceeds of the sale shall be payable to the original transferee-stockholder and to the Charitable Beneficiary. The original transferee-stockholder shall receive the lesser of (i) the price paid by the original transferee-stockholder for the shares that were converted into Excess Stock or, if the original transferee-stockholder did not give value for such shares (e.g., the shares were received through a gift or other transaction), the average closing price 59 on the principal U.S. or foreign securities exchange on which the class of shares from which such shares were converted is then listed or admitted to trading for the ten trading days immediately preceding such sale or gift; and (ii) the price received by the trustee from the sale or other disposition of the Excess Stock held in trust. The trustee may reduce the amount payable to the original transferee-stockholder by the amount of dividends and distributions relating to the shares of Excess Stock which have been paid to the original transferee-stockholder and are owed by the original transferee-stockholder to the trustee. Any proceeds in excess of the amount payable to the original transferee-stockholder shall be paid by the trustee to the Charitable Beneficiary. Any liquidation distributions relating to the Excess Stock shall be distributed in the same manner as proceeds of a sale of Excess Stock. If the foregoing transfer restrictions are determined to be void or invalid by virtue of any legal decision, statute, rule or regulation, then the original transferee-stockholder of any shares of Excess Stock may be deemed, at the option of the Corporation, to have acted as an agent on behalf of the Corporation in acquiring the shares of Excess Stock and to hold the shares of Excess Stock on behalf of the Corporation. In addition, the Corporation will have the right, for a period of 90 days during the time any shares of Excess Stock are held in trust, to purchase all or any portion of the shares of Excess Stock at the lesser of (i) the price initially paid for such shares by the original transferee-stockholder, or if the original transferee-stockholder did not give value for such shares (e.g., the shares were received through a gift or other transaction), the average closing price for the class of shares from which such shares of Excess Stock were converted for the ten trading days immediately preceding such sale or gift and (ii) the average of the last reported closing sales price on the principal U.S. or foreign securities exchange on or over which the class of capital stock from which such shares of Excess Stock were converted is listed or admitted to trading for the ten trading days immediately preceding the date the Corporation elects to purchase such shares. The Corporation may reduce the amount payable to the original transferee-stockholder by the amount of dividends and distributions relating to the shares of Excess Stock which have been paid to the original transferee-stockholder and are owed by the original transferee-stockholder to the trustee. The Corporation may pay the amount of such reductions to the trustee for the benefit of the Charitable Beneficiary. The 90 day period begins on the later date of which notice is received of the violative transfer if the original transferee-stockholder gives notice to the Corporation of the transfer or, if no such notice is given, the date the Board of Directors determines that a violative transfer has been made. These restrictions will not preclude settlement of transactions through any U.S. or foreign securities exchange or quotation system on which the Corporation's stock is listed or admitted for trading. The fact that settlement of a transaction may so occur will negate the effect of any of these transactions and any transferee in such a transaction will be subject to all of these restrictions. All certificates representing capital stock will bear a legend referring to the restrictions described above. Each stockholder shall upon demand be required to disclose to the Corporation in writing any information with respect to the direct, indirect and constructive ownership of capital stock of the Corporation that the Board of Directors deems necessary to comply with the provisions of the Code applicable to REITs, to comply with the requirements of any taxing authority or governmental agency or to determine any such compliance. The Ownership Limit may have the effect of delaying, deferring or preventing a change in control of the Corporation unless the Board of Directors determines that maintenance of REIT status is no longer in the best interest of the Corporation. DIVIDEND REINVESTMENT PROGRAM The Corporation intends to implement a dividend reinvestment program under which stockholders may elect automatically to reinvest their dividends in Common Stock. The Corporation may from time to time repurchase Common Stock in the open market for the purpose of fulfilling its obligations under this 60 dividend reinvestment program or may elect to issue additional Common Stock. The Corporation may reserve 500,000 shares of Common Stock for issuance under the dividend reinvestment program and may purchase up to 250,000 Common Stock on the open market in 1997 to issue to stockholders under the dividend reinvestment program. The Corporation intends to use a combination of sources obtained from its working capital and proceeds from future equity financings and debt financings to fund such purchases. TRANSFER AGENT AND REGISTRAR. The transfer agent and registrar is American Stock Transfer & Trust Company. CERTAIN PROVISIONS OF MARYLAND LAW AND THE CORPORATION'S AMENDED AND RESTATED ARTICLES OF INCORPORATION AND BYLAWS The following summary of certain provisions of Maryland law and of the Corporation's Amended and Restated Articles of Incorporation and bylaws does not purport to be complete and is subject to and qualified in its entirety by reference to the Corporation's Amended and Restated Articles of Incorporation and bylaws. See "Additional Information." NUMBER OF DIRECTORS The Amended and Restated Articles of Incorporation and bylaws of the Corporation provide that the number of directors of the Corporation may be no less than three and no more than ten but may not be fewer than the minimum number required by Maryland law. The number of directors may be determined by the affirmative vote of a majority of the Board of Directors or by the stockholders at the Corporation's annual meeting. Any vacancy will be filled, at any regular meeting or at any special meeting called for that purpose, by a majority of the remaining directors, except that a vacancy resulting from an increase in the number of directors must be filled by a majority of the entire Board of Directors. BUSINESS COMBINATIONS Under the General Corporation Law of the State of Maryland ("MGCL"), certain "business combinations" (including a merger, consolidation, share exchange or, in certain circumstances, an asset transfer or issuance or reclassification of equity securities) between a Maryland corporation and any person who beneficially owns 10% or more of the voting power of the corporation's shares or an affiliate of the corporation, who at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of the corporation (an "Interested Stockholder") or an affiliate thereof are prohibited for five years after the most recent date on which the Interested Stockholder became an Interested Stockholder. Thereafter, any such business combination must be recommended by the board of directors of such corporation and approved by the affirmative vote of at least (a) 80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation and (b) two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the Interested Stockholder with whom (or with whose affiliate) the business combination is to be effected, unless, among other conditions, the corporation's common stockholders receive a minimum price (as defined in the MGCL) for their shares and the consideration is received in cash or in the same form as previously paid by the Interested Stockholder for its shares. These provisions of Maryland law do not apply, however, to business combinations that are approved or exempted by the board of directors of the corporation prior to the time that the Interested Stockholder becomes an Interested Stockholder. The Amended and Restated Articles of Incorporation of the Corporation provide that the Maryland business combination provision of the MGCL do not apply to the Corporation. As a result, Interested Stockholders and affiliates thereof may be able to enter into a business combination with the Corporation, 61 which may not be in the best interests of the Corporation, without compliance by the Corporation with the super-majority vote requirements or other provisions of the MGCL. CONTROL SHARE ACQUISITIONS The MGCL provides that "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights except to the extent approved by a vote of two-thirds of the votes entitled to be cast on the matter, excluding shares of stock owned by the acquiror, by officers or by directors who are employees of the corporation. "Control shares" are voting shares of stock which, if aggregated with all other such shares of stock previously acquired by the acquiror, or in respect of which the acquiror is able to exercise or direct the exercise of voting power (except solely by virtue of a revocable proxy), would entitle the acquiror to exercise voting power in electing directors within any one of the following ranges of voting power: (i) one-fifth or more but less than one-third; (ii) one-third or more but less than a majority; or (iii) a majority or more of all voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A "control share acquisition" means the direct or indirect acquisition of ownership of, or power to direct the exercise of voting power with respect to, control shares, subject to certain exceptions. The bylaws of the Corporation provide that the Corporation has elected not to be governed by the control share acquisition provisions of the MGCL. There can be no assurance that such provision will not be amended or eliminated at any time in the future. AMENDMENT TO THE AMENDED AND RESTATED ARTICLES OF INCORPORATION The Amended and Restated Articles of Incorporation may be amended only by the affirmative vote of the holders of not less than two-thirds of all of the votes entitled to be cast on the matter; provided, however, that certain provisions of the Amended and Restated Articles of Incorporation, such as those relating to the nomination and election of the Board of Directors, may be amended only by the affirmative vote of the holders of not less than 80% of all votes entitled to be cast on the matter. DISSOLUTION OF THE CORPORATION The dissolution of the Corporation must be approved by the affirmative vote of the holders of not less than two-thirds of all of the votes entitled to be cast on the matter. ADVANCE NOTICE OF DIRECTORS NOMINATIONS AND NEW BUSINESS The bylaws of the Corporation provide that (a) with respect to an annual meeting of stockholders, nominations of persons for election to the Board of Directors and proposal of business to be considered by stockholders may be made only (i) pursuant to the Corporation's notice of the meeting; (ii) by the Board of Directors; or (iii) by a stockholder who is entitled to vote at the meeting and has complied with advance notice procedures set forth in the bylaws and (b) with respect to a special meeting of stockholders, only the business specified in the Corporation's notice of meeting may be brought before the meeting of stockholders and nominations of persons for election to the Board of Directors may be made only (i) pursuant to the Corporation's notice of the meeting; (ii) by the Board of Directors; or (iii) provided that the Board of Directors has determined that the directors shall be elected at such meeting, by a stockholder who is entitled to vote at the meeting and has complied with the advance notice provisions set forth in the bylaws of the Corporation. MEETINGS OF STOCKHOLDERS The bylaws of the Corporation provide that annual meetings of stockholders shall be held on such date and at such time as the Board of Directors may set. Special meetings of the stockholders may be called by (i) the President of the Corporation; or (ii) the Board of Directors. Under the MGCL, the 62 Secretary of the Corporation must call a special meeting upon the written request of the holders of shares entitled to cast not less than 25% of all the votes entitled to be cast at the meeting. The Corporation's bylaws provide that any stockholder of record wishing to nominate a director or have a stockholder proposal considered at an annual meeting (except for stockholder proposals included in the Corporation's proxy materials pursuant to Rule 14a-8 under the Securities Exchange Act) must provide written notice and certain supporting documentation to the Corporation relating to the nomination or proposal not less than 60 days nor more than 90 days prior to the anniversary date of the prior year's annual meeting or special meeting in lieu thereof (the "Anniversary Date"). In the event that the annual meeting is called for a date more than seven calendar days before or delayed more than 60 days from the Anniversary Date, stockholders generally must provide written notice within 20 calendar days after the date on which notice of the meeting is mailed to stockholders. The purpose of requiring stockholders to give the Corporation advance notice of nominations and other business is to afford the Board of Directors a meaningful opportunity to consider the qualifications of the proposed nominee(s) or the advisability of the other proposed business and, to the extent deemed necessary or desirable by the Board of Directors, to inform stockholders and make recommendations about the qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although the bylaws of the Corporation do not give the Board of Directors any power to disapprove stockholder nominations for the election of directors or proposals for action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if the proper procedures are not followed, and of discouraging or deferring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal, without regard to whether consideration of the nominees or proposals might be harmful or beneficial to the Corporation and its stockholders. LIMITATION OF LIABILITY AND INDEMNIFICATION The MGCL permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services; or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action adjudicated in the proceeding. The Amended and Restated Articles of Incorporation contain such a provision which eliminates such liability to the maximum extent permitted by Maryland law. The Amended and Restated Articles of Incorporation authorize the Corporation, to the maximum extent permitted by Maryland law, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any present or former director or officer or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, who is or was a party to such a proceeding by reason of serving in such capacity. The Amended and Restated Articles of Incorporation and bylaws of the Corporation obligate it, to the maximum extent permitted by Maryland law, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any present or former director or officer who is made a party to the proceeding by reason of his service in that capacity or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee of such corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made a party to the proceeding by reason of his service in that capacity. The Amended and Restated Articles of Incorporation and bylaws of the Corporation also permit the Corporation to indemnify and advance or reimburse expenses to any person who served a predecessor of the Corporation in any of the capacities described above and to any employee or agent of the Corporation or a predecessor of the Corporation. 63 The MGCL requires a corporation (unless its charter provides otherwise, which the Amended and Restated Articles of Incorporation do not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made a party by reason of his service in that capacity. The MGCL permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe the act or omission was unlawful. However, a Maryland corporation may not indemnify for (a) an adverse judgment in a suit by or in the right of the corporation or (b) any proceeding charging an improper personal benefit to the director or officer, whether or not involving action in an official capacity, in which the director or officer is adjudged liable on the basis that personal benefit was improperly received. In addition, the MGCL requires the Corporation to, as a condition to advancing expenses, to obtain (a) a written affirmation by the director or officer of his good faith belief that he has met the standard of conduct necessary for indemnification by the Corporation as authorized by the Amended and Restated Articles of Incorporation and bylaws and (b) a written undertaking by or on his behalf to repay the amount paid or reimbursed by the Corporation if it shall be ultimately be determined that the standard of conduct was not met. Indemnification under the provisions of the MGCL is not deemed exclusive of any other rights, by indemnification or otherwise, to which a director or officer may be entitled under the Corporation's Amended and Restated Articles of Incorporation or bylaws, or under resolutions of stockholders or directors, contract or otherwise. SEC POSITION ON INDEMNIFICATION It is the position of the SEC that indemnification of directors and officers for liabilities arising under the Securities Act is against public policy and thus unenforceable pursuant to Section 14 of the Securities Act. INSURANCE The Corporation intends to purchase and maintain insurance on behalf of all of its directors and executive officers against liability asserted against or incurred by them in their official capacities with the Corporation, whether or not the Corporation is required or has the power to indemnify them against the same liability. U.S. FEDERAL INCOME TAX CONSIDERATIONS GENERAL In the opinion of Schnader Harrison Segal & Lewis the following summary presents the principal U.S. Federal income tax consequences to the Corporation and the holders of Common Stock of the treatment of the Corporation as a REIT under the applicable provisions of the Code, and under the Canada-U.S. Income Tax Convention (the "Treaty"), as amended by a revised protocol that entered into force November 9, 1995 (the "Protocol"), but does not discuss all of the aspects of U.S. Federal income taxation that may be relevant to a prospective stockholder in light of his or her particular circumstances or to certain types of stockholders (including insurance companies, tax-exempt entities, financial institutions or broker-dealers) who are subject to special treatment under the U.S. Federal income tax laws. The following discussion, which is not exhaustive of all possible tax considerations, does not give a detailed discussion of any state, local or non-U.S. tax considerations. 64 EACH PROSPECTIVE PURCHASER IS ADVISED TO CONSULT WITH HIS OR HER TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE PURCHASE, OWNERSHIP AND SALE OF SHARES IN AN ENTITY ELECTING TO BE TAXED AS A REIT, INCLUDING THE U.S. FEDERAL, STATE, LOCAL, NON-U.S. AND OTHER TAX CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL CHANGES IN APPLICABLE TAX LAWS TAXATION OF THE CORPORATION GENERAL--The Corporation will elect to be taxed as a REIT under Sections 856 through 859 of the Code, commencing with its taxable year ending December 31, 1997. The Corporation expects that it will be organized and operated in such a manner as to qualify for taxation as a REIT under the Code commencing with its taxable year ending December 31, 1997, and the Corporation intends to continue to operate in such a manner. No assurance, however, can be given that the Corporation will be organized and operated in such a manner. Qualification and taxation as a REIT depends upon the Corporation's ability to meet on a continuing basis, through actual annual operating results, distribution levels and diversity of stock ownership, the various qualification tests imposed under the Code on REITs, some of which are summarized below. While the Corporation intends to operate so that it qualifies as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in circumstances of the Corporation, no assurance can be given that the Corporation satisfies such tests or will continue to do so. (See "Failure to Qualify" below.) The Corporation expects to acquire the Properties in January, 1997 and accordingly will not elect to be taxed as a REIT, or qualify to make such an election, for its taxable year ending December 31, 1996. The Corporation generally will be subject to tax on net built-in gains, if any, existing immediately before the REIT election becomes effective. It is not anticipated, however, that the Corporation will have any significant amount of net built-in gains immediately before January 1, 1997, when the Corporation's REIT election is expected to be effective. In addition, the Corporation generally would not qualify as a REIT unless it distributed its accumulated earnings and profits for any year in which it was not a REIT. It is not anticipated, however, that the Corporation will have any significant amount of earnings and profits accumulated prior to January 1, 1997. The following is a general summary of the Code provisions that govern the U.S. Federal income tax treatment of a REIT and its stockholders. These provisions of the Code are highly technical and complex. This summary is qualified in its entirety by the applicable Code provisions, Treasury Regulations and administrative and judicial interpretations thereof. If the Corporation qualifies for taxation as a REIT, it generally will not be subject to U.S. Federal corporate income taxes on net income or capital gain that it currently distributes to stockholders. Such treatment substantially eliminates the federal "double taxation" on earnings (tax at both the corporate and the stockholder level) that generally results from investment in a corporation. Despite the REIT election, the Corporation may be subject to U.S. Federal income and excise tax as follows: (i) the Corporation will be taxed at regular corporate rates on any undistributed REIT taxable income, including undistributed net capital gains, (ii) under certain circumstances, the Corporation may be subject to the "alternative minimum tax" on certain of its items of tax preferences, if any, (iii) if the Corporation has (a) net income from the sale or other disposition of "foreclosure property" that is held primarily for sale to customers in the ordinary course of business or (b) other nonqualifying net income from foreclosure property, it will be subject to tax at the highest corporate rate on such income, (iv) if the Corporation has net income from prohibited transactions (which are, in general, certain sales or other dispositions of property held primarily for sale to customers in the ordinary course of business, other than sales of foreclosure property and sales that qualify for a statutory safe harbor), such income will be subject to a 100% tax, (v) if the Corporation should fail to satisfy the 75% gross income test or the 95% gross income test (as discussed below), but has nonetheless maintained its qualification as a REIT because 65 certain other requirements have been met, it will be subject to a 100% tax on the net income attributable to the greater of the amount by which the Corporation fails the 75% or 95% test, multiplied by a fraction intended to reflect the Corporation's profitability, and (vi) if the Corporation should fail to distribute, or fail to be treated as having distributed, with respect to each calendar year at least the sum of (a) 85% of its REIT ordinary income for such year, (b) 95% of its REIT capital gain net income for such year, and (c) any undistributed taxable income from prior periods, the Corporation would be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. The Corporation does not now intend to acquire any appreciated assets from a corporation generally subject to full corporate-level tax in a transaction in which any gain on the transfer is not fully recognized. However, in the event of such an acquisition, the Corporation could, under certain circumstances, be subject to tax upon disposition of such assets. REQUIREMENTS FOR QUALIFICATION--The Code defines a REIT as a corporation, trust or association (1) that is managed by one or more trustees or directors; (2) the beneficial ownership of which is evidenced by transferable stock, or by transferable certificates of beneficial interest; (3) that would be taxable as a domestic corporation, but for Sections 856 through 859 of the Code; (4) that is neither a financial institution nor an insurance company subject to certain provisions of the Code; (5) the beneficial ownership of which is held by 100 or more persons; (6) that during the last half of each taxable year not more than 50% in value of the outstanding stock of which is owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities); and (7) that meets certain other tests, described below, regarding the nature of its income and assets. The Code provides that conditions (1) through (4), inclusive, must be met during the entire taxable year and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a taxable year of less than 12 months. The Corporation expects to issue sufficient shares pursuant to this offering to allow it to ultimately meet the requirements set forth in (5) and (6) above. Requirements (5) and (6) need not be met in the first taxable year in which an election to be taxed as a REIT is made. In addition, the Corporation's Amended and Restated Articles of Incorporation contain restrictions regarding the transfer of its Common Stock that are intended to assist the Corporation in continuing to satisfy the share ownership requirements described in (5) and (6) above. (See "Description of Capital Stock of the Corporation" and "Excess Stock--Restrictions on Transfer") In addition, a corporation may not elect to become a REIT unless its taxable year is the calendar year. The Corporation satisfies this requirement. INCOME TESTS--In order to qualify as a REIT, the Corporation annually must satisfy three gross income requirements. First, at least 75% of the Corporation's gross income (excluding gross income from prohibited transactions) for each taxable year must be derived directly or indirectly from investments relating to real property or mortgages on real property (as interest on obligations secured by mortgages on real property, certain "rents from real property" or as gain on the sale or exchange of such property and certain fees with respect to agreements to make or acquire mortgage loans) or from certain types of temporary investments (the "75% Income Test"). Second, at least 95% of the Corporation's gross income (excluding gross income from prohibited transactions) for each taxable year must be derived from income which satisfies the 75% Income Test, dividends, interest and gain from the sale or disposition of stock or securities (or from any combination of the foregoing). Third, short-term gain from the sale or other disposition of stock or securities, gain from prohibited transactions and gain on the sale or other disposition of real property held for less than four years (apart from involuntary conversions and sales of foreclosure property) must represent less than 30% of the Corporation's gross income (including gross income from prohibited transactions) for each taxable year. Rents received by the Corporation will qualify as "rents from real property" satisfying the gross income requirements described above only if several conditions are met. First, the amount of rent must not 66 be based in whole or in part on the income or profits of any person. However, an amount received or accrued generally will not be excluded from the term "rents from real property" solely by reason of being based on a fixed percentage or percentages of receipts or sales. Second, the Code provides that rents received from a tenant will not qualify as "rents from real property" in satisfying the gross income tests if the Corporation, or an owner of 10% of more of the Corporation, directly or constructively owns 10% or more of the tenant or the assets or net profits of such tenant (a "Related Party Tenant"). Third, if rent attributable to personal property leased in connection with a lease of real property is greater than 15% of the total rent received under the lease, then the portion of rent attributable to such personal property will not qualify as "rents from real property". Finally, for rents received to qualify as "rents from real property", the Corporation generally must not operate or manage the property or furnish or render services to the tenants of such property, other than through an independent contractor that is adequately compensated from whom the Corporation derives no revenue; provided, however, the Corporation may directly perform certain services that are "usually or customarily rendered" in connection with the rental of space for occupancy only and are not otherwise considered "rendered to the occupant" of the property. The Corporation will not charge rent for any property that is based in whole or in part on the income or profits of any person (except by reason of being based on a fixed percentage or percentages of receipts or sales, as described above); the Corporation will not rent any property to a Related Party Tenant; the Corporation will not derive rental income attributable to personal property (other than personal property leased in connection with the lease of real property, the amount of which is less than 15% of the total rent received under the lease); and any activities that the Corporation believes may not be provided without jeopardizing the qualification of rent as "rents from real property" will be performed by an independent contractor. If the Corporation fails to satisfy one or both of the 75% or 95% gross income tests for any taxable year, it may nevertheless qualify as a REIT for such year if it is entitled to relief under certain provisions of the Code. These relief provisions will generally be available if the Corporation's failure to meet such tests was due to reasonable cause and not due to wilful neglect, the Corporation attaches a schedule of the sources of its income to its U.S. Federal income tax return, and any incorrect information on the schedule was not due to fraud with intent to evade tax. It is not possible, however, to state whether in all circumstances the Corporation would be entitled to the benefit of these relief provisions. As discussed above, even if these relief provisions apply, the Corporation will, however, still be subject to a special tax based upon the greater of the amount by which it fails either the 75% or 95% gross income test for that year. See "Federal Income Tax Considerations--Taxation of the Corporation--General." ASSET TESTS--The Corporation, at the close of each quarter of its taxable year, must satisfy two tests relating to the nature of its assets. First, at least 75% of the value of the Corporation's total assets must be represented by real estate assets (including (i) assets held by the Corporation's "qualified REIT subsidiaries" and the Corporation's allocable share of real estate assets held by partnerships in which the Corporation owns an interest and (ii) stock or debt instruments held for not more than one year purchased with the proceeds of a stock offering or long-term (at least five years) public debt offering of the Corporation), cash, cash items and government securities. Second, not more than 25% of the value of the Corporation's total assets may be represented by securities other than those in the 75% asset class and (i) the value of any one issuer's securities owned by the Corporation may not exceed 5% of the value of the Corporation's total assets and (ii) the Corporation may not own more than 10% of any one issuer's outstanding voting securities. The Corporation expects to have direct and indirect wholly-owned subsidiaries. As set forth above, the ownership of more than 10% of the voting securities of any one issuer by a REIT is prohibited by the asset tests. However, if the Corporation's subsidiaries are "qualified REIT subsidiaries" as defined in the Code, such subsidiaries will not be treated as separate corporations for U.S. Federal income tax purposes. Thus, the Corporation's ownership of stock of a "qualified REIT subsidiary" will not cause the Corporation to fail the asset tests. 67 After initially meeting the asset tests at the close of any quarter, the Corporation will not lose its status as a REIT if it fails to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If the failure to satisfy the asset tests results from an acquisition of securities or other property during a quarter, the failure can be cured by disposition of sufficient nonqualifying assets within 30 days after the close of that quarter. The Corporation intends to maintain adequate records of the value of its assets to ensure compliance with the asset tests, and to take such action within 30 days after the close of any quarter as may be required to cure any noncompliance but no assurance can be given that such asset tests will be met. ANNUAL DISTRIBUTION REQUIREMENTS--To qualify as a REIT, the Corporation generally must distribute annually to its stockholders an amount equal to (A) the sum of (i) 95% of the Corporation's REIT taxable income (which is defined generally as the taxable income of the Corporation computed without regard to the dividends paid deduction and the Corporation's net capital gain) plus (ii) 95% of the net income (after tax), if any, from foreclosure property, minus (B) the sum of certain items of noncash income. Such distributions must be paid in the taxable year to which they relate or in the following taxable year if declared before the Corporation timely files its tax return for such year and if paid on or before the first regular dividend payment after such declaration. To the extent that the Corporation does not distribute (or is not treated as having distributed) all of its net capital gain or distributes (or is treated as having distributed) at least 95%, but less than 100% of its REIT taxable income, as adjusted, it will be subject to tax thereon at regular ordinary and capital gains corporate tax rates, as the case may be. Furthermore, if the Corporation should fail to distribute during each calendar year at least the sum of (i) 85% of its REIT ordinary income for such year, (ii) 95% of its REIT capital gain net income for such year, and (iii) any undistributed taxable income from prior periods, the Corporation would be subject to a 4% excise tax on the excess of such required distribution over the amounts actually distributed. The Corporation expects to make timely distributions sufficient to satisfy the annual distribution requirements. It is possible, however, that the Corporation, from time to time, may not have sufficient cash or other liquid assets to meet the distribution requirements. In that event, the Corporation may arrange for short-term, or possibly long-term, borrowing to permit the payments of required dividends, or may pay dividends in the form of taxable stock dividends. Under certain circumstances, the Corporation may be able to rectify a failure to meet the distribution requirement for a year by paying "deficiency dividends" to stockholders in a later year, which may be included in the Corporation's deduction for dividends paid for the earlier year. Thus, the Corporation may be able to avoid being taxed on amounts distributed as deficiency dividends; however, the Corporation will be required to pay interest based upon the amount of any deduction taken for deficiency dividends. FAILURE TO QUALIFY--If the Corporation's election to be taxed as a REIT is terminated, because the Corporation fails to qualify for taxation as a REIT in any taxable year, the Corporation will be subject to tax (including any applicable alternative minimum tax) on its taxable income at regular corporate rates. Unless entitled to relief under specific statutory provisions, the Corporation also will be disqualified from taxation as a REIT for the four taxable years following the year during which qualification was lost. It is not possible to state whether in all circumstances the Corporation would be entitled to such statutory relief. As noted above, the Corporation expects to acquire the Properties in January 1997 and will qualify for taxation as a REIT in its taxable year ending December 31, 1997. (See "Taxation of the Corporation-- General," concerning the Corporation's failure to qualify as a REIT in its taxable year ending December 31, 1996). INVESTMENTS THROUGH PARTNERSHIPS Certain of the Corporation's investments may be through partnerships, which may involve special tax risks. Such risks include possible challenge by the IRS of (a) allocations of income and expense items, which could affect the computation of income of the Corporation, and (b) the status of the partnerships as 68 partnerships (as opposed to associations taxable as corporations) for income tax purposes. If any of the partnerships is treated as an association, it would be taxable as a corporation. In such a situation, if the Corporation's ownership in any of the partnerships exceeded 10% of the partnership's voting interest or the value of such interest exceeded 5% of the value of the Corporation's assets, the Corporation would cease to qualify as a REIT. Furthermore, in such a situation, distributions from any of the partnerships to the Corporation would be treated as dividends, which are not taken into account in satisfying the 75% gross income test described above and which could therefore make it more difficult for the Corporation to qualify as a REIT for the taxable year in which such distribution was received. In addition, in such a situation, the interest in any of the partnerships held by the Corporation would not qualify as a "real estate asset", which could make it more difficult for the Corporation to meet the 75% asset test described above. Finally, in such a situation, the Corporation would not be able to deduct its share of losses generated by the partnerships in computing its taxable income. (See "Failure to Qualify" above for a discussion of the effect of the Corporation's failure to meet such tests for a taxable year). The Corporation expects that each of the partnerships through which it invests will be treated for tax purposes as a partnership (and not as an association taxable as a corporation). However, no assurance can be given that the IRS may not successfully challenge the tax status of any of the partnerships. TAXATION OF NON-U.S. STOCKHOLDERS The rules governing U.S. Federal income and estate taxation of the ownership and disposition of shares by persons that are, for purposes of such taxation, non-resident alien individuals, non-U.S. corporations, non-U.S. partnerships or non-U.S. estates or trusts (collectively, "Non-U.S. Stockholders") are complex. The following discussion does not address all aspects of U.S. Federal income tax and does not address state, local or non-U.S. tax consequences that may be relevant to a Non-U.S. Stockholder in light of its particular circumstances. In addition, this discussion is based on current law, which is subject to change, and assumes that the Corporation qualifies for taxation as a REIT. Prospective Non-U.S. Stockholders should consult their own tax Advisors to determine the impact of U.S. Federal, state, local and non-U.S. income tax laws with regard to an investment in Common Stock, including any reporting requirements. DISTRIBUTIONS IN GENERAL. Distributions by the Corporation to a Non-U.S. Stockholder that are neither attributable to gain from sales or exchanges by the Corporation of United States real property interests nor designated by the Corporation as capital gains dividends will be treated as dividends of ordinary income to the extent that they are made out of current or accumulated earnings and profits of the Corporation. Such distributions ordinarily will be subject to withholding of U.S. Federal income tax on a gross basis (that is, without allowance of deductions) at a 30% rate, or such lower rate as may be specified by an applicable income tax treaty, unless the dividends are treated as effectively connected with the conduct by the Non-U.S. Stockholder of a United States trade or business. Dividends that are effectively connected with such a trade or business will be subject to tax on a net basis (that is, after allowance of deductions) at graduated rates, in the same manner as dividends to domestic stockholders are taxed. Any such dividends received by a Non-U.S. Stockholder that is a corporation may also be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty. The following discussion generally applies to Non-U.S. Stockholders whose investment in the Corporation is not effectively connected with the conduct by such Non-U.S. Stockholders of a United States trade or business. Pursuant to current Treasury Regulations, dividends paid to an address in a country outside the United States are generally presumed to be paid to a resident of such country for purposes of determining the applicability of withholding discussed above and the applicability of a tax treaty rate. Under proposed Treasury Regulations published April 22, 1996, however, a Non-U.S. Stockholder who wished to claim the benefit of an applicable treaty rate would be required to satisfy certain certification and other requirements including the requirement to provide a taxpayer identification number unless the stock of the 69 Corporation is traded on a U.S. established financial market. The proposed regulations, if they become final in their present form, generally would be effective for payments made after December 31, 1997. Under certain treaties, lower withholding rates generally applicable to dividends do not apply to dividends from a REIT, such as the Corporation. Certain certification and disclosure requirements must be satisfied to be exempt from withholding under the effectively connected income exemption discussed above. Dividends in excess of current or accumulated earnings and profits of the Corporation will not be taxable to a Non-U.S. Stockholder to the extent that they do not exceed the adjusted basis of the stockholder's shares, but rather will reduce the adjusted basis of such shares. To the extent that such distributions exceed the adjusted basis of a Non-U.S. Stockholder's shares, they will give rise to gain from the sale or exchange of his shares, the tax treatment of which is described below. For withholding purposes, the Corporation is required to treat all distributions as if made out of current or accumulated earnings and profits. However, amounts thus withheld are generally refundable if it is subsequently determined that such distribution was, in fact, in excess of current or accumulated earnings and profits of the Corporation. Proposed Treasury Regulations, published on April 22, 1996, may, if finalized in their present form, permit the Corporation, at its option to treat only a portion of the distribution as a dividend if, prior to, and at a time reasonably close to, the date of payment, the Corporation makes a reasonable estimate of the portion of the distribution that is not a dividend based upon expected earnings and profits as relevant facts and circumstances shall indicate. Under U.S. legislation enacted in August 1996, distributions to Non-U.S. Stockholders, in excess of the Corporation's current or accumulated earnings and profits, would generally be subject to withholding under the Foreign Investment in U.S. Real Property Tax Act ("FIRPTA"). However, pending further guidance concerning this new legislation from the U.S. taxing authorities, the Corporation intends to take the position that such withholding is not required, provided that the sale or exchange of shares of the Corporation would not be subject to taxation under FIRPTA. See "Sale of Stock" below. Even if amounts are not subject to withholding under this new legislation, those amounts may be subject to withholding under the rule, described above, which requires the Corporation to treat all distributions as if made out of current or accumulated earnings and profits. Distributions to a Non-U.S. Stockholder that are attributable to gain from sales or exchanges by the Corporation of United States real property interests will cause the Non-U.S. Stockholder to be treated as recognizing such gain as income effectively connected with a United States trade or business. Non-U.S. Stockholders would thus generally be taxed at the same rates applicable to domestic stockholders (subject to a special alternative minimum tax in the case of nonresident alien individuals). Also, such gain may be subject to a 30% branch profits tax in the hands of a Non-U.S. Stockholder that is a corporation, as discussed above. The Corporation is required to withhold 35% of any such distribution. That amount is creditable against the Non-U.S. Stockholder's U.S. Federal income tax liability. Distributions to a Non-U.S. Stockholder that are designated by the Corporation at the time of distribution as capital gains dividends (other that those arising from the disposition of a United States real property interest) generally will not be subject to U.S. Federal income taxation, unless (i) investment in the stock is effectively connected with the Non-U.S. Stockholder's United States trade or business, in which case the Non-U.S. Stockholder will be subject to the same treatment as domestic stockholders with respect to such gain (except that a stockholder that is a non-U.S. corporation may also be subject to the 30% branch profits tax, as discussed above), or (ii) the Non-U.S. Stockholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and has a "tax home" in the United States, in which case the nonresident alien individual will be subject to a 30% tax on the individual's capital gains. DISTRIBUTIONS TO CANADIAN RESIDENTS--Certain distributions to Canadian residents may be entitled under the Treaty and Protocol to more favorable treatment than are distributions to Non-U.S. Stockholders in general. U.S. tax benefits under the Treaty and Protocol are subject, however, to a general "anti- abuse" rule, under which the U.S. may deny such benefits where it can be reasonably concluded that to do otherwise would result in an abuse of the provisions of the Treaty and Protocol. 70 Individual stockholders of the Corporation who reside in Canada may be eligible for withholding at a rate less than the generally applicable 30% rate described above. Under the Treaty and Protocol, dividends paid by a REIT, such as the Corporation, to an individual resident of Canada are subject to withholding of U.S. Federal income tax on a gross basis at the rate of 15%, if such individual holds an interest of less than 10% in such REIT. Where an estate or testamentary trust acquires its interest in a REIT as a consequence of an individual's death, dividends paid to such estate or testamentary trust are also subject to withholding at the rate of 15% for five years after the individual's death, if such estate or testamentary trust holds an interest of less than 10% in the REIT. As described under "Distributions in General", proposed Treasury Regulations would, if adopted, require certain certification and other requirements to be met if a stockholder claims reduced withholding under the terms of the Treaty and Protocol. Under the Treaty and Protocol, a Canadian resident stockholder of the Corporation is not subject to U.S. tax on dividends from the Corporation if such stockholder is a trust, corporation, organization or other arrangement that is generally exempt from income taxation in a taxable year in Canada and is operated exclusively to administer or provide pension, retirement or employee benefits ("Exempt Benefits Plan"). The U.S. Treasury Department Technical Explanation of the Protocol indicates that Canadian registered retirement savings plans ("RRSPs") and Canadian registered retirement income funds ("RRIFs") are eligible for this exemption from U.S. tax on dividends. Moreover, the Internal Revenue Service's position, as stated in Notice 96-31, is that RRSPs and RRIFs qualify for the Treaty benefits relating to dividends. Notwithstanding the preceding paragraph, income of an Exempt Benefits Plan may be subject to tax in the U.S. if such income derives from: (1) carrying on a trade or business; or (2) a "related person" (other than an Exempt Benefits Plan or other person that is generally exempt from income taxation in Canada). Dividends from a REIT generally should not be income from carrying on a trade or business. However, if the Corporation would not have qualified as a REIT but for the fact that stock held by certain trusts is treated as being held directly by the beneficiaries of the trusts, then in some circumstances dividends from a REIT would be considered income from carrying on a trade or business. "Related person" is not defined by the Treaty and Protocol for present purposes. In certain contexts, U.S. tax law defines "related persons" to include organizations, trades, or businesses (whether or not incorporated, whether or not organized in the U.S., and whether or not affiliated) owned or controlled directly or indirectly by the same interests. In addition, an Exempt Benefits Plan may be denied benefits under the Treaty and Protocol, and therefore may be subject to U.S. tax on distributions from the Corporation, unless such Exempt Benefits Plan is established for the purpose of providing benefits primarily to individuals who were residents of Canada within the preceding five years, or residents or citizens of the U. S. Dividends paid by a REIT to Canadian stockholders, other than those stockholders described above as entitled either to withholding at the rate of 15%, or to exemption from U.S tax are generally subject to withholding at the full U.S. rate of 30%, without any reduction under the Treaty and Protocol. No benefits under the Treaty and Protocol are available with respect to distributions attributable to gain from sales or exchanges by the Corporation of United States real property interests. The benefits under the Treaty and Protocol discussed above (including the reduction in withholding in the case of certain individuals, estates and testamentary trusts, and the exemption from U.S. tax in the case of certain Canadian tax-exempt stockholders) are inapplicable to such distributions. SALE OF STOCK--Gain recognized by a Non-U.S. Stockholder upon the sale or exchange of shares generally will not be subject to United States taxation unless the shares constitute a "United States real property interest" within the meaning of FIRPTA. The Common Stock would not constitute a "United States real property interest" if the Corporation were a "domestically controlled REIT". A "domestically controlled REIT" is a REIT in which at all times during a specified test period less than 50% in value of its stock is held directly or indirectly by Non-U.S. Stockholders. It is anticipated that the Corporation will not be a domestically controlled REIT. 71 Even if, as expected, the Corporation is not a "domestically-controlled REIT", the sale or exchange by a Non-U.S. Stockholder of Common Stock would not be subject to United States taxation under FIRPTA as a sale of a "United States real property interest" provided that (i) the shares are "regularly traded" on an "established securities market" (both as defined by applicable Treasury Regulations) and (ii) the selling Non-U.S. Stockholder held 5% or less (applying certain constructive ownership and attribution rules of the Code) of the Corporation's outstanding stock at all times during the five year period ending on the date of disposition. Under applicable temporary Treasury Regulations, a class of interests that is traded on an established securities market located in the United States is considered to be regularly traded for any calendar quarter during which it is regularly quoted by brokers or dealers making a market in such interests. A broker or dealer makes a market in a class of interests only if the broker or dealer holds himself out to buy or sell interests in such class at the quoted price. Assuming that the stock traded on the applicable stock exchange is regularly quoted by brokers or dealers making a market in such interests, shares of the Corporation will be regularly traded. An "established securities market" is defined by applicable Treasury Regulations to include either a national securities exchange which is registered under section 6 of the Securities Exchange Act of 1934 (15 U.S.C. 78f) or an "over-the-counter market". The Closing of this Offering is conditional upon the Corporation listing the Common Stock for trading on a stock exchange which has been registered under Section 6 of the Securities Exchange Act of 1934 or an over-the-counter market. Thus, if the Common Stock of the Corporation are traded on such exchange, they will be traded on an established securities market. An over-the-counter market is defined by applicable Treasury Regulations as any market by the existence of an interdealer quotation system. An interdealer quotation system is any system of general circulation to brokers and dealers which regularly disseminates quotations of stocks and securities by identified brokers or dealers, other than by quotation sheets which are prepared and distributed by a broker or dealer in the regular course of business and which contain only quotations of such broker or dealer. If the Common Stock of the Corporation is regularly traded on an established securities market, as discussed above, then gain of a Non-U.S. Stockholder on the sale or exchange of such shares will be subject to taxation under FIRPTA only if the Non-U.S. Stockholder held more than 5% of the total fair market value of that class of shares at some time during the five-year period ending either on the date of disposition or other applicable determination date. In determining whether a Non-U.S. Stockholder holds more than 5% of the total fair market value of a class of shares, certain constructive ownership rules apply. If gain on the sale or exchange of shares were subject to taxation under FIRPTA, the Non-U.S. Stockholder would be subject to regular United States income tax with respect to such gain in the same manner as a U.S. Stockholder (subject to any applicable alternative minimum tax, a special alternative minimum tax in the case of nonresident alien individuals and the possible application of the 30% branch profits tax in the case of non-U.S. corporations), and the purchaser of the shares could be required to withhold and remit to the IRS 10% of the purchase price. Notwithstanding the foregoing, gain from the sale or exchange of shares not otherwise subject to FIRPTA would be taxable to a Non-U.S. Stockholder in two cases: (i) if the Non-U.S. Stockholder's investment in the stock of the Corporation is effectively connected with a U.S. trade or business conducted by such Non-U.S. Stockholder, the Non-U.S. Stockholder will be subject to the same treatment as a U.S. Stockholder with respect to such gain, or (ii) if the Non-U.S. Stockholder is a nonresident alien individual who is present in the United States for 183 days or more during the taxable year and has a "tax home" in the United States. In such case, the nonresident alien individual would be subject to a 30% United States withholding tax on the amount of such individual's gain. ESTATE TAX--Shares owned or treated as owned by an individual who is a Non-U.S. Stockholder at the time of death will be includible in the individual's gross estate for U.S. Federal estate tax purposes unless an applicable estate tax treaty provides otherwise. 72 TAXATION OF U.S. STOCKHOLDERS For any taxable year for which the Corporation qualifies for taxation as a REIT, amounts distributed to U.S. Stockholders will generally be taxed as follows. Distributions to U.S. Stockholders, other than capital gain dividends discussed below, will be taxable as ordinary income to such holders up to the amount of the Corporation's current or accumulated earnings and profits. Such distributions are not eligible for the dividends-received deduction for corporations. To the extent that the Corporation makes distributions in excess of its current or accumulated earnings and profits, such distributions will first be treated as a tax-free return of capital, reducing the tax basis in the U.S. Stockholders' shares, and distributions in excess of the U.S. Stockholders' tax basis in their respective shares are taxable as gain realized from the sale of such shares. Dividends declared by the Corporation in October, November, or December of any year payable to a stockholder of record on a specified date in any such month will be treated as both paid by the Corporation and received by the stockholder on December 31 of such year, provided that the dividend is actually paid by the Corporation during January of the following calendar year. For purposes of the alternative minimum tax, the Corporation's U.S. Stockholders must take into account their share of the Corporation's alternative minimum tax preference items. Stockholders may not include on their own income tax returns any tax losses of the Corporation. The Corporation will be treated as having sufficient earnings and profits to treat as a dividend any distribution by the Corporation up to the greater of its current or accumulated earnings and profits. As a result, U.S. Stockholders may be required to treat certain distributions that would otherwise result in a tax- free return of capital as taxable dividends. Moreover, any "deficiency dividend" will be treated as a "dividend" (an ordinary dividend or a capital gain dividend, as the case may be), regardless of the Corporation's earnings and profits. Distributions to U.S. Stockholders that are properly designated by the Corporation as capital gain dividends will be treated as long-term capital gain (to the extent they do not exceed the Corporation's actual net capital gain for the taxable year) without regard to the period for which the stockholder has held his stock. Corporate stockholders, however, may be required to treat a portion of certain capital gain dividends as ordinary income to reflect certain Corporation level depreciation recapture. As in the case of ordinary dividends, capital gain dividends are not eligible for the dividends-received deduction for corporations. Distributions from the Corporation and gain from the disposition of the shares will not ordinarily be treated as passive activity income; however, distributions from the Corporation (to the extent they do not constitute a return of capital) and gain from the disposition of shares generally will be treated as investment income for purposes of the investment interest limitation. A U.S. Stockholder will recognize gain or loss on the sale or exchange of shares to the extent of the difference between the amount realized on such sale or exchange and the holder's tax basis in such shares. Such gain or loss generally will constitute long-term capital gain or loss if the holder has held such shares for more than one year. Losses incurred on the sale or exchange of shares held for six months or less (after applying certain holding period rules), however, will generally be deemed long-term capital loss to the extent of any long-term capital gain dividends received by the U.S. Stockholder with respect to such shares. BACKUP WITHHOLDING TAX AND INFORMATION REPORTING--NON-U.S. STOCKHOLDERS. Backup withholding tax (which generally is a withholding tax imposed at the rate of 31% on certain payments to persons that fail to furnish certain information under the United States information reporting requirements) and information reporting will generally not apply to distributions paid to Non-U.S. Stockholders outside the United States. As a general matter, backup withholding and information reporting will not apply to a payment of the proceeds of a sale of stock by or through a non-U.S. office of a non-U.S. broker. Information reporting (but not backup withholding) will apply, however, to a payment of the proceeds of a sale of stock by a non-U.S. office of a broker that (a) is a United States person, (b) derives 50% or more of its gross income for certain periods from the conduct of a trade or business in the United States or (c) is a 73 "controlled foreign corporation" (generally, a non-U.S. corporation controlled by United States stockholders) for United States tax purposes, unless the broker has documentary evidence in its records that the holder is a Non-U.S. Stockholder and certain other conditions are met, or the stockholder otherwise establishes an exemption. Payment to or through a United States office of a broker of the proceeds of sale of shares is subject to both backup withholding and information reporting unless the stockholder certifies under penalties of perjury that the stockholder is a Non-U.S. Stockholder, or otherwise establishes an exemption. A Non-U.S. Stockholder may obtain a refund of any amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the IRS. U.S. STOCKHOLDERS. Under certain circumstances, a U.S. Stockholder may be subject to backup withholding at a rate of 31% on payments made with respect to, or cash proceeds of a sale or exchange of the Corporation's stock. Backup withholding will apply only if the holder (i) fails to furnish the person required to withhold with its Taxpayer Identification Number ("TIN") which, for an individual, would be his or her Social Security Number, (ii) furnishes an incorrect TIN, (iii) is notified by the IRS that it has failed properly to report payments of interest or dividends, or (iv) under certain circumstances, fails to certify, under penalty of perjury, that it has furnished a correct TIN and has not been notified by the IRS that the holder is subject to backup withholding for failure to report interest or dividend payments. Backup withholding will not apply with respect to payments made to certain exempt recipients, such as corporations and tax-exempt organizations. A U.S. Stockholder should consult with a tax advisor regarding qualification for exemption from backup withholding and the procedure for obtaining such an exemption. Backup withholding is not an additional tax. Rather, the amount of any backup withholding with respect to a payment to a U.S. Stockholder will be allowed as a credit against such U.S. Stockholder's United States federal income tax liability and may entitle such U.S. Stockholder to a refund, provided that the required information is furnished to the IRS. In proposed Treasury Regulations published April 22, 1996, the U.S. Treasury proposed certain changes to the backup withholding and information reporting rules. These changes, if they become final in their present form, generally would be effective for payments made after December 31, 1997. OTHER TAX CONSEQUENCES Prospective stockholders should consult their own advisors regarding the effect of other tax laws on an investment in the Corporation. It is uncertain whether the Corporation and its stockholders will be subject to state or local income taxes in jurisdictions where the Corporation transacts business or where the stockholder resides. A state or locality may generally conform to the Federal income tax treatment of a REIT but not be bound by all Code provisions relevant to REITs. Therefore, it is possible for a state or locality to subject the REIT or its stockholders to income taxes. However, there may be constitutional and statutory limitations on the power of a state or locality to do so. It is the intention of the Corporation not to conduct business in any state in which the income tax treatment of a REIT does not conform to the Federal income tax treatment of a REIT. In addition, we are not aware of any withholding tax on REIT distributions to non-U.S. residents that is imposed by any of the jurisdictions in which the Corporation intends to conduct business. CANADIAN FEDERAL INCOME TAX CONSIDERATIONS In the opinion of Smith Lyons, Toronto, the following summary presents fairly the principal Canadian federal income tax considerations generally applicable to a person (a "Canadian Holder") who purchases Common Stock pursuant to this Offering and who, for purposes of the Income Tax Act (Canada) (the "Canadian Tax Act"), is resident in Canada, holds Common Stock as capital property, deals at arm's length with the Corporation and who at all times does not, together with related persons, directly or indirectly hold 10% or more of the total outstanding shares of any class of the Corporation. Generally, Common Stock will be considered capital property to a Canadian Holder provided that such holder does not hold the Common Stock in the course of carrying on a business and does not acquire the Common Stock in a 74 transaction considered to be an adventure in nature of trade. Under recently enacted amendments to the Canadian Tax Act, a financial institution as defined (including a bank, trust Corporation, credit union, insurance corporation, a corporation the principal business of which is the lending of money, a partnership or trust more than 50% of the interests of which are held by such a corporation or a corporation controlled by such a corporation) is generally precluded from treating most shares held by it as capital property for the purposes of the Canadian Tax Act and will be required to recognize annually the change in value of such properties. This summary does not deal with income tax consideration to a Canadian Holder that is a partnership or trust. This summary is based on the current provisions in the Canadian Tax Act, the regulations thereunder, specific proposals to amend the Canadian Tax Act and the regulations which have been publicly announced by the Minister of Finance prior to the date hereof, and the current administrative practices of Revenue Canada Customs, Excise and Taxation ("Revenue Canada") as published by Revenue Canada. This summary does not take into account or anticipate any other changes in the law, whether by legislative, governmental or judicial action, nor does it take into account any provincial, territorial or foreign tax considerations. THIS SUMMARY DOES NOT CONSTITUTE, AND SHOULD NOT BE CONSTRUED TO CONSTITUTE, LEGAL OR TAX ADVICE TO ANY CANADIAN HOLDER. PROSPECTIVE PURCHASERS OF COMMON STOCK ARE, THEREFORE, ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES. TAXATION OF DIVIDENDS A Canadian Holder who is an individual will be required to include in income the Canadian dollar equivalent of any dividends paid to the holder of the Common Stock. Such dividends will not be eligible for the gross-up and dividend tax credit treatment generally accorded dividends received from taxable Canadian corporations. A Canadian Holder which is a corporation will be required to include in income the Canadian dollar equivalent of any dividends paid to it on the Shares and will generally not be entitled to any deduction in respect thereof in computing taxable income. A foreign tax credit will be available to a Canadian Holder for U.S. income taxes paid by, or withheld on behalf of, the holder on dividends received by the holder to the extent permitted under the Canadian Tax Act. In the case of a Canadian Holder who is an individual, the amount of the credit in respect of a dividend received on Common Stock may not exceed 15% of the dividend. The balance of any U.S. income taxes paid by a holder who is an individual on such a dividend may be deducted by the holder in computing his or her income for Canadian income tax purposes. DISPOSITIONS A Canadian Holder who disposes of Common Stock or is deemed under the Canadian Tax Act to have disposed of Common Stock will realize a capital gain (or capital loss) to the extent that the proceeds of disposition of the Common Stock, net of any costs of disposition, exceed (or are exceeded by) the adjusted cost base thereof to the Canadian Holder immediately before the disposition. Upon an acquisition of Common Stock, the adjusted cost base to a Canadian Holder of his or her Common Stock will generally be determined by averaging the Canadian dollar cost of Common Stock acquired by the Canadian Holder with the adjusted cost base of any Common Stock held by the holder at that time. The portion of capital gains (or capital losses) which is included in taxable capital gains (or allowable capital losses) is three-quarters. Certain corporations may be liable to pay an additional refundable tax of 6 2/3% on their "aggregate investment income" for a year, which will include taxable capital gains. A foreign tax credit will be available to a Canadian Holder for U.S. income taxes paid by the holder on capital gains realized by the holder to the extent permitted under the Canadian Tax Act. 75 QUALIFICATION FOR INVESTMENT Once listed on a stock exchange that is a "prescribed stock exchange" for the purposes of the Canadian Tax Act, the Common Stock will be qualified investments for Registered Retirement Savings Plans, Registered Retirement Income Funds and Deferred Profit Sharing Plans. However, Common Stock will be considered to be foreign property for such plans and for other taxpayers subject to the foreign property limitations in Part XI of the Canadian Tax Act. The closing of this Offering is conditional upon the Corporation listing the Common Stock for trading on a stock exchange that is a "prescribed stock exchange" for the purposes of the Canadian Tax Act. DISTRIBUTION POLICY Subsequent to this Offering, the Corporation intends to pay regular quarterly dividends to its stockholders and more frequently if the Board of Directors of the Corporation so determines. To qualify as a REIT, the Corporation generally must distribute at least 95% of its taxable income each year, even if such amount is in excess of cash flow. Unless the Board of Directors otherwise decides, the Corporation intends to distribute a minimum of 100% of its taxable income. The Corporation currently estimates an initial annual dividend at $.60 per share based upon an estimate of the annualized cash flow from operations that will be available for dividends under current conditions. The Corporation believes that its estimate of cash flow that will be available for dividends constitutes a reasonable basis for setting the initial dividend and the Corporation expects to maintain its initial dividend rate for 1997 unless actual results of operations, economic conditions or other factors differ from the assumptions made, in which case the dividend may be increased or decreased by the Board of Directors in its discretion. Based on the initial public offering price set forth on the cover page of this Prospectus, the initial distribution yield will be 6% per annum. Future distributions of dividends will be at the discretion of the Board of Directors and will depend on the actual cash flow of the Corporation, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code (see "U.S. Federal Income Tax Considerations") and such other factors as the Board of Directors deems relevant. PLAN OF DISTRIBUTION Under an agreement dated - 1996 (the "Agency Agreement") among Porthmeor Securities Inc., Octagon Capital Canada Corporation and First Marathon Securities Limited (collectively, the "Agents") and the Corporation and Basic Capital Funds, the Corporation has agreed to issue and sell, and the Agents have agreed to act as the Corporation's agents, on a best efforts basis, in connection with this Offering, subject to compliance with all necessary legal requirements and to the terms and conditions contained in the Agency Agreement, 2,740,000 shares of Common Stock at a price of $10.00 per share of Common Stock for an aggregate price of $27,400,000. The Agency Agreement provides that the Corporation will pay to the Agents at closing a fee of 7.5% of the proceeds of this Offering in consideration for their services. The Common Stock is being offered principally in the Provinces of Ontario, British Columbia and Alberta. Any sales in the United States will be made only through the U.S. broker-dealer affiliates of one of the Agents or through another registered broker-dealer. The obligations of the Agents under the Agency Agreement may be terminated upon the occurrence of certain stated events. Pursuant to a rule of the Ontario Securities Commission, the Agents may not, throughout the period of distribution under this Prospectus, bid for or purchase any Common Stock. The foregoing restriction is subject to certain exceptions, as long as the bid or purchase is not engaged in for the purpose of creating actual or apparent active trading in or raising the price of such securities. These exceptions include a bid or purchase permitted under the by-laws and rules of certain stock exchanges relating to market stabilization and passive market making activities and a bid or purchase made for and on behalf of a customer where the order was not solicited during the period of distribution. Pursuant to the first mentioned exception, in 76 connection with this offering the Agents may over allot or effect transactions which stabilize or maintain the market price of the Common Stock at levels other than those which otherwise might prevail on the open market. Such transactions, if commenced, may be discontinued at any time. EXPERTS The statements of revenue and certain expenses for the year ended December 31, 1995 for Chico Crossroads Center, Ltd. and Miami Gardens Associates and the balance sheet of Basic U.S. REIT, Inc. as of July 30, 1996 included in this Prospectus have been so included in reliance on the reports of Price Waterhouse LLP, independent accountants, given on the authority of said firm, as experts in auditing and accounting. LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Corporation by Schnader, Harrison, Segal & Lewis, Philadelphia, Pennsylvania. In addition, the description of U.S. federal income tax considerations in the section of the Prospectus entitled "U.S. Federal Income Tax Considerations" is based upon the opinion of Schnader, Harrison, Segal & Lewis, Philadelphia, Pennsylvania. The description of Canadian Federal income tax considerations in the section of the Prospectus entitled "Canadian Federal Income Tax Considerations" is based upon the opinion of Smith Lyons, Barristers & Solicitors, Toronto, Ontario, Canada. The Common Stock is being offered subject to approval of certain legal matters on behalf of the Corporation by Schnader, Harrison, Segal & Lewis, Philadelphia, Pennsylvania, and Chaiton & Chaiton, Toronto, Ontario, Canada, and on behalf of the Agents by Fogler, Rubinoff, Barristers & Solicitors, Toronto, Ontario, Canada, and Skadden, Arps, Slate, Meagher and Flom, New York, New York and Toronto, Ontario, Canada. ADDITIONAL INFORMATION The Corporation has filed with the Securities and Exchange Commission (the "SEC" or the "Commission") a Registration Statement on Form S-11 under the Securities Act of 1933, as amended (the "Securities Act"), and the rules and regulations promulgated thereunder, with respect to the Common Stock offered by this Prospectus. This Prospectus, which is part of the Registration Statement, does not contain all of the information set forth in the Registration Statement and the exhibits and financial statement schedules thereto. For further information with respect to the Corporation and the Common Stock, reference is made to the Registration Statement and such exhibits and financial statement schedules, copies of which may be examined without charge at, or obtained upon payment of prescribed fees from, the Public Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 and which are also available for inspection and copying at the Regional Offices of the Commission located at 13th Floor, 7 World Trade Center, New York, New York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois, 60661-2511. The Commission also maintains a World Wide Web site that contains reports, proxy and information statements and other information regarding registrants, such as the Corporation, that file electronically with the Commission. The address of the Commission's site is http://www.sec.gov. Statements contained in this Prospectus concerning the provisions or contents of any contract or other document referred to herein are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference and the exhibits and schedules hereto. For further information regarding the Corporation and the Common Stock being offered hereby, reference is hereby made to the Registration Statement and such exhibits and schedules. As of the date of this Prospectus (which is also the date of the effectiveness of the Corporation's Registration Statement on Form S-11 filed in connection with this Prospectus), the Corporation will become subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, and in accordance therewith, will file reports, proxy statements and other information with the SEC. The Corporation intends to furnish its stockholders with annual reports containing audited financial statements and such other periodic reports as the Corporation deems appropriate or as may be required by law. 77 GLOSSARY The following terms appear throughout this Prospectus. Care should be taken to read each term in the context of the particular provision of the Prospectus in which such term is used. The following represents a definition only of such terms: a) "ADVISOR" means Basic Advisors, Inc., a Delaware corporation which will serve as the advisor to the Corporation pursuant to the Advisory Agreement. b) "ADVISORY AGREEMENT" means the agreement to be entered into on or prior to the Date of Closing among the Corporation and the Advisor pursuant to which the Corporation shall appoint the Advisor as the investment advisor of the Corporation. c) "AGENCY AGREEMENT" means the agency agreement between the Corporation and the Agents referred to under the heading "PLAN OF DISTRIBUTION." d) "AGENTS" means Porthmeor Securities Inc., Octagon Capital Canada Corporation and First Marathon Securities Limited. e) "AMENDED AND RESTATED ARTICLES OF INCORPORATION" means the Articles of Amendment and Restatement of the Corporation, the instrument by which the Corporation was incorporated under Maryland law, as amended. f) "ANCHOR TENANT" means a retail tenant who by its size, regional or national reputation or product lines attracts other merchants to a shopping center or draws consumers to a shopping center or who can create the primary image for a shopping center or whose presence is an essential factor in securing institutional financing. g) "AUTHORIZED INVESTMENTS" mean certificates of deposit with terms of less than one year or U.S. government securities with terms of less than one year (such as treasury obligations). h) "BOARD OF DIRECTORS" means the board of directors of the Corporation. i) "CHICO ACQUISITION AGREEMENT" means the Purchase and Sale Agreement and Escrow Instructions between Basic Acquisitions, Inc. and Chico Crossroads Center, Ltd. dated May 8, 1996 for the acquisition of the shopping center known as "CHICO CROSSROADS CENTER" in Chico, California, as amended. j) "CODE" means the U.S. Internal Revenue Code of 1986, as amended. k) "CLOSING", "DATE OF CLOSING" or "CLOSING DATE" means the date of the closing of this Offering. l) "COMMUNITY SHOPPING CENTER" means a shopping center usually between 125,000 and 500,000 square feet, which typically provides for the sale of convenience goods, apparel and home furnishings and may include banking, professional services, recreational facilities and which typically has a junior department store, variety store or discount department store as its principal or anchor tenant. Such shopping center may also include multiple anchor tenants such as superstores, category killers and off-price stores. m) "GARDENS SQUARE ACQUISITION AGREEMENT" means the Purchase and Sale Agreement between Basic Acquisitions, Inc. and Miami Gardens Associates dated July 24, 1996 for the acquisition of the shopping center known as "GARDENS SQUARE" in Dade County, Florida, as amended. n) "IRS" means the U.S. Internal Revenue Service. o) "NEIGHBORHOOD SHOPPING CENTER" means a shopping center usually between 30,000 and 125,000 square feet, which typically provides for the sale of daily living needs such as food, drugs, hardware and personal services, and which typically has a supermarket or superstore as its principal or anchor tenant. 78 p) "OFFERING" means the sale of 2,740,000 shares of Common Stock pursuant to the terms of this Prospectus. q) "PROPERTIES" means Chico Crossroads Center and Gardens Square, the initial shopping centers to be acquired by the Corporation. r) "REIT" means a real estate investment trust as defined in the Code. s) "SECURITIES ACT" means the U.S. Securities Act of 1933, as amended. t) "SECURITIES EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as amended. u) "U.S." means the United States of America. 79 INDEX TO FINANCIAL STATEMENTS
CHICO CROSSROADS CENTER, LTD. STATEMENTS OF REVENUE AND CERTAIN EXPENSES: Report of Independent Accountants.................................................. F2 Statements of Revenue and Certain Expenses for the year ended December 31, 1995 and the six months ended June 30, 1995 and June 30, 1996............................. F3 Notes of Statements of Revenue and Certain Expenses for the year ended December 31, 1995............................................................................. F4 MIAMI GARDENS ASSOCIATES STATEMENTS OF REVENUE AND CERTAIN EXPENSES: Report of Independent Accountants.................................................. F6 Statements of Revenue and Certain Expenses for the year ended December 31, 1995 and the six months ended June 30, 1995 and June 30, 1996............................. F7 Notes of Statements of Revenue and Certain Expenses for the year ended December 31, 1995............................................................................. F8 BASIC U.S. REIT, INC. BALANCE SHEET: Report of Independent Accountants.................................................. F10 Balance Sheet as at July 30, 1996.................................................. F11 Notes for Balance Sheet at July 30, 1996........................................... F12
F-1 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Basic U.S. REIT, Inc. We have audited the accompanying statement of revenue and certain expenses of Chico Crossroads Center, Ltd. for the year ended December 31, 1995. This statement is the responsibility of the property's manager. Our responsibility is to express an opinion on this statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement. An audit also includes assessing the accounting principles used and significant estimates made by the property manager, as well as evaluating the overall presentation of the statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of revenue and certain expenses was prepared on the basis described in Note 1 for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in the registration statement on Form S-11 of Basic U.S. REIT, Inc.) and is not intended to be a complete presentation of the revenue and expenses of the property. In our opinion, the statement of revenue and certain expenses referred to above presents fairly, in all material respects, the revenue and certain expenses of Chico Crossroads Center, Ltd. on the basis described in Note 1 for the year ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Price Waterhouse LLP New York, New York September 23, 1996 F-2 CHICO CROSSROADS CENTER, LTD. STATEMENTS OF REVENUE AND CERTAIN EXPENSES
FOR THE SIX MONTHS ENDED ---------------------------- FOR THE YEAR ENDED JUNE 30, 1996 JUNE 30, 1995 DECEMBER 31, 1995 ------------- ------------- ------------------ (UNAUDITED) Revenue Rental (Note 2(a))............................................ $ 1,053,744 $ 1,002,000 $ 2,014,435 Operating expense reimbursement............................... 209,000 188,000 377,749 Other......................................................... -- 2,700 5,500 ------------- ------------- ------------------ 1,262,744 1,192,700 2,397,684 ------------- ------------- ------------------ ------------- ------------- ------------------ Certain Expenses Rental........................................................ 94,000 93,000 186,136 Real estate taxes............................................. 138,000 124,000 248,214 ------------- ------------- ------------------ 232,000 217,000 434,350 ------------- ------------- ------------------ Excess of revenue over certain expenses......................... $ 1,030,744 $ 975,700 $ 1,963,334 ------------- ------------- ------------------ ------------- ------------- ------------------
See accompanying notes to statements of revenue and certain expenses F-3 CHICO CROSSROADS CENTER, LTD. NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1995 1. BASIS OF PRESENTATION These financial statements were prepared to comply with the rules and regulations of the Securities and Exchange Commission for inclusion in the registration statement on Form S-11. The accompanying statements are not representative of the actual operations for the periods presented as certain expenses that may not be comparable to the expenses expected to be incurred by Basic U.S. REIT, Inc. in the future operations of Chico Crossroads Center have been excluded. Excluded expenses consist of interest, amortization and certain corporate costs not directly comparable to the future operations. No provision has been made for income taxes, the liability for which is the responsibility of the owner. The statements of revenue and certain expenses have been prepared in U.S. dollars in accordance with U.S. generally accepted accounting principles, which are, in this circumstance, in all material respects, consistent with Canadian generally accepted accounting principles. The statements of revenue and certain expenses for the six month periods ended June 30, 1996 and 1995 are unaudited. In the opinion of management, such financial statements reflect all adjustments necessary for a fair presentation of the results of the respective interim periods. All such adjustments are of a normal, recurring nature. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) REVENUE RECOGNITION Rental revenue is recognized on a straight-line basis over the terms of the related leases. Lease termination revenue is recorded in the period that a tenant commits to terminate its rights and benefits under the terms of the lease and vacates the premises. Under the terms of a lease termination agreement signed in March 1996, a tenant was required to make regular minimum lease payments through to September 1, 1996 in the amount of approximately $18,000 per month. These amounts were included in rental revenue in the six months ended June 30, 1996. Lease termination revenue includes $55,000 which will be collected subsequent to June 30, 1996. This space was subsequently re-leased. Percentage rents were $133,856 in the year ended December 31, 1995 ($50,000 and $66,000 for the six months ended June 30, 1996 and 1995, respectively). (B) USE OF ESTIMATES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. F-4 CHICO CROSSROADS CENTER, LTD. NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1995 3. RENTAL PROPERTIES The future minimum lease payments to be received under existing operating leases are as follows:
1996............. $1,905,700 1997............. $1,969,400 1998............. $1,913,800 1999............. $1,889,800 2000............. $1,887,900 thereafter....... $18,063,400
The above future minimum lease payments do not include payments for operating expense reimbursement, percentage rent, or CPI increases. 4. SIGNIFICANT TENANTS During the year ended December 31, 1995, three of the tenants accounted for rental revenue amounting to $1,249,700 ($663,600 for the six months ended June 30, 1996; $624,800 for the six months ended June 30, 1995). F-5 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Basic U.S. REIT, Inc. We have audited the accompanying statement of revenue and certain expenses of Miami Gardens Associates for the year ended December 31, 1995. This statement is the responsibility of the property's manager. Our responsibility is to express an opinion on this statement based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the statement. An audit also includes assessing the accounting principles used and significant estimates made by the property manager, as well as evaluating the overall presentation of the statement. We believe that our audit provides a reasonable basis for our opinion. The accompanying statement of revenue and certain expenses was prepared on the basis described in Note 1 for the purpose of complying with the rules and regulations of the Securities and Exchange Commission (for inclusion in the registration statement on Form S-11 of Basic U.S. REIT, Inc.) and is not intended to be a complete presentation of the revenue and expenses of the property. In our opinion, the statement of revenue and certain expenses referred to above presents fairly, in all material respects, the revenue and certain expenses of Miami Gardens Associates on the basis described in Note 1 for the year ended December 31, 1995 in conformity with generally accepted accounting principles. /s/ Price Waterhouse LLP New York, New York September 23, 1996 F-6 MIAMI GARDENS ASSOCIATES STATEMENTS OF REVENUE AND CERTAIN EXPENSES
FOR THE SIX MONTHS ENDED FOR THE YEAR ---------------------------- ENDED DECEMBER JUNE 30, 1996 JUNE 30, 1995 31, 1995 ------------- ------------- ----------------- (UNAUDITED) Revenue Rental......................................................... $ 466,688 $ 450,000 $ 904,292 Operating expense reimbursement................................ 159,400 157,500 316,745 Other.......................................................... 1,820 5,000 10,542 ------------- ------------- ----------------- 627,908 612,500 1,231,579 ------------- ------------- ----------------- Certain Expenses Rental......................................................... 111,000 117,000 235,534 Real estate taxes.............................................. 70,000 69,000 139,711 ------------- ------------- ----------------- 181,000 186,000 375,245 ------------- ------------- ----------------- Excess of revenue over certain expenses.......................... $ 446,908 $ 426,500 $ 856,334 ------------- ------------- ----------------- ------------- ------------- -----------------
See accompanying notes to statements of revenue and certain expenses. F-7 MIAMI GARDENS ASSOCIATES NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES FOR THE YEAR ENDED DECEMBER 31, 1995 1. BASIS OF PRESENTATION These financial statements were prepared to comply with the rules and regulations of the Securities and Exchange Commission for inclusion in the registration statement on Form S-11. The accompanying statements are not representative of the actual operations for the periods presented as certain expenses that may not be comparable to the expenses expected to be incurred by Basic U.S. REIT, Inc. in the future operations of Gardens Square have been excluded. Excluded expenses consist of interest, amortization and certain corporate costs not directly comparable to the future operations. No provision has been made for income taxes, the liability for which is the responsibility of the owner. The statements of revenue and certain expenses have been prepared in U.S. dollars in accordance with U.S. generally accepted accounting principles, which are, in this circumstance, in all material respects, consistent with Canadian generally accepted accounting principles. The statements of revenue and certain expenses for the six month periods ended June 30, 1996 and 1995 are unaudited. In the opinion of management, such financial statements reflect all adjustments necessary for a fair presentation of the results of the respective interim periods. All such adjustments are of a normal, recurring nature. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (A) REVENUE RECOGNITION Rental revenue is recognized on a straight-line basis over the terms of the related leases. Lease termination revenue is recorded in the period that a tenant commits to terminate its rights and benefits under the terms of the lease. (B) USE OF ESTIMATES The preparation of financial statements, in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates. 3. RENTAL PROPERTIES The future minimum lease payments to be received under existing operating leases are as follows: 1996............................................................ $ 918,400 1997............................................................ $ 918,100 1998............................................................ $ 853,100 1999............................................................ $ 748,300 2000............................................................ $ 702,800 thereafter...................................................... $4,424,677
The above future minimum lease payments do not include payments for operating expense reimbursement, percentage rent or CPI increases. F-8 MIAMI GARDENS ASSOCIATES NOTES TO STATEMENTS OF REVENUE AND CERTAIN EXPENSES (CONTINUED) FOR THE YEAR ENDED DECEMBER 31, 1995 4. SIGNIFICANT TENANTS During the year ended December 31, 1995, two tenants accounted for rental income amounting to $367,750 ($183,875 for the six months ended June 30, 1996; $183,800 for the six months ended June 30, 1995). 5. RELATED PARTY TRANSACTION A portion of the $50,000 in property management fees, included in rental expense, was paid to an individual related to Miami Gardens Associates. F-9 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Basic U.S. REIT, Inc. In our opinion, the accompanying balance sheet presents fairly, in all material respects, the financial position of Basic U.S. REIT, Inc. at July 30, 1996 in conformity with generally accepted accounting principles. This financial statement is the responsibility of the Company's management; our responsibility is to express an opinion of this financial statement based on our audit. We conducted our audit of this statement in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statement is free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP New York, New York September 30, 1996 F-10 BASIC U.S. REIT, INC. BALANCE SHEET AS AT JULY 30, 1996
ASSETS Cash................................................................................ $ 1,000 --------- --------- LIABILITIES AND STOCKHOLDER'S EQUITY Stockholder's Equity Preferred Stock $.01 par value Authorized 1,500,000 Issued None Excess Stock $.01 par value Authorized 50,000,000 Issued None Common Stock $.01 par value Authorized 100,000,000 Issued 100.................................................................. $ 1 Additional paid in capital........................................................ 999 --------- $ 1,000 --------- --------- Contingencies and commitments (Note 2)
Approved by Board Ronald Bernbaum ---------------------------- Director Robert Witterick ---------------------------- Director See accompanying notes to this balance sheet. F-11 BASIC U.S. REIT, INC. NOTES TO BALANCE SHEET AS AT JULY 30, 1996 1. ORGANIZATION The Corporation was incorporated in the State of Maryland on July 30, 1996. The Corporation has issued 100 shares of Common Stock for cash consideration of $1,000 which as at September 30, 1996 was held by Chaiton & Chaiton in trust for the Corporation. The Corporation intends to qualify as a Real Estate Investment Trust under United States tax laws and expects to distribute 100% of its taxable income annually to stockholders starting in calendar year 1997. 2. SUBSEQUENT EVENTS The Corporation has agreed to accept the assignment of two purchase and sale agreements conditional on the Corporation closing its initial public offering. The Corporation plans to raise $27,400,000 through the issuance of 2,740,000 shares of Common Stock. Net proceeds to the Corporation will be used as follows: Offering............................................................... $27,400,000 Agents' commission and issue costs..................................... 2,495,000 ---------- Net Proceeds........................................................... $24,905,000 ---------- ---------- Proceeds will be used as follows: Acquisition of Rental Properties....................................... $30,998,500 Payment of Mortgage Assumption Fee..................................... 68,000 Working Capital........................................................ 548,500 ---------- Total Assets........................................................... 31,615,000 Less Debt Assumed: Mortgage Payable....................................................... 6,710,000 ---------- Use of Proceeds........................................................ $24,905,000 ---------- ----------
Rental properties include an acquisition fee payable to Basic Advisors, Inc. in the amount of $455,438. The Corporation has also reserved 250,000 shares of Common Stock to be granted under a Stock Option Plan. The number of shares granted under the plan cannot exceed 10% of the issued and outstanding Common Stock of the Corporation and the options will be exercisable at the fair value of the Common Stock at the date of grant. The Corporation has issued options to directors and officers of the Corporation to acquire an aggregate of 100,000 shares of Common Stock at a price equal to the initial public offering price per share. These options expire in the year 2001. The Corporation will adopt Statement of Financial Accounting Standards No. 123 ("SFAS 123") and has not yet decided whether it will adopt SFAS 123 through the income statement or through disclosure only. F-12 INSIDE BACK COVER OF PROSPECTUS The inside back cover of the prospectus contains six photographical depictions of the Chico Crossroads Center showing six views of the pedestrian walkways and tenant storefronts. - ------------------------------------------------ ------------------------------------------------ - ------------------------------------------------ ------------------------------------------------ NO DEALER, SALESMAN OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR IN SUPPLEMENTS TO THIS PROSPECTUS OR IN LITERATURE ISSUED BY THE CORPORATION, OR THE UNDERWRITER (WHICH SHALL NOT BE DEEMED TO BE PART OF THIS PROSPECTUS) IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND IF GIVEN OR MADE SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON. THE STATEMENTS IN THIS PROSPECTUS OR IN ANY SUPPLEMENT ARE MADE AS OF THE DATE HEREOF OR THEREOF, UNLESS ANOTHER TIME IS SPECIFIED, AND NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY SUPPLEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH HEREIN SINCE THE DATE HEREOF OR THEREOF. HOWEVER, IF ANY MATERIAL CHANGES OCCUR DURING THE PERIOD WHEN A PROSPECTUS IS REQUIRED TO BE DELIVERED, THIS PROSPECTUS OR ANY SUPPLEMENT WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY. -------------------------- SUMMARY TABLE OF CONTENTS
PAGE --------- Prospectus Summary............................. 6 Risk Factors................................... 12 Use of Proceeds................................ 21 Capitalization................................. 22 Pro Forma Selected Financial Information....... 23 Management's Discussion and Analysis of Pro Forma Results of Operations and Pro Forma Financial Condition.......................... 31 Business....................................... 34 Policies with Respect to Certain Activities.... 35 The Properties................................. 37 Management..................................... 48 Security Ownership of Certain Beneficial Owners and Management............................... 56 Legal Proceedings.............................. 57 Description of Capital of the Corporation...... 57 Certain Provisions of Maryland Law and the Corporation's Amended and Restated Articles of Incorporation and Bylaws.................. 61 U.S. Federal Income Tax Considerations......... 64 Canadian Federal Income Tax Considerations..... 74 Distribution Policy............................ 76 Plan of Distribution........................... 76 Experts........................................ 77 Legal Matters.................................. 77 Additional Information......................... 77 Glossary....................................... 78 Index to Financial Statements.................. F-1
-------------------------- UNTIL , 1996 ( DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. 2,740,000 SHARES BASIC U.S. REIT, INC. COMMON STOCK --------------------- PROSPECTUS --------------------- , 1996 - ------------------------------------------------ ------------------------------------------------ - ------------------------------------------------ ------------------------------------------------ PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 30. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following table sets forth the estimated expenses to be incurred in connection with the issuance and distribution of the securities offered hereby. The Corporation is responsible for the payment of all expenses in connection with the Offering.
Registration fee under the Securities Act of 1933........................... $ 9,448 Exchange filing fee......................................................... * NASD filing fee............................................................. * Blue Sky fees & expenses.................................................... * Printing expenses........................................................... * Legal fees and disbursements................................................ * Accounting fees............................................................. * Fees of transfer agent...................................................... * Miscellaneous............................................................... * Total:.................................................................... $ *
- ------------------------ * To be filed by Amendment ITEM 31. SALES TO SPECIAL PARTIES. None ITEM 32. RECENT SALES OF UNREGISTERED SECURITIES. On July 30, 1996 at the time of the Registrant's initial capitalization, the Registrant sold to Mr. Bernbaum at a cash purchase price of $10.00 per share, 100 shares of common stock. The Registrant did not pay any underwriting discounts or commissions with respect to such sales. Exemption from registration is claimed for the transaction described above pursuant to Section 4(2) of the Securities Act as a transaction not involving a public offering. ITEM 33. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Amended and Restated Articles of Incorporation authorize the Corporation, to the maximum extent permitted by Maryland law, to obligate itself to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any present or former director or officer or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise. The bylaws obligate it, to the maximum extent permitted by Maryland law, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any present or former director of officer who is made a party to the proceeding by reason of his service in that capacity of (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise as a director, officer, partner or trustee of such corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made a party to the proceeding by reason of his service in that capacity. The Amended and Restated Articles of Incorporation and bylaws also permit the Corporation to indemnify and advance expenses to any person who served a predecessor of the Corporation in any of the II-1 capacities described above and to any employee or agent of the Corporation or a predecessor of the Corporation. The MGCL requires a corporation (unless its charter provides otherwise, which the Amended and Restated Articles of Incorporation do not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made a party by reason of his service in that capacity. The MGCL permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe the act or omission was unlawful. However, a Maryland corporation may not indemnify for (a) an adverse judgment in a suit by or in the right of the corporation or (b) any proceeding charging an improper personal benefit to the director or officer, whether or not involving action in an official capacity, in which the director or officer is adjudged liable on the basis that personal benefit was improperly received. In addition, the MGCL requires the Corporation to, as a condition to advancing expenses, to obtain (a) a written affirmation by the director or officer of his good faith belief that he has met the stand of conduct necessary for indemnification by the Corporation as authorized by the bylaws and (b) a written undertaking by or on his behalf to repay the amount paid or reimbursed by the Corporation if it shall be ultimately determined that the standard of conduct was not met. ITEM 34. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED. Not Applicable ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS. (a) FINANCIAL STATEMENTS. See Index to Financial Statements for the financial statements which are included in the Prospectus. (b) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION SEQUENTIAL PAGE NO. - ----------------- ----------------------------------------------------------------------------- --------------------- 1.1 Form of Agency Agreement between the Registrant and Basic Capital Funds and Porthmeor Securities Inc., Octagon Capital Canada Corporation and First Marathon Securities Limited. 3.1 Articles of Amendment and Restatement of the Registrant 3.2 Bylaws of the Registrant 4.1 * Form of Share Certificate 5.1 * Opinion of Schnader, Harrison, Segal & Lewis re: Legality of Shares 8.1 * Opinion of Schnader, Harrison, Segal & Lewis re: U.S. Federal Income Tax Matters 8.2 * Opinion of Smith, Lyons re: Canadian Federal Income Tax Matters. 10.1 Form of Advisory Agreement between the Registrant and Basic Advisors, Inc. 10.2 Purchase and Sale Agreement between Basic Acquisitions, Inc. and Chico Crossroads Center, Ltd.
II-2
EXHIBIT NUMBER DESCRIPTION SEQUENTIAL PAGE NO. - ----------------- ----------------------------------------------------------------------------- --------------------- 10.3 First Amendment to Purchase and Sale Agreement between Basic Acquisitions, Inc. and Chico Crossroads Center. 10.4 Real Estate Purchase and Sale Agreement between Basic Acquisitions, Inc. and Miami Gardens Associates. 10.5 First Amendment to Real Estate Purchase and Sale Agreement between Basic Acquisitions, Inc. and Miami Gardens Associates. 10.5.1 Second Amendment to Real Estate Purchase and Sale Agreement between Basic Acquisitions, Inc. and Miami Gardens Associates. 10.6 Promissory Note by Miami Gardens Associates to Life Investors Insurance Company of America. 10.7 Mortgage by Miami Gardens Associates to Life Investors Insurance Company of America. 10.8 Lease between Centrum G.B. II Corporation and Publix Super Markets. 10.9 Lease between Centrum G.B. II Corporation and Jack Eckerd Corporation. 10.10 Lease between Chico Crossroads Center, Ltd., and Waban, Inc. 10.11 Lease between Chico Crossroads Center, Ltd., and Netco Foods, Inc. 10.12 Lease between Chico Crossroads Center, Ltd., and Circuit City Stores, Inc. 10.13 Lease between Chico Crossroads Center, Ltd., and Barnes & Noble Superstores, Inc. 10.14 1996 Stock Option Plan of Registrant 23.1 * Consent of Schnader, Harrison, Segal & Lewis 23.2 * Consents of Smith Lyons 23.3 Consent of Price Waterhouse LLP, Independent Accountants 23.4 * Consent(s) of Proposed Trustee(s) 24.1 * Power of Attorney
- ------------------------ * To be filed by Amendment ITEM 36. UNDERTAKINGS. (a) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreements certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser. (b) Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act") may be permitted to Directors, officers and controlling persons of the Registrant, Registrant has been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by Registrant of expenses incurred or paid by a Director, officer or controlling person of Registrant in the successful defense of any action, suit or proceeding) is asserted against Registrant by such Director, officer or controlling person, Registrant will, unless in the opinion of its counsel the matter had been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. II-3 (c) The undersigned Registrant hereby undertakes: (1) For the purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 30A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe it meets all the requirements for filing on Form S-11 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida on this 30th day of September, 1996. BASIC U.S. REIT, INC. By: /s/ CARL MAYNARD ----------------------------------------- Carl Maynard, PRESIDENT AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. SIGNATURE TITLE DATE - ------------------------------ -------------------------- ------------------- /s/ CARL MAYNARD Director, President and - ------------------------------ Chief Executive Officer September 30, 1996 Carl Maynard /s/ RONALD BERNBAUM - ------------------------------ Director, Chairman September 30, 1996 Ronald L. Bernbaum /s/ LARRY THRALL - ------------------------------ Director September 30, 1996 Larry Thrall /s/ ROBERT WITTERICK - ------------------------------ Director September 30, 1996 Robert G. Witterick, Q.C. /s/ NILS PETERSON - ------------------------------ Director September 30, 1996 Nils Peterson /s/ TERRY MCCRAE Treasurer, Chief Financial - ------------------------------ Officer and Vice September 30, 1996 Terry McCrae President-Finance II-5 EX-1.1 2 FORM OF AGENCY AGMT - REGISTRANT/PORTHMEOR Draft: September 25, 1996 FORM OF AGENCY AGREEMENT RELATING TO THE OFFERING OF SHARES OF COMMON STOCK BASIC U.S. REIT, INC. -, 1996 TABLE OF CONTENTS 1. Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. Nature of Transaction. . . . . . . . . . . . . . . . . . . . . . . 6 3. Covenants of the Agents. . . . . . . . . . . . . . . . . . . . . . 7 4. Representations, Warranties and Covenants of the Company . . . . . 7 5. Conditions to Purchase Obligation. . . . . . . . . . . . . . . . . 17 6. Additional Documents Upon Filing of Prospectus . . . . . . . . . . 19 7. Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 8. Termination of Purchase Obligation . . . . . . . . . . . . . . . . 21 9. Indemnity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 10. Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 11. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 12. Survival of Warranties, Representations, Covenants and Agreements. 25 13. Obligations of Basic Capital Funds . . . . . . . . . . . . . . . . 26 14. General Contract Provisions. . . . . . . . . . . . . . . . . . . . 26 SCHEDULE "A" Details of the Offering SCHEDULE "B" Outstanding Convertible Securities SCHEDULE "C" Opinion of the Company's Canadian Counsel SCHEDULE "D" Opinion of the Company's U.S. Counsel FORM OF AGENCY AGREEMENT - -, 1996 Basic U.S. REIT, Inc. [ADDRESS] ATTENTION: [NAME AND TITLE] Basic Capital Funds [ADDRESS] ATTENTION: [NAME AND TITLE] Dear Sirs: Porthmeor Securities Inc., Octagon Capital Canada Corporation and First Marathon Securities Limited (collectively, the "AGENTS") understand that Basic U.S. REIT, Inc. (the "COMPANY") desires to issue and sell securities of the Company having the terms described in Schedule "A" hereto (the "OFFERED SECURITIES"). The offering of the Offered Securities by the Company is hereinafter referred to as the "OFFERING". The Agents also understand that Basic Advisors, Inc. (the "ADVISOR"), a Delaware corporation, will provide day- to-day management for the Company, including acting as investment and financial advisor to the Company with respect to real property investments. The Agents further understand that Basic Capital Funds, an Ontario limited partnership, and Maynard Rich/Abraham Inc., a Florida corporation, (collectively, the "PROMOTERS"), have taken the initiative in organizing the Company and its affairs for the purposes of the Offering. It is understood that pursuant to a Purchase and Sale Agreement between Basic Acquisitions, Inc., a Delaware corporation being an affiliate of the Company, (the "AFFILIATE") and Chico Crossroads Center, Ltd. and a Purchase and Sale Agreement between the Affiliate and Groves Development Limited Partnership, dated ________, 1996, and ________, 1996, respectively, the Company proposes to acquire two commercial real estate properties (the "Properties") contemporaneously with the Offering. The Agents hereby agree to act as the agents of the Company to use their commercially reasonable best efforts to offer for sale and sell the Offered Securities to Purchasers (as hereafter defined), upon and subject to the terms and conditions contained herein, -2- and by its acceptance the Company agrees to the appointment of the Agents, as the Company's exclusive agents until the Closing Date in respect of the Offering; provided that the Agents shall be under no obligation to purchase any of the Offered Securities. In consideration of the Agents' services to be rendered in connection with the Offering, including, without limitation, assisting in preparing documentation relating to the Offered Securities, including the Preliminary Prospectus and the Final Prospectus (in each case as hereinafter defined), distributing the Offered Securities directly and through other investment dealers and brokers, and performing administrative work in connection with the Offering, the Company agrees to pay the Agency Fee (as hereinafter defined) to the Agents. The Company and the Agents acknowledge and agree that if a separate fee were to have been charged to the Company for the services described above, which constitute financial services within the meaning of the EXCISE TAX ACT (Canada), such separate fee would represent more than 50% of the Agency Fee, and the Company further acknowledges and agrees that the Agents will rely on the foregoing in not charging GST on the Agency Fee. In the event that Revenue Canada, Customs, Excise and Taxation determines that GST is exigible on the Agency Fee, the Company agrees to pay the amount of GST forthwith upon request of the Agents. The Company agrees that the Agents will be permitted to appoint, at the Agents' sole expense, other registered dealers (or other dealers duly qualified in their respective jurisdictions) as their agents to assist in the Offering and that the Agents shall pay a fee of six percent (6%) to such other dealers appointed by it. This agreement is conditional upon and subject to the additional terms and conditions set forth below. 1. INTERPRETATION 1.1 Unless expressly provided otherwise, where used in this agreement or any schedule hereto, the following terms shall have the following meanings, respectively: "ADVISOR" shall have the meaning ascribed thereto in the first paragraph of this agreement; "ADVISORY AGREEMENT" means the agreement dated - between the Advisor and the Company whereby the Advisor provides services to the Company as described in the first paragraph of this agreement; "AFFILIATE" shall have the meaning ascribed thereto in the second paragraph of this agreement; "AGENCY FEE" means the fee payable to the Agents, as specified in Schedule "A" hereto; -3- "AGENTS" shall have the meaning ascribed thereto in the first paragraph of this agreement; "APPLICABLE SECURITIES LAWS" means Canadian Securities Laws and U.S. Securities Laws; "CANADIAN FINAL PROSPECTUS" means the final prospectus of the Company qualifying the Offered Securities under Canadian Securities Laws; "CANADIAN PRELIMINARY PROSPECTUS" means the preliminary prospectus, prepared in connection with the qualification of the Offered Securities under Canadian Securities Laws; "CANADIAN SECURITIES LAWS" means, collectively, the applicable securities laws of each of the Qualifying Provinces, their respective regulations, rulings, orders and forms prescribed or made thereunder, the applicable policy statements issued by the Securities Commissions thereunder and the securities legislation and policies of each other relevant jurisdiction; "CLOSING DATE" means the date on which the Offering is to be completed, as specified in Schedule "A" hereto; "COMMISSION" means the United States Securities and Exchange Commission; "COMPANY" shall have the meaning ascribed thereto in the first paragraph of this agreement; "COMPANY'S INFORMATION RECORD" means all press releases, material change reports, financial statements and other documents of the Company which have been or are publicly disseminated by or as authorized by the Company, whether or not pursuant to the Applicable Securities Laws; "EXCHANGE" means a recognized stock exchange in the United States which is also a "prescribed stock exchange" within the meaning of the INCOME TAX ACT (Canada); "EXCHANGE ACT" means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder; "FINAL PROSPECTUS" means the Canadian Final Prospectus and the U.S. Prospectus; "HAZARDOUS MATERIAL" has the meaning ascribed thereto in subsection 4.1(at) hereof; "INCLUDING" means including without limitation; -4- "MATERIAL CHANGE" means a material change for the purposes of the Applicable Securities Laws or any of them or where undefined under the Applicable Securities Laws means a change in the business, operations or capital of the Company, that would reasonably be expected to have a significant effect on the market price or value of any of the Company's securities and includes a decision to implement such a change made by the Company's board of directors or by senior management of the Company who believe that confirmation of the decision by the board of directors is probable; "MATERIAL FACT" means a material fact for the purposes of the Applicable Securities Laws or any of them or where undefined under the Applicable Securities Laws means a fact that significantly affects, or would reasonably be expected to have a significant effect on, the market price or value of the Company's securities; "MISREPRESENTATION" means a misrepresentation for the purposes of the Applicable Securities Laws or any of them or where undefined under the Applicable Securities Laws means (i) an untrue statement of a material fact, or (ii) an omission to state a material fact that is required to be stated or that is necessary to make a statement not misleading in the light of the circumstances in which it was made; "NP1" means National Policy Statement No. 1 of the Canadian Securities Administrators; "OFFERED SECURITIES" shall have the meaning ascribed thereto in the first paragraph of this agreement; "OFFERING" shall have the meaning ascribed thereto in the first paragraph of this agreement; "OUTSTANDING CONVERTIBLE SECURITIES" means all options, including without limitation options granted or agreed to be granted to officers, directors or employees, and other convertible securities outstanding as at the date of this agreement, whether issued pursuant to an established plan or otherwise; "PERSON" includes any individual, corporation, limited partnership, general partnership, joint stock company or association, joint venture association, company, trust, bank, trust company, land trust, investment trust, society or other entity, organization, syndicate, whether incorporated or not, trustee, executor or other legal personal representative, and governments and agencies and political subdivisions thereof; "PRELIMINARY PROSPECTUS" means the Canadian Preliminary Prospectus and the U.S. Preliminary Prospectus; "PROMOTERS" shall have the meaning ascribed thereto in the first paragraph of this agreement; -5- "PROPERTIES" shall have the meaning ascribed thereto in the second paragraph of this agreement; "PURCHASERS" means, collectively, each of the purchasers of Offered Securities arranged by the Agents pursuant to the Offering, including, if applicable, the Agents; "QUALIFYING PROVINCES" means each of the provinces of Canada listed in Schedule "A" hereto; "REGISTRATION STATEMENT" means the registration statement on Form S-11 (No. 333--) with respect to the Offered Securities (which, at the time it becomes effective, shall include the U.S. Prospectus) filed with the Commission for the purpose of registering the Offered Securities for sale in the United States; "SECURITIES COMMISSIONS" means, collectively, the securities commissions or similar regulatory authorities in each of the Qualifying Provinces and the Commission; "SELLING GROUP" means, collectively, those registered dealers appointed by the Agents to assist in the Offering as contemplated in the fifth paragraph of this agreement; "SUPPLEMENTARY MATERIAL" means, collectively, any amendment to the Registration Statement, the Final Prospectus, any amended or supplemental registration statement, prospectus or ancillary material required to be filed with any of the Securities Commissions in connection with the distribution of the Offered Securities; "SURVIVAL LIMITATION DATE" means the later of: (i) eighteen months from the Closing Date, and (ii) the latest date under the Applicable Securities Laws relevant to a Purchaser (non-residents of Canada being deemed to be resident in the Province of Ontario for such purposes) that a Purchaser may be entitled to commence an action or exercise a right of rescission with respect to a misrepresentation contained in the Final Prospectus or, if applicable, any Supplementary Material; and "TIME OF CLOSING" means the time on the Closing Date at which the Offering is to be completed, as specified in Schedule "A" hereto. "U.S. SECURITIES ACT" means the United States Securities Act of 1933, as amended, and the rules and regulations thereunder; "U.S. PRELIMINARY PROSPECTUS" means the prospectus included in the Registration Statement prior to the effectiveness thereof; "U.S. PROSPECTUS" means the prospectus included in the Registration Statement at the time it becomes effective; and -6- "U.S. SECURITIES LAWS" means, collectively, the applicable United States federal and state securities laws, the respective regulations, rulings, orders and forms prescribed thereunder, the applicable policy statements issued and the rules promulgated by the Commission and state Securities Commissions thereunder. 1.2 The division of this agreement into sections, subsections, paragraphs and other subdivisions and the insertion of headings are for convenience of reference only and shall not affect the construction or interpretation of this agreement. Unless something in the subject matter or context is inconsistent therewith, references herein to sections, subsections, paragraphs and other subdivisions are to sections, subsections, paragraphs and other subdivisions of this agreement. 1.3 This agreement shall be governed by and construed in accordance with the laws of the Province of Ontario and the federal laws of Canada applicable therein and time shall be of the essence hereof. 1.4 Except as otherwise indicated, all amounts expressed herein or to be determined hereby in terms of money refer to lawful currency of the United States of America and all payments to be made hereunder shall be made in such currency. 1.5 The following are the schedules attached to this agreement, which schedules are deemed to be a part hereof and are hereby incorporated by reference herein: Schedule A - Details of the Offering Schedule B - Details as to Outstanding Convertible Securities Schedule C - Opinion of the Company's Canadian Counsel Schedule D - Opinion of the Company's U.S. Counsel 2. NATURE OF TRANSACTION 2.1 Each Canadian Purchaser shall purchase pursuant to the Final Prospectus. Each other Purchaser shall purchase in accordance with such procedures as the Company and the Agents may mutually agree, acting reasonably, in order to fully comply with the Applicable Securities Laws. The Company hereby agrees to secure compliance with all securities regulatory requirements of the Qualifying Provinces on a timely basis in connection with the distribution of the Offered Securities to Canadian Purchasers. The Agents agree to assist the Company in all reasonable respects to secure compliance with all regulatory requirements in connection with the Offering. 3. COVENANTS OF THE AGENTS 3.1 The Agents covenant with the Company that they will (and will use their reasonable efforts to cause the members of the Selling Group to ensure that they will): (i) conduct activities in connection with arranging for the sale and distribution of the Offered Securities in compliance with the Applicable Securities Laws; (ii) not solicit offers to purchase -7- or sell the Offered Securities so as to require registration thereof or filing of a prospectus with respect thereto under the laws of any jurisdiction (other than the Qualifying Provinces or the United States) including the United Kingdom, and not solicit offers to purchase or sell the Offered Securities in any jurisdiction outside of Canada or the United States where the solicitation or sale of the Offered Securities would result in any ongoing disclosure requirements in such jurisdiction, any registration requirements in such jurisdiction except for the filing of a notice or report of the solicitation or sale (including, without limitation, forms required to be filed with the United States Securities and Exchange Commission in connection with private placement sales), or where the Company may be subject to liability in connection with the sale of the Offered Securities which is materially more onerous than its liability under Applicable Securities Laws to which it is subject as at the date of this agreement;(iii) refrain from making use of any "green sheet" or other internal marketing document in respect of the Offered Securities without the approval of the Company and comply with the notice dated July 7, 1989 issued by the Ontario Securities Commission with respect to the use of "green sheets" and other marketing material during the waiting period under the SECURITIES ACT (Ontario); (iv) use all reasonable efforts to complete and to cause the members of the Selling Group to complete the distribution of the Offered Securities as soon as practicable and cooperate with the Company in its efforts to market the Offered Securities; (v) notify the Company when, in its opinion, the Selling Group has ceased distribution of the Offered Securities and, if required for regulatory compliance purposes, provide a breakdown of the number of Offered Securities distributed (A) in each of the Qualifying Provinces and (B) in any other jurisdictions; (vi) not make any representations or warranties in respect of the Company or the Offered Securities other than as set forth in the Final Prospectus and, if applicable, Supplementary Material; and (vii) forthwith upon the Company obtaining the necessary receipts therefor from each of the Securities Commissions, deliver one copy of the Final Prospectus and any Supplementary Material to the prospective Purchasers. 3.2 The Agents agree with the Company that the Agents will sponsor the Company in its efforts to have its securities accepted for listing and posted for trading on the Exchange. 3.3 Each of the Agents severally represents to the Company that each is registered (to sell the Offered Securities) under the Canadian Securities Laws. Each of the Agents severallly covenants with the Company that such registration will be in good standing on the Closing Date. 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY 4.1 The Company hereby represents, warrants and covenants to and with the Agents and the Purchasers that: (a) it will use all reasonable efforts to file the Final Prospectus and to obtain a final receipt document from the each of the Securities Commissions by not later than -, 1996, and shall have taken all other steps and proceedings that may be necessary in order to qualify the Offered Securities for distribution pursuant to the Final Prospectus in each of the Qualifying Provinces by such date; -8- (b) the Company has no subsidiaries, whether through direct or indirect holding of securities, (c) the Company (i) has been duly incorporated and is and will at the Time of Closing be validly existing and in good standing under the laws of Maryland; (ii) has all requisite corporate power and authority to carry on its business as now conducted and to own, lease and operate its properties and assets; and (iii) has all required corporate power and authority to create, issue and sell the Offered Securities, to enter into this agreement and to carry out the provisions of this agreement; (d) all necessary corporate action has been taken or will have been taken prior to the Time of Closing by the Company so as to validly issue and sell the Offered Securities to the Purchasers and upon receipt by the Company of the purchase price as consideration for the issue of the Offered Securities, such Offered Securities will be validly issued and outstanding as fully paid and non-assessable shares of common stock; (e) the Company is in all material respects conducting its business in compliance with all applicable laws, rules and regulations of each jurisdiction in which its business is carried on and is duly licensed, registered or qualified in all jurisdictions in which it owns, leases or operates its property or carries on business to enable its business to be carried on as now conducted and its property and assets to be owned, leased and operated and all such licences, registrations and qualifications are and will at the Time of Closing be valid, subsisting and in good standing, except in respect of matters which do not and will not result in any material adverse change to the business or affairs (financial or otherwise) of the Company and except for the failure to be so qualified or the absence of any such license, registration or qualification which does not and will not have a material adverse effect on the assets or properties, business, results of operations or affairs (financial or otherwise) of the Company; (f) the Company has not received any notice of proceedings relating to the revocation or modification of any certificate, authority, permit or licence which, if the subject of an unfavourable decision, ruling or finding, would materially or adversely affect the conduct of the business, operations, financial condition or income (current or prospective) of the Company; (g) as of the date hereof, the outstanding capital of the Company is as set forth in the Registration Statement; (h) attached as Schedule "B" is a complete list of all Outstanding Convertible Securities of the Company and, except as set forth in this agreement or in the Canadian Final Prospectus, no person now has any agreement or option or right -9- or privilege capable of becoming an agreement for the purchase, subscription or issuance of any issued or unissued shares, securities or warrants of the Company; (i) except as set forth in the Canadian Final Prospectus, since its date of incorporation: (i) there has not been any material change in the assets, liabilities or obligations (absolute, accrued, contingent or otherwise) of the Company that has not been publicly disclosed; (ii) there has not been any material change in the capital stock or long-term debt of the Company that has not been publicly disclosed; (iii) there has not been any material change in the business or affairs (financial or otherwise) or results of the operations of the Company that has not been publicly disclosed; (iv) except as has been publicly disclosed, the Company has carried on its business in the ordinary course; (j) the assumptions contained in the notes to the pro forma balance sheet as of June 30, 1996 and the pro forma statements of income for the year ended December 31, 1995 and for the six months ended June 30, 1996 of the Company contained in the Final Prospectus under the heading "PRO FORMA AND SELECTED COMBINED FINANCIAL INFORMATION" are suitably supported and consistent with the plans of the Company, and such pro forma balance sheet and statements of income accurately reflect such assumptions; (k) the pro forma balance sheet as of June 30, 1996 and the pro forma statements of income for the year ended December 31, 1995 and for the six months ended June 30, 1996 of the Company present fairly the financial condition of the Company based on assumptions for the periods then ended; (l) there is no action, proceeding or investigation (whether or not purportedly by or on behalf of the Company) pending or, to the knowledge of the Company or any of its directors and officers, threatened against or affecting the Company, at law or in equity (whether in any court, arbitration or similar tribunal) or before or by any federal, provincial, state, municipal or other governmental department, commission, board or agency, domestic or foreign, which in any way materially adversely affects or could materially adversely affect the Company, or the condition (financial or otherwise) of the Company or which questions the validity of the Offered Securities or of the issuance of the Offered Securities (and the issuance as fully paid and non-assessable shares) or any action taken or to be taken by the Company pursuant to or in connection with this agreement; -10- (m) the Company is not in default or in breach in any material respect of, and the execution and delivery of this agreement by them, the performance and compliance with the terms of this agreement and the sale of the Offered Securities by the Company will not result in any material breach of, or be in conflict with or constitute a material default under, or create a state of facts which, after notice or lapse of time, or both, would constitute a default under any term or provision of the articles, by-laws or resolutions of the Company or any mortgage, note, indenture, contract, agreement, instrument, lease or other document to which the Company is a party or by which any of them is bound or any judgment, decree, order, statute, rule or regulation applicable to any of them; (n) the Company will at the Time of Closing be a "reporting issuer" (or its equivalent), not in default, in each of the Qualifying Provinces and the Company will use its reasonable best efforts to maintain such status for a period of at least two years from the Closing Date; (o) the auditors of the Company who reviewed, as to compilation only, the pro forma balance sheet and the pro forma statements of income of the Company and who audited the schedules of net operating income before amortization of Chico Crossroads Center Ltd. and Miami Gardening Association, all as contained in the Final Prospectus, are independent public accountants as required by the Applicable Securities Laws; (p) the Company has filed all federal, provincial, state, local and foreign tax returns that are required to be filed or have requested extensions thereof and have paid all taxes required to be paid by them and any other assessment, fine or penalty levied against them, to the extent that any of the foregoing is due and payable, except for any such assessment, fine or penalty that is being contested in good faith and in respect of which particulars have been given to the Agents; (q) there are no outstanding reassessments which have been issued by any governmental authority relating to any such tax returns of the Company; (r) neither the Company nor, to the Company's knowledge, any other party, is in default in the observance or performance of any term or obligation to be performed by it under any contract which is material to it and no event has occurred which with notice or lapse of time or both would constitute such a default, in any such case which default or event would have a material adverse effect on the assets or properties, business, results of operations or affairs (financial or otherwise) of such entity; (s) the net proceeds of the Offering will be used in the manner specified in the Final Prospectus under the heading "USE OF PROCEEDS" and for no other purpose; -11- (t) the Company will use its reasonable best efforts to obtain the necessary regulatory consents from the Exchange for the sale of the Offered Securities hereunder, on such conditions as are acceptable to the Agents and the Company, acting reasonably; (u) the Company will use its reasonable best efforts to arrange for the listing and posting for trading on the Exchange of the shares comprised in the Offered Securities as soon as possible following the issue thereof; (v) prior to the filing of the Final Prospectus and any Supplementary Material, the Company and the Advisor will allow the Agents to participate fully in the preparation of the Final Prospectus and any such Supplementary Material and shall allow the Agents to conduct all due diligence which it may reasonably require to conduct in order to fulfil its obligations and in order to enable the Agents responsibly to execute the certificate required to be executed by it at the end of each of the Final Prospectus and any Supplementary Material; (w) the Company will deliver from time to time without charge to the Agents as many copies of the Final Prospectus, the Registration Statement and any Supplementary Material as it may reasonably request for the purposes contemplated hereunder and contemplated by the Applicable Securities Laws and such delivery shall constitute the consent of the Company to the Agents' use of such documents in connection with the distribution to the public of the Offered Securities, subject to the provisions of Applicable Securities Laws and the provisions of this agreement; (x) all the information and statements to be contained in the Final Prospectus and any Supplementary Material shall, at the date of delivery thereof, constitute full, true and plain disclosure of all material facts relating to each of the Offering, the Company, on a consolidated basis, the Advisor, the Promoters and the Offered Securities (provided that this representation is not intended to extend to information and statements included in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Agents specifically for use therein); (y) at the time of the effectiveness of the Registration Statement or the effectiveness of any post-effective amendment to the Registration Statement, and at the Closing Date, the Registration Statement and the U.S. Prospectus and any amendments thereof and supplements thereto comply or will comply in all material respects with the applicable provisions of the U.S. Securities Laws and do not or will not contain an untrue statement of a material fact and does not or will not omit to state any material fact required to be stated therein or necessary in order to make the statements therein (A) in the case of the Registration Statement, not misleading and (B) in the case of the U.S. Prospectus, in light of the circumstances under which they were made, not misleading; -12- (z) neither the Final Prospectus nor any Supplementary Material will contain a misrepresentation (provided that this representation is not intended to extend to information and statements included in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Agents specifically for use therein); (aa) the Final Prospectus and any Supplementary Material shall contain the disclosure required by and conform, in all material respects, to all requirements of Applicable Securities Laws; (ab) this agreement and all other contracts required in connection with the issue and distribution of the Offered Securities shall be, at or prior to the Time of Closing, duly authorized, executed and delivered by the Company and shall be valid and binding obligations of it enforceable in accordance with their respective terms subject to: (i) bankruptcy, insolvency and other similar laws affecting the rights of creditors generally; (ii) the qualification that equitable remedies, including without limitation, specific performance and injunction, may be granted only in the discretion of a court of competent jurisdiction; and (iii) rights of indemnity, contribution and waiver of contribution being limited under applicable law; (ac) the attributes of the Offered Securities will conform in all material respects with the description thereof described or to be described in the Final Prospectus; (ad) the forms of the certificates representing the Offered Securities have been, or will at or prior to the Time of Closing be, duly approved by the Company and comply with the provisions of the laws of its jurisdiction of incorporation and the regulations of the Exchange; (ae) during and prior to primary distribution, the Company and the Advisor will take or use their reasonable efforts to cause to be taken all steps and proceedings (including the filing of, and obtaining the issuance of receipts for, the Final Prospectus) that may be requisite under the Applicable Securities Laws to qualify the Offered Securities for sale to the public in the Qualifying Provinces through registrants registered under the Applicable Securities Laws of the Qualifying Provinces who have complied with the relevant provisions thereof; (af) at all times until the primary distribution of the Offered Securities has been completed, but in any event not later than thirty days following the Closing Date, the Company will, to the reasonable satisfaction of counsel to the Agents, -13- promptly take or cause to be taken all additional steps and proceedings that may be requisite from time to time under the Applicable Securities Laws of the Qualifying Provinces to continue to so qualify the Offered Securities in the Qualifying Provinces or, in the event that the Offered Securities have, for any reason, ceased to so qualify in the Qualifying Provinces, to again so qualify the Offered Securities; (ag) other than as disclosed in the Canadian Final Prospectus and other than the Agents pursuant to this agreement, there is no person acting or purporting to act at the request of the Company or the Advisor, who is entitled to any brokerage, agency or other fiscal advisory or similar fee in connection with the Offering or the other transactions contemplated herein; (ah) the Company will promptly notify the Agents in writing if, prior to termination of the distribution of the Offered Securities, there shall occur any material change or change in a material fact (in either case, whether actual, anticipated, contemplated or threatened and other than a change or change in fact relating solely to the Agents) or any event or development involving a prospective material change or a change in a material fact or any other material change in any or all of the business, affairs, operations, assets (including information or data relating to the estimated value or book value of assets), liabilities (contingent or otherwise), capital, ownership, control or management of the Company, on a consolidated basis, or any other change which is of such a nature as to result in, or could result in a misrepresentation in the Preliminary Prospectus, Final Prospectus, Registration Statement or any Supplementary Material or could render any of the foregoing not in compliance with any of the Applicable Securities Laws; (ai) the Company will promptly notify the Agents in writing with full particulars of any such actual, anticipated, contemplated, threatened or prospective change referred to in the preceding paragraph and shall, to the reasonable satisfaction of the Agents, file promptly and, in any event, within all applicable time limitation periods with the Securities Commissions a new or amended Preliminary Prospectus, Final Prospectus, Registration Statement or Supplementary Material, as the case may be, or material change report as may be required under the Applicable Securities Laws and shall comply with all other applicable filing and other requirements under the Applicable Securities Laws including any requirements necessary to qualify the issuance and distribution of the Offered Securities and shall deliver to the Agents as soon as practicable thereafter its reasonable requirements of conformed or commercial copies of any such new or amended Preliminary Prospectus, Final Prospectus, Registration Statement or Supplementary Material. The Company will not file any such new or amended disclosure documentation or material change report without first obtaining the written approval of the form and content thereof by the Agents, which approval shall not be unreasonably withheld or delayed; -14- (aj) the Company will in good faith discuss with the Agents as promptly as possible any circumstance or event which is of such a nature that there is or ought to be consideration given as to whether there may be a material change or change in a material fact or other change described in the preceding two paragraphs; (ak) the Final Prospectus will accurately and completely set forth all material arrangements, financial or otherwise, between the Company and the Advisor and between the Company and the Promoters; (al) except as will be disclosed in the Final Prospectus, there are and will be no contracts, agreements, or arrangements to which the Company is a party with any of the shareholders or any director, officer, former director, officer or shareholder of the Advisor or any of its associated or affiliated companies or with any other person with which it does not deal at arm's length (as that term is used for the purposes of the INCOME TAX ACT (Canada)); (am) the Company will and will cause certain of the directors and officers to use its best efforts to assist in the marketing and presentation of the Company to prospective purchasers of Offered Securities, and to cause its officers and employees to devote the necessary time and effort in this regard; (an) all of the real properties of the Company and the buildings constructed thereon will be at the Time of Closing insured against such loss from damage by hazards or risks normally insured against, with reasonable deductibles; such buildings were constructed in accordance with building permits properly issued therefor, if required, and in compliance in all material respects with all applicable building and zoning by-laws; and there are no material defects in such buildings; there are no outstanding work orders or deficiency notices relating to such buildings from or required by any police or fire department, sanitation, health authorities or from any other federal, state, provincial or municipal authority and there is no matter under discussion with any such departments or authorities relating to work orders; such buildings and all chattels required for the effective operation of such buildings are in good operating condition and are in a state of good repair and maintenance reasonable wear and tear excepted; (ao) all of the real properties of the Company and the buildings constructed and operations thereon comply in all material respects with applicable federal, state, provincial and municipal environmental, health and safety statutes, regulations and permits; none of such properties, buildings or operations is subject to any judicial or administrative proceeding alleging any material violation of any federal, state, provincial or municipal environmental, health or safety statute or regulation or is subject to any investigation, by or on behalf of the Company, evaluating whether any remedial action is needed to respond to a release of any Hazardous Material (as hereinafter defined) into the environment; neither the Company nor any tenant in any property in which the Company has a direct or -15- indirect interest, has filed any notice under any federal, state, provincial or municipal law indicating past or present treatment, storage or disposal of a Hazardous Material or reporting a spill or release of an Hazardous Material into the environment involving any of the real properties of the Company other than those which have been remediated; none of the real properties of the Company has at any time been used as a waste storage site or waste disposal site or has been used to operate a waste management business during the time the Company has owned such properties, and no such use was made of any of the properties prior to the purchase of such properties by the Company; the Company does not have a contingent liability of which it has knowledge or reasonably should have knowledge in connection with any release of any Hazardous Material on or into the environment from any of the real properties of the Company or the buildings or operations thereon; neither the Company nor any tenant in any property in which the Company has a direct or indirect interest, generates, transports, treats, stores or disposes of any waste, subject waste, hazardous waste, deleterious substance, industrial waste (as defined in applicable federal, state, provincial or municipal legislation) on any of the real properties of the Company in contravention of applicable federal, state, provincial or municipal laws or regulations enacted for the protection of the natural environment or human health; no underground storage tanks or surface impoundments containing a petroleum product or Hazardous Material are located on any of the real properties of the Company in contravention of applicable federal, state, provincial or municipal laws or regulations enacted for the protection of the natural environment or human health; and for the purposes of this subsection 4.1(a-), "HAZARDOUS MATERIAL" means any contaminant, pollutant, waste, subject waste, hazardous waste, deleterious substance, industrial waste, toxic matter or any other substance that when released into the natural environment is likely to cause, at some immediate or future time, material harm or degradation to the natural environment or material risk to human health and, without restricting the generality of the foregoing, includes any contaminant, pollutant, waste, subject waste, deleterious substance, industrial waste, toxic matter, hazardous waste or dangerous goods as defined by applicable federal, state, provincial or municipal laws or regulations enacted for the protection of the natural environment or human health; (ap) - has been duly appointed the registrar and transfer agent for the Offered Securities at its principal transfer office; (aq) the minute books of the Company, provided to counsel to the Agents contain copies of the articles and by-laws of the Company and all resolutions of the directors and shareholders of the Company; (ar) during the period commencing on the date hereof and ending on the 90th day following the Closing Date, without the prior written consent of the Agents which shall not be unreasonably withheld, the Company will not issue or announce the -16- issuance of any shares of common stock or any other securities which are convertible into or exchangeable for shares of common stock; provided, however, that this covenant shall not apply to the Offered Securities to be distributed by or through the Agents as contemplated herein and shall not apply to the issuance of shares of common stock pursuant to stock options granted under the stock option plan referred to under "MANAGEMENT - Stock Option Plan" in the Final Prospectus; (as) the Company has prepared and filed with the Commission, in conformity with the requirements of U.S. Securities Laws, a registration statement on Form S-11 (No. 333--), including the U.S. Preliminary Prospectus. The Company has also prepared and proposes to file with the Commission, in conformity with the requirements of the U.S. Securities Laws, an amendment to the registration statement, including the U.S. Prospectus; (at) there is no document or contract of a character required to be described in the Registration Statement or to be filed with any Securities Commission as an exhibit to the Registration Statement or the Final Prospectus which is not described or filed as required; (au) the Company is not, and upon consummation of the transactions contemplated in this agreement will not be, an "investment company" as such term is defined in the United States Investment Company Act of 1940, as amended; (av) the Company shall use all reasonable efforts to cause the Registration Statement to become effective; (aw) the Company will make generally available (within the meaning of Rule 158 under the U.S. Securities Act) to its shareholders as soon as reasonably practicable, but not later than 60 days after the end of its fiscal quarter (140 days if such quarter coincides with the Company's fiscal year end) in which the first anniversary date of the effective date of the Registration Statement occurs, an earnings statement covering a period of at least twelve consecutive months after the effective date of the Registration Statement which shall satisfy the provisions of Section 11(a) of the 1933 Act; (ax) if at any time the Commission shall issue any stop order suspending the effectiveness of the Registration Statement, the Company will make every reasonable effort to obtain the withdrawal or lifting of such order at the earliest possible time; (ay) the Company shall furnish to the Agents, without charge, five signed copies of the Registration Statement as first filed with the Commission and of each amendment to it, including all exhibits, and shall furnish to the Agents and each agent designated by the Agents such number of conformed copies of the Registra -17- tion Statement as so filed and of each amendment to it, without exhibits, as you may reasonably request; [NOTE TO DRAFT: BOTH U.S. COUNSELS TO REVIEW] (az) the Company will not file any amendment or supplement to the Registration Statement, whether before or after the time upon which it becomes effective, or make any amendment or supplement to the Prospectus of which the Agents shall not previously have been advised or to which the Agents shall reasonably object; and agrees to prepare and file with the Commission promptly upon your reasonable request, any amendment to the Registration Statement or supplement to the Prospectus which may be required in connection with the distribution of the Offered Securities by you, and to use its best efforts to cause the same to become properly effective. (ba) as of the Closing Date, the Company will have obtained an Owner's Policy of Title Insurance (or an irrevocable commitment to issue such a policy) on each of the Properties, in an amount not less that the cost of acquisition of such Properties, and such title insurance is or will be in full force and effect subject to customary exceptions; (bb) as of the Closing Date, and after giving effect to the transaction described in the Registration Statement, the Company will be organized and intends to operate in a manner so as to qualify as a real estate investment trust ("REIT") under Sections 856 through [860] of the Code, and the Company will elect to be taxed as a REIT under the Code effective for the fiscal year ended December 31, 1997; (bc) the Company will file with the Commission such reports on Form SR as may be required pursuant to Rule 463 of the U.S. Securities Act; and (bd) except as disclosed in the Prospectus, there are no business relationships or related party transactions required to be disclosed therein by Item 404 of Regulation S-K of the Commission. 5. CONDITIONS TO PURCHASE OBLIGATION 5.1 The following are conditions of the Agents' and Purchasers' obligations to close the purchase of the Offered Securities from the Company as contemplated hereby (in respect of which the Agents shall act in good faith in determining whether such conditions have been fulfilled), which conditions the Company covenants to exercise its best efforts to have fulfilled at or prior to the Time of Closing, which conditions may be waived in writing in whole or in part by the Agents: (a) the Company will have made and/or obtained the necessary filings, approvals, consents and acceptances to or from, as the case may be, the Securities Commissions and the Exchange required to be made or obtained by the Company in connection with the Offering, on terms which are acceptable to the Company -18- and the Agents, acting reasonably, prior to the Closing Date, it being understood that the Agents will do all that is reasonably required to assist the Company to fulfil this condition; (b) the shares comprised in the Offered Securities will have been accepted for listing by the Exchange, subject to the usual conditions, and will, as soon as possible following their issue, be posted for trading on the Exchange; (c) the Company's and the Advisor's boards of directors will have authorized and approved this agreement and such other agreements pursuant to which the Offered Securities are to be issued, the sale and issuance of the Offered Securities and all matters relating to the foregoing; (d) the Company will deliver a certificate under its corporate seal and signed on behalf of each of them by the respective chief executive officer and the chief financial officer or such other senior officers as may be acceptable to the Agents, acting reasonably, addressed to the Agents and dated the Closing Date, in form and content satisfactory to the Agents' counsel, acting reasonably, certifying that: (i) no order suspending the effectiveness of the Registration Statement or any post-effective amendment thereof has been issued, no order ceasing or suspending trading in any securities of the Company or prohibiting the sale of the Offered Securities or any of the Company's issued securities has been issued and no proceedings for such purpose are pending or, to the knowledge of such officers, threatened; (ii) to the knowledge of such officers, there has been no adverse material change (actual, proposed or prospective, whether financial or otherwise) in the business, affairs, operations, assets, liabilities (contingent or otherwise) or capital of the Company since the date hereof which has not been generally disclosed; (iii) since the date hereof, no material change relating to the Company, except for the Offering, has occurred; (iv) the pro forma balance sheet as of June 30, 1996 and the pro forma statements of income for the year ended December 31, 1995 and for the six months ended June 30, 1996 of the Company present fairly the financial condition of the Company, on a consolidated basis, for the periods then ended; (v) the representations and warranties of the Company contained in this agreement are true and correct at the Time of Closing, with the same force and effect as if made by the Company as at the Time of Closing after giving effect to the transactions contemplated hereby; and -19- (vi) the Company has complied with all the covenants and satisfied all the terms and conditions of this agreement on its part to be complied with or satisfied at or prior to the Time of Closing; (e) the Company will have caused a favourable legal opinion to be delivered by its Canadian and U.S. counsel, addressed to the Agents and the Agents' counsel with respect to such matters as the Agents may reasonably request relating to this transaction, acceptable in all reasonable respects to the Agents' counsel, including substantially those matters identified in Schedule "C" (Canadian counsel) and Schedule "D" (U.S. counsel) hereto. In giving such opinions, counsel to the Company shall be entitled to rely, to the extent appropriate in the circumstances, upon local counsel and shall be entitled as to matters of fact not within their knowledge to rely upon a certificate of fact from responsible persons in a position to have knowledge of such facts and their accuracy and such opinions shall be subject to the customary assumptions, qualifications and exceptions; and (f) the Company will deliver a certificate of its registrar and transfer agent as to the issued and outstanding shares of common stock of the Company. 6. ADDITIONAL DOCUMENTS UPON FILING OF PROSPECTUS 6.1 The Company shall cause to be delivered to the Agents concurrently with the filing of the Final Prospectus and any Supplementary Material executed by the Agents a comfort letter dated the date thereof from the auditors of the Company and addressed to the Agents and to the directors of the Company, in form and substance satisfactory to the Agents, relating to the verification of the financial information and accounting data and other numerical data of a financial nature contained therein and matters involving changes or developments since the respective dates as of which specified financial information is given therein, to a date not more than two business days prior to the date of such letter. 7. CLOSING 7.1 The Offering will be completed at the offices of the Company's counsel at the Time of Closing or such other place, date or time as may be mutually agreed to; provided that if the Company has not been able to comply with any of the covenants or conditions set out herein required to be complied with by the Time of Closing or such other date and time as may be mutually agreed to and such covenant or condition has not been waived, the respective obligations of the parties will terminate without further liability or obligation except for payment of expenses, indemnity and contribution provided for in this agreement. 7.2 At the Time of Closing, the following shall be delivered to the Agents: (a) certificates duly registered as the Agents may direct representing the Offered Securities; -20- (b) the requisite legal opinions and certificates as contemplated in Section 5.1; and (c) such further documentation as may be contemplated herein or as counsel to the Agents or the applicable regulatory authorities may reasonably require, against payment of the purchase price for the Offered Securities (net of the Agency fee) by certified cheque or bank draft or wire transfer on an immediately available basis (as selected by the Company) payable to the Company. Subject to Section 11, the Company will, at the Time of Closing and upon such payment of the purchase price, reimburse the Agents for their estimated expenses as contemplated herein incurred up to the Closing Date upon the delivery by them to the Company of one or more invoices therefor, subject to any adjustment when such actual expenses are finally determined in accordance with Section 11. The Company understands that, in order for the Agents to obtain payment from certain of the Purchasers, certificates for certain of the Offered Securities must be available on the Closing Date in the cities of Vancouver, Calgary and Toronto. Accordingly, the Company will make all necessary arrangements to ensure that any such certificates are available to the Agents in such cities as at the Time of Closing. 7.3 All terms and conditions of this agreement shall be construed as conditions and any material breach or failure to comply with any such terms and conditions shall entitle the Agents to terminate their obligations to purchase the Offered Securities by written notice to that effect given to the Company prior to the Time of Closing. It is understood that the Agents may waive in whole or in part, or extend the time for compliance with, any of such terms and conditions without prejudice to their rights in respect of any such terms and conditions or any other subsequent breach or non-compliance, provided that to be binding on the Agents, any such waiver or extension must be in writing. 8. TERMINATION OF PURCHASE OBLIGATION 8.1 Without limiting any of the foregoing provisions of this agreement, and in addition to any other remedies which may be available to it, the Agents, on their own behalf and on behalf of the Purchasers, will be entitled, at their option, to terminate and cancel, without any liability on their part or on the part of the Purchasers, their obligations and the obligations of the Purchasers under this agreement or otherwise, to purchase the Offered Securities, by giving written notice to the Company at any time through to the Time of Closing if: (a) the Agents are not satisfied, in their sole discretion, with the result of all or any portion of their due diligence review and investigations of the Company; (b) there is, in the sole opinion of the Agents, a material change or change in material fact or new material fact or an undisclosed material fact or material change which might be expected to have an adverse effect on the business, affairs, profitability, or prospects of the Company on a consolidated basis or on -21- the market price or value of the Offered Securities or other securities of the Company; (c) the state of the financial markets is such that in the sole opinion of the Agents it would be unprofitable to offer or continue to offer the Offered Securities; (d) there should develop, occur, or come into effect an event of any nature, including accident, governmental law or regulation, which in the sole opinion of the Agents adversely affects or may adversely affect the financial markets or the business, affairs or profitability or prospects of the Company on a consolidated basis or the market price of the Offered Securities or any other securities of the Company; (e) there is any inquiry, action, suit, proceeding or investigation (whether formal or informal, and whether instituted, announced or threatened) in relation to the Company, the Advisor, either of the Promoters or any of their respective directors, officers or principal shareholders; (f) any order to cease trading in the securities of the Company is made by a Securities Commission; or (g) any of the Company, the Advisor and the Promoters is in material breach of any term, condition or covenant of this agreement or any representation or warranty given by the Company, the Advisor or either of the Promoters in this agreement is or becomes false, it being understood and agreed upon that the existence or non-existence of any such occurrence, situation, event or circumstance is to be determined solely by the Agents, whose determination shall be final and binding for all parties in interest. The Agents shall make reasonable efforts to give notice to the Company (in writing or by other means) of the occurrence of any of the events referred to in this section, provided that neither the giving nor the failure to give such notice shall in any way affect the Agents' entitlement to exercise this right at any time through to the Time of Closing. The Agents' rights of termination contained in this section are in addition to any other rights or remedies it may have in respect of any default, act or failure to act or non-compliance by the Company in respect of any of the matters contemplated by this agreement. 8.2 If the obligations of the Agents and the Purchasers are terminated under this agreement pursuant to the termination rights provided for in Section 8.1, the Company's liabilities to the Agents shall be limited to the Company's obligations under the indemnity, contribution and expense provisions of this agreement. -22- 9. INDEMNITY 9.1 The Company (the "INDEMNIFYING PARTY") covenants and agrees to indemnify the Agents and their shareholders, directors, officers, employees and agents (each being hereinafter referred to as an "INDEMNIFIED PARTY"), against all losses (other than a loss of profits or other costs of its personnel), claims, damages, liabilities, costs or expenses caused or incurred by reason of: (a) any statement, other than a statement relating solely to the Agents, contained in the Preliminary Prospectus, the Final Prospectus, the Registration Statement or in any Supplementary Material (collectively, the "OFFERING DOCUMENTS") which constitutes or is alleged to constitute a misrepresentation; (b) any statement, other than a statement relating solely to the Agents, contained in the Company's Information Record which at the time and in the light of the circumstances under which it was made, contained or is alleged to have contained a misrepresentation; (c) the omission or alleged omission to state in any of the Offering Documents, in the Company's Information Record or in any certificate delivered hereunder or pursuant hereto any material fact (other than a material fact omitted in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Agents) required to be stated therein or necessary to make any statement therein (i) in the case of the Registration Statement, not misleading, and (ii) in the case of the Preliminary Prospectus or the Final Prospectus not misleading in light of the circumstances under which it was made; (d) any order made or inquiry, investigation or proceeding commenced or threatened by any Securities Commission or other competent authority based upon any misrepresentation or alleged misrepresentation in any of the Offering Documents or in the Company's Information Record (other than a statement included in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Agents) which prevents or restricts the trading in the Offered Securities or the distribution to the public of the Offered Securities; (e) the Company not complying with any requirement of any Applicable Securities Laws in the Qualifying Provinces or regulatory requirements in Canada or not complying with the requirements under U.S. Securities Laws; or (f) any material breach of any representation or warranty of the Company contained herein or the failure of any of them to comply with any of its obligations hereunder; -23- and will reimburse each Indemnified Party promptly upon demand for any legal or other expenses reasonably incurred in connection with investigating or defending any such losses, claims, damages, liabilities or actions in respect thereof, as incurred. 9.2 The Indemnifying Party waives its right to recover contribution from the Agents or any other Indemnified Party with respect to any of their liabilities solely by reason of or arising out of any misrepresentation, other than a misrepresentation included in reliance upon and in conformity with written information furnished to the Company by or on behalf of the Agents specifically for use therein, contained in any of the Offering Documents or in the Company's Information Record. 9.3 If any action or claim shall be asserted against an Indemnified Party in respect of which indemnity may be sought from the Indemnifying Party pursuant to the provisions of Section 9.1 or if any potential claim contemplated hereby shall come to the knowledge of an Indemnified Party, the Indemnified Party shall promptly notify the Company in writing; but the omission to notify the Company will not relieve the Indemnifying Party from any liability it may otherwise have to the Indemnified Party pursuant to Section 9.1. The Indemnifying Party shall be entitled but not obligated to participate in or assume the defence thereof; provided, however, that the defence shall be through legal counsel acceptable to the Indemnified Party, acting reasonably. In addition, the Indemnified Party shall also have the right to employ separate counsel in any such action and participate in the defence thereof, and the fees and expenses of such counsel shall be borne by the Indemnified Party unless: (a) the employment thereof has been specifically authorized in writing by the Company; (b) the Indemnified Party has been advised by counsel that representation of the Indemnifying Party and the Indemnified Party by the same counsel would be inappropriate due to actual or potential differing interests between them; or (c) the Indemnifying Party has failed within a reasonable time after receipt of such written notice to assume the defence of such action or claim; provided that the Indemnifying Party shall not be required to assume the fees and expenses of more than one counsel for the Indemnified Party. No party shall effect any settlement of any such action or claim or make any admission of liability without the written consent of the other parties, such consent to be promptly considered and not to be unreasonably withheld or delayed. The indemnity hereby provided for shall remain in full force and effect and shall not be limited to or affected by any other indemnity in respect of any matters specified herein obtained by the Indemnified Party from any other person. 9.4 The rights of indemnity contained in Section 9.1 shall not accrue to the benefit of any Indemnified Party if (i) the Agents were provided with a copy of any amendment or supplement to the Final Prospectus or Registration Statement which corrects any misrepresentation which is the basis of a claim by a party against such Indemnified Party and -24- which is required under the Applicable Securities Laws in the Qualifying Provinces to be delivered to such party and (ii) the person asserting the claim was not provided with a copy of such amendment or supplement by the Agents. 9.5 To the extent that any Indemnified Party is not a party to this agreement, the Agents shall obtain and hold the right and benefit of the indemnity provisions of Section 9.1 in trust for and on behalf of such Indemnified Party. 10. CONTRIBUTION 10.1 In the event that the indemnity provided for above is, for any reason, illegal or unenforceable as being contrary to public policy or for any other reason, the Agents and the Indemnifying Parties shall contribute to the aggregate of all losses, claims, costs, damages, expenses or liabilities (including any legal or other expenses reasonably incurred by an Indemnified Party in connection with investigating or defending any action or claim which is the subject of this section but excluding loss of profits or consequential damages) of the nature provided for above such that the Agents will be responsible for that portion represented by the percentage that the portion of the Agency Fee bears to the gross proceeds realized from the sale of the Offered Securities, and the Indemnifying Parties will be responsible for the balance, provided that, in no event, will an Agent be responsible for any amount in excess of the amount of the Agency Fee actually received by it. In the event that the Indemnifying Parties may be held to be entitled to contribution from the Agents under the provisions of any statute or law, the Indemnifying Parties shall be limited to contribution in an amount not exceeding the lesser of: (i) the portion of the full amount of losses, claims, costs, damages, expenses and liabilities, giving rise to such contribution for which the Agents are responsible, as determined above, and (ii) the amount of the Agency Fee actually received. Notwithstanding the foregoing, a party guilty of gross negligence, dishonesty, fraud or fraudulent misrepresentation shall not be entitled to contribution from the other party. Any party entitled to contribution will, promptly after receiving notice of commencement of any claim, action, suit or proceeding against such party in respect of which a claim for contribution may be made against the other party under this section, notify such party from whom contribution may be sought. In no case shall such party from whom contribution may be sought be liable under this agreement unless such notice has been provided, but the omission to so notify such party shall not relieve the party from whom contribution may be sought from any other obligation it may have otherwise than under this section. The right to contribution provided in this section shall be in addition and not in derogation of any other right to contribution which the Agents may have by statute or otherwise by law. 11. EXPENSES 11.1 All expenses incurred from time to time in connection with the Offering including, without limitation, the fees and disbursements of the Agents' Canadian and U.S. counsel (subject to the limits in the following paragraph) and the Agents' out-of-pocket expenses (including those incurred in connection with due diligence) (subject to the limits in the following paragraph), of or incidental to the sale, issue, distribution and qualification for distribution of the Offered -25- Securities and to all matters in connection with the transactions herein set forth shall be borne by the Company. The Company covenants and agrees to fully reimburse the Agents from time to time for all such expenses immediately upon the receipt of one or more invoices (subject to the limits in the following paragraph). Notwithstanding anything to the contrary contained herein, the Company shall only be responsible for the Agents' out-of-pocket expenses (including those incurred in connection with their due diligence) and fees of the Agents' Canadian and U.S. counsel to a maximum of $175,000 Cdn., exclusive of GST exigible thereon. 11.2 If the Company determines not to proceed with the Offering for any reason whatsoever, the Company agrees that forthwith after such determination is made, it shall pay to the Agents, by way of certified cheque or bank draft, the sum of $50,000 Cdn. plus all of their out of pocket expenses incurred in accordance with subsection 11.1, which amounts the parties hereby agree constitute reimbursement of the costs of the Agents' due diligence review and related expenses incurred by the Agents. 11.3 The Agents acknowledge receipt from Basic Capital Funds, on behalf of the Company, of a non-refundable advance of $30,000 Cdn. paid to it in connection with the Offering, and acknowledge that such advance shall be credited against fees otherwise payable to the Agents in accordance with Sections 11.1 and 11.2. 12. SURVIVAL OF WARRANTIES, REPRESENTATIONS, COVENANTS AND AGREEMENTS 12.1 All warranties, representations, covenants and agreements of the Company, the Advisor and the Promoters herein contained or contained in documents submitted or required to be submitted pursuant to this agreement shall survive the purchase by the Agents for a period ending on the Survival Limitation Date and shall continue in full force and effect for the benefit of the Agents regardless of the closing of the sale of the Offered Securities and regardless of any investigation which may be carried on by the Agents or on their behalf. For greater certainty, and without limiting the generality of the foregoing, the provisions contained in this agreement in any way related to the indemnification of each Indemnified Party by the Indemnifying Parties, or the contribution obligations of the Agents or those of the Indemnifying Parties, shall survive and continue in full force and effect for a period ending on the Survival Limitation Date. 13. OBLIGATIONS OF BASIC CAPITAL FUNDS 13.1 Should the Offering not be completed, all of the obligations of the Company provided for herein, including, without limitation, its representations, warranties, covenants, indemnity obligations and obligations to pay expenses, shall become the joint and several obligations of the Company and Basic Capital Funds. -26- 14. GENERAL CONTRACT PROVISIONS 14.1 Any notice or other communication to be given hereunder shall be in writing and shall be given by delivery or by telecopier, as follows: if to the Company: - Attention: - Telecopier Number: - with a copy to: - Attention: - Telecopier Number: - if to the Agents: Porthmeor Securities Inc. Aetna Tower, Suite 1207 Toronto-Dominion Centre Toronto, Ontario M5K 1H6 Attention: - Telecopier Number: (416) - Octagon Capital Canada Corporation - Attention: - Telecopier Number: - -27- with a copy to: Messrs. Fogler, Rubinoff Suite 4400, P. O. Box 95 Royal Trust Tower Toronto-Dominion Centre Toronto, Ontario M5K 1G8 Attention: Lawrence P. Haber Telecopier Number: (416) 941-8852 or if to Basic Capital Funds: c/o - Attention: - Telecopier Number: - with a copy to: - Attention: - Telecopier Number: - and if so given, shall be deemed to have been given and received upon receipt by the addressee or a responsible officer of the addressee if delivered, or four hours after being telecopied and receipt confirmed during normal business hours, as the case may be. Any party may, at any time, give notice in writing to the others in the manner provided for above of any change of address or telecopier number. 14.2 This agreement and the other documents herein referred to constitute the entire agreement between the Agents, the Company and Basic Capital Funds relating to the subject matter hereof and supersede all prior agreements between the parties with respect to their respective rights and obligations in respect of the Offering, including the engagement letter between the Agents and the Company dated May 13, 1996. 14.3 This agreement may be executed by telecopier and in one or more counterparts which, together, shall constitute an original copy hereof as of the date first noted above. -28- If this agreement accurately reflects the terms of the transaction which we are to enter into and if such terms are agreed to by the Company, the Advisor and the Promoters, please communicate your acceptance by executing where indicated below and returning by courier one originally executed copy to the Agents. Yours very truly, PORTHMEOR SECURITIES INC. OCTAGON CAPITAL CANADA CORPORATION Per: Per: -------------------------------- -------------------------------- Authorized Signing Officer Authorized Signing Officer FIRST MARATHON SECURITIES LIMITED Per: -------------------------------- Authorized Signing Officer -------------------------------------- The foregoing accurately reflects the terms of the transaction which we are to enter into and such terms are agreed to with effect as of the date provided at the top of the first page of this agreement. BASIC U.S. REIT, INC. BASIC CAPITAL FUNDS, an Ontario limited partnership, by its general partner, BASIC CAPITAL FUNDS, INC. Per: Per: ----------------------------- ------------------------------- Authorized Signing Officer Authorized Signing Officer SCHEDULE "A" DETAILS OF THE OFFERING THIS IS SCHEDULE "A" TO THE AGENCY AGREEMENT BETWEEN BASIC U.S. REIT, INC. AND PORTHMEOR SECURITIES INC. AND OCTAGON CAPITAL CANADA CORPORATION DATED AS OF -, 1996 OFFERING: A maximum of - and a minimum of - shares of common stock ("SHARES") of the Company at a price of $- per Share (the "OFFERED SECURITIES"). AGENCY FEE: Subject to closing, the Agents shall be entitled to an aggregate fee equal to 7.5% of the gross proceeds of the Offering, payable at the Time of Closing. The fees payable to sub-agents shall be for the account of the Agents. In the event that any equity financing is completed by the Company in whole or in part prior to the first anniversary of the Closing Date to any investor specifically identified in writing by the Agents and specifically introduced by the Agents to the Company, the Advisor or the Promoters prior to the Closing Date, the Agents shall be entitled to receive from the Company the Agency Fee in respect of such sales. CLOSING DATE: The Closing Date shall be -, 1996 subject to postponement to a date not later than -, 1996 and any subsequent closings prior to -, 1996 which may be agreed to between the Company and the Agents. TIME OF CLOSING: The Time of Closing shall be 8:30 a.m. (Toronto time) on the Closing Date. QUALIFYING PROVINCES: The Provinces of Ontario, British Columbia and Alberta and such other provinces as may be agreed to by the Company and the Agents. SCHEDULE "B" OUTSTANDING CONVERTIBLE SECURITIES THIS IS SCHEDULE "B" TO THE AGENCY AGREEMENT BETWEEN BASIC U.S. REIT, INC. AND PORTHMEOR SECURITIES INC. AND OCTAGON CAPITAL CANADA CORPORATION DATED AS OF -, 1996 OTHER THAN AS DISCLOSED IN THE FINAL PROSPECTUS, THERE ARE NO OUTSTANDING CONVERTIBLE SECURITIES. SCHEDULE "C" OPINION OF THE COMPANY'S CANADIAN COUNSEL THIS IS SCHEDULE "C" TO THE AGENCY AGREEMENT BETWEEN BASIC U.S. REIT, INC. AND PORTHMEOR SECURITIES INC. AND OCTAGON CAPITAL CANADA CORPORATION DATED AS OF -, 1996. The opinion of the Company's Canadian counsel shall, subject to the usual qualifications, and assumptions in opinions of this nature, state that: (a) this agreement has been duly authorized, executed and delivered by the Company and is a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except that the enforcement thereof may be subject to: (i) bankruptcy, insolvency and other similar laws affecting the rights of creditors generally; (ii) the qualification that equitable remedies, including without limitation, specific performance and injunction, may be granted only in the discretion of a court of competent jurisdiction; and (iii) rights of indemnity, contribution and waiver of contribution being limited under applicable law; (b) the Offered Securities have been validly created and issued (and in the case of the shares comprised therein, issued as fully paid and non-assessable) and have the attributes described in the Final Prospectus; (c) subject to the qualifications set out therein, the statements in the Final Prospectus under the heading "CANADIAN FEDERAL INCOME TAX CONSIDERATIONS" (or its equivalent) constitute an accurate summary of the Canadian income tax considerations regarding an investment in, and the qualified investment status of, the Offered Securities; (d) the entering into by the Company of this agreement and other agreements pursuant to which the Offered Securities are to be issued and the performance of its obligations contemplated hereby and thereby do not result in the violation of any of the terms or provisions of the constating documents, or by-laws or resolutions of the Company or, to the knowledge of the Company's counsel after due enquiry, any mortgage, note, indenture, contract, agreement, instrument, lease or other documents to which the Company is a party or by which it is bound or any judgement, decree, order, statute, rule or regulation applicable to the Company; and -C2- (e) all necessary documents have been filed and all requisite proceedings have been taken and all other legal requirements have been fulfilled by the Company as required under the Applicable Securities Laws in each of the Qualifying Provinces to qualify the Offered Securities for distribution or distribution to the public, as the case may be, and to permit the offering and sale of the Offered Securities in each such province through persons registered in a category permitting them to distribute or distribute to the public, as the case may be, the Offered Securities under the Applicable Securities Laws of such provinces who have complied with any restrictions on such registration. SCHEDULE "D" OPINION OF THE COMPANY'S U.S. COUNSEL THIS IS SCHEDULE "D" TO THE AGENCY AGREEMENT BETWEEN BASIC U.S. REIT, INC. AND PORTHMEOR SECURITIES, INC. AND OCTAGON CAPITAL CANADA CORPORATION DATED AS OF ______________, 1996. The opinion of the Company's U.S. Counsel shall substantially state that: 1. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of its jurisdiction of incorporation, has the corporate power and authority to conduct its business as described in the Registration Statement and Prospectus and is qualified to do business in each jurisdiction in which the conduct of its business requires such qualification, except where the failure to be so qualified, considering all such cases in the aggregate, does not involve a material adverse effect on the condition (financial), business, properties or results of operations of the Company. 2. The Registration Statement has become effective under the U.S. Securities Act and, to the knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement has been issued and no proceeding for that purpose has been instituted or is pending by the Commission. 3. The Registration Statement, when it became effective, and the Prospectus and any amendment or supplement thereto, on the date of filing thereof with the Commission and at the Closing date, complied as to form in all material respects with the requirements of the U.S. Securities Act, it being understood that no opinion need be expressed as to the financial statements, schedules, pro forma or other financial or statistical data included therein or omitted therefrom. 4. The descriptions in the Registration Statement and Prospectus under the captions "U.S. Federal Income Tax Considerations" and "Certain Provisions of Maryland Law -- Business Combinations, -- Control Share Acquisitions" are accurate in all material respects and fairly present the information required to be shown. 5. To counsel's knowledge, there are no contracts, agreements, documents or instruments to which the Company is a party or by which the Company is bound required to be filed as exhibits to the Registration Statement or described in the Registration Statement that are not so filed or described as required. Insofar as any statements in the Registration Statement constitute summaries of any such contract, agreement, document or instrument to which the Company is a party, such statements fairly summarize in all material respects the information required to be disclosed by the U.S. Securities Act and the rules promulgated thereunder with respect to such matters. 6. The Company has all corporate power and authority to enter into the Agency Agreement, and the Agency Agreement has been duly authorized, executed and delivered by the Company, and is a valid and binding agreement of the Company. 7. The execution and delivery of the Agency Agreement and the consummation of the transactions contemplated therein do not and will not conflict with or result in a violation of or default under the Articles of Incorporation or Bylaws of the Company, or under any statute, rule or regulation applicable to the Company or any permit, order, judgment or decree known to counsel, or any lease, contract, indenture, mortgage, loan agreement or other agreement or instrument filed as an exhibit to the Registration Statement the violation of or default under which would have a material adverse effect upon the business, condition (financial or otherwise), results of operations or stockholders' equity of the Company, except such agreements, instruments or obligations with respect to which valid consents or waivers have been obtained by the Company. 8. No consent, approval, authorization or order of, or filing with, any federal or state governmental agency or body is required for the consummation of the transactions contemplated by the Agency Agreement, or the issuance and sale of the Offered Shares by the Company, except such as have been obtained and such as may be required under state securities laws (as to which we express no opinion), or the rules of the NASD. 9. The Company qualifies to be taxed as a "real estate investment trust" pursuant to Sections 856 through 859 of the Code, and the Company's planned method of operation as described in the Registration Statement will enable it to meet the requirements for qualification and taxation as a "real estate investment trust" under the Code. 10. Assuming the Company conducts its business and uses the proceeds from the sale of the Offered Shares as set forth in the Registration Statement, the Company is not, and upon consummation of the transactions contemplated in the Agency Agreement will not be required to register as an "investment company" as such term is defined in the United States Investment Company Act of 1940, as amended. 11. Such counsel has been advised by the [American Stock Exchange] that the common shares of the Company, including the Offered Shares, have been duly authorized for listing by the [American Stock Exchange] upon official notice of issuance. 12. The information in the Prospectus under the heading "Federal Income Tax Considerations," to the extent that it constitutes matters of law or legal conclusions, has been reviewed by such counsel and is accurate and presents fairly in all material respects the information required to be disclosed therein under the U.S. Securities Act. 13. The offer, issuance and sale of shares of Common Stock of the Company to Ronald Bernbaum prior to the Closing Date as described in the Prospectus are exempt from the -2- registration requirements of the U.S. Securities Act and applicable state securities and Blue Sky laws. 14. To counsel's knowledge, there are no legal or governmental proceedings, pending or threatened, before any court or administrative body or regulatory agency, to which the Company is a party or to which any of the properties of the Company is subject that are required to be described in the Registration Statement that are not so described. -3- EX-3.1 3 AMENDED ARTICLES OF INCORP. ARTICLES OF AMENDMENT AND RESTATEMENT OF BASIC U.S. REIT, INC. THIS IS TO CERTIFY THAT: FIRST: Basic U.S. REIT, Inc., a Maryland corporation (the "Corporation"), desires to amend and restate its charter as currently in effect and as hereinafter amended. SECOND: The Articles of Amendment and Restatement of the Corporation were duly advised by the Board of Directors and approved by the sole stockholder of the Corporation as required by law. THIRD: The following provisions are all the provisions of the charter currently in effect and as hereinafter amended: ARTICLE I 1. NAME. The name of the Corporation is Basic U.S. REIT, Inc. ARTICLE II 2. PRINCIPAL OFFICE AND REGISTERED AGENT. The address of the Corporation's principal office in the State of Maryland is 11 East Chase Street, Baltimore, Maryland 21202. The name of its registered agent at such address is CSC-Lawyers Incorporating Service Company. ARTICLE III 3. PURPOSE. The purposes for which the Corporation is formed are to engage in any lawful act or activity for which corporations may be organized under the Maryland General Corporation Law and to possess and exercise all of the powers and privileges granted by such law and any other law of Maryland. ARTICLE IV 4. AUTHORIZED CAPITAL. Section 1. The total number of shares of capital stock which the Corporation shall have authority to issue is as follows: (a) One Hundred Million (100,000,000) shares of Common Stock, par value $.01 per share, or $1,000,000 in the aggregate. (b) Fifty Million (50,000,000) shares of Excess Stock, par value $.01 per share, or $500,000 in the aggregate. (c) One Million Five Hundred Thousand (1,500,000) shares of Preferred Stock, par value $.01 per share or $15,000 in the aggregate. The Preferred Stock may be issued in one or more classes, and in one or more series within a class, with such voting rights, designations, preferences, qualifications, privileges, limitations, options, conversion rights, restrictions and special or relative rights as may be stated in a resolution or resolutions providing for the issue of such shares adopted from time to time by the Board of Directors and without the necessity of any action by the stockholders. The Board of Directors may fix the status of any shares of Preferred Stock redeemed, canceled, surrendered for conversion or otherwise retired, and if previously issued shares are reacquired and canceled by the Corporation, such a number of shares shall thereafter be considered as authorized and unissued shares. Notwithstanding the provisions of any such resolution, all Preferred Stock shall be subject to redemption at the direction of the Board of Directors at such time or times as the Board shall be of the opinion that ownership of the capital stock of the Corporation has or may become concentrated to an extent which may prevent the Corporation from qualifying as a real estate investment trust ("REIT") under the Internal Revenue Code of 1986, as amended (the "Code"). In such event, the Board shall have the power, by lot or other means deemed equitable by it, to call for redemption sufficient shares of Preferred Stock to bring the direct or indirect ownership thereof into conformity with the requirements for such a REIT. The redemption price paid shall be as specified by the Board of Directors in its resolution designating the Preferred Stock. (d) The aggregate par value of all authorized shares of stock of the Corporation having par value is $1,515,000. Section 2. COMMON STOCK. Subject to the provisions of Article V, each share of Common Stock shall entitle the holder thereof to one vote. The Board of Directors may reclassify any unissued shares of Common Stock from time to time in one or more classes or series of stock. Section 3. PREFERRED STOCK. The Board of Directors may classify any unissued shares of Preferred Stock and reclassify any previously classified but unissued shares of Preferred Stock of any series, in one or more series of stock. ARTICLE V 5. RESTRICTION ON TRANSFER, ACQUISITION AND REDEMPTION OF SHARES Section 1. DEFINITIONS. For purposes of this Article V, the following terms shall have the following meanings: "Beneficial Ownership" shall mean ownership of shares of Equity Stock by a Person who is or would be an actual owner, for United States federal income tax purposes, of such shares of Equity Stock or who is or would be treated as a constructive owner of such shares of Equity Stock under Section 542(a)(2) of the Code, either directly or constructively through the application of Section 544 of the Code, as modified by Sections 856(h)(1)(B) and 856(h)(3) of the Code. The terms -2- "Beneficial Owner," "Beneficially Owns," "Beneficially Own," "Beneficially Owning" and "Beneficially Owned" shall have the correlative meanings. "Charitable Beneficiary" shall mean a beneficiary of the Trust as determined pursuant to Section 14 of this Article V. "Code" shall mean the United States Internal Revenue Code of 1986, as amended. "Common Stock" shall mean the Common Stock of the Corporation, authorized pursuant to and the rights of which are provided in Article IV. "Effective Date" shall mean the date as of which the Corporation's Registration Statement on Form S-11 is declared effective by the Securities and Exchange Commission. "Equity Stock" shall mean stock that is either Common Stock or Preferred Stock. "Excess Stock" shall mean those shares of Common Stock and/or Preferred Stock which are classified as Excess Stock as provided in and pursuant to Section 3. "Market Price" as to any date shall mean the average of the last reported closing sales price of Common Stock, or Preferred Stock, as the case may be, on the ten trading days immediately preceding the relevant date as reported on the principal United States or foreign securities exchange or quotation system on or over which the Common Stock, or Preferred Stock, as the case may be, is listed or admitted to trading, or if not then listed or traded over any such exchange or quotation system, then the market price of the Common Stock, or Preferred Stock, as the case may be, on the relevant date as determined in good faith by the Board of Directors. "Ownership Limit" shall initially mean 9.5% of the lesser of the aggregate number or value of the outstanding shares of Common Stock of the Corporation and, after any adjustment as set forth in Section 9 of this Article V, shall mean such percentage as so adjusted. The Board of Directors of the Corporation may, in its sole discretion, in the Certificate of Designation for the Preferred Stock, determine a limit on the ownership of one or more classes or series of its Preferred Stock (the "Preferred Stock Limit"). From and after such determination, references to the Ownership Limit herein will include the Preferred Stock Limit, as applicable. If the Board of Directors does not establish -3- a limit on ownership, then the Preferred Stock shall not be restricted from transfer under this Article V. The number and value of shares of the Equity Stock of the Corporation shall be determined by the Board of Directors in good faith, which determination shall be conclusive for all purposes hereof. "Person" shall mean an individual, corporation, partnership, estate, trust (including a trust qualified under Section 401(a) or 501(c)(17) of the Code, a portion of a trust permanently set aside for or to be used exclusively for the purposes described in Section 642(c) of the Code, association, private foundation within the meaning of Section 509(a) of the Code, joint stock company or other entity and also includes a group as that term is used for purposes of Section 13(d)(3) of the United States Securities Exchange Act of 1934, as amended, but does not include an underwriter which participated in a public offering of the Common Stock and/or Preferred Stock for a period of 30 days following the purchase by such underwriter of shares of the Common Stock and/or Preferred Stock. "Purported Beneficial Transferee" shall mean, with respect to any purported Transfer which results in Excess Stock as described below in Section 3 of this Article V, the purported beneficial transferee for whom the Purported Record Transferee would have acquired shares of Equity Stock, if such Transfer had not been void under Section 2 of this Article V. "Purported Record Transferee" shall mean, with respect to any purported Transfer which results in Excess Stock as described below in Section 3 of this Article V, the record holder of the Equity Stock if such Transfer had not been void under Section 2 of this Article V. "Restriction Termination Date" shall mean the first day after the Effective Date on which the Board of Directors determines that it is no longer in the best interests of the Corporation to attempt to, or continue to, qualify as a REIT. "Transfer" shall mean any issuance, sale, transfer, gift, assignment, devise or other disposition of Equity Stock (including (i) the granting of any option or entering into any agreement for the sale, transfer or other disposition of Equity Stock or (ii) the sale, transfer, assignment or other disposition of any securities or rights convertible into or exchangeable for Equity Stock), whether voluntary or involuntary, whether of record or beneficially, and whether by operation of -4- law or otherwise. The terms "Transfers" and "Transferred" shall have the correlative meanings. "Trust" shall mean the trust created pursuant to Section 14 of this Article V. "Trustee" shall mean the Person that is appointed by the Corporation pursuant to Section 14 of this Article V to serve as trustee of the Trust, and any successor thereto. Section 2. OWNERSHIP LIMITATION. (i) Except as provided in Section 11 of this Article V, from the Effective Date and prior to the Restriction Termination Date, no Person shall Beneficially Own shares of Common Stock and/or Preferred Stock in excess of the Ownership Limit. (ii) Except as provided in Section 11 of this Article V, from the Effective Date and prior to the Restriction Termination Date, any Transfer that, if effective, would result in any Person Beneficially Owning Common Stock and/or Preferred Stock in excess of the Ownership Limit shall be void AB INITIO as to the Transfer of such shares of Common Stock and/or Preferred Stock which would be otherwise Beneficially Owned by such Person in excess of the Ownership Limit; and the intended transferee shall acquire no rights in such shares of Common Stock and/or Preferred Stock. (iii) From the Effective Date and prior to the Restriction Termination Date, any Transfer that, if effective, would result in the Common Stock and/or Preferred Stock being Beneficially Owned by less than 100 Persons (determined without reference to any rules of attribution) shall be void AB INITIO as to the Transfer of such shares of Common Stock and/or Preferred Stock which would be otherwise Beneficially Owned by the transferee; and the intended transferee shall acquire no rights in such shares of Common Stock and/or Preferred Stock. (iv) From the Effective Date and prior to the Restriction Termination Date, any Transfer that, if effective, would result in the Corporation being "closely held" within the meaning of Section 856(h) of the Code shall be void AB INITIO as to the Transfer of the shares of Common Stock and/or Preferred Stock which would cause the Corporation to be "closely held" within the meaning of Section 856(h) of the Code; and the intended transferee shall acquire no rights in such shares of Common Stock and/or Preferred Stock. -5- Section 3. EXCESS STOCK. (i) If, notwithstanding the other provisions contained in this Article V, at any time after the date of the Effective date and prior to the Restriction Termination Date, there is a purported Transfer or other change in the capital structure of the Corporation such that any Person would Beneficially Own Common Stock and/or Preferred Stock in excess of the applicable Ownership Limit, then, except as otherwise provided in Section 11, such shares of Common Stock and/or Preferred Stock in excess of such Ownership Limit (rounded up to the nearest whole share) shall be converted automatically into Excess Stock and be treated as provided in this Article V. Such conversion and treatment shall be effective as of the close of business on the business day prior to the date of the purported Transfer or change in capital structure. (ii) If, notwithstanding the other provisions contained in this Article V, at any time after the date of the Effective Date and prior to the Restriction Termination Date, there is a purported Transfer or other change in the capital structure of the Corporation which, if effective, would cause the Corporation to become "closely held" within the meaning of Section 856(h) of the Code, then the shares of Common Stock and/or Preferred Stock being Transferred which would cause the Corporation to be "closely held" within the meaning of Section 856(h) of the Code (rounded up to the nearest whole share) shall be converted automatically into Excess Stock and be treated as provided in this Article V. Such conversion and treatment shall be effective as of the close of business on the business day prior to the date of the purported Transfer or change in capital structure. Section 4. PREVENTION OF TRANSFER. If the Board of Directors or its designee shall at any time determine in good faith that a Transfer has taken place in violation of Section 2 of this Article V or that a Person intends to acquire or has attempted to acquire beneficial ownership (determined without reference to any rules of attribution) or Beneficial Ownership of any shares of stock of the Corporation in violation of Section 2 of this Article V, the Board of Directors or its designee shall take such action as it deems advisable to refuse to give effect to or to prevent such Transfer, including, but not limited to, refusing to give effect to such Transfer on the books of the Corporation or instituting proceedings to enjoin or rescind such Transfer; provided, however, that any Transfers or attempted Transfers in violation of subparagraphs Section 2(ii) and (iv) of this Article V shall automatically result in the conversion and treatment described in -6- Section 3, irrespective of any action (or non-action) by the Board of Directors. Section 5. NOTICE TO CORPORATION. Any Person who acquires or attempts to acquire shares of stock of the Corporation in violation of Section 2 of this Article V, or any Person who is or attempts to become a transferee such that Excess Stock results under Section 3 of this Article V, shall immediately give written notice or, in the event of a proposed or attempted Transfer, give at least 15 days prior written notice to the Corporation of such event and shall provide to the Corporation such other information as the Corporation may request in order to determine the effect, if any, of such Transfer or attempted Transfer on the Corporation's status as a REIT. Section 6. INFORMATION FOR CORPORATION. From the date of the Effective Date and prior to the Restriction Termination Date, each Person who is a Beneficial Owner of Common Stock and/or Preferred Stock and each Person (including the stockholder of record) who is holding Common Stock and/or Preferred Stock for a Beneficial Owner shall, upon demand, provide in writing to the Corporation any information with respect to the direct, indirect and constructive ownership of Equity Stock of the Corporation as the Board of Directors deems necessary to comply with the provisions of the Code applicable to REITs, to comply with the requirements of any taxing authority or governmental agency or to determine any such compliance. Section 7. OTHER ACTION BY BOARD. Subject to the provisions of Section 19 of this Article V, nothing contained in this Article V shall limit the authority of the Board of Directors to take such other action as it deems necessary or advisable to protect the Corporation and the interests of its stockholders by preservation of the Corporation's status as a REIT. Section 8. AMBIGUITIES. In the case of an ambiguity in the application of any of the provisions of this Article V, including any definition contained in Section 1, the Board of Directors shall have the power to determine the application of the provisions of this Article V with respect to any situation based on the facts known to it. Section 9. CHANGE IN OWNERSHIP LIMIT. Subject to the limitations provided in Section 10 of this Article V, the Board of Directors may from time to time increase or decrease the Ownership Limit. -7- Section 10. LIMITATIONS ON CHANGES IN OWNERSHIP LIMIT. (i) The Ownership Limit for a class or series of Equity Stock may not be increased if, after giving effect to such increase, five or fewer Beneficial Owners of Equity Stock would Beneficially Own, in the aggregate, more than 50.0% in value of the outstanding shares of Equity Stock. (ii) Prior to any modification of the Ownership Limit pursuant to Section 9 of this Article V, the Board of Directors may require such opinions of counsel, affidavits, undertakings or agreements as it may deem necessary or advisable in order to determine or ensure the Corporation's status as a REIT. Section 11. EXEMPTIONS BY BOARD. The Board of Directors may, in its sole discretion, waive the Ownership Limit with respect to any particular Person or Persons if evidence satisfactory to the Board of Directors and the Corporation's tax counsel is presented that the changes in ownership pursuant to such waiver will not cause the Corporation not to continue to be qualified as a REIT and are not reasonably likely to cause the Corporation not to continue to be qualified as a REIT in the future and the Board of Directors otherwise decides that such action is in the best interests of the Corporation. Section 12. LEGEND. (i) In addition to any other legend required by applicable law, each certificate for shares of Common Stock shall bear substantially the following legend: The securities represented by this certificate are subject to restrictions on transfer for the purpose of the Corporation maintaining its status as a real estate investment trust (a "REIT") under the United States Internal Revenue Code of 1986, as amended. Except as otherwise provided pursuant to the Articles of Incorporation (the "Articles") of the Corporation, no Person may Beneficially own shares of Common Stock in excess of 9.5% (or such greater percentage as may be determined by the Board of Directors of the Corporation) of the lesser of the aggregate number or value of the outstanding shares of Common Stock of the Corporation. Any Person who -8- acquires or attempts to acquire shares of Common Stock in excess of the aforementioned limitation, or any Person who is or attempts to become a transferee such that Excess Stock results under the provisions of the Articles, shall immediately give written notice or, in the event of a proposed or attempted transfer, give at least 15 days prior written notice to the Corporation of such event and shall provide to the Corporation such other information as it may request in order to determine the effect of any such Transfer on the Corporation's status as a REIT. All capitalized terms in this legend have the meanings defined in the Articles, a copy of which, including the restrictions on transfer, will be sent to any stockholder on request and without charge. If the restrictions on transfer are violated, the securities represented hereby will be converted into and treated as shares of Excess Stock that will be transferred, by operation of law, to the trustee of a trust for the exclusive benefit of one or more charitable organizations. (ii) In addition to any legend required by applicable law, each certificate for shares of Preferred Stock shall bear such legend as may be set forth in the Certificate of Designation with respect to the transferability of such Preferred Stock. Section 13. SEVERABILITY. If any provision of this Article V or any application of any such provision is determined to be void, invalid or unenforceable by virtue of any legal decision, statute, rule or regulation, then the Purported Record Transferee may be deemed, at the option of the Corporation, to have acted as an agent of the Corporation in acquiring such shares of Excess Stock and to hold such shares of Excess Stock on behalf of the Corporation, and the validity and enforceability of remaining provisions shall not be affected and other applications of such provision shall be affected only to the extent necessary to comply such determination. -9- Section 14. TRUST FOR EXCESS STOCK. Upon any purported Transfer that results in Excess Stock pursuant to Section 3 of this Article V, such Excess Stock shall be deemed to have been transferred by operation of law to the Trustee of a trust (the "Trust") for the exclusive benefit of one or more Charitable Beneficiaries. The Trustee shall be appointed by the Corporation and shall be a person unaffiliated with the Corporation, any purported Beneficial Transferee or any Purported Record Transferee. By written notice to the Trustee, the Corporation shall designate one or more non-profit organizations to be the Charitable Beneficiary(ies) of the interest in the Trust representing the Excess Stock such that (a) the shares of Equity Stock, from which the shares of Excess Stock held in the Trust were so converted, would not violate the restrictions set forth in Section 2 of this Article V in the hands of such Charitable Beneficiary and (b) each Charitable Beneficiary is an organization described in Sections 170(b)(1)(A), 170(c) and 501(c)(3) of the Code. The Trustee of the Trust will be deemed to own the Excess Stock for the benefit of the Charitable Beneficiary on the date of the purported Transfer that results in Excess Stock pursuant to Section 3 of this Article V. Shares of Excess Stock so held in trust shall be issued and outstanding stock of the Corporation. The Purported Record Transferee shall have no rights in such Excess Stock except as expressly provided for in this Article V. Section 15. DIVIDENDS ON EXCESS STOCK. Shares of Excess Stock will be entitled to dividends and distributions authorized and declared with respect to the class or series of Equity Stock from which the Excess Stock was converted and will be payable to the Trustee of the Trust in which such Excess Stock is held, for the benefit of the Charitable Beneficiary. Dividends and distributions will be authorized and declared with respect to each share of Excess Stock in an amount equal to the dividends and distributions authorized and declared on each share of stock of the class or series of Equity Stock from which the Excess Stock was converted. Any dividend or distribution paid to a Purported Record Transferee of Excess Stock prior to the discovery by the Corporation that Equity Stock has been transferred in violation of the provisions of the Charter shall be repaid by the Purported Record Transferee to the Trustee upon demand. The Corporation shall rescind any dividend or distribution authorized and declared but unpaid as void AB INITIO with respect to the Purported Record Transferee, and the Corporation shall pay such dividend or distribution when due to the Trustee of the Trust for the benefit of the Charitable Beneficiary. -10- Section 16. LIQUIDATION DISTRIBUTIONS FOR EXCESS STOCK. Subject to the preferential rights of the Preferred Stock, if any, as may be determined by the Board of Directors, in the event of any voluntary or involuntary liquidation, dissolution or winding up of, or any other distribution of all or substantially all of the assets of the Corporation, each holder of shares of Excess Stock shall be entitled to receive, in the case of Excess Stock converted from Preferred Stock, ratably with each other holder of Preferred Stock and Excess Stock converted from Preferred Stock and having the same rights to payment upon liquidation, dissolution or winding up as such Preferred Stock and, in the case of Excess Stock converted from Common Stock, ratably with each other holder of Common Stock and Excess Stock converted from Common Stock, that portion of the assets of the Corporation available for distribution to its stockholders as the number of shares of the Excess Stock held by such holder bears to the total number of shares of (i) Preferred Stock and Excess Stock then outstanding (in the case of Excess Stock converted from Preferred Stock) and (ii) Common Stock and Excess Stock then outstanding (in the case of Excess Stock converted from Common Stock) Any liquidation distributions to be distributed with respect to Excess Stock shall be distributed in the same manner as proceeds from the sale of Excess Stock are distributed as set forth in Section 18 of this Article V. Section 17. VOTING RIGHTS FOR EXCESS STOCK. Any vote cast by a Purported Record Transferee of Excess Stock prior to the discovery by the Corporation that Equity Stock has been transferred in violation of the provisions of the Charter shall be void AB INITIO. While the Excess Stock is held in trust, the Purported Record Transferee will be deemed to have given an irrevocable proxy to the Trustee to vote the shares of Equity Stock which have been converted into shares of Excess Stock for the benefit of the Charitable Beneficiary. Section 18. NON-TRANSFERABILITY OF EXCESS STOCK. Excess Stock shall not be transferable. In its sole discretion, the Trustee of the Trust may transfer the interest in the Trust representing shares of Excess Stock to any Person if the shares of Excess Stock would not be Excess Stock in the hand of such Person. If such transfer is made, the interest of the Charitable Beneficiary in the Excess Stock shall terminate and the proceeds of the sale shall be payable by the Trustee to the Purported Record Transferee and to the Charitable Beneficiary as herein set forth. The Purported Record Transferee shall receive from the Trustee the lesser of -11- (i) the price paid by the Purported Record Transferee for its shares of Equity Stock that were converted into Excess Stock or, if the Purported Record Transferee did not give value for such shares (e.g., the stock was received through a gift, devise or other transaction), the average closing price on the principal United States or foreign securities exchange on which the class of shares from which such shares of Excess Stock were converted is then listed or admitted to trading for the ten trading days immediately preceding such sale or gift and (ii) the price received by the Trustee from the sale or other disposition of the Excess Stock held in trust. The Trustee may reduce the amount payable to the Purported Record Transferee by the amount of dividends and distributions which have been paid to the Purported Record Transferee and are owed by the Purported Record Transferee to the Trustee pursuant to Section 15 of this Article V. Any proceeds in excess of the amount payable to the Purported Record Transferee shall be paid by the Trustee to the Charitable Beneficiary. Upon such transfer of an interest in the Trust, the corresponding shares of Excess Stock in the Trust shall be automatically exchanged for an equal number of shares of Common Stock and/or Preferred Stock, as applicable, and such shares of Common Stock and/or Preferred Stock, as applicable, would not be Excess Stock in the hands of such transferee. Prior to any transfer of any interest in the Trust, the Corporation must have waived in writing its purchase rights under Section 20 of this Article V. Section 19. STOCK EXCHANGE TRANSACTIONS. Nothing in this Article V shall preclude the settlement of any transaction entered into through the facilities of any United States or foreign securities exchange or quotation system on which the stock of the Corporation is listed or admitted to trading. The fact that the settlement of any transaction may occur shall not negate the effect of any other provision of this Article V and any transferee in such a transaction shall be subject to all of the provisions and limitations set forth in this Article V. Section 20. CALL BY CORPORATION ON EXCESS STOCK. Shares of Excess Stock shall be deemed to have been offered for sale to the Corporation, or its designate, at a price per share payable to the Purported Record Transferee equal to the lesser of (i) the price per share in the transaction that created such Excess Stock (or, in the case of a devise or gift, the Market Price at the time of such devise or gift) and (ii) the Market Price of the Common Stock or Preferred Stock from which such Excess Stock was converted on the date the -12- Corporation, or its designee, accepts such offer. The Corporation may reduce the amount payable to the Purported Record Transferee by the amount of dividends and distributions which have been paid to the Purported Record Transferee and are owed by the Purported Record Transferee to the Trustee pursuant to Section 15 of this Article V. The Corporation may pay the amount of such reductions to the Trustee for the benefit of the Charitable Beneficiary. The Corporation shall have the right to accept such offer for a period of 90 days after the later of (i) the date of the Corporation's receipt of notice pursuant to Section 5 of this Article V and (ii) if the Corporation does not receive a notice of such Transfer pursuant to Section 5 of this Article V, the date that the Board of Directors determines in good faith that a Transfer resulting in Excess Stock has occurred, but in no event later than a permitted Transfer pursuant to and in compliance with the terms of Section 18 of this Article V. Section 21. ENFORCEMENT. The Corporation is authorized specifically to seek equitable relief, including injunctive relief, to enforce the provisions of this Article V. Section 22. NON-WAIVER. No delay or failure on the part of the Corporation or the Board of Directors in exercising any right hereunder shall operate as a waiver of any right of the Corporation or the Board of Directors, as the case may be, except to the extent specifically waived in writing. ARTICLE VI 6. INCORPORATOR. Section 1. The name and mailing address of the incorporator is Brian M. Wyatt, Schnader Harrison Segal & Lewis, 1600 Market Street, Suite 3600, Philadelphia, PA 19103. Section 2. The said incorporator is at least eighteen years of age. Section 3. The said incorporator is forming the corporation named in these Articles of Incorporation under the general laws of the State of Maryland, to wit, the Maryland General Corporation Law. -13- ARTICLE VII 7. TERM. The corporation is to have perpetual existence. ARTICLE VIII 8. BYLAWS. The Board of Directors of the Corporation is authorized to adopt, amend or repeal the Bylaws of the Corporation, except as otherwise specifically provided therein. ARTICLE IX 9. ELECTION OF DIRECTORS. The stockholders and directors shall have the power to hold their meetings and to keep the books, documents, and papers of the Corporation outside the State of Maryland, at such places as may be from time to time designated by the Bylaws or by resolution of the stockholders or directors, except as otherwise may be required by the laws of the State of Maryland. Election of Directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. ARTICLE X 10. BOARD OF DIRECTORS. Section 1. NUMBER AND ELECTION. The number of directors of this Corporation shall be fixed from time to time pursuant to the Bylaws, may not at any time be less than three and shall initially be five. The number of directors may be increased or decreased pursuant to the Bylaws but shall never be less than the minimum number required by the Maryland General Corporation Law. Directors of this Corporation shall be nominated and elected as provided by this Article X of the Articles of Incorporation and the Bylaws. Section 2. INITIAL MEMBERS. The initial members of the Board of Directors, to hold office until their successors have been duly elected and qualified at the first annual meeting of stockholders, shall consist of the following individuals: Ronald L. Bernbaum Carl Maynard Larry Thral Robert G. Witterick, Q.C. Nils Peterson -14- Section 3. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Except as provided in Section 4 of this Article X relating to the rights of holders of Preferred Stock, newly created directorships resulting from death, resignation, disqualification, removal or other cause shall be filled solely by the affirmative vote of the majority of the remaining directors then in office, even though less than a quorum of the Board of Directors. When the Board fills a vacancy resulting from the death, resignation, disqualification or removal of a director, the director chosen to fill that vacancy shall hold office for the remainder of the term of the directorship. Section 4. DIRECTORS ELECTED BY PREFERRED STOCK. During any period in which the holders of Preferred Stock or any one or more series thereof, voting as a class shall be entitled to elect a specified number of directors by reasons of dividend arrearages or other contingencies given them the right to do so, then and during such time as such right continues (a) the then otherwise authorized number of directors shall be increased by such specified number of directors and the holders of Preferred Stock or such series thereof, voting as a class, shall be entitled to elect the additional directors so provided for, pursuant to the provisions of such Preferred Stock or series; and (b) each such additional director shall serve until the annual meeting at which the term of his or her office shall expire and until his or her successor shall be elected and shall qualify, or until his or her right to hold such office terminates pursuant to the provisions of such Preferred Stock or series, whichever occurs earlier. Whenever the holders of such Preferred Stock or series thereof are divested of such rights to elect a specified number of directors, voting as a class, pursuant to the provisions of such Preferred Stock or series, the terms of office of all directors elected by the holders of such Preferred Stock or series, voting as a class pursuant to such provisions, or elected to fill any vacancies resulting from the death, resignation, disqualification or removal of directors so elected by the holders of such Preferred Stock or series, shall forthwith terminate and the authorized number of directors shall be reduced accordingly. Section 5. NOMINATIONS OF DIRECTORS. Nominations of persons for election to the Board at a meeting of stockholders shall be made only (a) by or at the direction of the Board or (b) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in the Bylaws. -15- Section 6. AMENDMENT, REPEAL. Notwithstanding the foregoing and anything contained in these Articles of Incorporation to the contrary, this Article X shall not be altered, amended or repealed and no provision inconsistent therewith shall be adopted without the affirmative vote of the holders of at least 80% of the voting power of the then outstanding shares of this Corporation entitled to vote generally in the election of directors, voting together as a single class. ARTICLE XI 11. LIMITATION ON LIABILITY. To the maximum extent permitted by Maryland law in effect from time to time, no director or officer of the Corporation shall be liable to the Corporation or its stockholders for money damages. Neither the amendment or repeal of this Article 11, nor the adoption or amendment of any other provision of the Articles or Bylaws inconsistent with this Article 11, shall apply to or affect in any respect the applicability of the preceding sentence with respect to any act or failure to act which occurred prior to such amendment, repeal or adoption. If the Maryland General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation shall be limited or eliminated to the fullest extent permitted by the amended Maryland General Corporation Law. ARTICLE XII 12. INDEMNIFICATION. The Corporation shall have the power, to the maximum extent permitted by Maryland law in effect from time to time, to obligate itself to indemnify, and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to, (a) any individual who is a present or former director or officer of the Corporation or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served as a director, officer, partner or trustee of another corporation, partnership, joint venture, trust, employee benefit plan or any other enterprise, from and against any claim or liability to which such person may become subject or which such person may incur by reason of his status as a present or former director or officer of the Corporation. The Corporation may also, with the approval of the Board of Directors, provide such indemnification and/or advancement or reimbursement of expenses to any person who served a predecessor of the Corporation in any of the capacities -16- described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation. ARTICLE XIII 13. MERGER OR SALE OF ASSETS. No merger or consolidation of the Corporation, nor any sale, lease or exchange of substantially all of the assets of the Corporation, may be effected without the affirmative vote of the holders of 66 2/3% of the outstanding shares of Common Stock of the Corporation entitled to vote thereon at a meeting of stockholders called for that purpose. ARTICLE XIV 14. RIGHT TO AMEND. The Corporation reserves the right to amend, alter, change or repeal any provision contained in these Articles of Incorporation, in the manner now or hereafter prescribed by statute, including any amendment altering the terms or contract rights, as expressly set forth in this charter, of any shares of outstanding stock and all rights conferred upon stockholders, directors and officers herein are granted subject to this reservation; provided, however, that these Articles of Incorporation, except as provided in Article X, may not be amended, altered, changed or repealed without the affirmative vote of the holders of 66 2/3% of the outstanding shares of Common Stock of the Corporation entitled to vote thereon at a meeting of stockholders called for that purpose. ARTICLE XV 15. PRINCIPAL ADDRESS. The address of the Corporation's principal office is c/o CSC-Lawyers Incorporating Service Company, 11 East Chase Street, Baltimore, Maryland 21202. ARTICLE XVI 16. BUSINESS COMBINATIONS. Title 3, Subtitle 6 of the Maryland General Corporation Law shall not apply to the Corporation. FOURTH: The current address of the principal office of the Corporation is as set forth in Article II of the foregoing amendment and restatement of the charter. FIFTH: The name and address of the Corporation's current resident agent is as set forth in Article II of the foregoing amendment and restatement of the charter. SIXTH: The number of directors of the Corporation and the names of those currently in office are as set forth in Article X of the foregoing amendment and restatement of the charter. IN WITNESS WHEREOF, the undersigned has executed this document on the 25th day of September, 1996. BASIC U.S. REIT, INC. BY:/s/Terry McCrae -------------------------- Terry McCrae, Vice President, Finance WITNESS: /s/Aran Kwinta - -------------------------- Aran Kwinta, Secretary -17- EX-3.2 4 BY LAWS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- BYLAWS OF BASIC U.S. REIT, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF MARYLAND ON JULY 30, 1996 LAW OFFICES OF SCHNADER, HARRISON, SEGAL & LEWIS 1600 MARKET STREET, SUITE 3600 PHILADELPHIA, PENNSYLVANIA 19103 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TABLE OF CONTENTS PAGE ARTICLE I OFFICES 1.01. Principal Office........................................................1 1.02. Other Offices...........................................................1 ARTICLE II MEETINGS OF STOCKHOLDERS 2.01. Place of Meetings.......................................................1 2.02. Annual Meeting..........................................................1 2.03. Special Meetings........................................................2 2.04. Notice of Meetings......................................................2 2.05. Quorum..................................................................2 2.06. Stockholders Entitled to Vote...........................................3 2.07. Informal Action by Stockholders.........................................3 2.08. Exemption from Control Share Acquisition Statute........................4 2.09. Voting of Stock by Certain Holders......................................4 2.10. Inspectors..............................................................5 2.11. Nominations and Stockholder Business....................................5 ARTICLE III DIRECTORS 3.01. Number and Term of Office...............................................8 3.02. Vacancies...............................................................8 3.03. General Powers..........................................................9 3.04. Place of Meetings.......................................................9 3.05. Regular Meetings........................................................9 3.06. Special Meetings........................................................9 3.07. Quorum..................................................................9 3.08. Informal Action........................................................10 3.09. Telecommunications.....................................................10 -i- PAGE 3.10. Committees.............................................................10 3.11. Compensation of Directors..............................................11 3.12. Removal of Directors...................................................11 3.13. Loss of Deposits.......................................................11 3.14. Surety Bonds...........................................................11 3.15. Reliance...............................................................12 3.16. Certain Rights of Directors, Officers, Employees & Agents.....................................................12 ARTICLE IV NOTICES 4.01. Notices................................................................12 4.02. Waiver of Notice.......................................................13 ARTICLE V OFFICERS 5.01. Officers...............................................................13 5.02. Other Officers and Agents..............................................13 5.03. Salaries...............................................................13 5.04. Removal of Officers; Vacancies.........................................13 5.05. Chairman of the Board..................................................14 5.06. President..............................................................14 5.07. Executive Vice-President...............................................14 5.08. Vice-Presidents........................................................14 5.09. Secretary and Assistant Secretary......................................15 5.10. Treasurer and Assistant Treasurers.....................................15 ARTICLE VI SHARES OF CAPITAL STOCK 6.01. Certificates of Stock..................................................16 6.02. Facsimile Signature....................................................17 6.03. Lost Certificates......................................................17 6.04. Transfers of Stock.....................................................17 6.05. Fixing Record Date.....................................................18 PAGE 6.06. Registered Stockholders................................................18 6.07. Stock Ledger...........................................................18 6.08. Fractional Stock; Issuance of Units....................................18 ARTICLE VII CONTRACTS, LOANS, CHECKS, DEPOSITS AND PROXIES -ii- 7.01. Contracts..............................................................19 7.02. Loans..................................................................19 7.03. Checks.................................................................19 7.04. Deposit Accounts.......................................................19 7.05. Proxies................................................................19 ARTICLE VIII INDEMNIFICATION...............................................................20 ARTICLE IX GENERAL PROVISIONS............................................................20 9.01. Dividends..............................................................20 9.02. Reserves...............................................................21 9.03. Annual Statement.......................................................21 9.04. Fiscal Year............................................................21 9.05. Seal...................................................................21 ARTICLE X INVESTMENT POLICY AND RESTRICTIONS 10.01 Policies...............................................................21 10.02 Restrictions...........................................................22 ARTICLE XI AMENDMENT OF BYLAWS 11.01 AMENDMENTS...........................................................23 -iii- BYLAWS OF BASIC U.S. REIT, INC. (a Maryland Corporation) ARTICLE I OFFICES SECTION 1.01. PRINCIPAL OFFICE. The address of the principal office of the Corporation is 11 East Chase Street, in the City of Baltimore, State of Maryland. The principal office of the Corporation may be changed from time to time by the Board of Directors. SECTION 1.02. OTHER OFFICES. The Corporation may have other offices at such other places within and without the State of Maryland as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF STOCKHOLDERS SECTION 2.01. PLACE OF MEETINGS. All meetings of the stockholders for the election of directors shall be held at the principal office of the Corporation in the State of Maryland, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the State of Maryland as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. Meetings of stockholders for any other purpose may be held at such time and place, within or without the State of Maryland, as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. SECTION 2.02. ANNUAL MEETING. Annual meetings of stockholders, commencing with the year 1997, shall be held on the date and at the time as shall be designated from time to time by the Board of Directors and stated in the notice of the meeting. At such meetings, the stockholders shall elect a Board of Directors, which election need not be by written ballot, and transact such other business as may properly be brought before the meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given to each stockholder entitled to vote at such meeting not less than ten (10) nor more than ninety (90) days before the date of the meeting. SECTION 2.03. SPECIAL MEETINGS. Special meetings of the stockholders, for any purpose or purposes, unless otherwise prescribed by statute or by the Corporation's Articles of Incorporation, may be called by the president, the chief executive officer or the Board of Directors and shall be called by the secretary of the Corporation upon the written request of stockholders owning at least twenty-five percent (25%) in amount of the entire capital stock of the Corporation issued and outstanding and entitled to vote thereat. Such request shall state the purpose or purposes of the proposed meeting and the matters proposed to be acted on thereat. The secretary shall inform such stockholders of the reasonably estimated cost of preparing and mailing notice of the meeting and, upon payment to the Corporation by such stockholders of such costs, the secretary shall give notice to each stockholder entitled to notice of the meeting. The secretary shall not fix upon a date which unduly delays the meeting or shall have the effect of defeating the purpose of the meeting. SECTION 2.04. NOTICE OF MEETINGS. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten (10) nor more than ninety (90) days before the date of the meeting to each stockholder entitled to vote at such meeting. Business transacted at any special meeting of stockholders shall be limited to the purposes stated in the notice. SECTION 2.05. QUORUM. The holders of a majority of the stock issued and outstanding and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum for all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the Articles of Incorporation. If, however, such quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, to a date not more than 120 days after the original record date and until a quorum shall be present or represented. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. If the adjournment is for more than thirty (30) days or if, after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. The stockholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. SECTION 2.06. STOCKHOLDERS ENTITLED TO VOTE. At each meeting of the stockholders every stockholder entitled to vote thereat shall be entitled to one vote, in person or by proxy, for each share of capital stock held by such stockholder, but no proxy shall be entitled to vote after eleven (11) months after its date, unless the proxy provides for a longer period. Every proxy shall have been executed in writing (which shall include telegraphing, cabling or telephotographic transmission), and shall be filed with the -2- secretary of the Corporation before or at the time of the meeting. When a quorum is present at any meeting, the vote of the holders of the majority of the shares having voting power, present in person or represented by proxy, shall decide any question brought before such meeting, other than the election of directors for which the vote of the holders of a plurality of the shares having voting power present in person or represented by proxy is required, unless the question is one upon which, by express provision of the statutes or of the Articles of Incorporation or these Bylaws, a different vote is required, in which case such express provision shall govern and control the decision of such question. SECTION 2.07. INFORMAL ACTION BY STOCKHOLDERS. Unless otherwise provided in the Articles of Incorporation, any action required to be taken at any annual or special meeting of stockholders of a Corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if (i) a unanimous consent in writing, setting forth the action so taken, shall be signed by each holder of outstanding stock and (ii) a written waiver of any right to dissent signed by each stockholder entitled to notice of the meeting but not entitled to vote at it shall be delivered to the Corporation by delivery to its principal office in the State of Maryland or to its principal place of business or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded and filed with the records of stockholders meetings. Delivery made to the Corporation's principal office or its principal place of business shall be by hand or by certified mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs it. SECTION 2.08. EXEMPTION FROM CONTROL SHARE ACQUISITION STATUTE. Notwithstanding any other provision of the Articles of Incorporation of the Corporation or these Bylaws, Title 3, Subtitle 7 of the Maryland General Corporation Law (or any successor statute) shall not apply to any acquisition by any person of shares of stock of the Corporation. This section may be repealed, in whole or in part, at any time, whether before of after an acquisition of control shares and, upon such repeal, may, to the extent provided by any successor bylaw, apply to any prior or subsequent control share acquisition. SECTION 2.9. VOTING OF STOCK BY CERTAIN HOLDERS. Stock of the Corporation registered in the name of a corporation, partnership, trust or other entity, if entitled to be voted, may be voted by the president or a vice president, a general partner or trustee thereof, as the case may be, or by a proxy appointed by any of the foregoing individuals, unless some other person who has been appointed to vote such stock pursuant to a bylaw or a resolution of the governing body of such corporation or other entity or agreement of the partners of a partnership presents a certified copy of such bylaw, resolution or agreement, in which case such person may vote -3- such stock. Any director or other fiduciary may vote stock registered in his name as such fiduciary either in person or by proxy. Shares of stock of the Corporation directly or indirectly owned by it shall not be voted at any meting and shall not be counted in determining the total number of outstanding shares entitled to be voted at any given time, unless they are held by it in a fiduciary capacity, in which case they may be voted and shall be counted in determining the total number of outstanding shares at any given time. The Board of Directors may adopt by resolution a procedure by which a stockholder may certify in writing to the Corporation that any shares of stock registered in the name of the stockholder are held for the account of a specified person other than the stockholder. The resolution shall set forth the class of stockholders who may make the certification, the purpose for which the certification may be made, the form of certification and the information to be contained in it; if the certification is with respect to a record date or closing of the stock transfer books, the time after the record date or closing of the stock transfer books within which the certification must be received by the Corporation; and any other provisions with respect to the procedure which the Board of Directors considers necessary or desirable. On receipt of such certification, the person specified in the certification shall be regarded as, for the purposes set forth in the certification, the stockholder of record of the specified stock in place of the stockholder who makes the certification. SECTION 2.10. INSPECTORS. At any meeting of stockholders, the chairman of the meeting may, or upon the request of any stockholder shall, appoint one or more persons as inspectors for such meeting. Such inspectors shall ascertain and report the number of shares represented at the meeting based upon their determination of the validity and effect of proxies, count all votes, report the results and perform such other acts as are proper to conduct the election and voting with impartiality and fairness to all the stockholders. Each report of an inspector shall be in writing and signed by him or by a majority of them. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. SECTION 2.11. NOMINATIONS AND STOCKHOLDER BUSINESS. (a) ANNUAL MEETINGS OF STOCKHOLDERS. (1) Nominations of persons for election to the Board of Directors and the proposal of business to be considered by the stockholders (except for stockholder proposals included in the proxy materials pursuant -4- to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) may be made at an annual meeting of stockholders (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) by any stockholder of the Corporation who was a stockholder of record at the time of giving of notice provided for in this Section 2.11(a), who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 2.11(a). (2) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (iii) of paragraph (a)(1) of this Section 2.11, the stockholder must have given timely notice thereof in writing to the secretary of the Corporation. To be timely, a stockholder's notice shall be delivered to the secretary at the principal executive offices of the Corporation not less than sixty (60) days nor more than ninety (90) days prior to the first anniversary of the preceding year's annual meeting or special meeting in lieu thereof; provided, however, that in the event that the date of the annual meeting is advanced by more than seven (7) calendar days or delayed by more than sixty (60) days from such anniversary date, notice by the stockholder to be timely must be so delivered not earlier than the ninetieth (90th) day prior to such annual meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such annual meeting or the twentieth (20th) day following the earlier of the day on which public announcement of the date of such meeting is first made or notice of the meeting is mailed to stockholders. Such stockholder's notice shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director, all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (ii) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and of the beneficial owner, if any, on whose behalf the proposal is made; and (iii) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made, (x) the name and address of such stockholder, as they appear on the Corporation's books, and of such beneficial owner and (y) the number of shares of each class of stock of the Corporation which are owned beneficially and of record by such stockholder and such beneficial owner. (3) Notwithstanding anything in the second sentence of paragraph (a)(2)of this Section 2.11 to the contrary, in the event that the number of directors to be elected to the Board of Directors is increased and there is no public announcement naming all of the nominees for director or specifying the size of -5- the increased Board of Directors made by the Corporation at least 85 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 2.11(a) shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the secretary at the principal executive offices of the Corporation not later than the close of business on the tenth day following the day on which such pubic announcement is first made by the Corporation. (b) SPECIAL MEETINGS OF STOCKHOLDERS. Only such business shall be conducted at a special meeting of stockholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected (i) pursuant to the Corporation's notice of meeting, (ii) by or at the direction of the Board of Directors or (iii) provided that the Board of Directors has determined that directors shall be elected at such special meeting by any stockholder of the Corporation who is a stockholder of record at the time of giving of notice provided for in this Section 2.11(b), who is entitled to vote at the meeting and who complied with the notice procedures set forth in this Section 2.11(b). In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be) for election to such position as specified in the Corporation's notice of meeting, if the stockholder's notice containing the information required by paragraph (a)(2) of this Section 2.11 shall be delivered to the secretary at the principal executive offices of the Corporation not earlier than the ninetieth (90th) day prior to such special meeting and not later than the close of business on the later of the sixtieth (60th) day prior to such special meeting or the tenth (10th) day following the day on which pubic announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. (c) GENERAL. (1) Only such persons who are nominated in accordance with the procedures set forth in this Section 2.11 shall be eligible to serve as directors and only such business shall be conducted at a meeting with stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 2.11. The presiding officer of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made in accordance with the procedures set forth in this Section 2.11 and, if any proposed nomination or business is not in compliance with this Section 2.11, to declare that such defective nomination or proposal be disregarded. (2) For purposes of this Section 2.11, "public announcement" shall mean disclosure in a press release reported by -6- the Dow Jones News Service, Associated Press or comparable news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Section 2.11, a stockholder shall also comply with all applicable requirements of state law and of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 2.11. Nothing in this Section shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act. ARTICLE III DIRECTORS SECTION 3.01. NUMBER AND TERM OF OFFICE. The number of directors which shall constitute the whole Board shall be not less than three (3) nor more than ten (10). Within the limits above specified, the number of directors shall be determined by resolution of the Board of Directors, or by the stockholders at the annual meeting. The directors shall be elected at the annual meeting of stockholders, except as provided in Section 3.02 of this Article, and each director shall hold office until the next annual meeting of stockholders and thereafter until his successor is duly elected and qualified, unless a prior vacancy shall occur by reason of his death, resignation or removal from office. Directors need not be stockholders. SECTION 3.02. VACANCIES. Vacancies for reasons other than an increase in the authorized number of directors may be filled by a majority of the directors then in office, though less than a quorum, and the directors so chosen shall hold office until the next annual meeting of stockholders and until their successors are duly elected and qualified, unless a prior vacancy shall occur by reason of his death, resignation or removal from office. Any vacancy created by an increase in the authorized number of directors may be filled by a majority vote of the entire Board of Directors. If there are no directors in office, then an election of directors may be held in the manner provided by statute. Any individual so elected as a director shall hold office until the next annual meeting of the stockholders and until his successor is elected and qualified. SECTION 3.03. GENERAL POWERS. The business and affairs of the Corporation shall be managed by its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised or done by the stockholders. -7- SECTION 3.04. PLACE OF MEETINGS. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the State of Maryland. SECTION 3.05. REGULAR MEETINGS. Regular meetings of the Board of Directors may be held without notice at such time and at such place as shall from time to time be determined by the Board. SECTION 3.06. SPECIAL MEETINGS. Special meetings of the Board may be called by the president, chairman of the board or a majority of the directors then in office on two (2) days' notice to each director, either personally or by mail or by telephone, telegram or facsimile. SECTION 3.07. QUORUM. At all meetings of the Board, a majority of the directors in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the Articles of Incorporation. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. The directors present at a meeting which has been duly called and convened may continue to transact business until adjournment, notwithstanding the withdrawal of enough directors to leave less than a quorum. SECTION 3.08. INFORMAL ACTION. Unless otherwise restricted by the Articles of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the Board or committee. SECTION 3.09. TELECOMMUNICATIONS. Members of the Board of Directors, or any committee designated by such Board, may participate in a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all such persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at such meeting. SECTION 3.10. COMMITTEES. The Board of Directors may, by resolution passed by a majority of the whole Board, designate one or more committees, each committee to consist of two (2) or more of the directors of the Corporation. The Board may designate one or more directors as alternative members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and -8- not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at any meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board of Directors, shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the Corporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to amending the Articles of Incorporation, adopting an agreement of merger or consolidation, recommending to the stockholders the sale, lease or exchange of all or substantially all of the Corporation's property and assets, recommending to the stockholders a dissolution of the Corporation or a revocation of a dissolution, or amending the Bylaws of the Corporation; and, unless the resolution or the Articles of Incorporation expressly so provide, no such committee shall have the power or authority to declare a dividend or to authorize the issuance of stock. Such committee or committees shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. SECTION 3.11. COMPENSATION OF DIRECTORS. Unless otherwise restricted by the Articles of Incorporation or by these Bylaws, the Board of Directors shall have the authority to fix the compensation of directors. The directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as director. Members of special or standing committees may be allowed similar compensation for attending committee meetings. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefor. SECTION 3.12. REMOVAL OF DIRECTORS. At any special meeting of the stockholders, duly called as provided in these Bylaws, any director or directors may, by the affirmative vote of the holders of a majority of all the shares of stock outstanding and entitled to vote for the election of directors, be removed from office, either with or without cause. At such meeting a successor or successors may be elected, or if any such vacancy is not so filled it may be filled by the directors as provided in Section 3.02 above. If stockholders are entitled to vote cumulatively to elect directors then, unless the entire Board be removed, no individual director shall be removed in case the votes of a sufficient number of shares are cast against the resolution for his removal which, if cumulatively voted at an annual election, would be sufficient to elect one or more directors. SECTION 3.13. LOSS OF DEPOSITS. No director shall be liable for any loss which may occur by reason of the failure of the bank, -9- trust company, savings and loan association, or other institution which whom moneys or stock have been deposited. SECTION 3.14. SURETY BONDS. Unless required by law, no director shall be obligated to give any bond or surety or other security for the performance of any of his duties. SECTION 3.15. RELIANCE. Each director, officer, employee and agent of the Corporation shall, in the performance of his duties with respect to the Corporation, be fully justified and protected with regard to any act or failure to act in reliance in good faith upon the books of account or other records of the Corporation, upon an opinion of counsel or upon reports made to the Corporation by any of its officers or employees or by the advisor, accountant, appraisers or other experts or consultants selected by the Board of Directors or officer of the Corporation, regardless of whether such counsel or expert may also be a director. SECTION 3.16. CERTAIN RIGHTS OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The directors shall have no responsibility to devote their full time to the affairs of the Corporation. Any director or officer, employee or agent of the Corporation, in his personal capacity or in a capacity as an affiliate, employee, or agent of any other person, or otherwise, may have business interests and engage in business activities similar to or in addition to or in competition with those of or relating to the Corporation. ARTICLE IV NOTICES SECTION 4.01. NOTICES. Whenever, under the provisions of the statutes or of the Articles of Incorporation or of these Bylaws, notice is required to be given to any director or stockholder, it shall not be construed to mean personal notice, but such notice may be given in writing, by mail, addressed to such director or stockholder, at his address as it appears on the records of the Corporation, with postage thereon prepaid, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail. Notice to directors may also be given by telephone or facsimile. Telephone notice shall be deemed to be given when the director is personally given such notice in a telephone call to which he is a party. Facsimile transmission notice shall be deemed to be given upon completion of the transmission of the message to the number given to the Corporation by the director and receipt of a completed answer-back indicating receipt. SECTION 4.02. WAIVER OF NOTICE. Whenever any notice is required to be given under the provisions of the Maryland General Corporation Law or of the Articles of Incorporation or of these -10- Bylaws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Notice is also deemed to be waived if the person is present at the meeting for which notice was required. ARTICLE V OFFICERS SECTION 5.01. OFFICERS. The officers of the Corporation shall be chosen by the Board of Directors and shall include a president, a secretary and a treasurer. The Board of Directors may also choose a chairman of the board, one or more vice-presidents, assistant secretaries and assistant treasurers. Any number of offices may be held by the same person, unless the Articles of Incorporation or these Bylaws provide otherwise, except that a person may not serve concurrently as both president and vice-president of the Corporation. The Board of Directors at its first meeting after each annual meeting of stockholders shall choose the appropriate officers of the Corporation. Each officer shall hold his office until his successor is elected and qualified or until his earlier death, resignation or removal. Any officer may resign at any time upon written notice to the Corporation. SECTION 5.02. OTHER OFFICERS AND AGENTS. The Board of Directors may appoint such other officers and agents as it shall deem necessary who shall hold their offices for such terms and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. SECTION 5.03. SALARIES. The salaries and other compensation of all officers and agents of the Corporation shall be fixed from time to time by the Board of Directors. No officer shall be prevented from receiving such salary or other compensation by reason of the fact that he is also a director. SECTION 5.04. REMOVAL OF OFFICERS; VACANCIES. The officers of the Corporation shall hold office until their successors are elected and qualified. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors if the Board of Directors finds that such removal will serve the best interests of the Corporation. Such removal does not prejudice any of such officer's contract rights. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors for the balance of the term. SECTION 5.05. CHAIRMAN OF THE BOARD. The chairman of the board, if one be designated by the Board of Directors, shall preside at all meetings of the stockholders and of the Board of Directors, shall act in an advisory capacity to the other principal -11- officers and shall have such powers and perform such duties as the Board may prescribe. SECTION 5.06. PRESIDENT. The president shall be the chief executive officer of the Corporation, and in the absence of or inability to act of a chairman of the board, shall preside at all meetings of the stockholders and the Board of Directors, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall execute bonds, mortgages and other contracts requiring a seal, under the seal of the Corporation, except where required or permitted by law to be otherwise signed and executed and except where the signing and execution thereof shall be expressly delegated by the Board of Directors to some other officer or agent of the Corporation. SECTION 5.07. EXECUTIVE VICE-PRESIDENT. The executive vice-president, if one be designated by the Board of Directors, shall perform such executive and administrative functions and duties as are delegated to him by the president, shall, in the absence of or inability to act of the president, temporarily act in his place, and shall perform such other duties as the Board of Directors may prescribe. SECTION 5.08. VICE-PRESIDENTS. In the absence or inability to act of the president and executive vice-president, the vice-president (or in the event there be more than one vice-president, the vice-presidents in the order designated, or in the absence of any designation, then in the order of their election) shall perform the duties of the president or executive vice-president, and when so acting, shall have all the powers of and be subject to all the restrictions upon the president or executive vice-president. The vice- presidents shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 5.09. SECRETARY AND ASSISTANT SECRETARY. The secretary shall attend all meetings of the Board of Directors and all meetings of the stockholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or president, under whose supervision he shall be. He shall have custody of the corporate seal of the Corporation and he, or an assistant secretary, shall have authority to affix the same to any instrument requiring it and when so affixed, it may be attested by his signature or by the signature of such assistant secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. -12- The assistant secretary, or if there be more than one, the assistant secretaries in the order determined by the Board of Directors (of if there be no such determination, then in the order of their election), shall, in the absence of the secretary or in the event of his inability to act, perform the duties and exercise the powers of the secretary and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. SECTION 5.10. TREASURER AND ASSISTANT TREASURERS. The treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the president and the Board of Directors, at its regular meetings, or when the Board of Directors so requires, an account of all his transactions as treasurer and of the financial condition of the Corporation. If required by the Board of Directors, he shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties of his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. The assistant treasurer, or if there shall be more than one, the assistant treasurers in the order determined by the Board of Directors (or if there be no such determination, then in the order of their election), shall, in the absence of the treasurer or in the event of his inability to act, perform the duties and exercise the powers of the treasurer and shall perform such other duties and have such other powers as the Board of Directors may from time to time prescribe. ARTICLE VI SHARES OF CAPITAL STOCK SECTION 6.01. CERTIFICATES OF STOCK. Every holder of stock in the Corporation shall be entitled to have a certificate, signed by, or in the name of the Corporation by, the chairman of the Board of Directors, or the president or a vice-president or the chairman of the board, and countersigned by the treasurer or an assistant treasurer, or the secretary or an assistant secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Such signatures may be manual or facsimile. If the -13- Corporation shall be authorized to issue more than one class of stock or more than one series of any class, the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 2-211 of the Maryland General Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the Corporation shall issue to represent such class or series of stock, a statement that the Corporation will furnish without charge to each stockholder who so requests a full statement of the designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. SECTION 6.02. VALIDITY OF SIGNATURE. In case any officer who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer at the date of issue. SECTION 6.03. LOST CERTIFICATES. Any officer designated by the Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the officer designated by the Board of Directors may, in his discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. SECTION 6.04. TRANSFERS OF STOCK. Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. The Corporation shall be entitled to treat the holder of record of any share of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or on the part of any other -14- person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland. Notwithstanding the foregoing, transfers of shares of any class of stock will be subject in all respects to the Articles of Incorporation of the Corporation and all of the terms and conditions contained therein. SECTION 6.05. FIXING RECORD DATE. In order that the Corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than ninety (90) nor less than ten (10) days before the date of such meeting. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix, in advance, a record date, which shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. SECTION 6.06. REGISTERED STOCKHOLDERS. The Corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Maryland. SECTION 6.07. STOCK LEDGER. The Corporation shall maintain at its principal office, principal executive offices or at the office of its counsel, accountants or transfer agent, an original or duplicate share ledger containing the name and address of each stockholder and the number of shares of each class held by such stockholder. SECTION 6.08. FRACTIONAL STOCK; ISSUANCE OF UNITS. The Board of Directors may issue fractional stock or provide for the issuance of scrip, all on such terms and under such conditions as they may determine. Notwithstanding any other provision of the Articles of Incorporation or these Bylaws, the Board of Directors may issue units consisting of different securities of the Corporation. Any security issued in a unit shall have the same characteristics as -15- any identical securities issued by the Corporation, except that the Board of Directors may provide that for a specified period securities of the Corporation issued in such unit may be transferred on the books of the Corporation only in such unit. ARTICLE VII CONTRACTS, LOANS, CHECKS, DEPOSITS AND PROXIES SECTION 7.01. CONTRACTS. The Board of Directors may authorize any officer or officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation, and such authority may be general or confined to specific instances. SECTION 7.02. LOANS. No loans shall be contracted on behalf of the Corporation, and no evidences of indebtedness shall be issued in its name, unless authorized by a resolution of the Board of Directors. Such authority may be general or confined to specific instances. SECTION 7.03. CHECKS. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation shall be signed by such officer or officers, agent or agents of the Corporation and in such manner as shall from time to time be determined by resolution of the Board of Directors. SECTION 7.04. DEPOSIT ACCOUNTS. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select. SECTION 7.05. PROXIES. Proxies to vote with respect to shares of stock of other Corporations owned by or standing in the name of the Corporation may be executed and delivered from time to time on behalf of the Corporation by the president or a vice-president or by any other person or persons thereunto authorized by the Board of Directors. ARTICLE VIII INDEMNIFICATION AND ADVANCES FOR EXPENSES To the maximum extent permitted by Maryland Law in effect from time to time, the Corporation, without requiring a preliminary determination of the ultimate entitlement to indemnification, shall indemnify and shall pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any individual who is a present or former director or officer of the Corporation and who is made a party to the proceeding by reason of his service in that -16- capacity or (b) any individual who, while a director of the Corporation and at the request of the Corporation, serves or has served another corporation, partnership, joint venture, trust, employee benefit plan, limited liability company or any other enterprise as a director, officer, partner, trustee or manager of such corporation, partnership, joint venture, trust, employee benefit plan, limited liability company or other enterprise and who is made party to the proceeding by reason of his service in that capacity. The Corporation may, with the approval of its Board of Directors, provide such indemnification for and advance expenses to a person who served a predecessor of the Corporation in any of the capacities described in (a) or (b) above and to any employee or agent of the Corporation or a predecessor of the Corporation. Neither the amendment nor repeal of this Article, nor the adoption or amendment of any other provision of these Bylaws or the Articles of Incorporation of the Corporation inconsistent with this Article, shall apply to or affect in any respect the applicability of the preceding paragraph with respect to any act or failure to act occurred prior to such amendment, repeal or adoption. ARTICLE IX GENERAL PROVISIONS SECTION 9.01. DIVIDENDS. Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock of the Corporation, subject to the provisions of the Articles of Incorporation. SECTION 9.02. RESERVES. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. SECTION 9.03. ANNUAL STATEMENT. The Board of Directors shall present at each annual meeting, and at any special meeting of the stockholders when called for by vote of the stockholders, a full and clear statement of the business and condition of the Corporation. SECTION 9.04. FISCAL YEAR. The fiscal year of the Corporation shall be fixed by resolution of the Board of Directors. -17- SECTION 9.05. SEAL. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Maryland". The seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. Whenever the Corporation is permitted or required to affix its seal to a document, it shall be sufficient to met the requirements of any law, rule or regulation relating to the seal to place the word "(Seal)" adjacent to the signature of the person authorized to executed the document on behalf of the Corporation. ARTICLE X INVESTMENT POLICY AND RESTRICTIONS SECTION 10.01. POLICIES. Subject to the provisions of the Articles of Incorporation of the Corporation, the Board of Directors may from time to time by the majority approval of the Board of Directors, such majority to include a majority of the independent directors, adopt, amend, revise or terminate any policy or policies with respect to investments by the Corporation as it shall deem appropriate in its sole discretion. SECTION 10.02. RESTRICTIONS. Notwithstanding the provisions of Section 10.01 hereof, but subject to the provisions of the Articles of Incorporation and the other provisions of these Bylaws, the Board of Directors may from time to time by the majority approval of the Board of Directors, such majority to include a majority of the independent directors, recommend the amendment, revision or termination of the following investment restrictions, which amendment, revision or termination shall become effective upon the approval of a majority of the votes cast at a meeting of the holders of the Common Stock of the Corporation: (a) the Corporation will not make any investment that would result in its ceasing to qualify as a real estate investment trust under the U.S. Internal Revenue of Code of 1986, as amended ("Code"); (b) the Corporation may not incur indebtedness if the aggregate outstanding principal amount of all indebtedness of the Corporation exceeds sixty percent (60%) of the greater of the aggregate acquisition prices or the current fair market value of all properties of the Corporation. For purposes of the foregoing determination, the fair market value of the properties of the Corporation is required to be determined by an independent third party appraisal; (c) the Corporation may not engage in construction or development of real property except to the extent to maintain its properties in good repair, for expansion of an existing -18- property or to otherwise enhance the income producing ability of the properties; (d) except as otherwise permitted by the Code, for investment from proceeds of financings, pending investment or reinvestment, cash on hand will be invested in certificates of deposit with terms of less than one year or U.S. government securities with terms of less than one year (such as treasury obligations); (e) the Corporation may not invest in mortgages, unless the underlying security is income-producing property or is in the process of being developed as income-producing property, all such mortgages in the aggregate do not exceed 10% of the aggregate cost of assets of the Corporation, the mortgage is a first mortgage, the term of the mortgage is five (5) years or less and the amortization period is thirty (30) years or less; (f) after the acquisition of its first two real properties, the Corporation may not acquire any single investment in real property if the acquisition price of such property will exceed (1) $25 million until the aggregate acquisition prices of all properties owned by the Corporation inclusive of the proposed investment exceeds $100,000,000 and (2) after the aggregate acquisition prices of all properties owned by the Corporation exceeds $100,000,000, twenty-five percent (25%) of the aggregate acquisition prices of all properties inclusive of the proposed investment; and (g) the Corporation may not grant or assume a mortgage on any office property if the aggregate outstanding principal amount of the mortgage and of all other mortgages granted or assumed by the Corporation secured against its office properties or any part thereof exceeds fifty percent (50%) of the aggregate acquisition prices of all office properties of the Corporation. ARTICLE XI AMENDMENT OF BYLAWS SECTION 11.01. AMENDMENTS. These Bylaws may be altered, amended or repealed or new Bylaws may be adopted by the Board of Directors or by the stockholders at any regular meeting of the Board of Directors or of the stockholders, or at any special meeting of the Board of Directors or of the stockholders if notice of such alteration, amendment, repeal or adoption of new Bylaws is contained in the notice of such special meeting. -19- EX-10.1 5 FORM OF ADVISORY AGMT. (REGISTRANT/BASIC) Page MEMORANDUM OF AGREEMENT made as of the ________ day of ____________________, 1996. B E T W E E N: BASIC U.S. REIT, INC., a corporation incorporated under the laws of Maryland, (hereinafter referred to as the "COMPANY") OF THE FIRST PART; - and - BASIC ADVISORS, INC., a corporation incorporated under the laws of Delaware, (hereinafter referred to as the "ADVISOR") F THE SECOND PART. WHEREAS shares of common stock in the Company are to be offered to the public pursuant to a prospectus (the "PROSPECTUS") dated the date hereof; AND WHEREAS the Company will require investment advice with respect to the investment of its assets in permitted real property investments and the management thereof; AND WHEREAS the Advisor has agreed to provide such investment and management advice to the Company; NOW THEREFORE THIS INDENTURE WITNESSETH THAT in consideration of the respective covenants and agreements herein contained, the parties hereby agree as follows: ARTICLE 1 APPOINTMENT OF ADVISOR 1.01 The Advisor is hereby appointed to provide investment management, administrative, bookkeeping, reporting, accounting and clerical services and advice to the Company. The Advisor accepts such appointment and acknowledges that it is familiar with the terms and provisions of the Prospectus and the constating documents and by-laws of the Company and agrees to act in accordance therewith and in accordance with the terms of this Agreement in a competent, honest, fair, diligent and efficient manner, in good faith and to the best of its ability in the best interests of the Company. Furthermore, the Advisor agrees that it shall devote such time and attention as may be required to fulfil its obligations hereunder. ARTICLE 2 DUTIES OF THE ADVISOR 2.01 Subject to the exclusive and overriding authority of the directors of the Company to manage the business and affairs of the Company, the Advisor hereby agrees that it shall: a) provide or arrange for the provision of research and other data in connection with the Company's investments and investment policies; b) act as the Company's real property investment manager and consultant, and in so doing make recommendations to the board of directors of the Company with respect to the acquisition and disposition of investments, perform or arrange for the performance of such inspections and investigations in connection therewith as are deemed appropriate and, upon request of the board of directors of the Company, supervise closings in respect thereof; c) from time to time arrange for mortgage financing on behalf of the Company for its real property investments provided the Advisor may retain mortgage brokers at the expense of the Company and with the consent of the board of directors of the Company to assist in the arrangement of such mortgage financing. d) obtain and review appraisal reports and title opinions or reports from counsel in connection with real property investments made or proposed to be made by the Company, review property location, the building and its physical characteristics, the relevant rental market, financial and character data relating to the property and the vendor or purchaser, applicable environmental, zoning and other governmental regulations, the character of tenant mix and quality of tenants, insurance coverage, the long term anticipated total return to the Company and other factors in connection with the Company's investments; e) supervise the performance of all property management, maintenance and other customary services related to the ownership of the Company's real estate investments; f) manage the Company's short-term investments; g) supervise the performance of the day-to-day administrative functions in connection with the management of the Company; h) deal with, retain or employ other persons on behalf of the Company in connection with its investments, including solicitors, consultants, property managers, leasing agents, finders, lenders, brokers, insurers, banks, builders, developers and other investment participants; i) arrange for the provision to the Company of any information required in order to report to shareholders; j) arrange for the preparation of budgets; k) arrange for the provision to the Company of such services by others, as the board of directors may reasonably request in connection with the activities of the Company; and l) from time to time, report to the board of directors with respect to its performance of the foregoing services. ARTICLE 3 FEES AND EXPENSES 3.01 The Company shall pay to the Advisor an annual fee based upon a percentage of Share Capital (as hereinafter defined) determined as follows: SHARE CAPITAL RATE ------------- ---- On the first $35 Million 1.5% On the amount over $35 Million and up to $125 Million 1.25% On the amount over $125 Million and up to $200 Million 1.00% On the amount in excess of $200 Million 0.75% The fee payable pursuant to this Section 3.01, shall be calculated and paid in monthly instalments in arrears, at one-twelfth (1/12) of the annual fee on the fifteenth (15th) day of each month based upon the Share Capital on the last day of the previous month. For the purposes hereof, Share Capital shall be the aggregate of the proceeds received by the Company for all issued and outstanding shares in the capital of the Company from time to time after deducting any direct costs or expenses paid by the Company for the issuance of such shares (including any agency commissions). 3.02 On the date of the closing of the disposition by the Company or any subsidiary of the Company, of any real property or any interest in real property, the Company shall pay to the Advisor a disposition fee equal to one-quarter percent (0.25%) of the sale proceeds from the disposition of such real property, all subject to the following rules: a) in determining sale proceeds of any property, any mortgage assumed or taken back on sale shall be included in the sale proceeds on the basis of the actual indebtedness owing thereunder as of the date of the closing of the sale; b) in determining sale proceeds of any property, there shall be no deduction from the sales proceeds for, any out of pocket costs incurred by the Company in connection with the relevant disposition including, without limitation, legal fees and disbursements, registration and filing fees, sales taxes, real estate commissions or other disposition fees; c) for the purposes of this Section 3.02, sale proceeds shall include the receipt of compensation for the expropriation of any real property of the Company or any subsidiary of the Company or any part thereof or interest therein, and the recovery of damage awards or insurance proceeds not required to repair or reconstruct the damaged assets (other than business or rental interruption insurance proceeds) in respect thereof; and d) except as provided herein, if any uncertainty or difference between the Company and the Advisor arises in determining any amount payable under this Section, advice (which shall not be binding) shall be sought from the auditors of the Company. 3.03 On the date of the closing of the purchase by the Company or any subsidiary of the Company, of any real property or any interest in real property, the Company shall pay to the Advisor, an acquisition fee equal to one and one-half percent (1.5%) of the cost of such real property to the Company or its subsidiary all subject to the following rules: a) the cost of any property shall be comprised of the purchase price to the Company on the date of closing of the purchase without including ancillary expenses such as legal fees and disbursements, registration and filing fees, sales taxes, or other acquisition fees; b) in determining the cost of any property, any mortgage assumed on purchase or given back on purchase or granted on purchase shall be included in the cost on the basis of the actual indebtedness owing thereunder as of the date of the closing of the purchase; and c) except as provided herein, if any uncertainty or difference between the Company and the Advisor arises in determining any amount payable under this Section, advice (which shall not be binding) shall be sought from the auditors of the Company. 3.04 On the date of the completion of any financing or refinancing by the Company or any subsidiary of the Company of any real property or any interest in real property, the Company shall pay to the Advisor a financing fee equal to one- quarter percent (0.25%) of the principal amount of the financing or refinancing arranged, renewed, extended or increased in respect of any real property of the Company or any subsidiary of the Company, whether the financing is secured by a mortgage or mortgages on the real property, a debenture or debentures on the real property, personalty or otherwise. 3.05 The Advisor shall be responsible for the employment expenses of its personnel, rent and other office expenses and miscellaneous administrative expenses relating to the performance of its functions under this Agreement. 3.06 The Company shall be responsible for all of the expenses of the Company and any subsidiary of the Company and all expenses incurred by the Advisor in the performance of its duties in accordance herewith (other than expenses to be paid by the Advisor pursuant to Section 3.05), including without limiting the generality of the foregoing, the following: a) interest and other costs of borrowed money; b) taxes and assessments on real property and income, if applicable; c) fees and expenses of lawyers, accountants, appraisers, property managers and other agents or consultants employed by or on behalf of the Company; d) fees and expenses of the directors and officers of the Company; e) expenses of managing, leasing and maintaining real property; f) expenses of servicing mortgages; g) insurance as required, including liability insurance for directors and officers of the Company; h) expenses in connection with distributions to shareholders of the Company; i) expenses of maintaining the books and records of the Company; j) expenses in connection with communications to shareholders of the Company and other bookkeeping and clerical work necessary in maintaining relations with shareholders; k) registration, custodial, administrative and other fees and expenses in connection with the securities of the Company; l) all fees and expenses in connection with the acquisition, disposition and ownership of its investments, including property management fees; m) all fees and expenses of listing and maintaining the listing of the securities of the Company on any exchange; n) all fees and expenses of the registrar and transfer agent appointed by the Company for the shares of the Company; o) all fees and expenses of the Company complying with applicable securities legislation; p) all fees and expenses incurred by the Advisor in performing any of the services required of it hereunder other than those set out in Section 3.05; and q) all other expenses not specifically assumed by the Advisor hereunder. 3.07 Except for property management services, where any of the services to which the expenses referred to in Section 3.06 relate are performed by the Advisor or its affiliates, the Advisor or such affiliates shall only be compensated for its or their reasonable expenses directly incurred in performing such services (other than expenses to be paid by the Advisor pursuant to Section 3.05). If and to the extent that the Advisor or any person affiliated with the Advisor shall render services to the Company at the request of the Company in addition to those specifically required to be rendered under this Agreement, such services will be compensated separately on the basis of fees at least as favourable to the Company as those then generally charged for comparable services and activities. 3.08 Any proposed change in the amount or basis or calculation of fees and other expenses provided hereunder which would or could result in an increase in charges to the Company may only be made if approved by the Advisor, the board of directors of the Company and, if required by law, a majority of the votes cast at a meeting of the shareholders. 3.09 The Company shall forthwith reimburse the Advisor for all costs, charges and expenses properly incurred by the Advisor on behalf of the Company or any of its subsidiaries in the ordinary course of the business of the Company and its subsidiaries and not specifically agreed to be borne by the Advisor hereunder. ARTICLE 4 TERM OF AGREEMENT 4.01 This Agreement shall continue in full force and effect for a period of five (5) years from the date hereof; provided, however, notwithstanding the foregoing, upon the expiry of the original term, this Agreement shall, subject to Section 4.05, be renewed thereafter for further periods of five (5) years upon the approval of a majority of the directors of the Company, including a majority of the independent directors of the Company, and a majority of the votes cast at a meeting of shareholders of the Company held prior to the expiration of the initial term or renewal term (as the case may be). 4.02 If and whenever: a) the Advisor shall commit a material breach of any of the material terms, covenants or conditions of this Agreement and within thirty (30) days after written notice of such breach is given by the Company to the Advisor, such breach shall not be cured or the Advisor fails to commence to cure any such breach and fails to continue to use its reasonable best efforts to cure such breach thereafter; b) a decree or order by a court having jurisdiction in the matter shall have been entered for relief in respect of an involuntary bankruptcy, or adjudging the Advisor bankrupt or insolvent, or approving as properly filed, a petition seeking reorganization under applicable bankruptcy law, and such decree shall have continued, undischarged, undismissed or unstayed for a period of ninety (90) consecutive days; or a decree or order of a court having jurisdiction in the matter for the appointment of a receiver, liquidator or trustee or assignee or custodian, or sequestrator (or similar official) in bankruptcy or insolvency of the Advisor or for any substantial part of the Advisor's property, or for the winding up or liquidation of the Advisor's affairs shall have been entered and such decree or order shall have remained in force, undischarged, undismissed or unstayed for a period of ninety (90) consecutive days; c) the Advisor shall institute proceedings to be adjudicated a voluntary bankrupt or insolvent or shall consent to the filing of a bankruptcy or insolvency proceeding against it, or shall file a petition or answer or consent seeking relief, or shall commence a voluntary case under applicable bankruptcy law or shall consent to the filing of any such petition or to the entry of any such order for relief in an involuntary case under any such bankruptcy law, or shall consent to the appointment of or taking possession by a receiver or liquidator or trustee or assignee or custodian or sequestrator (or similar official) in bankruptcy or insolvency of the Advisor or of any substantial part of the Advisor's property, or shall make an assignment for the benefit of creditors, or shall admit in writing its inability to pay its debts generally as they become due and its willingness to be adjudicated a bankrupt; d) the Advisor passes a resolution for its winding up or dissolution or is ordered dissolved by a court having jurisdiction and such order shall have remained in force undischarged, undismissed or unstayed for a period of ninety (90) consecutive days; then the Company shall have the right to terminate this Agreement forthwith by notice in writing to the Advisor. The Advisor shall be entitled to the fees described in Section 3.01 pro rated to the date of termination and shall be entitled to reimbursement for the expenses described in Section 3.06 if such expenses were incurred prior to the date of termination. 4.03 In addition to Section 4.02, this Agreement may be terminated by the Company during its term after the first twelve (12) months of the term hereof upon giving the Advisor not less than sixty (60) days' written notice after: a) approval of the termination by two-thirds of the votes cast at a meeting of shareholders called for such purposes; b) approval of other advisory arrangements; c) the payment to the Advisor of all amounts owing by the Company to the Advisor to the date of termination; and d) the payment to the Advisor of an amount equal to three (3) times the fees paid to the Advisor by the Company pursuant to Section 3.01 during the twelve (12) month period immediately prior to the date of termination of this Agreement plus an amount equal to the average of the aggregate annual acquisition and disposition fee paid by the Company to the Advisor pursuant to Sections 3.02 and 3.03 during the three (3) year period immediately prior to the date of termination of this Agreement. 4.04 If and whenever the Company shall commit a material breach of any of the material terms, covenants or conditions of this Agreement and within thirty (30) days after written notice of such breach is given by the Advisor to the Company, such breach shall not be cured or (except for a monetary default) the Company fails to commence to cure any such breach and continues to use its reasonable best efforts to cure such breach thereafter, the Advisor shall have the right to terminate this Agreement forthwith by notice in writing to the Company. It is expressly understood that the failure by the Company to pay any fees or expenses to the Advisor due and payable hereunder shall be deemed a material breach of this Agreement for the purposes of Section 4.04. 4.05 The Advisor may not terminate this Agreement during its term other than in accordance with Section 4.04 hereof during any term and shall give the Company not less than six (6) months notice in writing of its intention not to renew this Agreement. 4.06 The Advisor shall within thirty (30) days after termination or non-renewal deliver to the Company: a) all records, documents and books of account; and b) all materials and supplies for which the Advisor has been paid by the Company, which are in the possession or control of the Advisor and relate directly or indirectly to the performance by the Advisor of its obligations under this Agreement, provided, however, that the Advisor may retain notarial or other copies of such records, documents and books of account and the Company shall produce at its head office the originals of such records, documents and books of account whenever reasonably required to do so by the Advisor for the purpose of legal proceedings or dealings with any governmental authorities. 4.07 Within thirty (30) days following the termination or non-renewal of this Agreement there shall be an accounting between the parties with respect to the monies due by the Company to the Advisor under the terms of this Agreement or any other agreement or instrument entered into in furtherance of this Agreement. The Company shall forthwith pay to the Advisor all monies which shall be owing pursuant to such accounting. ARTICLE 5 INVESTMENTS 5.01 The Advisor hereby agrees that all investments of the Company shall at all times conform to and be in accordance with the requirements imposed by law and by the provisions of the constating documents of the Company and, subject to the control of the directors of the Company, with the policies set out in Section 5.02. 5.02 The Advisor acknowledges that it is the policy of the Company that, subject to the provisions of Section 5.03, the Company will invest its assets in investments which meet the following objectives and criteria: a) to achieve stable cashflow for distribution to its shareholders and to maximize share value through the ongoing active management of its assets and through the future acquisition of additional properties. The Company will seek to manage its assets with an emphasis on maintaining stable cashflow through long term leases to creditworthy tenants; b) initially, the Company will focus on neighbourhood and community shopping centres. The Company will consider acquiring shopping centres that satisfy a combination of some or all of the following factors set out in this paragraph b). Priority will be given to centres: i) with anchor tenants, such as department stores, supermarkets and national retail chains, to ensure the quality of retail services offered by the centre, the quality of its tenants and the desired return on sales; ii) which, if combined with the other real property investments of the Company, provide the Company with a diversified tenant base with the anchor tenants accounting for a minimum of sixty percent (60%) of the gross leasable area of the Company's shopping centre portfolio. The anchor tenants should be dominant enough to establish the shopping centre as a destination centre; iii) where the average anchor lease extends for a minimum of ten (10) years from the date of acquisition by the Company; iv) in a strategic location, in a strong market area with convenient access and visibility to a high traffic area; v) with construction materials which are of sufficiently high quality to require no more than industry standard levels of maintenance; vi) with convenient access for both shoppers and tenants; vii) where rental rates are on average at or lower than comparable market rates in the area. This is intended to reduce the possibility of losing tenants to other sites and to create the potential to increase rates in the future; viii) in a location experiencing above average growth in retail sales, provided that the growth in the retail sector for that area will not outpace economic growth in the area; c) potential real property investments should receive favourable environmental and engineering reports; d) the Company may participate with other entities in property ownership, through joint ventures or other types of ownership; e) the Company will not enter into a joint venture or partnership to make an investment that would not otherwise meet its investment policies; f) the Company will seek mortgage financing for its real estate investments which is non-recourse to the Company (other than for issues relating to environmental matters, waste to property, frauds or misrepresentations, taxes or other similar assessments, tenant prepayments, condemnation and insurance proceeds, grossly negligent violations of the law and net revenue obligations and other obligations customarily retained in non-recourse financing); g) the Company may consider cross-collateralized loans to reduce borrowing costs; h) the Company may take on recourse obligations such as lines of credit and loans for property expansion; i) the Company will continue to acquire only shopping centres until the aggregate of the acquisition prices of all properties owned by the Company exceeds One Hundred Million Dollars ($100,000,000); j) after the initial investment of One Hundred Million Dollars ($100,000,000) in neighbourhood and community shopping centres, the following types of real property investments will also be considered for acquisition by the Company: i) the Company will seek to acquire office buildings in urban centres based on location, credit rating of tenants, terms of existing leases and the potential for income growth through the management of leases and for capital appreciation; ii) mixed-used commercial properties may be selected for their complementary tenant mix and for their income and capital appreciation potential; iii) the Company will seek to acquire multi-tenant investment buildings and major business parks where credit worthy tenants with net leases will be the occupants; iv) shopping centres which do not necessarily meet the criteria contained in paragraphs a) through i) will also be considered; and k) the Company will not invest in hotels or nursing homes or similar real estate which includes the operation of a business separate and distinct from the operation of income producing property. 5.03 In accordance with the objectives of the Company and to limit financial and other risks, the Company intends to comply with the following restrictions: a) the Company may not make any investment that would result in its ceasing to qualify as a Real Estate Investment Trust (as defined in the U.S. Internal Revenue Code of 1986, as amended); b) the Company may not grant or assume a mortgage on any real property if the aggregate outstanding principal amount of the mortgage and of all other mortgages granted or assumed by the Company secured against properties of the Company or against any part thereof exceeds sixty percent (60%) of the greater of: i) aggregate acquisition prices of all properties of the Company; and ii) the aggregate current fair market value of all properties of the Company based upon independent appraisal; c) the Company may not engage in construction or development of real property except to the extent to maintain its properties in good repair, for expansion of an existing property or to otherwise enhance the income producing ability of the properties; d) pending investment or reinvestment, cash on hand will be invested in certificates of deposit with terms of less than one (1) year or U.S. government securities (i.e. treasury obligations); e) the Company may not invest in mortgages, unless the underlying security is income-producing property or is in the process of being developed as income-producing property, all such mortgages do not exceed ten percent (10%) of the value of all assets of the Company, the mortgage is a first mortgage and the term of the mortgage is five (5) years or less and the amortization period is thirty (30) years or less; f) the Company may not invest in any real properties without obtaining an independent third party appraisal, an environmental assessment and an engineering report for each centre; g) after the acquisition of the first two (2) properties, the Company may not acquire any single investment in real property if the cost to the Company of such acquisition will exceed (i) after the aggregate acquisition prices of all properties owned by the Company exceeds One Hundred Million Dollars ($100,000,000), twenty-five percent (25%) of the aggregate acquisition prices of all properties inclusive of the proposed investment, and (ii) Twenty-Five Million Dollars ($25,000,000) until the aggregate acquisition prices of all properties owned by the Company inclusive of the proposed investment exceeds One Hundred Million Dollars ($100,000,000); h) the Company may not grant or assume a mortgage on any office or industrial property if the aggregate outstanding principal amount of the mortgage and of all other mortgages granted or assumed by the Company secured against its office or industrial properties or any part thereof exceeds fifty percent (50%) of the aggregate acquisition prices of all office and industrial properties of the Company. 5.04 The board of directors shall determine whether any property meets the policies set out in Section 5.02 and the restrictions set out in Section 5.02 may be amended by a majority of the board of directors of the Company, such majority to include a majority of those directors of the Company which are independent of the Advisor. The restrictions set out in Section 5.03 may only be amended by a majority of votes cast at a meeting of shareholders of the Company called for such purposes. ARTICLE 6 POTENTIAL CONFLICTS OF INTEREST 6.01 The Advisor and its affiliates shall be under no liability to the Company or its subsidiaries, the directors, officers and shareholders of the Company or its subsidiaries, for or as a result of their continuing engagement in the business of investing in and managing real estate in Canada or the United States or for the manner in which they resolve any conflicts of interest deriving therefrom: a) if, in any case in which the Advisor or its affiliates have a material interest other than as an advisor, the Advisor has acted in accordance with the procedures outlined in this Agreement and the Prospectus; or b) in any case where the Advisor or its affiliates have no material interest other than as an advisor, unless the Advisor or its affiliates have acted in a manner which is dishonest or wilfully or grossly negligent. 6.02 If the Advisor or any of its affiliates is a party to or has any material interest, including as mortgagees, in connection with any proposed transaction with the Company, disclosure of such interest will be made to the board of directors of the Company. 6.03 The Advisor and its affiliates shall not directly or indirectly act as advisors or managers of another real estate investment trust without the approval of a majority of the votes cast at a meeting of shareholders of the Company. 6.04 If the Advisor or any director or officer of the Advisor desires to acquire any real property investment which falls within the Company's then applicable investment policies, the Advisor shall advise the Company in writing with all relevant details thereof and make available to the Company the opportunity to participate in such acquisition on the same terms. The Company shall notify the Advisor in writing within thirty (30) days of first being advised by the Advisor of such acquisition if it wishes to invest in such opportunity, failing which, the Advisor or its directors or officers (as the case may be) shall be entitled to acquire such investment on their own behalf or as intended. 6.05 Any services to be provided by the Advisor or any of its affiliates to the Company other than specifically provided herein and any fees relating thereto shall require the unanimous approval of the board of directors of the Company. Notwithstanding anything to the contrary contained herein, the Advisor or its affiliates may, without the approval of the Company receive commissions from vendors in connection with real property purchased by the Company and any commission received by the Advisor or its affiliates in excess of one percent (1%) of the acquisition price to the Company shall reduce the fee payable by the Company to the Advisor pursuant to Section 3.03 for the purchase of such real property. ARTICLE 7 INDEMNITIES 7.01 The Company shall fully indemnify, save and hold the Advisor harmless from and against any and all claims, demands, actions, suits, losses, costs, charges, damages, liabilities and expenses whatsoever incurred, sustained or suffered by the Advisor, its directors, officers, shareholders, employees and agents arising out of the Advisor's actions pursuant to this Agreement including, without limitation, legal costs on a solicitor and his own client basis, other than liability and expense arising out of the bad faith, gross negligence or wilful misconduct, gross negligence or reckless disregard for its directors of the Advisor or its agents or its employees. 7.02 The Advisor shall full indemnify, save and hold harmless the Company from and against any and all claims, demands, actions, suits, losses, costs, charges, damages, liabilities or expenses whatsoever including, without limitation, legal costs on a solicitor and his own client basis, incurred, sustained or suffered by the Company, its directors, officers, shareholders, employees and agents arising out of the bad faith, gross negligence or wilful misconduct of the Advisor or its agents or employees. ARTICLE 8 DELEGATION BY THE ADVISOR 8.01 The Company hereby authorizes the Advisor to delegate its duties and powers by entering into any agreement which the Advisor considers necessary or appropriate in the circumstances with third parties for the purpose of carrying out the Advisor's duties and obligations under this Agreement. 8.02 The Advisor agrees and acknowledges that any agreement entered into with any party for the purposes set forth in Section 8.01 of this Article shall not in any manner abridge or vary the obligations of the Advisor to the Company pursuant to this Agreement. ARTICLE 9 ADVISOR'S RELIANCE 9.01 The Advisor may consult with and rely upon counsel in any case where it appears to the Advisor to be necessary or desirable with respect to its authority and obligations hereunder. 9.02 The Advisor may rely and act upon any certificates or other instruments or paper believed in good faith by the Advisor to be genuine and to have been signed by any person thereunto duly authorized. ARTICLE 10 GENERAL 10.01 Any notice required or permitted to be given shall be in writing and shall be validly given if delivered personally addressed as follows: TO THE COMPANY AT: 7850 Northwest 146 Street Suite 308 Miami Lakes, Florida TO THE ADVISOR AT: 7850 Northwest 146 Street Suite 308 Miami Lakes, Florida or to such other address as either party shall have communicated in writing as aforesaid to the other. 10.02 This Agreement shall be subject to and construed in accordance with the laws of the State of Delaware and each of the parties hereby irrevocably attorns to the jurisdictions of the courts thereof. 10.03 Nothing in this Agreement shall be deemed in any way or for any purpose to constitute any party a partner of the other party to this Agreement in the conduct of any business or otherwise or a member of a joint venture or joint enterprise with the other party to this Agreement. The Advisor shall for all purposes be an independent contractor and not an agent or employee of the Company. 10.04 Subject to Section 5.04, this Agreement may be amended or altered and any such changes shall only become effective when reduced to writing and signed by both of the parties. 10.05 Time shall be of the essence of this Agreement. 10.06 This Agreement shall not be assignable by either party without the written consent of the other party. 10.07 This Agreement shall enure to the benefit of and be binding upon the parties and their successors and permitted assigns. 10.08 Terms which are used herein but not defined herein and which are defined in the Prospectus have the respective meanings ascribed thereto in the Prospectus. IN WITNESS WHEREOF the parties have signed, sealed and delivered this Agreement on the date first above written. BASIC U.S. REIT, INC. Per: --------------------------------- Per: --------------------------------- BASIC ADVISORS, INC. Per: --------------------------------- Per: --------------------------------- SCHEDULE "A" PROPERTY MANAGEMENT SERVICES 1. The furnishing of management services for the economic and efficient operation of each real property of the Company. 2. The taking of such steps, so far as is possible, in order to comply with all restrictions and obligations, statutory, municipal or otherwise, with respect to each real property of the Company and impose upon the Company or for which the Company may be liable by law. 3. The planning of the time of moving into and out of each real property of the Company by all tenants, and supervising such activities so that there will be a minimum of disturbance to the operation of each such property and to other tenants in occupancy. 4. From the date of occupancy of each tenant, the establishment and maintenance on behalf of the Company of any and all necessary liaison with each tenant. 5. The giving of all notices and statements required to be sent to tenants under all leases affecting each real property and the giving of all other notices necessary to good management of each real property. 6. The taking of such steps as are reasonable and proper in the circumstances to cause all rent and additional charges to be regularly received at the earliest possible date in accordance with the terms of the respective tenants' leases and the receiving, for the account of the Company, of all such rents and other amounts payable by tenants pursuant to their leases or other contractual obligations. 7. The obtaining, in accordance with the provisions of leases of each real property, of tenants' sales figures and calculating percentage rentals to be derived therefrom and, where necessary, the causing of inspection of tenants' books to be made, and at the expense of the Company, the causing of audits of the tenants' books to be made where necessary to collect rents or any other charges from the tenants which may be in arrears; the instituting and prosecuting of actions, the evicting of tenants, the recovering of possession of premises occupied by evicted tenants, or which may be abandoned by tenants, the suing for, in the name of the Company, and the recovering of, rents and other sums due and, when expedient, the settling, compromising and releasing of such actions or suits or the reinstating of such tenancies. 8. The doing or causing to be done, at the expense of the Company., of all such things as are reasonably necessary to enable compliance with all the terms and conditions of the tenants' leases. 9. The arranging for, supervising and being responsible for all common area maintenance and supervisions within each real property, and all property repairs, maintenance and upkeep, all at the expense of the Company. 10. The hiring, directing and supervising of, in the name of the property manager as employer, all on-site personnel as may, in the opinion of the property manager, be reasonably required for the proper management and promotion of each real property. 11. At the Company's expense, the paying of all debt service, carrying charges and other expenses relating to the operation of each real property including, without limitation, realty taxes, mortgage instalments, water rates, light and power rates, merchants' association dues, wages and fuel costs. 12. The receiving and collecting on behalf of the Company for the account of the Company, of all gross rentals from the real properties and, until disbursed to the Company, the holding of such moneys in trust for the Company. EX-10.2 6 PURCHASE & SALE AGMT (BASIC/CHICO) PURCHASE AND SALE AGREEMENT AND ESCROW INSTRUCTIONS BETWEEN CHICO CROSSROADS CENTER, LTD. A CALIFORNIA LIMITED PARTNERSHIP "SELLER" - AND - BASIC ACQUISITION, INC. A DELAWARE CORPORATION "BUYER" Chicago Title 16969 Von Karman Irvine, California 92714 Attn: Karen Price Escrow # 6026054-M19 TABLE OF CONTENTS PAGE 1. ESCROW..................................................................1 2. THE PROPERTY............................................................1 3. PURCHASE PRICE..........................................................1 4. PAYMENT OF PURCHASE PRICE...............................................1 a. Initial Deposit .................................................1 b. Second Deposit...................................................1 c. Assumption of Existing Loan......................................2 d. Cash Balance.....................................................2 e. Interest.........................................................2 5. INVESTIGATION AND APPROVAL OF PROPERTY..................................2 a. Right to Inspect Property........................................2 b. Approval of Condition of Property................................3 c. Prior Investigations.............................................3 d. Title Review.....................................................3 e. New Loan Approval................................................3 6. CLOSING; CLOSE OF ESCROW................................................4 a. Closing..........................................................4 b. Close of Escrow..................................................4 c. Closing Costs....................................................4 7. CLOSING - SELLER'S ITEMS................................................5 8. CLOSING - BUYER'S ITEMS.................................................6 9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE.....................6 10. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE....................7 11. CANCELLATION FEES AND EXPENSES..........................................8 12. WITHHOLDING.............................................................8 13. POSSESSION..............................................................8 14. REPRESENTATIONS AND WARRANTIES..........................................8 a. By Buyer.........................................................8 b. By Seller........................................................8 15. PRORATIONS.............................................................10 a. General.........................................................10 b. Rentals.........................................................10 c. Delinquent Rentals..............................................10 d. Operating Cost Pass Throughs, Etc...............................11 e. Prepaid Rentals.................................................11 f. Taxes and Assessments...........................................11 g. Tenant Deposits.................................................11 h. Service Contracts...............................................11 i. Prepaid Expenses................................................12 16. BROKERS................................................................12 17. DEFAULT AND REMEDIES...................................................12 a. Default and Remedies............................................12 b. Liquidated Damages..............................................12 18. CONDEMNATION...........................................................13 19. ATTORNEYS' FEES........................................................13 20. Notices................................................................13 21. Governing Law..........................................................14 22. Integration: Modification; Waiver......................................14 23. COUNTERPART EXECUTION..................................................14 24. HEADINGS; CONSTRUCTIONS................................................14 25. TIME OF THE ESSENCE....................................................14 26. Opening Of Escrow......................................................15 27. Invalid Provisions.....................................................15 28. Binding Effect.........................................................15 29. Further Acts...........................................................15 30. Exhibits...............................................................15 31. SURVIVAL...............................................................15 32. ASSIGNMENT.............................................................15 TABLE OF EXHIBITS Exhibit A - Legal Description of Property Exhibit B - Property Documents Exhibit C - Grant Deed Exhibit D - Bill of Sale Exhibit E - Tenant Lease Agreement Exhibit F - IRC Affidavit Exhibit G - Tenant Leases Exhibit H - Assignment of Service Contracts Exhibit I - Assignment of Contract Rights Exhibit J - Tenant Estoppel Certificate Exhibit K - Landlord Estoppel Certificate Exhibit L - Guaranty Exhibit M - Commission Allocation Schedule PURCHASE AND SALE AGREEMENT AND ESCROW INSTRUCTIONS THIS PURCHASE AND SALE AGREEMENT AND ESCROW INSTRUCTIONS (this "Agreement") is made as of _________________________, 1996, (the "Effective Date") between BASIC ACQUISITION INC., a Delaware corporation ("Buyer") and CHICO CROSSROADS CENTER, a California limited partnership ("Seller") with reference to the following facts: A. Seller is the owner of the improved real property located in the City of Chico, State of California, more particularly described in EXHIBIT "A" attached hereto and incorporated herein by this reference (the "Property"). B. The term "Property" when used herein shall be deemed to include all buildings, fixtures, structures, parking areas, landscaping and other improvements and located thereon. C. Seller desires to sell and convey to Buyer, and Buyer desires to purchase and accept from Seller, the Property in accordance with and subject to the terms and conditions set forth below. NOW THEREFORE, Seller and Buyer agree as follows: 1. ESCROW. The transaction herein contemplated shall be effected through an escrow ("Escrow") with Chicago Title Insurance Company ("Escrow Agent"), as established by this Agreement and any additional written escrow instructions required by Escrow Agent and approved by Seller and Buyer as evidenced by their respective signatures thereon. In the event of any conflict, uncertainty or ambiguity between or in respect of any additional written escrow instructions and this Agreement, the provisions of this Agreement shall govern and control. This Agreement constitutes joint escrow instructions to Escrow Agent to complete the transaction contemplated herein. Escrow shall confirm to each party the date of opening of Escrow ("Opening of Escrow"). 2. THE PROPERTY. Seller shall sell and convey to Buyer, and Buyer shall purchase and accept from Seller the Property. 3. PURCHASE PRICE. The purchase price (the "Purchase Price") for the Property shall be Twenty One Million Seventy Five Thousand Dollars ($21,075,000.00). 4. PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid as follows: (a) INITIAL DEPOSIT. Buyer shall concurrently with the opening of Escrow, deliver to Escrow Agent the sum of One Hundred Thousand Dollars ($100,000.00) ("Initial Deposit"). At Close of Escrow, Buyer shall receive a credit toward the Purchase Price in an amount equal to the Initial Deposit. (b) SECOND DEPOSIT. Within one (1) day following the Approval Date (as defined herein) Buyer shall deposit into Escrow the sum of One Hundred Fifty Thousand Dollars ($150,000.00) ("Second Deposit"). At Close of Escrow the Second Deposit shall be applicable to the Purchase Price. The Initial Deposit and the Second Deposit together with interest thereon, are sometimes collectively referred to herein as the "Deposit". (c) ASSUMPTION OF EXISTING FINANCING. Seller currently has a loan from First Interstate Bank ("Lender") secured by, among other things, a deed of trust encumbering the Property (the "Existing Loan"). In addition, Seller and Buyer anticipate that Seller will enter into negotiations with one or more lenders other than Lender to attempt to obtain during the Approval Period a new loan for the purpose of refinancing the Existing Loan (the "New Loan"). The New Loan and the Existing Loan, are sometimes referred to herein collectively as the "Loans". In no event shall Buyer have any obligation to assume the Existing Loan or the New Loan. At Close of Escrow, if Buyer assumes either of the Loans pursuant to Paragraph 5(e), Buyer shall receive a credit against the Purchase Price in an amount equal to the outstanding principal balance of the assumed loan as of the Close of Escrow, and Seller shall pay to Lender any assumption fee in connection with the assumption of the Existing Loan by Buyer. Buyer shall pay any assumption fee and cost associated with any assumption of the New Loan. (d) CASH BALANCE. On or before the date which is one (1) business day prior to the Closing Date, Buyer shall deposit into Escrow in cash or other immediately available funds, or by federal wire of immediately available funds, the balance of the Purchase Price, together with Buyer's share of prorations and expenses, less the amount of the Extension Payment, if any (collectively, the "Closing Funds"). (e) INTEREST. Escrow Agent shall keep the Deposit invested in an interest bearing money market account with a financial institution reasonably acceptable to Buyer and Seller at such yield as shall be available. Buyer shall pay taxes upon the interest component of the Deposit. Escrow Agent shall bear no liability for any loss occasioned by investment of the Deposit as herein provided, by any delays in investing the Deposit or by any failure to achieve the maximum possible from the Deposit. 5. INVESTIGATION AND APPROVAL OF PROPERTY. (a) RIGHT TO INSPECT PROPERTY. Seller has caused to be delivered to Buyer the documents identified in Exhibit "B" hereto ("Property Documents"). Within the period commencing on the Opening of Escrow and ending sixty (60) days thereafter ("Approval Period"), Buyer shall have the right following at least 24 hour prior notice to Seller, to inspect the Property at any reasonable time to conduct at its sole cost and expense, such customary surveys, studies and investigations of all matters pertaining to the Property including but not limited to, the soil, compaction, drainage, seismic environmental or other geologic and topographical matters, the presence or absence of any toxic or hazardous waste material or substance, the Property's compliance with existing laws, ordinances, regulations and codes, the condition of all streets, sewer, storm drains and utilities or availability of all of the foregoing and other services to the Property, all matters pertaining to surrounding properties and the use thereof, analysis of all tenants of the Property ("Tenants"), zoning, use and other restrictions affecting the Property, all other governmental and quasi governmental regulations concerning the use, condition and improvement of the Property or any portion thereof, the Property's fitness and economic feasibility for Buyer's intended use and development, and any other matters relating in any manner to the Property or any portion thereof or interest therein (collectively "Investigations") as Buyer deems necessary concerning the Property. Prior to performing any of the Investigations, Buyer shall obtain all permits and authorizations and shall pay all applicable fees required by any public body or agency in connection therewith; Buyer shall indemnify, defend (through legal counsel reasonably acceptable to Seller), and hold Seller, and the Property, harmless from all damage, loss or liability, including without limitation attorneys' fees and costs of court, mechanics' liens or claims, or claims or assertions thereof arising out of or in connection with the entry onto or occupation of the Property by Buyer, its agents, employees and contractors and sub-contractors. If required by Seller, Buyer shall have caused any of its contractors or subcontractors conducting such inspections and/or investigation to deliver to Seller, as a condition to such access to the Property, a certificate of insurance (naming Seller as an additional insured) evidencing public liability insurance (from an insurance company having a rating of at least "A" by A.M. Best) with limits of at least One Million Dollars ($1,000,000.00) for bodily or personal injury or death, and property damage insurance in the amount of at least Two Hundred Fifty Thousand Dollars $250,000.00). After each such inspection or investigation of the Property, Buyer agrees to immediately restore the Property or cause the Property to be restored to its condition before each such inspection or investigation look place, at Buyer's sole expense. (b) APPROVAL OF CONDITION OF PROPERTY. Buyer shall approve or disapprove the Property, the Property Documents and the results of any investigation or inspection on or before the expiration of the Approval Period. Buyer must deliver to Seller written notice ("Property Approval Notice") approving the Property, the Property Documents and the results of any investigation or inspection Documents on or before the expiration of the Approval Period. If the Property Approval Notice is not received by Seller on or before three (3) business days following the expiration of the Approval Period, the Property, the Property Documents and the results of any investigation or inspection will be deemed disapproved by Buyer. If Buyer disapproves the Property, the Property Documents, or the results of any investigation or inspection Buyer shall provide written notice of same to Seller. If Buyer fails to give notice of termination set forth herein, the Property, the Property Documents or the results of any investigations or inspection will be deemed disapproved by Buyer, and the Parties shall proceed in accordance with Paragraph 11. If Buyer disapproves the Property Documents or the results of any investigation or inspection as set forth herein, Seller shall within five (5) days of such disapproval refund the Deposit to Buyer. (c) PRIOR INVESTIGATIONS. Buyer agrees that it is a sophisticated real estate investor and is relying upon its own inspections, examinations, studies and inquiries to determine the condition of the Property, including without limitation the construction of the improvements, soil and subsoil condition, and that (subject to the provisions for termination of this Agreement set forth in Paragraph 5(b) hereof and the representations and warranties set forth herein) Buyer is purchasing the Property on as "AS IS" basis, and no patent or latent condition affecting the Property in any way, whether or not known or discoverable or hereafter discovered, shall affect Buyer's obligation to purchase the Property or any of Buyer's other obligations contained in this Agreement, nor shall any such condition give rise to any right of damages, rescission of otherwise against Seller. Buyer acknowledges that except for the representations and warranties set forth herein, neither Seller nor any officer, employee or agent of Seller has made, is making or shall make any representations or warranties whatsoever with respect to the Property, its condition, its suitability for any use, its accessibility or any other matter, except as may expressly be set forth herein. Furthermore, Buyer agrees that, except for the representations and warranties set forth herein, it will satisfy itself fully with respect to all laws, statutes, regulations and requirements of all governmental bodies and agencies concerning the sale and/or construction of the Property. (d) TITLE REVIEW. Following Opening of Escrow, Seller shall cause Chicago Title Insurance Company to deliver to Buyer a current preliminary title report (the "PTR") for the Property together with legible copies of all exceptions to title identified therein. Buyer shall have thirty (30) days following its receipt of the PTR to give Seller its written notice of its disapproval of any item on the PTR. ("Title Notice"). Following Seller's receipt of the Title Notice, Seller shall have thirty (30) days to give written notice to Buyer of Seller's election either to (a) cure such title defects prior to Close of Escrow or (b) cancel escrow and terminate this Agreement in accordance with the provisions of Paragraph 11 hereto and shall not be deemed a default of Buyer or Seller. (e) APPROVAL OF FINANCING. During the Approval Period, Buyer shall approve or disapprove the financing for its purchase of the Property. In the event the New Loan is finalized, and the documents evidencing and/or securing the New Loan (e.g. promissory note, deed of trust, indemnity, etc.) (collectively the "New Loan Documents") are delivered to Buyer at least 15 days prior to the end of the Approval Period, then Buyer shall approve or disapprove the New Loan in accordance with this Paragraph 5(e). If the New Loan is finalized, Seller shall pay all fees associated with the New Loan, but not any fees associated with the assumption of the New Loan by Buyer. If the New Loan is not finalized, and the New Loan Documents are not delivered to Buyer at least 15 days prior to the end of the Approval Period, then Seller shall not enter into the New Loan without the prior written consent of Buyer, which consent may be granted or withheld in Buyer's sole discretion, In that regard, Seller agrees to provide Buyer, promptly after obtaining the same, copies of any documentation proposed to evidence the New Loan. While Buyer shall not be obligated to do so, Buyer may (i) approve and agree to assume the Existing Loan; (ii) approve and agree to assume the New Loan, or (iii) elect to pay cash for the Property and acquire the Property free and clear of any liens and encumbrances (and if Buyer so elects, Seller covenants to convey the Property free and clear of all liens and encumbrances securing the Existing Loan), and in the event that Buyer elects any of the alternatives set forth in clauses (i), (ii) or (iii); Buyer shall be deemed to have approved the financing for its purchase of the Property. If Buyer elects alternative (iii) above, Buyer will receive a credit against the Purchase Price at Close of Escrow equal to One Hundred and Fifty Thousand Dollars ($150,000.00). Alternatively, Buyer may by notice to Seller, prior to the end of the Approval Period, disapprove the financing for its purchase of the Property, in which case Escrow shall be terminated in accordance with the provisions of Paragraph 11 hereof, and such termination shall not be deemed to have occurred by reason of default of Seller or Buyer. 6. CLOSING; CLOSE OF ESCROW. (a) CLOSING. Provided that all of the conditions of this Agreement shall have been satisfied or waived on or before the date(s) set forth in Paragraph 9 and 10, the closing ("Closing") of this transaction shall take place at the offices of Escrow Agent ninety (90) days following the expiration of the Approval Period. Buyer shall have the option to extend the Closing for an additional ninety (90) days (the "Extension Period") by delivering written notice of such election to Seller and Escrow Holder at least two (2) days prior to the date scheduled for Closing and (ii) concurrently delivering into Escrow by cashier's check the sum of Two Hundred and Fifty Thousand Dollars ($250,000.00) ("Extension Payment"). Provided Seller has delivered to Escrow Holder the Grant Deed (as defined herein) and the Tenant Estoppel Certificates (as defined herein), immediately following its receipt of the Extension Payment, Escrow Holder shall release to Seller the Deposit and the Extension Payment; provided, however, that Buyer may not terminate this Agreement, and shall remain obligated to purchase the Property, regardless of any casualty, loss or other change in the Property and Seller has assigned agrees to assign to Buyer all rights to recover under any such insurance and cooperate with Buyer in adjusting the claim against such insurance policy. The Extension Payment shall be deemed earned when paid and shall not be refundable under any condition or circumstance except for a default by Seller under this Agreement; provided, however, that in the event that the transaction contemplated by this Agreement closes, then the Extension Payment shall be applied against the Purchase Price. (b) CLOSE OF ESCROW. As used herein, the term "Close of Escrow" shall mean the date on which the Grant Deed is recorded in Official Records of Butte County, California. (c) CLOSING COSTS. (i) Seller shall pay: (a) One-half (1/2) of the Escrow fees: (b) The cost of documentary transfer taxes; (c) The cost of issuing Buyer's Title Policy in CLTA Standard form; and (d) The cost of any other obligations of Seller hereunder. (ii) Buyer shall pay: (a) One-half (1/2) of the Escrow fees; (b) The cost to record the Grant Deed; (c) Any additional premium charged for issuance of an ALTA Extended form of Buyer's Title Policy; (d) The cost of any other obligations of Buyer hereunder; and (e) All costs associated with Buyer's assumption of the New Loan. 7. CLOSING - SELLER'S ITEMS. Seller shall deliver or cause to be delivered to Escrow Agent at least three (3) days before the Closing Date, the following documents: (a) A GRANT DEED. ("Grant Deed"), duly executed and acknowledged by Seller in the form of and upon the terms and conditions contained in Exhibit "C" attached hereto (b) A BILL OF SALE. ("Bill of Sale") duly executed by Seller in favor of Buyer in the form of, and upon the terms and conditions contained in Exhibit "D" attached hereto. (c) AN ASSIGNMENT OF LEASES. ("Tenant Lease Assignment") duly executed and acknowledged in recordable form by Seller, in the form of and upon the terms and conditions contained in Exhibit "E" attached hereto. (d) IRC AFFIDAVIT. An affidavit under Section 1445 of the United States Internal Revenue Code ("IRC Affidavit"), duly authorized and executed by Seller in the form of Exhibit "F" attached hereto. (e) TENANT LEASES. Originals of all of the Tenant Leases indicated or designated as "original" on the List of Tenant Leases attached hereto as Exhibit "F". (f) SERVICE CONTRACTS. Originals, if possessed by Seller, otherwise copies of all service, maintenance, supply, security, and management contracts ("Service Contracts") indicated on the List of Service Contracts attached to the Assignment of Services Contract hereto as Exhibit "H". (g) KEYS. All keys to entrance doors to the Improvements and Keys to all Personal Property located on the Real Property and/or the Improvements which are in Seller's possession. (h) LICENSES AND PERMITS. Originals, or the best copies in the possession of Seller of all licenses and permits affecting the Property as set forth in the Assignment of Contract Rights, Permits, Licenses and Intangibles attached hereto as Exhibit "I". (i) TENANT NOTIFICATIONS. Letters addressed to each of the Tenants, notifying them of the sale of the Property to Buyer and directing them to make all future payments of rent and deliver any future notices to the order of Buyer. (j) OTHER DOCUMENTS. Originals, or the best copies in Seller's possession, of all other documents and instruments relating to the Property. Escrow Agent shall deliver a conformed copy of the Grant Deed and the original IRC Affidavit and each of the other documents and instruments delivered into Escrow by Seller as set forth above to Buyer at the Closing. The Grant Deed shall provide that it is to be returned to Escrow Agent following recordation. When the original Grant Deed is returned to Escrow Agent, Escrow Agent shall deliver the original Grant Deed to Buyer, with a copy showing all recording information to Seller at the address noted in Paragraph 20 below. 8. CLOSING - BUYER'S ITEMS. Buyer shall deliver or cause to be delivered to Escrow Agent on or before the date which is one (1) business day prior to the Closing Date: (a) the Closing Funds as required under subparagraph 4(d) and (b) the Tenant Lease Assignment duly executed and acknowledged in recordable form, in counterpart. 9. CONDITIONS PRECEDENT TO BUYER'S OBLIGATION TO CLOSE. Buyer's obligation to consummate the transaction contemplated hereunder is subject to the satisfaction or waiver of the conditions set forth below at or before the dates specified below. Escrow Agent shall proceed as though all conditions have been satisfied or waived unless Escrow Agent receives a written notice from Buyer terminating this Agreement and stating that any one or more of the conditions for the benefit of Buyer is not satisfied before the dates specified below. The following conditions are for the benefit of the Buyer and can only be waived by Buyer prior to the Closing Date: (a) Seller has timely delivered into Escrow all of the Seller's items described in Paragraph 7 above; (b) The Title Company has committed to issue to Buyer its standard form California Land Title Association ("CLTA Standard") Standard owner's policy of title insurance with coverage equal to the Purchase Price (the "Title Policy") prior to the Closing Date. Buyer may order an American Land Title Association extended owners' policy of title insurance ("ALTA Extended Policy") with coverage equal to the Purchase Price, provided that Buyer pays for all additional premiums, survey costs, and any other fees or costs attributable thereto and Close of Escrow is not delayed thereby. The Title Policy shall show title vested in Buyer SUBJECT ONLY TO: (i) The printed exceptions contained in the Title Company's standard owner's policy of title insurance (CLTA Standard, or ALTA Extended if so requested by Buyer); (ii) General and special taxes and assessments not then delinquent; (iii) The exceptions set forth and approved in the Preliminary Title Report; (iv) Any matters created by or with the consent of Buyer; and (c) Buyer's approval of the condition of the Property in accordance with Paragraph 5 on or before the expiration of the Approval Period. (d) Seller's representation and warranties are true as of the Closing Date. (e) Buyer shall have received estoppel certificates ("Tenant Estoppel Certificates") duly executed by Home Base, Office Depot, Food for Less, Circuit City, Barnes & Noble, Hometown Buffet and Petco and Tenants occupying at least ninety-five percent (95%), in the aggregate, of the gross leasable square footage of the improvements currently leased, to be dated not more than forty- five (45) days prior to the Closing Date. The Tenant Estoppel Certificates shall be in the form of, and in all material aspects, upon the terms attached to their respective leases, and if not attached to a tenant lease, in the form of, and in all material aspects, upon the terms contained in, Exhibit "J" attached hereto. If Buyer desires a different form of estoppel certificates, Seller shall use its reasonable efforts to obtain such certificate from the tenants of the Property, however, the failure to obtain such form of estoppel from any Tenant shall not be a condition to Close of Escrow. Seller shall deliver the Tenant Estoppel Certificates to Buyer no later than ten (10) days prior to the Closing Date. In the event Seller is unable to obtain a Tenant Estoppel Certificate from any Tenant, Seller shall provide to Buyer an estoppel certificate executed by Seller ("Landlord Estoppel"), in the form of Exhibit "K" attached hereto, subject to such facts and circumstances which are disclosed on such statement. The Tenant Estoppel Certificates and the Landlord Estoppel shall be subject to Buyer's reasonable approval. Buyer's failure to disapprove any Tenant Estoppel Certificate or Landlord Estoppel in writing five (5) days of receipt thereof by Buyer shall be deemed to constitute Buyer's approval thereof. If Buyer reasonably disapproves any Tenant Estoppel Certificates or Landlord Estoppel within such five (5) day period, Escrow shall be terminated in accordance with the provisions of Paragraph 11 hereof. (f) Satisfaction or waiver of all contingencies to the leases with Barnes and Noble and Blockbuster Video. (g) Seller's timely performance of its obligation hereunder. (h) In the event that the Closing has not been extended pursuant to Paragraph 6, there shall have been no material change in the condition or operations of the Property. In the event that the Closing has been extended pursuant to Paragraph 6, there shall have been no material change in the condition or operations of the Property caused by any act or omission of Seller. If any of the above conditions are not satisfied at or prior to the Closing, for a reason other than a default by Buyer under this Agreement, Buyer may terminate this Agreement by written notice to Seller and Escrow Agent, whereupon, Escrow shall be cancelled, Escrow Agent shall release the Deposit to Buyer and any and all documents deposited into Escrow shall be returned to the party entitled thereto, and the parties shall have no further rights or obligations hereunder. 10. CONDITIONS PRECEDENT TO SELLER'S OBLIGATION TO CLOSE. Seller's obligation to consummate the transaction contemplated hereunder is subject to the satisfaction or waiver of the conditions set forth below before the dates specified below. Escrow Agent shall proceed as though all conditions have been satisfied or waived unless Escrow Agent receives a written notice from Seller terminating this Agreement and stating that any one or more of the conditions for the benefit of Seller is not satisfied before the dates specified below. The following conditions are for the benefit of Seller and can only be waived by Seller: (a) Buyer has timely delivered into Escrow the Closing funds; (b) Buyer has timely delivered into Escrow the Buyer's items described in Paragraph 8 above; and (c) Buyer's representations and warranties are true and correct as of the Close of Escrow. (d) Buyer has timely delivered into Escrow the fully executed Guaranty in the form attached hereto as Exhibit "L". If any of the above conditions are not satisfied at or prior to the date called for in this Agreement, for a reason other than a default by Seller under this Agreement, Seller may terminate this Agreement by written notice to Buyer and Escrow Agent, whereupon, Escrow shall be cancelled, Escrow Agent shall release to Seller all funds deposited by Buyer into Escrow which remain in Escrow as of the date Escrow Agent receives Seller's written notice of termination, and any and all documents deposited into Escrow shall be returned to the party entitled thereto, and the parties shall have no further rights or obligations hereunder. 11. CANCELLATION FEES AND EXPENSES. If Escrow terminates because of the non-satisfaction of any condition for a reason other than the default of Buyer or Seller under this Agreement, Buyer and Seller shall pay one-half of any escrow cancellation charges and the Deposit shall be returned to Buyer. However, if Escrow terminates because of the default of either Buyer or Seller under this Agreement, the escrow cancellation charges shall be borne solely by the defaulting party and, (i) if Seller is the defaulting party, the Deposit shall be returned to Buyer, and (ii) if Buyer is the defaulting party, the Deposit shall be retained by Seller. "Escrow cancellation charges" means all fees, charges and expenses incurred by Escrow Agent as well as all expenses related to the services of the Title Company in connection with issuance of the Title Report and other title matters. 12. WITHHOLDING. Pursuant to Section 1445 of the Internal Revenue Code of 1986, as amended ("Code"), Buyer is required to withhold ten percent (10%) of the "amount realized" in accordance with the Code, unless Seller delivers to Buyer the IRC Affidavit. 13. POSSESSION. Possession of the Property shall be delivered to Buyer at the Closing. 14. REPRESENTATIONS AND WARRANTIES. (a) BY BUYER. Buyer represents, warrants and covenants to and with Seller, that Buyer has the right, power, legal capacity and authority to execute, deliver and perform this Agreement. This Agreement constitutes the legal, valid and binding obligation of Buyer. (b) BY SELLER. Seller represents, warrants and covenants to and with Buyer, that (i) except for the assignment of the New Loan or the assumption of the Existing Loan, Seller has the right, power, legal capacity and authority to execute, deliver and perform this Agreement and any consent required as a condition to Seller's authority to execute, deliver and perform this Agreement will be obtained prior to the Close of Escrow, (ii) the individuals who have executed this Agreement on behalf of Seller have the right, power, legal capacity and authority to execute, deliver and perform this Agreement on behalf of Seller; (iii) this Agreement constitutes the legal, valid and binding obligation of Seller; (iv) to Seller's knowledge, Seller has not received notice of any pending or threatened condemnation of all or of any portion of the Property, or notice of any violation of zoning restrictions in respect of the Property from the governmental authority or agency; (v) attached to EXHIBIT"H" is a list of all of the Service Contracts affecting the Property in effect on the date hereof (the "Service Contracts), and except as set forth on EXHIBIT"H" (i) to Seller's actual knowledge,the Service Contracts have not been further modified or amended and are in force and effect, or are terminable with thirty (30) days notice, (ii) Seller has, or will have, during the Approval Period delivered to Purchaser true and complete copies of the Service Contracts, and (iii) to the best actual knowledge of Seller, there are no defaults of Seller or any other party thereto which would materially adversely affect the operations of the Property or which would materially increase the cost of operating the Property; (vi) attached to as Exhibit "I" is a list of all licenses and permits from governmental authorities in the possession of Seller in connection with its ownership of the Property (collectively, the "Licenses and Permits") and Seller has, or will have, during the Approval Period delivered to Purchaser true and complete copies of the Licenses and Permits; (vii) Seller has not received written notice of any litigation, governmental or administrative proceedings or arbitrations presently pending or threatened in writing with respect to any of the Property, except for actions which do not in any way affect the current use or operation of any of the Property; (viii) to Seller's actual knowledge, there are no unrecorded rights of first offer to purchase, rights of first refusal to purchase, purchase options or similar rights or contractually required consents to transfer pertaining to the Property which would be breached by this Agreement or the consummation of the transactions provided for herein; (ix) Seller is not a "foreign person" within the meaning of Paragraph 1445(f)(3) of the Internal Revenue Code; (x) Seller has not filed or been the subject of any filing of a petition under the Federal Bankruptcy Law or any insolvency laws, or any laws for composition of indebtedness or for the reorganization of debtors; (xi) to Seller's knowledge, the Seller has not received from any insurance company which carries insurance on the Property, or any Board of Fire Underwriters, any notice of any defect or inadequacy in connection with the Property or its operation which has not been cured; (xii) except as disclosed to Buyer in writing prior to the expiration of the Approval Period, Seller has performed or will perform prior to the closing of the transactions contemplated by this Agreement of all of Seller's obligations under any leases of the Property that are or will be required to be performed prior to the Closing and no brokerage commissions or other compensation is or will be due or payable to any persons, firm, corporation or other entity with respect to or on account of any of the leases, or any renewal thereof that could be a lien against the Property or claim against Buyer and (xiii) except as disclosed to Buyer in writing, to Seller's best actual knowledge, without any duty to investigate, as of the Effective Date there are no hazardous materials in existence on or below the surface of the Property or in any building located upon the Property, including, without limitation, contamination of the soils subsoil or ground water, which constitutes a violation of any law, rule or regulation of any governmental entity having jurisdiction thereof. Seller hereby agrees, through and including the Closing and at Seller's sole cost and expense to (a) keep all existing insurance policies (including any renewals or equivalents) affecting the Property in full force and effect (except that Seller shall be credited at Close of Escrow with an amount equal to the amount expended by it during the Extension Period in good faith in arms-length transactions and pursuant to the exercise of its reasonable business judgment to repair the Property following a casualty to the extent each sums expended are for uninsured casualties, in reimbursable deductibles and in reimbursable capital expenses, casualties, unreimbursable deductibles and unreimbursable capital expenses. If any such costs or expenses are not emergency related and exceed Ten Thousand Dollars ($10,000.00), (i) Seller shall reasonably consult with Buyer regarding such expense (ii) competitively bid such expense to at least three responsible bidders and (iii) contract with the lowest responsible bidder): (b) use due diligence and its reasonable efforts to keep in full force and effect all required licenses and permits; and (c) provide all services and continue to operate, manage and maintain the Property in substantially the same manner as it previously had. Following ten (10) days before expiration of the Approval Period ("Lease Cut-off Date"). Seller hereby agrees that Seller will not terminate or modify, extend of otherwise change any of the terms, covenants or conditions of any tenant lease, or enter into new leases or any other obligations or agreements affecting the Property without the prior consent of Buyer, which consent may be withheld in Buyer's reasonable discretion. Prior to the Lease Cut-Off Date, Seller shall have the right, in its sole and absolute discretion, to enter into any such new lease provided Seller deliver to Buyer a fully executed copy of such lease before the Lease Cut-Off Date. Except as provided above, prior to the Closing Date, Seller shall not convey title or any interest in the Property or the personal property to any person or entity. Seller shall not subject the Property to any additional liens, encumbrances, covenants, conditions, restrictions, easements or similar matters after the date of this Agreement which will not be eliminated prior to the Closing Date, or otherwise amend, modify, extend or change the terms, covenants or conditions of any such matters after the date of this Agreement. For a period of one (1) year after the Closing Date, Seller shall cooperate with Buyer and Buyer's accountants and attorneys in answering questions concerning the operation and management of the Property, amounts owed by Tenants under their leases, the calculation of operation expense or common area maintenance charge, and similar matters. (c) Each Party's representations and warranties made herein are material to the other Party's decision to enter into this Agreement and are being relied upon by the other Party in undertaking its obligations hereunder. Except to the extent set forth in writing prior to the Close of Escrow the representations of each Party made herein shall be deemed made again as of the Close of Escrow for the Property, or any portion thereof without the necessity of further documentation. The representation and warranties of Seller set forth above shall survive the Closing and the delivery of the Grant Deed for a period of two (2) years. 15. PRORATIONS. (a) GENERAL. For purposes of this Paragraph 15, the "Proration Date" shall be deemed to be 11:59 p.m. on the day immediately proceeding the Closing Date so that Buyer shall be deemed to be in title to the Property and therefore entitled to the income and responsible for the expenses for the entire day upon which the Closing Date occurs. Any apportionments and prorations which are not expressly provided for below shall be made in accordance with customary practice in Butte County. Buyer and Seller agree to prepare or cause their respective representatives or accountants to prepare a schedule of tentative adjustments prior to the Proration Date. Such adjustments, if and to the extent known and/or estimated and agreed upon as of the Close of Escrow, shall be paid by Buyer to Seller (if the prorations result in a net credit to the Seller) or by Seller to Buyer (if the prorations result in a net credit to the Buyer), by increasing or reducing the cash to be paid by Buyer at the Close of Escrow. Any such adjustments not determined or not agreed upon as of the Close of Escrow shall be paid by Buyer to Seller, or by Seller to Buyer, as the case may be, in cash as soon as practicable following the determination of the information necessary to make such adjustments, For a period of three (3) years following the Close of Escrow, Buyer and Buyer's successors and assigns shall make available to Seller and Seller shall make available to Buyer and Buyer's successors and assigns and their respective employees, agents and representatives all books and records maintained for the Property which relate to any of the items to be prorated or allocated under this Agreement, which books and records shall be made available for inspection and copying by Seller and Seller's employees, agents and representatives during ordinary business hours. Any such inspection shall be at reasonable intervals and at the inspecting party's sole cost and expense. The provisions of this Paragraph 15 shall survive the Close of Escrow indefinitely. (b) RENTALS. Subject to the provisions of Paragraphs 15(c) and 15(d), fixed monthly rentals ("Rentals") which have been collected shall be prorated as of the Proration Date. Notwithstanding the provisions of the Tenant Leases to the contrary, the base amount of rental provided in the Tenant Leases shall be allocated equally on a monthly basis for the year in which the Close of Escrow occurs. With respect to percentage rent, following Close of Escrow Buyer shall collect all such percentage rent and shall pay to Seller the portion of such percentage rent attributable to the period before Close of Escrow. Such payment shall be made to Seller within ten (10) days following Buyer's receipt of such percentage rent. If payment to Seller is not timely made, the delinquent amount shall bear interest at 10% per annum. (c) DELINQUENT RENTALS. Rentals for Tenant Leases that are not more than thirty (30) days delinquent as of the Proration Date shall be prorated between Seller and Buyer as if they were timely paid to Seller, and Seller shall be credited with the amount of such Rental. Delinquent Rentals shall be prorated between Buyer and Seller as of the Proration Date but not paid by Seller until they are actually collected by Buyer, Rentals are "Delinquent" when payment thereof has been due on or before the Proration Date and is at least thirty (30) days past due as of the Proration Date. Buyer shall use Buyer's good faith efforts to collect any Delinquent Rentals. Buyer shall not, however, be required to institute legal proceedings and Buyer shall not be required to expend more than nominal cost and expense in collecting Delinquent Rentals. After the Close of Escrow, Seller shall not institute any legal proceedings against a Tenant (or other occupant or user of the Project) owing Delinquent Rentals unless Buyer has failed to institute such legal proceedings within thirty (30) days after receipt of Seller's written request that Buyer do so. Subject to the first sentence of this subparagraph (c) rentals collected by the Buyer shall be applied first to their respective due dates, and then against any amount past due. Buyer agrees that any payments due to Seller as a result of collected Delinquent Rentals shall be payable to Seller (less reasonable out-of- pocket costs of collection actually incurred by Buyer) not less often than monthly. Seller agrees that any amounts collected by Seller after the Close of Escrow but which are due to Buyer hereunder shall be payable to Buyer (less reasonable out-of-pocket costs of collection actually incurred by Seller) not less often than monthly. (d) OPERATING COST PASS-THROUGH, ETC.. Operating cost pass- throughs, expense reimbursements, utility charges, common area maintenance charges, any administrative charges, tenant or property association dues, additional rentals and other retroactive rentals escalations, sums or charges payable by Tenants which accrue as of the Proration Date but are not yet due and payable, shall be prorated as of the Proration Date and Seller shall receive a credit for such amounts at Close of Escrow. Seller agrees that any amounts collected by Seller after the Close of Escrow but which are due to Buyer hereunder shall be payable to Buyer promptly upon receipt thereof, but not less often than monthly (less reasonable out-of-pocket costs of collection actually incurred by Seller ). Promptly upon completion of the applicable payment periods therefore which include the Close of Escrow, Buyer and Seller agree to determine the amount of reimbursements received from Tenants with respect to estimated tax, insurance and operating expense pass-throughs. To the extent Seller has received from Tenants reimbursements for expenses in excess of those reimbursable expenses actually paid by Seller for the period prior to the Close of Escrow, Buyer shall be credited for such amount. Conversely, to the extent Seller has received from Tenants less than the reimbursements required by their Tenant Leases for such expenses, Seller shall be credited for such amounts at Close of Escrow. (e) PREPAID RENTALS. Rentals already received by Seller attributable to periods after the Proration Date and the amount of any other credits due Tenants applicable to any period or periods after the Closing Date shall be credited to Buyer at the Close of Escrow. (f) TAXES AND ASSESSMENTS. Any delinquent real estate taxes and any delinquent installments of assessments (including penalties and charges) on the Property shall be paid at the Close of Escrow from funds accruing to Seller. All real estate taxes on the Property for the fiscal tax year in which the Proration Date occurs shall be estimated based upon the most recently available real estate tax bill and prorated as hereinafter described at the Close of Escrow based upon such estimate. Buyer and Seller shall re-prorate the real estate taxes following the Close of Escrow upon receipt of the actual real estate tax bill for the fiscal year in which the Proration Date occurs. Buyer shall be credited with an amount equal to all real estate taxes which have accrued prior to the Proration Date but only to the extent such real estate taxes are not paid or payable by Tenants. Buyer shall also be credited with an amount equal to all real estate taxes already collected or received by Seller from Tenants and attributable to periods prior to the Proration Date, so long as such amounts have not previously been used to pay real estate taxes already due, If, after the Proration Date, any additional real estate taxes are assessed against the Property by reason of back assessments, corrections to previous tax bills and similar reasons relating to the period prior to the Proration Date, Seller shall pay all such additional real estate taxes, except to the extent the same are collected from Tenants or which would then be currently due from Tenants pursuant to the terms of their respective Tenants Leases, to the extent such Tenant Leases are then currently in effect. If, after the Close of Escrow, any real estate tax or assessment savings or refunds are made with respect to the Property by reason of successful tax contest proceedings or appeals, corrections to tax bills or similar reasons relating to the period prior to the Proration Date, if funds remain after required payments to Tenants, then Seller shall be promptly reimbursed for all amounts of such refund(s) or saving(s) attributable to the period prior to the Proration Date, less Seller's reasonable out-of-pocket costs of collection, and Buyer shall be entitled to all amounts of such refund(s) or saving(s) attributed to the periods after the Proration Date. (g) TENANT DEPOSITS. Buyer shall be credited at the Close of Escrow with an amount equal to all Tenant security deposits remaining after any permitted deduction or charge. (h) SERVICE CONTRACTS. Amounts payable under the Service Contracts and all utility charges shall be prorated on an accrual basis. All amounts payable under the Service Contracts accruing prior to the Proration Date shall be the obligation of Seller, but Seller shall at Close of Escrow pay or credit Buyer therefor only to the extent such amounts are not paid or payable by Tenants. Buyer shall be responsible for all amounts payable under the Service Contracts accruing after the Proration Date. (i) PREPAID EXPENSES. Seller shall be credited with an amount equal to all prepaid costs, expenses, charges and fees attributable to the period after to the Close of Escrow and described in writing to Buyer at least thirty (30) days prior the Close of Escrow. 16. BROKERS. Buyer and Seller each represent to the other that except for Alan W. Viera and Associates, and Third Street Associates and Maynard/Rich Companies whose collective 1.50% commission shall be paid by Escrow Agent from Seller's Proceeds at Close of Escrow in accordance with Exhibit "M" Seller pursuant to a separate written agreement, they have not dealt with any other real estate broker, agent or person who may be entitled to a commission or fee on account of this Agreement, and Buyer and Seller each indemnifies and agrees to defend and hold the other harmless from and against any loss, cost, liability and expense, including reasonable attorneys' fees, which may be incurred in the event its representations herein prove incorrect. Seller acknowledges that Buyer is a licensed real estate Broker acting as a principal in this transaction. 17. DEFAULT AND REMEDIES. (a) DEFAULT AND REMEDIES. In the event of a default by Seller or Buyer the non-defaulting party may, at its option, do any or all of the following (subject to subparagraph (b) hereinbelow): (i) terminate this Agreement by written notice delivered to the other party at or prior to the Closing; and, (ii) pursue any legal remedy, including an action for monetary damages. (b) LIQUIDATED DAMAGES. PRIOR TO ENTERING INTO THIS TRANSACTION, BUYER AND SELLER HAVE BEEN CONCERNED WITH THE FACT THAT SUBSTANTIAL DAMAGES WILL BE SUFFERED BY SELLER IN THE EVENT BUYER SHALL FAIL TO PERFORM ITS OBLIGATIONS UNDER THIS AGREEMENT TO PURCHASE THE PROPERTY. WITH THE FLUCTUATION IN LAND VALUES, THE UNPREDICTABLE STATE OF THE ECONOMY AND OF GOVERNMENTAL REGULATIONS, THE FLUCTUATING MONEY MARKET FOR REAL ESTATE LOANS OF ALL TYPES, AND OTHER FACTORS WHICH DIRECTLY AFFECT THE VALUE AND MARKETABILITY OF THE PROPERTY, THE PARTIES BELIEVE THAT IS WOULD BE EXTREMELY DIFFICULT AND IMPRACTICABLE, IF NOT IMPOSSIBLE, TO ASCERTAIN WITH ANY DEGREE OF CERTAINTY THE AMOUNT OF DAMAGES WHICH WOULD BE SUFFERED BY SELLER IN THE EVENT OF BUYER'S NONPERFORMANCE OF ITS OBLIGATION UNDER THIS AGREEMENT TO PURCHASE THE PROPERTY AND CLOSE THE ESCROW. THE PARTIES, HAVING MADE DILIGENT BUT UNSUCCESSFUL ATTEMPTS TO ASCERTAIN THE ACTUAL COMPENSATORY DAMAGES SELLER WOULD SUFFER IN THE EVENT OF BUYER'S NONPERFORMANCE OF ITS OBLIGATION TO PURCHASE THE PROPERTY, HEREBY AGREE THAT THE REASONABLE ESTIMATE OF SAID DAMAGES IS THE AMOUNT OF THE DEPOSITS ACTUALLY DELIVERED TO ESCROW HOLDER, AND IN THE EVENT OF BUYER'S FAILURE TO PERFORM ITS OBLIGATION UNDER THIS AGREEMENT TO PURCHASE THE PROPERTY AND CLOSE THE ESCROW, SO LONG AS SUCH FAILURE IS NOT CAUSED BY SELLER, SELLER SHALL, AS ITS SOLE REMEDY, BE ENTITLED TO THE AMOUNT OF THE DEPOSITS ACTUALLY DELIVERED TO ESCROW HOLDER AS LIQUIDATED DAMAGES. SAID AMOUNT HAS BEEN DETERMINED WITH REFERENCE BY THE PARTIES TO THE ABOVE CONSIDERATIONS IN ESTABLISHING A REASONABLE SUM AS LIQUIDATED DAMAGES. THE RIGHT TO RECEIVE SUCH LIQUIDATED DAMAGES SHALL BE SELLER'S SOLE REMEDY IN THE EVENT OF BUYER'S FAILURE TO PURCHASE THE PROPERTY AND CLOSE ESCROW. INITIALS: ______ _______ BUYER SELLER 18. CONDEMNATION. If all or any portion of the Property, or any interest therein, is taken prior to the Closing of Escrow as a result of condemnation (including the filing of any notice of intended condemnation or proceedings in the nature of eminent domain), by any entity or government agency, which is valued at Twenty Five Thousand Dollars ($25,000.00) or more, then Buyer may, upon written notice to Seller and Escrow Agent, terminate this Agreement, in which event the parties shall have no further rights or obligations hereunder. If Buyer does not elect to terminate this Agreement, or if that portion of the property that is taken as a result of condemnation is valued at less than Twenty Five Thousand Dollars ($25,000.00), then, Seller shall assign and turn over, and Buyer shall be entitled to receive and keep, all awards for the taking of the Property by eminent domain which accrue to Seller and the parties shall proceed to the Closing pursuant to the terms and conditions hereof, without modification of the terms of this Agreement and without any reduction in the Purchase Price. 19. ATTORNEYS' FEES. If it shall be necessary for either Buyer or Seller to employ an attorney to enforce or defend its rights under this Agreement, the non-prevailing party shall reimburse the prevailing party for its actual attorneys' fees and costs of suit. 20. NOTICES. All notices, demands, requests and other communications required or permitted hereunder shall be in writing and shall be deemed to be delivered upon actual receipt if personally delivered, one (1) business day following the transmission of such writing by facsimile with the original sent by certified or registered mail or the expiration of three (3) days following its deposit in a regularly maintained receptacle for the United States mail, registered or certified, return receipt requested, postage fully prepaid, addressed to the addressee at its address set forth below or at such other address as such party may have specified theretofore by written notice delivered in accordance with this Paragraph: If to Buyer: Basic Acquisition, Inc. c/o Richard Dickerson 575 Prospect Blvd. Pasadena, California 91103 with copies to: Basic Acquisition, Inc. 2235 Sheppard Avenue East Atria II, Suite 904 Willowdale, Ontario M2J 5B5 Canada Steefel, Levitt & Weiss One Embarcadero Center, 30th Fl. San Francisco, California 94111 Attn: Clayton B. Gantz, Esq. If to Seller: CHICO CROSSROADS CENTER 15 Corporate Plaza, Suite 130 Newport Beach, California 92660 Attn: Robert Flaxman with a copy to: Mr. Jamie Sohacheski 8665 Wilshire Blvd., Ste. 200 Beverly Hills, California 90211 with a copy to: Rodarti, Feld & Gelfer 4675 MacArthur Court, Suite 930 Newport Beach, California 92660 Attn: Richard G. Feld, Esq. If to Escrow Agent: Chicago Title 16969 Von Karman Irvine, California 92714 Attn: Karen Price Escrow # 6026054-M19 21. GOVERNING LAW. The laws of the State of California shall govern the validity, enforcement, and interpretation of this Agreement. 22. INTEGRATION; MODIFICATION; WAIVER. This Agreement constitutes the complete and final expression of the Agreement of the parties relating to the Property and supersedes all previous contracts, agreements, and understandings of the Parties, either oral or written, relating to the Property. This Agreement cannot be modified, or any of the terms hereof waived, except by an instrument in writing (referring specifically to this Agreement) executed by the party against whom enforcement of the modification or waiver is sought. 23. COUNTERPART EXECUTION. This Agreement may be executed in several counterparts, each of which shall be fully effective as an original and all of which together shall constitute one and the same instrument. 24. HEADINGS; CONSTRUCTIONS. The headings which have been used throughout this Agreement have been inserted for convenience of reference only and do not constitute matter to be construed in interpreting this Agreement. Words of any gender used in this Agreement shall be held and construed to include any other gender, and words in the singular number shall be held to include the plural, and vice versa, unless the context requires otherwise. The words "herein," "hereof," "hereunder" and other similar compounds of the word "here" when used in this Agreement shall refer to the entire Agreement and not to any particular provision or section. If the last day of any time period stated herein shall fall on a Saturday, Sunday or legal holiday, then the duration of such time period shall be extended so that it shall end on the next succeeding day which is not a Saturday, Sunday or legal holiday. Unless otherwise specified, the word "day" shall mean a calendar day. 25. TIME OF THE ESSENCE. Time is of the essence of this Agreement and of the obligations of the parties to purchase and sell the Property, it being acknowledged and agreed by and between the parties that any delay in effecting a Closing pursuant to this Agreement may result in loss or damage to the party in full compliance with its obligations hereunder. Notwithstanding any period for performance of any party's obligation as contained in the General Provisions, the rights of the parties hereunder shall be governed by the dates and times set forth in this Agreement. 26. OPENING OF ESCROW. Escrow Agent is instructed to notify Buyer and Seller in writing that it has opened escrow and the date of such notice shall be the date of opening of Escrow. 27. INVALID PROVISIONS. If any one or more of the provisions of this Agreement, or the applicability of any such provision to a specific situation, shall be held invalid or unenforceable, such provision shall be modified to the minimum extent necessary to make it or its application valid and enforceable, and the validity and enforceability of all other provisions of this Agreement and all other applications of any such provision shall not be affected thereby. 28. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of Seller and Buyer, and their respective successors and assigns. 29. FURTHER ACTS. In addition to the acts recited in this Agreement to be performed by Seller and Buyer, Seller and Buyer agree to perform or cause to be performed at the Closing or after the Closing any and all such further acts as may be reasonably necessary to consummate the transactions contemplated hereby. 30. EXHIBITS. All attached Exhibits and all items delivered into Escrow are incorporated herein. 31. SURVIVAL. Except as otherwise provided herein, all covenants contained herein shall survive the closing of the purchase and sale and shall not be deemed merged in the Grant Deed, but shall remain in full force and effect. 32. ASSIGNMENT. Buyer may not assign or transfer any of its rights, benefits, or privileges hereunder without the prior written consent of Seller, except that Buyer may assign its right, benefits and privileges hereunder to a real estate investment trust or similar vehicle advised by Buyer or its affiliates without the prior consent of Seller provided that any such assignee assumes in writing all of the Buyer's obligations hereunder. Any such assignment shall not constitute a novation of Buyer's obligations hereunder. IN WITNESS WHEREOF, the parties have executed the foregoing Agreement as of the date and year first-above written. BUYER: BASIC ACQUISITION, INC. a Delaware corporation By:__________________________________ Its:_____________________________ CHICO CROSSROADS CENTER a California limited partnership By: JMLB, INC., a California corporation By:______________________________ Its:_________________________ EX-10.3 7 FIRST AM TO PURCHASE & SALE AGMT (BASIC/CHICO) FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT This First Amendment to Purchase and Sale Agreement ("First Amendment") is entered into as of July 9, 1996 by and between Chico Crossroads Center, Ltd., a California limited partnership ("Seller") and Basic Acquisition, Inc., a Delaware corporation ("Buyer"), with reference to the following facts: A. On or about May 8, 1996, Buyer and Seller entered into that certain Purchase and Sale Agreement and Escrow Instructions ("Agreement") whereby Seller agreed to sell to Buyer certain improved real property more particularly described in the Agreement. B. Buyer and Seller desire to amend certain provisions of the Agreement, NOW, THEREFORE, in consideration of the foregoing and for good and valuable consideration the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: 1. PURCHASE PRICE. The Purchase Price shall be reduced to Twenty-One Million Sixty-Two Thousand Five Hundred Dollars ($21,062,500.00). 2. PROPERTY APPROVAL. The Property Approval Notice as required by Paragraph 5(b) of the Agreement shall be deemed given and Buyer shall be deemed to have approved the Property and the Property Documents. 3. TITLE REVIEW. Buyer has approved the condition of title to the Property (subject to the provisions of Paragraph 5(e) of the Agreement.) 4. CLOSE OF ESCROW. The Closing shall take place on or before October 7, 1996, unless extended in accordance with Paragraph 6(a) of the Agreement. 5. CAPITALIZED TERMS. Except as expressly provided, all capitalized terms used herein shall have the same meaning as ascribed to such terms in the Agreement. 6. COUNTERPARTS. This First Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. 7. RATIFICATION. Except as amended hereby, all terms and conditions of the Agreement are hereby ratified and confirmed. This First Amendment was executed as of the date first written above. BUYER: BASIC ACQUISITION, INC. a Delaware corporation By: /s/Richard Dickerson --------------------------- Its: Vice President --------------------------- SELLER: CHICO CROSSROADS CENTER, a California limited partnership By: /s/Robert A. Flaxman --------------------------- Its: Vice President --------------------------- EX-10.4 8 REAL ESTATE PURCH. & SALE AGMT (BASIC/MIAMI) REAL ESTATE PURCHASE AND SALE AGREEMENT THIS AGREEMENT is entered into as of the 24 day of July 1996 ("Effective Date"), between MIAMI GARDENS ASSOCIATES, a New Jersey general partnership, having an office at c/o Stiles Realty, 6400 N. Andrews Avenue, Ft. Lauderdale, Florida 33309-2114 ("Seller"), and BASIC ACQUISITIONS INC., a Delaware corporation, having a mailing address at 7850 N.W. 146th Street, Suite 308, Miami Lakes, FL 33016 ("Purchaser"). 1. PURCHASE AND SALE. In consideration of their mutual covenants set forth in this Agreement, Seller agrees to sell to Purchaser, and Purchaser agrees to purchase from Seller, for the Purchase Price (as hereinafter defined) and on the terms and conditions set forth herein, the following: (a) All of the land (the "Real Estate") situated at the Northeast corner of Miami Gardens Drive and N.W. 87th Avenue, Miami, Dade County, Florida, more particularly described on EXHIBIT "A" attached hereto and made a part hereof (less and except the Chevron Parcel as defined in Section 3 hereof if conveyed by Seller prior to the Closing [as hereinafter defined]), and commonly known as the "Garden Square Shopping Center" together with all right, title, and interest of Seller in and to all open or proposed highways, streets, roads, avenues, alleys, easements, strips, gores and rights-of-way in, on, across, in front of, contiguous to, abutting or adjoining the Real Estate. The Real Estate does not include the outparcels previously conveyed to McDonald's Corp. and to Chevron, USA, Inc. and the outparcel to be conveyed to Chevron, USA, Inc. (b) All structures, buildings, improvements and fixtures, including without limitation all equipment and appliances, located on or used in connection with the operation or occupancy of the Real Estate, such as heating and air-conditioning systems and facilities used to provide any utility services, parking services, refrigeration, ventilation, trash disposal or other services all to the extent owned by Seller and located on the Real Estate ("Improvements"). (c) All personal property owned by Seller and located on or in the Real Estate or Improvements or used in connection with the operation and maintenance of the Real Estate or Improvements ("Personal Property"). (d) Seller's interest in all leases and other agreements to occupy the Real Estate and/or the Improvements, or any portion thereof, as amended from time to time, including any sublease of which Seller has knowledge and any concession, license, or kiosk agreements entered into by Seller, including any modifications and amendments thereto and all enforceable waivers, approvals, and/or consents given by Seller or the tenant thereunder which modify or amend the terms thereof, in effect on the date of Closing (as hereinafter defined) (all such leases, subleases, and agreements being sometimes collectively referred to herein as "Leases"). (e) Seller's interest in all service agreements or other contracts, written or oral (collectively the "Service Contracts"), in effect at Closing and which are not terminated as hereinafter provided, and which in any way relate to the Premises (as hereinafter defined). (f) Seller's interest in all equipment leases (the "Equipment Leases") and all rights of Seller thereunder relating to equipment or property located upon the Premises, in effect at Closing. (g) All intangible property owned by Seller and used in connection with the Real Estate, Improvements and Personal Property, including all trademarks and trade names used in connection with any part of the Real Estate and Improvements, all hereditaments, privileges, tenements, and appurtenances belonging to the Real Estate, and all assignable licenses, permits, and warranties now in effect, and which are not expired as of the Closing, with respect to the Real Estate, Improvements and Personal Property, ("Intangible Property"), copies of all records and correspondence in the possession or control of Seller or any property manager of Seller required in Purchaser's reasonable opinion for the operation of the Real Estate and Improvements including but not limited to all those related to ad valorem taxes and any reductions or protests thereof, tenants, services, maintenance, repairs, capital improvements, booklets and manuals, and advertising materials, all of Seller's interest in the name by which the Real Estate and Improvements is presently known together with the good will appurtenant thereto and all of Seller's interest in all building plans, architectural and engineering plans, site plans, traffic studies and marketing studies prepared by third parties for Seller. (h) All of Seller's interest in (1) all the reciprocal easement agreements, operating agreements and similar easements and agreements and all amendments and modifications thereto and all enforceable waivers, approvals, consents, and notifications given thereunder which amend or modify the terms thereof, relating to the Real Estate and Improvements (the "Operating Agreements") and (2) all other agreements and ground leases and all amendments and modifications thereto and all enforceable waivers, approvals, consents, and modifications given thereunder which amend or modify the terms thereof, in either case between, or binding upon, Seller on the one hand and any tenant on the other hand relating to the Real Estate and Improvements or any part thereof (the "Other Agreements"). The Real Estate, Improvements, Personal Property, Leases, Service Contracts, Equipment Leases, Intangible Property, Operating Agreements, and Other Agreements are sometimes collectively referred to herein as "Premises". EXCEPT FOR THOSE COVENANTS, REPRESENTATIONS, AND WARRANTIES SET FORTH IN THIS AGREEMENT AND/OR IN ANY DOCUMENTS EXECUTED AND DELIVERED BY SELLER PURSUANT TO THIS AGREEMENT, PURCHASER IS ACQUIRING THE PREMISES "AS IS" WITH ALL FAULTS, AND WITHOUT WARRANTY OR REPRESENTATION BY SELLER, EXPRESS OR IMPLIED. 2. PURCHASE PRICE; EARNEST MONEY DEPOSIT. The purchase price for the Premises shall be Nine Million Six Hundred Fifty Thousand and No/100 ($9,650,000.00) Dollars ("Purchase Price"). The Purchase Price shall be payable as follows: (a) Simultaneous with the execution of this Agreement, Purchaser shall deposit with the Escrow Agent (as hereinafter defined) One Hundred Thousand and No/100 ($100,000.00) Dollars (the "Initial Deposit"). In the event the Purchaser does not terminate this Agreement in accordance with section 5 of this Agreement, Purchaser shall, within five (5) business days after the completion of the Due Diligence Period (as hereinafter defined), deliver to the Escrow Agent an additional sum of One Hundred Thousand and No/100 ($100,000.00) Dollars (the "Second Deposit"). The Initial Deposit and the Second Deposit, as same shall exist from time to time, along with all interest earned thereon sometimes hereinafter individually and collectively referred to as the "Earnest Money Deposit". Escrow Agent is authorized and agrees to promptly deposit the Earnest Money Deposit in a money market account or repurchase agreement as is selected by Purchaser and Seller for their benefit with all interest thereon accruing to whomever the Earnest Money Deposit is applied to the benefit of pursuant to the terms of this Agreement. Escrow Agent shall hold and disburse the Earnest Money Deposit as well as any other funds which may be delivered to it pursuant to this Agreement or subsequent written agreement of the parties, in accordance with the terms and conditions of this Agreement or any such subsequent agreement. In the event of doubt as to its duties or liabilities under the provisions of this Agreement, Escrow Agent may in its sole discretion continue to hold the Earnest Money Deposit until the parties mutually agree to disbursement thereof, or until a court of competent jurisdiction shall determine the rights of the parties thereto, or it may deposit all the monies then held pursuant to this Agreement with the Clerk of the Circuit Court of Dade County, Florida, and, upon notifying all parties concerned of such action, all future liability on the part of Escrow Agent shall fully terminate. In the event of any suit between Purchaser and Seller wherein Escrow Agent is made a party by virtue of acting as such hereunder, or in the event of any suit wherein Escrow Agent interpleads the subject -2- matter of this escrow, Escrow Agent shall be entitled to recover reasonable attorneys' fees, reasonable paralegal charges and other reasonable costs incurred, said fees and costs to be charged and assessed as court costs in favor of the prevailing party (notwithstanding that Escrow Agent may represent itself in such proceeding). All parties agree that Escrow Agent shall not be liable to any party or person whomsoever for misdelivery to Purchaser or Seller of the Earnest Money Deposit, unless such misdelivery shall be due to willful breach of this Agreement or gross negligence on the part of Escrow Agent. Seller acknowledges that the Escrow Agent acts in the capacity of counsel to Purchaser and waives any objection that it may have with regard to its acting in either capacity. A copy of all letters delivered or mailed by the Purchaser or Seller to the Escrow Agent pursuant to this Agreement shall be sent or delivered simultaneously to the other party to this Agreement. Nothing herein contained shall prohibit Escrow Agent from acting as the attorney for Purchaser with regard to this Agreement and in any litigation between Purchaser and Seller. (b) Purchaser shall acquire the Property subject to an existing first mortgage encumbering the Premises (the "Existing Mortgage") held by Life Investors Insurance Company of America (the "Mortgagee"), which Existing Mortgage has a present principal balance of approximately Six Million Seven Hundred Fifty-Six Thousand and No/100 ($6,756,000.00) Dollars. The Purchaser shall assume and agree to pay the Existing Mortgage and all obligations under all existing documents relating to the Existing Mortgage loan, provided the Mortgagee consents to such assumption. Notwithstanding anything in this Agreement to the contrary, Purchaser's obligation to assume the Existing Mortgage shall be contingent upon the Existing Mortgage being a non-recourse loan and that the Purchaser shall not be required to assume any personal liability under the Existing Mortgage loan by virtue of such assumption, except for carve-out provisions presently contained in the Existing Mortgage. (c) Not later than 3:00 p.m., Eastern Daylight Time, on the Closing Date (as hereinafter defined), Purchaser shall cause to be wired to the Escrow Agent the sum necessary (i) to pay the holders of any mortgages (except for the Existing Mortgage), liens, and security interests against the Premises the amounts necessary to pay them off and obtain satisfactions or releases of lien, and (ii) to make the total consideration paid (including the amounts in clause (i)) to or for the account of Seller at Closing equal to the Purchase Price, less the balance due and owing on the Existing Mortgage, plus or minus prorations and adjustments as hereinafter provided, in accordance with escrow instructions executed by Seller and Purchaser ("Escrow Instructions"). 3. SALE OF CHEVRON PARCEL. Purchaser hereby acknowledges that Seller has entered into, or may enter into after the execution of this Agreement, an agreement to sell to Chevron, USA, Inc. or its affiliate ("Chevron") that portion of the Real Estate described in the attached EXHIBIT "A-1" (the "Chevron Parcel"). Said agreement shall be substantially in accordance with the form attached hereto and marked EXHIBIT "A-2" (the "Chevron Agreement"). Subject to Seller obtaining the unconditional written consent from all tenants whose consent is required by the terms and conditions of their respective lease agreements with Seller and the compliance by Seller with the requirements of all requisite governmental agencies with regard to such sale, Purchaser hereby consents to the sale of the Chevron Parcel to Chevron. Notwithstanding anything herein to the contrary, so long as Chevron is ready, willing, and able to acquire the Chevron Parcel within one (1) year of the Closing, Purchaser agrees to sell the Chevron Parcel to Chevron, provided that in no event is the Purchaser to bear any portion of the costs of such sale (including but not limited to reasonable attorneys' fees), it being agreed that Purchaser shall in no event incur any costs associated with such sale, and if the Chevron Parcel is sold after Closing, the net proceeds from such sale or if the same are required to be paid to the Mortgagee or any other person an amount equal to the net proceeds shall be paid by Purchaser to Seller within ten (10) days of the closing on the Chevron Parcel. The parties hereto agree that the value of the Chevron Parcel (as between Seller and Purchaser) is the sales price of the Chevron Parcel as shown in the Chevron Agreement, and the Seller agrees to indemnify and save Purchaser harmless from any income tax Purchaser may become obligated for as a result of the sale of the Chevron Parcel from Purchaser to Chevron as a result of the foregoing. If the closing of the Chevron Parcel occurs prior to the Closing, Seller may execute and deliver to Chevron or its assignee or designee a deed to the Chevron Parcel and all such other documents as may reasonably be required to consummate such sale and the net proceeds shall be either retained by Seller or applied to reduce the Existing -3- Mortgage balance. If, however, such sale occurs after the Closing, the Purchaser shall execute and deliver to Chevron or its assignee or designee a deed to the Chevron Parcel and all such other documents as may be reasonably required to consummate such sale, including such documents to further assure Seller's obtaining the net proceeds from such sale of the Chevron Parcel. Should the closing of the Chevron Parcel occur before or after the Closing of this Agreement, Seller will obtain all tenants' consents required by the Chevron Agreement. 4. CLOSING. (a) The consummation of the purchase and sale of the Premises ("Closing") shall take place at the offices of Fowler, White, Burnett, Hurley, Banick & Strickroot, P.A., 100 Southeast Second Street, 17th Floor, Miami, Florida 33131, on November 15, 1996 (the "Closing Date"), unless such date is extended according to the provisions of Sections 6 or 13 of this Agreement or by written agreement signed by the parties. (b) The Purchase Price shall be paid and all documents necessary for the consummation of this transaction shall be executed and delivered on or prior to the Closing Date, and Seller shall deliver possession of the Premises to Purchaser, subject to the rights of tenants under existing leases and leases approved by Purchaser or permitted by this Agreement. (c) At or prior to Closing, Seller shall deliver the following documents to the Escrow Agent, in each case the document shall be dated, executed by authorized representatives of Seller, and acknowledged, where required: (1) A Special Warranty Deed in the form attached hereto as EXHIBIT "B"; (2) A Bill of Sale in the form attached hereto as EXHIBIT "C"; (3) An Assignment and Assumption of Leases; (4) An Assignment and Assumption of Service Contracts and Equipment Leases; (5) An Assignment and Assumption of Intangible Property; (6) Letters to tenants at the Real Estate instructing the tenants to pay rent at the direction of Purchaser and to recognize Purchaser as landlord under their respective Leases; (7) Originals of all Leases in Seller's possession, together with a Certificate of Rent Roll; (8) An estoppel certificate, in form substantially in accordance with EXHIBIT "D" attached hereto, executed by Blockbuster Video, Publix and Eckerd Drugs ("Anchor Tenants") and by other tenants occupying at least ninety percent (90%) of the rentable space in the Premises not occupied by the Anchor Tenants, provided that such other tenants must include Lakes Pre-School, Allstate Insurance Company (provided that if an estoppel certificate from Allstate Insurance Company is not delivered at closing, Seller shall execute and deliver an estoppel certificate to Purchaser at Closing with respect to the Allstate lease which shall be substantially similar to the estoppel certificate set forth in Exhibit "D" hereto but which shall be based upon Seller's best knowledge and belief) and Lady of America ("Required Tenants"); provided further, that estoppel certificates containing only non-material exceptions, qualifications or modifications shall be deemed to be in accordance with EXHIBIT "D", except that Anchor Tenants may utilize their own form of estoppel certificate customarily utilized by them in lieu of the form set forth on EXHIBIT "D," and such Anchor Tenant's form shall be acceptable to Purchaser unless it discloses a material adverse exception(s), qualification(s), or modification(s). Failure by Seller to obtain any estoppel certificates shall not constitute a default by Seller under this Agreement, provided Seller exercises reasonable efforts and due diligence in attempting to obtain same. Should Seller not -4- obtain the requisite estoppel certificates as provided for in this subparagraph 4(c)(8), Purchaser, at its sole option, shall have the right to cancel this Agreement; (9) An affidavit sworn by an officer of Seller to the effect that Seller is not a "foreign person" as that term is defined in Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, which affidavit shall be in such form as may be prescribed by federal regulations; (10) Termination statements terminating, as of the date of Closing, all Service Contracts and management and leasing contracts relating to the Improvements which Purchaser has decided, in its sole discretion, to terminate, and instructs Seller to terminate by written notice delivered to Seller at least sixty (60) days prior to the Closing; (11) Certified copies of, as applicable (i) the partnership agreement (if such partnership agreements exist) of Seller and each partnership that is a partner of Seller or a partner of a partner of Seller, (ii) the articles of incorporation of all corporations which are partners of partners, (iii) the Articles of Incorporation of Seller, (iv) partnership and corporate resolutions authorizing this transaction, (v) incumbency certificates, all showing the authority of the Seller to consummate the transaction contemplated by the agreement, and (vi) certificates of good standing issued by the state authority licensing any entity aforedescribed evidencing said entity to be in good standing as of the Effective Date and to a date as close as practicable to the Closing Date; (12) Assumption documents from the Mortgagee for assumption by Purchaser of the Existing Mortgage. Failure of Seller to obtain said documents from the Mortgagee shall not constitute a default by Seller under the Agreement; and (13) Should the closing of the Chevron Parcel occur prior to the Closing of this Agreement, Seller shall provide Purchaser, at the closing of the Chevron Parcel, with originals (except that if originals have been previously delivered to Chevron USA, in which event copies) of all tenants' consents to the sale of the Chevron Parcel. In the event the Closing of this Agreement shall occur prior to the closing of the Chevron Agreement, at the Closing of this Agreement Seller shall deliver to Purchaser the original tenants' consents to the sale of the Chevron Parcel then in Seller's possession. The forms of all such documents shall be delivered to Purchaser at least ten (10) days prior to the Closing Date. 5. CONDITIONS TO CLOSING. A. In addition to all other conditions to the completion of the transaction described in this Agreement, Seller and Purchaser agree that the Closing is subject to satisfaction, approval or waiver by Purchaser of the following conditions on or before the expiration of forty-five (45) days from the Effective Date ("Due Diligence Period"): (a) Inspection and approval of the physical condition and use of the Premises, at Purchaser's sole cost, including without limitation, the availability of access, utility services, zoning, environmental risks, engineering and soil conditions. For the purpose of conducting physical inspections, Seller agrees to provide Purchaser and its authorized agents, accompanied by a representative of Seller, reasonable access to the Premises at all reasonable times on business days during the Due Diligence Period, and Purchaser shall conduct such inspections in a manner not disruptive to tenants or to the operation of the Premises. Purchaser agrees to indemnify and save Seller harmless from and against any and all claims, costs, expenses, and liabilities, including reasonable attorney's fees, arising out of or by reason of any entry upon the Premises or the inspections and testing by Purchaser or Purchaser's agents. Further, prior to commencing such inspections and testing, Purchaser or its agents performing such inspections, shall furnish to Seller certificates of insurance evidencing general liability insurance coverage in reasonable amounts insuring against such risks. -5- (b) Inspection and approval of documents, contracts, reports and studies related to the Premises, including without limitation, all Leases, Lease files, contracts, reports, studies and the documentation described in attached EXHIBIT "E" (collectively "Seller's Disclosure Documentation"), all of which shall be made available to Purchaser at the Premises or at the office of Seller's property manager for the Premises ("Property Manager") at reasonable times for inspection and copying by Purchaser at Purchaser's expense. Except as set forth in Section 7 of this Agreement, none of Seller's Disclosure Documentation shall be deemed or constitute a representation or warranty of Seller. In the event that this transaction is not closed for any reason, then Purchaser shall refrain, and shall cause its agents, representatives and accountants to refrain, from disclosing all such information to any other party. Except for such disclosure as may be required under applicable law, and further deliver to Seller all of Seller's Disclosure Documentation in the possession of Purchaser. (c) Seller obtains and furnishes to Purchaser written confirmation that the Mortgagee will consent to the Purchaser acquiring title to the Premises and assuming the Existing Mortgage and such other documents that relate to the Existing Mortgage loan, without amendment or modification. Seller agrees to exercise reasonable due diligence in attempting to obtain Mortgagee's consent regarding such assumption and taking subject to, and Purchaser agrees to pay to Mortgagee all fees and costs to obtain such consent, not to exceed (in the aggregate) an assumption fee in the amount of one (1%) percent of the then existing Mortgage's outstanding principal balance as of the Closing Date (the "Assumption Fee"). Purchaser further agrees to pay for all recording fees, documentary stamps, intangible taxes, and the reasonable fees of the Mortgagee's counsel and the reasonable and customary costs incurred with respect to the Purchaser's assumption of the Existing Mortgage. (d) Seller obtaining the required estoppel certificates provided for in subparagraph 4(c)(8) above. B. Seller's obligations under this Agreement are subject to and contingent upon the following: (a) Written consent of the Mortgagee to this Agreement and to Purchaser assuming the Existing Mortgage pursuant to the terms of this Agreement; (b) Purchaser, pursuant to the terms of this Agreement, assuming the Existing Mortgage loan and all obligations relating thereto; and (c) Seller and Messrs. Malhame, Hakim and McNutt being released by the Mortgagee, under the Existing Mortgage and other documents, from all liability thereunder. In the event any of the conditions set forth in this Section 5(A)(a) or (b) are not satisfied or waived by Purchaser within the Due Diligence Period, Purchaser shall notify Seller and Escrow Agent in writing of the termination of this Agreement prior to the end of the final day of the Due Diligence Period. If the conditions set forth in Section 5(A)(c) or (d) of this Agreement are not satisfied or waived by Purchaser prior to Closing, Purchaser shall notify Seller and Escrow Agent in writing of the termination of this Agreement. If the conditions set forth in Section 5(B) of this Agreement are not satisfied or waived in writing by Seller prior to Closing, Seller shall notify Purchaser and Escrow Agent in writing of the termination of this Agreement. Upon timely receipt of any such notice, the Earnest Money Deposit shall be returned to Purchaser by the Escrow Agent, both Seller and Purchaser shall be released and discharged from all further obligations under this Agreement (other than those which expressly survive termination of this Agreement), and neither Seller nor Purchaser shall be subject to any claim by the other for damages of any kind. If no such notice has been served within the time provided in this Section 5, all conditions shall be deemed to have been satisfied or waived and Purchaser's obligations to close shall be firm with respect to the conditions of this Section 5. -6- 6. EVIDENCE OF TITLE AND SURVEY. The following shall be obtained as evidence of Seller's title: (a) TITLE COMMITMENT. Seller shall, within ten (10) days after the Effective Date, deliver to Purchaser a copy of any existing owner's title insurance policy, relating to the Real Estate, then in Seller's possession or control. On or before sixty (60) days from the Effective Date, at Purchaser's expense, Purchaser shall obtain a pro forma title commitment (the "Commitment") for an ALTA Owner's Title Insurance Policy issued by a title insurance company chosen by Purchaser (the "Title Company") in the amount of the Purchase Price showing title to the Premises in Seller's name subject only to title exceptions acceptable to Purchaser which are listed on attached EXHIBIT "F" hereto ("Permitted Exceptions"). If the Commitment discloses exceptions other than the Permitted Exceptions, of if any of the Permitted Exceptions make title unmarketable (as determined in accordance with Title Standards adopted and reasonably applied by The Florida Bar and in accordance with law, Purchaser, within ten (10) business days following the date on which Purchaser received the Commitment and copies of all exceptions disclosed in the Commitment, shall deliver to Seller written notice of Purchaser's objections, if any, to such exceptions ("Unpermitted Exceptions"). If Purchaser fails to deliver such written notice or objection to Seller within such ten (10) business day period, Purchaser shall be deemed to have waived its right to object to such Unpermitted Exceptions, which shall thereafter be deemed Permitted Exceptions. In the event that Purchaser shall so object to any such Unpermitted Exceptions, Seller shall use reasonable efforts to remove prior to Closing any Unpermitted Exceptions capable of being removed solely by the payment of money and shall notify Purchaser within thirty (30) business days following the date of Purchaser's notice of such objections that either (a) the Unpermitted Exceptions (other than those capable of being removed by the payment of money) have been, or will be at or prior to Closing, removed at Seller's expense or are or will be insured over by the Title Company at no additional expense to Purchaser pursuant to an endorsement to the Commitment, provided that such insurance over is acceptable to Purchaser in Purchaser's sole discretion, or (b) Seller has failed to arrange to have the Unpermitted Exceptions removed or insured over by the Title Company. Notwithstanding anything herein to the contrary, Seller shall not be obligated to bring suit or incur a liability of more than $25,000.00 (the "Maximum Amount") to remove or cause the Title Company to insure over Unpermitted Exceptions. If Seller does not notify Purchaser that it has arranged to have the Unpermitted Exceptions removed or insured over within said thirty (30) business day period, Purchaser may elect either: (i) to terminate this Agreement, in which event the Earnest Money Deposit shall be returned to Purchaser as Purchaser's sole remedy hereunder; or (ii) to take title as it then is, which election must be made within five (5) business days following expiration of said thirty (30) business day period. If Purchaser does not elect to so terminate this Agreement, then: (1) Purchaser shall be deemed to have agreed to accept title as it then is without any reduction in the Purchase Price; (2 all Unpermitted Exceptions (other than those capable of being removed by the payment of money not to exceed the Maximum Amount, in the aggregate) not removed from the Commitment will thenceforth be deemed Permitted Exceptions; and (3) this Agreement shall remain in full force and effect. On the Closing Date, good and marketable title shall be conclusively presumed by, and Purchaser's obligations hereunder shall be conditioned upon, Purchaser's ability to obtain at the promulgated risk rate which shall be paid by Purchaser, an owner's title insurance policy insuring fee simple title in Purchaser as of the Closing Date, in accordance with the Commitment, subject only to the Permitted Exceptions, the general or standard exceptions -7- for taxes for the year of Closing and the rights of tenants as tenants only, and any exceptions for liens and encumbrances created subsequent to the effective date of the Commitment with the Purchaser's specific consent. (b) Survey. Seller shall, within ten (10) days after the Effective Date, deliver to Purchaser a copy of any existing survey, relating to the Real Estate, then in Seller's possession or control. On or before sixty (60) days from the Effective Date, Purchaser shall obtain a survey of the Real Estate and Improvements, at Purchaser's sole cost and expense, dated no earlier than the date hereof and prepared and certified to Purchaser, made in accordance with ALTA/ACSM standards on or after the date of this Agreement by a registered Florida land surveyor ("Survey"). If the Survey shows any material encroachments over a building, set back or property line, a prohibited encroachment of a material nature over any easement or any other matter which or could in the future interfere with the use, operation or financing of the Real Estate and Improvements or render title thereto unmarketable and which are not Permitted Exceptions (collectively "Survey Defects"), Purchaser, within ten (10) days of the date it receives the Survey, may deliver to Seller written notice of those Survey Defects to which it objects, or Purchaser will be deemed to have waived any right to such objection. Seller shall have thirty (30) business days ("Survey Cure Period") from the date of receipt of Purchaser's notice of objections, if any, to cure the Survey Defects. Notwithstanding anything herein to the contrary, Seller shall not be obligated to bring suit or incur a liability of more than the Maximum Amount, in the aggregate, to cure any Survey Defect and Unpermitted Exceptions. If Seller fails to do so, Purchaser shall, within ten (10) days after the end of the Survey Cure Period, elect either to terminate this Agreement by delivering written notice thereof to Seller within said ten (10) day period, or be deemed to have accepted the Property as is. If Purchaser fails to deliver such notice of termination within the time provided, (i) Purchaser shall be deemed to have agreed to accept the Premises as is without any reduction in the Purchase Price and (ii) this Agreement shall remain in full force and effect. All Survey Defects (a) to which Purchaser makes no objection within the time provided in this paragraph, or (b) which Seller does not cure within the Survey Cure Period, and provided Purchaser does not terminate this Agreement as permitted herein, will, in either case, thenceforth be deemed Permitted Exceptions. 7. REPRESENTATIONS AND WARRANTIES. Seller represents and warrants that as of the date hereof and as of the Closing Date: (a) Seller has received no notice from any governmental authority of any pending or threatened zoning, building, fire, or health code violations or violations of other governmental requirements or regulations with respect to the Premises that have not previously been corrected, or any condemnation of the Premises. In the event Seller receives any such notice prior to the Closing Date, it will provide to Purchaser copies of any such notice. Seller agrees to use reasonable efforts to correct any matters disclosed in such notice, provided, however, that Seller shall not be obligated to expend more than the Maximum Amount, in the aggregate, in connection any or all such corrections. If any such matter cannot be corrected by Seller by Closing, Seller shall give Purchaser a credit at Closing for the amount estimated to be required to correct such matter, but in no event more than the Maximum Amount, in the aggregate. If the estimated cost to correct such matter is greater than the Maximum Amount, in the aggregate, either Seller or Purchaser may deliver written notice of termination of this Agreement to the other party, and this Agreement shall thereupon terminate and the Earnest Money Deposit shall be returned to Purchaser, unless either party agrees in writing to pay the excess required to correct such matter. (b) As of the date hereof, there are no leases or other agreements for occupancy in effect with respect to the Premises except for those described upon the schedule of leases and rent roll attached hereto as EXHIBIT "G" (the "Rent Roll"). (c) Seller has received no notices from insurers of defects in the Improvements which have not been corrected. -8- (d) There are no legal actions pending or threatened against the Premises known to Seller nor are there any violations of any building codes or other statutes known to Seller affecting the use, occupancy and enjoyment of the Premises. (e) Except as set forth in EXHIBIT "J" attached hereto, all lease commissions due with regard to the lease terms of existing tenants, all tenant improvement work, all free rent concessions and all other obligations presently due and owing from Seller to existing tenants have been paid or provisions have been made for the payment of same by Seller or credit will be given to Purchaser at Closing for any sums not yet paid by Seller. At Closing, Purchaser shall be deemed to have assumed all liabilities set forth in EXHIBIT "J." (f) The Schedule of Leases and Rent Roll attached hereto as EXHIBIT "G" and the list of Service Contracts attached hereto as EXHIBIT "K" are each accurate in all material respects. (g) Seller has heretofore delivered to Purchaser true and correct copies of the Service Contracts. To Seller's best knowledge, all of the Service Contracts are in full force and effect. Seller has not sent or received any notices of default under the Service Contracts, and, to the best of Seller's knowledge, there are no defaults or events which, with the passage of time or giving of notice, or both, could become a default under the Service Contracts. All charges under the Service Contracts have been or will be paid through the Closing Date. (h) There are no employment, collective bargaining, or similar agreements or arrangements between Seller or Seller's property manager and any of their respective employees that will be binding on Purchaser. Seller has no employees employed relating to the Real Estate. (i) All sales tax on rentals has been collected and paid to the State of Florida from the date Seller acquired the Premises through and including the Date of Closing, or will be paid by Seller prior to the time that the same becomes delinquent. (j) There are no agreements known to Seller for the deferral of real estate taxes or special assessments. (k) Seller has not received notice of any pending or threatened condemnation of all or any part of the Premises. (l) There is no litigation, governmental or administrative proceeding or arbitration known to Seller which is presently pending or threatened with respect to any of the Premises, except for actions which do not in any way affect the current use or operation of any of the Premises. (m) There are no unrecorded rights of first offer to purchase, rights of first refusal to purchase, purchase options or similar rights or contractually required consents to transfer pertaining to the Premises, that were created by virtue of the acts of Seller. (n) Seller is not a "foreign person" within the meaning of Paragraph 1445(f)(3) of the Internal Revenue Code. (o) Seller has not filed or been the subject of any filing of a petition under the Federal Bankruptcy Law or any insolvency laws, or any laws for composition of indebtedness or for the reorganization of debtors. (p) Seller has not received from any insurance company which carries insurance on the Premises, or any Board of Fire Underwriters, any notice of any defect or inadequacy in connection with the Premises or its operations which has not been cured. -9- (q) Except as set forth on EXHIBIT "J," no brokerage commissions or other compensation created by virtue of the acts of Seller is or will be due and payable to any person, firm, corporation or other entity with respect to or on account of any of the Leases, or any renewal thereof that could be a lien against the Premises or claim against Purchaser. At Closing, the Purchaser shall be deemed to have assumed all liabilities set forth on EXHIBIT "J." (r) To the best of Seller's knowledge, the Existing Mortgage is in good standing and not in default and the principal balance due and owing thereon, as of the Closing Date, will be the sum of $6,800,000.00 less principal amount paid in the normal amortization of the loan and less the amounts paid the Mortgagee (if any) as a result of the sale of the Chevron Parcel), and is payable together with interest at the rate of 7.94% per annum on the basis of a 25 year amortization and matures on December 1, 2002. (s) Seller is a duly organized and validly existing general partnership under the laws of the State of New Jersey, and the execution and delivery of this Agreement and the transaction contemplated hereby have been duly authorized and approved by Seller. (t) Seller's partners and the State of organization of each, if applicable, are set forth on EXHIBIT "I" attached hereto. (u) To the best of Seller's knowledge, the Seller's Disclosure Documentation are accurate in all material respects. The representations and warranties contained in this Section 7 shall survive the Closing for a period of six (6) months, provided that any representation and warranty set forth in clause (i) of this Section shall continue as long as the State of Florida has any right to claim such taxes from Purchaser. Each such representation and warranty shall expire and terminate automatically at the expiration of the applicable time period described in the preceding sentence, except to the extent, if any, suit for breach thereof is instituted during such period in which case the representation or warranty sued upon shall survive until such time as the suit is dismissed or adjudicated. 8. PURCHASER'S REPRESENTATIONS AND WARRANTIES. Purchaser represents and warrants to Seller that Purchaser is a duly organized and validly existing corporation under the laws of the State of Delaware and the execution and delivery of this Agreement and the transaction contemplated hereby have been duly authorized and approved by Purchaser. 9. SELLER'S COVENANTS. Between the date of the execution of this Agreement and the Closing, Seller shall: (a) Maintain the Premises in its present condition, ordinary wear and tear excepted; (b) Use reasonable efforts to maintain all casualty, liability and hazard insurance currently in force with respect to the Premises (it is understood that the existing insurance policy will not be renewed by the insurer and that Seller is seeking replacement coverage for the Premises); and (c) Lease, operate, manage and enter into contracts with respect to the Premises, in substantially the same manner done by Seller prior to the date hereof, maintaining present services and sufficient supplies and equipment for the operation and maintenance of the Premises in substantially the same manner as prior to the date hereof; provided, however, that Seller shall not enter into any service contract that cannot be terminated within thirty (30) days and shall not enter into any leases with proposed tenants to lease portions of the Real Estate without the prior written consent of Purchaser, which consent shall not be unreasonably withheld, conditioned, or delayed, provided that the terms of such proposed lease shall be at then market terms and conditions and for a term of no longer than five (5) years. -10- (d) Afford Purchaser and its investment adviser, agents, and consultants, at reasonable times, continued access to the Premises to the same extent as Purchaser had and subject to the same indemnity provisions applicable during the Due Diligence Period. (e) Not declare any Tenant to be in default, amend or modify any lease in a manner materially adverse to Purchaser's interests without Purchaser's consent, which consent will not be unreasonably withheld, conditioned, or delayed. 10. PRORATIONS AND ADJUSTMENTS. The following shall be prorated and adjusted between Seller and Purchaser, on a per diem basis, as of the Closing Date, except as otherwise specified: (a) Minimum rents and other monthly charges shall be prorated as follows: Purchaser shall receive a proration credit for all current minimum rents and monthly charges received by Seller prior to the Closing Date to the extent attributable to any period after the Closing Date. Prepaid rents and other prepaid charges shall be credited to Purchaser to the extent attributable to any period after the Closing Date. Past due rents (excluding percentage rents for the present period), past due percentage rents, past due tax contributions, past due common area maintenance, and other past due charges charged to tenants of the Premises ("Tenants") which exist at time of closing (all hereinafter collectively called "Delinquent Rents") shall not be prorated. (b) The amount of all unapplied security and other Tenant deposits, or other monies collected by Seller wherein the Tenant is entitled to a refund of part or all of such amount collected, and interest due thereon, if any, shall be credited to Purchaser. Seller hereby agrees that it shall remain liable to Purchaser for any security deposit or other Tenant deposits to rent due from any Tenant, except (i) where otherwise provided for in the subject Lease or (ii) where the Tenant is in default under the subject Lease, when such application is noted on the Rent Roll, or (iii) such Tenant has vacated the Premises and its security deposit has been applied against said Tenant's obligations to Seller, or (iv) where the application thereof is noted on the Rent Roll. (c) The amount of any other credits due Tenants, as specifically provided for in any Lease, which have not already been credited to a particular Tenant shall be credited to Purchaser. Notwithstanding the foregoing sentence, with regard to all new leases entered into subsequent to the Effective Date, which leases have been approved by Purchaser, Purchaser shall be responsible for paying all leasing commissions (not to exceed $4.00 per square foot) and all tenant improvement costs and concessions agreed to be paid for by landlord pursuant to the terms of such Purchaser approved lease. (d) Percentage rents shall be prorated as follows: If Seller has received any monthly, quarterly, or other advance payments of percentage rent for a Tenant's fiscal year ending after the Closing Date, the aggregate amount of such payments shall be credited to Purchaser at Closing. For each Tenant paying percentage rent, at the end of the Tenant's fiscal year within thirty (30) days, after the Tenant has paid percentage rent to Purchaser based on such Tenant's 1996 certified sales, Purchaser shall deliver written notice thereof to Seller along with copies of all supporting information provided by the Tenant and simultaneously therewith Purchaser shall pay to Seller, net of management fees, an amount determined by multiplying the percentage rent paid by a Tenant by a fraction, the numerator of which shall be the number of days during that Tenant's fiscal year for purposes of calculating percentage rent and for which the percentage rent is being paid that the Seller owned the Premises and the denominator of which shall be 365. If the Tenant paying percentage rent pays same based upon a reporting period of other than 365 days, then the figure used as the denominator in the formula provided above shall be the number of days in that Tenant's reporting period rather than 365 days. Purchaser shall exercise after Closing its reasonable efforts to collect all percentage rents to which Seller is entitled to a portion thereof. (e) Should the Leases, or certain of the Leases, contain a provision obligating the Tenant thereunder to pay to the Landlord under the Lease, subsequent to the end of each calendar year, a portion of the -11- real property taxes, assessments, common area maintenance costs, insurance, or operating costs required to be paid by Seller, excluding advertising and promotion costs (the "Tenant's Contribution"), the Tenant's Contribution relating to the calendar year in which the Closing Date occurred shall be prorated on a Tenant by Tenant basis and on an expense occurred basis. Purchaser shall pay to Seller, or Seller shall pay to Purchaser, as the case may be, within forty-five (45) days of the date of receipt of such sums, an amount determined by multiplying the Tenant's Contribution paid by a Tenant by a fraction, the numerator of which shall be the total expenses paid by Seller prior to the Closing Date, and the denominator of which shall be the total expenses incurred for 1996. It is the intent of Seller and Purchaser that all Tenant Contributions collected by Purchaser from Tenants for the period prior to Closing shall be retained by Purchaser and all Tenant Contributions collected by Seller from Tenants for the period after Closing shall be retained by Seller and that after Closing Seller and Purchaser shall adjust and pay each other the amounts necessary to recover any surplus or deficiency in accordance with the underlying actual cost figures as they become known. For example, if the Closing Date occurs on June 30, 1996, and at such date common area maintenance costs, real property taxes, insurance, and operating expenses paid by the Seller total $100,000, of which Seller has received $100,000 from Tenants, and on December 31, 1996, such expenses total $300,000, of which Purchaser has received $150,000 from Tenants, the proration would be calculated as follows, such calculation to be performed on a Tenant by Tenant basis: Purchaser Seller Total Total Expenses 200,000 100,000 300,000 Recovery Amount 270,000 Prorated x 2/3 x 1/3 180,000 90,000 270,000 Received 150,000 100,000 250,000 ------- ------- -------4 Due from Tenants 20,000 Due from Seller 10,000 In the event Purchaser has not collected such Tenant's Contribution within ninety (90) days after the Tenant's Contribution is billed to Tenant, and is not then making a good faith effort to collect the same, Seller shall have the right to pursue collection of Tenant's Contribution. Tenant's Contribution collected by either party shall be prorated between Purchaser and Seller as provided in this paragraph 9(e) after payment of reasonable costs of collection. In the event Seller has collected Tenant's Contribution prior to the Closing for any portion of the year 1996, Purchaser shall be credited at Closing with the portion, if any, of the Tenant's Contribution so collected applicable to the period after the Closing Date. (f) Prepaid premiums under any assigned insurance policies shall be credited to Seller. (g) Amounts paid or payable under assigned Service Contracts shall be prorated. (h) Accrued general real estate, personal property, and ad valorem taxes for the current year shall be prorated on the basis of bills, if available prior to Closing. If such bills are not available, then such taxes shall be prorated on the basis of the most recent ascertainable taxes for the Premises (based on the maximum discount amount, then available at the time of Closing, for early payment) and promptly reprorated upon the issuance of final bills therefor and any amounts due from one party to the other shall be paid in cash at that time. (i) Special assessments which are certified or become a lien prior to Closing and pending special assessments in which the work has been substantially completed prior to Closing shall be credited to Purchaser at Closing. All other pending liens for special assessments, the Purchaser shall take subject to. -12- (j) Commissions of leasing and rental agents for any Lease entered into before the Closing Date shall be paid exclusively by Seller at or prior to Closing, pursuant to the terms relating to such payment, except for those shown on EXHIBIT "J" or as described in Section 10(c) above which shall be assumed by Purchaser. (k) The amount of any unused maintenance reserve shall be credited to Purchaser. (l) Such other items and expenses that are customarily prorated in transactions of this nature shall be prorated, provided that such amounts shall be reprorated upon receipt of the actual bills. If possible, Seller will assign its utility deposits to Purchaser and receive a credit therefor. (m) Seller shall pay over to Purchaser all unpaid funds, if any, collected by Seller from Tenants, to be used for promotion of the Real Estate and Improvements. (n) Interest on the Existing Mortgage as of the Closing Date, and Purchaser shall be charged with, and Seller shall be credited with, all amounts held by the Mortgagee, as of the Closing Date, for tax, insurance, or other escrow purposes. In all instances in Section 10 hereinabove where Purchaser, after the Closing, collects monies from Tenants and the Seller is entitled to all or a portion thereof, Purchaser shall pay to Seller, within thirty (30) days from date of receipt by Purchaser, those sums to which the Seller is entitled to receive in accordance with the provisions of Section 10 hereinabove. As to the Delinquent Rents, after the Closing Purchaser shall, upon Seller's written request, assign to Seller Purchaser's interest in Delinquent Rents for the purpose of collection (which may include the filing of any lawsuit). If Seller intends to commence litigation in connection with such collection, Seller shall give Purchaser written notice of such intention prior to actually filing such litigation. If Purchaser attempts collection, Purchaser shall be entitled to recover from Seller all reasonable costs and expenses of such action against a delinquent Tenant that are not recovered and collected from such delinquent Tenant. Any Delinquent Rents collected by the Purchaser shall first be applied toward payment of costs of collection, then to current rent and other obligations due the Purchaser and, thereafter, said sum shall be applied to Delinquent Rents owed by that Tenant, with the earliest Delinquent Rents being paid first. At any time after six (6) months following the Closing, Seller shall have the right to pursue collections of such Delinquent Rents, and shall apply any Delinquent Rents collected first toward payment of the reasonable costs of collection, then to Delinquent Rents with the earliest Delinquent Rents being paid first and thereafter to rents due Purchaser from the Tenant owing such Delinquent Rents only through the month of the Closing. Seller and Purchaser agree to make end of year adjustments to the foregoing prorations, where the amounts prorated are based upon estimates as opposed to actual figures, said adjustments to be made within forty five (45) days of the date when the actual figures are available and based on actual collections. At Closing and for up to three (3) years after Closing, Seller shall direct the then property manager (the "Then Property Manager") to make available at the offices of the Then Property Manager, all contracts, leases and leasing correspondence, receipts for deposits, financial reports, billings to tenants, invoices from vendors, and unpaid bills which pertain to the Premises, together with all advertising materials, booklets, and keys, if any, used in the operation of the Premises. Seller makes no representations regarding the existence or adequacy of such documents or items for use in management or operation of the Premises. The foregoing shall not include the separate books, records, correspondence and other documentation of Seller relating exclusively to Seller's other properties located at its offices. For purposes of calculating prorations, Purchaser shall be deemed to be in title to the Premises, and therefore entitled to the income therefrom and responsible for the expenses thereof, for the entire day upon which the Closing is completed. All such prorations shall be made on the basis of the actual number of days of the -13- year and months which shall have elapsed as of the Closing Date. The amount of such prorations shall be adjusted in cash at or after Closing, as and when complete and accurate information becomes available and, as, and when the cash has been collected, if applicable. If such information is not available as of the Closing, Seller and Purchaser agree to prorate based on a reasonable estimate of such taxes and to cooperate and use their best efforts to make such adjustments no later than thirty (30) days after such figures become available to Purchaser and Seller. Bills received after Closing which relate to expenses incurred, services performed, or other amounts allocable to the period prior to the Closing Date shall be paid by Seller. If any claim is asserted against Purchaser or the Premises or any liability is incurred by Purchaser or the Premises at any time subsequent to the Closing Date, which was not adjusted hereunder, and, if any such claim or liability is based upon or arises out of any occurrence or state of facts or any act or omission of Seller existing at any time from the date Seller acquired the Premises to the Closing Date, Seller shall satisfy such claim or liability and shall indemnify, defend, protect, and hold Purchaser and the Premises harmless therefrom and from any costs and expenses (including without limitation reasonable attorneys' fees) incurred by Purchaser in connection therewith. All items paid or credited to Seller in connection with this section shall be paid net of management fees applicable to those funds so collected and sales taxes and any other costs of collection incurred by the Purchaser. If any claim is asserted against Seller or any liability is incurred by Seller at any time subsequent to the Closing Date, which was not adjusted hereunder, and if any such claim or liability is based upon or arises out of any occurrence or state of facts occurring after the Closing Date or as a result of any act of the Purchaser, Purchaser shall satisfy such liability and shall indemnify, defend, protect, and hold Seller harmless therefrom and from any costs and expenses (including without limitation reasonable attorneys' fees) incurred by Seller in connect therewith. 11. TRANSFER TAXES; TITLE CHARGES; AND OTHER EXPENSES. Seller and Purchaser agree to execute any real estate transfer declarations required by the state, county or municipality in which the Real Estate is located. Seller shall pay the cost of any state or county deed or transfer taxes and surtax. Purchaser shall pay the cost of recording the instruments of conveyance, the Assumption Fee, all documentary stamps, intangible taxes, recording fees, and the reasonable fees of Mortgagee's counsel and other reasonable and customary costs with respect to the assumption. If the transaction is terminated by either party on account of default by the other, the defaulting party shall pay all title examination and search costs billed by the Title Company. Each party shall pay its own attorneys' fees except as otherwise provided in this Agreement. 12. RISK OF LOSS. Except as provided in any indemnity provision of this Agreement, Seller shall bear all risk of loss with respect to the Premises up to the earlier of the dates upon which either possession or title is transferred to Purchaser in accordance with this Agreement. Notwithstanding the foregoing, in the event of damage to the Premises by fire or other casualty prior to the Closing Date, the repair of which would cost less than $250,000.00 (as determined by Purchaser in good faith), Purchaser shall not have the right to terminate its obligations under this Agreement by reason thereof, but Seller shall have the right to elect to either repair and restore the Premises or to assign and transfer to Purchaser on the Closing Date all of Seller's right, title, and interest in and to all insurance proceeds paid or payable to Seller on account of such fire or casualty, provided that such proceeds and any deductible, which shall be paid to Purchaser or credited against the Purchase Price, are sufficient to repair or restore the Premises. Seller shall promptly notify Purchaser in writing of any such fire or other casualty and Seller's determination of the cost to repair the damage caused thereby. In the event of damage to the Premises by fire or other casualty prior to the Closing Date, repair of which would cost in excess of $250,000.00 (as determined by Purchaser in good faith), then this Agreement may be terminated at the option of Purchaser, which option shall be exercised, if at all, by Purchaser's written notice thereof to Seller within twenty (20) business days after Purchaser receives written notice of such fire or other casualty and Purchaser's determination of the amount of such damages, and upon the exercise of such option by Purchaser this Agreement shall become null and void, the Earnest Money deposit shall be returned to Purchaser, and neither party shall have any further liability or obligations hereunder. If Purchaser does not so elect to terminate, then Purchaser shall not have the right to terminate this Agreement and Seller shall assign and transfer to Purchaser on the Closing Date all of Seller's right, title, and interest in and to all insurance proceeds paid or payable to Seller on account of such fire or casualty, together with the amount of any deductible, and Seller shall have no obligation to repair or restore the Premises. -14- 13. CONDEMNATION. In the event between the date of this Agreement and the Closing Date, any condemnation or eminent domain proceedings are initiated which might result in the taking of any part of the Real Estate or the Improvements or the taking or closing of any right of access to the Premises or the termination of any lease of an Anchor Lease or Required Tenant, Purchaser may: (a) terminate this Agreement by written notice to Seller; or (b) proceed with the Closing, in which event Seller shall assign to Purchaser all of Seller's right, title, and interest in and to any award made in connection with such condemnation or eminent domain proceedings. Seller shall immediately notify Purchaser in writing of the commencement or occurrence of any condemnation or eminent domain proceedings. If such proceedings would result in the taking of any of the Real Estate or the Improvements or the taking or closing of any right of access to the Premises, or the termination of any Anchor Lease or Required Lease, Purchaser shall then notify Seller, within twenty (20) days of Purchaser's receipt of Seller's Notice, whether Purchaser elects to exercise its rights under subparagraph (a) or subparagraph (b) of this section 13. Closing shall be delayed, if necessary, until Purchaser makes such election. If Purchaser fails to make an election within such twenty (20) day period, Purchaser shall be deemed to have elected to exercise its rights under subparagraph (b) and closing shall be delayed, if necessary, until the later to occur of (i) the Closing Date or (ii) twenty (20) days after the expiration of the twenty (20) day period. 14. DEFAULT. If this transaction is not consummated by reason of a default by Purchaser hereunder, then Seller shall retain the Earnest Money Deposit as full compensation for its damages and as it sole remedy. If this transaction is not consummated by reason of a default by Seller hereunder, Purchaser shall have the right to: (a) declare this Agreement terminated, in which event the Earnest Money Deposit shall be returned to Purchaser or (b) seek specific performance of this Agreement. 15. NOTICE. All notices required or permitted hereunder shall be in writing and shall be served on the Parties at the following address: If to Purchaser: Basic Acquisitions, Inc. 7850 N.W. 146th Street, Suite 308 Miami Lakes, Florida 33016 Attn: Carl K. Maynard, President Facsimile: (305) 825-9681 With a Copy to: Morton P. Brown, Esquire Fowler, White, Burnett, Hurley, Banick & Strickroot 100 Southeast Second Street 17th Floor Miami, Florida 33131-1101 Facsimile: (305) 789-9201 If to Seller: Miami Gardens Associates, a New Jersey general partnership c/o Brad McNutt Stiles Realty 6400 N. Andrews Avenue Ft. Lauderdale, Florida 33309-2114 Facsimile: (305) 771-0416 -15- With Copies to: Neil Platock, Esq. Honigman, Miller, Schwartz & Cohn 222 Lakeview Avenue, Suite 800 West Palm Beach, Florida 33401 Facsimile: (407) 832-3036 Any such notices may be sent by (a) certified mail, return receipt requested, in which case notice shall be deemed delivered three business days after deposit, postage prepaid in the U.S. mail or (b) a nationally recognized overnight courier, in which case notice shall be deemed delivered one business day after deposit with such courier or (c) facsimile transmission, in which case notice shall be deemed delivered upon electronic verification that transmission to recipient was completed. The above addresses and facsimile numbers may be changed by written notice to the other party; provided that no notice of a change of address or facsimile number shall be effective until actual receipt of such notice. Copies of notices are for informational purposes only, and a failure to give or receive copies of any notice shall not be deemed a failure to give notice. 16. TIME OF ESSENCE. Time is of the essence of this Agreement. 17. GOVERNING LAW. The validity, meaning and effect of this Agreement shall be determined in accordance with the laws of the State of Florida. 18. COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. 19. CAPTIONS. The captions in this Agreement are inserted for convenience of reference and in no way define, describe or limit the scope or intent of this Agreement or any of the provisions hereof. 20. ASSIGNABILITY. Purchaser may assign its rights under this Agreement without the prior written consent of Seller, provided, however, that: (a) the original Purchaser shall remain liable for the performance of all of Purchaser's obligations hereunder; (b) Seller shall incur no additional expenses on account of such assignment; and (c) Purchaser shall disclose the identity of such assignee to Seller, and shall supply to Seller all information regarding such assignee as may be reasonably requested by Seller, not later than ten (10) business days prior to the closing of this transaction. Notwithstanding the immediately preceding sentence, clause (c) thereof will not be applicable to any assignment of Purchaser's rights under this Agreement if such assignment is to an entity affiliated with Purchaser or any of Purchaser's principals. 21. BINDING EFFECT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, successors and permitted assigns. 22. MODIFICATIONS; WAIVER. No waiver, modification amendment, discharge or change of this Agreement shall be valid unless the same is in writing and signed by the party against which the enforcement of such modification, waiver, amendment, discharge, or change is sought. 23. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the parties relating to the transactions contemplated hereby and all prior or contemporaneous agreements, understandings, representations or statements, oral or written, are superseded hereby. 24. PARTIAL INVALIDITY. Any provision of this Agreement which is unenforceable or invalid or the inclusion of which would adversely affect the validity, legality or enforcement of this Agreement shall be of no effect, but all the remaining provisions of this Agreement shall remain in full force and effect. -16- 25. SURVIVAL. The obligations of Seller and Purchaser under this Agreement which are expressly or impliedly intended to survive Closing shall survive the Closing of this transaction. The indemnity provisions under this Agreement shall survive the termination of this Agreement. 26. NO THIRD-PARTY RIGHTS. Nothing in this Agreement, express or implied, is intended to confer upon any person, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Agreement. 27. FURTHER ACTIONS. The parties hereto agree that should any act or actions of any party hereto be reasonably required to be performed after the Closing, to carry out the intention of this Agreement, said party will perform same upon request of the other party. 28. BROKER. Seller and Purchaser represent each to the other that each has had no dealings with any broker, finder or other party concerning Purchaser's purchase of the Premises except Stiles Realty ("Stiles") and Maynard Rich/Abraham, Inc. ("Maynard") (Maynard and Stiles collectively the "Brokers"). Seller agrees to pay a commission to Brokers as separately agreed between Seller and Brokers. Seller and Purchaser each hereby agrees to indemnify and hold the other harmless from all loss, cost, damage or expense (including reasonable attorney's fees) incurred by the other as a result of any claim arising out of the acts of the indemnifying party (or others on its behalf) for a commission, finder's fee or similar compensation made by any broker, finder or any party who claims to have dealt with such party except Broker. The representations and warranties contained in this section 28 shall survive the Closing or the termination of this Agreement. 29. EFFECTIVE DATE. For purposes of calculation of all time periods within which Seller or Purchaser must act or respond as herein described, all phrases such as "the date of this Agreement", "the date of execution of this Agreement" or any other like phrase referring to the date of the Agreement, shall mean and refer to the Effective Date of this Agreement as described in the first sentence of page 1 hereof, which shall be the date when the last of the Seller and Purchaser have executed this Agreement. 30. NO RECORDING. Seller and Purchaser agree that neither this Agreement nor any memorandum thereof shall be recorded. 31. TERMINATION OF EXISTING MANAGEMENT AND EMPLOYEE CONTRACTS. On or before the expiration of the Due Diligence Period, Purchaser shall advise Seller, in writing, which of the Service Contracts it intends to assume and which Purchaser requests that Seller terminate on or before the Closing Date. Within ten (10) business days after receipt of Purchaser's notice, Seller shall advise Purchaser in writing whether any Service Contracts Purchaser has requested Seller to terminate cannot be terminated prior to Closing or can be terminated prior to Closing only with the payment of a fee or penalty and: (a) with respect to those Service Contracts which cannot be terminated, Purchaser shall advise Seller in writing, within five (5) business days of receipt of Seller's notice, that Purchaser has either agreed to assume such Service Contracts or has elected to terminate this Agreement in which latter instance, the Earnest Money Deposit shall be returned to Purchaser and neither Seller nor Purchaser shall have any further liability to the other; and (b) with respect to those Service Contracts which can be terminated prior to the Closing, but only with the payment of a fee or penalty which Seller does not agree to pay, Purchaser shall advise Seller in writing, within five (5) business days of receipt of Seller's notice, that Purchaser has either agreed to pay the termination fee or penalty or has elected to terminate this Agreement, in which latter instance the Earnest Money Deposit shall be returned to Purchaser and neither party shall have any further liability to the other. On or before the Closing Date, Seller shall terminate all of its employees of the Premises and all contracts related to the management and operation of the Premises (other than the Service Contracts which -17- Purchaser has elected to assume in the manner provided herein), including, without limitation, any property management and leasing agreements together with such releases and other evidence and assurances that Purchaser shall have no liability with respect to any such terminated employees and contracts (other than the Service Contracts which Purchaser has elected to assume in the manner herein provided) except as set forth hereinabove with respect to termination fees or penalties to be paid by Purchaser in connection with the termination of Service Contracts. Seller shall defend, indemnify and hold Purchaser harmless from any claims or damages arising from terminated Service Contracts (unless pursuant to the terms of the Service Contract in question such Service Contract may not be terminated or unless and to the extent Purchaser is obligated to pay a termination fee or penalty in connection with the termination of a Service Contract as set forth above) or from any claims of employees of Seller whose employment was not continued after the Closing Date. Seller's obligations relating to former employees and Purchaser's obligations with respect to the payment of termination fees or penalties as hereinabove provided shall survive the Closing. 32. ADDITIONAL CLOSING CONTINGENCIES. The Closing and the obligation of Purchaser to close this Agreement shall, in addition to any other conditions, be conditioned expressly on the satisfaction of the following conditions as of the Closing Date: (a) The representations and warranties of Seller contained in this Agreement shall be true, correct, and complete in all material respects and shall also be true, correct, and complete in all material respects as of the Closing Date as if made on and as of such date. (b) Each of the agreements to be performed by Seller on or prior to the Closing Date pursuant to the terms of this Agreement shall have been performed in all material respects. (c) At the time of Closing (i) all of the now existing tenants, as shown on the Rent Roll, shall be open for business and conducting their regular business operations in their respective stores at the Premises, and (ii) none of such tenants shall have given notice of their intention to (A) close any such stores or (B) materially reduce the hours during which any such stores are normally open or otherwise change the manner of operation of any such stores, in either case in any material respect. The immediately preceding sentence shall not be applicable to leaseable space within the Premises of less than 4,000 square feet in the aggregate which may be vacant (for purposes hereof, the term "vacant" shall mean all vacant store(s) within the Premises, any existing tenant which materially reduced [or has given Seller notice of its intention to reduce] the hours during which any such tenant normally maintains store hours or otherwise materially changes [or has given Seller notice of its intention to materially change] the manner of operation of any such stores, and tenants which have given notice to Seller of its intention to close its store). (d) Seller and Purchaser shall deliver an executed escrow agreement (the "Escrow Agreement"), in form and content reasonably acceptable to Seller and Purchaser. The Escrow Agreement shall provide, among other things, that at Closing Seller shall deliver to the Escrow Agent the sum of $150,000.00 (the "Escrow Deposit") which shall be held by the Escrow Agent in an interest bearing account. At any time prior to Closing, Seller and BellSouth Mobility, Inc. or its affiliate or designee ("BellSouth") may enter into an option and lease agreement (with a minimum net rent of $16,000 per year and lease term of not less than five years) substantially in form attached hereto ("BellSouth Lease"), and/or Seller and Majorco, L.P., or its affiliate or designee ("Sprint") may enter into an option and lease agreement in a form to be approved by Seller and Purchaser, which approval shall not be unreasonably withheld or delayed ("Sprint Lease"), failing which Purchaser will use reasonable efforts to enter into the BellSouth Lease and/or the Sprint Lease, as requested by Seller, for a period of ninety (90) days after Closing. Should BellSouth not execute the BellSouth Lease or BellSouth does not exercise its option to lease the premises, the Sprint Lease shall be in form and content substantially similar to the BellSouth Lease and shall require a minimum net rent paid to Purchaser of $16,000 per year and a lease term of not less than five years. The BellSouth Lease and, once approved by Seller and Purchaser, the Sprint Lease may not be modified without Purchaser's consent which such consent will not be unreasonably withheld or delayed, except that Seller's consent shall not be required once the Escrow Deposit is -18- disbursed as hereinafter provided. The improvements to be constructed by BellSouth or Sprint shall be in accordance with the terms and conditions of the BellSouth Lease or Sprint Lease, as applicable, at the sole cost and expense of BellSouth or Sprint, respectively. All plans and specifications required to be submitted to Seller pursuant to the BellSouth Lease or Sprint Lease, as applicable, shall be submitted to Purchaser for approval, which such approval shall not be unreasonably withheld or delayed, keeping in mind the time frames, if any, set forth in the BellSouth Lease or Sprint Lease, as applicable. In the event BellSouth does not enter into the BellSouth Lease within ninety (90) days after the Closing Date and/or Sprint does not enter into the Sprint Lease within ninety (90) days after the Closing Date, the Escrow Agent shall deliver the Escrow Deposit and the interest earned thereon to the Purchaser. In the event Seller or Purchaser and BellSouth enter into the BellSouth Lease, or Seller or Purchaser and Sprint enter into the Sprint Lease at any time between the date of this Agreement and ninety (90) days after the Closing Date, and either BellSouth or Sprint exercises its option to lease the premises therein described prior to the expiration of four hundred fifty-five (455) days after the Closing, the Escrow Agent shall deliver the Escrow Deposit and the interest earned thereon to the Seller, and if such option is not exercised within the time period, then the Escrow Agent shall deliver the Escrow Deposit and the interest earned thereon to the Purchaser. Should as a result of the BellSouth Lease and/or the Sprint Lease any option fee(s) be paid by BellSouth and/or Sprint any option fee(s) paid prior to Closing shall be paid to the Seller without any accounting therefor to the Purchaser, however, any option fee(s) paid after Closing shall be paid to the Purchaser without any accounting therefor to the Seller. Purchaser shall have the right to waive any condition of its obligations under this Agreement, provided that any such waiver shall be in writing. The Closing of the transaction contemplated by this Agreement shall constitute a waiver of any unsatisfied closing condition provided that no such waiver shall release either party from its liability under the representations and warranties it has made in this Agreement. 33. UTILITY CUT-OFF. Purchaser and Seller shall coordinate to have all utility meters read immediately prior to the Closing and to transfer all utilities to the Purchaser as of the Closing Date. Purchaser shall pay whatever utility deposits that may be required and Seller shall be entitled to receive from the various utility companies a return of any of its existing utility deposits. 34. RADON GAS. The following notification is hereby given pursuant to Florida Statutes Section 404.056(7) (1993): RADON GAS: Radon is a naturally occurring radioactive gas that, when it has accumulated in a building in sufficient quantities, may present health risks to persons who are exposed to it over time. Levels of radon that exceed federal and state guidelines have been found in buildings in Florida. Additional information regarding radon and radon testing may be obtained from your county public health unit. 35. LITIGATION. In the event of litigation, including but not limited to appeals, between the parties with respect to this Agreement, the performance of the obligations hereunder or the effect of a termination under this Agreement, the losing party shall pay all costs and expenses incurred by the prevailing party in connection with such litigation, including reasonable attorneys' fees. Notwithstanding any provision of this Agreement to the contrary, the obligations of the parties under this Section 35 shall survive termination of this Agreement. 36. DATES. If any date herein set forth for the performance of any obligations by Seller or Purchaser or for the delivery of any instrument or notice as herein provided should be on a Saturday, Sunday or legal holiday, the compliance with such obligations or delivery shall be deemed acceptable on the next business day following such Saturday, Sunday or legal holiday. As used herein, the term "legal holiday" means any state or federal holiday for which financial institutions or post offices are generally closed in the State of Florida for observance thereof. As used in this Agreement, the term "business day" means a day other than a Saturday, Sunday or legal holiday. -19- 37. PREPARATION OF AGREEMENT. The Seller and Purchaser have participated equally in the drafting and preparation of this Agreement, and it shall not be construed against either party on the basis that that party drafted the Agreement. 38. LIKE-KIND EXCHANGE. At the request of Seller, the Purchaser shall, at no cost or expense to the Purchaser, cooperate with Seller if Seller desires to effectuate the sale of the Premises to Purchaser as a "like-kind" exchange pursuant to Section 1031 of the United States Internal Revenue Code. -19a- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. Witnesseth: /s/ illegible MIAMI GARDENS ASSOCIATES, - ------------------- a New Jersey general partnership By: Garden Square Associates, L.P., a /s/ illegible Delaware - ------------------- limited partnership, as general As to Seller partner By: Englewood Gardens, Inc., a Florida corporation, as sole general partner By: /s/ illegible ------------------------ Print Name: illegible ---------------- Title: Pres. --------------------- Witnesseth: /s/ illegible BASIC ACQUISITIONS, INC., - ------------------- a Delaware corporation /s/ illegible - ------------------- By: /s/ illegible As to Purchaser ------------------------------- Print Name: illegible ----------------------- Title: V.P. ----------------------------- As Escrow Agent, we hereby acknowledge receipt of the Initial Deposit pursuant to the Real Estate Purchase and Sale Agreement and agree to be bound by and comply with all provisions of this Agreement which relate to the Earnest Money Deposit and Escrow Agreement. DATED this 24 day of July, 1996. ESCROW AGENT: FOWLER, WHITE, BURNETT, HURLEY, BANICK & STRICKROOT, P.A. By: /s/ Morton P. Brown -------------------------------- Morton P. Brown -20- EX-10.5 9 1ST AMD TO REAL ESTATE PURCH & SALE AGMT (MIAMI/BA FIRST AMENDMENT TO REAL ESTATE PURCHASE AND SALE AGREEMENT This First Amendment to Real Estate Purchase and Sale Agreement ("First Amendment") is made and entered into as of this 5th day of September 1996, by and between Miami Gardens Associates, a New Jersey general partnership ("Seller") and Basic Acquisitions, Inc., a Delaware corporation ("Purchaser"). WITNESSETH: Whereas, Seller and Purchaser have previously entered into a Real Estate Purchase and Sale Agreement, dated as of July 24, 1996, (the "Agreement") relating to the sale by the Seller and the purchase by the Purchaser (the "Transaction") of certain real property located in Dade County, Florida, and commonly referred to as the Garden Square Shopping Center; and Whereas, the Seller and the Purchaser now desire to modify and amend the Agreement in accordance with the provisions set forth in this First Amendment. NOW, THEREFORE, for and in consideration of Ten and No/100 ($10.00) Dollars and other good and valuable consideration, and for and in consideration of the mutual covenants and conditions herein set forth, the parties hereto agree to modify the Agreement as hereinafter set forth: 1. The Purchase Price as set forth in Paragraph 2 of the Agreement is changed so as to reduce the Purchase Price by the sum of Two Hundred Thousand ($200,000.00) Dollars, thereby reducing the Purchase Price to the sum of Nine Million Four Hundred Fifty Thousand ($9,450,000.00) Dollars. 2. The Closing Date provided for in Paragraph 4(a) of the Agreement is hereby changed from November 15, 1996, to January 3, 1997, to commence at 9:30 a.m. 3. The Seller and the Purchaser acknowledge and agree, (and to the extent that the Agreement may be contrary to this acknowledgement, set forth in Subparagraph (a) below, the Agreement shall be deemed amended in accordance with the provisions of this acknowledgement as follows: (a) Prior to the execution of this First Amendment the Seller obtained a Judgment against Optical Depot II, Inc., and Sherry R. Walde, in case number 96- 3114 entered in the Circuit Court in and for the 11th Judicial Circuit of Dade County, Florida, said Judgment being dated August 13, 1996, (the "Judgment"). The parties hereto acknowledge that the Purchaser, by virtue of the transaction, shall have no right to an assignment of the Judgment, nor shall the Purchaser be entitled to any funds paid by the defendants therein to the plaintiff therein (the Seller), in payment of said Judgment. Further, none of the provisions of Paragraph 10 of the Agreement dealing with prorations and adjustments shall apply to the Judgment or any funds in payment thereof. 4. All capitalized terms as provided for in this First Amendment shall be deemed defined terms and shall have the meaning as defined in the Agreement unless otherwise defined in this First Amendment. 5. The Agreement shall remain in full force and effect and binding upon the parties hereto as is set forth in the Agreement, except as modified by this First Amendment. 6. This First Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly signed, sealed, and delivered this First Amendment, as of the day, month, and year first above written. Witnesseth: BASIC ACQUISITIONS, INC. a Delaware corporation /s/ illegible - ---------------------- By: /s/ Carl K. Maynard ------------------------------ - ---------------------- Print Name: CARL K. MAYNARD ---------------------- Title: President --------------------------- MIAMI GARDEN ASSOCIATES, a New Jersey general partnership Witnesseth: By: Garden Square Associates, L.P., a Delaware limited partnership, as general partner - ---------------------- By: Englewood Gardens, Inc., a Florida corporation, as sole general partner - ---------------------- By: ------------------------------ Print Name: ----------------------- Title: --------------------------- EX-10.5-1 10 2ND AGMT REAL ESTATE PURCH & SALE AGMT BASIC/MIAMI SECOND AMENDMENT TO REAL ESTATE PURCHASE AND SALE AGREEMENT This Second Amendment to Real Estate Purchase and Sale Agreement ("Second Amendment") is made and entered into as of this 9th day of September 1996, by and between Miami Gardens Associates, a New Jersey general partnership ("Seller") and Basic Acquisitions, Inc., a Delaware corporation ("Purchaser"). WITNESSETH: Whereas, Seller and Purchaser have previously entered into a Real Estate Purchase and Sale Agreement, dated as of July 24, 1996, (the "Agreement") as modified by that First Amendment to Real Estate Purchase and Sale Agreement dated as of September 5, 1996 (the "First Amendment") relating to the sale by the Seller and the purchase by the Purchaser (the "Transaction") of certain real property located in Dade County, Florida, and commonly referred to as the Garden Square Shopping Center; and Whereas, the Seller and the Purchaser now desire to further modify and amend the Agreement in accordance with the provisions set forth in this Second Amendment. NOW, THEREFORE, for and in consideration of Ten and No/100 ($10.00) Dollars and other good and valuable consideration, and for and in consideration of the mutual covenants and conditions herein set forth, the parties hereto agree to further modify the Agreement as hereinafter set forth: 1. The Due Diligence Period (solely for purposes of environmental risks) is hereby extended to September 23, 1996 at 5:00 p.m. (Miami, Florida time). In no event, shall this Second Amendment be construed to extend the Due Diligence Period for any other contingency or purpose. 2. Section 2(a) of the Agreement is hereby amended by deleting the following: "In the event the Purchaser does not terminate this Agreement in accordance with Section 5 of this Agreement, Purchaser shall, within five (5) business days after the completion of the Due Diligence Period (as herein defined), deliver to the Escrow Agent an additional sum of One Hundred Thousand and No/100 ($100,000.00) Dollars (the "Second Deposit")." and the following shall be inserted in its place: "In the event the Purchaser does not terminate this Agreement in accordance with Section 5 of this Agreement, Purchaser shall on or before September 30, 1996 at 5:00 p.m. (Miami, Florida time), deliver to the Escrow Agent an additional sum of One Hundred Thousand and No/100 ($100,000.00) Dollars (the "second Deposit")." 3. All capitalized terms as provided for in this Second Amendment shall be deemed defined terms and shall have the meaning as defined in the Agreement unless otherwise defined in this Second Amendment. 4. The Agreement shall remain in full force and effect and binding upon the parties hereto as is set forth in the Agreement and the First Amendment, except as modified by this Second Amendment. 5. This Second Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. -2- IN WITNESS WHEREOF, the parties hereto have duly signed, sealed, and delivered this Second Amendment, as of the day, month, and year first above written. Witnesseth: BASIC ACQUISITIONS, INC. a Delaware corporation /s/ W Kahn - ---------------------------- By: /s/ CK Maynard ------------------------------- Woody Kahn Print Name: Carl Maynard - ---------------------------- ----------------------- Title: President ---------------------------- MIAMI GARDEN ASSOCIATES, a New Jersey general partnership Witnesseth: By: Garden Square Associates, L.P., a Delaware limited partnership, as general partner - ---------------------------- By: Englewood Gardens, Inc., a Florida corporation, as sole general partner - ---------------------------- By: /s/ John F. Malhame ------------------------------- Print Name: John F. Malhame ----------------------- Title: President ---------------------------- -3- 5. The Agreement shall remain in full force and effect and binding upon the parties hereto as is set forth in the Agreement, except as modified by this First Amendment. 6. This First Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly signed, sealed, and delivered this First Amendment, as of the day, month, and year first above written. Witnesseth: BASIC ACQUISITIONS, INC. a Delaware corporation /s/ Debra A. Kermay - ---------------------------- By: CK Maynard ------------------------------- - ---------------------------- Print Name: Carl K. Maynard ----------------------- Title: President ---------------------------- MIAMI GARDEN ASSOCIATES, a New Jersey general partnership Witnesseth: By: Garden Square Associates, L.P., a Delaware limited partnership, as - ---------------------------- general partner By: Englewood Gardens, Inc., a Florida corporation, as sole - ---------------------------- general partner By: -------------------------------- Print Name: ------------------------ Title: ----------------------------- 5. The Agreement shall remain in full force and effect and binding upon the parties hereto as is set forth in the Agreement, except as modified by this First Amendment. 6. This First Amendment may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. IN WITNESS WHEREOF, the parties hereto have duly signed, sealed, and delivered this First Amendment, as of the day, month, and year first above written. Witnesseth: BASIC ACQUISITIONS, INC. a Delaware corporation - ---------------------------- By: ------------------------------- Print Name: - ---------------------------- ----------------------- Title: ---------------------------- MIAMI GARDEN ASSOCIATES, a New Jersey general partnership Witnesseth: By: Garden Square Associates, L.P., a Delaware limited partnership, as /s/ Laurel Merse general partner - ---------------------------- By: Englewood Gardens, Inc., a Florida corporation, as sole /s/ Elizabeth Shingela general partner - ---------------------------- By: /s/ John F. Malhame ------------------------------- Print Name: John Malhame ---------------------- Title: President --------------------------- EX-10.6 11 PROMISSORY NOTE PROMISSORY NOTE $6,800,000.00 Place of Delivery: Tampa, Florida Effective Date: December 21, 1995 FOR VALUE RECEIVED, the undersigned, MIAMI GARDENS ASSOCIATES, a New Jersey general partnership (hereinafter called the "Maker"), promises to pay to the order of LIFE INVESTORS INSURANCE COMPANY OF AMERICA, an Iowa corporation (hereinafter referred to as "Payee"), the principal sum of SIX MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($6,800,000.00), together with interest on the principal balance of this obligation from time to time remaining unpaid at the rate of Seven and Ninety-Four One-Hundredths Percent (7.94%) per annum. The principal and interest of this Note shall be paid in regular amortized (based on a twenty-five (25) year amortization schedule with interest paid in arrears) monthly installments of principal and interest in the amount of FIFTY- TWO THOUSAND TWO HUNDRED THIRTEEN AND 51/100 DOLLARS ($52,213.51) each. The monthly installments in the amount aforesaid shall commence on the first day of February, 1996, and shall continue to be made on the first day of each successive calendar month thereafter until the Maturity Date (as hereinafter defined) of this Note. In addition, a single payment of interest accruing on the principal amount hereof from the date of delivery hereof through and including December 31, 1995, shall be due on the date of delivery hereof. All payments shall be made until the principal and interest are fully paid, except that the entire remaining unpaid principal balance and any accrued interest, if not sooner paid, shall be due and payable in full on December 21, 2002 (the "Maturity Date"). All payments shall be applied first to interest accruing at the rate then in effect under this Note, and then to principal. All payments are to be paid at the office of Payee at 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499, or at such other place as the holder of this Note shall from time to time designate in writing to Maker. All interest will be calculated based upon a 360 day year. In the event that any monthly installment of principal and interest, or any part thereof, is not actually received by the holder of this Note on or before the tenth (10th) day of the month when due, such failure shall constitute an Event of Default hereunder, and in addition, Maker agrees to pay a "late charge" in an amount equal to five percent (5%) of the portion of such unpaid installment that remains unpaid. Maker shall have the right to prepay the indebtedness evidenced by this Note, in whole or in part, at any time or times upon not less than thirty (30) days' prior written notice to the holder of this Note; provided, however, an amount equal to the Prepayment Charge (as hereinafter defined) shall be due together with such prepayment to compensate the holder of this Note for its reinvestment costs and, if the prepayment is made at a time when reinvestment rates are lower than the yield on this Note, for its loss in yield. The Prepayment Charge will be due and payable together with, and as consideration to the holder of this Note for, the prepayment. The "Prepayment Charge" shall be equal to the greater of (a) one percent (1%) of the amount of principal prepaid or (b) an amount calculated at the time of prepayment using a formula designed to compensate the holder of this Note for the loss of its performing loan (the "Yield Protection Payment"). The Yield Protection Payment shall be calculated as follows: (i) It shall be assumed that the principal amount prepaid is reinvested in a hypothetical, interest-only note having the same maturity as this Note and which requires the monthly payment of all accrued interest and bears interest at a rate equal to the yield on an assumed reinvestment of the principal amount prepaid in U.S. Treasury securities with maturities as close as practicable to the Maturity Date of this Note. (ii) The income stream lost through the prepayment shall be modeled by projecting monthly payments on the principal amount prepaid, at the interest rate and amortization schedule of this Note, through the Maturity Date of this Note. (iii) If the monthly payment amount calculated under clause (ii) exceeds the amount calculated under clause (i), the present value of the difference between the two assumed payment streams shall be determined, using the yield of the assumed reinvestment as the discount rate. The Prepayment Charge, as so calculated, shall be paid together with the entire outstanding principal balance (or such portion thereof being prepaid) and all accrued and unpaid interest, advances, and charges on or under this Note or any of the Security Instruments (as hereinafter defined) through the date of the prepayment. Notwithstanding anything to the contrary contained herein, Maker shall have the right to prepay the indebtedness evidenced by this Note in full without payment of the Prepayment Charge upon not less than thirty (30) days' prior written notice to the holder of this Note at any time on or after September 21, 2002 (the "Unrestricted Prepayment Date"). If at any time during the term of this Note and prior to the Unrestricted Prepayment Date, the unpaid principal balance of this Note is accelerated because of the occurrence of an Event of Default under this Note or under any of the Security Instruments (as hereinafter defined), or if any other involuntary prepayment of all or any portion of the principal indebtedness hereunder occurs (including, without limitation, any prepayment due to the order of any court) then, notwithstanding any provision of this Note to the contrary, there shall be due and payable from Maker to the holder of this Note in such event, in addition to all accrued and unpaid interest, advances, and other charges due hereunder or under the Security Instruments (as hereinafter defined), a sum equal to the Prepayment Charge. The foregoing sum shall constitute agreed liquidated damages to compensate the holder of this Note for such holder's reinvestment costs, and failure to receive the stated interest rate for the full term of this Note. Notwithstanding the foregoing provisions with respect to prepayment, there shall be no Prepayment Charge payable by Maker in the event of a prepayment at any time resulting from the application by the holder of this Note of the proceeds of any insurance or condemnation to the payment of this Note, as provided in the Security Instruments (as hereinafter defined). Time is of the essence of this Note. It shall be an "Event of Default" under this Note if the holder of this Note does not actually receive any installment of principal and interest or other sum or charge due hereunder for a period of ten (10) days after the same becomes due or if any Event of Default occurs under any of the Security Instruments (as hereinafter defined), and thereafter the holder of this Note may, at its option, declare the entire unpaid principal balance of this Note, together with all accrued and unpaid interest and other sums and charges under this Note, immediately due and payable. Failure to exercise this option shall not constitute a waiver of the right to exercise it at any other time when an Event of Default shall exist or continue. Maker and all sureties and guarantors severally waive notice of default, demand for payment, diligence in filing suit, protest, presentment, and notice of dishonor and agree that time for payment of any installment may be extended from time to time without notice at the option of the holder of this Note. This Note is secured by a "Mortgage" of even effective date herewith on real property situate in Dade County, Florida (the "Mortgage"), by a "Security Agreement" of even effective date herewith covering certain personal property (the "Security Agreement"), and by an "Assignment of Leases, Rents and Contracts" of even effective date herewith (the "Assignment"). The Mortgage, the Security Agreement and the Assignment hereinafter are collectively referred to as the "Security Instruments" and all property now or hereafter encumbered by any one or more of the Security Instruments (including, without limitation, all additions, accessions, and replacements thereof hereinafter is collectively referred to as the "Security." Any Event of Default (as defined 2 in the respective Security Instruments) under any of the Security Instruments shall constitute an immediate Event of Default under this Note. From and after the occurrence of an Event of Default or the Maturity Date, whichever first occurs, the entire unpaid principal balance of this obligation will bear interest (the "Default Rate") at the lesser of eighteen percent (18.00%) per annum or the maximum rate of interest permitted by applicable law. If, following the occurrence of any Event of Default under this Note or any of the Security Instruments, the holder of this Note employs one or more attorneys and/or legal assistants to enforce collection of this obligation, in whole or in part, or to pursue its remedies under any of the Security Instruments or otherwise available at law or in equity, then Maker will pay a reasonable fee for all such attorneys' and legal assistants' services and costs, regardless of whether suit is instituted and, if suit or other action or proceeding is instituted to enforce payment of all or any portion of this obligation, for all administrative, trial, and appellate proceedings, if any. Maker also agrees to pay (i) all other costs of collection incurred, and (ii) all costs and reasonable attorneys' and legal assistants' fees and costs otherwise incurred by the holder of this Note for all administrative, trial, bankruptcy, insolvency, and appellate proceedings in connection with the enforcement or protection of this obligation, and in connection with the enforcement or collection of any judgment. Notwithstanding any provision of this Note, or any of the Security Instruments, or any combination, to the contrary, the parties intend that no provision of this Note or the Security Instruments be interpreted, construed, applied, or enforced so as to permit or require the payment or collection of interest in excess of the highest rate of interest (the "Maximum Permitted Rate") permitted to be paid or collected by applicable law with respect to this transaction. If, however, any such provision is so interpreted, construed, applied, or enforced, then the parties intend: (i) that such provision automatically shall be deemed reformed NUNC PRO TUNC so as to require payment only of interest at the Maximum Permitted Rate; and (ii) if interest payments in excess of such Maximum Permitted Rate have been received, then the amount of such excess shall be deemed credited NUNC PRO TUNC in reduction of the then outstanding principal amount of this obligation, together with interest at such Maximum Permitted Rate. In connection with all calculations to determine the Maximum Permitted Rate, the parties intend: first, that all charges be excluded to the extent they are properly excludable under applicable usury laws, as they from time to time are determined to apply to this obligation; and second, that all charges be "spread" that may be "spread" in the manner, if any, provided by applicable law. This Note will be interpreted, construed, applied, and enforced according to and governed by the laws of the State of Florida, without regard to any choice of law principle requiring the application of the law of another jurisdiction and regardless of where executed or delivered, where payable or paid, where any cause of action accrues in connection with this obligation, where any action or other proceeding involving this Note is instituted or pending, or whether the laws of the State of Florida otherwise would apply the laws of another jurisdiction. The provisions of this Note bind, and are for the benefit of, the respective heirs, personal representatives, successors, and assigns of Payee and Maker, jointly and severally. If this Note is signed by more than one party, then all obligations herein contained are the joint and several obligations of each signer hereof. Upon the occurrence of an Event of Default the holder of this Note shall have the unconditional right, without demand, notice, or other action, to declare the entire unpaid principal balance of this Note, together with all interest accrued thereon and all other charges and sums due thereunder, at once due and payable, and to foreclose any lien or security interest securing the payment hereof, either under any power of sale contained in such instrument, by court proceedings, or by any other remedy provided by law, or to 3 pursue any other remedy provided in this Note, any of the Security Instruments, or by applicable law. Notwithstanding any provision contained in this Note to the contrary, except as otherwise hereinafter provided with respect to the Recourse Obligations (as hereinafter defined), the holder of this Note shall have no recourse to any property of Maker other than the Security in the event that Maker fails to pay all or any portion of the indebtedness evidenced by this Note or secured or imposed by any of the Security Instruments or fails to perform any of Maker's obligations under this Note or any of the Security Instruments (collectively, the "Indebtedness"). Maker (jointly and severally, if more than one) shall have full personal liability for, and shall defend, indemnify, and hold Payee and all subsequent holders of this Note harmless from, any and all losses, liabilities (including strict liability), damages, fines, penalties, injuries, expenses (including reasonable attorneys' fees and costs, whether incurred prior to or at trial or on appeal or in connection with any bankruptcy, creditors' rights, or other proceedings or collecting upon or enforcing any judgment), costs, and claims (together with interest thereon at the Default Rate until paid) of any and every kind whatsoever paid, incurred, or suffered by, or asserted against, Payee or any such subsequent holder, and caused by any of the following "Recourse Obligations": a. Waste to any of the Security (but excluding ordinary wear and tear, unless Maker falls to exercise ordinary care in maintaining the Security). b. Fraud or written material misrepresentation by Maker or any of its partners, or any affiliate, partner, officer, director, shareholder, agent, or employee of any of them. c. The failure to pay any tax, assessment, ground rent, or lienable imposition or charge (including any interest and penalties thereon) as required under any of the Security Instruments. d. The application of any or all tenant security deposits or prepaid rents or other charges (including any interest earned or due thereon) under the leases of any portion of the Security (collectively, the "Deposits") in a manner not specifically authorized by the Security Instruments, or the failure to remit the Deposits to the holder of this Note as required by the Security Instruments or by applicable law. e. The application in any manner not specifically authorized by this Note and the Security Instruments of any condemnation or insurance proceeds from or with respect to the Security collected by or on behalf of Maker, or the unavailability to the holder of this Note of condemnation proceeds because a lease of all or any portion of the Security grants a tenant the right (or the tenant otherwise is entitled) to receive a portion of the award for the estate taken (excluding moving expenses, business damages, and damages for the loss of the tenant's leasehold fixtures to the extent that the same are separately awarded to the tenant). f. The failure to pay to the holder of this Note all Net Revenues (as hereinafter defined) derived from the Security while there exists any uncured Event of Default arising from Maker's failure to pay any sum due under this Note or any of the Security Instruments (a "Monetary Default"). As utilized herein, the term "Gross Revenues" means all revenues, receipts, proceeds, and income derived from the Security from any source whatsoever and received by or for the account of Maker while an uncured Monetary Default exists, including, but not limited to, all rent and other charges from tenants or other occupants of the Security, revenue from the operation of the Maker's business or businesses upon the Security, insurance proceeds for loss of business revenue, receipts from a sale or refinancing of the Security, and any other revenues, receipts, or income derived from the operation of, or generated by, the Security, including, without limitation, casualty 4 insurance and condemnation proceeds. As utilized herein, the term "Operating Expenses" means all reasonable and customary costs and expenses actually incurred by Maker in cash in the usual and ordinary course of operating, maintaining, and managing the Security while an uncured Monetary Default exists (but expressly excluding (i) capital expenditures and extraordinary repairs or expenses, (ii) depreciation and amortization, (iii) distributions and payments to Maker, any of Maker's partners, or any of their respective general or limited partners, shareholders, officers, directors, agents or employees, or any affiliate, subsidiary, or other entity that is controlled by any of them, other than management fees paid to any such person or entity not in excess of three percent (3.00%) of collected Gross Revenues, (iv) noncash expenditures, and (v) management fees in excess of four percent (4%) of Gross Revenues). As utilized herein, the term "Net Revenues" means Gross Revenues less Operating Expenses. g. The breach or untruth of any representation, warranty, covenant, or agreement in any way relating to any environmental matter in any of the Security Instruments or any other document executed in connection with the loan evidenced by this Note, including, without limitation, Article II, Paragraph 29, of the Mortgage, or the failure to perform under any related indemnification, including, without limitation, all obligations, covenants, agreements, representations, warranties, and indemnifications on the part of Maker arising under that certain "Environmental Indemnification Agreement" dated of even effective date herewith executed by Maker in favor of Payee (the "Environmental Agreement"). h. The destruction or removal of any Tangible Property (as defined in the Security Agreement) from the Security in violation of Paragraph 3 of the Security Agreement. i. The termination, amendment, or entering into of any lease of all or any portion of the Security to the extent prohibited by any of the Security Instruments. j. The willful or grossly negligent violation of any law, ordinance, rule, regulation, or other legal requirement applicable to (i) Maker, (ii) all or any portion of the Security or its use, occupancy, operation, maintenance, improvement, or repair, (iii) this Note, any of the Security Instruments or any other document executed in connection therewith, or (iv) the loan evidenced by this Note. k. The breach of any of the provisions of the Mortgage or any of the other Security Instruments prohibiting transfer or further encumbrance of the Security, including, without limitation, those contained in Article III, Paragraph 4.h, of the Mortgage, Article IV, Paragraph 8, of the Mortgage, and Paragraph 2 of the Security Agreement. Maker expressly agrees and acknowledges that, notwithstanding anything to the contrary contained in this Note, the Mortgage, or any of the other Security Instruments, in the event of a breach of any such provision of the Mortgage or any of the other Security Instruments Maker shall be fully and personally liable for all principal, interest, prepayment charges, liquidated damages for involuntary prepayment, and all other charges and sums due under this Note or any of the Security Instruments to the same extent as though this Note and the Security Instruments contained no limitation on recourse against or liability of Maker. Upon the occurrence of any Event of Default, the sole remedy of the holder of this Note for the recovery of the Indebtedness (other than the aforesaid Recourse Obligations) will be to realize upon the benefit of the Security provided by the Security Instruments and to pursue its remedies under the Environmental Agreement and that certain "Indemnification Agreement" of even effective date herewith (the "Carveout Indemnification") made by John F. Malhame, Gabriel Hakim, Bradley E. McNutt, Garden Square Associates, L.P., a Delaware limited partnership, doing business in Florida as 5 Garden Square Associates of Delaware, Ltd., GSG Partners III, L.P., a Delaware limited partnership, doing business in Florida as GSG Partners III, Ltd., and BMC Garden Square Investment, Inc., a Florida corporation (collectively, the "Carveout Indemnitors"), in favor of Payee. Upon the occurrence of any such Event of Default, except with respect to the Recourse Obligations and the Environmental Agreement, and the Carveout Indemnification, neither Maker nor any of the Carveout Indemnitors, or any of their respective assets other than the Security, will be liable for the Indebtedness. Notwithstanding the foregoing, no covenant or agreement contained in this Note or any of the Security Instruments will constitute a release or impairment of any or all of the Indebtedness, except to the extent expressly provided herein, or of the benefit of the Security provided by the Security Instruments, or preclude the holder of this Note from exercising any right, privilege, or remedy provided by, or otherwise available with respect to, this Note, any of the Security Instruments, the Environmental Agreement, or the Carveout Indemnification, including without limitation, institution of appropriate proceedings to realize upon the Security provided by the Security Instruments. The Recourse Obligations shall be the personal obligations of the Maker and Carveout Indemnitors, jointly and severally, and the holder of this Note may pursue the Maker and/or any one or more of the Carveout Indemnitors, or any combination of them, for personal liability on the Recourse Obligations, and may obtain a deficiency judgment for the Recourse Obligations in connection with any action to foreclose the Mortgage and/or any or all of the other Security Instruments. Maker agrees that a separate action or actions may be brought and prosecuted against Maker with respect to the Recourse Obligations whether or not an action is brought to foreclose or otherwise enforce any of the Security Instruments. The enforcement of Maker's obligations with respect to the Recourse Obligations shall not be deemed to constitute an action for recovery of any portion of the Indebtedness other than the Recourse Obligations nor for the recovery of a deficiency judgment against Maker following foreclosure of the Security Instruments. Maker's obligations with respect to the Recourse Obligations shall survive (i) the repayment of this Note, (ii) any assumption of the Indebtedness by a successor to Maker, whether or not the assumption was approved or disapproved by the holder of this Note and whether or not Maker was otherwise released from liability under this Note and the Security Instruments (it is expressly understood and agreed, however, that Miami Gardens Associates shall have no liability for any omissions, events, and/or obligations that are conclusively determined to have arisen, occurred, or accrued solely and in their entirety after the time of any conveyance of the Security that is consented to in writing by the holder of this Note in accordance with the provisions of Article IV, Paragraph 8, of the Mortgage and that were not caused, in whole or in part, directly or indirectly, by any act or omission of Miami Gardens Associates, or any of its partners, affiliates, agents or employees), (iii) the conveyance of title to the Security to the holder of this Note or any of its successors or assigns, (iv) the foreclosure of the Security Instruments and the vesting of title to the Security in the purchaser at the foreclosure sale, (v) the sale or conveyance of all or any portion of the Security by Maker, and (vi) the release of any portion of the Security from the lien and security interest created by any of the Security Instruments. 6 IN WITNESS WHEREOF, Maker has executed and delivered this Note effective as of the date first stated above. SIGNATURES WITNESSED BY: MIAMI GARDENS ASSOCIATES, a New Jersey general partnership By: GARDEN SQUARE ASSOCIATES, L.P., a Delaware limited partnership, doing business in Florida as Garden Square Associates of Delaware, Ltd., as general partner of Miami Gardens Associates By: ENGLEWOOD GARDENS, INC., a Florida corporation, sole general partner /s/ A.F. Buzzetti - ----------------------------- Witness By: /s/ John F. Malhame --------------------- A.F. Buzzetti John F. Malhame, President - ----------------------------- Printed Name of Witness (CORPORATE SEAL) /s/ Marie Cicirello - ----------------------------- Witness Marie Cicirello - ----------------------------- Printed Name of Witness As to Englewood Gardens, Inc. By: GSG PARTNERS III, L.P., a Delaware limited partnership, doing business in Florida as GSC Partners III, Ltd., as general partner of Miami Garden Associates By: GSG INVESTORS III, INC., a Delaware corporation, sole general partner - ---------------------------- Witness By: /s/ George Hakim - ---------------------------- ------------------------ Printed Name of Witness George Hakim, President (CORPORATE SEAL) - ---------------------------- Witness - ---------------------------- Printed Name of Witness As to GSG Investors III, Inc. By: BMC GARDEN SQUARE INVESTMENT, INC., a Florida corporation, as general partner of Miami Garden Associates - --------------------------- By: /s/ Bradley E. McNutt Witness ------------------------ Bradley E. McNutt, President - --------------------------- Printed Name of Witness (CORPORATE SEAL) - --------------------------- Witness - --------------------------- Printed Name of Witness As to BMC Garden Square Investment, Inc. "Maker" 7 STATE OF NEW JERSEY ) ) COUNTY OF BERGEN ) THE FOREGOING INSTRUMENT was acknowledged before me this 12th day of December, 1995, by JOHN F. MALHAME, as President of Englewood Gardens, Inc., a Florida corporation, which is the sole General Partner of Garden Square Associates, L.P., a Delaware limited partnership, doing business in Florida as Garden Square Associates of Delaware, Ltd., which is acting in its capacity as a General Partner of Miami Gardens Associates, a New Jersey general partnership, on behalf of the corporation, limited partnership, and the general partnership. He is either personally known to me or has produced ___________________________ as identification. /s/ Laurel Merse ------------------------------------------ Notary Public, State of __________________ Name Printed:_____________________________ Commission No.:___________________________ (Affix Seal) My Commission Expires:____________________ LAUREL MERSE NOTARY PUBLIC OF NEW JERSEY My Commission Expires Feb. 17, 1998 STATE OF NEW JERSEY ) ) COUNTY OF BERGEN ) THE FOREGOING INSTRUMENT was acknowledged before me this 18th day of December, 1995, by GEORGE HAKIM, as President of GSG Investors III, Inc., a Delaware corporation, which is the sole General Partner of GSG Partners III, L.P., a Delaware limited partnership, doing business in Florida as GSG Partners III, Ltd., which is acting in its capacity as a General Partner of Miami Gardens Associates, a New Jersey general partnership, on behalf of said corporation, limited partnership and general partnership. He is either personally known to me or has produced __________________________________________as identification. /s/ Laurel Merse ------------------------------------------ Notary Public, State of __________________ Name Printed:_____________________________ Commission No.:___________________________ (Affix Seal) My Commission Expires:____________________ LAUREL MERSE NOTARY PUBLIC OF NEW JERSEY My Commission Expires Feb. 17, 1998 8 STATE OF FLORIDA ) ) COUNTY OF PALM BEACH ) THE FOREGOING INSTRUMENT was acknowledged before me this _19th_ day of December, 1995, by BRADLEY E. MCNUTT, as President of BMC Garden Square Investment, Inc., a Florida corporation, which is acting in its capacity as a General Partner of Miami Gardens Associates, a New Jersey general partnership, on behalf of said corporation and general partnership. He is either PERSONALLY KNOWN TO ME or has produced _________________________ as identification. [SEAL] /s/Sherrel A. Garrett --------------------------------------- Notary Public, State of Florida (Affix Seal) --------------- Name Printed: Sherrel A. Garrett ------------------------ Commission No.: ------------------------ My Commission Exires: ------------------------ FLORIDA DOCUMENTARY STAMPS IN THE AMOUNT OF $23,800.00 ARE AFFIXED TO THE MORTGAGE OF EVEN EFFECTIVE DATE HEREWITH MADE BY MAKER IN FAVOR OF PAYEE AND CANCELLED. EX-10.7 12 MORTGAGE BY MIAMI TO LIFE INVESTORS INS CO OF AM MORTGAGE -------- THIS MORTGAGE, made and executed effective as of the 21st day of December, 1995, by MIAMI GARDENS ASSOCIATES, a New Jersey general partnership, whose address is c/o Bradley E. McNutt, Stiles Realty Co., 6400 North Andrews Avenue, Ft. Lauderdale, Florida 33309 (hereinafter referred to as "Mortgagor"), and delivered to LIFE INVESTORS INSURANCE COMPANY OF AMERICA, an Iowa corporation, whose address is c/o AEGON USA Realty Advisors, Inc., 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499 (hereinafter referred to as "Mortgagee"). W I T N E S S E T H - - - - - - - - - - WHEREAS, Mortgagor is justly indebted to Mortgagee in the principal sum of SIX MILLION EIGHT HUNDRED THOUSAND AND NO/100 ($6,800,000.00) advanced to or on behalf of Mortgagor this date by Mortgagee, together with interest thereon, as evidenced by that one certain "Promissory Note" dated of even effective date herewith in the original principal amount of SIX MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($6,800,000.00) (the "Note"), made by Mortgagor in favor of Mortgagee and providing for the balance of the indebtedness if not sooner paid to be due and payable on December 21, 2002 (the "Maturity Date"); NOW, THEREFORE, in order to secure the Mortgagee for the repayment of the indebtedness evidenced by the Note, together with interest thereon and the performance of all covenants of Mortgagor herein contained, and for other good and valuable consideration, the receipt and sufficiency whereof is hereby acknowledged by Mortgagor, Mortgagor does hereby mortgage, grant, bargain, sell, release, and convey to Mortgagee, its successors and assigns, the following described property (the "Land") located in the County of Dade, State of Florida: LANDS DESCRIBED IN EXHIBIT "A" ATTACHED HERETO, MADE A PART HEREOF, AND INCORPORATED BY REFERENCE HEREIN which has the address of 8515 - 8665 N.W. 186th Street, Miami, Florida, together with: (i) all buildings, structures, betterments, and other improvements of any nature now or hereafter situated in whole or in part upon the Land, regardless of whether physically affixed thereto or severed or capable of severance therefrom (the "Improvements"); (ii) the benefit of all easements and other rights of any nature whatsoever appurtenant to the Land or the Improvements, or both, including the benefit of all rights of way, streets, alleys, passages, railroad sidings, drainage rights, sewer rights, and rights of ingress and egress to the Land and all adjoining property, whether now existing or hereafter arising, together with the reversion or reversions and remainder or remainders, and specifically including the benefit of those declarations, easements, covenants, restrictions and agreements, if any, set forth on Exhibit "A" attached hereto (collectively, the "Easement Agreements"); (ii) all heating, plumbing, refrigeration, lighting, appliances, machinery, equipment, and fixtures now or hereafter attached thereto or used in connection therewith, and owned by Mortgagor (the "Fixtures"); (iv) the hereditaments, appurtenances, servitudes, rights, ways, privileges, prescriptions, advantages, and all other rights thereto belonging or in anywise now or hereafter incident or appertaining thereto; (v) all right, title and interest of Mortgagor in and to that certain right of first refusal from McDonald's Corporation in favor of Mortgagor, as further described in that certain Special Warranty Deed dated October 14, 1994, recorded in Official Record Book 16560, Page 1767, of the Public Records of Dade County, Florida; (vi) all right, title, and interest of Mortgagor in and to that certain "Agreement for Water and Sanitary Sewage Facilities and for the Provision of Water and Sewage Disposal Services" recorded in Official Records Book 14285, Page 3012, as amended or affected by Instruments recorded in Official Records Book 14500, Page 2929, and Official Records Book 16459, Page 4993, all of the Public Records of Dade County, Florida (the "Utility Agreement"); and (vii) the reversion and reversions, the remainder and remainders, revenues, income, rents, issues, and profits of all of the foregoing (the Land and all of the foregoing property described in items (i) through (vii) above being collectively hereafter referred to as the "Mortgaged Premises"). TO HAVE AND TO HOLD the Mortgaged Premises unto the Mortgagee, its successors and assigns, forever. 1. This Mortgage is made to secure payment of a debt in the principal sum of SIX MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS ($6,800,000.00) with interest thereon, evidenced by the Note, the terms of which are incorporated herein by reference and made a part hereof, executed by Mortgagor, payable to the order of Mortgagee, being payable in monthly installments of principal and interest of FIFTY-TWO THOUSAND TWO HUNDRED THIRTEEN AND 51/100 DOLLARS ($52,213.51) each commencing on the first day of February, 1996, and continuing thereafter on the first day of each month until the principal and all accrued interest are fully paid, except that the final payment of principal and all accrued interest, if not sooner paid, shall be due and payable on the Maturity Date. The interest rate under the Note is Seven and Ninety-Four One Hundredths Percent (7.94%) per annum. 2. The Note is also secured by a "Security Agreement" of even effective date herewith (the "Security Agreement") made by Mortgagor in favor of Mortgagee, and by an "Assignment of Leases, Rents and Contracts" (the "Assignment") made by Mortgagor in favor of Mortgagee of even effective date herewith. The Security Agreement, the Assignment, the Environmental Agreement (as hereinafter defined), and all other documents and instruments securing or evidencing the indebtedness secured hereby and the Note, including all renewals, replacements, substitutions, amendments, extensions, and consolidations thereof, hereinafter are sometimes collectively referred to as the "Other Loan Documents." The Mortgaged Premises and all of the other security described in the Other Loan Documents hereinafter are sometimes collectively referred to as the "Security". 3. This Mortgage is made to further secure payment of all other amounts with interest thereon becoming due and payable to the holder of the Note under the terms of the Note, this Mortgage, or any of the Other Loan Documents, including, but not limited to, any extensions, renewals, or re-amortizations of said debt, any increases or additions thereto, any prepayment charges, any liquidated damages due under the Note, and all other loans or advances which Mortgagee has previously made or may hereafter make to Mortgagor and any and all other renewals or extensions of the same or any part thereof, to secure all costs, expenses, losses, and damages sustained or incurred by Mortgagee because of any Event of Default under (and as defined in) the Note, this Mortgage, or any of the Other Loan Documents, or in realizing upon, protecting, perfecting, defending, or enforcing, or any of them, the Note, this Mortgage or any of the Other Loan Documents, including attorneys' fees and costs prior to trial, at trial, on appeal, and in any bankruptcy, 2 insolvency, or similar proceedings, and in collecting upon or enforcing any judgment, all of which Mortgagor hereby covenants and agrees to pay; to secure advances made to protect the Mortgaged Premises; to secure the payment and performance of all obligations, representations, warranties, indemnities and agreements arising under that certain "Environmental Indemnification Agreement" (the "Environmental Agreement") dated of even effective date herewith and given by Mortgagor in favor of Mortgagee; and to further secure the performance and discharge of each and every promise, obligation, covenant and agreement of the Mortgagor contained in the Note, this Mortgage, or any of the Other Loan Documents executed by Mortgagor pertaining to said debt or the security therefor. 4. The Mortgagor hereby relinquishes and waives all rights under and by virtue of any applicable homestead laws, and covenants, represents, and warrants to Mortgagee that it is lawfully seized of the Mortgaged Premises in fee simple and that they are free from all encumbrances, except as expressly listed in Exhibit "B" attached hereto and incorporated by reference herein (the "Permitted Encumbrances"), and hereby covenants to warrant and defend the title of the Mortgaged Premises against the claims of all persons whomsoever, except for the Permitted Encumbrances. ARTICLE I Mortgagor further covenants with and represents and warrants to Mortgagee that: 1. Mortgagor has good, full, complete, and indefeasible fee simple title to the Mortgaged Premises, free and clear of all liens and encumbrances, other than the Permitted Encumbrances. 2. This Mortgage is and will remain a valid and enforceable first lien on the Mortgaged Premises, subject to the lien of real estate taxes for the year 1996 and subsequent years, which are not yet due and payable. 3. All information and financial statements furnished or to be furnished to the Mortgagee by or on behalf of Mortgagor or its General Partners (as hereinafter defined) in connection herewith or the Note or any of the Other Loan Documents, or in connection with or pertaining to the Mortgaged Premises, are true and correct and are not misleading. 4. The Note, the Mortgage, all of the Other Loan Documents, and all instruments and agreements executed in connection therewith or the transaction with which the Note is given, are valid and binding obligations of the parties thereto, enforceable in accordance with their terms. 5. The use, occupancy, and operation of the Mortgaged Premises (including the height, size, and location of all Improvements thereon) is in compliance with all restrictive covenants and conditions applicable to the Mortgaged Premises, including without limitation, those set forth in any of the Easement Agreements. In addition to the Easement Agreements, certain restrictive covenants have been imposed on one or more of the outparcels abutting the Mortgaged Premises for the benefit of the Mortgaged Premises pursuant to the following instrument: that certain "Declaration of Restrictions" recorded in Official Records Book 14550, Page 2596, of the Public Records of Dade County, Florida (the "Outparcel Restrictions"). 6. The Mortgaged Premises has good and sufficient abutting access to N.W. 186th Street, which is a paved, dedicated public right-of-way that has been accepted for maintenance by a governmental authority having jurisdiction. 7. Except for the Easement Agreements that benefit the Mortgaged Premises, the Mortgaged Premises is operated independently of any surrounding land and so 3 roadway, driveway, utility line or facility, parking lot or area, or other improvement, facility or structure located on any private land serves the Mortgaged Premises. 8. The Easement Agreements and the Outparcel Restrictions are valid and enforceable according to their respective terms and are in full force and effect. 9. All of the development and construction obligations required to be performed by Mortgagor or the owner of all or any portion of the Mortgaged Premises under any of the Easement Agreements, any of the Key Leases, that certain "Declaration of Restrictive Covenants In Lieu of Unity of Title" recorded in Official Records Book 14890, Page 846, of the Public Records of Dade County, Florida, or any license, permit, or other approval issued by any governmental agency or authority or utility have been fully performed, completed, paid for, and accepted, and the Mortgaged Premises as now constructed, used, and occupied is in full compliance with all of the terms and conditions thereof. 10. Neither the Mortgaged Premises nor any tenant or other occupant thereof, is in violation of any of the restrictions, covenants, terms, or conditions set forth in any of the Easement Agreements. 11. Except for those certain lands subject to the easements created by the Easement Agreements, no property (including any improvements now or hereafter located thereon) adjacent or in proximity to the Mortgaged Premises owned by Mortgagor or any of its partners, or any of their respective officers, directors, or stockholders, or any entity in which any of them has an interest: (i) has been planned, used, or developed along with the Mortgaged Premises pursuant to a unified plan of development; (ii) has been shown together with the Mortgaged Premises on a master plan submitted to any governmental agency or authority; (iii) now shares in any of the infrastructure serving the Mortgaged Premises; or (iv) has been advertised in common with the Mortgaged Premises. 12. All of the obligations on the part of Mortgagor or the owner of the Mortgaged Premises (including, without limitation, the construction of all on-site and off-site water treatment and sewage collection and disposal lines and facilities and the payment of all connection fees and charges, administrative fees, and other charges, fees, and costs) arising under the Utility Agreement have been fully paid and performed, all dedications and work required to be performed thereunder have been unconditionally approved and accepted by Metropolitan Dade County, the average daily flow of water to the Mortgaged Premises does not presently (and is not currently anticipated to) exceed 11,472 gallons per day, Mortgagor has received no notice of any intent to impose additional connection fees or charges under the Utility Agreement, and there are no defaults or alleged defaults under the Utility Agreement. 13. Mortgagor is a general partnership formed and in good standing under the laws of the State of New Jersey; is presently qualified to do business in the State of Florida and each of its general partners has an appointed registered agent in Florida; and has otherwise complied with all laws of the State of Florida relating to foreign general partnerships. The sole general partners of Mortgagor are: a. Garden Square Associates, L.P., a Delaware limited partnership ("Garden Square"), which is a limited partnership formed and in good standing under the laws of Delaware, and authorized to do business in the State of Florida as Garden Square Associates of Delaware, Ltd. The sole general partner of Garden Square is Englewood Gardens, Inc., a Florida corporation ("Englewood Gardens"), formed and in good standing under the laws of Florida. b. GSG Partners III, L.P., a Delaware limited partnership ("GSG Partners"), which is a limited partnership formed and in good standing under the laws of Delaware, and authorized to do business in the State of Florida as GSG Partners III, Ltd. The sole general partner of GSG Partners is GSG Investors III, Inc., a Delaware corporation ("GSG Investors"), which is a corporation formed and 4 in good standing under the laws of Delaware, and authorized to do business in the State of Florida. c. BMC Garden Square Investment, Inc., a Florida corporation ("BMC Garden"), which is a corporation formed and in good standing under the laws of Florida. Garden Square, GSG Partners and BMC Garden are sometimes collectively referred to as the "General Partners." 14. The Key Leases (as hereinafter defined) and any applicable Key Tenant Guaranties (as such terms are defined herein) are each in full force and effect in accordance with their respective terms; (b) none of the Key Leases has been modified, amended, or terminated; (c) all construction required to be performed by Mortgagor or the landlord under each of the Key Leases has been fully completed and accepted and all tenant allowances due thereunder have been paid; (d) there are no existing or alleged defaults or violations under any of the Key Leases and no Key Tenant (as such term hereinafter is defined) thereunder is entitled to any setoff or deduction against any of the rents or other sums due thereunder; (e) all brokerage commissions, if any, due or payable with respect to any of the Key Leases have been paid in full; (f) none of the exclusive use rights or restrictive covenants set forth in any of the Key Leases has been violated; (g) Mortgagor owns the fee simple title to all buildings and improvements constructed by the landlord or the tenant under each of the Key Leases, free and clear of all liens and encumbrances, except the Permitted Encumbrances; (h) the minimum number of parking spaces required to be provided under each of the Key Leases is now provided on the Land; (i) Mortgagor has not received notice that any of the Key Tenants intends to close its retail store operations on the Mortgaged Premises; and (j) there are no options to expand any Key Tenant's leased premises under any of the Key Leases. ARTICLE II The Mortgagor covenants and agrees with the Mortgagee as follows: 1. That it will pay the indebtedness secured by this Mortgage at the times and in the manner provided in the Note, this Mortgage, and the Other Loan Documents. 2. Prepayment of the Note, in whole or in part, is restricted, all as more particularly provided in the Note. The Note provides that any prepayment (whether voluntary or involuntary) of the Note, except for such prepayments made on or after September 21, 2002, shall be accompanied by a prepayment charge, as more particularly described in the Note, which is secured by the lien of this Mortgage. The Note provides that in the event that any monthly installment due thereunder or any part thereof is not received by Mortgagee within ten (10) days after the same shall be due, Mortgagor shall pay a late charge of five percent (5%) of the portion of such installment that remains unpaid. 3. a. That in order to more fully protect the security of this Mortgage, Mortgagor, together with, and in addition to, the monthly installments of principal and interest payable under the terms of the Note secured hereby, commencing on February 1, 1996, and continuing on the first day of each month thereafter until the said Note is fully paid, will pay to the Mortgagee (or such affiliate or agent of Mortgagee as Mortgagee may designate) a sum equal to the Monthly Escrow Payment (as hereinafter defined). All such sums (the "Deposited Funds") shall be held by Mortgagee (or such affiliate or agent of Mortgagee as Mortgagee may designate), without interest, in accordance with the terms 5 herein set forth to pay Taxes (as hereinafter defined) on the next occurring Tax Discount Date (as hereinafter defined), to pay Insurance Premiums (as hereinafter defined) on the date that the same next become due, and to establish the Escrow Reserve (as hereinafter defined). The Deposited Funds may be commingled with the funds of Mortgagee (or such agent or affiliate of Mortgagee as Mortgagee may designate) and no interest shall accrue or be payable thereon in favor of Mortgagor. Provided that no Event of Default (as hereinafter defined) then exists and that the Deposited Funds (less the amount of the Escrow Reserve Funds required to be retained, as hereinafter defined and provided) then held by Mortgagee (or any such affiliate or agent designated by Mortgagee) are sufficient to pay the Taxes and Insurance Premiums, Mortgagee shall pay the Taxes and the Insurance Premiums at the times aforesaid. b. As utilized herein: (i) the term "Taxes" shall mean all ad valorem taxes and assessments due on the Mortgaged Premises covered by this Mortgage and all Fixtures and Tangible Property (the term "Tangible Property," as utilized in this Mortgage, having the same meaning ascribed to it in the Security Agreement) located thereon or used in connection therewith; (ii) the term "Insurance Premiums" shall mean all premiums or other charges due and payable on policies of insurance required to be maintained by Mortgagor under Article II, Paragraph 7, of this Mortgage or elsewhere in this Mortgage or any of the Other Loan Documents; and (iii) the term "Tax Discount Date" shall mean the last date when Taxes may be paid at the maximum available discount rate for early payment as provided by applicable law. c. As utilized herein: (i) the term "Monthly Tax Payment" shall mean an amount equal to one-twelfth (1/12th) of one hundred five percent (105%) of the amount that was required to pay Taxes on the last occurring Tax Discount Date (as such base amount is adjusted by Mortgagee, in its sole but reasonable determination, to take into account known or anticipated changes that will affect the amount of Taxes due on the next occurring Tax Discount Date, including, without limitation, changes in tax rates, special assessments, and adjustments in assessed values); (ii) the term "Monthly Insurance Premium Payment" shall mean an amount equal to one-twelfth (1/12th) of one hundred five percent (105%) of the amount that was required to pay Insurance Premiums on the date when such Insurance Premiums were last due (as such base amount is adjusted by Mortgagee, in its sole but reasonable determination, to take into account known or anticipated changes that will affect the amount of Insurance Premiums next due, including, without limitation, changes in replacement values and premium rates); (iii) the term "Monthly Reserve Payment" shall mean an amount equal to one-twelfth (1/12th) of (A) twice the sum of the then required Monthly Tax Payment and the then required Monthly Insurance Premium Payment less (B) the balance of the Escrow Reserve Funds (as hereinafter defined) at the time of Mortgagee's last periodic analysis thereof; and (iv) the term "Monthly Escrow Payment" shall mean the sum of the Monthly Tax Payment, Monthly Insurance Payment, and Monthly Reserve Payment then required by Mortgagee. d. In addition to the Monthly Escrow Payments, contemporaneously with the execution and delivery of this Mortgage, Mortgagor will pay to Mortgagee (or such affiliate or agent of Mortgagee as Mortgagee may designate) a sum equal to the aggregate of (i) the Monthly Tax Payments that would have been due (had this Mortgage then been in effect) commencing on the most recently occurring December 1 prior to the effective date of this Mortgage and on the first day of each successive calendar month thereafter until and including the first day of the calendar month immediately following the effective date of this Mortgage, and (ii) the Monthly Insurance Premium Payments that would have been due (had this Mortgage then been in effect) commencing on the first day of the first calendar month after the month in which the Insurance Premiums were last due and on the first day of each successive calendar month thereafter until and including the first day of the calendar month immediately following the effective date of this Mortgage. All such sums shall constitute a part of, and shall be held and disbursed in the same manner as, the Deposited Funds. 6 e. Mortgagor acknowledges and agrees that from and after the twelfth (12th) Monthly Escrow Payment by Mortgagor (excluding the payments described in the preceding Subparagraph d.), the Deposited Funds shall at all times include a reserve (the "Escrow Reserve") equal to twice the aggregate amount of the Monthly Tax Payments and the Monthly Insurance Premium Payments then being required by Mortgagee under this Paragraph 3 (the "Escrow Reserve Funds"). If, at the time of Mortgagee's periodic analysis of the payments required to be made by Mortgagor pursuant to this Paragraph 3, Mortgagee determines that the Escrow Reserve Funds exceed the amount required by the preceding sentence, such excess shall, at Mortgagee's option and provided that no Event of Default is then existing, either be refunded to Mortgagor or credited, pro rata, against the Monthly Escrow Payments due prior to the next such periodic analysis. f. The Monthly Escrow Payment required to be paid each month as aforesaid and all payments to be made under the Note secured hereby shall be added together and the aggregate amount thereof shall be paid by the Mortgagor each month in a single payment to be applied by the Mortgagee to the following items in such order as Mortgagee, in its sole and absolute discretion, shall determine: i. The Monthly Escrow Payment; ii. Interest on the Note secured hereby; iii. Amortization of the principal of the Note; or iv. Any other sum due from Mortgagor to Mortgagee under the Note, this Mortgage or any of the Other Loan Documents. Any deficiency in the amount of such aggregate monthly payment shall be payable on demand. 4. If the total of the Deposited Funds (less the Escrow Reserve Funds being retained) held by Mortgagee (or any such agent or affiliate designated by Mortgagee) under Paragraph 3, immediately preceding, shall not be sufficient to pay such Taxes and Insurance Premiums, as the case may be, in full at the times aforesaid, then the Mortgagor, within five (5) business days after delivery of written notice of such insufficiency from Mortgagee, shall pay to the Mortgagee any amount necessary to make up the deficiency on or before the date the payment of such Taxes and Insurance Premiums shall be payable as hereinabove provided. If at any time the Mortgagor shall tender to the Mortgagee in accordance with the provisions of the Note secured hereby a full payment of the entire indebtedness represented thereby (including any applicable prepayment charge or liquidated damages), Mortgagee shall, in computing the amount of such indebtedness, credit to the account of the Mortgagor all Deposited Funds under Paragraph 3 immediately preceding which the Mortgagee has not become obligated to pay. If there shall occur an Event of Default under any of the provisions of this Mortgage resulting in a public sale of the Mortgaged Premises covered hereby, or if the Mortgagee acquires the Mortgaged Premises otherwise after the occurrence of an Event of Default, it shall apply the balance of the Deposited Funds accumulated under Paragraph 3 immediately preceding as a credit against the amount of indebtedness of the then remaining unpaid balance under said Note (including any applicable prepayment charge or liquidated damages) and any other sums due under this Mortgage and/or any of the Other Loan Documents. 5. That Mortgagor shall pay the Taxes on the Mortgaged Premises and deliver receipts therefor annually on or before the tenth (10th) day prior to the Tax Discount Date (except to the extent that provision has been made herein and is in effect, for the payment of the Taxes by escrow funds deposited with Mortgagee). Mortgagor will pay all other taxes and ground rents, water, sewer, utility, and other rents, rates, and charges, other governmental or municipal charges, or other lawful charges levied or assessed against all or any portion of the Mortgaged Premises, and if requested by Mortgagee will promptly 7 deliver the official receipts showing payment therefor to the Mortgagee not later than ten (10) days prior to the date that the same become due. If Mortgagor defaults in the payment of any of the foregoing, the Mortgagee may pay the same, and any amount so paid, with any penalty or interest thereon, shall be immediately due and payable, shall be an indebtedness secured by this Mortgage and the Other Loan Documents, shall bear interest at the "Default Rate" specified in the Note until paid, and shall be of equal priority with the lien of this Mortgage. 6. That nothing shall be done on or in connection with the Mortgaged Premises which may impair the Mortgagee's security hereunder; that Mortgagor will commit, permit, or suffer no waste, impairment, or deterioration of the Mortgaged Premises nor any part thereof; the Mortgaged Premises shall be continuously maintained in good, clean, and sightly order, repair, and condition by the Mortgagor, at its expense; and Mortgagor will not, without Mortgagee's prior written consent, make any material change in the use of any portion of the Mortgaged Premises, or institute or join or acquiesce in, any action to change the existing zoning or land use classification of all or part of the Mortgaged Premises. 7. a. That Mortgagor will provide and continuously maintain in full force and effect insurance providing the following coverages and meeting or exceeding the following requirements: i. All risk/open perils special form property insurance with limits of one hundred percent (100%) of the replacement cost of the Improvements, Fixtures, and Tangible Property and with no co-insurance provisions. If the insurer requires co-insurance provisions then the insurer must provide an agreed amount endorsement satisfactory to Mortgagee. Blanket policies must include limits by property location. ii. Broad form boiler and machinery coverage, including a form of business income, if any such item is located on or about the Mortgaged Premises at any time. iii. To the maximum extent available, flood insurance if the Mortgaged Premises is located, in whole or in part, in a special flood hazard area, according to the most current flood insurance rate map issued by the Federal Emergency Management Agency. The coverage shall include any tangible personal property and fixtures owned by Mortgagor that are located on or used in connection with the Mortgaged Premises. iv. A form of business income coverage in the amount of eighty percent (80%) of one (1) year's business income from the Mortgaged Premises. Blanket policies must include limits by property location. v. Comprehensive/general liability coverage on the Mortgaged Premises with a One Million and No/100 Dollars ($1,000,000.00) combined single limit per occurrence with a minimum aggregate limit of Two Million and No/100 Dollars ($2,000,000.00). Umbrella/excess liability insurance may be used to satisfy this requirement. vi. Liquor liability coverage if applicable law imposes (or may impose) liability on those selling, serving, or giving alcoholic beverages to others and if such beverages will be sold, served, or given on any part of the Mortgaged Premises. vii. Workers' compensation insurance to meet the requirements of applicable law. viii. All such additional coverages as may be appropriate to the type of the Mortgaged Premises or the site location. Additional coverages may include 8 earthquake, mine subsidence, sinkhole, personal property, supplemental liability, or coverages of other property-specific risks. ix. All such coverages as may be required under any of the Leases or Easement Agreements. b. All such coverage and insurance shall be in such form and substance as Mortgagee may require and must be approved prior to the closing of the loan contemplated hereby and prior to each policy's annual renewal. The maximum deductible on all coverages and policies shall be $25,000.00. All required insurance shall be in effect as of the date of execution of this Mortgage with Insurance Premiums paid one (1) year in advance or with funds escrowed at closing to provide reserves for the number of months less than twelve (12) for which said Insurance Premiums are not then paid, and shall be maintained throughout the term of this Mortgage. c. Mortgagor will pay promptly not later than thirty (30) days prior to the date when the same become due the Insurance Premiums for all required insurance, except to the extent that provision for payment thereof has been made hereinabove, and is in effect, by escrow funds deposited with Mortgagee. Mortgagor shall deliver to Mortgagee evidence that all Insurance Premiums have been paid not later than thirty (30) days prior to the date the same become due. d. All insurance provided for herein shall be effected under valid and enforceable policies, in form and substance then standard in the State of Florida and satisfactory to the Mortgagee, issued by insurers of recognized responsibility approved by the Mortgagee and possessing a rating of A, Class XII, or better according to Best's Rating Service, as shown in its latest available issue. The adequacy of the insurer will be determined on its own financial merit without consideration of the financial condition of its parent company or any reinsurer. e. Upon the execution of this Mortgage, and thereafter upon each renewal of each policy furnished hereunder, an original (or a certified copy of each entire policy) shall be delivered to the Mortgagee. If the policy is not available, a binder will be acceptable for a period not to exceed ninety (90) days. All binders, certificates of insurance, and original or certified copies of policies shall name Mortgagor as a named insured or as an additional insured; include a complete and accurate property address; and shall bear the original signature of the issuing insurance agent. The all risk/open perils special form property insurance, flood insurance, loss of business income coverage, and all other property policies or coverages shall name Mortgagee as "first mortgagee" under a standard mortgage clause. Mortgagee shall be named as an "additional insured" on all liability coverages and policies. All such policies and coverages shall contain an agreement by the insurer that the insurer will give a minimum of thirty (30) days' prior written notice to Mortgagee before any cancellation, termination, modification, amendment, or non-renewal thereof. Any vacancy, change of title, tenant occupancy or use, physical damage, additional improvements, or other factors affecting any insurance contract must be reported to Mortgagee immediately. f. In the event of loss, Mortgagor will give immediate notice by mail to the Mortgagee, who may make proof of loss if not made promptly by the Mortgagor, and each insurance company concerned is hereby authorized and directed to make payment for such loss directly to the Mortgagee instead of the Mortgagee and Mortgagor, jointly. All such insurance proceeds (the "Insurance Proceeds") are hereby assigned to Mortgagee, who may, in its sole and absolute discretion, apply the Insurance Proceeds, or any part thereof, either to the reduction of such portion of the indebtedness hereby secured as Mortgagee shall desire or to the restoration or repair of the property damage. Mortgagor agrees to execute such further assignments of the Insurance Proceeds as Mortgagee may require. Neither the availability of any such Insurance Proceeds, nor their receipt or application by Mortgagee, will operate as a waiver of any Event of Default under this Mortgage, unless Mortgagee elects otherwise in writing. In the event of 9 foreclosure of this Mortgage or other transfer of title to the Mortgaged Premises and full or partial extinguishment of the indebtedness secured hereby, all right, title, and interest of the Mortgagor in and to all insurance policies then in force shall pass to the purchaser or grantee at the foreclosure sale. Upon the occurrence of any Event of Default under this Mortgage, all right, title, and interest of Mortgagor in and to all such insurance policies then in force, including any and all unearned Insurance Premiums with respect to the Mortgaged Premises and existing claims with respect to the Mortgaged Premises, will pass to Mortgagee which, at its option and as attorney-in-fact for Mortgagor, may then make, settle, and give binding acquittances for claims under all such policies, and may assign and transfer such policies, or cancel or surrender them, applying any unearned premiums in such manner as Mortgagee may elect. The foregoing appointment of Mortgagee as attorney-in-fact for Mortgagor is coupled with an interest and is irrevocable. Notwithstanding the occurrence of any casualty, or the availability of any insurance proceeds, Mortgagor will pay any remaining indebtedness secured hereby in the manner required by the Note, this Mortgage, and the Other Loan Documents. 8. The clause used to refer to Mortgagee in all policies of insurance and insurance coverages provided for herein, and any other policies relating to the Mortgaged Premises procured by the Mortgagor, shall read verbatim as follows: "Life Investors Insurance Company of America, an Iowa corporation, and its successors, assigns, and affiliates; as their interest may appear; c/o AEGON USA Realty Advisors, Inc.; Mortgage Loan Department; 4333 Edgewood Road, N.E., Cedar Rapids, Iowa 52499." 9. a. Mortgagor shall not construct, erect, or install any buildings or other material improvements or structures on the Mortgaged Premises without the prior written consent of Mortgagee, which consent may be withheld or denied in Mortgagee's sole and absolute discretion. Mortgagor shall complete in a good and workmanlike manner any building or other improvements which may be permitted to be constructed on the Mortgaged Premises and pay when due all claims for labor performed and materials furnished therefor. All improvements so constructed shall be insured in the manner provided in Article II, Paragraphs 7 and 8, of this Mortgage. b. Mortgagor shall comply, and shall cause its tenants to comply with, all laws, rules, regulations, covenants, conditions, restrictions, agreements, and legal requirements pertaining to the Mortgaged Premises or the use, occupancy, operation, improvement, repair, or maintenance thereof, including, without limitation, the Easement Agreements. Mortgagor shall not commit or permit any waste thereon, nor commit, suffer, or permit any act to be done in or upon Mortgaged Premises in violation of any law, ordinance, regulation, or other legal requirement. c. Mortgagor will keep and maintain or cause to be kept and maintained the Mortgaged Premises in good order, condition, and repair, including the acquisition, installation, operation, and maintenance of all necessary replacements, renewals, and reconstruction. d. None of the Improvements or Fixtures shall be removed, demolished, or materially changed, renovated, remodeled, or altered without the prior written consent of Mortgagee, which consent may be withheld or denied in Mortgagee's sole and absolute discretion. Mortgagor will promptly and in a good and workmanlike manner repair and restore any Improvements or Fixtures which may be damaged or destroyed. e. Mortgagor will cause to be provided and maintained all sanitary sewer, water, electrical, telephone, cable television, storm sewer, and other services and utilities necessary or desirable for the operation of the Mortgaged Premises as a retail shopping center. f. Mortgagor shall cause the Improvements to be treated for pests (including, but not limited to, termites and other wood destroying organisms) periodically, with such frequency as may be consistent with good retail shopping center management 10 practice, and so as to prevent any damage from termites or other wood destroying organisms from occurring to the Improvements. 10. That in case the Mortgagor (a) fails to pay the Taxes on any of the Mortgaged Premises on or before the tenth (10th) day prior to the Tax Discount Date with respect thereto, or (b) fails to pay any other taxes, Insurance Premiums, assessments, water, other governmental or municipal charges, or other lawful charges, as herein provided, on or before the thirtieth (30th) day prior to the date the same become due, or (c) fails to keep the Mortgaged Premises free from construction or other liens or claims (subject, however, to Mortgagor's right to satisfy, bond, or otherwise discharge within the applicable grace period provided by Article III, Subparagraph 4.b. hereof, any such construction or other liens or claims that are filed against the Mortgaged Premises without the consent of Mortgagor), or (d) fails to keep the Mortgaged Premises in the state of repair required hereby, subject to the provisions of Article III, Subparagraph 4.b. hereof, or (e) fails to comply with any other term, provision or covenant contained in this Mortgage or any of the Other Loan Documents (subject to the provisions of Article III, Paragraph 4, hereof except in the event of an emergency), then Mortgagee may, without notice or demand, pay or perform the same, and in case of any failure on the part of the Mortgagor to comply with the covenants hereof, the Mortgagee may effect such repairs and expend such sums as it may deem necessary to protect the Mortgaged Premises or any part thereof and/or to remedy any delinquency or other condition arising from Mortgagor's default, all at the expense of the Mortgagor. The Mortgagor covenants and agrees to repay upon demand such sums so paid and all expenses so incurred by the Mortgagee, with interest thereon from the date any such expense was incurred, at the "Default Rate" specified in the Note until repaid, and the same shall be secured by this Mortgage and the Other Loan Documents, and shall constitute a lien and security interest of equal dignity with the lien and security interest of this Mortgage and the Other Loan Documents. If Mortgagor fails to promptly make any such repayment, the whole amount hereby secured shall, if the Mortgagee so elects, become due and payable forthwith, anything herein contained to the contrary notwithstanding. Mortgagee shall not be bound to inquire into the validity of any apparent or any written tax, assessment, adverse title, lien, encumbrance, claim, or charge for making an advance for the purpose of preventing, removing, or paying the same. Mortgagee shall be subrogated to all rights, equities, and means discharged by any such expenditures. 11. Mortgagor promises and agrees that if, during the existence of this Mortgage there is commenced or pending any suit, action, arbitration, or other proceeding affecting the Mortgaged Premises, or any part thereof, it will appear in and defend any such matter and will pay all costs and damages arising because of such proceedings. Further, Mortgagor will immediately upon service thereof deliver to Mortgagee two (2) copies of each notice, petition, summons, complaint, notice of motion, order to show cause, and all other processes, pleadings and papers, however designated, served in such action or proceeding. Any appearance of the Mortgagee in any of the above stated actions shall be at the Mortgagee's option, and shall be at the sole cost and expense of Mortgagor. 12. a. Should the Mortgaged Premises or any part thereof be taken or damaged by reason of any public improvement or condemnation proceeding, or in any other manner, Mortgagee shall be entitled to receive all compensation, awards, damages, rights of action, proceeds and other payments or relief therefor, including, without limitation, severance damages, business damages, damages arising from the change of grade of any street or the access thereto, the taking of air rights, and damages caused by pollutants and other emissions (collectively, the "Condemnation Proceeds") (but excluding moving expenses, business damages, and damages for the loss of leasehold fixtures which are separately awarded to any tenants of the Mortgaged Premises), and shall be entitled, at its option, to commence, appear in, and prosecute in its own name, any action or proceedings, and to make any compromise or settlement in connection with such taking or damage. 11 b. All Condemnation Proceeds and Insurance Proceeds (collectively the "Proceeds") are hereby assigned to Mortgagee, who may after deducting therefrom all its expenses, including attorneys' and legal assistants' fees and costs, release any monies so received by it or apply the same on such portion of the indebtedness secured hereby as Mortgagee may desire. Mortgagor agrees to execute such further assignments of the Proceeds as Mortgagee may require. Notwithstanding any casualty loss or taking, or other injury or decrease in value, or the availability of any Proceeds for any of the foregoing, Mortgagor shall continue to pay any remaining indebtedness secured hereby in the manner required by the Note, this Mortgage, and the Other Loan Documents. Mortgagee's rights under this Subparagraph b. will survive the foreclosure or other enforcement of this Mortgage. Mortgagee will have the right to receive and retain all Proceeds to the extent of any deficiency which exists upon such foreclosure or other enforcement, together with legal interest thereon, and to the extent of the reasonable counsel and legal assistants' fees, costs, and disbursements incurred by Mortgagee in connection with the collection of such Proceeds. Such rights shall exist whether or not a deficiency judgment shall have been sought or recovered or denied upon the Note. The remaining balance of such Proceeds, if any, will inure to the benefit of the party entitled thereto by applicable law. 13. The waiver by Mortgagee of any default or of any of the provisions, covenants, and conditions hereof on the part of Mortgagor to be kept and performed shall not be a waiver of any preceding or subsequent breach of the same or any other provisions, covenants, or conditions contained herein. The subsequent acceptance of any sum and payment of any indebtedness secured hereby or any other payment hereunder by Mortgagor to Mortgagee shall not be construed to be a waiver of any preceding breach by Mortgagor other than the failure of Mortgagor to pay the particular sum or portion thereof so accepted, regardless of Mortgagee's knowledge of such preceding breach at the time of acceptance of such payment. 14. Mortgagor will not permit or suffer the filing of any mechanic's lien, materialman's lien, construction lien, or other lien or encumbrance against the Mortgaged Premises or any part thereof, or any of the revenues, rents, issues, income, and profits arising therefrom (subject, however, to Mortgagor's right to satisfy, bond, or otherwise discharge within the applicable grace period provided by Article III, Subparagraph 4.b., hereof any such mechanic's lien, materialman's lien, construction lien, or other lien or encumbrance that is filed against the Mortgaged Premises without the consent of Mortgagor). 15. Mortgagor hereby assigns to Mortgagee its lessor's interest in any and all leases of the Mortgaged Premises or any portion thereof now or hereafter entered into by Mortgagor or any other party (collectively, the "Leases"), together with all rents, issues, incomes, and profits arising therefrom or in connection with the Mortgaged Premises or any portion thereof, and all benefits and advantages to be derived from said leases, together with all rights against guarantors, if any. Mortgagor hereby empowers Mortgagee, its agents and attorneys, to collect, settle, sue for, compromise and give acquittance for all such rents, issues, incomes, and profits. It is the intention of the parties that this instrument shall be a present assignment; however, unless and until an Event of Default shall occur under this Mortgage, the Note, or any of the Other Loan Documents, Mortgagee shall not exercise its rights under the preceding sentence and Mortgagor shall have the right to collect all of the above mentioned rents, issues, incomes and profits as they accrue and to exercise (subject to the terms and conditions of this Mortgage and the Other Loan Documents) all of the rights inuring to Mortgagor with respect thereto. The foregoing rights of Mortgagor constitute a revocable license in favor of Mortgagor revocable by Mortgagee in accordance with the terms of this Mortgage and the Other Loan Documents upon the occurrence of such an Event of Default. Upon the occurrence of any Event of Default under this Mortgage, the Note, or any of the Other Loan Documents, Mortgagee, in person, by agent, or by judicially appointed receiver, shall be entitled to collect all of the above-mentioned rents, issues, incomes, and profits, without taking possession of the Mortgaged Premises or after entering upon and taking possession of the Mortgaged Premises, and to apply the same in its sole and absolute discretion. All rents, 12 issues, incomes, and profits collected by Mortgagee or the receiver shall be applied first to the payment of the cost of the management of the Mortgaged Premises and the collection of rents, including, but not limited to, the receiver's fees, and then to the sums secured by this Mortgage. Mortgagee and the receiver shall be liable to account only for those rents, issues, incomes, and profits actually received. In addition, upon the occurrence of any such Event of Default Mortgagor shall remit to Mortgagee or any such receiver all tenant security deposits and prepaid rents or other charges collected under any Leases of the Mortgaged Premises. At any time and from time to time, at the request of Mortgagee, Mortgagor shall execute, acknowledge, and deliver all such instruments as Mortgagee may deem necessary or desirable to further assure and confirm the assignment of the Leases, rents, issues, incomes, and profits. Neither this Mortgage nor the Assignment (nor any of their respective provisions), nor Mortgagee's enforcement of their respective provisions (including the receipt of the rents, incomes, issues and profits thereby assigned), will operate to subordinate the lien and security interest of this Mortgage or any of the Other Loan Documents to any of the rights of any lessee under any Lease of any portion of the Mortgaged Premises thereby assigned or to subject Mortgagee to any liability to any such lessee for the performance of any obligation of the lessor under any such Lease, unless and until Mortgagee agrees to such subordination or assumes such liability by an appropriate written instrument; and all right, title, and interest of each such lessee in and to the Mortgaged Premises, whether arising by virtue of any such lease or otherwise, at all times will be and remain subject, subordinate, and inferior to the lien and security interest of this Mortgage and the Other Loan Documents and all rights, remedies, powers and privileges of Mortgagee arising under, or by virtue of, this Mortgage or any of the Other Loan Documents, or any combination. 16. Mortgagor, at its expense, shall provide to Mortgagee from time to time all such financial statements and other information as Mortgagee may reasonably request concerning Mortgagor, any of Mortgagor's general partners, stockholders, or other principals, or any guarantor or indemnitor of all of the obligations secured by this Mortgage or the operation of the Mortgaged Premises. Without limitation of the generality of the foregoing, Mortgagor, at its expense, shall furnish Mortgagee within one hundred twenty (120) days after the end of each fiscal year of Mortgagor, copies of Mortgagor's balance sheet and earning statements certified by Mortgagor, together with a complete and accurate operating statement on the Mortgaged Premises for such fiscal year certified by Mortgagor (including, without limitation, a complete rent roll listing tenants, unit numbers, square feet occupied and leased, rents, delinquencies, vacancies, other income received, and expenses). Mortgagee does not initially require that such statements be certified by an independent certified public accountant as having been prepared in accordance with generally accepted accounting principles, consistently applied. However, Mortgagee, in its reasonable discretion, shall have the right to require such certification, at Mortgagor's expense, at any time in the future. Any such future requirement will be deemed reasonable if an Event of Default shall have occurred or if Mortgagee believes that any financial information previously provided may have been misleading or inaccurate. All required statements shall be in such detail as Mortgagee requests and shall segregate income and expenses attributable to the Mortgaged Premises. Failure to furnish such statements or the occurrence of any Event of Default under the Note, this Mortgage, or any of the Other Loan Documents shall also entitle Mortgagee to cause Mortgagor's books and records pertaining to the Mortgaged Premises to be audited at the expense of Mortgagor. In such an event Mortgagor and Mortgagor's successors and assigns agree to cooperate with and assist Mortgagee and such auditors. 17. Mortgagor shall keep and maintain complete, accurate, and customary records and books of accounts with respect to all of Mortgagor's business transactions pertaining to the Mortgaged Premises and shall retain the same intact throughout the term hereof. Mortgagee shall be entitled at all reasonable times to inspect, to make notations from, and to photocopy or microfilm all such records and books of account. 18. Mortgagor agrees at any time and from time to time during the term hereof and within twenty (20) days after demand therefor from Mortgagee, to execute and deliver 13 to Mortgagee, or any party designated by Mortgagee, a certificate in recordable form certifying the amount then due pursuant to this Mortgage and the obligations secured hereby, the terms of payment thereof, the dates to which payment have been made, that this Mortgage and all instruments and obligations secured hereby are in full force and effect, and that there are no defenses or offsets thereto, or specifying in what regards this Mortgage or such obligations are not in full force and effect and the nature of any defense or offsets thereto, together with such other information as Mortgagee may request. 19. Mortgagor shall execute, acknowledge, and deliver to Mortgagee any and all mortgages, deeds of trust, assignments, transfers, assurances, and other instruments and documents as Mortgagee from time to time requires for the better assuring, conveying, assigning, transferring, and confirming unto Mortgagee the property and rights herein conveyed or assigned or intended now or hereafter so to be. Without limitation of the foregoing, Mortgagor will defend, indemnify and hold Mortgagee harmless with respect to any suit or proceeding in which the validity, enforceability, or priority of the lien or security interest, or both, created by this Mortgage or any of the Other Loan Documents, or both, is endangered or attacked, directly or indirectly. If Mortgagor fails to undertake the defense of any such claim in a timely manner or, in the Mortgagee's sole determination, fails to prosecute such defense with due diligence and by appropriate proceedings, then Mortgagee is authorized to take, at the expense of Mortgagor, all necessary and proper action and defense of any such claim, including the retention of legal counsel, the prosecution or defense of litigation, and the compromise or discharge of claims, including the payment of all costs and reasonable attorneys' and legal assistants' fees and costs. All costs, expenses, and losses, if any, so incurred by Mortgagee, including reasonable attorneys' fees, regardless of whether suit is brought, and for all administrative, trial, and appellate proceedings, if any, will constitute advances by Mortgagee as provided in Article II, Paragraph 10, hereof, and will be secured by and of equal priority with the lien and security interest of this Mortgage and the Other Loan Documents. 20. Mortgagee may make or cause to be made from time to time reasonable entries for inspection of the Mortgaged Premises or for any other lawful purpose. 21. Without the necessity of any further acts of Mortgagor or Mortgagee, the lien of this Mortgage automatically will extend to and include: (i) any and all renewals, replacements, substitutions, accessions, proceeds, products, or additions of or to the Mortgaged Premises: and (ii) any and all monies and other property that from time to time may, either by delivery to Mortgagee or by any instrument (including this Mortgage), be subjected to such lien by Mortgagor, or by anyone on behalf of Mortgagor, or with the consent of Mortgagor, or which otherwise may come into the possession or otherwise be subject to the control of Mortgagee pursuant to this Mortgage. 22. Mortgagor will perform all of its obligations as lessor under any and all present or future Leases of all or any portion of the Mortgaged Premises and will not commit, permit, or suffer a default by Mortgagor in its obligations under any such Lease, nor will Mortgagor take any action, nor omit to take any action, except to the extent expressly permitted by any such Lease, if such action or omission reasonably may cause the termination of any such Lease, or otherwise diminish or impair the value of any such Lease. Mortgagor will not without Mortgagee's prior written consent (which consent may be withheld or denied in Mortgagee's sole and absolute discretion): (i) assign any of the Leases or any rents thereunder; (ii) consent to the cancellation or surrender of any Lease now existing or hereafter made; (iii) collect rents under any of the Leases for more than one month in advance; (iv) enter into future Leases unless and until each such Lease has been approved by Mortgagee as to form, terms, and rentals; or (v) consent to any modification or amendment of any Lease now existing or hereafter made. Further, Mortgagor will not consent to any assignment or subletting of any Lease, consent to material alterations, additions or improvements by the tenant under any Lease, or consent to any change in use of the Mortgaged Premises by the tenant under any Lease, without Mortgagee's prior written consent, which consent may be withheld or denied in Mortgagee's sole and absolute discretion. Mortgagor shall at all times comply with all 14 applicable laws concerning the holding and disbursement of security deposits and advance rents. Mortgagor shall furnish Mortgagee with copies of any notice alleging a default under or terminating any of the Leases promptly following Mortgagor's receipt thereof. Mortgagor shall furnish Mortgagee with copies of all sales reports received from any tenant of the Mortgaged Premises promptly following Mortgagor's receipt thereof. Any act or omission in violation of the provisions of this Paragraph shall be voidable, at Mortgagee's sole and exclusive option. The Leases include, without limitation, all of those certain leases that are more particularly described in Exhibit "C" attached hereto and incorporated by reference herein (all of the leases described in attached Exhibit "C" being hereinafter collectively referred to the "Key Leases" and individually referred to as a "Key Lease"). As utilized in this Mortgage, the term "Key Tenant" means the tenant under any one of the Key Leases and the term "Key Tenant Guaranty" means the guarantor of a Key Tenant's obligations under any one of the Key Leases. Without limitation of any of the foregoing provisions of this Paragraph 22, Mortgagor covenants and agrees as follows: a. Promptly following Mortgagor's receipt thereof Mortgagor shall furnish Mortgagee with a copy of: (i) any notice received by Mortgagor (or any of them) from (or on behalf of) any Key Tenant alleging a default or breach on the part of the landlord under its Key Lease, and any notice either terminating its Key Lease, electing to discontinue the operation of its store or business on the demised premises, exercising any option to renew or extend its Key Lease, exercising any option to purchase or right of first refusal, exercising any option to expand its demised premises, pertaining to gross sales or percentage rentals, tax, insurance, or common area maintenance charges, any violation of the exclusive use restrictions in its Key Lease, unauthorized use of the common areas on the Mortgaged Premises, or any abatement of rental or any offset or deduction against rental, or any other material notice; and (ii) any notice received by Mortgagor (or any of them) from (or on behalf of) any Key Tenant Guarantor. b. Mortgagor simultaneously shall furnish Mortgagee with copies of all notices sent to any Key Tenant or any Key Tenant Guarantor. c. Mortgagor (or any of them) shall not, without the prior written consent of Mortgagee (which consent may be withheld or denied in Mortgagee's sole and absolute discretion): (i) modify, amend, extend, or renew any Key Lease or modify or amend any Key Tenant Guaranty; (ii) declare a default under, terminate, cancel, or accept a surrender of any of the Key Leases, terminate or accept a surrender of the tenant's right of possession under any Key Lease, or terminate any Key Tenant Guaranty; (iii) consent to or acquiesce in any transfer, assignment, hypothecation, or encumbrance by any Key Tenant of any of its right, title, or interest arising under any of the Key Leases or all or any portion of the demised premises thereunder or any buildings or improvements thereon; (iv) consent to or acquiesce in any subletting by the Key Tenant under any Key Lease of all or any portion of its demised premises; (v) waive any right inuring to the benefit of the landlord or lessor under any Key Lease or Key Tenant Guaranty or any applicable law, release any Key Tenant from any liability or obligation arising under any Key Lease or applicable law, or release any Key Tenant Guarantor from any liability or obligation arising under any Key Tenant Guaranty; (vi) consent to or acquiesce in any material alterations, additions or improvements to any portion of the Mortgaged Premises by the Key Tenant under any Key Lease; (vii) further assign any Key Lease or any of the rents thereunder or any Key Tenant Guaranty; (viii) collect any of the rents due under any Key Lease for more than one (1) month in advance; (ix) consent to any change or conversion in the use of the demised premises by any Key Tenant under a Key Lease; (x) permit any Key Lease to be subordinated to the lien of any mortgage, lien or encumbrance other than this Mortgage and the Other Loan Documents; (xi) consent to or acquiesce in any abandonment of the demised premises under any Key Lease by any Key Tenant; or (xii) take any action, or omit to take any action, that would permit any Key Tenant to withhold, offset, or deduct any 15 of the rents or other sums due under its Key Lease. Notwithstanding anything to the contrary contained in this Item c., Mortgagee agrees that: (A) Mortgagee will consent to any of the matters described in Items (iii), (iv), (vi) or (ix) above with respect to a Key Lease if Mortgagee's failure to consent thereto would render Mortgagor in default under such Key Lease; and (B) Mortgagor may acquiesce in any of the matters described in Items (iii), (iv), (vi), or (ix) above with respect to a Key Lease to the extent that the Key Tenant is expressly permitted to take such action under its Key Lease without Mortgagor's permission or consent. 23. To the extent permitted by law, Mortgagor agrees that Mortgagor will not at any time insist upon, or plead, or in any manner whatever claim or take any benefit or advantage of, any applicable present or future stay, extension, or moratorium law that may affect Mortgagor's performance of the provisions of this Mortgage, or any of the Other Loan Documents, or any of the Mortgagee's rights or remedies. Mortgagor will not claim, take or insist upon any benefit or advantage of any present or future law providing for the valuation or appraisal of the Mortgaged Premises, or any portion, prior to any sale or sales that may be made under or by virtue of this Mortgage, nor after any such sale or sales claim or exercise any right under any applicable present or future law or otherwise to redeem the Mortgaged Premises, or any portion thereof so sold. To the extent that Mortgagor lawfully may, Mortgagor expressly waives all benefit or advantage of any such law or laws, and agrees not to hinder, delay, or impede the exercise of any right or remedy permitted to be exercised by Mortgagee but to suffer and permit the exercise of every such right or remedy as though no such law or laws were in effect. Mortgagor, for itself and all who may claim under Mortgagor, waives to the extent that it lawfully may all rights to have the Mortgaged Premises, and any other security for the Note and the indebtedness evidenced thereby, marshalled upon any foreclosure or otherwise. 24. Any additional sum or sums advanced by the then holder of the Note to the then owner of the Mortgaged Premises at any time within twenty (20) years from the date of this Mortgage, with interest thereon at the rate agreed upon at the time of each additional loan or advance, will constitute a portion of, be equally secured with, and have the same priority as, the indebtedness secured hereby and be subject to all of the terms and provisions of this Mortgage, whether or not such additional loan or advance is evidenced by a promissory note of the borrowers and whether or not identified by a recital that it is secured by this Mortgage; provided, however, the aggregate amount of principal indebtedness outstanding at any one time and secured by this Mortgage shall not exceed an amount equal to twice the original principal sum of the Note, plus interest thereon, and plus disbursements made for the payment of Taxes, levies, or Insurance Premiums on the Mortgaged Premises, with interest on such advances or disbursements. All advances and disbursements made by Mortgagee for Taxes, Insurance Premiums or other disbursements made pursuant to Article II, Paragraphs 10 and 19, of this Mortgage shall be of equal priority with the lien of this Mortgage. Mortgagor covenants and agrees that, in the event any loan or advance shall be made to Mortgagor pursuant to this Paragraph, Mortgagor shall pay all Florida documentary stamp and intangible taxes, if any, which may be due in connection with such loan or advance, and that evidence of such payment shall be affixed to the document containing the written promise to pay or the notice of future advance, if any. In the event that documentary stamp or intangible taxes shall hereafter be assessed due to the future advance provisions contained in this Paragraph, Mortgagor covenants and agrees to pay all such taxes promptly upon assessment, together with any interest and penalties thereon, and payment of all such amounts shall be secured by the lien of the Mortgage and the Other Loan Documents. The provisions of this Paragraph apply regardless of whether any such advance is characterized as obligatory or optional; but nothing contained in this Paragraph by itself obligates Mortgagee to make any additional loans or advances. 25. Mortgagor hereby represents and warrants to Mortgagee that the loan evidenced by the Note and secured by this Mortgage is a business loan, the proceeds of which will be used for the purpose of carrying on the business of Mortgagor. 16 26. Mortgagor shall comply with (and shall cause all tenants of the Mortgaged Premises to comply with) all laws, ordinances, rules, regulations, orders and other legal requirements relating to Mortgagor, the Mortgaged Premises, or the use, occupancy, maintenance, improvement or repair of the Mortgaged Premises on an ongoing basis. Mortgagor shall continuously maintain in full force and effect all licenses, permits, franchises, contracts, zoning approvals, and other approvals necessary or, in the reasonable opinion of Mortgagee, desirable to be given by any governmental agency, subdivision, authority, or utility company relating to or required for the use, occupancy, maintenance, and continued operation of the Mortgaged Premises as a retail shopping center, and as the Mortgaged Premises presently is being used, occupied, maintained, and operated by Mortgagor and all tenants, licensees and other occupants thereof or as contemplated to be used, occupied, maintained and/or operated. Mortgagor covenants and agrees that at all times prior to the satisfaction of this Mortgage there shall be located on the Mortgaged Premises not less than the greater of: (a) that in such the number of on-site automobile parking spaces that is required by all applicable zoning and other laws; or (b) the number of total parking spaces that is required under the terms of the Key Leases. 27. To the extent that any of the property encumbered by this Mortgage from time to time constitutes personal property subject to the provisions of the Florida Uniform Commercial Code, this Mortgage constitutes a "Security Agreement" for all purposes under such Code. 28. Mortgagor shall pay: (i) all taxes and fees (except for state and federal income taxes on the indebtedness secured hereby) (including interest and penalties thereon) that are or may be levied by the United States of America, or any state or political subdivision thereof, upon Mortgagee in connection with, or upon, the Note or the indebtedness evidenced thereby, this Mortgage, or the Other Loan Documents, or the payment or collection of any of the foregoing, including, without limitation, all Florida documentary stamp taxes and intangible taxes; and (ii) all franchise, excise, sales, and other taxes, fees, and charges assessed, levied, or imposed with respect to Mortgagor's right to do business on or from the Mortgaged Premises or the rents received by Mortgagor from the Mortgaged Premises. This paragraph shall survive the satisfaction, release, or discharge of this Mortgage. 29. a. Mortgagor (jointly and severally, if more than one) covenants, represents, and warrants to Mortgagee, its successors and assigns: (i) that it has not used or permitted, and will not use or permit all or any part of the Mortgaged Premises to be used, whether directly or through contractors, agents, or tenants, and no portion of the Mortgaged Premises has at any time been used, for the generation, transportation, treatment, storage, manufacture, emission, or disposal of any dangerous, toxic, or hazardous pollutant, chemical, waste, or substance (a "Hazardous Substance") (including without limitation, petroleum, petroleum products, asbestos in any form, urea formaldehyde, polychlorinated biphenyls, and atmospheric radon at levels over four (4) picocuries per cubic liter), (A) as defined in or regulated by the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA"), as amended by the Superfund Amendments and Reauthorization Act of 1986 ("SARA"), the Federal Resource Conservation and Recovery Act of 1976 ("FRCRA"), or Florida's 1974 Resource Recovery and Management Act ("FRRMA"), all as from time to time amended, or any other federal, state, or local environmental law, statute, regulation, requirement or ordinance (collectively, the "Environmental Laws"), or (B) which poses a hazard to the health and safety of the occupants of the Mortgaged Premises or any adjacent property; (ii) that, to the best of Mortgagor's knowledge following due inquiry as a duly diligent property owner, except as specifically disclosed in that certain Phase I Environmental Site Assessment dated October 12, 1995, prepared by Fugro Environmental, Inc. (the "ESA"), the Mortgaged Premises has been and is free from contamination by any Hazardous Substance (including, without limitation, petroleum or any petroleum product, asbestos in any form, urea formaldehyde, polychlorinated biphenyls, underground storage tanks, atmospheric radon at levels over four (4) picocuries per cubic liter, or any other substance the exposure to which is prohibited, limited, or regulated by any federal, state, country, 17 regional, or local authority or that poses a hazard to public health) (but excluding (A) immaterial quantities of automotive motor oil leaked inadvertently from vehicles in the ordinary course of the operation of the Mortgaged Premises and cleaned up in accordance with reasonable property management procedures and all applicable Environmental Laws, and (B) immaterial quantities of substances customarily and prudently used in the cleaning and maintenance of the Mortgaged Premises in accordance with all applicable Environmental Laws); (iii) that, to the best of Mortgagor's knowledge following due inquiry as a duly diligent property owner, except as specifically disclosed in the ESA, no release of any Hazardous Substance (including, without limitation, petroleum or any petroleum product) has occurred on or about the Mortgaged Premises; (iv) that the Mortgaged Premises currently complies, and will comply based on its anticipated use, with all Environmental Laws and other current legal requirements relating to the environment, (v) that in connection with the ownership, operation, and use of the Mortgaged Premises, all necessary notices have been filed and all required permits, licenses, and other authorizations have been obtained, are valid, and are currently in full force and effect including, without limitation, those relating to the generation, treatment, storage, disposal, or use of any Hazardous Substance (including, without limitation, any petroleum or petroleum product); (vi) that there is no present or, to the best of Mortgagor's knowledge following due inquiry as a duly diligent property owner, past or threatened investigation, inquiry, or proceeding relating to the environmental condition of, or events on or about, the Mortgaged Premises; (vii) that the Mortgaged Premises is not listed in the United States Environmental Protection Agency's National Priorities List of Hazardous Waste Sites, or by the State of Florida Department of Environmental Protection, or by any county or city in which the Mortgaged Premises are located as a hazardous waste storage facility, nor on any other list, schedule, log, inventory, or record of Hazardous Substances or hazardous waste sites, whether maintained by the United States Government or any state or local agency; (viii) that there is no underground storage tank on the Mortgaged Premises, (ix) that the Mortgagor, the Mortgaged Premises and all tenants therein, currently comply with, and will continue to comply with all of the provisions and requirements of Chapter 376, Florida Statutes (1994), as amended and modified from time to time, and (x) Mortgagor is not aware of any environmental condition, situation, or incident on, at, or concerning all or any portion of the Mortgaged Premises that could give rise to a successful action or to a liability under any federal, state or local law, regulation, ordinance, or common law theory. b. Mortgagor covenants and agrees to comply with (and to cause all tenants of the Mortgaged Premises to comply with) all legal requirements applicable to Mortgagor, the Mortgaged Premises, or the use, occupancy, maintenance or operation of the Mortgaged Premises, including, without limitation, all Environmental Laws and other legal requirements relating to the environment. c. Mortgagor (jointly and severally, if more than one) hereby agrees to defend, indemnify and hold Mortgagee, its parent corporation and affiliates, and their respective successors, assigns, directors, officers, shareholders, partners, employees, and agents, harmless from and against any and all losses, liabilities (including strict liability), damages, fines, penalties, injuries, expenses (including attorneys' fees and costs), costs, actions, causes of action, judgments, and claims of any and every kind whatsoever paid, incurred, or suffered by, or asserted against, any one or more of them by any person or entity or government or agency for, with respect to, or as a direct or indirectly result of, the breach or untruth of any of the covenants, representations, or warranties contained in this Mortgage or any of the Other Loan Documents that in any manner relate to environmental matters (including, without limitation, all of the covenants, representations, and warranties contained in this Paragraph 29), or the presence on, about, or under, or the escape, leakage, spillage, discharge, emission, or release from, the Mortgaged Premises of any Hazardous Substance or petroleum product (provided, however, the foregoing indemnification shall not extend to any such presence, escape, seepage, leakage, spillage, discharge, emission, or release that arises or occurs solely and in its entirety after a transfer of both title and possession of the Mortgage Premises to Mortgagee, its successors or assigns, and that is not caused, in whole or in part, directly or indirectly, by 18 any act or omission of Mortgagor or any of its partners, agents, or employees), including, without limitation, any and all losses, liabilities (including strict liability), damages, fines, penalties, injuries, expenses (including reasonable attorneys' and legal assistants' fees and costs), costs, and claims asserted or arising under CERCLA, SARA, FRCRA, FRRMA, Chapter 376, Florida Statutes (1994), or any other Environmental Laws, regardless of whether within the control of Mortgagor. Notwithstanding anything to the contrary contained in this Subparagraph c., as to Miami Gardens Associates only (but expressly excluding its successors in title), the foregoing indemnification shall not apply to any such presence, escape, seepage, leakage, spillage, discharge, emission, or release that occurs solely and in its entirety after a transfer of both title and possession of the Mortgaged Premises to a buyer that is approved by Mortgagee pursuant to Article IV, Subparagraph 8.d., of this Mortgage and that is not caused, in whole or in part, directly or indirectly, by any act or omission of Miami Gardens Associates or any of its partners, agents, or employees. d. At the request of Mortgagee, Mortgagor will cooperate with Mortgagee in securing any records, filings, or other matters requested by Mortgagee, and in Mortgagee's sole and absolute discretion, necessary or desirable to make a determination on the existence of any Hazardous Substances on the Mortgaged Premises, which, at the present, would be a violation or potential violation of any law, rule or regulation of any federal, state, regional or local authority. e. If Mortgagor receives any notice of (i) the happening of any material event involving the spill, release, leak, seepage, discharge, or clean-up of any Hazardous Substance on all or any part of the Mortgaged Premises or in connection with Mortgagor's operations thereon, or (ii) any complaint, order, citation or material notice with regard to air emissions, water discharges, or any other environmental, health, or safety matter affecting Mortgagor or any part of the Mortgaged Premises (an "Environmental Complaint") from any person or entity or governmental agency (including without limitation the Environmental Protection Agency (the "EPA")), then Mortgagor shall immediately notify Mortgagee orally and in writing of said notice. f. Mortgagee shall have the right, but not the obligation, and without limitation of Mortgagee's rights under this Mortgage and the Environmental Agreement, upon reasonable notice to Mortgagor (except in the event of an emergency or an action that requires immediate attention, in which event no notice shall be required) to enter onto the Mortgaged Premises or to take such other actions as it deems necessary or advisable to clean up, remove, resolve, or minimize the impact of, or otherwise deal with, any such Hazardous Substance or Environmental Complaint following receipt of any notice from any person or entity (including, without limitation, the EPA) asserting the existence of any Hazardous Substance or an Environmental Complaint pertaining to the Mortgaged Premises or any part thereof which, if true, could result in an order, suit or other action against Mortgagor or any portion of the Mortgaged Premises and/or which, in the sole opinion of Mortgagee, could jeopardize its security under this Mortgage. All costs and expenses incurred by Mortgagee in the exercise of any such rights shall be secured by this Mortgage and the Other Loan Documents, shall be of equal priority with the lien thereof, and shall be payable by Mortgagor to Mortgagee upon demand, together with interest thereon at the "Default Rate" specified in the Note. g. Mortgagee shall have the right to obtain, at Mortgagor's expense, environmental audits and, if deemed necessary by Mortgagee, environmental risk assessments, of the Mortgaged Premises, hazardous waste management practices, and/or hazardous waste disposal sites used by Mortgagor at such times during the term of the loan secured hereby as Mortgagee reasonably deems necessary in order to limit its liability or protect its lien and security interest in the Mortgaged Premises; provided, however, Mortgagee agrees not to request such an audit more than once a year unless Mortgagee has reason to believe that an audit may disclose the presence or release of a Hazardous Substance (including, without limitation, petroleum or any petroleum product), or unless an environmental audit deems further testing or audits necessary. Each such audit and/or 19 risk assessment must be by an environmental consultant selected by Mortgagee. All costs and expenses incurred by Mortgagee in the exercise of such rights shall be secured by this Mortgage and the Other Loan Documents, shall be of equal priority with the lien and security interest thereof, shall be payable by Mortgagor to Mortgagee upon demand or charged to Mortgagor's loan balance at the discretion of Mortgagee, and shall bear interest at the "Default Rate" specified in the Note. h. Any breach of any warranty, representation, or agreement contained in this Paragraph 29 shall be an Event of Default hereunder and shall entitle Mortgagee to exercise any and all remedies provided in this Mortgage, the Note, or the Other Loan Documents, or otherwise permitted by applicable law. i. The provisions of this Paragraph 29 are cumulative to the provisions of the Environmental Agreement. j. All of the representations, warranties, and indemnities set forth in this Paragraph 29 shall survive the payment of the indebtedness secured hereby and the satisfaction, release, or termination of this Mortgage with respect to all or any portion of the Mortgaged Premises. 30. Mortgagor shall promptly pay, perform, and observe all of the obligations to be paid, performed or observed on the part of the owner of all or any portion of the Mortgaged Premises under any one or more of the Easement Agreements or the Utility Agreement; shall promptly and with due diligence enforce and cause to be complied with the Outparcel Restrictions; shall not modify or amend (or consent to, acquiesce in, or permit any modification or amendment of) any of the Easement Agreements, any of the Outparcel Restrictions, or the Utility Agreement without the prior written consent of Mortgagee, which consent may be withheld or denied in Mortgagee's sole and absolute discretion; shall not consent to, acquiesce in, or permit the termination or rescission of any of the Easement Agreements, any of the Outparcel Restrictions, or the Utility Agreement; shall not permit any lien to attach to any part of the Mortgaged Premises under any of the Easement Agreements; shall furnish Mortgagee with copies of all notices alleging any default on the part of Mortgagor under any of the Easement Agreements any of the Outparcel Restrictions, or the Utility Agreement promptly following Mortgagor's receipt thereof; shall not withdraw the Mortgaged Premises from any of the Easement Agreements without Mortgagee's prior written consent, which consent may be withheld or denied in Mortgagee's sole and absolute discretion; and shall not consent to any change in use under any of the Outparcel Restrictions or consent to the commencement of any improvements, development, or construction on any property subject to the Outparcel Restrictions without Mortgagee's prior written consent, which consent may be withheld or denied in Mortgagee's sole and absolute discretion. 31. Mortgagor shall promptly pay, observe, and perform all of its obligations under any of the restrictive covenants and conditions applicable to all or any part of the Mortgaged Premises. 32.a. Notwithstanding the provisions of Article II, Subparagraph 7.f. or Paragraph 12, of this Mortgage, in the event that any Insurance Proceeds (excluding proceeds of business interruption insurance or business income coverage) or Condemnation Proceeds become payable as a result of any damage or destruction to any of the Improvements due to casualty or condemnation, if requested by Mortgagor Mortgagee agrees to make such Proceeds (less all of Mortgagee's expenses deducted pursuant to Article II, Subparagraph 12.b., hereof) available for the restoration or repair of the damage to the Mortgaged Premises following a casualty, or to remedy the effects of a condemnation, provided that all of the following conditions are fully satisfied (i) no Event of Default under the Note, this Mortgage, or any of the Other Loan Documents, is then in existence; (ii) no default in the payment of any sum due under the Note, this Mortgage, or any of the Other Loan Documents has occurred during the immediately preceding twelve (12) month period; (iii) no nonmonetary default occurred under the Note, 20 this Mortgage or any of the Other Loan Documents that was noticed and remained uncured beyond any applicable cure period during the immediately preceding twelve (12) month period; and (iv) the Proceeds received by Mortgagee, together with any additional funds deposited with Mortgagee by Mortgagor, are sufficient, in Mortgagee's sole discretion, to restore the Mortgaged Premises to the condition it was in immediately preceding the casualty or to remedy the condemnation. In addition to the foregoing conditions, if the Proceeds equal or exceed $250,000.00, Mortgagee shall not be obligated to make any of the Proceeds available for such restoration or repairs unless either (i) the ratio of the then existing unpaid principal balance of the Note to the fair market value of the Mortgaged Premises upon the completion of such restoration and repairs (as determined by an appraisal to be obtained by Mortgagee, at Mortgagor's sole cost and expense, in accordance with all of the same procedures as are set forth in Section 4.2.1 of the Commitment (as such term is hereinafter defined) will be seventy-five percent (75%) or less, or (ii) Mortgagor makes a prepayment on the Note (it being understood and agreed that in such event no Prepayment Charge shall be due under the Note on the amount required to be paid under this Item (ii) so that the ratio of the then existing unpaid principal balance of the Note to the fair market value of the Mortgaged Premises upon the completion of such restoration and repairs (as determined by an appraisal to be obtained by Mortgagee, at Mortgagor's sole cost and expense, in accordance with all of the same procedures as are set forth in Section 4.2.1. of the Commitment, as such terms is hereinafter defined) will be seventy-five percent (75%) or less. Mortgagee, in its sole discretion, either may require that Mortgagor deposit $10,000.00 with Mortgagee as security for the cost of the appraisal described in the foregoing sentence or Mortgagee may pay the fee appraiser from the Proceeds. Provided that all of the foregoing conditions have been fully met, the Proceeds shall be made available for the restoration and repair of the damaged portion of the Improvements upon the following terms and conditions. i. Any Proceeds that are to be made available by Mortgagee for restoration or repairs shall be held in a restoration fund (the "Restoration Fund"), either by Mortgagee, or, if it refuses to serve, by a bank or trust company appointed by Mortgagee, as restoration fund trustee (the "Restoration Fund Trustee"), with any additions thereto that may be required by Mortgagee as hereinafter provided. The interest or income, if any, received on all deposits or investments of any monies in the Restoration Fund shall be added to the Restoration Fund. Mortgagee and the Restoration Fund Trustee may impose reasonable charges for services performed in managing the Restoration Fund and may deduct said charges therefrom. ii. Prior to the commencement of restoration or repairs and from time to time during such restoration or repairs, Mortgagee may require Mortgagor to deposit additional monies (the "Additional Monies") into the Restoration Fund in amounts that, in Mortgagee's sole discretion, are sufficient to defray all costs to be incurred to complete the restoration or repairs and all costs associated therewith, including, without limitation, labor, materials, architectural and design fees and expenses, and contractor's fees and expenses, and Mortgagee shall have approved a budget and cost breakdown for the restoration, together with a disbursement schedule, in detail reasonably satisfactory to Mortgagee. Any additional monies deposited by Mortgagor into the Restoration Fund shall be disbursed prior to the disbursement of any Proceeds deposited in the Restoration Fund. iii. Prior to the commencement of restoration or repairs, the contracts, contractors, and plans and specifications for the restoration or repairs shall have been approved by Mortgagee and all governmental authorities having jurisdiction, and Mortgagee shall be provided with satisfactory title insurance and acceptable surety bonds insuring satisfactory completion of restoration and repairs and the payment of all subcontractors and materialmen. iv. All restoration work shall be done under fixed price contracts, fully bonded to Mortgagee's reasonable satisfaction. 21 v. At the time of each disbursement, (i) no Event of Default under this Mortgage shall then exist; (ii) lien waivers from all architects, contractors, subcontractors, laborers and materialmen rendering services or materials in connection with the restoration or repairs in an amount equal to the disbursement shall have been delivered to Mortgagee and its title insurer; (iii) no mechanics' or materialmen's liens shall have been filed and remain undischarged; and (iv) an endorsement (in form satisfactory to Mortgagee) to Mortgagee's title insurance policy on the Mortgaged Premises insuring the continued first priority of the lien of this Mortgage shall have been delivered to Mortgagee. vi. Disbursements from the Restoration Fund shall be made from time to time, but not more frequently than once each calendar month, for completed work under the aforesaid contracts (subject to retainage as hereinafter provided) and for other costs associated therewith and approved by Mortgagee, upon receipt of evidence satisfactory to Mortgagee of the stage of completion and of performance of the work in a good and workmanlike manner in accordance with the contracts, plans, and specifications as approved by Mortgagee (which evidence may include, without limitation, certificates of an independent architect acceptable to Mortgagee). vii. The cost of Mortgagee's inspecting architect or engineer and the cost of any attorneys' fees and disbursements incurred by Mortgagee in connection with such restoration or repairs shall be paid from the Restoration Fund to the extent sufficient, and Mortgagor shall pay any such costs to the extent the Restoration Fund is insufficient. viii. There shall be delivered to Mortgagee at Mortgagor's cost such other evidence as Mortgagee may reasonably request from time to time during the restoration and repairs as to the progress of the work, compliance with the approved plans and specifications, the cost of restoration and repairs, and the total amount needed to complete the restoration and repairs. ix. Ten percent (10%) of the cost of all work shall be retained in the Restoration Fund until the restoration and repairs are fully completed, as verified to Mortgagee's reasonable satisfaction, and all occupancy permits therefor have been issued. x. Mortgagee may impose such other reasonable conditions, including a restoration schedule, as are customarily imposed by construction lenders to assure complete and lien free restoration and repairs. xi. Any sum remaining in the Restoration Fund upon completion of restoration and repairs, at Mortgagee's sole and absolute option, shall either be applied in reduction of the indebtedness hereby secured, in such order as Mortgagee may elect, or returned to Mortgagor; provided, however, that if an Event of Default then exists, Mortgagor shall not be entitled to receive any reimbursement for Additional Monies advanced, and any sum remaining in the Restoration Fund shall be applied to any part of the indebtedness secured by this Mortgage in such order as Mortgagee desires. If, pursuant to this Subparagraph 32.a., Mortgagor requests that Proceeds be applied to restoration or repairs, but within a reasonable period of time after the occurrence of any loss or damage by casualty or condemnation to the Improvements. Mortgagor shall not have submitted to Mortgagee and received Mortgagee's approval of plans and specifications for the repair or restoration of such loss or damage or shall not have obtained approval of such plans and specifications from all governmental authorities whose approval is required, or if, after such plans and specifications are approved by Mortgagee and by all such governmental authorities, Mortgagor shall fail to commence promptly such repairs or restoration, or if thereafter Mortgagor fails to carry out diligently such repairs or restoration or is delinquent in the payment to contractors, laborers, materialmen, or if any other condition of this Subparagraph 32.a. is not satisfied within a reasonable period of time after the occurrence of any such loss or damage, then Mortgagee, in addition to all other rights herein set forth, and after giving Mortgagor thirty 22 (30) days' written notice of the nonfulfillment of one or more of the foregoing conditions may, failing Mortgagor's fulfillment of said conditions within said thirty (30) day period, at Mortgagee's option, (A) apply the full amount of the Proceeds and any interest earned thereon to the payment of the indebtedness secured by this Mortgage in such order as Mortgagee may elect, or (B) Mortgagee, or any lawfully appointed receiver of the Mortgaged Premises, may, at its option, perform or cause to be performed such repairs or restoration and may take such other steps as the Mortgagee deems advisable to carry out such repairs or restoration, and may enter upon the Mortgaged Premises for any of the foregoing purposes, and Mortgagee may, in its discretion, apply any sums in the Restoration Fund to reimburse itself and/or such receiver for all amounts expended or incurred in connection with the performance of such work, including attorneys' fees, and any excess costs shall be paid by Mortgagor to Mortgagee. Mortgagor's obligation to pay such excess costs shall be secured by the lien and security interest of this Mortgage and shall bear interest at the Default Rate of interest provided in the Note until paid. b. Notwithstanding the provisions of Article II, Subparagraph 7.f., of this Mortgage, in the event that any Insurance Proceeds, (excluding proceeds of business interruption insurance) become payable as a result of any damage or destruction to any of the Improvements due to casualty and Mortgage is not entitled to have such Insurance Proceeds made available for restoration or repair of the Improvements upon the terms and conditions set forth in Subparagraph 32.a. immediately preceding, but any of the Key Leases requires the Mortgage apply all or a portion of such Insurance Proceeds to the restoration or repair of the Improvements, then the following provisions of this Subparagraph 32.b. shall apply. Provided that no Event of Default is then in existence, that Mortgagor does not cancel or terminate such Key Lease as a result of the casualty (which Mortgagor shall not be entitled to do without the express prior consent of Mortgagee, which consent may be withheld or denied in Mortgagee's sole and absolute discretion), and that the Key Tenant under such Key Lease (i) does not cancel or terminate such Key Lease as a result of the casualty, (ii) is not then in default under such Key Lease, and (iii) is obligated to continue to pay the full minimum guaranteed, or fixed rent, percentage rent, additional rent, tax, insurance, and common area maintenance charges, and all other charges and sums due under such Key Lease following other charges and sums due under such Key Lease following the completion of such restoration and repairs without any diminution or set off, then as and to the extent (but only as and to the extent) required by the terms of such Key Lease, such Insurance Proceeds (less all of Mortgagee's expenses deducted pursuant to Article II, Subparagraph 12.b. hereof) shall be made available for the restoration and repair of the Improvements. In such event to the extent not inconsistent (or, if inconsistent, to the extent not unacceptable to the Key Tenant under such Key Lease) the provisions of items (i) through (xi), inclusive, of Subparagraph 32.a. immediately preceding shall apply. 33. Mortgagor shall not submit all or any portion of the Mortgaged Premises to a condominium form of ownership or plat all or any portion of the Mortgaged Premises without the prior written consent of Mortgagee, which consent may be withheld or denied in Mortgagee's sole and absolute discretion. ARTICLE III 1. Upon the occurrence of an Event of Default under this Mortgage, Mortgagee, at Mortgagee's sole option, may declare all the sums secured by this Mortgage (including any applicable prepayment charge or liquidated damages due under the Note) to be immediately due and payable without demand and may foreclose this Mortgage and/or any or all of the Other Loan Documents by judicial proceedings and/or pursue any other available remedy or remedies. Mortgagee shall be entitled to collect in such proceedings all expenses of foreclosure, including, but not limited to, reasonable attorneys' and legal assistants' fees and costs before trial, at trial, and on appeal, court costs, and costs of documentary evidence, abstracts, and title reports. 23 2. In the event there shall be filed a complaint to foreclose this Mortgage, the plaintiff shall immediately and without notice be entitled to the appointment of a receiver for the Mortgaged Premises and the rents, earnings, issues, incomes, and profits thereof, with the usual power of receivers in such cases, and such receiver may be continued in possession of the Mortgaged Premises and of said rents, earnings, issues, incomes, and profits of the Mortgaged Premises during the pendency of such foreclosure suit, and the Mortgagor hereby specifically waives the right to object to such appointment and consents that such appointment shall be made as an admitted equity and as a matter of absolute right to the Mortgagee, and without reference to the adequacy of the value of the Mortgaged Premises or to the solvency or insolvency of the Mortgagor or any other party defendant to such suit. The receiver may take all actions necessary or advisable to manage, preserve, protect, complete construction of, lease, and/or operate the Mortgaged Premises, or any combination; to collect all rents, issues, incomes, and profits granted to Mortgagee under this Mortgage or any of the Other Loan Documents; to make all necessary and needed repairs; to pay all taxes, assessments, insurance premiums, and all other costs incurred in connection with the Mortgaged Premises; and, after payment of the expenses of the receivership, including reasonable attorneys' and legal assistants' fees and costs, and after compensation to the receiver for management and completion of the Mortgaged Premises, to apply all net proceeds derived therefrom in reduction of the indebtedness secured hereby or in such other manner as the Court shall direct. All expenses, fees, and compensation incurred pursuant to any such receivership shall be secured by the lien of this Mortgage, shall be of equal priority with the lien hereof, and shall bear interest at the "Default Rate" specified in the Note until paid. The receiver, personally or through agents, may exclude Mortgagor wholly from the Mortgaged Premises and have, hold, use, operate, lease, manage, and control the Mortgaged Premises, and may in the name of Mortgagor exercise all of Mortgagor's rights and powers to maintain, construct, operate, lease, restore, repair, insure, and keep insured the Mortgaged Premises in such manner as such receiver deems appropriate. 3. If foreclosure proceedings of any second mortgage or any junior lien of any kind should be instituted and such proceedings are not fully dismissed within the applicable grace period provided by Article III, Subparagraph 4.b., hereof, the Mortgagee, its successors or assigns, may at its option, immediately or thereafter declare this Mortgage and the indebtedness secured hereby due and payable. 4. The occurrence of any one or more of the following events shall constitute an "Event of Default" under this Mortgage. a. Mortgagor fails to make any payment as required by the Note secured hereby or by this Mortgage, or by any of the Other Loan Documents, and such failure continues for a period exceeding ten (10) days after the due date thereof, without notice. b. Mortgagor fails to perform any term, covenant, or condition contained in this Mortgage (other than Article IV, Paragraph 2, and the defaults referenced in Article III, Paragraph 3, and Subparagraphs 4.c. through 4.l. hereof) or in the Note, or in any of the Other Loan Documents, when due, other than any term, covenant or condition requiring the payment of money or that is incapable of being cured, and such failure continues for a period exceeding thirty (30) days after Mortgagee gives Mortgagor written notice of such failure (however, if no other Event of Default is then continuing and if such nonmonetary default cannot reasonably be cured within such thirty (30) day period and Mortgagor has taken all reasonable action to commence the cure thereof within such thirty (30) day period, the period for curing such default shall be extended for such additional time, not to exceed an additional thirty (30) days, as may reasonably be required for so long as Mortgagor continues to pursue such cure in good faith and in a diligent manner). Notwithstanding the foregoing sentence, any breach occurring under Article IV, Paragraph 2, or under Article III, Paragraph 3, or any of Subparagraphs 4.c. through 4.l. hereof, shall constitute an immediate Event of Default hereunder without notice or opportunity to cure. 24 c. Mortgagor shall abandon the Mortgaged Premises or any part thereof. d. Mortgagor, any of the General Partners, or any of their respective general partners, or any guarantor or indemnitor (including, without limitation, the Carveout Indemnitors, as such term is hereinafter defined) of any indebtedness or obligations evidenced or secured by this Mortgage (any one of Mortgagor, Mortgagor's General Partners, any of their respective general partners, or any such guarantor or indemnitor being hereinafter individually referred to as a "Borrower Entity" and collectively referred to as the "Borrower Entities") files any petition in bankruptcy, or for an arrangement, reorganization, or any other form of debtor relief under any present or future law relating to bankruptcy or debtor relief; or such a petition is filed against a Borrower Entity, and either that filing is not opposed or the petition is not dismissed within sixty (60) days after filing; or any Borrower Entity is adjudicated as a bankrupt or insolvent; or there is appointed a receiver or trustee to take possession of all or a substantial portion of the assets of any Borrower Entity or all or any portion of the Mortgaged Premises; or there is a general assignment by any Borrower Entity for the benefit of creditors; or should the Security, or any part thereof, be taken or seized under levy of execution or attachment; or should any judgment be entered against any Borrower Entity that may adversely affect the value, use, or operation of all or any part of the Security; or should any federal, state, or local tax lien, any construction or mechanics' lien, or any other lien or encumbrance be filed against any Borrower Entity or any guarantor or any part of the Security; provided, that Mortgagor shall not be in default under this Paragraph in the case of any action taken by a party adverse to a Borrower Entity and not consented to by such Borrower Entity unless the same shall continue in effect for a period of sixty (60) days. e. Any representation or disclosure made to the Mortgagee by any Borrower entity, or any partner, agent, attorney, employee, or contractor of any of them proves to be materially false or misleading on the date as of which made, whether or not that representation or disclosure appears in this Mortgage. f. Any of the Borrower Entities should be dissolved, liquidated, or terminated, whether voluntarily or involuntarily. g. There is passed any law which renders payment by Mortgagor of any and all taxes levied on this Mortgage or the Mortgaged Premises or performance of any material term, covenant, or condition hereof, or any material obligation secured hereby, unlawful, usurious, inoperative, void, or voidable, or which prohibits Mortgagee from exercising any of its rights hereunder or under any other instrument or agreement to which the Mortgagor is a party or by which it is bound. h. Any sale, transfer, conveyance, lease, assignment, mortgage, pledge, hypothecation, encumbrance, or other vesting, whether voluntary or involuntary, of any direct or indirect interest in, or any attempt or agreement to sell, transfer, convey, lease, assign, mortgage, pledge, hypothecate, encumber, or otherwise vest any direct or indirect interest in, the whole or any portion of the right, title, or interest of Mortgagor in and to the Mortgaged Premises, without the prior written consent of Mortgagee (which consent may be withheld or denied in the sole and absolute discretion of Mortgagee), in violation of Paragraph 8 of Article IV hereof, or any other breach thereof. i. A default or failure to perform occurs under that certain "Indemnification Agreement" of even effective date herewith made by John F. Malhame ("Malhame"), Gabriel Hakim ("Hakim"), Bradley E. McNutt ("McNutt"), Garden Square, GSG Partners, and BMC Garden (Malhame, Hakim, McNutt, Garden Square, GSG Partners, and BMC Garden are collectively referred to as "Carveout Indemnitors"), in favor of Mortgagee (the "Carveout Indemnification"). j. Any other event occurs under the Note, any of the Other Loan Documents, or any other agreement of the Mortgagor or any one or more of the Borrower Entities relating to the loan evidenced by the Note, which constitutes a default or an Event 25 of Default by the Mortgagor or any of such Borrower Entities thereunder (as defined therein) or under this Mortgage or gives the Mortgagee the right to accelerate the maturity of any part of the indebtedness secured by this Mortgage. k. The filing for record by Mortgagor of a notice pursuant to Section 697, 04(1)(b), Florida Statutes (1993), or any successor thereto, limiting the maximum principal amount secured by this Mortgage to an amount less than the amount specified in Article II, Paragraph 24, of this Mortgage. l. The failure of Mortgagor to pay or perform any of its obligations under the Environmental Agreement when due beyond any applicable grace period provided therein. 5. In the event that the Mortgaged Premises covered hereby is sold under foreclosure and the proceeds are insufficient to pay the total indebtedness secured hereby (including any applicable prepayment charge or liquidated damages), the Mortgagor binds itself to pay the unpaid balance, and the Mortgagee shall be entitled to a deficiency judgment, except to the extent otherwise specifically provided in Article IV, Paragraph 15, hereof. 6. Neither this Mortgage, the existence or terms of any other security for the performance of the obligations secured hereby, nor the existence or terms of any other instrument or agreement shall be deemed to require any marshalling of assets or otherwise permit Mortgagor to designate the order in which any security shall be sold. 7. Every right, power, privilege, and remedy granted Mortgagee by this Mortgage, or the Other Loan Documents, or otherwise available at law or in equity, may be exercised by Mortgagee from time to time as often as Mortgagee deems expedient until the indebtedness secured hereby is paid in full. Mortgagee's failure to insist at any time upon the strict observance or performance by Mortgagor of any of the provisions of this Mortgage, or to exercise any right or remedy provided for in this Mortgage, will not impair any such right or remedy, nor be construed as a waiver or relinquishment thereof for the future, unless agreed otherwise by Mortgagee in writing. Receipt by Mortgagee of any payment required to be made pursuant to this Mortgage, or the Other Loan Documents, or both, with knowledge of the breach of any provision of this Mortgage, or of the Other Loan Documents, or both, will not constitute a waiver of such breach, unless agreed otherwise by Mortgagee in writing. In addition to all other remedies provided in this Mortgage, Mortgagee will be entitled, to the extent permitted by applicable law, to injunctive relief in the case of a violation, or attempted or threatened violation, of any of the provisions of this Mortgage, or the Other Loan Documents, or both, or to a decree coercing performance of any of the provisions of any of the foregoing. ARTICLE IV 1. Notwithstanding any provision of the Note, this Mortgage, or any of the Other Loan Documents, or any combination thereof, to the contrary, the parties intend that no provision of the Note, this Mortgage, or the Other Loan Documents be interpreted, construed, applied, or enforced so as to permit or require the payment or collection of interest in excess of the highest rate of interest (the "Maximum Permitted Rate") permitted to be paid or collected by applicable law with respect to this transaction. If, however, any such provision is so interpreted, construed, applied, or enforced, then the parties intend (i) that such provision automatically shall be deemed reformed NUNC PRO TUNC so as to require payment only of interest at the Maximum Permitted Rate; and (ii) if interest payments in excess of such Maximum Permitted Rate have been received, then the amount of such excess shall be deemed credited NUNC PRO TUNC in reduction of the then outstanding principal amount of the obligation evidenced by the Note, together with interest at such Maximum Permitted Rate. In connection with all calculations to determine 26 the Maximum Permitted Rate, the parties intend: first, that all charges be excluded to the extent they are properly excludable under applicable usury laws, as they from time to time are determined to apply to this obligation; and second, that all charges be "spread" that may be "spread" in the manner, if any, provided by applicable law. 2. In the event of the passage after the date of this instrument of any law which deducts any lien on the Mortgaged Premises from the value of the Mortgaged Premises for the purpose of taxation of mortgages or debts secured thereby for state and local purposes, or which law changes the manner of collection of any such taxes so as to affect the interest of the holder of the Note then, unless the Mortgagor agrees to pay same pursuant to an enforceable written agreement that is satisfactory to Mortgagee within thirty (30) days after delivery of written notice thereof by Mortgagee to Mortgagor, the whole sum secured by this Mortgage with interest thereon, at the option of the holder of the Note, shall immediately become due, payable, and collectible without notice to any party. 3. If the lien of this Mortgage is invalid or unenforceable as to any part of the debt or if the lien is invalid or unenforceable as to any of the Mortgaged Premises, the unsecured or partially secured portion of the debt shall be completely paid prior to the payment of the remaining and secured or partially secured portion of the debt and all payments made on the debt, whether voluntary or under foreclosure or other enforcement action or procedure, shall be considered to have been first paid on and applied to the full payment of that portion of the debt which is not secured or fully secured by the lien of this Mortgage. 4. Any part of the security herein described may be released by the holder of the Note herein secured, without affecting the lien hereof on the remainder. The security hereof shall not affect or be affected by any other security taken for the same indebtedness or any part thereof. Taking of additional security, or the extension or renewal of said indebtedness or any part thereof, shall at no time release or impair the security thereof or affect the liability of any endorser or surety, or improve the right of any junior lienholder; and this instrument, as well as any instrument given to secure any renewal or extension hereof, shall be and remain a first and prior lien on all of said property not expressly released, until said indebtedness is paid in full. Mortgagee from time to time, without notice to any person and without affecting the liability of Mortgagor or of any other person (other than any person expressly released by Mortgagee in writing) for the payment of any of the indebtedness and without affecting the priority or extent of the lien and security interest of this Mortgage (except as to property specifically released by the Mortgagee in writing), may do any or all of the following: (i) release in whole or in part, any person liable for payment of any or all of the indebtedness; or (ii) extend the time or otherwise alter the terms of payment of the indebtedness, in whole or in part; or (iii) consent to the creation of any easement in, on, or over the Mortgaged Premises or any covenant restricting the use of occupancy of the Mortgaged Premises. 5. The Mortgagee shall be subrogated to the lien of any and all prior encumbrances, liens, or charges paid or discharged from the proceeds of the Note, and even though said prior liens may have been released of record, the repayment of the Note shall be secured by such liens on the portion of the Mortgaged Premises affected thereby to the extent of such payments. 6. In this Mortgage, whenever the context so requires, the masculine gender includes the feminine/neuter, and the singular number includes the plural, and the term "Mortgagee" shall include any future holder, including pledgees, heirs, executors, administrators, successors, and assigns of the Note secured hereby. The terms of this Mortgage shall bind and inure to the benefit of Mortgagor and Mortgagee, their heirs, personal representatives, successors and assigns. 7. If any term, provision, covenant, or condition of the Mortgage, or any application thereof should be held by a court of competent jurisdiction to be invalid, void, or unenforceable, all provisions, covenants, and conditions of this Mortgage and all 27 applications thereof not held invalid, or unenforceable, shall continue in full force and effect and shall in no way be affected, impaired, or invalidated thereby. 8. a. The loan secured hereby is granted to the Mortgagor specifically based upon Mortgagor's loan application. The sale, transfer, conveyance, lease, assignment, mortgage, pledge, hypothecation, encumbrance, or other vesting of any direct or indirect interest in, whether voluntary or involuntary, or any attempt or agreement to sell, transfer, convey, lease, assign, mortgage, pledge, hypothecate, encumber, or otherwise vest any direct or indirect interest in, the whole or any portion of the right, title, or interest of Mortgagor in and to the Mortgaged Premises, without the prior written consent of Mortgagee (which consent may be withheld or denied in the sole and absolute discretion of Mortgagee), shall constitute an immediate Event of Default hereunder, whereupon Mortgagee shall have the right, at its option, to declare the indebtedness and all obligations secured hereby (including any applicable prepayment charge or liquidated damages due in connection therewith) immediately due and payable in full irrespective of the maturity date specified in the Note. If any person should obtain a direct or indirect interest in all or any part of the Mortgaged Premises pursuant to the execution or enforcement of any lien, security interests, or other right, whether superior, equal, or subordinate to this Mortgage or the lien hereof, such event (subject, however, to Mortgagor's right to satisfy, bond, or otherwise discharge within the applicable grace period provided by Article III, Subparagraph 4.b., hereof any lien that is filed against the Mortgaged Premises without the consent of Mortgagor) shall be deemed to be a prohibited transfer and an immediate Event of Default hereunder. b. The sale, transfer, conveyance, assignment, or any other vesting or disposition of any direct or indirect interest in Mortgagor, the encumbrance, pledge, or hypothecation of any such interest, or any change in the direct or indirect control of Mortgagor shall constitute a conveyance requiring Mortgagee's prior written consent under the provisions of Subparagraph 8.a. above. c. The granting of permission for a transferee to assume this Mortgage shall not in any manner be deemed a consent to any subsequent transfer, and Mortgagee shall retain the right to withhold consent to such transfer or subsequent transfers on the terms and conditions stated in Subparagraph 8.a. above. d. Notwithstanding the provisions of Article IV, Subparagraph 8.a. hereof, Mortgagee agrees that upon Mortgagor's written request, Mortgagee will consent to a one-time sale and conveyance of the Security by Miami Gardens Associates to a proposed buyer (a "Buyer") provided that all of the following conditions are first fully met: (i) Mortgagee shall have approved of the Buyer's ownership structure, financial strength, creditworthiness, and management capabilities, and Buyer shall have provided Mortgagee with all such organizational documents, financial statements and other information as Mortgagee may require for the purpose of making such determination; (ii) Buyer and its principals shall have assumed in writing personal liability for all of Mortgagor's obligations and liabilities under the Note, this Mortgage, and the Other Loan Documents and the Carveout Indemnification, including, without limitation, the Recourse Obligations described below, whether accruing before or after the transfer (if requested by Mortgagee, Buyer and its principals shall have executed a new Environmental Agreement and Carveout Indemnification); (iii) mortgagee shall have approved the form and substance of all transfer and assumption documents; (iv) Mortgagor shall have paid to Mortgagee a fee equal to one percent (1%) of the then outstanding principal balance of the Note; (v) Mortgagor and/or the Buyer shall have paid all costs and expenses in connection with the conveyance and assumption, including, but not limited to, all documentary stamp and intangible taxes, Mortgagee's attorneys' fees and costs, and any title insurance premiums or costs; (vi) at the time of the conveyance there shall exist no Event of Default under the Note, this Mortgage, or any of the Other Loan Documents or any default under the Carveout Indemnification; (vii) Mortgagor shall have acknowledged in writing that it will remain personally liable (subject, however, to the provisions of Article IV, Paragraph 15 28 hereof) under the Note, this Mortgage, and the Other Loan Documents, and Carveout Indemnitors shall have acknowledged in writing that they will remain personally liable in accordance with the terms of the Carveout Indemnification, for all acts, omissions, events, and/or obligations arising, occurring, or accruing in whole or in part, prior to the time of the conveyance or that are caused in whole or in part, directly or indirectly, by any act omission of any of them or any of their respective partners, affiliates, agents or employees, and (viii) Mortgagor and/or the Buyer shall have obtained and paid for an endorsement to Mortgagee's loan policy of title insurance updating the policy through the recordation of the conveyance and assumption documents and insuring that the lien of this Mortgage shall remain a first and prior lien on all of the Mortgaged Premises. It is expressly understood and agreed, however, that Mortgagee shall not be obligated to modify, or to entertain any request from a Buyer for any modification of, this Mortgage or any of the Other Loan Documents. e. Notwithstanding anything to the contrary contained in Article IV, Subparagraph 8.b. hereof, Mortgagee agrees that upon Mortgagor's written request Mortgagee will consent to any transfer of a general partnership interest in Miami Gardens Associates between Garden Square, GSG Partners, and BMC Garden, provided that all of the following conditions are first fully met: (i) no such transfer under this Subparagraph e. would result in the withdrawal of BMC Garden as a general partner of Miami Gardens Associates; and (ii) McNutt shall at all times remain the majority shareholder of BMC Garden. f. Mortgagor shall pay all out-of-pocket costs and expenses incurred by Mortgagee (including reasonable attorneys' fees and costs) in connection with Mortgagee's review and/or approval of any of the transfers described in the foregoing Subparagraphs 8.d. and 8.e. 9. In the event that the Mortgagor now or hereafter consists of more than one (1) person, trust, firm, or corporation then, in such an event, all of such persons, trusts, firms, or corporations shall be jointly and severally liable hereunder. 10. The laws of the State of Florida shall govern the validity, construction, performance, and effect of this Mortgage, without regard to any choice of law principle requiring the application of the law of another jurisdiction. The Mortgagor agrees that the sole and exclusive forum for the determination of any action relating to the validity and enforceability of the Note, this Mortgage, the Other Loan Documents, and any other instruments securing the Note shall be either in an appropriate court of the State of Florida or the applicable United States District Court. 11. The various rights, options, elections, and remedies of the Mortgagee hereunder shall be cumulative and none of them shall be construed as exclusive of any other, or of any right, option, election, or remedy provided in any agreement or by law. 12. This Mortgage shall be construed in accordance with the terms hereof without regard to any presumption or other rule requiring construction against the party causing the same to be drafted. 13. Any notice, demand, request, or consent required or permitted under this Mortgage shall be in writing, and delivered either by (1) hand-delivery, (2) certified or registered mail, return receipt requested, or (3) overnight express courier, and addressed as the case may be to the Mortgagee at: Life Investors Insurance Company of America c/o AEGON USA Realty Advisors, Inc. 4333 Edgewood Road N.E. Cedar Rapids, Iowa 52499 and to the Mortgagor at: 29 MIAMI GARDENS ASSOCIATES c/o Bradley E. McNutt Stiles Realty Co. 6400 North Andrews Avenue Ft. Lauderdale, Florida 33309 or to such other address as either of them shall so designate in the manner provided, and the same shall be deemed to have been delivered on the date when hand-delivered, on the day that is three (3) business days after the date when the same is mailed as aforesaid, or one (1) day after the same is deposited with an overnight express courier as aforesaid, except that notice of change of address shall be effective upon receipt of such notice. 14. All terms of the Revised Mortgage Loan Commitment of Aegon USA Realty Advisors, Inc., dated September 20, 1995, as agent for Mortgagee (the "Commitment"), are hereby incorporated by reference. In the event of any conflict between the terms of the Commitment and this Mortgage and the Other Loan Documents, the terms of this Mortgage and the Other Loan Documents shall prevail. All of the terms and conditions of the Commitment shall survive the execution of this Mortgage and the closing of the loan transaction and remain in full force and effect until the Note is satisfied and all amounts due under this Mortgage or any of the Other Loan Documents are paid in full. The Commitment does not obligate the Mortgagee to make any additional or other loan to Mortgagee, or to release the lien of this Mortgage as to any portion of the Mortgaged Premises. 15. Notwithstanding any provision contained in this Mortgage to the contrary, except for the Recourse Obligations, as hereinafter defined, Mortgagee shall have no recourse to any property of Mortgagor other than the Security in the event that Mortgagor fails to pay all or any portion of the indebtedness evidenced by the Note or secured or imposed by this Mortgage or any of the Other Loan Documents or fails to perform any of Mortgagor's obligations pursuant to the Note, this Mortgage, or any of the Other Loan Documents (collectively, the "Indebtedness"). Mortgagor (jointly and severally, if more than one) shall have full personal liability for, and shall defend, indemnify, and hold Mortgagee (including its successors and assigns) harmless from, any and all losses, liabilities (including strict liability), damages, fines, penalties, injuries, expenses (including reasonable attorneys' fees and costs, whether incurred prior to or at trial or on appeal or in connection with any bankruptcy, creditors' rights, or other proceedings or collecting upon or enforcing any judgment), costs, and claims of any and every kind whatsoever (together with interest thereon at the Default Rate specified in the Note until paid) paid, incurred, or suffered by, or asserted against, Mortgagee (including its successors and assigns), and caused by any of the following "Recourse Obligations": a. Waste to any of the Security (but excluding ordinary wear and tear, unless Mortgagor fails to exercise ordinary care in maintaining the Security). b. Fraud or written material misrepresentation by Mortgagor or any of its partners, or any affiliate, partner, officer, director, shareholder, agent, or employee of any of them. c. The failure to pay any tax, assessment, ground rent, or lienable imposition or charge (including any interest and penalties thereon) as required under this Mortgage or any of the Other Loan Documents. d. The application of any and all tenant security deposits or prepaid rents or other charges (including any interest earned or due thereon) under the leases of any portion of the Security (collectively, the "Deposits") in a manner not specifically authorized by this Mortgage or the Other Loan Documents, or the failure to remit the Deposits to the 30 holder of this Note as required by this Mortgage or any of the Other Loan Documents or by applicable law. e. The application in a manner not specifically authorized by this Mortgage and the Other Loan Documents of any condemnation or insurance proceeds from or with respect to the Security collected by or on behalf of Mortgagor, or the unavailability to Mortgagee of condemnation proceeds because a lease of all or any portion of the Security grants a tenant the right (or the tenant otherwise is entitled) to receive a portion of the award for the estate taken (excluding moving expenses, business damages, and damage for the loss of the tenant's leasehold fixtures to the extent that the same are separately awarded to the tenant). f. The failure to pay to Mortgagee all Net Revenues (as hereinafter defined) derived from the Security while there exists any uncured Event of Default arising from Mortgagor's failure to pay any sum due under the Note, this Mortgage, or any of the Other Loan Documents (a "Monetary Default"). As utilized herein, the term "Gross Revenues" means all revenues, receipts, proceeds, and income derived from the Security from any source whatsoever, and received by or for the account of Mortgagor while an uncured Monetary Default exists, including, but not limited to, all rent and other charges from tenants or other occupants of the Security, revenue from the operation of the Mortgagor's business or businesses upon the Security, insurance proceeds for a loss of business revenue, receipts from a sale or refinancing of the Security, and any other revenues, receipts, or income derived from the operation of, or generated by, the Security, including, without limitation, casualty insurance and condemnation proceeds. As utilized herein, the term "Operating Expenses" means all reasonable and customary costs and expenses, actually incurred by Mortgagor in cash in the usual and ordinary course of operating, maintaining, and managing the Security while an uncured Monetary Default exists (but expressly excluding (i) capital expenditures and extraordinary repairs or expenses, (ii) depreciation and amortization, (iii) distributions and payments to Mortgagor, any of Mortgagor's partners, or any of their respective general or limited partners, shareholders, officers, directors, or employees, or any affiliate, subsidiary, or other entity that is controlled by any of them, other than management fees paid to any such person or entity not in excess of three percent (3%) of collected Gross Revenues, (iv) noncash expenditures; and (v) management fees in excess of four percent (4.00%) of Gross Revenues). As utilized herein, the term "Net Revenues" means Gross Revenues less Operating Expenses. g. The breach or untruth of any representation, warranty, covenant or agreement made by Mortgagor in any way relating to any environmental matter in this Mortgage or any of the Other Loan Documents or any other document executed in connection with the loan evidenced by the Note, including, without limitation, Article II, Paragraph 29, of this Mortgage, or the failure to perform under any related indemnification, including, without limitation, all obligations, covenants, agreements, representations, warranties, and indemnifications on the part of Mortgagor arising under the Environmental Agreement. h. The destruction or removal of any Tangible Property (as defined in the Security Agreement) from the Security in violation of Paragraph 3 of the Security Agreement. i. The termination, amendment, or entering into of any lease of all or any portion of the Security in a manner prohibited by this Mortgage or any of the Other Loan Documents. j. The willful or grossly negligent violation of any law, ordinance, rule, regulation, or other legal requirement applicable to (i) Mortgagor, (ii) all or any portion of the Security or its use, occupancy, operation, maintenance, improvement, or repair, (iii) the Note, this Mortgage or any of the Other Loan Documents, or any other documents executed in connection therewith, or (iv) the loan evidenced by the Note. 31 k. The breach of any of the provisions of this Mortgage or any of the Other Loan Documents prohibiting transfer or further encumbrance of the Security, including, without limitation, those contained in Article III, Paragraph 4.h, of this Mortgage, Article IV, Paragraph 8, of this Mortgage, and Paragraph 2 of the Security Agreement. Mortgagor expressly agrees and acknowledges that, notwithstanding anything to the contrary contained in the Note, this Mortgage, or any of the Other Loan Documents, in the event of a breach of any such provision of the Mortgage or any of the Other Loan Documents Mortgagor shall be fully and personally liable for all principal, interest, prepayment charges, liquidated damages for involuntary prepayment, and all other charges and sums due under the Note, this Mortgage, or any of the Other Loan Documents to the same extent as though the Note, this Mortgage, and the Other Loan Documents contained no limitation on recourse against or liability of Mortgagor. Upon the occurrence of any Event of Default the sole remedy of Mortgagee for the recovery of the Indebtedness (other than the Recourse Obligations) will be to realize upon the benefit of the Security provided by this Mortgage and the Other Loan Documents and to pursue its remedies under the Environmental Agreement and the Carveout Indemnification. Upon the occurrence of any such Event of Default, except with respect to the Recourse Obligations and the Environmental Agreement and the Carveout Indemnification, neither Mortgagor nor any of the Carveout Indemnitors or any of their respective assets other than the Security, will be liable for the Indebtedness. Notwithstanding the foregoing, no covenant or agreement contained in the Note, this Mortgage, or any of the Other Loan Documents will constitute a release or impairment of any or all of the Indebtedness, except to the extent expressly provided herein, or of the benefit of the Security provided by the Mortgage and the Other Loan Documents, or preclude the Mortgagee from exercising any right, privilege, or remedy provided by, or otherwise available with respect, to the Note, this Mortgage, any of the Other Loan Documents, or the Carveout Indemnification, including, without limitation, institution of appropriate proceedings to realize upon the Security provided by this Mortgage and the Other Loan Documents. The Recourse Obligations shall be the personal obligations of the Mortgagor and the Carveout Indemnitors, jointly and severally, and the Mortgagee may pursue the Mortgagor and/or any of the Carveout Indemnitors, or any combination of them, for personal liability on the Recourse Obligations, and may obtain a deficiency judgment for the Recourse Obligations in connection with any action to foreclose the Mortgage and/or any or all of the Other Loan Documents. Mortgagor agrees that a separate action or actions may be brought and prosecuted against Mortgagor under this Paragraph 15 whether or not an action is brought to foreclose or otherwise enforce this Mortgage or any of the Other Loan Documents. The enforcement of Mortgagor's obligations under this Paragraph 15 shall not be deemed to constitute an action for recovery of any portion of the Indebtedness other than the Recourse Obligations nor for the recovery of a deficiency judgment against Mortgagor following foreclosure of this Mortgage. This Paragraph 15 shall survive (i) the repayment of the Note, (ii) any assumption of the Indebtedness by a successor to Mortgagor, whether or not the assumption was approved or disapproved by Mortgagee and whether or not Mortgagor was otherwise released from liability under this Mortgage and the Other Loan Documents (it is expressly understood and agreed, however, that Miami Gardens Associates shall have no liability for any acts, omissions, events and/or obligations that are conclusively determined to have arisen, occurred, or accrued solely and in their entirety after the time of any conveyance of the Mortgaged Premises that is consented to by the Mortgagee in accordance with the provisions of Article IV, Paragraph 8 hereof and that were not caused, in whole or in part, directly or indirectly, by any act or omission of Miami Gardens Associates or any of its partners, affiliates, agents, or employees), (iii) the conveyance of title to the Security to Mortgagee or any successor or assign of Mortgagee, (iv) the foreclosure of this Mortgage and the vesting of title to the Security in the purchaser at the foreclosure sale, (v) the sale or conveyance of all or any portion of the Security by Mortgagor, and (vi) the release of any portion of the Security from the lien and security interest created by this Mortgage or any of the Other Loan Documents. 32 IN WITNESS WHEREOF, the Mortgagor has executed and delivered this Mortgage effective as of the date first stated above. SIGNATURES WITNESSED BY: MIAMI GARDENS ASSOCIATES, a New Jersey general partnership By: GARDEN SQUARE ASSOCIATES, L.P., a Delaware limited partnership, doing business in Florida as Garden Square Associates of Delaware, Ltd., as general partner of Miami Gardens Associates By: ENGLEWOOD GARDENS, INC., a Florida corporation, sole general partner /s/A. F. Buzzetti - ------------------- By: /s/ John F. Malhame Witness ---------------------------- John F. Malhame, President A. F. Buzzetti - ------------------- Printed Name of Witness (CORPORATE SEAL) /s/ Marie Cicierllo - ------------------- Witness Marie Cicierllo - -------------------- Printed Name of Witness As to Englewood Gardens, Inc. By: GSG PARTNERS III, L.P., a Delaware limited partnership, doing business in Florida as GSG Partners III, Ltd., as general partner of Miami Garden Associates By: GSG INVESTORS III, INC., a Delaware corporation, sole general partner /s/ Marie Cicierllo - -------------------- By: /s/ George Hakim Witness ----------------------- George Hakim, President M. Cicierllo - -------------------- (CORPORATE SEAL) Printed Name of Witness /s/Barbara Henn - -------------------- Witness Barbara Henn - -------------------- Printed Name of Witness As to GSG Investors III, Inc. By: BMC GARDEN SQUARE INVESTMENT, INC., a Florida corporation, as general partner of Miami Garden Associates /s/ Neil W. Platock By: /s/ Bradley E. McNutt - -------------------- --------------------------------- Witness Bradley E. McNutt, President Neil W. Platock - -------------------- Printed Name of Witness (CORPORATE SEAL) /s/ Sherrel A. Garrett - ------------------------ Witness Sherrel A. Garrett - ------------------------ Printed Name of Witness As to BMC Garden Square Investment, Inc. 33 STATE OF NEW JERSEY) ) COUNTY OF BERGEN ) THE FOREGOING INSTRUMENT was acknowledged before me this 18th day of December, 1995, by JOHN F. MALHAME, as President of Englewood Gardens, Inc., a Florida corporation, which is the sole General Partner of Garden Square Associates, L.P., a Delaware limited partnership, doing business in Florida as Garden Square Associates of Delaware, Ltd., which is acting in its capacity as a General Partner of Miami Gardens Associates, a New Jersey general partnership, on behalf of the corporation, limited partnership, and the general partnership. He is either personally known to me or has produced_______________as identification. /s/ Laurel Merse ------------------------------ Notary Public, State of_______ Name Printed:_________________ Commission No.:_______________ (Affix Seal) My Commission Expires:________ LAUREL MERSE NOTARY PUBLIC OF NEW JERSEY My Commission Expires Feb. 17, 1998 STATE OF NEW JERSEY) ) COUNTY OF BERGEN ) THE FOREGOING INSTRUMENT was acknowledged before me this 18th day of December, 1995, by GEORGE HAKIM, as President of GSG Investors III, Inc., a Delaware corporation, which is the sole General Partner of GSG Partners III, L.P., a Delaware limited partnership, doing business in Florida as GSG Partners III, Ltd., which is acting in its capacity as a General Partner of Miami Gardens Associates, a New Jersey general partnership, on behalf of said corporation, limited partnership and general partnership. He is either personally known to me or has produced______________ as identification. /s/ Laurel Merse ------------------------------ Notary Public, State of_______ Name Printed:_________________ Commission No.:_______________ (Affix Seal) My Commission Expires:________ LAUREL MERSE NOTARY PUBLIC OF NEW JERSEY My Commission Expires Feb. 17, 1998 STATE OF FLORIDA ) ) COUNTY OF PALM BEACH ) THE FOREGOING INSTRUMENT was acknowledged before me this 19th day of December, 1995 by BRADLEY E. MCNUTT, as President of BMC Garden Square Investment, Inc., a Florida corporation, which is acting in its capacity as a General Partner of Miami Gardens Associates, a New Jersey general partnership, on behalf of said corporation and general partnership. He is either personally known to me or has produced_______________as identification. /s/ Sherrel A. Garrett --------------------------- Notary Public, State of Florida Name Printed: Sherrel A. Garrett (SEAL) Commission No.: CC 199815 My Commission Expires: 6/14/96 (Affix Seal) 34 EXHIBIT "A" - Legal Description A portion of Tract "A" of "STILES HUNT PLAT", according to the Plat thereof as recorded in Plat Book 138, at Page 85, of the Public Records of Dade County, Florida, being more particularly described as follows: Commence at the Southwest corner of Section 3, Township 52 South, Range 40 East; thence North 89 degrees 38 minutes 39 seconds East, along the South line of said Section 3 for 700.53 feet; thence North 02 degrees 35 minutes 29 seconds West, along a line 700 feet East of and parallel with the West line of said Section 3, for 55.04 feet to the POINT OF BEGINNING of the hereinafter described Parcel of Land; said point being the Southeast corner of said Tract "A" of the said Plat of "STILES HUNT PLAT"; thence South 89 degrees 38 minutes 39 seconds West, along a line 55 feet North of and parallel with said South line of said Section 3, said line being the North Right-of-Way line of Miami Gardens Drive (N.W. 186th Street) as shown on the said Plat of "STILES HUNT PLAT", for 180.00 feet thence North 00 degrees 21 minutes 21 seconds West for 30.00 feet thence South 89 degrees 38 minutes 39 seconds West, for 30.00 feet; thence South 00 degrees 21 minutes 21 seconds East for 30.00 feet; thence South 89 degrees 38 minutes 39 seconds West, along a line 55 feet North of and parallel with said South line of said Section 3, said line being the North Right-of-Way line of Miami Gardens Drive (N.W. 186th Street) as shown on the said Plat of "STILES HUNT PLAT", for 300.50 feet, thence North 02 degrees 35 minutes 29 seconds West, along a line 189.89 feet East of and parallel with the West line of said Section 3, for 224.00 feet; thence South 89 degrees 38 minutes 39 seconds West, along a line 278.83 feet North of and parallel with the South line of said Section 3, for 150.00 feet; thence North 02 degrees 35 minutes 29 seconds West, along a line 40 feet East of and parallel with the West line of said Section 3, and said line being the East Right-of-Way line of N.W. 87th Avenue as shown on the said Plat of "STILES HUNT PLAT", for 436.30 feet; thence North 89 degrees 38 minutes 29 seconds East, along a line 55 feet North of and parallel with South line of Tract 43 of "FLORIDA FRUIT LANDS COMPANY'S SUBDIVISION NO. 1", according to the Plat thereof as recorded in Plat Book 2, at Page 17, of the Public Records of Dade County, Florida, said line also being the North line of Tract "A" of said Plat of "STILES HUNT PLAT", for 660.50 feet; thence South 02 degrees 35 minutes 29 seconds East, along a line 700 feet East of and parallel with the West line of said Section 3, for 660.33 feet to the POINT OF BEGINNING. Said lands lying in Section 3, Township 52 South, Range 40 East, Dade County, Florida. TOGETHER WITH a perpetual, non-exclusive easement for pedestrian and vehicular ingress and egress and parking over and upon the following described parcel as contained in the certain cross access easement filed May 17, 1990, in Official Records Book 14550, at Page 2602: The West 149.89 feet of the South 223.83 feet of Tract "A" of "STILES HUNT PLAT" according to the Plat thereof recorded in Plat Book 138, at Page 85, of the Public Records of Dade County, Florida, being more particularly described as follows: Commence at the Southeast corner of said Tract "A", thence run South 89 degrees 38 minutes 39 seconds West along the South line of said Tract "A", also being the North Right-of-Way line of Miami Gardens Drive, for a distance of 510.50 feet to the Point of Beginning, thence continue South 89 degrees 38 minutes 39 seconds West for a distance of 125.96 feet to a Point of Curvature of a circular curve concave to the Northeast; thence run Northwesterly along the arc of said circular curve, having a radius of 25.00 feet thru a central angle of 87 degrees 45 minutes 52 seconds, for an arc distance of 38.29 feet to a point of tangency; thence run North 02 degrees 35 minutes 29 seconds West along the West line of said Tract "A", also being the East Right-of-Way line of N.W. 87 Avenue, for a distance of 199.96 feet to a point; thence run North 89 degrees 38 minutes 39 seconds East along the North line of the South 223.83 feet of said Tract "A" for a distance of 150.00 feet to point; thence run South 02 degrees 35 minutes 29 seconds East along the East line of the West 149.89 feet of said Tract "A" for a distance of 224.00 feet to the Point of Beginning. TOGETHER with a perpetual, non-exclusive easement for the purpose of automobile and pedestrian ingress and egress and automobile parking created at Paragraph 1 of the Reciprocal Shopping Center Easement Agreement by and between MIAMI GARDENS ASSOCIATES, a New Jersey partnership, and McDonald's Corporation, a Delaware corporation, dated October 3, 1994, filed October 27, 1994, in Official Records Book 16560, at Page 1778, of the Public Records of Dade County, Florida. LESS THE FOLLOWING LANDS: (Out-Parcel "B" Miami Gardens Shopping Center) A portion of Tract "A" of "STILES HUNT PLAT", according to the Plat thereof as recorded in Plat Book 138, at Page 85, of the Public Records of Dade County, Florida being more particularly described as follows: COMMENCE at the Southwest corner of Section 3, Township 52 South, Range 40 East; thence North 89 degrees 38 minutes 39 seconds East along the South line of said Section 3 for 700.53 feet; thence North 02 degrees 35 minutes 29 seconds West for 55.04 feet to a point on the South Line of said Tract "A", said point being the Southeast Corner of said Tract "A", thence South 89 degrees 38 minutes 39 seconds West along the South line of said Tract "A", for 44.04 feet to the Point of Beginning of the hereinafter described Parcel of Land; thence continue South 89 degrees 38 minutes 39 seconds West along said South line of said Tract "A" for 135.96 feet; thence North 00 degrees 21 minutes 21 seconds West for 30.00 feet; thence South 89 degrees 38 minutes 39 seconds West for 26.01 feet; thence North 00 degrees 21 minutes 21 seconds West for 120.00 feet; thence North 89 degrees 38 minutes 39 seconds East for 136.88 feet to a point of curvature of a circular curve to the right, concave Southwesterly; thence Easterly, Southeasterly and Southerly along the arc of said curve, having a radius of 20.00 feet and central angle of 87 degrees 45 minutes 52 seconds, for an arc distance of 30.64 feet to a point of tangency; thence South 02 degrees 35 minutes 29 seconds East for 130.88 feet to the Point of Beginning. Said lands lying in Section 3, Township 52 South, Range 40 East, Dade County, Florida. Exhibit "B" PERMITTED EXCEPTIONS Taxes and assessments for the year 1996 and subsequent years, which are not yet due and payable. Terms, conditions and easements set out in Reciprocal Shopping Center Easement Agreement filed October 27, 1994, in Official Records Book 16560, at Page 1778, of the Public Records of Dade County, Florida. Terms, conditions and easements set out in Grant of Easement in favor of Metropolitan Dade County filed October 27, 1994, in Official Records Book 16560, at Page 1763, of the Public Records of Dade County, Florida. Conditions and Restrictions set out in Restrictive Covenants filed October 27, 1994, in Official Records Book 16560, at Page 1794, of the Public Records of Dade County, Florida. Rights of tenants in possession as tenants only under unrecorded written leases as disclosed to Lender in writing. Lease Agreement dated August 10, 1989, between Centrum G.B. II Corporation and Publix Super Markets, Inc., as amended by Memorandum of Lease filed in Official Records Book 15023, at Page 2034, of the Public Records of Dade County, Florida. Lease Agreement dated December 18, 1989, between Centrum G.B. II Corporation and Jack Eckerd Corporation filed in Official Records Book 14471, at Page 821, of the Public Records of Dade County, Florida. The Plat of Stiles Hunt Properties filed in Plat Book 138, at Page 85 reveals the following: (a) Ten feet utility easement along all boundaries of Tract A. (b) Signal utility easement in the southwest corner of Tract A. (c) The utility easements as shown on the Plat are hereby reserved for the installation and maintenance of public utility. (d) Individual wells should not be permitted within this subdivision except for sprinkler systems, swimming pools or air conditioners. (e) The use of septic tanks will not be permitted on Tract "A" unless approved for use and in accordance with county and state regulations. (f) All new electric and communications lines except transmission lines within this subdivision shall be installed under ground. Page 1 of 3 (g) The signal utility easement as shown on the southwest corner of Tract A of the Plat is hereby provided for the installation and maintenance of traffic signal equipment and/or street lights. (h) The streets and avenues as shown on the Plat together with all existing and future planting, trees, shrubbery and fire hydrants thereon are hereby rededicated to the perpetual use of the public for proper purposes reserving to the dedicators or their successors or assigns, the reversion or reversions thereof whenever discontinued by law. 9. Matters set forth in Paragraph A of Declaration of Restrictive Covenants filed on January 19, 1988, and recorded in Official Records Book 13544, at Page 1658, as supplemented on July 29, 1988 and recorded in Official Records Book 13768, at Page 1457; and as modified on January 9, 1989 and recorded in Official Records Book 13953; at Page 1428, of the Public Records of Dade County, Florida. 10. Agreement for Water, Sanitary Sewage and Sewage Disposal between Centrum G.B. II Corporation and Metropolitan Dade County, filed on October 11, 1989, and recorded in Official Records Book 14285, at Page 3012, amended by Assignment Assumption and Acceptance of Agreement Rights into Stiles Hunt Properties filed on April 9, 1990, and recorded in Official Records Book 14500, at Page 2929, and amended by Assignment, Assumption, and Acceptance of Agreement Rights filed in Official Records Book 16459, at Page 4993, all of the Public Records of Dade County, Florida. 11. Conditions and restrictions set out in Declaration of Restrictive Covenants in Lieu of Unity of Title filed on February 8, 1991 and recorded in Official Records Book 14890, at Page 846, of the Public Records of Dade County, Florida. 12. Conditions and restrictions set out in Declaration of Restrictions filed on May 17, 1990, and recorded in Official Records Book 14550, at Page 2596, of the Public Records of Dade County, Florida. 13. Terms, conditions and easements set out in Cross Access Easement and Operating Agreement between Stiles Hunt Properties and Chevron U.S.A., Inc. filed on May 17, 1990, and recorded in Official Records Book 14550, at Page 2602, of the Public Records of Dade County, Florida. 14. Easement in favor of Florida Power and Light Company filed on August 15, 1991, and recorded in Official Records Book 15153, at Page 435, of the Public Records of Dade County, Florida. 15. Grant of Easement to Metropolitan Dade County filed on October 23, 1991, and recorded in Official Records Book 15242, at Page 1110, of the Public Records of Dade County, Florida. Page 2 of 3 The following matters of survey as disclosed by that certain survey last updated December 12, 1995, prepared by Leiter & Associates, Inc. and identified as Job No. 89-291, File No. B-1080: (a) Curb and light pole encroaching ten foot utility easement near the Southeast corner. (b) Curb and concrete fence encroaching ten foot utility easement along the east property line. (c) Concrete fence encroaching the ten foot utility easement along the North property line. (d) Curbs, chain-link fence and french drains encroaching the ten foot utility easement along the west property line. (e) Fire hydrants, water meters, light poles, water valves and drainage manhole located outside of the recorded easements in various locations throughout the property. (f) Concrete curbs encroaching on ten foot Florida Power & Light easement in the northeast corner of the property. (g) Concrete walks, chain link fence and curbs encroaching ten foot Florida Power & Light easement in the northwest corner of the property. (h) Electric Pad and Southern Bell Pad encroaching outside the ten foot utility easement in the northwest corner of the property. (i) Curbs encroaching the Sewer System Easement (ORB 15242, page 1110, Dade County Records) in various locations throughout the property. (j) Curbs encroaching the Water Distribution Easement (ORB 15242, page 1110) in various locations throughout the property. Page 3 of 3 EXHIBIT "C" KEY LEASES 1. Lease Agreement dated August 10, 1989, between Centrum G.B. II Corporation and Publix Super Markets, Inc., as amended by Memorandum of Lease filed in Official Records Book 15023, Page 2034, of the Public Records of Dade County, Florida. 2. Lease Agreement dated December 18, 1989, between Centrum G.B. II Corporation and Jack Eckerd Corporation filed in Official Records Book 14471, Page 821, of the Public Records of Dade County, Florida. EX-10.8 13 LEASE (CENTRUM/PUBLIX SUPER MARKETS) LEASE AGREEMENT THIS LEASE made this 10th day of August, 1989, between CENTRUM G.B. II CORPORATION, a Florida corporation, hereinafter referred to as the "Landlord", and PUBLIX SUPER MARKETS, INC., a Florida corporation, hereinafter referred to as the "Tenant". W I T N E S S E T H: PREMISES SECTION 1. That the Landlord for and in consideration of the covenants, conditions, agreements and stipulations herein contained, does hereby lease to Tenant, and Tenant does hereby hire from the Landlord those certain premises consisting of a storeroom measuring 42,112 square feet as identified by an outline in red on the Plot Plan attached hereto and made a part hereof and designated Exhibit "A", in a building to be erected and constructed upon property situated in the County of Dade, State of Florida, described in Exhibit "B" which is attached hereto and made a part hereof. In addition, Tenant shall have the exclusive right to use the area designated "Service Area" lying adjacent to the demised premises as shown on Exhibit "A". The "shopping center" (as defined and used herein) is the land, together with the buildings shown on said Exhibit "A". The portion of said building being leased hereunder is hereinafter referred to as the "demised premises", and is a portion of a shopping center to be erected on said lands, which shopping center shall be designated as Miami Gardens Shops. TERM SECTION 2. To have and to hold the said premises, together with all and singular the improvements and easements thereunto belonging, unto the Tenant for a period of twenty (20) years, commencing September 1, 1991, and ending at midnight on August 31, 2011, subject, however, to the premises being fully completed on or before September 1, 1991, in accordance with the plans and specifications hereinafter referred to, and which are made a part hereof as though physically incorporated herein, and which have been initialed by the parties hereto, and further provided that at least 30 days prior written notice has been given by the Landlord to the Tenant that the said premises will be completed and ready for Tenant's occupancy in accordance with said plans and specifications. No rental shall accrue hereunder until 30 days after the demised premises are completed as aforesaid and possession thereof has been delivered to Tenant, but in any event Tenant shall commence paying rent and this lease shall commence when Tenant begins doing business on the demised premises. OPTION PERIODS SECTION 3. Tenant is given the option, if Tenant is not in default under the terms of this lease, to renew this lease for four (4) successive five (5) year periods on the same terms and conditions herein contained, which options shall be automatically exercised every five (5) years after the end of the initial term of this lease without further notice to Landlord, unless the Tenant notifies Landlord in writing of its election not to renew at least six months prior to the end of the term or any extended term. Except as otherwise provided in this lease, all the agreements and conditions in this lease contained shall apply to the period or periods to which the original term of this lease shall be extended. RENT SECTION 4. Tenant shall pay to the Landlord, as rental for the premises, in lawful money of the United States of America, which shall be legal tender for all debts and dues, public and private at the time of payment, as follows: A. The fixed annual minimum rental of TWO HUNDRED SIXTY THREE THOUSAND TWO HUNDRED AND NO/100 ($263,200.00) DOLLARS payable in equal monthly installments of TWENTY ONE THOUSAND NINE HUNDRED THIRTY THREE AND 33/100 ($21,933.33) DOLLARS each in advance on the first day of each and every calendar month during the term of this lease. If said term shall commence on a day other than the first day of a month, then rent shall be prorated for the balance of the said month on a per diem basis. B. PERCENTAGE RENT In addition to the payment of the fixed annual minimum rental hereinbefore provided, Tenant covenants and agrees to pay to the Landlord as additional rental for each lease year of the term hereof, on the gross sales as hereinafter defined, made in such lease year from the business or businesses conducted on the demised premises, a sum equivalent to: One (1%) percent of the gross sales in excess of $29,478,400.00 made in each lease year. C. LEASE YEAR The term "lease year" as used herein shall mean the twelve-month calendar period commencing on the January 1st subsequent to Tenant's taking possession of the demised premises pursuant to the provisions herein, and ending the following December 31st, and each succeeding calendar year; except that the first lease year hereunder shall be the period commencing with the date Tenant takes possession of the demised premises pursuant to the provisions herein contained and ending the succeeding December 31st, and the last lease year shall be the period commencing January 1, 2011, and ending August 31, 2011, and additional rental, if any, shall be apportioned at the rate and on the basis aforesaid. D. GROSS SALES The term "gross sales" as used is herein defined to mean gross receipts of Tenant and of all licensees, concessionaires and tenants of Tenant, from all business conducted upon or from the demised premises, and whether such business be conducted by Tenant or by any licensees, concessionaires or tenants of Tenant, and whether such receipts be evidenced by check, credit, charge account, exchange or otherwise, and shall include, but not be limited to, the amount received from the sale of goods, wares and merchandise and for services performed on or at the leased premises, together with the amount of all orders taken or received at the leased premises, whether such orders be filled from the leased premises or elsewhere. If any one or more departments or other divisions of Tenant's business shall be sublet by Tenant or conducted by any persons, firm or corporation other than Tenant, then there shall be included in gross receipts for the purpose of fixing the percentage rent payable hereunder all the gross receipts of such departments or divisions, in the same manner and with the same effect as if the business or sales of such departments and divisions of Tenant's business had been conducted by Tenant -2- itself. Gross sales shall not include sales of merchandise for which cash has been refunded, or allowances made on merchandise claimed to be defective or unsatisfactory, provided they shall have been included in gross receipts; and there shall be deducted from gross sales the sales price of merchandise returned by customers for exchange, provided the sales price of the merchandise delivered to the customer in exchange shall be included in gross sales. Gross sales shall not include the amount of any sales, use or gross receipts tax imposed by any federal, state, municipal or governmental authority directly on sales and collected from customers, provided the amount thereof is added to the selling price or absorbed therein, and paid by the Tenant to such governmental authority. Notwithstanding anything contained herein to the contrary, gross sales shall not include receipts or rentals of any kind or nature from any banking activities conducted by Tenant or tenants of Tenant upon or from the demised premises. No franchise or capital stock tax and no income or similar tax based upon income or profits as such shall be deducted from gross sales in any event whatever. E. SALES RECORDS The Tenant shall throughout the term of this lease, and for and during any prolongation, extension or renewal thereof, keep a full, true and accurate account of the entire gross sales of the business or businesses conducted on, in or from the demised premises. All such transactions shall be registered and recorded on accurate cash registers, totalling or computing machines, or on other reasonable sales recording devices, and the items thereof shall be posted in books and records of account to reveal the true, correct and entire business conducted in or from the demised premises. F. PERCENTAGE RENTAL PAYMENTS Tenant shall submit to the Landlord on or before the 60th day following the end of each lease year, at the place then fixed for the payment of rent, a written statement signed by Tenant, and certified to be true and correct, showing in reasonably accurate detail the amount of gross sales during the preceding lease year. Simultaneously with the delivery of such annual certified statement, Tenant shall pay to the Landlord the additional rental, if any, required to be paid for such preceding lease year. G. INSPECTION OF RECORDS The Landlord shall have the right to examine and audit the Tenant's records and to take notes, extracts and memoranda from the cash register records, accounts, books, records and other evidence of the gross sales of the Tenant. Such examination and audit by the Landlord shall be for the sole purpose of ascertaining the amount of the gross sales made in, on, or from the demised premises during the preceding lease year. Such audit shall not be made more often than once during each lease year by the Landlord, or a certified public accountant selected by the Landlord, and if Landlord wishes to examine and audit Tenant's records as aforesaid, the Landlord shall notify the Tenant and proceed with such audit within ninety (90) days thereafter; except that should Landlord fail to exercise the right to examine and audit the records of Tenant within ninety (90) days after receipt of the annual certified statement as hereinbefore provided, then and in that event Landlord shall have no further right to examine or audit the records of Tenant for said preceding lease year, and the said certified annual statement made by Tenant for said preceding lease year shall be final and binding upon Landlord. -3- In the event that any such examination of Tenant's records by Landlord discloses additional percentage rent to be due, then Landlord shall notify Tenant in writing of the amount of the same and Tenant shall pay such additional percentage rent to Landlord within thirty (30) days of receipt of Landlord's notice. Any such audit or examination by the Landlord shall be at the Landlord's expense. Landlord agrees that any and all information furnished, either in the form of statements of sales delivered by the Tenant, or any information which it might gather from inspection or audit of Tenant's books, shall be regarded as confidential, and shall not be divulged or published by the Landlord except to a mortgagee of the premises or the shopping center, a prospective purchaser of the premises or the shopping center or the Landlord's insurance carrier. CONSTRUCTION AND DELIVERY SECTION 5. Tenant has prepared, at its own expense, detailed plans and specifications for said storeroom building to be constructed by the Landlord and covered by the terms of this lease, which said plans and specifications have been approved by the Landlord and have been initialed by the parties hereto and made a part hereof, and Landlord agrees that the said premises shall be constructed in a good and workmanlike manner in accordance therewith, and in such manner as shall comply with all requirements of lawful authorities. Any work required as a result of changes to Tenant's plans and/or specifications requested and/or required by governmental or quasi-governmental authorities shall be done at Tenant's sole cost and expense. A. Prior to commencement of construction of the demised premises, Landlord shall submit to Tenant detailed plans and specifications prepared by a registered engineer licensed in the State of Florida which shall show all proposed site work to be constructed in the shopping center of which the demised premises forms a part, including off-site and on-site utilities, paving and drainage, and other related matters. Landlord shall also submit to Tenant the plans and specifications for the facade of the building to be constructed on the demised premises. Said plans and specifications shall have been prepared by Landlord in accordance with Tenant's building plans and specifications furnished to Landlord by Tenant. Landlord agrees that Tenant shall have the right to approve Landlord's plans and specifications as aforesaid, and further that Landlord will not commence construction of the demised premises until said plans are approved by Tenant. The words "commence construction" or "commencement of construction" as used herein and throughout this lease shall mean the pouring of concrete footers for the storeroom to be constructed upon the demised premises. B. The Landlord will as promptly and expeditiously as possible begin construction of the demised premises and go forward as rapidly as may be practicable, at Landlord's own cost and expense, with construction thereof for occupancy by the Tenant on or about September 1, 1991. C. The demised premises shall be deemed completed and ready for Tenant's occupancy when the Landlord has substantially performed all of the construction and installed all equipment pursuant to and as set forth in this Section 5 in accordance with said plans and specifications. -4- D. Possession of the demised premises shall be given to the Tenant on or about September 1, 1991; provided, however, if the Landlord shall be unable to complete the storeroom by said date for any reason, the delivery of possession may be delayed from time to time up to and including March 1, 1992, after which time Tenant may terminate this lease, upon giving thirty (30) days written notice to the Landlord of its intention to do so, and upon the giving of said notice, if the demised premises are not completed within said thirty (30) days the within lease shall cease, terminate and come to an end, and the parties hereto shall be released of all obligations hereunder. E. Should the Landlord fail to commence construction of the storeroom by December 31, 1990, for any reason, Tenant may terminate this lease, upon giving notice to the Landlord of its intention to do so, and upon the giving of said notice, the within lease shall cease, terminate and come to an end, and the parties hereto shall be released of all obligations hereunder. F. Should Landlord fail to commence construction of the storeroom by December 31, 1990, or to complete construction of the storeroom by March 1, 1992, and Tenant does not elect to terminate this lease, Landlord agrees to make any changes in the storeroom being demised to Tenant in accordance with any addenda to the plans and specifications that may be delivered to Landlord by Tenant. The cost of any such changes shall be paid for by Landlord. G. At Tenant's sole risk, Landlord will afford Tenant reasonable access to the demised premises prior to the possession date aforesaid for the purpose of inspecting, measuring and installing or arranging for the installation of fixtures, but only to the extent that such activity proceeds without interfering with Landlord's contractors, sub-contractors, and their respective employees. By giving Tenant access to the demised premises prior to the possession date, Landlord assumes no responsibility whatsoever for injury to persons entering the demised premises, or damage to property brought in or upon the demised premises. By affording such prior access to the Tenant, Landlord shall not be entitled to any rent, nor shall any rent be accrued by reason of such access. H. Landlord agrees that upon the commencement date of the term of this lease, construction of the demised premises and the shopping center and the use of the shopping center, including the demised premises, for retail stores, and parking areas in connection therewith, shall be in full compliance with all laws, ordinances and regulations of public authorities having jurisdiction (including, without limitation, zoning and building codes). Landlord agrees that if at any time or times any public authorities having jurisdiction shall complain that the demised premises or the shopping center shall not have been constructed in compliance with any law, ordinance or regulation of any public authority having jurisdiction and shall request compliance, and if failure to comply shall in any way affect the use of the demised premises by Tenant or affect any other rights of Tenant under this lease or impose any obligation upon Tenant, then Landlord shall upon receipt of notice of such complaint cause such repairs, alterations or other work to be done so as to bring about the compliance requested. Nothing herein shall prohibit Landlord from contesting the validity of any such complaint by public authority. If by reason of such failure of compliance or by reason of such repairs, alterations or other work done by Landlord, Tenant shall be deprived of the use or enjoyment of the whole or any material part of the demised premises or the common areas then a proportionate amount of rent shall abate on a per diem basis in proportion to said deprivation. -5- TENANT'S REPAIRS SECTION 6. Tenant shall make all repairs and alterations to the property which Tenant is required to maintain, as hereinafter set forth, which may be necessary to maintain the same in as good repair and condition as the same are in on the date of the term of this lease commences or which may be required by any laws, ordinances or regulations of any public authorities having jurisdiction,reasonable wear and tear and damage by the casualties and events described in Section 9 of this lease excepted. Upon the expiration or other termination of the term of this lease, Tenant shall remove its goods and effects and those of all persons claiming under it and shall yield up peaceably to Landlord the demised premises with so much of the same as Tenant is obligated to maintain pursuant to the provisions of this Section 6 in as good repair and condition as the same were in on the commencement date, reasonable wear and tear and damage by the casualties and events described in Section 9 of this lease excepted. However, notwithstanding anything in this lease contained to the contrary, Landlord, not Tenant, shall make all repairs and alterations to the property which Tenant is required to maintain which may be required as the result of repairs, alterations, other improvements or installations made by Landlord or Landlord's agents. The property which Tenant is required to maintain is the interior of the demised premises, including, without limitation, all glass, windows and doors, and all utilities conduits, fixtures and equipment within the demised premises serving the demised premises exclusively, but excluding all property which Landlord is required to maintain as below provided. Tenant shall also be responsible for the maintenance and repair of the heating, ventilating and air conditioning systems used in the demised premises including replacement of the same if deemed necessary in the Tenant's opinion. In addition, Tenant shall be responsible for maintaining the sprinkler system inside the demised premises. LANDLORD'S REPAIRS SECTION 7. Landlord shall make all repairs and alterations to the property which Landlord is required to maintain, as hereinafter set forth, which may be necessary to maintain the same in good repair and condition or which may be required by any laws, ordinances or regulations of any public authorities having jurisdiction. The property which Landlord is required to maintain is the foundation, the roof, the exterior walls, the roof drainage system, the canopy, the structural parts of the demised premises, and, to the extent located within or beneath the floors of the demised premises and not readily accessible by means of removable panels, access doors or the like, all wiring, plumbing, pipes, conduits and other utilities, and, to the extent not included in the foregoing, all utilities conduits, fixtures and equipment serving the demised premises which serve other premises or are located within the shopping center but outside the demised premises, including, without limitation, slabfloors, but excluding all glass, windows and doors. With respect to the exterior walls, Landlord agrees to paint the same not less than once every three years during the term hereof or extended term upon written notice from Tenant that such work is needed. Landlord shall make any repairs or alterations that shall be required at any time during the term of this lease as the result of movement of the building upon the demised premises such as settling. In addition, Landlord shall make any repairs to the property Tenant is required to maintain which are required as a result of a defect in, or failure of repair of, the property Landlord is required to maintain. Landlord shall maintain the sprinkler system outside the demised premises including the risers. -6- SECTION 6A AND 7A. If any of the repairs required to be made by Tenant or Landlord, pursuant to the provisions of Sections 6 and 7 of this lease are made necessary by reason of the negligence or intentional acts of the other, their agents, servants, employees and invitees, or by reason of alterations or additions made by the other, such repairs shall be made by the other party at its own cost and expense. UTILITIES SECTION 8. Landlord agrees, in addition to the construction obligations set forth in Section 5 of this lease, to furnish water, sewer, gas, electric current, and any other utilities used by Tenant to within five (5) feet of the demised premises. Landlord shall not take, or permit any occupant of the shopping center to take, any action which shall interrupt, or interfere with, any electric, water, sewerage or telephone service to the demised premises. Tenant agrees to pay and save Landlord harmless and indemnify Landlord from all charges for utility services consumed in the demised premises between the delivery date of the premises and the expiration of the term of this lease. FIRE AND OTHER CASUALTY SECTION 9. In the event the building on the demised premises is damaged or destroyed by fire, casualty, or disaster, the Landlord shall promptly cause the same to be substantially restored to the prior existing condition, subject to such changes as the Tenant may reasonably require (provided, however, that such changes will not increase the cost of restoration unless Tenant agrees to pay for such increased cost); due allowance, however, shall be made for a reasonable time necessary for the Landlord to adjust the loss with insurance companies insuring the demised premises at the time of the happening of the fire, or other casualty, and due allowance is to be made for delay occasioned by strikes, lockouts, and conditions beyond the control of the Landlord. In the event of total destruction of the demised premises, and the Landlord fails to completely restore and rebuild same within one year after such fire, casualty, or disaster, then and in that event Tenant may, at its option, elect to terminate and cancel this lease, in which event this lease shall, upon written notice from the Tenant to the Landlord, be terminated, and cancelled, and neither party shall thereafter have any further obligation with respect to the other. Should the demised premises, or a portion thereof, be rendered untenantable by reason of damage or destruction thereof by fire, casualty or disaster during the term of this lease as provided in this section, the rent shall abate in proportion to the areas of the demised premises rendered untenantable from the date of the happening of the fire or other casualty or disaster, up to the date of the restoration of the premises. However, no rent shall accrue for any portion of the premises unless Tenant is able to conduct its usual business on that portion of the premises that remain tenantable. If, at the date of the happening of the fire or other disaster, the Tenant shall have paid any rent for a period beyond such date, the Tenant shall be entitled to a proportionate refund. -7- It is further agreed that if such damage occurs during the last two (2) years of the original term or any extended term and the cost of restoration amounts to more than one-third (1/3) of the replacement value of the building, as certified to by a reputable, registered architect, Landlord and Tenant shall each have the right to terminate this lease, on written notice to the other given thirty (30) days after such occurrence unless the Tenant shall elect to renew this lease for an additional period of five (5) years. INDEMNIFICATION SECTION 10. Tenant shall save Landlord harmless from, and defend and indemnify Landlord against, any and all injury, loss or damage or claims for injury, loss or damage, of whatever nature, to any person or property caused by or resulting from any act, omission or negligence of Tenant or any subtenant or concessionaire of Tenant or any employee or agent of Tenant or any subtenant or concessionaire of Tenant. It is a condition of this save harmless and indemnification that Tenant shall receive written notice of any claim against Landlord upon Landlord's knowledge of the same. Landlord shall save Tenant harmless from, and defend and indemnify Tenant against, any and all injury, loss or damage or claims for injury, loss or damage, of whatever nature, to any person or property caused by or resulting from any act, omission or negligence of Landlord or its employees or agents. It is a condition of this save harmless and indemnification that Landlord shall receive written notice of any claim against Tenant upon Tenant's knowledge of the same. The provisions of this Section 10 shall be subject to the provisions of Section 18 below. PEACEFUL POSSESSION SECTION 11. So long as the Tenant pays the rent and performs all other obligations on Tenant's part hereunder, Landlord agrees that Landlord will not permit the disturbance of, nor interference with, the Tenant's peaceful and quiet possession and enjoyment of the demised premises during the term herein specified. ASSIGNMENT SECTION 12. If this lease be assigned, or the demised premises or any part thereof be underlet or occupied by anybody other than Tenant, Landlord may, after default by Tenant, collect rent from the assignee, undertenant or occupant and apply the net amount collected to the rent herein reserved, but no such assignment, underletting, occupancy, or collection shall be deemed a waiver or a release of Tenant from the further performance by Tenant of covenants on the part of Tenant herein contained. -8- DEFAULT SECTION 13. Each of the following shall be deemed a default and a breach of this lease: A. (a) The filing of a petition by or against the Tenant for adjudication as a debtor within the meaning of Chapter 7 or Chapter 13 or other provisions of the Bankruptcy Act, as now or hereafter amended or supplemented, or for reorganization or arrangement within the meaning of Chapter 11 of said Bankruptcy Act, or the filing of any petition by or against the Tenant under any future bankruptcy act for the same or similar relief; (b) The dissolution or the commencement of any action or proceeding for the dissolution or liquidation of the Tenant, whether instituted by or against the Tenant, or for the appointment of a receiver or trustee of the property of the Tenant; (c) The taking possession of the property of the Tenant by any governmental officer or agency pursuant to statutory authority for the dissolution, rehabilitation, reorganization or liquidation of the Tenant; (d) The making by the Tenant of any assignment for the benefit of creditors; (e) If either "(a)", "(b)" or "(c)" above shall be involuntary on the part of the Tenant, the event in question shall not be deemed a default within the meaning of this lease if dismissed or vacated by the Tenant within sixty (60) days thereof; B. (a) A failure by the Tenant to pay the rent herein reserved, or additional rent, or any part thereof, for a period of fifteen (15) days after notice; (b) Failure in the performance of any other covenant or condition of this lease on the part of the Landlord or Tenant to be performed for a period of thirty (30) days after written notice thereof. For the purpose of subdivision "B.(b)" hereof, no failure on the part of the Landlord or Tenant in the performance of work required to be performed or acts to be done or conditions to be modified shall be deemed to exist if steps shall, in good faith, have been commenced promptly by the Landlord or Tenant to rectify the same, and shall be prosecuted to completion with diligence and continuity. If the matter in question shall involve building construction, and if the Landlord or Tenant shall be subject to unavoidable delay, either by reason of governmental regulations restricting the availability of labor or materials, or by strikes or other labor troubles, or by reason of conditions beyond the control of the Landlord or Tenant, the Landlord or Tenant's time to perform under this subdivision "B.(b)" shall be extended for a period commensurate with such delay. In the event of any such default of the Tenant, the Landlord may serve a written notice upon the Tenant that the Landlord elects to terminate this lease upon a specified date not less than thirty days after the date of the service of such notice, except in the case of a default under subdivision "B.(a)" hereof for nonpayment of rent, in which event such date shall be not less than five days after the expiration of any fifteen day notice given under said subdivision "B.(a)", and this lease shall then expire on the date so specified as if that date had been originally fixed as the expiration date of the term herein granted. -9- In the event this lease shall be terminated as hereinbefore provided, or by summary proceedings or otherwise, the Landlord or its agents, servants, or representatives may immediately or at any time thereafter re-enter and resume possession of said premises or such part thereof, and remove all persons and property therefrom, either by summary disposition proceedings or by a suitable action or proceeding at law, or by force or otherwise, without being liable for any damages therefor. No re-entry by the Landlord shall be deemed an acceptance of a surrender of this lease. In the event this lease shall be terminated as hereinbefore provided, or by summary proceedings or otherwise, the Landlord may in its own behalf relet the whole or any portion of said premises for any period equal to, greater or lesser than the remainder of the term, for any sum suitable and satisfactory, and for any use and purpose which it may deem appropriate, and in connection with any such lease the Landlord may make such changes in the character of the improvements on the premises and may grant concessions or free rent as the Landlord may determine to be appropriate or helpful in effecting such lease. RENT UNDER DEFAULT SECTION 14. In the effect this lease be terminated, and whether or not the premises be relet, the Landlord shall be entitled to recover from the Tenant, and the Tenant shall pay to the Landlord, in addition to any other damages becoming due hereunder, the following: An amount equal to the amount of all rents and additional rent reserved under this lease, plus any sales and use tax and other charges due hereunder, less the net rent, if any, collected by the Landlord on reletting the demised premises, which shall be due and payable by the Tenant to the Landlord on the several days on which the rent and additional rent reserved in this lease would have become due and payable; that is to say, upon each of such days the Tenant shall pay to the Landlord the amount of deficiency then existing. Such net rent collected on reletting by the Landlord shall be computed by deducting from the gross rents collected all expenses incurred by the Landlord in connection with the reletting of the premises or any portion thereof, including brokers' commissions and the cost of repairing, renovating or remodeling said premises. However, the expenses to be deducted in computing the net rent collected on reletting shall not include the cost of performing any covenant contained herein required to be performed by Landlord. ENTRY OF LANDLORD SECTION 15. The Landlord may, at reasonable times during the term of this lease, enter to inspect the premises, or to make any alterations or repairs to the demised premises that may be necessary for its safety or preservation, and may show the premises and building to others, and at any time within six months immediately preceding the expiration of said term may affix to any suitable part of said premises a notice for letting or selling the premises or building and cause the said notice to remain affixed without hinderance or molestation. Said notice shall not be placed on the show windows or entrance of the demised premises. -10- SELF-HELP SECTION 16. If Tenant shall default in the performance or observance of any agreement or condition in this lease contained on its part to be performed or observed other than an obligation to pay money, and shall not cure such default within thirty days after notice from Landlord specifying the default (or shall not within said thirty-day period commence to cure such default and thereafter prosecute the curing of such default to completion with due diligence), Landlord may, at its option, without waiving any claim for damages for breach of agreement, at any time thereafter cure such default for the account of Tenant, and any amount paid or any contractual liability incurred by Landlord in so doing shall be deemed paid or incurred for the account of Tenant, and Tenant agrees to reimburse Landlord therefor or save Landlord harmless therefrom; provided that Landlord may cure any such default as aforesaid prior to the expiration of said thirty-day period but after notice to Tenant, if the curing of such default prior to the expiration of said thirty-day period is reasonably necessary to protect the real estate or the improvements thereto, or Landlord's interest therein, or to prevent injury or damage to persons or property. If Tenant shall fail to reimburse Landlord upon demand for any amount paid for the account of Tenant hereunder, said amount shall be added to and become due as part of the next payment of rent due hereunder. If Landlord shall default in the performance or observance of any agreement or condition in this lease contained on its part to be performed or observed, and if Landlord shall not cure such default within thirty days after receipt of written notice from Tenant specifying the default, (or shall not within said thirty-day period commence to cure such default and thereafter prosecute the curing of such default to completion with due diligence), Tenant may, at its option, without waiving any claim for damages for breach or agreement, at any time thereafter cure such default for the account of Landlord, and any amount paid or any contractual liability incurred by Tenant in so doing shall be deemed paid or incurred for the account of Landlord and Landlord agrees to reimburse Tenant therefor or save Tenant harmless therefrom; provided that Tenant may cure any such default as aforesaid prior to the expiration of said thirty-day period, but after said notice to Landlord, if the curing of such default prior to the expiration of said thirty-day period is reasonably necessary to protect the real estate or Tenant's interest therein or to prevent injury or damage to persons or property or to permit Tenant to conduct its usual business operations in the demised premises. If Landlord shall fail to reimburse Tenant upon demand for any amount paid for the account of Landlord hereunder, said amount may be deducted by Tenant from the next or any succeeding payment of rent due hereunder or any other amounts due from Tenant to Landlord. INSURANCE SECTION 17. A. The Tenant will, during the term of this lease, and any extensions and renewals hereof, indemnify the Landlord and hold it harmless against all claims, demands, and judgments for loss, damage or injury to property or person resulting or occurring by reason of Tenant's use and occupancy of the demised premises. Tenant agrees that, at its own cost and expense, it shall procure and continue in force, in the names of the -11- Landlord and Tenant, general liability insurance against any and all claims for injuries to persons or property occurring in, upon or about the demised premises, including all damage from signs, glass, awnings, fixtures or other appurtenances, now or hereafter installed upon the demised premises, during the term of this lease, such insurance at all times to be in an amount not less than One Million ($1,000,000.00) Dollars combined single limit. Such insurance shall be written in a company or companies authorized to engage in the business of general liability insurance in the State of Florida, and there shall be delivered to the Landlord, upon request, customary certificates evidencing such paid-up insurance, which certificates are to be issued by the insurance companies, and shall provide that the coverage cannot be terminated or modified without 20 days notice to Landlord. In the alternative, Tenant may at any time during the term of this lease elect not to procure such general public liability insurance provided that at the time of such election the aggregate net worth of Tenant and business organizations affiliated with Tenant (as determined by generally accepted accounting principals) is not less than $250,000,000.00. If and when Tenant shall elect not to procure such insurance as aforesaid, then in such event Tenant shall give notice thereof to Landlord, which notice shall certify that Tenant's net worth is not less than $250,000,000.00. Upon the giving of said notice by Tenant, the Tenant's obligation to carry such insurance shall cease. B. Tenant covenants to keep in good order and repair the plate glass in the demised premises, and replace all broken glass with glass of the same size and quality as that broken. Should damage or breakage occur due to fire or windstorm, or due to the fault or negligence or neglect of the Landlord, the responsibility for replacement shall be that of the Landlord. C. Unless Tenant shall elect not to procure general public liability insurance as provided in Section 17 A. above, the certificates of insurance to be provided by the Tenant upon request shall show coverage for a period of not less than one year, it being understood and agreed that fifteen days prior to the expiration of any policy of insurance the Tenant will deliver to the Landlord a renewal or new policy to take the place of the policy expiring. D. With respect to the insurance coverage above mentioned, should the Tenant desire to carry such coverages so as to apply to the demised premises, together with other property owned or controlled by the Tenant and/or affiliated companies, customary and proper certificates of the insurance carrier in each instance as to such insurance coverage delivered to the Landlord, upon request, shall be deemed compliance with the Tenant's obligations under this section, as to both original coverage and renewals, provided that such certificates shall show that the parties insured are the Tenant and the Landlord and said certificates provide that the insurance company cannot terminate or in any way modify the described coverage without first giving Landlord thirty (30) days prior written notice of its intent to do so. WAIVER OF SUBROGATION SECTION 18. Each of Landlord and Tenant hereby releases the other to the extent of its insurance coverage, from any and all liability for any loss or damage caused by fire or any of the extended coverage casualties or any other casualty insured against, even if such fire or other casualty shall be brought about by the fault or negligence of the other party, or any persons claiming under such other party, provided, however, this release shall be in force and effect only with respect to loss or damage occurring -12- during such time as the releasor's policies of fire and extended coverage insurance shall contain a clause to the effect that this release shall not affect such policies or the right of the releasor to recover thereunder. Each of Landlord and Tenant agrees that its fire and extended coverage insurance policies shall include such a clause so long as the same is obtainable and is includible without extra cost, or if such extra cost is chargeable therefor, so long as the other party pays such extra cost. If extra cost is chargeable therefor, each party will advise the other thereof and of the amount thereof, and the other party, at its election, may pay the same but shall not be obligated to do so. Except as provided above, nothing in this lease contained shall be deemed to release either party hereto from liability for damages resulting from the fault or negligence of said party or its agents. COMMON AREAS SECTION 19. A. The areas of the shopping center shown on the plot plan designated Exhibit "A" as parking areas shall at all times be maintained as Parking Areas. The expression "Parking Areas" means parking spaces and driveways and footways and includes the areas shown as parking areas on the plot plan plus such other areas as Landlord shall from time to time designate as Parking Areas. The area marked "SERVICE" upon the plot plan, excepting reasonable areas adjacent to service doors, shall be maintained during the term hereof as service roads and areas (the "Service Areas"). The Parking Areas, the Service Areas, the sidewalks, the pedestrian ramps, and the entrances and exits of the shopping center are herein called "the Common Areas". The Common Areas plus the lighting system and the drainage system servicing the Common Areas, plus all directional signs, plus any pylon signs, plus any landscaped areas within the shopping center plus any other common facilities in the shopping center are called "the Common Facilities". Subject to Section 37 Landlord agrees that at all times there will be free and uninterrupted access (i) for motor vehicles between each of the public streets adjacent to the shopping center and the Parking Areas and the service doors of the demised premises, and (ii) for pedestrians between the Parking Areas and the demised premises. The parking spaces, driveways and footways in the Common Areas, the entrances and exits of the Common Areas, the lighting system servicing the Common Areas and the traffic flow pattern of the Common Areas shall not be changed from the layout thereof shown upon the plot plan, without the consent of Tenant in writing. If any highway median strip crossover now existing near the shopping center shall be relocated, or if the installation of a highway median strip hereafter shall include a cross-over near the shopping center, then Landlord shall, subject to Tenant's approval, use its best efforts to make such relocation of the entrances, exits and driveways of the shopping center and such changes in the traffic flow pattern of the shopping center as shall be reasonably necessary, practical and safe to conform the same to the new median strip cross-over if permitted by public authorities having jurisdiction. Landlord agrees that the Parking Areas within the shopping center will always contain at least four and seven tenths (4.7) parking spaces for so-called standard size American automobiles, and driveways and footways incidental thereto, for each one thousand (1,000) square feet of floor area in the shopping center. All such parking spaces in the shopping center shall be no less than ten feet in width. If any Parking Areas, Service Areas, Common Areas, Common Facilities or any part or parts thereof shall be modified, changed or altered by or as a result of demand from any state, county, local or other governmental authority or public utility beyond -13- the control of Landlord, then it is understood that such modification, change or alteration shall not constitute a breach of any agreements or covenants referred to in the Lease. This provision does not apply to condemnation. B. Landlord shall prohibit: 1) the placing of any buildings on the Parking Areas except as noted on Exhibit "A", 2) the placing of any sign or structure of any nature on the Parking Areas that would prevent clear visibility from the highways, streets, or roads adjoining the shopping center to the demised premises, 3) the conduct of any business on the Parking Areas, or 4) the operation of any carnival or other entertainment on said Parking Areas. Landlord agrees that the Parking Areas will be ground level only and Landlord shall make no charge of any kind for use of the Parking Areas or any additions thereto. C. Tenant and all persons having business with Tenant shall have the right to use, in common with all other occupants of the shopping center and all persons having business with such other occupants, without charge, all Common Areas and Common Facilities of the shopping center. Tenant shall have the right to use, from time to time, the sidewalks adjacent to the demised premises for sales purposes. Such sales, for the purposes of Section 4 of this lease, shall be deemed sales made in the demised premises. Tenant shall keep such sidewalks reasonably clean and neat while so used and upon completion of each such use. Maintenance of the sidewalks shall be Landlord's responsibility except as stated herein, and further except that Tenant shall maintain that portion of the sidewalk which is within Tenant's enclosed vestibule. D. Landlord, at all times, shall keep in good repair and condition the Pylon Signs and all Common Areas of the shopping center and all directional signs therein and all other Common Facilities, shall keep the Common Areas suitably paved and marked for parking and traffic flow, shall keep all Common Areas and other Common Facilities free of refuse and obstruction to the extent required by the business operations of the stores within the shopping center, shall keep the Common Areas and other Common Facilities properly drained, and shall keep the Pylon Signs and the Common Areas, the entrance and exit signs, and other Common Facilities adequately lighted during all times when the demised premises shall be open for business and for a reasonable time thereafter. Landlord shall repair any damage to Common Areas as the result of settling. E. Landlord further agrees for itself, its successors, assigns and for any subsidiary or controlling corporation, that it will not, without the consent of Tenant in each instance, erect store premises or building improvements on any parcels of land adjoining or adjacent to the Shopping Center. F. If in Tenant's opinion, default shall be made by Landlord in compliance with any of the agreements and covenants referred to in this Section 19 for a period of twenty (20) days after notice from Tenant to Landlord specifying the item or items in default, and Landlord fails to proceed within said twenty (20) day period to cure the same and thereafter to prosecute the curing of such default with due diligence, then and in any such event Tenant shall have the right to take whatever steps are necessary in Tenant's opinion to cure the default, including the right to remove any buildings, persons and/or property from the Parking Areas, either with or without court action, and the costs of any steps taken by Tenant shall be payable by Landlord to Tenant upon demand. In addition, Tenant shall be entitled to: 1) damages caused by non- compliance, 2) abate rent in full during any period of non-compliance, and 3) enforcement of rights by -14- civil action, including injunctive relief. Any rights taken hereunder by Tenant shall be in addition to every other right or remedy provided in this lease or existing at law or in equity or by statute or otherwise. F. In addition to the rental herein called for, Tenant agrees to pay to Landlord a sum equal to seventy-five (75 CENTS) cents per year for each square foot of floor space contained in the demised premises for maintenance of the common areas of the said shopping center. COMMON AREA INSURANCE SECTION 20. Landlord shall maintain with respect to the Common Facilities throughout the term of this lease a policy or policies of public liability insurance in amounts of not less than Five Hundred Thousand Dollars ($500,000) with respect to injuries to any one person and not less than One Million Dollars ($1,000,000) with respect to injuries suffered in any one accident and not less than One Hundred Thousand Dollars ($100,000) with respect to damage to property, such policies of insurance to name Tenant as an additional insured thereunder and be issued for periods of not less than one (1) year by responsible insurance companies well rated by national rating organizations and authorized to do business in the state in which the demised premises are located. Landlord shall deliver such policies to Tenant at least fifteen (15) days prior to the Commencement Date, and each renewal policy at least ten (10) days prior to the expiration of the policy it renews. In lieu of delivering any policy of insurance to Tenant, Landlord may deliver to Tenant a certificate of the company issuing such policy. All such insurance policies shall provide that such policies shall not be cancelled without at least ten (10) days prior written notice to Tenant. Landlord shall indemnify Tenant and hold harmless Tenant, its employees and agents from and against all claim, liability, loss or expense for property damage or bodily injury arising out of or in connection with occurrences on the Common Areas and on sidewalks adjacent to the demised premises. The liability of Landlord to indemnify Tenant, as hereinabove set forth, shall not extend to any matter against which Tenant shall be effectively protected by insurance, provided, however, that if any such liability shall exceed the amount of the effective and collectible insurance in question, the said liability of Landlord shall apply to such excess. OUTPARCEL RESTRICTIONS SECTION 21. Landlord covenants and agrees that any outparcels in or adjacent to the shopping center which are shown on Exhibit "A" attached hereto and made a part hereof (whether included in or excluded from the legal description of the shopping center) and further which have designated thereon a maximum building size, shall be held, used, occupied and transferred subject to the maximum building size restriction set forth thereon and shall also be subject to the exclusive use restrictions set forth in Section 26 of this lease, which shall be a covenant running with the land as to said outparcels. Landlord will at all times enforce said restrictions in the event there is a breach or attempted breach thereof. A default by Landlord to enforce said restrictions shall constitute a default by Landlord under the terms of this lease. Tenant, at its option, may also enforce said restrictions. Notwithstanding the foregoing, Tenant agrees that any of said -15 outparcels may be sold, leased, occupied or used by a major oil company as a combination gasoline and food convenience store provided that the total number of square feet devoted by such owner, tenant, occupant or user to the display and sale of food or food products does not exceed a total of 1,000 square feet of floor space. A default by Landlord as to this covenant shall constitute a default as provided in this section. SIGNS SECTION 22. Landlord agrees that Tenant shall have the right, at its own cost and expense, to erect and maintain signs advertising its business on the exterior of the demised premises, provided said signs are erected and maintained in compliance with the requirements of all governmental departments having jurisdiction over the demised premises. Nevertheless, Tenant covenants that any signs erected by it shall be of such a type and nature so as to not detract from the sightly appearance of the shopping center as a whole. UNLAWFUL USE PROHIBITED SECTION 23. The Tenant will not permit the demised premises to be used for any unlawful purpose, or in any way that will injure the reputation of the same or of the building of which the demised premises form a part, or disturb the adjoining tenants. NOTICES SECTION 24. The checks for rental accruing hereunder shall be forwarded to the Landlord in care of Centrum Development Corp., One Centrum Plaza, 1 S.W. 129th Avenue, Suite 307, Pembroke Pines Florida 33027 until Tenant is notified otherwise in writing; all notices given to the Landlord hereunder shall be forwarded to the Landlord in care of Centrum Development Corp., One Centrum Plaza, 1 S.W. 129th Avenue, Suite 307, Pembroke Pines, FL 33027 by certified or registered mail, return receipt requested, until Tenant is notified otherwise in writing; and all notices given to the Tenant hereunder shall be forwarded to Tenant in care of P. 0. Box 407, Lakeland, Florida 33802, by certified or registered mail, return receipt requested, until Landlord is notified otherwise in writing. Landlord and Tenant agree that in the event of an alleged default by Tenant under the terms of this lease, any mortgagee of the shopping center of which the demised premises forms a part may elect to give notice to Tenant specifying the default, and such notice shall have the same effect under this lease as notice from Landlord. Any conflicting notice given by such mortgagee shall supercede any notice given by the Landlord. INDUCEMENT CLAUSE SECTION 25. The Landlord covenants and agrees that it has induced Tenant to execute and deliver this lease by Landlord's representation that prior to construction of the demised premises the following tenants will enter into a noncancellable lease, except for default, condemnation or other causes for which a lease would normally be cancelled, in said shopping center, in the location and of the general size and area as shown on Exhibit "A" hereto attached and made a part hereof, for the number of years set forth below, to-wit: Tenant Number of Years - ------------------------- -------------------------- Drug Store - 9,000 sq. ft. twenty (20) years minimum -16- Anything to the contrary notwithstanding, should Landlord fail to erect for and deliver store space to the aforementioned tenants, on or before occupancy by Tenant, then Tenant shall have further right, at its option, to cancel this lease. A. The Landlord agrees that at the time Landlord delivers possession of the demised premises or simultaneously therewith, Landlord will deliver to the tenants referred to above in this section possession of premises as shown on Exhibit "A". Landlord further agrees that the premises occupied by such tenants in this shopping center shall at all times be located as shown on said Exhibit "A". EXCLUSIVE USE SECTION 26. Provided Tenant is operating a supermarket at the demised premises, Landlord covenants that Tenant shall have the exclusive right, during the term of this lease and during the term of any extension or renewal thereof, to operate a retail type grocery supermarket, bakery, delicatessen and fish market in said shopping center, and leases entered into with other tenants in said shopping center will prohibit such other tenants from selling at retail items of food for consumption off the premises. Should any other tenant in said shopping center violate the foregoing provision to be inserted in its lease, Landlord will promptly and expeditiously as possible, after notice, take any and all steps necessary to prevent such violations. Notwithstanding anything contained herein to the contrary, this exclusive shall not apply to other stores in the shopping center which might sell food prepared on the premises for consumption off the premises, nor shall this exclusive apply to an ice-cream parlor, candy store, fruit shipper, restaurants (other than a delicatessen), "fast food" restaurants nor to any other tenant whose sale of food for consumption off the premises is incidental to its main business. In addition, this exclusive shall not apply to a health food store, nor to beer and wine sold by a liquor store. As provided in Section 21 of this lease, any outparcels in or adjacent to the shopping center which are shown on Exhibit "A" attached hereto and made a part hereof (whether included or excluded from the legal description of the shopping center) shall be subject to the provisions of this Section 26, and no such outparcels may be sold, leased, occupied or used for purposes which would violate the exclusive rights granted to Tenant herein. EXCLUSIVE CLAUSES IN OTHER LEASES SECTION 27. Landlord covenants and agrees that any exclusive use clauses which may be contained in leases with other tenants in the shopping center of which the demised premises forms a part will expressly provide that such exclusive use clauses or exclusive right of sale clauses shall not be applicable to the premises leased to Tenant herein provided Tenant is operating a supermarket in the demised premises. Landlord shall save Tenant harmless from, and indemnify Tenant against, any and all actions, damage, or claims, costs and expenses, of any kind or nature, by reason of violation by Tenant of any exclusive clause or exclusive right of sale clause contained in the lease of another tenant or tenants in the shopping center. -17- WATER DAMAGE SECTION 28. Landlord shall not be liable for any damages done or occasioned by or from plumbing, gas, water, steam or other pipes, or sewage or the bursting, leaking or running of any cistern, tank, washstand, water closet, or waste pipe in, above, upon or about said premises, nor for any damage arising from acts of negligence of co-tenants or other occupants of the same building, or any owners or occupants of adjoining or contiguous property. Landlord shall make all repairs to the interior of the premises caused by water leaking or running through the roof or seepage through outside walls, unless same is due to the acts or omissions of Tenant or any of its employees, agents or representatives or anyone engaged or hired by the Tenant to do work on or about the demised premises. The Landlord's obligation to make said repairs is expressly conditioned upon receipt of written notice of any leaks upon Tenant's knowledge of same. LANDLORD'S TITLE SECTION 29. Landlord covenants and warrants that it is the owner of the shopping center and has the full and unrestricted right to execute this lease and lease the demised premises to Tenant. Landlord further covenants that there are no restrictive covenants, zoning ordinances or other regulations which will prevent Tenant from conducting its usual business in the demised premises, and that the demised premises are free from liens, leases, encumbrances or defects in title affecting the demised premises or any rights granted Tenant in this lease other than those set forth in Exhibit "C" which is attached hereto and made a part hereof. TITLE TRANSFER SECTION 30. It is understood and agreed that in the event of any change in or transfer of title of the Landlord in or to the demised premises, or any part thereof, whether voluntary or involuntary, or by the act of the Landlord or by operation of law, the Tenant shall be under no obligation to pay rents thereafter accruing to the transferee until notified in writing of such change in title and being given satisfactory proof thereof, and the withholding of such rents in the meantime shall not be deemed a default on the part of the Tenant. LANDSCAPING SECTION 31. Landlord agrees to landscape the shopping center of which the demised premises forms a part in accordance with the landscaping plans shown on Exhibit "A" Landlord further agrees to install an adequate irrigation system to irrigate the landscaped areas shown on the landscaping plans, and Landlord agrees to maintain the landscaping and irrigation system throughout the term of this lease and any renewals thereof. SALES TAX SECTION 32. Tenant agrees to pay any Florida sales and use tax levied upon the rent payable by Tenant under this lease. Tenant shall defend, indemnify and hold Landlord harmless from any and all liability resulting from Tenant's failure to comply, in a timely fashion, with the preceding sentence. -18- LIENS SECTION 33. A. If any mechanic's or other liens, or order for the payment of money, shall be filed against the demised premises, or any building or improvements thereon, by reason of change or alteration or addition made or alleged to have been made by or for the Tenant, or the cost or expense thereof, or any contract relating thereto, the Tenant shall cause the same to be cancelled and discharged of record, by bond or otherwise, at the election and expense of the Tenant, and shall also defend on behalf of the Landlord, at the Tenant's sole cost and expense, any action, suit or proceeding which may be brought thereon for the enforcement of such lien, liens or orders, and the Tenant will pay any damage and satisfactorily discharge any judgement entered therein, and save harmless the Landlord from any claim, attorney fees or damage therefrom. B. If any mechanic's or other liens, or order for payment of money shall be filed against the demised premises, or on any building or improvements thereon, for any of the reasons provided in this section, and shall not be removed by the Tenant within thirty (30) days after notice given by the Landlord, the Landlord shall have the right to remove same by payment or otherwise, and all sums expended by the Landlord for such removal, including counsel fees, shall be paid by the Tenant unto the Landlord upon demand, and shall be deemed to be additional rent due under this lease. C. All persons doing work for or furnishing labor or materials to the demised premises on the order of or on behalf of the Tenant shall look solely to the Tenant's interest in the demised premises and shall have no lien rights against Landlord's interest in the demised premises. TRADE FIXTURES SECTION 34. All trade fixtures and equipment owned by Tenant, and installed or placed by it upon the demised premises, may be removed by the Tenant at any time during the term, or upon the expiration thereof. Tenant agrees to repair any damage to the building occasioned by the removal of such trade fixtures. Upon request of the Tenant, Landlord shall execute and deliver any real estate consent or waiver forms reasonably acceptable to Landlord and Landlord's mortgagee submitted by any unaffiliated third party, vendors, lessors, chattel mortgagees, lending institutions, or holders of any security interest in, or owners of, any trade fixtures, machinery, equipment, furniture or other personal property kept or installed on the demised premises by Tenant, setting forth the fact that the Landlord waives, in favor of such submitting party, any lien or security interest (whether by agreement, statute or otherwise) it may have in the property covered by such consent or waiver form and further waives all rights of distress and of levy for rent with respect to the property covered by such consent or waiver form in the event of default by Tenant in the lease. Tenant hereby releases and holds Landlord harmless and shall indemnify Landlord from any claims or costs resulting from Landlord allowing access to the demised premises or allowing removal of any property of Tenant relating to any such consents or waivers submitted to Landlord. Landlord shall further acknowledge that the property covered by such consent or waiver forms is personal property and is not to become a part of the realty no matter how affixed thereto and that such property may be removed from the demised premises by the vendor, lessor, chattel mortgagee, lending institution, or holder or owner at any time upon default by the Tenant in the terms of such chattel mortgage or other similar documents, free and clear of any claims or lien of the Landlord herein, provided that the -19- remover thereof agrees to be liable for and indemnifies Landlord from any damages or costs incurred in connection with such removal. COST AND EXPENSE SECTION 35. Wherever in this lease provision is made for the doing of any act by any person it is understood and agreed that such act shall be done by such person at its own cost and expense unless a contrary intent is expressed. SUCCESSORS SECTION 36. It is agreed that the respective rights and obligations hereunder shall inure to, and be binding upon, the respective heirs, distributees, devisees, legal and personal representatives, assigns, grantees and successors in interest of the Landlord, and shall inure to, and be binding upon the permitted assigns and successors in interest of the Tenant. DELAYS SECTION 37. In any case where either party hereto is required to do any act (other than make a payment of money) delays caused by or resulting from Act of God, war, civil commotion, fire or other casualty, labor difficulties, general shortages of labor, materials or equipment, government regulations or other causes beyond such party's reasonable control shall not be counted in determining the time when the performance of such act must be completed, whether such time be designated by a fixed time, a fixed period of time or "a reasonable time". In any case where work is to be paid for out of insurance proceeds or condemnation awards, due allowance shall be made, both to the party required to perform such work and to the party required to make such payment, for delays in the collection of such proceeds and awards. The provisions of this Section 37 shall not apply to the dates set forth in Sections 2 and 5. HOLDING OVER SECTION 38. If Tenant or any person claiming under Tenant shall remain in possession of the demised premises or any part thereof after the expiration of the term of this lease without any agreement in writing between Landlord and Tenant with respect thereto, prior to acceptance of rent by Landlord the person remaining in possession shall be deemed a tenant at sufferance and after acceptance of rent by Landlord the person remaining in possession shall be deemed a tenant from month to month, subject to the provisions of this lease insofar as the same may be made applicable to a tenancy from month to month. DISPUTES SECTION 39. It is agreed that if at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other party under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest", such payment not being regarded as a voluntary payment and there shall survive the right on the part of said party to institute suit for recovery of such sum and if it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this lease; and if at any time a dispute shall arise between the parties hereto as to any work to be performed by either of them under the provisions hereof, the party against -20- whom the obligation to perform the work is asserted may perform such work and pay the cost thereof "under protest" and the performance of such work shall in no event be regarded as a voluntary performance, and there shall survive the right on the part of said party to institute suit for the recovery of the cost of such work, and if it shall be adjudged that there was no legal obligation on the part of said party to perform the same or any part thereof, said party shall be entitled to recover the cost of such work or the cost of so much thereof as said party was not legally required to perform under the provisions of this lease. CAPTIONS SECTION 40. The captions used in this lease are for convenience only, and are not a part of this lease, and do not in any way limit or amplify the terms and provisions hereof. Any gender used herein shall be deemed to refer to any other gender more grammatically applicable to the party to whom such use of gender relates. The use of the singular herein shall be deemed to include the plural, and, conversely, the plural shall be deemed to include the singular. MISCELLANEOUS SECTION 40. Tenant covenants and agrees to open its store for business for one day following the date Landlord furnishes Tenant written notice as provided in Section 5 of this lease that the demised premises are ready for Tenant's occupancy. However, following said opening day, nothing contained in this lease agreement shall be construed to require Tenant to keep its store open for business. If Tenant elects to close the demised premises for business and the demised premises are not reopened for business by Tenant, or any assignee or sublessee of Tenant, within a period of six months from the date the demised premises are closed, then Landlord, at its option, may cancel this lease upon written notice to Tenant. In the event Landlord elects to cancel this lease, all liabilities of Landlord and Tenant shall terminate as of the date of such cancellation. TAXES SECTION 42. Tenant shall reimburse the Landlord for Tenant's proportionate share of general real estate taxes for the entire premises paid by Landlord. The amount of each year's tax bill to be used in such computation shall be the net amount of taxes payable in the first tax payment month. The amount of taxes chargeable to the demised premises shall be that portion of all taxes assessed against the shopping center as a whole (including public areas) in the ratio that the 42,112 square foot leased premises bears to the square footage of all buildings erected in said shopping center. In no event shall Tenant be required to pay its proportionate share of any increase in general real estate taxes which may result from a revaluation of the entire premises due to a sale thereof by anyone other than Tenant. In any expansion of the demised premises, the tax base for the expansion area will be established by the same formula as that used in the first instance. Landlord agrees to pay all taxes before delinquency, and Tenant shall not be obligated to pay any portion of any penalty for delinquent payment. Tenant agrees to reimburse Landlord within thirty (30) days after proof of payment has been tendered to Tenant by Landlord. Any payment due hereunder shall be prorated as of the termination or expiration date of this lease agreement. -21- PYLON SIGN SECTION 43. Landlord,* agrees to erect at its cost and expense a pylon sign displaying the name of the shopping center and displaying the names of no more than ** tenants in the shopping center, one of whom shall be Tenant. Tenant shall have the right to approve the design and location and costs of said sign, which approval Tenant agrees not to unreasonably withhold. Tenant agrees to reimburse Landlord for Tenant's proportionate share of the costs for the erection of said sign within fifteen (15) days from receipt by Landlord of a statement certified by an officer of Landlord showing the costs incurred for the erection of said sign and Tenant's proportionate share. Landlord shall furnish and pay for electricity to illuminate said sign and shall maintain said sign throughout the term of this lease. The cost of maintaining said sign shall be included in common area maintenance expenses subject to reimbursement as provided in Section 19 G of this lease. RIGHT TO CURE DEFAULT SECTION 44. Except as may be provided elsewhere in this lease agreement, should Landlord default in the performance of any of its obligations under this lease, Tenant agrees that, prior to cancelling this lease or withholding any rent hereunder or making any payments against rent due hereunder (except for emergency repairs), the Tenant shall give the Landlord and Landlord's first mortgagee (provided the Tenant has been notified of the name and address of same) not less than thirty (30) days' written notice setting forth the default giving rise to such right, sent by certified mail. In the event Landlord and/or Landlord's first mortgagee, as the case may be, within such thirty (30) day period, (a) commences to cure the default which is the subject of such notice and either cures such default within said thirty (30) day period, or, if such default cannot be reasonably cured within thirty (30) days, commences to cure such default and prosecutes such cure diligently through to the completion thereof or (b) commences foreclosure proceedings and prosecutes such foreclosure proceedings diligently through to completion thereof, the Tenant shall not have the right to cancel this lease, withhold any rents hereunder or claim any offset against rent due hereunder. The foregoing conditions precedent to Tenant's making payments and/or withholding or offsetting rent shall not apply in any instance where Tenant expends monies in the reasonable belief that such expenditure is necessary to protect the premises or its possession or right to possession of the premises. EMINENT DOMAIN SECTION 45. TERMINATION. If more than ten (10%) percent of the gross floor area of the demised premises is taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase under threat thereof, this lease shall terminate upon the election of Tenant effective on the date possession of a portion of the demised premises is taken by the condemning authority. A. ABATEMENT OF RENT. If less than ten (10%) percent of the gross floor area of the demised premises is taken for any public or quasi-public use under any governmental law, ordinance or regulation, or by right of eminent domain, or by private purchase under threat thereof, this lease shall not terminate, or if more than ten (10%) percent of the gross floor area of the demised premises is so taken and this lease is not terminated in * at Landlord's option, ** five (5) -22- accordance with the preceding subparagraph, then in either of such events the annual minimum rental (but not percentage rate) payable hereunder during the unexpired portion of the term shall be reduced on an equitable basis in accordance with the uses of the area of the demised premises so taken. B. TERMINATION RIGHT. If any portion of the Common Areas should be taken for any public or quasi-public use by eminent domain, or by private purchase under threat thereof, this lease shall not terminate, nor shall the rent payable hereunder be reduced, nor shall Tenant be entitled to any part of the award made for such taking, except that Tenant may terminate this lease if the area of the Common Areas remaining following such taking, plus any additional, commercially equivalent parking area provided within a reasonable time by Landlord in reasonable proximity to the shopping center, shall be less than eighty (80%) percent of the original area of the Common Areas. Any election to terminate this lease following condemnation shall be evidenced by written notice of termination delivered within thirty (30) days after the date on which Tenant is notified of such taking or such sale, and, in the event that Tenant shall not so exercise such election to terminate this lease, then this lease shall continue in full force and effect. C. RESTORATION. If this lease is not terminated following any condemnation, Landlord shall make all repairs or alterations necessary to make an architectural whole of the remaining portions of the demised prmeises which were originally included within Landlord's Work, in substantially the same condition as prior to such taking, but Landlord shall not be required to expend more than the amount of the award; provided, however, if the amount of the award is not sufficient for Landlord to make the necessary repairs and alterations to the demised prmeises as described above, and Landlord elects not to spend any additional money to make such repairs or alterations, then Tenant shall have the right to terminate this lease by notifying Landlord within thirty (30) days after landlord's receipt of such award and notice to Tenant, in which event this lease shall terminate and Landlord and Tenant shall have no further rights, duties or obligations hereunder, except for such rights, duties or obligations which survive a termination of this lease. Tenant agrees that promptly after completion of such work by Landlord, Tenant will proceed with reasonable diligence and at its sole cost and expense to refixture the demised premises to substantially the same condition they were in prior to such taking. D. AWARDS. All compensation awarded for any taking (or proceeds of private sale under threat thereof), whether for the whole or a part of the demised premises, shall be the property of Landlord; provided, however, Landlord shall have no interest in any award made to Tenant for the value of the remaining term of the leasehold estate, the loss of business or for the taking of Tenant's fixtures and personal property within the demised premises and nothing herein shall prevent Tenant from making a claim for the aforesaid matters. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT SECTION 46. The Tenant agrees that this lease shall at all times be subject and subordinate to the lien of any mortgage (which shall include all security instruments) that may be placed on the demised premises by the Landlord; and Tenant agrees, upon demand, without cost, to execute an instrument in the same, or substantially the same form as that instrument attached hereto as Exhibit "D" and made a part hereof, as may be required to effectuate -23- such subordination; provided, however, as a condition to this subordination provision, the Landlord shall obtain from any such mortgagee an agreement in writing, which shall be delivered to Tenant, provided in substance that, so long as Tenant shall faithfully discharge the obligations on its part to be kept and performed under the terms of this lease, its tenancy shall not be disturbed, nor shall this lease be affected by any default under such mortgage, and in the event of foreclosure or any enforcement of any such mortgage, the purchaser at such foreclosure sale shall be bound to Tenant for the term of this lease, the rights of Tenant hereunder shall expressly survive, and this lease shall in all respects continue in full force and effect, provided, however, that Tenant fully performs all of its obligations hereunder. ESTOPPEL CERTIFICATE SECTION 47. Tenant agrees, upon request in writing from the Landlord, to execute and deliver to the Landlord, for the benefit of such persons as Landlord names in such request, a statement in writing and in the form set forth in Exhibit "E" attached hereto and made a part hereof, certifying the matters set forth therein. CONSTRUCTION CONTRIBUTION SECTION 48. Tenant agrees to pay to Landlord the sum of $200,000.00 as a contribution toward costs expended by Landlord for improvements to the demised premises. Said sum shall be due and payable within ten (10) days from the date Tenant opens its store for business in the demised premises. SECTION 49. This lease embodies the entire contract of the parties hereto, and shall not be altered, changed or modified in any respect, except by an instrument of equal dignity to this instrument. IN WITNESS WHEREOF, the parties hereto have set their hands and seals to duplicates hereof, the day and year first above written, or caused the within to be duly executed by their proper officers and the seal of the corporation hereto affixed by proper authority of their Board of Directors. Witnesses: CENTRUM G.B. II CORPORATION /s/ Terry Lopez By: /s/ Larry illegible - --------------------------------- --------------------------------- Executive Vice President /s/ illegible Attest: /s/ illegible - --------------------------------- -------------------------------- Assistant Secretary Witnesses: PUBLIX SUPERMARKETS, INC. /s/ illegible By: /s/ C.A. Jenkins, Jr. - --------------------------------- --------------------------------- Executive Vice President /s/ illegible Attest: /s/ illegible - --------------------------------- -------------------------------- Assistant Secretary [SEAL] -24- STATE OF FLORIDA COUNTY OF BROWARD The foregoing instrument was acknowledged before me this 31st day of July, 1989 by Larry Orlinsky and Adele Spallone, President and Secretary respectively of CENTRUM G.B. II CORPORATION, a Florida corporation, on behalf of said corporation. /s/ Teresa Tamayo ------------------------- Notary Public My Commission Expires: [Notary Seal] STATE OF FLORIDA COUNTY OF POLK The foregoing instrument was acknowledged before me this 10th day of August, 1989 by C. H. JENKINS, JR. and S. Keith Billups Executive Vice President & Asst. Secretary respectively of PUBLIX SUPER MARKETS, INC., a Florida corporation, on behalf of said corporation. /s/ ------------------------- Notary Public My Commission Expires: [Notary Seal] MEMORANDUM OF LEASE THIS MEMORANDUM OF LEASE made this day of , 1991, between STILES HUNT PROPERTIES, a Florida general partnership and Florida joint venture, (successor in interest to Centrum G.B. II Corporation) hereinafter called the "Landlord", and PUBLIX SUPER MARKETS, INC., a Florida corporation, hereinafter called the "Tenant". W I T N E S S E T H: For and in consideration of the sum of ONE ($1.00) DOLLAR and other valuable considerations in hand paid by Tenant, receipt of which is hereby acknowledged by Landlord, Landlord hereby demises to Tenant, and Tenant hereby leases from Landlord, upon and subject to covenants and agreements set forth herein, and in certain agreements between Landlord and Tenant bearing even date herewith, hereinafter called the "Lease Agreement", which Lease Agreement is and shall be a part of this instrument as fully and completely as if the same were set forth herein, the premises located in the City of Miami, County of Dade, State of Florida, hereinafter called the "demised premises", more particularly described as follows: Said premises form a part of a Shopping Center known as Gardens Square Shopping Center, as shown on the plat or plan thereof which is attached hereto and designated EXHIBIT "A". The portions of said Shopping Center which form the demised premises as shown on EXHIBIT "A" are as follows: That certain parcel of land outlined in red and designated Publix on said "EXHIBIT "A" together with a one story building to be erected by the Landlord thereon in accordance with the terms of said Lease Agreement. TOGETHER with the right, privilege and easement to use those portions of said Shopping Center which are designated "PARKING" on said EXHIBIT "A", exclusively for the parking of automobiles and other passenger vehicles of the Tenant and of persons trading or doing business with Tenant, in common with others trading or doing business at other stores or offices in said Shopping Center. The Shopping Center premises in which the demised premises are located are comprised of those certain parcels or tracts of land more particularly described as follows: See Exhibit "B" attached hereto and made a part hereof. TOGETHER with the right and easement in common with others to use, for all customary and proper purposes, the sidewalks, aisles, streets, roads, alleys, walks, parkings, common areas and service areas shown on said EXHIBIT "A" or which may be hereafter established with the Tenant's written consent. Section 19 of the Lease Agreement provides in part as follows: COMMON AREAS SECTION 19. A. The areas of the shopping center shown on the plot plan designated Exhibit "A" as parking areas shall at all times be maintained as Parking Areas. The expression "Parking Areas" means parking spaces and driveways and footways and includes the areas shown as parking areas on the plot plan plus such other areas as Landlord shall from time to time designate as Parking Areas. The area marked "SERVICE" upon the plot plan, excepting reasonable areas adjacent to service doors, shall be maintained during the term hereof as service roads and areas (the "Service Areas"). The Parking Areas, the Service Areas, the sidewalks, the pedestrian ramps, and the entrances and exits of the shopping center are herein called "the Common Areas". The Common Areas plus the lighting system and the drainage system servicing the Common Areas, plus all directional signs, plus any pylon signs, plus any landscaped areas within the shopping center plus any other common facilities in the shopping center are called "the Common Facilities". Subject to Section 38, Landlord agrees that at all times there will be free and uninterrupted access (i) for motor vehicles between each of the public streets adjacent to the shopping center and the Parking Areas and the service doors of the demised premises, and (ii) for pedestrians between the Parking Areas and the demised premises. The parking spaces, driveways and footways in the Common Areas, the entrances and exits of the Common Areas, the lighting system servicing the Common Areas and the traffic flow pattern of the Common Areas shall not be changed from the layout thereof shown upon the plot plan, without the consent of Tenant in writing. If any highway median strip crossover now existing near the shopping center shall be relocated, or if the installation of a highway median strip hereafter shall include a cross-over near the shopping center, then Landlord shall, subject to Tenant's approval, use its best efforts to make such relocation of the entrances, exits and driveways of the shopping center and such changes in the traffic flow pattern of the shopping center as shall be reasonably necessary, practical and safe to conform the same to the new median strip cross-over if permitted by public authorities having jurisdiction. Landlord agrees that the Parking Areas within the shopping center will always contain at least four and seven tenths (4.7) parking spaces for so-called standard size American automobiles, and driveways and footways incidental thereto, for each one thousand (1,000) square feet of floor area in the shopping center. All such parking spaces in the shopping center shall be no less than ten feet in width. If any Parking Areas, Service Areas, Common Areas, Common Facilities or any part or parts thereof shall be modified, changed or altered by or as a result of demand from any state, county, local or other governmental authority or public utility beyond the control of Landlord, then it is understood that such modification, change or alteration shall not constitute a breach of any agreements or covenants referred to in the Lease. This provision does not apply to condemnation. B. Landlord shall prohibit: 1) the placing of any buildings on the Parking Areas, 2) the placing of any sign or structure of any nature on the Parking Areas that would prevent -2- clear visibility from the highways, streets, or roads adjoining the shopping center to the demised premises, 3) the conduct of any business on the Parking Areas, or 4) the operation of any carnival or other entertainment on the Parking Areas. Landlord agrees that the Parking Areas will be ground level only and Landlord shall make no charge of any kind for use of the parking area or any additions thereto. C. Tenant and all persons having business with Tenant shall have the right to use, in common with all other occupants of the shopping center and all persons having business with such other occupants, without charge, all Common Areas and Common Facilities of the shopping center. Tenant shall have the right to use, from time to time, the sidewalks adjacent to the demised premises for sales purposes. Such sales, for the purposes of Section 4 of this lease, shall be deemed sales made in the demised premises. Tenant shall keep such sidewalks reasonably clean and neat while so used and upon completion of each such use. Maintenance of the sidewalks shall be Landlord's responsibility except as stated herein, and further except that Tenant shall maintain that portion of the sidewalk which is within Tenant's enclosed vestibule. D. Landlord, at all times, shall keep in good repair and condition the Pylon Signs and all Common Areas of the shopping center and all directional signs therein and all other Common Facilities, shall keep the Common Areas suitably paved and marked for parking and traffic flow, shall keep all Common Areas and other Common Facilities free of refuse and obstruction to the extent required by the business operations of the stores within the shopping center, shall keep the Common Areas and other Common Facilities properly drained, and shall keep the Pylon Signs and the Common Areas, the entrance and exit signs, and other Common Facilities adequately lighted during all times when the demised premises shall be open for business and for a reasonable time thereafter. Landlord shall repair any damage to Common Areas as the result of settling. E. Landlord further agrees for itself, its successors, assigns and for any subsidiary or controlling corporation, that it will not, without the consent of Tenant in each instance, erect store premises or building improvements on any parcels of land adjoining or adjacent to the Shopping Center. F. If in Tenant's opinion, default shall be made by Landlord in compliance with any of the agreements and covenants referred to in this Section 19 for a period of twenty (20) days after notice from Tenant to Landlord specifying the item or items in default, and Landlord fails to proceed within said twenty (20) day period to cure the same and thereafter to prosecute the curing of such default with due diligence, then and in any such event Tenant shall have the right to take whatever steps are necessary in Tenant's opinion to cure the default, including the right to remove any buildings, persons and/or property from the Parking Areas, either with or without court action, and the costs of any steps taken by Tenant shall be payable by Landlord to Tenant upon demand. In addition, Tenant shall be entitled to: 1) damages caused by non-compliance, 2) abate rent in full during any period of non-compliance, and 3) enforcement of rights by civil action, including injunctive relief. Any rights taken hereunder by Tenant shall be in addition to every other right or remedy provided in this lease or existing at law or in equity or by statute or otherwise. -3- Section 21 of the Lease Agreement provides as follows: OUTPARCEL RESTRICTIONS SECTION 21. Landlord covenants and agrees that any outparcels in or adjacent to the shopping center which are shown on Exhibit "A" attached hereto and made a part hereof (whether included in or excluded from the legal description of the shopping center) and further which have designated thereon a maximum building size, shall be held, used, occupied and transferred subject to the maximum building size restriction set forth thereon and shall also be subject to the exclusive use restrictions set forth in Section 26 of this lease, which shall be a covenant running with the land as to said outparcels. Landlord will at all times enforce said restrictions in the event there is a breach or attempted breach thereof. A default by Landlord to enforce said restrictions shall constitute a default by Landlord under the terms of this lease. Tenant, at its option, may also enforce said restrictions. TO HAVE AND TO HOLD the same for a term beginning on the 1st day of September, 1991, and ending on the 31st day of August, 2011, at midnight, unless sooner terminated as in the Lease Agreement provided or permitted. AND FOR SAID CONSIDERATIONS the Landlord has granted and hereby does grant unto the Tenant the right and option to extend said term to and including August 31, 2031, all in the manner and upon the covenants and agreements set forth herein and in the Lease Agreement. IN WITNESS WHEREOF, the parties hereto, by their undersigned officers, respectively have caused this instrument to be executed as of the day and year first above written. STILES HUNT PROPERTIES a Florida general partnership and a Florida joint venture COMMONS ASSOCIATES, LTD., a Witnesses: Florida limited partnership /s/ - ------------------------- By: /s/ Terry W. Stiles --------------------------- Terry W. Stiles, General Partner /s/ - ------------------------- and TED A. HUNT, Joint Venturer /s/ /s/ Ted A. Hunt - ------------------------- ------------------------------ Ted A. Hunt /s/ - ------------------------- (CORPORATE SEAL) Witnesses: PUBLIX SUPER MARKETS, INC. By: - ------------------------ ---------------------------- Chairman of the Executive Committee Attest: - ------------------------ ------------------------ Secretary (CORPORATE SEAL) STATE OF FLORDIA COUNTY OF BROWARD The foregoing instrument was acknowledged before me this 2 day of May, 1991 by TERRY W. STILES, as General Partner on behalf of COMMONS ASSOCIATES, LTD, a Florida limited partnership, General Partner of STILES HUNT PROPERTIES, a Florida limited partnership and joint venture. /s/ ------------------------------ Notary Public My Commission Expires: [Notary Seal] STATE OF FLORIDA COUNTY OF BROWARD The foregoing instrument was acknowledged before me this 2 day of May, 1991 by TED A. HUNT, Joint Venturer of STILES HUNT PROPERTIES, a Florida limited partnership and a Florida joint venture. /s/ ------------------------------ Notary Public My Commission Expires: [Notary Seal] STATE OF FLORIDA COUNTY OF POLK The foregoing instrument was acknowledged before me this ____ day of ___________, 1991 by C. H. JENKINS, JR. and S. KEITH BILLUPS, Chairman of the Executive Committee and Secretary respectively of PUBLIX SUPER MARKETS, INC., a Florida corporation, on behalf of said corporation. ------------------------------ Notary Public My Commission Expires: EXHIBIT "A" FLOOR PLAN OF LEASED PREMISES (NOT TO SCALE) LANDLORD BAY NUMBER _____ (To be provided at a later date) [MAP OF GARDENS SQUARE SHOPPING CENTER] Landlord reserves the right to relocate Tenant. Exhibit "B" That portion of Tracts 41, 42 and the South 55 feet of Tract 43 of Section 3, Township 52 South, Range 40 East of "FLORIDA FRUIT LANDS COMPANY'S SUBDIVISION NO. 1", according to the Plat thereof as recorded in Plat Book 2 at page 17 of the Public Records of Dade County, Florida, less the South 55.00 feet of said Section 3 for right-of-way purposes; said portions of Tracts 41 and 42 and the South 55 feet of Tract 43 being more fully described as follows: Commence at the Southwest corner of said Section 3; thence North 00 degrees, 03 minutes, 56 seconds West along the West line of said Section 3 for 55.04 feet; thence South 87 degrees, 48 minutes, 34 seconds East along a line parallel with and 55.00 feet North of the Southerly line of said Section 3 for 15.01 feet to POINT OF BEGINNING of the hereinafter described parcel of land; thence North 00 degrees, 03 minutes, 56 seconds West along a line parallel with and 15.00 feet East of the West line of said Section 3 for 660.42 feet; thence South 87 degrees, 48 minutes, 44 seconds East along a line parallel with and 55.00 feet North of the Southerly line of said Tract 43 for 685.53 feet; thence South 00 degrees, 03 minutes, 56 seconds East along a line parallel with and 700.00 feet East of the west line of said Section 3 for 660.45 feet to a point on the Northerly right-of-way of N.W. 186th Street (Miami Gardens Drive) as recorded in Official Records Book 8364, at page 784 of the Public Records of Dade County, Florida; thence North 87 degrees, 48 minutes, 34 seconds West along said Northerly right-of-way line for 685.53 feet to the POINT OF BEGINNING. Lying and being in Dade County, Florida. Also legally described as STILES HUNT PLAT, as recorded in Plat Book 138, Page 85, Public Records of Dade County, Florida. EX-10.9 14 LEASE (CENTRUM/JACK ECKERD CORP) ECKERD DRUGS #2935 MIAMI GARDENS PLAZA Miami, Florida ECKERD DRUG STORE -- NW. 186th St & NW 7th Ave Miami Gardens I N D E X - - - - - SECTION PAGE NUMBER SUBJECT NUMBER - ------- ----------------------------------------------------------- ------ 1 PREMISES 1 2 TERM 1 3 OPTION PERIODS 1 4 RENT 2 5 GROSS RECEIPTS 2 6 CONSTRUCTION AND DELIVERY 3 7 COMMON FACILITIES 4 8 INGRESS AND EGREE TO SHOPPING CENTER 5 9 SIGNS 5 10 MAINTENANCE AND REPAIRS 5 11 LIMIT OF LANDLORD'S OBLIGATION TO MAKE REPAIRS 6 12 TENANT'S RIGHT TO MAKE CHANGES 6 13 DAMAGE TO PREMISES 6 14 TITLE AND QUIET ENJOYMENT 7 15 ASSIGNING AND SUBLETTING 7 16 LIENS 7 17 LAW, REGULATIONS 7 18 INSURANCE 8 19 WAIVER OF SUBROGATION 8 20 DEFAULT 9 21 RENT UNDER DEFAULT 9 22 ENTRY OF LANDLORD 10 23 COMPLIANCE 10 24 TENANT'S RIGHT TO CURE LANDLORD'S DEFAULTS 10 25 NOTICES 10 26 LEASE SUBORDINATION 11 27 INDUCEMENT CLAUSE 11 28 EXCLUSIVE 11 29 ADDITIONAL SPACE 12 30 FOUNTAIN IMPROVEMENTS 12 31 SHORT FORM LEASE 12 32 EMINENT DOMAIN 12 33 OBLIGATION OF SUCCESSORS 13 34 SEVERABILITY 13 35 COMMON AREA MAINTENANCE 14 36 TAXES 15 37 FIRE & EXTENDED COVERAGE 16 THIS LEASE, made this _____ day of _______________________, by and between CENTRUM G.A. II CORPORATION, hereinafter referred to as the "Landlord," and JACK ECKERD CORP0RATION, a DELAWARE corporation, hereinafter referred to as the "Tenant": W I T N E S S E T H: - - - - - - - - - - SECTION 1. A. That the Landlord, for and in consideration PREMISES of the covenants, conditions, agreements and stipulations herein contained, does hereby lease unto the Tenant, and the Tenant does hereby take and hire from the Landlord, those certain premises consisting of a store room with area inside walls of 9504 s.f., as outlined in red on Exhibit "A" attached hereto and made a part hereof, in a building to be constructed upon property situated in the ___________, County of Dade, State of Florida, described in Exhibit "B" attached hereto. It is understood and agreed that the site plan attached to the Lease as Exhibit "A", sometimes referred to in the Lease as "plot plan," has not as of the signing hereof been approved by Dade County or other required authorities. It is further understood and agreed that the rights and obligations arising under the Lease and this Rider are expressly conditioned upon approval by Dade County, the Development Impact Committee, and any other appropriate authority, of a site plan substantially the same as the one contained in said Exhibit "A". Tenant shall have the right to approve the final site plan after all such approvals have been obtained, which approval may be withheld by Tenant for any reason. Tenant shall have a period of thirty (30) days from receipt of said final plan to approve or disapprove of the same. If Tenant disapproves said plan, Tenant shall have the right to cancel the Lease and may do so within said time period by giving written notice to Landlord of such disapproval, and upon the giving of such notice, the within Lease shall cease, terminate, and come to an end. If Tenant fails to notify Landlord of its disapproval of said final site plan within said period of time, said final site plan shall be deemed to have been approved by Tenant. B. The premises being leased hereunder are hereinafter referred to as the "leased premises" and are a portion of a shopping center in existence or to be erected by the Landlord on the lands described above, hereinafter referred to as the "entire premises," which shopping center shall be designated as MIAMI GARDENS PLAZA. SECTION 2. A. To have and to hold said leased premises, TERM together with all and singular the improvements and easements thereunto belonging unto the Tenant for the period beginning as provided in Section 4.A., and ending at midnight 20 years later. B. Because of the admittedly seasonal aspect of Tenant's business operations, it is mutually agreed that Tenant shall not be obligated to initially open for business between March 15 and April 15, or between November 1 and January 31. Minimum rental shall not begin to accrue until the end of period if possession is made available to Tenant for initial store opening during such times. The foregoing provisions shall have no effect upon continued payment of rental following Tenant's initial store opening. C. Landlord and Tenant agree to execute, acknowledge and deliver instruments to each other in recordable form certifying as to the commencement date and termination date of the lease herein. SECTION 3. A. Tenant, if not in default, has the option to OPTION renew this lease for 4 successive 5 years periods on the same PERIODS terms and conditions herein contained, provided Tenant gives Landlord six months notice of its election to exercise each option prior to the end of the term hereof or extended term. Should Tenant neglect to exercise above options on the date as above specified, Tenant's right to exercise said options shall not expire until fifteen (15) days after notice, by Landlord, of Tenant's failure to exercise said options. B. The Tenant will deliver up and surrender to the Landlord possession of the leased premises upon the expiration or termination of this lease, in as good condition and repair as the same shall be at the commencement of said term (loss by fire and ordinary wear and decay excepted). -1- SECTION 4. A. Rent shall accrue hereunder 30 days after the RENT leased premises are completed by the Landlord in accordance with the provisions of this lease, and possession thereof has been tendered to Tenant. Provided, if the Landlord fails to have the building completed and ready for Tenant's occupancy on the date established herein, then and in that event, the fixed minimum rent established herein shall be abated equal to the number of days of the Landlord's delay in presenting a completed building. If Tenant opens for business prior to the time fifty percent (50%) of the balance of the rentable floor space in the Center has been leased to and opened for business by tenants, including all tenants listed in Section 27 hereof, then no minimum rental shall be in effect during this period. If the Tenant is open for business during any period when fixed minimum rent is abated as provided in this Section 4, all gross receipts during such period shall be added to the gross receipts of the first lease year for the purpose of calculating additional rent, if any, as provided in Section 4.C. B. Tenant shall pay to the Landlord at the address hereinafter set forth: For the first 6 years: $104.544.00 per year; $8,712.00 per month For the next 8 years: $114.048.00 per year; $9,504.00 per month For the next 6 years: $123,552.00 per year; $10,296.00 per month For the remaining ___ years and any extensions thereof $________ per year; $__________ per month in advance on the first day of each and every calendar month during the term of this lease. If the term shall commence on a day other than the first day of a month, then rent shall be pro-rated for the balance of the said month on a per diem basis. C. The fixed annual rent as provided in Section 4B herein shall be considered sufficient consideration for the term of this leasehold. However, in addition to the payment of the said fixed annual rental, Tenant covenants and agreed to pay to Landlord as additional rental for each lease year of the term hereof, on the gross receipts as hereinafter defined, made in such lease year from the business or businesses conducted on the leased premises, a sum equivalent to: The amount by which two percent (2%) of gross receipts exceeds the fixed annual rental paid by Tenant for such lease year. Tenant shall pay any and all sales and use taxes on any and all rental payments, fixed, percentage, or otherwise. D. For purposes of calculating the percentage rental due hereunder, the Tenant's lease year shall commence the last Sunday of January and end on the last Saturday of January of the following year. Additional rental for first and last lease years shall be apportioned. SECTION 5. A. "Gross receipts" is hereby defined to mean GROSS total receipts from all business conducted upon the leased RECEIPTS premises for cash or credit except as follows: B. Gross receipts shall not include: Sales of merchandise for which cash has been refunded or allowance made; the sales price of merchandise returned by customers for exchange; the amount of any luxury, -2- excise, sales, use or gross receipts tax imposed by any Federal, State, municipal or governmental authority directly on sales and collected from customers; sales of magazines, newspapers; sales of stamps, money orders, operation of a sub-post office (if any); discount sales to Senior Citizens; sales to nursing homes and nursing home patients; merchandise transferred between stores owned or controlled by the Tenant; discount sales to employees of Tenant and its affiliates; discount sales to doctors; fees derived from the professional services of an Optometrist; all eyewear sold under an industrial safety eyeglass program; one-half of the gross receipts collected between the hours of midnight and eight o'clock in the morning; charges made for customers' alterations and repairs; financing or carrying charges of balances due on repossessed items and trade-in allowances; gift wrapping charges; telephone commissions; income from coin machines; postage and delivery charges to customers; layaway items not paid for and not delivered; the amount of any credit sales deemed uncollectible by Tenant and income or similar tax based upon income or profit as such shall be deducted from gross receipts. C. The Tenant shall submit to the Landlord on or before the sixtieth (60th) day following the end of each lease year a statement signed by an officer of the Tenant showing the amount of gross receipts during the preceding lease year. Upon delivery of such statement, Tenant shall pay to the Landlord any additional rent required by Section 4.C. D. The Tenant shall make available to Landlord at Tenant's Florida headquarters Tenant's business records of its gross receipts for the preceding year. Not more than once each year, Landlord may, at its own expense, examine and audit Tenant's records for the sole purpose of ascertaining the amount of such gross receipts from the leased premises during the preceding lease year. Landlord shall notify Tenant and proceed with such audit within ninety (90) days from receipt of Tenant's statement. Should Landlord fail to examine and audit said records within the above ninety (90) days period, Landlord shall have no further right to access to the records of Tenant, and Tenant's statement shall be final. E. Landlord agrees that all information concerning Tenant's affairs shall remain confidential, and shall not be divulged or published by the Landlord, except to the mortgagee of the premises. SECTION 6. A. Landlord will at its own expense prepare CONSTRUCTION detailed plans and specifications for construction in accordance with guide plans furnished by Tenant. Landlord acknowledges receipt of Tenant's guide plans heretofore delivered by Tenant. Such construction plans (3 sets) shall be subject to approval by the Tenant and initialled by the parties hereto and considered a part hereof. If the Landlord elects to proceed with construction prior to obtaining Tenant's approval of construction plans, any changes required by the Tenant shall be at the Landlord's sole cost and expense. All changes made to the construction plans after both parties have initialled such plans shall be at Tenant's expense unless no additional structure or design fees are incurred and substitution of materials do not increase construction cost. The obligations of the Landlord and Tenant under this Lease are expressly conditioned upon the construction plans and any revisions of such plans being approved by all parties on or before February 1990. B. Landlord shall commence construction no later than March 31st, 1990 and shall complete the premises, in accordance with the approved plans and specifications no later than 300 days from the date of commencement of construction, provided that at least thirty (30) days prior to completion, written notice has been given by the Landlord to the Tenant that the said premises will be completed and ready for the Tenant's occupancy. Landlord shall obtain from the authority of jurisdiction the street address to be assigned to the leased premises and provide the Tenant with this information in writing no later than thirty (30) days after commencement of construction. If construction is delayed for a period of six (6) months from above date, plans shall be resubmitted for approval prior to construction. -3- C. The leased premises shall be deemed to have been fully completed and ready and available for occupancy by Tenant when all three of the following have been accomplished: (a) a Certificate of Occupancy or an equivalent Use Permit is obtained from and issued by the Governmental Authority having jurisdiction; (b) the architect who prepared the plans and specifications shall certify in writing to Tenant that the leased premises have been substantially completed in accordance with the plans and specifications approved by Landlord and Tenant as set forth in this Section 6; (c) Landlord shall tender possession of the leased premises to the Tenant with store absolutely cleaned, including the cleaning and waxing of floors. D. If the Landlord shall fail to commence construction or deliver premises to Tenant, in the manner provided herein and within the time limit set herein, then Tenant may, at its option cancel this entire agreement by giving Landlord thirty (30) days written notice of the default and Tenant's intent to cancel, unless during such thirty (30) days, Landlord cures the default. Acceptance by Tenant of delivery prior to the time limit set in this lease shall be at the option of Tenant, such acceptance not to be unreasonably withheld. Anything in this agreement to the contrary notwithstanding, neither Landlord nor Tenant shall be in default of the performance of any provisions of this lease to the extent such performance shall be delayed or prevented by strike, war, act of God, or other cause beyond the control of party seeking to excuse such performance. E. At Tenant's sole risk, Landlord will afford Tenant reasonable access to the leased premises prior to the possession date aforesaid for the purpose of inspection, measuring and installing or arranging for the installation of fixtures, but only to the extent that such activity proceeds without interfering with Landlord's contractors, sub-contractors, and their respective employees. By giving Tenant access to the leased premises prior to the possession date, Landlord assumes no responsibility whatsoever for damage to persons entering the leased premises, or injury to property brought in, or upon. the leased premises, nor shall the Landlord be entitled to any rent by reason of such access. Tenant agrees to indemnify and hold Landlord harmless from and against any damages or costs, including, without limitation, reasonable attorney's fees and injury to person or property occasioned by such access other than injuries to property or person resulting from negligence of Landlord. SECTION 7. A. Prior to the date of commencement of the COMMON lease term, Landlord shall construct the sidewalks, service FACILITIES drives, parking aisles, driveways, streets and parking area (sometimes referred to as the "common facilities") substantially as shown on Exhibit "A". The area provided for the parking of automobiles shall be sufficient to accommodate not less than 422 automobiles with spaces for each car, and in all events, the number of parking spaces shall never be less than 4.7 parking spaces for each 1,000 square feet of gross leasable area. All sidewalks shall be concrete and all service drives, parking aisles, driveways, streets and parking areas shall be graded, levelled and paved with concrete or asphalt, clearly marked with painted lines, repainted as required. Landlord agrees there shall be unobstructed use of sidewalks, driveways and roadways for automotive and pedestrian traffic to and from Tenant's buildings and adjacent public streets and highways. Landlord shall make no charge of any kind to Tenant's customers for use of the common facilities or any additions thereto. All of the common facilities, including any signs owned or permitted by Landlord, shall be constructed in a workmanlike manner and shall be maintained by Landlord, at its sole cost and expense, in an adequate, sightly and serviceable condition. Such maintenance shall include, without limitation, keeping the same reasonably free and clear of foreign objects, papers, debris, obstructions, standing water and supplying adequate illumination during Tenant's business hours, and a reasonable period prior and subsequent thereto. To assure the foregoing, the Landlord shall: (1) cause the common facilities to be thoroughly cleaned as required, and (2) promptly remove refuse on every occasion where it impedes the use of said facilities. -4- B. Landlord shall maintain paved driveways at the rear of Tenant's buildings in order to provide convenient public access to the delivery or service entrances. Such driveways shall be of sufficient width so as to permit the passage, unloading and turning of trailer trucks and other commercial vehicles. C. Landlord agrees that the parking lot will be ground level only and will remain as shown on Exhibit "A" unless written permission is obtained from Tenant for any change or alteration. Landlord shall prohibit the placing of any buildings or the conduct of any business on the parking lot. SECTION 8. Landlord warrants as a consideration for this INGRESS AND lease it will initially provide and maintain for the period of EGRESS TO this lease and any extension thereof, ingress and egress SHOPPING facilities to public highways in the number and substantially CENTER the locations depicted on Exhibit "A", subject to unavoidable temporary closings or relocations necessitated by public authority or other circumstances beyond Landlord's control. SECTION 9. A. The Landlord agrees that Tenant shall have SIGNS the right at its own cost and expense to erect and maintain signs advertising its business on the exterior of the leased premises. Any signs erected by the Tenant shall be its standard capsule and under-canopy signs as indicated on guide plans and shall conform to the requirements of local ordinances. B. Landlord shall not be required to erect a shopping center identification pylon sign; however, if such a sign is erected or replaced, and if any other tenant in the shopping center is permitted to erect its sign upon the sign structure, Tenant shall also be entitled to erect its standard capsule sign no less prominently displayed than the signs of any other tenant. If no such shopping center identification pylon sign is erected or replaced, or if any other tenant displays its sign upon a structure other than its building, Tenant may erect its standard capsule pylon sign at its sole cost and expense along the street frontage in front of its leased premises, in which event Landlord shall extend electrical service from Tenant's meter to sign location. C. Landlord shall not, without Tenant's written consent, at any time utilize or permit others to utilize the exterior of Tenant's store unit, or the space above it, for sign display purposes. SECTION 10. A. The Tenant shall pay for all sewerage MAINTENANCE disposal services, water, gas, heat, electric current and other AND REPAIRS utilities furnished it or consumed by it, in or upon the leased premises at rates set by local public utility as approved by Public Authority having jurisdiction, and will keep the interior of the leased premises and appurtenances in good order and repair, and in a clean, safe and healthy condition (excepting, however, all repairs made necessary by reason of fire or other unavoidable casualty) at its own cost and expense. B. The Landlord shall, at its own cost and expense, maintain in good condition the exterior of the building, the roof and structural members of the building of which the leased premises form a part, and any water, gas or electrical lines or conduits permanently embedded in walls or floor, and/or in the alternative, installed above the ceiling in cold-weather areas. However, if any of the aforementioned repairs are made necessary by reason of Tenant's use/occupancy of the leased premises in any manner inconsistent with the reasonable use and occupancy thereof, or by reason of alterations made by the Tenant, such repairs shall be made by the Tenant at its own cost and expense. C. In the event the need for emergency repair arises, and such repairs are the obligation of the Landlord, Tenant, at its sole discretion, may proceed to have such repairs promptly made and after sixty (60) days deduct the cost of such repairs from rentals due or to become due. -5- SECTION 11. The Landlord shall not be liable for any LIMIT OF damages from plumbing, gas, water, steam or sewage leaks or LANDLORD'S stoppage, nor for damage arising from acts of negligence of OBLIGATION co-tenants or other occupants of the same building, or any TO MAKE owners or occupants of adjoining contiguous property, REPAIRS unless such damage is occasioned by the negligence of the Landlord, or its agents or contractors. SECTION 12. A. The Tenant at its own expense during the TENANT'S term of the Lease may make any alterations or additions to the RIGHT TO leased premises which it may deem necessary, except structural MAKE and exterior changes unless approved by the Landlord, but it CHANGES shall make them in accordance with all applicable governmental regulations. All salvage from such work shall belong to the Tenant. All permanent improvements shall belong to the Landlord. B. At any time after the end of the fifteenth year of the lease term and provided there remains no less than ten (10) years of unexpired term or extension thereof, the Tenant may at its sole cost and expense remodel the leased premises. One-half of the Tenant's total costs of such remodelling shall become a credit against percentage rents (provided in Section 4C.) which may accrue during the three (3) consecutive lease years ending after the completion of such remodelling; provided, however, that such refurbish shall be limited to the reconditioning of the leased premises, the scope and overall budget for which shall be approved by the Landlord whose consent shall not be unreasonably withheld or delayed. C. If Tenant is not in default of the terms of this lease, all trade fixtures and equipment and other personal property owned by Tenant and installed or placed by it upon the leased premises, may be removed by the Tenant at any time during the term or on the expiration thereof. Tenant agrees to repair any damage to the building occasioned by such removal. SECTION 13. A. Landlord agrees to insure the "entire DAMAGE TO premises" against loss by fire or disaster, to at least 80% of PREMISES the full replacement value thereof. A copy of such policy or certificate thereof shall be furnished to Tenant upon request. In the event any building on the entire premises be partially damaged, or totally destroyed by fire, or disaster, the Landlord shall promptly cause the same to be substantially restored. If the premises of any inducement tenant in Section 27 be so damaged or destroyed, fixed rent (Section 4B.) shall abate and Tenant shall pay rent equal to 2% of gross receipts until the building shall have been restored and the inducement tenant shall have reopened for business, at which time rent shall be paid as set forth in Section 4B. and 4C. B. In the event the leased premises be so damaged or destroyed, Landlord shall promptly cause same to be substantially restored, subject to such changes as the Tenant may reasonably require (provided that such changes will not increase the cost of restoration unless Tenant agrees to pay for such increased cost). Due allowance shall be made for a: (1) reasonable time necessary (not to exceed 90 days) for the Landlord to adjust the loss with insurance companies, and (2) delay occasioned by strikes, lockouts, and conditions beyond the reasonable control of the Landlord. If in the sole judgment of the Tenant the extent of the damage is such that immediate emergency repairs are necessary to protect its business and personal property in order to continue operations, the Tenant shall have the right to make such emergency repairs. The Landlord shall reimburse the Tenant for its total cost and expense of such repairs. If the Landlord fails to make such reimbursement within 60 days after demand, Tenant shall have the right to recover such sums out of rents due or to become due. In the event of a substantial destruction of the leased premises, and the Landlord fails to indicate its intent within thirty (30) days to commence construction and completely restore and rebuild the same promptly, Tenant may at its option, and upon written notice, cancel this lease, in which event neither party shall thereafter have any further obligation with respect to the other. -6- C. Should the leased premises, or a portion thereof, be rendered untenantable by fire, or disaster, then the rent shall abate in proportion to the areas of the leased premises rendered untenantable from the date of the damage to the date of restoration of the premises. No rent shall accrue for any portion of the premises unless Tenant is able to conduct its usual business on that portion of the premises that remains tenantable. If such damage occurs during the last two (2) years of the term and the cost of restoration amounts to more than one-third (1/3rd) of the replacement value of the building, as certified to by a registered architect, Landlord and Tenant shall each have the right to terminate this lease by written notice to the other given within thirty (30) days after such occurrence, unless the Tenant shall elect to renew this lease for an additional period of ten (10) years. If, at the date of the fire or disaster, the Tenant shall have paid any rent in advance, the Tenant shall be entitled to a proportionate refund. SECTION 14. Landlord warrants that it has full right and TITLE AND title to execute and perform this lease. So long as the Tenant QUIET is not in default, the Landlord agrees that it will not permit ENJOYMENT the disturbance of, nor interference with, the Tenant's quiet enjoyment of the leased premises. SECTION 15. Tenant shall have the right at any time ASSIGNING with the consent of Landlord to sublet, transfer or assign AND this Lease to any person or company provided: The use SUBLETTING made of such premises by such assignee does not conflict with any then current exclusive rights or privileges for the rendering of services, or the sale of products theretofore granted by the Landlord in existing leases for other parts of any shopping center of which the leased premises may form a part. It being further provided, however, that no subletting or assigning shall be for a use which does not conform with uses which are characteristic of the same type of Shopping Center as Shops at Hialeah and conform with applicable codes. Notwithstanding the foregoing, if the Tenant shall desire to sublet or assign this lease, the Tenant shall give the Landlord 30 days written notice of such intent and upon such notice, the Landlord shall have the right to cancel this Lease within said 30-day period. In any event, this Lease may be assigned, or the demised premises may be sublet, in whole or in part, to any corporation into or with which Tenant may be merged or consolidated or to any corporation which shall be an affiliate, subsidiary, parent or successor of Tenant, or of a corporation into or with which Tenant may be merged or consolidated, or to a partnership, the majority interest in which shall be owned by stockholders of Tenant or of any such corporation, or to a corporation to which Tenant sells his assets. In such event, Tenant shall not be relieved of its obligations under this lease. As condition precedent to any assignment or subletting, Tenant, and the guarantor hereof, must guarantee all obligations of the Tenant hereunder. SECTION 16. When completed, the premises shall be free and LIENS clear of all claims of liens by mechanics and materialmen for and on account of labor and materials furnished in and about said construction by Landlord. Thereafter, if any mechanic's or other liens, or order for the payment of money arising through the fault of either party, shall be filed against the leased premises or additions, alterations or extensions thereto, such party shall cause the same to be cancelled and discharged of record, by bond or otherwise, and shall also defend and pay damages and attorney fees, if any, on behalf of the other, for any action, suit or proceeding which may be brought thereupon for the enforcement of such lien, liens or orders. Upon failure of defaulting party so to do, the other may, after 30 days notice, do so on defaulting party's behalf, and all sums thereby expended by the other shall on demand be paid to him by party in default. SECTION 17. Subject to the provision that this section LAW, shall not be applicable to the roof and/or structural parts, REGULATIONS or water, gas or electrical lines or conduits permanently embedded in walls or floors to exterior of the leased premises, Tenant agrees to comply with all orders, rules, regulations and requirements of any governmental body relating to the manner of Tenant's use and occupancy of the leased premises, or alterations made by the Tenant, and the Tenant will pay all costs and expenses incidental to such compliance, and will indemnify and save harmless the Landlord therefrom. Should the Tenant fail to comply with any of the provisions contained in this section, the Landlord may, after ten (10) days notice to the Tenant, comply therewith, and Landlord's cost and expense of so doing may be charged against the Tenant, becoming due upon demand. -7- SECTION 18. A. Tenant, in its name and at its own INSURANCE expense, shall procure and continue in force, general liability insurance against damages occurring in the leased premises during the term of this lease. Such insurance shall be in an amount not less than One Million ($1,000,000) ($500,000) Dollars for injuries to persons in one accident, and not less than Five Hundred Thousand ($500,000) Dollars for injury to any one person, and One Hundred Thousand Dollars ($100,000) for damage to property. Such insurance shall name the Landlord as additional insured and shall be written in a company or companies authorized to engage in the business general liability insurance in the state in which the leased premises are located. B. Tenant covenants to keep in good order and repair the plate glass in the leased premises, and replace all broken glass with same quality as that broken. Should damage or breakage occur due to fire, windstorm, or structural fault, or due to the fault or neglect of the Landlord, thereupon the responsibility for replacement shall be that of the Landlord. C. The policies of insurance herein are to be procured by the Tenant, and should be for a period of not less than one year. Fifteen (15) days prior to the expiration of any policy of insurance, the Tenant will procure a renewal or new policy to replace the policy expiring. Should the Tenant fail to procure said policies at the times herein provided, the Landlord may obtain such insurance, and the premiums shall be deemed an assessment to be paid by the Tenant unto the Landlord upon demand. D. Should the Tenant desire to carry above coverages together with other property owned or controlled by the Tenant and/or affiliated companies, such shall be deemed compliance with the Tenant's obligations under this section, as to both original coverage and renewals.* E. If, by reason of the failure of the Tenant to comply with the provisions of this lease, the fire insurance rate for the building of which the leased premises form a part be increased or be higher than it would otherwise, then the Tenant covenants and agrees to pay on the first day of the following month that part of the insurance premiums thereafter paid by the Landlord, which shall have been paid because of such violation by the Tenant. F. The Landlord agrees to indemnify and save harmless the Tenant from and against any and all claims and demands whether from injury to person or loss of life, or damage to property occurring within the Entire Premises (excluding the leased premises), excepting, however, such claims or demands as may result from any injury or damage caused by acts or omissions of the Tenant. SECTION 19. A. Tenant hereby agrees not to assign to any WAIVER OF insurance company any right or cause of action for damage to SUBROGATION the property of Tenant located on above described premises which Tenant now has or may subsequently acquire against Landlord during the term of the above described lease, and expressly waives all rights of recovery for such damage. B. Landlord hereby agrees not to assign to any insurance company any right or cause of action for damages to the property of Landlord located on the above described premises which Landlord now has or may subsequently acquire against Tenant during the term of the above described lease, and expressly waives all rights of recovery from such damage. * In this event Tenant will provide Landlord with a Certificate of Insurance naming Landlord as an additional loss payee as his interest may appear. -8- C. It is specifically understood this agreement shall only apply where such insurance as described herein allows the insured to enter into an agreement waiving recovery rights and this agreement shall apply only as respects insured loss to the property described herein. SECTION 20. A. Each of the following shall be deemed a DEFAULT default by the Tenant and a breach of this lease: 1. Any of the following which shall result in final adjudication against Tenant: a) The filing of a bankruptcy petition by or against the Tenant for adjudication, reorganization, or arrangement. b) Any proceedings for dissolution or liquidation of the Tenant. c) Any assignment for the benefit of Tenant's creditors. 2. Failure to: (a) pay rent for a period of fifteen (15) days after receipt of notice; or (b) perform any other covenant or condition of this lease. B. In the event of any default of Tenant, the Landlord shall serve written notice upon the Tenant that Landlord elects to terminate this lease upon a specified date not less than thirty (30) days after the date of serving of such notice except as provided in this Section. This lease shall then expire on the date so specified as if that date had been originally fixed as the expiration date of the term herein granted unless steps have, in good faith, been commenced promptly by the Tenant to rectify the same, and prosecuted to completion with diligence and continuity. If the matter in question shall involve building construction, and if the Tenant shall be subject to unavoidable delay by conditions beyond the control of the Tenant, the Tenant's time to perform shall be extended for a period commensurate with such delay. C. Upon termination of this lease for Tenant's default, the Landlord or its agents may immediately or at any time thereafter, re-enter and resume possession of said premises and remove all persons and property therefrom, either by summary dispossess proceedings or by a suitable action or proceeding at law, or by force or otherwise, without being liable for any damages therefor. No re-entry by the Landlord shall be deemed an acceptance of a surrender of this lease. Thereafter, Landlord may in its own behalf, relet any portion of said premises for any period of the remaining term, for any reasonable sum to any reasonable tenant and any reasonable use or purpose. In connection with any such reletting, the Landlord may make such changes on the premises and may grant such concessions of free rent as may be reasonably appropriate or helpful in effecting such lease. D. Landlord shall not be liable in any manner, nor shall Tenant's obligations hereunder be diminished by any failure of Landlord to relet the premises, or in the event of reletting to collect rent. SECTION 21. A. In the event this lease be terminated for RENT Tenant's default, the Landlord shall be entitled to recover from UNDER the Tenant, in addition to any damages becoming due hereunder, DEFAULT the following: B. An amount equal to the amount of all rents reserved under this lease, less the net rent, if any, collected by the Landlord on reletting the demised premises, which shall be due and payable, by the Tenant to the Landlord on the several days on which the rents reserved in this lease -9- would have become due and payable. Net rent collected on reletting by the Landlord shall be computed by deducting from the gross rents collected all expenses incurred by the Landlord in connection with the reletting of the premises, including broker's commission and the cost of repairing, renovating or remodelling said premises, but not including the cost of performing any covenant required to be performed by Landlord. C. In the event of termination upon Tenant's default, the annual rent to be paid by the Tenant to the Landlord shall (for the purpose of this Section) be deemed to be a sum equal to the average total rent for the immediate preceding three (3) lease years. In the event the Tenant has been in possession of the leased premises for a lesser period, then the monthly rental shall be deemed to be a sum equal to the average rent which became due from the Tenant from the commencement of the term of this lease, and ending on the date of termination. SECTION 22. The Landlord may at reasonable times ENTRY OF inspect, alter or repair the leased premises when necessary for LANDLORD its safety or preservation. He may show the premises to others at any reasonable time within six months immediately preceding the expiration of said term and may affix a notice for letting or selling the premises to any suitable part of the premises, except show windows or entrances. SECTION 23. Should either Landlord or Tenant fail to COMPLIANCE comply with any of the terms of this lease, each may, after thirty (30) days notice to the other, comply therewith, but each shall not be obligated to do so. The cost of such compliance shall be payable upon demand by the non-complying party to the performing party. SECTION 24. In the event Landlord shall neglect to pay TENANT'S when due any taxes or any obligations on any mortgage or RIGHT encumbrance affecting title to demised premises and to which TO CURE this lease shall be subordinate, or shall fail to perform any LANDLORD'S obligation specified in this lease, then Tenant may, after the DEFAULTS continuance of any such default for fifteen (15) days after written notice thereof by Tenant, pay said taxes, assessments, principal, interest or other charges and cure such default, all on behalf of and at the expense of Landlord, and do all necessary work and make all necessary payments in connection therewith, and Landlord shall on demand pay Tenant forthwith the amount so paid by Tenant, and Tenant may withhold any and all rental payments and other payments thereafter due to Landlord and apply the same to the payment of such indebtedness. Upon the continuance of any such default for thirty (30) days after notice thereof by Tenant, or failure during this period to repay Tenant for money expended on behalf of Landlord pursuant to this article, Tenant may terminate and cancel this lease at any time thereafter. SECTION 25. All notices and rental checks shall be NOTICES forwarded to the Landlord in care of CENTRUM G.B.II CORPORATION One Centrum Plaza 1 S.W. 129th Ave., Suite 307, Pembroke Pines, FL 33027 until Tenant is notified otherwise in writing. All notices given to the Tenant hereunder shall be forwarded to Tenant at JACK ECKERD CORPORATION, STORE # , P. 0. BOX 4689, CLEARWATER, FL 33518, until Landlord is notified otherwise in writing. Notices to each shall be certified mail, return receipt requested. -10- SECTION 26. A. Tenant agrees to subordinate this lease LEASE SUB- to any first mortgage or blanket mortgage placed on the ORDINATION shopping center, provided only that so long as Tenant faithfully discharges its obligations under the terms of this lease: (1) its tenancy will not be disturbed, nor this lease affected by any default under such mortgage; (2) the right of Tenant hereunder shall expressly survive and shall not be cut off; and (3) this lease shall, in all respects, continue in full force and effect. B. If the Landlord is in full compliance with the provisions of this lease, Tenant will, upon demand, without cost execute any instrument necessary to effectuate such subordination. If Tenant, within fifteen (15) days after submission of such instrument fails to execute the same, Landlord is hereby authorized to execute same as attorney-in-fact for the Tenant. SECTION 27. A. The Landlord covenants and agrees that it INDUCEMENT has induced Tenant to execute and deliver this lease by Landlord's CLAUSE representation that the following tenants, will prior to construction of leased premises, enter into at least a 20 year non-cancellable lease in said shopping center in the location and of the general size and area as shown on Exhibit "A": PUBLIX SUPERMARKETS - 42,600 s.f. 20 years B. Anything to the contrary notwithstanding, should Landlord fail to erect for and deliver store space to the aforementioned tenants on or before occupancy by Tenant, then Tenant shall have further right, at his option, to cancel this lease. C. At the time Landlord delivers possession of the leased premises, the tenants referred to above shall have taken possession of the store rooms as shown on Exhibit "A". This shall not preclude any later increase in the sizes of such premises provided the locations and the front lines of the stores are not changed, and such change does not violate any other requirements of this lease. Should any of the aforementioned tenants cease to operate for a consecutive period of ninety (90) days (unless for reasons beyond their control), Tenant may cancel his lease by giving thirty (30) days notice of intention to do so. SECTION 28. A. Tenant agrees that it shall use and occupy EXCLUSIVE the premises as a drug store, which may include an Express Photo and/or photo processing center, and an Optical Center for the practice of Opticianry and Optometry.(With the exception of Publix Supermarket, or their franchisee or assignee, so long as the principal business is that of a supermarket.) Tenant may also sell beer and wine for off-premises consumption. Landlord agrees that Tenant shall have the exclusive right during the term of this lease or any extension or renewal hereof, to operate a drug prescription department in said shopping center. B. Except as specifically shown on Exhibit "A". Landlord agrees that no lease will be entered in the above shopping center or any extensions thereof with any type stores commonly known as army-navy store, surplus store, or non-categorized discount store, or with any stores or businesses devoting more than 1,000 square feet of their retail floor area to the sale of cosmetics, health and beauty aids and related items without the express written consent of Tenant. C. Landlord further agrees that it will not directly or indirectly lease, rent or sell any property located within the shopping center, or within 1,000 feet of any exterior boundary thereof, for occupancy as a drug store or any of the businesses mentioned in paragraph B. above without written permission of the Tenant. If the mortgagee becomes the Landlord, the provisions of this Section 28.C. shall not apply so long as it shall remain the Landlord. -11- SECTION 29. The Tenant shall have the right at such ADDITIONAL time or times as the Tenant designates to require the Landlord SPACE at the Landlord's expense to construct in whole or in part any additional sales or storage space designated on Exhibit "A" as "Future Expansion Area." All such construction shall be of type provided in the original plans and specifications and the costs shall include the expense attendant to changing or moving existing walls and utilities, interior painting and such other work which may be required to make such additional space available for occupancy by the Tenant. Upon completion of the construction and changes and the occupancy by the Tenant of the additional area, the minimum annual rental, if any, provided for in Section 4. hereof shall be increased by an amount not to exceed twelve (12%) percent of the actual cost of construction, excluding cost of site work. SECTION 30. Throughout the term of this lease and any FOUNTAIN extensions thereof, the Tenant shall have the right, at its sole IMPROVEMENTS cost and expense to do all things necessary to install a fountain--luncheonette within the leased premises. If gross receipts from business conducted in the leased premises, exclusive of fountain sales, are sufficient to require payment of additional rent under Section 4.C., then 2% of fountain sales shall be credited against Tenant's total cost of construction of the fountain-luncheonette (excluding furnishings and fixtures) until such construction cost is fully recovered. SECTION 31. The parties hereto do mutually agree, if SHORT FORM either party hereto shall so request, a short form of this LEASE lease will be executed for the purpose of recording. SECTION 32. A. In the event all of the leased premises EMINENT shall be appropriated or taken under the power of eminent domain DOMAIN by any public or quasi-public authority, this lease shall terminate and expire as of the date of such taking and the Tenant shall thereupon be released from any further liability hereunder. B. In the event more than ten percent (10%) of the leased premises or more than twenty percent (20%) of the entire premises shall be appropriated or taken under the power of eminent domain by any public or quasi-public authority, Landlord shall immediately notify Tenant of such taking. The Tenant shall have the right to terminate and be entirely released from this lease as of the date of such taking upon giving to the Landlord notice in writing of such election within thirty (30) days after the receipt by the Tenant from the Landlord of written notice that said premises have been so appropriated or taken. C. If this lease is terminated in either manner herein provided, the rent for the last month of the Tenant's occupancy shall be prorated and the Landlord agrees to refund to the Tenant any excess rent paid in advance. D. If this lease shall not be terminated, as in this paragraph provided, but shall continue as to that portion of the leased premises which shall not have been appropriated or taken, the Landlord, at its -12- own expense, agrees to proceed with due diligence to restore the leased premises remaining to a complete unit of like quality and character as existed prior to such appropriation or taking. All rent shall be abated pro rata in the ratio that the useable ground floor area of the part of the building taken bears to the ground floor area of the building which was included with the leased premises before such taking. OBLIGATION SECTION 33. All of the provisions hereof shall bind and OF inure to the benefits of the parties hereto, their respective SUCCESSORS heirs, legal representatives, successors and assigns. SECTION 34. If any term or provision of this lease or SEVERABILITY the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this lease, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this lease shall be valid and be enforced to the fullest extent permitted by law. -13- SECTION 35. Prior to the due date of Tenant's annual report COMMON AREA of sales and rent, Landlord shall present to Tenant invoices MAINTENANCE authenticating Landlord's cost of annual maintenance of the common areas and parking lot described in Section 7. for the preceding year. Tenant agrees to reimburse Landlord for its proportionate share of said charges annually. One-half (1/2) of any payments made by Tenant to Landlord under this clause shall be a non-cumulative credit against any percentage payments due under this Lease Agreement during its term or any renewals thereof. However, if the property is not maintained properly by Landlord as to cleaning and striping, then Tenant has the right, after giving Landlord thirty (30) days notice in writing to correct same, to order and pay for the necessary maintenance needed in front of Tenant's store and bill the cost thereof to Landlord. If Landlord does not pay Tenant within thirty (30) days of receipt of the charges, then Tenant may deduct the sum from the rental due or to become due. -14- SECTION 36. Tenant shall reimburse the Landlord for Tenant's TAXES proportionate share of general real estate taxes for the entire premises (excluding special assessments) paid by Landlord. The amount of each year's tax bill to be used in such computation shall be the net amount of taxes payable in the first tax payment month. The first tax year shall be the full tax year after the entire premises as shown on the attached plot plan are completed and ready for occupancy. Tenant's proportionate share shall be in the ratio which the 9504 square foot leased premises bears to the total number of square feet of all rentable areas included in the buildings comprising the entire premises. In any expansion of the demised premises, the tax base for the expansion area will be established by the same formula as that used in the first instance. Landlord agrees to pay all taxes before delinquency, and Tenant shall not be obligated to pay any portion of any penalty for delinquent payment. Tenant agrees to reimburse Landlord within thirty (30) days after proof of payment has been tendered to Tenant by Landlord. Any payment due hereunder shall be prorated as of the termination or expiration date of this Lease Agreement. One-half (1/2) of any payments made by Tenant to Landlord under this clause shall be a non-cumulative credit against any percentage payments due under Section 4.C. of this Lease Agreement during its term or any renewals thereof. -15- SECTION 37. During the term of this lease or any extension FIRE AND or renewals thereof, the Landlord shall keep the leased premises EXTENDED insured against fire, with extended coverage and "all risk" COVERAGE endorsement and replacement cost endorsement covering the building and all insurable improvements on the leased premises, except for Tenant's personal property. Within sixty (60) days following the end of each lease year, the Landlord shall present to Tenant an invoice authenticating Landlord's cost of said insurance covering the leased premises, and Tenant agrees during the term of this lease or any extension or renewals thereof to pay to Landlord its prorata share of the cost of such insurance within thirty (30) days. However, in no event shall the Tenant's payment exceed what Tenant would normally pay for the same coverage in equal companies, if Tenant were to insure the leased premises. Any payments of insurance made by Tenant to Landlord under this clause shall be a non-cumulative credit against any percentage payments due under Section 4.C. of this Lease Agreement during its term or any renewals thereof. SECTION 38. At any time upon the request of Landlord, Tenant shall execute and deliver written fifteen (15) days from said request, an estoppel letter in a form acceptable to Landlord and Tenant, and state that no default exists on the part of the Landlord except as may be specified in said estoppel letter. SECTION 39. Tenant covenants and agrees to open its store for business for one day following the date Tenant would be required to commence paying rent under Section 4.A. hereof. Such opening requirement will, however, be subject to force majeur and other unavoidable delays occasioned by the failure of Tenant's suppliers to deliver inventories of goods and trade fixtures in a timely manner. However, following said opening day, nothing contained in this Lease Agreement shall be construed to require Tenant to keep its store open for business. If Tenant elects to close the demised premises for business and the demised premises are not reopened for business by Tenant, or any assignee or sublessee of Tenant, within a period of six months from the date the demised premises are closed, then Landlord, at its option, may cancel this lease upon written notice to Tenant. In the event Landlord elects to cancel this lease, all liabilities of Landlord and Tenant shall terminate as of the date of such cancellation. SECTION 40. The obligations of the Landlord under this Lease Agreement are expressly conditioned upon receipt by Landlord of a valid and binding unconditional guaranty of the terms and conditions of this Lease by the Jack Eckerd Corporation. -16- The captions in this lease are for convenience only and are not a part of this Lease and do not in any way limit or amplify the terms and provisions of this Lease. Throughout this lease, whenever the consent or approval of either party is required, such consent or approval shall not be unreasonably withheld or delayed. This Lease shall be construed in accordance with applicable Florida law. IN WITNESS WHEREOF, the parties hereto have caused these presents to be signed in their respective names by their respective officers, the day and year first above written. "LANDLORD" CENTRUM G.B. II CORPORATION WITNESSES: /s/ By /s/ Larry Golinsky - ------------------------------------ ------------------------------------ Exec. Vice President /s/ Attest /s/ Adele Spallone - ------------------------------------ --------------------------------- As to "Landlord" Assistant Secretary "TENANT" JACK ECKERD CORPORATION /s/ By /s/ Harry Lambert - ------------------------------------ ------------------------------------ Sr. Vice President /s/ Attest /s/ Jackie Post - ------------------------------------ --------------------------------- As to "Tenant" Secretary STATE OF FLORIDA COUNTY OF BROWARD Before me, the undersigned authority, on this day personally appeared Larry Golinsky and Adele Spallone as Executive Vice President and Assistant Secretary, respectively, of CENTRUM G.B. II CORPORATION, known to me to be the persons whose names are subscribed to the foregoing instrument, and acknowledged to me that they executed the same for the purpose therein expressed as the act and deed of said corporation and in the capacity therein stated. Given under my hand and seal of office, this 2 day of November, 1989. /s/ MY COMMISSION EXPIRES: ---------------------------------- Notary Public NOTARY PUBLIC STATE OF FLORIDA MY COMMISSION EXP. DEC. 29, 1989 BONDED THRU GENERAL INS. UND. STATE OF FLORIDA COUNTY OF PINELLAS Before me, the undersigned authority, on this day personally appeared Harry Lambert and Jackie Post, as Sr. Vice President and Secretary, respectively, of JACK ECKERD CORPORATION, known to me to be the persons whose names are subscribed to the foregoing instrument, and acknowledged to me that they executed the same for the purpose therein expressed as the act and deed of said corporation, and in the capacity therein stated. Given under my hand and seal of office, this 18th day of December, 1989. /s/ MY COMMISSION EXPIRES: ---------------------------------- Notary Public NOTARY PUBLIC STATE OF FLORIDA MY COMMISSION EXP. NOV. 1, 1993 BONDED THRU GENERAL INS. UND. EXHIBIT "B" That portion of Tracts 41, 42 and the South 55 feet of Tract 43 of Section 3, Township 52 South, Range 40 East of "FLORIDA FRUIT LANDS COMPANY'S SUBDIVISION NO. 1", according to the Plat thereof as recorded in Plat Book 2 at page 17 of the Public Records of Dade County, Florida, less the South 55.00 feet of said Section 3 for right-of-way purposes; said portions of Tracts 41 and 42 and the South 55 feet of Tract 43 being more fully described as follows: Commence at the Southwest corner of said Section 3; thence North 00 degrees, 03 minutes, 56 seconds West along the West line of said Section 3 for 55.04 feet; thence South 87 degrees, 48 minutes, 34 seconds East along a line parallel with and 55.00 feet North of the Southerly line of said Section 3 for 15.01 feet to POINT OF BEGINNING of the hereinafter described parcel of land; thence North 00 degrees, 03 minutes, 56 seconds West along a line parallel with and 15.00 feet East of the West line of said Section 3 for 660.42 feet; thence South 87 degrees, 48 minutes, 44 seconds East along a line parallel with and 55.00 feet North of the Southerly line of said Tract 43 for 685.53 feet; thence South 00 degrees, 03 minutes, 56 seconds East along a line parallel with and 700.00 feet East of the West line of said Section 3 for 660.45 feet to a point on the Northerly right-of-way of N.W. 186th Street (Miami Gardens Drive) as recorded in Official Records Book 8364, at page 784 of the Public Records of Dade County, Florida; thence North 87 degrees, 48 minutes, 34 seconds West along said Northerly right-of- way line for 685.53 feet to the POINT OF BEGINNING. Lying and being in Dade County, Florida. ECKERD STORE # 2936 JACK ECKERD CORPORATION ESTOPPEL CERTIFICATE Date July 19, 1991 RE: Lease dated 12/18/89 between: Stiles Hunt Properties, Landlord and Jack Eckerd Corporation, Tenant Location: Garden Square S/C Lease Modified: N/A Miami Gardens, FL Ladies and/or Gentlemen: The undersigned, as the present owner and holder of the Tenant's interest under the aforesaid Lease, hereby confirms the following to the best of its knowledge: 1. That it has accepted possession of the premises demised pursuant to the terms of the aforesaid Lease. 2. That the improvements and space required to be furnished according to the said Lease have been completed and have been found to be satisfactory. 3. That the Landlord has fulfilled all of its duties of an inducement nature including the parking requirements as set forth in the Lease. 4. That the aforesaid Lease has not been modified, altered or amended except as noted herein. 5. That there are no off-sets or credits against rentals, nor have rentals been prepaid except as provided by the Lease terms, but in no event have rentals been paid more than thirty (30) days in advance. 6. That the Landlord, as of this date, is not in default under any of the terms of said Lease. 7. That said Lease commenced on the 18th day of July, 1991. The primary Lease term expires on the 17th day of July, 2011. 8. That it has no notice of prior assignment, hypothecation or pledge of rents of the Lease. 9. That no claim of amendment, modification or waiver of any of the terms and conditions of the Lease shall be made against the undersigned, its successors or assigns, as a result of any statement or representation contained in this Estoppel Certificate. JACK ECKERD CORPORATION By: /s/ Robert D. Boos ------------------------------- (Name and Title) Robert D. Boos, Vice President 8333 Bryan Dairy Road, P. O. Box 4689 Clearwater, FL 34618 (813) 398-8305 ECKERD STORE # 2936 JACK ECKERD CORPORATION ESTOPPEL CERTIFICATE Date July 19, 1991 RE: Lease dated 12/18/89 between: Stiles Hunt Properties, Landlord and Jack Eckerd Corporation, Tenant Location: Garden Square S/C Lease Modified: N/A Miami Gardens, FL Ladies and/or Gentlemen: The undersigned, as the present owner and holder of the Tenant's interest under the aforesaid Lease, hereby confirms the following to the best of its knowledge: 1. That it has accepted possession of the premises demised pursuant to the terms of the aforesaid Lease. 2. That the improvements and space required to be furnished according to the said Lease have been completed and have been found to be satisfactory. 3. That the Landlord has fulfilled all of its duties of an inducement nature including the parking requirements as set forth in the Lease. 4. That the aforesaid Lease has not been modified, altered or amended except as noted herein. 5. That there are no off-sets or credits against rentals, nor have rentals been prepaid except as provided by the Lease terms, but in no event have rentals been paid more than thirty (30) days in advance. 6. That the Landlord, as of this date, is not in default under any of the terms of said Lease. 7. That said Lease commenced on the 18th day of July, 1991. The primary Lease term expires on the 17th day of July, 2011. 8. That it has no notice of prior assignment, hypothecation or pledge of rents of the Lease. 9. That no claim of amendment, modification or waiver of any of the terms and conditions of the Lease shall be made against the undersigned, its successors or assigns, as a result of any statement or representation contained in this Estoppel Certificate. JACK ECKERD CORPORATION By: /s/ Robert D. Boos ------------------------------- (Name and Title) Robert D. Boos, Vice President 8333 Bryan Dairy Road, P. O. Box 4689 Clearwater, FL 34618 (813) 398-8305 EX-10.10 15 LEASE (CHICO CROSSROADS & WABAN, INC.) HOMEBASE [LETTERHEAD] April 29, 1994 CHICO CROSSROADS CENTER c/o Commercial Management and Development Chippendale Drive, Suite 307 Sacramento, California 95841 RE: LEASE DATED APRIL 19, 1988, HEREINAFTER REFERRED TO AS THE "LEASE", BY AND BETWEEN HOMECLUB, INC., AS TENANT, AND DOUGLAS W. BRADFORD, AS LANDLORD, FOR PREMISES LOCATED AT 2101 WHITMAN AVENUE, CHICO, CALIFORNIA HEREINAFTER REFERRED TO AS THE "DEMISED PREMISES". Dear Sir or Madam: Reference is hereby made to the above-referenced Lease, as same has been amended by that First Amendment to HomeClub, Inc. Shopping Center Lease dated July 1, 1991, and that Second Amendment to Shopping Center Lease dated January 31, 1994. Waban Inc. is the successor in interest to the Tenant's interest in the Lease, and Chico Crossroads Center is the successor in interest to the Landlord's interest in the Lease. Landlord has requested that Tenant waive certain restrictions contained in the Lease and approve a minor site plan modification to allow the development of an Office Depot within the shopping center of which the Demised Premises forms a part. Tenant, therefore, agrees as follows so long as an Office Depot is constructed within the space shown as Buildings "F" and "G" on the site plan attached hereto as Exhibit A: 1. The restriction contained in Paragraph 9 of Schedule B of Lease, which prohibits any canopy or parapet of a store to exceed 30 feet in height, is waived with respect to Office Depot. Office Depot shall be allowed to build its store front with a maximum height of 32 feet in accordance with Exhibit B attached hereto. Chico Crossroads Center April 29, 1994 Page 2 of 2 2. Landlord may, within the area shown upon Exhibit A and labeled "Parking To Be Modified", modify the site plan. The modification consists of the elimination of two (2) parking stalls, and the relocation of a planter in accordance with the detail drawing attached hereto as Exhibit C. Except as expressly stated herein the Lease remains unmodified and in full force. Sincerely, /s/ Herbert J. Zarkin Herbert J. Zarkin President HJZ:jg cc: Mr. Thomas H. Cozzolino Mr. Robert Flaxman Sarah Gallivan, Esq. SECOND AMENDMENT TO HOMECLUB, INC. SHOPPING CENTER LEASE This Second Amendment to Homeclub, Inc. Shopping Center Lease ("Second Amendment") is dated January 31, 1994, and is between CHICO CROSSROADS CENTER, a California limited partnership (hereinafter referred to as "CCC"), as Landlord, and WABAN INC., a Delaware corporation ("Waban"), a successor-in-interest to Homeclub, Inc., a Delaware corporation (hereinafter referred to as "HC"), as Tenant. CCC and Waban are hereinafter collectively referred to as the "Parties". RECITALS A. HC has heretofore entered into a Lease titled Homeclub, Inc. Shopping Center Lease, dated June 6, 1988 (the "Lease"), wherein HC leased from Douglas W. Bradford, certain premises more particularly described within said Lease. Said premises are further described within the Short Form Lease recorded June 10, 1988 in Butte County, California, under Recorder Serial Number 88-18605. B. Douglas W. Bradford, is designated as Landlord under the Lease, and did assign Landlord's interest under the Lease to Pacific Quadrant Development Co., a California general partnership, by Assignment and Assumption Agreement dated June 2, 1988 recorded June 10, 1988 in Butte County, California under Recorder Serial Number 88-018600 Pacific Quadrant Development Corporation assigned the Landlord's interest under the Lease to Pacifice Quadrant Chico, a California general partnership ("PQ-C"), by an Assignment and Assumption Agreement dated January 1, 1989 recorded January 10, 1989 in Butte County, California under Recorder Serial Number 88-00933. C. Thereafter, PQ-C did assign Landlord's interest under the Lease to First Interstate Bank of California ("FICAL"), and FICAL did assign Landlord's interest under the Lease to CCC. D. Waban, as successor in interest to HC and Landlord, have heretofore entered into the First Amendment to Homeclub, Inc. Shopping Center Lease dated July 2, 1991 ("First Amendment"). E. CCC as present Landlord under the Lease and Waban as successor to HC as the Tenant under the Lease desire to amend the Lease as set forth herein below. Second Amendment Page 2 NOW, THEREFORE, CCC as Landlord under the Lease and Waban as successor to HC as Tenant under the Lease do agree as follows: 1. REVISION OF LEASE PLAN: Landlord has entered into or will soon enter into leases with Circuit City Stores, Inc. ("Circuit City Lease") and Petco Animal Supplies, Inc. ("Petco Lease") which provide among other things for the construction of stores of approximately 23,014 square feet for Circuit City Stores, Inc. ("Circuit City Store") and 8,500 square feet for Petco Animal Supplies, Inc. ("Petco Store"). To accomplish the construction of the Circuit City Store, Landlord will (i) demolish the buildings shown as Building "C" and Building Pad "3" on Lease Plan Revision 1 to the First Amendment and (ii) pave over and stripe for parking the areas shown as Building Pad 3 and Pad 2 on Lease Plan Revision 1. Attached hereto as Exhibit "A" is a new site plan for the Shopping Center (the "New Site Plan") which reflects the modifications to Lease Plan Revision 1. Landlord and Tenant hereby approve the New Site Plan as the "Lease Plan" for all purposes of the Lease. In each instance wherein the Lease, the First Amendment or the Second Amendment makes reference to the Lease Plan, such reference shall be deemed to refer to the New Site Plan attached hereto as Exhibit "A". 2. LIMITED WAIVER OF RESTRICTION OF PARAGRAPH 9 OF SCHEDULE B: Landlord and Tenant agree to waive the application of Paragraph 9 of Schedule B to the Lease as follows: (a) The restriction on parapet height and signage as set forth in clauses (A), (B), (C) and (D) of Paragraph 9 of Schedule B shall not be applicable to a Circuit City Store or Petco Store initially constructed within the building envelopes as shown on Exhibit "A" attached hereto, provided said store(s) initially conform(s) to the elevations attached hereto as Exhibit "B" and incorporated herein by this reference. (b) The restriction on store size in clause (G) of Paragraph 9 of Schedule B shall not be applicable to floor area constructed within the building envelopes designated as the Circuit City Store on Exhibits "A". The restriction on store size set forth in clause (H) of Paragraph 9 of Schedule B shall not be applicable to the floor area constructed within the building envelope designated as the Petco Store on Exhibit "A" attached hereto. (c) The parties hereto expressly acknowledge that a condition to the effectiveness of the waivers contained in this Paragraph 2 will be the elimination of the building envelope designated as Pad Building 2 on Lease Plan Rev. 1 and the demolition of Pad Building 3 shown on Lease Plan Rev. 1 and the replacement thereon with parking as shown on Exhibit "A" attached hereto. The parties acknowledge that the building envelopes for Building Pad 3 and Pad 2 as shown on Lease Plan Revision 1 shall be completely eliminated effective upon the completion of construction of the Circuit City Store. Second Amendment Page 3 3. SECOND AMENDMENT TO SHORT FORM LEASE: The parties hereto agree to execute a Second Amendment to Short Form of Lease for recordation indicating the Commencement Date of the Lease, the date for Commencement of Rent under the Lease and for the further purpose of providing notice of this Second Amendment. 4. CONDITION. This Second Amendment shall not become effective until the Consent by Guarantor set forth below is executed by the TJX Companies, Inc. (formerly known as Zayre Corp.), a Delaware corporation. This condition may be waived, however, by the Landlord under the Lease by giving written notice of such waiver to the Tenant within sixty (60) days of the date of this Second Amendment, in which event this Second Amendment shall become effective without the consent of The TJX Companies, Inc. 5. CONFIRMATION OF LEASE AS AMENDED: Except as expressly modified/supplemented herein, the Lease as amended by the First Amendment shall continue in full force and effect. In the event of a conflict between this Second Amendment and the Lease as amended by the First Amendment, this Second Amendment shall prevail. (SIGNATURES ON THE FOLLOWING PAGE) Second Amendment Page 4 The Parties hereby confirm the Lease as amended by the Second Amendment. CHICO CROSSROADS CENTER, a California limited partnership By: JMLB, Inc., a California corporation By: /s/ Jaime Sohacheski ---------------------- Jaime Sohacheski, President WABAN INC., A Delaware corporation By: /s/ Edward J. Weisberger ----------------------------- Its: Vice President-Finance ----------------------- By: /s/ Dale N. Garth ----------------------------- Its: Senior Vice President ----------------------- STATE OF CALIFORNIA ) ) ss. COUNTY OF LOS ANGELES ) On the 21st day of MARCH, 1994, before me, the undersigned a Notary Public, in and for said State and County, personally appeared JAIME SOHACHESKI, personally known to me (or proved to me on the basis of satisfactory evidence) to be the President, and - , know to me (or proved to me on the basis of satisfactory evidence) to the President of JMLB, INC., a California corporation, known to me to be the persons who executed the within instrument on behalf of said corporation, said corporation being known to me to be a general partner of CHICO CROSSROADS CENTER, a California limited partnership, and acknowledged to me that said corporation executed the same as such partner pursuant to its bylaws or a resolution of its board of directors and that such limited partnership executed the same. WITNESS my hand and official seal. [seal] /s/ Diane L. Croskey --------------------- Notary Public COMMONWEALTH OF MASSACHUSETTS ) ) ss. COUNTY OF MIDDLESEX ) On the 11th day of March, 1994, before me, the undersigned a Notary Public, in and for said State and County, personally appeared Dale N. Garth and Edward J. Weisberger, personally known to me (or proved to me on the basis of satisfactory evidence) to be the persons who executed the within instrument as the Senior Vice President and Vice President-Finance, on behalf of WABAN Inc. a Delaware corporation, the corporation therein named, and acknowledged to me that such corporation executed the within instrument pursuant to its bylaws or a resolution of its board of directors. WITNESS my hand and official seal. /s/ Mary T. Slattery ----------------------- Notary Public MARY T. SLATTERY, Notary Public My Commission expires February 17, 2000 FIRST AMENDMENT TO HOMECLUB, INC. SHOPPING CENTER LEASE This First Amendment to Homeclub, Inc. Shopping Center Lease ("First Amendment") is dated _________________ 1991, and is between PACIFIC QUADRANT - CHICO, a California general partnership (hereinafter referred to as "PQ-C") as Landlord, and WABAN, INC., a Delaware corporation, a successor in interest to Homeclub, Inc., a Delaware corporation, (hereinafter referred to as "HC") as Tenant. PQ-C and HC are hereinafter collectively referred to as the "Parties". RECITALS A. HC has heretofore entered into a Lease titled Homeclub, Inc. Shopping Center Lease, dated June 6, 1988 ( the "Lease"), wherein HC leases from Douglas W. Bradford, certain premises more particularly described within said Lease. Said premises are further described within the Short Form Lease recorded June 10, 1988 in Butte County, California under Recorder Serial Number 88-18605. B. Douglas W. Bradford, is designated as Landlord under the Lease, and did assign Landlord's interest under the Lease to Pacific Quadrant Development Co., a California general partnership, by Assignment and Assumption Agreement dated June 2, 1988 recorded June 10, 1988 in Butte County, California, under Recorder Serial 1 Number 88-018600. PQ-C did acquire the Landlord's interest under the Lease pursuant to an Assignment and Assumption Agreement dated January 1, 1989 recorded January 10, 1989 in Butte County, California under Recorder Serial Number 89-00933. C. PQ-C as the present Landlord under the Lease and HC as the Tenant under the Lease desire to amend the Lease. NOW THEREFORE, PQ-C as Landlord under the Lease and HC as Tenant under the Lease do agree as follows: 1. COMMENCEMENT DATE: The Parties agree and confirm that the Commencement Date as defined within Article IV of the Lease is November 17, 1988. 2. REVISION OF LEASE PLAN: Attached hereto and incorporated by reference is Lease Plan (Rev. 1). In each instance wherein the Lease or this First Amendment makes reference to the "Lease Plan" such reference shall be deemed to refer to the Lease Plan (Rev. 1). 2 3. SHOPPING CENTER PARKING AREAS: The last two sentences of Paragraph 2 of Schedule B to the Lease are amended in their entirety to read as follows: "Landlord agrees that the Parking Areas within the Shopping Center will always contain at least (3.50) parking spaces, and driveways and footways incidental thereto, for each one thousand (1,000) square feet of floor area in the Shopping Center and, in any event, not less than 924 such spaces or such greater number of spaces as may be required by an applicable governmental regulation, code, special use or other zoning permit. Landlord specifically agrees that the Parking Areas shown on the Lease Plan as Phase 1 will always contain 427 parking spaces (at least 366 in front of the building, including at least 320 spaces for so-called standard-size American automobiles, and no more than forty-six (46) spaces for so-called compact size automobiles) and driveways and footways incidental thereto, or such greater number of spaces as may be required by any applicable governmental regulation code, special use or other zoning permit. 4. SHOPPING CENTER PYLON SIGNS Paragraph 3 of Schedule B to the Lease is amended in its entirety to read as follows: "Landlord's Construction Work" as defined in Section 3.1 shall 3 include without limitation the construction by Landlord of two Shopping Center identification pylon signs, including without limitation, the base, utilities service therefor and all other appurtenances thereto, all collectively referred to as the "Pylon Signs". The location of the Pylon Signs will be as set forth upon the Lease Plan. That Pylon Sign at location indicated upon the Lease Plan adjacent to on-ramp to Highway 99 is hereinafter referred to as the "Freeway Pylon Sign" and the Pylon sign indicated at location adjacent to 20th Street near the intersection of 20th Street and Whitman Avenue is hereinafter referred to as the "20th Street Pylon Sign". Each Pylon sign shall be limited to the identification of not more than three (3) occupants conducting business within the Shopping Center. Tenant shall have the right to install, and thereafter maintain, its identification panel, and all appurtenances thereto, upon the 20th street Pylon Sign. Tenant's location and so-called "billing" thereon shall be superior to all other persons. Landlord shall cooperate with Tenant in obtaining all permits as shall be required by law and all consents required by any other persons for the installation of Tenant's identification panel upon the 20th Street Pylon Sign. Landlord shall be entitled to offer the second position located below that of Tenant herein for identification of the Market occupying Building D as shown upon the Lease Plan. The remaining Tenant identification locations upon the 20th Street Pylon Sign including the second location should the market decline such space, and the 4 Freeway Pylon Sign may be utilized as designated by Landlord for the Identification of Tenants and/or owner-occupants conducting business within the Shopping Center subject to the before referenced limitation of not more than three (3) identified businesses per Pylon Sign". In the event that Tenant assigns or sublets all or any portion of the Demised Premises to any other party, including any affiliate of Tenant, then Tenant, or its assignee or sublessee, shall also, upon 60 days" written notice to Landlord, have the right to install, and thereafter maintain, its identification panel and all appurtenances thereto, upon the Freeway Pylon Sign and Tenant's (or its assignee's or sublessee's) location and so-called "billing" thereon shall be superior to all other persons. Landlord shall cooperate with Tenant in obtaining all permits as shall be required by laws and all consents required by any other persons for the installation of Tenant's identification panel on the Freeway Pylon Sign. 5. FIRST AMENDMENT TO SHORT FORM LEASE The parties hereto agree to execute a First Amendment to Short Form of Lease for recordation indicating the Commencement Date of the Lease and for the further purpose of providing notice of this First Amendment. 5 6. CONFIRMATION OF LEASE AS AMENDED The Parties hereby confirm the Lease as amended by the First Amendment. PACIFIC QUADRANT - CHICO a California general partnership BY: THE QUADRANT CORPORATION a Washington Corporation, General Partner By: ___________________________________________ Its: ___________________________________________ WABAN, INC. a Delaware corporation By: _________________________________________________ Its: ____________________________________________ By: _________________________________________________ Its: ____________________________________________ 6 [MAP] 88-018601 Rec Fee 11.00 Total 11.00 Recorded RECORDING REQUESTED BY Official Records AND WHEN RECORDED, MAIL TO: County of Butte Candace J. Grubbs Pacific Quadrant Development Co. Recorder 1646 N. California Blvd., Ste. 65 3:36pm 10-Jun-88 JJ 4 Walnut Creek, CA 94596 Attention: Harold B. Hembree ) ) ) ___________________________________ ) NOTICE OF ASSIGNMENT AND ASSUMPTION THIS NOTICE, dated as of June 8, 1988, is to advise all persons and entities that PACIFIC QUADRANT DEVELOPMENT COMPANY, a California general partnership ("Landlord"), has become the Landlord under the three (3) leases described below, which relate to that certain real property located in Chico, California, more particularly described in Exhibit "A," which is attached hereto and incorporated herein. Landlord acquired its right, title and interest in the following leases and assumed the obligations set forth therein, by means of an Assignment and Assumption Agreement from Douglas W. Bradford ("Assignor") dated as of June 8, 1988. The three (3) leases include: 1. The Shopping Center Lease between Assignor and HomeClub, Inc., dated as of June 6, 1988; 2. The Build and Lease Agreement between Assignor and Netco Foods, Inc., dated as of May 25, 1988; and 3. The Lease Agreement between Assignor and Pay Less Drug Stores Northwest, Inc., dated as of May 23, 1988. The complete terms, covenants and conditions of said leases assigned to Landlord and assumed by Landlord are set forth in said leases. Furthermore, a Memorandum of Lease has been recorded for each of said leases under the name of Assignor. 1. IN WITNESS WHEREOF, Landlord has caused this Notice of Assignment and Assumption to be executed as of the date first set forth above. PACIFIC QUADRANT DEVELOPMENT COMPANY a California general partnership By: Pacific RIM Development Corporation, a California corporation, Managing General Partner By: /s/ Harold B. Hembree ------------------------------- Harold B. Hembree, Senior Vice President- Operations 2. EXHIBIT "A" ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: LOT 4, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION," WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, BY DEED RECORDED SEPTEMBER 27, 1974, IN BOOK 1941, PAGE 219, OFFICIAL RECORDS. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: LOT 9, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION," WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, BY DEED RECORDED SEPTEMBER 27, 1974, IN BOOK 1941, PAGE 219, OFFICIAL RECORDS. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALSO EXCEPTING THEREFROM THOSE PORTIONS DEEDED TO THE CITY OF CHICO, BY DEEDS RECORDED APRIL 28, 1980, IN BOOK 2510, PAGE 195, OFFICIAL RECORDS, AND RECORDED MAY 15, 1980, IN BOOK 2515, PAGE 276, OFFICIAL RECORDS. STATE OF CALIFORNIA ) ) ss. COUNTY OF CONTRA COSTA ) On this 10th day of June, 1988, before me, a Notary Public in and for said State, duly commissioned and sworn, personally appeared HAROLD B. HEMBREE, known to me (or proved to me on the basis of satisfactory evidence) to be the Senior Vice President-Operations of Pacific RIM Development Corporation, a California corporation, Managing General Partner of Pacific Quadrant Development Company, a California general partnership, and the officer executing the within instrument who acknowledged to me that such corporation executed the within instrument pursuant to its by-laws or a resolution of its board of directors and that the partnership executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on the date in this certificate first above written. /s/ Ruth Cooper (SEAL) -------------------------------------- NOTARY PUBLIC 3. 88-01960 | Rec Fee 15.00 | Total 15.00 RECORDING REQUESTED BY Recorded | AND WHEN RECORDED, MAIL TO: Official Records | County of | Pacific Quad. Pacific Quadrant Development Co. Butte | 1646 N. California Blvd., Ste 650 Candace J. Grubbs | Walnut Creek, CA 94596 3:35pm 10-Jun-88 | JJ 6 Attention: Harold B. Hembree ) ) Order No. 96705 ) ------------------------------ ASSIGNMENT AND ASSUMPTION AGREEMENT THIS AGREEMENT, dated as of JUNE 2, 1988, is made by and between DOUGLAS W. BRADFORD ("Assignor") and PACIFIC QUADRANT DEVELOPMENT COMPANY, a California general partnership ("Assignee"). RECITALS: A. Assignor has entered into an Agreement of Purchase and Sale and Joint Escrow Instructions with Park Springfield, Ltd., a California limited partnership, dated March 25, 1988, and three (3) amendments thereto, for the purchase of 11.231 acres of land in Chico, California, more particularly described in said Agreement. In addition, Assignor has entered into an Option Agreement with Park Springfield, Ltd., dated March 25, 1988, for the purchase of 9.68 acres of land in Chico, California, more particularly described in said Option Agreement. These agreements are collectively referred to as the "Purchase Agreement." B. Assignor and Assignee, in contemplation of acquiring the Property, have jointly prepared a Development Plan. In furtherance of said plan, Assignor has: (i) entered into contracts with, and obtained work product of, engineers, architects, surveyors, contractors and consultants; and (ii) obtained, or applied for, governmental permits, licenses, approvals and variances ((i) and (ii) are referred to herein collectively as the "Development Materials" and are listed in their entirety in Exhibit "A" hereto). Assignor has also entered into lease negotiations with The Home Club, Food 4 Less Markets and Payless Drugstores (collectively the "Major Tenant Leases"). The Purchase Agreement, Development Plan, Development Materials, Major Tenant Leases, and any and all other rights relating to the acquisition, development, construction and leasing of the Project in accordance with the Development Plan (except as set forth in the Assignment, Assumption and Option Agreement of even date herewith and in the Project Management Agreement of even date 1. herewith) are collectively referred to herein as the "Assignment Property." C. Assignee desires to acquire all of Assignor's right, title and interest in the Assignment Property. NOW, THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, Assignor and Assignee hereby agree as follows: 1. RECITALS. The foregoing recitals are true and correct. 2. ASSIGNMENT AND ASSUMPTION. Assignor hereby grants, assigns, transfers and delivers to Assignee all of his right, title and interest in and to the Assignment Property. Assignee hereby accepts said assignment from Assignor, assumes all obligations set forth in the Assignment Property listed in Exhibit A, and agrees to be bound by all of the terms and conditions set forth in the Assignment Property listed in Exhibit A from and after the effective date of this Agreement. Assignee acknowledges that Assignor shall have no further obligations, liabilities or responsibilities with respect to the Assignment Property after the effective date of this Agreement, except as set forth in the Project Management Agreement and/or the Assignment, Assumption and Option Agreement and except for contracts not set forth in Exhibit A which would individually or in the aggregate impose additional obligations upon Pacific Quadrant of more than Twenty-Five Thousand Dollars ($25,000). 3. REIMBURSABLE EXPENSES. Assignee hereby assumes Assignor's obligations to pay the unpaid expenses relating to the acquisition or preparation of the Assignment Property, as set forth in and limited by Section 3.1 of the Assignment, Assumption and Option Agreement (collectively the "Reimbursable Expenses"). Assignee hereby agrees to pay all Reimbursable Expenses on or before their due dates. 4. MUTUAL INDEMNIFICATIONS. Assignor hereby agrees to indemnify Assignee, hold it harmless, defend and protect it from and against any and all claims, demands, damages, losses, liabilities, liens, lawsuits and other proceedings, together with all costs and expenses thereof (including, without limitation, reasonable attorneys fees and court costs) arising from or connected with any act or omission with respect to the Assignment Property occurring prior to the effective date of this Agreement, except for items not listed in Exhibit A and except as set forth in Section 3 above. Assignee hereby agrees to indemnify Assignor, hold his harmless, defend and protect him from and against any and all claims, demands, damages, losses, liabilities, liens, lawsuits and other proceedings, together with all costs and expenses thereof (including, without limitation, reasonable attorneys fees and court costs) arising from or connected with any act or omission with respect to the Assignment Property occurring on or after the effective date of this Agreement, including, 2. without limitation, payment of the Reimbursable Expenses on or before their due date. 5. GENERAL PROVISIONS. All Exhibits attached to this Agreement are incorporated herein by reference. This Agreement shall be governed by and construed in accordance with the laws of the State of California. It shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. In the event that any lawsuit is initiated to interpret or enforce the terms of this Agreement, the prevailing party shall be entitled to an award of reasonable attorneys' fees and court costs. IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement as of the date first written above. PACIFIC QUADRANT DEVELOPMENT COMPANY a California general partnership By: Pacific RIM Development Corporation, a California corporation, Managing General Partner By: /s/ Harold B. Hembree ---------------------- Harold B. Hembree, Senior Vice President- Operations /s/ Douglas W. Bradford ------------------------------- DOUGLAS W. BRADFORD By: /s/ Edward T. Marshall /s/ His Attorney-In-Fact Edward T. Marshall, Attorney in fact 3. STATE OF CALIFORNIA ) )ss. COUNTY OF CONTRA COSTA ) On this 10 day of June, 1988, before me, a Notary Public in and for said State, duly commissioned and sworn, personally appeared HAROLD B. HEMBREE, known to me (or proved to me on the basis of satisfactory evidence) to be the Senior Vice President-Operations of Pacific RIM Development Corporation, a California corporation, Managing General Partner of Pacific Quadrant Development Company, a California general partnership, and the officer executing the within instrument who acknowledged to me that such corporation executed the within instrument pursuant to its by-laws or a resolution of its board of directors and that the partnership executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on the date in this certificate first above written. [SEAL] /s/Ruth Cooper ------------------- NOTARY PUBLIC STATE OF CALIFORNIA ) )ss. COUNTY OF CONTRA COSTA ) On this 10 day of June, 1988, before me, a Notary Public in and for said State, duly commissioned and sworn, personally appeared EDWARD T. MARSHALL, 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 as the attorney-in-fact of DOUGLAS W. BRADFORD, and acknowledged to me that he subscribed the name of DOUGLAS W. BRADFORD thereto as principal, and his own name as attorney-in-fact. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on the date in this certificate first above written. [SEAL] /s/Ruth Cooper ------------------- NOTARY PUBLIC 4. | 88-018605 | Rec Fee 19.00 RECORDING REQUESTED BY: Recorded | Total 19.00 AND WHEN RECORDED MAIL TO: OFFICIAL RECORDS | County of | Butte | Pacific Quad. D. William Wagner, Esq. Candace J. Grubbs | SidleY & Austin Recorder | 2049 CenturY Park East 3:39pM 10-Jun-88 | JJ 8 Suite 3400 Los Angeles, California 90067 TRANSFER TAX PAID X Order No. 96705 AP# 005-56-0-008-0 005-55-0-014-0 SHORT FORM OF LEASE THIS SHORT FORM OF LEASE executed this 6th day of June, 1988, by and between DOUGLAS W. BRADFORD (hereinafter referred to as "Landlord"), whose address is 2694 Bishop Drive, Suite 202, San Ramon, CA 94583, and HOMECLUB, INC., a Delaware corporation (hereinafter referred to as "Tenant"), whose address is 140 Orangefair Mall, Suite 100, Fullerton, California 92632; WITNESSETH: That for and in consideration of the covenants and agreements contained in that certain Lease dated June 6th, 1988 (the "Lease"), Landlord does hereby demise and lease unto Tenant, and Tenant does hereby lease from Landlord that certain real property in the City of Chico, County of Butte, State of California, within the shopping center (the "Shopping Center") situated at the intersection of Whitman Avenue and 20th Street, more particularly described on Exhibit "A" attached hereto and by this reference incorporated herein (the "Demised Premises"). TO HAVE AND TO HOLD the Demised Premises effective from the Commencement Date as defined in the Lease for a period of twenty (20) years, and containing four (4) five (5) year options to renew the Lease, upon the terms and conditions contained in the Lease. IT IS UNDERSTOOD AND AGREED that this Short Form of Lease is executed solely for the purpose of giving notice to the public of the existence of the Lease against the Demised Premises, the terms and conditions of which are expressly incorporated herein by reference for all purposes as though fully set forth herein. Should there be 1 any inconsistency between the terms of this instrument and the Lease incorporated herein, the terms of said incorporated Lease shall prevail. IN WITNESS WHEREOF, the parties hereto have executed this Short Form of Lease as of the day and year first above written. LANDLORD: DOUGLAS W. BRADFORD, an individual /s/ Douglas W. Bradford ------------------------- /Douglas W. Bradford TENANT: HOMECLUB, INC., a Delaware corporation By: /s/ Herb Zarkin ------------------ HERB ZARKiN Its: /s/ President -------------- President By: /s/ George Freeman ------------------- George Freeman Its: /s/ Vice President ---------------------- Vice President 2 [GRAPH] [GRAPH] [MAP] 88-18605 EXHIBIT "B" DESCRIPTION ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: PARCEL A: LOT 4, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION", WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, BY DEED RECORDED SEPTEMBER 27, 1974, IN BOOK 1941, PAGE 219, OFFICIAL RECORDS. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. CONTINUED ON NEXT PAGE 88-18605 EXHIBIT "B" CONTINUED PARCEL B: LOT 9, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION", WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, BY DEED RECORDED SEPTEMBER 27, 1974, IN BOOK 1941, PAGE 219, OFFICIAL RECORDS. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALSO EXCEPTING THEREFROM THOSE PORTIONS DEEDED TO THE CITY OF CHICO, BY DEEDS RECORDED APRIL 28, 1980, IN BOOK 2510, PAGE 195, OFFICIAL RECORDS, AND RECORDED MAY 15, 1980, IN BOOK 2515, PAGE 276, OFFICIAL RECORDS. 88-18605 STATE OF CALIFORNIA * COUNTY OF ORANGE * BEFORE ME, the undersigned authority, a Notary Public in and for said County and State, on this day personally appeared Herb Zarkin, known to me to be the President of HOMECLUB, INC., a Delaware corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said Corporation. GIVEN UNDER MY HAND AND SEAL OF OFFICE on this 13th day of May, 1988. [SEAL] /s/ Barbara Lundquist ---------------------- NOTARY PUBLIC FOR THE STATE OF CALIFORNIA /s/ Barbara Lundquist - ------------------------- Notary's Printed Name My Commission Expires: 3/31/89 COMMONWEALTH OF MASSACHUSETTS* COUNTY OF MIDDLESEX * BEFORE ME, the undersigned authority, a Notary Public in and for said County and State, on this day personally appeared Geore Freeman, known to me to be the Vice-President of HOMECLUB, INC., a Delaware corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said Corporation. GIVEN UNDER MY HAND AND SEAL OF OFFICE on this 7th day of June, 1988. /s/ Michael Holiday ----------------------------------- NOTARY PUBLIC FOR THE COMMONWEALTH OF MASSACHUSETTS /s/ Michael Holiday - ---------------------- [SEAL] Notary's Printed Name My Commission Expires: 6-12-92 88-18605 State of California ) On this 25th day of April 1988, before me, ) ss. /s/ Ruth Cooper County of Contra Costa) ----------------------------------------- the undersigned Notary Public personally appeared /s/ Douglas W. Bradford ----------------------------------------- /x/ personally known to me / / proved to me on the basis of satisfactory evidence to be the [SEAL] person(s) whose name(s) he subscribed to the within instrument, and acknowledged that he executed it. WITNESS my hand and official seal. /s/ Ruth Cooper ------------------------------------------ Notary's Signature 88-18605 (Home Club Exhibit) EXHIBIT "A" FOR DESCRIPTION OF ENTIRE SHOPPING CENTER, SEE EXHIBIT "B" ATTACHED HERETO AND MADE A PART HEREOF. The Demised Premises shall consist of a one-story building (the "Building"), to be constructed by Landlord as provided in said lease, containing one hundred three thousand nine hundred and nine (103,909) square feet of floor area having a depth and width of two hundred eighty-one point four feet by three hundred sixty-nine point four feet (281.4 x 369.4) and other dimensions as shown upon the plan attached hereto ("the Lease Plan"), plus an exterior nursery area containing nine thousand eight hundred and eighty (8,880) square feet of floor area, all as shown on the Lease Plan. Said Lease Plan being attached hereto and shown as Exhibit "C" [MAP] RECORDING REQUESTED BY: AND WHEN RECORDED MAIL TO: D. William Wagner, Esq. Sidley & Austin 2049 Century Park East Suite 3400 Los Angeles, California 90067 SHORT FORM OF LEASE THIS SHORT FORM OF LEASE executed this __ day of __________________, 198_, by and between DOUGLAS W. BRADFORD (hereinafter referred to as "Landlord"), whose address is 2694 Bishop Drive, Suite 202, San Ramon, CA 94583, and HOMECLUB, INC., a Delaware corporation (hereinafter referred to as "Tenant"), whose address is 140 Orangefair Mall, Suite 100, Fullerton, California 92632; WITNESSETH: That for and in consideration of the covenants and agreements contained in that certain Lease dated ____________, 198_ (the "Lease"), Landlord does hereby demise and lease unto Tenant and Tenant does hereby lease from Landlord that certain real property in the city of Chico, County of Butte, State of California, within the shopping center (the "Shopping Center") situated at the intersection of Whitman Avenue and 20th Street, more particularly described on Exhibit "A" attached hereto and by this reference incorporated herein (the "Demised Premises"). TO HAVE AND TO HOLD the Demised Premises effective from the Commencement Date as defined in the Lease for a period of twenty (20) years, and containing four (4) five (5) year options to renew the Lease, upon the terms and conditions contained in the Lease. IT IS UNDERSTOOD AND AGREED that this Short Form of Lease is executed solely for the purpose of giving notice to the public of the existence of the Lease against the Demised Premises, the terms and conditions of which are expressly incorporated herein by reference for all purposes as though fully set forth herein. Should there be 1 any inconsistency between the terms of this instrument and the Lease incorporated herein, the terms of said incorporated Lease shall prevail. IN WITNESS WHEREOF, the parties hereto have executed this Short Form of Lease as of the day and year first above written. LANDLORD: DOUGLAS W. BRADFORD, an individual /s/ Douglas W. Bradford ------------------------ TENANT: HOMECLUB, INC., a Delaware corporation By: /s/ [illegible] --------------------------- Its: President ---------------------- By: /s/ [illegible] --------------------------- Its: Vice President ---------------------- 2 (Home Club Exhibit) EXHIBIT "A" FOR DESCRIPTION OF ENTIRE SHOPPING CENTER, SEE EXHIBIT "B" ATTACHED HERETO AND MADE A PART HEREOF. The Demised Premises shall consist of a one-story building (the "Building"), to be constructed by Landlord as provided in said lease, containing one hundred three thousand nine hundred and nine (103,909) square feet of floor area having a depth and width of two hundred eighty-one point four feet by three hundred sixty-nine point four feet (281.4 x 369.4) and other dimensions as shown upon the plan attached hereto ("the Lease Plan"), plus an exterior nursery area containing nine thousand eight hundred and eight (9,880) square feet of floor area, all as shown on the Lease Plan. Said Lease Plan being attached hereto and shown as Exhibit "C" Exhibit "B" DESCRIPTION ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: LOT 4, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION", WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT WHICH IS THE INTERSECTION OF THE EAST LINE OF LOT 2, AS SHOWN ON SAID MAP, WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99, SAID POINT BEING DISTANT 90.00 FEET SOUTHWESTERLY MEASURED AT A RIGHT ANGLE FROM THE BASE LINE AT ENGINEER'S STATION (C-1) 488+87.54 OF THE DEPARTMENT OF PUBLIC WORKS SURVEY ON ROAD 03-BUT-99 FROM POST MILE 30.0 TO 37.3; THENCE FROM SAID POINT OF BEGINNING NORTH 32 DEG. 24' 21" WEST, 718.93 FEET; THENCE ALONG A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 2940.00 FEET, THROUGH AN ANGLE OF 2 DEG. 25' 14", AN ARC DISTANCE OF 124.21 FEET TO A POINT OF COMPOUND CURVE; THENCE ON A CURVE TO THE LEFT, WITH A RADIUS OF 815.00 FEET, THROUGH AN ANGLE OF 25 DEG. 39' 46", AN ARC DISTANCE OF 365.04 FEET; THENCE NORTH 60 DEG. 29' 31" WEST, 603.28 FEET; THENCE NORTH 85 DEG. 37' 47" WEST, 152.81 FEET; THENCE SOUTH 80 DEG. 00' 30" WEST, 188.24 FEET TO A POINT ON THE SOUTH LINE OF 20TH STREET, AS SHOWN ON SAID MAP OF "CHICO INDUSTRIAL PARK"; THENCE ALONG SAID SOUTH LINE OF 20TH STREET ON A CURVE TO THE LEFT, TANGENT TO A LINE BEARING NORTH 79 DEG. 40' 52" EAST, HAVING A RADIUS OF 642.00 FEET, THROUGH AN ANGLE OF 15 DEG. 22' 20", AN ARC DISTANCE OF 172.25 FEET; THENCE CONTINUING ALONG SOUTH LINE OF 20TH STREET, SOUTH 30 DEG. 29' 31" EAST, 2.33 FEET; THENCE NORTH 68 DEG. 31' 52" EAST, 114.77 FEET; THENCE NORTH 64 DEG. 28' 40" EAST, 461.74 FEET TO THE INTERSECTION OF THE SOUTHERLY LINE OF SAID 20TH STREET WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99; THENCE ALONG SAID WESTERLY LINE SOUTH 30 DEG. 29' 31" EAST, 1766.67 FEET TO THE POINT OF BEGINNING. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALSO EXCEPTING THEREFROM THOSE PORTIONS DEEDED TO THE CITY OF CHICO, BY DEEDS RECORDED APRIL 26, 1980, IN BOOK 2510, PAGE 195, OFFICIAL RECORDS, AND RECORDED MAY 15, 1980, IN BOOK 1515, PAGE 276, OFFICIAL RECORDS. Exhibit A - page 1 of 2 - DESCRIPTION ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: LOT 9, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION" WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT WHICH IS THE INTERSECTION OF THE EAST LINE OF LOT 2, AS SHOWN ON SAID MAP, WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99, SAID POINT BEING DISTANT 90.00 FEET SOUTHWESTERLY MEASURED AT A RIGHT ANGLE FROM THE BASE LINE AT ENGINEER'S STATION (C-1) 488+87.54 OF THE DEPARTMENT OF PUBLIC WORKS SURVEY ON ROAD 03-BUT-99 FROM POST MILE 30.0 TO 37.3; THENCE FROM SAID POINT OF BEGINNING NORTH 32 DEG. 24' 21" WEST, 718.93 FEET; THENCE ALONG A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 2940.00 FEET, THROUGH AN ANGLE OF 2 DEG. 25' 14", AN ARC DISTANCE OF 124.21 FEET TO A POINT OF COMPOUND CURVE; THENCE ON A CURVE TO THE LEFT, WITH A RADIUS OF 815.00 FEET, THROUGH AN ANGLE OF 25 DEG. 39' 46", AN ARC DISTANCE OF 365.04 FEET; THENCE NORTH 60 DEG. 29' 31" WEST, 603.28 FEET; THENCE NORTH 85 DEG. 37' 47" WEST, 152.81 FEET; THENCE SOUTH 80 DEG. 00' 30" WEST, 188.24 FEET TO A POINT ON THE SOUTH LINE OF 20TH STREET, AS SHOWN ON SAID MAP OF "CHICO INDUSTRIAL PARK"; THENCE ALONG SAID SOUTH LINE OF 20TH STREET ON A CURVE TO THE LEFT, TANGENT TO A LINE BEARING NORTH 79 DEG. 40' 52" EAST, HAVING A RADIUS OF 642.00 FEET, THROUGH AN ANGLE OF 15 DEG. 22' 20", AN ARC DISTANCE OF 172.25 FEET; THENCE CONTINUING ALONG SOUTH LINE OF 20TH STREET, SOUTH 30 DEG. 29' 31" EAST, 2.33 FEET; THENCE NORTH 68 DEG. 31' 52" EAST, 114.77 FEET; THENCE NORTH 64 DEG. 28' 40" EAST, 461.74 FEET TO THE INTERSECTION OF THE SOUTHERLY LINE OF SAID 20TH STREET WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99; THENCE ALONG SAID WESTERLY LINE SOUTH 30 DEG. 29' 31" EAST, 1766.67 FEET TO THE POINT OF BEGINNING. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALSO EXCEPTING THEREFROM THOSE PORTIONS DEEDED TO THE CITY OF CHICO, BY DEEDS RECORDED APRIL 28, 1980, IN BOOK 2510, PAGE 195, OFFICIAL RECORDS, AND RECORDED MAY 15, 1980, IN BOOK 1515, PAGE 276, OFFICIAL RECORDS. Exhibit A - page 2 of 2 - STATE OF CALIFORNIA * COUNTY OF ORANGE * BEFORE ME, the undersigned authority, a Notary Public in and for said County and State, on this day personally appeared [illegible], known to me to be the President of HOMECLUB, INC., a Delaware corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said Corporation. GIVEN UNDER MY HAND AND SEAL OF OFFICE on this 13th day of May, 1988. [illegible] [OFFICIAL NOTARY SEAL] -------------------------------------- NOTARY PUBLIC FOR THE STATE OF CALIFORNIA [illegible] - ------------------------- Notary's Printed Name My Commission Expires: [illegible] COUNTY OF ORANGE* BEFORE ME, the undersigned authority, a Notary Public in and for said County and State, on this day personally appeared [illegible], known to me to be the Vice President of HOMECLUB, INC., a Delaware corporation, known to me to be the person whose name is subscribed to the foregoing instrument, and acknowledged to me that he executed the same for the purposes and consideration therein expressed, in the capacity therein stated, and as the act and deed of said Corporation. GIVEN UNDER MY HAND AND SEAL OF OFFICE on this 7th day of June, 1988. [illegible] [OFFICIAL NOTARY SEAL] -------------------------------------- NOTARY PUBLIC FOR THE COMMONWEALTH OF [illegible] [illegible] - ------------------------- Notary's Printed Name My Commission Expires: [illegible] GENERAL ACKNOWLEDGMENT [OFFICIAL NOTARY SEAL] SECRETARY'S CERTIFICATE June 6, 1988 I, Ann McCauley, an Assistant Secretary of HomeClub, Inc., a Delaware corporation, hereby certify that at a meeting of the Board of Directors of said corporation duly held on June 2, 1987, at which meeting a quorum of the Directors was present, upon motion duly made and seconded, it was unanimously RESOLVED: That both (i) any one of John Levy, Herbert Zarkin, Maurice Segall and Sumner Feldberg ("Group A Officers") and (ii) any one of Arthur F. Loewy, George Freeman, Jay H. Meltzer and Maurice Segall ("Group B Officers") may sign, seal with the corporate seal, acknowledge and/or deliver, in the name of and on behalf of this corporation, any and all deeds, or other instruments of conveyance or transfer granting, conveying or transferring real estate, any and all mortgages or pledges of real property, any and all notes secured by such mortgages or pledges of real property, any and all assignments, extensions, discharges or partial releases of mortgages or pledges of real property held by this corporation, any and all agreements or instruments relating to the acquisition of real estate, any and all leases, notices of lease, assignments, surrenders, terminations, extensions or renewals of leases of real estate, whether this corporaton be named as landlord or as tenant, and any and all other agreements or instruments relating to real estate and all amendments of any of the foregoing except only that Maurice Segall shall not sign any document as both a Group A Officer and a Group B Officer; that the expression "real estate" as used herein includes any and all interests in real property; and that the act of both any one Group A Officer and any one Group B Officer in so signing, sealing with the corporate seal, acknowledging and/or delivering any of the aforesaid agreements or instruments may be relied upon by persons dealing with this corporation as conclusive evidence of the authority of said person so acting. I also certify that said vote has not been repealed or modified in any way and is still in full force and effect. ATTEST: /s/ Ann McCauley --------------------------------------- Assistant Secretary SECRETARY'S CERTIFICATE June 6, 1988 I, Ann McCauley, an Assistant Secretary of Zayre Corp., a Delaware corporation, hereby certify that at a meeting of the Board of Directors of said corporation duly held on June 2, 1987, at at which meeting a quorum of the Directors was present, upon motion duly made and seconded, it was unanimously RESOLVED: That both (i) any one of Maurice Segall, Summer Feldberg and Arthur F. Loewy ("Group A Officers") and (ii) any one of Malcolm J. Sherman, George Freeman, Jay H. Meltzer and Edward J. Weisberger ("Group B Officers") may sign, seal with the corporate seal, acknowledge and/or deliver, in the name of and on behalf of this Corporation, any and all guarantees by this Corporation of (a) any obligations of any majority-owned subsidiaries of this Corporation, or (b) any obligations of any majority-owned subsidiaries of majority-owned subsidiaries of this Corporation and that the act of both any one Group A Officer and any one Group B Officer in so signing, sealing with the corporate seal acknowledging and/or delivering any such guarantees may be relied upon by persons dealing with this Corporation as conclusive evidence of the authority of said person so acting. I also certify that said vote has not been repealed or modified in any way and is still in full force and effect. ATTEST: /s/ Ann McCauley --------------------------------------- Assistant Secretary GUARANTEE Reference is made to a Shopping Center Lease (the "Lease") dated ____________, 1988, between DOUGLAS W. BRADFORD (hereinafter referred to as "Landlord"), and HOMECLUB, INC., a Delaware corporation (hereinafter referred to as "Tenant"), of certain premises within the shopping center in Chico, California, located at the intersection of Whitman Avenue and 20th Street. In consideration of Landlord's having executed said Lease at the request of Zayre Corp., a Delaware corporation ("Zayre" or "Guarantor"), and in further consideration of One Dollar and other valuable consideration paid, the receipt of which is hereby acknowledged, Zayre hereby unconditionally guarantees to Landlord and his heirs, personal representatives, successors and assigns the payment of the rent provided for in said Lease and the performance and observance of all agreements and conditions contained in said Lease on the part of Tenant to be performed or observed. At Landlord's election, Zayre may be brought into any action or proceeding commenced by Landlord against Tenant in connection with and based upon said Lease, or any provision thereof, prior to obtaining a judgment against Tenant therein. Notwithstanding anything contained herein to the contrary, Zayre shall have all defenses and rights of Tenant and its successors and assigns (except their financial disability) with respect to the performance and payments under the Lease and the obligations of Zayre hereunder shall be measured by and shall in no event be greater that the obligations of Tenant. Zayre hereby agrees that it shall in no way be released from it obligtions under this Guarantee by any of the following actions: any assignment of said Lease or any subletting of the demised premises by Tenant, any Leasehold Lender, or any subtenant, successor, or assignee of Tenant, any new Lease with Leaseholder Lender or party designated by such Lender as provided in Section 18.6 of the Lease, any waiver of default or any extension of time or other favor or indulgence granted by Landlord to Tenant, any failure to receive notice of any of said actions, the expiration or termination of the Lease (except as provided below), or any extension of the terms of the Lease in accordance with the provisions of the Lease. Zayre hereby waives notice of non-payment or any other default in the performance or observance of any agreement or condition contained in said Lease on the part of Tenant to be performed or observed. Anything to the contrary herein notwithstanding: (A) if said Lease shall be terminated pursuant to the provisions of Article 12 of said Lease at a time when the tenant in progression shall not be Zayre, or a subsidiary of Zayre, then Zayre shall not be liable for the payment of any rent or for the performance or observance of any agreements or conditions to be paid, performed or observed which become due or arise after the date of such termination, unless at the time of such termination Landlord shall have offered to Zayre in writing a Lease for the balance of the Lease Term (as defined in the Lease) upon the provisions in said Lease contained; Zayre shall have a period of sixty (60) days after receipt of such offer to accept such offer. If Zayre accepts Landlord's offer, then such Lease shall be deemed to mitigate Landlord's damages. (B) If Tenant is adjudicated bankrupt, or if any bankruptcy action involving Tenant is commenced or filed, or if a petition or reorganization, arrangement, or similar relief is filed against Tenant, then subject to the foregoing at such time as the trustee or administrator rejects the Lease, Zayre shall pay to Landlord all accrued, unpaid rent upon the condition that within thirty (30) days following notice to Landlord of such rejection Landlord shall have offered to Zayre in writing a Lease for the balance of the Lease Term upon the provisions of the Lease, including payment of the rental obligations as provided above, which offer must remain open for not less than sixty (60) days after receipt of such written offer. If Zayre accepts Landlord's offer, then such Lease shall be deemed to mitigate Landlord's damages. In the event that any legal action or other proceeding is commenced with respect to this Guarantee, the unsuccessful party shall reimburse the prevailing party for all reasonable attorney's fees and costs incurred in connection therewith, including, without limitation all such fees or costs incurred on any appeal from such action or proceeding. This Guarantee shall bind the successors and assigns of Guarantor, and it shall inure to benefit of the heirs, personal representations, successors and assigns of Landlord. Guarantor further agrees that Landlord may, without approval, assign its rights under this Guarantee, in whole or in part, to any person or entity obtaining an ownership interest or security interest of any nature in the Lease, provided that, unless Tenant is a wholly-owned subsidiary of Guarantor at the time, Landlord shall give notice of such assignment within thirty (30) days thereof to Guarantor. This Guarantee shall be governed by, and construed in accordance with, the laws of the State of California. No provisions of this Guarantee or right of Landlord hereunder can be waived in whole or in part, nor can Zayre be released from Zayre's obligations hereunder, except either by a) a writing duly executed by Landlord and an authorized officer of Landlord's lender, if any, holding a lien upon the Demised Premises as defined in the Lease, b) operation of law, or c) operation of the Lease. Zayre represents that HomeClub is a wholly-owned subsidiary of Zayre. Zayre has caused this Guarantee to be executed and its corporate seal to be hereto affixed by Maurice Segall, its President, and George Freeman, its Vice President hereunto duly authorized all as of the ____ day of ____________, 1988. ZAYRE CORP. By: ---------------------------------------- Maurice Segall, President By: ---------------------------------------- George Freeman, Vice President EXHIBIT "A" ASSIGNMENT PROPERTY ------------------- The "Assignment Property" assigned by Assignor and assumed by Assignee pursuant to Section 2 of the Assignment and Assumption Agreement between them dated as of June 8, 1988, includes the following: 1. The Agreement of Purchase and Sale and Joint Escrow Instructions between Assignor and Park Springfield, Ltd., a California limited partnership, dated as of March 25, 1988, and subsequently amended as of April 15, 1988, May 1, 1988, and May 13, 1988, for the acquisition of 11.231 acres of land in Chico, California; 2. The Agreement of Purchase and Sale and Joint Escrow Instructions executed by Assignor and Park Springfield, Ltd., to exercise the Option Agreement between them dated as of March 25, 1988, and to consummate the acquisition of 9.68 acres of land in Chico, California; 3. The Assessment District and Cost-Sharing Agreement between Assignor and Park Springfield, Ltd., dated as of June 8, 1988; 4. The Shopping Center Lease between Assignor and HomeClub, Inc.; 5. The Build and Lease Agreement between Assignor and Netco Foods, Inc.; 6. The Lease Agreement between Assignor and Pay Less Drug Stores Northwest, Inc.; 7. The Development Plan prepared by Assignor and Assignee; 8. All "Development Materials," as defined in Recital B of this Assignment and Assumption Agreement and as specified in the following page of this Exhibit "A," which is attached hereto and incorporated herein; and 9. Any and all other rights not expressly specified herein relating to the acquisition, development, construction and leasing of the 20th & Whitman Shopping Center Project in accordance with the Development Plan (except as set forth in the Assignment, Assumption and Option Agreement and/or in the Project Management Agreement between Assignor and Assignee.) EXHIBIT "A" (Continued) DEVELOPMENT MATERIALS VENDOR/CONTRACTOR DESCRIPTION OF WORK - ----------------- ------------------- Orrland Co. Site Plans and Elevations Musil Perkowitz & Ruth Construction Drawings Carl Rottschalk & Assoc. Landscape Plans (Preliminary Phase I, Phase II, State Right of Way Rolls Anderson & Rolls Civil Engineering, Phase I & II & Whitman Avenue Assmt. Dist., Owners Participation Agt. TJKM Engineers Traffic Signal Design JTS Engineering ALTA Survey Laver Roper & Assoc. Soils Testing, Environmental Assessment Kleinfelder Groundwater & Toxic Testing JOS. J. Blake, AIA Appraisal WM. Dolan, AIA Easement Appraisal City of Chico All permits and approvals received from the City of Chico subject to all conditions and extractions thereto. RECORDING REQUESTED BY ) AND WHEN RECORDED, MAIL TO: ) ) Pacific Quadrant Development Co. ) c/o Pacific RIM Development Corp. ) 1646 N. California Blvd., Ste. 650 ) Walnut Creek, CA 94596 ) Attn: Robert Claflin ) - ----------------------------------- ------------------------------------------- ASSIGNMENT AND ASSUMPTION OF GUARANTEE THIS AGREEMENT, dated as of _____________________________________, 1988, is made by and between DOUGLAS W. BRADFORD ("Assignor") and PACIFIC QUADRANT DEVELOPMENT COMPANY, a California general partnership ("Assignee"). R E C I T A L S : ----------------- A. By means of an Assignment and Assumption Agreement of even date herewith, Assignor has assigned to Assignee all of his right, title and interest in and to that certain Shopping Center Lease between Assignor and HomeClub, Inc., dated as of June 6, 1988 (the "Lease"), and Assignee has assumed all obligations thereunder and agreed to be bound thereby. B. Tenant's obligations to pay rent and to perform and observe all agreements and conditions contained in the Lease are guaranteed by that certain Guarantee from the Zayre Corporation, dated as of June 6, 1988 (the "Guarantee"). A copy of the Guarantee is attached hereto as Exhibit "A" and incorporated herein. C. Assignee desires to acquire all of Assignor's right, title and interest in the Guarantee, and Assignor is willing to assign the same to Assignee on the terms, covenants and conditions set forth herein. NOW, THEREFORE, for valuable consideration, the receipt of which is hereby acknowledged, Assignor and Assignee hereby agree as follows: 1. RECITALS. The foregoing recitals are true and correct. 2. ASSIGNMENT AND ASSUMPTION. Assignor hereby grants, assigns, transfers and delivers to Assignee all of his right, title and interest in and to the Guarantee. Assignee hereby accepts said assignment from Assignor, assumes all obligations of Landlord set forth in the Guarantee, and agrees to be bound by all of the terms, covenants and conditions set forth therein from and after the effective date of this Agreement. 3. MUTUAL INDEMNIFICATIONS. Assignor hereby agrees to indemnify Assignee, hold it harmless, defend and protect it from and against any and all claims, demands, damages, losses, liabilities, liens, lawsuits and other proceedings, together with all costs and expenses thereof (including, without limitation, reasonable attorneys fees and court costs) arising from or connected with any act or omission with respect to the Guarantee occurring prior to the effective date of this Agreement. Assignee hereby agrees to indemnify Assignor, hold him harmless, defend and protect him from and against any and all claims, demands, damages, losses, liabilities, liens, lawsuits and other proceedings, together with all costs and expenses thereof (including, without limitation, reasonable attorney's fees and court costs) arising from or connected with any act or omission with respect to the Guarantee occurring after the effective date of this Agreement. 4. GENERAL PROVISIONS. This Agreement shall be governed by and construed in accordance with the laws of the State of California. It shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, personal representatives, successors and assigns. In the event that any lawsuit is initiated to interpret or enforce the terms of this Agreement, the prevailing party shall be entitled to an award of reasonable attorneys' fees and court costs. IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement as of the date first written above. PACIFIC QUADRANT DEVELOPMENT COMPANY a California general partnership By: Pacific RIM Development Corporation, a California corporation, Managing General Partner By: /s/ Harold B. Hembree ------------------------------ Harold B. Hembree, Senior Vice President- Operations /s/ Douglas W. Bradford ---------------------------------------- DOUGLAS W. BRADFORD STATE OF CALIFORNIA ) ) ss. COUNTY OF CONTRA COSTA ) On this 10 day of June, 1988, before me, a Notary Public in and for said State, duly commissioned and sworn, personally appeared HAROLD B. HEMBREE, known to me (or proved to me on the basis of satisfactory evidence) to be the Senior Vice President-Operations of Pacific RIM Development Corporation, a California corporation, Managing General Partner of Pacific Quadrant Development Company, a California general partnership, and the officer executing the within instrument who acknowledged to me that such corporation executed the within instrument pursuant to its by-laws or a resolution of its board of directors and that the partnership executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on the date in this certificate first above written. /s/ Ruth Cooper [ S E A L ] ---------------------------------------- NOTARY PUBLIC STATE OF CALIFORNIA ) ) ss. COUNTY OF CONTRA COSTA ) On this 10 day of June, 1988, before me, a Notary Public in and for said State, duly commissioned and sworn, personally appeared DOUGLAS W. BRADFORD, 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 that he executed the same. IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official seal on the date in this certificate first above written. /s/ Ruth Cooper [ S E A L ] ---------------------------------------- NOTARY PUBLIC EXHIBIT "A" GUARANTEE Reference is made to a Shopping Center Lease (the "Lease") dated June 6, 1988, between DOUGLAS W. BRADFORD (hereinafter referred to as "Landlord"), and HOMECLUB, INC., a Delaware corporation (hereinafter referred to as "Tenant"), of certain premises within the shopping center in Chico, California, located at the intersection of Whitman Avenue and 20th Street. In consideration of Landlord's having executed said Lease at the request of Zayre Corp., a Delaware corporation ("Zayre" or "Guarantor"), and in further consideration of One Dollar and other valuable consideration paid, the receipt of which is hereby acknowledged, Zayre hereby unconditionally guarantees to Landlord and his heirs, personal representatives, successors and assigns the payment of the rent provided for in said Lease and the performance and observance of all agreements and conditions contained in said Lease on the part of Tenant to be performed or observed. At Landlord's election, Zayre may be brought into any action or proceeding commenced by Landlord against Tenant in connection with and based upon said Lease, or any provision thereof, prior to obtaining a judgment against Tenant therein. Notwithstanding anything contained herein to the contrary, Zayre shall have all defenses and rights of Tenant and its successors and assigns (except their financial disability) with respect to the performance and payments under the Lease and the obligations of Zayre hereunder shall be measured by and shall in no event be greater than the obligations of Tenant. Zayre hereby agrees that it shall in no way be released from its obligations under this Guarantee by any of the following actions: any assignment of said Lease or any subletting of the demised premises by Tenant, any Leasehold Lender, or any subtenant, successor, or assignee of Tenant, any new Lease with Leasehold Lender or party designated by such Lender as provided in Section 18.6 of the Lease, any waiver of default or any extension of time or other favor or indulgence granted by Landlord to Tenant, any failure to receive notice of any of said actions, the expiration or termination of the Lease (except as provided below), or any extension of the terms of the Lease in accordance with the provisions of the Lease. Zayre hereby waives notice of non-payment or any other default in the performance or observance of any agreement or condition contained in said Lease on the part of Tenant to be performed or observed. Anything to the contrary herein notwithstanding: (A) if said Lease shall be terminated pursuant to the provisions of Article 12 of said Lease at a time when the tenant in possession shall not be Zayre, or a subsidiary of Zayre, then Zayre shall not be liable for the payment of any rent or for the performance or observance of any agreements or conditions to be paid, performed or observed which become due or arise after the date of such termination, unless at the time of such termination Landlord shall have offered to Zayre in writing a Lease for the balance of the Lease Term (as defined in the Lease) upon the provisions in said Lease contained; Zayre shall have a period of sixty (60) days after receipt of such offer to accept such offer. If Zayre accepts Landlord's offer, then such Lease shall be deemed to mitigate Landlord's damages. (B) If Tenant is adjudicated bankrupt, or if any bankruptcy action involving Tenant is commenced or filed, or if a petition or reorganization, arrangement, or similar relief is filed against Tenant, then subject to the foregoing at such time as the trustee or administrator rejects the Lease, Zayre shall pay to Landlord all accrued, unpaid rent upon the condition that within thirty (30) days following notice to Landlord of such rejection Landlord shall have offered to Zayre in writing a Lease for the balance of the Lease Term upon the provisions of the Lease, including payment of the rental obligations as provided above, which offer must remain open for not less than sixty (60) days after receipt of such written offer. If Zayre accepts Landlord's offer, then such Lease shall be deemed to mitigate Landlord's damages. In the event that any legal action or other proceeding is commenced with respect to this Guarantee, the unsuccessful party shall reimburse the prevailing party for all reasonable attorney's fees and costs incurred in connection therewith, including, without limitation all such fees or costs incurred on any appeal from such action or proceeding. This Guarantee shall bind the successors and assigns of Guarantor, and it shall inure to the benefit of the heirs, personal representations, successors and assigns of Landlord. Guarantor further agrees that Landlord may, without approval, assign its rights under this Guarantee, in whole or in part, to any person or entity obtaining an ownership interest or security interest of any nature in the Lease, provided that, unless Tenant is a wholly-owned subsidiary of Guarantor at the time, Landlord shall give notice of such assignment within thirty (30) days thereof to Guarantor. This Guarantee shall be governed by, and construed in accordance with, the laws of the State of California. No provisions of this Guarantee or right of Landlord hereunder can be waived in whole or in part, nor can Zayre be released from Zayre's obligations hereunder, except either by a) a writing duly executed by Landlord and an authorized officer of Landlord's lender, if any, holding a lien upon the Demised Premises as defined in the Lease, b) operation of law, or c) operation of the Lease. Zayre represents that HomeClub is a wholly-owned subsidiary of Zayre. Zayre has caused this Guarantee to be executed and its corporate seal to be hereto affixed by Maurice Segall, its President, and George Freeman, its Vice President hereunto duly authorized all as of the 6th day of June, 1988. ZAYRE CORP. By: /s/ Maurice Segall ---------------------------------- Maurice Segall, President By: /s/ George Freeman ---------------------------------- George Freeman, Vice President SHOPPING CENTER LEASE CHICO, CALIFORNIA Between HOMECLUB, INC. as Tenant and DOUGLAS W. BRADFORD as Landlord HOMECLUB, INC. SHOPPING CENTER LEASE TABLE OF CONTENTS
PAGE ---- ARTICLE I PREMISES 1 ARTICLE II TITLE AND OTHER OBLIGATIONS 1 ARTICLE III CONSTRUCTION AND PRE-TERM OCCUPANCY 3 ARTICLE IV LEASE TERM 4 ARTICLE V RENT 8 ARTICLE VI REAL ESTATE TAXES 10 ARTICLE VII REPAIRS AND UTILITIES 13 ARTICLE VIII ALTERATIONS 16 ARTICLE IX FIRE AND OTHER CASUALTY 18 ARTICLE X EMINENT DOMAIN 22 ARTICLE XI INDEMNIFICATION 24 ARTICLE XII DEFAULT 25 ARTICLE XIII SELF-HELP 27 ARTICLE XIV WAIVER OF SUBROGATION 28 ARTICLE XV MORTGAGE SUBORDINATION 29 ARTICLE XVI ASSIGNMENT 30 ARTICLE XVII [intentionally omitted] 31 ARTICLE XVIII LEASEHOLD MORTGAGES 31 ARTICLE XIX GENERAL 33 ARTICLE XX SALE OF DEMISED PREMISES BY LANDLORD 39 SCHEDULE A DESCRIPTION OF DEMISED PREMISES SCHEDULE B LANDLORD'S OBLIGATIONS SCHEDULE C LANDLORD'S CONSTRUCTION WORK SCHEDULE D SUBORDINATION, RECOGNITION AND ATTORNMENT AGREEMENT SCHEDULE E ZAYRE GUARANTEE SCHEDULE F SHORT FORM LEASE
HOMECLUB, INC. SHOPPING CENTER LEASE Lease dated June 6, 1988, between DOUGLAS W. BRADFORD, as Landlord (hereinafter referred to as "Landlord"), and HOMECLUB, INC., a Delaware corporation, as Tenant (hereinafter referred to as "Tenant"). ARTICLE I PREMISES 1.1 In consideration of the rents, agreements and conditions herein reserved and contained on the part of Tenant to be paid, performed and observed, Landlord does hereby demise and lease to Tenant, for the term hereinafter set forth, the premises described in Schedule A attached hereto as the Demised Premises (the "Demised Premises") consisting of 103,909 square feet of building space plus 9,880 square feet of an exterior nursery area within the shopping center described in Schedule A as the Shopping Center (the "Shopping Center"). 1.2 Landlord warrants to Tenant that Tenant while operating a retail and/or wholesale home improvement store together with an exterior garden shop and lumber area will not be in violation of any exclusives or other agreements which Landlord may have with other tenants, lenders, governmental entities or any other parties, and Landlord further warrants: (i) that the Demised Premises are zoned to permit use of the Demised Premises as a retail and wholesale general merchandiser, including without limitation, the sale of home improvement merchandise including lumber sales and a garden shop, (ii) the real property described in Schedule A (excluding groundwater, except that Landlord represents that it has no information regarding onsite groundwater contamination or, to the extent caused by onsite contamination, any offsite contamination) is free from contamination by any hazardous or toxic substances, waste, or constituents, including any hydrocarbonic substances, and (iii) as of the Commencement Date no building, health, safety, or environmental laws, ordinances or regulations of public authorities having jurisdiction materially restrict in any way the conduct of a retail and/or wholesale home improvement store throughout the Demised Premises or the sale therein of any and all merchandise and services connected therewith. Landlord hereby indemnifies Tenant against any claims or damages suffered or claimed to be suffered as a result of any breach of the foregoing warranties pertaining to Tenant's use of the Demised Premises. ARTICLE II TITLE AND OTHER OBLIGATIONS 2.1 Landlord has furnished Tenant with two preliminary title reports covering the Demised Premises and the Shopping Center issued -1- by First American Title Insurance Company (the "Title Company") as Order No. BU-96705 (dated as of February 10, 1988; hereafter "Title Report Lot 9"), and Order No. BU-96705-A (dated as of February 10, 1988; "Title Report Lot 4") (collectively, the "Title Report"), together with copies of all the documents referred to therein and a survey prepared in accordance with ALTA standards (collectively the "Title Evidence"). Tenant will permit as exceptions to title, exception numbers 1, 2, 3 and 6 as shown on Title Report Lot 4, and 1, 2, 3 and 6, as shown on Title Report Lot 9 (the "Permitted Exceptions"). If any exceptions which are not Permitted Exceptions (the "Unpermitted Exceptions") exist, Landlord shall have fifteen (15) days after the execution of this lease to provide evidence to Tenant that it has caused or will cause such Unpermitted Exceptions to be removed of record or agree to provide an endorsement to the Leasehold Title Policy (as hereinafter defined) over such Unpermitted Exceptions, which endorsement shall be in form and substance acceptable to Tenant. If Landlord shall fail in said fifteen (15) days to either cause the removal of such Unpermitted Exceptions or to agree to provide an endorsement over such Unpermitted Exceptions, then Tenant shall have the right to terminate this lease by giving Landlord written notice within ten (10) days after the end of said fifteen (15) day period. If Tenant shall fail within said ten (10) days to give such notice of termination to Landlord, then thereafter the Unpermitted Exceptions shall be deemed Permitted Exceptions. Landlord shall promptly cause the Title Company to issue its ALTA Leasehold Owner's Title Insurance Policy including extended coverage to Tenant, subject only to the Permitted Exceptions, insuring Tenant's leasehold estate in the Demised Premises, with liability in the amount of Three Million Dollars ($3,000,000.00) (the "Leasehold Title Policy"). If Landlord fails to provide Tenant with the Leasehold Title Policy as required herein, Tenant may terminate this lease, and neither Landlord nor Tenant shall have any claims against the other in connection with this lease. Subject to Tenant's approval, Landlord may cause a plat of subdivision to be prepared and recorded which shows the Demised Premises as a separate legally subdivided lot or parcel. Thereafter, Landlord shall promptly (i) prepare a revised short form lease reflecting the revised legal description of the Demised Premises, and (ii) cause an endorsement to be issued to the Leasehold Title Policy to reflect the legal description of the Demised Premises as subdivided. 2.2 Simultaneously with the execution of this lease Landlord and Tenant shall execute an instrument, substantially in the form attached hereto as Schedule F, recordable in form, setting forth the parties, a description of the Demised Premises and the Shopping Center, the Lease Term and such other provisions of this lease as may be reasonably requested by either party to constitute a "short form lease" or other instrument adequate, in the opinion of Tenant, for recording purposes. Without expense to Tenant, Landlord shall cause said short form lease or other instrument to be recorded in the appropriate land records upon, and only upon, request by Tenant that same be recorded. After the Commencement Date shall be fixed, upon the written request of either Landlord or Tenant, Landlord and Tenant will enter into an amended "short form lease" or other such instrument to fix the Commencement Date of record which amended short form of -2- lease shall be recorded by Landlord upon, and only upon, Tenant's request for recording thereof. 2.3 Tenant shall cause Zayre Corp., a Delaware corporation, ("Guarantor") to execute a lease guaranty in the form as that attached hereto as Schedule E and deliver such guaranty to Landlord within ten (10) business days from the date of lease execution by Tenant. 2.4 It is a condition of Tenant's obligations under this lease that Food 4 Less Market or a substitute market of like quality and size with ten (10) or more stores in operation in California (the "Inducement Tenant") shall sign a lease with Landlord for 40,000 or more square feet of floor space within the Shopping Center by June 15, 1988 or at which time Landlord purchases the property described in Schedule A as the Shopping Center, whichever date is earlier (the "Inducement Condition"). If the Inducement Tenant has not opened for business prior to March 1, 1989, Tenant may have the "Minimum Rent" (defined hereinafter) reduced as provided in Section 5.1(E) herein. ARTICLE III CONSTRUCTION AND PRE-TERM OCCUPANCY 3.1 CONSTRUCTION. Landlord agrees that the work described in Schedule C attached hereto as "Landlord's Construction Work" will be commenced promptly after the approval of the detailed plans and specifications provided for in Schedule C, and that Landlord's Construction Work will be prosecuted to completion with due diligence and shall be done at Landlord's own cost and expense. 3.2 PRE-TERM OCCUPANCY. Tenant shall have the right, without payment of rent or other charge, after the execution of this lease and prior to the "Commencement Date" (hereinafter defined), upon timely notice given to Landlord, to enter the Demised Premises to inspect the same and to make such improvements thereto as it shall have the right to make and install therein fixtures, supplies, merchandise and other property. Tenant agrees that any such entry and the making of any such improvements and any such installation shall be done without unreasonably hampering Landlord's construction of the Demised Premises and without creating additional cost for the Landlord. No such entry by Tenant shall be deemed an acceptance of the Demised Premises. Until the Commencement Date, Landlord shall pay the cost of water, sewer, electricity, gas, heat, air conditioning and other utilities available upon the Demised Premises; and until such time Tenant shall have the right to use, without charge, water, sewer, electricity, gas, heat, air conditioning and other utilities available upon the Demised Premises. Prior to the Commencement Date while Tenant may be making improvements to the Demised Premises or installing in the Demised Premises fixtures, supplies, merchandise and other property, as hereinabove provided, Tenant shall be in the Demised Premises at its own risk and shall save Landlord harmless from, and defend and indemnify Landlord against, any and all injury to person or property caused by or resulting from any act, omission or negligence of Tenant or any agent or employee of Tenant. It is a condition of this save -3- harmless and indemnification that Tenant shall receive notice of any such claim against Landlord. ARTICLE IV LEASE TERM 4.1 ORIGINAL TERM. The original term of this lease (the "Original Term") shall be a period of twenty (20) years and a fraction of a month commencing on the "Commencement Date" (hereinafter defined), and terminating on the last day of the month in which the twentieth anniversary of the Commencement Date occurs, except, however, that if the Commencement Date shall be a first day of a calendar month, then the Original Term shall be the period of twenty (20) years commencing on the Commencement Date and terminating on the twentieth (20th) anniversary thereof. 4.2 OPTIONS. Tenant shall have the right, at its election, to extend the Original Term, an extension period of five (5) years commencing upon the expiration of the Original Term (sometimes herein referred to as an "Extension Period" or the "First Extension Period"), provided that Tenant shall give Landlord notice of the exercise of its election at least six (6) months prior to the expiration of the Original Term. If Tenant exercises its right to extend the Original Term for the First Extension Period, Tenant shall have the right, as its election, to further extend the Lease Term (as hereinafter defined) an additional extension period of five (5) years commencing upon the expiration of the First Extension Period (sometimes herein referred hereto as an "Extension Period" or the "Second Extension Period"), provided that Tenant shall give Landlord notice of the exercise of its election at least six (6) months prior to the expiration of the First Extension Period. If Tenant exercises its right to extend the Lease Term for the Second Extension Period, Tenant shall have the right, at its election, to further extend the Lease Term an additional extension period of five (5) years commencing upon the expiration of the Second Extension Period (sometimes herein referred to as an "Extension Period" or the "Third Extension Period"), provided that Tenant shall give Landlord notice of the exercise of its election at least six (6) months prior to the expiration of the Second Extension Period. If Tenant exercises its right to extend the Lease Term for the Third Extension Period, Tenant shall have the right, at its election, to further extend the Lease Term an additional extension period of five (5) years commencing upon the expiration of the Third Extension Period (sometimes herein referred to as an "Extension Period" or the "Fourth Extension Period") provided that Tenant shall give Landlord notice of the exercise of its election at least six (6) months prior to the expiration of the Third Extension Period. In addition to the foregoing option rights, at the end of the original term, if no extension has been elected, or at the end of any Extension Period, if no further extension has been elected, Tenant shall have the option to extend the Lease Term until January 31st next following (the "Extra Period"), provided that Tenant shall give Landlord notice of the exercise of its election at least six (6) months prior to the expiration of the Original Term or -4- last elected Extension Period. Prior to the exercise by Tenant of any of said elections under this Section 4.2 to extend the Original Term, the expression "Lease Term" shall mean the Original Term; after the exercise by Tenant of any of said elections, the expression "Lease Term" shall mean the Original Term as it may have been then extended. Except as expressly otherwise provided in this lease, all the covenants, terms and conditions in this lease contained shall apply to the period or periods to which the Original Term shall be extended, as aforesaid. If Tenant shall give notice of the exercise of an election under this Section 4.2 in the manner and within the time provided aforesaid, the Lease Term shall be extended upon the giving of such notice without the requirement of any action on the part of Landlord. 4.3 COMMENCEMENT. An "Opening Day" shall be any Monday through Friday (except legal holidays) between March 1 and the following September 30. The "Commencement Date" shall be the first Opening Day after the later to occur of the following dates: (1) the thirtieth (30th) day after both the completion of Landlord's Construction Work, and the receipt by Tenant of notice thereof from Landlord; (2) the one hundred and fifteenth (115th) day after Landlord shall have delivered to Tenant all of the fully executed and acknowledged instruments referred to in Paragraph 11 of Schedule B, or September 30, 1988 (or such later date as determined pursuant to Section 4.10), if said delivery is made on or before June 24, 1988, and within 5 days after Landlord's acquisition of the property for the Demised Premises; (3) the forty-fifth (45th) day after the "fixture day" (as hereinafter defined); (4) the fifty-fifth (55th) day after Tenant shall receive from Landlord a ten-day notice of the arrival of the fixture day; (5) the tenth (10th) day after Landlord shall deliver to Tenant a final certificate of occupancy (or its equivalent), if the same shall be issuable in accordance with local law or custom; except that if the Demised Premises shall be formally opened for business with customers prior to the Commencement Date determined as above provided, then such date of formal opening shall be the Commencement Date. The "fixture day" shall be the day upon which Landlord's Construction Work shall have progressed to such a point that the floor in the Demised Premises shall have been completed, all lighting and wiring shall have been completed and shall be operating, and the heating, ventilating and air conditioning systems (sometimes herein referred to as the "HVAC") shall have been installed and shall be operating automatically, all toilets shall be operating, all work requiring scaffolding shall have been completed, complete security shall have been established throughout the Demised Premises, the Demised Premises shall be in broom clean condition, the sprinkler system shall have been installed and shall be operating automatically and a paved -5- area shall have been provided which shall be adequate for access by Tenant's delivery vehicles from Whitman Avenue and E. 20th Street and for parking thereof adjacent to the front or rear of the Demised Premises. If Landlord cannot provide Tenant with reasonable assurances that Landlord's Construction Work as defined in Schedule C will be completed within forty-five (45) days after the fixture date, or the date Tenant would have been able to open otherwise, whichever date is later, then Tenant shall have the right, at its election, and upon giving notice thereof to Landlord, to complete so much of Landlord's Construction Work, according to the plans and specifications and in a good and workmanlike manner, for the account of Landlord as Tenant shall elect to complete, and if Landlord shall fail to reimburse Tenant upon demand for any amount (including, without limitation, overtime charges for labor) paid for such completion, said amount may be deducted from any payments of rent due under this lease. For the purposes of this Article IV and Article V, Landlord's Construction Work shall be deemed completed notwithstanding that the correction of certain minor punch list items in the nature of "touchups" or "adjustments" may be required for full completion provided that (i) neither the failure of completion nor the act of completion shall interfere with Tenant's use or enjoyment of the Demised Premises or any rights of Tenant under this lease, and (ii) Landlord shall diligently complete any such touchup or adjustment upon receiving notice of the need therefor. 4.4 [Intentionally omitted.] 4.5 Landlord agrees that upon the Commencement Date, the Demised Premises and all rights of Tenant under this lease will be free and clear of all title matters, except as set forth in this lease (including Schedule B), and that construction of the Demised Premises and the Shopping Center and the use of the Shopping Center, including the Demised Premises, for retail and wholesale operations, and parking areas will be in full compliance with all laws, ordinances and regulations of any public authorities and insurance rating bureaus having jurisdiction (including without limitation zoning and building codes), and all necessary governmental permits and certificates of occupancy shall have been issued. Landlord agrees that if at any time or times any public authorities or insurance rating bureaus having jurisdiction shall complain that the Demised Premises or the Shopping Center shall not have been constructed in compliance with any law, ordinance, or regulation, in existence at the time of construction, of any public authority or insurance rating bureau having jurisdiction and shall request compliance, and if failure to comply shall in any way affect the use of the Demised Premises by Tenant or affect any other rights of Tenant, then Landlord shall upon receipt of notice of such complaint cause such repairs, alterations, or other work to be done so as to bring about the compliance requested. If by reason of such failure of compliance or by reason of such repairs, alterations or other work done by Landlord, Tenant shall be deprived of the use or enjoyment of the whole or any part of the Demised Premises or the "Common Areas" (defined in Schedule B), Minimum Rent shall abate on a per diem basis in proportion to said deprivation. If at any time during the Lease Term, any person having a prior right to Tenant not set forth in -6- Paragraph 12 of Schedule B shall cause an injunction to be entered against Tenant restricting Tenant's use or enjoyment of the Demised Premises or any rights of Tenant under this lease, then Tenant's rent shall be abated in proportion to the injury to Tenant's business until such injunction is removed. If such injunction shall not be dismissed within ninety (90) days after Tenant shall give Landlord notice thereof, then Tenant, at Tenant's option, without waiving any other rights Tenant may have against Landlord on account thereof may terminate this lease by giving Landlord notice thereof or may elect to continue with rent abatement. Should Tenant elect to continue with rent abatement, Landlord may terminate this lease upon thirty (30) days written notice to Tenant, unless Tenant agrees to waive the rent abatement and pay full rent. 4.6 If Landlord's Construction Work has not been commenced by June 16, 1988, then at any time thereafter, but prior to the commencement of Landlord's Construction Work, Tenant shall have the right at its election to terminate this lease by giving Landlord notice thereof. 4.7 If Landlord's Construction Work has not been completed, and if possession of the Demised Premises shall not be delivered to Tenant by February 15, 1989, then at any time thereafter, but prior to completion of Landlord's Construction Work and delivery of possession of the Demised Premises to Tenant, Tenant shall have the right, at its election, to terminate this lease by giving Landlord notice thereof. 4.8 Tenant agrees that, on or before the ninetieth (90th) day after the Commencement Date, Tenant shall open for business in the Demised Premises substantially fully fixtured and stocked. Nothing in the immediately preceding sentence or any other provision of this lease shall thereafter obligate Tenant to keep the Demised Premises open for business at any time or times. 4.9 In the event that the Demised Premises shall, at any time during the Lease Term, be closed for business to customers for any period of three hundred sixty five (365) consecutive days or more, other than as the result of a cause or event referred to in Articles IX or X or Section 19.3 hereof (the "Dark Period"), then, at any time thereafter but prior to any date on which Tenant shall give notice to Landlord that Tenant shall thereafter reopen the Demised Premises for business to customers ("Tenants Notice"), Landlord may, at its election, (i) request information from Tenant regarding the cost to Tenant and the nature of leasehold improvements installed in, or made to, the Demised Premises and the date(s) of the installation and/or making thereof, and (ii) terminate the Lease Term by giving Tenant notice thereof and the Lease Term shall terminate on the thirtieth (30th) day after the giving of such notice by Landlord to the same extent as if said date were the date originally set forth in Sections 4.1 and 4.2 for the expiration of the Lease Term. If Landlord shall request information pursuant to clause (i) of the immediately preceding sentence, Tenant shall furnish such information in reasonable detail to Landlord within twenty-one (21) days after Tenant receives such request therefor. In the event that Landlord shall terminate this lease pursuant to this Section 4.9, then simultaneously with the sending of notice thereof -7- to Tenant, Landlord shall pay to Tenant (i) an amount equal to the product of the cost to Tenant of leasehold improvements installed in, or made to, the Demised Premised by Tenant from time to time (exclusive of merchandise racks) multiplied by a fraction the denominator of which shall be one hundred twenty (120) and the numerator of which shall be one hundred twenty (120) minus the number of months between the date of the making of such improvements, in each case, and the date of such termination of the Lease Term, and (ii) the unreimbursed amounts, if any, recoverable by Tenant pursuant to Section 9.4 herein. If Tenant shall give Tenant's Notice as aforesaid, Tenant shall open the Demised Premises for business, substantially fully fixtured and stocked, on or before the ninetieth (90th) day after the date of Tenant's Notice. If Tenant shall fail to open as provided in the immediately preceding sentence, then, at any time after said ninetieth (90th) day but prior to any date on which Tenant shall so open, Landlord may terminate the lease as provided hereinabove. Notwithstanding the foregoing, if prior to said 90th day Tenant has commenced and diligently pursued the work to reopen, then after said 90th day, Landlord may terminate the Lease prior to any date on which Tenant shall so open, but only after the earlier of the date 60 days after said 90th day, or the date Tenant ceases diligent efforts to reopen. 4.10 Notwithstanding any other provisions of this lease, if Landlord is otherwise able to close escrow under the terms of the Purchase Agreement for the acquisition of the Demised Premises property on or before May 16, 1988, then the following dates: -September 30 date in Section 4.3, -June 16, 1988 date in Section 4.6, -February 15, 1989 date in Section 4.7, and -Both July 15, 1988 dates and the September 30 date in Section 5.1 (D), shall be extended on a day per day basis for each date that Landlord must wait after May 6, 1988 for Tenant to deliver to it a fully executed original of this lease and the attached Guarantee; provided, however, that the length of the preceding extension shall be reduced on a day per day basis (but not less than 0) if Landlord is actually able to close escrow on its acquisition of the Demised Premises property in less than fourteen (14) days after its receipt of the Lease from Tenant. ARTICLE V RENT 5.1 Minimum Rent. (A) From the Commencement Date until the fifth (5th) anniversary thereof, Tenant shall pay Landlord minimum rent at the rate of Four Hundred Eighty-Eight Thousand Three Hundred Seventy-Two and 30/100 Dollars ($488,372.30) per year (the "Minimum Rent"). (B) On the fifth (5th), tenth (10th), and fifteenth (15th) anniversaries of the Commencement Date, as well as on the twentieth (20th), twenty-fifth (25th), thirtieth (30th), and thirty-fifth (35th) anniversaries of the Commencement Date in the event the Lease Term is extended pursuant to Section 4.2 hereof, the Minimum Rent shall be adjusted for the 5-year period commencing on each such anniversary date ("CPI Adjustment") by multiplying the original Minimum Rent by a fraction, which fraction shall have as a numerator the Index (as hereinafter defined) for the month in which the CPI Adjustment is to occur and which fraction shall have as its denominator the Index for the month in which the Commencement Date occured. "Index" shall mean the seasonal Consumer Price Index for all Urban Wage Earners and Clerical Workers for the United States, published by the United States Department of Labor, Bureau of Labor Statistics, in which the 1982-1984 average of 100 points is the base. If the 1982-1984 average of 100 points ceases to be used as the base, the Index shall be converted, in accordance with the conversion factor published by the Department of Labor, Bureau of Labor Statistics, to the 1982-1984 base. If the Index is discontinued or if a substantial change is made in the terms or number of items used to compile the Index, then any similar index which most closely comprehends the impact of cost-of-living increases on commercial real property rental published by any branch or department of the U.S. Government shall be used, and if none is so published, then another nonpartisan index evaluating the information theretofore used in compiling the Index, and generally recognized as authoritative on the impact of cost-of-living increases on commercial real property rentals shall be used. Notwithstanding anything contained in this lease to the contrary, under no circumstances shall the Minimum Rent be adjusted to exceed ten percent (10%) over the Minimum Rent for the immediatley preceding sixty (60) month period. In no event shall such adjustment result in a reduction below the Minimum Rent in effect to the immediatley preceding sixty (60) month period. When the adjusted Minimum Rent is determined, Landlord shall give Tenant written notice to that effect indicating how the adjusted Minimum Rent was computed. Pending receipt of such notice from Landlord as to the new Minimum Rent, Tenant shall continue to pay the Minimum Rent in effect during the preceding sixty (60) month period; provided, however, that Landlord shall have one hundred twenty (120) days to provide Tenant with a notice of its increased Minimum Rent and Tenant shall then make up the difference in the Minimum Rent for the preceding period, except that in no event shall Landlord be entitled to collect such difference for a period in excess of one hundred twenty (120) days. (C) All Minimum Rent shall be payable (without notice, demand or set-off or abatement of any nature, except as provided expressly in this lease) in monthly installments of one-twelfth the annual rate thereof then in effect, in advance, upon the first day of each calendar month included within the Lease Term. All rent and other payments to be made by Tenant shall be sent to Landlord at the place to which notices to Landlord are required to be sent, unless Landlord shall direct otherwise by notice to Tenant. Rent for any fraction of a month at the commencement or expiration of the Lease -9- Term, or in which the rate thereof changes pursuant hereto, shall be prorated on a per diem basis. (D) If the fixture day shall not occur by July 15, 1988, then, notwithstanding anything else in this Section 5.1 to the contrary, no Minimum Rent shall be payable by Tenant for the period commencing upon the Commencement Date and containing that number of consecutive days thereafter which shall equal the number of days between July 15, 1988 and the fixture day, but not including any days between September 30 and the following March 1. (E) Notwithstanding anything contained in this Section 5.1 to the contrary, if the Inducement Tenant shall not open for business prior to March 1, 1989, then between March 1, 1989 and the date the Inducement Tenant opens for business, the Minimum Rent payable by Tenant under Section 5.1(A) shall be reduced by Two Hundred Eight Nine Dollars ($289.00) per day. ARTICLE VI REAL ESTATE TAXES 6.1 Tenant shall pay the real estate taxes allocable to the Demised Premises (determined as hereinafter provided) for each tax year included within the Lease Term and a pro rata portion thereof for the tax years partially included in the Lease Term at the commencement and expiration thereof. The real estate taxes allocable to the Demised Premises for any tax year shall be the sum of (A) the real estate taxes upon the Demised Premises for said tax year (excluding the land beneath the same) and (B) the product of Tenant's Fraction (hereinafter defined) and the real estate taxes for said tax year upon the land of the Shopping Center (including land under buildings) and all improvements upon the Common Areas. Tenant's Fraction is that fraction the numerator of which shall be the number of square feet of floor area in the Demised Premises (exclusive of the nursery area) and the denominator of which shall be the number of square feet of floor area in all the buildings in the Shopping Center, but in no event shall Tenant's Fraction exceed 47%. (Floor area of mezzanines not open to customers and incidental to ground floor retail operations shall not be counted; other mezzanine floor area, basement floor area and uppen story floor area shall be counted at half actual floor area). If the Demised Premises (EXCLUDING THE LAND BENEATH THE SAME) shall not be separately assessed, and are instead assessed jointly with other improvements, an allocation shall be made to determine the real estate taxes upon the Demised Premises (EXCLUDING THE LAND BENEATH THE SAME). Such allocation of taxes shall be made according to the assessors records or written assessors' certifications, or in the absense thereof, by the decision of a majority of three appraisers, one designated by Landlord, one by Tenant, and the third by the two so designated, the expenses of such appraisers being borne equally by Landlord and Tenant. If the Demised Premises and the Common Areas are at any time separate tax parcels, then in lieu of the foregoing computations, the real estate taxes allocable to the Demised Premises -10- for any tax year shall be the sum of (A) the real estate taxes upon the tax parcel constituting the Demised Premises for said tax year and (B) the product of Tenant's Fraction and the real estate taxes upon the tax parcels(s) constituting the Common Areas for said tax year. If the real estate taxes of the Demised Premises for any year which commences after the Commencement Date shall be increased on account of a re-valuation of the Demised Premises because of any "change in ownership" by Landlord, Tenant shall not pay or be charged with any increase in the real estate taxes attributabale to or arising from such change during the first five years after such change. Real estate taxes as used herein shall include all ad valorem taxes and betterment assessments imposed or assessed upon or against real estate by any federal, state, county, or municipal public authority having jurisdiction except only that: (A) if Landlord shall at any time have had the right to elect to pay any betterment assessments in installments, the real estate taxes for any year shall include only the lowest such installment of such betterment assessments as Landlord shall have had the election to have allocated or accrued by law as a result of the exercise, in fact, of Landlord's election so to pay in installments, and (B) if for a tax year included within the Lease Term a betterment assessment is assessed on the Shopping Center for an improvement such as a street or sewer, made prior to the time the Demised Premises opened for business or in connection with the construction of premises in the Shopping Center, such assessment shall not be included in the real estate taxes upon the Shopping Center for such tax year except as set forth in Section 6.6 below. Notwithstanding anything in this lease to the contrary, real estate taxes shall not include any income, excess profits, estate inheritance, succession, transfer, franchise, capital or other tax or assessment upon Landlord or upon the rentals payable under this lease, all of which shall be the obligation of Landlord. Taxes upon equipment of occupants used in the conduct of their business (as distinguished from equipment used in the operation of the building, such as heating and air conditioning equipment) shall not be included in real estate taxes for the purposes of applying said apportionment formula. Tenant shall pay all ad valorem taxes allocable to such improvements in the Demised Premises, signs of Tenant, goods and other personal property owned by Tenant or other occupants, and such business equipment in the Demised Premises. 6.2 The real estate taxes for any lease year shall be the real estate taxes for the tax year terminating during said lease year. If any lease year shall be greater than or less than twelve (12) months or if the real estate tax year shall be changed, an appropriate adjustment shall be made to carry out the intent of the parties. If there shall be more than one taxing authority, the real estate taxes for any period shall be the sum of the real estate taxes for such period attributable to each taxing authority. If the number of square feet of floor area of any building shall change during any tax year, the condition existing upon the day as of which the real estate taxes are assessed for such tax year shall control. 6.3 The real estate taxes for any tax year shall mean such amounts as shall be finally determined to be the real estate taxes payable during such tax year less any abatements, refunds or rebates -11- made thereof (except that Landlord shall be solely entitled to any proceeds from that certain Owner's Participation Agreement for the installation of facilities which benefit property in Chico in addition to the Shopping Center). For the purpose of determining payments due from Tenant to Landlord in accordance with the provisions of this Article VI, (A) the real estate taxes for any tax year shall be deemed to be the real estate taxes payable during such tax year until such time as the same may be reduced by abatement, refund or rebate, and (B) if any abatement, refund or rebate shall be made for such tax year, the real estate taxes for such tax year shall be deemed to be such real estate taxes as so reduced plus the expenses of obtaining the reduction, with an appropriate adjustment to be made in the amount payable from Tenant to Landlord on account of real estate taxes to be paid in that tax year or any other tax year following the determination of the amount of any such abatement, refund or rebate. 6.4 Tenant shall have such rights to contest the validity or amount of any real estate taxes as permitted by law, either in its own name or in the name of Landlord. Landlord shall cooperate with Tenant in any such contest and, in conneciton therewith, shall make available to Tenant such information in its files as Tenant may reasonably request. If any abatement, refund or rebate shall be obtained, whether for the Demised Premises or the Shopping Center as a whole, the expenses of obtaining the same shall be a first charge thereon, and the balance shall be allocated as provided in this Article VI. 6.5 Landlord shall submit to Tenant copies of the real estate tax bills for each tax year. Landlord shall bill Tenant for any amount that may be payable by Tenant pursuant to the provisions of this Article VI. Said bill shall be accompanied by a computation of the amount payable. The amount payable by Tenant hereunder for any tax year shall be payable not later than the time that Landlord shall be required to pay real estate taxes to the taxing authority for said tax year, but, if Tenant shall not have received a bill therefor together with such evidence of the cost and computation thereof as Tenant may request, at least fourteen (14) days prior to said time for payment by Landlord, then Tenant shall not be required to make such payment until fourteen (14) days after the receipt of such bill and evidence. At any time before or after the making of such payments, Tenant shall have the right to audit or cause to be audited Landlord's computations and if such audit fails to substantiate the amount of taxes imposed or to be imposed by Landlord nor Tenant, then Tenant shall be entitled to a reduction or refund. At Tenant's election, any such refund shall be paid in cash to Tenant or credited by Tenant against its future obligations under this Article VI. (If real estate taxes are payable to any taxing authority for any tax year in installments, the amount payable by Tenant hereunder shall be payable in similar installments. If real estate taxes are payable to different taxing authorities for any tax year at different times, an appropriate apportionment shall be made of the amount payable by Tenant for said tax year and the apportioned amounts shall be payable at such times.) Landlord agrees that real estate taxes upon the Shopping Center shall be paid by Landlord prior to the last day that the same may be paid without penalty or interest, or if a discount shall be available for early -12- payment, prior to the last day that such discount shall be available. Without cost to Tenant, Landlord shall bear all interest, penalties, late charges and lost discount amounts incurred as a result of Landlord's failure to timely pay any installment of real estate taxes, except to the extent such interest, penalties, late charges and lost discount amounts are due to Tenant's failure to comply with its obligations under this Section 6.5. 6.6 The Demised Premises are already or shall be subject to two certain betterment assessments not to exceed a total of $230,000, one of which is more particularly described in exception number 3 in Title Report Lot 4 ("Village Park Refunding Assessment") and the other is an assessment to be created in connection with the construction of Whitman Avenue and infrastructure thereunder ("Future Whitman Avenue Assessment," hereinafter the Village Park Refunding Assessment and the Future Whitman Avenue Assessment shall be at times referred to as the "Approved Assessments"). Landlord shall pay all charges due and payable for the Village Park Refunding Assessment during the first five (5) years of the Lease Term, and for the Future Whitman Avenue Assessment during the first five (5) years after charges therefor are first due and payable. Thereafter, during the next ten years after each of the aforementioned 5 year periods, Tenant shall pay all charges for the respective Approved Assessment, except that in no event shall Tenant pay more than $20,000 for said Approved Assessments in any one year, or a total of more than $200,000 for such assessments. ARTICLE VII REPAIRS AND UTILITIES 7.1 TENANT'S REPAIRS. Except as provided in Sections 7.2 and 7.3 herein, Tenant shall make all repairs and alterations to the property which Tenant is required to maintain, as hereinafter set forth, which may be necessary to maintain the same in as good repair and condition as the same are on the Commencement Date or which may be required by any laws, ordinances or regulations of any public authorities having jurisdiction, including any applicable subsequent amendments or modifications thereto, reasonable wear and tear and damage excepted and subject to Articles VIII, IX and X. Upon the expiration or other termination of the Lease Term, Tenant shall remove its goods and effects and those of all persons claiming under it and shall yield up peaceably to Landlord the Demised Premises with so much of the same as Tenant is obligated to maintain pursuant to the provisions of this Section 7.1 in as good repair and condition as the same were in on the Commencement Date, reasonable wear and tear excepted and subject to Articles VIII, IX and X. However, notwithstanding anything in this lease contained to the contrary, Landlord shall reimburse Tenant for the reasonable cost of making all repairs and alterations to the property which Tenant is required to maintain which may be required as the result of repairs, alterations, other improvements or installations made by Landlord or Landlord's agents or employees, unless done by Landlord pursuant to Section 13.1. The property which Tenant is required to maintain is the interior of the Demised 13 Premises, including, without limitation, all glass and all utilities, conduits, fixturew and equipment within the Demised Premises serving the Demised Premises exclusively, but excluding all property which Landlord is required to maintain below provided. If at any time during the Lease Term Tenant shall make any repairs or replacements to the heating-ventilating air conditioning system serving the Demised Premises ("HVAC") that are not customarily included in a regular service and maintenance contract, then Tenant shall be reimbursed by Landlord, upon demand, for an amount equal to the product of the cost to Tenant thereof multiplied by a fraction the denominator of which is 120 and the numerator of which is 120 minus the number of months between the date of the making of such repairs and/or replacements, in each case, and the date of the termination of the Lease Term. Said reimbursement may be effected by Tenant's deducting the amount thereof from the final payments of Minimum Rent due and payable hereunder. (If the Lease Term shall be extended subsequent to the making of any such repairs "the termination of the term" shall be deemed to be the termination of the Lease Term as so extended, and Tenant shall thereupon reimburse Landlord for any excess reimbursement paid by Landlord in accordance with the preceding sentence.) 7.2 LANDLORD REPAIRS. Landlord shall make all repairs and alterations to the property which Landlord is required to maintain, as hereinafter set forth, which may be necessary to maintain the same in good repair and condition or which may be required by any laws, ordinances or regulations of any public authorities having jurisdiction, including any applicable subsequent amendments or modifications thereto, subject to Articles IX and X. However, notwithstanding anything in this lease contained to the contrary, Tenant shall reimburse Landlord for the reasonable cost of making all repairs and alterations to the property which Landlord is required to maintain which may be required as the result of repairs, alterations, other improvements or installations made by Tenant or any subtenant or concessionaire of Tenant or the agents or employees of any of them, unless done by Tenant pursuant to Section 13.2. The property which Landlord is required to maintain is the foundation, the roof, the exterior walls, the roof drainage system, the canopy, the structural parts of the Demised Premises, including, without limitation, slab-floors, (but excluding all glass), and, to the extent located within the walls, ceiling or floors of the Demised Premises and not readily accessible by means of removable panels, access doors or the like, all wiring, plumbing, pipes, conduits and other utilities, plus all Common Areas and Common Facilities of the Shopping Center, and, to the extent not included in the foregoing, all utilities, conduits, fixtures and equipment serving the Demised Premises which also serve other premises or are located within the Shopping Center but outside the Demised Premises. The costs for the above described maintenance to the Common Areas and Common Facilities shall be included within Landlord's Common Area Costs described in Schedule B, Paragraph 8. In addition, Landlord shall make any repairs to the property Tenant is required to maintain which are required as a result of a defect in, or failure of repair of, the property Landlord is required to maintain. -14- 7.3 SPECIAL REPAIRS. Notwithstanding anything herein contained to the contrary, it shall be the obligation of Landlord to make all repairs and alterations (other than those required as the result of repairs, alterations, other improvements or installations made by Tenant or any subtenant or concessionaire of Tenant or the agents or employees of any of them) to the property which Tenant is otherwise required to maintain which may become necessary during the first twelve months of the Lease Term (or to the extent of the applicable construction contract warranty, if longer than twelve months), or which may be required during the Lease Term by any laws, ordinances or regulations of any public authorities having jurisdiction other than as a result of Tenant's particular use of the Premises. Notwithstanding anything in Section 7.1 contained to the contrary, Landlord agrees that in addition to making any repairs or alterations as required by the provisions of Section 7.2 hereinabove, Landlord shall make any repairs and alterations that shall be required at any time during the Lease Term as a result of (i) movement of the "Building" (as defined in Schedule A hereof) due to causes other than earthquake, such as settling, or as the result of settling of the Common Areas, provided that a certified engineer selected jointly by Landlord and Tenant states that such alteration or repair should be made, and provided further that if Landlord and Tenant are unable to select such engineer jointly, then Landlord and Tenant shall each select an engineer, such engineers shall then jointly select a third engineer, and a majority vote of said engineers shall determine whether the alteration or repair should be made, (ii) defective materials or workmanship in the construction thereof, or (iii) Landlord's failure to construct the Demised Premises or the Common Areas as required by the provisions of Schedule C herein. Landlord agrees that Landlord shall give to Tenant the benefit of all guaranties Landlord may have from its contractors or materialmen or is required by Schedule C to have therefrom and that Tenant may enforce such guaranties either in Tenant's name or in Landlord's name. 7.4 UTILITIES. Landlord agrees that during the Lease Term the Demised Premises shall be connected to the electric and gas lines serving the municipality wherein the Demised Premises are located and to the water and sewer systems of such municipality. Landlord agrees that during the Lease Term (i) all such water, electricity, and gas shall be in such amounts per unit of time as shall be required by the provisions of Schedule C (including, without limitation, sufficient water for air conditioning) and (ii) all such sewerage disposal facilities shall be of such capacity as shall be required by the provisions of Schedule C. If for any reason the Demised Premises cannot be connected to such municipality's water and/or sewer systems on the Commencement Date, Landlord shall then provide water and/or sewer systems which (i) shall be of such capacity as shall be required by the provisions of Schedule C, (ii) shall be subject to the prior written approval of Tenant and (iii) shall meet the requirements of all public authorities having jurisdiction with respect thereto. Except as necessary to make required repairs or alterations, Landlord shall not take, or permit any occupant of the Shopping Center or any person claiming under Landlord or any such occupant to take, any action which shall interrupt, or interfere with, any electric, gas, water, sewerage or telephone -15- service to the Demised Premises. Landlord shall provide Tenant with reasonable written notice (not less than 3 days in advance) of any action which is likely to interfere with or interrupt such services to the Demised Premises, including action reasonably necessary to make required repairs or alterations, and Landlord shall not take, or give permission to any occupant of the Shopping Center or any person claiming under Landlord or any such occupant, to take any such action without Tenant's consent, which shall not be unreasonably withheld or delayed. Notwithstanding such notice, in the event that Landlord causes or permits any such interruption or interference to occur and continue for longer than one (1) day, Tenant's Minimum Rent shall be abated for each additional day that such interruption or interference continues in proportion to the interruption or interference. 7.5 UTILITIES EASEMENTS. Tenant shall have the right, license and easement within the Building and Shopping Center to install, replace, maintain and use utilities conduits serving the Demised Premises provided such conduits shall be located only in areas subject to the reasonable approval of the Landlord and Tenant shall do the same in such manner as shall keep to a reasonable minimum any interference with the business of the Shopping Center. To the extent meters, controls and conduits for the utilities systems serving the Demised Premises are situated outside the Demised Premises in other premises within the Shopping Center, Tenant shall have access thereto, at all times, in common with Landlord and other lessees in the Shopping Center. ARTICLE VIII ALTERATIONS 8.1 Tenant agrees that any repairs, alterations, other improvements or installations made by Tenant to or upon the Demised Premises shall be done in a good workmanlike manner and in conformity with all laws, ordinances and regulations of all public authorities having jurisdiction, that new materials of good quality shall be employed therein, that the structure of the Demised Premises shall not be endangered or impaired thereby, that the Demised Premises shall not be diminished in value thereby, and that, except for signs, antennae, and heating and air conditioning and utilities equipment Tenant is permitted to erect and maintain pursuant to the provisions of this lease, neither the perimeter of the Demised Premises nor the height of the Demised Premises shall be increased without the written consent of Landlord. Tenant agrees that Tenant shall not make any alterations to the foundation, roof, exterior walls, gutters, downspouts, canopy or any structural parts of the Demised Premises without first submitting plans and specifications thereof to Landlord. Landlord shall have the right to disapprove of the same if, and only if, the same violate any of the preceding provisions of this Section 8.1. Failure of Landlord to give notice of approval or disapproval of said plans and specifications within thirty (30) days after Tenant's submission thereof to Landlord shall be deemed approval. In addition, Tenant shall give Landlord prior notice of all alterations costing more than $75,000 (as increased -16- each year by the CPI Index as defined in Section 5.1(B)) so that Landlord has a reasonable opportunity to post a notice of non-responsibility, except that Tenant shall not be in breach of this obligation unless it fails to give prior notice, a mechanic's lien is recorded against Landlord's fee interest in the Demised Premises, and Tenant fails to cause such lien to be discharged of record as provided in Section 8.5 hereof. All salvage in connection with any work done by Tenant pursuant to the provisions of this Article may be disposed of by Tenant. It is agreed and understood that Landlord will accept the Demised Premises as altered pursuant to the provisions hereof without any obligation upon Tenant to restore the Demised Premises to their former condition. 8.2 Landlord agrees that Tenant may erect and maintain its usual signs, from time to time, and provided such signs are in compliance with local codes, upon the exterior of the Demised Premises and the usual signs, from time to time, of any subtenants of Tenant. Landlord further agrees that Tenant may erect and maintain upon the roof of the Demised Premises antennae for electronic receivers and transmitters in the Demised Premises and that Tenant may erect and maintain upon the roof and on the adjacent ground utilities equipment serving the Demised Premises. Tenant shall be responsible for such signs, antennae and equipment, and for obtaining all government approvals with respect thereto. 8.3 All repairs, alterations, other improvements or installations made to or upon the Demised Premises which are so attached to the realty that same will be by law deemed to be a part of the realty shall (subject, however, to the provisions of Section 8.1 and the provisions of the following sentence) be the property of Landlord and remain upon and be surrendered with the Demised Premises as a part thereof upon the termination of this lease. Notwithstanding the foregoing, all trade fixtures, (including without limitation, compressors, generators and hydraulic equipment), lighting fixtures, heat and air conditioning equipment (other than ducts), and signs, whether by law deemed to be a part of the realty or not, installed at any time by Tenant or anyone claiming under Tenant (at Tenant's sole cost and expense without any contribution from or reimbursement by Landlord and which are not replacements of property installed by Landlord) shall remain the property of Tenant or persons claiming under Tenant and may be removed by Tenant or any person claiming under Tenant at any time or times during the Lease Term or any occupancy by Tenant thereafter, Tenant agreeing to repair any and all damage to the Demised Premises occasioned by the removal by Tenant or any person claiming under Tenant of any property from the Demised Premises. 8.4 Tenant shall procure all necessary governmental permits before making any repairs, alterations, other improvements or installations to or upon the Demised Premises. Landlord shall cooperate with Tenant in obtaining such permits. Tenant agrees to save harmless and indemnify Landlord from any and all injury, loss, claims or damage to any person or property occasioned by or arising out of the doing of any such work by Tenant. -17- 8.5 Tenant shall permit no mechanic's, materialman's or other lien against the Demised Premises or property of which the Demised Premises are a part in connection with any materials, labor or equipment furnished, or claimed to have been furnished, to or for Tenant, and if any such lien shall be filed against the Demised Premises or property of which the Demised Premises are a part Tenant shall provide Landlord with written notice thereof and shall cause said lien to be discharged, provided, however, that if Tenant desires to contest any such lien it may do so as long as the enforcement thereof is stayed, but in any event, Tenant shall either cause any such lien to be discharged of record within twenty-one (21) days of any written request of Landlord (if Tenant is not longer contesting such lien) or any written request based on any requirements of any mortgagee or prospective mortgagee or buyer or prospective buyer in escrow for the Demised Premises or property including the Demised Premises, (whether or not Tenant is still contesting such lien), or in lieu thereof, if and while contesting the same lien as aforesaid, deposit with the buyer's escrow, or the mortgagee or prospective mortgagee, pending such contest, a sum or bond sufficient to cover the amount of said lien and all interest, penalties or costs that would be payable to discharge such lien if such lien were valid provided such mortgagee or buyer may use such sum or bond to cause the discharge of said lien if its foreclosure is imminent. 8.6 Landlord shall permit no mechanic's, materialman's or other lien against the Demised Premises or property of which the Demised Premises are a part in connection with any materials, labor or equip- ment furnished, or claimed to have been furnished, to or for Landlord or any other occupant of premises in the Shopping Center, and if any such lien shall be filed against the Demised Premises or property of which the Demised Premises are a part Landlord shall cause the same to be discharged, provided, however, that if Landlord desires to contest any such lien it may do so as long as the enforcement thereof is stayed. ARTICLE IX FIRE AND OTHER CASUALTY 9.1 (A) If, at any time from and after the Commencement Date, the Demised Premises or any part thereof shall be damaged or destroyed by fire, the elements or other casualty for which insurance is required to be carried by Tenant as hereinafter provided, then, except as provided in Section 9.2 hereof, Tenant shall, promptly thereafter, repair or restore the Demised Premises to substantially the same condition they were in immediately prior to such casualty, and Tenant shall not be entitled to any rent abatement with respect thereto. All insurance proceeds or damages recovered on account of any damage or destruction by fire, the elements or other casualty shall be made available for the payment of the cost of the aforesaid repair or restoration. If the amount of said insurance proceeds shall be less than Two Hundred Fifty Thousand Dollars ($250,000), said insurance proceeds shall be paid over to Tenant. If the amount of said -18- insurance proceeds shall be greater than Two Hundred Fifty Thousand Dollars ($250,000), said insurance proceeds shall be deposited in escrow with instructions to the escrow holder that the escrow holder shall disburse the same to Tenant as the work of repair or restoration progresses upon certificates of the architect or engineer supervising the repair or restoration that the disbursements then requested, plus all previous disbursements made from said insurance proceeds, plus the amount of such "deductible", do not exceed the cost of the repair or restoration already completed and paid for, and the balance in the escrow fund is sufficient to pay for the estimated cost of completing the repair and restoration. The escrow holder shall be the institutional lender holding a first mortgage upon the Demised Premises or the property of which the Demised Premises are a part if there shall be an institutional lender holding such first mortgage and if such institutional lender shall be willing to accept said escrow; otherwise the escrow holder shall be any bank mutually agreeable to Landlord and Tenant. If the insurance proceeds shall be less than the cost of repair or restoration, Tenant shall pay the excess cost and Tenant shall be responsible for the amount of any deductibles. If the insurance proceeds shall be greater than the cost of repair or restoration, the excess shall belong to the Tenant. (B) If the Common Areas or any part thereof, shall be damaged or destroyed by fire, the elements, the act of any public authority or other casualty or if the Demised Premises shall be damaged or destroyed by any casualty for which insurance is not then required to be carried by Tenant (collectively "Landlord's Damages"), then Landlord shall, promptly thereafter, repair or restore Landlord's Damages to substantially the same condition they were in immediately prior to such casualty, except as hereinafter otherwise provided and except that Tenant shall be liable for any damage or destruction to the Demised Premises to the extent caused by Tenant's negligence, unless such damage or destruction is insured by Landlord. If Landlord's Damages shall render the whole or any part of the Common Areas or Demised Premises unsuitable for the use for which they were intended, a just proportion of the rent and all other amounts payable by Tenant pursuant to this lease, according to the nature and extent of the injury to Tenant's business, shall be suspended or abated until the fifteenth (15th) day after the completion of the repairs or restor- ations to the substantially the same condition they were in immediately prior to such casualty; rent and any such other amounts paid in advance for a period beyond the date on which the same were so rendered unsuitable for the use for which the same were intended shall be apportioned and adjusted. Whenever in this lease it is provided that rent and any such other amounts shall be suspended or abated for any period according to the nature and extent of the injury to Tenant's business, Tenant's sales figures for comparable periods shall be considered, together with all other evidence. All insurance proceeds or damages recovered on account of Landlord's Damages shall be made available for the payment of the cost of the aforesaid repair and restoration. Tenant shall provide Landlord written notice of any of Landlord's Damages which Tenant intends to repair or restore. Unless within ten (10) days of said notice Landlord notifies Tenant that Landlord shall make such repairs or restorations, and thereafter diligently commences -19- and completes such work, Tenant may elect to undertake or complete any repair or restoration of Landlord's Damages at reasonable cost and in a good and workmanlike fashion and if Tenant makes such an election, Tenant shall be entitled to use any insurance proceeds and any damages collected from third parties and shall be entitled to immediate reimbursement from Landlord for any funds expended in excess of any such insurance proceeds and damages collected from third parties and may also elect to recapture any unreimbursed amounts (the "Recapture Deficit") as provided in Section 9.4 herein. (C) If more than sixty percent (60%) of the ground floor area, in the aggregate, of all buildings in the Shopping Center (excluding the Demised Premises from the computation thereof) shall, for any period, be closed for business as a result of damage or destruction, and if Landlord shall fail to complete the repair and restoration of all such damage within one (1) year after the occurrence thereof then, and prior to the completion thereof, Tenant may terminate this lease at its election, by giving Landlord notice thereof and the term of this lease shall then terminate on the date specified therefor in such notice. 9.2 It is agreed and understood that with respect to any damage or destruction to the Demised Premises as provided in Section 9.1.(A) or 9.1(B), (1) if during the fourth semi-annual period preceding the expiration of the Lease Term, the Demised Premises shall be so damaged or destroyed to the extent of twenty percent (20%) or more of their insurable value, or (2) if during the third semi-annual period preceding the expiration of the Lease Term, the Demised Premises shall be so damaged or destroyed to the extent of fifteen percent (15%) or more of their insurable value, or (3) if during the second semi-annual period preceding the expiration of the Lease Term, the Demised Premises shall be so damaged or destroyed to the extent of ten percent (10%) or more of their insurable value, or (4) if during the semi-annual period immediately preceding the expiration of the Lease Term, the Demised Premises shall be so damaged or destroyed to the extent of five percent (5%) or more of their insurable value, either Landlord or Tenant may, if either shall so elect, terminate the Lease Term by notice to the other within twenty (20) days after such damage or destruction. If Landlord shall give such notice of termination at a time when Tenant shall have the right to exercise an election to extend the Lease Term an extension period of at least five (5) years, and if within fifteen (15) days after Tenant shall receive such notice of termination from Landlord, Tenant shall exercise such election, then such termination shall become void and of no force or effect. In the event of any termination of the Lease Term pursuant to the provisions of this Section 9.2, the termination shall become effective on the twentieth (20th) day after the giving of the notice of termination, neither Landlord nor Tenant shall be obligated to repair or restore any damage or destruction caused by the fire or other casualty, and said insurance proceeds, if any, shall belong to Landlord. 9.3 Tenant shall maintain at all times during the Lease Term with respect to the Demised Premises insurance against loss or damage by fire, the so-called extended coverage casualties, vandalism and malicious mischief and sprinkler leakage (if there shall be a sprinkler -20- system). Tenant may, at its election, maintain insurance with respect to additional casualties and events. Said insurance shall be in an amount not less than eighty percent (80%) of the full insurable value of the Demised Premises, and said insurance may be written with a so-called eighty percent (80%) co-insurance clause, and in such event sufficient insurance shall be carried so that the insured shall not be a co-insurer. Said insurance may be written with a so-called "deductible" which is Tenant's usual deductible from time to time. Insurance against any or all of such risks may be maintained under a blanket policy covering the Demised Premises and other real estate of Tenant and/or its affiliated business organizations. Notwithstanding the foregoing, unless both Tenant and Guarantor have a net worth of less than Seventy-Five Million Dollars ($75,000,000), Tenant may self-insure with respect to any insurance obligations which it is otherwise required to maintain under this lease. Nothing herein contained, however, shall affect the obligation of Tenant set forth in Section 9.1(A) to repair or restore the Demised Premises. The policies of such insurance shall name Landlord and Tenant as insureds, as their interests may appear, and, subject to the provisions of said Section 9.1 shall be payable in case of loss to any holders of any mortgages which secure loans made to Landlord or its predecessors upon the property of which the Demised Premises are a part, as their interest may appear. Such policies of insurance shall provide that no act or omission of any person named as insured thereunder shall invalidate the interest of, or be a defense against, any other person named as insured thereunder. Tenant shall have the right to adjust with the insurance carriers the amount of the loss upon such policies. Said insurance shall be written by responsible insurance companies authorized to do business in the state wherein the Demised Premises are located. Upon request of Landlord, Tenant agrees that not less than ten (10) days prior to the Commencement Date and not less than ten (10) days prior to the expiration of each policy of such insurance, Tenant shall deliver to Landlord certificates of such insurance, or the renewals thereof, as the case may be. 9.4 If at any time during the Lease Term there is a Recapture Deficit, then Tenant shall have the right to reimburse itself for such amount out of the monthly payments of Minimum Rent thereafter due and payable. In addition, if there is a Recapture Deficit at the expiration of the Lease Term, Tenant shall have the right to continue in use and occupancy of the Demised Premises without payment of Minimum Rent for a number of days which number when multiplied by the per diem Minimum Rent (at the rate prevailing at the expiration of the Lease Term) shall equal the Recapture Deficit. 9.5 If Tenant may not self-insure and is obligated to purchase casualty insurance under Section 9.3, all such insurance policies shall be issued by financially responsible insurance companies qualified to do business in the State of California. Furthermore, such policies shall not contain a deductible amount greater than Tenant's usual deductible from time to time. All such policies shall name as additional insureds Landlord and any mortgagee or lender of Landlord having a security interest in the Demised Premises. Tenant shall cause executed copies of such policies or certificates thereof to be delivered to Landlord -21- within ten (10) days after Tenant's receipt of such policies and thereafter renewal policies or certificates within ten (10) days prior to the expiration of such policies. All such policies shall contain a provision that the insurance company will provide Landlord, with at least ten (10) days prior written notice of any cancellation or lapse in the policy, any reduction in the amounts thereof, or any material change in the terms of coverage. In addition, all such policies shall be written as primary policies, not contributing and not in excess of coverage which Landlord may carry. ARTICLE X EMINENT DOMAIN 10.1 If after the execution of this lease and prior to the expiration of the Lease Term the whole of the Demised Premises shall be appropriated by right of eminent domain (which, for the purposes of this Article X, includes any conveyance made to the condemning authority under the threat of condemnation), then the Lease Term shall cease as of the time the fee simple interest shall be vested in the taking authority, and rent and all other payment under this lease shall be apportioned and adjusted as of the time of termination. Tenant shall have the right at its election to continue to occupy the Demised Premises, to the extent permitted by law, for all, or such part, as Tenant may elect, of the period between the time of such appropriation and the time when physical possession of the Demised Premises shall be taken, subject to the provisions of this lease insofar as the same may be made applicable to such occupancy by Tenant, but the amount, if any, charged to Tenant by taking authority or its assigns for rent or use and occupancy shall be deductible from the rent paid or payable by Tenant hereunder. 10.2 If by right of eminent domain or any other action of any public authority: (i) a part of the Demised Premises shall be appropriated and if as a result thereof (and all previous takings) the ground floor area of the Demised Premises shall be reduced to less than ninety percent (90%) of the ground floor area set forth in Schedule A of this lease, or (ii) a part of the Common Areas shall be appropriated and if as a result thereof (and all previous takings) the Common Areas (defined in Paragraph 2 of Schedule B to this lease) shall be reduced in size by twenty percent (20%) or more, or (iii) the Parking Areas shall cease to be satisfactory access for pedestrians and motor vehicles to and from Whitman Avenue, and E. 20th Street, or -22- (iv) there shall cease to be satisfactory access for pedestrians between the Parking Areas and the Demised Premises, or (v) there shall cease to be satisfactory access for trucks to and from the service door(s) of the Demised Premises, or (vi) the lease of the Inducement Tenant shall be terminated, or (vii) any part of the Demised Premises shall be appropriated during the last year of the Lease Term, then Tenant may, if Tenant shall so elect, terminate the Lease Term by giving Landlord notice of the exercise of such an election within twenty (20) days after the receipt by Tenant from Landlord of notice of such appropriation. If by right of eminent domain any part of the Demised Premises shall be appropriated during the last year of the Lease Term, then Landlord may, if Landlord shall so elect, terminate the Lease Term by giving Tenant notice to the exercise of such election within twenty (20) days after the receipt by Landlord of notice of such appropriation. If Landlord shall give such notice of termination at a time when Tenant shall have the right to exercise an election to extend the Lease Term an extension period of at least five (5) years, and if within fifteen (15) days after Tenant shall receive such notice of termination from Landlord, Tenant shall exercise said election, then such notice of termination shall become void and of no force or effect. In the event of a termination under the provisions of this Section, the termination shall be effective as of the time that physical possession of the premises so appropriated shall be taken, and rent and all other payments pursuant to the lease shall be apportioned and adjusted as of the time of termination, but the amount charged by the taking authority or its assigns for rent or use and occupancy between the time of appropriation and the time of termination, shall be deductible from rent paid or payable hereunder. If there shall be an appropriation by right of eminent domain and if the Lease Term shall not be terminated as aforesaid, then the Lease Term shall continue in full force and effect and Landlord shall, within a reasonable time after physical possession is taken of the premises appropriated, restore what may remain of the Demised Premises and of the Common Areas and Common Facilities to substantially the same condition they, respectively, were in prior thereto, subject to reduction in size thereof. A just proportion of the rent and all other amounts payable by Tenant pursuant to this lease, according to the nature and extent of the injury to Tenant's business, shall be suspended or abated until the forty-fifth (45th) day after what may remain of the Demised Premises and the Common Areas and Common Facilities shall be restored, as aforesaid, and thereafter a just proportion of the rent and such other amounts, according to the nature and extent of the part of the Demised Premises and the Common Areas so appropriated, shall be suspended or abated for the balance of the Lease Term, for the purpose of which rent shall be deemed allocable fifty percent (50%) to the Demised Premises and fifty percent (50%) to the Common Areas and Common Facilities. -23- 10.3 Landlord reserves to itself, and Tenant assigns to Landlord, all rights to damages accruing on account of any appropriation by eminent domain or by reason of any act of any public authority for which damages are payable. Tenant agrees to execute such instruments of assignments as may be reasonably requested by Landlord in any petition for the recovery of such damages if requested by Landlord, and to turn over to Landlord any damages that may be recovered in any such proceeding. It is agreed and understood, however, that Landlord does not reserve to itself and Tenant does not assign to Landlord: (i) the cost of trade fixtures installed by Tenant or any person claiming under Tenant at the sole cost and expense of Tenant or such other person, (ii) the unamortized cost to Tenant of any improvements made by Tenant to the realty which shall not remain or be restored in the part of the Demised Premises not taken including any unreimbursed amounts subject to recapture as provided in Section 9.4, (iii) moving and relocation costs, and (iv) the loss of tenant's leasehold interest (bargain value of the lease) (collectively "Tenant's Damages"). If any appropriation by right of eminent domain shall result in the termination of the Lease Term as above provided, Landlord shall pay to Tenant from the amount awarded to it as damages therefore an amount equal to Tenant's Damages except to the extent that Tenant receives a separate award from the condemning authority to cover such losses; provided that any payment to Tenant for Tenants Damages (excluding any unreimbursed amounts subject to recapture as provided in Section 9.4) shall not reduce any award to Landlord below the amount awarded for or allocable to the sum of the then present value of the income stream to the Landlord under this lease plus the then present value of the Landlord's remainder interest in the fee title to the Demised Premises upon the termination of the lease. The unamortized cost to Tenant of any improvement made by Tenant to the realty shall be determined in accordance with the straight-line method of amortization and the life expectancy of such improvement used by Tenant for federal income tax purposes. As used hereinbefore, "the cost to Tenant" of any improvement shall mean the actual cost to Tenant of making such improvement less any contribution thereto, or reimbursement thereof, made by Landlord to Tenant, including, without limitation, reimbursement effected by deductions from rent. ARTICLE XI INDEMNIFICATION 11.1 Tenant shall save Landlord harmless from, and defend and indemnify Landlord against, any and all injury, loss or damage or claims for injury, loss or damage, of whatever nature, to any person or property caused by or resulting from any act, omission or negligence of Tenant or any subtenant or concessionaire of Tenant or any agent or employee of Tenant or any subtenant or concessionaire of Tenant. It is a condition of this save harmless and indemnification that Tenant shall receive prompt notice of any such claim against Landlord. -24- 11.2 Landlord shall save Tenant harmless from, and defend and indemnify Tenant against, any and all injury, loss or damage or claims for injury, loss or damage, of whatever nature, to any person or property caused by or resulting from any act, omission or negligence of Landlord or its agents or employees. It is a condition of this save harmless and indemnification that Landlord shall receive prompt notice of any such claim against Tenant. 11.3 The provisions of this Article XI shall be subject to the provisions of Section 14.1 below. 11.4 If and when Tenant shall elect to maintain a policy of comprehensive general liability insurance with respect to the Demised Premises, and if Landlord shall be named as an additional insured thereunder, then in such event Tenant shall, upon request (a) deliver certificates of such insurance to Landlord and give Landlord not less than ten (10) days notice of cancellation or expiration thereof, and (b) pay the amount of any so-called deductible applicable to any claim under such policy involving Landlord and/or Tenant. If and when Tenant shall elect not to maintain such a policy of insurance or not to name Landlord as additional insured thereunder, then in such event (in addition to any other insurance which Landlord may carry at its own expense) Landlord may, at its election, maintain a policy of comprehensive general liability insurance with respect to the Demised Premises, naming only Landlord as insured ("Landlord's Insurance Policy") and if Landlord shall so elect then (i) Landlord shall give notice thereof to Tenant and (ii) so long as Tenant shall so elect not to maintain such a policy, and if the net worth of Tenant and Guarantor (as determined by generally accepted accounting principles) are both then less than $75,000,000.00, Tenant shall reimburse Landlord for the reasonable cost to Landlord of the premiums upon Landlord's Insurance Policy, but Tenant's liability under this clause shall not exceed the cost of insurance coverage for Landlord having limits which do not exceed $2,000,000 for injury in any one occurrence. All public liability and property damage policies shall contain a provision that Landlord, although named as an insured, shall nevertheless be entitled to recovery under said policies for any loss occasioned by Landlord, its employees or agents. ARTICLE XII DEFAULT 12.1 The failure by Tenant to make, when due, any payment of rent or other sum required to be made by Tenant hereunder, where such failure shall continue for a period of fifteen (15) days after written notice from Landlord of Tenant's failure to make such payments shall constitute a default ("Event of Default") hereunder by Tenant. 12.2 Upon the occurrence of an Event of Default under Section 12.1, Landlord may terminate this lease upon written notice to Tenant. Should Landlord exercise its rights hereunder, Tenant shall be given sixty (60) days in which to remove its personal property. Landlord -25- may dispose of any such property remaining in the Demised Premises thereafter in the manner provided by law. 12.3 In the event Landlord terminates the lease as provided in Section 12.2, Tenant shall remain liable for the Minimum Rent and all other payments reserved herein plus the reasonable cost of obtaining possession of and re-letting the Demised Premises, including, without limitation, any reasonable repairs and alterations necessary to prepare the Demised Premises for re-letting, less the rents received from such re-letting. Any amounts so owing by Tenant shall be paid monthly on the date herein provided for the payment of Minimum Rent. 12.4 After any assignment of Tenant's interest in this lease, Landlord shall not exercise any rights or remedies under this Article XII on account of any default in payment of any rent or other sum of money unless Landlord shall give notice to the Tenant named herein, as well as the tenant in possession, of such default and the opportunity to cure each such default within the period of time after such notice provided in Section 12.1 of this lease. After such notice, if the Lease Term shall be terminated pursuant to the provisions of this Article XII, then the tenant named herein shall not be liable for the payment of any rent or for the performance or observance of any agreements or conditions to be performed or observed which become due or arise after the date of such termination or with respect to periods following such termination unless at or about the time of such termination Landlord shall have offered to the tenant named herein a lease for the balance of the Lease Term upon the provisions of this lease contained to be thereafter performed by the parties hereunder; the tenant named herein shall have a period of thirty (30) days after receipt of such offer to accept such offer. If the tenant named herein shall accept Landlord's offer for such a lease within said thirty (30) days, then such lease shall be deemed to mitigate Landlord's damages -26- and Landlord waives all its claims under Section 12.2(b) and (c) hereinabove with respect to the aforesaid termination. 12.5 Landlord shall not have any lien, for the performance of any obligations of Tenant, upon any fixtures, machinery, equipment, or goods, wares or merchandise or other personal property, and Landlord hereby expressly waives the provisions of any law giving to Landlord such a lien. 12.6 If any person to whom Tenant shall not then be paying rent under this lease shall demand payment of rent from Tenant, or any other amount payable to Tenant under this lease, alleging his or its right to receive such rent or other amount as a result of a transfer of Landlord's interest in this lease or otherwise, Tenant shall not be obligated to honor such demand unless Tenant shall receive written instructions to do so from the person to whom Tenant shall then be paying rent or shall otherwise receive evidence satisfactory to Tenant of the right of the person making the demand. The withholding of rent, or any other amount payable by Tenant under this Lease, by Tenant pending the determination of the right of the party making the demand shall not be deemed to be a default on the part of Tenant. ARTICLE XIII SELF-HELP 13.1 Upon the failure by Tenant to observe or perform any of the covenants or provisions of this lease to be observed or performed by Tenant, where such failure shall continue for a period of thirty (30) days after written notice from Landlord to Tenant of such failure (except if the nature of Tenant's default is such that more than thirty (30) days are reasonably required for its cure and Tenant commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion), Landlord may, at its option, without waiving any claim for damages for breach of agreement, at any time thereafter cure such default for the account of Tenant, and any amount paid or any contractual liability incurred by Landlord in so doing shall be deemed paid or incurred for the account of Tenant, and Tenant agrees to reimburse Landlord therefor; provided that Landlord may cure any such default as aforesaid prior to the expiration of said thirty-day period but after notice to Tenant, if the curing of such default prior to the expiration of said thirty-day period is reasonably necessary to protect the real estate or Landlord's interest therein, or to prevent injury or damage to persons or property. If Tenant shall fail to reimburse Landlord upon demand for any amount paid for the account of Tenant hereunder, said amount shall be added to and become due as part of the next payment of rent due hereunder. Except as specifically provided in Article XII, Landlord specifically waives its rights under paragraph 3 of Section 1161 of the California Code of Civil Procedure. To the extent Tenant's failure to perform under this lease cannot reasonably be cured by Landlord as provided in this Section 13.1, Tenant acknowledges that all legal and equitable remedies shall be available to Landlord including without limitation -27- injunctions and specific performance except as termination rights are limited as provided in Article XII. 13.2 If Landlord shall default in the performance or observance of any agreement or condition in this lease, or shall default in the payment of any tax or other charge which shall be a lien upon the Demised Premises or in the payment of any installment of principal or interest upon any mortgage which shall be prior in lien to the lien of this lease, and if Landlord shall not cure such default within thirty (30) days after notice from Tenant specifying the default, (or if such default cannot reasonably be cured within such thirty-day period, then shall not within said thirty-day period commence to cure such default and thereafter prosecute the curing of such default to completion with due diligence), Tenant may, at its option, without waiving any claim for damages for breach of agreement, at any time thereafter cure such default for the account of Landlord, and any amount paid or any contractual liability incurred by Tenant in so doing shall be deemed paid or incurred for the account of Landlord and Landlord agrees to reimburse Tenant therefore or save Tenant harmless therefrom; provided that Tenant may cure any such default as aforesaid prior to the expiration of said thirty-day period, but after said notice to Landlord, if the curing of such default prior to the expiration of said thirty-day period is reasonably necessary to protect the Demised Premises or Tenant's interest therein or to prevent injury or damage to persons or property or to permit Tenant to conduct its usual business operations in the Demised Premises. If Landlord shall fail to reimburse Tenant upon demand for any amount paid for the account of Landlord hereunder, said amount may be deducted by Tenant from the next or any succeeding payments of rent due hereunder or any other amounts due from Tenant to Landlord until Tenant is thereby reimbursed therefor in full. ARTICLE XIV WAIVER OF SUBROGATION 14.1 Each of Landlord and Tenant hereby releases the other to the extent of its insurance coverage, from any and all liability for any loss or damage caused by fire or any of the extended coverage casualties or any other casualty insured against and from any and all liability for any personal injury or property damage, even if such fire or other casualty, injury or damage shall be brought about by the fault or negligence of the other party, or any persons claiming under such other party, provided, however, this release shall be in force and effect only with respect to loss or damage occurring during such time as the releasor's policies of fire and extended coverage insurance and liability insurance shall contain a clause to the effect that this release shall not affect such policies or the right of the releasor to recover thereunder. Each of Landlord and Tenant agrees that its fire and extended coverage insurance policies shall include such a clause to long as the same is obtainable and is includible without extra cost, or if such extra cost is chargeable therefor, so long as the other party pays such extra cost. If extra cost is chargeable therefor, each party will advise the other thereof and of the amount thereof, and the other -28- party, at its election, may pay the same but shall not be obligated to do so. 14.2 Except as provided in Section 14.1, neither Section 19.9 of this lease nor anything else in this lease contained shall be deemed to release either party hereto from liability for damages resulting from the fault or negligence of said party or its agents or employees or from responsibility for repairs necessitated thereby or by any default thereof hereunder. ARTICLE XV MORTGAGE SUBORDINATION 15.1 Tenant shall, upon the request of Landlord, in writing subordinate this lease and the lien hereof from time to time to the lien of any future first mortgage to a bank, insurance company or similar financial institution, irrespective of the time of execution or time of recording of such mortgage or mortgages, provided the holder of such mortgage shall first enter into an agreement with Tenant, in recordable form, and substantially in the form of Schedule D, that in the event of foreclosure or other right asserted under the mortgage by the holder or any assignee thereof, this lease and the rights of Tenant hereunder shall continue in full force and effect and shall not be terminated or disturbed except in accordance with the provisions of this lease. Tenant shall, if requested by the holder of any such mortgage, be a party to said agreement, provided such agreement does not alter the terms of this lease, and shall agree in substance that if the mortgagee or any person claiming under such mortgagee shall succeed to the interest of Landlord in this lease, Tenant shall recognize such mortgagee or person as its Landlord under the terms of this lease. Tenant agrees that Tenant shall, upon the request of Landlord, execute, acknowledge and deliver any and all instruments necessary to effectuate, or to give notice of, such subordination, provided such instruments do not alter the terms of this lease and provided Landlord shall reimburse Tenant for any costs (including attorneys' fees) incurred by Tenant in connection with its review and or execution of any such instruments. The word "mortgage" as used herein includes mortgages, deeds of trust and similar instruments and modifications, consolidations, extensions, renewals, replacements or substitutes thereof. 15.2 Landlord agrees that neither the Shopping Center, nor the construction thereof, nor any expansion thereof, shall be financed by, or subject to, any so-called economic development or industrial revenue bonds or similar debt instruments, or any security interest given in connection therewith, which shall, pursuant to any governmental laws, ordinance or regulations require or impose (i) any restriction, condition or limitation whatsoever upon or with respect to any expenditures which may be made by Tenant and/or any business organization affiliated with Tenant or (ii) any obligation to file any reports or returns with respect thereto. -29- 15.3 Upon thirty (30) days prior written notice from Landlord or Tenant, the requested party shall from time to time execute and deliver to the requesting party, or any person designated by the requesting party, a written estoppel statement certifying that: (i) this Lease represents the entire agreement between Landlord and Tenant and is unmodified and in full force and effect (or, if modified, stating the nature of such modification and certifying that this Lease, as so modified, is in full force and effect); (ii) the dates to which the rental and/or other charges are paid in advance, if any; (iii) the commencement and termination dates of the lease term; (iv) there has been no assignment or other transfer of this Lease or any interest herein by Tenant or Landlord; (v) to the best of the requested party's knowledge, there are no uncured defaults on the part of the requesting party under this Lease and the requested party has no right of rent abatement or damages based thereon (or if a default exists, the nature and amount thereof); and (vi) such other facts as reasonably may be requested with respect to the material provisions of this Lease by the requesting party or any present or prospective purchaser, lender or assignee of this Lease. Any such certificate may be relied upon by any such party in their transactions with Landlord or Tenant. 15.4 Upon the occurrence of any default by Landlord hereunder, written notice to that effect shall be sent by Tenant to each lender of Landlord with a lien against the property including the Demised Premises provided Landlord has sent Tenant written notice advising of the existence of such Lender and the address to be used for its notice ("Landlord Lender"). Tenant shall make such notice(s) to Landlord Lender(s) at the same time notice of such notice of default is sent to Landlord, and each Landlord Lender shall have the same opportunity to cure the default as Landlord has. 15.5 No Landlord Lender shall become personally liable for the performance or observance of any covenants or conditions to be performed or observed by Landlord unless and until such Landlord Lender becomes the owner of Landlord's interest hereunder. Thereafter such Landlord Lender shall be liable for the performance and observance of such covenants and conditions as a "Landlord" as provided in Section 19.19 hereof, and subject to the limitations provided therein. ARTICLE XVI ASSIGNMENT Tenant shall have the right at any time and from time to time to sublet all or any part of the Demised Premises or assign this lease; provided, however, that notwithstanding any assignment of Tenant's interest in this lease or any subletting of the whole or any part of the Demised Premises, Tenant and Guarantor shall remain primarily liable for the performance of all agreements of Tenant hereunder, except as expressly otherwise provided in Section 12.5. -30- ARTICLE XVII (Intentionally omitted] ARTICLE XVIII LEASEHOLD MORTGAGES 18.1 Tenant may execute and deliver one or more mortgages, deeds of trust or other leasehold security agreements ("Leasehold Indentures") without the consent of Landlord. If either Tenant or the mortgagee, grantee or corporate trustee under any such Leasehold Indenture sends Landlord a notice advising of the existence of such Leasehold Indenture and the address of the mortgagee, grantee or corporate trustee thereunder for the service of notices, such mortgagee, grantee or corporate trustee shall be deemed to be a "Leasehold Lender." Landlord shall be under no obligation under this Article XVIII to any mortgagee, grantee or corporate trustee under a Leasehold Indenture who is not a Leasehold Lender. 18.2 Upon the occurrence of any Event of Default hereunder by Tenant, written notice to that effect shall be sent by Landlord to each Leasehold Lender at the same time notice of such Event of Default is sent to Tenant, and each Leasehold Lender shall have the same opportunity to cure the default as Tenant has as provided in Section 12.1 herein. 18.3 If any Leasehold Lender or a person designated by a Leasehold Lender shall either become the owner of the interest of Tenant hereunder upon the exercise of any remedy provided for in the Leasehold Indenture or shall enter into a new lease with Landlord as provided in Section 18.4, such Leasehold Lender or such person shall have the right to assign to any person such interest or such new lease upon notice to Landlord without obtaining the consent or approval of Landlord, except that, if neither Tenant nor Guarantor has a net worth of Seventy-Five Million Dollars ($75,000,000) or more, then Landlord's reasonable consent to such assignment is required. 18.4 If this lease is terminated for any reason or is rejected or disaffirmed pursuant to bankruptcy law or other law affecting creditors' rights, any Leasehoid Lender, or a person designated by any Leasehold Lender, shall have the right, exercisable by notice to Landlord within ten (10) days after the effective date of termination, rejection or disaffirmance to enter into a new lease of the Demised Premises with Landlord. The term of the new lease shall begin on the date of the termination of this lease and shall continue for the remainder of the Lease Term. Such new lease shall otherwise contain the same terms and conditions as those set forth herein, except for requirements which are no longer applicable or have already been performed, provided that all defaults which are susceptible of being remedied by the payment of money shall have been cured, and provided further that such new lease shall require the tenant thereunder promptly to commence and expeditiously continue to remedy all other -31- defaults on the part of Tenant hereunder to the extent reasonably possible. It is the intention of the parties hereto that such new lease shall have the same priority relative to other rights or interests to or in the fee estate in the land covered by this lease and Landlord covenants to use commercially reasonable efforts to cause to be subordinated to such new lease any lien or encumbrance which is subject to this lease. The provisions of this Article XVIII shall survive the termination of this lease and shall continue in full force and effect thereafter to the same extent as if this Section 18.4 were a separate and independent contract by and among Landlord, Tenant and each Leasehold Lender. From the date on which any Leasehold Lender shall serve upon Landlord the aforesaid notice of the exercise of its rights to enter into a new lease, such Leasehold Lender may use and enjoy the Demised Premises without hindrance or interference by Landlord. 18.5 No Leasehold Lender shall become personally liable for the performance or observance of any covenants or conditions to be performed or observed by Tenant unless and until such Leasehold Lender becomes the owner of Tenant's interest hereunder upon the exercise of any remedy provided for in any Leasehold Indenture or enters into a new lease with Landlord as herein provided. Thereafter such Leasehold Lender shall be liable for the performance and observance of such covenants and conditions only so long as such Leasehold Lender owns such interest or is tenant under such new lease. 18.6 Landlord agrees that the exercise of its rights under this lease in case of an Event of Default shall not, if the Leasehold Lender accepts a new lease pursuant to this Article XVIII, result in the merger of the estate of the sublandlord under any sublease with the estate of the subtenant thereunder. The exercise of any rights of a Leasehold Lender under this Article XVIII shall not relieve Zayre Corp. of its obligations under the lease guarantee and Landlord's obligations hereunder shall be conditioned upon receipt of a written approval or consent by Zayre Corp., within 21 days after the Leasehold Lender provides a notice of its election, acknowledging that the performance of such obligations shall not relieve Zayre Corp. of its obligations under the lease guarantee. If Landlord does not receive such written approval or consent, Landlord may terminate its obligations by delivering a notice of termination to the Leasehold Lender. Failure by Zayre to deliver such approval or consent shall not relieve it of any prior liability under its guarantee or of any subsequent liability if Landlord does not terminate Leasehold Lender's new lease. 18.7 Without the prior written consent of each Leasehold Lender, Landlord will not accept a voluntary surrender of this lease or the estate created hereby and will not consent to any amendment of this lease. -32- ARTICLE XIX GENERAL 19.1 INTERPRETATION. It is the intention of the parties hereto that if any provision of this lease is capable of two constructions, one of which would render the provision void and the other of which would render the provision valid, the provision shall have the meaning which renders it valid. 19.2 SUCCESSORS AND ASSIGNS. The words "Landlord" and "Tenant" and the pronouns referring thereto, as used in this lease, shall mean, where the context requires or admits, the persons named herein as Landlord and as Tenant, respectively, and their respective heirs, legal representatives, successors and assigns, irrespective of whether singular or plural, masculine, feminine or neuter. The agreements and conditions in this lease contained on the part of Landlord to be performed and observe shall be binding upon Landlord and its heirs, legal representatives, successors and assigns and shall inure to the benefit of Tenant and its successors and assigns, and the agreements and conditions on the part of Tenant to be performed and observed shall be binding upon Tenant and its successors and assigns and shall inure to the benefit of Landlord and its heirs, legal representatives, successors and assigns. If Landlord shall be more than one person, the obligations of Landlord hereunder shall be joint and several. 19.3 DELAYS. In any case where either party hereto is required to do any act (other than make a payment of money) delays caused by or resulting from Act of God, war, civil commotion, fire or other casualty, labor difficulties, general shortages of labor, materials or equipment, government regulations or other causes beyond such party's reasonable control shall not be counted in determining the time when the performance of such act must be completed, whether such time be designated by a fixed time, a fixed period of time or "a reasonable time". In any case where work is to be paid for out of insurance proceeds or condemnation awards, due allowance shall be made, both to the party required to perform such work and to the party required to make such payment, for delays in the collection of such proceeds and awards. The provisions of this Section shall not apply to the dates set forth in Articles IV and V. 19.4 HOLDING OVER. If Tenant or any person claiming under Tenant shall remain in possession of the Demised Premises or any part thereof after the expiration of the Lease Term without any agreement in writing between Landlord and Tenant with respect thereto, prior to acceptance of rent by Landlord the person remaining in possession shall be deemed a tenant at sufferance and after acceptance of rent by Landlord the person remaining in possession shall be deemed a tenant from month to month, subject to the provisions of this lease insofar as the same may be made applicable to a tenancy from month to month. The monthly rent for such person shall be equal to 125% of the rent for the immediately preceding one month period. -33- 19.5 WAIVERS. Failure of either party to complain of any act or omission on the part of the other party, no matter how long the same may continue, shall not be deemed to be a waiver by said party of any of its rights hereunder. No waiver by either party at any time, express or implied, or any breach of any provision of this lease shall be deemed a waiver of a breach of any other provision of this lease or a consent to any subsequent breach of the same or any other provision. If any action by either party shall require the consent or approval of the other party, the other party's consent to or approval of such action on any one occasion shall not be deemed a consent to or approval of said action on any subsequent occasion or a consent to or approval of any other action on the same or any subsequent occasion. Any and all rights and remedies which either party may have under this lease or by operation of law, either at law or in equity, upon any breach, shall be distinct, separate and cumulative and shall not be deemed inconsistent with each other; and no one of them, whether exercised by said party or not, shall be deemed to be in exclusion of any other; and any two or more or all of such rights and remedies may be exercised at the same time. Without limiting the generality of the foregoing, if any restriction contained in this lease for the benefit of either party shall be violated, such party, without waiving any claim for breach of agreement against the other party, may bring such proceedings as it may deem necessary, either at law or in equity, in its own name or in the name of the other party, against the person violating said restriction. 19.6 DISPUTES. It is agreed that if at any time a dispute shall arise as to any amount or sum of money to be paid by one party to the other party under the provisions hereof, the party against whom the obligation to pay the money is asserted shall have the right to make payment "under protest", such payment not being regarded as a voluntary payment and there shall survive the right on the part of said party to institute suit for recovery of such sum and if it shall be adjudged that there was no legal obligation on the part of said party to pay such sum or any part thereof, said party shall be entitled to recover such sum or so much thereof as it was not legally required to pay under the provisions of this lease; and if any time a dispute shall arise between the parties hereto as to any work to be performed by either of them under the provisions hereof, the party against whom the obligation to perform the work is asserted may perform such work and pay the cost thereof "under protest" and the performance of such work shall in no event be regarded as a voluntary performance, and there shall survive the right on the part of said party to institute suit for the recovery of the cost of such work, and if it shall be adjudged that there was no legal obligation on the part of said party to perform the same or any part thereof, said party shall be entitled to recover the cost of such work or the cost of so much thereof as said party was not legally required to perform under the provisions of this lease. 19.7 QUIET ENJOYMENT. Landlord agrees that upon Tenant's paying the rent and performing and observing the agreements and conditions on its part to be performed and observed, Tenant shall and may peaceably and quietly have, hold and enjoy the Demised Premises -34- and all rights of Tenant hereunder during the Lease Term without any manner of hindrance or molestation. 19.8 NOTICES. Any and all notices, demands or other communications required or desired to be given hereunder by any party shall be in writing and shall be validly given or made to another party by either serving personally or by mailing in the United States mail, certified or registered, postage prepaid, return receipt requested, or by Federal Express, Purolator Courier, Emery Air Freight, U.S. Post Office Express Mail, or similar overnight courier which delivers only upon signed receipt of addressee. If such notice, demand or other communication be served personally, service shall be conclusively deemed made at the time of such personal service. If such notice, demand or other communication be given by mail, such shall be conclusively deemed given forty-eight (48) hours after deposit thereof in the United States mail or twenty-four (24) hours after deposit thereof with such overnight courier, provided the same is addressed to the party to whom such notice, demand or other communication is to be given as hereinafter set forth: To Landlord: Douglas W. Bradford 2694 Bishop Drive, Suite 202 San Ramon, CA 94583 With a Copy to: Edward T. Marshall c/o Wilson, Sher, Marshall & Peterson One Kaiser Plaza, Suite 1350 Oakland, CA 94612 To Landlord Lender, if any, if notice is required under Section 15.4: (address to be supplied in writing by Landlord to Tenant) To Tenant: HomeClub, Inc. 140 Orangefair Mail Suite 100 Fullerton, California 92632 Attention: V.P. Real Estate With a copy to: Zayre Corp. Framingham, Mass. 01701 Attention: Corporate Counsel To Leasehold Lender, if any, if notice is required under Section 18.2: (address to be supplied in writing by Tenant to Landlord) -35- 19.9 COSTS. Wherever in this lease provision is made for the doing of any act by any person it is understood and agreed that such act shall be done by such person at its own cost and expense unless a contrary intent is expressed. 19.10 THIS INSTRUMENT. This lease is transmitted for examination only and does not constitute an offer to lease, and this lease shall become effective only upon execution thereof by the parties thereto. This instrument contains the entire and only agreement between the parties, and no oral statements, representations matter not contained in this instrument shall have any force or effect. This lease shall not be modified in any way except by a writing subscribed by both parties. 19.11 HEADINGS. The headings for the various provisions of this lease are used only as a matter of convenience for reference, and are not to be considered a part of this lease or used in determining the intent of the parties to this lease. 19.12 BROKERS. Each of Landlord and Tenant warrants and represents to the other that it has dealt with no broker in connection with this lease. Each party shall defend, indemnify and hold harmless the other party from and against all commissions, fees and expenses, and all claims therefor, in connection with this lease of, or by, any broker alleging he, she or it has dealt with the indemnitor party, including without limitation, reasonable attorneys' fees. 19.13 CHOICE OF LAW. This lease shall be governed by and construed pursuant to the laws of the State of California. 19.14 SEVERABILITY. Should any provision of this lease be or become invalid, void, illegal or unenforceable, it shall be considered separate and severable from this lease and the remaining provisions shall remain in force and be binding upon the parties hereto as though such provision had not been included. 19.15 INTEREST ON RENT. If Tenant tenders rent payments after their due dates three or more times in any given twelve month period, and if Landlord gave Tenant notice of such delinquency each time, and if Tenant also fails to pay the third such payment within fifteen days of Landlord's notice of such delinquency ("Late Payment ") then such Late Payment and each Late Payment (which Tenant fails to pay within 15 days of Landlord's notice of such delinquency) thereafter in the same twelve month period, shall bear interest commencing on its due date, until paid, at the rate of twelve percent per annum, provided that a payment shall not be deemed a Late Payment unless Landlord gave Tenant a notice of delinquency and Tenant failed to tender the rent payment within 15 days after such notice. Said amount shall become payable as additional rent, and Tenant shall pay Landlord such amount without notice or demand with the next month's payment of rent. 19.16 SCHEDULES INCORPORATED. Schedules A, B, C, D, E and F -36- attached hereto are hereby made a part hereof and incorporated herein to the same extent as if fully set forth herein. 19.17 ATTORNEY FEES. In the event that either Landlord or Tenant shall institute any action or proceeding against the other relating to the provisions of this lease, then the unsuccessful party shall reimburse the prevailing party for all reasonable attorney's fees and costs incurred in connection therewith, including, without limita- tion, all such fees or costs incurred on any appeal from such action or proceeding. 19.18 PURCHASE OF LAND FOR SHOPPING CENTER. HomeClub acknowledges that Landlord does not own the land for the Shopping Center as of the execution of this lease. Landlord represents that as of the execution of this lease by Landlord it is in escrow to purchase the land for the Shopping Center. This lease is conditioned upon Landlord's purchase of said land. If Landlord breaches its agreement to purchase said land, such breach shall also constitute a breach of this lease, except that, if Landlord fails to purchase said land because it failed to satisfy a condition of said purchase agreement notwithstanding Landlord's best efforts, said failure of the condition shall not constitute a breach of this Lease. If Landlord fails to purchase said land for any reason other than its breach, this lease shall become null and void and neither Landlord nor Tenant shall have any rights or remedies against the other in connection with this lease. 19.19 The liability of Landlord to Tenant for any default by Landlord under this Lease shall be limited to the interest of Landlord in the Demised Premises and Landlord's interest, if any, in the Shopping Center, and/or the proceeds from any sale or other transfer of the Demised Premises and/or Landlord's interest, if any, in the Shopping Center. Tenant agrees to look solely to such interests and/or such proceeds for the recovery of any judgment against Landlord, and Landlord shall not be personally liable for any such judgment or deficiency after Tenant's execution upon such interests and/or such proceeds. The limitation on liability contained in this Section shall inure to the benefit of Landlord's heirs, personal representatives, successors and assigns and their respective partners, shareholders, officers, directors, trustees, beneficiaries, agents and employees. Under no circumstances shall any such person have any personal liability for the performance of Landlord's obligations under this Lease. The word "Landlord", as used herein, means only the owner for the time being of Landlord's interest in this lease, that is, in the event of any transfer of landlord's interest in this lease, the transferor shall cease to be liable, and shall be released from all liability for the performance or observance of any agreements or con- ditions on the part of Landlord to be performed or observed subse- quent to the time of said transfer, provided that from and after said transfer the transferee shall have agreed with Tenant, in writing in recordable form, that such transferee shall have assumed and have agreed to perform the obligations of Landlord under this lease occur- ring subsequent to the time of said transfer. -37- 19.20 Upon reasonable notice to Tenant (but not less than 3 days in advance), and only if Tenant is given an opportunity and permitted to accompany, Landlord, its agents and employees shall have the right to enter the Demised Premises at all times during normal business hours to examine the same, to show them to prospective purchasers or lenders, to make such repairs as Landlord is obligated to make pursuant to this Lease, and to exercise such rights of self-help as Landlord is entitled to exercise pursuant to this Lease. In addition, during the six month period prior to the expiration of the Lease term or any renewal term, unless Tenant has exercised its option to extend the Lease term, Landlord may exhibit the Demised Premises to prospective Tenants, upon reasonable notice to Tenant (but not less than 3 days in advance), and only if Tenant is given an opportunity and permitted to accompany. -38- ARTICLE XX SALE OF DEMISED PREMISES BY LANDLORD 20.1 In the event of any sale, exchange or other transfer of the Demised Premises by Landlord and an assignment by Landlord of this Lease, Landlord shall be entirely relieved of all liability under the terms, covenants and conditions set forth in this Lease arising out of any act or omission occurring after the assignment of this Lease, provided that the assignee assumes Landlord's covenants and obliga- tions arising after the date of such assignment. Tenant shall attorn to such new Landlord as of the date of the assignment. Upon ten (10) days prior written notice from Landlord, Tenant shall from time to time execute and deliver to Landlord or any person designated by Landlord an estoppel certificate stating the current status of the material provi- sions of this Lease, as specified in Section 15.5 above. Any such statement may be relied upon by any purchaser or other transferee of the Demised Premises. IN WITNESS WHEREOF, the parties hereto have caused this lease to be executed under seal as of the day and year first above written. LANDLORD: DOUGLAS W. BRADFORD, an individual /s/ Douglas W. Bradford ---------------------------------------- TENANT: HOMECLUB, INC., a Delaware corporation By: ------------------------------------ Its: President ------------------------------- By: ------------------------------------ Its: Vice President ------------------------------- -39- SCHEDULE A The Demised Premises shall consist of a one-story building (the "Building"), to be constructed by Landlord as herein provided, con- taining one hundred three thousand nine hundred and nine (103,909) square feet of floor area having a depth and width of two hundred eighty-one point four feet by three hundred sixty-nine point four feet (281.4 x 369.4) and other dimensions as shown upon the plan attached hereto ("the Lease Plan"), plus an exterior nursery area containing nine thousand eight hundred and eighty (9,880) square feet of floor area, all as shown on the Lease Plan. In addition, Tenant shall have the exclusive right to use certain service areas adjacent to the De- mised Premises which contain an exterior loading dock and compactor pad as shown on the Lease Plan. It is expressly understood and agreed that said service areas and the exterior nursery area shall not be included in computing Tenant's Fraction (defined in Section 6.1) for purposes of Article VI and Paragraph 8 of Schedule B. If after completion of Landlord's Construction Work the Building shall contain less than the floor area required above then, in addition to all other remedies of Tenant, as a result thereof, the Minimum Rent payable by Tenant pursuant to Section 5.1 shall be reduced proportionately. Landlord agrees that the name of the Shopping Center shall not con- tain the tradename of any business operated in the Shopping Center. The Demised Premises are situated within the shopping center to be constructed by Landlord, as herein provided, at the intersection of Whitman Avenue and 20th Street. The "Shopping Center" (as defined herein) is the land, together with the buildings and other structures from time to time thereon, shown on the Lease Plan, and is more particularly described on the legal descriptions attached hereto on pages A-2 and A-3. A-1 DESCRIPTION (1) ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: LOT 4, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION", WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT WHICH IS THE INTERSECTION OF THE EAST LINE OF LOT 2, AS SHOWN ON SAID MAP, WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99, SAID POINT BEING DISTANT 90.00 FEET SOUTHWESTERLY MEASURED AT A RIGHT ANGLE FROM THE BASE LINE AT ENGINEER'S STATION (C-1) 488+87.54 OF THE DEPARTMENT OF PUBLIC WORKS SURVEY ON ROAD 03-BUT-99 FROM POST MILE 30.0 TO 37.3; THENCE FROM SAID POINT OF BEGINNING NORTH 32 DEG. 24' 21" WEST, 718.93 FEET; THENCE ALONG A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 2940.00 FEET, THROUGH AN ANGLE OF 2 DEG. 25' 14", AN ARC DISTANCE OF 124.21 FEET TO A POINT OF COMPOUND CURVE; THENCE ON A CURVE TO THE LEFT, WITH A RADIUS OF 815.00 FEET, THROUGH AN ANGLE OF 25 DEG. 39' 46", AN ARC DISTANCE OF 365.04 FEET; THENCE NORTH 60 DEG. 29' 31" WEST, 603.28 FEET; THENCE NORTH 85 DEG. 37' 47" WEST, 152.81 FEET; THENCE SOUTH 80 DEG. 00' 30" WEST, 188.24 FEET TO A POINT ON THE SOUTH LINE OF 20TH STREET, AS SHOWN ON SAID MAP OF "CHICO INDUSTRIAL PARK"; THENCE ALONG SAID SOUTH LINE OF 20TH STREET ON A CURVE TO THE LEFT, TANGENT TO A LINE BEARING NORTH 79 DEG. 40' 52" EAST, HAVING A RADIUS OF 642.00 FEET, THROUGH AN ANGLE OF 15 DEG. 22' 20", AN ARC DISTANCE OF 172.25 FEET; THENCE CONTINUING ALONG SOUTH LINE OF 20TH STREET, SOUTH 30 DEG. 29' 31" EAST, 2.33 FEET; THENCE NORTH 68 DEG. 31' 52" EAST, 114.77 FEET; THENCE NORTH 64 DEG. 28' 40" EAST, 461.74 FEET TO THE INTERSECTION OF THE SOUTHERLY LINE OF SAID 20TH STREET WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99; THENCE ALONG SAID WESTERLY LINE SOUTH 30 DEG. 29' 31" EAST, 1766.67 FEET TO THE POINT OF BEGINNING. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALSO EXCEPTING THEREFROM THOSE PORTIONS DEEDED TO THE CITY OF CHICO, BY DEEDS RECORDED APRIL 28, 1980, IN BOOK 2510, PAGE 195, OFFICIAL RECORDS, AND RECORDED MAY 15, 1980, IN BOOK 1515, PAGE 276, OFFICIAL RECORDS. A-2 DESCRIPTION and (2) ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: LOT 9, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION", WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT WHICH IS THE INTERSECTION OF THE EAST LINE OF LOT 2, AS SHOWN ON SAID MAP, WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99, SAID POINT BEING DISTANT 90.00 FEET SOUTHWESTERLY MEASURED AT A RIGHT ANGLE FROM THE BASE LINE AT ENGINEER'S STATION (C-1) 488+87.54 OF THE DEPARTMENT OF PUBLIC WORKS SURVEY ON ROAD 03-BUT-99 FROM POST MILE 30.0 TO 37.3; THENCE FROM SAID POINT OF BEGINNING NORTH 32 DEG. 24' 21" WEST, 718.93 FEET; THENCE ALONG A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 2940.00 FEET, THROUGH AN ANGLE OF 2 DEG. 25' 14", AN ARC DISTANCE OF 124.21 FEET TO A POINT OF COMPOUND CURVE; THENCE ON A CURVE TO THE LEFT, WITH A RADIUS OF 815.00 FEET, THROUGH AN ANGLE OF 25 DEG. 39' 46", AN ARC DISTANCE OF 365.04 FEET; THENCE NORTH 60 DEG. 29' 31" WEST, 603.28 FEET; THENCE NORTH 85 DEG. 37' 47" WEST, 152.81 FEET; THENCE SOUTH 80 DEG. 00' 30" WEST, 188.24 FEET TO A POINT ON THE SOUTH LINE OF 20TH STREET, AS SHOWN ON SAID MAP OF "CHICO INDUSTRIAL PARK"; THENCE ALONG SAID SOUTH LINE OF 20TH STREET ON A CURVE TO THE LEFT, TANGENT TO A LINE BEARING NORTH 79 DEG. 40' 52" EAST, HAVING A RADIUS OF 642.00 FEET, THROUGH AN ANGLE OF 15 DEG. 22' 20" , AN ARC DISTANCE OF 172.25 FEET; THENCE CONTINUING ALONG SOUTH LINE OF 20TH STREET, SOUTH 30 DEG. 29' 31" EAST, 2.33 FEET; THENCE NORTH 68 DEG. 31' 52" EAST, 114.77 FEET; THENCE NORTH 64 DEG. 28' 40" EAST, 461.74 FEET TO THE INTERSECTION OF THE SOUTHERLY LINE OF SAID 20TH STREET WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99; THENCE ALONG SAID WESTERLY LINE SOUTH 30 DEG. 29' 31" EAST, 1766.67 FEET TO THE POINT OF BEGINNING. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALSO EXCEPTING THEREFROM THOSE PORTIONS DEEDED TO THE CITY OF CHICO, BE DEEDS RECORDED APRIL 28, 1980, IN BOOK 2510, PAGE 195, OFFICIAL RECORDS, AND RECORDED MAY 15, 1980, IN BOOK 1515, PAGE 276, OFFICIAL RECORDS. A-3 least ten (10) stores under the same trade name in three or more states. 10. Landlord shall maintain with respect to the Common Facilities throughout the Lease Term a policy or policies of public liability insurance in amounts of not less than One Million Dollars ($1,000,000.00) with respect to injuries to any one person and not less than Two Million Dollars ($2,000,000.00) with respect to injuries suffered in any one accident and not less than One Hundred Thousand Dollars ($100,000.00) with respect to damage to property, such policies of insurance to name Tenant as an additional insured thereunder and be issued for periods of not less than one (1) year by responsible insurance companies well rated by national rating organizations and authorized to do business in the state in which the Shopping Center is located. Provided however, not more than once every five years Tenant may require that the amount of coverage be increased on the ground that such coverage is inadequate to properly protect the parties in accordance with generally accepted insurance standards for Shopping Centers of this kind and size. Landlord shall deliver such policies to Tenant at least fifteen (15) days prior to the Commencement Date, and each renewal policy at least ten (10) days prior to the expiration of the policy it renews. In lieu of delivering any policy of insurance to Tenant, Landlord may deliver to Tenant a Certificate of the company issuing such policy. All such insurance policies shall provide that such policies shall not be cancelled without at least ten (10) days prior written notice to Tenant. 11. Landlord shall, within five days after the close of escrow for landlord's acquisition of the land for the Shopping Center, deliver to Tenant a recognition agreement from any mortgagee whose mortgage shall be prior in lien to the lien of this lease and, if Landlord shall hold a leasehold estate in all or part of the Shopping Center rather than a fee interest, a recognition agreement from the fee owner. Each such recognition agreement shall be in recordable form and shall provide that this lease and all rights of Tenant hereunder shall not be disturbed except for a cause which would permit Landlord to disturb the same hereunder. Each such recognition agreement from a mortgagee or fee owner, as the case may be, shall also be substantially in the form of Schedule D. Tenant shall have the right to terminate this lease at any time within 120 days after Tenant learns that Landlord is not in compliance with the preceding provisions of this Paragraph 11, provided that Tenant must give Landlord 30 days advance notice of such intent to terminate and Landlord may cure such non-compliance and negate said termination at any time during said 30 day period. 12. The Demised Premises are demised to Tenant with the benefit of all of the rights contained in this lease and all of the rights appurtenant to this lease and to the Demised Premises by operation of law, and are demised subject to, and with the benefit of, the following: (A) General real estate taxes not yet due and payable. (B) The Mortgage, if any, referred to in Schedule D. B-7 (C) The Permitted Exceptions as defined in Section 2.1 above. (D) The REA referred to in Paragraph 13 below. (E) Easements for utilities serving the Shopping Center. 13. Landlord shall enter into a Reciprocal Easement Agreement ("REA") acceptable to HomeClub, with respect to the balance of the Shopping Center (herein referred to as "Phase 11"). HomeClub shall not unreasonably withhold or delay its approval of the REA, provided it shall be reasonable to withhold its consent unless the REA shall protect fully Tenant's rights under this lease, shall give Tenant the right to enforce the provisions of the REA in the event Landlord fails to do so diligently, and shall not impose any additional obligations or costs on Tenant. Landlord upon entering into the REA will grant and demise to Tenant the benefit of all easements, licenses, rights-of-way, and privileges which the parties therein referred to did thereby give and grant one to the other and to all persons claiming thereunder. Landlord shall not, without the prior consent of Tenant, execute, or otherwise agree to, any modification of the REA, nor waive any of its rights, nor exercise any right, nor give any consent or approval, nor grant or permit any indulgences by act or omission, nor give any consent, thereunder. Landlord shall enforce all provisions of the REA. 14. Tenant may at any time give notice to Landlord that Tenant elects to perform the obligations of Landlord under Paragraphs 7 and 10 and, upon the thirtieth (30th) day after such notice, Tenant shall commence to, and thereafter shall, perform such obligations, and no further obligations shall thereafter accrue under Paragraphs 8 and 10 hereof except as otherwise determined pursuant to the penultimate sentence of this Paragraph 14. In such event, Landlord shall pay to Tenant, for each year or portion thereof thereafter included within the Lease Term, as partial reimbursement to Tenant of the cost to Tenant of performing such obligations, an amount equal to the product of "Landlord's Fraction" (hereinafter defined) and the cost of performing such obligations during said year. Said amount shall be payable periodically, but not more frequently than monthly, upon Landlord's receipt of bills from Tenant. Tenant shall submit to Landlord evidence of such cost to Tenant in such detail as Landlord may reasonably require. Landlord's Fraction is that fraction the numerator of which shall be the number of square feet of floor area in all the buildings in the Shopping Center except the Demised Premises and the denominator of which shall be the denominator of Tenant's Fraction (defined in Section 6.1), but in no event shall Landlord's Fraction be less than 53%, except if the size of the Demised Premises is increased, in which case Landlord's Fraction shall be adjusted accordingly. Subject to the prior sentence, as the number of square feet of floor area may change during any year, Landlord's Fraction may change during said year and the amount payable by Landlord for said year pursuant to the provisions of this Paragraph 14 shall reflect such changes in floor area. At any time after the giving of notice by Tenant pursuant to the first sentence of this Paragraph 14, Tenant may give notice to Landlord B-8 that Tenant elects to have Landlord again perform such obligations of Landlord under said Paragraphs 7 and 10 and upon the thirtieth (30th) day after such notice from Tenant Landlord shall commence to, and thereafter shall, perform such obligations and the provisions of Paragraphs 7 and 10 shall again be operative and the provisions of this Paragraph 14 shall be subject to the provisions of Section 8.3 and nothing in this Paragraph 14 shall obligate Tenant to make any alterations, repairs or replacements to the common areas that are required during the first twenty-four (24) months of the Lease Term. 15. Landlord and Tenant will maintain the Shopping Center and conduct their business thereon in compliance with all federal, state or local laws and regulations relating to pollution control, hazardous or toxic wastes, substances and constituents, including hydrocarbonic substances, and other environmental and ecological matters, including but not limited to the Federal Water Pollution Control Act (33 U.S.C. Sect. 1251 et seq.), Resource Conservation & Recovery Act (42 U.S.C. Sect. 6901 et seq.), Safe Drinking Water Act (42 U.S.C. Sect. 3000f et seq.), Toxic Substances Control Act (15 U.S.C. Sect. 2601 et seq.), the Clean Air Act (42 U.S.C. Sect. 7401 et seq.), Comprehensive Environmental Response of Compensation and Liability Act (42 U.S.C. Sect. 9601, et seq.), California Health & Safety Code (25100 et seq., 39000 et seq.), California Water Code (13000 et seq.), and other comparable state laws. If Landlord or Tenant shall receive: (a) any notice of any violation or administrative or judicial complaint or order having been filed or about to be filed against Landlord, Tenant, the Shopping Center or the Demised Premises alleging violations of any federal, state or local environmental law or regulation or requiring Landlord or Tenant to take any action in connection with the release of any toxic or hazardous substance, waste or constituent, including any hydrocarbonic substance, into the environment, or (b) any notice from a federal, state or local governmental agency or private party alleging that Landlord or Tenant may be liable or responsible for costs associated with a response or cleanup of a release of a toxic or hazardous substance, waste or constituent, including any hydrocarbonic substance, into the environment or any damages caused by that release, Landlord or Tenant shall, within fifteen (15) days of receipt thereof, provide the other party with a copy of such notice and thereafter shall diligently proceed to take all actions necessary to correct such violation. Landlord and Tenant agree to indemnify and hold each other harmless from and against all causes, claims, demands, losses, damages, liens, liabilities, lawsuits and other proceedings, costs and expenses (including without limitation attorneys' fees) incurred, directly or indirectly, by the indemnitee as a result of or in connection with indemnitor's failure to comply with any of the provisions of this Paragraph 15. B-9 SCHEDULE C LANDLORD'S CONSTRUCTION WORK Below are Tenant's Requirements. Landlord agrees that within thirty (30) days after the date of this lease Landlord shall submit to Tenant, for Tenant's approval, detailed plans and detailed specifications ("the Details"), which shall be in conformity with Tenant's Requirements. The Details shall be submitted in duplicate, including working drawings and design analysis. If, within fifteen (15) days after Tenant shall have received a complete set of the Details, Tenant shall not give notice of any comments thereon, then such complete set of the Details shall be deemed approved by Tenant. If, within fifteen (15) days after Tenant shall have received such complete set of Details, Tenant shall give Landlord notice of comments thereon, Landlord shall forthwith revise the Details in accordance with said comments to the extent that said comments shall be in conformity with Tenant's requirements and resubmit the Details, as so revised, to Tenant for approval within fifteen (15) days after receipt of Tenant's notice of comments, and the procedure for approval and/or comments by Tenant above set forth shall be repeated until the Details shall be finally approved except that the time limit for approval and revision shall be fifteen (15) days. Provided, however, if Tenant fails to give Landlord any of the above- mentioned notices within five (5) days from receipt of each set of Details, then the dates referred to in Section 4.6, 4.7, and 5.1(D) shall be extended on a day for day basis for each additional day Tenant fails to respond up to a total of ten days for each approval period. At any time after the Details, as the same may be revised as aforesaid, shall be approved by Tenant, as aforesaid, and prior to completion of construction thereunder, Tenant may give notice to Landlord of changes it desires in the Details as the same may have been revised, as aforesaid. Changes which do not affect the structure and do not delay the completion of construction work shall not require the approval of Landlord; changes which do affect the structure or which do delay the completion of construction work shall require the approval of Landlord, which approval Landlord agrees it will not unreasonably delay or withhold, and the dates referred to in Sections 4.6, 4.7, and 5.1(D) shall be extended on a day for day basis for each day construction is delayed. The Details, as the same may be revised and changed as aforesaid, shall be known as "Landlord's Construction Work". If Tenant shall give notice to Landlord that extensive changes have been involved, Landlord will furnish "as built" drawings. Upon completion of construction Landlord shall furnish photographs and operating instructions as provided in said document entitled Outline Specifications for a HomeClub Store (hereinafter referred to). Prior to the commencement of Landlord's Construction Work, Landlord shall submit to Tenant for its approval a critical path construction schedule, and about the first day of each month during C-1 Landlord's Construction Work Landlord shall submit to Tenant for its approval a revised critical path construction schedule. Notwithstanding anything contained in Section 3.1 of this lease, any net increase in the cost of Landlord's Construction Work, including, without limitation, the cost to Landlord of its interest payment on the construction loan for the Demised Premises, caused by changes made by Tenant, as aforesaid, after the Details have been approved by Tenant shall be paid by Tenant to Landlord upon demand, at the time when Landlord shall be required to pay the same to Landlord's contractors or other parties, provided that Landlord shall, prior to the commencement of construction of such changes, have notified Tenant of such increase and Tenant shall have approved of the cost of such increase. No agent or employee of Tenant other than an officer of Tenant or an agent or employee of Tenant designated in writing for the purpose by an officer of Tenant has any authority to approve any plans or specifications or approve any changes in plans or specifications, and any approval by an officer or such agent or employee shall not be binding upon Tenant unless such approval shall be in writing. Unless Tenant shall expressly agree in writing that any requirement of Tenant's Requirements shall be waived or altered, every requirement of Tenant's Requirements shall be complied with by Landlord, except to the extent Tenant's Requirements shall have been waived or altered by Tenant's approval of the Details or change orders, as provided above. Such waiver or alteration can be accomplished only by a writing signed by an officer of Tenant or an agent or employee of Tenant, which writing sufficiently identifies said requirement and states that the same is waived or altered. Notwithstanding any approval hereunder by Tenant, Landlord shall be solely responsible in all cases for proper design and coordination of architectural, structural, plumbing, electrical, heating, ventilating, air conditioning and site elements of the Demised Premises. Tenant's Requirements are such work (labor, materials and equipment) as shall be required to construct a HomeClub store building and Common Facilities which when completed will be equal in all detail to the HomeClub store building and Common Facilities provided for in (a) the Store Plans (hereinafter referred to), and (b) Prototype Specifications for a HomeClub Store. Also, if site conditions, local codes or other requirements of local authorities require differences in construction, Store Plans and Prototype Specifications shall be further modified and supplemented to reflect such differences but no modifications thereof prepared in accordance with the provisions of this sentence or the sentence immediately preceding shall be permitted because of local codes or other requirements of local authorities, unless without such modifications said Store Plans and Prototype Specifications would violate local codes or other requirements of local authorities. The Store Plans consist of the following drawings prepared by Griffin & Banks Architects, Inc. as job number 86-29: C-2 Sheet Most Recently Number Title Revised Date Title Sheet 10/12/87 A1.1 Site Plan 03/19/87 A2.1 Floor Plan 10/12/87 A3.1 Exterior Elevations 10/12/87 A4.1 Reflected Ceiling Plan 10/12/87 A5.1 Racking Floor Plan 10/12/87 A6.1 Communications Floor Plan 10/12/87 A7.1 Computer Floor Plan 10/12/87 A8.1 Interior Electrical 08/04/87 A9.1 Count, Vault & Training 08/04/87 A10.1 PBX, Computer & Receiving 07/30/87 A11.1 Cust. Service & Cash Registers 10/19/87 A12.1 Mgr. Offices & Lounge 08/05/87 A13.1 Special Order Table 08/06/87 A14.1 Receiving Docks 08/11/87 A15.1 Electrical Signing 08/25/87 A16.1 Plumbing 10/28/87 C-3 SCHEDULE D SUBORDINATION, RECOGNITION AND ATTORNMENT AGREEMENT 1. Reference is made to Mortgage from DOUGLAS W. BRADFORD ("Landlord") to ___________________ ("Mortgagee") dated _________________ and recorded in Volume _______________ at Page ________ of the ____________________________. 2. Reference is made to Lease dated ________________, 198_, between Landlord, and HomeClub, Inc. a Delaware corporation, ("Tenant"), as Tenant, of certain premises situated within the premises covered by said Mortgage. 3. Notwithstanding anything to the contrary set forth in the Lease, the Lease and the leasehold estate created thereby shall be and shall at all times remain subject, subordinate and inferior to the Mortgage and the lien thereof, and to any and all renewals, modifications, consolidations, replacements, and extensions thereof. 4. In consideration of the agreements of Mortgagee contained herein, Tenant agrees that if the holder of said Mortgage, or any person claiming under said holder, shall succeed to the interest of Landlord in said Lease, Tenant will recognize, and attorn to, said holder, or such other person claiming under said holder, as its landlord under the terms of said Lease. 5. In consideration of the agreements of Tenant contained herein, Mortgagee consents to said Lease and agrees that, in the event of foreclosure or other right asserted under said Mortgage by the holder thereof, said Lease and the rights of Tenant thereunder shall continue in full force and effect and shall not be terminated or disturbed, except in accordance with the provisions of said Lease. 6. The benefits and burdens of this agreement shall enure to and bind the successors and assigns of the respective parties hereto. IN WITNESS WHEREOF, the parties hereto have caused this instrument to be executed, both as of ________________, 198_. HOMECLUB, INC. By: ----------------------------- --------------------------------- By: ----------------------------- D-1 SCHEDULE E GUARANTEE Reference is made to a Shopping Center Lease (the "Lease") dated June 6, 1988, between DOUGLAS W. BRADFORD (hereinafter referred to as "Landlord"), and HOMECLUB, INC., a Delaware corporation (hereinafter referred to as "Tenant"), of certain premises within the shopping center in Chico, California, located at the intersection of Whitman Avenue and 20th Street. In consideration of Landlord's having executed said Lease at the request of Zayre Corp., a Delaware corporation ("Zayre" or "Guarantor"), and in further consideration of One Dollar and other valuable consideration paid, the receipt of which is hereby acknowledged, Zayre hereby unconditionally guarantees to Landlord and his heirs, personal representatives, successors and assigns the payment of the rent provided for in said Lease and the performance and observance of all agreements and conditions contained in said Lease on the part of Tenant to be performed or observed. At Landlord's election, Zayre may be brought into any action or proceeding commenced by Landlord against Tenant in connection with and based upon said Lease, or any provision thereof, prior to obtaining a judgment against Tenant therein. Notwithstanding anything contained herein to the contrary, Zayre shall have all defenses and rights of Tenant and its successors and assigns (except their financial disability) with respect to the performance and payments under the Lease and the obligations of Zayre hereunder shall be measured by and shall in no event be greater than the obligations of Tenant. Zayre hereby agrees that it shall in no way be released from its obligations under this Guarantee by any of the following actions: any assignment of said Lease or any subletting of the demised premises by Tenant, any Leasehold Lender, or any subtenant, successor, or assignee of Tenant, any new Lease with Leasehold Lender or party designated by such Lender as provided in Section 18.6 of the Lease, any waiver of default or any extension of time or other favor or indulgence granted by Landlord to Tenant, any failure to receive notice of any of said actions, the expiration or termination of the Lease (except as provided below), or any extension of the terms of the Lease in accordance with the provisions of the Lease. Zayre hereby waives notice of non-payment of any other default in the performance or observance of any agreement or condition contained in said Lease on the part of Tenant to be performed or observed. Anything to the contrary herein notwithstanding: (A) if said Lease shall be terminated pursuant to the provisions of Article 12 of said Lease at a time when the tenant in possession shall not be Zayre, or a subsidiary of Zayre, then Zayre shall not be liable for the payment of any rent or for the performance or observance of any agreements or conditions to be paid, performed or observed which become due or arise after the date of such termination, unless at the time of such termination Landlord shall have offered to Zayre in writing a Lease for the balance of the Lease Term (as defined in the Lease) upon the provisions in said Lease contained; Zayre shall have a period of sixty (60) days after receipt of such offer to accept such offer. If Zayre accepts Landlord's offer, then such Lease shall be deemed to mitigate Landlord's damages. (B) If Tenant is adjudicated bankrupt, or if any bankruptcy action involving Tenant is commenced or filed, or if a petition or reorganization, arrangement, or similar relief is filed against Tenant, then subject to the foregoing at such time as the trustee or administrator rejects the Lease, Zayre shall pay to Landlord all accrued, unpaid rent upon the condition that within thirty (30) days following notice to Landlord of such rejection Landlord shall have offered to Zayre in writing a Lease for the balance of the Lease Term upon the provisions of the Lease, including payment of the rental obligations as provided above, which offer must remain open for not less than sixty (60) days after receipt of such written offer. If Zayre accepts Landlord's offer, then such Lease shall be deemed to mitigate Landlord's damages In the event that any legal action or other proceeding is commenced with respect to this Guarantee, the unsuccessful party shall reimburse the prevailing party for all reasonable attorney's fees and costs incurred in connection therewith, including, without limitation all such fees or costs incurred on any appeal from such action or proceeding. This Guarantee shall bind the successors and assigns of Guarantor, and it shall inure to the benefit of the heirs, personal representations, successors and assigns of Landlord. Guarantor further agrees that Landlord may, without approval, assign its rights under this Guarantee, in whole or in part, to any person or entity obtaining an ownership interest or security interest of any nature in the Lease, provided that, unless Tenant is a wholly-owned subsidiary of Guarantor at the time, Landlord shall give notice of such assignment within thirty (30) days thereof to Guarantor. This Guarantee shall be governed by, and construed in accordance with, the laws of the State of California. No provisions of this Guarantee or right of Landlord hereunder can be waived in whole or in part, nor can Zayre be released from Zayre's obligations hereunder, except either by a) a writing duly executed by Landlord and an authorized officer of Landlord's lender, if any, holding a lien upon the Demised Premises as defined in the Lease, b) operation of law, or c) operation of the Lease. Zayre represents that HomeClub is a wholly-owned subsidiary of Zayre. Zayre has caused this Guarantee to be executed and its corporate seal to be hereto affixed by Maurice Segall, its President, and George Freeman, its Vice President hereunto duly authorized all as of the 6th day of June, 1988. ZAYRE CORP. By: /s/ Maurice Segall -------------------------- Maurice Segall, President By: /s/ George Freeman -------------------------- George Freeman, Vice President SCHEDULE F RECORDING REQUESTED BY: AND WHEN RECORDED MAIL TO: D. William Wagner, Esq. Sidley & Austin 2049 Century Park East Suite 3400 Los Angeles, California 90067 SHORT FORM OF LEASE THIS SHORT FORM OF LEASE executed this _____ day of _____________, 198_, by and between DOUGLAS W. BRADFORD (hereinafter referred to as "Landlord"), whose address is 2694 Bishop Drive, Suite 202, San Ramon, CA 94583, and HOMECLUB, INC., a Delaware corporation (hereinafter referred to as "Tenant"), whose address is 140 Orangefair Mall, Suite 100, Fullerton, California 92632; WITNESSETH: That for and in consideration of the covenants and agreements contained in that certain Lease dated _______________, 198_ (the "Lease"), Landlord does hereby demise and lease unto Tenant, and Tenant does hereby lease from Landlord that certain real property in the City of Chico, County of Butte, State of California, within the shopping center (the "Shopping Center") situated at the intersection of Whitman Avenue and 20th Street, more particularly described on Exhibit "A" attached hereto and by this reference incorporated herein (the "Demised Premises"). TO HAVE AND TO HOLD the Demised Premises effective from the Commencement Date as defined in the Lease for a period of twenty (20) years, and containing four (4) five (5) year options to renew the Lease, upon the terms and conditions contained in the Lease. IT IS UNDERSTOOD AND AGREED that this Short Form of Lease is executed solely for the purpose of giving notice to the public of the existence of the Lease against the Demised Premises, the terms and conditions of which are expressly incorporated herein by reference for all purposes as though fully set forth herein. Should there be F-1 any inconsistency between the terms of this instrument and the Lease incorporated herein, the terms of said incorporated Lease shall prevail. IN WITNESS WHEREOF, the parties hereto have executed this Short Form of Lease as of the date and year first above written. LANDLORD: DOUGLAS W. BRADFORD, an individual ---------------------------------------- TENANT: HOMECLUB, INC. a Delaware corporation By: ------------------------------------ Its: ------------------------------- By: ------------------------------------ Its: ------------------------------- F-2 EX-10.11 16 LEASE (CHICO CROSSROADS & NETCO FOODS) FOOD FOR LESS THIRD AMENDMENT TO BUILD AND LEASE AGREEMENT This THIRD AMENDMENT TO BUILD AND LEASE AGREEMENT ("Third Amendment") is made an entered into as of the 8th day of March, 1994, by and between CHICO CROSSROADS CENTER, a California limited partnership ("Lessor"), and NETCO FOODS, INC. ("Lessee). RECITALS A. Douglas W. Bradford, a predecessor in interest of Lessor, and Lessee have heretofore entered into that certain Build and Lease Agreement dated as of May 25, 1988 (the "Lease Agreement"). The Lease Agreement was amended by a letter agreement dated August 2, 1988 ("First Amendment") and a "Second Amendment" dated June 16, 1992. The Lease Agreement as amended by the First Amendment and Second Amendment is referred to hereinafter as the Lease. The Lease demises a store building in a shopping center in the City of Chico, County of Butte, State of California ("Shopping Center"). B. Landlord has entered into or will soon enter into leases with Circuit City Stores, Inc. ("Circuit City Lease") and Petco Animal Supplies, Inc. ("Petco Lease") which provide among other things for the construction of stores of approximately 23,014 square feet for Circuit City Stores, Inc. ("Circuit City Store") and 8,500 square feet for Petco animal Supplies, Inc. ("Petco Store"). To accomplish the construction of the Circuit City Store, Landlord will (i) demolish the buildings shown as Building "C" and Building Pad "3" on Exhibit "A" to the Lease Agreement and (ii) pave over and strip for parking the areas shown as Building Pad 3 and Pad 2 on Exhibit "A" to the Lease Agreement and Exhibit "1" to the Second Amendment. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. The plot plan(s) attached as Exhibit "A" to the Lease Agreement and Exhibit "1" to the Second Amendment shall be replaced by the plot plan attached hereto as Exhibit "1". In each instance wherein the Lease Agreement refers to the plot plan or Exhibit "A" attached thereto, or the First Amendment refers to the plot plan or Exhibit "1" attached thereto, such reference(s) shall be deemed to refer to Exhibit "1" attached hereto. Landlord and Tenant hereby approve the plot plan attached hereto as Exhibit "1" for all purposes of the Lease. 2. Each party, upon request of the other, agrees to confirm in writing that Exhibit "1" attached to this Third Amendment reflects the agreed replacement plot plan attached both to the Lease as Exhibit "A" and to the First Amendment as Exhibit "1". 3. The following provisions shall be effective with respect to this Third Amendment: A. Landlord shall not permit any portion of the common area within the Shopping Center to be used as a staging area or for the storage of construction materials or vehicles except as set forth in Exhibit "1" hereto, without the prior written approval of Tenant. B. Landlord agrees that Tenant shall not be responsible and shall not bear any costs for any site work, drainage, grading or any other work in, on or around the Premises demised by the Lease or the common areas as a result of the construction contemplated herein. 4. Except as expressly modified/supplemented by Paragraphs 1, 2 and 3 hereof, the Lease shall remain unmodified and shall continue in full force an effect. Landlord and Tenant acknowledge and agree that to the extent of a conflict between the provisions of this Third Amendment and the Lease, the Third Amendment shall prevail. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment to Lease Agreement as of the date first written above. CHICO CROSSROADS CENTER, a California limited partnership By: JMLB, INC., California corporation Its Sole General Partner By: /s/ Jaime Sohacheski Date: 3-16-94 ------------------------ -------------------- Jaime Sohacheski President "LESSOR" NETCO FOODS, INC. By: /s/ Steve G. Nettleton Date: 3-8-94 ---------------------------- -------------------- Its: PRESIDENT "LESSEE" EXHIBIT A [MAP] CONSENT OF GUARANTORS Steve G. Nettleton and Kathleen P. Nettleton, as Guarantors of the "Lease", as defined in Recital A to the Third Amendment To Build And Lease Agreement, attached hereto as Exhibit "A", under Guarantee dated May 25, 1988, consents to the Third Amendment To Build And Lease Agreement and agrees that its Guarantee dated May 25, 1988, shall apply to said "Lease", as amended by the Third Amendment To Build And Lease Agreement. Dated: March 8, 1994 By: /s/ Steve G. Nettleton ------------------------------- Steve G. Nettleton By: /s/ Kathleen P. Nettleton ------------------------------- Kathleen P. Nettleton SECOND AMENDMENT TO BUILD AND LEASE AGREEMENT This SECOND AMENDMENT TO BUILD AND LEASE AGREEMENT ("Second Amendment") is made and entered into as of the 16th day of JUNE, 1992, by and between CHICO CROSSROADS CENTER, a California limited partnership ("Lessor"), and NETCO FOODS, INC. ("Lessee"). R E C I T A L S: A. Douglas W. Bradford, a predecessor in interest of Lessor, and Lessee have heretofore entered into that certain Build and Lease Agreement dated as of May 25, 1988 (the "Lease"). The Lease was amended by a letter agreement dated August 2, 1988 ("First Amendment") . The Lease as amended by the First Amendment is referred to as the Lease. The Lease demises a store building in a shopping center in the City of Chico, County of Butte, State of California ("Shopping Center"). B. Landlord contemplates entering into a lease of certain building space (the "Pad A Building") to be constructed by Lessor in the Shopping Center with HomeTown Buffet, Inc., a Delaware corporation ("Hometown"), for the operation of a restaurant. Landlord and Tenant desire to amend the Lease in order (i) to permit the construction of said building space (the "Pad A Building"), (ii) to provide for the future construction of building spaces on vacant pads ("Pad 1 and Pad 2") and (iii) to provide for certain "Right of Way" dedications and the relocation of a driveway to accommodate the widening of Whitman Avenue. NOW, THEREFORE, the parties hereto hereby agree as follows: 1. A true and correct copy of the plot plan attached as Exhibit "A" to the Lease is attached hereto as Exhibit "2". Exhibit "A" to the Lease shall be supplemented and modified as set forth in Exhibit "1" attached hereto. Exhibit "1" attached hereto reflects without limitation the proposed (i) "Right of Way" dedication for widening Whitman Avenue, (ii) alternate driveway location for the northern most driveway of the Shopping Center, (iii) location and building envelopes for Pad A Building, Pad 1 and Pad 2, and (iv) proposed site improvements around Pad A Building including without limitation parking stalls, curbs and trash enclosures. A. Except as set forth in Exhibit "1", Exhibit "A" remains unmodified. B. Exhibit "A" to the Lease as modified by Exhibit "1" hereto of this Second Amendment shall be deemed to be in compliance with all of the terms and conditions of the Lease. SECOND AMENDMENT TO BUILD AND LEASE AGREEMENT Page 2 2. Each party, upon request of the other, agrees to confirm in writing that Exhibit "1" attached to this Agreement reflects the agreed to modification of Exhibit "A" attached to the Lease, if such be the case. 3. Lessor agrees that Lessee shall not be responsible and shall not bear any costs for any site work, drainage, grading or any other work to the Shopping Center Common Facilities or otherwise, as a result of any construction relating to the proposed improvements set forth on Exhibit "1" including, but not limited to any work related to adjusted curb lines, driveways or the proposed right away dedication along Whitman Avenue to the City of Chico. 4. Except as expressly modified/supplemented by Paragraphs 1, 2 and 3 hereof, the Lease shall remain unmodified and shall continue in full force and effect. Landlord and Tenant acknowledge and agree that to the extent of a conflict between the provisions of this Second Amendment and the Lease, the Second Amendment shall prevail. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment to Lease Agreement as of the date first written above. CHICO CROSSROADS CENTER, a California limited partnership By: JMLB, INC., a California corporation Its Sole General Partner By: /s/ Jamie Sohacheski Date: 6-16-92 ------------------------ --------------- Jamie Sohacheski President "LESSOR" NETCO FOODS, INC. By: /s/ Steve G. Nettleton Date: 5-31-92 ------------------------ --------------- Its: President "LESSEE" [MAP] SITE PLAN ------------------ ------------------ CHICO CROSSROADS SHOPPING CENTER ------------------ ------------------ CHICO, CA [MAP] EXHIBIT 1 ----------- ----------- EXHIBIT "2" (EXHIBIT "A" TO LEASE) [MAP] CONSENT OF GUARANTORS Steve G. Nettleton and Kathleen P. Nettleton, as Guarantors of the "Lease", as defined in Recital A to the Second Amendment To Build And Lease Agreement, attached hereto as Exhibit "A", under Guarantee dated May 25, 1988, consents to the Second Amendment to Build and Lease Agreement and agrees that its Guarantee dated May 25, 1988, shall apply to said "Lease", as amended by the Second Amendment to Build and Lease Agreement. DATED MAY 31, 1992 BY: /s/ Steve G. Nettleton ----------------------------- Steve G. Nettleton By: /s/ Kathleen P. Nettleton ----------------------------- Kathleen P. Nettleton [LOGO] FLEMING COMPANIES, INC. STANDARD SPECIFICATIONS FOR STORE DEVELOPMENT BUILDINGS FOOD 4 LESS EXHIBIT B FLEM1NG COMPANIES, INC. CALIFORNIA STORE DEVELOPMENT FOOD 4 LESS STANDARD SPECIFICATIONS Revision Date: 9/87 Division: ______________________________ Date: ______________________________ Job Location: ______________________________ INDEX REQUIREMENT Page No. 1. General Conditions. . . . . . . . . . . . . . . . . . . . . 1 - 4 2. Site Work . . . . . . . . . . . . . . . . . . . . . . . . . 4 - 6 3. Foundations . . . . . . . . . . . . . . . . . . . . . . . . 6 4. Wall Construction . . . . . . . . . . . . . . . . . . . . . 6 - 7 5. Floor Construction. . . . . . . . . . . . . . . . . . . . . 7 - 8 6. Ceiling Construction. . . . . . . . . . . . . . . . . . . . 8 7. Roof Construction . . . . . . . . . . . . . . . . . . . . . 9 8. Doors, Windows, Hardware. . . . . . . . . . . . . . . . . . 10 9. Interior and Exterior Finishes. . . . . . . . . . . . . . . 10 - 11 10. Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 11 11. Automatic Sprinkler System . . . . . . . . . . . . . . . . 11 - 13 12. Plumbing . . . . . . . . . . . . . . . . . . . . . . . . . 13 - 15 13. Heating and Air Conditioning . . . . . . . . . . . . . . . 15 - 18 14. Electrical and Lighting. . . . . . . . . . . . . . . . . . 18 - 20 15. Lessor Work to Lessee Equipment. . . . . . . . . . . . . . 20 " E X H I B I T B " LESSOR'S SIGNATURE:_________________________ DATE:______________________________ FLEMING SIGNATURE:_________________________ DATE:______________________________ NOTE: These outline specifications are to be used only in the State of California. SPECIFICATIONS Specifications and requirements for a building of approximately ____________ square feet measuring ___________ feet by ___________ feet, parking lot, curbs, docks, driveways, and walks (collectively referred to herein as "building"). 1. GENERAL CONDITIONS: 1.1 INTENT OF PLANS AND SPECIFICATIONS 1.1.1 These outline lease specifications and construction layouts contain the same minimum requirements of the Lessee and are for a complete structure, including heating, ventilating and air conditioning, electrical wiring, plumbing, fire protection work, hardwares, and interior finishes. 1.1.2 The building is to be constructed in compliance with all local, city, state or federal government building codes and Health Department requirements. In addition, all covenants, codes, and restrictions (CCR) must be complied with relative to construction and building locations. In all instances where no apparent codes prevail, same shall be constructed in compliance with Title 24, ACI, AICS, ASHRAE, ASTM, AWSC, BOCA, NEC, NFPA, UPC and OSHA. 1.1.3 Dimensions and locations of property lines on any drawings furnished by Lessee are approximate only, and it is the Lessor's responsibility to ascertain the actual dimensions and locations. 1.1.4 No substitutions, changes, or deviations from the specifications or drawings shall be made without the written approval of the Lessee. 1.1.5 If there is any conflict or disagreement between the specifications or drawings, the Lessee is to be consulted as to which will prevail. Should anything be mentioned in these specifications and not shown in the drawings, or vice versa, the same shall be followed as if set forth in both, as it is the intent of these specifications and accompanying drawings to correspond and embody every item and part necessary for the completion of the building, ready for a supermarket operation. 1.1.6 Lessor shall deliver to Lessee "as-built" drawings showing all addenda revisions, changes necessitated by field conditions and other deviations. "As-built" drawings shall be one set sepia reproducibles. 1.1.7 Lessee reserves the right to review building plans and such review must be secured before construction of the building is started. 1 1.2 MATERIALS AND LABOR 1.2.1 All materials shall be new and first-grade. All labor in connection with this work, including trucking, handling, installation, etc. shall be done by skilled craftsmen normally employed in the various construction trades. 1.2.2 The building is to be substantially sound in all respects; all facilities and utilities serving the building structure are to be suitable and adequate for the purpose. 1.2.3 All structural portions of the building, including footings, foundations, walls, floor, ceiling, roof joists, roof decking, roof beams, posts, supports, joints and connections shall follow AISC and ACI codes of standard practices in determining size, strength, type, number, construction and installation. 1.2.4 Lessor and joint contractors shall guarantee equipment, materials and workmanship for one (1) year unless stated otherwise, from acceptance date of completed building. Guarantees shall in turn bind each subcontractor, supplier or vendor to make good deficiencies arising from inferior materials or installations. 1.3 CLEANUP 1.3.1 The Lessor shall leave the premises, including the floors, walls, windows, hardware, etc. clean of all marks, stains, and broken glass, and ready for Lessee store operations. All areas within metes and bounds shall be free of all debris and excess construction materials, making site ready for Lessee store operation. 1.4 PERMITS AND APPROVALS 1.4.1 Permits and licenses necessary for the prosecution of the work shall be secured and paid for by the Lessor. The Lessor shall give all notices and comply with all laws, ordinances, rules and regulations bearing on the conduct of the work. The Lessor will coordinate location of all emergency exits with Lessee. 1.4.2 The Lessor will be responsible for obtaining a Certificate of Occupancy for the building premises from the appropriate controlling jurisdiction, to include all local, county, state and federal agencies. 1.5 CLAIMS FOR EXTRA WORK 1.5.1 Claims for extra work shall be honored. Such changes requested by Lessee shall be in writing. In such a case, both Lessee and Lessor must agree to the scope of the work involved in the change and total cost before any work is done, using a Fleming standard change order form. 2 1.6 SUPERVISION 1.6.1 The General Contractor shall employ a competent, full-time superintendent and necessary assistants for this project during the entire construction period. 1.7 BUILDING SCHEDULE 1.7.1 Prior to the start of construction, the Lessor shall prepare and submit to the Lessee a construction progress schedule showing the time required for each trade with the starting date and completion date for each trade. It is expressly understood that the Lessor shall be completely finished with all his interior work at time of substantial completion before fixture installation begins so that his men will not interfere with Lessee's workmen assembling fixtures. 1.7.2 Lessor shall notify Lessee in writing of changes in the construction progress schedule. 1.8 AVAILABILITY OF UTILITIES 1.8.1 Lessor shall provide adequate utility services, including gas, electric power, water service, sanitary sewer, storm water drainage and telephone service, to satisfy the needs of Lessee and Lessee's insurance carrier. 1.8.2 Utility meter billing changeover from the Lessor to the Lessee (gas and/or electric) to occur when refrigeration display units are started up if the building is substantially complete and secure with all mechanical, electrical and HVAC work done. If the building is not substantially complete, the meter billing changeover will occur at the time of building completion. 1.9 SOIL CONDITIONS 1.9.1 Lessor shall include the cost of, and be responsible for, certifications of sub soil conditions under footings, floors, paving, etc. 1.10 DOCUMENTS 1.10.1 Lessor shall furnish as his proposal to Lessee the following drawings prepared by a licensed architect and related engineers, duly licensed by the State in which the building will be constructed: 1. Site and parking lot plan 2. Structural drawings showing -- (a) Concrete footings and foundations (b) Roof framing (c) Front elevation 3 3. Site drawings showing -- (a) Utilities (b) Storm drainage (c) Location of building (d) Parking lot lighting, including external building lighting. 4. Mechanical and electrical drawings 5. Special architectural details or any other drawings, details or specifications outlining an alternate method of construction. 6. Shopping center pylon sign drawing (if sign is required by lease). 1.10.2 The following documents shall be furnished to the Lessor by Lessee: 1. Store criteria or location drawings, including: (a) Fixture layout (b) Reflected ceiling layout (c) Electrical layout (d) Plumbing layout (e) Underfloor trench and pit layout 1.10.3 Lessor shall provide an allowance of $10,000 and shall reimburse Lessee for criteria plans provided. Payment to Lessee is to be made upon completion of poured concrete floor. 2. SITE WORK 2.1 GENERAL INSTRUCTIONS 2.1.1 The term "Site," as used in these specifications, shall mean area within property lines shown on drawings. Include curb and gutter where such is to be relative to the building. 2.1.2 Furnish the Lessee a copy of the proposed site, grade, storm water drainage and paving plan for their review before starting work. Water retention areas (if required) must be shown on this plan. 2.1.3 Special drives shall be provided to be used during building construction stage for heavy equipment to get to and from location. This will eliminate any possible damage to permanent parking lot. 2.1.4 Lessor shall furnish and install lighting equipment and fixtures for the parking lot that will maintain a one and one-half (1 1/2) foot candle lighting level at the surface or meet Title 24 requirements, whichever is greater. 2.1.5 Lessor, shall provide electrical provisions for pylon sign in the parking lot. 4 2.1.6 Lessor shall provide (lighted) "In" and "Out' signs for customer ingress and egress. 2.1.7 Parking lot to be striped with two (2) coats traffic yellow paint, single 4" wide lines. See typical striping layout (SHEET A). 2.1.8 Lessor shall install a 10'W x 40'L x 6"D concrete slab, adjacent to grocery receiving doors, as indicated on plan. 2.1.9 Parking lot design shall be such that clogging of catch basins will not result in flooding of store. 2.1.10 Lessor shall install two (2) truck-height concrete loading dock(s). Elevation of dock shall be the same as floor elevation inside the store. Lessor shall furnish two (2) dock levelers, Blue Giant #A646M or approved equal with two (2) #DB13 bumpers per leveler. See typical details for dock (SHEET B). See typical detail for sump pumps, if required (SHEET C). 2.1.11 Lessor shall provide all required trenches for refrigeration lines, HVAC, duct(s), electrical and plumbing. Trenches shall be backfilled with sand. 2.2 WALKS, DRIVES AND PAVING 2.2.1 Concrete paving shall comply with applicable "Standard Specifications for Highway Construction." Provide expansion joints at 20'-O" o.c. intervals each way. Provide rolled compacted earth sub-base, depending on soil base geological analysis, by the testing engineer. 2.2.2 Unless shown otherwise, concrete walks shall be 4" thick with 6x6-10/10 mesh reinforcing; concrete paving shall be 6" thick with 6x6-6/6 mesh reinforcing. 2.2.3 Provide all asphalt paving shown on drawings meeting the applicable "Standard Specifications for Construction of Highways." Provide minimum of 2" hot asphalt paving over 6" of rolled, compacted crushed rock base depending on geological soil base analysis. All deleterious material shall be removed from paved areas. All driveways and thoroughfares used for delivery trucks must have a minimum of 3" asphalt over minimum of 8" base. 2.2.4 Lessor shall warrant paving against disintegration of surfacing and forming of sink holes for a period of two (2) years after final acceptance. Any repairs required during warranty period shall be the responsibility of the Lessor. 2.2.5 Driveway and parking areas shall be graded to drain adequately away from the building so that there will be no water standing in these areas at any time. Maximum grade for 200 5 feet in front of door shall be 2%. Minimum, grade throughout Lessee parking area shall be 1%. 2.2.6 See typical details for ramping (SHEET D). 2.2.7 Lessor shall provide Lessee with a copy of the landscaping layout prior to submitting it to the City. 2.3 SITE UTILITIES 2.3.1 Sanitary system for entire shopping center shall provide for unusual conditions caused by chemical detergents, grease etc. 2.3.2 Storm drain system shall be designed for a minimum rainfall concentration of 4" per hour. 3. FOUNDATIONS 3.1 The footings and foundations shall be of sufficient depth, height, width and construction to structurally support walls as required following all applicable structural codes. 3.2 Unless otherwise required, all foundations, walls and footings shall be poured reinforced concrete with concrete meeting 3000 psi test in 28 days. 4. WALL CONSTRUCTION 4.1 EXTERIOR WALLS 4.1.1 Walls shall be of an approved structural design meeting all code requirements and an approved height to thickness ratio. 4.1.2 Control joints shall be spaced at critical points so as not to impede structural building movement. See detail (SHEET E). 4.1.3 Common walls adjacent to building with subsequent openings and parapets shall be constructed following applicable fire code requirements. 4.1.4 Where pilasters are used, they shall protrude on the exterior and not on the interior. 4.1.5 Glazing and corresponding supports shall be sized following applicable safety and wind load requirements. 4.1.6 The method of insulating the exterior walls must meet Title 24 requirements. 6 4.2 ENTRANCE CANOPY 4.2.1 A canopy, properly anchored to the building, shall be constructed and located across the front and that portion of the entrance side wall of the building as shown on the drawings and reviewed by Lessee. The canopy will be lighted to the sidewalk to a minimum of 60 foot candle at eye level. See detail (SHEET G). 4.2.2 The structure of the canopy will provide for the attachment of an illuminated sign. Sign to be provided by Lessee shall conform to Fleming's standard illuminated "Entrance" and "Exit" sign mounted perpendicular to front doors, supplied and Installed by Lessee. 4.3 INTERIOR PARTITIONS 4.3.1 Interior partitions shall be as indicated on the plans, but primarily shall be metal and/or wood studs with gypsum board wall covering. Minimum construction shall be 2" x 4" or 2" x 6" blocking on 16" centers. Wood studs used in non-sprinklered areas (above finished ceiling) are not permissible unless concealed area is sprinklered. 4.3.3 All restrooms and employees' lounges are to be constructed using concrete block or a hard surfaced material from floor to ceiling. All restrooms are to meet city and county codes. Provide toilet partitions and urinal screens in the dimension and arrangements shown on drawings. Lessor to furnish and install equipment and fixtures in restrooms, per plans. See detail (SHEET H). 4.3.5 Install metal edges, tape and sand all gypsum board joints, following manufacturer's recommendations. 4.3.6 Return air duct in grocery storage area to be protected with suitable framing and 1/2" plywood around all exposed ductwork from floor to a height of 8'-0". Provide access doors. 4.3.7 The produce prep area walls are to receive glasbord or Health Department-approved finish, from floor to a height of 8'-0" as indicated on Lessee's plans. S. FLOOR CONSTRUCTION 5.1 DESIGN 5.1.1 The main and basement floors shall be 3000 pound poured concrete, at least four inches (4") thick, and adequately reinforced with 6x6- 10/10 reinforcing mesh or approved equal. All floor surfaces shall properly align with no variation in height unless approved. Concrete shall contain a hydrocide waterproofing additive as a vapor barrier. 7 5.1.2 Floor for walk-in frozen food and ice cream freezer(s) should be insulated with curbs and poured as required. See detail (SHEETS I and J) 5.1.3 See (SHEETS K, L, L-1 AND M) for typical underfloor work. 5.1.4 Lessor shall provide 6" x 8" concrete curbs at all refrigerated walk-in box locations per plans supplied by Lessee. See (SHEET I AND J). 5.1.5 See SHEET N for floor finish. 5.2 MATERIALS 5.2.1 The P.O.S. room, employee lounge and all offices as indicated on the floor plan drawings shall be covered with 1/8" vinyl composition tile or an approved equal, in a pattern and colors to be selected by Lessee. 5.2.2 Meat preparation room and bakery preparation room as indicated on the floor plan shall be covered with nonskid epoxy floor, manufactured by Deco-Rez, #115, 1/4" thick, unsealed, installed by Terra-Nova, in a color to be selected by Lessee. 5.2.3 Toilet rooms shall be finished concrete. See 5.2.4. 5.2.4 Other floors not covered in paragraphs above shall be concrete, smooth troweled, vacuumed, and seal-coated with two coats of 21-22% methyl acrylate sealer called "Clear Crete," applied with a low pressure (40-60 lbs.) airless spray apparatus. "Clear Crete" is manufactured by AMREP. The first coats of "Clear Crete" will be applied the day after the concrete is poured. The second coat will be applied the following day. NO traffic of any kind should be allowed on the sealed surface for four hours after the second coat has been applied. Mopping or troweling is not acceptable for "Clear Crete" application. 5.2.5 It is the responsibility of the Lessor to deliver a concrete floor in the sales area that is free of stains, spills, tire tracks and other marks caused by construction. THE CONCRETE FLOOR IS THE FINISHED FLOOR. 6. CEILING CONSTRUCTION 6.1 INTERIOR CEILINGS 6.1.1 The bakery prep, deli prep, restrooms, lounge, P.O.S. room and office(s) finished interior ceilings shall be 2' x 4' lay-in panels, supported with galvanized wire ties to the structure above. Panels shall have washable factory-white face, along with factory-white T-bars. 6.1.2 The distance between the finished floor and the finished ceilings in these areas shall be as indicated on the Lessee's criteria drawings and room finish schedule. See (SHEET O). 8 7. ROOF CONSTRUCTION 7.1 DESIGN 7.1.1 Roof shall be sloped in some manner to provide positive drainage. DEAD LEVEL roofs ARE NOT acceptable. Roof slope shall be a minimum of 1/10 inch per foot or as approved. 7.1.2 Use only manufacturer's roofing and flashing materials. 7.1.3 Roof drains or gutters and downspouts shall be as required. Perform roofing and insulation work compatible with roof drain and gutter installation. Downspouts are not to terminate in truckwells, receiving areas, customer ingress or egress, or other sensitive areas. 7.1.4 Completed roof shall be left free of low spots that will accumulate water. 7.1.5 Any openings larger than 8" x 8" shall have security bars at 6" on center both ways. 7.1.6 Roof design and installation should have a U.L. flame spread of 25 or less. Roof should have a U.L. Class "A" roof covering. Roof design and installation should meet a U.L. Class "90" for wind uplift. 7.1.7 The underside of the roof structure shall be exposed or open. All steel and bar joists should be ordered in a light gray or white shop grade primer. Any exposed insulation will be white or light gray in color. Exposed roof deck should also be light gray. 7.2 MATERIALS 7.2.1 Roofing Subcontractor shall install equivalent 20 year bondable roof and be responsible for proper attachment of specified work to any roofing metal, or related work that is embedded in or in contact with, and becomes an integral part of, specified roofing or flashing system, even when such roofing metal or related work is provided under other sections of specifications. 7.2.2 Lessor and Roofing Subcontractor shall jointly agree to maintain built-up roofing system and related roof metal work in a weathertight and watertight condition for a period of two (2) years starting from date of Lessee's acceptance, damage caused by hail, lightning, hurricane or abuse excepted. 7.2.3 Insulation over metal deck shall have "R" factor of 19 or meet Title 24 criteria, whichever is greater. 9 8. DOORS, WINDOWS AND HARDWARE 8.1 CUSTOMER DOORS 8.1.1 Automatic entrance and exit doors shall be of the size and type as shown on the Lessee's fixture layout and door schedules. Specifications for automatic doors and operators are to be approved by the Lessee prior to the beginning of construction (SHEET P). 8.1.2 Service doors are to be steel doors and jambs with burglar- proof lock bars, equipped with Russell Irwin, Yale, Schlage or equal heavy-duty beveled dead locks. All openings shall be properly caulked and weatherstripped. No handles locks or keyways to outside will be permitted for service doors. 8.1.3 Install all glass with butyl or neoprene glazing material. 8.1.4 All door jambs (interior building) to be metal-encased with exception of restrooms and office. 8.1.5 See door schedule (SHEET P). 8.2 WINDOWS 8.2.1 Windows shall be standard 1 3/4" x 4" aluminum tube store front material or as approved. 8.3 HARDWARE 8.3.1 Emergency exit doors shall be installed, complete with hardware and alarms to comply with local codes. 8.3.2 Cylinder locks shall be changed and keys furnished just prior to the time of building acceptance. 9. INTERIOR AND EXTERIOR FINISHES (SEE ROOM FINISH SCHEDULE SHEET 0) 9.1 PAINT - INTERIOR 9.1.1 All wall surfaces requiring paint shall be primed one (1) coat and painted two (2) coats of Latex flat-finish paint applied in accordance with the manufacturer's specifications. 9.1.2 In the sales area, the walls are to be finished down to a minimum of three (3) inches below the top of Lessee's refrigerated cases at the wall immediately behind that equipment. Color for sales area walls will be Pantone 109C Yellow. 10 9.1.3 All metal or wood surfaces to be painted shall be properly prepared, primed and finished with two (2) coats of enamel or acrylic paint in a satin to semi-gloss finish. The paint shall be applied in accordance with the manufacturer's specifications and in the colors selected by the Lessee. 9.1.4 The backroom storage and produce preparation area walls are to receive one (1) coat of white paint, compatible with the surface to which it is being applied. Spray-painting is permissible, at the contractor's option. 9.2 PAINT - EXTERIOR 9.2.1 Same as in 9.1.1, except that the paint materials used shall be specifically for exterior applications. 9.2.2 All exposed concrete block surfaces shall receive a minimum of one (1) coat of block filler and two (2) finish coats of masonry paint applied in accordance with manufacturer's specifications. Colors to be approved by Lessee. 10. EQUIPMENT 10.1 Baler and/or Compactor(s) will be provided by Lessee. 10.1.1 Lessor shall furnish electrical disconnect switches and final hookup for the baler and trash compactor(s). 10.1.2 Lessor shall provide all necessary curbing around compactors as required by the Health Department to satisfy wash-down area. 10.1.3 Lessor shall provide hot and cold water and adequate drain at compactor(s) site as required by code. 10.1.4 Compactor(s) opening to be furnished by Lessor and fitted with lockable bottom hinge, metal door per plans. (Lessee will furnish and install the door(s).) 10.1.5 Natural gas emergency generator will be provided by Lessee. Lessor shall furnish gas and electrical hookup and ventilation for generator. 11 AUTOMATIC SPRINKLER SYSTEM 11.1 DESCRIPTION OF WORK 11.1.1 The entire building, including all exterior canopies, mezzanines, basements, corridors, storage areas, inside or outside refrigerated coolers and freezers are to be fully sprinklered with a wet-type system concealed above the ceiling in all finished areas. 11 11.2 DESIGN CRITERIA 11.2.1 The sprinkler contractor shall conform to the National Fire Protection Association's Fire Code #13, latest edition. Special attention shall be given to Article 1-9, "Working Plans." It shall be the sprinkler company's responsibility to determine if any deficiency or deviations, such as inadequate water supply, area to be sprinklered considered other than a fire division, or any other item which would materially affect the acceptability of the system does exist. It shall be his responsibility to coordinate the sprinkler system with other mechanical work. 11.2.2 The sprinkler system shall be an independent system. All piping, valves, etc. for the Lessee's systems shall be located in the Lessee's premises. 11.2.3 It is to be noted that the working plans shall be submitted for approval to the authority having jurisdiction; this authority shall include the Fire Insurance Rating Organization (Insurance Services Organization in all states except Texas; in Texas, use the State Board of Insurance). Any recommendations made by this Organization will be forwarded to the Lessee, prior to acceptance. 11.2.4 Final acceptance will be determined not only as outlined in Article 1-10 of NFPA #13, but also shall require the sprinkler contractor to forward a copy of recommendations made by this authority (and the Fire Insurance Rating Bureau) to the Lessee. 11.2.5 All deficiencies shall be the responsibility of the sprinkler contractor and Lessor, and any deviations from the requirements in NFPA #13 and/or the approved plans shall require special permission from the Lessee. 11.3 SPRINKLER HEADS 11.3.1 All sprinkler heads shall be standard approved type. 11.3.2 Ordinary rated heads shall be 135-170 degrees F. 11.3.3 Sprinkler heads in finished ceilings shall be chromium pendant type with chromium escutscheon plates; other areas, including the open ceiling in the sales area may be bronze. The sprinkler piping will not be painted. 11.3.4 Maximum coverage for each sprinkler head shall not exceed 120 feet except in corridors and storage area where sprinkler head coverage shall not exceed 100 feet. 12 11.3.5 A uniform rectangular pattern of sprinkler heads shall be maintained in the sales area and shall be coordinated with the light fixtures so that the requirements of NFPA #13 will be met. 11.3.6 Install a sprinkler alarm system if required by code. 12. PLUMBING 12.1 CODES 12.1.1 All plumbing work shall be in compliance with state and local plumbing codes. 12.1.2 Lessor to furnish and install a complete plumbing and draining system as specified by the Lessee criteria layout, the outline specifications and good engineering practices. 12.1.3 All plumbing plans shall be submitted to Health Department or with regulating authority with proper jurisdiction prior to construction for approval of hand sinks, grease trap locations, drain locations, clean-outs and hot water locations for cleaning purposes. 12.2 PIPE MATERIAL 12.2.1 Hot and cold water pipe shall be copper tube with no soldered joints under slab. No pipe shall trap water which cannot be drained. Tubing above grade shall be type L and below grade type K. 12.2.2 Soil and waste pipe above grade shall be cast iron soil pipe, galvanized steel pipe with drainage type fittings or plastic pipe approved for the service by the applicable codes. 12.2.3 Soil and waste pipe below grade shall be cast iron soil pipe. Schedule 40 PVC may be used if codes permit. 12.3 CLEANOUTS 12.3.1 Cleanouts shall be located as required by applicable codes. Each cleanout shall be readily accessible and shall be installed with adequate clearance for effective use, and will not be placed in high-traffic or work station areas. 12.3.2 Lessor to provide grease trap(s) as required by code. Traps must be installed below floor and the locations are to be approved by Lessee. 12.4 PLUMBING FIXTURES 12.4.1 Fixtures shall be provided as shown on plans. Fixtures shall be American-Standard as listed or equivalent fixtures by Eljer, Kohler or Crane. 13 12.4.1.1 Flush valve toilets: American Standard 2221.018 vitreous china, siphon jet, floor mounted. Church 5334.056 solid plastic seat, open front with cover, white. 12.4.1.2 Urinal: "Allbrook" 6540.017 vitreous china, siphon jet, 1-1/4" top spud, Sloan Royal 180 FYV flush valve with vacuum breaker, Wade chair carrier. 12.4.1.3 Wall Hung Lavatory: "Lucerne" 0351.023 vitreous china, integral backsplash, 2121.267 4" centerset with pop-up drain. 12.4.1.4 Counter Top Lavatory: "Aqualyn" 0476.028 vitreous china, self-rimming, 2121.267 4" centerset with pop-up drain. 12.4.1.5 Janitor Sink: "Lakewell" 7692.031 acid resisting cast iron, 22" x 18", 3" trap standard, 8340.242 rough chrome plated mixing faucet with hose end spout and vacuum breaker. 12.4.1.6 Water Fountain: Wall mount -- electrically operated. 12.5 STAINLESS STEEL SINKS (See Floor Plan) 12.5.1 Lessee to furnish all stainless steel sinks (meat, produce, and bakery), and Lessor to make final hookup. 12.5.2 Lessee to furnish all stainless steel hand sinks, as required by code. Lessor to advise Lessee of code requirements. Lessor to make final hookup of hand sinks. 12.6 HOT WATER HEATER 12.6.1 Lessee to furnish heat reclaim water heater. Lessor to furnish piping from reclaim heater to 12..6.2 auxiliary heater. 12.6.2 Provide additional hot water heater for meat and bakery departments using Rudd GL-76-75 with glass-lined tank, magnesium anode, fiberglass insulation, steel jacket, thermostat, high-limit gas shut-off, temperature and pressure relief valve, AGA certified. Provide type B gas vent through roof with vent cap and with flashing and counter-flashing at roof. NSF seal of approval. 12.6.3 Provide hot and cold water connection at water heaters for heat exchange unit. Lessee to provide and install heat exchanger. 14 12.7 DRAINAGE AND VENT PIPING 12.7.1 Provide building sewer connected to public sewer, building drain, waste and vent piping connected to all fixtures and drains, vent pipes through roof and cleanouts. If no public sewer is available, drainage plan shall be approved by Lessee. 12.7.2 The Lessor shall furnish and install floor sinks, floor drains and trench drains as indicated on plans. 12.8 LESSEE EQUIPMENT 12.8.1 All plumbing, drains and connection stubs for Lessee's fixtures shall be located, installed and made as indicated on the Lessee's criteria drawing. Trenches, pits and conduits shall be of size and material indicated and located as required by plan. 12.9 HOSE BIBBS 12.9.1 Install two (2) hose bibbs on the front exterior walls where indicated on the drawings. Install one (1) hose bibb in rear of store for compactor washdown. Hose bibbs shall be Woodford Mfg. Co. Model 14 series, or equal, frost-proof, stainless steel seat, 3/4" hose thread, loose key handle. 12.9.2 Lessor to provide hose bibbs at all multi-tub sinks. Additional bibbs to be located under sinks. 12.10 DISPOSAL UNIT 12.10.1 None required. 12.11 GAS SERVICE 12.11.1 Furnish and install gas service, including metering and piping, to all gas appliances, including unit heaters, gas burners, hot water heaters, emergency generator, and deli cooking equipment, bakery ranges, ovens and equipment as required to insure complete installation. 12.12 PITS AND TRENCHES 12.12.1 See details of pits, trenches and floor drains on SHEETS S and S-1. 13. HEATING AND AIR CONDITIONING 13.1 GENERAL 13.1.1 Lessor, shall furnish and install a complete summer and winter air conditioning system for the entire building. The system is to be designed for both heating and cooling from the same duct system, using a central system. All equipment is to be supported from the roof structure in locations approved by Lessee. 15 System shall provide for reclaim of heat rejected by refrigeration compressors and for recovery of cold air from open display cases. Minimum clearance from floor to bottom of lowest duct in sales area will be 15'-0". Allow a minimum of 3'-0" for duct work. 13.2 DESIGN REQUIREMENTS 13.2.1 System capacity shall be adequate to maintain design conditions when outdoor conditions are as listed in Chapter 33, Table 1 of the ASHRAE Handbook of Fundamentals, 1972 edition. Winter design shall be for median of annual extremes and summer design shall be for 2 1/2% design dry bulb and wet bulb. If store is not in a location listed in the above table, use nearest listed location or locations to determine design values. System shall maintain seventy-five (75) degrees F. and 50% or lower relative humidity for cooling and seventy (70) degrees F. for heating. Indoor temperature shall have a tolerance of plus or minus two (2) degrees F. throughout the building at 42" above floor. Cooling load shall be adjusted to allow for open refrigerated display cases. Provide for one person for each 100 sq. ft. of sales area. 13.3 PLAN APPROVAL 13.3.1 Plans and specifications for the air conditioning system must be submitted to the Lessee for review before installation. 13.4 AIR HANDLING UNIT 13.4.1 Air handling unit shall be a central drawthrough unit with direct expansion cooling coil, outside air return air mixing damper, throwaway filters and belt-driven centrifugal fans with adjustable fan speed. Unit shall be suspended from structure with vibration isolators in supports. Unit shall include space for a heat reclaim coil which will be provided under refrigeration equipment contract. See detail (SHEET U). 13.5 CONDENSING UNIT 13.5.1 Condensing units shall be suitably designed for roof mounting, vertical air discharge, copper condensing coils with aluminum fans for operation down to 35 degrees F. ambient. Units with 10-ton or greater capacity shall have multiple compressors with independent circuits. 13.5.2 No cooling towers or evaporative condensers will be accepted. 13.6 DUCT FURNACE 13.6.1 Duct furnace shall be Reznor Series X with AGA approval for installation downstream from cooling coils. Unit shall include pressure regulator, automatic electric gas valve, limit control, control transformer, 100% shut-off and manual main and pilot gas valves, stainless steel heat exchangers. 16 13.7 UNIT HEATER 13.7.1 Unit heaters shall be Reznor Series XA propeller type with automatic electric gas valve, fan control, limit control, safety pilot, gas pressure regulator, control transformer, 100% shut-off, and manual main and pilot gas valves, stainless steel heat exchanger. 13.7.2 At Lessee's option, provide space heaters using heat rejected from refrigeration compressors. Lessor to provide, hang, and wire space heater; Lessee to install hot discharge gas lines. 13.8 FUEL 13.8.1 System shall be designed for natural gas when available. 13.8.2 If natural gas is not available, an economic analysis shall be made too determine fuel to be used. Fuel selection must be submitted to Lessee for approval before system design. 13.9 EXHAUST 13.9.1 Lessor shall provide an exhaust fan in each toilet room to meet local codes and/or provide one (1) complete air change every 15 minutes. Wire fan to light switch. 13.10 DUCT SYSTEM 13.10.1 Duct system shall be designed in compliance with "Duct Manual and Sheet Metal Construction for Ventilating and Air Conditioning Systems - Low Velocity Systems" of the Sheet Metal and Air Conditioning Contractors National Association, Inc. 13.10.2 Insulation shall not be less than 1" thick glass fiber with factory-applied vapor barrier jacket. Duct lining may be used with duct size adjusted. 13.10.3 Room air distribution shall be designed to avoid disturbing air in open refrigerated display cases. 13.10.4 Return air ducts must be provided in the sales area with ducts to the air handling unit. See detail (SHEET V). 13.10.5 Overhead supply duct will not be painted. 13.11 CONTROL - THERMOSTAT WIRING 13.11.1 All low-voltage thermostat and control wiring to be furnished and installed by Lessor. 17 13.12 GUARANTEE 13.12.1 All air conditioning equipment is to be guaranteed for a period of one (1) year by the installing contractor. Compressor section of the air conditioning equipment is to be guaranteed by factory for an additional four (4) years. 13.12.2 Warranty certificates are to be furnished to Lessee when job is completed and before acceptance by Lessee. 13.12.3 Upon completion of installation, mechanical contractor and manufacturer's district engineer will complete a thorough test procedure of equipment and certify that these tests are correct and that system is capable of performance specified. 13.13 EQUIPMENT ROOM 13.13.1 See typical equipment room layout (SHEET U). 13.13.2 Lessor shall provide exhaust fans and air intake louvers for equipment room as noted on plans. See (SHEET U). 14. ELECTRICAL AND LIGHTING 14.1 SERVICE 14.1.1 Lessor shall provide electric service of adequate capacity to service. building with all electric loads furnished by Lessee as indicated on Lessee's floor plan. Service shall provide 277 volt, 3-phase for lighting and 480 volt, 3-phase for power. PROVIDE 25% EXTRA CAPACITY FOR FUTURE EXPANSION. 14.2 CODE 14.2.1 All work shall be in compliance with local, state and NFPA #70, National Electrical Code. 14.2.2 All fixtures and devices shall bear the Underwriter's Label. 14.2.3 An emergency generator is to be supplied by Lessee. Lessor to install and connect emergency panel which will supply electric cash registers, processor(s) and minimum of thirty (30) fixtures to be wired directly to emergency panel. Locations to be provided by Lessee. Battery pack emergency lighting to be used in addition to the 30 fixtures if required by code. 14.3 PANELS AND SWITCHES 14.3.1 Main distribution panel shall be of the breaker type, General Electric Type CCB, Square D Type 1 Line, or equal. Bus structure shall accommodate bolted branch switches, and short circuit bracing shall be 50,000 amps RMS symmetrical. Provide circuits for all connected loads plus a minimum of 20% spare circuits for future loads. 18 14.3.2 Other power panels and lighting panels shall be circuit breaker-type, General Electric Type NLTZ, Square D Type NQO, or equal. Load center-type panels will not be accepted. Provide branch circuit breakers for all connected loads, plus a minimum of 30% spare for future loads. A clean power panel will be provided for front end computer operation as shown on plans. 14.3.3 Safety switches shall be heavy-duty and the same brand as that of the electrical panels. General-duty disconnect switches will not be accepted. 14.3.4 Fuse breaker for main service shall be High Peak-type as manufactured by Bussman, or equal, with interruption capacity of 200,000 amperes RMS asymmetrical. Fuses for motor loads shall be dual-element type. 14.3.5 Provide curb or steel poles for protection of electrical panels. 14.3.6 Electrical panels should be located on outside walls where possible. 14.3.7 Lighting switches and receptacles shall be specification grade. 14.3.8 Dedicated circuit to be provided to emergency panel, in P.O.S. office, all upstairs offices, all checkstand locations, by grocery receiving door, and in meat department as located on plans. 14.4 LIGHTING FIXTURES 14.4.1 Lessor shall furnish and install complete lighting system, including fixtures, lamps and all required wiring and switches. Fixtures shall be of the type indicated on drawing furnished by Lessee. Lighting fixture installation shall be coordinated with sprinkler system to permit sprinkler system to be installed in compliance with NFPA #13. Provide tube guards as required by Health Department. 14.4.2 Fluorescent fixture ballasts shall be CBM certified, ETL rated, Class P, high power factor. Sound level shall be not greater than General Electric sound rating "A". 14.4.3 The fluorescent fixtures in the general sales area shall be 2-tube 96" long on 8'-0" centers as noted on plans. Fixtures will be mounted 15'-0" A.F.F. Use Metalux SS 296, or equal, with F96Tl2/SP35/WM lamps. 14.4.4 All fixtures' lenses shall be glass or acrylic. 14.5 TELEPHONE 14.5.1 Provide telephone outlets where indicated on Lessee's drawings. Wall telephone outlet shall be standard switch box with one-hole bushed plate, with conduit and pull wire to ceiling. 19 14.6 INSTALLATION 14.6.1 All equipment shall be so installed as to provide proper clearance for service or removal of parts. Panels, disconnect switches, starters, push-button stations and control devices shall be accessible for operation, adjustment or repair. 14.6.2 Each panel shall have a circuit direction with typewritten identification of loads on each circuit. 14.7 LESSEE EQUIPMENT 14.7.1 Lessor shall provide circuits and final connections for all trade fixtures, equipment and motors to be furnished by Lessee as shown on floor plan. Connections to equipment in meat preparation area and produce preparation area must be watertight. 14.8 DUCT AND CONDUIT LAYOUT 14.8.1 See details of ducts and conduits for front end scanning (SHEET K). 14.8.2 All wire will be copper. 14.9 EMERGENCY LIGHTING Provide emergency lighting to meet all applicable codes. 15. LESSOR WORK TO LESSEE EQUIPMENT 15.1 Lessor to make all final hookups (gas/electric) on emergency generator, oven and proofer as required. 15.2 Lessor to furnish and install flashing around all walk- in boxes and their surfaces which are adjacent to the main building. 15.3 Lessor to make all final electrical hook-ups to refrigeration/HVAC equipment per plans supplied by Lessee's refrigeration and HVAC contractors. 20 [GRAPHIC] 37. CAPTIONS . . . . . . . . . . . . . . . . . . . . 70 38. ADVANCE POSSESSION FOR FIXTURE INSTALLATION 7O 39. SUBORDINATION. . . . . . . . . . . . . . . . . . 71 40. BINDING EFFECT . . . . . . . . . . . . . . . . . 72 41. MERGER . . . . . . . . . . . . . . . . . . . . . 72 42. TIME . . . . . . . . . . . . . . . . . . . . . . 72 43. CHOICE OF LAWS . . . . . . . . . . . . . . . . . 72 44. EXCLUSION FROM GROSS SALES . . . . . . . . . . . 73 45. SUBDIVISION OF SHOPPING CENTER . . . . . . . . . 73 46. RECIPROCAL EASEMENT AGREEMENT. . . . . . . . . . 74 47. SALE OF PREMISES BY LESSOR . . . . . . . . . . . 75 SIGNATURE PAGE . . . . . . . . . . . . . . . . . 75 -iii- MNMCI BUILD AND LEASE AGREEMENT LESSOR DOUGLAS W. BRADFORD LESSEE NETCO FOODS, INC. A California Corporation 20th Street & Whitman Avenue Chico, California INDEX Page ---- 1. OWNERSHIP . . . . . . . . . . . . . . . . . . . . 1 IMPINGEMENT . . . . . . . . . . . . . . . . . . . 3 2. COMMON AREAS. . . . . . . . . . . . . . . . . . . 4 COMMON AREA MAINTENANCE REIMBURSEMENT. . . . . . . . . . . . . . . . . . 5 EXTENDED HOUR LIGHTING. . . . . . . . . . . . . . 8 3. CONSTRUCTION. . . . . . . . . . . . . . . . . . . 10 4. TERM. . . . . . . . . . . . . . . . . . . . . . . 15 5. OPTION. . . . . . . . . . . . . . . . . . . . . . 16 6. RENT. . . . . . . . . . . . . . . . . . . . . . . 17 LEASE YEAR DEFINED. . . . . . . . . . . . . . . . 24 PERCENTAGE RENT TIME OF PAYMENT . . . . . . . . . 24 7. MORTGAGES . . . . . . . . . . . . . . . . . . . . 24 8. TAXES AND ASSESSMENTS . . . . . . . . . . . . . . 25 ASSESSMENTS MADE DURING LEASE TERM. . . . . . . . 27 9. LESSEE HOLD HARMLESS. . . . . . . . . . . . . . . 30 PUBLIC LIABILITY INSURANCE OF PREMISES. . . . . . . . . . . . . . . . . . . 30 PUBLIC LIABILITY INSURANCE OF COMMON AREA . . . . . . . . . . . . . . . . . 31 REIMBURSEMENT FOR PUBLIC LIABILITY INSURANCE OF COMMON AREA . . . . . . . . . . . . 31 LESSOR HOLD HARMLESS. . . . . . . . . . . . . . . 33 10. WAIVER OF LIABILITY . . . . . . . . . . . . . . . 33 11. REMOVAL . . . . . . . . . . . . . . . . . . . . . 35 12. LESSOR ENTRY. . . . . . . . . . . . . . . . . . . 35 13. MAINTENANCE AND REPAIR. . . . . . . . . . . . . . 35 14. WASTE . . . . . . . . . . . . . . . . . . . . . . 37 15. SIGNS . . . . . . . . . . . . . . . . . . . . . . 38 16. FIRE AND EXTENDED COVERAGE INSURANCE. . . . . . . 39 BLANKET INSURANCE . . . . . . . . . . . . . . . . 39 REIMBURSEMENT OF PREMIUMS . . . . . . . . . . . . 39 SUBSEQUENT CHANGE OF STANDARDS. . . . . . . . . . 41 -i- 17. DAMAGE AND DESTRUCTION (INSURED RISK) . . . . . . 42 DAMAGE AND DESTRUCTION (UNINSURED RISK) . . . . . 43 EXTENT OF LESSOR'S OBLIGATION TO RESTORE. . . . . 44 ABATEMENT OF RENT . . . . . . . . . . . . . . . . 45 DESTRUCTION DURING LAST PART OF TERM. . . . . . . 45 WAIVER OF CIVIL CODE SECTIONS . . . . . . . . . . 45 DAMAGE AND DESTRUCTION - OTHER BUILDINGS. . . . . 46 RESTORATION . . . . . . . . . . . . . . . . . . . 46 17.1 CONDEMNATION FOR REPAIRS. . . . . . . . . . . . . 47 18. CONDEMNATION. . . . . . . . . . . . . . . . . . . 48 19. HOLDING OVER. . . . . . . . . . . . . . . . . . . 51 20. SHOWING BY LESSOR . . . . . . . . . . . . . . . . 51 21. RELATIONSHIP. . . . . . . . . . . . . . . . . . . 52 22. PARKING AREA. . . . . . . . . . . . . . . . . . . 52 23. UTILITIES . . . . . . . . . . . . . . . . . . . . 52 24. LESSEE DEFAULT. . . . . . . . . . . . . . . . . . 53 25. LESSOR DEFAULT. . . . . . . . . . . . . . . . . . 57 26. LEASE APPLIES ONLY TO BUSINESS ON PREMISES . . . . . . . . . . . . . . 60 27. INSURANCE MAY BE PROVIDED BY SUBLESSEE OR ASSIGNEE. . . . . . . . . . . . . . 60 28. EXCLUSIVE . . . . . . . . . . . . . . . . . . . . 61 29. ALTERATIONS OR ADDITIONS. . . . . . . . . . . . . 61 30. THIS PARAGRAPH INTENTIONALLY DELETED. . . . . . . 62 31. THIS PARAGRAPH INTENTIONALLY DELETED. . . . . . . 62 32. RESTRICTIONS ON USE . . . . . . . . . . . . . . . 62 33. INITIAL USE AND RIGHT TO CLOSE STORE. . . . . . . 64 34. SUBLET OR ASSIGN. . . . . . . . . . . . . . . . . 67 35. LESSOR'S WAIVER . . . . . . . . . . . . . . . . . 69 36. NOTICES AND DELIVERY OF ITEMS SENT BY MAIL . . . . . . . . . . . . . . . 70 -ii- BUILD AND LEASE AGREEMENT This agreement is made and entered into this 25th day of May 1988, by and between DOUGLAS W. BRADFORD, hereinafter called the "LESSOR", and NETCO FOODS, INC., a California corporation, hereinafter called the "LESSEE". WITNESSETH: WHEREAS, the LESSOR desires to cause to be constructed a building (hereinafter called "the premises", containing approximately 54,239 square feet and constituting a part of the shopping center (hereinafter called the "Shopping Center") which Shopping Center is, or will be, located upon the real estate described on Exhibit "D", attached hereto and made a part hereof, and the LESSEE desires to lease the premises upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the rents to be paid and the mutual covenants to be performed, the parties hereto agree as follows: 1. OWNERSHIP. LESSOR, pursuant to contract with the fee owners of the real property which will comprise the Shopping Center, has a contractual right to acquire title thereto and it is the expectation of LESSOR, subject to certain contingencies, that an assignee of LESSOR'S rights under this Lease will purchase and acquire title to such real estate on or before 15 June 1988, which acquisition of title shall be a contingency to the -1- continuation of this Lease, as more particularly hereinafter set forth. If this Lease is not terminated pursuant to such contingency, then on or prior to the commencement of construction of the building which will comprise the premises, the then lessor under this Lease shall have acquired such fee title and assumed the obligations of LESSOR hereunder, and, by that act, shall be deemed to have made the covenants attributed to LESSOR hereunder. LESSOR covenants that LESSEE, upon paying the rentals herein reserved and observing, performing and keeping all and singular the covenants and agreements herein specified to be kept and performed by LESSEE, shall, and may lawfully, peacefully, and quietly have, hold, use, occupy, possess and enjoy the premises hereby leased for and during the term hereof, without any hindrance, eviction, molestation, or interruption of or by the LESSOR, or any person or persons claiming by or through LESSOR. LESSOR covenants that as of the date of execution of this Lease, no zoning or other ordinance, law, regulation, or restrictive covenants prevent use of the leased premises for the purpose of operation of a supermarket. It is a condition of this Lease that prior to 15 June 1988, LESSOR or an assignee of LESSOR'S interest, as successor lessor under this Lease, shall own the real estate described in Exhibit "D". If this condition is not satisfied, then either LESSOR or LESSEE may elect to terminate this Lease upon ten (10) days notice to the other; PROVIDED that if, within such ten (10) day notice period, or prior to any notice being given by LESSOR to -2- LESSEE or by LESSEE to LESSOR of election to terminate, LESSOR or the successor lessor so acquires such title, this condition shall be deemed satisfied and of no further force or effect. IMPINGEMENT. Except as herein provided for, LESSOR warrants and guarantees that there are no prior documents of record, nor unrecorded documents within the knowledge of LESSOR, which will permit third parties to impinge upon the rights of LESSEE under this Lease by use or occupancy of adjacent property, or of the premises, the parking area, or the other common use areas as shown on the plot plan attached to and made a part of this Lease, as Exhibit "A". LESSOR shall not make any deviations or variations in the construction or use of the plotted area from that shown on said plot plan without the prior written consent of LESSEE. LESSEE acknowledges that it understands that LESSOR is making the foregoing representation and warranties in reliance upon the title insurance it will obtain at the time it purchases the Shopping Center. LESSOR shall have furnished to LESSEE, prior to execution of this Lease, at LESSOR'S expense, a preliminary title report which contains a statement as to the exceptions to title affecting the real property of which the demised premises is a part. LESSOR shall, at LESSOR'S expense, cause LESSEE to be named as the insured under a policy of title insurance which shall be issued to LESSEE, and shall be purchased by LESSOR in connection with LESSOR'S acquisition of title to the Shopping Center. Such -3- policy of title insurance shall insure LESSEE with respect to LESSEE'S leasehold interest hereunder, shall be in a liability amount of Two Million Dollars ($2,000,000.00) and shall insure LESSEE'S leasehold interest as being subject to no exceptions other than those reflected in the preliminary title report hereinabove referred to, the deed of trust securing LESSOR'S purchase money and/or construction financing, assessments or liens, if any, as referenced within paragraph 8, and such use restrictions and cross-easements as may be created either under a reciprocal easement agreement approved by LESSEE or result from the provisions of a lease between LESSOR and another tenant of the Shopping Center; provided, however, LESSOR warrants that any such use restriction and/or cross-easement shall be consistent with the rights of LESSEE as provided for within this Lease. LESSOR, at LESSOR'S expense, shall furnish LESSEE, on or before the date of commencement of construction of the Shopping Center with a copy of the survey of the Shopping Center which LESSOR shall cause to be prepared. 2. COMMON AREAS. The premises are to be located as approved by the parties as shown on the plot plan marked Exhibit "A", attached hereto and incorporated herein. LESSOR agrees that the use and occupancy by the LESSEE of the premises shall include the use, nonexclusive and in common with others entitled thereto in said Shopping Center including its customers, suppliers, visitors and invitees, of the common areas, employees' parking areas, service roads, loading facilities, (except truck loading -4- and unloading areas which are for the exclusive use of the particular tenant for which they are provided), sidewalks, and customers' parking areas, all as shown on Exhibit "A", and all future facilities and common areas designed for common use, all of such areas and facilities being hereinafter collectively termed "common areas", subject, however, to the terms and conditions hereinafter set forth. The LESSOR covenants and agrees that it shall maintain the common areas of the Shopping Center in good operating condition and repair (hereinafter called "common area maintenance"), adequately drained and reasonably free from rubbish and debris, any grass mowed, properly landscaped and the LESSOR shall promptly stockpile or remove all snow and ice from the sidewalks, parking and driveway areas and cause all remaining surface ice to be treated with sand, salt or similar abrasive. The LESSOR shall resurface the sidewalk, parking and driveway areas when the same shall be reasonably necessary together with the restriping of the parking areas. The LESSOR shall keep the common areas of the Shopping Center well lighted during such hours of darkness as LESSEE shall remain open for business and for a period of one (1) hour thereafter. COMMON AREA MAINTENANCE REIMBURSEMENT. LESSEE agrees to pay as additional rent, pursuant to paragraph 6F hereof, Twenty-Four Thousand Dollars and No Cents ($24,000.00) as LESSEE'S estimated annual pro rata share (determined by the proportion which the number of square feet of floor space in the premises bears to the number of square feet of floor space in all buildings in the -5- proposed Shopping Center as depicted on Exhibit "A" hereof; provided however, that until such time as buildings are erected on the pads designated as Shop A, Store F, Shop G, Pad 1, Pad 2, and Pad 4 on Exhibit "A" hereto ["EXCLUSION PADS"], LESSEE'S pro rata share shall be determined by excluding from the "number of square feet of floor space in all buildings in the proposed Shopping Center as depicted on Exhibit "A" hereof" the number of square feet of floor space in the building area designated for such of the EXCLUSION PADS as have not been subjected to construction of buildings; PROVIDED, that any of the EXCLUSION PADS on which no construction of buildings has commenced shall be graded and maintained in a neat, clean, and orderly condition) of the expense of common area maintenance of the Shopping Center shown on Exhibit "A" attached, including, within the meaning of the phrase "expense of common area maintenance", costs of resurfacing, repainting and restriping, cleaning, sweeping, and other janitorial services, policing, planting and relandscaping, real property taxes and assessments levied and assessed against the common areas (as provided in paragraph 8 hereof), premiums on public liability and property damage insurance covering the common areas (as provided in paragraph 9 hereof), the cost of maintaining and operating the signs referred to in paragraph 3 hereof, and an administrative fee which shall not exceed five percent (5%) of the annual common area maintenance expense (exclusive of said administrative fee and exclusive of real property taxes and insurance premiums pertaining to the common -6- area), for the first year of the lease term. LESSEE'S pro rata share shall be payable monthly in the amount of Two Thousand and No/100 Dollars ($2,000.00). On or about the conclusion of the first year of the Lease term, representatives of LESSOR and LESSEE shall meet and review the actual costs applicable to such first year of the Lease term. If the actual costs exceed that paid by LESSEE, the difference shall be paid within thirty (30) days following the determination of such actual costs. If such costs are less than such sum paid, LESSEE shall receive a credit against the next rent due pursuant to this Lease, for the difference. For the remainder of the calendar year following the expiration of the first year of the Lease term, an amount shall be paid which is the estimated amount of maintenance charges determined as set forth in the following paragraph. During succeeding years of the lease term and renewal terms, the above-described additional rental shall be calculated as hereinafter set forth. Within thirty (30) days after the end of each calendar year, during the original term or any renewal term of this Lease, LESSOR agrees to furnish to LESSEE a statement itemized in reasonable detail, setting forth the total expenses for such common area maintenance charges for such calendar year. LESSOR and LESSEE shall meet and review said itemized statement; determine LESSEE'S pro rata share thereof (as hereinabove defined) and make adjustments for underpayment of LESSEE'S pro rata share which underpayment LESSEE shall pay with LESSEE'S -7- next monthly payment of said expenses, and for overpayment of LESSEE'S pro rata share, which overpayment shall be credited against LESSEE'S next monthly payment of said expenses. At such meeting LESSOR shall prepare and present an estimate of LESSEE'S pro rata share of the expenses of maintaining the common area maintenance for the succeeding calendar year, which estimate shall be subject to the approval of LESSEE. Upon such approval (which shall not be unreasonably withheld) LESSEE'S monthly payment of said pro rata share shall be adjusted accordingly. EXTENDED HOUR LIGHTING. In the event LESSEE in its sole discretion desires to remain open for business after 11:59 p.m., then as additional rental LESSEE agrees to pay an amount which is the sum computed by multiplying the number of hours (not exceeding eight [8] hours daily) LESSEE remains open after 11:59 p.m. times the wattage of common area parking lot lighting and sign identifying the Shopping Center times the actual utility rate applicable; provided, that should other tenants in the Shopping Center remain open after 11:59 p.m., then LESSEE shall pay only a pro rata amount arrived at by taking into consideration the number of hours such other tenant(s) remain open for business and the square footage of such other tenants' leased premises. Such additional extended hour lighting charges shall be billed by the LESSOR to the LESSEE being properly documented together with a statement showing the LESSOR'S calculations of the amount due and payable and the LESSEE agrees to pay such extended hour charges on demand. The LESSOR, at its own cost and expense, agrees to -8- properly cause the installation of a separate meter for the purposes of ascertaining such additional extended hour lighting charges. Notwithstanding anything provided in this paragraph to the contrary, it is agreed and understood that the LESSEE'S pro rata share of the repair and maintenance costs attributable to common area maintenance of the Shopping Center shall not include any of the following: (a) charges related to any item which was actually constructed but which was not included in the plans and specifications approved by LESSEE pursuant to paragraph 3 hereof; (b) charges related to any item which was included in the plans and specifications approved by LESSEE pursuant to paragraph 3 hereof, which was not actually constructed; (c) charges in excess of One Thousand Dollars ($1,000.00) per lease year for (i) equipment purchased by LESSOR for use in maintenance of the common area of the Shopping Center (provided no charge shall be made unless the purchase of such equipment is cost-justified by resulting decreases in overall repair and maintenance costs) and/or (ii) capital improvements which are for replacement of improvements which were a part of the common areas in accordance with the initial development of the Shopping Center, such replacements being reasonably required to maintain the common areas of the Shopping -9- Center in a first-class condition and are improvements made five (5) or more years after the commencement of the term of this Lease. The term "capital improvements", as used herein, shall mean a valuable addition made to the premises or common areas in excess of ordinary repairs and maintenance that is properly chargeable to capital expense or capital improvements under recognized and accepted accounting principles and standards. PROVIDED, however, that the replacement of paving in the parking area of the Shopping Center shall be deemed to be repair and maintenance (rather than a capital improvement) unless such replacement is required due to LESSOR'S failure to maintain and repair such pavement, or unless such replacement is required due to defective initial installation of such pavement; or (d) any charge for LESSOR'S overhead and profit, other than the five percent (5%) administrative fee referred to in this paragraph 2 under the heading "COMMON AREA MAINTENANCE REIMBURSEMENT". 3. CONSTRUCTION. The LESSOR agrees to cause construction of the premises and other improvements in accordance with the plot plan, Exhibit "A" attached, and the specifications marked Exhibit "B", attached hereto and incorporated herein. This Lease shall not be effective until such specifications, Exhibit "B", and the plot plan, Exhibit "A", have been so attached and have been initialed by both parties. The LESSOR shall provide all -10- facilities necessary to provide water, sewer, gas, electrical and other utilities to the premises. LESSEE shall have the right to review the final floor plan and elevation drawings. Should LESSEE require changes in plans after final approval in accordance with the specifications marked as Exhibit "B", any increased costs to implement changes required by LESSEE shall be paid to LESSOR as a condition to LESSOR'S obligation to permit the modification. Further, if the modification is of a nature which will cause an extension in the time period for construction, rental shall be commenced on the date when rental would have commenced had LESSEE not required a change in the plans adopted pursuant to Exhibit "B". The LESSOR agrees that, at the option of the LESSEE, this Lease shall become null and void if construction of the Shopping Center, including the premises, is not commenced on or before 1 August 1988 and completed and ready for occupancy on or before 1 May 1989, causes or conditions beyond the control of LESSOR only, excepted; provided, however, that if the premises are not ready for occupancy on or before 1 September 1989, irrespective of cause, and irrespective or whether such cause is beyond the control of LESSOR, LESSEE, in its sole discretion is hereby granted the option to cancel and terminate this Lease. Provided further that if LESSEE, by reason of the preceding sentence, had the option to cancel and terminate this Lease but has not exercised said option by 1 January 1990, then LESSOR is granted the NETCO/052388 -11- option to cancel and terminate this Lease by giving written notice of such election to LESSEE, provided such notice is given prior to the commencement of the term of this Lease and, in any event, prior to 1 February 1990. Notwithstanding the foregoing, if construction has not commenced by 1 August 1988, and construction is about to commence after such date, LESSEE, within ten (10) days of written request from LESSOR shall either elect to terminate this Lease or waive the failure of LESSOR to have commenced by 1 August 1988 as a basis for later termination by LESSEE, it being specifically understood and agreed between LESSOR and LESSEE that LESSOR'S construction lender will desire assurance prior to permitting the commencement of construction of the building to comprise the premises that LESSEE is then committed to accepting the premises upon construction having been completed in accordance with the provisions of this Lease. Construction of the premises shall not be considered complete until it and the buildings and improvements which are within the cross-hatched area on Exhibit "A" hereto are substantially completed in every respect, and certified by the project architect (substantially completed in every respect shall mean complete except those items listed on LESSEE'S punch list, as hereinafter defined, which can be and will be corrected and completed within thirty [30] days by LESSOR in accordance with the specifications, Exhibit "B" hereof, none of which items would materially interfere with or impair the LESSEE'S use of the premises and to an NETCO/052388 -12- extent permissible with respect to necessary work to be performed by LESSEE in installing its trade fixtures and equipment) including, but not limited to toilet facilities, office space, vinyl floor covering, automatic doors, light fixtures, including tubes and globes, heating, refrigerated air conditioning, enclosed machine rooms, curtain walls and partitions, and electrical and plumbing requirements complete to the point of connection of fixtures, equipment, checkstands and signs; interior and exterior decoration completed, parking areas completely surfaced, with adequate lighting and initial traffic control, service roads, sidewalks, loading facilities, all to be in accordance with specifications (Exhibit "B") which specifications are to be supplied by LESSEE. With respect to that part of the foregoing requirements for completion which pertain to buildings other than the leased premises, the parking areas, service roads, sidewalks, and loading facilities, such requirements shall be deemed satisfied if such requirement have been met with respect to that portion of said area which is cross-hatched on Exhibit "A" attached hereto and made a part hereof; PROVIDED, however, that in such event LESSOR shall not, in the he further construction of the Shopping Center, permit construction work, staging for construction work, or any other inhibition of free access to occur with respect to or within the cross-hatched area shown on said Exhibit "A". LESSOR shall also construct and maintain during the term of this Lease a sign, to be approved by the LESSEE, identifying the Shopping Center, as well as a sign, to be NETCO/052388 -13- approved by LESSEE, and subject to local governmental approval, identifying some or all of the tenants of the Shopping Center. LESSEE shall have the right, at LESSEE'S cost, to place on such latter sign its sign, which shall be of at least the same size and advertising effect as any sign placed on such sign by any other tenant in the Shopping Center, with the possible exception of Homeclub, Inc. Pursuant to lease entered into with Homeclub, Inc., the tenant under this Lease is entitled to space upon the pylon sign together with one (1) other tenant in addition to Homeclub, Inc. Homeclub, Inc. is entitled to locate its panel in the top position. LESSOR will exercise its best efforts to obtain consent from Homeclub, Inc. to permit the identification size of LESSEE'S sign to be equal in size to that of Homeclub, Inc. If LESSOR permits any other tenant to place its sign on the sign identifying the Shopping Center, LESSEE shall be permitted to do so also, with a sign which is at least as large as the largest sign permitted to any other tenant, with the exception of Homeclub, Inc. LESSOR covenants and agrees that neither it nor any other tenant in the Shopping Center shall construct a sign so as to impair the visibility of or access to the premises. LESSEE agrees to accept the premises in the condition existing on the date of the commencement of the term, subject to LESSEE'S list of defective items (hereinafter called "punch list") being completed. In the event of LESSOR'S failure to complete said punch list items within thirty (30) days after receipt of LESSEE'S notification to LESSOR, then at LESSEE'S sole NETCO/052388 -14- option, LESSEE may either complete such punch list items and deduct the cost thereof from rent, the costs of which are hereby agreed in advance by the parties hereto to be reasonable and proper deductions, or require LESSOR'S specific performance of the same, or seek any other legal remedies available to LESSEE. LESSOR covenants that the premises to be constructed shall, at the commencement of the term hereof and subject to LESSEE'S punch list being completed, be structurally sound and in good tenantable condition and that there shall be no latent defects therein. Latent defects as used herein is a defect which is a departure from plans and specifications not apparent upon an ordinary and reasonable inspection by a professional engineer qualified to make such inspection, normal wear and tear excepted. LESSOR further covenants that if any latent defects in the premises become apparent at any time during this Lease, and it shall appear that such latent defects existed at the beginning of the term hereof, or resulted from faulty design, workmanship or materials (the proof of which facts shall be the burden of LESSEE), then LESSOR shall cause the same after receiving written notice from LESSEE, to be repaired and corrected with all reasonable speed. LESSEE shall have the benefit of all warranties accruing to the LESSOR by reason of construction of the premises and any installation of equipment thereon. 4. TERM. The LESSOR agrees to, and does hereby, lease the premises to the LESSEE for an original term of twenty (20) years, commencing on the earlier of the first day the premises are NETCO/052388 -15- opened for business or forty-five (45) days following the earlier of LESSOR'S notification to LESSEE or LESSEE'S notification to LESSOR that the construction of the premises is completed in accordance with the terms of this Lease and the premises are ready for occupancy by LESSEE, except for punch list items which can and will be completed with thirty (30) days, as aforesaid, and LESSOR notifies LESSEE of the foregoing, whichever is earlier. The commencement date of the term shall be endorsed at the end hereof, and the lease term shall terminate at 11:59 p.m. on the last day of the twenty (20) year term thereafter. It is agreed that if at the end of the original term of this Lease, or any option period hereof, LESSEE, in its sole discretion, shall deem it necessary to remain in occupancy of said premises beyond the termination date of the Lease, LESSEE may do so for a period of time up to one hundred twenty (120) days. For any such extension period, the rent will be one and one-half (1.5) times the then current minimum monthly rent. LESSEE shall give LESSOR one hundred twenty (120) days' notice should such extension be necessary. It is agreed that the LESSEE shall not be obligated to open the premises for business nor shall the rent for the premises commence, [subject to the provisions of paragraph 6.A(1) hereof] until all streets, highways and parking areas, shown as cross-hatched on Exhibit "A" attached hereto, have been fully paved and are open for use. 5. OPTION. It is further agreed that, at the expiration of the original term, the LESSEE shall have the right, exercisable NETCO/052388 -16- at its sole option, to extend this Lease for three (3) additional, consecutive terms of five (5) years each, upon the same terms and conditions. The LESSOR shall be notified of the LESSEE'S intent to exercise such option at least six (6) months prior to the end of the then current term. It is further agreed that LESSEE shall have the right, at its sole option, to extend this Lease for an additional term not to exceed seven (7) years if necessary, to permit reconstruction and repair of the premises after its damage or destruction, in accordance with the provisions of paragraph 17 hereof. PROVIDED, however, that if, on the date of commencement of any of the extended terms, LESSEE is in default (as that term is used in paragraph 24.A. hereof) then the extended term shall not commence, and this Lease shall expire at the end of the initial term of the then expiring extended term. 6. RENT. As rent for the premises, LESSEE shall pay to LESSOR in lawful money of the United States, at the address to which notices to LESSOR are to be given hereunder: A. MINIMUM ANNUAL RENT, payable in equal monthly installments, in advance, on the first day of each month: (1) in the annual sum of Three Hundred Seventy-Nine Thousand Six Hundred Seventy-Three Dollars ($379,673.00), for the period commencing on the first (1st) day of the calendar month following the expiration of one hundred twenty (120) days from the commencement of the term of this Lease (determined under paragraph 4 hereof), which date is -17- sometimes referred to herein as the "Rent Commencement Date", and terminating on the expiration of original twenty (20) year term of this Lease; PROVIDED, however, that on the Rent Commencement Date LESSEE shall also pay an amount equal to 1/365 of said minimum annual rent as and for each day elapsing after the expiration of said one hundred twenty (120) day period and prior to the Rent Commencement Date; (2) in an annual sum, during the five (5) year option periods described in paragraph 5 hereof, and, unless subparagraph (3) below is, by its terms, applicable, during the seven (7) year option period described in paragraph 5 hereof, equal to ninety percent (90%) of the average percentage rent (calculated without reduction for minimum rent paid) payable by LESSEE pursuant to paragraph 6.B. hereof, for the three (3) lease years next preceding the commencement of the option period in question; PROVIDED, however, that such minimum annual rental, as so determined, shall not be less than the greatest amount of minimum annual rent which was in effect during the original twenty (20) year term of this Lease or during any previous five (5) year option period; -18- (3) [if this subparagraph (3) is, by its terms, applicable] in an annual sum, during the seven (7) year option period described in paragraph 5 hereof, which shall be determined in the following manner: During the period commencing on the date LESSEE exercises its option to extend the term of this Lease for said seven (7) year period and continuing until one (1) month prior to the expiration of the then current term of this Lease, LESSOR and LESSEE shall attempt to agree upon the basic rental, rental escalations, rental terms and concessions and other economic factors relevant to establishing the fair market rental value for the extended term. If the parties are unable to agree upon the fair market rental value, such rental value shall be established by local appraiser(s) (whose qualifications shall include membership in the American Institute of Real Estate Appraisers, and/or the Society of the Real Estate Appraisers, and active practice of the profession of real estate appraisal for not less then ten [10] years). LESSOR and LESSEE shall have ten (10) days to appoint a mutually acceptable appraiser. If they are unable to agree upon a single individual, within the next ten (10) days, LESSOR shall appoint one (1) appraiser and LESSEE shall appoint one (1) appraiser. Failure by LESSOR or LESSEE to appoint an appraiser within the ten (10) day period shall consti- -19- tute a waiver of the right to appoint such an appraiser and an agreement to be bound by the appraisal performed by the other appraiser. Within the next fifteen (15) day period the two (2) appraisers shall agree upon and appoint a third (3rd) appraiser. When all three (3) appraisers have been appointed, they shall appraise the premises and determine the minimum rental, percentage rental, rental terms and concessions and other economic factors relevant to establishing the fair market rental value of the premises during the extended term. The appraisal(s) shall be completed no later than thirty (30) days following the commencement of the extension term, with each appraiser preparing an indpendent written report setting forth his appraisal. The appraisers shall thereafter review each of the separate reports and shall meet to discuss and resolve any differences. A decision by two (2) of the three (3) appraisers shall be binding upon LESSOR and LESSEE. If no two (2) appraisers can agree upon the fair market rental value within thirty (30) days following the commencement of the extension term, the fair market rental value shall be determined by averaging the three (3) appraisals. Each party shall pay the costs and expenses of the appraiser appointed by it as well as one-half (1/2) of the costs and expenses of the third appraiser, or the sole appraiser as the case may be. The parties -20- shall execute a written addendum to this Lease setting forth the rental provisions for the seven (7) year option period as soon as such rental has been determined; such rental shall establish both the minimum annual rental and the percentage rental, if any, to be paid during said seven (7) year option period if this subparagraph (3) is, by its terms, applicable. This subparagraph (3) shall be applicable only if, pursuant to the provisions of paragraphs 5 and 16 hereof, the damage or destruction which enabled LESSEE to extend the term of this Lease for such seven (7) year period, was caused by a risk not covered by the insurance required to be kept in effect by LESSOR pursuant to paragraph 16 hereof. B. As additional rent, percentage rent in an amount equal to the percentage specified below, of LESSEE'S annual "gross sales", as hereinafter defined, made during each lease year during the original twenty (20) year term and during each of the five (5) year option periods and during the seven (7) year option period referred to in paragraph 5 hereof. Notwithstanding the foregoing, no percentage rent shall be payable with respect to any sales made prior to the Rent Commencement Date, nor shall this subparagraph apply during the seven (7) year option period if subparagraph 6.A.(3) is, by its terms, applicable. -21- The percentage referred to above shall be: 1.25% with respect to that portion of LESSEE'S annual gross sales which do not exceed $33,748,711.00 for the lease year in question; 1.125% with respect to that portion of LESSEE'S annual gross sales which exceed $33,748,711.00 but do not exceed $37,967,300.00 for the lease year in question; 1.0% with respect to that portion of LESSEE'S annual gross sales which exceed $37,967,300.00 for the lease year in question. LESSEE shall be entitled to a credit, against such percentage rent, for the amount of minimum rent paid by LESSEE with respect to the lease year in question. C. As additional rent, public liability and property damage insurance annual premiums insuring the common areas as set forth in paragraph 9 hereof. D. As additional rent, fire and extended coverage insurance annual premiums as set forth in paragraph 16 hereof. E. As additional rent, repairs and maintenance of the premises as set forth in paragraph 13 hereof. F. As additional rent, LESSEE'S proportionate share of common area maintenance cost, including administrative fee, as defined and payable as set forth in paragraph 2 hereof. G. As additional rent, taxes and assessments levied and assessed against the premises and LESSEE'S proportionate share of taxes and assessments levied and assessed -22- against the parking and common areas of the Shopping Center, as set forth in paragraph 8 hereof. The term "gross sales", as used herein, shall include all sales of merchandise from, through, or off the premises, including the performance of any service for any customer or patron for compensation by the LESSEE or employee, and shall include all sales by every department thereof, for cash or on a charge basis, and including all business in which orders come by mail, telephone, or telegraph, less credit for returned merchandise, merchandise trade-ins, and credits of a similar nature. "Gross sales" shall not include sales, luxury, excise or other taxes collected by LESSEE from customers and charged separately, merchandise transferred from one of the LESSEE'S or SUBLESSEE'S stores to another, return of merchandise to a supplier, wholesale bakery or wholesale delicatessen sales, or sales of money orders or vending machine receipts except to the extent to royalties actually received by LESSEE. As used in this paragraph, the terms "wholesale bakery sales" and "wholesale delicatessen sales" shall refer to sales made in the bakery or delicatessen departments of the premises, which sales are for the purpose of resale. LESSOR shall have the right, at any time, but no more than once per year, and from time to time, at LESSOR'S expense, to have audits made of the records of sales which occur on the premises. LESSOR'S right to examine the books and records pertaining to the operation of a business on the premises, or to make an audit thereof in respect to any lease year, shall be limited to -23- the then current lease year, plus the year immediately preceding. LESSEE"S statements for other prior lease periods shall be deemed to have been accepted by LESSOR and be incontestible. LEASE YEAR DEFINED. The term "lease year", as used in this Lease, means the following: 1. With reference to the first lease year, the period from the commencement date of the term of this Lease through the last day of the twelfth (12th) full calendar month thereafter. 2. With reference to any succeeding lease year (with the exception of the last lease year), twelve (12) full consecutive calendar months commencing on the first day of the calendar month next succeeding the last day of the preceding lease year. 3. With reference to the last lease year, the period commencing on the first day of the calendar month next succeeding the last day of the preceding lease years and terminating on the last day of the lease term. PERCENTAGE RENT TIME OF PAYMENT. Payment of any additional rental, as outlined in paragraph 6B herein, shall be paid on or before the twentieth (20th) day of the month following the ending of each annual period. 7. MORTGAGES. All mortgage payments or other charges required to discharge any lien or encumbrance that may affect the premises, and for which the LESSOR is solely responsible, and which is superior and prior to the terms of this Lease and the -24- rights of LESSEE hereunder, shall be paid by the LESSOR as the same shall become due. Notwithstanding any provision in this Lease to the contrary, LESSEE agrees that with regard to any such mortgage or encumbrance which is superior or prior to the terms of this Lease and the rights of LESSEE hereunder, LESSEE shall not declare a default under this Lease in the event of any default of a payment under such mortgage or other encumbrance, provided that the holder of such encumbrance has agreed, in the event of a default thereunder, and provided LESSEE is not in default under the terms of this Lease, that no foreclosure of, deed given in lieu of foreclosure of, or sale under the encumbrance, and no stops or procedures taken under the encumbrance shall affect LESSEE'S rights under this Lease. In such event LESSEE shall attorn to any purchaser at any foreclosure sale, or to any grantee or transferee designated in any deed given in lieu of foreclosure, and this Lease shall continue in full force and effect. 8. TAXES AND ASSESSMENTS. As additional rental, the LESSEE agrees to pay the amount of all taxes and assessments levied and assessed against the premises and LESSEE'S proportionate share (as hereinafter set forth) of all taxes and assessments levied and assessed against the parking and common areas of the Shopping Center which shall become due and payable during the original or any exercised renewed term hereof. LESSEE shall have the right to pay such items directly to the taxing authority prior to delinquency or to pay the same directly to LESSOR, not later than -25- fifteen (15) days prior to the delinquency date. In the latter event, LESSOR shall, as soon as practicable after LESSOR'S payment of said items, provide LESSEE with evidence of such payment. If the Shopping Center is taxed as a unit, the LESSEE shall be liable for only such proportion of such taxes and assessments as the number of square feet of floor space in the premises bears to the proposed total number of square feet of floor space in the Shopping Center as depicted on Exhibit "A". Notwithstanding the foregoing, either LESSOR or LESSEE, by notice to the other, may request, in lieu of an apportionment of real estate taxes based upon floor space, that real estate taxes are allocated in an alternative manner to the various components of the Shopping Center in a manner which is fair and reasonable and is based upon information as used by the tax assessor (including assessor's worksheets or such other information as may reasonably be available to LESSOR establishing the amount of such real estate taxes). If this alternative calculation is used, LESSEE shall pay one hundred percent (100%) of all real estate taxes fairly allocable to the land immediately beneath the building and all areas LESSEE has the exclusive right to use, and LESSEE'S proportionate share of real estate taxes fairly allocable to land and improvements that are within the common area, that are not devoted to the exclusive use of any other tenant of the Shopping Center. In the event that LESSOR and LESSEE are unable to agree as to the appropriate allocation, either party may request that such be submitted to arbitration to be conducted -26- in like manner as arbitration is provided for within paragraph 18. Such taxes and assessments must be billed by LESSOR and LESSEE no later than ninety (90) days after receipt of the final tax billing from the local taxing authority to LESSOR. If such notice is not received by LESSEE within ninety (90) days, LESSEE'S obligation to pay such taxes and assessments shall be unaffected, unless LESSEE has, after the expiration of such ninety (90) day period, assigned this lease or sublet the premises and is no longer in possession of the premises except through an assignee or sublessee. In that event, NETCO FOODS, INC. shall have no liability with respect to the payment of such taxes and assessments, but the payment thereof shall be enforceable against such assignee or sublessee only. In such event, and for such purpose, LESSEE hereby assigns to LESSOR, the right of LESSEE (as SUBLESSOR) to demand, receiver, and collect from any sublessee of LESSEE, such taxes and assessments to the extent provided for in any sublease of the premises entered into by LESSEE (as SUBLESSOR). Provided, however, that for any partial tax year occurring during the original or any renewed term hereof, the LESSEE shall be liable for only that portion of such taxes and assessments as the number of days in such partial tax year bears to three hundred sixty-five (365). ASSESSMENTS MADE DURING LEASE TERM. In the event during the term of this Lease or any extension thereof, an assessment is placed upon the premises or the Shopping Center by any taxing -27- authority of competent jurisdiction, and if such assessment is payable or may be paid in installments, then and in that event such assessment shall be paid by installments and LESSEE shall be liable to pay said assessment only to the extent of making timely payment of those installments falling due during the term of this Lease or any extension thereof. Further, if any assessment be proposed by any competent taxing authority during the term of this Lease or any extension thereof, then upon the request of LESSEE, LESSOR shall use its best efforts to obtain an assessment which is payable or may be paid in installments. In the event during the term of this Lease or any extension thereof, an assessment is placed upon the premises or the Shopping Center by any taxing authority of component jurisdiction and such assessment be payable only in lump sum, then and in that event, LESSEE shall be liable only for payment of a proportionate share of such assessment in the proportion that the number of years remaining in the original term and/or any renewal options then remaining available to LESSEE hereunder bears to the useful life of the improvements against which the assessment is made; said useful life being determined by agreement of the parties or in absence of agreement, by arbitration under the procedures set forth in paragraph 18 hereof. The Shopping Center real property including the premises is, at the time of entry into this Lease, subject to assessment titles "Village Park Refunding Assessment", and a further assessment is in the process of being created which may not appear of -28- record as of the time of execution of this Lease, which relates to the construction of Whitman Avenue infrastructure thereunder. Each such assessment shall be deemed an assessment made during the Lease term, the installments of which are subject to apportionment between tenants of the Shopping Center, as previously set forth herein. Any taxes and assessments levied and assessed against the premises that shall become due and payable during the term hereof and which LESSEE has paid, may be contested by LESSEE by appropriate proceedings. LESSOR shall not be required to join in any such proceeding or contest brought by LESSEE unless the provisions of any law require that the proceeding or contest be brought by or in the name of LESSOR or any owner of the premises. In that case LESSOR shall join in the proceeding or contest or permit it to be brought in LESSOR'S name as long as LESSOR is not required to bear any cost. Whether or not LESSOR is required to join in such proceeding, LESSOR shall cooperate with LESSEE, will provide any information requested by LESSEE, and will execute any document which may be necessary and proper for such proceedings. Any refund shall be the property of LESSEE to the extent it is based upon the payment of any assessments made by LESSEE. If the leased premises are part of a shopping center or constitute part of a tract which is assessed as a whole, then LESSEE may at its option contest any such tax assessment, and any refunds shall be the property of LESSEE to the extent it is based -29- upon the payment of a prorata share of an assessments paid by LESSEE. The LESSEE shall also pay all taxes levied and assessed upon personal property located upon the premises which is not owned by LESSOR. 9. LESSEE HOLD HARMLESS. Except as provided in paragraph 10 hereof, LESSEE agrees to protect and save the LESSOR harmless from any and all claims of others for injuries to persons or property occurring in or upon the premises as defined on page one (1) hereof except such claim for injuries which are caused in any proportion by the negligent, intentional or willful acts of the LESSOR. PUBLIC LIABILITY INSURANCE OF PREMISES. LESSEE agrees to maintain, at its own expense, during the full term of this Lease, a policy of public liability and property damage insurance in a reputable company authorized to do business in the State of California in which policy LESSOR, LESSEE and any mortgagee shall be named as additional insureds, and to furnish current certificates evidencing the existence of such insurance providing that such insurance shall not be canceled except after thirty (30) days' written notice to LESSOR. Such policy shall provide primary coverage for the benefit of LESSOR and LESSEE in an amount not less than $2,000,000.00 single limit combined bodily injury and property damage each occurrence, to cover all situations where any other person or persons claim bodily injury, death, or property damage in or upon the premises. -30- PUBLIC LIABILITY INSURANCE OF COMMON AREA. LESSOR covenants and agrees to maintain, at its own expense, during the full term of this Lease, a policy of public liability and property damage insurance in a reputable company authorized to do business in the State of California, in which policy LESSOR, LESSEE and any mortgagee shall be named as additional insureds insuring against any liability (including all situations where any other person or persons claim bodily injury or property damage) arising on or about the common areas of said Shopping Center as defined in paragraph two (2) hereof, including, but not limited to all common use and parking areas of said Shopping Center and to furnish current certificates evidencing the existence of such insurance providing that such insurance shall not be canceled except after thirty (30) days' written notice to LESSEE. Such policy shall provide primary coverage for the benefit of LESSEE and LESSOR in an amount not less than $2,000,000.00 single limit combined bodily injury and property damage each occurrence to cover all situations where any person or persons claim personal injury, death, or property damage on or about said common areas. LESSOR and LESSEE agree to periodically review and, if necessary, increase the liability limits of such insurance in order that the mutual interests of LESSOR and LESSEE will be adequately protected by such insurance. REIMBURSEMENT FOR PUBLIC LIABILITY INSURANCE OF COMMON AREA. LESSEE agrees to remit to LESSOR, on an annual basis within thirty (30) days after being billed therefor, the pro rata -31- share of the annual premium for insurance covering the common areas of the Shopping Center for said policy(s) as hereinabove provided, subject to LESSEE'S right to obtain similar insurance coverage policy(s) from insurance carriers with ratings equal to LESSOR'S insurance carrier covering the common areas of the Shopping Center. Should LESSEE be able to secure such policy(s) at a lower rate for like coverage, then in such event, LESSEE shall within thirty (30) days prior to the expiration of the current term of such policy [which term shall not exceed one (1) year] provide to LESSOR reasonable data supporting the availability of such like insurance policy(s) at a lower rate; whereupon receipt of such data, LESSOR shall have the option, exercisable in its sole discretion and within thirty (30) days after receipt of such data, to cancel its insurance policy(s) covering the common areas of the Shopping Center at the expiration of the current term of such policy [which term shall not exceed one (1) year] and obtain LESSEE'S policy(s). Should LESSOR elect not to cancel its insurance policy(s) and obtain LESSEE'S policy(s) as aforesaid, LESSOR agrees to deduct, from amounts due from LESSEE in payment of LESSOR'S insurance policy(s) covering the premises and within said thirty (30) days, the difference between the premium paid or charged by LESSOR for its insurance policy(s) covering the premises and that which would have been paid by LESSEE for LESSEE'S policy(s) covering the common areas of the Shopping Center. -32- LESSOR HOLD HARMLESS. Except as provided in paragraph 10 hereof, LESSOR agrees to protect and save the LESSEE harmless from any and all claims of others for injuries to persons or property occurring on or about common areas and arising out of the use or operation of said common areas including reasonable attorney's fees, except such claims for injuries which are caused, in any proportion by the negligent, intentional, or willful acts of the LESSEE, its agents or employees. 10. WAIVER OF LIABILITY. To the extent that any loss or damage described in this paragraph is actually compensated for by insurance provided for in this Lease, but only to that extent, LESSOR and LESSEE each hereby releases the other and its respective employees, agents, and every person claiming by, through, or under either of them, and LESSEE hereby releases each other tenant in the Shopping Center of which the premises are a part, and the employees and agents thereof, from any and all liability or responsibility (to the other or anyone claiming by, through, or under them by way of subrogation or otherwise), for any loss or damage to any property (real or personal) owned by or belonging to LESSOR, LESSEE, their respective employees, agents and every person claiming by, through, or under either of them (whether by subrogation or otherwise) caused by fire or any other insured peril covered by any insurance policy(s) for the benefit of any party, even if such loss or damage shall have been caused by the fault or negligence of another party, its employees or agents. LESSOR and LESSEE further agree that in the event of a -33- sale of the Shopping Center by LESSOR, the hereinabove waiver of subrogation shall continue in favor of the original LESSOR hereinunder and likewise as to any subsequent lessor, as well as in favor of that lessor which, at the time the casualty occurs, may be the lessor under this Lease, so long as the respective insurance policies of LESSOR and LESSEE so permit. LESSOR and LESSEE agree, upon request of the other party, to furnish evidence of such waiver of liability to such other party. All policies of insurance written to insure all buildings, parking and common areas, service and delivery areas, improvements, contents, and all other such property (real or personal) shall contain a proper provision, by endorsement or otherwise, whereby the insurance carriers issuing the same shall acknowledge that the insured has so waived and released its right of recovery against the other party or parties hereto and such other tenants and shall waive the right of subrogation which such carrier might otherwise have had against such other party or parties and such other tenants, all without impairment or invalidation of such insurance. The provisions of this paragraph shall be equally binding upon and inure to the benefit of any permitted assignee or sublessee of LESSEE. LESSOR and LESSEE agree that the foregoing waiver of subrogation shall continue in effect so long as insurance is obtainable and includable with permission to grant such waiver of subrogation without extra cost, or, if such extra cost is chargeable therefor, so long as the other party pays such extra cost. If an -34- extra cost is chargable therefor, each party will advise the other thereof and of the amount thereof. The other party, at its election, may pay the same but shall not be obligated to do so. If the other party elects not to pay such extra cost, the first party shall not be obligated to waive such subrogation rights. 11. REMOVAL. LESSEE shall have the right to remove any and all furniture, fixtures, and equipment it may have installed on or in the premises provided the LESSEE shall restore any structural or other damage to the building resulting from such removal, usual wear and tear excepted. 12. LESSOR ENTRY. The LESSOR shall have the right to enter the premises at any reasonable time for the purpose of inspecting the same, or for the purpose of doing anything that may be required under this Lease, or for the purpose of doing anything LESSEE may be required to do and shall fail to do. In the event it is reasonably necessary to the LESSOR to make any repairs to the premises that the LESSEE is responsible for, but which the LESSEE has failed to make, LESSEE shall reimburse the LESSOR for the cost thereof on demand, and the LESSOR shall not be responsible to the LESSEE for any loss or damage that the LESSEE may suffer from such repairs, provided that such loss or damage is reasonable under the circumstances. 13. MAINTENANCE AND REPAIR. Except for the LESSOR'S obligations with respect to latent defects as set forth in paragraph 3 and with the obligations to maintain in good condition the structural portions of the building including foundations, slabs, NETCO/052388 -35- walls, and electrical and plumbing services to the building, LESSEE agrees at its expense to maintain all other portions of the premises and to make all ordinary repairs in and about the premises necessary to preserve them in good order and condition, including the air conditioning and heating equipment, after expiration of the warranty period stated in Exhibit "B". The LESSOR shall have no obligation with respect to such repairs and maintenance. As used in this paragraph, the obligation to maintain and repair is primarily intended to include amounts to be paid or incurred for incidental repairs and maintenance of property, and, except as noted below with regard to the roof of the leased premises and LESSOR'S obligations, is not intended to include any obligation to make "capital expenditures". The term "capital expenditures" is, for this purpose, defined as: "Any amount paid or incurred: A. to add to the value, or substantially prolong the useful life, of the leased premises; or B. to adapt the leased premises to a new or different use; or C. for new buildings or for permanent improvements or betterments made to increase the value of the leased premises; or D. for purposes within the meaning of 'capital expenditure' as that term is used in Section 263(a) of NETCO/052388 -36- the Internal Revenue Code of 1954, as in effect at the date of execution of this Lease." PROVIDED, however, that notwithstanding the foregoing, LESSEE shall maintain, repair, and replace, as necessary to keep the same in good condition and repair, the roof of the leased premises, provided LESSOR has fulfilled its obligations with respect to the roof, as required by Exhibit "B" hereof. PROVIDED FURTHER, that LESSOR and LESSEE acknowledge and agree that LESSOR'S obligation with respect to latent defects as set forth in paragraph 3 hereof, structural portions of the building, including foundations, slabs, walls, and electrical and plumbing services to the building includes duties of maintenance and repair as well as replacement, even though such replacement is within the meaning of 'capital expenditures'. If, in the event of an emergency, it shall become necessary to make any repairs hereby required to be made by LESSOR, LESSEE shall attempt to notify LESSOR, who shall at all times during this Lease, provide LESSEE with a current telephone number. If LESSEE is unable to contact LESSOR, or if LESSOR fails to cause such emergency repairs to be made within a period of time which is reasonable under the circumstances, LESSEE may cause such emergency repairs to be made and pay the reasonable cost thereof, and LESSOR shall reimburse LESSEE for such cost on demand made by LESSEE. 14. WASTE. The LESSEE shall not commit waste or permit waste to be committed in or upon the leased premises. At the NETCO/052388 -37- termination of this Lease, LESSEE shall surrender and deliver the premises to the LESSOR in as good condition as the same were at the commencement of the term excepting 1) usual wear and tear 2) acts of God and unavoidable casualties, 3) repair of latent defects for which LESSOR is responsible hereunder, 4) damage or loss for which LESSOR has waived recovery under paragraph 10 hereof, and 5) other non-insured causes beyond the control of LESSEE. It is the intent of the parties hereto that the provisions of the second sentence of this paragraph 14 shall not be interpreted to add to, nor detract from, LESSEE'S obligations for repair of the premises, as set forth elsewhere in this Lease. 15. SIGNS. LESSOR shall have the sole right to approve the design and placement of any and all signs of any nature upon the exterior of the premises; provided, however, that such approval shall not be unreasonably withheld and, further that the size and advertising effect of any sign to be used by the LESSEE shall be substantially equal to any sign permitted to be used by other tenants in the Shopping Center; provided, LESSOR shall not be deemed obligated to consent to a sign which would violate sign criteria contained in LESSOR'S lease with Homeclub, Inc., in the event LESSOR believes that the sign criteria contained within the Homeclub, Inc. lease will permit signing satisfactory to LESSEE. Should any sign be proposed by LESSEE which would be violative of such provision, LESSOR will cooperate with LESSEE in making application for a waiver by Homeclub, Inc., in favor of LESSEE if such sign is otherwise consistent with esthetics for NETCO/052388 -38- the Shopping Center. Any such sign shall comply with local governmental requirements. 16. FIRE AND EXTENDED COVERAGE INSURANCE. The LESSOR agrees to keep in effect, at its expense, and during the original or any renewed term of this Lease, a policy of fire, extended coverage, vandalism and malicious mischief insurance (but excluding losses by flood or earthquake) to cover damage to the building or the premises, written by a responsible insurance company authorized to do business within the state where the premises are located, in an amount equal to not less than ninety percent (90%) of the replacement cost of the premises, and to furnish the LESSEE proof thereof. Such policy of insurance shall provide protection against the losses so insured against for the benefit of the LESSOR and any mortgagee as their interests may appear under the terms of this Lease and any mortgage agreement, providing that such insurance shall not be canceled except after thirty (30) days' notice to LESSEE and any mortgagee and shall contain the provision of endorsement required by paragraph 10 hereof. BLANKET INSURANCE. The insurance to be provided by LESSOR may be provided pursuant to a blanket policy covering the premises and other locations of LESSOR provided, however, in no event shall the protection afforded by such blanket insurance policy be less than that required hereunder. REIMBURSEMENT OF PREMIUMS. LESSEE agrees to remit to LESSOR, on an annual basis within thirty (30) days after being billed therefor, the annual premium for insurance covering the premises NETCO/052388 -39- for said policy(s) as hereinabove provided, subject to LESSEE'S right to obtain a like insurance coverage policy(s) covering the premises should LESSEE be able to secure such policy(s) on the premises at all lower rate for like coverage. In the event LESSEE is able to obtain like insurance policy(s) covering the premises at a lower rate, LESSEE shall within thirty (30) days prior to the expiration of the current term of such policy [which term shall not exceed one (1) year] provide to LESSOR reasonable data supporting the availability of such like insurance policy(s) at a lower rate; whereupon receipt of such data, LESSOR shall have the option, exercisable in its sole discretion and within thirty (30) days after receipt of such data, to cancel its insurance policy(s) covering the premises at the expiration of the current term of such policy [which term shall not exceed one (1) year] and obtain LESSEE'S policy(s). Should LESSOR elect not to cancel its insurance policy(s) and obtain LESSEE'S policy(s), as aforesaid, LESSOR agrees to deduct, from amounts due from LESSEE in payment of LESSOR'S insurance policy(s) covering the premises and within said thirty (30) days, the difference between the premium paid or charged by LESSOR for its insurance policy(s) covering the premises and that which would have been paid by LESSEE for LESSEE'S policy(s) covering the premises. The premises to be constructed by LESSOR under this Lease is to be equipped with an automatic sprinkler system which is more fully described in Exhibit "B". LESSEE shall carry fire and extended coverage insurance covering all of its merchandise, NETCO/052388 -40- furniture, fixtures and equipment located in and upon the premises. Should the building covered by this Lease be rated deficient by Insurance Service Organization or any other rating bureau having jurisdiction (hereinafter "Rating Bureau"), then LESSOR shall pay for any differential amount between the premium paid and that which would have been paid had the building not been rated deficient, and LESSOR agrees to reimburse LESSEE and/or its SUBLESSEE for any differential amount it may incur. Said differential amount shall be computed and paid annually using the then published insurance rates until the defects are cured by LESSOR. Upon LESSOR'S receipt of notice of any deficiencies from Rating Bureau or any insurance company, LESSOR agrees to immediately notify LESSEE in writing of said deficiencies. SUBSEQUENT CHANGE OF STANDARDS. LESSOR shall not be liable for any reimbursement of such differential if LESSOR has complied fully with the agreed plans and specifications of the premises and has complied with all of the Rating Bureau's recommendations, and requirements, made after its review of the architectural plans and related engineering drawings and specifications of the premises. Nor shall the LESSOR be liable for any reimbursement of any such differential if such differential results from a change in the standards or requirements of the Rating Bureau for full sprinkler credit, which pertain to construction of the premises, which change was effective subsequent to the completion of construction of the item affected by such change. LESSOR agrees that other buildings to be constructed in the Shopping -41- Center will be constructed in such a manner that LESSEE will not be penalized and denied full sprinkler credit, unless agreed to in writing by the LESSEE. LESSEE agrees it shall not keep anything within the premises or use the premises for any purpose which will cause an increase in the insurance premium cost or invalidate any insurance policy(s) carried on the premises or other parts of the Shopping Center. LESSOR agrees it shall not, nor shall it allow any other tenant(s) in the Shopping Center, to keep anything within their leased premises or on the Shopping Center or use their leased premises or the Shopping Center for any purpose which will cause an increase in the insurance premium cost or invalidate any insurance policy(s) carried on the premises of LESSEE, such other tenant(s), or other parts of the Shopping Center. In the event of the storing, maintaining or use of anything on the premises which causes an increase in the insurance premium cost, LESSOR agrees it shall look solely to the respective responsible tenant (or to itself should it be in violation) in the Shopping Center which causes or results in a premium increase or insurance invalidation, and LESSEE shall have no obligation to pay any part of such premium increase except to the extent the same was caused by the act or omission of LESSEE. 17. DAMAGE AND DESTRUCTION (INSURED RISK). A. If, during the term, the premises are totally or partially destroyed from a risk covered by the insurance described in paragraph 16, rendering the premises totally or partially -42- inaccessible or unusable, LESSOR shall restore the premises. Such destruction shall not terminate this Lease. If the existing laws do not permit the restoration, either party can terminate this Lease immediately by giving notice to the other party. If the cost of the restoration exceeds the amount of proceeds received from the insurance required under paragraph 16, LESSOR can elect to terminate this Lease by giving notice to LESSEE within fifteen (15) days after determining that the restoration cost will exceed the insurance proceeds. In the case of destruction to the premises only, if LESSOR elects to terminate this Lease, LESSEE, within fifteen (15) days after receiving LESSOR'S notice to terminate, can elect to pay to LESSOR, at the time LESSEE notifies LESSOR of its election, the difference between the amount of insurance proceeds and the cost of restoration, in which case LESSOR shall restore the premises. LESSOR shall give LESSEE satisfactory evidence that all sums contributed by LESSEE as provided in this paragraph have been expended by LESSOR in paying the cost of restoration. If LESSOR elects to terminate this Lease and LESSEE does not elect to contribute toward the cost of restoration as provided in this paragraph, this Lease shall terminate. DAMAGE AND DESTRUCTION (UNINSURED RISK) B. If, during the term, the premises are totally or partially destroyed from a risk not covered by the insurance described in paragraph 16, rendering the premises totally or partially inaccessible or unusable, LESSOR shall restore the -43- premises to substantially the same condition as they were in immediately before destruction. Such destruction shall not terminate this Lease. If the existing laws do not permit the restoration, either party can terminate this Lease immediately by giving notice to the other party. Notwithstanding the foregoing, if the cost of restoration exceeds five (5%) of the then replacement value of the premises that are destroyed, LESSOR can elect to terminate this Lease by giving notice to LESSEE within fifteen (15) days after determining the restoration cost and replacement value. If LESSOR elects to terminate this Lease LESSEE, within fifteen (15) days after receiving LESSOR'S notice to terminate, can elect to pay to LESSOR, at the time LESSEE notifies LESSOR of its election, the difference between five (5%) of the then replacement value of the premises and the actual cost of restoration, in which case LESSOR shall restore the premises. LESSOR shall give LESSEE satisfactory evidence that all sums contributed by LESSEE as provided in this paragraph have been expended by LESSOR in paying the cost of restoration. If LESSOR elects to terminate this Lease and LESSEE does not elect to contribute toward the cost of restoration as provided in this paragraph, this Lease shall terminate. C. EXTENT OF LESSOR'S OBLIGATION TO RESTORE. If LESSOR is required or elects to restore the premises as provided in this paragraph 17, LESSOR shall not be required to restore alterations made by LESSEE, LESSEE'S improvements, LESSEE'S trade fixtures, -44- and LESSEE'S personal property, such excluded items being the sole responsibility of LESSEE to restore. D. ABATEMENT OF RENT. In case of destruction, whether insured or uninsured, there shall be an abatement or reduction of rent, except any percentage rent, between the date of destruction and the date of completion of restoration, based on the extent to which the destruction interferes with LESSEE'S use of the premises. E. DESTRUCTION DURING LAST PART OF TERM. If destruction to the premises, whether insured or uninsured, occurs during the last seven (7) years of the term, or during any of the five (5) year option periods referred to in paragraph 5 hereof, LESSOR can elect not to restore the premises as required hereunder, by giving notice to LESSEE not more than fifteen (15) days after the destruction. Except that, if the destruction occurs during the last seven (7) years of the term or during any of said five (5) year option periods, and if within fifteen (15) days after receiving LESSOR'S notice to terminate, LESSEE exercises the option to extend the term for at least seven (7) additional years as provided in paragraph 5, LESSOR shall restore the premises as provided in this paragraph 17. F. WAIVER OF CIVIL CODE SECTIONS. LESSEE waives the provisions of Civil Code Section 1932(2) and Civil Code Section 1933(4) with respect to any destruction of the premises. -45- G. DAMAGE AND DESTRUCTION - OTHER BUILDINGS. LESSOR agrees that in the event any building or buildings in the Shopping Center other than the building containing the demised premises, shall be destroyed or damaged by fire or other hazard, during the term of this Lease, or any renewal thereof, LESSOR shall either (i) promptly rebuild and repair said building as closely as possible to such building or buildings shown on Exhibit "A" attached hereto (provided that if LESSEE consents to the altera- tion of the building designs and configurations shown on Exhibit "A" attached hereto, which consent shall not, in the event of such damage or construction, be unreasonably withheld, than the rebuilding and repair may be in conformance with such alteration rather than as shown on Exhibit "A"); or (ii) repair as necessary to render such building attractive and remove any appearance of damage or destruction; or (iii) remove the same and, as to any area vacated by removal, construct and thereafter maintain thereon a parking area and/or landscaping. H. RESTORATION. Whenever, under the foregoing provisions of this paragraph 17, LESSOR shall have the obligation to rebuild and repair all or any portion of the premises, other building or buildings and so to continue this Lease in full force and effect, the same shall be commenced upon the earlier of 1) sixty (60) days after LESSOR'S obligation so to do becomes fixed by the pro- visions of this paragraph 17; or 2) the date when any applicable insurance proceeds become available to LESSOR. LESSOR shall prosecute such rebuilding and repairing diligently and to the end -46- that the premises, other building or buildings will be restored to substantially the same condition as before the occurrence of such damage. If, for any reason whatsoever, rebuilding and repairing is not completed within six (6) months after receipt of the applicable notices, unless LESSOR be prevented from complet- ing such rebuilding and repairing by causes or conditions beyond its control, then, and in either such events, LESSEE may, at its sole option, terminate this Lease by written notice to LESSOR of its intention to do so, upon the happening of which, rental shall be adjusted as of the date of termination, and LESSEE shall have no further rights hereunder. 17.1 CONDEMNATION FOR REPAIRS. A. The LESSOR agrees that if any authority condemns the Shopping Center or any part thereof, other than the premises, as being unsafe, or not in conformity with the applicable laws or regulations, the LESSOR, at its own cost and expense, will promptly make (or cause any other tenant who may be responsible therefor to make) such changes, alterations or repairs (struc- tural or non-structural) as may be necessary to comply with such laws and regulations, or with the requirements of the author- ity. If, during the time such changes, alterations or repairs are being performed under this subparagraph A., the premises are rendered unsuitable for occupancy and use by the LESSEE, the rent shall abate, and if only a portion of the premises is rendered unsuitable for such occupancy and use, then the rent shall abate proportionately. -47- B. In the event the premises or any part thereof are con- demned as being unsafe or not in conformity with the applicable laws and regulations due to the LESSEE'S particular and specific use of the premises, (which condemnation would not have occurred under another, general use of the premises) or due to the defec- tive condition or use of supplies, materials, and/or equipment owned or used by LESSEE, or due to a defective condition of such common facilities or of any part of the premises LESSEE is required to maintain as herein provided, or due to any alteration or modification of the premises which has been made by LESSEE, then, and in that event, LESSEE, at its own cost and expense agrees to make such changes, alterations and repairs (structural or non-structural) in the building and equipment or the use of the same as may be necessary to comply with such laws and regula- tions, or with the requirements of the authority, but LESSEE shall be entitled to any condemnation award made to LESSEE in respect thereto. If, during the time such changes, alterations, and/or repairs are being performed (under this subparagraph B.) to the Shopping Center or to the premises, the premises are rendered untenantable for occupancy and use by LESSEE, the rent shall not abate. 18. CONDEMNATION. Upon LESSOR'S receipt of notice from any condemning authority of a proposed condemnation, LESSOR shall immediately notify LESSEE in writing. If all of the premises shall be taken under the right of eminent domain by any authority having the right of condemnation, or if a portion of the Shopping -48- Center is so condemned as will prevent the practical use of the premises for LESSEE'S purposes, this Lease, and all obligations hereunder, shall terminate on the date title vests pursuant to such proceedings. In the event the proper judicial authority does not divide the award to compensate the separate loss of each party, the total award made in such proceedings shall be equit- ably distributed between the LESSOR and LESSEE, and if applic- able, other tenants occupying space in the Shopping Center; provided that if the parties cannot agree upon an equitable dis- tribution of such award, either party may petition a court of competent jurisdiction in the state where the premises are located for equitable distribution of such award, and in the event no such court has jurisdiction to determine an equitable distribution of such awards then either party may request arbi- tration under the terms hereinafter set forth. If such taking does not prevent the practical use of the premises for the pur- poses of the LESSEE, then this Lease shall continue in full force and effect, but the rent shall abate proportionately, and such other adjustments shall be made as shall be just and equitable. In any instance in this Agreement in which it is provided that a question is agreed to be determined by arbitration, the following procedure shall govern. The party desiring arbitration ("First Party") shall give written notice to that effect to the other party ("Second Party"), specifying in said notice the name and address of the person designated to act as arbitrator on its behalf. Within -49- fifteen (15) days after the service of such notice, the Second Party shall give written notice to the First Party specifying the name and address of the person designated to act as arbitrator on its behalf. If the Second Party fails to notify the First Party of the appointment of its arbitrator, as aforesaid, within or by the time above specified, then the appointment of the second arbitrator shall be made in the same manner as is hereinafter provided for the appointment of a third arbitrator in a case where the two arbitrators are appointed hereunder and the parties are unable to agree upon such third appointment. The arbitrators so chosen shall meet within ten (10) days after the second arbi- trator is appointed, and if, within thirty (30) days after the second arbitrator is appointed, the said two arbitrators shall not agree upon the question in dispute, they shall themselves appoint a third arbitrator who shall be a competent and impartial person; and in the event of their being unable to agree upon such appointment within ten (10) days after the time aforesaid, the third arbitrator shall be selected by the parties themselves if they can agree thereon within a further period of fifteen (15) days. If the parties do not so agree, then either party, on behalf of both, may request such appointment by the presiding Judge of the Superior Court of Butte County. In the event of the failure, refusal, or inability of any arbitrator to act, a new arbitrator shall be appointed in its stead, which appointment shall be made in the same manner as hereinbefore provided for the appointment of such arbitrator so failing, refusing or unable to -50- act. The decision of the arbitrators so chosen shall be given within a period of thirty (30) days after the appointment of such third arbitrator. The decision in which any two arbitrators so appointed and acting hereunder concur shall in all cases be bind- ing and conclusive upon the parties. Each party shall pay the fees and expenses of one of the two original arbitrators appointed by such party, or in whose stead as above provided, such arbitrator was appointed, and the fees and expenses of the third arbitrator and all other expenses, if any, shall be borne equally by both parties. 19. HOLDING OVER. Except as provided in paragraph 4, if LESSEE remains in possession of the premises after the expiration of this Lease, and without the execution of a new lease, it shall be deemed to be occupying the premises as a tenant from month-to- month, subject to all the conditions, provisions, and obligations of this Lease insofar as the same are applicable to a month-to- month tenancy. 20. SHOWING BY LESSOR. LESSOR may, at any time within six (6) months before the expiration of this Lease, enter the prem- ises at all reasonable hours for the purpose of offering the premises for rent, subject to LESSEE'S rights, as set out in paragraph 5. LESSOR may show the premises at any time during the term of this Lease, on reasonable advance notice to LESSEE, during busi- ness hours, to prospective purchasers or lenders. -51- 21. RELATIONSHIP. Nothing contained herein shall be deemed or construed by the parties hereto, or by any third party, as creating the relation of principal and agent or of partnership or of joint venture between the parties hereto. It is understood and agreed that neither method of computation of rent, nor any other provision contained herein, nor any acts of the parties hereto creates a relationship other than the relationship of LESSOR and LESSEE. 22. PARKING AREA. LESSOR agrees that at no time during the term of this Lease, will LESSOR modify in any manner the customer parking area, entrances and exits and service areas adjoining the premises without the consent of LESSEE, unless such modification is necessary by reason of government action. Any violation of this provision which shall continue for more than thirty (30) days following written notice of violation to LESSOR shall entitle LESSEE either to treat such violation as a default with an option to cancel this Lease or to require proportionate reduction of rent, at LESSEE'S option. If a mortgagee (or beneficiary under deed of trust) has requested notice of default of LESSOR pursuant to the provisions of paragraph 25, notice shall also concurrently be furnished to such mortgagee. 23. UTILITIES. LESSEE agrees to pay all electric current, water, gas, and other utility bills, as determined by separate meters for LESSEE'S space and use, provided however, that LESSEE shall be required to pay only its proportionate share of any such utility costs which are included within the common area mainte- -52- nance expense for which reimbursement is required under paragraph 2 hereof. LESSOR, at its sole expense, will provide any and all utility meters, utility hook-up or connection fees or charges for all utilities to the premises. 24. LESSEE DEFAULT. A. The occurrence of any of the following shall constitute a default by LESSEE: 1) Failure to pay rent or additional rent when due, if the failure continues for ten (10) days after notice has been given to LESSEE. 2) Failure to perform any other provision of this Lease if the failure to perform is not cured within thirty (30) days after notice has been given to LESSEE. If the default cannot reasonably be cured within thirty (30) days, LESSEE shall not be in default of this Lease if LESSEE commences to cure the default within said thirty (30) day period and diligently and in good faith continues to cure the default. Notices given under this paragraph shall specify the alleged default and the applicable lease provisions, and shall demand that LESSEE perform the provisions of this Lease or pay the rent that is in arrears, as the case may be, within the applicable period of time, or quit the premises. No such notice shall be deemed a forfeiture or a termination of this Lease unless LESSOR so elects in the notice. -53- The purpose of the notice requirements set forth in this paragraph is to extend the notice requirements of the unlawful detainer statutes of California; and the notice requirements of this paragraph and the notice requirements of said unlawful detainer statutes may be satisfied by the giving of one (1) notice which satisfies the longer of the two (2) notice requirements. B. LESSOR'S remedies: 1) In addition to all rights and remedies available to LESSOR at law or in equity, including but not limited to the remedies available to LESSOR pursuant to Sections 1951.2 and 1951.4 of the California Civil Code, LESSOR shall have the following remedies if LESSEE commits a default. These remedies are not exclusive; they are cumulative in addition to any remedies now or later allowed by law; 2) LESSOR can continue this Lease in full force and effect, and the Lease will continue in effect as long as LESSOR does not terminate LESSEE'S right to possession, and LESSOR shall have the right to collect rent when due. During the period LESSEE is in default, LESSOR can enter the premises and relet them, or any part of them, to third parties for LESSEE'S account. Reletting can be for a period shorter or longer than the remaining term of this -54- Lease, provided, however, that LESSEE'S liability shall not exceed that which arises under this Lease. LESSEE shall pay to LESSOR the rent due under this Lease on the dates the rent is due, less the rent LESSOR receives from any reletting. No act by LESSOR allowed by this paragraph shall terminate this Lease unless LESSOR notifies LESSEE that LESSOR elects to terminate this Lease. After LESSEE'S default and for as long as LESSOR does not terminate LESSEE'S right to possession of the premises, if LESSEE obtains LESSOR'S consent, LESSEE shall have the right to assign or sublet its interest in this Lease; but LESSEE shall not be released from liability. LESSOR'S consent to a proposed assignment or subletting shall not be unreasonably withheld. If LESSOR elects to relet the premises as provided in this paragraph, rent that LESSOR receives from reletting shall be applied to the payment of: a) any indebtedness from LESSEE to LESSOR other than rent due from LESSEE; b) rent due and unpaid under this Lease. After deducting the payments referred to in this paragraph, any sum remaining from the rent LESSOR receives from reletting shall be held by LESSOR and applied in payment of future -55- rent as rent becomes due under this Lease. In no event shall LESSEE be entitled to any excess rent received by LESSOR. If, on the date rent is due under this Lease, the rent received from the reletting is less than the rent due on that date, LESSEE shall pay to LESSOR the remaining rent due. 3) LESSOR can terminate LESSEE'S right to possession of the premises at any time. No act by LESSOR other than giving notice to LESSEE shall terminate this Lease. Acts of maintenance, efforts to relet the premises, or the appointment of a receiver on LESSOR'S initiative to protect LESSOR'S interest under this Lease shall not constitute a termination of LESSEE'S right to possession. On termination, LESSOR has the right to recover from LESSEE: a) The worth, at the time of the award, of the unpaid rent that had been earned at the time of termination of this Lease; b) The worth, at the time of the award, of the amount by which the unpaid rent that would have been earned after the date of termination of this Lease until the time of award exceeds that amount of the loss of rent that LESSEE proves could have been reasonably avoided; -56- c) the worth, at the time of the award, of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of the loss of rent that LESSEE proves could have been reasonably avoided; and d) Any other amount, and court costs, necessary to compensate LESSOR for all detriment proximately caused by LESSEE'S default. The worth, at the time of the award, as used in a) and b) of this paragraph is to be computed by allowing interest at the maximum rate an individual is permitted by law to charge. The worth, at the time of the award, as referred to in c) of this paragraph, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). 25. LESSOR DEFAULT. The LESSOR further covenants with the LESSEE that if LESSOR shall fail to perform any provision of this Lease which requires the payment of money, and such failure shall continue for ten (10) days after notice has been given to LESSOR; or if LESSOR fails to perform any other provision of this Lease and such failure to perform is not cured within thirty (30) days after notice has been given to LESSOR (or if such default cannot reasonably be cured within thirty [30] days, if LESSOR fails -57- either to commence to cure the default within said thirty [30] day period or to diligently and in good faith continue to cure said default) then, and in addition to the other remedies or courses of action now or hereafter provided by law, LESSEE may, at its option, among other things, cancel and annul this Lease, or remedy the condition or need referred to in such notice, or make the payment which LESSOR has not made, but should have made, or remedy the condition or need referred to in such notice and deduct LESSEE'S actual cost or the amount of the payment thereof from subsequent installments of rent. In the event of any dispute between the parties as to the right of LESSEE to such deduction, LESSOR further covenants and agrees that it will not give LESSEE any notice of default or termination of this Lease unless LESSEE shall fail to pay to LESSOR the amount of any such deduction within ten (10) days after receipt of notice by LESSEE of a final and unappealable judgment with respect thereto in favor of LESSOR. If LESSEE elects, as permitted herein, to make an expenditure and deduct the same from subsequent installments of rent, LESSEE shall be required to deposit an amount equal to each such deduction in an interest-bearing account at a bank or savings and loan institution; such account shall require the signatures of LESSOR and LESSEE for any withdrawal. Interest earned on such account shall accrue for the benefit of the party (LESSOR or LESSEE) who ultimately prevails on the issue of whether such deduction was proper. If it is ultimately determined that any part of such deduction was proper (because such -58- part of the expenditure for which such deduction was made was an obligation of LESSOR under this Lease), then LESSEE shall be entitled to receive, from the deposit account, the principal and interest attributable to said portion of such expenditure, and LESSOR shall pay to LESSEE the difference between: 1) the interest actually earned in such interest-bearing account with respect to said portion of such expenditure; and 2) the maximum amount of interest which an individual is permitted to charge under California law, for the period commencing with the date of such expenditure by LESSEE and terminating when such payment is made by LESSOR, based upon the principal amount of that part of such expenditure which has been so determined to be LESSOR'S obligation. If it is ultimately determined that any part of such deduction was improper (because such part of the expenditure for which such deduction was made was not an obligation of LESSOR under this Lease), then LESSOR shall be entitled to receive from the deposit account the principal and interest attributable to said portion of such expenditure, and LESSEE shall pay to LESSOR the difference between: i) the interest actually earned in such interest-bearing account with respect to said portion of such expenditure; and ii) the maximum amount of interest which an individual is permitted to charge under California law, for the period commencing with the date of such deduction by LESSEE and terminating when such payment is made by LESSEE, based upon the principal amount of that part of such expenditure which has been so determined not to have been LESSOR'S obligation. -59- In the event that a mortgagee (or beneficiary under a deed of trust) holding a security interest in the premises shall have furnished written request to LESSEE, LESSEE, concurrent with furnishing any notice to LESSOR of an event which is alleged by LESSEE to constitute a default by LESSOR, or will constitute a default by LESSOR if not cured within a stated period of time, shall be furnished in duplicate to the address as requested by such secured lender. The mortgagee (or beneficiary under deed of trust) will be permitted to tender a cure in like manner as LESSOR is permitted hereunder provided such lender shall be granted additional time, not to exceed thirty (30) days, to complete such cure. 26. LEASE APPLIES ONLY TO BUSINESS ON PREMISES. It is understood that LESSEE is presently involved in numerous other activities at other locations. In this respect, it is not intended that the gross sales and other provisions of this Lease shall apply to the business activities of LESSEE or of any assignee or sublessee of LESSEE at other locations, but shall apply only to the business conducted on the premises, whether conducted thereon by LESSEE or by an assignee or sublessee of LESSEE, it being fully understood that the foregoing provisions are not intended to modify in any manner the responsibilities or obligations of LESSEE pursuant to paragraph 34 of this Lease. 27. INSURANCE MAY BE PROVIDED BY SUBLESSEE OR ASSIGNEE. It is further understood that LESSEE at all times shall maintain insurance coverage it is required to carry hereunder for the -60- benefit of LESSOR with a provision in such insurance that there will be no cancellation without at least thirty (30) days' written notice to LESSOR. Provided, however, that LESSEE may satisfy this insurance requirement through the maintenance of such insurance coverage for the benefit of LESSOR, as required in paragraph 9 above, by LESSEE or by an assignee or sublessee of LESSEE. 28. EXCLUSIVE. LESSOR covenants that it will not permit any person other than the LESSEE to operate a retail grocery, meat, or produce store of any nature in the Shopping Center of which the premises are a part without first obtaining the LESSEE'S prior written consent, so long as there shall be the operation of a food supermarket containing not less than 40,000 square feet within the premises, provided, however, nothing herein shall result in the termination of such exclusive due to a temporary closing for a reasonable period of time, including such a closing as may occur for refurbishing, alterations, repairs in the event of casualty, or transfer of ownership of the supermarket. Notwithstanding the foregoing, LESSEE consents, in advance, to the following uses: A. a specialty bake shop; B. a delicatessen. 29. ALTERATIONS OR ADDITIONS. The LESSEE shall have the right to make alterations or additions to the premises, provided such alterations or additions are at its sole cost and expense, and that such alterations or additions shall be of good workman- -61- ship and material at least equal to that of the original construction, and that such alterations or additions neither shall reduce the size and strength of the existing building, nor adversely affect the market value of the premises; provided, however, that no alteration to any part of the premises which, under the terms of this Lease, LESSOR is required to maintain or repair, and no addition to the premises which, under the terms of this Lease, LESSOR would be required to maintain or repair, and no alterations or additions to the premises which shall cost more than Fifty Thousand Dollars ($50,000.00) shall be made by the LESSEE without the written consent of the LESSOR which consent shall not be unreasonably withheld. The LESSEE shall not be required to remove any alterations or additions as to which LESSEE has procured LESSOR'S written consent (which consent shall not be unreasonably withheld) or to restore the building to its original condition at the termination of this Lease. LESSEE shall, if requested to do so by LESSOR, remove any alterations or additions made to the premises by LESSEE without having procured LESSOR'S written consent, and in such event, LESSEE shall repair any damage to the premises caused by such removal. 30. THIS PARAGRAPH INTENTIONALLY DELETED. 31. THIS PARAGRAPH INTENTIONALLY DELETED. 32. RESTRICTIONS ON USE. LESSOR and LESSEE each agree that the following uses shall not be permitted within the Shopping Center; including the demised premises: -62- A) For entertainment purposes, such as: cinema, theater, skating rink, bowling alley, bar, tavern, discotheque, dance hall, amusement gallery, pool hall, health club, gym, massage parlor, or off-track betting facility; B) For the renting, leasing, sale of any motor vehicle including but not limited to: operation of any dealership relating to motorcycles, automobiles, trucks, and recreational vehicles, including trailers; C) For any non-retail purpose (the following are specifically recognized as not being non-retail: barber shops, insurance agencies, travel agencies, medical, veterinary, dental, or optometric facilities, beauty salons, banks, small loan offices, real estate offices and gasoline service stations, and the following, if incidental to retailing: other offices, storage, repairs, and alteration facilities). LESSOR agrees that, with respect to the real property which comprises the Shopping Center as depicted in Exhibit "A", the following additional restrictions will further apply: A) No restaurant shall be located within 200 feet from the front entrance of the premises; B) No office other than a travel agency or real estate firm, neither being larger than 2,000 square feet, shall be located within 250 feet of the front entrance; C) No training or educational facility shall be located within 200 feet of the front entrance to the premises. -63- LESSEE agrees that, with respect to the demised premises, in addition to the uses restricted throughout the Shopper Center as before set forth, LESSEE will not utilize the premises for a restaurant, bar-restaurant, train- ing, or educational facility, offices, sporting goods store, for a business whose primary use is a yogurt shop, indoor ice cream shop, or for a pharmacy (apothecary or drug store or super drug store) or for the purpose of operating a home improvement center or for engaging in the sale of home improvement items including, but not limited to, lumber, building materials, indoor garden supplies, except that this restriction against the sale of home improvement items shall not apply to the premises to the extent that sales of such items are an incidental part of the business conducted within the premises. For the purposes of this paragraph such sales shall be deemed "incidental" if they do not exceed fifteen percent (15%) of the sales made from the store located within the premises. 33. INITIAL USE AND RIGHT TO CLOSE STORE. LESSEE agrees that the initial use of the premises shall be for the operation of a supermarket. LESSOR agrees that nothing in this Lease shall be construed as compelling LESSEE to operate any particular type of business or to keep the store in or upon the premises open for business, and LESSEE shall have the privilege of closing said store at any time, provided LESSEE shall continue to pay the minimum monthly rental, additional rent, and other monetary obligations as set forth in this Lease. -64- In the event that LESSEE permanently closes the store, LESSEE agrees to notify LESSOR in writing ninety (90) days in advance of such closing of its intent. LESSOR shall have one (1) year from its receipt of such notice in which to notify LESSEE of its intent to terminate the Lease. If LESSOR elects to terminate this Lease, then such termination shall be effective as of the date of LESSOR'S mailing to LESSEE of its notice of termination. If LESSOR does not terminate this Lease, or if LESSOR fails to notify LESSEE of its intention to terminate this Lease, within the above-described period, then, notwithstanding any contrary provision in paragraph 34 hereof, LESSEE may sublet the premises without the consent of LESSOR, for any lawful purpose other than for a purpose restricted as a use of the demised premises under the provisions of paragraph 32. After said one (1) year period, LESSOR shall have the continuing right to sublet the premises, so long as LESSEE has not entered into a prior sublease agreement. At any time that LESSOR subleases the premises pursuant to the provisions of this paragraph, this Lease shall immediately terminate and neither LESSOR nor LESSEE shall have any further rights or obligations hereunder. LESSOR may not terminate this Lease if LESSEE has temporarily closed the store, as defined hereinafter, provided LESSEE shall continue to pay the mini- mum monthly rental, additional rental, and comply with all other covenants of the Lease. Temporary -65- closing of the store shall mean any closing for the following purposes or reasons: A. the discontinuance of business at the store by any sublessee or assignee of LESSEE, provided, however, LESSEE is with due diligence attempting to secure another sublessee or assignee; provided, however, that such discontinuance shall constitute a temporary (as opposed to a permanent closing) only for a period of six (6) months; such a dis- continuance shall, commencing with the seventh (7th) month, constitute a permanent closing, entitling LESSOR to terminate this Lease within the following one (1) year period, as hereinabove provided; B. damage or destruction pursuant to Article 17 of the Lease; C. condemnation pursuant to Article 17.1 of the Lease; D. refixturing of the premises, provided same be undertaken with due diligence; E. alterations to the premises pursuant to paragraph 29 of the Lease, provided same be undertaken with due diligence; F. the widening or improvement of any roadway adjoining the Shopping Center to the extent same is permitted pursuant to the Lease; G. closing of the common and delivery areas to prevent a dedication by LESSOR of same to any governmental unit; and -66- H. any bankruptcy action pursuant to the Federal Bankruptcy Act, as same may be changed from time to time, filed by or against any sublessee or assignee. Any other closing of the store for a period in excess of thirty (30) days shall be deemed to be a permanent closing of the store. 34. SUBLET OR ASSIGN. The LESSEE shall have the right, during the term of this Lease, to sublet all or a portion of the premises, or to assign this Lease, either in whole or in part, but no such subletting or assignment shall release the LESSEE from any of the obligations under the terms of this Lease, and the LESSOR shall, at all times, have the right to look to the LESSEE for the performance of all of the covenants to be performed on the part of the LESSEE. Provided, however, that: 1) if the assignment or sublease is for retail grocery store purposes, then, effective the first day of the first month of the effective date of such subletting or assignment, the minimum annual rent, payable under paragraph 6.A. hereof, shall be adjusted to an amount equal to ninety percent (90%) of the average annual total of minimum rent plus percentage rent payable by LESSEE pursuant to paragraphs 6.A. and 6.B. hereof for the three (3) years next preceding the effective date of such subletting or assignment; and 2) any assignment or subletting for any use of the premises other than that of a retail grocery store shall be sub- -67- ject to LESSOR'S approval, which shall not be unreasonably withheld. Provided, further, that in such latter event, the following rules shall apply: A. any such proposed assignment or sublease shall be reduced to writing, signed by the proposed assignee or sublessee and by LESSEE; B. such written instrument shall expressly state that it is entered into subject to the rights of LESSOR, as set forth in this para- graph, and that if LESSOR elects to cancel this Lease, the parties thereto recognize and agree that neither LESSEE nor said proposed assignee or sublessee shall have any further rights or duties under said written agreement, which shall terminate upon the termination of this Lease; C. LESSEE shall furnish a copy of said instrument to LESSOR; D. LESSOR shall have the option, exerciseable by LESSOR furnishing written notice of exercise thereof to LESSEE within sixty (60) days after LESSOR'S receipt of a copy of such instrument, to terminate this Lease. If LESSOR so elects to terminate this Lease, neither LESSOR nor LESSEE shall have any further rights or duties here- under; E. if LESSOR fails to exercise such option within said sixty (60) day period, then the agreement between -68- LESSEE and said proposed assignee or sublessee shall be effective in accordance with the terms and provisions set forth in such instrument. If LESSEE and such proposed assignee or sublessee do not enter into an agreement on the same terms as were contained in the instrument furnished to LESSOR, then LESSOR'S sixty (60) day option rights shall begin anew with respect to any different terms proposed to be entered into between LESSEE and said (or any new) proposed assignee or sublessee; F. if LESSOR exercises the option to terminate this Lease, as herein provided, then LESSOR shall be free to negotiate or contract (or refrain from negotiating or contracting) with such proposed assignee or sublessee, as LESSOR deems appropriate. 35. LESSOR'S WAIVER. LESSOR agrees that none of the property, including food, supplies, merchandise, inventory, furniture, fixtures, machinery, equip- ment, cash or any proceeds therefrom that are placed upon or permitted to be upon the premises by LESSEE, or any of LESSEE'S sub-tenants, assigns, or succe- ssors, during the term of this Lease or any renewal thereof, shall be subject to or liable for levy or distress or any legal process whatsoever for the collection of rent for the premises. In the event there is a mortgage on the premises, the LESSOR shall obtain the same waiver from the mortgagee. -69- 36. NOTICES AND DELIVERY OF ITEMS SENT BY MAIL. Any notice required or desired to be given to either party shall be in writing and be sent by first-class mail, postage prepaid. Any such notice to the LESSOR shall be addressed to it as follows: DOUGLAS W. BRADFORD 2694 BISHOP DRIVE SUITE 202 SAN RAMON, CALIFORNIA 94583 Any such notice to the LESSEE shall be addressed to it at 1231 Colusa Avenue, Yuba City, California 95991. The address of either party may be changed by written notice thereof to the other party. With respect to all notices and all other items, including rental, which may be or are required to be sent by mail, registered or otherwise, the placing of any such item in the United States mail, being properly addressed, postage prepaid by the sender, shall constitute delivery to the other party unless other provisions of this Lease specifically state to the contrary as to what constitutes delivery of said item. 37. CAPTIONS. Any headings preceding the text of the several paragraphs and subparagraphs hereof are inserted solely for convenience of reference and shall not constitute a part of this Lease, nor shall they affect its meaning, construction or effect. 38. ADVANCE POSSESSION FOR FIXTURE INSTALLATION. Provided LESSEE shall have taken out and is then maintaining, in full force and effect, all insurance required to be provided by LESSEE hereunder, LESSEE shall have the privilege rent free of entering -70- the premises for the purpose of installing its store and trade fixtures, storing its first items of equipment and otherwise preparing the premises for LESSEE'S occupancy prior to the rent commencement date. When the performance of the LESSOR'S work has proceeded to the point where LESSEE can commence any portion of its work and the installation of LESSEE'S trade fixtures, furniture and equipment in the premises, in accordance with good construction practice together with adequate security of the premises, be commenced, LESSOR shall notify LESSEE to that effect. LESSEE agrees to install its trade fixtures and equipment in the premises in a prompt and expeditious manner so as not to delay LESSOR in readying the premises for occupancy at the earliest possible date referred to hereinabove. LESSEE further agrees not to engage any persons in the installation of such fixtures and equipment which would result in a work stoppage by employees of the general contractor or any subcontractor engaged readying the premises for occupancy. 39. SUBORDINATION. LESSEE agrees that this Lease shall be subordinate to any mortgage that may hereafter be placed upon the premises and to all renewals and extensions thereof provided that a) the mortgagee named in such mortgage shall agree to recognize this Lease in the event of foreclosure if the LESSEE is not then in default, b) in the event the premises are damaged or destroyed at a time when neither LESSOR nor LESSEE are in default under the terms of this Lease, and LESSOR is not in default under the terms -71- of any such mortgage, any insurance proceeds that are available under the insurance policy(s) hereinabove required to be maintained under paragraph 16 are first applied to repair, replace or rebuild the premises so damaged or destroyed, if LESSOR and/or LESSEE under the terms of paragraph 17 above, either are required to elect to repair, replace or rebuild the premises, and c) any proceeds from condemnation awarded to LESSEE and/or its sublessee under paragraph 17.1 and paragraph 18 above shall be the sole property of LESSEE and/or its sublessee. If requested by LESSOR to do so, LESSEE shall execute and deliver to any prospective lender of LESSOR, an Estoppel Certificate which shall, to the extent applicable at the time of such request, be in the form of Exhibit "C" attached hereto and made a part hereof. 40. BINDING EFFECT. This agreement shall be binding upon and shall inure to the benefit of the parties hereto, their heirs, executors, administrators, successors and assigns. 41. MERGER. This agreement contains the entire agreement of the parties hereto, both written and oral, and shall not be amended, altered or otherwise modified except in writing signed by the parties. 42. TIME. Time is of the essence in the performance of all obligations of LESSOR and LESSEE hereunder for which a time of performance is specified. 43. CHOICE OF LAWS. This agreement shall be construed under and in accordance with the laws of the State of California, and -72- all obligations of the parties created hereunder are performable in Butte County, California. 44. EXCLUSION FROM GROSS SALES. Notwithstanding any contrary provision in this lease, for the purpose of calculating the percentage rent payable hereunder, no portion of the retail price of tickets or shares sold at the leased premises pursuant to the California State Lottery Act in connection with any Lottery Game authorized by the California State Lottery Commission shall be included in the determination of the amount of sales made at said premises. PROVIDED, however, that if the portion of the retail price of such tickets or shares which LESSEE is entitled to retain ("LESSEE'S COMMISSION") is increased to a portion in excess of five percent (5%) of the retail price thereof, then LESSOR may, at its expense, perform an investigation to determine whether, after consideration of LESSEE'S costs of administering the sale of such lottery tickets or shares, LESSEE enjoys a net profit on such sales. LESSEE shall be entitled to participate in such investigation. If it is determined that such a profit is being achieved, the portion of LESSEE'S COMMISSION which results in such profit shall be included in gross sales, commencing on the first day of the first month after such determination is made, for the purpose of calculating the percentage rent payable hereunder. 45. SUBDIVISION OF SHOPPING CENTER. LESSEE agrees that LESSEE will cooperate with LESSOR should LESSOR determine to cause to be recorded a subdivision or parcel map for the Shopping -73- Center; the expense of such subdivision or parcel map to be that of LESSOR and subject to approval of LESSEE, which approval shall not be unreasonably withheld if documentation is presented to LESSEE including a reciprocal easement agreement which provides terms such that there is provided provision for common management of the Shopping Center, mutual easements between the parties as required for the operation of the Shopping Center, and restrictions consistent with the terms of this Lease. provided, however, that no such reciprocal easement agreement shall have the effect of relieving LESSOR of its duties hereunder, except that performance of such duties by any other person shall, to that extent, constitute performance by LESSOR of such duties. 46. RECIPROCAL EASEMENT AGREEMENT. LESSEE agrees to review and not unreasonably withhold execution of a reciprocal easement agreement ("REA") suitable for placing, of record, provision for mutual easements for use of the common area, provisions for management should ownership of portions of the Shopping Center be separated, and provisions for restrictions upon use consistent with the provisions of this Lease. The obligation of LESSEE to approve and join in the execution of any such REA is further subject to the requirement that the terms and provisions thereof are such as to fully protect LESSEE'S rights under this Lease, and not to impose any additional obligations or costs on LESSEE. Such REA shall further provide that LESSEE shall be a required party to any subsequent modification or termination of such REA. -74- 47. SALE OF PREMISES BY LESSOR. In the event of any sale, exchange, or other transfer of the premises by LESSOR of this Lease, LESSOR shall be entirely relieved of all liability under the terms, covenants and conditions set forth in this Lease arising out of any act or omission occurring after assignment of this Lease provided that the assignee assumes, in a writing delivered to LESSEE, LESSOR'S covenants and obligations arising after the date of such assignment. LESSEE shall attorn to such new LESSOR. Upon ten (10) days prior written notice from LESSOR, LESSEE shall, from time to time, execute and deliver to LESSOR or any person designated by LESSOR, an estoppel certificate stating the current status of the material provisions of this Lease. Any such statement may be relied upon by any purchaser or other transferee of the premises. IN WITNESS WHEREOF, the parties hereto have duly executed this Lease as of the date and year first above written. LESSOR /s/ Douglas W. Bradford __________________________________ Douglas W. Bradford LESSEE NETCO FOODS, INC., a California corporation /s/ Steve G. Nettleton By________________________________ Steve G. Nettleton, President -75- The commencement date of this Lease, as provided in paragraph ______, page ____ hereof, is agreed to be the ___ day of _______________, 198_. LESSOR __________________________________ Douglas W. Bradford LESSEE NETCO FOODS, INC., a California corporation By________________________________ Steve G. Nettleton, President -76- STATE OF CALIFORNIA ) ) ss. COUNTY OF ___________) On this the _____ day of _______________19__, before me, the undersigned Notary Public in and for said State, personally appeared DOUGLAS W. BRADFORD, personally known to me or proved to me on the basis of satisfactory evidence, to be be the person who executed the within instrument and acknowledged to me that he executed the same. WITNESS my hand and official seal. ____________________________ NOTARY PUBLIC STATE OF CALIFORNIA ) ) ss. COUNTY OF____________) On this the _____ day of _______________, 198_, before me, the undersigned Notary Public in and for said State, personally appeared STEVE G. NETTLETON, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as President of NETCO FOODS, INC., on behalf of said corporation, and acknowledged to me that the corporation executed the same. WITNESS my hand and official seal. ____________________________ NOTARY PUBLIC -77- [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] DOOR SCHEDULE AUTOMATIC ENTRANCE - Stanley automatic doors, Dura Glide DOORS 2000. Bi-part package with transom and fixed sidelight door package #2272. STORAGE - Openings 5'0" or wider: to be 2 double-acting alum. doors with vision panels and jam guards. - Openings 4'0" wide: to be 2 double- acting alum. doors with vision panels. - Openings 3'0" and narrower: to be single double-acting door with vision panel. RESTROOMS - Solid-core wood doors. If restrooms are handicap restrooms, doors must meet code. OFFICES - Solid-core wood doors. MEAT PROCESSING - N.I.C. EMPLOYEES' LOUNGE - If door is indicated on plan, use double alum. door with vision panels. SINGLE DOOR RECEIVING - 1 3/4" thick 16 Ga. steel door with lock bar. INCIN. FEED ROOM - 1 3/4" thick 2 Hr. rated steel fire door with fuse link. REAR RECEIVING - 20 Ga. roll-up slat door or 1 3/4" thick 16 Ga. steel doors with lock bars. BUILDING OPENINGS FOR - 8'0" wide x 10'0" high masonry OUTSIDE COOLER AND openings. FREEZER BAKE-OFF - 2 double-acting alum. doors with vision panels. MECH. ROOM - 1 3/4" thick 16 Ga. steel doors with lock bars. NOTE: 1. Sizes of doors as indicated on Lessee's fixture layout. 2. Steel receiving doors to the outside swinging in or out should be provided with adjustable sweeps. No thresholds are to be installed on these doors. 3. Building opening dimensions are for 14'0" coolers with 6' x 9' doors. Smaller coolers with smaller doors will need smaller openings. [DIAGRAM] [DIAGRAM] [DIAGRAM] [DIAGRAM] ESTOPPEL CERTIFICATE REAL PROPERTY: SEE LEGAL DESCRIPTION (attached hereto as Exhibit "l" and made a part hereof) LEASE: BUILD AND LEASE AGREEMENT dated ______________ (attached hereto as Exhibit "2" and made a part hereof) PARTIES: LESSOR: ______________________________________ LESSEE: NETCO FOODS, INC., a California corporation The undersigned, as LESSEE, hereby confirms the following: 1. ____________________________________ ("MORTGAGEE") has advised LESSEE that it proposes to make a mortgage loan to _______________________, a California Limited Partnership ("LESSOR"), to be secured by a Mortgage or Deed of Trust covering the aforesaid tract of land and all of LESSOR'S improvements thereon and a security interest in all of the LESSOR'S personal property thereon or used in connection therewith and to be further secured by assignment of said Lease Agreement. MORTGAGEE has further advised LESSEE that LESSOR has entered into a written agreement pursuant to which it will assign all of its -1- EXHIBIT "C" rights, title, and interest in said Lease Agreement and the said REAL PROPERTY of which the leasehold is a part, to MORTGAGEE. LESSEE hereby consents to the aforementioned assignment of said Lease Agreement, by the LESSOR to MORTGAGEE as security for the mortgage loan, to be made with the understanding that the personal property of the LESSEE or of its sublessee shall not be subject to or liable to levy or distress or any legal process whatsoever for the collection of any amount becoming payable to MORTGAGEE in connection with said mortgage loan. 2. LESSEE has entered into a certain Lease Agreement with respect to the above described real estate. 3. The improvements and space required to be furnished according to the terms of said Lease Agreement have yet to be constructed and furnished in accordance with said Lease Agreement, and upon completion of said improvements and space, LESSEE shall furnish to MORTGAGEE, LESSEE'S punch list, to be marked Exhibit "3" and to be attached hereto and to be incorporated herein at that time. 4. Said Lease Agreement has not been modified, altered or amended or assigned except as hereinabove referenced. 5. There are no off-sets or credits against rental as of this date, except as may be set forth in Exhibit "4" attached hereto and incorporated herein, nor have rentals been prepaid except as provided by the terms of said Lease Agreement. 6. Rentals commence to accrue on the Commencement Date endorsed at the end of said Lease Agreement unless a Rent Com- -2- mencement Date appears at paragraph 6.A.(1) of said Lease Agreement. The primary lease term expires twenty (20) years from the Commencement Date set forth in paragraph 4 of said Lease Agreement. Minimum monthly installments of rent (excluding additional rent provided in Paragraph 6B) of said Lease Agreement are as set forth in said Lease Agreement. 7. LESSEE has no notice of a prior assignment, hypothecation or pledge of rents or said Lease Agreement, except as herein referenced. 8. LESSEE agrees that in the event of a default by said LESSOR in the performance of any obligation to be performed by said LESSOR under said Lease Agreement, LESSEE will, prior to terminating said Lease Agreement, or exercising any other remedies available to it thereunder, provide MORTGAGEE a copy of any and all notices of default sent to LESSOR, wherein MORTGAGEES hall have the same rights and privileges, but not the obligation, of LESSOR to cure said defaults of LESSOR under the terms of said Lease Agreement. 9. LESSEE agrees that upon proper written notification from MORTGAGEE of a default by LESSOR in the payment of LESSOR'S indebtedness to MORTGAGEE, and upon LESSEE'S receipt of a presently effective assignment of said lease (or the rents becoming due thereunder) to MORTGAGEE, executed by LESSOR, that LESSEE will thereafter pay all subsequent installments of rent thereinafter coming due under said Lease Agreement, to MORTGAGEE, as the holder of the indebtedness, so long as (a) MORTGAGEE, as holder, -3- together with LESSOR, agree to hold LESSEE and its sublessee harmless from any liability and for all costs, including reasonable attorney's fees, that may be incurred on the part of LESSEE or its sublessee to protect its leasehold interest rights under said Lease Agreement arising and due to any dispute between MORTGAGEE, as holder, and LESSOR on any contestment as to the rents or on any foreclosure proceedings and (b) MORTGAGEE has provided such reasonable legal documentation as LESSEE may request from MORTGAGEE. 10. Said Lease Agreement shall be subject and subordinate to the lien of MORTGAGEE'S mortgage referred to above to the full extent of the principal sum secured thereby and interest thereon, and to all renewals, modifications, consolidations, replacements and extensions thereof so long as MORTGAGEE first provides to LESSEE a written agreement that provides as follows: (i) As long as LESSEE performs its obligations under the Lease Agreement, no foreclosure of, deed given in lieu of foreclosure of, or sale under MORTGAGEE'S mortgage, and no steps or procedures taken under said mortgage shall affect LESSEE'S rights under the Lease Agreement. (ii) The provisions of said Lease Agreement concerning repair, replacements, rebuilding, due to damage or destruction, of the premises (and any other building or buildings or other improvements in the shopping center, if any, of which the demised premises is a part) shall prevail over any conflicting provisions in the mortgage, and the proceeds of any -4- insurance carried by LESSOR which cover such damage or destruction shall be available for such repair, replacement, or rebuilding notwithstanding any contrary provisions in said mortgage; provided, however that MORTGAGEE shall have the right to hold and disburse any such insurance proceeds for the purpose of accomplishing such repair, replacement, or rebuilding, to the extent provided for in the mortgage. (iii) The provisions of said Lease Agreement and this Estoppel Certificate concerning the disposition of any condemnation award shall prevail over any conflicting provisions in the mortgage. (iv) MORTGAGEE agrees that LESSEE shall not be bound by any renewal, modification, consolidation, or replacement of said mortgage unless and until LESSEE has received written notice and a copy thereof. 11. In the event MORTGAGEE succeeds to the interest of LESSOR under said Lease Agreement, during the original or any renewed term of said Lease Agreement, LESSEE agrees to attorn to MORTGAGEE, or any party lawfully representing its interest or acting for its benefit (so long as LESSEE has received prior written notice of the fact that any such party is representing MORTGAGEE'S interest or acting for MORTGAGEE'S benefit) and that such party has agreed to be bound by and to accept the responsibilities and obligations of said Lease Agreement, and to be bound by, and perform all of the obligations and conditions imposed upon LESSOR by said Lease Agreement. -5- 12. In the event MORTGAGEE succeeds to the interest of LESSOR under said Lease Agreement, as a result of any foreclosure on said mortgage by MORTGAGEE, LESSEE agrees that MORTGAGEE shall not be bound by any rent which LESSEE might have paid for more than the current month to LESSOR or any other lessor prior to MORTGAGEE, which payments were made subsequent to LESSEE'S receipt of written notice of the date on which MORTGAGEE succeeded to LESSOR'S interest under said Lease Agreement. 13. Except for the amendments, modifications, and assignment stated above, if any, LESSEE agrees that MORTGAGEE shall not be bound by any other amendment, modification, or assignment of said Lease Agreement, made without its consent, unless such consent is unreasonably withheld in which case this Paragraph 13 shall be null and void. 14. This Estoppel Certificate shall not be effective and binding upon LESSEE until such time as LESSEE receives written notification from MORTGAGEE that MORTGAGEE has made said mortgage loan to LESSOR and the date on which said mortgage loan was made. The subordination provisions of Paragraph 10 hereof shall not be effective unless and until LESSEE receives the written agreement of MORTGAGEE which is described in Paragraph 10 hereof. 15. This Estoppel Certificate shall not be binding upon LESSEE as regards any subsequent successors or assigns of MORTGAGEE unless LESSEE is first notified in writing and consents to be bound. -6- 16. Except as hereinabove set forth, LESSEE does not waive, alter, amend, or otherwise modify any rights or remedies it has under said Lease Agreement. 17. The representations and agreements herein contained shall be binding upon the LESSEE and LESSEE'S respective successors and assigns and shall inure to the benefit of MORTGAGEE, as holder of the indebtedness secured by assignment of said Lease Agreement. Dated this 25th day of May 1988. NETCO FOODS, INC., a California corporation By /s/ Steve G. Nettleton --------------------------------------- Steve G. Nettletton, President -7- DESCRIPTION ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: LOT 4, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION", WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT WHICH IS THE INTERSECTION OF THE EAST LINE OF LOT 2, AS SHOWN ON SAID MAP, WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99, SAID POINT BEING DISTANT 90.00 FEET SOUTHWESTERLY MEASURED AT A RIGHT ANGLE FROM THE BASE LINE AT ENGINEER'S STATION (C-1) 488+87.54 OF THE DEPARTMENT OF PUBLIC WORKS SURVEY ON ROAD 03-BUT-99 FROM POST MILE 30.0 TO 37.3; THENCE FROM SAID POINT OF BEGINNING NORTH 32 DEG. 24' 21" WEST, 718.93 FEET; THENCE ALONG A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 2940.00 FEET, THROUGH AN ANGLE OF 2 DEG. 25' 14", AN ARC DISTANCE OF 124.21 FEET TO A POINT OF COMPOUND CURVE; THENCE ON A CURVE TO THE LEFT, WITH A RADIUS OF 815.00 FEET, THROUGH AN ANGLE OF 25 DEG. 39' 46", AN ARC DISTANCE OF 365.04 FEET; THENCE NORTH 60 DEG. 29' 31" WEST, 603.28 FEET; THENCE NORTH 85 DEG. 37' 47" WEST, 152.81 FEET; THENCE SOUTH 80 DEG. 00' 30" WEST, 188.24 FEET TO A POINT ON THE SOUTH LINE OF 20TH STREET, AS SHOWN ON SAID MAP OF "CHICO INDUSTRIAL PARK"; THENCE ALONG SAID SOUTH LINE OF 20TH STREET ON A CURVE TO THE LEFT, TANGENT TO A LINE BEARING NORTH 79 DEG. 40' 52" EAST, HAVING A RADIUS OF 642.00 FEET, THROUGH AN ANGLE OF 15 DEG. 22' 20", AN ARC DISTANCE OF 172.25 FEET; THENCE CONTINUING ALONG SOUTH LINE OF 20TH STREET, SOUTH 30 DEG. 29' 31" EAST, 2.33 FEET; THENCE NORTH 68 DEG. 31' 52" EAST, 114.77 FEET; THENCE NORTH 64 DEG. 28' 40" EAST, 461.74 FEET TO THE INTERSECTION OF THE SOUTHERLY LINE OF SAID 20TH STREET WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99; THENCE ALONG SAID WESTERLY LIKE SOUTH 30 DEG. 29' 31" EAST, 1766.67 FEET TO THE POINT OF BEGINNING. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALSO EXCEPTING THEREFROM THOSE PORTIONS DEEDED TO THE CITY OF CHICO, BY DEEDS RECORDED APRIL 28, 1980, IN BOOK 2510, PAGE 195, OFFICIAL RECORDS, AND RECORDED MAY 15, 1980, IN BOOK 1515 PAGE 276, OFFICIAL RECORDS. DESCRIPTION ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: L0T 9, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION", WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT WHICH IS THE INTERSECTION OF THE EAST LINE OF LOT 2, AS SHOWN ON SAID MAP, WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99, SAID POINT BEING DISTANT 90.00 FEET SOUTHWESTERLY MEASURED AT A RIGHT ANGLE FROM THE BASE LINE AT ENGINEER'S STATION (C-1) 488+87.54 OF THE DEPARTMENT OF PUBLIC WORKS SURVEY ON ROAD 03-BUT-99 FROM POST MILE 30.0 TO 37.3; THENCE FROM SAID POINT OF BEGINNING NORTH 32 DEG. 24' 21" WEST, 718-93 FEET; THENCE ALONG A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 2940.00 FEET, THROUGH AN ANGLE OF 2 DEG. 25' 14", AN ARC DISTANCE OF 124.21 FEET TO A POINT OF COMPOUND CURVE; THENCE ON A CURVE TO THE LEFT, WITH A RADIUS OF 815.00 FEET, THROUGH AN ANGLE OF 25 DEG. 39' 46", AN ARC DISTANCE OF 365.04 FEET; THENCE NORTH 60 DEG. 29' 31" WEST, 603.28 FEET; THENCE NORTH 85 DEG. 37' 47" WEST, 152.81 FEET; THENCE SOUTH 80 DEG. 00' 30" WEST, 188.24 FEET TO A POINT ON THE SOUTH LINE OF 20TH STREET, AS SHOWN ON SAID MAP OF "CHICO INDUSTRIAL PARK"; THENCE ALONG SAID SOUTH LINE OF 20TH STREET ON A CURVE TO THE LEFT, TANGENT TO A LINE BEARING NORTH 79 DEG. 40' 52" EAST, HAVING A RADIUS OF 642.00 FEET, THROUGH AN ANGLE OF 15 DEG. 22' 20", AN ARC DISTANCE OF 172.25 FEET; THENCE CONTINUING ALONG SOUTH LINE OF 20TH STREET, SOUTH 30 DEG. 29' 31" EAST, 2.33 FEET; THENCE NORTH 68 DEG. 31' 52" EAST, 114.77 FEET; THENCE NORTH 64 DEG. 28' 40" EAST, 461.74 FEET TO THE INTERSECTION OF THE SOUTHERLY LINE OF SAID 20TH STREET WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99; THENCE ALONG SAID WESTERLY LINE SOUTH 30 DEG. 29' 31" EAST, 1766.67 FEET TO THE POINT OF BEGINNING. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALSO EXCEPTING THEREFROM THOSE PORTIONS DEEDED TO THE CITY OF CHICO, BY DEEDS RECORDED APRIL 28, 1980, IN BOOK 2510, PAGE 195, OFFICIAL RECORDS, AND RECORDED MAY 15, 1980, IN BOOK 1515, PAGE 276, OFFICIAL RECORDS. DESCRIPTION ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: L0T 9, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION", WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT WHICH IS THE INTERSECTION OF THE EAST LINE OF LOT 2, AS SHOWN ON SAID MAP, WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99, SAID POINT BEING DISTANT 90.00 FEET SOUTHWESTERLY MEASURED AT A RIGHT ANGLE FROM THE BASE LINE AT ENGINEER'S STATION (C-1) 488+87.54 OF THE DEPARTMENT OF PUBLIC WORKS SURVEY ON ROAD 03-BUT-99 FROM POST MILE 30.0 TO 37.3; THENCE FROM SAID POINT OF BEGINNING NORTH 32 DEG. 24' 21" WEST, 718.93 FEET; THENCE ALONG A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 2940.00 FEET, THROUGH AN ANGLE OF 2 DEG. 25' 14", AN ARC DISTANCE OF 124.21 FEET TO A POINT OF COMPOUND CURVE; THENCE ON A CURVE TO THE LEFT, WITH A RADIUS OF 815.00 FEET, THROUGH AN ANGLE OF 25 DEG. 39' 46", AN ARC DISTANCE OF 365.04 FEET; THENCE NORTH 60 DEG. 29' 31" WEST, 603.28 FEET: THENCE NORTH 85 DEG. 37' 47" WEST, 152.81 FEET; THENCE SOUTH 80 DEG. 00' 30" WEST, 188.24 FEET TO A POINT ON THE SOUTH LINE OF 20TH STREET, AS SHOWN ON SAID MAP OF "CHICO INDUSTRIAL PARK"; THENCE ALONG SAID SOUTH LINE OF 20TH STREET ON A CURVE TO THE LEFT, TANGENT TO A LINE BEARING NORTH 79 DEG. 40' 52" EAST, HAVING A RADIUS OF 642.00 FEET, THROUGH AN ANGLE OF 15 DEG. 22' 20", AN ARC DISTANCE OF 172.25 FEET; THENCE CONTINUING ALONG SOUTH LINE 0F 20TH STREET, SOUTH 30 DEG. 29' 31" EAST, 2.33 FEET; THENCE NORTH 68 DEG. 31' 52" EAST, 114.77 FEET; THENCE NORTH 64 DEG. 28' 40" EAST, 461.74 FEET TO THE INTERSECTION OF THE SOUTHERLY LINE OF SAID 20TH STREET WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99; THENCE ALONG SAID WESTERLY LINE SOUTH 30 DEG. 29' 31" EAST, 1766.67 FEET TO THE POINT OF BEGINNING. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALSO EXCEPTING THEREFROM THOSE PORTIONS DEEDED TO THE CITY OF CHICO, BY DEEDS RECORDED APRIL 28, 1980, IN BOOK 2510, PAGE 195, OFFICIAL RECORDS, AND RECORDED MAY 15, 1980, IN BOOK 1515, PAGE 276, OFFICIAL RECORDS. DESCRIPTION ALL THAT CERTAIN REAL PROPERTY SITUATE IN THE STATE OF CALIFORNIA, COUNTY OF BUTTE, CITY OF CHICO, DESCRIBED AS FOLLOWS: LOT 4, AS SHOWN ON THAT CERTAIN MAP ENTITLED, "CHICO INDUSTRIAL SUBDIVISION", WHICH MAP WAS RECORDED IN THE OFFICE OF THE RECORDER OF THE COUNTY OF BUTTE, STATE OF CALIFORNIA, ON JULY 6, 1965, IN BOOK 34 OF MAPS, AT PAGE(S) 7, 8 AND 9. EXCEPTING THEREFROM THAT PORTION DEEDED TO THE STATE OF CALIFORNIA, DESCRIBED AS FOLLOWS: BEGINNING AT A POINT WHICH IS THE INTERSECTION OF THE EAST LINE OF LOT 2, AS SHOWN ON SAID MAP, WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99, SAID POINT BEING DISTANT 90.00 FEET SOUTHWESTERLY MEASURED AT A RIGHT ANGLE FROM THE BASE LINE AT ENGINEER'S STATION (C-1) 488+87.54 OF THE DEPARTMENT OF PUBLIC WORKS SURVEY ON ROAD 03-BUT-99 FROM POST MILE 30.0 TO 37.3; THENCE FROM SAID POINT OF BEGINNING NORTH 32 DEG. 24' 21" WEST, 718.93 FEET; THENCE ALONG A TANGENT CURVE TO THE LEFT, HAVING A RADIUS OF 2940.00 FEET, THROUGH AN ANGLE OF 2 DEG. 25' 14", AN ARC DISTANCE OF 124.21 FEET TO A POINT OF COMPOUND CURVE; THENCE ON A CURVE TO THE LEFT, WITH A RADIUS OF 815.00 FEET, THROUGH AN ANGLE OF 25 DEG. 39' 46", AN ARC DISTANCE OF 365.04 FEET; THENCE NORTH 60 DEG. 29' 31" WEST, 603.28 FEET; THENCE NORTH 85 DEG. 37' 47" WEST, 152.81 FEET; THENCE SOUTH 80 DEG. 00' 30" WEST, 188.24 FEET TO A POINT ON THE SOUTH LINE OF 20TH STREET, AS SHOWN ON SAID MAP OF "CHICO INDUSTRIAL PARK"; THENCE ALONG SAID SOUTH LINE OF 20TH STREET ON A CURVE TO THE LEFT, TANGENT TO A LINE BEARING NORTH 79 DEG. 40' 52" EAST, HAVING A RADIUS OF 642.00 FEET, THROUGH AN ANGLE OF 15 DEG. 22' 20", AN ARC DISTANCE OF 172.25 FEET; THENCE CONTINUING ALONG SOUTH LINE OF 20TH STREET, SOUTH 30 DEG. 29' 31" EAST, 2.33 FEET; THENCE NORTH 68 DEG. 31' 52" EAST, 114.77 FEET; THENCE NORTH 64 DEG. 28' 40" EAST, 461.74 FEET TO THE INTERSECTION OF THE SOUTHERLY LINE OF SAID 20TH STREET WITH THE WESTERLY LINE OF STATE HIGHWAY ROUTE 99; THENCE ALONG SAID WESTERLY LINE SOUTH 30 DEG. 29' 31" EAST, 1766.67 FEET TO THE POINT OF BEGINNING. ALSO EXCEPTING ALL MINERALS, OIL, GAS AND OTHER HYDROCARBON SUBSTANCES BELOW A DEPTH OF 500 FEET AND ALL GEOTHERMAL RIGHTS BELOW A DEPTH OF 250 FEET OF SAID REAL PROPERTY WITHOUT THE RIGHT OF SURFACE ENTRY. ALSO EXCEPTING THEREFROM THOSE PORTIONS DEEDED TO THE CITY OF CHICO, BY DEEDS RECORDED APRIL 28, 1980, IN BOOK 2510, PAGE 195, OFFICIAL RECORDS, AND RECORDED MAY 15, 1980, IN BOOK 1515, PAGE 276, OFFICIAL RECORDS. RECORDING REQUESTED BY: William R. Foley, Esq. File No. 4396.01 WHEN RECORDED, RETURN TO: William R. Foley, Esq. FOLEY, MC INTOSH & FOLEY Professional Corporation P. 0. Box 6247 Albany, CA 94706 MEMORANDUM OF LEASE This memorandum of lease is made this 25th day of May, 1988 between DOUGLAS W. BRADFORD ("LESSOR") and NETCO FOODS, INC., a California corporation ("LESSEE"), who agree as follows: 1. TERM AND PREMISES LESSOR leases to LESSEE and LESSEE leases from LESSOR a building to be constructed, to contain approximately 54,239 square feet, which building will be situated upon and constitut- ing a part of, the shopping center which is or will be located upon the real property situated in the County of Butte, Califor- shopping center nia, which/is more particularly described on Exhibit "A" attached hereto and made a part hereof, for an initial term of twenty (20) years, commencing on the earlier of the first day the premises are opened for business or forty-five (45) days following notice of completion of construction of the premises, as is more fully set forth in paragraph 4 of the lease. The lease term is subject to extension by LESSEE in accordance with the terms of the lease -1- Exhibit E between the parties, which lease is entitled "BUILD AND LEASE AGREEMENT" and is dated ________________. Each and all of the provisions of the said lease are incorporated into this memo- random of lease by this reference. 2. PURPOSE OF MEMORANDUM The purpose of this memorandum of lease is for recordation and the notice thereby imparted. This memorandum of lease does not, in any way, modify the provisions of the lease referred to above. LESSOR ---------------------------------------- Douglas W. Bradford LESSEE NETCO FOODS, INC., a California corporation By /s/ STEVEN G. NETTLETON -------------------------------------- Steve G. Nettleton6n, President -2- STATE OF CALIFORNIA | | SS. COUNTY OF ______________ | On this the ___ day of ____________________ 19__ before me, the undersigned Notary Public in and for said State, personally appeared DOUGLAS W. BRADFORD, personally known to me or proved to me on the basis of satisfactory evidence, to be the person who executed the within instrument and acknowledged to me that he executed the same. WITNESS my hand and official seal. --------------------------------- NOTARY PUBLIC STATE OF CALIFORNIA | | SS. COUNTY OF Sutter | On this the 24th day of May 1988, before me, the undersigned Notary Public in and for said State, personally appeared STEVE G. NETTLETON, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person who executed the within instrument as President of NETCO FOODS, INC., on behalf of said corporation, and acknowledged to me that the corporation executed the same. WITNESS my hand and official seal. --------------------------------- NOTARY PUBLIC OFFICIAL SEAL -3- EX-10.12 17 LEASE (CHICO CROSSROADS & CIRCUIT CITY STORES) CIRCUIT CITY Chico Crossroads Shopping Center, Chico, CA LEASE between CIRCUIT CITY STORES, INC., as Tenant and CHICO CROSSROADS CENTER, LTD., A CALIFORNIA LIMITED PARTNERSHIP, as Landlord dated February 15, 1994 CHICO CROSSROADS SHOPPING CENTER TABLE OF CONTENTS Page ---- 1. Leased Property...........................................................1 2. Construction of Building and Improvements.................................2 3. Lease Term................................................................2 4. Rent......................................................................4 5. Development of Shopping Center by Landlord................................5 6. Easements.................................................................6 7. Common Areas and Common Area Maintenance..................................8 8. Signs and Communications Equipment.......................................13 9. Taxes....................................................................13 10. Maintenance, Repairs and Replacements....................................16 11. Payment of Utility Bills.................................................17 12. Alterations..............................................................18 13. Mechanics' Liens.........................................................18 14. Insurance................................................................19 15. Damages by Fire or Other Casualty........................................24 16. Condemnation.............................................................28 17. Assignment and Subletting................................................30 18. Use......................................................................31 19. Warranties and Representations...........................................32 20. Estoppel Certificates....................................................39 21. Subordination, Non-Disturbance and Attornment............................39 22. Change of Landlord.......................................................40 23. Tenant's Financing.......................................................41 -i- Page ---- 24. Tenant's Property and Waiver of Landlord's Lien..........................41 25. Memorandum of Lease; Commencement Date Agreement.........................41 26. Expiration of Term and Holding Over......................................42 27. "For Rent" Signs.........................................................43 28. Force Majeure............................................................43 29. Events of Tenant's Default...............................................43 30. Landlord's Remedies......................................................44 31. Events of Landlord's Default; Tenant's Remedies..........................46 32. Waiver...................................................................47 33. Compliance with Applicable Laws..........................................47 34. Notices................................................................. 47 35. Brokers..................................................................48 36. Miscellaneous............................................................49 37. Effectiveness of Lease; Tenant's Right to Terminate......................52 38. Confidentiality..........................................................55 -ii- Page ---- EXHIBITS "A" Site Plan "A-1" Shopping Center Legal Description "B" Index of Definitions "C" Construction Provisions "D" Removable Trade Fixtures "E" Sign Plans and Criteria "F" Permitted Encumbrances "F-1" Permitted Title Encumbrances "G" Subordination, Non-Disturbance and Attornment Agreement "H" Memorandum of Lease "I" Commencement Date Agreement "J" Supplemental Site Plan Showing Portion of the Shopping Center As Constructed As Well As The Land And Construction Area "K" Prior Leases "L" Tenant Improvement Allowance Reimbursement Criteria "M" Tentative Vesting Parcel Map "N" Disclosed Environmental Reports -iii- [Chico Crossroads Shopping Center Chico, California] LEASE This LEASE is made as of the 15 day of February, 1994, by and between CHICO CROSSROADS CENTER, LTD., a California Limited Partnership ("Landlord"), and CIRCUIT CITY STORES, INC., a Virginia corporation having an address at 9950 Mayland Drive, Richmond, Virginia 23233 ("Tenant"). WITNESETH: That for and in consideration of the mutual covenants herein contained and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. LEASED PROPERTY. Landlord demises and leases to Tenant and Tenant leases and takes from Landlord all those certain "Premises" consisting of the "Building" and "Other Improvements" (both as defined in paragraph 2), as and when same are constructed, together with exclusive rights in the four (4) parking spaces labelled "Customer Pick-Up" adjacent to the Building as shown on the Supplemental Site Plan (provided such spaces are approved by the City's Architectural Review Board) and with the easements described in paragraph 6 below, all located in the "Shopping Center" (herein so called), which consists of that certain real property with buildings and improvements constructed or to be constructed thereon, located at the southeast corner of Whitman Avenue and 20th Street, lying and being in the City of Chico (the "City"), County of Butte, State of California (the "State"), and more particularly shown on EXHIBIT "A" hereto (the "Site Plan") and described by metes and bounds or platted lot legal description on EXHIBIT "A-1" attached hereto and made a part hereof for all purposes. The Building and Other Improvements will be located on an approximately 23,014 square foot parcel (the "Land") to be delivered by Landlord, as more particularly shown (approximately) outlined in red on the Supplemental Site Plan. All of the Shopping Center exclusive of the Premises is "Landlord's Premises". The description of the Premises may be adjusted in accordance with Tenant's final bid set of Plans and Specifications as described in EXHIBIT "C" attached hereto. Tenant's exclusive right to the "Customer Pick-Up" spaces shall be subject to the rights of tenants under leases of space in the Shopping Center executed and delivered prior to the date of this Lease, as said leases may be from time to time be extended and/or renewed (the "Prior Leases"). A list of the Prior Leases is 1 attached hereto as EXHIBIT "K". If the tenant under any such Prior Lease has the right to prohibit such exclusive use and objects to the use of said Customer Pick-Up spaces, Tenant shall immediately cease displaying signage indicating that such spaces are for Tenant's customers only. In all events, Landlord shall use its best efforts to obtain consents from the tenants under the Prior Leases to the extent required. 2. CONSTRUCTION OF BUILDING AND IMPROVEMENTS. Commencing immediately upon "delivery of the Land" (as defined in the Construction Provisions (herein so called) attached hereto as EXHIBIT "C" and incorporated herein by reference for all purposes), Tenant shall have the right and obligation as provided in the Construction Provisions to construct within the Shopping Center a one-story retail building, containing approximately 23,014 square feet of ground-floor gross leasable area, with provisions for customer pickup, delivery and car stereo installation facilities, initially for use as a Circuit City Store (the "Building"), together with loading ramps, detector check valves and vaults, sidewalks, trash compactor, transformer pad and other such appurtenances and improvements (collectively, the "Other Improvements"), as more particularly set forth in the Construction Provisions. Said Building shall be equipped with an automatic fire sprinkler system. The Building and Other Improvements are sometimes collectively referred to herein as the "Improvements". The Improvements shall be constructed in accordance with the "Plans and Specifications" to be prepared by Tenant and approved by Landlord as specified in the Construction Provisions. Except as otherwise provided herein, title to the Improvements shall be transferred to Landlord upon full payment of the "Tenant Improvement Allowance", as defined in the Construction Provisions. 3. LEASE TERM. Subject to the conditions to the effectiveness of this Lease set forth in paragraph 37, the construction term (the "Construction Term") of this Lease shall commence on the date of Landlord's delivery of the Land to Tenant in accordance with, and in the condition specified in, the Construction Provisions, and shall end on the "Commencement Date" (as defined below). The main term (the "Main Term") of the Lease shall commence on the earlier of (i) 210 days following "delivery of the Land," which shall occur no earlier than March 1, 1994 and, subject to force majeure, no later than June 15, 1994, provided Tenant has obtained the approval of the Architectural Review Board of the City of Chico as well as Landlord's approval of Tenant's Plans and Specifications necessary for the construction of the Improvements or (ii) Tenant's opening for business (the "Commencement Date") and shall end on the last day of January following the twentieth (20th) anniversary of the Commencement Date; provided, however, the Commencement Date is subject to adjustment as described in EXHIBIT "C". If Tenant, after exercising its best efforts, without economic concern, is unable to obtain 2 the necessary permits for the construction of the Improvements and/or Tenant's occupancy therein, Landlord shall, at Tenant's election, join Tenant, both financially and in name, in pursuing a claim against the City of Chico and/or subdivision thereof, as the case may be, for its failure to provide Tenant the necessary permit(s). In all events, if Tenant is unable to obtain the requisite authorization within one (1) year following its submittal of the approved Plans and Specifications, Tenant shall have the right to terminate this Lease within sixty (60) days following the expiration of said one (1) year period. In the event Tenant terminates the Lease, Tenant shall reimburse Landlord for all out-of-pocket costs incurred by Landlord in the "delivery of the Land," supported by adequate back-up documentation, including, but not limited to, the relocation and buy-out costs of tenants necessary to facilitate the "delivery of the Land" to Tenant, as well as lost rents from such tenants which were bought out, which costs shall in no event exceed Four Hundred Twenty-Five Thousand and NO/100 Dollars ($425,000.00). In addition to the Main Term, Tenant shall have the option (a "Renewal Option") to renew and extend the Lease for five (5) consecutive five (5) year periods (the "Option Periods") immediately following the Main Term, at the rent specified below. Tenant shall give Landlord written notice of its election to exercise any Renewal Option at least one hundred eighty (180) days prior to the expiration of the Main Term or any then-current Option Period, as applicable; provided, however, that in order to avoid any forfeiture or inadvertent lapse of such Renewal Option, if Tenant shall fail to give any such notice within the one hundred eighty (180) day time limit and shall not have given Landlord prior written notice of its intent not to exercise its Renewal Option, then and as often as the same shall occur, Tenant's right to exercise such Renewal Option shall nevertheless continue, as shall its tenancy hereunder (under the same terms and conditions as theretofore in effect and notwithstanding that the Main Term or then-current Option Period shall have expired), until ten (10) business days after Landlord shall have given Tenant a written notice of Landlord's election to terminate the Renewal Option, during which period Tenant may exercise its Renewal Option at any time prior to the expiration of such ten (10) business day period. Upon the giving of notice of renewal and extension in accordance with the foregoing provisions, the Term (defined below) of this Lease shall thereupon be renewed and extended in accordance with such notice without further act by Landlord or Tenant, the same as if such notice had been timely given hereunder. Notwithstanding the foregoing, it shall be a condition precedent to Tenant's right to exercise a renewal option that no "Event of Default" occurring prior to such exercise remains uncured; provided, however, if the "Event of Default" is of a non-monetary nature, Tenant may exercise the Renewal Option if litigation has 3 commenced regarding said defaults. In the event the above-referenced litigation results in a decision adverse to Tenant, Tenant's exercise of the Renewal Option shall be deemed void unless Tenant has promptly commenced to cure such default following the decision and pays to Landlord the amount of award, if any, plus attorney's fees and costs to the extent required hereunder. The Construction Term, Main Term and Option Periods are, collectively, the "Term". The term "Lease Year" shall mean each successive period of twelve (12) consecutive calendar months, commencing on the first day of each February during the Term, except that the first Lease Year shall commence on the Commencement Date and shall end on the last day of January following the first anniversary of the Commencement Date. 4. RENT. (a) BASE RENT. During the Construction Term, Tenant shall have no rental obligations nor shall Tenant be responsible for any Real Estate Taxes (as defined in paragraph 9) or CAM Charges (as defined in paragraph 7) or any similar costs, fees, rentals or expenses. Tenant agrees to pay base rent ("Base Rent") for the Premises in the amounts and in the manner specified hereunder, commencing (subject to the provisions of paragraphs 3 and 4 of the Construction Provisions) on the Commencement Date. Tenant shall pay Base Rent in equal monthly installments, without offset or deduction, except as specifically permitted by this Lease, in advance on the first day of each succeeding calendar month throughout the Term, with appropriate proration for any partial calendar month or Lease Year, to the address given for Landlord in paragraph 34 hereof, unless Landlord shall give Tenant written notice of a change of address or of the party to whom such rents shall be payable along with written documentation reasonably satisfactory to Tenant of such party's right to receive payment hereunder. Unless adjusted as provided in paragraph 3 of the Construction Provisions, Base Rent shall be paid pursuant to the following schedule: (i) FIRST FIVE YEARS. During the first sixty (60) full calendar months of the Main Term, Tenant shall pay annual Base Rent in the amount of $10.00 times the ground-floor gross leasable square footage contained in the Building (as measured from the exterior boundary of exterior building walls) (the "Initial Base Rent"), payable in equal monthly installments. In determining the ground-floor gross leasable square footage of the Building, the parties agree that the figure shall be as set forth in Tenant's approved Plans and Specifications. If any Lease Year is other than twelve (12) months in length, annual Base Rent during such Lease Year shall be the product of the applicable monthly Base Rent 4 times the number of months in such Lease Year, with appropriate proration for any partial calendar month therein. (ii) INCREASES IN BASE RENT. Annual Base Rent shall increase on the first day of the sixty-first (61st) full calendar month of the Main Term, over the Initial Base Rent charged hereunder by the lesser of ten percent (10%) or one and one-half (1-1/2) times the percentage increase in the "CPI-U" (as defined below) during the sixty (60) month period ending on the first three (3) months preceding said adjustment date. As used herein, the CPI-U shall be the United States Department of Labor, Bureau of Labor Statistics Consumer Price Index for All Urban Consumers, U.S. City Average. If at any time during the Term the CPI-U shall be discontinued, Landlord and Tenant shall mutually and reasonably agree to substitute an existing official index published by the Bureau of Labor Statistics or its successor or another, similar governmental agency, which index is most nearly equivalent to the CPI-U. Furthermore, Annual Base Rent shall increase on the first day of the one hundred twenty-first (121st) full calendar month of the Main Term and each five (5) years thereafter throughout the Term (each such date of Base Rent adjustment being hereinafter referred to as an "Adjustment Date"), over the Initial Base Rent by the lesser of twelve percent (12%) or one and one-half (1-1/2) times the percentage increase in the CPI-U. 5. DEVELOPMENT OF SHOPPING CENTER BY LANDLORD. Landlord covenants that the location of buildings and other tenant space therein will only be within the "Permissible Building Areas" as shown on the Site Plan, and the parking ratio for the Shopping Center shall be at least as shown thereon, but in no event shall said ratio be less than the greater of (i) three and one-half (3-1/2) spaces per 1,000 square feet of gross leasable area (excluding mezzanine space and outside sales area) or (ii) that required by applicable zoning requirements. All such parking shall be at ground level. Following the commencement of the Construction Term, Landlord shall not permit construction traffic over the Premises, and Landlord shall refrain from interfering with the conduct of Tenant's construction and business. Landlord shall keep and maintain or cause the improvements and the "Common Areas" (as defined in paragraph 7(a)) in the Shopping Center to be kept and maintained in good condition and repair, ordinary wear and tear excepted, and shall not operate, or permit to be operated, in the Shopping Center any activity which constitutes a nuisance, overburdens the available utilities, or violates any of the "Site Covenants" contained in subparagraph 19(a)(ix) or the prohibited activities set forth in subparagraph 19(a)(viii). 5 6. EASEMENTS. In addition to and simultaneously with the lease of the Premises, Landlord grants to Tenant certain nonexclusive leasehold easements over or upon certain areas of Landlord's Premises, as set forth below, which easements shall run as covenants with Landlord's Premises and the Premises during the Term and shall expire or terminate simultaneously with this Lease, except as provided below. (a) CONSTRUCTION EASEMENTS. For the period of Tenant's construction of the Improvements, and any renovation or reconstruction thereof, Landlord grants to Tenant a nonexclusive easement over the hatched portion of the Common Area (as defined in paragraph 7(a) below) shown on the Site Plan for the purpose of construction access to the Premises. In addition, Landlord grants to Tenant for the period in which Tenant is engaged in the initial construction of the Improvements as well as any reconstruction pursuant to paragraph 15 hereof, an exclusive easement for a construction staging area (the "Staging Area") within the area designated "Staging Area" on the Supplemental Site Plan for Tenant's use in constructing the Improvements. Tenant's use of the construction easements under this paragraph 6(a) shall be subject to the requirements of paragraph 2(a) of the Construction Provisions. (b) FOOTING AND FOUNDATION EASEMENTS. Landlord grants to Tenant, and Tenant grants to Landlord, easements and rights in Landlord's Premises and the Premises, as appropriate (i) for the construction and maintenance of foundations, footings, supports and demising walls; (ii) to allow their respective buildings to abut and connect (but not to bear structurally upon each other unless and except as otherwise provided herein); (iii) for roof projections, allowing the grantee to tie its building into the adjoining building by flashing and reglets; and (iv) for unintentional encroachments not to exceed three (3) feet beyond that indicated in Tenant's approved Plans and Specifications which reasonably occur in the construction of the building components set forth in subparagraphs (i) through (iii) above. No such attachment or connection shall be made, however, unless detailed plans therefor shall have been timely submitted to and approved by the party to whose building the attachment is to be made, which approval shall not be unreasonably withheld. No such attachment or connection shall impede Landlord's ability to separately insure the building designated "C" on the Site Plan from the improvements within the Shopping Center. (c) UTILITY EASEMENTS. During the Term, upon prior reasonable request of Tenant (following the initial "Landlord Work" as set forth in the Construction Provisions), Landlord agrees to obtain, if required for the construction of the Improvements, such underground, public or private utility easements as Tenant reasonably deems necessary, without unreasonably interfering with the use by Landlord 6 of the Common Areas, for the benefit of the Premises. For the purpose of exercising the rights granted in this subparagraph 6(c), Tenant and/or the utility provider shall have the right to enter upon and use the Common Areas to install the utility systems, to such extent and so long as reasonably necessary to accomplish such purpose, subject to restoration of the Common Areas following such installation and any other reasonable conditions and requirements imposed by Landlord. (d) COMMON AREA EASEMENT. During the Term, Landlord grants to Tenant, for the benefit of the Premises, the nonexclusive right, privilege and easement (the "Common Area Easement") to use the Common Areas for their intended purposes and to permit Tenant and its employees, agents, subtenants, assignees, licensees, suppliers, customers and invitees to use the same, in common with Landlord, its successors, assigns, employees, agents, lessees, licensees, suppliers, customers and invitees and all other persons claiming by or through them, for the purposes (without limitation) of parking and pedestrian, service and vehicular access, ingress and egress to, from and between the Premises and the Landlord's Premises and the streets and highways abutting and adjacent to the Shopping Center, in accordance with the Site Covenants, without payment of any fee or other charge therefor, except pursuant to paragraph 7(b) below. It is specifically agreed that with respect to the parking spaces designated on the Site Plan as Tenant's "Customer Pick-Up", notwithstanding the fact the same are in, and constitute a part of, the "Common Areas", such parking spaces shall be used exclusively by Tenant's customers, invitees and patrons, subject to paragraph 1 above. In addition, Tenant shall have the right, subject to obtaining any required approvals from tenants of Prior Leases to use such sidewalks as are immediately adjacent to Tenant's Improvements and within Tenant's Parking Lot Sales Area as shown on the Supplemental Site Plan for "sidewalk sales", seasonal and promotional sales and other sales customary to Tenant's business operations. Landlord represents that the only approvals required under Prior Leases for sidewalk sales on the sidewalks immediately adjacent to the Improvements are approvals of the tenants of the building spaces designated "B", "D" and "H" on the attached Site Plan, provided that such activities do not unreasonably interfere with the use of said sidewalks or pedestrian traffic. Seasonal and promotional sales and other sales from Tenant's Parking Lot Sales Area shall not exceed fourteen (14) days per Lease Year, in the aggregate. Tenant shall be responsible for cleaning such sales area during and following such use and for the repair of any damages, ordinary wear and tear excepted, resulting from such use. (e) NON-DEDICATION. None of the easements granted by the parties to this Lease is intended, nor shall any of them be construed, as a dedication of any portion 7 of the Shopping Center for public use, and the parties will refrain from taking any action which would cause such a dedication and will take whatever steps may be necessary to avoid any such dedication, except as may be agreed upon in writing by the parties hereto or their respective successors or assigns. (f) RULES AND REGULATIONS. Tenant's use of the above easements shall be subject to such reasonable, non-discriminatory rules and regulations governing use which Landlord may from time to time prescribe in writing, including the designation of specific areas within the Shopping Center in which automobiles owned by Shopping Center tenants and their employees, subtenants, licensees and concessionaires shall be parked, which shall include a reasonable number of parking spaces in reasonable proximity to the Tenant's Improvements for use by Tenant and Tenant's employees, subtenants, licensees and concessionaires; provided, however, Landlord's designation of the parking for Tenant's employees shall be subject to the prior approval of Tenant, which approval shall not be unreasonably withheld, and in no event shall the employee parking of any other tenant in the Shopping Center be located within Tenant's Preferred Area. Such rules and regulations may include without limitation the restriction of designated areas for drive-thru-bank, savings, restaurant and other drive-thru facilities and for seasonal or promotional sales activities outside of Tenant's Preferred Area and for sidewalk sales and the designation of certain parking spaces immediately adjacent to a store for the exclusive use of the patrons of such store. Landlord shall not be responsible for the failure of any other Shopping Center occupant to comply with said rules and regulations. Tenant acknowledges that Landlord does not have the right to require the occupants of the building areas designated "B" and "D" on the Site Plan to comply with employee parking rules and regulations and that the occupant of the building are designated "H" on the Site Plan has the reasonable right of approval over the location of designated employee parking spaces. Certain tenants under Prior Leases have similar approval rights as to employee parking spaces established nearby their stores. Landlord reserves the right to construct low-rise monument signs within landscaped areas or adjacent to buildings for use by other occupants selected by Landlord, whether or not shown on the Site Plan; however, without the prior written consent of Tenant, such signs may not be placed in Tenant's Preferred Area. 7. COMMON AREAS AND COMMON AREA MAINTENANCE. (a) DEFINITION OF COMMON AREAS. The term "Common Areas" shall be defined to include the parking areas, lanes, drives, entrances, truck passageways, sidewalks, elevators, escalators, ramps, stairways, landscaped and other unpaved areas, parking lot lighting facilities and equipment, Landlord's pylon sign(s), directional, traffic 8 and monument sign structure(s) and shared utility facilities located in the Shopping Center (including any such areas and facilities contained within outparcels and adjacent tracts but reserved to the benefit of the Shopping Center occupants) and intended and available (subject, however, to the rules and regulations authorized in paragraph 6(f) above) for the common use of all of the tenants within the Shopping Center (including any outparcel and other adjacent occupants which contribute toward "CAM Charges" (as defined below) and which are not responsible for separate maintenance of such outparcels or tracts), their subtenants, licensees, and business invitees. Landlord shall be responsible for operating, maintaining and repairing the Common Areas in a first-class manner, including cleaning, maintenance of Landlord's pylon (exclusive of Tenant's sign panels) and other sign structure(s), snow removal and ice treat- ment, removal of Common Area trash and garbage, lighting, repairing, repaving and restriping the parking area, and maintaining, replanting and replacing landscaping, all such work to be referred to collectively as "Common Area Maintenance". (b) CAM CHARGES. For the purpose of this paragraph 7, the cost of Common Area Maintenance (the "CAM Charges") shall include (i) Landlord's reasonable and proper direct costs and expenses of operating and maintaining the Common Areas, (ii) Landlord's overhead expenses for administering same (or in lieu thereof a management fee) in an amount not to exceed eight percent (8%) of the total of such costs (specifically excluding from such total the amounts paid by Landlord and Tenant for insurance, capital expenditures and real estate taxes) and (iii) liability and casualty insurance premiums for insuring the Common Areas. Notwithstanding the foregoing, the following shall not be included in the CAM Charges: (1) real estate taxes paid, and maintenance performed, on outparcels or other adjacent tracts not reserved to the benefit of the Shopping Center occupants; (2) any dues or charges for a merchants' or other association of the tenants in the Shopping Center; (3) maintenance, repairs or replacements to the Common Areas (but no other portions of the Shopping Center), necessitated by the negligent or wrongful act of the Landlord or made to correct any construction defect (including, without limitation, repairs necessitated by a change in a code, law or regulation, when such repair is not attributable to a specific use of Tenant or Tenant's assignee or sublessee), to any interior mall space or to any buildings (including exterior walls thereof) or utility systems not part of the Common Areas; 9 (4) repairs or replacements necessitated by any governmental entity or by the negligence or the wrongful action of Landlord (including failure to construct any portion of the Shopping Center in accordance with plans or specifications therefor) or any other tenant or made to correct any initial construction defect in existence prior to the Commencement Date of this Lease or to correct damage caused by subsidence or adverse or substandard soil conditions; (5) amounts paid to entities related to Landlord in excess of the cost of such services from any competitive source; (6) amounts reimbursable from insurance proceeds, under warranty or by Tenant, any other tenant in the Shopping Center or any other third party other than pursuant to a Common Area expense provision similar to this paragraph 7; (7) premiums for Common Area liability insurance for coverage in excess of the limits established in paragraph 14(e) below; (8) replacements of a capital nature, unless the costs of same are amortized over the entire useful life of such replacements and provided that replacements are not the direct result of initial defects in materials or workmanship (such amortization shall be on a straight-line basis, as determined under generally accepted accounting principles in effect when said costs are paid, together with interest at the then current "prime rate" published by the San Francisco branch of Bank of America, N.T. & S.A., plus one percent (1%) per annum, such interest to be adjusted annually in advance based on the published prime rate of interest on January 1 of each calendar year); provided, however, in no event shall Tenant's share of capital costs for any one CAM Year be in excess of $15,000.00; (9) improvements, repairs or replacements (other than patching and similar minor periodic maintenance) to the parking lot or other paved areas during the first thirty-six (36) full calendar months following the Commencement Date; (10) reserves for anticipated future expenses; (11) interest, late charges or penalties incurred as a result of Landlord's failure to pay bills in a timely manner; (12) Landlord's personnel, overhead, home office or administrative expenses except as set forth in subparagraph (b)(ii) above; 10 (13) amounts incurred to remediate any Hazardous Substances (as defined in the Construction Provisions); or (14) any charges attributable to maintenance, repairs or replacements of the pylon sign so long as Tenant is unable to maintain a "face panel" on such sign; provided, however, any such charges attributable to a pylon sign on which Tenant maintains a "face panel" shall be allocated in equal proportion to Tenant and the other occupants maintaining face panels on such sign. CAM Charges shall be in an amount consistent with the costs incurred by other landlords of similar shopping centers in the City (but not greater than as described in this paragraph 7(b)), and in all events such charges shall be obtained at competitive rates. (c) TENANT PAYMENTS. Commencing on the Commencement Date and continuing until the expiration of the first Lease Year, Tenant shall pay to Landlord a fee (which Landlord estimates, without warranty, to be $1.66 per square foot of ground-floor gross leasable area in the Building per annum), payable in equal monthly installments, as its share of CAM Charges. Thereafter, the annual charge shall be computed on the basis of periods of twelve (12) consecutive calendar months, as designated by Landlord (each such period is a "CAM Year"), and shall be paid by Tenant in equal monthly installments, in advance, on the first day of each month during such CAM Year. For any period within the Term which is less than a full CAM Year, the annual charge shall be appropriately prorated. Within sixty (60) days after the end of the first CAM Year and each CAM Year thereafter, Landlord will furnish to Tenant a statement showing in detail (with such substantiating documentation as Tenant may reasonably request) the amount of the CAM Charges for the preceding CAM Year and the then-current number of square feet of ground-floor gross leasable area in the Shopping Center. Any necessary adjustment with respect to amounts owed by either party for such preceding CAM Year shall thereupon be made; and the monthly payments to be made by Tenant for the ensuing year shall be estimated according to the Common Area maintenance budget prepared by Landlord and delivered to Tenant. Subject to adjustments as herein contemplated, Tenant's share of CAM Charges shall always be the product of the CAM Charges multiplied by a fraction (such fraction being referred to herein as "Tenant's Pro Rata Share"), the numerator of which is the number of square feet of the ground-floor gross leasable area in the Building and the denominator of which is the number of square feet of the ground-floor gross leasable area (excluding the area of any outside sales area exclusive to a single occupant, except to the extent said sales area is included in the calculation of such occupant's pro rata share of CAM Charges) in the Shopping Center. 11 Notwithstanding the foregoing, as of the date hereof, Tenant acknowledges that Landlord is obligated, for purposes of calculating "proportionate share" hereunder, to use 103,904 square feet as the gross leasable area for Building "H", should Landlord be able to modify the lease pertaining to said Building "H" or otherwise collect rent based upon the actual square footage of said building (e.g., 112,904 square feet), then the calculations hereunder shall be amended to reflect such square footage. In determining the ground-floor gross leasable area of any building in the Shopping Center (including the Building), measurement shall be made from the centerline of any common walls and from the outside of any exterior walls. The gross leasable area of any outside sales area, if and when included in the calculation of Tenant's Pro Rata Share pursuant to this paragraph 7(c), shall be measured from the outside of the exterior wall of any adjacent building to the actual exterior perimeters of such outside sales area, including any aisles, fences or walls included therein. Changes in applicable floor areas shall result in corresponding adjustments of Tenant's Pro Rata Share, but in no event shall the denominator of the fraction by which Tenant's Pro Rata Share is determined be less than eighty-five percent (provided said percentage shall be increased to ninety-five percent when building improvements have been constructed upon the building area designated "F" and "G" on the Site Plan or when the tenant or occupant thereof commences paying rent thereon) of the gross leasable area of the Shopping Center as shown on the Site Plan, except to the extent reduced as a result of a Taking, as defined in paragraph 16 hereof, or damage until restored (except to the extent the occupant of such damaged Premises continues to pay CAM Charges during such period of restoration). Notwithstanding anything to the contrary, in no event shall Tenant's Pro Rata Share be in excess of twelve percent (12 %) of CAM Charges. The remainder of CAM Charges shall be borne by Landlord and/or other tenants. (d) EXAMINATION OF LANDLORD'S RECORDS. Tenant shall have the right, from time to time, but not more often than once as to any CAM Year and no later than two (2) years after the end of such CAM Year, to examine and make copies of the records pertaining to CAM Charges for such CAM Year. Tenant's right of examination shall be exercised during reasonable business hours at Landlord's principal records office on reasonable prior notice to Landlord. If such examination shall disclose any over-charge by Landlord, Landlord shall promptly reimburse Tenant for any overpayment of Tenant's Pro Rata Share of CAM Charges; and if such overpayment by Tenant is in excess of three percent (3%) of the actual Tenant's Pro Rata Share of CAM Charges, Landlord shall reimburse Tenant for the reasonable cost of such examination or audit, 12 not to exceed $3,000.00 in any one CAM Year. Tenant shall promptly reimburse Landlord for any underpayment disclosed by such examination. 8. SIGNS AND COMMUNICATIONS EQUIPMENT. (a) SIGNS. If at any time during the Term, space shall become available on either of the two (2) pylon signs currently existing in the Shopping Center as shown on the Site Plan or should Landlord construct an additional pylon sign, Tenant shall have the first right to place its "face panels" on any such pylon sign at a location specified by Landlord (which location shall be the best Landlord shall then be able to provide, subject to any limitations set forth in the Prior Leases) to identify Tenant's store. Tenant shall exercise such first right, if at all, by written notice to Landlord given within thirty (30) days of Tenant's receipt of written notice from Landlord that space for Tenant's face panel has become available. If Tenant fails to exercise such right, said first right shall terminate. Tenant's first right shall also be subject to Landlord's agreement, in pending negotiations, to provide space on the bottom location on the pylon sign on U.S. Highway 99 to the tenant of "Pad 1" as shown on the Site Plan. Tenant's face panel on any such pylon sign may not be larger than the largest face panel or panels on such sign. Attached as a portion of EXHIBIT "E" are plans and specifications for Tenant's current prototypical face panels and for Tenant's building signage, which Landlord hereby approves upon its execution of this Lease. Notwithstanding the foregoing, Tenant shall be entitled without Landlord's consent, but subject to governmental requirements, as aforesaid, to replace any and all of its signs with signage consistent with Tenants's then-current prototypical sign plans. In the event of an assignment or subletting as a result of which Tenant is no longer occupying any portion of the Premises, Tenant's signs may be replaced by signs identifying the appropriate assignee or subtenant, provided that the specific design of such signage shall be subject to Landlord's consent, which consent shall not be unreasonably withheld, conditioned or delayed. None of Tenant's signs visible from the exterior of the Building shall have any bulbs or other forms of lighting that go on and off intermittently. (b) COMMUNICATIONS EQUIPMENT. Tenant may, from time to time, install, maintain and/or replace any satellite dishes or antennas on the roof of the Building as Tenant deems necessary or desirable, provided same shall not adversely and materially affect the roof or the structural elements thereof. Upon removal by Tenant of any satellite dishes or antennas, Tenant shall repair any damage done in connection with such removal. Tenant shall be responsible for obtaining all governmental permits and approvals required for any such use. 13 9. TAXES. (a) TAXES CONTEMPLATED HEREUNDER. The term "Real Estate Taxes" shall mean all general real estate taxes and assessments and other ad valorem taxes, rates and levies paid upon or with respect to the Shopping Center, including the Premises, for a calendar year or a portion thereof to any governmental agency or authority and all charges specifically imposed in lieu of any such taxes. Nothing contained in this Lease shall require Tenant to pay any local, county, municipal, state or federal income, franchise, corporate, estate, inheritance, gift, succession, capital levy, business or transfer tax of Landlord, or any local, county, municipal, state or federal income, profits, gross receipts, sales or renewal tax. Moreover, if under the laws of the State of California or any political subdivision with jurisdiction over the Shopping Center, the methods of taxation shall be altered so as to impose in lieu of current methods for the assessment and taxation of real property, in whole or in part, taxes based on other standards, or in lieu of any increase therein, such tax shall be deemed to be a Real Estate Tax for the purposes of this Lease. (b) PAYMENT OF REAL ESTATE TAXES. Landlord agrees to use reasonable efforts to obtain either a single, separate tax bill or an assessor's "pro rate" showing the Real Estate Taxes attributable to the Land and the Improvements and a proportionate share of the Common Areas. In the event the Land and the Improvements are not segregated for tax purposes to permit a single, separate tax bill for the same, then at such intervals as Landlord is required to pay the Real Estate Taxes, Tenant shall pay Tenant's Pro Rata Share of Real Estate Taxes (calculated in the same manner as Tenant's Pro Rata Share of CAM Charges in paragraph 7(c) without, however, a percentage maximum on Real Estate Taxes levied on improvements) levied against the tax parcel or parcels comprising the Shopping Center (the "Tax Parcel"). In no event shall the denominator used to determine Tenant's Pro Rata Share be less than the gross leasable area upon which the assessment of Real Estate Taxes is based; in the event adjustments are made during any year, appropriate prorations shall be made. Landlord has heretofore obtained approval of vesting Parcel Map No. 95, a copy of which is attached hereto as EXHIBIT "M". Landlord may modify the boundaries of the parcels shown on said map such that Parcel 5 will contain no building improvements other than the Improvements and such that Parcel 6 will contain no building improvements. In such event, if Tenant has elected to pay Real Estate Taxes based on a separate assessment as opposed to pursuant to a Pro Rata Share calculation, Landlord may require Tenant to pay the Real Estate Taxes levied or assessed against said Parcels 5 and 6, provided that the total land area within said Parcels 5 and 6 does not exceed 80,549 square feet, in satisfaction of Tenant's obligation 14 to pay Real Estate Taxes under this paragraph 9(b). Tenant's Pro Rata Share of Real Estate Taxes shall be net of any early-payment discounts available at the time Tenant's payment is due if made by Tenant when due. Tenant shall pay Tenant's Pro Rata Share of Real Estate Taxes within thirty (30) days after Tenant's receipt of Landlord's statement therefor, accompanied by the tax bill on the basis of which such statement is rendered. Landlord shall pay, or cause the payment of, all Real Estate Taxes before any fine, penalty, interest or cost may be added thereto, become due or be imposed by operation of law for the nonpayment or late payment thereof. In no event shall Tenant be liable for any discount forfeited or penalty incurred as a result of late payment by another tenant or by Landlord. Taxes shall be prorated as of the Commencement Date and the expiration or earlier termination of this Lease, and Landlord shall promptly return to Tenant any overpayment made by Tenant not attributable to the period of Tenant's possession of the Premises. Only installments coming due during the Main Term and Option Periods, if so exercised, shall be included in Real Estate Taxes for the calculation of Tenant's Pro Rata Share. Landlord shall remain primarily responsible for such payment notwithstanding the fact that such payment may be made by a tenant of Landlord's Premises or other third party pursuant to an agreement to which Tenant is not a party. In addition, should Landlord fail to pay such Real Estate Taxes before same become delinquent, Tenant shall have the right, at its election, to cure such failure by payment of delinquent Real Estate Taxes and any interest and penalties due thereon and in such event Tenant may deduct the cost thereof, plus interest at the lesser of fifteen percent (15%) per annum or the highest rate permitted by State law (the "Default Rate"), from the next installment(s) of Base Rent and other charges due hereunder. (c) CONTEST OF REAL ESTATE TAXES AND/OR ASSESSED VALUATION OF PROPERTY. Tenant shall have the right, at Tenant's sole expense, to contest the amount or validity, or otherwise seek an exemption or abatement, of any Real Estate Taxes or to seek a reduction in the valuation of the Premises assessed for Real Estate Tax purposes, by appropriate proceedings diligently conducted in good faith, provided that Tenant shall first have notified Landlord of its intent to do so and Landlord shall have failed to notify Tenant in writing, within five (5) days of receipt of Tenant's notice, that Landlord intends to contest such Real Estate Taxes or seek such a reduction. In any instance where any such action or proceeding is being undertaken by Tenant, Landlord shall cooperate with Tenant, execute any and all documents required in connection therewith and, if required by any law, rule or regulation of the taxing authority, shall join with Tenant in the prosecution thereof; no such action or proceeding shall excuse Landlord's or Tenant's payment of Real Estate Taxes prior to delinquency. Tenant shall 15 be entitled to a refund of any overpayment of Real Estate Taxes relating or allocable to the Premises, as well as a reimbursement of all costs, fees and expenses it incurs in such protest or reassessment. 10. MAINTENANCE, REPAIRS AND REPLACEMENTS. Except (i) for costs covered by the Landlord's insurance required to be maintained hereunder, (ii) for condemnation proceeds to be received by Tenant, (iii) for obligations arising from the negligent acts or omissions or willful misconduct of Landlord (or its agents or employees), or (iv) as otherwise set forth in this Lease, Tenant shall be solely responsible for maintenance of the exterior and interior non-structural elements of the Building, including, but not limited to, repairs and/or replacements to plate glass, Tenant's store front and doors, plumbing, heating, electrical and air conditioning systems which serve only the Premises and for the maintenance and repairs and/or replacements required by reason of construction and/or design defects in the Improvements. Landlord shall maintain all structural elements of the Premises (whether or not same serve only the Premises), including, without limitation, the roof, roof structure, floor slab, foundation, load bearing walls and exterior structural walls (unless required by reason of construction or design defects in the Improvements), but shall have no other responsibility for maintenance, repair or replacements to the Premises or any part thereof except to the extent maintenance, repair or replacements are required due to the negligent acts or omissions or willful misconduct of Landlord (or its agents or employees); provided, however, this provision is in no way intended to limit Landlord's obligation to maintain, repair and replace any and all elements, both structural and non-structural, of the Common Areas pursuant to the terms of this Lease. In connection with Landlord's maintenance obligations pertaining to the roof, Tenant shall deliver to Landlord a "Bonded Roof Guaranty" warranting said roof for a minimum of ten (10) years; during the period of said guaranty Landlord's maintenance on the roof shall be at no cost to Tenant, except to the extent of a construction or design defect not covered by the guaranty. Following the expiration of the guaranty, Landlord shall continue to maintain the roof, provided Tenant shall reimburse Landlord within thirty (30) days of demand and receipt of reasonable supportive evidence of the amount and payment of the costs to be reimbursed. All maintenance of a capital nature must be amortized according to generally accepted accounting principles. In addition to the Landlord's maintenance and repair obligations set forth herein and otherwise set forth in this Lease, Landlord agrees to maintain the Other Improvements immediately surrounding the Building, including sidewalks and landscaping, except to the extent such maintenance is required due to a design or construction defect in the Other Improvements. If Tenant is required during the last five 16 (5) years of the Term of the Lease (without consideration to the exercise of any additional Renewal Options) to expend any sum in satisfaction of its obligations hereunder pertaining to the HVAC system in the Building, and if the resulting replacement cannot be fully amortized in accordance with generally accepted accounting principles, or the Internal Revenue Code and Regulations, over the remainder of the Term (without consideration to the exercise of any additional Renewal Options), then Tenant shall be reimbursed by Landlord upon Tenant's surrender of the Premises, for the unamortized portion of the cost associated with such repairs, construction or alteration for the period beyond the remainder of the Term (without consideration to the exercise of any additional Renewal Options), not to exceed $50,000.00 (so long as same is not the result of a change in Tenant's use, sublease, assignment or alteration to the Premises). Should either party fail to perform its obligations under this paragraph 10, the other party may, at its option, effect such maintenance, replacements or repairs, provided that such curing party shall have given the nonperforming party thirty (30) days' prior written notice, except in the case of emergencies (in which event only such notice as may be reasonable under the circumstances shall be required); but further provided that such thirty (30) day period (or reasonable period in event of emergencies) shall be extended in respect of any cure that cannot with reasonable diligence be accomplished within such period so long as the party required to effect such cure has commenced such cure within such thirty (30) day period (or reasonable period in event of emergencies) and thereafter diligently prosecutes such cure to completion. The nonperforming party shall reimburse the other party on demand for the reasonable and actual amount so expended (as evidenced by detailed invoice), plus interest at the Default Rate from the date incurred. However, in the event of emergency repairs, no interest shall accrue if reimbursed within thirty (30) days of request (including detailed invoice) for reimbursement. All maintenance, repairs or replacements shall be done by Tenant or Landlord lien-free and in a good and workmanlike manner consistent with the quality of labor and materials used in originally constructing the Improvements and in accordance with all applicable law. In order for Landlord and Tenant to effectively perform their maintenance, repair and replacement obligations hereunder, Tenant and Landlord, as applicable, shall assign to the other party any and all manufacturers' and contractors' warranties relating to such work performed on behalf of the other party to the party who is required to maintain same under the Lease. 11. PAYMENT OF UTILITY BILLS. Tenant will pay directly to the appropriate utility company or governmental agency, when due, all bills for gas, water, sanitary sewer, electricity, telephone and other public or private utilities used by Tenant with regard to 17 the Improvements. Landlord shall pay when due all utility charges incurred in the operation of the Common Areas. 12. ALTERATIONS. During the Term, Tenant shall have the right, at its discretion and its sole cost, without Landlord's consent, to make (i) any alterations or modifications to the interior of the Building necessary or desirable in order to bring the Premises into conformity with Tenant's then-current prototype for similarly sized stores (provided same complies with the regulations of the City of Chico and does not affect the structural integrity of the Building) and (ii) any interior non-structural alterations or modifications it may desire. With Landlord's consent, which shall not be unreasonably withheld, conditioned or delayed, Tenant shall have the right, at its sole cost, to alter, modify or reconstruct the exterior and/or structure of the Building or Other Improvements. Landlord's withholding of consent as to any exterior and/or structural alteration or modification shall be deemed reasonable only if same is materially inconsistent with the then-existing architecture of the Shopping Center or if such alteration or modification would increase the ground floor gross leasable square footage of the Building, add an additional story to the Building, result in the Building extending higher than thirty (30) feet above the ground, adversely affect the structural integrity of the Building or if Landlord's Mortgagee's consent is required to the alteration and if such Mortgagee fails or refuses to grant such approval. Tenant shall cause all such alterations to be lien-free (in accordance with paragraph 13) and made and completed at Tenant's cost in a workmanlike manner and in compliance with all applicable law. Should Landlord's consent be required, conceptual plans and specifications for such work shall be provided to Landlord prior to commencement of any such work. Landlord shall be deemed to have consented to such work if written notice of disapproval, with reasons specified, is not received by Tenant within fifteen (15) business days following Tenant's delivery of such plans and specifications to Landlord. Without cost or expense to Landlord, Landlord shall cooperate with Tenant in the obtaining of any and all licenses, building permits, certificates of occupancy or other governmental approvals which may be required in with any such modifications or alterations, and Landlord shall execute, acknowledge and deliver any documents reasonably required in furtherance of such purposes. 13. MECHANICS' LIENS. Landlord and Tenant covenant to each other that they will not permit any lien to be filed against the Premises or the Shopping Center as a result of nonpayment for, or disputes with respect to, labor or materials furnished to the Premises or the Shopping Center as a result of nonpayment for, or disputes with respect to, labor or materials furnished to the Premises or the Shopping Center for or on behalf of Tenant, Landlord or any party claiming by, through, or under Tenant or Landlord, nor shall either party permit any 18 judgment, lien or attachment to lie, as applicable, against the Premises or the Shopping Center. Should any lien of any nature, including but not limited to the foregoing, be filed against the Premises or Shopping Center, the party on account of whose actions such lien has been filed shall, within thirty (30) days after receipt of written notice of such lien, cause said lien to be removed, or otherwise protected against execution during good faith contest by (i) posting a bond therefor, (ii) escrowing adequate funds to cover the claim and related transaction costs or (iii) taking such other action as may be permissible under applicable title insurance regulations and reasonably acceptable to the other party hereto. Furthermore, to the extent Landlord or Tenant is unable to obtain owner's or leasehold title insurance, as the case may be, or an endorsement thereto, without mechanic's liens shown on "Schedule B" therein, due to a mechanic's lien attributable to work of Landlord or Tenant, such party shall provide the necessary indemnity to the title company to allow the party seeking the insurance to obtain such insurance without the mechanic's liens listed as an exception to title. Notwithstanding the foregoing, Landlord's obligations under the preceding two sentences shall only apply to liens filed that have a priority of record to this Lease. Furthermore, Landlord and Tenant shall indemnify, defend (with counsel reasonably acceptable to the party being defended) and hold harmless, the other party hereto against all claims, costs, liability, or expense resulting from the breach by such indemnifying party of its obligations under this paragraph 13. 14. INSURANCE. (a) PROPERTY DAMAGE. During the Construction Term, Tenant shall keep or require its general contractor to keep, in full force and effect, a policy of builder's risk insurance covering loss or damage to the Improvements for the full replacement value of all such construction. During the Main Term and all Option Periods, Tenant shall keep in full force and effect a policy of fire and extended coverage insurance covering loss or damage to the Premises in the amount of full replacement value of the Building, exclusive of excavation, footings and foundations (which initial amount shall be not less than the Tenant Improvement Allowance), with a commercially reasonable deductible, for which Tenant shall be fully responsible provided that Tenant satisfies the requirements for self-insurance contained in paragraph 14(d) below. Landlord and Landlord's first "Mortgagee" (as defined in paragraph 21 below), shall be named in such policy or policies as additional insureds as their respective interests may appear, and said policy or policies shall be endorsed with standard mortgagee's loss payable endorsements for the benefit of Landlord's Mortgagee. Said insurance shall include a twelve (12) month business interruption endorsement covering the Base Rent, 19 Real Estate Taxes and CAM Charges payable by Tenant for the benefit of Landlord and Landlord's Mortgagee, notwithstanding any abatement provision in Paragraph 15 hereof. Landlord shall not construct, or permit to be constructed, any improvement in the Shopping Center, nor conduct any activity, or permit the conduct of any activity, in the Shopping Center which will prevent Tenant from being able to obtain insurance coverage at commercially reasonable rates, including, without limitation, a fully-sprinklered fire insurance rate. Should Landlord cause or permit any insurance rate increase to occur, Landlord will reimburse Tenant for the additional premium required, subject to Tenant's right to self-insure (in which event Landlord will contribute to Tenant's self insurance fund to cover increased actuarial risks). Tenant agrees not to keep, use or sell any article on or from the Premises, in order to conduct any activity therefrom, which may be prohibited by the standard form of fire insurance policy. In the event that any conduct or activity by or under Tenant on or from the Premises results in the rates of fire insurance premiums upon other improvements within the Shopping Center being increased, Tenant agrees to pay to Landlord, upon demand, the amount of increase in such fire insurance premiums attributable thereto. (b) LIABILITY INSURANCE. During the Term, Tenant shall keep in full force a policy of commercial general liability insurance with bodily injury and property damage coverage with respect to the Premises and business operated by Tenant, which shall name Landlord and Landlord's first Mortgagee as additional insureds as their respective interests may appear. The limits of such commercial general liability policy shall be not less than $3,000,000.00 combined single limit for bodily injury and property damage, with a commercially reasonable deductible. All such insurance shall be written as primary insurance not contributing with and not in excess of coverage which Landlord may carry. (c) WORKERS' COMPENSATION INSURANCE. To the extent required by law, Landlord and Tenant shall maintain workers' compensation insurance covering their respective employees in statutory limits, or maintain such alternate coverages or arrangements as legally permissible. (d) SELF-INSURANCE. Notwithstanding anything to the contrary contained herein, Tenant shall have the right to self-insure against any of the risks or portions thereof set forth in subparagraphs (a) and (b) (and to the extent then permitted by law, (c)) above, provided Tenant is then occupying the Premises and has a reported net worth, as of the end of Tenant's most recent quarterly reporting period, of not less than Fifty Million Dollars ($50,000,000), as computed in accordance with generally accepted accounting principles, consistently applied, as determinable from Tenant's public 20 disclosures and/or regularly maintained corporate balance sheets which are generally available to shareholders (no right of Landlord to audit or conduct independent investigations being implied by this provision). (e) COMMON AREA, ADDITIONAL AREA AND THIRD PARTY TENANT INSURANCE AND INSURANCE DURING LANDLORD'S CONSTRUCTION. During the Term, Landlord shall keep in full force and effect, in form reasonably acceptable to Tenant, policies of commercial general liability insurance, with bodily injury and property damage insurance, and fire and extended coverage insurance, with respect to the Common Areas and with respect to all other areas of the Shopping Center over which Landlord from time to time has present possessory rights (or has the right under any lease to provide insurance coverage because of a tenant's failure to maintain such required coverage) but which do not constitute a portion of the Common Areas (such areas here sometimes collectively referred to as the "Additional Areas"). The Additional Areas shall include, without limitation: (i) as yet unconstructed portions of the Shopping Center intended for tenant occupancy, (ii) constructed but unoccupied portions of the Shopping Center, (iii) vacated or otherwise uninsured tenant space, whether by reason of lease expiration, default or otherwise, and (iv) constructed and occupied portions of the Shopping Center. In the case of fire and extended coverage insurance for the Additional Areas, such insurance need not cover interior leasehold improvements, trade fixtures, equipment and/or other personal property of tenants and/or other occupants, and such insurance, as to buildings leased by other tenants, may be provided through self-insurance carried by or under the applicable tenant, provided that such tenant has a net worth of not less than Fifty Million Dollars ($50,000,000.00) and the provision of such self-insurance has been approved by Landlord's Mortgagee, except for tenants of Prior Leases which shall be bound by the terms of their respective leases. Said liability policies shall name Tenant, and any lender, investor or other stakeholder which is designated by Tenant from time to time, as an additional insured to the fullest extent Tenant and such stakeholder have insurable interests. The limit of the fire and extended coverage insurance policy shall be the same as that set forth in subparagraph (a) above (exclusive of footings, foundations and excavations); the limits of the commercial general liability insurance shall not be less than $1,000,000.00 combined single limit for bodily injury and property damage, with a commercially reasonable deductible. The cost of the premiums for coverages relating to Common Areas shall be an element of CAM Charges, provided that Tenant shall not be liable for its pro rata share of any premium for coverage in excess of that coverage which is customary among owners of like shopping centers in the City or the minimum coverage required by this law, whichever is greater. With the exception of the Prior 21 Leases, Landlord shall assure (through parallel lease provisions or otherwise) that all areas of the Shopping Center, including the Additional Areas and areas leased to third party tenants or sold to third party occupants, are insured with substantially similar coverages to those required for the Premises and the Common Areas. During any period in which Landlord is conducting construction activities at the Shopping Center, Landlord or its general contractor shall keep in full force and effect with regard to the Shopping Center, in form reasonably acceptable to Tenant, at least the minimum insurance coverages set forth below: 1) Workers' Compensation - statutory limits; 2) Employers Liability - $500,000; and 3) Comprehensive General and Comprehensive Auto Liability as follows: a) Bodily Injury - $1,000,000 per occurrence; b) Property Damage - $1,000,000 per occurrence; c) Independent Contractors Liability or Owner's Protective Liability; same coverage as set forth in subparagraphs (a) and (b) above; d) Products/Completed Operations coverage which shall be kept in effect for two (2) years after completion of work with a limit of $1,000,000; e) "XCU" Hazard Endorsement, if applicable; f) "Broad Form" Property Damage Endorsement; g) "Personal Injury' Endorsement; and h) "Blanket Contractual Liability" Endorsement. Additionally, Landlord shall keep or require its general contractor to keep in full force and effect a policy of builder's risk insurance covering loss or damage to such construction for the full replacement value of all such construction. To the fullest extent Tenant has an insurable interest, such liability policy shall name Tenant an additional insured. (f) POLICY PROVISIONS. All policies of insurance (other than self-insurance) enumerated above shall be provided by insurance carriers with a Best rating of not less than B+X. Any insurance coverage enumerated above may be effected by a blanket policy or policies of insurance or under so-called "all risk" or "multi-peril" insurance policies, provided that the total amount of insurance available with respect to the Premises and Tenant's or Landlord's liability hereunder shall be at least the equivalent of separate policies in the amounts herein required, and provided further that in other respects any such policy or policies shall comply with the provisions of this paragraph 14. Landlord shall not be entitled to self-insure against any of the risks recited herein, except the amount of any commercially reasonable deductible shall be deemed to be self-insurance. An increased coverage or "umbrella" policy may be provided and utilized by either party to increase the coverage provided by individual or blanket policies in lower 22 amounts, and the aggregate coverage provided by all such policies with respect to the Premises and Tenant's or Landlord's liability hereunder shall be satisfactory provided that such policies otherwise comply with the provisions of this paragraph 14. (g) WAIVER OF RIGHT OF RECOVERY AND SUBROGATION. To the extent that insurance proceeds are actually received in satisfaction of a loss which is required to be covered by insurance or is self-insured hereunder (with the deductible under any policy being deemed to be self-insured), Landlord and Tenant hereby waive any and all rights of recovery against each other for any loss or damage to the Premises or the contents contained therein, for loss of income on account of fire or other casualty, or for injury sustained on the Premises or the Common Areas; and each party's aforesaid policies of insurance shall contain appropriate provisions recognizing this mutual release and waiving all rights of subrogation by the respective insurance carriers. Notwithstanding the foregoing, Tenant acknowledges that the tenants of the buildings within the building areas designated "B" and "H" on the Site Plan carry the fire and extended coverage insurance for their buildings pursuant to their Prior Leases and that Landlord does not have the right to require said tenants to obtain a waiver of subrogation in favor of Tenant in the insurance policies for these buildings or to conform their policy provisions to paragraph (f) above. This provision and the provisions of paragraph (f) above, therefore, shall not apply to either of said buildings, while said Prior Leases continue in effect (the "Excluded Leases"). (h) EVIDENCE OF INSURANCE. Subject to Tenant's right to self-insure hereunder, upon (i) commencement of the Main Term (as to casualty insurance), (ii) upon delivery of the Land (as to liability insurance) and (iii) no less than annually thereafter, Tenant and Landlord shall cause to be issued to each other in lieu of the original policy, a duplicate of such policy or appropriate certificates of insurance reasonably acceptable to the other party and evidencing compliance with the applicable covenants of this paragraph 14. Each such certificate shall provide that no expiration, cancellation or material change in the insurance evidenced thereby shall be effective unless thirty (30) days' unconditional notice of such expiration, cancellation or material change shall have been given to the certificate-holder (and Landlord's first Mortgagee, if applicable). This provision shall not apply to the fire and extended coverage insurance provided by the tenants under the Excluded Leases, provided that Landlord agrees to provide proof of such insurance to Tenant upon request, in the form of certificates evidencing such insurance provided to Landlord by the tenants under the Excluded Leases. 23 (i) INDEMNITIES. Except if arising from the negligent or willful acts of Landlord or its agents or employees (to the extent that paragraph 14(g) is inapplicable thereto), Tenant hereby agrees to indemnify, defend and hold Landlord harmless from all claims, costs, liability, damage (exclusive of consequential damages) or expense, including attorneys' fees, for any death, damage or injury to persons or property occurring on the Premises or resulting from the use thereof as well as the Common Areas by Tenant, its agents or employees. Except if arising from the negligent or willful acts of Tenant or its agents or employees (to the extent that paragraph 14(g) is inapplicable thereto), Landlord agrees to indemnify, defend and hold Tenant harmless from any and all claims, costs, liability, damage (exclusive of consequential damages) or expense, including attorneys' fees, for any death, damage or injury to persons or property occurring in, on or around the Common Areas and other areas within the Shopping Center with respect to which Landlord is obligated to carry insurance or resulting from the use thereof by Landlord, its agents or employees. 15. DAMAGES BY FIRE OR OTHER CASUALTY. (a) INSURED CASUALTY. In the event of a casualty, causing destruction or damage to the Improvements, Common Areas and/or Additional Areas, as applicable, which casualty is covered by the standard form of fire and extended coverage insurance required under this Lease or which is actually covered by insurance carried by or for the benefit of either Landlord or Tenant (exclusive of self-insurance carried beyond the insurance required hereunder), this Lease shall not terminate except as expressly set forth herein. Notwithstanding anything to the contrary, in the event Tenant reasonably estimates, after due investigation, restoration shall take more than three hundred sixty (360) days from the date of such determination, Tenant shall have the right upon thirty (30) days written notice to terminate this Lease. If this Lease is not terminated, within a reasonable time after such casualty, subject to force majeure, applicable building codes, the procurement of building permits and the receipt of insurance proceeds (unless self-insured) to the extent of the damage to the Premises, or the Common Areas or Additional Areas, as applicable, Tenant shall complete reconstruction of the Building and Other Improvements, and Landlord shall complete reconstruction of the Common Areas and sufficient Additional Areas such that one hundred fifty thousand (150,000) square feet of ground floor gross leasable area (inclusive of the Building) are free from casualty damage (including, in the case of the Premises, substantially equivalent value in equipment, furniture, and fixtures), to that condition existing immediately prior to such casualty, in the reconstructing party's reasonable discretion, with, in event of any Tenant 24 reconstruction, such alterations as may be permitted under paragraph 12 hereof and with, in the event of any Landlord reconstruction, such alterations as Landlord may reasonably determine to be appropriate, subject to the limitations set forth herein, or which any tenant under a Prior Lease has the right to make. From the date of the casualty until Tenant resumes operations in the Premises to the same level as before such casualty, Base Rent and other charges shall abate or, in the case where Tenant is still operating in the Premises, be reduced to the extent such casualty has interfered with Tenant's use of the Premises, for a period not to exceed twelve (12) full calendar months. In the event, subject to force majeure, the Premises, Common Areas and/or Additional Areas, as applicable, are not substantially repaired and reconstructed, and equipment, furniture and fixtures restored or replaced as required above, by the party with repair and restoration obligations within two hundred forty (240) days after receipt of any required governmental permits, for which permits the party with repair obligations shall make prompt application following such destruction or damage, and insurance proceeds (if not self-insured), then the other party, at its option, by giving written notice to the party with repair obligations, within thirty (30) days after the expiration of said period, may undertake completion of such reconstruction (subject to the prior rights of any tenant under a Prior Lease to complete such construction), in which event the party with repair obligations shall make available to the notifying party all applicable insurance proceeds for such reconstruction (including any applicable deductible) or, if self-insured, the amount necessary for such reconstruction. (i) APPLICATION OF FUNDS. All insurance (or self-insurance) proceeds received on account of such damage or destruction to be repaired and restored under the preceding provisions of this paragraph 15(a), less the cost, if any, of such recovery, shall be applied pursuant to the terms of this Lease to the payment of the cost of such restoration, repair, replacement, rebuilding, or alteration (the "Work"), including expenditures made for temporary repairs or for the protection of property pending the completion of permanent restoration, repair, replacement, rebuilding, or alteration, and, if required by Landlord's first Mortgagee, shall be held by a mutually agreeable third-party escrow agent (which is, for these purposes, the "Escrow Agent"), in an interest-bearing account in a federally insured financial institution or institutions such that all funds are deposit insured (or otherwise assured in a manner acceptable to the parties), to be paid out, as provided below, from time to time (but no more often than once monthly), as the Work progresses, upon Tenant's written request in event of work by Tenant, or Landlord's written request in event of work by Landlord, accompanied 25 by a certificate of the architect or engineer in charge of the Work (the "Certificate"), dated not more that seven (7) days prior to such request, stating that the sum then requested either has been paid by Tenant or Landlord, as applicable, or is justly due to the named contractors, subcontractors, materialmen, engineers, architects, or other persons (whose addresses shall also be stated) who have rendered services or furnished materials for certain portions of the Work. Landlord's Mortgagee, if a bank, savings and loan association or other institutional lender, may act as the Escrow Agent. The Certificate shall give a brief description of such services and materials, shall list the several amounts so paid or owing to each of such persons, shall state the cost of the Work at the date of the requisition, and shall state that no part of such expenditures has been or is being made the basis for any other request for payment. The Certificate shall state also that, except for the amounts listed therein, there is no outstanding indebtedness known to such architect or engineer, after due inquiry, for labor, wages, materials, supplies, or services in connection with the Work which, if unpaid, might become the basis of a vendor's, mechanic's, laborer's, materialman's, or similar lien upon the Work or upon the Premises or any part thereof. (ii) DISBURSEMENT. Upon compliance with the foregoing provisions of paragraph 15(a)(i), the Escrow Agent shall pay, out of the escrowed funds, to the persons named in the Certificate the respective amounts stated to be due to them or shall pay to Tenant, in the event of Tenant work, or Landlord, in the event of Landlord work, the amount stated to have been paid by Tenant or Landlord, as applicable; provided, however, that such payments shall not exceed in amount the cost of the relevant Work as stated in the Certificate. If the insurance proceeds or reconstruction funds paid by Tenant or Landlord, as applicable, to the Escrow Agent exceed the amount required to pay the total cost of the Work, the party paying such amount to the Escrow Agent, as applicable, after payment of all costs of the Work, shall be entitled to receive or retain, as applicable, such excess. (b) UNINSURED CASUALTY. In the event of any uninsured fire, earthquake or other casualty, causing destruction or damage to the Improvements, Common Areas and/or Additional Areas, which has a repair and reconstruction cost of twenty-five percent (25%) or more of the then-total reconstruction cost of any of said areas (which percentage shall be reduced to ten percent (10%) during the last five (5) years of the Main Term or during an Option Period), Tenant shall have the option of terminating this 26 Lease; provided that Landlord may prevent the termination of this Lease by notifying Tenant in writing within thirty (30) calendar days following Tenant's election to terminate, of its agreement to pay Tenant's repair and reconstruction costs in excess of twenty-five percent (25%) (or ten percent (10%), as the case may be), of the total reconstruction cost (the "Excess Cost"), and delivering to Tenant or the Escrow Holder, as the case may be, funds sufficient to pay the Excess Cost within sixty (60) days of Landlord's election or prior to the commencement of Tenant's construction, whichever is sooner. Tenant shall notify Landlord of its exercise of such option within sixty (60) days following the occurrence of casualty and unless Landlord prevents such termination from becoming effective, shall thereupon make available to Landlord all insurance proceeds or reconstruction costs as set forth in subparagraph (a) above. In the event Tenant does not elect to terminate this Lease as set forth above, or in the event that Landlord prevents Tenant's termination from becoming effective as set forth immediately above, then, subject to force majeure, within two hundred forty (240) days after receipt by Tenant of the required governmental permits for restoration, for which permits Tenant shall make prompt application following such destruction or damage, Tenant shall complete reconstruction of the Improvements to their condition existing immediately prior to such damage, in Tenant's reasonable discretion, with such alterations as may be permitted under paragraph 12, and shall restore the Premises (including equipment, furniture and fixtures). From the date of the casualty until Tenant resumes operations in the Premises to the same level as before such casualty, Base Rent and other charges shall abate (for a period not to exceed twelve (12) consecutive calendar months) or, in the case where Tenant is still operating in the Premises, be reduced to the extent such casualty has interfered with Tenant's use of the Premises (for a period not to exceed twelve (12) consecutive calendar months). Should Tenant elect to maintain this Lease in full force and effect, Landlord shall reconstruct Common Areas sufficient to enable Tenant and the remaining occupants to operate their business at the same level as prior to such casualty, but in all events, Landlord shall reconstruct Tenant's Preferred Area. Additionally, except as to the Prior Leases, Landlord shall assure (through parallel lease provisions or otherwise) that all areas of the Shopping Center leased to third party tenants or sold to third party occupants are subject to substantially similar reconstruction obligations to those of the Premises, Common Areas and Additional Areas. (c) LAST TWO (2) YEARS OF MAIN TERM OR OPTION PERIOD. Notwithstanding the foregoing, if any such damage or destruction occurs within the last two (2) years of the Main Term or of any Option Period and the cost to repair said damage is estimated to be equal to or in excess of fifty percent (50%) of the aggregate 27 Base Rent due for the remainder of the Main Term or Option Period, as the case may be, or if the restoration is reasonably estimated by Tenant to take in excess of forty-five (45) days from the date of the damage or destruction, Tenant shall be under no obligation to restore the Improvements, in which case this Lease shall terminate at Tenant's option, such option to be exercised by Tenant giving not less than thirty (30) days' prior written notice to Landlord within sixty (60) days following the date of such casualty, and Landlord shall receive the proceeds of any insurance (together with any applicable deductible) which may be payable with regard to such destruction or damage or, in the event Tenant self-insures, the amount necessary for reconstruction of the Improvements. 16. CONDEMNATION. (a) DEFINITION OF TAKING AND SUBSTANTIAL TAKING. For the purpose of this Lease, a "Taking" shall mean any condemnation or exercise of the power of eminent domain by any authority vested with such power or any other taking for public use, including a private purchase in lieu of condemnation by an authority vested with the power of eminent domain; the "Date of Taking" shall mean the earlier of the date upon which title to the Premises, the Shopping Center or any portion thereof so taken is vested in the condemning authority or the date upon which possession of the Premises, the Shopping Center, or any portion thereof is taken by the condemning authority; and "Substantially All of the Premises" shall mean (i) so much of the Improvements and/or Shopping Center and Common Areas as, when taken, leaves the untaken portion unsuitable, in Tenant's reasonable opinion, for the continued feasible and economic operation of the Premises by Tenant for the same purposes as immediately prior to such Taking or as contemplated herein, (ii) so many of the parking spaces within the Shopping Center as reduces the parking ratio below the greater of three and one-half (3-1/2) spaces (with no more than twenty percent (20%) for compact spaces) per 1000 square feet of ground-floor gross leasable area or that ratio which is required by the zoning ordinance applicable to the Shopping Center, and Landlord's failure to provide substantially equivalent alternative parking reasonably acceptable to Tenant within sixty (60) days after such Taking, or (iii) so much of the Common Area Easement described in paragraph 6(d) above that access to the Premises is materially impeded so as to adversely affect Tenant's business. (b) TENANT'S RIGHTS UPON TAKING OR SUBSTANTIAL TAKING. In the event of a Taking of Substantially All of the Premises, Tenant, at its option upon thirty (30) days' written notice to Landlord, which shall be given no later than sixty (60) days following the Taking, shall have the right to terminate this Lease. All Base Rent and other sums payable by Tenant hereunder shall be apportioned and paid through and 28 including the Date of Taking, and neither Landlord nor Tenant shall have any rights in any compensation or damages payable to the other in connection with such Taking, subject, however, to paragraph 16(g) below. (c) TENANT'S RIGHTS UPON LESS THAN SUBSTANTIAL TAKING. In the event of a Taking of less than Substantially All of the Premises, Base Rent and other charges shall be reduced fairly and equitably in accordance with the portion condemned or taken, effective as of the Date of Taking, and Tenant shall make all necessary restorations to the Improvements so that the portions of the Improvements not taken constitute a complete architectural unit, provided that the cost thereof to Tenant shall not exceed the proceeds of Tenant's condemnation award (to the extent that such relates to the Improvements and not to Tenant's personal property, intangibles or out-of-pocket expenses unrelated thereto) and the portion of Landlord's award allocable to the Premises, which Landlord shall make available to Tenant for such restoration. If required by Landlord's first Mortgagee, such awards shall be escrowed and disbursed in accordance with the procedure set forth in paragraph 15(a) above. If the Taking occurs within the last two (2) years of the Main Term or of any Option Period and has a material impact on Tenant's ability to conduct business as reasonably determined by Tenant, this Lease shall terminate at Tenant's option, such option to be exercised by Tenant giving not less than thirty (30) days' prior written notice to Landlord within sixty (60) days of the date of such Taking. In the event that this Lease is not terminated as a result of the Taking, this Lease shall terminate as to the portion or portions of the Premises taken. (d) LANDLORD'S OBLIGATIONS UPON ANY TAKING. In the event of any Taking following which the Lease continues in effect, Landlord shall make all necessary restorations to all portions of the Common Areas and Additional Areas remaining following such Taking such that the Common Areas and these Additional Areas are acceptable for continued use and occupancy for shopping center purposes and such that they each constitute a complete architectural unit and serve the function originally intended. Additionally, except as to the Prior Leases, Landlord shall assure (through parallel lease provisions or otherwise) that all areas of the Shopping Center leased to third party tenants or sold to third party occupants are subject to substantially similar reconstruction obligations to those of the Premises and Common Areas. (e) RIGHTS UPON TEMPORARY TAKING. In the event of a Taking of the Premises, the Common Areas and/or any other area within the Shopping Center, or any portion thereof, for temporary use (specifically one not exceeding 60 days in duration), without the taking of the fee simple title thereto, this Lease shall remain in full force and 29 effect. All awards, damages, compensation and proceeds payable by the condemnor by reason of such Taking relating to the Premises, or relating to the Common Areas but reasonably attributable to the Premises, for periods prior to the expiration of the Lease shall be payable to Tenant. All such awards, damages, compensation and proceeds for periods after the expiration of the Lease shall be payable to Landlord. Anything contained herein to the contrary notwithstanding, a temporary Taking for any period in excess of ninety (90) days may, at Tenant's option, be deemed a permanent Taking and shall be governed by subparagraph (b) or (c) above, as applicable. (f) TAKING OF THE PYLON SIGN(S). In the event of a taking, whether permanent or temporary, of any pylon or monument sign (as contemplated by paragraph 8) on which Tenant has installed identification panels, Landlord shall use reasonable efforts to provide a substitute site (reasonably acceptable to Tenant) therefor, with adequate electrical power, located so as to be visible to vehicular traffic or roadways adjacent to the Shopping Center and/or at entrances to the Shopping Center, and Landlord shall replace and/or rebuild any of such signage so taken at its sole cost; provided, however, Tenant's rights with respect to the replacement signs are subject to the same restrictions as imposed with respect to the original signs. (g) TENANT'S RIGHT UPON CONDEMNATION. In the event of a Taking described in subparagraph (b) or (c) above, Tenant shall be entitled to claim compensation from the condemning authority for the value of its leasehold interest in the Premises, its unamortized leasehold improvements paid for by Tenant, relocation expenses and any other items to which Tenant is entitled under applicable law; provided that in no event shall any such compensation paid to Tenant reduce the award or damages payable to Landlord based on the fair market value of the real property and the buildings and other improvements in the Shopping Center owned by Landlord. 17. ASSIGNMENT AND SUBLETTING. Tenant shall have the right to sublet, assign, transfer, reassign and grant concessions or licenses ( a "Transfer") in all or any part of the Premises and any of Tenant's rights and obligations under this Lease during the Term, without Landlord's prior consent, provided any change in use, if any, resulting from such Transfer is not in violation of the terms of this Lease. In the event of such a Transfer, Tenant shall remain liable for all of Tenant's obligations to Landlord's arising hereunder so long as this Lease is not changed, modified or amended in any respect by Landlord and any transferee. Sales, assignments, mergers and acquisitions involving all or "substantially all" the beneficial ownership interests in the Tenant shall not be deemed a Transfer hereunder and same may be effected without Landlord's knowledge or consent. For purposes of this Lease if Tenant's interest in the Premises is transferred 30 with a beneficial ownership interest in Tenant, the term "substantially all" shall mean at least so much of the interest in Tenant so that the tenant ultimately responsible hereunder has a net worth equal to or in excess of Fifty Million and NO/100 Dollars ($50,000,000.00). Any assignment or subletting of this Lease by Tenant shall be executed by Tenant and the assignee or sublessee. Each assignee or sublessee, for the benefit of Landlord, shall agree to assume, be bound by, and perform all terms, covenants, and conditions of this Lease to be kept and performed by Tenant. After execution of the assignment or sublease, Tenant will forward a completed copy thereof to Landlord. 18. USE. (a) Tenant shall initially maintain, use and operate the Premises as a retail store for (i) the sale of consumer, office and automotive electronics products (which include, but shall not be limited to, televisions, stereos, speakers and video recorders and players), computer hardware and software, entertainment software and entertainment media (which include, but shall not be limited to, records, game cartridges, video tapes, cassettes and compact discs), cellular telephones, household appliances (which include, but shall not be limited to, refrigerators, freezers, stoves, microwave ovens, vacuum cleaners and dishwashers) and related goods and the sale and installation of motor vehicle audio, stereo and telephone systems (all of such items being herein collectively referred to as the "Products"), and (ii) renting, servicing, repairing and warehousing of the Products (collectively herein, the "Initial Use"). (b) Thereafter, Tenant shall have the right to use the Premises for any lawful retail use; provided, however, that the Premises shall not be used (i) for any illegal purpose, (ii) for any use prohibited under paragraph 19(a)(viii) below, (iii) in violation of any exclusive use restriction granted a tenant or other occupant of the Shopping Center pursuant to a Prior Lease or any restrictive covenant in a Prior Lease shown on EXHIBIT "F", or (iv) in violation of any other applicable provision of the "Permitted Title Encumbrances" contained in EXHIBIT "F-1". (c) Nothing contained in this Lease shall be construed to require Tenant to operate the Premises continuously either for the use first stated or for any other use. However, should Tenant fail to open and engage in the Initial Use for at least one (1) business day within one (1) full year following the Commencement Date, subject to force majeure (financial inability excepted), Landlord shall have the right upon thirty (30) days' prior written notice to Tenant to terminate the Lease and thereafter Tenant shall be relieved of all obligations hereunder. If this Lease is so terminated pursuant to this paragraph 18(c), the Improvements shall become the property of Landlord, and Landlord 31 shall not be required to deliver the Tenant Improvement Allowance as required by Exhibit "C". Notwithstanding anything to the contrary, Tenant may eliminate Landlord's termination right if within the thirty (30) day period following Tenant's receipt of Landlord's termination notice, Tenant opens for business in the Premises. 19. WARRANTIES AND REPRESENTATIONS. (a) Landlord represents, warrants and/or covenants to Tenant that: (i) QUIET AND PEACEFUL ENJOYMENT. Landlord and those persons executing this Lease on its behalf have the right and lawful authority to enter into this Lease and perform Landlord's obligations hereunder, and Landlord warrants, represents and covenants that, so long as Tenant is not in default hereunder beyond any applicable cure period, Tenant shall have quiet and peaceful use, enjoyment and occupancy of the Premises free from interference by those lawfully claiming by, through or under Landlord. (ii) TITLE. Landlord's fee simple interest in the Shopping Center is free and clear of any mortgages, deeds, encumbrances, declarations, easements, agreements, leases, tenancies or restrictions, except those matters set forth on EXHIBIT "F-1" attached hereto and entitled "Permitted Title Encumbrances", or any other encumbrances which would restrict Tenant's use of the Premises for the Initial Use or would restrict in any respect the right of Tenant, its employees, customers and invitees to use the Common Areas in accordance with the terms of this Lease. Nothing contained in this Lease, including the Permitted Title Encumbrances and those matters disclosed on EXHIBIT "F", shall restrict Tenant's right to engage in the Initial Use in the Premises. Landlord specifically covenants and warrants that no third party, including but not limited to any other occupant of the Shopping Center, has the right to object to Tenant's tenancy hereunder, prohibit the selling, renting, servicing, repairing or warehousing of the Products, or the right to consent to any feature of the Improvements or Tenant's signage as permitted by this Lease. This representation and warranty is a material inducement to the Tenant's execution of this Lease and is made to Landlord's best actual knowledge as of the date of this Lease (defined as the actual knowledge of Jamie Sohacheski and Robert Flaxman, excluding imputed or constructive knowledge). (iii) CERTIFICATE OF AUTHORITY. Landlord covenants that it is a duly constituted limited partnership under the laws of the State of California, and that its general partner who is acting as its signatory in this Lease is duly authorized and empowered to act for and on behalf of Landlord. Landlord has 32 furnished Tenant prior hereto with evidence of (a) the existence of the limited partnership, and (b) the authority of the general partner to bind Landlord as contemplated herein. (iv) NO LITIGATION. There are no judicial, quasi-judicial, administrative or other orders, injunctions, moratoria or pending proceedings against Landlord or the Shopping Center which preclude or interfere with, or would preclude or interfere with, the construction contemplated in paragraph 2 hereof or the occupancy and use of the Premises for the purposes herein contemplated. (v) HAZARDOUS OR TOXIC MATERIALS. Landlord, to Landlord's best actual knowledge, as of the date of this Lease, (which knowledge Landlord represents is based solely upon the contents of the Environmental Reports listed on EXHIBIT "N" attached hereto) has not used, discharged, dumped, spilled or stored (other than use or storage in compliance with all applicable laws) any Hazardous Substances (as defined in the Construction Provisions) on or about the Shopping Center, whether accidentally or intentionally, and has received no notice and has no knowledge that any such condition exists at the Shopping Center. If any claim is ever made against Tenant relating to Hazardous Substances present at or around the Shopping Center, whether or not such substances are present as of the date hereof, or any such Hazardous Substances are hereafter discovered at the Shopping Center (unless introduced by Tenant, its agents, invitees or employees), all costs of removal incurred by, all liability imposed upon, or damages suffered by, Tenant because of the same shall be borne by Landlord, and Landlord hereby indemnifies and agrees to defend and hold Tenant harmless from and against all such costs, losses, liabilities and damages, including, without limitation, all third-party claims (including sums paid in settlement thereof, with or without legal proceedings) for personal injury or property damage and other claims, actions, administrative proceedings, judgments, compensatory and punitive damages, lost profits, penalties, fines, costs, losses, attorneys' fees and expenses (through all levels of proceedings), consultants or experts fees and all costs incurred in enforcing this indemnity. The representation, warranty and indemnity of Landlord described in this paragraph 19(a)(v) shall survive the termination or expiration of this Lease. Notwithstanding the foregoing, Landlord shall not be required to remove or to remediate Hazardous Substances unless such Hazardous Substances materially interfere with the conduct and operation of Tenant's business from the Shopping Center or unless Tenant or Landlord is 33 required to remove same pursuant to a governmental or court order or judgment or is required by applicable law, code, regulation or the like. (vi) TENANT'S EXCLUSIVE USE. So long as the Premises are used for the initial uses set forth in paragraph 18, no other tenant or occupant of the Shopping Center shall be entitled to sell or rent (or rent to own) any of the Products, subject only to rights granted any such tenants under the Prior Leases. (vii) ZONING AND SUBDIVISION. The Premises and the Shopping Center are presently properly subdivided, in conformity with all applicable laws and zoned so as to permit (A) the development and operation of the Premises and the Shopping Center in accordance with the provisions of this Lease; and (B) the Initial Use described in paragraph 18 of this Lease, subject to obtaining any plan approvals, conditional use permits or similar authorization that may be required. Provided, however, Tenant's failure to obtain the necessary permits for the construction of the Improvements once Landlord or Tenant has received the approval of the Architectural Review Board for the City of Chico, shall not be deemed a violation of this representation. (viii) PROHIBITED ACTIVITIES. Subject to the rights of tenants under the Prior Leases, Landlord shall not operate or lease (or permit to be operated or leased) any building or tenant space in the Shopping Center for use as: (A) a bar, pub, nightclub, music hall or disco in which less than fifty percent (50%) of its space or revenue is devoted to and derived from food service; (B) a bowling alley; (C) a billiard or bingo parlor; (D) a flea market; (E) a massage parlor; (F) a funeral home; (G) a facility for the sale of paraphernalia for use with illicit drugs; (H) a facility for the sale or display of pornographic material (as determined by community standards for the area in which the Shopping Center is located); (I) an off-track betting parlor; (J) a carnival, amusement park or circus; (K) a gas station, car wash or auto repair or body shop, other than within the building area designated as "Pad 1" on the Site Plan (the parties specifically acknowledging that Tenant's car stereo installation facility is not included in this prohibition (K)); (L) a facility for the sale of new or used motor vehicles, trailers or mobile homes; (M) a facility for any use which is illegal or dangerous, constitutes a nuisance or is inconsistent with an integrated, community-oriented retail and commercial shopping center; (N) a skating rink; 34 (0) an arcade, pinball or computer gameroom (provided that retail facilities in the Shopping Center, exclusive of the Premises, may operate no more than four (4) such electronic games incidentally to their primary operations); (P) service-oriented offices (such as, by way of example, medical or employment offices, travel agencies, real estate agencies or dry cleaning establishments) or other nonretail uses within 250 feet of the Premises, except for offices and storage facilities incidental to a primary retail operation; (Q) a banquet hall, auditorium or other place of public assembly; (R) a training or educational facility (including, without limitation, a beauty school, barber college, reading room, school or other facility catering primarily to students or trainees rather than customers); (S) a theater of any kind; or (T) a gymnasium, sport or health club or spa. In addition to the foregoing, Landlord shall not operate, lease or permit to be operated or leased any restaurant within any building on Landlord's Premises, which is located within three hundred (300) feet of the front entrance to the Building, subject, however, to the rights of tenants under the Prior Leases. In addition, no auction, fire, or going-out-of-business sale shall be conducted in the Shopping Center, subject, however, to the rights of tenants under the Prior Leases. (ix) SITE COVENANTS. With regard to the development of the Shopping Center and the uses and operations of the Common Areas, Landlord makes the following representations and warranties (the "Site Covenants"): (A) BUILDING HEIGHT AND LOCATION. With the exception of buildings in existence as of the date of this Lease, no building adjacent to the Premises, including any parapet thereon, shall exceed thirty (30) feet in height above finished grade (but may include a mezzanine), nor shall it be positioned so as to project beyond the portion of the front wall of the Building, except as shown on the Site Plan attached hereto. Except for the kiosk shown on the Supplemental Site Plan, no outparcels, barriers, buildings, kiosks or other structures, either temporary or permanent, shall be located within Tenant's Preferred Area, and no building located on an outparcel elsewhere in the Shopping Center shall exceed one story, twenty-five (25) feet in height, including parapet, and shall be subject to all size restrictions set forth on the attached Site Plan. 35 No development shall occur within the Tenant's Preferred Area except as shown on the Site Plan. (B) CONSTRUCTION AND ALTERATIONS. Following the end of the first Lease Year, subject to the rights of tenants under the Prior Leases, no construction shall be permitted in the Shopping Center (except on Pads "F," "G," "1" and "2" as shown on the Site Plan) during the months of October, November and December within 250 feet of the Premises, except for interior alterations not affecting the operations of any other occupant of the Shopping Center and except for emergency repairs. In the event of any substantial construction within the Shopping Center, Landlord shall designate a construction access route, staging and parking areas located so as to minimize interference with customers or the operations of other occupants of the Shopping Center and shall require erection of safety barriers as necessary and an opaque wall around the site of such construction of a size necessary to screen such construction from ground level view, subject to the rights of tenants under Prior Leases. With regard to any construction on Landlord's Premises, Landlord shall be solely responsible for any governmentally imposed impact fees, hook-up, connection, installation or tap-in fees and other, similar construction-related charges. Except as shown on the Site Plan, Landlord shall make no changes in the Common Areas located in Tenant's Preferred Area (including, without limitation, changes in the location of curbcuts, drive aisles, roadways, sidewalks or parking spaces or reduction of the parking ratio specified in paragraph 5) without Tenant's express written consent, which Tenant may, in its sole discretion, withhold. With respect to changes in the Common Areas in the rest of the Shopping Center, Tenant's prior written consent shall be required with respect to changes which would reduce the parking ratio below that required by paragraph 5 above, which consent may be withheld in Tenant's sole discretion. (C) PROHIBITED USES IN COMMON AREAS. Landlord covenants that it shall not, without Tenant's express written consent, permit the following uses or activities to occur in the Common Areas: (1) advertisements or signs except for the pylon signs described in paragraph 8, the "for rent" signs described in paragraph 27, traffic control signs and low rise monument signs not in excess of six (6) feet in height within landscaped areas or adjacent to buildings; (2) display or sale of 36 merchandise except as permitted under paragraph 6 above; (3) operation of loudspeakers or other sound electronically amplified so as to be heard in the Common Areas; or (4) imposition of a charge for parking. Parking by employees of Tenant, Landlord and other occupants of the Shopping Center shall be in designated "employee parking" areas, the location of which shall be designed by Landlord, subject, however, to the provisions of paragraph 6 above. Tenant's approval shall be required to the designation of employee parking within Tenant's Preferred Area. The provisions of this paragraph (C) shall be subject to the rights of tenants under the Prior Leases. (D) EASEMENTS. Landlord shall not subdivide, parcel or otherwise divide the Shopping Center or create any easements in the Common Areas without Tenant's prior written consent, which consent shall not be unreasonably withheld or delayed; provided, however, it shall not be unreasonable for Tenant to withheld its consent if such act on the part of Landlord would adversely affect Tenant's rights or increase Tenant's obligations under this Lease. Tenant hereby approves Tentative Parcel Map No. 95 attached hereto as EXHIBIT "M". (E) TRUCK ACCESS. Landlord covenants that it will not at any time during the Term, alter the truck access to the Premises within Tenant's Preferred Area. (x) INTERFERENCE WITH TENANT'S RECEPTION/TRANSMISSION. Landlord shall not install or permit to be installed by Landlord, any other tenant or other person anywhere in the Shopping Center, any radio or other transmitting equipment which would cause any interference with satellite, radio or television reception or transmission in or from the Building. The provisions of this paragraph (X) are subject to the rights of tenants under the Prior Leases; provided, however, to the extent of any interference caused by the tenants of said Prior Leases, Landlord agrees to exercise reasonable efforts under its powers pursuant to the Prior Leases to eliminate such interference. (xi) NOTICES AFFECTING THE PREMISES. Landlord shall promptly forward to Tenant any notice or other communication affecting the Premises and/or the rights of Tenant hereunder received by Landlord from any owner of property adjoining, adjacent or nearby to the Premises or the Shopping Center or from any municipal or governmental authority, in connection with any hearing or 37 other administrative procedure relating to the use or occupancy of the Premises and/or the rights of Tenant hereunder. (xii) CONSTRUCTIVE TRUST. Landlord covenants that all sums paid by Tenant to Landlord and intended for payment by Landlord to a third party (such as, by way of example, taxes and certain elements of CAM Charges) are given to Landlord in trust and shall be applied only for such third-party payments, as and when due or to reimburse Landlord for payment of same. (xiii) UTILITY LINES/EASEMENTS. Landlord represents and warrants that upon the delivery of the Land, all utility lines and easements located above or below the Land will have been relocated to enable Tenant to construct the Improvements on the location shown on the Site Plan without encroaching on said lines and/or easements. Landlord further represents and warrants that as of such date there shall be no third party utility lines under the Premises. (b) Tenant represents, warrants and covenants to Landlord that: (i) TENANT'S AUTHORITY. Tenant is a duly constituted corporation organized under the laws of the Commonwealth of Virginia; it has the power to enter into this Lease and perform Tenant's obligations hereunder; and the Vice President executing this Lease on Tenant's behalf has the right and lawful authority to do so. (ii) TENANT'S WARRANTY AS TO HAZARDOUS OR TOXIC MATERIALS. As to Tenant's use and occupancy of the Premises and use of the Common Areas, Tenant will not introduce, discharge, dump, spill or store within the Premises or the Shopping Center any Hazardous Substances; and Tenant indemnifies and agrees to hold Landlord harmless from and against all costs, liability and damages as a result thereof, to the same extent that Landlord indemnifies and holds Tenant harmless in subparagraph (a)(v) above. The warranty and indemnity of Tenant described in this paragraph 19(b)(ii) shall survive the termination of this Lease. (c) In the event there is a condition at variance with the foregoing representations, warranties and/or covenants of Landlord with respect to the Premises or the Shopping Center which prevents or in any material way inhibits the use of the Premises or any part thereof or the Common Areas for their intended purposes by Tenant or Tenant's employees, licensees, agents, suppliers, customers or invitees, or if Landlord shall default in the observance or performance of any of the foregoing representations and warranties, then, in addition to such other remedies as may be accorded Tenant at law, in equity or under the terms of this Lease, Tenant may, in addition to its other remedies under this Lease, after thirty (30) days' notice to Landlord, obtain an injunction 38 or writ of specific performance to enforce such term or covenant, the parties hereby acknowledging the inadequacy of Tenant's legal remedy and the irreparable harm which would be caused to Tenant by any such variance or default. In addition, in the event that any of the representations, warranties and covenants set forth in this paragraph 19 are untrue or incorrect, or in the event that Tenant suffers any loss, cost, liability or damage as a result of the breach of any of such covenants, representations and warranties, Landlord shall defend, indemnify and hold Tenant harmless from any of such loss, costs, liability or damage incurred as a result of Landlord's breach hereunder. 20. ESTOPPEL CERTIFICATES. Without charge, at any time and from time to time hereafter, within ten (10) days after receipt of written request by either party, the other party shall certify, by written and duly executed instrument, to any other entity ("Person") specified in such request: (a) as to whether this Lease has been supplemented or amended, and, if so, the substance and manner of such supplement or amendment; (b) as to the validity, force and effect of this Lease; (c) as to the existence of any default hereunder, to the certifying party's best knowledge; (d) as to the existence of any offsets, counterclaims, or defenses hereto on the part of such other party, to the certifying party's best knowledge; (e) as to the commencement and expiration dates of the Term; and (f) as to any other matters which may reasonably be so requested. Any such certificate may be relied upon by the party requesting it and any Person to whom the same may be exhibited or delivered, and the contents of such certificate shall be binding on the party executing same. 21. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT. (a) Within forty-five (45) days following the execution hereof, Landlord shall deliver to Tenant with regard to and any and all Ground Leases (as defined below) and any and all Mortgages (as defined below) encumbering the Premises and placed thereon by Landlord, a non-disturbance and attornment agreement in the form OF EXHIBIT "G" hereto attached, executed by the Landlord under any such Ground Lease ("Ground Lessor") or the holder of such Mortgage ("Mortgagee"), as applicable. In addition, throughout the term, Landlord shall deliver to Tenant a non-disturbance and attornment agreement in the form of EXHIBIT "G" executed by Ground Lessor or Mortgagee (as applicable) with regard to all future Ground Leases and Mortgages and with regard to all renewals, modifications, replacements and extensions of such Ground Leases or Mortgages if the same have priority to this Lease or if Landlord desires that Tenant subordinate this Lease to the same. Upon Tenant's receipt of the non- disturbance and attornment agreement Tenant shall if acceptable to Tenant (provided Tenant may not object if such agreement is in the form of EXHIBIT "G" attached hereto) execute same, in 39 recordable form, and, this Lease shall be subordinate to the corresponding Ground Lease or Mortgage. In the event of a foreclosure of any Mortgagee, Tenant shall attorn to a Mortgagee or any purchaser at a foreclosure sale (any such foreclosure, or deed in lieu thereof, shall be referred to as a "Foreclosure") of a Mortgage if Tenant and such Mortgagee have entered into a non-disturbance and attornment agreement and, if they have not, Tenant shall so attorn only if such Mortgagee or purchaser executes a writing in favor of Tenant which states the following (provided Tenant is not in uncured default beyond the expiration of any applicable grace periods): (i) this Lease shall not terminate by reason of such Foreclosure, (ii) Tenant's possession of the Premises shall not be disturbed, (iii) the Mortgagee or purchaser upon such Foreclosure shall recognize Tenant and all its rights hereunder and shall be obligated to fully and completely perform Landlord's duties and obligations under the Lease arising from and after the date of such Foreclosure, including but not limited to an obligation to make all payments to Tenant and satisfy all construction obligations set forth in this Lease (subject, however, to the exceptions to the liability of a Mortgagee or any purchaser at a foreclosure sale set forth in section 5 of the attached EXHIBIT "G"), (iv) Tenant shall not be named as a party in any action for foreclosure, and (v) the Mortgagee, whether or not the Mortgage is foreclosed, shall make all proceeds arising from a casualty or condemnation loss to the Premises available to Tenant for restoration of the Improvements in accordance with the terms hereof. In the event of termination of the Ground Lease, Tenant shall attorn to any Ground Lessor from whom Tenant has received a non- disturbance agreement in accordance with this paragraph 21. Landlord shall cause any present or future Mortgagee to deliver a non-disturbance and attornment agreement in accordance with this paragraph 21, as set forth in paragraph 37(b) below. As used in this paragraph 21, the term "Mortgage" shall mean any mortgage, deed to secure debt, deed of trust, trust deed or other collateral conveyance of, or lien or encumbrance against, the Premises, and the term "Ground Lease" shall mean any ground lease or master lease affecting the Premises. (b) If requested by any Mortgagee, from time to time during the Term, Tenant agrees to execute such subordination, non-disturbance and attornment agreement, which shall include agreements as may be satisfactory to Tenant and as are typically found in subordination, non-disturbance and attornment agreements with institutional lenders. 22. CHANGE OF LANDLORD. Subject to paragraph 21 above, in the event Landlord's interest in the Premises passes to a successor (the "Successor") by sale, lease, 40 Foreclosure or in any other manner, Tenant shall be bound to the Successor under all of the terms of this Lease for the balance of the Term with the same force and effect as if the Successor were the landlord under the Lease, and Tenant hereby agrees to attorn to the Successor as its Landlord, such attornment to be effective upon written notice thereof given by Landlord to Tenant. In the event that Landlord's interest in the Premises passes to a Successor and such Successor is bound unto Tenant as set forth above, Landlord shall be released from all obligations to Tenant hereunder arising after the date Landlord's interest so passes, except that Landlord agrees to indemnify, defend and hold Tenant harmless from and against all costs, claims, loss, liability or damage suffered by Tenant as a result of Landlord's transfer of its interests hereunder and/or Landlord's failure to provide Tenant with notice of such Successor. 23. TENANT'S FINANCING. Notwithstanding any other provisions of this Lease, Tenant may, without Landlord's consent, from time to time, secure financing or general credit lines and grant the lenders thereof, as security therefor, (i) a security interest in Tenant's fixtures, personalty, inventory and equipment (collectively, "Personalty"), (ii) the right to enter the Premises to realize upon any Personalty so pledged, and/or (iii) a collateral assignment of Tenant's leasehold interest in the Premises, with rights of reassignment; provided, however, such collateral assignment may be made solely for the purpose of securing Tenant's indebtedness. Upon Tenant providing notice of such financing to Landlord (which notice shall identify Tenant's lender and provide an initial address to which notices to such lender may be given by Landlord pending written notification of a change of address), Landlord agrees to evidence its consent in writing to such security interest and agreement and to give such lenders the same notice and opportunity to cure any default of Tenant as is provided Tenant hereunder. 24. TENANT'S PROPERTY AND WAIVER OF LANDLORD'S LIEN. All of the Personalty shall be and remain the personal property of Tenant. Landlord expressly waives its statutory or common law landlord's liens (as same may be enacted or may exist from time to time) and any and all rights granted under any present or future laws to levy or distrain for rent (whether in arrears or in advance) against the aforesaid property of Tenant on the Premises and further agrees to execute any reasonable instruments evidencing such waiver, at any time or times hereafter upon Tenant's request; provided that the beneficiary of such instrument and/or waiver agrees in writing that its right to remove any Personality from the Premises will expire no later than thirty (30) days following its receipt of written notification of the termination or expiration of this Lease and that such beneficiary agrees to repair any damages to the Building resulting from such removal. 41 25. MEMORANDUM OF LEASE: COMMENCEMENT DATE AGREEMENT. Landlord and Tenant agree, at the other's request and at the sole expense of the requesting party, to execute a Memorandum of Lease in recordable form, substantially similar to that attached hereto as EXHIBIT "H", setting forth such provisions hereof as may be required by State law. In addition, Landlord and Tenant shall execute a Commencement Date Agreement in the form attached hereto as EXHIBIT "I", once the Commencement Date has been established. Recording costs for either or both documents shall be borne by Tenant. The provisions of this Lease shall control, however, with regard to any omissions from, or provisions hereof which may be in conflict with, the Memorandum of Lease or Commencement Date Agreement. 26. EXPIRATION OF TERM AND HOLDING OVER. All of the Personalty shall be removable by Tenant any time prior to, or within thirty (30) days after, the expiration or earlier termination of this Lease and shall be so removed by Tenant at the request of Landlord within thirty (30) days after the expiration or termination of this Lease. In the event Tenant fails to remove any or all of its Personalty within the said thirty (30) day period, Landlord may remove such Personalty, or the balance thereof, cause such Personalty to be placed into storage and thereafter charge Tenant the cost of such removal and storage, together with interest thereon at the Default Rate. Those improvements that are integrated into the physical structure of the Building, except any of Tenant's trade fixtures, shall not be removed and shall become the property of Landlord. (A nonexclusive list of Tenant's removable trade fixtures is attached hereto as EXHIBIT "D".) Tenant agrees promptly to repair any damage to the Premises occasioned by the removal of Tenant's trade fixtures, furnishings and equipment (except for small holes caused by nails, fasteners and the like) and to surrender the Premises broom clean, in as good condition as on the date of Tenant's opening for business therein, ordinary wear and tear and casualty that Tenant is not required to repair or restore and condemnation excepted and free and clear of liens and/or encumbrances arising out of or resulting from Tenant's use and/or occupancy of the Premises not previously approved by Landlord in writing. Tenant agrees that at the expiration of this Lease, it will deliver to Landlord peaceable possession of the Premises. No holding over by Tenant nor acceptance of Base Rent or other charges by Landlord shall operate as a renewal or extension of the Lease without the written consent of Landlord and Tenant. Should Tenant hold over without the consent of Landlord, this Lease shall continue in force from month to month, subject to all of the provisions hereof and at the monthly Base Rent Tenant had been paying during the preceding Lease Year increased by fifty percent (50%). 42 27. "FOR RENT" SIGNS. Tenant hereby permits Landlord during the last one hundred twenty (120) days of the Main Term or of any Option Period, as the case may be (provided that no applicable Renewal Option has been exercised or deemed exercised), to place one (1) "For Rent" or "For Sale" sign, not exceeding four (4) feet by four (4) feet in size, on the parking lot of the Shopping Center. Tenant will also allow Landlord or its agents, upon prior written notice and accompanied by a representative of Tenant designated by Tenant, to show the Premises, exterior and interior, to prospective purchasers or mortgagees and, during the last one hundred twenty (120) days of the Term to prospective tenants, during reasonable business hours by prior appointment, provided same does not interfere with the conduct of Tenant's business. 28. FORCE MAJEURE. Except as otherwise specifically contemplated in this Lease or in paragraph 4 of the Construction Provisions, in the event that Landlord or Tenant shall be delayed or hindered in, or prevented from, the performance of any act required hereunder by reason of strikes, lockouts, labor troubles, inability to procure materials, delay by the other party, failure of power or unavailability of utilities, riots, insurrection, war or other reason of a like nature not the fault of such party or not within its control, financial inability excepted, then performance of such act shall be excused for the period of delay, and the period for the performance of any such act shall be extended for a period equivalent to the period of such delay; provided, however, that in connection with the construction of the Improvements, the consequences of delays by the other party shall be governed by paragraph 4 of the Construction Provisions. 29. EVENTS OF TENANT'S DEFAULT. Any of the following occurrences, conditions or acts by Tenant shall constitute an "Event of Default" under this Lease: (a) FAILURE TO PAY RENT; BREACH. (i) Tenant's failure to make any payment of money required by this Lease (including without limitation Base Rent, CAM Charges or Real Estate Taxes) (subject to Tenant's right to pay same under protest), within ten (10) days after the receipt of written notice from Landlord to Tenant that same is overdue; or (ii) Tenant's failure to observe or perform any other material provision of this Lease within thirty (30) days after receipt of written notice from Landlord to Tenant specifying such default and demanding that the same be cured; provided that, if such default cannot with due diligence be wholly cured within such thirty (30) day period, Tenant shall have such longer period as is reasonably necessary to cure the default, so long as Tenant proceeds promptly to commence the cure of same within such thirty (30) day period and diligently prosecutes the cure to completion and provided further that in the case of an emergency, Landlord shall be required to give only such notice as is reasonable under the circumstances. 43 (b) BANKRUPTCY. Tenant's adjudication as bankrupt or insolvent, or the appointment of a receiver, trustee in involuntary bankruptcy or other, similar officer to take charge of any substantial part of Tenant's property, which proceeding is not dismissed within one hundred twenty (120) days after it is begun of if Tenant shall file or petition to have Tenant adjudged a bankrupt or a petition for reorganization. 30. LANDLORD'S REMEDIES. After the occurrence of an Event of Default by Tenant, Landlord shall have the right to exercise the following remedies: (a) CONTINUE LEASE. Landlord may, at its option, continue this Lease in full force and effect, without terminating Tenant's right to possession of the Premises, in which event Landlord shall have the right to collect Base Rent and other charges when due, including any sums due for any Option Period for which a Renewal Option has been exercised. In the alternative, Landlord shall have the right to peaceably re-enter the Premises on the terms set forth in subparagraph (b) below, without such re-entry being deemed a termination of the Lease or an acceptance by Landlord of a surrender thereof. Landlord shall also have the right, at its option, from time to time, without terminating this Lease, to relet the Premises, or any part thereof, with or without legal process, as the agent, and for the account, of Tenant upon commercially reasonable terms and conditions, in which event the rents received on such reletting shall be applied (i) first to the reasonable and actual expenses of such reletting and collection, including without limitation necessary renovation of the Premises, reasonable and actual attorneys' fees and any reasonable and actual real estate commissions paid, and (ii) thereafter toward payment of all sums due or to become due Landlord hereunder. If a sufficient amount to pay such expenses and sums shall not be realized or secured, in Landlord's exercise of reasonable efforts to mitigate its damages (which Landlord hereby agrees to make), then Tenant shall pay Landlord any such deficiency monthly, and Landlord may bring an action therefor as such monthly deficiency shall arise. Landlord shall not, in any event, be required to pay Tenant any sums received by Landlord on a reletting of the Premises in excess of the rent provided in this Lease, but such excess shall reduce any accrued present or future obligations of Tenant hereunder. Landlord's re-entry and reletting of the Premises without termination of this Lease shall not preclude Landlord from subsequently terminating this Lease as set forth below. It is the intent of this paragraph that Landlord have the remedy provided in California Civil Code Section 1951.4 (Landlord may continue lease in effect after Tenant's breach and abandonment and recover rent as it becomes due, if Tenant has the right to sublet or assign subject only to reasonable limitations). 44 (b) TERMINATE LEASE. Landlord may terminate this Lease by written notice to Tenant specifying a date therefor, which shall be no sooner than thirty (30) days following receipt of such notice by Tenant, and this Lease shall then terminate on the date so specified as if such date had been originally fixed as the expiration date of the Term. In the event of such termination, Landlord shall be entitled to recover from Tenant all of the following: (i) The "worth at the time of the award" (defined below) of any obligation which has accrued prior to the date of termination; (ii) The "worth at the time of the award" of the amount by which the unpaid Base Rent and all other charges which would have accrued after termination until the time of award exceeds the amount of any sums which Landlord has (or Tenant proves that Landlord could have) received in mitigation; and (iii) The "worth at the time of the award" of the amount by which the unpaid Base Rent and other charges for the balance of the Term after the time of award exceeds the amount of any sums which Landlord has (or Tenant proves that Landlord could have) received in mitigation. As used in this paragraph 30(b), the term, "worth at the time of the award", shall be computed by allowing simple interest at an accrual equal to the Default Rate for past due obligations, and a discount rate to net present value equal to the discount rate of the Federal Reserve Bank of San Francisco at the time of award, plus one percent (1%) on anticipated future obligations, on the amount of the obligations payable on the date of such calculation. In the event this Lease shall be terminated as provided above, by summary proceedings or otherwise, Landlord, its agents, servants or representatives may immediately or at any time thereafter peaceably re-enter and resume possession of the Premises and remove all persons and property therefrom, by summary dispossession proceedings. Landlord shall never be entitled to dispossess the Tenant of the Premises pursuant to any "lock-out" or other nonjudicial remedy. (c) REMEDIES ARE CUMULATIVE. The various rights and remedies reserved to Landlord herein, are cumulative, and Landlord may pursue any and all such rights and remedies (but no others), whether at the same time or otherwise (to the extent not inconsistent with specific provisions of this Lease). Notwithstanding anything herein to the contrary, Landlord expressly waives its right to forcibly dispossess Tenant from the Premises, whether peaceably or otherwise, without judicial process, such that Landlord shall not be entitled to any "commercial lockout" or any other provisions of 45 applicable law which permit landlords to dispossess tenants from commercial properties without the benefit of judicial review. 31. EVENTS OF LANDLORD'S DEFAULT; TENANT'S REMEDIES. Any of the following occurrences, conditions or acts by Landlord shall constitute an "Event of Default": (a) Landlord's failure to make any payments of money due Tenant hereunder within ten (10) days after the receipt of written notice from Tenant that same is overdue (in which event the delinquent amount shall accrue interest at the Default Rate); or (b) Landlord's failure to perform any nonmonetary obligation of Landlord hereunder within thirty (30) days after receipt of written notice from Tenant to Landlord specifying such default and demanding that the same be cured; provided that, if such default cannot with due diligence be wholly cured within such thirty (30) day period, Landlord shall have such longer period as may be reasonably necessary to cure the default, so long as Landlord proceeds promptly to commence the cure of same within such thirty (30) day period and diligently prosecutes the cure to completion and provided further that in the case of an emergency, Tenant shall be required to give only such notice as is reasonable under the circumstances. Notwithstanding the foregoing, upon Landlord providing notice of any Mortgagee to Tenant (which notice shall identify the Mortgagee and provide an address to which notices to said Mortgagee may be given by Tenant pending written notice of a change of address from such Mortgagee), Tenant agrees to give such Mortgagee the same notice and opportunity to cure any default of Landlord as is provided Landlord hereunder. Upon the occurrence of an Event of Default by Landlord, at Tenant's option, in addition to any and all other remedies which it may have at law and/or in equity, and without its actions being deemed an election of remedies or a cure of Landlord's default, Tenant may do all or any of the following: (i) pay or perform such obligations and offset Tenant's reasonable and actual cost of performance, including any and all transaction costs and attorneys' fees, plus interest at the Default Rate, against the Base Rent, CAM Charges and any and all other amounts and charges due Landlord hereunder or (ii) in the event such Event of Default by Landlord materially interferes with the conduct and operation of Tenant's business from the Premises and has not been cured by Landlord's Mortgagee within the time permitted for cure by such Mortgagee under this paragraph 31, terminate this Lease and sue for damages, including interest, transaction costs and attorneys' fees as specified in subsection (i) above. If Landlord fails to pay Tenant the Tenant Improvement Allowance in a timely manner, Tenant shall be entitled to the rights and remedies set forth in the Construction Provisions. As to a breach of the warranties and representations contained in paragraph 19, Tenant shall be entitled to the remedies 46 provided therein, in addition to those remedies provided herein. The various rights and remedies reserved to Tenant herein are cumulative, and Tenant may pursue any and all rights and remedies, whether at the same time or otherwise. 32. WAIVER. If either Landlord or Tenant fails to insist on the strict observance by the other of any provisions of this Lease, neither shall thereby be precluded from enforcing nor be held to have waived any of the obligations, past, present or future, of this Lease. Either party may accept late payment or performance by the other without waiving any Event of Default which may then have accrued. Landlord's acceptance of Base Rent or other payments from Tenant while Tenant is in default under this Lease shall not be construed as a waiver of such default. 33. COMPLIANCE WITH APPLICABLE LAWS. During the Term, Landlord and Tenant shall comply with all lawful requirements of the local, county and state health boards, police and fire departments, municipal and state authorities and any other governmental authorities with jurisdiction over the Shopping Center, and of the board of fire underwriters, respecting Tenant's use and occupancy of the Improvements or Landlord's operation of the Shopping Center, as applicable. In the event that Tenant, within thirty (30) prior days' written notice (except in the case of an emergency, in which event only such notice as is reasonable under the circumstances shall be required) from Landlord or any such authority ordering performance of any such work which Tenant is required to perform in order for Tenant and/or the Improvements to remain in, or come into, compliance with any such requirement, fails to perform or diligently commence performance of same with reasonable promptness, Landlord may perform said work and collect the reasonable cost theref plus interest at the Default Rate from Tenant with the next istallment or installments of Base Rent. In the event that Landlord, within thirty (30) prior days' written notice (except in the case of an emergency, in which event only such notice as is reasonable under the circumstances shall be required) from Tenant or any such authority ordering performance of any such work which Landlord is required to perform in order for Landlord and/or Landlord's Premises to remain in, or come into, compliance with any such requirement, fails to perform or diligently commence performance of same with reasonable promptness, Tenant may perform said work and deduct the reasonable cost thereof plus interest at the Default Rate from Landlord with the next installment or installments of Base Rent. 34. NOTICES. Any notice permitted or required to be given pursuant to this Lease shall be deemed to have been given three (3) business days after mailing a written notice by certified mail, postage prepaid, return receipt requested, or one (1) business 47 day after sending by Federal Express or other comparable overnight express courier service (with proof of receipt available), addressed to the parties as follows: If to Tenant: CIRCUIT CITY STORES, INC. 9950 Mayland Drive Richmond, Virginia 23233 Attention: Corporate Secretary with a copy to: CIRCUIT CITY STORES, INC. 9950 Mayland Drive Richlmond, Virginia 23233 Attention: Vice President of Real Estate If to Landlord: Chico Crossroads Center, Ltd., c/o Commercial Management and Development 4811 Chippendale Drive, Suite 307 Sacramento, California 95841 with a copy to: Mr. Jaime Sohacheski 8665 Wilshire Boulevard, Suite 200 Beverly Hills, California 92011 and Mr. Robert A. Flaxman 2402 Michelson Avenue, #265 Irvine, California 92715 or to such other addressees as any party hereto shall from time to time give notice to the other party in accordance with this paragraph. 35. BROKERS. Landlord and Tenant each covenant that they have not dealt with any real estate broker or finder with respect to this Lease, except for The Equity Group, Inc. which represented Tenant and Lowen Real Estate which represented Landlord (collectively, the "Brokers"). Lowen Real Estate shall be paid a commission by Landlord pursuant to a separate written agreement between Lowen Real Estate and Landlord. Lowen Real Estate shall pay fifty percent (50%) of said commission to The Equity Group, Inc., pursuant to separate agreement between Lowen Real Estate and The Equity Group, Inc. The Equity Group, Inc. shall be paid one-half of its share of the commission within fifteen (15) days following the satisfaction or waiver by Landlord and Tenant, as applicable, of the contingencies set forth in paragraph 37 hereof, and the remainder shall be paid within fifteen (15) days following the earlier of (i) Tenant's opening for business or (ii) the Commencement Date. Should any portion of the commission due The Equity Group, Inc. not be delivered within fifteen (15) days following written notice to Landlord, the same shall constitute a Landlord Event of 48 Default hereunder (provided, however, Tenant may not terminate this Lease due to such default) and said amount shall accrue interest at the Default Rate until delivered in full to The Equity Group, Inc. Except for the foregoing, each party shall hold the other party harmless from all damages, claims, liabilities or expenses, including reasonable and actual attorneys' fees (through all levels of proceedings), resulting from any claims that may asserted against the other party by any real estate broker or finder with whom the indemnifying party either has or is purported to have dealt. 36. MISCELLANEOUS. (a) HEADINGS AND GENDER. All paragraph headings, titles or captions contained in this Lease are for convenience only and shall not be deemed a part of this Lease and shall not in any way limit or amplify the terms and provisions of this Lease. The masculine, feminine or neuter gender and the singular or plural number shall be deemed to include the others whenever the context so requires or indicates. (b) CONSTRUCTION. The parties hereto agree that all the provisions hereof are to be construed as covenants and agreements as though the words importing such covenants and agreements were used in each separate paragraph hereof. (c) WAIVER OF JURY TRIAL. In the event of any court action arising out of this Lease, each party hereby expressly waives its right to trial by jury. (d) RELATIONSHIP OF LANDLORD-TENANT. Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third person to create the relationship of principal and agent, partnership, joint venture, or any other association between Landlord and Tenant other than the landlord-tenant relationship described herein. (e) ENTIRE AGREEMENT; MERGER. This Lease, including all exhibits hereto (which are hereby incorporated herein by reference for all purposes), contains the full and final agreement of every kind and nature whatsoever between the parties hereto concerning the subject matter of this Lease, and all preliminary negotiations and agreements of whatsoever kind or nature between Landlord and Tenant are merged herein. This Lease cannot be changed or modified in any manner other than by a written amendment or modification executed by Landlord and Tenant. (f) ATTORNEYS' FEES. In the event either party shall be required to commence or defend any action or proceeding against any other party by reason of any breach or claimed breach of any provision of this Lease, to commence or defend any action or proceeding in any way connected with this Lease or to seek a judicial declaration of rights under this Lease, the party prevailing in such action or proceeding shall be entitled to recover from or to be reimbursed by the other party for the prevailing party's reasonable and actual attorneys' fees and costs through all levels of proceedings. 49 (g) PARTIAL INVALIDITY. If any provision of this Lease or the application thereof to any person or circumstance shall be deemed invalid or unenforceable, the remainder of this Lease and its application to other persons or circumstances shall not be affected by such partial invalidity but shall be enforced to the fullest extent permitted by law as though such invalid or unenforceable provision was never a part hereof. (h) CONSENTS. Any consent or approval granted by either party hereunder shall be deemed a consent only as to the matter on which such consent was requested and shall not waive the consenting party's right to give or withhold consent to any subsequent matter. (i) HOLIDAYS. If the day on which rent or any other payment due hereunder is payable falls on a Sunday or on a legal holiday on which the United States mails are not delivered, it shall be payable on the following business day. (j) APPLICABLE LAW. This Lease shall be construed in accordance with the laws of the State, and the parties agree that jurisdiction for all actions hereunder shall lie therein. (k) SUCCESSORS AND ASSIGNS. All rights, obligations and liabilities herein given to or imposed upon any party hereto shall extend to the permitted successors and assigns of such party. (l) COUNTERPARTS. This Lease may be executed in one or more identical counterparts, and as so executed by all parties hereto shall constitute a single instrument for purposes of the effectiveness of this Lease. (m) TRADEMARKS AND TRADE NAMES. All trademarks, trade names, service marks, signs and all other marks of identification used by Tenant in its business shall at all times remain the exclusive property of Tenant, and Landlord shall have no right, interest in, or title to any of Tenant's trademarks, trade names, service marks, signs or other marks of identification unless and to the extent Tenant fails to remove same within thirty (30) days of the expiration or termination of this Lease, in which case Landlord shall have the right to remove said items and store or destroy same at Tenant's sole cost and expense, provided Landlord first notifies Tenant of its intent to exercise such right. (n) LATE FEE. If Tenant shall fail to pay, within ten (10) days of when due and payable, any rent or any additional rent, then Tenant shall pay to Landlord as a late charge and in consideration of the additional costs incurred by Landlord and the additional record keeping required to be performed by Landlord, a minimum sum of Two Hundred Fifty Dollars ($250.00), or a sum equal to one percent (1%) of the amount due, whichever is greater; provided, however, during the first twelve (12) months following 50 the Commencement Date, no late charge shall be due by Tenant until the second said violation in such twelve month period. In addition, any amount due Landlord that is not paid within ten (10) days of when due, other than interest, shall bear interest from the date such amount becomes due until it is paid to Landlord at a rate of interest equal to the Default Rate. (o) LIABILITY OF LANDLORD. Tenant agrees that, except to the extent of the negligence or willful misconduct of Landlord or its agents or employees, Landlord shall not be liable for injury or damage which may be sustained by the person, goods, wares, merchandise or property of Tenant, its employees, invitees or customers, or by any other person in or about the Premises caused by or resulting from fire, steam, electricity, gas, water or rain which may leak or flow from or into any part of the Premises, or from the breakage, leakage, obstruction or other defects of the pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures of the same, whether the said damage or injury results from conditions arising upon the Premises or from other sources. The parties acknowledge and agree that Landlord shall not be liable for any damages arising from any act or neglect of any other tenant of the Shopping Center. (p) NO PERSONAL LIABILITY. The obligations of Landlord under this Lease do not constitute personal obligations of Landlord, and Tenant shall look solely to the real estate described on EXHIBIT "A-1" and to the rent, profits and other income generated therefrom (exclusive of any rent, profits or other income collected by Landlord prior to the entry of the judgment against Landlord) and to no other assets of Landlord for satisfaction of any liability in respect of this Lease and will not seek recourse against Landlord or the individual general partners of a general partnership which is Landlord herein, nor against any of their personal assets for such satisfaction. (q) LANDLORD'S SELF-HELP. Should Tenant fail to pay and discharge (or post satisfactory bond), when due and payable, any tax or assessment, payable by Tenant under this Lease, or any lien or claim for labor or materials employed or used in, or any claim for damages arising out of the repair, alteration, maintenance and use of the Premises, or should Tenant fail to procure and maintain or to evidence the procurement and maintenance of any insurance to be procured and maintained by Tenant under this Lease (self- insurance excepted), or should Tenant fail to fully perform any covenant or agreement to be performed by Tenant, as provided for in this Lease, after thirty (30) days' written notice from Landlord, or commence to cause within said thirty (30) day period and be diligently pursuing a cure of such default, then Landlord may, at its option and without waiving or releasing Tenant from any of Tenant's obligations hereunder pay 51 any such tax, assessment, lien, claim, or charge, or settlement or discharge any action therefor or satisfy any judgment thereon or obtain any such insurance. Sums incurred or paid by Landlord in connection therewith, together with interest at the Default Rate on such costs, expenses and sums from the date incurred or paid by Landlord, shall be deemed to be additional rental hereunder and shall be paid by Tenant with and at the same time as the next installment of rent hereunder, and any default therein shall constitute a breach of the covenants and conditions of this Lease. (r) DESIGNATION OF USE/TENANCY. The designation of any type of use or tenancy with respect to any building site or the designation of any building site on the attached Site Plan is not intended as a covenant or representation that such building sites shall be construed or devoted to such a use or tenancy. (s) PROHIBITIONS ON RENT INCREASES. In the event that at any time any governmental law, rule or regulation prohibits or postpones, in whole or in part, any increase in the Base Rent or other sums payable by Tenant hereunder, then, and in either of such events, such increase shall be made to the maximum extent permissible by law at the time provided in this Lease, and/or at any time or times thereafter such increase, or any portion thereof, may lawfully be made and any such increase, the payment of which has been prohibited or postponed, shall thereafter become due and payable to the maximum extent at the earliest time or times permitted by law. (t) SUBORDINATION TO DECLARATION. Tenant agrees to subordinate this Lease of record to any Declaration of Covenants, Conditions and Restrictions and Grant of Easements ("Declaration"), or Common Area Maintenance Agreement ("CAMA") recorded by Landlord encumbering the Shopping Center, provided that the said Declaration and/or CAMA, as the case may be, is consistent with this Lease and does not adversely affect Tenant's rights or increase Tenant's obligations under this Lease. (u) PARCEL MAP. Tenant acknowledges that Landlord may attempt to record a parcel or final map subdividing the Shopping Center into lots or parcels and agrees to join in executing any certificates or other documents required in connection therewith, so long as said map does not adversely affect Tenant's rights or increase Tenant's obligations under this Lease; provided that this subparagraph (h) shall not be construed as obligating Tenant to incur any expense or to agree to incur any expense in connection therewith other than costs incurred in reviewing same. 37. EFFECTIVENESS OF LEASE; TENANT'S RIGHT TO TERMINATE. Notwithstanding the execution of this Lease or any provision hereof to the contrary, the parties hereto agree that the effectiveness of this Lease is expressly conditioned upon the complete satisfaction (or waiver) of each and all of the following conditions: 52 (a) Landlord's delivery of subordination, non-disturbance and attornment agreements, executed by any and all existing mortgagees in a form satisfactory to Tenant, within forty-five (45) days of execution hereof. Tenant hereby approves such an agreement in the form attached hereto as EXHIBIT "G". (b) Landlord's delivery of the Land by the date and in the condition specified in the Construction Provisions. (c) Tenant's obtaining the approval of the Architectural Review Board of the City of Chico for Tenant's Improvements; provided, however, if the approval is subject to certain conditions, the requirement of this paragraph 37(c) shall only be satisfied if the conditions are acceptable to Tenant. Tenant shall notify Landlord within five (5) business days following Tenant's receipt of the conditional approval whether such conditions are acceptable to Tenant. Tenant's failure to respond within said five day period shall conclusively be deemed an acknowledgment of Tenant's disapproval of such condition(s). (d) Landlord's representations, warranties and covenants, including but not limited to those set forth in paragraph 19 herein, being true and accurate in all material respects as of the date of delivery of the Land (as defined in the Construction Provisions). (e) Tenant's obtaining satisfactory assurances within forty-five (45) days of the date of execution hereof that all necessary approvals and consents from other tenants in the Shopping Center may be obtained. Landlord's written certification that this condition has been satisfied shall constitute satisfactory assurances. Landlord agrees to use reasonable efforts to obtain such approvals or consents promptly following the execution of this Lease. (f) Tenant's obtaining satisfactory written assurances that Landlord has obtained financing adequate to fund the Tenant Improvement Allowance within forty-five (45) days of the date of execution hereof. (g) No later than thirty (30) days prior to delivery of the Land to Tenant, Landlord delivering to Tenant a draft Development Schedule prepared by Landlord; provided, however, Landlord's failure to timely deliver such Schedule shall not provide Tenant with a right to terminate the Lease or delay its opening for business. (h) Landlord's delivery to Tenant within forty-five (45) days from Tenant's execution of this Lease of all termination, relocation and/or other agreements necessary to accommodate Tenant's construction and occupancy as described herein. However, should Landlord, after exercising commercially reasonable efforts to enforce all remedies available at law and in equity, be unable to enforce the terms of any 53 aforesaid agreement, the same shall constitute a force majeure event, and Tenant shall have the right to terminate this Lease as provided in paragraph 4(a) of EXHIBIT "C", in which event Landlord shall have no liability to Tenant resulting from Landlord's inability to deliver the Land as required hereunder, including any reimbursement of Tenant's costs. The existence of the foregoing conditions is solely for the benefit of Tenant, and Tenant may waive any such condition at its sole discretion by delivering to Landlord a written notice signed by Tenant which specifically states the condition(s) being waived by Tenant. Notwithstanding any other provision in this Lease to the contrary, in the event any of the foregoing conditions shall not be met, satisfied or waived upon the latest date set forth herein for said condition, the parties hereto expressly agree that Tenant shall have the right to terminate this Lease in its sole and absolute discretion at anytime prior to the satisfaction or waiver of any such condition by delivering to Landlord a written notice signed by Tenant which states that Tenant is terminating this Lease on account of the failure of one or more of the foregoing conditions. In the event of any such termination, the rights and obligations of the parties shall be of no further force and effect and the parties shall have no further liability one to the other (except that the indemnifications set forth in paragraphs 14(i), 19(a)(v) and 19(b)(ii) hereof shall survive such termination) upon Tenant's delivery of said notice to Landlord. Notwithstanding the execution of this Lease or any provision hereof to the contrary, the parties hereto agree that the effectiveness of this Lease is expressly conditioned upon the complete satisfaction (or waiver by Landlord) of each and all of the following conditions: (a) The satisfaction (as opposed to waiver by Tenant) of the conditions in subparagraphs (a), (c), (e) and (h) above in this paragraph 37 within the time provided above for the satisfaction of each such condition; provided Landlord agrees to use reasonable efforts to satisfy said conditions. (b) That the Construction Term of this Lease commence by May 6, 1995, subject, however, to extension by Tenant by reason of any failure by Landlord to perform Landlord's obligations under this Lease. The existence of the foregoing conditions is solely for the benefit of Landlord, and Landlord may waive any such condition in its sole discretion by delivering to Tenant a written notice signed by Landlord which specifically states that the condition(s) is being waived by Landlord. Notwithstanding any other provision of this Lease to the contrary, in the event any of the foregoing conditions shall not be met, 54 satisfied or waived, the parties hereto expressly agree that Landlord shall have the right to terminate this Lease in its sole and absolute discretion at any time prior to the satisfaction or waiver of any such condition by delivering to Tenant thirty (30) days' prior written notice signed by Landlord which states that Landlord is terminating this Lease on account of the failure of one or more of the foregoing conditions. In the event of any such termination, the rights and obligations of the parties shall be the same as in the event of a termination by Tenant pursuant to the foregoing provisions of this paragraph 37. 38. CONFIDENTIALITY. The parties hereto, including, but not limited to, their heirs, successors, assigns and legal representatives, agree that this Lease may not be recorded and that all such parties hereby agree to use their best reasonable efforts to preserve the confidentiality of this transaction. This confidentiality agreement extends to any developers, bankers, lawyers, accountants, employees, agents or any other persons acting on behalf of the parties hereto and to prospective lenders and transferees of the parties. The parties hereto agree to use their best reasonable efforts to avoid discussing with, or disclosing to, any third parties (except those parties listed above) any of the terms, conditions or particulars in connection with this transaction. It is specifically agreed by way of illustration, but not by limitation, that the covenant of confidentiality set forth herein shall not be breached if such information is disclosed in connection with or due to any governmental law or ordinance, but this covenant of confidentiality shall be breached if Landlord, or any of Landlord's developers, bankers, accountants, agents, lenders, lawyers or other similar parties, discloses the content of, or delivers a copy of this Lease to, any third party without the express written consent of all parties to this Lease. Any breach of this confidentiality agreement shall constitute an Event of Default 55 under the terms and provisions of this Lease but shall not permit termination of this Lease. WITNESS the following signatures and seals: LANDLORD -------- CHICO CROSSROADS CENTER, LTD., a California limited partnership ATTEST (WITNESS): By: JMLB, Inc., a California corporation /s/ [illegible] - ------------------------- /s/ [illegible] By: /s/ Jamie Sohacheski - ------------------------- ------------------------------- Jamie Sohacheski Its: President TENANT ------ CIRCUIT CITY STORES, INC., a Virginia corporation ATTEST: /s/ [illegible] By: /s/ Benjamin B. Cummings, Jr. - -------------------------- --------------------------------------- Its: Assistant Secretary Name: Benjamin B. Cummings, Jr. ------------------------------------- Title: V.P. ------------------------------------ 56 EXHIBIT "A" SITE PLAN (See Attached) 1 [SITE PLAN MAP] EXHIBIT "A-1" LEGAL DESCRIPTION Lots 4 and 9 as shown on that certain map entitled, "CHICO INDUSTRIAL SUBDIVISION", which map was filed in the office of the Recorder of the County of Butte, State of California, on July 6, 1965 in Book 34 of Maps, at Pages 7, 8 and 9. EXCEPTING THEREFROM that portion deeded to the State of California, by Deed recorded September 27, 1974 in Book 1941 of Official Records, at Page 219, records of Butte County, California. ALSO EXCEPTING all minerals, oil, gas and other hydrocarbon substances below a depth of 500 feet and all geothermal rights below a depth of 250 feet of said real property without the right of surface entry, as reserved in Deed recorded April 16, 1980 in Book 2506 of Official Records, Page 661, records of Butte County, California. ALSO EXCEPTING THEREFROM those portions deeded to the City of Chico, by deed recorded April 28, 1980 in Book 2510 of Official Records, at Page 195, and recorded May 15, 1980 in Book 2515 of Official Records, at Page 276; and recorded October 27, 1988, under Recorder's Serial No. 88-36683, records of Butte County, California. The above described lots comprise one legal parcel as disclosed by Certificate of Merger No. 36, recorded August 22, 1988, under Recorder's Serial No. 88-27710, records of Butte County, California. 1 EXHIBIT "B" INDEX OF DEFINITIONS TERM PARAGRAPH WHERE DEFINED Assessment(s) Exh. "C", para. 1(a) Base Rent 4(a) Building 2 CAM Charges 7(b) CAM Year 7(c) Certificate 15(a)(i) City 1 Commencement Date 4 Common Area Easement 6(d) Common Area Maintenance 7(a) Common Areas 7(a) Concept Plans Exh. "C", para. 2(b) Construction Term 3 CPI-U 4(a)(ii) Date of Taking 16(a) Default Rate 9(b) Delivery of the Land Exh. "C", para. 1(b) Escrow Agent 15(a)(i) Event of Default (Landlord) 31 Event of Default (Tenant) 29 Foreclosure 21(a) Grading Plans Exh. "C", para. 1(b) Ground Lessor 21(a) Hazardous Substances Exh. "C", para. 1(a) Improvements 2 Land 1 Landlord Introduction Landlord's Premises 1 Landlord Work Exh. "C", para. 1(d) Lease Year 3 Main Term 3 1 TERM PARAGRAPH WHERE DEFINED Modified Proctor Exh. "C", para. 2(a) Mortgage 21(a) Mortgagee 21(a) Option Periods 3 Other Improvements 2 Permissible Building Areas Exhibit "A" Permitted Encumbrances Exhibit "F" Person 20 Personalty 23 Plans and Specifications Exh. "C", para. 2(b) Premises 1 Real Estate Taxes 9(a) Renewal Option 3 Shopping Center 1 Site Covenants 19(a)(ix) Site Work Exh. "C", para. 1(b) Site Plan 1 Staging Area 6(a) State 1 Substantial Completion Exh. "C", para. 2(e) Substantially All of the Premises 16(a) Successor 22 Taking 16(a) Tax Parcel 9(b) Tenant Introduction Tenant Improvement Allowance Exh. "C", para. 3 Tenant's Preferred Area Exhibit "A" Tenant's Pro Rata Share 7(c) Term 3 Transfer Exh. "C", para. 3 Work 15(a)(i) Worth at the time of the award 30(b) 2 [Chico Crossroads Shopping Center Chico, CA] EXHIBIT "C" CONSTRUCTION PROVISIONS THESE CONSTRUCTION PROVISIONS (herein so called) are, hereby made a part of the Lease between Landlord and Tenant to which these Construction Provisions are attached as EXHIBIT "C". All defined terms shall have the meanings attributed to them in the Lease unless otherwise specifically defined in these Construction Provisions. 1. LANDLORD'S DELIVERY OF THE LAND;OTHER LANDLORD WORK. All of the work set forth in subparagraphs (a), (b) and (c) below is, collectively, the "Landlord Work": (a) HAZARDOUS SUBSTANCES. Landlord shall deliver the Land to Tenant free of any pollution or contamination from toxic or hazardous substances, asbestos or any other chemicals or substances in amounts which exceed standards for public health or welfare as established and regulated by any local governmental authority, the State or the United States Government (herein collectively referred to as "Hazardous Substances"). Landlord hereby grants Tenant and its agent access to the Premises and Shopping Center to enable Tenant to conduct such soil and environmental tests as its deems necessary. If Tenant's tests disclose any such pollution or contamination to be removed by Landlord, Tenant must notify Landlord of such disclosed contamination as soon as possible following any necessary confirmation of said discovery, and Landlord may terminate this Lease within thirty (30) days following notice of such results if the costs of such removal will exceed $25,000 or if the reasonable time required to complete such removal will exceed sixty (60) days. Landlord has heretofore provided Tenant with copies of Landlord's environmental site assessment(s) (the "Assessment(s)") of the Premises; a list of the Assessments provided to Tenant is attached hereto as EXHIBIT "N". (b) SITE WORK. Landlord, at its sole cost and expense, shall: (i) cause the Land to be free and clear of any known or unknown (which, but for Landlord's failure to discover same, should be removed prior to delivery of the Land to Tenant) obstructions, foundations, footings, utilities, easements, improvements and tenancies; (ii) complete grading of the Land and the "Construction Area," as defined below, in accordance with the "Standards for Grading Work" attached hereto as ATTACHMENT "1", and with the final plans prepared by Mike Byrd of Rolls, Anderson and Rolls (the "Grading Plans"), which Grading Plans are subject to Tenant's written approval, which 1 approval shall be given or denied within ten (10) business days following Tenant's receipt of such Grading Plans (any disapproval shall be in writing and in sufficient detail to allow Landlord to make appropriate changes); (iii) completion of Tenant's building pad strictly in accordance with Tenant's geotechnical report; (iv) use reasonable efforts to obtain approvals for all on and off-site permits required for any work to be performed by Landlord which are a prerequisite for issuance of Tenant's building permit; (v) complete the Staging Area in accordance with the Grading Plans; and (vi) use reasonable efforts to obtain Architectural Review Board approval (which includes approval of the Site Plan and Tenant's elevations) from governmental authorities having jurisdiction over the Shopping Center, permitting Tenant's construction of the Premises (subject to issuance of Tenant's building permit). All of the work described in (i) through (vi) above is, collectively, the "Site Work". No changes shall be made to any of the Site Work, including but not limited to any plans and specifications therefor, without Tenant's prior written consent. The Site Work shall be performed in accordance with the construction schedule attached hereto as ATTACHMENT "3" (sometimes referred to herein as the "Construction Schedule"). Landlord specifically covenants and agrees that any problems or delays it encounters in grading the Premises in satisfaction of the Site Work requirements set forth above in connection with the condition of the soils, including environmental or hazardous waste issues, subsidence sinking, surface waters, subsurface waters, unforeseen site conditions or the like shall be its sole responsibility, shall cause a force majeure delay unless Jaime Sohocheski or Robert A. Flaxman have actual knowledge of such condition as of the execution hereof, and in no event shall the cost associated with such problems or conditions be passed on to Tenant in any manner. The term "Construction Area" means the Land, the Staging Area and the portion of the area between the face of curb for the Building as shown on the Supplemental Site Plan and the truck access driveway (at least twenty-five (25) feet in width) at the rear of the Shopping Center. The Construction Area is depicted on the "Supplemental Site Plan" attached hereto as EXHIBIT "J". As a portion of the Site Work that will be completed prior to the delivery of the Land, Landlord shall demolish the existing building designated "C" on the Site Plan between the buildings indicated as "B" and "D", demolish pad building "3" on the Site Plan, and complete the concrete work for the parking spaces and landscape areas along the southeast wall of the building indicated as "B" on the Supplemental Site Plan and remove the paving from the Construction Area. If the items of Site Work to be performed on the Land are completed earlier than forty-five (45) days prior to Tenant's scheduled commencement of construction of the 2 Improvements (as provided below), the Land shall be overbuilt and sloped to drain and, within such forty-five (45) day period, shall be regraded and recompacted. Subject to force majeure, Landlord covenants and agrees to complete, at its sole cost and expense, each item of the Site Work and to assure that temporary utilities are available (at no cost to Tenant other than any deposits and use charges) within five (5) feet of the building pad as designated on the Supplemental Site Plan attached as EXHIBIT "J" and temporary telephone service to the Premises and the Staging Area, in accordance with the dates established therefor in ATTACHMENT "3", to the end that promptly upon completion of such requirements (collectively "delivery of the Land"), Tenant shall be able, subject to issuance of its building permit and matters within Tenant's control, to commence construction of the Improvements. Landlord acknowledges that Tenant's ability to obtain a building permit for its construction may be delayed due to the failure by Landlord to obtain necessary approvals or permits or to pay necessary fees for its construction and development of the Shopping Center. Landlord agrees that delivery of the Land shall not be deemed to have occurred until all Landlord's approvals and permits for the "Landlord Work," as defined below, shall have been obtained and all such fees, including but not limited to impact fees and assessments, (excluding assessment bonds of record not yet due and payable as well as fees associated with the issuance of a building permit for the Improvements for which Tenant is specifically responsible hereunder) shall have been paid, if and to the extent that such approvals, permits and fees for Landlord's Work shall be prerequisites to the issuance of Tenant's building permit. Landlord agrees to keep Tenant advised in writing on a monthly basis as to Landlord's progress in completing the Site Work. Landlord represents that to the best of its knowledge, all of the requirements for paving, curbing, stripping, lighting, landscaping, sidewalks, fire hydrants, and gutters for adequate drainage as well as any other work required by the City of Chico and any other duly constituted public authority have been satisfied as the same relate to the existing Shopping Center as improved. Furthermore, to the extent additional Site Work, including any required utility relocations, is required as a condition of Tenant obtaining any or all of the required approvals from the City of Chico, Landlord shall perform such Work at Landlord's sole cost and expense, provided the cost thereof does not exceed $100,000, exclusive of site development fees to be paid by Landlord. Upon the delivery of the Land, Landlord shall certify to Tenant that all elements of the Site Work have been completed in the form of the Site Work Certificate attached hereto as ATTACHMENT "4". In the event any permit fees to be paid by Landlord cover any portion of the construction and/or use of the Improvements, the cost of such fees, shall be equitably 3 allocated between Landlord and Tenant based on the construction costs for the work to be performed by each party covered by such fees. In such event, Tenant shall reimburse Landlord its proportionate share of any such fees prior to commencing the construction of the Improvements, provided that Tenant has received a written request from Landlord for such reimbursement, together with reasonable supportive evidence of the amount and payment of such fees and of the allocation of such fees to Tenant. Should the Site Work require minor adjustments in order to be in accordance with ATTACHMENTS "1" and/or "2", Tenant may direct its contractor to make such adjustments, the total cost of which shall be reimbursed by Landlord to Tenant upon demand in a sum not to exceed Five Thousand Dollars ($5,000.00). Such required adjustments shall not be construed as delaying the "delivery of the Land" provided that Tenant directs its contractor to make such adjustments or Landlord makes such adjustments promptly following receipt of written request from Tenant to make such adjustments and in all events such adjustments do not interfere with Tenant's construction of the Improvements. Tenant agrees to notify Landlord in writing of any defects or required adjustments in the Site Work reasonably discoverable from an inspection of the Construction Area within ten (10) days of Tenant's receipt of the Site Work Certificate and within ten (10) days of the discovery of any other defects and/or required adjustments in the Site Work. (c) PAVING, LIGHTING, UTILITIES, LANDSCAPING AND DRAINAGE. Landlord, at its sole cost and expense, and in accordance with ATTACHMENT "3", shall cause a contractor licensed in the State to (i) assure the availability (at no cost to Tenant, except deposits and use charges) of the temporary utilities, as described in the "Utilities Specifications" attached hereto as ATTACHMENT "5" (ii) complete the construction and installation within five (5) feet of the Building, of permanent telephone service and permanent utilities service, including but not limited to gas, electric (provided, however, Landlord shall only be required to provide conduit and pull rope from Landlord's main transformer to Tenant's designated service point as shown on the Supplemental Site Plan), domestic water and fire water (in the capacities set forth in ATTACHMENT "5"), each at Tenant's required entry points shown on the Supplemental Site Plan; (iii) complete the integration of the Site Work and the Improvements into the existing Shopping Center storm water drainage system at Tenant's required location shown on the Supplemental Site Plan; and (iv) complete the construction and installation of paving and curbing for parking areas (including sidewalk curb in front of the Building), vehicular access and service roads, and driveways within the Construction Area, in accordance with the "Paving Specifications" attached hereto as ATTACHMENT "7" (provided that Tenant shall be responsible for concrete work where its Building and/or the sidewalk in front of its 4 Building connect with existing Common Area curbs, which work shall include the installation of concrete landscaping planters and associated landscaping). In connection therewith, upon thirty (30) days notice Tenant, Landlord shall commence to pave, according to the paving specifications attached to the Lease, all area within the Construction Area and adjacent thereto, up to the footprint of Tenant's Improvements, to the extent not already improved with curbs, sidewalks or landscaping. Such paving shall be completed, at Landlord's sole cost and expense, within fifteen (15) business days following said thirty (30) day notice period. Landlord represents that to the best of its knowledge, subject to any required increases to meet Tenant's standards set forth in ATTACHMENT "5", all utilities, sewer and water required for the Premises are in placed serving the building partially located upon the Land that will be demolished in part by Landlord. (d) LANDLORD WORK. All of the work described to be performed by Landlord in this paragraph 1 is collectively referred to as the "Landlord Work". All Landlord Work shall be performed in accordance with all applicable laws and this Lease, in a good and workmanlike manner, as appropriate by engineers, surveyors, architects and consultants, who are bondable, licensed in the State and of good reputation. Landlord's general contractor shall be experienced in shopping center development and in coordinating construction schedules with major anchors and national retailers. In the event that Landlord defaults at any time in completion of any component of the Landlord Work and fails to correct such default such that an Event of Default occurs, Tenant shall have the right, but not the obligation, to perform at Landlord's sole cost and expense, all or any part of Landlord's Work. Tenant shall exercise this right by providing Landlord with written notice thereof, which notice shall reasonably detail those portions of the Landlord Work which Tenant elects to complete. Tenant may exercise the rights set forth in this paragraph 1(d) from time to time so long as Tenant provides Landlord notice specified herein (i) within a reasonable amount of time prior to the date upon which Landlord would otherwise commence that portion of the Landlord Work, or (ii) at such other time where it is feasible for Tenant to take over that portion of the Landlord Work from Landlord. In the event and to the extent that Tenant exercises its right hereunder, Landlord agrees to cooperate in good faith and provide Tenant with reasonable assistance so that Tenant can complete said portions of the Landlord Work. Landlord agrees to reimburse Tenant for any and all costs incurred by Tenant in connection with any portion of the Landlord Work which Tenant is in the process of completing within fifteen (15) days after receipt of written request from Tenant, which request shall be reasonably supported by invoices and/or written description of the 5 Landlord Work performed. In the event that the Landlord does not timely reimburse Tenant as hereinabove contemplated, Tenant shall be entitled to deduct the costs of such Landlord Work from rentals and other payments due under the Lease, together with interest at the Default Rate from the date of expenditure by Tenant until paid or otherwise deducted in full. 2. TENANT IMPROVEMENTS. (a) BUILDING CONSTRUCTION. Upon completion of all requirements therefor, Landlord shall give Tenant written notice (which shall include any required certifications, including but not limited to those required by ATTACHMENT "1") of delivery of the Land in the form of ATTACHMENT "4". Tenant shall promptly notify Landlord within ten (10) days of Tenant's receipt of such written notice from Landlord if any such requirement has not ben met to Tenant's reasonable satisfaction. Upon completion of any such previously unmet requirements (excluding minor corrections and/or additions the completion of which by Landlord will not interfere with Tenant's construction, which work shall be promptly completed by Landlord upon notice from Tenant to complete such work), Tenant shall promptly commence and pursue to completion with due diligence the construction of the Improvements. The construction work on the Improvements shall be performed by a duly licensed contractor chosen by Tenant with a bonding capacity sufficient for Tenant's work and approved by Landlord's Mortgagee (Landlord shall be responsible for obtaining such approval, which approval shall not be unreasonably withheld or delayed), shall be done in a good and workmanlike manner, in compliance with all applicable laws and in substantial accordance with the "Plans and Specifications" (defined below). Furthermore, when constructing the Improvements, Tenant shall (i) provide fencing and security around the Construction Area; (ii) conduct its work (including the delivery of construction materials) so as to minimize the interference with the business of other occupants of the Shopping Center; (iii) require its workers and other agents to park in the Construction Area or those areas designated on the Supplemental Site Plan, as discussed below; (iv) store all tools, materials and construction vehicles within the Construction Area; and (v) keep the Construction Area reasonably neat and clean (based on reasonable construction standards) and the area outside the Construction Area as neat and clean as the remainder of the Shopping Center. In the event Tenant's construction personnel, delivery vehicles or construction vehicles are parked within the Shopping Center in an area not designated for such parking, Landlord may arrange for such vehicles to be towed at its owner's expense. In connection herewith, Landlord has designated for Tenant's exclusive use during the entire Construction Term certain parking spaces as shown on the Supplemental Site Plan; said 6 spaces shall be labeled "Circuit City Construction Personnel Parking Only, Violators Will Be Towed At Owner's Expense." To the extent of any violation with respect to Tenant's exclusive parking during the Construction Term, Landlord shall, at the request of Tenant, make immediate arrangement for the towing of cars. Provided that the Land is delivered on or before the date set forth on ATTACHMENT "3", Tenant covenants and agrees to use reasonable efforts and due diligence to achieve "Substantial Completion" (as defined below) on or before the date which is seven (7) months thereafter. (b) PLANS AND SPECIFICATIONS. Tenant shall prepare and furnish to Landlord for its approval, not to be unreasonably withheld, conditioned or delayed, complete architectural drawings and specifications and building elevations (the "Plans and Specifications") for the construction of the Building and Other Improvements, incorporating therein the items specified and shown in the "Concept Plans" attached hereto as ATTACHMENT "9" within thirty (30) days following the approval of same by the Architectural Review Board of the City of Chico. Landlord agrees that it will approve the Plans and Specifications, so long as they are materially consistent with the Concept Plans and the requirements of this Lease and delivered to Landlord's architect concurrently therewith, within ten (10) business days after receipt thereof. Furthermore, provided Tenant's Plans and Specifications are approved by the City of Chico, Landlord shall not require Tenant to alter its building elevations, standard entrance tower, customer pickup area or the use of Alucobond and red trim on the front exterior of the Building. If the Plans and Specifications are not disapproved by Landlord within fifteen (15) days of delivery thereof to Landlord, same shall constitute a Landlord Delay and extended the Commencement Date, day for day based on the Landlord Delay. The Plans and Specifications shall not be substantially changed by Tenant without the prior written consent of the Landlord, which consent shall not be unreasonably withheld, conditioned or delayed. Any such changes, however, shall comply with the restrictions in this Lease, the Concept Plans and with applicable building codes and other governmental requirements. Notwithstanding anything contained in this Lease to the contrary, in no event, may the Plans and Specifications, as originally prepared or as modified, provide for a building containing greater or less than twenty-three thousand fourteen (23,014) square feet (provided, however Tenant shall be provided a differential of [plus or minus] one percent (1%)), to the nearest square foot, nor for a building with a canopy or facia extending higher than twenty (20) feet above the ground or deeper than twelve (12) feet from the storefront line nor for a building parapet extending higher than thirty-four (34) feet above the ground. In the event that any such change in the Plans and Specifications requested by Tenant requires modifications to the Landlord Work, Tenant shall reimburse Landlord 7 for all additional costs incurred by Landlord as a result of such change including, without limitation, architect's and engineer's fees, within fifteen (15) days of a receipt of a request for such reimbursement, together with reasonably supportive evidence of the amount and payment of such additional costs and shall extend the required completion dates for Landlord Work as set forth in the Construction Schedule to the extent necessary to account for any such requested modifications. (c) PERMITS. Tenant, at its sole cost and expense, shall obtain or cause to be obtained those certain building permits, licenses, other governmental approvals and temporary and permanent certificates of occupancy which may be required for the lawful construction and occupancy of the Premises as a retail shopping facility in accordance with the Plans and Specifications. Landlord agrees to assist and cooperate fully with Tenant in obtaining such permits, licenses, approvals and certificates. Landlord shall be responsible for any other permits, licenses, approvals and certificates. Landlord shall be responsible for any other permits necessary for the development of the Shopping Center. (d) LANDLORD INSPECTIONS. During the course of construction of the Improvements, Landlord may, at its own risk and in cooperation with Tenant's contractor, enter upon the Land for purposes of inspecting the work, provided that such inspections shall not interfere with Tenant's construction. (e) SUBSTANTIAL COMPLETION. Substantial completion of the Improvements ("Substantial Completion") shall be deemed to occur when a certificate of occupancy, whether temporary and subject to minor items to be completed, or permanent, as the case may be, has been issued by the applicable governmental authority, and Tenant has opened its store facility for business with the public for the Initial Use. The foregoing shall not be deemed to relieve Tenant of its responsibility to complete the Improvements in accordance with the Plans and Specifications and to obtain a permanent certificate of occupancy. 3. COSTS. Within thirty (30) days following Substantial Completion and Tenant's furnishing to Landlord (i) the certificates of insurance required under paragraph 14 of the Lease, (ii) those items set forth on EXHIBIT "L" attached hereto (iii) a bill of sale conveying title to the Improvements to Landlord, and (iv) evidence of the expiration of all mechanic's lien periods applicable to the construction of the Improvements, other than the lien period of Tenant's general contractor (provided, however, in lieu of waiting for the expiration of the lien period, Tenant may provide, Landlord's Mortgagee with an endorsement from Preferred Land Title & Escrow Company (or another title insurance company) insuring priority of the lien of the Mortgagee's deed of trust against mechanic's liens attributable to Tenant's construction of the Improvements), Landlord shall pay to Tenant a "Tenant Improvement Allowance" in an amount equal to One 8 Million Four Hundred Thousand and No/100 Dollars ($1,430,000.00), payable by wire transfer of funds by Landlord or Landlord's Mortgagee to Tenant's account ("Payment Date"). From the Commencement Date until the Payment Date Tenant shall pay in lieu of the Base Rent set forth in paragraph 4(a) of the Lease, a ground rent in the amount of $7,262.00 per month (hereinafter "Interim Ground Rent"). Furthermore, should Tenant fail to deliver items (i) through (iv) set forth in this paragraph 3, which items are the prerequisite to Landlord's obligation to wire Tenant the Tenant Improvement Allowance, within one (1) year following Substantial Completion, Tenant shall pay in lieu of the Base Rent set forth in paragraph 4(a) of the Lease, a ground rent of $87,140.00 per year for the remainder of the Lease. If the ground floor gross leasable area of the Building is increased (not to exceed 23,244 square feet) pursuant to a change in Tenant's Plans and Specifications, which Plans and Specifications currently show the ground floor gross leasable area of the Building as 23,014 square feet, the Tenant Improvement Allowance shall likewise be proportionately increased, yet in not event shall the Tenant Improvement Allowance be decreased. If Landlord fails to pay the Tenant Improvement Allowance in full on or before the Payment Date, Landlord shall be in default hereunder, no Base Rent, Interim Ground Rent, Taxes or CAM Charges shall be due or owing to Landlord until the same is paid to Tenant, and interest shall accrue on the unpaid Tenant Improvement Allowance at the Default Rate commencing on the date following the Payment Date until the date of payment of the Tenant Improvement Allowance; provided, however, that if Landlord has not tendered payment of the Tenant Improvement Allowance by that date which is one (1) year from the Payment Date (the "Payment Date Anniversary"), then (i) such date shall become the Commencement Date; (ii) Base Rent shall be reduced to ground rent equal to Seventy-Five Thousand and No/100 Dollars ($75,000.00) per annum during the first year following the Payment Date Anniversary and Fifty Thousand and No/100 Dollars ($50,000.00) per annum thereafter during the Term of the Lease; and (iii) this Lease shall be converted to a ground lease, with ownership of the Improvements remaining with Tenant, and Landlord's and any Mortgagees' names being removed as additional insured or mortgagees on any casualty insurance described in paragraph 14(a) of the Lease. Ownership of the Improvements, however, shall rest in Landlord upon the expiration of earlier termination of this Lease. Notwithstanding anything to the contrary, in the event Landlord delivers to Tenant the entire Tenant Improvement Allowance, inclusive of interest thereon, within six (6) months following the Payment Date, Tenant shall, for the period from the Payment Date until the date such payment is actually received, pay to Landlord rent of $4,878.33 per month, subject to proration for any partial month, plus Tenant's share of CAM Charges 9 and Real Estate Taxes as determined pursuant to the Lease. Such payment shall be due with Tenant's first payment of Base Rent, provided Landlord has provided Tenant notice of Tenant's Share of CAM Charges and Real Estate Taxes. In the event Landlord fails to provide Tenant notice of Tenant's Share of CAM Charges and Real Estate Taxes at such time, within thirty (30) days following the delivery of such notice Tenant shall pay such charges, so long as such notice is provided within one hundred twenty (120) days of the date the Tenant Improvement Allowance payment is made. 4. CONSTRUCTION DELAYS. (a) DELAYS BY LANDLORD. In the event, subject to force majeure, Landlord shall fail to complete the Site Work and accomplish delivery of the Land in the condition specified by the date set forth on ATTACHMENT "3" hereto, Landlord agrees that it shall reimburse Tenant for its fixed and ascertainable costs incurred as a result thereof in the exercise of all reasonable efforts to open for business by the date which is seven (7) months following the date Landlord should have delivered the Land and completed the Site Work. Such costs shall be limited to Tenant's out-of-pocket expenses of construction overtime, acceleration charges and bonuses paid to Tenant's contractors or subcontractors, charges for the scheduling of construction crews on days on which work cannot be performed due to the delays by Landlord and construction period interest charges actually incurred to the extent that such charges exceed those which would have accrued without such delay. In the event, subject to force majeure, Landlord shall fail to accomplish delivery of the Land by the date which is forty-five (45) days following the date Landlord should have delivered the Land, or to complete any element of the Landlord Work by the completion date established therefor in ATTACHMENT "3", Tenant, at its option and upon five (5) days' prior written notice to Landlord, which notice may be given prior to or at any time after the applicable date for performance, may in addition to any other rights and remedies set forth herein, enter the Shopping Center and perform any task required for delivery of the Land or, as applicable, any element of the Landlord Work which has not been timely completed, and Landlord shall reimburse Tenant for its reasonable and actual costs thereof, including interest on such costs at the Default Rate. If such costs are not reimbursed to Tenant prior to the Commencement Date, Tenant may offset such amounts against Base Rent and CAM Charges otherwise due until such costs and accrued interest are reimbursed or offset in full. If by reason of default and regardless of force majeure, Landlord shall fail to complete delivery of the Land to Tenant by the date which is one hundred twenty (120) days from the date set forth on ATTACHMENT "3", Tenant shall be entitled to terminate this 10 Lease at any time prior to such delivery and receive from Landlord promptly thereafter a sum equal to the actual out-of-pocket and substantiated third-party legal, architectural and engineering costs incurred by Tenant to the date of termination, not to exceed One Hundred Thousand and No/100 Dollars ($100,000.00). In addition to any other rights and remedies set forth herein, if the Landlord fails to timely deliver the Land or complete any element of the Site Work as required herein regardless of force majeure and as a result thereof Tenant would be opening for business in the Premises during the period of November 15 through February 28 of any year, Tenant may elect to delay opening of its store facility until after such period, during which time Tenant shall pay no Base Rent, Interim Base Rent, Taxes or CAM Charges. In such event, Landlord shall deliver the Land and complete the Site Work on the date required by Tenant, and Landlord shall pay to Tenant on demand an amount equal to all additional, direct out-of-pocket costs incurred by Tenant in the development of its store facility, including, but not limited to, costs of materials and all engineering, architectural and legal fees, which were a direct result of Landlord's delays hereunder, not to exceed One Hundred Thousand and No/100 Dollars ($100,000.00). (b) TENANT'S INABILITY TO OBTAIN PERMITS. Notwithstanding anything to the contrary, Tenant, if after exercising its best efforts to obtain the permits necessary for the construction of the Improvements is unable to do so within forty-five (45) days following the "delivery of the Land," Tenant shall, as of the Commencement Date (which may be delayed until the next March 1 following delivery of the Land as provided in paragraph 4(a) above), pay in lieu of the Base Rent required under paragraph 4(a) of the Lease a rent of $7,262.00 per month; provided, however, once Tenant ultimately obtains the required permits, the Base Rent set forth in paragraph 4(a) of the Lease shall be applicable upon the earlier of (i) 180 days following Tenant's receipt of the permits, subject to extension to the next March 1 following delivery of the Land or (ii) Tenant's opening for business in the Premises. (c) MISCELLANEOUS. Notwithstanding the foregoing, a delay by any party in exercising its cure rights or other remedies hereunder shall not be deemed an event of force majeure for purposes of extending the date(s) established for performance by the party whose actions or omissions gave rise to such cure rights or remedies. All sums owing to Tenant under paragraph 1 hereof and/or subparagraph (a) above shall, to the extent applicable, be added to the Tenant Improvement Allowance and paid simultaneously therewith; and, if not so paid, Tenant shall be entitled to offset all such costs, plus interest at the Default Rate, against Base Rent and CAM Charges otherwise due hereunder. All sums owing to Landlord by Tenant under this Lease shall, to the 11 extent applicable and except for Base Rent and CAM Charges, be deducted from the Tenant Improvement Allowance. Notwithstanding anything contained herein to the contrary, Landlord covenants that it shall complete its construction and delivery obligations in accordance with the "Completion Dates" set forth in the Construction Schedule. In the event that the Landlord fails to complete its construction and delivery obligations in accordance with such Completion Dates, subject to force majeure unless specifically indicated otherwise, Tenant may, at its sole election, exercise such remedies as are set forth in this EXHIBIT "C" and the Lease. 5. ATTACHMENTS. "1" Standards for Grading Work "2" Intentionally Omitted "3" Construction Schedule "4" Site Work Certification "5" Utilities Specifications "6" Intentionally Omitted "7" Paving Specifications "8" Shopping Center Lighting Specifications "9" Concept Plans 12 ATTACHMENT "1" Standards for Grading Work 1. The Land and the Construction Area shall be graded in accordance with the following: (a) The Grading Plan shall show spot elevations in accordance with standard engineering practice and these spot elevations shall be shown with the existing (shown as a dashed line) and final (shown as a solid line) elevations. Whether existing or proposed, all buildings, improvements, roads and highways adjacent to or within 100 feet of the Construction Area, shall be shown in their true locations. (b) The Building will be accessible by grade level parking only. Steps and stairs are not permitted. (c) Asphalt paving areas will be graded to avoid ponding water with slopes no less than 1.5% and no more than 4.0% (d) Surface drainage swales will not be allowed without prior approval of Tenant. Such swales must have a grade of not less than 0.5% and no more than 3.5% and shall be constructed of concrete. (e) The cut and fill on the Construction Area should be balanced, if practical. All fill material must meet the recommendations set forth in that certain Geotechnical Investigation Report prepared by LRA Engineering dated December 17, 1993 ("Geotechnical Report") and sources for acquisition of fill material, as well as locations for cut material, must be identified. (f) No retaining walls or embankments causing breaks in grade shall be permitted unless specifically approved by Tenant. 2. "Tenant's Pad Area" shall be defined as the area extending five (5) feet beyond the Building walls and truck dock and ramp area, or to the back of curbing around the Building, whichever is further. The Site Work shall comply with the following additional requirements: (a) Landlord shall be responsible for preparing the Tenant's Pad Area subgrades to within plus or minus one-tenth of a foot as set by Tenant's architect, which information shall be provided to Landlord on or before February 15, 1994. Tenant's subgrades are typically 8"-10" below finish floor elevation. Landlord will complete compaction in accordance with the Geotechnical Report and appropriate engineering standards and building code requirements, so as to enable Tenant to perform construction work necessary to provide completed Improvements in accordance with the "Plans and 1 [MAP OF CIRCUIT CITY SITE PLAN] Specifications" (defined in the Construction Provisions), with standard footings and without the necessity of pilings or spread footings or other extraordinary foundation work. Tenant's minimum slab thickness and under slab fill will be established in accordance with the Geotechnical Report. All compacted areas of the site shall be verified by an independent professional soils engineering test laboratory and a certificate from such independent laboratory indicating compliance with the Geotechnical Report shall be furnished to Tenant upon completion of the Site Work. (b) Tenant's Pad Area soil shall have a minimum bearing capacity of 2,500 pounds per square foot. Earth stabilization and/or replacement shall be performed by Landlord as necessary to meet this minimum requirement. (c) During the preparation of Tenant's Pad Area, Landlord shall at its expense have an independent professional soils engineering test laboratory monitor and certify the preparation of Tenant's Pad Area in accordance with the Geotechnical Report. The greater of three in-place compaction tests per work day or one in-place compaction test per 5,000 square feet of pad area must be completed. (d) On or before the delivery of the Land, Landlord shall provide Tenant with: (i) An independent soils engineer's written certification that all pad work was completed in accordance with the Grading Plans. This report shall include the results of all compaction and other tests performed during the pad preparation phase and any tests performed prior to the date of such certification. (ii) A surveyor's written elevation certification stating that Tenant's Pad Area is at the prescribed elevation within the stated tolerance of plus or minus one-tenth of a foot. This certification shall be based on elevation shots taken on a 50-foot-grid minimum including pad perimeter and corners. (e) Landscaping slopes and berms shall be set by Landlord to preserve the integrity of the slopes as determined by an independent soils engineer. However, in no case may the slope of a landscaping berm exceed 3 to 1 in turf areas, or 2 to 1 in ground cover and shrub areas. (f) All material, including native and fill shall comply with the standards established in the Geotechnical Report. (g) The Grading Plans shall not be materially changed by Landlord without the prior consent of Tenant, which consent shall not be unreasonably withheld or delayed. (h) All outlots or future building areas shall be rough graded and maintained in a clean and aesthetically acceptable condition. 2 ATTACHMENT "2" (Intentionally Omitted) 1 ATTACHMENT "3" Construction Schedule
LANDLORD'S TASK COMPLETION DATE --------------- --------------- 1. Construction of the Staging Area. 5/6/94 (yet in no event later than 6/15/94) 2. Completion of Site Work 5/6/94 (yet in no event later than 6/15/94) 3. Installation of temporary utilities. 5/6/94 (yet in no event later than 6/15/94) 4. Landlord's delivery of the Land to Tenant. 5/6/94 (yet in no event later than 6/15/94) 5. Architectural Review Board Approval. 3/15/94 6. Construction and installation of permanent 7/15/94 utilities including permanent telephone service. 7. Integration of Improvements with Shopping 7/15/94 Center storm water drainage system. 8. Construction and installation of paving 15 business days following (including heavy-duty paving) and curbing. notice from Tenant
1 Attachment "4" -------------- Site Work Certification To: Circuit City Stores 9950 Mayland Drive Richmond, Virginia 23233 Attention: Vice President-Real Estate Re: Circuit City Store/[Location]-Lease Agreement dated January __, 1994 Ladies and Gentlemen: The undersigned, as Landlord under the Lease has caused "delivery of the Land" to occur, and accordingly, completion of the Site Work, all in accordance with the terms of the Lease. Specifically the undersigned hereby certifies that: (i) the grading of the Land and the Construction Area has occurred in accordance with the Standards for Grading Work, attached as ATTACHMENT "1" to the Lease, and Tenant's building pad has been prepared in accordance with that certain Geotechnical Investigation Report prepared by LRA Engineering dated December 17, 1993; (ii) the Staging Area has been completed and (iii) an all-weather construction access road to the Land no less than 24 feet width has been prepared and is ready for your use. All conditions precedent to issuance of your building permit which are part of Landlord's Work have been satisfied by the Landlord, and we certify that all elements of the Site Work and delivery of the Land have been satisfied in accordance with the Lease. [LANDLORD] 1 Attachment "5" -------------- Utilities Specifications Landlord will assure that the following temporary utilities shall be available at no cost to Tenant (except any deposits or use charges) to within five (5) feet of the Premises no later than the date for completion of such temporary utilities set forth in the Construction Schedule: water (2" line, with sufficient pressure that pumping is not necessary) and electric power (200 amps, 1-phase, 4-wire, 120 volts, with weatherproof and rainproof fused disconnect switch) for use by Tenant in its construction of the Improvements. Landlord will provide the following permanent utilities, at the heights specified below, to within five (5) feet of the Premises at Tenant's entry points identified on the Supplemental Site Plan no later than the date for completion of such permanent utilities set forth in the Construction Schedule: gas (if available), telephone service, permanent electricity (adequate for 600-amp panel, 3-phase, 277/480 volt) (service only - conduti and pull rope), sanitary sewer (4" line), domestic water (2" line), fire protection water (8" line, 50 pounds per square inch residual pressure, 2000 gallons per minute or at least sufficient capacity to service Tenant's sprinkler system without the need for any water pump, as approved by Tenant's fire protection consultant). 1 Attachment "6" -------------- [Intentionally Omitted] 1 Attachment "7" -------------- Paving Specifications 1. With respect to the Construction Area. (a) Pavement design shall be based on the Geotechnical Report. (b) All pavement design shall be subject to review and approval by Tenant, and shall conform to the recommendations of the Geotechnical Report. (c) Consideration must be given to heavier use in main drives and service area. 2. With respect to sidewalks and curbs: (a) Landlord shall provide and install all curbs and sidewalks including perimeter curbs and sidewalks, with the exception of the sidewalk within the face of curb and around the perimeter of Tenant's Building. (b) All sidewalks and curbs to be constructed by Landlord shall be a minimum of four (4) inches thick, with a rough non-skid texture (as approved by the Landlord's architect with respect to the Common Area), over a suitable granular base. Salt finish is not acceptable. 3. With respect to reconstruction or new construction: (a) Entrance and access roads and other areas as required for suitable drainage, shall have six (6) inch curbs with 18-inch gutters; however, next to sidewalks and buildings when drainage is not a factor a straight curb six (6) inches (without gutters) above the finished paving shall be permitted. Parking lot islands and landscape enclosures shall be vertical barrier-type curbs and all integral-type curbs and gutters and vertical barrier-type curbs shall be concrete. Extruded asphalt or concrete curbing may only be used where appropriate outside the Construction Area. (b) Curbs at all non-parking areas shall be painted red with an exterior flat red latex paint, receive a trowel finish and be designated "No Parking" by a contrasting paint color. 1 Attachment "8" -------------- Shopping Center Lighting Specifications Minimum design standards for lighting of the Shopping Center to be completed as part of Landlord's Work are as follows: 1. The Developer shall prepare and submit plans showing the location and height of all light poles, fixtures, type of fixture shielding (if any), circuiting and details of the complete lighting arrangement and equipment. 2. Illumination as measured (in foot candles) at pavement shall be equal to the greater of (i) that required under applicable code or (ii) that which exists in the Shopping Center as of the execution of the Lease. 3. Twenty-five percent (25%) of the overall lighting shall be designated as security lighting (i.e., remains on from dusk to dawn). The security lighting layout and pattern shall be subject to Tenant's approval. 4. Selection of fixture types shall be subject to Tenant's review and approval prior to design and circuiting. 5. Landlord shall install a seven-day time switch to control all parking area lighting wired to a common house panel. All Security lighting shall be placed on photo-cell switching. 6. The control of parking area lights shall be accessible to Tenant's local store management due to late-night and holiday sales. 7. Where possible, lighting shall be provided by building mounted fixtures. 1 Attachment "9" -------------- CONCEPT PLANS [See Attached] 1 [GRAPHIC] [GRAPHIC] [GRAPHIC] EXHIBIT "D" ----------- NON-EXCLUSIVE LIST OF REMOVABLE TRADE FIXTURES STORE FIXTURES ALL STORAGE RACKING ALL SECURITY SYSTEM ITEMS TELEPHONES AND PAGING SYSTEMS COMPUTER SYSTEM OFFICE FURNITURE AND TRASH RECEPTACLES BATTERY CHARGER TRASH COMPACTOR SIGNS (INTERIOR/EXTERIOR) ANTENNA SYSTEM ELECTRONIC SWITCHING AIR COMPRESSOR (ROADSHOP) SAFE CONVEYOR MEDECO CYLINDER LOCKS (5) REFRIGERATOR AND MICROWAVE USED BY EMPLOYEES TACK BOARDS WATER COOLER FIRE EXTINGUISHERS AUDIO ROOM FIXTURES AND SWITCHGEAR PICTURES WAREHOUSE AND MATERIAL HANDLING EQUIPMENT (MOVABLE LADDERS, DOLLIES, ETC.) TRACK LIGHTS (CANS ONLY, NOT TRACKS) 1 EXHIBIT "E" ----------- SIGN PLANS AND CRITERIA (See Attached) 1 [GRAPHIC] [GRAPHIC] [GRAPHIC] [GRAPHIC] [GRAPHIC] [GRAPHIC] EXHIBIT "F" ----------- PERMITTED ENCUMBRANCES A. Other Shopping Center occupants' exclusive uses and restrictive covenants in Prior Leases prohibit the following uses of the Premises: 1. Any non-retail purpose (the following shall not be deemed non-retail: barber shops, insurance agencies, travel agencies, medical, dental or optometric facilities, beauty salons, banks, small loan offices, real estate offices and gasoline service stations, and the following if incidental to retailing: other offices, storage, storage, repairs and alteration facilities). 2. A business selling home improvement items including, not but limited to, lumber, building materials and/or garden supplies, except that other stores may sell such items as an incidental part of their business. For the purposes of this paragraph, such sales shall be "incidental" if they do not exceed fifteen percent (15%) of the sales in such business. 3. A retail grocery, meat or produce store of any nature, provided that this restriction shall not prohibit a specialty bake shop or a delicatessen. 4. Entertainment purposes, such as: cinema, theater, skating rink, bowling alley, bar, tavern, discotheque, dance hall, amusement gallery, pool hall, health club, gym, massage parlor or off-track betting facility. 5. For the renting, leasing, sale of any motor vehicle including, but not limited to: operation of any dealership relating to motorcycles, automobiles, trucks and recreational vehicles, including trailers. 6. A restaurant (fast-food or sit-down) within two hundred (200) feet of any wall of the building designated "B" on the Site Plan, provided that this provision shall not apply to an ice cream store, yogurt store or donut shop. In addition, no restaurant shall be located within two hundred (200) feet from the front entrance of the store on the building area designated "D" on the Site Plan, nor shall any office, other than a travel agency or real estate firm, neither being larger than two thousand (2,000) square feet, be located within two hundred fifty (250) feet of said front entrance. In addition, no training or educational facilities shall be located within two hundred (200) feet of said front entrance. 7. A business, trade or profession which requires or has a license or permit to conduct a pharmacy, or which employs or is required to employ a registered or licensed pharmacist or the conduct of any store, business, trade or profession which is called, labeled, named or is commonly known or referred to as a "drug store," "pharmacy," or "apothecary." 8. A sit-down family-oriented buffet style restaurant. 9. A restaurant. 10. So long as an office supply store has not ceased to be operating on the premises currently designated as Building F and G on the Site Plan for a continuous period in excess of six (6) months (excepting any periods during which remodeling or 1 restoration work is being conducted with due diligence) the Premises may not be operated as a store having as its primary business the sale of office supplies, office equipment, office furniture and/or other office products and related goods. This restriction, however, shall not be deemed to prohibit Tenant, its subtenants, transferees, successors or assigns from using the Premises in whole or in part, for the operation of a standard Circuit City store or other similar store for the sale of consumer electronics, automotive electronic products, household appliances and related goods, the warehousing and servicing of same and/or sale and installation of car stereo, audio and telephone systems and similar electronics equipment. 11. A theater, auditorium, meeting hall or other place of assemble; any sports or entertainment facility within four hundred (400) feet of the building designated "F" and "G" on the Site Plan; automobile sales or repairs; bowling alley, pool hall or skating rink, bar serving alcoholic beverages (except as an incident to a full kitchen restaurant operation); funeral parlor; massage parlor; any type of karate, gymnasium, health club or physical fitness facility within four hundred (400) feet of the building designated "F" and "G" on the Site Plan; car wash; off-track betting establishment; amusement or game room within two hundred (200) feet of the building designated "F" and "G" on the Site Plan (excluding electronic games incidental to the operation of a restaurant); a so-called "flea market" or other operation for the sale of used goods (excluding antique stores), night club, discotheque or dance hall; hotel or other lodging facilities; offices (except incidental to a retail operation); school (including, without limitation, trade school or class sessions of any nature whatsoever) within two hundred (200) feet of said building designated "F" and "G"; gun range; any business or use which emits offensive odors, fumes, dust or vapor, or constitutes a public or private nuisance, or emits loud noise or sounds which are objectionable, or creates a fire, explosive or other hazard; manufacturing facility; warehousing (except incidental to a retail operation) adult book store or similar store selling or exhibiting pornographic materials as a substantial part of its business and which prohibits the admission of minors; or a restaurant within two hundred (200) feet of said building designated "F" and "G". 12. Any use other than a retail use. 13. Office use except (i) offices incidental to retail uses and (ii) offices providing services to the general public and customarily found in similar shopping centers, e.g., banking, finance services, real estate or securities brokerage services, financial or tax-planning services, accounting, insurance or legal services, optical, medical or dental services or travel agencies. B. The following uses of the Premises shall be prohibited throughout the Lease Term: 1. The uses prohibited under the Prior Leases and set forth in Paragraphs 1-13 of Section A above, notwithstanding the expiration or termination or amendment of any Prior Lease. 2. The sale of pet food, supplies, fish, birds and small animals and grooming and veterinary services and related goods and services. 3. As an auditorium, meeting hall, school or other place of public assembly, gymnasium or dance hall; for bingo or similar games of chance, or as a massage parlor, video game arcade, bowling alley, skating rink, car wash or car repair or car rental 2 agency, night club or adult book or adult video store which prohibits the admission of minors to the store. C. Permitted Title Exceptions. 1. The exceptions set forth in the Preliminary Title Report for the Shopping Center attached hereto as EXHIBIT "F-1". NOTWITHSTANDING ANYTHING CONTAINED IN THIS EXHIBIT "F" TO THE CONTRARY, NOTHING CONTAINED HEREIN SHALL BE CONSTRUED TO PROHIBIT THE EXERCISE OF THE RIGHTS AND PRIVILEGES GRANTED TO THE TENANT UNDER THE LEASE, INCLUDING BUT NOT LIMITED TO THE TENANT'S EXCLUSIVE USE RIGHTS SET FORTH IN PARAGRAPH 19(a)(vi) OF THE LEASE. 3 EXHIBIT "F-1" ------------- PERMITTED TITLE ENCUMBRANCES (See Attached) 4 ORDER NO. C-57287 - TO Page 2 S C H E D U L E B At the date hereof, exceptions to coverage in addition to the printed exceptions and exclusions in said policy form would be: 1. General and special taxes for the fiscal year 1993-94 a. First Install : $26,066.90, paid Second Install : $20,066.90, Due February 1, 1994, Delinquent April 11, 1994 Code Area : 002-275 Land : $1,009,188.00 Improvements : $3,089,988.00 Exemption : $0.00 Parcel No. : 005-560-014 b. First Install : $17,389.47, paid Second Install : $17,389.47, Due February 1, 1994, Delinquent April 11, 1994 Code Area : 002-275 Land : $567,018.00 Improvements : $2,731,050.00 Exemption : $0.00 Parcel No. : 005-560-016 c. First Install : $10,093.57, paid Second Install : $10,093.57, Due February 1, 1994, Delinquent April 11, 1994 Code Area : 002-275 Land : $396,392.00 Improvements : $1,517,944.00 Exemption : $0.00 Parcel No. : 005-560-017 d. First Install : $70,793.21, paid Second Install : $70,793.21, Due February 1, 1994, Delinquent April 11, 1994 Code Area : 002-275 Land : $3,666,370.00 Improvements : $1,663,334.00 Exemption : $0.00 Parcel No. : 005-560-019 2. According to our Records, a Supplemental Tax has generated on this property by reason of an issuance of a permit, Assessment No. 995-055-010, Butte County Tax Collectors Office cannot furnish us amounts at this time. (Continued) Order No: C-57287 Schedule B- Continued Page 3 3. The lien of supplemental taxes, assessed as a result of transfer of interest and/or new construction, said supplemental taxes being assessed pursuant to Chapter 3.5 commencing with Section 75 of the California Revenue and Taxation Code. NOTE: All Supplemental Taxes which may have been or will be assessed pursuant to the above are the sole responsibility of the Vestee(s) herein and this company assumes no liability regarding the same UNLESS specifically instructed to do so. 4. Assessments and/or charges which may be levied against the premises by Entity : Whitman Avenue Assessment District (collected with taxes) 5. Assessments and/or charges which may be levied against the premises by Entity : Village Park Assessment District (collected with taxes) 6. Assessments and/or charges which may be levied against the premises by Entity : Southeast Chico Redevelopment Area 7. Dedications of easements and other purposes as disclosed by the following map Map : Book 34, of Maps, at Page(s) 7, 8 & 9 For : Sewer easement Affects : 7.5 feet in the Southerly portion of Lot 4 For : Drainage Affects : 45 feet in the South Easterly portion of Lot 4 8. Relinquishment of abutter's rights and waiver of damages in and to the adjacent freeway as disclosed by the following deed to the State of California Recorded on : January 9, 1964 Recorded in : Book 1290, Official Records, Page 81 9. Quitclaim Deed and Authorization to pump, take or otherwise extract water from beneath the surface, as granted to the California Water Service Company, a California corporation, recorded September 8, 1965 in Book 1389 of Official Records, at page 468, records, of Butte County, California. Affects lot 9. (Continued) Order No: C-57287 Schedule B- Continued Page 4 10. Easement and/or right of way for the purpose stated herein and incidental purposes Granted to : City of Chico For : Drainage Recorded on : October 30, 1973 Recorded in : Book 1871, Official Records, Page 489 Affects : Lot 4 11. Relinquishment of abutter's rights and waiver of damages in and to the adjacent freeway as disclosed by the following deed to the State of California Recorded on : September 27, 1974 Recorded in : Book 1941, Official Records, Page 219 12. Release and relinquishment of any and all abutter's rights of access to the City of Chico, contained in instrument recorded April 28, 1980 in Book 2510 Official Records, Page 195, records of Butte County, California. 13. Easement and/or right of way for the purpose stated herein and incidental purposes Granted to : City of Chico For : Storm drain easement and appurtenances Recorded on : November 7, 1980 Recorded in : Book 2567, Official Records, Page 233 Affects : Lot 9 14. TERMS, CONDITIONS AND PROVISIONS of an Agreement Relating to : Assignment and Assumption of Option Agreement Executed by : Douglas W. Bradford, etal Recorded on : June 10, 1988 Recorded in : Butte County Recorder's Serial No. 88-18600 Said Agreement was Assigned on June 10, 1988 in Butte County Recorder's Serial No. 88-18601 15. A Lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Dated : June 6, 1988 Lessor : Douglas W. Bradford Lessee : Homeclub, Inc., a Delaware corporation (now Homebase) Term: : Twenty years Recorded on : June 10, 1988 Recorded in : Butte County Recorder's Serial No. 88-018605 Rerecorded on : September 2, 1988 Rerecorded in : Butte County Recorder's Serial No. 88-30024 (Continued) Order No: C-57287 Schedule B- Continued Page 5 A notice of Lease Restrictions recorded June 13, 1988 in Butte County Recorder's Serial No. 88-18847 Assignment of Leases recorded June 28, 1991 under Butte County Recorder's Serial No. 91-026315. Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. 16. A Lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Dated : May 25, 1988 Lessor : Douglas W. Bradford Lessee : Netco Foods, Inc., a California corporation Term : Twenty years Recorded on : June 10, 1988 Recorded in : Butte County Recorder's Serial No. 88-018606 Rerecorded on : September 2, 1988 Rerecorded in : Butte County Recorder's Serial No. 88-30025 A notice of Lease Restrictions recorded June 13, 1988, in Butte County Recorder's Serial No. 88-18847. Assignment of Leases recorded June 28, 1991 under Butte County Recorder's Serial No. 91-026315. Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. 17. A Lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Dated : May 23, 1988 Lessor : Douglas W. Bradford Lessee : Pay Less Drug Stores Northwest, Inc. Term : Twenty-five years Recorded on : June 10, 1988 Recorded in : Butte County Recorder's Serial No. 88-018607 Rerecorded on : September 2, 1988 Rerecorded in : Butte County Recorder's Serial No. 88-30026 A notice of Lease Restrictions recorded June 13, 1988 in Butte County Recorder's Serial No. 88-18847. Assignment of Leases recorded June 28, 1991 under Butte County Recorder's Serial No. 91-026315. Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. (Continued) Order No: C-57287 Schedule B- Continued Page 6 18. TERMS, CONDITIONS AND PROVISIONS of an Agreement Relating to : Assessment and Cost Sharing Executed By : Park Springfield, etal Recorded on : June 10, 1988 Recorded in : Butte County Recorder's Serial No. 88-018608 19. TERMS, CONDITIONS AND PROVISIONS of an Agreement Relating to : Assessment and Cost Sharing Executed By : Park Springfield, Ltd., etal Disclosed by : Notice of Non-Responsibility Recorded on : June 10, 1988 Recorded in : Butte County Recorder's Serial No. 88-018609 20. Easement and/or right of way for the purpose stated herein and incidental purposes Granted to : City of Chico, For : Public Utility purposes and appurtenances Recorded on : October 27, 1988 Recorded in : Butte County Recorder's Serial No. 88-36684 21. Easement and/or right of way for the purpose stated herein and incidental purposes Granted to : Pacific Gas and Electric Company For : Pipeline and appurtenances Recorded on : October 28, 1988 Recorded in : Butte County Recorder's Serial No. 88-36901 A Notice of Final Description recorded July 14, 1989, under Butte County Recorder's Serial No. 89-26398. 22. Easement and/or right of way for the purpose stated herein and incidental purposes Granted to : California Water Service Company, a Corporation For : Pipeline and appurtenances Recorded on : December 23, 1988 Recorded in : Butte County Recorder's Serial No. 88-43512 23. TERMS, CONDITIONS AND PROVISIONS of an Agreement Relating to : Assignment and Assumption Executed By : Pacific Quadrant Development Company, etal Recorded on : January 10, 1989 Recorded in : Butte County Recorder's Serial No. 89-000933 (Continued) Order No: C-57287 Schedule B - Continued Page 7 24. Easement and/or right of way for the purpose stated herein and incidental purposes Granted to : Pacific Bell For : Underground Communication facilities and appurtenances Recorded on : February 22, 1989 Recorded in : Butte County Recorder's Serial No. 89-5677 25. Consent to removal of personal property affixed to real property In Favor of : Bank of America NT & SA Executed by : Pacific Quadrant Chico Recorded on : March 3, 1989 Recorded in : Butte County Recorder's Serial No. 89-006958 26. A covenant running with the land which recorded March 15, 1989 in Butte County Recorder's Serial No. 89-9229. 27. An unrecorded lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Lessor : Pacific Quadrant - Chico Lessee : George & Nancy Kirby, Husband & Wife Disclosed by : Notice of Non-Responsibility Recorded on : January 3, 1990 Recorded in : Butte County Recorder's Serial No. 90-000295 Assignment of Leases recorded June 28, 1991 under Butte County Recorder's Serial No. 91-026315 Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. 28. An unrecorded lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Lessor : Pacific Quadrant - Chico Lessee : Joseph and Linda Hilliard, Husband and Wife (The Dirty Dog) Disclosed by : Notice of Non-Responsibility Recorded on : April 6, 1989 Recorded in : Butte County Recorder's Serial No. 90-013782 Assignment of Leases recorded June 28, 1991 under Butte County Recorder's Serial No. 91-026315 Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. (Continued) Order No: C-57287 Schedule B- Continued Page 8 29. An unrecorded lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Lessor : Pacific Quadrant - Chico Lessee : Randy J. & Carole Gish (Husband & Wife) - The Postal Shoppe Disclosed by : Notice of Non-Responsibility Recorded on : July 10, 1990 Recorded in : Butte County Recorder's Serial No. 90-028926 Assignment of Leases recorded June 28, 1991 under Butte County Recorder's Serial No. 91-026315. Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. 30. An unrecorded lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Lessor : Pacific Quadrant - Chico Lessee : Richard F. & Eva M. Casey (Husband & Wife)- Check-X-Change Disclosed by : Notice of Non-Responsibility Recorded on : July 13, 1990 Recorded in : Butte County Recorder's Serial No. 90-029620 Assignment of Leases recorded June 28, 1991 under Butte County Recorder's Serial No. 91-026315. Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. 31. An unrecorded lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Lessor : Pacific Quadrant - Chico Lessee : Marge & Ted Crane, Husband & Wife Disclosed by : Notice of Non-Responsibility Recorded on : October 15, 1990 Recorded in : Butte County Recorder's Serial No. 90-044257 Assignment of Leases recorded June 28, 1991 under Butte County Recorder's Serial No. 91-026315. Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. (Continued) Order No: C-57287 Schedule B- Continued Page 9 32. An unrecorded lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Lessor : Pacific Quadrant - Chico Lessee : Wayne & JoAnn Murphy (Husband & Wife) Disclosed by : Notice of Non-Responsibility Recorded on : October 29, 1990 Recorded in : Butte County Recorder's Serial No. 90-046330 Assignment of Leases recorded June 28, 1991 under Butte County Recorder's Serial No. 91-026315. Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. 33. A Deed of Trust to secure an indebtedness of the amount stated herein and any other amounts payable under the terms thereof Dated : June 27, 1991 Trustor(s) : CHICO CROSSROADS CENTER, A CALIFORNIA LIMITED PARTNERSHIP Trustee : First Interstate Bank of California Beneficiary(s) : First Interstate Bank of California Amount : $8,250,000.00 Recorded on : June 28, 1991 Recorded in : Butte County Recorder's Serial No. 91-026316 34. Assignment of Lessors Interest in a California Limited Partnership to First Interstate Bank of California, a California Corporation Recorded June 28, 1991 under Butte County Recorder's Serial No. 91-026317. 35. A Deed of Trust to secure an indebtedness of the amount stated herein and any other amounts payable under the terms thereof Dated : June 4, 1992 Trustor(s) : Chico Crossroads Center, a California Limited Partnership Trustee : First Interstate Bank of California Beneficiary(s) : First Interstate Bank of California Amount : $2,150,000.00 Recorded on : July 29, 1992 Recorded in : Butte County Recorder's Serial No. 92-033929 36. A Financing Statement Debtor : Chico Crossroads Center, a California Limited Partnership Secured Party : First Interstate Bank of California Recorded on : July 29, 1992 Recorded in : Butte County Recorder's Serial No. 92-033931 (Continued) Order No: C-57287 Schedule B- Continued Page 10 37. An unrecorded lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Disclosed by : Notice of Non-Responsibility Recorded on : December 24, 1992 Recorded in : Butte County Recorder's Serial No. 92-059003 38. 39. Easement and/or right of way for the purpose stated herein and incidental purposes Granted to : City of Chico For : Public right of way Recorded on : May 12, 1993 Recorded in : Butte County Recorder's Serial No. 93-018761 Affects : Lot 9 40. 41. An unrecorded lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Lessee : David Kalbach Disclosed by : Personal Property Tax Bill 985-000-909-000-92 Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. (Continued) ORDER NO. C-57287 -TO Page 11 Schedule B (continued) 42. An unrecorded lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Lessee : Randy and Carole Gish, dba The Postal Shoppe Disclosed by : Personal Property Tax Bill 850-025-641-000 Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. 43. An unrecorded lease, affecting the premises herein, executed by and between the parties named herein, subject to the covenants and conditions therein Lessee : Fleming Technology Leasing Co., Inc., dba Fleming Technology Leasing Co. Inc. c/o AVTAX Inc. Assignment of Leases recorded July 29, 1992 under Butte County Recorder's Serial No. 92-033930. 44. Any and all unrecorded leases of the following as evidenced by a physical inspection thereof 1. Hometown Buffet 2. Payless Drug 3. Chubby's 4. Miracle Ear 5. Fantastic Sam's 6. Computer Warehouse 7. O'Bears Yogurt 8. Check X Change 9. AVCO Financial Services 10. Food 4 Less 11. Dirty Dog 12. Home Base 13. Nevada Bob's (Continued) Order No: C-57287 Schedule B- Continued Page 12 14. Play It Again Sports 15. Din Ho Chinese Fast Food 45. A Notice of Non-Responsibility Executed by : Chico Crossroads Center Recorded on : October 12, 1993 Recorded in : Butte County Recorder's Serial No. 93-044685 46. A Notice of Non-Responsibility Executed by : Chico Crossroads Center Recorded on : October 12, 1993 Recorded in : Butte County Recorder's Serial No. 93-044685 NOTES: 1. Conveyances within the last six months are as follows NONE 2. As of January 1, 1990, Chapter 598, California Statutes of 1989 (AB 512; Ins. Code Sec 12413.1) becomes effective. The law requires that all funds be deposited and available for withdrawal by the title entity's escrow or subescrow account prior to disbursement of any funds. ONLY CASH OR WIRED FUNDS CAN BE GIVEN IMMEDIATE AVAILABILITY UPON DEPOSIT. Cashier's checks, Tellers checks and Certified checks may be available one business day after deposit. All other funds such as personal, corporate or partnership checks and drafts may cause material delays in disbursement of funds on this order. In order to avoid delays, all funding should be by wire transfer. Outgoing wire transfers will not be authorized until confirmation of the respective incoming wire transfer or availability of deposited checks. EXHIBIT "G" ----------- SUBORDINATION, NON-DISTURBANCE AND ---------------------------------- ATTORNMENT AGREEMENT -------------------- THIS AGREEMENT, dated the ____ day of ______________, 199__, between _______________________, a _______________________________ ("Mortgagee"), and CIRCUIT CITY STORES, INC., a Virginia corporation ("Tenant"). W I T N E S E T H : (a) Tenant has entered into a certain lease (the "Lease") dated ________, _______ with ______________________________________________ ("Landlord"), covering premises located within that certain property known as ___________________ Shopping Center, located in the City of __________________ ___________________ County, ___________ , and more particularly described in SCHEDULE A hereto; and (b) Mortgagee has made a loan to Landlord as evidenced and secured by a Deed of Trust recorded ________________, 199___ in the land records of _____________ County, _____________________, in Book __________ at page _____ (the "Mortgage"), encumbering the property described in SCHEDULE A; and the parties hereto desire to set forth their agreement with regard to the priority of the Mortgage and the effect thereof on Tenant and its leasehold interest in the aforesaid premises, as set forth below. NOW, THEREFORE, in consideration of the premises and of the sum of One Dollar ($1.00) by each party in hand paid to the other, the receipt of which is hereby acknowledged, the parties hereby agree as follows: 1. The Lease is and shall be subject and subordinate to the lien of the Mortgage insofar as it affects the real property of which the premises form a part, and to all renewals, modifications, consolidations, replacements and extensions thereof, to the full extent of the principal sum secured thereby and interest thereon. 2. Tenant agrees that it will attorn to and recognize any purchaser at a foreclosure sale under the Mortgage, any transferee who acquires the premises by deed in lieu of foreclosure, the successors and assigns of such purchasers, as its Landlord for the unexpired balance (and any extensions, if exercised) of the term of the Lease upon the same terms and conditions set forth in the Lease. 1 3. In the event that it should become necessary to foreclose the Mortgage, Mortgagee thereunder will not terminate the Lease nor join Tenant in summary or foreclosure proceedings so long as Tenant is not in default under any of the material terms, covenants, or conditions of the Lease, beyond any applicable cure period provided in the Lease. 4. Mortgagee consents to the application of casualty and condemnation proceeds in accordance with paragraphs 15 and 16 of the Lease between Landlord and Tenant, whether or not the Mortgage is then foreclosed. 5. In the event that Mortgagee shall succeed to the interest of Landlord under the Lease, Mortgagee shall not be: (a) liable for any act or omission of any prior lessor (including Landlord); or (b) liable for the return of any security deposits unless delivered to Mortgagee; or (c) bound by any rent or other periodic payments which Tenant might have paid for more than the current month to any prior lessor (including Landlord); or (d) bound by any material amendment or modification of the Lease made without its consent, which consent shall not be unreasonably withheld or delayed. 6. Notwithstanding anything contained herein to the contrary, it is expressly understood and agreed that in the event that Landlord defaults in the payment of the Tenant Improvement Allowance, as defined in the Lease, and Mortgagee acquires title to the Shopping Center by foreclosure or otherwise, Mortgagee shall become liable for payment of the Tenant Improvement Allowance to Tenant, and Tenant shall otherwise be entitled to effect a Transfer all in accordance with the terms of the Lease. 2 7. This Agrement shall be binding upon and shall inure to the benefit of the parties hereto, and their successors and assigns. IN WITNESS WHEREOF, the parties hereto have executed these presents the day and year first above written. ATTEST: CIRCUIT CITY STORES, INC., a Virginia corporation By: - -------------------------------------- ----------------------------------- - -------------------------------------- ----------------------------------- ATTEST: COMPANY NAME By: - -------------------------------------- ----------------------------------- - -------------------------------------- ----------------------------------- Note: Attach appropriate notary blocks for the State. 3 EXHIBIT "H" MEMORANDUM OF LEASE This Memorandum of Lease is made this ____day of January, 1994, between CHICO CROSSROADS CENTER, LTD., a California limited partnership (hereinafter referred to as "Landlord"), and CIRCUIT CITY STORES, INC., a Virginia corporation (hereinafter referred to as "Tenant"). W I T N E S E T H: Landlord and Tenant have entered into a Lease (the "Lease") dated January __, 1994, whereby Landlord has leased to Tenant all those certain "Premises" consisting of the "Building" and "Other Improvements," as and when the same are constructed, together with exclusive rights in the four (4) parking spaces labelled "Customer Pick-Up" adjacent to the Building as shown on the Site Plan (provided such spaces are approved by the City's Architectural Review Board, all located in the "Shopping Center," lying and being in the City of Chico, County of Butte, State of California, the legal description of which is set forth on EXHIBIT "A-1" attached hereto (the "Property"). The Lease contains provisions and rights appurtenant to the Property, some of which are as follows: I. TERM. The term of the Lease shall commence on the Commencement Date (as established in the Lease) and end on the last day of January following the twentieth (20th) anniversary of the Commencement Date. Thereafter, Tenant has the right under the Lease to renew and extend the term of the Lease for five (5) successive periods of five (5) years each. 1 II. EXCLUSIVE USE RIGHTS. The Lease provides, subject to certain conditions, that Tenant shall enjoy the sole and exclusive privilege in the Shopping Center located on the Property, subject to the rights of tenants under the Prior Leases, for (i) the sale of consumer, office and automotive electronics products (which include, but shall not be limited to, televisions, stereos, speakers and video recorders and players), computer hardware and software, entertainment software and entertainment media (which include, but shall not be limited to, records, game cartridges, video tapes, cassettes and compact discs), cellular telephones, household appliances (which include, but shall not be limited to, refrigerators, freezers, stoves, microwave ovens, vacuum cleaners and dishwashers) and related goods, and the sale and installation of motor vehicle audio, stereo and telephone systems (all of such items being herein collectively referred to as the "Products"), and (ii) renting, servicing, repairing and warehousing of the Products. III. SUCCESSORS. The covenants, conditions and agreements made and entered into by the parties hereto shall be binding upon and inure to the benefits of their respective heirs, administrators, executors, representatives, successors and assigns. IV. INCORPORATION OF LEASE. All terms and conditions of the Lease are hereby incorporated herein by reference as if fully set forth herein. 2 V. CONFLICTS WITH LEASE. This Memorandum of Lease is soley for notice and recording purposes and shall not be construed to alter modify, expand, diminish or supplement the provisions of the Lease. In the event of any inconsistency between the provisions of this Memorandum of Lease and the provisions of the Lease, the provisions of the Lease shall govern. IN WITNESS WHEREOF, this Memorandum of Lease has been duly executed by the parties hereto as of the day and year first above written. Chico Crossroads Center, Ltd., a California limited partnership By: JMLB, Inc., a California corporation By:________________________________ Jamie Sohacheski Its: President ___________________________________ __________________________________ CIRCUIT CITY STORES, INC., a Virginia corporation By: ___________________________________ Name: ___________________________________ Title: ___________________________________ Note: Attach appropriate notary blocks for the State. 3 OD No. 917 Chico, California LEASE TERM COMMENCEMENT DATE ACKNOWLEDGEMENT Landlord and Tenant (identified below) acknowledge and agree that the term of the Lease between Landlord and Tenant dated December 15, 1993 commenced on October 31, 1994 and that the initial term expires on October 31, 2009. LANDLORD: CHICO CROSSROADS CENTER a California limited partnership By: JMLB, INC. BY: J. Sohacheski ------------------------------- ITS: President ------------------------------- DATE:5-1-95 ------------------------------- TENANT: OFFICE DEPOT, INC., a Delaware corporation BY: /s/ Karen L. illegible ------------------------------- ITS: Lease Administrator DATE: 11/2/94 ------------------------------- EXHIBIT "I" COMMENCEMENT DATE AGREEMENT THIS AGREEMENT, made as of this 21 day of November, 1994, between CHICO CROSSROADS CENTER, LTD., a California limited partnership (herein called "Landlord"), and CIRCUIT CITY STORES, INC. (herein called "Tenant"). W I T N E S E T H: WHEREAS, Landlord is the owner of certain premises situated in CHICO, BUTTE County, CALIFORNIA (herein called the "Premises"); and WHEREAS, by that certain lease dated February 15, 1994 (herein called the "Lease"), Landlord leased the Premises to Tenant; and WHEREAS, a memorandum or short form lease in respect of the Lease was recorded in the office of the Clerk of BUTTE County, CHICO, on the 31 day of MAY, 1994, in Book SERIAL #94-022936 at Page___; and WHEREAS, Tenant is in possession of the Premises and the term of the Lease has commenced; and 1 WHEREAS, under Paragraph 25 of the Lease, Landlord and Tenant agreed to enter into an agreement setting forth certain information in respect of the Premises and the Lease; NOW, THEREFORE, Landlord and Tenant agree as follows: 1. The term of the Lease commenced on, and the Commencement Date (as such term is defined in the Lease) was, NOVEMBER 12, 1994. The term of the Lease shall expire on January 31, 2014 unless Tenant exercises any option to extend the term of the Lease or unless the Lease terminates earlier as provided in the Lease. 2. The date of commencement of the first "Option Period" (as such term is defined in the Lease) shall be February 1, 2015 if Tenant effectively exercises its option in respect thereof, and if Tenant does so, the term of the Lease shall expire on January 31, 2020 unless Tenant exercises any option to further extend the term of the Lease or the Lease terminates earlier as provided in the Lease. 3. The date of commencement of the second Option Period shall be February 1, 2020 if Tenant effectively exercises its option in respect thereof, and if Tenant does so, the term of the Lease shall expire on January 31, 2025 unless Tenant exercises any option to further extend the term of the Lease or the Lease terminates earlier as provided in the Lease. 4. The date of commencement of the third Option Period shall be February 1, 2025 if Tenant effectively exercises its option in respect thereof, and if Tenant does so, the term of the Lease shall expire on January 31, 2030 unless Tenant exercises any 2 option to further extend the term of the Lease or the Lease terminates earlier as provided in the Lease. 5. The date of commencement of the fourth Option Period shall be February 1, 2030 if Tenant effectively exercises its option in respect thereof, and if Tenant does so, the term of the Lease shall expire on January 31, 2035 unless Tenant exercises any option to further extend the term of the Lease or the Lease terminates earlier as provided in the Lease. 6. The date of commencement of the fifth Option Period shall be February 1, 2035 if Tenant effectively exercises its option in respect thereof, and if Tenant does so, the term of the Lease shall expire January 31, 2040 unless the Lease terminates earlier as provided in the Lease. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed the day and year first above written. Attest or Witness: Chico Crossroads Center, Ltd., a California limited partnership _____________________________ By: JMLB Inc. ------------------------------- a California corporation By: ---------------------------- Jamie Sohacheski Its: President Attest: CIRCUIT CITY STORES, INC. /s/ Joseph illegible By /s/ Behjamin B. Cummings, Jr. - ----------------------------- -------------------------------- Assistant Secretary Vice President 3 Location #3322 2041 Whitman Ave. Chico, CA ASSIGNMENT AND ASSUMPTION OF LEASE THIS ASSIGNMENT AND ASSUMPTION OF LEASE ("Assignment") is made as of May 1, 1994, by and between CIRCUIT CITY STORES, INC., a Virginia corporation ("Assignor"); and CIRCUIT CITY STORES WEST COAST, INC., a California corporation ("Assignee"). RECITALS: A. Assignor is the lessee under that certain lease or sublease described in Exhibit A attached hereto (as now or hereafter amended, "the Lease") for the premises described in the Lease (the "Leased Premises"). B. Assignee is a wholly-owned subsidiary of Assignor. C. Assignor desires to assign its right, title and interest in the Lease to Assignee, and Assignee desires to accept such assignment and assume the performance of all of Assignor's obligations under the Lease on the terms set forth herein. AGREEMENTS: NOW, THEREFORE, it is mutually agreed among the parties as follows: 1. As of the date hereof, Assignor assigns, transfers, sells and conveys to Assignee (a) all of Assignor's right, title, interest and estate in and to the Lease and (b) all of Assignor's other rights, title and interest with respect to the Leased Premises, including without limitation, all licenses, rights, permits, warranties and entitlements applicable to the Leased Premises. 2. As of the date hereof, Assignee accepts said assignment and expressly assumes the payment and performance of all of Assignor's obligations under the Lease arising from and after the date hereof. 3. Notwithstanding anything to the contrary contained herein, Assignor shall not be released from the performance of the lessee's obligations under the Lease, and Assignor shall remain primarily liable for said performance, including without limitation, the payment of all rent and the performance of all of the lessee's other obligations throughout the remainder of the term of the Lease. 4. Assignor warrants that it has good and marketable leasehold title to, and lawful possession of, the Leased Premises pursuant to the Lease. Assignor shall indemnify, defend and hold harmless Assignee from and against any loss, damage, claim, cost or expense (including reasonable attorneys' fees and litigation expenses) incurred or suffered by, or asserted against, Assignee as a result of a breach by Assignor of the foregoing warranty of title contained herein. 5. This Assignment shall be binding upon and inure to the benefit of the parties hereto, their respective successors and assigns. 2 WITNESS the following signatures. ASSIGNOR: CIRCUIT CITY STORES, INC. By: /s/ P Dunn --------------------------------- Title: Treasurer ASSIGNEE: CIRCUIT CITY STORES WEST COAST, INC. By: /s/ P Dunn --------------------------------- Title: Treasurer & CFO 3 EXHIBIT "J" ----------- SUPPLEMENTAL SITE PLAN (See Attached) [ M A P ] EXHIBIT "K" ----------- LIST OF PRIOR LEASES 1) Homeclub, Inc. Shopping Center Lease, dated June 6, 1988, as amended 2) HomeTown Buffet, Inc. Lease, dated May 15, 1992, as amended 3) Payless Drug Stores Northwest, Inc., dated May 23, 1988, as amended 4) Netco Food, Inc. Lease, dated May 25, 1988, as amended 5) Office Depot, Inc. Lease, dated December 15, 1993 1 EXHIBIT "L" ----------- TENANT IMPROVEMENT ALLOWANCE REIMBURSEMENT CRITERIA 1. An application for payment signed by Tenant's Vice President of Construction certifying that the Improvements have been completed in compliance with Tenant's Plans and Specifications with only such modifications as are permitted by this law. 2. A Certificate of Completion of the Improvements duly executed by Tenant's Vice President of Construction addressed to Landlord. 3. "Record Drawings" in a form reasonably satisfactory to Landlord showing any modifications to Tenant's Plans and Specifications. 4. Any bond or bonds required to release any stop notices received by Landlord or by Landlord's lender (currently, First Interstate Bank) with respect to Tenant's construction of the Improvements. 5. Any other items reasonably required by Landlord's lender (currently, First Interstate Bank), as a condition to said lender's disbursement of any portion of the Tenant Improvement Allowance, including any lien waivers or affidavits unconditionally waiving lien rights (provided, however, said requirement may be alternatively satisfied by Tenant providing an indemnity which enables a title company to insure the priority of the lien of said lender's deed of trust against any mechanic's liens attributable to work performed by or at the request of Tenant, for which Tenant is financially responsible). 1 EXHIBIT "M" ----------- TENTATIVE VESTING PARCEL MAP (See Attached) 1 [ M A P ] [LETTERHEAD] June 30, 1994 Dear Landlord, Enclosed is your copy of the Assignment and Assumption of Lease made May 1, 1994, by and between Circuit City Stores, Inc. and Circuit City Stores West Coast, Inc. If you have any questions, please call Jeff Fender at (804) 527-4000, extension 4492. Sincerely, /s/ Philip J. Dunn - ------------------ Philip J. Dunn Treasurer PJD/kc [LETTERHEAD] May 26, 1995 Circuit City Stores 9950 Mayland Drive V.P.R.E. Richmond, VA 23233 RE: Circuit City Store #3322 Dear Sir: Enclosed please find the fully executed Lease Commencement for the above referenced store. Should you have any questions, please call. Sincerely, /s/ Ann Weatherford - -------------------- Ann Weatherford Property Manager [LETTERHEAD] Location #3322 2041 Whitman Ave. Chico, CA April 20, 1994 Chico Crossroads Center, Ltd. c/o Commercial Management and Development 4811 Chippendale Drive, Suite 307 Sacramento, CA 95841 NOTIFICATION OF ASSIGNMENT OF LEASE Dear Landlord: Circuit City Stores, Inc., a Virginia corporation ("Circuit City Stores"), is the tenant under a lease (the "Lease") for the Circuit City store referred to above. Circuit City Stores has now decided to assign its rights under the Lease to its wholly owned subsidiary, Circuit City Stores West Coast, Inc., a California corporation. The assignment will occur on May 1, 1994, or soon thereafter. A copy of the form of Assignment and Assumption Agreement that will be used in this transaction (the "Assignment") is attached. Upon completion of the transaction, a fully executed copy of the assignment agreement will be sent to you. The Lease will remain in full force and effect and Circuit City Stores will remain fully liable under the Lease. Very truly yours, CIRCUIT CITY STORES, INC. By: /s/ Benjamin B. Cummings ------------------------------------ Its: V.P. ------------------------------------ EX-10.13 18 LEASE (CHICO CROSSROADS & BARNES & NOBLE) BARNES & NOBLE GUARANTY OF LEASE THIS GUARANTY OF LEASE is made as of January 5, 1996, by BARNES & NOBLE, INC., a Delaware corporation ("GUARANTOR"), for the benefit of Chico Crossroads Center, a California limited partnership ("LANDLORD"). RECITALS: A. Barnes & Noble Superstores, Inc., a Delaware corporation, is the Tenant under that certain lease (the "LEASE") with Landlord dated _____, 1996, respecting certain premises (the "PREMISES") located at Chico Crossroads Shopping Center, City of Chico, County of Butte, State of California, as more particularly described in the Lease. B. As a condition to entering into the Lease, Landlord requires that Guarantor guarantee the full performance of the obligations of Tenant under the Lease. NOW, THEREFORE, in consideration of the execution of the Lease by Landlord and other valuable consideration, the receipt and adequacy of which are hereby acknowledged, Guarantor covenants and agrees as follows: AGREEMENT 1. GUARANTEE. Guarantor hereby absolutely, irrevocably and unconditionally guarantees to Landlord the full and faithful performance of all of the covenants, conditions, agreements and undertakings of Tenant to be kept and performed by Tenant, its successors and assigns under the Lease including, but not limited to, the payment when due of all rent, additional rent, property taxes, insurance, and other sums payable by Tenant, its successors and assigns to Landlord under the Lease (collectively the "OBLIGATIONS") if such Obligations are not paid or performed, as the case may be, after any notice and/or cure period provided for in the Lease. Guarantor understands and agrees that this Guaranty is unconditional and continuing and is a guaranty of payment and performance and not of collection. 2. INDEPENDENT OBLIGATION. The liability of Guarantor hereunder is independent of the obligation of Tenant or any other person or entity and a separate action or separate actions may be brought and prosecuted against Guarantor whether or not any action is brought or prosecuted against Tenant or whether Tenant is joined in any such action or actions. 3. MODIFICATIONS TO LEASE. Guarantor's obligations under this Guaranty of Lease shall not be extinguished, discharged, diminished or reduced in any way by any modification or amendment of the Lease including, but not limited to, any modification of payment dates or amounts, or any subsequent sublease or assignment of the Lease made with or without the consent of Landlord. Guarantor hereby waives any right to approve any modification or amendment of the Lease and agrees that its obligations hereunder shall be modified to the same extent and with the same force and effect as any modification or amendment of the Lease. 4. NO WAIVER. No failure on the part of Landlord to pursue any remedy under this Guaranty of Lease or under the Lease shall constitute a waiver on the part of Landlord of its right to pursue such remedy on the basis of the same or a subsequent default. 5. WAIVER OF EXONERATION. Guarantor waives any right to require Landlord to (a) proceed against Tenant, (b) pursue any other right or remedy available to Landlord, or (c) have the property of Tenant first applied to the discharge of the Obligations. Guarantor further waives any defense it may acquire by reason of Landlord's election of any remedy against Guarantor or Tenant, or both. 6. WAIVER OF SUBROGATION. Until the obligations of Tenant under the Lease have been performed in full, Guarantor shall have no right of subrogation against Tenant, and Guarantor hereby expressly waives any right to enforce any remedy which Landlord now has or may hereafter acquire against Tenant. Guarantor hereby waives the benefit of, and any right to participate in, any security now or hereafter held by Landlord for the performance of any obligations of Tenant under the Lease. 7. WAIVER OF PRESENTMENTS. Guarantor waives any presentments, demands for performance, notices of nonperformance, protests, notices of protest, notices of dishonor, and notices of acceptance of this Guaranty and waives all notices of the existence, creation, or incurring of new or additional Obligations. 8. OTHER GUARANTOR WAIVERS. Without limiting the generality of the preceding paragraphs, Guarantor hereby waives all rights and defenses to: (a) All defenses by reason of any lack of authority of Tenant respecting Obligations accruing under the Lease or this Guaranty; -2- (b) Any and all rights it may have now or in the future to require or demand that Landlord pursue any right or remedy Landlord may have against Tenant or any other third party; (c) Any defense as a surety, it being understood and agreed that, at its option, Landlord may treat this instrument as either a guaranty or a suretyship; (d) Any duty or obligation of Landlord to disclose to Guarantor any facts Landlord may know or hereafter know about Tenant, regardless of whether Landlord has reason to believe that any such facts materially increase the risk beyond that which Guarantor intends to assume or has reason to believe that such facts are unknown to Guarantor or has a reasonable opportunity to communicate such facts to Guarantor, it being understood and agreed that Guarantor is fully responsible for being and keeping informed of the financial condition of Tenant and of any and all circumstances bearing on the risk of nonperformance of any Obligation; (e) Any defense based upon an election of remedies by Landlord, including any election which destroys or impairs any right of subrogation, reimbursement or contribution which Guarantor may have, or any rights or benefits under any provisions of applicable law in any way qualifying, conditioning or limiting the obligations of Guarantor based on any steps or procedures that landlords should take before proceeding against Guarantor; and (f) Any defense by reason of any invalidity, irregularity or unenforceability of all or any part of the Obligations. 9. BANKRUPTCY. This Guaranty will continue unchanged by any bankruptcy, reorganization or insolvency of Tenant, or any successor or assignee thereof, or by any disaffirmance or abandonment by a trustee of Tenant. Notwithstanding any modification, discharge or extension of the indebtedness or any amendment, modification, stay or cure of Landlord's rights which may occur in any bankruptcy or reorganization case or proceeding concerning Tenant whether permanent or temporary, and whether assented to by Landlord, Guarantor hereby agrees that it shall be obligated hereunder to pay and perform the Obligations in accordance with the terms of the Lease and the terms of this Guaranty. Guarantor understands and acknowledges that by virtue of this Guaranty, Guarantor has specifically assumed any and all risks of a bankruptcy or reorganization case or proceeding with respect to Tenant. 10. GOVERNING LAW. This Guaranty of Lease shall be construed and interpreted in accordance with the laws of the State of California. -3- 11. CAPTIONS. The captions and paragraph numbers appearing in this Guaranty of Lease are inserted only as a matter of convenience and are not to be used to interpret this Guaranty of Lease. 12. EXAMINATION OF LEASE. Guarantor acknowledges that it has (a) received a copy of the Lease, (b) read and understood the terms and provisions of the Lease including, but not limited to, the covenants, conditions, agreements and undertakings of Tenant to be kept and performed by Tenant under the Lease, (c) read and understood the provisions of this Guaranty of Lease, and (d) understood the obligations of Guarantor under this Guaranty of Lease, including the legal effect of such obligations and has been advised by legal counsel respecting such obligations. 13. RELEASE OF GUARANTY. Notwithstanding anything to the contrary contained herein, at such time as Tenant is released from liability under the Lease in accordance with the terms thereof, this Guaranty shall be null and void and of no further force or effect. 14. ATTORNEYS' FEES. Guarantor agrees that if Landlord shall employ an attorney to present, enforce or defend Landlord's rights or remedies hereunder, Guarantor shall pay any and all reasonable attorneys' fees, related disbursements and court costs incurred by Landlord in connection therewith. IN WITNESS WHEREOF, Guarantor has executed this Guaranty of Lease as of the date first hereinabove set forth. "GUARANTOR" BARNES & NOBLE, INC., a Delaware Corporation By: /s/ Mitchell S. Klipper ----------------------- Mitchell S. Klipper Executive Vice President -4- BARNES & NOBLE BOOKSTORE LEASE AGREEMENT DATED: January 16 , 1995 LANDLORD: Chico Crossroads Center, a California limited partnership TENANT: BARNES & NOBLE SUPERSTORES, INC., A DELAWARE CORPORATION PREMISES: Chico Crossroads Shopping Center Chico, California TABLE OF CONTENTS 1. DEMISE AND PREMISES. . . . . . . . . . . . . . . . . . . . . . . . -1- 2. TERM OF LEASE, HOLDOVER AND OPTIONS. . . . . . . . . . . . . . . . -1- 3. RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2- 4. CONSTRUCTION OF THE PREMISES . . . . . . . . . . . . . . . . . . . -4- 5. DELIVERY AND ACCEPTANCE OF THE PREMISES. . . . . . . . . . . . . . -7- 6. COVENANT OF TITLE AND QUIET ENJOYMENT. . . . . . . . . . . . . . . -8- 7. USE OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . -8- 8. REAL ESTATE TAXES. . . . . . . . . . . . . . . . . . . . . . . . . -11- 9. COMMON AREA. . . . . . . . . . . . . . . . . . . . . . . . . . . . -12- 10. MAINTENANCE BY LANDLORD. . . . . . . . . . . . . . . . . . . . . . -15- 11. MAINTENANCE BY TENANT. . . . . . . . . . . . . . . . . . . . . . . -15- 12. ALTERATIONS, ADDITIONS AND IMPROVEMENTS. . . . . . . . . . . . . . -16- 13. SIGNS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16- 14. LANDLORD'S RIGHT OF ENTRY. . . . . . . . . . . . . . . . . . . . . -17- 15. UTILITIES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17- 16. PARKING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18- 17. [INTENTIONALLY DELETED]. . . . . . . . . . . . . . . . . . . . . . -18- 18. [INTENTIONALLY DELETED). . . . . . . . . . . . . . . . . . . . . . -18- 19. NO BUILD AREA, VISIBILITY AND ACCESS . . . . . . . . . . . . . . . -18- 20. ASSIGNMENT AND SUBLEASING. . . . . . . . . . . . . . . . . . . . . -19- 21. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20- 22. INDEMNITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -21- 23. RELEASE AND WAIVER OF SUBROGATION. . . . . . . . . . . . . . . . . -21- 24. FIRE AND CASUALTY DAMAGE . . . . . . . . . . . . . . . . . . . . . -21- 25. CONDEMNATION . . . . . . . . . . . . . . . . . . . . . . . . . . . -23- 26. DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24- 27. HAZARDOUS MATERIALS. . . . . . . . . . . . . . . . . . . . . . . . -26- 28. SUBORDINATION AND NON-DISTURBANCE. . . . . . . . . . . . . . . . . -28- 29. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28- 30. MEMORANDUM OF LEASE. . . . . . . . . . . . . . . . . . . . . . . . -29- 31. LIENS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29- 32. TENANT'S ENTRY PRIOR TO COMMENCEMENT DATE. . . . . . . . . . . . . -29- 33. FORCE MAJEURE. . . . . . . . . . . . . . . . . . . . . . . . . . . -29- 34. BROKERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30- 35. LANDLORD'S SUBORDINATION . . . . . . . . . . . . . . . . . . . . . -30- 36. ESTOPPEL CERTIFICATES. . . . . . . . . . . . . . . . . . . . . . . -30- 37. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . -30- 38. EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34- EXHIBIT A - Legal Description EXHIBIT B - Shopping Center Site Plan EXHIBIT C - Notice of Lease EXHIBIT D - Landlord's Work EXHIBIT E - Intentionally Deleted EXHIBIT F - Use Provisions EXHIBIT G - Tenant's Prototype Signage and Elevation Designs EXHIBIT H - Subordination, Non-Disturbance and Attornment Agreement EXHIBIT I - Memorandum of Lease -2- LEASE AGREEMENT THIS LEASE AGREEMENT is made and entered into by and between CHICO CROSSROADS CENTER, a California limited partnership ("LANDLORD"), whose address is: 1510 Arden Way, Suite 205 Sacramento, California 95815 and whose Federal taxpayer identification number is 95-4328335, and BARNES & NOBLE SUPERSTORES, INC., a Delaware corporation, d/b/a Barnes & Noble Bookstore ("TENANT"). The Effective Date of the Lease is the date of last execution (as defined in Paragraph 37.6 below) and is hereby established as January 16, 1996. 1. DEMISE AND PREMISES 1.1 Landlord, in consideration of the rents hereinafter reserved and agreed to be paid by Tenant, hereby leases to Tenant and Tenant hereby leases from Landlord the following described premises (the "PREMISES") situated within the City of Chico, County of Butte, California, being part of a shopping center commonly known as Chico Crossroads Shopping Center (the "SHOPPING CENTER"), and comprised of a portion of a building (the "BUILDING"), which portion contains Leasable Square Footage (as defined in Paragraph 3.1) of approximately 24,660 square feet (with a width of approximately 128 feet and a depth of approximately 154 feet, irregularly shaped), together with the nonexclusive use and benefit of all of Landlord's appurtenant rights, privileges and easements. The Premises has a mailing address recognized by the United States Postal Service of: 2031 Whitman Avenue Suite B Chico, California 95926 1.2 For the purposes of this Lease, "TENANT'S PROPORTIONATE SHARE" shall equal a fraction, the numerator of which is the Leasable Square Footage of the Premises as determined by the Square Footage Certificate (defined below), and the denominator of which is the total Leasable Square Footage of all buildings in the Shopping Center, including the Premises, shown on EXHIBIT B, whether those buildings are constructed or occupied, and all buildings constructed that are not shown on EXHIBIT B, whether occupied or not. Currently Landlord estimates the denominator of the fraction to be 267,533 Leasable Square Feet as of the Effective Date hereof, resulting in an estimated Tenant's Proportionate Share of 9.22%, but in the event additional buildings not shown on EXHIBIT B are at any time constructed within the Shopping Center, whether owned by Landlord or others, Tenant's Proportionate Share shall be appropriately adjusted as of the day said additional buildings are completed, whether such buildings are occupied or not. 1.3 A legal description of the Shopping Center is set forth in EXHIBIT A, and the Premises are outlined on the site plan of the Shopping Center attached as EXHIBIT B. Landlord covenants that the Shopping Center is or will be substantially as shown on Exhibit B and contains at least 265,000 Leasable Square Feet. 2. TERM OF LEASE, HOLDOVER AND OPTIONS 2.1 The term of this Lease (the "TERM") shall commence on the date of Landlord's delivery and Tenant's acceptance of the Premises as provided in Article 5 below ("COMMENCEMENT DATE") and shall end on the last day of the fifteenth (15th) Lease Year (as defined in Paragraph 3.4), plus, if applicable, the number of additional days required such that the expiration of the Term, including any extensions thereof, shall not occur during the months of September through and including January. The Term may be extended as provided in Paragraph 2.4 below and, in such event, "Term" shall include any and all of such extensions. 2.2 Landlord and Tenant agree to sign within thirty (30) days following the Rent Commencement Date (as defined in Paragraph 3.3) a Notice of Lease in the form set forth in EXHIBIT C, reciting the Commencement Date, the Rent Commencement Date and the expiration date of the primary Term. 2.3 Should Tenant continue to occupy the Premises, or any part thereof, after the expiration of the Term, unless otherwise agreed in writing, such occupancy shall constitute and be construed as a tenancy from month to month, and either Landlord or Tenant may terminate such tenancy upon thirty (30) days written notice to the other. Such month-to-month tenancy shall otherwise be on and subject to all of the other terms and provisions set forth in this Lease, except that "Fixed Rent" during such month-to-month tenancy shall be paid at the rate of 125% of the Fixed Rent in effect immediately prior to the expiration of the Term. 2.4 Provided Tenant shall not then be in default (beyond any applicable cure period) under this Lease, Tenant shall have the right, privilege and option to extend the Term for three (3) successive periods of five (5) years each under the same terms and conditions of this Lease then in effect, except that the rental paid for any option period shall be the amount indicated in Paragraph 3.2 below. If Tenant elects to exercise any option, it shall do so by giving Landlord written notice at least one hundred eighty (180) days prior to the expiration of the then existing Term. 3. RENT 3.1 Tenant agrees and covenants to pay Landlord an annual fixed rent in the sum equal to the product of the dollar amount set forth in Paragraph 3.2 below multiplied by the Leasable Square Footage of the Premises ("FIXED RENT"). Fixed Rent shall be payable in advance, without demand, on the first day of each calendar month in equal monthly installments and shall not be increased, abated or diminished except as set forth herein. For purposes of this Lease, "LEASABLE SQUARE FOOTAGE" shall mean the amount of space in the Premises as measured from the middle of common walls and the exterior of outside walls and such measurement shall exclude adjacent corridors, elevator shafts, stairwells, heating and ventilation facilities and telephone and electric rooms not exclusively serving the Premises, and any part of the Common Area (defined below); provided, however, that the parties agree that Tenant's Building Proportionate Share (as defined in Paragraph 9.10) of the square footage of the telephone and electrical room serving the Premises and the adjoining premises shall be deemed to be included within the Leasable Square Footage of the Premises. The Leasable Square Footage of the Premises shall be determined and certified in writing (the "SQUARE FOOTAGE CERTIFICATE") by an architect or other individual selected by Landlord and Tenant. In no event shall the Leasable Square Footage of the Premises for the purposes of this Lease exceed one hundred two percent (102%) of the square footage set forth in Paragraph 1.1 above. 3.2 Fixed Rent shall be determined as follows: (a) Fixed Rent for the first (1st) through tenth (1Oth) Lease Years shall equal Nine and 70/100 Dollars ($9.70) per annum per square foot of Leasable Square Footage as established by the Square Footage Certificate. (b) Fixed Rent for the eleventh (11th) through fifteenth (15th) Lease Years shall equal Ten and 93/100 Dollars ($10.93) per annum per square foot of Leasable Square Footage as established by the Square Footage Certificate. (c) Fixed Rent for the sixteenth (16th) through twentieth (20th) Lease Years (I.E., the "FIRST RENEWAL TERM") shall equal Twelve and 56/100 Dollars ($12.56) per annum per square foot of Leasable Square Footage as established by the Square Footage Certificate. -2- (d) Fixed Rent for the twenty-first (21st) through twenty-fifth (25th) Lease Years (I.E., the "SECOND RENEWAL TERM") shall equal Fourteen and 45/100 Dollars ($14.45) per annum per square foot of Leasable Square Footage as established by the Square Footage Certificate. (e) Fixed Rent for the twenty-sixth (26th) through thirtieth (30th) Lease Years (I.E., the "THIRD RENEWAL TERM") shall equal Sixteen and 62/100 Dollars ($16.62) per annum per square foot of Leasable Square Footage as established by the Square Footage Certificate. 3.3 Tenant's obligation to pay Fixed Rent and Additional Rent (as defined in Paragraph 3.5) shall commence on the "RENT COMMENCEMENT DATE" which is defined as the earlier of (i) one hundred fifty (150) days after Landlord delivers and Tenant accepts the Premises in accordance with Article 5 below, or (ii) the date Tenant first opens for business in the Premises. In the event, however, Tenant accepts the Premises even though one or more of the conditions set forth in Paragraph 5.1 have not been satisfied, the Rent Commencement Date shall not occur until either (i) Landlord has satisfied all of such conditions (including the Post-Commencement Date Work, as defined in Paragraph 5.1, permitted to be performed after the Commencement Date pursuant to Paragraph 5.1) or (ii) Tenant opens for business to the public. In the event the Post- Commencement Date Work is not completed within ninety (90) days after the Commencement Date, Tenant shall deduct as liquidated damages from its first and, if necessary, subsequent payments of Fixed Rent one day's rent (calculated at the daily rate based on a thirty day month) for each day such completion of the Post-Commencement Date Work is delayed beyond such ninety day period after the Commencement Date. Notwithstanding any provision in this Lease to the contrary, if the Rent Commencement Date under this Paragraph 3.3 would otherwise occur on or after the first Monday preceding Thanksgiving Day (or such date plus the number of days beyond fourteen (14) days, if any, which the June 13th date in clause (ii) of Paragraph 5.4 herein has been delayed pursuant thereto) through and including the following January 31, then the Rent Commencement Date shall not occur until the following February 1, or such earlier date Tenant opens for business. If the Rent Commencement Date is not the first day of a calendar month, the first month's Fixed Rent shall be prorated, and shall be payable with the first full monthly installment of Fixed Rent due hereunder. 3.4 A "LEASE YEAR" is defined as the twelve (12) full calendar months following the Rent Commencement Date plus any partial calendar month in which the Rent Commencement Date occurs, and each period of twelve (12) full calendar months thereafter. 3.5 Tenant shall pay as additional rent ("ADDITIONAL RENT") any and all charges to be paid under this Lease in addition to Fixed Rent, including but not limited to Tenant's Proportionate share of Real Property Taxes and Assessments, Percentage Rent, insurance, and CAM Expenses, whether or not the same may be designated as Additional Rent. Fixed Rent and Additional Rent are hereinafter collectively called "RENT". 3.6 (a) In addition to Fixed Rent, Tenant agrees to pay to Landlord, as annual "PERCENTAGE RENT," a sum equal to (i) four and one-half percent (4.5%) times (ii) the positive difference, if any, between (a) Tenant's Gross Sales (hereinafter defined) in any fiscal year during the Term, less (b) the Breakpoint (as hereinafter defined) for such fiscal year. For purposes of this Lease, the Breakpoint shall mean $4,750,000, which sum shall be increased by fifteen percent (15%) after each of the tenth (1Oth), fifteenth (15th), twentieth (20th) and twenty-fifth (25th) full fiscal years. Tenant shall owe no Percentage Rent for any fiscal year unless Tenant's Gross Sales during such period exceeds the then Breakpoint. Tenant shall submit to Landlord, within sixty (60) days following the end of each fiscal year during the Term, a written statement signed by Tenant and certified by an officer of Tenant to be true and correct, showing in reasonably accurate detail the amount of Tenant's Gross Sales for the preceding fiscal year, together with remittance of any Percentage Rent due. (b) For the purposes of this Lease, the term "Gross Sales" shall mean all sales from all business conducted by Tenant or any subtenant, assignee, licensee or concessionaire upon or from the Premises, except: (i) the amount of any sales tax, use tax, gross receipts tax, successor tax or similar tax by whatever name called, imposed by a federal, state, -3- municipal or governmental authority directly on sales and collected from customers; (ii) reimbursement for third party delivery charges; (iii) proceeds of claims for damage to or loss of merchandise; (iv) sales other than to retail customers of damaged or aged merchandise; (v) sales of gift certificates, provided that if gift certificates are sold from the Premises or elsewhere are redeemed at the Premises, such redemption shall constitute a sale; (vi) license fees and rents paid to Tenant by subtenants and licensees; (vii) credit card charges paid by Tenant to credit card companies such as Visa and Mastercard, not to exceed five percent (5%) of Tenant's Gross Sales in any year; (viii) forfeited deposits or installments on customers' special order purchases or merchandise provided such merchandise is not resold; (ix) income from telephone or vending machines; (x) sums raised for and donated to charitable organizations; (xi) the exchange of merchandise between the stores of Tenant where such exchange is made solely for the convenient operation of the business of Tenant and not for the purpose of depriving Landlord of the benefit of a sale which otherwise would be made from the Premises; (xii) the amount of returns to shippers and manufacturers; (xiii) proceeds from the sale of trade fixtures, machinery and equipment; (xiv) the amount of any cash or credit refund made upon any sale from the Premises previously included in Gross Sales; and (xv) sales of merchandise discounted to employees, not to exceed three percent (3%) of Tenant's Gross Sales in any year. (c) Tenant hereby agrees at all times during the Term to keep true, full and accurate books of account containing a complete statement of Tenant's Gross Sales. Tenant hereby grants to Landlord and its agents and accountants the right, during Tenant's normal business hours and upon reasonable notice, to inspect the books of account and the checks, bills, vouchers, statements and records kept in connection with the business done or transacted in or upon the Premises by Tenant, at Tenant's home office in Westbury, New York (or such other location as may be chosen by Tenant), for the purpose of verifying Tenant's Gross Sales. Landlord, for itself and for its agents, lenders, prospective buyers, legal advisors, financial advisors and accountants, agrees to keep confidential all sales figures, audits and reports furnished by or obtained from Tenant. (d) Landlord may retain an independent Certified Public Accountant of Landlord's own selection to perform an audit of Tenant's Gross Sales, provided such audit shall not unreasonably interfere with the operation of Tenant's business. If any statement of Tenant's Gross Sales previously furnished by Tenant shall reflect less than ninety-seven percent (97%) of the amount of Tenant's Gross Sales as shown by such audit and additional Percentage Rent is payable by Tenant as a result of such understatement, Tenant shall immediately pay the reasonable cost of such audit for the understated period. In any event, Tenant shall promptly pay to Landlord all additional Percentage Rent shown by any audit to be payable hereunder. (e) The term "fiscal year" as used herein shall mean, for the first fiscal year, the date Tenant's store opens for business through the last Saturday of the following January and, for each fiscal year thereafter, the last Sunday of January through the last Saturday of the following January, with the exception of the last fiscal year of the Lease term, for which the fiscal year shall end at midnight of the last day of the Term. Tenant shall have the right to change its fiscal year and, in such event, Tenant shall notify Landlord in writing of such change and Tenant shall pay Percentage Rent for any short fiscal year brought about by such change. For purposes of computing Percentage Rent for the first and last partial fiscal years, Gross Sales for such partial year shall be added to the Gross Sales for the next succeeding or prior months during the Lease term, as the case may be, so that Percentage Rent is computed based on a 12-month period (such 12-month period herein referred to as the "EXTENDED PERIOD"). If Percentage Rent is payable for such Extended Period, then to calculate the Percentage Rent for the first and last fiscal years, such amount shall be prorated based on the ratio that the number of days in the first or last fiscal year, as the case may be, bears to the days in the Extended Period. 4. CONSTRUCTION OF THE PREMISES 4.1 Landlord shall, at Landlord's sole expense and in compliance with all applicable codes, laws, regulations and ordinances, perform the work set forth on EXHIBIT D annexed hereto ("LANDLORD'S WORK"). Within forty-five (45) days after the Effective Date, Tenant shall complete the preparation of -4- plans and specifications for Tenant's finish-out work and all other work (including any work which is not the responsibility of Landlord as set forth in EXHIBIT D) necessary to prepare the Premises for Tenant's occupancy and deliver same to Landlord and Landlord's architect. Landlord shall, within five (5) business days after receipt of such plans and specifications, either approve or disapprove such plans and specifications. If Landlord disapproves same, Landlord's objections shall be stated with sufficient particularity to permit Tenant to revise said plans. The above procedure shall continue until Tenant's plans and specifications are approved by Landlord (such plans and specifications, as approved by Landlord, hereinafter referred to as "TENANT'S PLANS" and the work shown thereon hereinafter referred to as "TENANT'S WORK"). If Landlord fails to approve or disapprove Tenant's plans and specifications within the aforesaid five (5) business day period, such plans and specifications shall be deemed approved by Landlord. Landlord shall not unreasonably withhold its consent to Tenant's plans and specifications. Within the earlier to occur of (i) sixty (60) days after Landlord has approved Tenant's Plans or (ii) March 15, 1996 (the "PERMIT PERIOD"), Tenant shall use reasonably diligent efforts to obtain a building permit for Tenant's Work (including all signage) and shall deliver Landlord notice upon its receipt thereof ("TENANT'S PERMIT NOTICE"). If Tenant fails to obtain a building permit for Tenant's Work within the Permit Period, Tenant may, without liability or further obligation, terminate this Lease upon written notice to Landlord delivered within five (5) days after the expiration of the Permit Period, and this Lease shall have no further force or effect. If Tenant fails to terminate the Lease as aforesaid within five (5) days after expiration of the Permit Period, Tenant shall be deemed to have received a building permit and Tenant's right to terminate this Lease under this Paragraph shall cease. Notwithstanding the foregoing, if Tenant fails to obtain a building permit for Tenant's Work prior to the expiration of the Permit Period, Landlord shall be entitled to extend the Permit Period by not more than thirty (30) days by notice to Tenant and obtain such permits on Tenant's behalf (Tenant being responsible for any municipal fees to obtain said permits) making only those changes to Tenant's Plans as are approved by Tenant and which are necessary to comply with applicable governmental codes and regulations. If Landlord obtains the permits necessary to complete Tenant's Work within sixty (60) days of expiration of the Permit Period, Tenant's option to terminate this Lease as provided in this paragraph 4.1 shall cease. 4.2 Provided Landlord has delivered the Contingency Satisfaction Notice to Tenant or such Contingency Satisfaction Notice is deemed delivered pursuant to Paragraph 37.14, Landlord shall obtain all necessary approvals, licensing and building permits for Landlord's Work and shall commence construction of Landlord's Work (collectively, "LANDLORD'S PRELIMINARY WORK") on or prior to the date ("LANDLORD'S WORK COMMENCEMENT DATE") which is ten (10) days from the earlier of (i) the date Landlord receives Tenant's Permit Notice or (ii) the date Landlord receives a written notice from Tenant that Tenant has waived its right under Paragraph 4.1 to terminate this Lease because of failure to obtain a building permit (the "PERMIT WAIVER NOTICE") (such notices referred to in clauses (i) and (ii) to be delivered no earlier than sixty (60) days after Lease execution). If Landlord fails to perform Landlord's Preliminary Work on or prior to Landlord's Work Commencement Date, Tenant may, without liability or further obligation, terminate this Lease upon ten (10) days written notice to Landlord, in which event this Lease shall terminate and shall have no further force or effect upon the expiration of such ten (10) day period, unless all necessary approvals, licensing and building permits for Landlord's Work have been obtained and Landlord's Work has commenced prior to the expiration of such ten (10) day period. 4.3 In the event Landlord fails to complete construction of the Landlord's Work and deliver the Premises to Tenant in accordance with Article 5 below within eighty (80) days from Landlord's Work Commencement Date (which date shall not be subject to delays permitted under Article 33) (the "OUTSIDE DATE"), Tenant may, without liability or further obligation, terminate this Lease upon thirty (30) days written notice to Landlord, in which event this Lease shall terminate and shall have no further force or effect upon the expiration of such thirty (30) day period, unless Landlord's Work has been completed prior to the expiration of such thirty (30) day period. 4.4 If Landlord fails to complete the construction of Landlord's Work and deliver the Premises to Tenant in accordance with Article 5 below on or before the Outside Date and Tenant does not elect to terminate this Lease in accordance with the provisions of Paragraph 4.3, Tenant shall deduct as liquidated damages from its first and, if necessary, subsequent payments of Fixed Rent one- -5- half (1/2) day's rent (calculated at a one-half of the daily rate based on a thirty day month) for each day such completion and delivery is delayed beyond the Outside Date. It is hereby agreed that the liquidated damages to which Tenant is entitled hereunder is a reasonable estimate of the damages to Tenant that would be caused by Landlord's delay in completing Landlord's Work and delivering the Premises. 4.5 Landlord hereby agrees to pay to Tenant a construction payment (the "CONSTRUCTION PAYMENT") in an amount equal to One Hundred Sixty-five Thousand and 00/100 Dollars ($165,000.00), which Construction Payment is made not as an inducement to Tenant to enter into this Lease but to defray the cost of Tenant's Work. Landlord shall pay the Construction Payment within thirty (30) days after Tenant's Work has been completed, Tenant has obtained a certificate of occupancy for the Premises, Tenant has opened for business and Tenant has delivered lien waivers for all work performed or material supplied (except no lien waivers shall be required for any subcontractor whose work or materials does not exceed $3,000). Provided Tenant has complied with the above requirements, if Landlord fails to pay the Construction Payment within thirty (30) days after notice from Tenant that same is past due, Tenant shall have the right, in addition to any other rights or remedies available to Tenant hereunder, at law or in equity, to offset the amount owing from future installments of Fixed Rent and any additional charges payable by Tenant under the Lease until Tenant is reimbursed said Construction Payment in full, with interest on the remaining balance from the date such Construction Payment was due until so reimbursed to Tenant at the rate of ten percent (10%) per annum. 4.6 Attached hereto as EXHIBIT G are the design elevations and store fronts to be constructed by Tenant as part of Tenant's Work (the "ELEVATION DESIGNS"). Within sixty (60) days after the Effective Date, Landlord shall process and obtain the necessary discretionary approvals from the City of Chico (including the Architectural Review Board) for construction of said Elevation Designs (excluding building permits). Tenant shall give Landlord prior notice of any changes in the Elevation Designs and any material changes thereto shall not be made without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed; provided, however, Landlord may withhold its consent if any such material change (i) requires additional approvals from the City of Chico or delay the processing of Landlord's application for said approvals, (ii) requires structural modifications to the building of which the Premises are a part, or (iii) affects the design or dimensions of the Blockbuster Video elevations or storefront. Notwithstanding the foregoing provisions of Paragraph 4.5 and this Paragraph 4.6, within thirty (30) days of the Effective Date, Landlord shall prepare construction drawings for the construction of additional wall openings on the west and south elevations of the Premises, as indicated on EXHIBIT G annexed hereto, including any structural modifications necessary to ensure the structural integrity of the building (whether or not such modifications are located within the Premises) and Tenant shall approve or disapprove such drawings within five (5) days of submission by Landlord and shall cooperate with Landlord to finally approve such drawings within five (5) days after the expiration of such fifteen (15) day preparation period. On or before the latest to occur of (i) ten (10) business days after Tenant's final approval of such drawings or (ii) March 1, 1996, Landlord shall obtain bid submissions for such additional wall openings, from at least three (3) contractors, one (1) of which, at Tenant's option, shall be a contractor designated by Tenant (prior to the date Landlord submits its drawings for bids) and reasonably acceptable to Landlord. Landlord shall immediately thereafter deliver to Tenant copies of the bid packages received by Landlord from all of the bidders, together with an itemized budget showing a detailed breakdown by trade and contractor, unit costs and those additional costs associated with the modifications not located within the Premises but required as a result of the requested wall openings. Within five (5) business days from receipt of the bids by Tenant, Tenant shall direct Landlord whether to accept or reject any of the bids. In the event Tenant directs Landlord to accept any of the bids, Landlord shall arrange for the performance of such work, the Construction Payment shall be reduced by the amount of the lowest bid, together with Landlord's actual out-of-pocket cost to prepare the construction drawings (in an amount not to exceed $4,600), and the construction of such additional wall openings (including, without limitation, any required structural modifications located within or outside the Premises) shall be deemed to be part of Landlord's Work for all purposes of this Lease. In the event Landlord does not perform such work as aforesaid, the Construction Payment shall nevertheless be reduced by Landlord's actual out-of-pocket cost to prepare the construction drawings, in an amount not to exceed $4,600. -6- 5. DELIVERY AND ACCEPTANCE OF THE PREMISES 5.1 Landlord shall have completed Landlord's Work and delivered the Premises to Tenant, and Tenant shall be required to accept the Premises, only after all of the following conditions are satisfied, provided, however, that items (e) and (f) below (collectively, the "POST-COMMENCEMENT DATE WORK") shall not be required to be completed until forty-five (45) days after the Commencement Date, provided Landlord has commenced such work as of the Commencement Date, and, in the reasonable judgment of Landlord's architects, Landlord is able to complete such work within such forty-five (45) day period, and Tenant shall accept the Premises subject to completion of such items (e) and (f): (a) Landlord's Work has been substantially completed as verified by mutual inspection by Landlord and Tenant pursuant to Paragraph 5.2 below. (b) Landlord has provided Tenant with a certificate of occupancy or local equivalent issued by the appropriate authority, certifying that the base building complies with all applicable laws, provided, however, that if such a certificate of occupancy is customarily issued only once Tenant's Work is completed, then the condition of obtaining a certificate of occupancy for the shell of the building shall be waived by Tenant. (c) Landlord has approved Tenant's Plans. (d) Landlord has delivered to Tenant the Square Footage Certificate. (e) Landlord has delivered to Tenant all of the written warranties required under Paragraph 11.2 below. (f) Landlord has completed the building facade (exclusive of such tenant's signage and canopy) for the other tenant in the building in which the Premises is located. (g) Landlord has performed any improvements to the Common Areas (as defined in Paragraph 9.1) which are required as a condition to obtaining required approvals from the City of Chico for Landlord's Work including, without limitation, any required utility relocations, at a cost not to exceeds $100,000.00. If the cost of such improvements exceed $100,000.00 Landlord may terminate this Lease upon ten (10) days written notice to Tenant together with evidence of such costs and, unless Tenant notifies Landlord within such ten (10) day period that Tenant elects to reimburse Landlord for such costs in excess of $100,000, this Lease shall terminate and have no further force or effect, provided, however, that Landlord shall reimburse Tenant for any actual out-of-pocket architectural fees, not to exceed $50,000, incurred by Tenant to prepare Tenant's plans and specifications within ten (10) days of Tenant's submission of a bill therefor. 5.2 When Landlord considers Landlord's Work to be substantially complete, it shall notify Tenant of same in writing, together with a request that Tenant notify Landlord of any item which shall materially interfere with or prevent the commencement of Tenant's Work. Within ten (10) days of receipt of Landlord's notice, Tenant and Landlord shall make an inspection to determine whether Landlord's Work is substantially complete. If Tenant's inspection discloses any item which, in Tenant's reasonable judgment, shall materially interfere with or prevent the commencement of Tenant's Work, Tenant shall provide Landlord with written notice thereof within said ten (10) day period and Landlord shall correct such items before Landlord's Work shall be deemed substantially complete. Within three (3) business days after Tenant's acceptance of the Premises, Landlord shall change into Tenant's name all utilities exclusively serving the Premises. 5.3 In the event Tenant accepts the Premises notwithstanding Landlord's obligation to correct or complete any items under Paragraph 5.1 (a) of which Landlord received written notice within the period required under Paragraph 5.2, Landlord shall complete said items within thirty (30) days after Tenant's inspection under Paragraph 5.2 above. Tenant's acceptance of the Premises shall not in any -7- way diminish or otherwise affect Landlord's warranty, maintenance or repair obligations set forth elsewhere in this Lease. In addition, Landlord shall correct all defects in the construction of Landlord's Work, provided Tenant gives Landlord written notice of such defects on or before the expiration of the first (1st) Lease Year. 5.4. Notwithstanding any provision of this Lease to the contrary, at Tenant's option, Tenant shall not be required to accept the Premises (and Landlord shall be deemed not to have delivered the Premises) between June 13th and the next succeeding September 30th; provided, however, that (i) if Tenant does not timely deliver its plans and specifications to Landlord as required under Paragraph 4.1, such June 13th date shall be delayed one day for each day Tenant has delayed delivering its plans to Landlord and (ii) if (x) Tenant does not deliver to Landlord Tenant's Permit Notice or Permit Waiver Notice on or before March 15, 1996, and (y) Landlord has previously delivered to Tenant a Contingency Satisfaction Notice, then such June 13th date shall be delayed one day for each day after March 15, 1996 until Tenant delivers to Landlord Tenant's Permit Notice or Tenant's Permit Waiver Notice, provided that unless Landlord delivers to Tenant a written reminder notice within the five (5) day period prior to March 15, 1996 stating that Landlord has not yet received the Permit Notice or Permit Waiver Notice, such day for day delay in the June 13th date shall not commence until Landlord has delivered to Tenant such a reminder notice. In the event Tenant delays its acceptance and Landlord's delivery of the Premises pursuant to this Paragraph 5.4, the Commencement Date and the Rent Commencement Date shall be delayed correspondingly. 6. COVENANT OF TITLE AND QUIET ENJOYMENT Landlord represents and warrants to Tenant that Landlord is solely vested with fee simple title to the Premises and the Shopping Center and has full right and lawful authority to lease the Premises to Tenant pursuant to the terms hereof, subject, however, to the satisfaction of the Contingencies set forth in subparagraphs 37.14(a) and (b). Landlord covenants with Tenant to keep Tenant in quiet enjoyment and possession of the Premises during the Term, provided Tenant is not in default under this Lease beyond any applicable cure period. Landlord further represents and warrants to Tenant that, as of the Commencement Date: (i) no zoning or similar ordinance, restrictive covenant or other encumbrance or restriction prevents the performance of Tenant's Work (subject, however, to Tenant's obligation to obtain building permits for Tenant's Work) or the use of or Tenant opening for business within the Premises for the specific purposes set forth in Paragraph 7.1, or otherwise conflicts or is inconsistent with the terms of this Lease; (ii) upon delivery of the Contingency Satisfaction Notice, no joinder or approval of any other person or entity (including any lender or mortgagee) is required with respect to Landlord's right and authority to enter into this Lease; and (iii) as of the Commencement Date, there is no underlying or superior lease affecting the Premises. 7. USE OF PREMISES 7.1 Tenant may use the Premises for the purpose of the display and retail sale of (i) books, books on tape and books on other media, magazines, periodicals, recorded music, video tapes and disks, video games, computer software and computer games and various media and merchandise incidental thereto (collectively with the Cafe, as defined below, the "INITIAL USE"), and (ii) subject to those exclusive use and prohibited use provisions contained in existing leases with other tenants or occupants of the Shopping Center, as more particularly set forth on Exhibit F, and exclusive of those uses described in Paragraph 7.4, (x) other merchandise typically sold in a majority of Tenant's other stores in California and (y) any other lawful retail use; provided, however, Tenant may not devote more than two thousand (2,000) square feet of floor area to the display and retail sale of each of the following: (i) video tapes and disks and video games or products which are a technological evolution thereof (for sale only as opposed to rental), (ii) recorded music, including CD's, tapes, record or products which are a technological evolution thereof, and (iii) computer software or computer games and various media and merchandise incidental thereto, including CD-I and CD-ROM, and any product which is a technological evolution thereof and home entertainment software. Furthermore, for so long -8- as the existing leases for buildings "C" and "F" are in full force and effect, Tenant may not use the Premises for the sale, rental or display of office equipment, business or office supplies, office furniture, appliances or electronic equipment (I.E., computers, video recorders, televisions, stereo equipment, cellular phones, household appliances or items which are a technological evolution of the foregoing) or to provide business services such as photocopying and printing; provided, however, the sale of electronic accessories which are related to the sale of other merchandise sold by Tenant (EG., computer boards or accessories sold with computer software) shall be permitted, provided the sale of said merchandise does not exceed five hundred (500) square feet. Landlord represents that there are no other exclusive use provisions contained in existing leases in the Shopping Center other than as set forth on EXHIBIT F and upon receipt of the Contingency Satisfaction Notice, no such exclusives shall affect or in any way limit Tenant's right to use the Premises for the Initial Use except as expressly set forth in this Article 7. Tenant may also operate within the Premises or grant a concession or sublease for a "coffee bar" or "coffee shop" or similar operation (the "CAFE") providing its customers with coffee, tea, and other beverages, pastries, sandwiches, snacks and other pre-prepared or packaged food or non-alcoholic beverage items, as well as merchandise incidental thereto, provided that such Cafe does not exceed 2,500 square feet (plus any outdoor seating). Notwithstanding the foregoing provisions of this Paragraph 7.1, but subject to the provisions of Paragraph 7.5, Tenant shall not use the Premises or allow the Premises to be used in violation of any exclusive use restriction of which Landlord has given Tenant written notice and which is hereafter granted to a new tenant or occupant of the Shopping Center after the expiration or termination of any existing lease affecting buildings A, the "Blockbuster premises", C, D, F, H or Pad 1 (as indicated on the site plan annexed hereto as EXHIBIT B), provided such tenant or occupant M is a first class national or regional retail chain store with at least twenty (20) stores in California and the use of its premises is substantially similar to its use in the majority of its stores in California, (ii) such tenant or occupant occupies an entire building (or the entire Blockbuster premises) or more than 20,000 square feet of leasable area, (iii) shall not have as its primary use the rental or sale of computer software or computer games (EG., Egghead Software) although such tenant or occupant may sell or rent such products as part of its overall business (EG., Best Buy), (iv) no such exclusive use restriction shall prevent Tenant from utilizing the Premises for the Initial Use or for the display, rental or sale of products for which, at the time Tenant receives written notice of such exclusive, Tenant has allocated at least 1,000 square feet of leasable area of retail floor space (such future use restrictions hereafter granted to a tenant or occupant which are permitted as aforesaid, "PERMITTED FUTURE EXCLUSIVES" and each such tenant or occupant satisfying the foregoing conditions, a "MAJOR REPLACEMENT TENANT"). 7.2 Tenant covenants to initially open and operate for at least one (1) day as a Barnes & Noble Superstore, fully stocked and staffed as consistent with the operations of Tenant's other Barnes & Noble Superstores in California. In the event that the Premises shall, at any time after the Rent Commencement Date, be closed for business for a period of thirty (30) consecutive days or more, other than as a result of a remodeling (for a period of not more than nine months) or a cause or event referred to in Articles 24, 25 or 33 herein, or due to Tenant's impending subletting of the Premises or assigning of its interest in the Lease which shall be completed within six (6) months of said closure, then at any time thereafter, Landlord may terminate this Lease by giving Tenant written notice thereof and this Lease shall terminate on the forty-fifth (45th) day after the giving of such written notice by Landlord, whereupon neither Landlord nor Tenant shall have any further liability hereunder (except any Rent then due and unpaid), except Tenant shall have the right to nullify Landlord's termination notice by delivering notice to Landlord that Tenant shall reopen for business and Tenant in fact does reopen for business prior to the expiration of such 45-day period. Nothing in this Lease or otherwise shall at any time require Tenant to keep the Premises open for business. 7.3 Landlord hereby represents and warrants that, upon Landlord's delivery of the Premises pursuant to Article 5 above, the Premises and the Shopping Center and all parts thereof shall be in full compliance with all applicable laws, ordinances and regulations of all federal, state, county and municipal authorities ("LEGAL REGUIREMENTS"), including Title III of the Americans With Disabilities Act of 1990, any regulations promulgated thereunder and any similar state or local laws or regulations. Landlord shall comply with all Legal Requirements, including any changes thereto, relating to the physical condition of all parts of the Premises and the Shopping Center, except Tenant shall comply -9- with Legal Requirements including any changes thereto to the extent such Legal Requirements apply to Tenant's specific use or alteration of the Premises and not to real estate generally. 7.4 Except with respect to the premises under leases with Homebase, Food 4 Less, Circuit City, Office Depot and Hometown Buffet to the extent permitted thereby under those permitted use provisions of such tenants set forth on EXHIBIT F annexed hereto, Landlord shall not lease or permit the use of space in the Shopping Center for the following: (i) any bowling alley; (ii) any arcade; (iii) any tavern or bar within five hundred (500) feet of the Premises, except to the extent incidental to a restaurant operated primarily for on-premises consumption; (iv) any health club, spa or gymnasium; (v) any night club or discotheque; (vi) any second hand or surplus store within five hundred (500) feet of the Premises; (vii) any mobile home park or trailer court; (viii) any dumping, disposing, incineration or reduction of garbage (exclusive of appropriately screened dumpsters located in the rear of any building); (ix) any fire sale, bankruptcy sale (unless pursuant to a court order) or auction house operation, (x) any central laundry or dry cleaning plant or laundromat within five hundred (500) feet of the Premises (except that this prohibition shall not be applicable to on-site service provided solely for pickup and delivery by the ultimate consumer, including nominal supporting facilities); (xi) any automobile, truck, trailer or recreational vehicle sales, leasing, display or repair; (xii) any skating rink; (xiii) any living quarters, sleeping apartments or lodging rooms; (xiv) any veterinary hospital, animal raising facilities or pet shop (except that this prohibition only prohibits a pet shop if it is adjacent to the Premises and excludes the existing pet store at the Shopping Center and replacements thereof provided such replacement is a national or regional pet retail chain similar to Petco or Petsmart); (xv) any mortuary; (xvi) any establishment selling or exhibiting pornographic materials; (xvii) except for Building A indicated on the site plan annexed hereto as EXHIBIT B, any restaurant within three hundred feet (3001 of the Premises; (xviii) any movie theater within three hundred feet (300') of the Premises; (xix) any separately demised newsstand; or (xx) any use which is a public or private nuisance. 7.5 Except as may be permitted by those permitted use provisions of certain leases set forth on EXHIBIT F, including, without limitation, Blockbuster Video (provided that to the extent Landlord's consent may be withheld as provided in said leases, Landlord shall not modify the use provisions of such leases with respect to the Exclusive Uses (hereinafter defined) granted to Tenant hereunder in any manner which would diminish the exclusive rights granted to Tenant herein) and except as may be permitted by future leases to Major Replacement Tenants, to the extent such leases contain Permitted Future Exclusives, Landlord, and its successors and assigns, shall not operate or permit under any circumstances to be operated within the Shopping Center any other store selling or displaying for sale or rental books, books on tape and books on other media, magazines, periodicals, computer software or computer games (collectively, "EXCLUSIVE USES"), or any other coffee bar or coffee shop in which coffee, similar beverages and products incidental thereto are the primary items offered for sale (e.g. Starbucks). The foregoing restrictions with respect to any of the Exclusive Uses shall be void and of no further force and effect with respect to such use in the event Tenant (including any permitted successor or assignee) no longer uses the Premises for such use for more than a one year period provided, however, that ceasing all business operations in the Premises shall not be deemed to be a cessation of a particular use for the purposes hereof unless such cessation continues for more than five (5) years. The Incidental Sale of such items in connection with the overall business of another operator or tenant shall not be deemed a violation of this Paragraph 7.5. As used herein, "INCIDENTAL SALE" shall mean less than fifty (50) square feet of floor area of such operator's or tenant's display area is devoted, in the aggregate, to the sale and/or display of the aforesaid items; provided, however, that with respect to a Major Replacement Tenant, "INCIDENTAL SALE" shall mean less than ten percent (10%) of floor area is devoted, in the aggregate, to the sale and/or display of the aforesaid items, but in no event greater than one thousand (1,000) square feet (except with respect to a Major Replacement Tenant which sells or rents computer software or computer games as part of its overall business, EG., Best Buy, but not as its primary use, EG. Egghead Software, for which no square foot limitation shall apply with respect to the display area for computer software or computer games). In the event Landlord breaches its covenants contained in this Paragraph 7.5 with respect to Tenant's exclusive, and such breach is a result of Landlord's entering into a lease or consenting to an assignment or sublease permitting or failing, in each instance, to prohibit such tenant, assignee or sublessee from using its premises fcr Tenant's Exclusive Uses, and such breach is not cured witnin thirty (30) days after written notice to -10- Landlord, in lieu of any other remedy, Fixed Rent shall be automatically reduced to one-half (1/2) of stated Fixed Rent under Paragraph 3.2 above until such use terminates, and Tenant shall have, in addition to all other remedies available to Tenant, the right to terminate this Lease effective sixty (60) days after giving Landlord written notice of such termination, unless Landlord cures such breach within thirty (30) days after such notice, and, upon such termination, Landlord shall pay Tenant the unamortized value of Tenant's Work upon the reasonable documentation of such value, which value has been amortized over the Lease term. In the event Tenant does not elect to terminate the Lease within two (2) years after the breach of the covenants contained in this Paragraph 7.5, Fixed Rent shall be automatically restored to the Fixed Rent under Paragraph 3.2 above. In the event the covenants contained in this Paragraph 7.5 are breached solely by tenants or other operators in the Shopping Center and not by reason of Landlord's entering into a lease or consenting (when Landlord has the right to withhold its consent) to an assignment or sublease permitting or failing to prohibit such tenant, assignee or sublessee from using its premises for Tenant's Exclusive Uses, then, in lieu of the remedy provided in the preceding sentence, Landlord, at Landlord's cost, shall use its best efforts to take all action necessary (including, without limitation, the commencement of legal action) to cause such other tenant or operation to cease operating in violation of the provisions of this Paragraph 7.5. 8. REAL ESTATE TAXES 8.1 Landlord represents and warrants that Real Property Taxes and Assessments relating to the Premises and the Shopping Center, except current taxes and assessments not delinquent, have been paid in full. Landlord shall pay promptly when they are due all Real Property Taxes and Assessments relating to the Premises and the Shopping Center, except as provided in Paragraph 8.3 below. 8.2 For purposes of this Article 8, "REAL PROPERTY TAXES AND ASSESSMENTS" shall mean only the taxes and assessments imposed by municipal, county, state and district governmental authorities (as distinguished from federal governmental authorities) against the owners of real property, which are measured by the value or gross revenues of the subject property separate from any other property owned by Landlord. Landlord estimates the Real Property Taxes and Assessments relating to the Premises for the first (1st) Lease Year (excluding any reassessment resulting from Tenant's Work) will be approximately $26,500, based upon the 1995-1996 real estate tax bill for the tax lot affecting the Premises which Tenant acknowledges it has received and reviewed. Real Property Taxes and Assessments shall be prorated, if necessary, based on a three hundred sixty-five (365) day year to take into account any partial tax year in which the Rent Commencement Date and the expiration of the lease Term occur. The term Real Property Taxes and Assessments shall also include any tax or excise on rent or other taxes payable by Landlord on account of or measured by the rentals and/or other charges payable under this Lease. If under the laws of the State of California, or any political subdivision thereof, at any time during the term of the Lease, the methods of taxation shall be altered so as to impose in lieu of current methods for the assessment and taxation of real property, in whole or in part, taxes based on other standards, or in lieu of any increase therein, such tax shall be included within the Real Property Taxes and Assessments to be paid by Tenant for the purposes of this Lease. Nothing contained in this Lease, however, shall be deemed or construed to include within Real Property Taxes and Assessments: (i) any transfer, documentary or stamp tax; (ii) any tax upon the income, profits or business of Landlord (except to the extent same are in lieu of Real Property Taxes and Assessments); or (iii) any personal property taxes, payroll taxes, capital levy, or franchise taxes or inheritance or estate taxes, even though such taxes may become a lien against the Premises, the Shopping Center or Landlord. 8.3 If the Premises together with a proportionate share of the Common Areas in the Shopping Center constitutes a separate tax lot which has been approved by Landlord and Tenant for the purpose of prorating Real Property Taxes and Assessments, Tenant shall pay, as additional rent, any and all Real Property Taxes and Assessments relating to the Premises and said proportionate share of the Common Areas. Tenant shall make any such payment on or before the later of (i) the due date thereof or (ii) thirty (30) days after Landlord provides Tenant with a copy of the tax bill therefor (if not -11- sent directly to Tenant by the taxing authority). Landlord shall be responsible for any interest or penalties which are due by reason of Landlord's failure to deliver any tax bill to Tenant at least thirty (30) days prior to the date on which such interest and/or penalty is assessed. 8.4 If the Premises and a proportionate share of the Common Areas are not separately assessed by a separate tax lot approved by Landlord and Tenant for proration purposes, Tenant shall reimburse Landlord for its Proportionate Share of Real Property Taxes and Assessments on or before the later of (i) thirty (30) days prior to the due date thereof or (ii) thirty (30) days after Landlord has furnished Tenant with a copy of the tax bill and a copy of Landlord's computations establishing the amounts payable by Tenant. Within ten (10) days after receipt of Tenant's written request therefor, Landlord shall furnish Tenant with such additional substantiating evidence in support of Landlord's tax computation as Tenant may reasonably require. Tenant's Proportionate Share of Real Property Taxes and Assessments shall be based upon the ratio between the total Leasable Square Footage within the Premises to the total Leasable Square Footage upon the separate tax lot in which the Premises are situated (legally defined as Parcel 3 of Vesting Parcel Map No. 95 recorded September 22, 1994, in Book 34 at Page 7 of Parcel Maps, Butte County Records and hereinafter referred to as "TENANT'S TAX LOT") ; provided that Landlord shall equitably adjust the Real Property Taxes and Assessments allocable to land, excluding improvements, and to Common Area improvements, to be prorated to and paid by Tenant, in the event that Tenant's Tax Lot does not contain a proportionate share of the Common Areas within the Shopping Center, based on the ratio between the Leasable Square Footage in Tenant's Tax Lot to the Leasable Square Footage within the Shopping Center. 8.5 If any general or special assessment is assessed against the Shopping Center, Landlord shall elect to pay the assessment in installments over the longest period of time allowed by applicable law, and only those installments (or partial installments) attributable to the Term shall be considered in determining Tenant's tax liability for such assessment. Notwithstanding any provision of this Lease to the contrary, except as set forth in the following sentence, Landlord (and not Tenant) shall be obligated to pay any assessment for special improvements heretofore installed or hereafter installed in connection with the initial development of the Shopping Center or the Premises, such as, by way of illustration only, the widening of the exterior roads and the installation and/or hook up to sewer and sewer lines, sanitary and storm drainage systems and other utility lines and systems (whether public or private). Tenant shall pay its Proportionate Share of the assessments presently imposed against the Shopping Center pursuant to a certain agreement establishing the Whitman Avenue Assessment District (the "WHITMAN ASSESSMENTS"). Landlord represents that the Whitman Assessments allocable to the tax lot affecting the Premises during the term hereof shall in no event exceed $10,000 per annum. 8.6 Tenant shall receive its Proportionate Share of any refunds or rebates of Real Property Taxes and Assessments paid to Landlord and attributable to the Term. 8.7 Landlord shall provide Tenant with a copy of any increased tax assessment within fifteen (15) days of its receipt. Tenant shall have the right to contest any assessment or the validity of any tax. Tenant agrees to indemnify Landlord and hold Landlord harmless from all out of pocket costs and expenses arising out of any contest made by Tenant. 8.8 Tenant shall pay prior to delinquency all taxes and assessments levied upon and assessed against Tenant's Personal Property (as defined in Paragraph 12.2) in the Premises. 9. COMMON AREA 9.1 The Common Areas of the Shopping Center shall consist of all portions of the Shopping Center which shall not be occupied by buildings leased or held for lease, as more specifically depicted on EXHIBIT B. The general term "COMMON AREAS" includes all parking areas, landscape areas, aisles, driveways, entrances, exits, walkways, corridors, elevators and elevator shafts, stairwells, sidewalks, roadways, loading areas or appurtenances (unless the operation, repair and maintenance of a particular loading area or appurtenances is the responsibility of the tenant or tenants who have the use of same), -12- service roads, lighting facilities (if used to illuminate the Common Areas), common heating, utility and ventilation facilities and utility, mechanical, telephone and electric rooms, drainage facilities, traffic control signs and fences. 9.2 Landlord hereby gives and grants to Tenant during the Term, for the benefit of Tenant and Tenant's subtenants, licensees and concessionaires, and their respective employees, contractors, customers, invitees and deliverymen, the right to use all of the Common Areas, in common with Landlord and all other tenants and occupants of the Shopping Center and their respective employees, contractors, agents, assigns, customers, invitees and deliverymen. The rights hereby granted with respect to the Common Areas shall run with and bind the Shopping Center and the land on which it is located, shall be binding upon Landlord and Landlord's successors in title to all or any part of the Shopping Center, and shall constitute an irrevocable, nonexclusive easement appurtenant to the Premises for the benefit of, and shall be enforceable by, Tenant and its successors and assigns throughout the Term. 9.3 Unless required by law, Landlord shall not alter the size or location of curb cuts or private drives that provide access to the Shopping Center without providing reasonably equivalent access nor reduce parking ratios within the Shopping Center below that required by Article 16, without the prior written consent of Tenant. Landlord may designate portions of the Common Areas as parking spaces for employees of occupants of the Shopping Center, subject to the prior written approval of Tenant, which consent shall not be withheld if such employee parking located within the No Build Area is located in the row of parking bordering Whitman Avenue. 9.4 Landlord shall not provide for or knowingly permit the use of the Common Areas by any person or legal entity other than as set forth in Paragraph 9.2. 9.5 Tenant shall not be required to pay its Proportionate Share of any expenses (including Real Property Taxes and Assessments, CAM Expenses or costs of insurance) relating to any land added to the Shopping Center until such land is improved with a building or buildings and such land directly benefits the Shopping Center. 9.6 Landlord shall keep and maintain the Common Areas in good condition and repair in a manner consistent with first class shopping centers of a similar size and nature. Such maintenance shall include repairing and replacing paving; keeping the Common Areas properly drained, free of snow, ice, water, rubbish and other obstructions, and in neat, clean, orderly and sanitary condition; keeping the Common Areas and such other areas suitably lighted during, and for appropriate periods before and after, Tenant's business hours; maintaining signs, markers, painted lines and other means and methods of pedestrian and vehicular traffic control; maintaining adequate roadways, entrances and exits; and maintaining any plantings and landscaped areas. 9.7 Tenant agrees to reimburse Landlord for Tenant's Proportionate Share of all reasonable expenses incurred directly in connection with the maintenance, repair and operation of the Common Areas ("CAM EXPENSES"). CAM Expenses shall be limited by the terms of Paragraphs 9.8 and 9.9 and the other provisions hereunder. CAM Expenses may include an administrative fee equal to ten (10%) percent of the total of all other expenses included within CAM Expenses hereunder (excluding, however, any and all insurance, taxes and capital expenditures included therein). CAM Expenses invoiced to the Tenant shall identify the nature of each CAM Expense and Tenant's Proportionate Share of such CAM Expense. Tenant shall reimburse Landlord its Proportionate Share of the CAM Expenses within thirty (30) days of its receipt of Landlord's invoice. Alternatively, Landlord may, prior to the Rent Commencement Date or the beginning of any subsequent calendar year, provide Tenant a written estimate of the CAM Expenses for the calendar year and Tenant shall pay one-twelfth (1/12th) of such estimate as Additional Rent with each payment of Fixed Rent during such calendar year. Within sixty (60) days after the end of each calendar year, Landlord shall furnish to Tenant a detailed statement showing the total CAM Expenses, Tenant's Proportionate Share of such CAM Expenses (prorated for any partial calendar year) and the total of the monthly payments made by Tenant to Landlord during such calendar year. Such statement shall be certified by Landlord as being correct. Landlord shall pay -13- to Tenant any overpayment concurrently with the delivery of such-statement, and Tenant shall pay to Landlord any underpayment for such year with Tenant's next succeeding CAM Expense payment. Landlord shall keep good and accurate books and records for a period of three (3) years in accordance with generally accepted accounting principles concerning the operation, maintenance and repair of the Common Areas, and Tenant and its agents shall have the right, upon ten (10) days' notice, not more often than once per year, to audit, inspect and copy such books and records at Landlord's principal place of business. If any statement of CAM Expenses previously furnished to Tenant shall be greater than one hundred three percent (103%) of the actual CAM Expenses shown by such audit, Landlord shall immediately pay Tenant's reasonable out-of-pocket costs of such audit for the period audited. In any event, Landlord shall promptly pay Tenant all CAM Expenses shown by such audit to be overpaid by Tenant and Tenant shall promptly pay Landlord all CAM Expenses shown by such audit to be underpaid by Tenant. 9.8 CAM Expenses shall exclude expenses due to: (i) capital improvements; (ii) repairs and replacements, which under sound accounting principles and practices should be classified as capital expenditures; (iii) painting, redecorating or other work that Landlord performs for any other tenant or prospective tenant of the Shopping Center (as compared to periodic repainting of the Building not to exceed once every five (5) years for the benefit of the Premises which may be included within CAM Expenses); (iv) repairs or other work (including rebuilding) occasioned by fire, windstorm or other casualty or by condemnation; (v) any costs that are separately charged to and payable by tenants or for which Landlord is compensated by insurance proceeds or warranties; (vi) leasing commissions and expenses of procuring tenants, including lease concessions and lease take-over obligations; (vii) depreciation, except depreciation of equipment used exclusively for the maintenance of the Shopping Center; (viii) interest on and amortization of debt; (ix) taxes of any nature, including Real Estate Taxes and Assessments (payment of which is specifically addressed in Article 8 above) and interest and penalties for late payment of taxes (unless caused by Tenant's late payment of its Proportionate Share of taxes); (x) rent payable under any lease to which this Lease is subject; (xi) off-premises supervisory personnel or property managers; (xii) costs and expenses of enforcing leases against tenants, including legal fees; (xiii) managing agents' commissions or fees, however characterized; (xiv) expenses resulting from any violation by Landlord of the terms of any lease of space in the Shopping Center or of any ground or underlying lease or any mortgage; (xv) the repair of any part of the Common Areas that was inadequately designed or defectively constructed; (xvi) Landlord's maintenance or repair description as required pursuant to Article 10; (xvii) insurance (payment of which is specifically addressed in Article 21); (xviii) expenses for vacant or vacated space, including utility, security and renovating costs for such space; (xix) all costs and expenses associated with Environmental Clean-up Work (hereinafter defined) except if caused or permitted by Tenant, its employees, agents, contractors or invitees; and (xx) any costs and expenses associated with Landlord's compliance with Legal Requirements pursuant to Paragraph 7.3 above; and (xxi) parking lot resurfacing and restriping during the first three (3) Lease Years; provided, however, that CAM Expenses may include the annual amortized cost to replace the parking lot within the Shopping Center if replaced after the initial term of the Lease, such amortization to be based upon the useful life of the parking lot (based on generally accepted accounting principles). 9.9 Notwithstanding the foregoing, Tenant's Proportionate Share of CAM Expenses for the first full calendar year during the Term shall not exceed $7,500. After such first full calendar year and through and including the fifth (5th) full calendar year during the term, Tenant's Proportionate Share of CAM Expenses shall not exceed one hundred five percent (105%) of the CAM Expenses paid by Tenant for the preceding calendar year. 9.10 Tenant's Proportionate Share for the purposes of calculating Tenant's share of CAM Expenses which relate only to the Building and solely benefit the tenants within the Building shall equal a fraction, the numerator of which is the Leasable Square Footage of the Premises as determined by the Square Footage Certificate, and the denominator of which is the total Leasable Square Footage of the Building ("TENANT'S BUILDING PROPORTIONATE SHARE"). Currently Landlord estimates the denominator of the fraction to be 31,341 Leasable Square Feet as of the Effective Date hereof, resulting in Tenant's Building Proportionate Share to be 79.6%. To the extent Tenant pays such Building Proportionate Share for certain CAM Expenses relating only to the Building (EG., Building repainting, exterior Building -14- lighting and maintenance and repair of fire protection systems within the Building), comparable CAM Expenses which relate to the remainder of the Shopping Center and not to the Building shall be excluded in the calculation of Tenant's Proportionate Share of CAM Expenses (EG., Building repainting, exterior Building lighting and maintenance and repair of fire protection systems within the Building). 10. MAINTENANCE BY LANDLORD 10.1 Except for any repairs necessitated by Tenant's (or Tenant's employees, contractors, agents or invitees) negligence or intentionally wrongful acts (for which Tenant shall be responsible at its sole cost), Landlord shall, at its sole expense, (except to the extent includible in CAM Expenses as provided hereinabove) make all structural repairs to the Premises and the Shopping Center, including but not limited to all repairs to the slab, foundation, load bearing walls, roof and any other structural members. In addition, Landlord shall, at its expense (unless herein expressly set forth as Tenant's expense): (i) keep the roof of the Premises free of leaks; (ii) maintain the underground and otherwise concealed utilities located within the Common Areas and the exterior surface of the outside walls of the Premises and the Shopping Center, excluding window glass, plate glass and doors (unless damage to such glass or doors is caused by a structural shift); (iii) keep in good order, condition and repair the down spouts and gutters of the Premises and the Building of which the Premises is a part; and (iv) maintain all fire protection systems in the Common Areas. Notwithstanding any provision of this Lease to the contrary, (a) in the event of an emergency or (b) in the event Landlord fails to commence any maintenance or repair of the Premises required under this Paragraph 10.1 within ten (10) business days after written notice from Tenant or fails to complete such maintenance and repair within thirty (30) days after such notice, (but if such repair reasonably requires longer than 30 days, then Landlord shall have such additional period of time provided Landlord's repair is being diligently and continuously prosecuted), then in either of such events Tenant shall have the right (but not the obligation) to perform Landlord's maintenance and repair obligations under this Paragraph 10.1 , and Landlord shall reimburse Tenant for the reasonable out-of-pocket costs incurred by Tenant within thirty (30) days after Tenant submits a written invoice therefor. Notwithstanding the foregoing, Tenant shall reimburse Landlord Tenant's Building Proportionate Share of the cost to (i) repair and maintain the roof of the Building after the tenth (1Oth) Lease Year, excluding the gutters and down spouts, and (ii) the annual amortized cost of any roof replacements to the Building after the fifteenth (15th) Lease Year, such amortization to be based upon the useful life of the roof (based on generally accepted accounting principles). 10.2 The terms and conditions of Articles 24 and 25 shall control with respect to repairs or maintenance required due to casualty or condemnation, respectively. 11. MAINTENANCE BY TENANT 11.1 Subject to Paragraph 5.3 and Articles 10, 24 and 25, Tenant shall maintain in good repair and condition, at its sole cost and expense (i) the interior plumbing (provided same was not part of Landlord's Work) and other mechanical systems which are located within or on the Building and exclusively serve the Premises; (ii) window glass, plate glass and doors (unless damage to such glass or doors is caused by a structural shift); (iii) heating, air conditioning and electrical systems serving exclusively the Premises; and (iv) the interior, non-structural surfaces of the Premises. Tenant's obligations under this paragraph shall not include repairs which are covered by Landlord's insurance as required herein. 11.2 As of the Commencement Date and to the extent of Landlord's Work, the heating and air conditioning system serving the Premises (the "SYSTEM") and the plumbing and electrical systems serving the Premises shall be in good operating condition. On the Commencement Date, Landlord shall furnish Tenant with a five (5) year minimum repair or replacement written warranty for the major components of the System (I.E., pumps, condensers and motors) and a one (1) year parts and labor written warranty for the System and shall assign any and all existing warranties for systems serving -15- the Premises, which shall include payments for all labor, but such warranties shall not relieve Landlord of any obligations set forth in this Lease. 11.3 Tenant shall use reasonable care and diligence to keep and maintain the Premises free from waste or nuisance and shall deliver the Premises to Landlord broom clean at the expiration of this Lease, reasonable wear and tear and casualty excepted. 12. ALTERATIONS, ADDITIONS AND IMPROVEMENTS 12.1 Tenant shall not create any openings in the roof or exterior walls, nor make any structural alterations, additions or improvements to the Premises, without the prior written consent of Landlord, which consent shall not be unreasonably withheld. Tenant shall have the right at all times to erect or install cabinets, shelves, electrical outlets, machinery, air conditioning or heating equipment and trade fixtures and other equipment, provided Tenant complies with all Legal Requirements in connection therewith. 12.2 All alterations, additions or improvements made by Tenant which are permanently attached to and made part of the Premises shall become the property of the Landlord at the expiration of the Lease term, except for signs, trade fixtures, furnishings, machinery and equipment used in Tenant's business and furnished by Tenant (collectively, "PERSONAL PROPERTY"), which Personal Property shall be removed by Tenant at the expiration or earlier termination of this Lease and Tenant shall repair any damages caused by such removal. For Federal income tax purposes, Tenant's signs, trade fixtures and furnishings are defined herein as equipment. Except as set forth above and provided Tenant has obtained Landlord's consent to perform alterations, if consent is required under the terms of this Lease, Tenant shall have no obligation to remove any other alterations or improvements or to restore the Premises at the expiration or earlier termination of this Lease. 12.3 Tenant shall have the right to make interior alterations to the Premises of a non-structural nature without Landlord's consent provided Tenant shall comply with all Legal Requirements in connection therewith. 12.4 At Tenant's sole cost and expense, Tenant shall be permitted to construct an antenna or satellite dish on the roof of the Premises, provided that (i) Tenant secures any permits required by governmental authority for installation, (ii) such antenna or dish it does not impair the structural integrity of the roof and (iii) Tenant coordinates such installation with Landlord's roofing contractor to avoid violations of any roofing warranties. 12.5 Notwithstanding the ownership of the alterations, additions or improvements to the Premises, Tenant retains the right to depreciation deductions of all such alterations, additions or improvements made at Tenant's expense. 13. SIGNS 13.1 Subject to approvals required by the City of Chico, Landlord warrants and represents that to the best of its actual knowledge as of the date hereof, there are no signage restrictions which bind the Shopping Center either by a restrictive covenant or uniform sign plan filed with the local governing authority that would prevent Tenant from erecting its prototype signage as shown on Exhibit G. Provided Tenant's proposed signage complies with all applicable laws and is substantially similar to Tenant's prototypical signage used in Tenant's other stores in California, Landlord's consent shall not be required with respect to Tenant's exterior signage. 13.2 During the term hereof Tenant shall not be required to remove its signs unless required to do so by local codes enacted subsequent to the date hereof. Tenant may at any time remodel or replace the sign facia to conform with Tenant's then standard signage so long as such signage does -16- not materially exceed the initial total sign area or violate applicable deed or master lease restrictions or sign ordinances, provided that Tenant may repair or replace any damaged or worn signs to their pre-existing condition notwithstanding any changes in deed or master lease restrictions made subsequent to the Effective Date or, to the extent legally allowed, sign ordinances enacted or amended subsequent to the Effective Date. To the extent permitted under governmental regulations, Tenant shall have the right to affix window appliques, interior signs and other treatments commonly used at Tenant's other locations. Tenant shall remove all signs and appliques at the expiration or earlier termination of this Lease, and shall repair any damage caused by such removal. Landlord shall not allow any signage other than Tenant's to be erected on the Premises. 13.3 Landlord agrees that Tenant may, at its expense, erect and maintain its standard pylon sign panel in the location previously reserved for Payless Drugs on the Freeway Pylon sign located where noted on EXHIBIT B. If a new pylon or monument sign is constructed in the Shopping Center, Tenant shall have the right to erect its standard sign panel thereon of a size and at a location priority consistent with the Tenant's relative Proportionate Share among other occupants of the Shopping Center that are given signage on such pylon or monument sign, provided, however, that Tenant pays such proportionate share of the cost of constructing said sign. Landlord agrees that Tenant shall have the right to install its sign panel on the Shopping Center's freeway pylon in the location currently occupied by Payless Drugs. 13.4 Prior to the Commencement Date Tenant shall have the right to erect on the Premises a temporary "Coming Soon" sign or signs announcing Tenant's anticipated opening. 14. LANDLORD'S RIGHT OF ENTRY 14.1 Landlord and its authorized agents may enter the Premises, after prior written notice and during Tenant's normal business hours (except in the case of an emergency posing imminent threat of injury to persons or damage to property), for the following purposes: (i) to inspect the general conditions and state of repair of the Premises; (ii) to make repairs required of Landlord; and (iii) to show the Premises to any prospective purchaser or mortgagee. If requested by Tenant, such entry by Landlord shall be under the supervision of Tenant. Landlord shall not interfere with or create a hazard to Tenant's normal business operations during such entry. 14.2 Within one hundred eighty (180) days prior to the expiration of the Term, Landlord may enter the Premises during Tenant's normal business hours to show the Premises to prospective tenants. During the final sixty (60) days of the Term, Landlord and its authorized agents may erect on, or about, the Premises its customary sign advertising the property for lease, provided such sign does not interfere with or create a hazard to Tenant's normal business operation. 15. UTILITIES 15.1 Tenant shall pay before delinquency all charges for gas, water, electricity and any other utility services used solely on the Premises during the Term hereof by Tenant. 15.2 Landlord, at its expense, shall cause the Premises to be individually metered for each utility service and provide the service connections at points mutually acceptable to Landlord and Tenant. If a utility does not allow or provide for separate metering or sub-metering, Tenant will pay its share of the consumption charges based upon the ratio of the Leasable Square Footage of the Premises to the total Leasable Square Footage of all buildings covered by the utility bill. Notwithstanding the preceding, utility charges for restaurants, hair salons, laundromats, health clubs and other utility intensive uses shall not be included within the calculation of Tenant's share of commonly metered consumption charges. Notwithstanding the foregoing, Landlord may keep the domestic water service for the Building on its account and place a submeter or submeters in the Building to separately meter usage in the Premises and the adjacent premises. In such event, Tenant shall reimburse Landlord for -17- the actual cost of water usage for the Premises as opposed to a reimbursement based upon a proportionate share of floor area. 15.3 In the event of an interruption in any utility service, Landlord shall diligently pursue the resumption of service. If any such interruption is causes by the negligence of or breach of this Lease by Landlord and, as a result, Tenant is not able to conduct its customary level of sales for similar periods, then Fixed Rent, Additional Rent and other charges hereunder shall be equitably adjusted during the period of such interruption. 16. PARKING Landlord shall provide Tenant and its employees, customers and other invitees with the non-exclusive use of parking spaces within the No Build Area (defined below) equal to the greater of: (i) 525 parking spaces, as shown on the site plan annexed hereto as EXHIBIT A or (ii) the number of parking spaces imposed by any local code requirements. In addition, Landlord shall provide for the non-exclusive use of all tenants or other occupants of the Shopping Center (excluding Petco's exclusive parking and employee designated parking and Circuit City's pickup area, all as designated on EXHIBIT A), and their respective employees, customers and other invitees, the greater of: (a) three and one-half (3.5) parking spaces per one thousand (1,000) square feet of Leasable Square Footage within the Shopping Center; or (b) the number of parking spaces imposed by any local code requirements. 17. [INTENTIONALLY DELETED] 18. [INTENTIONALLY DELETED] 19. NO BUILD AREA, VISIBILITY AND ACCESS 19.1 Landlord agrees that, during the Term, it will not construct or permit to be constructed any building, sign, tower or other structure or improvement, or, unless required by law, plant any tree or other growing plant (except replacements of existing trees or plants, provided same will not exceed nor is reasonable anticipated to exceed four feet in height), or make any other change whatsoever in the area depicted as the No Build Area on EXHIBIT B (the "NO BUILD AREA"). Notwithstanding anything contained in this Lease to the contrary, but subject to Paragraph 9.3 and Article 16 herein, Landlord may modify the layout and/or design of the Common Areas and/or building areas outside of the No Build Area and/or within building limit lines shown within the No Build Area on the attached EXHIBIT B without Tenant's prior written approval. In the event that Landlord violates the terms of this Paragraph 19.1, which violation materially impairs access to the Premises, parking availability or visibility of Tenant's signage or windows, and such violation is not cured within twenty (20) days after written notice from Tenant, in addition to all other available rights and remedies at law in or in equity, Tenant, at its option, may terminate this Lease upon written notice to the Landlord. Notwithstanding the foregoing, in the event that such material impairment results from a violation of the terms of this Paragraph 19.1 by a person or entity other than Landlord and in the further event that Landlord has the legal right to prohibit any such person or entity from violating the provisions of this Paragraph 19.1, Landlord shall not be deemed to be in default under the provisions of this Paragraph 19.1 and Tenant shall not have the right to terminate this Lease if Landlord, within sixty (60) days of receipt of written notice from Tenant of such violation, commences a legal action to cause such person or entity to cease such violation and thereafter diligently prosecute such legal action to completion. 19.2 In the event access to the Premises or visibility of Tenant's signage and/or windows is materially impaired for a continuous period of greater than ten (10) days following Landlord's receipt of written notice of such material impairment from Tenant due to Landlord's negligence or any other act or omission by or within the control of Landlord, then Fixed Rent, Additional Rent and all other charges payable by Tenant under this Lease shall be equitable adjusted or, if Tenant is unable to -18- continue operating, abated for the period commencing on the expiration of said ten (10) day period and continuing during the term of such material impairment. 20. ASSIGNMENT AND SUBLEASING 20.1 Except as otherwise provided in this Article 20 or in Paragraph 7.1 above (regarding a sublease for a coffee shop), Tenant may not assign this Lease or sublease the Premises, in whole or in part, without the express written consent of Landlord, which consent shall not be unreasonably withheld. Landlord shall consent or withhold such consent by written notice to Tenant within fifteen (15) business days of Tenant's written request for Landlord's consent, together with (i) the name and legal composition of the proposed assignee, subtenant or other transferee, (ii) the nature of the business proposed to be carried on in the Premises, (iii) the major terms and provisions of the proposed assignment, sublease or other transfer, and (iv) such reasonable financial and other information concerning the proposed transferee as Landlord may request. If Landlord fails to respond to Tenant's request within such fifteen (15) business day period, Landlord shall be deemed to have consented to such assignment or subletting. It shall be unreasonable for Landlord to withhold its consent to an assignment or a subletting if (i) the proposed assignee or subtenant is of such financial standing and operational responsibility as to give reasonable assurance of the payment of all rental and other amounts reserved in this Lease and compliance with all of the terms, covenants, provisions and conditions of this Lease, (ii) the use of the Premises or the subleased premises is consistent with those uses generally found in first class shopping centers, (iii) the primary use of the Premises or subpremises does not directly compete with the primary business of a then-existing tenant or subtenant in the Shopping Center, (iv) the use is not a prohibited use under Paragraph 7.4 hereof, (v) the use of the Premises or subpremises does not violate any exclusive provisions or restrictions contained in other then-existing leases in the Shopping Center or any recorded instrument affecting the Shopping Center, (vi) the assignee or sublessee operates at least three (3) other stores substantially similar to the operation proposed at the Premises, and (vii) the net worth of the assignee or sublessee is at least $5,000,000 (collectively, the "ASSIGNMENT/SUBLETTING CONDITIONS"). 20.2 Any provision of this Lease to the contrary notwithstanding, Tenant may assign this Lease or sublease the Premises, in whole or in part, without the express written consent of Landlord, to: (i) any corporation into which or with which Tenant has merged or consolidated; (ii) any parent, subsidiary, successor, or affiliated corporation of Tenant; (iii) any person or entity that acquires all or substantially all of the assets or operations of Tenant within the state in which the Premises are located; or (iv) any partnership of which more than twenty-five percent (25%) of the partnership interest shall be owned by Tenant or the parent corporation of Tenant, provided Tenant or such parent corporation is a general partner; provided that, in all of the foregoing events, Tenant's use restrictions in Paragraph 7.1 shall remain applicable. 20.3 No assignment shall operate to release Tenant of its liabilities and obligations hereunder. Tenant's assignee shall agree in writing to assume and perform all of the terms and conditions of this Lease on Tenant's part to be performed from and after the effective date of such assignment. Notwithstanding any provision of this Lease (except for Paragraph 20.2), no assignee or sublessee of Tenant shall be subject to any use restrictions contained in Paragraph 7.1 hereof, so long as such assignee's or sublessee's use of the Premises does not violate any deed or master lease restrictions and the Assignment/Subletting Conditions are satisfied. The sale or conveyance of the capital stock of or other equity interest in Tenant shall not constitute an assignment of this Lease. 20.4 Provided any assignee of Landlord assumes in writing all of Landlord's's obligations under this Lease accruing and to be performed from and after the date of such assignment and so notifies Tenant, Landlord may assign its interest in this Lease during the term hereof, and Landlord shall thereupon be released from all future obligations under this Lease with respect to events occurring or other matters arising after Tenant receives notice of such assignment and assumption; provided, however, Tenant shall make all payments required under this Lease to Landlord, or its successors in -19- interest, unless and until Tenant is notified of such assignment and assumption, and Tenant shall in no way be liable to any assignee for any amounts due hereunder until Tenant is so notified. 21. INSURANCE 21.1 Tenant shall during the Lease term, at its sole expense, maintain in full force general liability insurance issued by one or more insurance carriers, insuring against liability for injury to or death of persons and loss of or damage to property occurring in and on the Premises. Such liability insurance shall name Landlord as an additional insured. The coverage limits for such liability insurance shall be at least Three Million Dollars ($3,000,000.00) combined single limits for bodily injury and property damage per occurrence. Such policy shall be written as a primary policy not contributory with or in excess of any policy which Landlord may carry. Any such policy shall provide that any loss payable to Landlord shall be payable notwithstanding any act or negligence of Tenant which may otherwise result in a forfeiture of said insurance. Such insurance shall be written an "occurrence basis." 21.2 Landlord shall during the Lease term maintain in full force the following insurance: (i) general liability insurance issued by one or more insurance carriers, insuring against liability for injury to or death of persons and loss of or damage to property occurring in and on the Common Areas and in and on the entire Shopping Center, with coverage limits of at least Three Million Dollars ($3,000,000.00) combined single limits for bodily injury and property damage per occurrence; and (ii) all risk property damage insurance and a standard extended coverage endorsement issued by one or more insurance carriers covering the Premises and all of the other buildings and improvements in the Shopping Center to the extent of their full replacement value exclusive of foundation and excavation costs. Landlord shall name Tenant, together with others having insurable interests, as additional insureds on all insurance policies required under this Paragraph 21.1 that cover and insure the Premises. Within thirty (30) days of demand and presentation of paid invoices, Tenant shall reimburse Landlord for Tenant's Proportionate Share of Landlord's cost of insurance carried by Landlord pursuant to the provisions of this Paragraph 21.2. Landlord estimates that Tenant's Proportionate Share of Landlord's cost of insurance for the first (1st) Lease Year will be twenty-five cents ($.25) per square foot of Leasable Square Footage of the Premises. The casualty policies to be provided by Landlord may included a one (1) year rental loss endorsement and such other endorsements and coverages as Landlord, in its reasonable discretion from time to time may elect to obtain or which may be required by Landlord's first trust deed lender on the Shopping Center. Said policies may also be endorsed with standard mortgagee's loss payable endorsements in favor or, and in a form satisfactory to, any encumbrancers of Landlord, provided that all such encumbrancers shall have agreed to make the proceeds of such casualty insurance reasonable available for restoration and repair to the extent required by this lease. The requirement under this Paragraph that Landlord provide casualty insurance on other building improvements in the Shopping Center shall not be construed to require that such insurance be provided for leasehold improvements constructed by tenants and/or other occupants and/or their trade fixtures and other personal property or for plate glass. Landlord may permit the above-required insurance relative to the other building improvements to be carried by the tenants and/or occupants of such buildings, either with third-party insurance companies or by self-insurance and with reasonable deductibles, provided that such self-insurance and deductibles is/are acceptable to the holder of the first trust deed loan encumbering the Shopping Center. 21.3 Landlord and Tenant may comply with their insurance obligations hereunder by endorsement to any blanket policy of insurance provided, however, the coverage afforded the other party and any other additional insureds above shall not be reduced or diminished by reason of the use of such blanket policy of insurance and shall be no less than that which would have been afforded under a separate policy or policies. Landlord and Tenant shall deliver to each other certificates issued by the insurance carrier or carriers for each policy of insurance that they are required to maintain pursuant to the terms of this Lease within ten (10) days after request therefor. Any insurance required by this Article to be procured by one party for the benefit of another party shall contain a provision that the insurance cannot be terminated without thirty (30) days prior written notice to the other party. All -20- insurance required of a party under this Article 21 shall be maintained with insurance companies qualified to do business in the state in which the Premises are located and otherwise reasonable acceptable to the other party. 21.4 Tenant shall not knowingly conduct any operation in the Premises which would cause suspension or cancellation of the all risk property damage insurance carried by Landlord or by any other occupant of the Shopping Center. If Tenant should change its use of the Premises and thereby cause an increase above normal rates in the premium for the all risk property damage insurance carried by Landlord, the amount of such increase shall be reimbursed to Landlord by Tenant upon demand and presentation by Landlord of written evidence of such increase and paid invoices therefor. Tenant shall not be responsible for any portion of the cost of any insurance above normal rates caused by another tenant's activities within the Shopping Center. 22. INDEMNITY Tenant and Landlord (each an "INDEMNITOR") will indemnify the other (each an "INDEMNITEE") against, and hold Indemnitee harmless from, all claims, liabilities, demands or causes of action, including all reasonable expenses of the Indemnitee incidental thereto, for injury to or death of any person and subject to Article 23 below, damage to any property arising within or on the Shopping Center, including the Premises, and caused by Indemnitor's negligent act or omission or the negligent act or omission of any employee or agent of Indemnitor and, in the case of Tenant, any use or occupancy of or state or condition of the Premises the repair or correction of which is not the responsibility of Landlord under this Lease. The liability of Indemnitor to indemnify Indemnitee as hereinabove set forth shall not extend to any matter against which Indemnitee shall be effectively protected by insurance, provided that, if any such liability shall exceed the amount of the effective and collectible insurance in question, the liability of Indemnitor shall apply to such excess. 23. RELEASE AND WAIVER OF SUBROGATION Landlord and Tenant hereby waive and release each other of and from any and all rights of recovery, claim, action or cause of action against each other, their agents, officers, directors, partners and employees, for any loss or damage that may occur to the Premises or any other improvements in the Shopping Center, or Personal Property, including building contents owned by the releasing party, within the Premises and/or the Shopping Center, by reason of fire or the elements of nature or other events normally covered by extended all risk property damage insurance coverage, regardless of cause or origin including negligence of Landlord or Tenant and their agents, officers, directors, partners and employees. Landlord and Tenant shall immediately give written notice of the terms of the mutual waivers contained in this Article 23 to each of their respective insurance companies which have issued policies of insurance covering all risk property damage, and shall have the insurance policies properly endorsed to reflect the insurance company's acknowledgment of such waiver and the absence of any subrogation rights. Each party shall provide to the other, annually within ten (10) days after request therefor, evidence that its all risk property damage insurance policies have been so endorsed. 24. FIRE AND CASUALTY DAMAGE 24.1 If the Premises should be damaged by fire or other casualty such that rebuilding or repairs cannot be completed within one hundred eighty (180) days from the date of such damage, Tenant may, within thirty (30) days of the determination of the number of days necessary to restore the Premises, terminate this Lease on written notice to Landlord and, in such event, Fixed Rent, Additional Rent and all other charges payable by Tenant hereunder shall be prorated, taking into account any abatement under Paragraph 24.6 below, to and from the date of such termination. -21- 24.2 If the Premises should be damaged by fire or other casualty during the last eighteen (18) months of the Term such that the cost of rebuilding or repairs exceeds twenty percent (20%) of the replacement cost of the Premises, then, unless Tenant exercises any right it may have to extend the Term, Landlord may, within thirty (30) days after the determination of the cost of such rebuilding and repairs, terminate this Lease on written notice to Tenant and, in such event, Fixed Rent, Additional Rent and all other charges payable by Tenant hereunder shall be prorated, taking into account any abatement under Paragraph 24.6 below, to and from the date of such termination. 24.3 If the Premises should be damaged and this Lease cannot be or is not terminated by Landlord or Tenant pursuant to Paragraphs 24.1 or 24.2 above, then Landlord shall, at its sole cost and risk, proceed forthwith to rebuild or repair the Premises (to the extent of Landlord's Work only) in compliance with all Legal Requirements and otherwise to substantially the condition which existed prior to such damage, except that Tenant shall have the right to require Landlord to make changes to the Premises in the course or such restoration, subject to Landlord's approval of such changes to the extent required under Article 12 above. Although Landlord shall cooperate reasonable with Tenant in incorporating approved changes into Landlord's Work, Landlord shall not be required to make any change that would delay the commencement or completion of Landlord's Work, unless Tenant agrees that any rental abatement provided for under Paragraph 24.6 below will end on the date such abatement would have ended but for such delay. If the cost and expense of restoration of the Premises is increased by any change or changes made by Tenant then Tenant shall pay Landlord, within thirty (30) days after demand therefor, the amount or amounts by which the cost or expense of restoration of the Premises was thereby increased. 24.4 In the event Landlord is required to rebuild and repair the Premises under Paragraph 24.3 above and Landlord does not commence such rebuilding and repair within ninety (90) days after the damage or destruction or, thereafter, fails to pursue diligently such rebuilding and repair to completion, then, in addition to all other rights or remedies available to Tenant under this Lease or at law or in equity, Tenant may terminate this Lease effective upon giving written notice thereof to Landlord, unless Landlord cures such default within thirty (30) days of receipt or written notice of such default from Tenant. 24.5 The cost of rebuilding and repair of the Premises and the Shopping Center and the number of days within which the Premises can be rebuilt or repaired shall be determined by Landlord's general contractor, subject to verification thereof by an independent contractor mutually acceptable to both Landlord and Tenant. If Tenant desires verification by an independent contractor, the one hundred eighty (180) day period in Paragraph 24.1 above and the ninety (90) day period in Paragraph 24.4 above shall be extended for any period of time required to verify such number of days. 24.6 If so much of the Premises or Common Areas shall be damaged so that Tenant is unable to conduct its normal business operations from the Premises, in Tenant's reasonable judgment, then all Fixed Rent, Additional Rent and all other charges payable by Tenant hereunder to Landlord shall abate commencing upon the happening of such damage. If only a portion of the Premises is damaged, Fixed Rent shall abate proportionately. Such abatement and tolling of the term shall end on the earlier to occur of: (i) one hundred twenty (120) days after completion of rebuilding or repair of damage or (ii) the date on which Tenant's conduct of its business from the Premises shall be resumed. The date on which rebuilding or repairs are deemed to be complete shall be the date on which a permanent or temporary certificate of occupancy (or local equivalent thereof) is issued with respect to such rebuilding or repair, provided that the only condition to any such temporary certificate shall be the installation of Tenant's fixtures and any leasehold improvement work to be performed by Tenant. 24.7 If this Lease cannot be or is not terminated by Landlord or Tenant pursuant to Paragraph 24.1 or 24.2 above, then all insurance proceeds payable with respect to any damage or destruction of the Premises shall be applied solely to the cost of the rebuilding or repair of the damage or destruction. In the event the insurance proceeds are insufficient to cover the costs of the rebuilding or repairs, the excess costs shall be borne by the Landlord. -22- 24.8 If (i) more than twenty percent (20%) of the Leasable Square Footage of the buildings of the Shopping Center is damaged or destroyed or (ii) any part of the No Build Area or (iii) more than 20% of the balance of the Common Areas is damaged or destroyed, irrespective in either event of whether the Premises is damaged or destroyed, and if after the happening of either of such events Landlord does not commence within ninety (90) days after such damage or destruction and diligently continue thereafter to restore the same, Tenant shall have the right to terminate this Lease by giving written notice of such termination to Landlord, effective upon the expiration of sixty (60) days following the giving of such notice, unless Landlord commences such work within sixty (60) days of Landlord's receipt of such notice. 24.9 Notwithstanding the foregoing provisions of this Article 24, (a) in the event of any casualty which is not covered by Landlord's insurance (provided that Landlord shall have complied with its obligations under Articles 21 and 23 hereof regarding the maintenance of Landlord's insurance), the result of which is that the cost of restoration shall exceed twenty-five percent (25%) of the replacement cost of the Premises, Landlord shall have the right to terminate this Lease by written notice to Tenant given not later than thirty (30) days after the date on which the projected cost of restoration is determined. 25. CONDEMNATION 25.1 In the event any part of the Premises or a "Substantial Portion of the Shopping Center" (as defined in Paragraph 25.3) is taken or condemned by any competent authority or is conveyed by deed in lieu of condemnation (a "TAKING"), Tenant shall have the right: (a) to terminate this Lease as of the first day following the earlier of the date of title transfer or the date of the taking of possession by the condemning authority, or (b) to continue the Lease in full force and effect with a reduced Fixed Rent commensurate with the fair rental value of the Premises (such reduction to be in proportion to the reduction in the fair rental value of the Premises before the taking or condemnation as compared to the fair rental value of the Premises following the taking or condemnation and the completion of any restoration and repair to be performed by Landlord), in lieu of the amount of Fixed Rent otherwise provided herein, which reduction in Fixed Rent shall be effective the earlier of the date of title transfer or the date the taking of possession by the condemning authority. Tenant shall give notice to Landlord of its election within sixty (60) days after the date Landlord notifies Tenant of the impending Taking. 25.2 If Tenant does not elect to terminate this Lease as set forth herein, then Landlord shall commence and diligently continue thereafter to restore any portion of the Premises, the Common Areas and the other buildings in the Shopping Center remaining after the Taking to substantially the same condition and tenantability as existed immediately preceding the Taking or demolish and remove the remaining portions of building that are not reasonably susceptible to restoration. 25.3 For the purposes of Paragraph 25.1, a "Substantial Portion of the Shopping Center" is defined to mean any of the following: (i) ten percent (10%) or more of the parking areas of the Shopping Center; (ii) twenty percent (20%) or more of the Leasable Square Footage of the buildings within the Shopping Center; (iii) loss through the Taking of direct access from the Premises to any adjacent street or highway (unless comparable access is or will promptly be available); or (iv) more than ten percent (10%) of the No Build Area. 25.4 Termination of this Lease because of Taking shall be without prejudice to the rights of either Landlord or Tenant to recover from the condemning authority compensation and damages for the injury or loss sustained by them as a result of the taking. Without limiting the foregoing, Tenant shall have the right to make a claim against the condemning authority for the value of its trade fixtures, furniture and personal property, damages for interruption or relocation of business in the Premises, loss of good will, moving and remodeling expenses and value of any leasehold improvements made by Tenant on or to the Premises; provided, however, that Tenant shall not be permitted to make any claim for any "positive value" or "bonus value" of its leasehold estate. -23- 26. DEFAULT 26.1 Tenant shall be in default under this Lease if and only if one of the following events shall occur: (a) Tenant shall fail to pay Fixed Rent or Additional Rent payable hereunder when due, and such failure shall continue for ten (10) days after Landlord gives Tenant written notice of its failure to pay; or (b) Tenant shall fail to perform any of its other obligations under this Lease and such failure shall continue for more than thirty (30) days after Landlord gives Tenant written notice of its failure to perform, provided that, if such failure cannot reasonably be cured by Tenant within such 30-day period, Tenant shall not be in default if Tenant commences to cure the failure within such 30-day period and diligently thereafter pursues the cure to completion; or (c) Tenant or any guarantor of Tenant's obligations under this Lease makes a transfer in fraud of creditors or makes an assignment for the benefit of creditors; or (d) Tenant or any guarantor of Tenant's obligations under this Lease files a petition under federal bankruptcy statutes or under any similar law or statute of the United States or any state, or if Tenant or such guarantor is adjudged bankrupt or insolvent in proceedings filed against Tenant or such guarantor; or (e) Tenant fails, within ninety (90) days after an appointment pursuant to any state or federal bankruptcy or other statute, law or regulation, of a receiver or trustee for the Premises or for all or substantially all of the assets of Tenant or any guarantor of Tenant's obligations under this Lease, to have such appointment vacated. 26.2 If Tenant shall be in default under this Lease, Landlord may, in addition to all other remedies available at law or in equity, elect one of the following: (a) Cure the default for the account and at the expense of Tenant, and Tenant shall reimburse Landlord upon demand for the reasonable cost of curing Tenant's default, together with interest at the rate specified in Paragraph 26.5 below from the date incurred or paid by Landlord until such costs are paid to Landlord, and such costs and interest shall be deemed to be additional rental hereunder. (b) Immediately terminate this Lease and Tenant's right to possession of the Premises, and repossess the same by summary proceedings or other appropriate action, and Landlord shall thereupon be entitled to receive from Tenant (subject to the defenses and limitations provided Tenant under California Civil Code Section 1951.2) all damages specified in California Civil Code Section 1951.2(a), including the following: (i) the worth at the time of award of the unpaid rent which had been earned at the time of termination; (ii) the worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; (iii) the worth at the time of award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of such rental loss that the Tenant proves could be reasonably avoided; and (iv) such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law. As used in clauses (i) and (ii) above, the "worth at the time of award" shall be computed by allowing interest at the rate set forth in Paragraph 26.5 hereof. As used in clause (iii) above, the "worth at the time of award" shall be computed by discounting such amount at the discount rate of the Federal Reserve Board of San Francisco at the time of the award plus one percent (1%), but not in excess of ten percent (10%) per annum. (c) Continue this Lease in effect without terminating Tenant's right to possession even though Tenant has breached this Lease and abandoned the Premises and to enforce all of -24- Landlord's rights and remedies under this Lease, including the right to recover the rent as it becomes due under this Lease; provided, however, that Landlord may at any time thereafter elect to terminate this Lease for such previous breach by notifying Tenant in writing that Tenant's right to possession of the Premises has been terminated. The parties intend that Landlord have (subject to the defenses and limitations provided Tenant under California Civil Code Section 1951.2) the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee's breach and abandonment and recover rent as it becomes due, if lessee has right to sublet or assign, subject only to reasonable limitations). (d) Pursue any other remedy now or hereafter available to Landlord under the laws or judicial decisions of the State of California. Landlord's failure to act on any default or breach of covenant on the part of Tenant shall not be or be construed to be a waiver thereof, nor shall any custom or practice which may grow up between the parties in the course of administering this Lease be construed to waive or to lessen the right to Landlord to insist upon the performance by Tenant of any term, covenant or condition hereof, or to exercise any rights given Landlord on account of any such default. A waiver of a particular breach, or default, shall not be deemed to be a waiver of the same or any subsequent breach or default. Landlord's acceptance of rent or the performance hereunder shall not be, or be construed to be, a waiver of any term, covenant or condition of this Lease or breach or default thereof by Tenant, whether or not such breach or default is then known to Landlord. The voluntary or other surrender of this Lease by Tenant or a mutual cancellation of this Lease shall, at Landlord's option, either not result in a merger and shall operate as an assignment to Landlord of any and all subleases made by Tenant to the extent permitted under such subleases, or shall terminate all such existing subleases. 26.3 In the event this Lease is assigned or the Premises is sublet by Tenant pursuant to Article 20 above and a default occurs thereafter requiring notice as provided in Paragraph 26.1 above, Landlord agrees that it will furnish Tenant with a copy of the notice at the same time it is sent to the assignee or subiessee to the address set forth on page one hereof or the last address for notices provided to Landlord by Tenant in writing. In the event that the default is not cured by the assignee or sublessee during the specified time periods, Tenant shall have, for an additional period of ten (10) days, the option (but not the obligation) to cure the default. 26.4 In addition to all other remedies available to Tenant under this Lease or at law or in equity, if Landlord fails to perform any of its obligations under the Lease and such failure continues thirty (30) days after Tenant first gives Landlord written notice of such failure or, if the performance of such obligation cannot be reasonably completed within such 30-day period, in the event Landlord fails to commence within such 30-day period and thereafter diligently pursue to completion the performance of such obligation, then Tenant may (but shall not be obligated to) perform the obligation of Landlord and the reasonable cost thereof shall be payable from Landlord to Tenant upon demand. If Landlord fails to reimburse Tenant on demand for the reasonable cost of performing Landlord's obligation, or if Landlord fails to timely pay to Tenant any other amount due to Tenant under this Lease within fifteen (15) days after Tenant gives Landlord written notice of such past due amount, then Tenant may in either of such events deduct any such amounts owing from Landlord, plus interest thereon as provided in Paragraph 26.5 below, from Fixed Rent, Additional Rent or other charges due or to become due Landlord under this Lease. If Tenant has not received or received credit for all such amounts and interest thereon at the expiration of the Term, Tenant may, at its option, extend the Term on the same terms and conditions then in effect until all such amounts and interest thereon are fully paid by application of all Fixed Rent, Additional Rent and other charges accruing during such extended term. Notwithstanding anything to the contrary in this Lease, Landlord shall not be in default under any provision of this Lease which would give rise to the right of Tenant to terminate or offset any amount due Landlord under the Lease unless written notice specifying such default is mailed to Landlord and to all mortgagees and/or trust deed holders and/or assignees of which Tenant has, prior to such notice, been notified in writing ("SECURED PARTIES"), and such specified default is not cured within thirty (30) days after such notice has been mailed to Landlord and to the Secured Parties, or within any period not to exceed one hundred twenty (120) days that Landlord or any of the Secured Parties is proceeding to cure such default with due diligence, including, in the case of the Secured Parties, any period that any -25- of the Secured Parties is taking steps with due diligence to obtain the legal right to cure such default on behalf of Landlord, provided such Secured Party has given Tenant notice of its intention to cure such default within thirty (30) days after such notice has been mailed. Tenant hereby grants to any Secured Party the right to cure defaults under this Lease on the part of Landlord and agrees to provide each Secured Party reasonable access to the Premises for the purpose of curing such defaults. 26.5 In the event either party hereto fails to pay any sum due under this Lease within ten (10) days from the due date specified in this Lease, such past due amount shall accrue, and the failing party shall be liable for, interest from the original due date until paid at an annual rate equal to the lesser of (i) the prime rate then published in the WALL STREET JOURNAL plus three percent (3%) or (ii) the maximum rate permitted by law. 27. HAZARDOUS MATERIALS 27.1 The following terms shall have the meanings ascribed to them under this Paragraph 27.1: (a) "Hazardous Materials" shall mean any chemical, substance, material or combination thereof which is or may be hazardous to human health or safety or to the environment due to its radioactivity, ignitability, infectiousness or other harmful or potentially harmful properties or effects, including petroleum and petroleum products, asbestos, radon, polychlorinated biphenyls ("PCBs") and all of those chemicals, substances, materials or combinations thereof that are listed, defined or regulated in any manner by any Environmental Law (defined below). (b) "Environmental Cleanup Work" shall mean any cleanup, remediation, removal, construction, alteration, demolition, renovation or installation that is required in connection with Hazardous Materials installed, used, stored, handled or located on the Subject Property (defined below) or disposed of from the Subject Property in order to comply with any Environmental Law. (c) "Environmental Law" shall mean any federal, state or local environmental, health and/or safety-related law, and any related decision of the courts, ordinance, rule, regulation, code, order, directive, guideline, permit or permit condition. (d) "Subject Property" shall mean the Premises, the Shopping Center and any adjacent property owned or leased by or otherwise under Landlord's control, including the improvements thereon and the subsurface soils and groundwater therein and thereunder. 27.2 Landlord hereby represents and warrants, to its actual knowledge, the following to Tenant: (a) During Landlord's period of ownership, the Subject Property has not been used for the disposal of refuse or waste, or for the generation, processing, manufacture, storage, handling, treatment, release, discharge or disposal of any Hazardous Materials, except as typically as part of the operation of a retail shopping center and in compliance with all Environmental Laws. (b) The Subject Property is in compliance with all Environmental Laws, or will be prior to the Commencement Date. (c) During Landlord's period of ownership, no (i) asbestos- containing materials, (ii) machinery, equipment or fixtures containing polychlorinated biphenyls, (iii) storage tanks for gasoline or any other substance or (iv) urea formaldehyde foam insulation has been installed, used, stored, handled or located on the Subject Property. 27.3 Landlord shall comply with, and shall pay all costs incurred in complying with, any Environmental Law then in effect and the environmental sipte, condition and quality of the Subject -26- Property, including the performance of and payment for any Environmental Cleanup Work and the preparation of any closure or other required plans, excluding, however, any compliance and/or costs related to Hazardous Materials on the Shopping Center to the extent established to have been caused by Tenant's (or Tenant's employees, agents or contractors) use and/or occupancy of the Premises or of the Shopping Center. 27.4 Notwithstanding any other provision of this Lease, Landlord shall and hereby does agree to indemnify, protect, defend and hold harmless Tenant and its partners, directors, officers, employees, shareholders, agents, contractors and each of their respective successors and assigns from and against any and all claims, judgments, damages, penalties, fines, taxes, costs, liabilities, losses and expenses arising at any time during or after the Term as a result of or in connection with: (i) Landlord's breach of any representation, warranty or covenant contained in this Article 27; or (ii) the presence of Hazardous Materials on, under or about the Subject Property, except to the extent same are the result of Tenant's (or its employees, agents or contractors) activities on or in the Premises or the Shopping Center. 27.5 In the event of Landlord's breach of any representation, warranty or covenant contained in this Article 27 which adversely affects Tenant's ability to carry on its business at the Premises and provided that Landlord shall have failed to cure any such breach within thirty (30) after Tenant first gives Landlord written notice of such breach (or such longer period not to exceed ninety (90) days as may be reasonably necessary if such cure cannot be reasonably completed within such thirty (30) day period and if Landlord has commenced such cure within thirty (30) days if its receipt of such notice and is diligently pursuing the completion of same), Tenant shall have the right, in addition to all other remedies provided herein, to (i) terminate this Lease by written notice to Landlord if the existence of Hazardous Materials which are not caused by the acts or omissions of Tenant has caused Tenant to cease operations at the Premises, such termination to be effective as of the date set forth in such notice, or (ii) cease operations within the Premises in whole or in part and have the Fixed Rent, Additional Rent and any other charges payable by Tenant hereunder equitably abated based upon the extent of interference with the conduct of Tenant's business from such condition until Landlord has cured such breach. 27.6 Tenant agrees not to store any Hazardous Materials on the Premises and agrees not to release or discard any Hazardous Materials on the Premises or the Shopping Center; provided, however, Tenant may store, handle and use the following chemicals, substances or materials if they are used, stored, handled and disposed of in material compliance with Environmental Laws then in effect: (i) chemicals, substances or materials routinely used in office areas; (ii) janitorial supplies, cleaning fluids or other chemicals, substances or materials reasonably necessary for the day-to-day operation or maintenance of the Premises by Tenant, and (iii) chemicals, substances or materials, reasonably necessary for the construction or repair of improvements on the Premises. 27.7 Notwithstanding any other provision of this Lease, Tenant shall and hereby does agree to indemnify, protect, defend and hold harmless Landlord and its partners, directors, officers, employees, shareholders, agents, contractors and each of their respective successors and assigns from and against any and all costs (including, without limitation, costs of Environmental Cleanup Work), claims, judgments, damages, penalties, fines, taxes, costs, liabilities, losses and expenses arising at any time during or after the Term as a result of or in connection with (i) the presence of any Hazardous Materials on the Premises or the Shopping Center as the result of activities on or in the Premises or the Shopping Center by or under Tenant or (ii) Tenant's failure to comply with its obligations under this Article 27. Tenant shall provide prompt written notice to Landlord of the existence of Hazardous Materials on the Premises and/or any adjoining property within the Shopping Center of which Tenant has actual knowledge and with copies of all notices of violation of Environmental Laws received by Tenant. -27- 28. SUBORDINATION AND NON-DISTURBANCE 28.1 If Tenant does not deliver to Landlord a Contingency Termination Notice (as defined in Paragraph 37.14) notwithstanding the failure of Landlord to deliver a Subordination, Non-Disturbance and Attornment Agree- ment as required in Paragraph 37.14(c), then Tenant shall have no obligation to pay Fixed Rent, Additional Rent or other charges otherwise payable under this Lease until Landlord obtains for Tenant such Subordination, Non-Disturbance and Attornment Agreement. In any event, Tenant shall have the option to terminate this Lease if such Subordination, Non-Disturbance and Attornment Agreement is not obtained with one hundred eighty (180) days after the Commencement Date. Landlord further agrees that, before it shall have the right to subject and subordinate this Lease to the lien of any mortgages or deeds of trust hereafter placed upon Landlord's interest in the Shopping Center, Landlord shall have first secured for Tenant's benefit a written Subordination, Non-Disturbance and Attornment Agreement substantially in the form set forth in Exhibit H, subject only to the addition of terms and provisions required by the mortgagee or trust deed beneficiary as are customarily found in such agreements between nationally recognized tenants and institutional lenders on the security of first-class shopping center developments in the Northern California area. 28.2 If Landlord defaults in making payment under any mortgage or deed of trust encumbering all or any part of the Shopping Center the foreclosure of which will terminate Tenant's right to possession of the Premises, or if Land- lord is in breach or in default of any such mortgage or deed of trust in any respect, Tenant shall have the right but not the duty to make all payments of Fixed Rent and other charges thereafter becoming due under this Lease to the mortgagee or beneficiary thereunder in lieu of Landlord, and payments so made shall discharge the obligation of Tenant hereunder with respect to such payments. 29. NOTICES 29.1 Any notice required to be given under the terms of this Lease shall be in writing and shall be effective upon the earlier of: (i) receipt, (ii) refusal to accept delivery or (iii) three (3) days after being deposited in the U.S. mail, postage prepaid, via registered or certified mail return receipt requested, or one (1) day after being deposited with a nationally recognized overnight courier, if to Landlord at the address set forth on page 1 hereof, and if to Tenant to the following addresses: Barnes & Noble Superstores, Inc. 122 Fifth Avenue New York, New York 10011 Attention: Vice President of Real Estate with a copy to the same addresses, Attention: Lease Administration. For invoices or statements, an additional copy shall be sent to Tenant at the following address: Accounts Payable Department 1400 Old County Road Westbury, New York 11590 Attention: Property Accounting 29.2 Payments of Fixed Rent and other changes shall be forwarded to Land- lord at the address set forth on page 1 hereof via first class mail. If at any time, or from time to time, there shall be more than one Landlord, the Land- lords shall designate a party to receive all notices and rent payments, and service upon or payment to the designated party shall constitute service upon or payment to all. Tenant shall not be required to issue multiple checks for any single payment of Fixed Rent or other charges hereunder. -28- 29.3 Either party may designate a new address for notice hereunder and/or for the payment of Fixed Rent and other charges upon ten (10) days' advance written notice to the other party in the manner set forth in Paragraph 29.1 above. 30. MEMORANDUM OF LEASE Landlord agrees, upon Tenant's request, to execute a Memorandum of Lease in the form of EXHIBIT 1. Either party may record the Memorandum of Lease at its expense following the Effective Date hereof. The provisions of this Lease shall control, however, in regard to any omissions from the Memorandum of Lease or any provisions hereof which may be in conflict with the Memorandum of Lease. 31. LIENS If because of any act or omission of Tenant a mechanic's or other lien shall be filed against the Premises or the Shopping Center, Tenant shall, at Tenant's own cost and expense, within thirty (30) days after notice of the filing thereof, cause the same to be cancelled and discharged of record, or shall furnish Landlord with a surety bond issued by a surety company protecting Landlord from any loss because of non-payment of such lien claim. In the event Tenant posts a surety bond, Tenant shall be entitled to contest any such lien claims by appropriate judicial proceedings. Landlord shall at all times have the right to post and to keep posted on the Premises such notices as are provided for under or by virtue of the laws of the State of California for the protection of Landlord's interest in and to the Premises from mechanics liens or liens of a similar nature. At least twenty (20) days prior to Tenant's commencement of any labor or work or construction (except for Tenant's Work expressly contemplated herein) having a projected cost in excess of Fifty Thousand Dollars ($50,000.00), Tenant shall deliver to Landlord notification thereof specifying the nature and location of the intended work and the expected date of commencement and completion thereof, and thereupon Landlord shall have the right to post notices of non-responsibility on or about the Premises. 32. TENANT'S ENTRY PRIOR TO COMMENCEMENT DATE Landlord grants Tenant, its employees and agents, a license to enter the Premises for purpose of inspecting Landlord's construction of Landlord's Work prior to the Commencement Date. In exercising such license, neither Tenant nor its employees or agents shall interfere with the workmen, mechanics or contractors of Landlord. Tenant's storage or installation within the Premises of any of its fixtures, inventory or other items of Personal Property prior to the Commencement Date shall not be deemed an acceptance of the Premises by Tenant. 33. FORCE MAJEURE Landlord and Tenant shall be excused for the period of any delay in performance of any obligations hereunder when prevented from doing so by the wrongful or negligent acts or omissions of the other party or by causes beyond either party's control, which shall include all labor strikes, civil distur- bance, war, war-like operations, invasions, rebellion, hostilities, military or usurped power, sabotage, governmental regulations or controls, fires or other casualty, inability to obtain any material or service or acts of God. Notwithstanding the foregoing: (i) nothing contained in this Article 33 shall excuse Tenant from paying in a timely fashion any payments due under the terms of this Lease from and after the Rent Commencement Date; and (ii) with respect to Landlord's construction obligations under Article 4 above, (x) no delay under this Article 33 shall be effective unless Landlord shall have notified Tenant of the delay within three (3) business days of Landlord's obtaining actual knowledge of the event giving rise to such delay; and (y) no delay under this Article 33 shall be permitted in connection with delays caused by the failure of the Premises or the Shopping Center to comply with -29- local governmental ordinances, codes or regulations in effect on the Effective Date of this Lease or the implementation of same. 34. BROKERS Tenant and Landlord represent and warrant to each other that such party has not had any dealings with any realtor, broker or agent in connection with this Lease or the negotiation hereof, other than CB Commercial Real Estate Group, Inc. and Lowen Real Estate ("BROKERS"), and each party agrees to defend, indemnify and hold the other party harmless from any cost, expense or liability, including reasonable attorney's fees, for any breach of this representation. Landlord shall be responsible for all fees and commissions payable to Brokers in connection with this Lease. Tenant represents to Landlord that it has not agreed to pay any such fee or commission to the Brokers, or either of them. 35. LANDLORD'S SUBORDINATION Within fifteen (15) days after request from Tenant, Landlord shall execute a subordination agreement in favor of Tenant's lender with respect to any liens arising in favor of Landlord against Tenant's fixtures and personal property. Such subordination agreement shall be in a form reasonably acceptable to Land- lord, Tenant and Tenant's lender. Any restriction on Landlord's right to remove Tenant's fixtures and/or other personal property upon the termination or expiration of this Lease in any such agreement shall expire no later than thirty (30) days following such expiration or termination and notice by Landlord to such lender mailed to the last address provided to Landlord for such purpose by such lender. Said agreement shall obligate Tenant's lender, for Landlord's benefit, to repair any damages to the Premises resulting from any removal of Tenant's trade fixtures and personal property by or under such lender. 36. ESTOPPEL CERTIFICATES Within fifteen (15) days after written request from a party hereto, the other party shall execute, acknowledge and deliver to the requesting party an estoppel certificate certifying: (i) that this Lease is unmodified and in full force and effect (or, if there have been modifications, that this Lease is in full force and effect, as modified, and stating the date and nature of each modification); (ii) the date to which rental and other sums payable hereunder have been paid; (iii) that no notice has been received by such other party of any default which has not been cured, except as to defaults specified in the estoppel certificate; and (iv) such other matters as may reasonably be requested by the other party, its lender, assignee or purchaser (or proposed lender, assignee or purchaser). Any such estoppel certificate may be relied upon by any such purchaser, lender or assignee for estoppel purposes only, and no party executing such estoppel certificate shall be liable for damages or other losses as a result of inaccuracy in the information contained in such estoppel certificate absent bad faith or gross negligence. 37. MISCELLANEOUS 37.1 The failure of Landlord or Tenant to insist upon prompt and strict performance of any of the terms, conditions or undertakings of this Lease, or to exercise any right herein conferred, in any one or more instances, shall not be construed as a waiver of the same or any other term, condition, undertaking, right or option. 37.2 The terms, covenants, agreements, conditions and undertakings contained herein shall be binding upon and shall inure to the benefit of the heirs, successors in interest and assigns of the parties hereto. Where more than one party shall be the Landlord under this Lease, the word "Landlord" whenever used in this Lease shall include all Landlords jointly and severally. -30- 37.3 This Lease contains the entire agreement between the parties hereto and no representations, inducements, promises or agreements, oral or otherwise, entered into prior to the execution of this Lease, will alter the covenants, agreements and undertakings herein set forth. This Lease shall not be modified in any manner, except by an instrument in writing executed by all parties. 37.4 If any term or provision 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 or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby and each term and provision of this Lease shall be valid and be enforced to the fullest extent permitted by law. The terms and provisions of this Lease shall not be construed against or in favor of a party hereto merely because such party or its counsel is the draftsman of this Lease. 37.5 All of the terms and words used in this Lease, regardless of the number and gender in which they were used, shall be deemed and construed to include any other number (singular and plural), and any other gender (masculine, feminine or neuter), as the context or sense of this Lease or any paragraph or clause hereof may require, the same as if the words had been fully and properly written in the number and gender. 37.6 Any reference contained in this Lease to the "Effective Date" or similar terms shall mean the last date on which any party required to execute or initial this Lease does so, and such date shall be set forth in the first paragraph of this Lease where indicated. 37.7 Tenant and Landlord each warrant and represent that the party signing this Lease on behalf of each has authority to enter into this Lease and to bind Tenant and Landlord, respectively, to the terms, covenants and conditions contained herein. Each party shall deliver to the other, upon request, all documents reasonably requested by the other evidencing such authority, including a copy of all corporate resolutions, consents or minutes reflecting the authority of persons or parties to enter into agreements on behalf of such party. 37.8 Article or Paragraph headings or captions contained herein are provided for convenience purposes only and shall not be considered in any way in connection with the construction of the substantive terms and provisions of this Lease. 37.9 This Lease shall be governed by and construed and enforced in accordance with the laws of tne state in which the Premises is located. 37.10 In the event either party hereto initiates litigation or hires legal counsel to enforce or protect its rights under this Lease, the prevailing party shall be entitled to recover from the unsuccessful party, in addition to any other damages or relief awarded or obtained, all court costs and reasonable attorneys' fees incurred in connection with such litigation or action by legal counsel. 37.11 Nothing contained in this Lease shall be construed to create a partnership, joint venture or relationship of principal and agent between Land- lord and Tenant. No provision of this Lease shall be construed to confer any rights or remedies upon any party other than Landlord and Tenant. 37.12 When used herein, the terms "including" and "includes" and similar words or phrases shall be deemed to be terms of illustration only and not limitation. 37.13 Any dispute between Landlord and Tenant with respect to any issue arising out of this Lease which is, pursuant to the specific provisions of this Lease, either expressly made subject to resolution by arbitration or involves a sum of money (other than a dispute regarding the payment and/or amount of Fixed Rent) which is less than $100,000 (as the case may be, an "ARBITRABLE DISPUTE") shall be determined by arbitration in Butte County, in accordance with the rules of the American Arbitration Association ("AAA"). The arbitrator(s) shall act as promptly as possible to determine and conclude the issue. Any arbitrator must have at least ten (110) years experience in operating or managing commercial -31- real estate in the City of Chico and shall not be related to nor have worked for either Landlord or Tenant. The determination of the arbitration shall be conclusive upon the parties and judgment upon the same may be entered in any court having jurisdiction over the parties and the subject matter of the dispute. Landlord or Tenant shall have the right to submit an Arbitrable Dispute (and only such dispute) to binding arbitration under the Expedited Procedures provisions (Rules 53 through 57 in the January 1, 1990 edition) ("EXPEDITED ARBITRATION") of the Commercial Arbitration Rules of the AAA. In cases where the parties utilize such Expedited Arbitration: (i) the parties will have no right to object if the arbitrator so appointed was on the list submitted by the AAA and was not objected to in accordance with Rule 54 (provided such arbitrator meets the criteria contained for appointment as an arbitrator), (ii) the first hearing shall be held within seven (7) business days after the appointment of the arbitrator, and (iii) the losing party in such arbitration shall pay the arbitration costs charged by AAA and/or the arbitrator. 37.14 This Lease and the obligations of Landlord and Tenant hereunder are expressly made contingent upon the satisfaction of the following contingencies and conditions (collectively, the "CONTINGENCIES"), which Contingencies Landlord agrees to use its best efforts to satisfy: (a) Landlord shall deliver to Tenant a termination agreement signed by Payless Drugs (the "PAYLESS TERMINATION AGREEMENT") pursuant to which Payless Drugs agrees to terminate its lease and vacate their premises in the Shopping Center upon not more than thirty (30) days advance written notice from Landlord; (b) Landlord shall deliver to Tenant an agreement with Circuit City and Office Depot permitting Tenant to operate its business in the Premises for those purposes set forth in Paragraph 7.1 hereof without restriction or limitation in conflict with Tenant's rights under this Lease; (c) Landlord shall obtain from the current holder of any mortgage or deed of trust encumbering all or any part of the Shopping Center, a Subordin- ation, Non-Disturbance and Attornment Agreement in the form substantially as set forth in EXHIBIT H, or, at Landlord's request, such other commercially reasonable form mutually acceptable to such holder and Tenant; (d) Landlord shall deliver to Tenant evidence reasonably satisfactory to Tenant that the lease with Blockbuster Video has been fully executed and delivered; (e) Landlord has obtained approval from the Architectural Review Board of the City of Chico of the Elevation Designs annexed hereto as EXHIBIT G. If any of the Contingencies set forth in clauses (a), (b) and (c) are not satisfied within thirty (30) days after the Effective Date or any of the Contingencies set forth in clauses (d) and (e) are not satisfied within sixty (60) days after the Effective Date, Tenant (if any of (a) through (e) are not satisfied) or Landlord (if any of (a), (b), (d) or (e) are not satisfied) may terminate this Lease upon written notice to the other (the "CONTINGENCY TERMINATION NOTICE"), whereupon this Lease shall be null and void as if the parties had not entered into same and neither party shall have any rights or liabilities hereunder. Notwithstanding the foregoing, if Landlord seeks to terminate this Lease because the condition specified in clause (d) is not satisfied, Tenant may, within ten (10) days after receipt of Landlord's Contingency Termination Notice, nullify Landlord's termination notice by sending Landlord a notice whereby Tenant agrees to lease the Blockbuster premises upon all of the same terms and conditions as this Lease and the parties shall promptly proceed to enter into such a lease and this Lease shall remain in full force and effect. Upon satisfaction by Landlord of the Contingencies, Landlord shall deliver a notice thereof to Tenant certifying that the Contingencies have been satisfied and Landlord's option to terminate this Lease as provided in this Paragraph 37.14 shall thereafter be null and void (the "CONTINGENCY SATISFACTION NOTICE"), which Contingency Satisfaction Notice shall be deemed given if Landlord has not delivered the Contingency Termination Notice within ninety (90) days after the Effective Date. -32- 37.15 After the Commencement Date and upon obtaining all required permits for the construction of Tenant's Work, Tenant shall promptly commence construction of Tenant's Work and shall thereafter diligently prosecute such construction to completion in accordance with the approved Tenant's Plans and in a good and workmanlike manner and in compliance with all applicable laws, rules and regulations. During construction, the Premises shall be enclosed by a construction barricade approved by Landlord, separating the Premises from the balance of the Shopping Center. The construction barricade shall be painted and decorated in form reasonably satisfactory to Landlord. Tenant's contractor shall be responsible for the repair, replacement or cleanup of any damage done by Tenant or its general contractor to other contractors work and/or the Premises or adjacent properties. Tenant's contractor shall contain its storage of materials and his operations within the Premises and that certain staging area for Tenant's nonexclusive use designated as the "Staging Area" on the attached EXHIBIT B. All trash and surplus construction materials shall be stored within the Premises and shall be promptly removed from the Shopping Center. Tenant's contractor or subcontractors shall not post signs on any part of the Shopping Center other than within the construction barricade or on the fence or barricade. Tenant's Work shall be coordinated under Landlord's direction so that Tenant's Work will not unreasonably interfere with or delay the completion of any other construction work in the Shopping Center or the quiet enjoyment of other occupants of the Shopping Center (including keeping all access and drive aisles reasonably free from debris and vehicles) and Tenant shall cause its contractors to reasonably coordinate Tenant's Work with any such other work with Landlord or, at Landlord's direction, with other contractors or Landlord's architect. 37.16 Notwithstanding anything contained in this Lease to the contrary, Landlord shall not be responsible for the correction or repair of construction defects in any of the Landlord's Work to be maintained and repaired by Tenant except for patent defects in such work of which Landlord receives written notice from Tenant within sixty (60) days of the Rent Commencement Date and except for latent defects in such work of which Landlord receives written notice from Tenant within twelve (12) months of the Rent Commencement Date. -33- 38. EXHIBITS All Exhibits referred to herein shall be considered a part hereof for all purposes with the same force and effect as if copied at full length herein. The Exhibits attached hereto are listed as follows: EXHIBIT A - Legal Description EXHIBIT B - Shopping Center Site Plan EXHIBIT C - Notice of Lease EXHIBIT D - Landlord's Work EXHIBIT E - Intentionally Deleted EXHIBIT F - Use Provisions EXHIBIT G - Tenant's Prototype Signage and Proposed Elevation Designs EXHIBIT H - Subordination, Non-Disturbance and Attornment Agreement EXHIBIT I - Memorandum of Lease EXECUTED by Landlord and Tenant on the respective dates set forth below, but effective as of the Effective Date. LANDLORD: CHICO CROSSROADS CENTER, a California Limited Partnership By: JMLB, Inc. its general partner Date executed by Landlord: By: /s/ Illegible -------------------------------- Name: January 16, 1996 Title: President - ----------------------------- TENANT: BARNES & NOBLE SUPERSTORES, INC. Date executed by Tenant: By /s/ Mitchell S. Klipper ----------------------------------- Name: Mitchell S. Klipper January 5, 1996 Title: Executive Vice President -34- EXHIBIT A LEGAL DESCRIPTION All that certain real property situate in the County of Butte, City of Chico, State of California, described as follows: Lots 1 through 9, as shown on that certain Parcel Map entitled, "Vesting Parcel Map No. 95", which map was filed in the office of the Recorder of the County of Butte, State of California, September 22, 1994, in Book 134 of Maps, at Pages 84 and 85. A-1 EXHIBIT B SHOPPING CENTER SITE PLAN B-1 EXHIBIT C NOTICE OF LEASE As required under the Lease Agreement (the "Lease') dated _________. 19__, between the undersigned parties and covering approximately _______ square feet of space located in the Chico Crossroads Shopping Center, Chico, California, the undersigned hereby establish and agree that: (i) the term of the Lease commenced on _________________, 19__, and shall expire on ____________, 20__, subject to Tenant's extension options under the Lease; (ii) the Fixed Rent for the first full calendar month of the Lease term is $_________ and (iii) the Rent Commencement Date is ______________________, 19__. LANDLORD: CHICO CROSSROADS CENTER By: _____________________________ Name: Title: TENANT: BARNES & NOBLE SUPERSTORES, INC. By: ___________________________ Name: Mitchell S. Klipper Title: Executive Vice President C-1 EXHIBIT "D" LANDLORD'S WORK Landlord agrees to demise a portion of the existing building ("Building") for Tenant as outlined on Exhibit "B" and specifically in the area crosshatched and designated as the Premises on Exhibit "G". Landlord shall prepare at its sole cost and expense plans and specifications (the "Plans") for Landlord's Work (as hereinafter defined). Landlord's Work shall be completed substantially in accordance with the Plans and applicable governing codes, in a good and workmanlike manner, utilizing both new materials and existing components. To the extent that certain portions of Landlord's Work are existing or have already been completed, Landlord's obligations shall be deemed satisfied, provided: 1. All improvements are in good working condition and in compliance with all applicable building code requirements. 2. All existing electrical and mechanical systems shall be in good working order at the time of "Delivery" and Landlord warrants same for a period of one (1) year from the Delivery Date (and a five (5) year warranty on major components of the HVAC System (i.e. pumps, motors, condensers)). LANDLORD'S WORK: Landlord's Work is defined for purposes of this Exhibit "D" as items A through I. All of the following work shall be set forth in the Plans and shall be provided to meet all applicable governing codes and regulations. The term "provide" as used herein means to furnish and install. A. BUILDING SHELL: The Building and Demised Premises shall include: 1. Complete roofing system, including roofing membrane, roof deck, and structure. Provided Tenant's store front (to be provided as part of Tenant's Work) is glass store front system with shading coefficient of 5.7 or less, Landlord's work shall include insuring that the building "shell" complies with the current Title 24 energy requirements. To the extent Tenant's Work (as hereinafter defined) including store fronts and ceiling system, are required to meet energy code requirements, Landlord shall not be required to make said improvements. 2. Complete structural system; columns, beams, and/or rafters (exposed construction). 3. Building and site shall be free of all hazardous materials (including but not limited to asbestos, underground storage tanks, etc.) to the extent required by the applicable governmental authorities. Hazardous materials shall be properly handled (i.e., encapsulated) as required by governing codes and regulations. 4. Exterior wall surfaces of the structure shall be painted masonry block. No additional insulation shall be provided. 5. Secondary access/exit door(s) with frame and all required hardware. Landlord and Tenant shall coordinate door locations, sizes and hardware. 6. The Building "shell" shall be designed and constructed to conform with all Exhibit "D", Page 1 applicable governing codes and regulations including ADA criteria. 7. All existing interior improvements, including floor covering, demising walls (except electrical room), restrooms, dropped ceiling, lighting and fixtures shall be demolished and removed. The premises will be delivered in broom clean condition. 8. New demising wall shall include 1/2" CDX plywood on the Barnes & Noble side under the dry wall, fastened with dry wall screws pursuant to local code. New demising dry wall shall be taped, sanded and paint ready. B. UTILITIES: Shall be provided to the Building Shell and located as shown on the Plans. 1. Domestic water service: Per local code requirements, 1 1/2" minimum. Landlord may supply the entire building with an internal metering system for billing. 2. Sewer service: Existing 4" minimum sewer line. 3. Natural gas service: 1 1/2" natural gas line suitable to supply the required BTU/hr for the HVAC system. A 1 1/2" stubbed gas service, capped in place, will be provided in the attic space for future service. 4. Telephone service: Existing telephone service located in the electrical room shall be left in place. C. FLOOR SLAB: A smooth concrete floor slab ready for Tenant floor coverings. Floor slab shall support not less than 125 p.s.f and all blemishes, spalls and cracks shall be repaired as required to accept new floor covering. D. ELECTRICAL: 1. Provide separate electrical service and meter for the Demised Premises. 2. Provide one (1) 277/480 volt-3 phase, 4 wire 800 AMP main painel with remote meter, Panel shall be placed on finish grade, 3/4" plywood backing boards at the location shown on the Plans. All existing electrical runs for lighting and other services will be disconnected and removed. In slab electrical conduit will be disconnected and left in place. Any existing recessed electrical receptacles will be left in place with service disconnected. Abandoned electrical circuit boxes shall be removed and patched. E. AIR CONDITIONING & HEATING: 1. Landlord shall utilize existing heating and cooling units wherever possible. 2. Total system shall supply a minimum of 1.0 ton per 350 square feet contained in the Demised Premises, fully functional and capable of maintaining 78 degrees Fahrenheit in cooling mode (summer) and 72 degrees Fahrenheit in heating mode (winter). 3. Units will be set and curb mounted with the return and supply stubbed to bottom of truss joist. Exhibit "D", Page 2 4. HVAC system to include disconnect, weather disconnect to HVAC units, conduit, power wiring, thermostat and gas piping (where required). 5. AU HVAC equipment to comply with Clean Air Act requirements. F. STORE FRONT: Landlord shall demolish all exterior facade and other architectural features on the store front; including removal of all existing store fronts, glass and doors, leaving any bulkheads in place. G. FIRE SPRINKLER SYSTEMS & CENTRAL STATION REPORTING SYSTEMS: Provide monitoring for the existing fire sprinkler system per the Plans and according to applicable code. Any system monitoring, alarms, specialty items or alarm fees for a "shell" condition as required by applicable code shall be included within Landlord's scope of work. Existing system shall be modified for the proposed demising; existing drops will be left in place. All other work to modify the system to conform to Tenant's Work shall be completed by Tenant. H. SITE DEVELOPMENT: 1. Parking areas shall be hard-surfaced with concrete, asphalt or other material and properly striped. 2. All ADA requirements and all other governing codes must be adhered to in total site and building development. 3. Walks shall be surfaced with concrete, stone, brick paver or other hard surfaced materials as specified by Landlord. I. OTHER: 1. Any permits, fees, licenses, Architectural drawings, Engineering consulting services or anything of the sort necessary for the Landlord's Work shall be provided by Landlord at sole cost and expense. 2. Landlord shall, at its sole cost and expense, secure from City or local governing body a Temporary Certificate of Occupancy or other suitable permit granted to the Tenant and providing for Tenant's right to complete its improvements (subject to Tenant obtaining its building permit), or if not available, a letter from Landlord's architect certifying that Landlord's Work has been substantially completed. 3. To the extent any portion of the above described Landlord's work is not sufficient to meet applicable governing standards, the foregoing shall be modified with Tenant's consent to meet such applicable governmental standards at Landlord's sole cost and expense. These changes shall not serve to extend the time frames as provided in the Lease. 4. Any work not specifically set forth herein above, including the completion of store fronts and architectural features necessary to operate the Demised Premises as a typical Barnes & Noble store shall be completed by Tenant ("Tenant's Work"). Exhibit "D", Page 3 EXHIBIT E INTENTIONALLY DELETED E- 1 EXHIBIT F USE PROVISIONS F - 1 PETCO 8. USE (a) Tenant shall have the right to use and occupy the Premises for the operation of a retail pet supply store, which may include the sale of pet food and supplies, live fish, bird and small animal, daytime grooming, incidental veterinary services, and related goods and services, and for no other use or purpose, without Landlord's prior written approval. Such approval by Landlord shall not unreasonable be withheld, provided that Landlord may withhold such approval to any such use that would (i) violate any covenant, condition or restriction then in effect regarding the Shopping Center, or any portion thereof, of which Tenant receives written notice from Landlord within ten (10) days of a request by Tenant for a list of such covenants, conditions or restrictions, or (ii) any exclusive use or prohibited use set forth in the attached EXHIBIT "D-1 ". Landlord may also withhold its approval to the use of the Premises for any non-retail use or for use as an auditorium, meeting hall, school or other place of public assembly, gymnasium or dance hall; for bingo or similar games of chance, or as a massage parlor, video gam arcade, bowling alley, skating rink, car wash, car repair or car rental agency, nightclub or adult book or adult video store or as a restaurant or for medical or other office uses (other than an office incidental to the operation of a retail business otherwise approved by Landlord). (b) Tenant covenants that it will not use the Premises for or permit upon the Premises anything unlawful or otherwise against public policy. HOMETOWN BUFFET 14. PERMITTED USE. The Premises shall be used as a sit-down family oriented buffet style restaurant which may, at the option of Tenant and subject to applicable laws and governmental regulation, serve alcohol and for no other use or purpose without Landlord's consent, which consent shall not unreasonably be withheld. Landlord may refuse to grant such consent, in its sole and absolute discretion, however, to a change in use if the proposed new use would (i) duplicate the primary use of any other occupant of the Shopping Center at the time Landlord is requested to approve of such new use, or (ii) violate any exclusive use granted to any other tenant or occupant within the Shopping Center, prior to tenant's requesting Landlord to approve the proposed new use, or (iii) require a greater number of parking spaces under applicable governmental codes and/or ordinances than the parking required for the Premises when used as a sit-down family oriented buffet style restaurant; provided that this provision shall not be construed so as to prohibit the operation of the Premises as a sit-down family oriented buffet style restaurant serving alcoholic beverages. Landlord may also refuse to grant its consent to a proposed new use, in Landlord's sole and absolute discretion, if the request for such consent is received by Landlord during the Initial Term. So long as Tenant is not in default under this Lease, no other portion of the Shopping Center will be leased, subleased, operated or otherwise used for the operation of a sit-down family oriented buffet style restaurant; provided that this restriction shall not apply to the building areas designated 1 "B", "D" or "H" on the attached EXHIBIT "A-1", while any such building area is leased by the existing lease for the building space on such area (I.E., the existing leases with Home Base Inc., Pay Less Drugs and Food-4-Less), as said leases may from time to time be modified and/or amended, extended or renewed. The permitted uses under all leases subsequently entered into by Landlord covering any portion of the Shopping Center will require compliance with applicable use restrictions resulting from "exclusive use" commitments to tenants of the Shopping Center (including the restriction set forth above). Tenant and Landlord will have the mutual non-exclusive right to enforce the restriction supporting the exclusive use commitment to Tenant under this Lease as set forth above. Said restriction shall terminate and be of no further force and effect if (i) at any time following Tenant's opening of the Premises for business with the public, the operations of such business shall cease for a continuous period of twelve (12) months, or (ii) for a twelve (12) month period following the substantial completion of the Landlord's Work and the Tenant's Work, Tenant does not initially open and operate from the Premises as a sit-down family oriented buffet style restaurant, unless such failure to initially open or operate said business is the result of strikes, lockouts, riots, insurrection, fire or other casualty, Acts of God, or other causes beyond Tenant's reasonable control (other than financial). Nothing contained in this paragraph shall be construed as releasing Tenant from its obligation to initially open the Premises for business and to thereafter continuously operate the Premises as required by this Lease. If requested by Tenant, Landlord shall provide for the recording of a memorandum of this Lease which will include the exclusive right to operate a sit-down family oriented buffet style restaurant as granted by this Section. Tenant shall not do or permit anything to be done on, in or about the Premises or Shopping Center which in any way will obstruct or interfere with the rights of any other tenant or subtenant of the Shopping Center; provided, however, that Tenant shall not be in violation of the provision so long as it is using the Premises consistently with the above-stated use clause. Tenant shall not commit waste upon or make any use thereof which may make void or voidable any insurance on the Premises or Shopping Center and in the event any act upon the Premises or Shopping Center by Tenant or any use thereof by Tenant, including any unauthorized vacancy thereof, results in an increase or extra premium payable for insurance on the Premises or Shopping Center, said increase or extra premium payable for insurance on the Premises or Shopping Center, said increase or extra premium shall be paid by Tenant upon, demand by Landlord. Tenant shall conduct its business from the Premises under its trade name, "HomeTown Buffet," or any other name used by a majority of Tenant's restaurants in the State of California, or under any other trade name approved by Landlord, which approval shall not unreasonably be withheld. 2 Notwithstanding the foregoing or any other provision in this Lease to the contrary, in no event may Tenant use the demised premises: (a) For entertainment purposes such as: cinema, theatre, skating rink, bowling alley, bar, tavern, discotheque, dance hall, amusement gallery, poolroom, pool hall, health club, gym, massage parlor or off-track betting facility. (b) For the renting, leasing or sale of any motor vehicle including but not limited to: operation of a dealership relating to motorcycles, automobiles, trucks and/or recreational vehicles, including trailers. (c) For any nonretail purpose, provided that this shall not be construed to prohibit office, storage, repair and/or alteration facilities incidental to retailing. (d) For the operation of a hardware store or home improvement center or for the purpose of selling home improvement items, including but not limited to, lumber, building materials and/or garden supplies. (e) For any business, trade or profession which requires or has a license or permit to conduct a pharmacy, or which employs or is required to employ a registered or licensed pharmacist, or for the conduct of any store, business, trade or profession which is called, labelled, named or is commonly known or is referred to as a "drug store," "pharmacy" or "apothecary." (f) As a retail grocery, meat or produce store of any nature; PROVIDED, that this provision shall not prohibit the use of the demised Premises, with Landlord's approval as required above, as a specialty bake shop or as a delicatessen so long as the Gross Sales from such specialty bake stop or delicatessen operation does not exceed one percent (1%) of the overall Gross Sale from the Premises in any Lease Year. (g) As a mortuary; church; bookstore or other establishment which prohibits the admission of minors or those below a specified age such as eighteen (18) years, because of merchandise and/or activities explicitly dealing with or depicting human sexuality; so called head shops; video stores; off-track betting parlors; pawn shops; junk yards; flea markets; recycling facilities; massage parlors; car wash facilities; nightclubs; dance halls; secondhand stores (other than "antique" stores); dry cleaning or laundry plants. 3 (h) For any use or purpose not customarily found in first-class retail shopping centers, similar to the Shopping Center, in the Northern California area. (i) As a fast-food restaurant specializing in the sale of hamburgers or specialty sandwiches. (j) A store primarily used for the sale and/or display of consumer electronics, recorded music (records, compact discs, cassette tapes or otherwise) and/or office supplies. Tenant agrees that all of Tenant's operations and activities on or from the Premises and the Shopping Center shall be conducted in compliance with all applicable statutes, ordinances, orders, laws, governmental rules and regulations, and the requirements of all federal, state and municipal governments and appropriate departments, commissions, boards and offices thereof, which may be applicable to the Premises and/or the Shopping Center. Landlord will promptly notify Tenant if Landlord's insurance carrier or underwriter claims an increase in premiums attributable to Tenant's use or that Tenant's activities may invalidate Landlord's coverage(s), and will cooperate with Tenant, at Tenant's sole cost and expense, in efforts to resolve any dispute over any change in premium or effect on Landlord's coverages. The use restrictions in this Section 14 will not restrict Tenant's right to maintain up to four coin-operated amusement devices on the Premises (without the need for further consent from Landlord). Landlord warrants that Tenant's intended use does not conflict with any existing lease or any existing use restriction affecting the Shopping Center or any other recorded document binding upon the parties or the Premises, EXCEPT as otherwise described herein. 4 CIRCUIT CITY 18. USE. (a) Tenant shall initially maintain, use and operate the Premises as a retail store for (i) the sale of consumer, office and automotive electronics products (which include, but shall not be limited to, televisions, stereos, speakers and video recorders and players), computer hardware and software, entertainment software and entertainment media (which include, but shall not be limited to, records, game cartridges, video tapes, cassettes and compact discs), cellular telephones, household appliances (which include, but shall not be limited to, refrigerators, freezers, stoves, microwave ovens, vacuum cleaners and dishwashers) and related goods and the sale and installation of motor vehicle audio, stereo and telephone systems (all of such items being herein collectively referred to as the "Products"), and (ii) renting, servicing, repairing and warehousing of the Products (collectively herein, the "Initial Use"). (b) Thereafter, Tenant shall have the right to use the Premises for any lawful retail use; provided, however, that the Premises shall not be used (i) for any illegal purpose, (ii) for any use prohibited under paragraph 19(a)(viii) below, (iii) in violation of any exclusive use restriction granted a tenant or other occupant of the Shopping Center pursuant to a Prior Lease or any restrictive covenant in a Prior Lease shown on EXHIBIT "F", or (iv) in violation of any other applicable provision of the "Permitted Title Encumbrances" contained in EXHIBIT 7-1. (c) Nothing contained in this Lease shall be construed to require Tenant to operate the Premises continuously for the use first stated or for any other use. However, should Tenant fail to open and engage in the Initial Use for at least one (1) business day within one (1) full year following the Commencement Date, subject to force majeure (financial inability excepted), Landlord shall have the right upon thirty (30) days' prior written notice to Tenant to terminate the Lease and thereafter Tenant shall be relieved of all obligations hereunder. If this Lease is so terminated pursuant to this paragraph 18(c), the Improvements shall become the property of Landlord, and Landlord shall not be required to deliver the Tenant Improvement Allowance as required by Exhibit "C". Notwithstanding anything to the contrary, Tenant may eliminate Landlord's termination right if within the thirty (30) day period following Tenant's receipt of Landlord's termination notice, Tenant opens for business in the Premises. 19. (vi) TENANT'S EXCLUSIVE USE. So long as the Premises are used for the initial uses set forth in paragraph 18, no other tenant or occupant of the Shopping Center shall be entitled to sell or rent (or rent to own) any of the Products, subject only to rights granted any such tenants under the Prior Leases. (viii) PROHIBITED ACTIVITIES. Subject to the rights of tenants under the Prior Leases, Landlord shall not operate or lease (or permit to be operated or leased) any building or tenant space in the Shopping Center for use as: (A) a bar, pub, nightclub, music hall or disco in which less than fifty percent (50%) of its space or revenue is devoted to and derived from food service; (B) a bowling alley; (C) a billiard or bingo parlor; (D) a flea market; (E) a massage parlor; (F) a funeral home; (G) a facility for the sale of paraphernalia for use with illicit drugs; (H) a facility for the sale or display of pornographic material (as determined by community standards for the area in which the Shopping Center is located); (I) an off-track betting parlor; (J) a carnival, amusement park or circus; (K) a gas station, car wash or auto repair or body shop, other than within the building area designated as "Pad 1" on the Site Plan (the parties specifically acknowledging that Tenant's car stereo installation facility is not included in this prohibition (K)); (L) a facility for the sale of new or used motor vehicles, trailers or mobile homes; (M) a facility for any use which is illegal or dangerous, constitutes a nuisance or is inconsistent with an integrated, community-oriented retail and commercial shopping center; (N) a skating rink; (0) an arcade, pinball or computer gameroom (provided that retail facilities in the Shopping Center, exclusive of the Premises, may operate no more than four (4) such electronic games incidentally to their primary operations); (P) service-oriented offices (such as, by way of example, medical or employment offices, travel agencies, real estate agencies or dry cleaning establishments) or other nonretail uses within 250 feet of the Premises, except for offices and storage facilities incidental to a primary retail operation; (Q) a banquet hall, auditorium or other place of public assembly; (R) a training or educational facility (including, without limitation, a beauty school, barber college, reading room, school or other facility catering primarily to students or trainees rather than customers); (S) a theater of any kind; or (T) a gymnasium, sport or health club or spa. In addition to the foregoing, Landlord shall not operate, lease or permit to be operated or leased any restaurant within any building on Landlord's Premises, which is located within three hundred (300) feet of the front entrance to the Building, subject, however, to the rights of tenants under the Prior Leases. In addition, no auction, fire or going-out-of-business sale shall be conducted in the Shopping Center, subject, however, to the rights of tenants under the Prior Leases. EXHIBIT "F" PERMITTED ENCUMBRANCES A. Other Shopping Center occupants' exclusive uses and restrictive covenants in Prior Leases prohibit the following uses of the Premises: 1. Any non-retail purpose (the following shall not be deemed non-retail: barber shops, insurance agencies, travel agencies, medical, dental or optometric facilities, beauty salons, banks, small loan offices, real estate offices and gasoline service stations, and the following if incidental to retailing: other offices, storage, repairs and alteration facilities). 2. A business selling home improvement items including, but not limited to, lumber, building materials and/or garden supplies, except that other stores may sell such items as an incidental part of their business. For the purposes of this paragraph, such sales shall be "incidental" if they do not exceed fifteen percent (15%) of the sales in such business. 3. A retail grocery, meat or produce store of any nature, provided that this restriction shall not prohibit a specialty bake shop or a delicatessen. 4. Entertainment purposes, such as: cinema, theater, skating rink, bowling alley, bar, tavern, discotheque, dance hall, amusement gallery, pool hall, health club, gym, massage parlor or off-track betting facility. 5. For the renting, leasing, sale of any motor vehicle including, but not limited to: operation of any dealership relating to motorcycles, automobiles, trucks and recreational vehicles, including trailers. 6. A restaurant (fast-food or sit-down) within two hundred (200) feet of any wall of the building designated "B" on the Site Plan, provided that this provision shall not apply to an ice cream store, yogurt store or donut shop. In addition, no restaurant shall be located within two hundred (200) feet from the front entrance of the store on the building area designated "D" on the Site Plan, nor shall any office, other than a travel agency or real estate firm, neither being larger than two thousand (2,000) square feet, be located within two hundred fifty (250) feet of said front entrance. In addition, no training or educational facilities shall be located within two hundred (200) feet of said front entrance. 7. A business, trade or profession which requires or has a license or permit to conduct a pharmacy, or which employs or is required to employ a registered or licensed pharmacist or the conduct of any store, business, trade or profession which is called, labeled, named or is commonly known or referred to as a "drug store," "pharmacy," or "apothecary." 8. A sit-down family-oriented buffet style restaurant. 9. A restaurant. 10. So long as an office supply store has not ceased to be operating on the premises currently designated as Building F and G on the Site Plan for a continuous period in excess of six (6) months (excepting any periods during which remodeling or 1 restoration work is being conducted with due diligence) the Premises may not be operated as a store having as its primary business the sale of office supplies, office equipment, office furniture and/or other office products and related goods. This restriction, however, shall not be deemed to prohibit Tenant, its subtenants, transferees, successors or assigns from using the Premises in whole or in part, for the operation of a standard Circuit City store or other similar store for the sale of consumer electronics, automotive electronic products, household appliances and related goods, the warehousing and servicing of same and/or sale and installation of car stereo, audio and telephone systems and similar electronics equipment. 11. A theater, auditorium, meeting hall or other place of assemble; any sports or entertainment facility within four hundred (400) feet of the building designated "F" and "G" on the Site Plan; automobile sales or repairs; bowling alley, pool hall or skating rink, bar serving alcoholic beverages (except as an incident to a full kitchen restaurant operation); funeral parlor; massage parlor, any type of karate, gymnasium, health club or physical fitness facility within four hundred (400) feet of the building designated "F" and "G" on the Site Plan; car wash; off-track betting establishment; amusement or game room within two hundred (200) feet of the building designated "F" and "G" on the Site Plan (excluding electronic games incidental to the operation of a restaurant); a so-called "flea market" or other operation for the sale of used goods (excluding antique stores), night club, discotheque or dance hall; hotel or other lodging facilities; offices (except incidental to a retail operation); school (including, without limitation, trade school or class sessions of any nature whatsoever) within two hundred (200) feet of said building designated "F" and "G"; gun range; any business or use which emits offensive odors, fumes, dust or vapor, or constitutes a public or private nuisance, or emits loud noise or sounds which are objectionable, or creates a fire, explosive or other hazard; manufacturing facility; warehousing (except incidental to a retail operation) adult book store or similar store selling or exhibiting pornographic materials as a substantial part of its business and which prohibits the admission of minors; or a restaurant within two hundred (200) feet of said building designated "F" and "G". 12. Any use other than a retail use. 13. Office use except (i) offices incidental to retail uses and (ii) offices providing services to the general public and customarily found in similar shopping centers, e.g., banking, finance services, real estate or securities brokerage services, financial or tax-planning services, accounting, insurance or legal services, optical, medical or dental services or travel agencies. B. The following uses of the Premises shall be prohibited throughout the Lease Term: 1. The uses prohibited under the Prior Leases and set forth in Paragraphs 1-13 of Section A above, notwithstanding the expiration or termination or amendment of any Prior Lease. 2. The sale of pet food, supplies, fish, birds and small animals and grooming and veterinary services and related goods and services. 3. As an auditorium, meeting hall, school or other place of public assembly, gymnasium or dance hall; for bingo or similar games of chance, or as a massage parlor, video game arcade, bowling alley, skating rink, car wash or car repair or car rental 2 agency, night club or adult book or adult video store which prohibits the admission of minors to the store. C. Permitted Title Exceptions. 1. The exceptions set forth in the Preliminary Title Report for the Shopping Center attached hereto as EXHIBIT "F-1". NOTWITHSTANDING ANYTHING CONTAINED IN THIS EXHIBIT "F" TO THE CONTRARY, NOTHING CONTAINED HEREIN SHALL BE CONSTRUED TO PROHIBIT THE EXERCISE OF THE RIGHTS AND PRIVILEGES GRANTED TO THE TENANT UNDER THE LEASE, INCLUDING BUT NOT LIMITED TO THE TENANT'S EXCLUSIVE USE RIGHTS SET FORTH IN PARAGRAPH 19(A)(VI) OF THE LEASE. 3 FOOD 4 LESS 28. EXCLUSIVE. LESSOR covenants that it will not permit any person other than the LESSEE to operate a retail grocery, meat, or produce store of any nature in the Shopping Center of which the premises are a part without first obtaining the LESSEE'S prior written consent, so long as there shall be the operation of a food supermarket containing not less than 40,000 square feet within the premises, provided, however, nothing herein shall result in the termination of such exclusive due to a temporary closing for a reasonable period of time, including such a closing as may occur for refurbishing, alterations, repairs in the event of casualty, or transfer of ownership of the supermarket. Not- withstanding the foregoing, LESSEE consents, in advance, to the following uses: A. a specialty bake shop; B. a delicatessen. 32. RESTRICTION ON USE. LESSOR and LESSEE each agree that the following uses shall not be permitted within the Shopping Center; including the demised premises: A) For entertainment purposes, such as: cinema, theater, skating rink, bowling alley, bar, tavern, discotheque, dance hall, amusement gallery, pool hall, health club, gym, massage parlor, or off-track betting facility; B) For the renting, leasing, sale of any motor vehicle including but not limited to: operation of any dealer- ship relating to motorcycles, automobiles, trucks, and recreational vehicles, including trailers; C) For any non-retail purpose (the following are specifi- cally recognized as not being non-retail: barber shops, insurance agencies, travel agencies, medical, veteri- nary, dental or optometric facilities, beauty salons, banks, small loan offices, real estate offices and gaso- line service stations, and the following, if incidental to retailing: other offices, storage, repairs and alteration facilities). LESSOR agrees that, with respect to the real property which comprises the Shopping Center as depicted in Exhibit "A", the following additional restrictions will further apply: A) No restaurant shall be located within 200 feet from the front entrance of the premises; B) No office other than a travel agency or real estate firm, neither being larger than 2,000 square feet, shall be located within 250 feet of the front entrance; C) No training or educational facility shall be located within 200 feet of the front entrance to the premises. LESSEE agrees that, with respect to the demised premises, in addition to the uses restricted throughout the Shopper Center as before set forth, LESSEE will not utilize the premises for a restaurant, bar-restaurant, training, or educational facility, offices, sporting goods store, for a business whose primary use is a yogurt shop, indoor ice cream shop, or for a pharmacy (apothecary or drug store or super drug store) or for the purpose or operating a home improvement center or for engaging in the sale of home improvement items including, but not limited to, lumber, building materials, indoor garden supplies, except that this restriction against the sale of home improvement items shall not apply to the premises to the extent that sales of such items are an incidental part of the business conducted within the premises. For the purposes of this paragraph such sales shall be deemed "incidental" if they do not exceed fifteen percent (15%) of the sales made from the store located within the premises. 33. INITIAL USE AND RIGHT TO CLOSE STORE. LESSEE agrees that the initial use of the premises shall be for the operation of a supermarket. LESSOR agrees that nothing in this Lease shall be construed on compelling LESSEE to operate any particular type of business or to keep the store in or upon the premises open for business, and LESSEE shall have the privilege of closing said store at any time, provided LESSEE shall continue to pay the minimum monthly rental, additional rent, and other monetary obligations as set forth in this Lease. OFFICE DEPOT 1.1.19 PERMITTED USES; NATURE OF TENANT'S BUSINESS: Tenant's initial use of the Premises (the "Initial Use") shall be the operation of an office supply and products store for any of the following sales and services: office supplies, furniture, machines, and other office related equipment; computer hardware, software and related equipment; art, architectural and engineering supplies; photocopy, facsimile, printing and related services. The Initial Use, together with any other lawful retail purposes (subject to the Restricted Uses set forth on EXHIBIT E), shall hereinafter be referred to as the "Permitted Uses". Once Tenant has opened for business in the Premises for the Initial Use, it may thereafter use the Premises for any of the Permitted Uses. EXHIBIT E RESTRICTED USES AND PROHIBITED USES A. RESTRICTED USES (restrictions upon the use of the Premises): (1) OTHER TENANT EXCLUSIVES (restrictions for so long as the corresponding exclusive (as set forth herein) contained in the respective existing lease remains in effect): (a) SEE THE ATTACHED EXHIBIT E-1 (b) CIRCUIT CITY EXCLUSIVE. So long as a consumer electronics and/or household appliance store, once it has opened for business, has not ceased to be operating on the premises currently designated as Building "C" on the Site Plan for the Shopping Center for a continuous period in excess of six (6) months (excepting any periods during which remodeling or restoration work is being conducted with due diligence), no portion of the Premises may be used for a store having as its primary business the sale of consumer electronics and automotive electronics products, household appliances and related goods, the warehousing and servicing of same, and/or for the installation into motor vehicles of car stereo, audio and telephone systems, and similar electronics, equipment. The foregoing shall not be deemed to prohibit Tenant, its subtenants, transferees, successors or assigns from using the Premises, in whole or in part, for the operation of a standard Office Depot retail facility or other, similar store for the sale of office products (inclusive of office electronics). (2) RESTRICTIONS THROUGHOUT THE LEASE TERM: (a) all those prohibited uses set forth in paragraphs B.2 and B.3 hereinbelow and in the attached Exhibit E-2. B. PROHIBITED USES (restrictions upon the use of the rest of the Shopping Center): 1. So long as an office supply store has not ceased to be operating in the Premises for a continuous period in excess of six (6) months (excepting any periods during which remodeling or restoration work is being conducted with due diligence), Landlord shall not permit any Occupants of the Shopping Center, other than Tenant, to: (i) use more than one thousand (1,000) square feet of floor area (in the aggregate) for the sale, leasing, distribution or display of office supplies, including office furniture, office fixtures, office machines and equipment, computers, computer hardware, software and accessories, art supplies, architectural supplies, engineering supplies, or (ii) be primarily engaged in the sale, leasing, distribution or display or any of the items set forth in (i) above and/or photocopying services, facsimile services or instant print shop services; provided that nothing contained in this Paragraph B.1 shall be construed as prohibiting any grocery supermarket occupying thirty-five thousand (35,000) square feet of Leasable Area, or more; or any drug store occupying twenty-five thousand (25,000) square feet of Leasable Area, or more; or any home improvement center occupying ninety E-1 thousand (90,000) square feet of Leasable Area, or more, from selling, leasing and/or displaying any of such types of goods and/or services from its premises within the Shopping Center if the same are sold, leased and/or displayed by such Occupant in a majority of its other similar stores in the Northern California area. The foregoing restrictions in this Paragraph B.1 also shall not be applicable to (i) the sale, leasing and/or display of computers, computer hardware, software and accessories for as long as Computer Warehouse is operating in the Shopping Center a store containing three thousand nine hundred (3,900) square feet of Leasable Areas or less, together with up to fifteen hundred (1500) square feet of area used exclusively for classroom purposes; (ii) a Postal Annex store with photocopying services and facsimile services operating in the Shopping Center; or (iii) the sale, leasing or display of art supplies and/or a store primarily engaged in the sale of art/craft items, occupying one thousand five hundred (1,500) square feet of Leasable Area, or less. In addition, the foregoing shall not apply to Circuit City Stores, Inc., its subtenants, transferees, successors and assigns ("Circuit City"), as to which the provisions of Paragraph B.1.(a) shall apply. (a) So long as an office supply store, once it has opened for business, has not ceased to be operating on the Premises for a continuous period in excess of six (6) months (excepting any periods during which remodeling or restoration work is being conducted with due diligence), no portion of the parcel occupied by Circuit City, i.e., the parcel currently designated as Building C on the Site Plan, may be used for a store having as its primary business the sale of office supplies, office equipment, office furniture and/or other office products and related goods. The foregoing shall not be deemed to prohibit Circuit City, its subtenants, transferees, successors or assigns from using its premises in whole or in part, for the operation of a standard Circuit City store or other similar store for the sale of consumer electronics, household appliances and/or car stereo systems, as described in Subparagraph A.(1)(b) above. 2. Landlord shall not sell, lease or otherwise permit any portion of the Shopping Center to be used or occupied for any of the following purposes: a theater; auditorium, meeting hall or other place of assembly; any sports or entertainment facility within four hundred feet (400') of the Premises; automobile sales or repairs; bowling alley, pool hall or skating rink; bar serving alcoholic beverages (except as an incident to a full kitchen restaurant operation); funeral parlor; massage parlor; any type of karate, gymnasium, health club or physical fitness facility within four hundred feet (400') of the Premises; car wash; off track betting establishment; amusement or game room with two hundred feet (200') of the Premises (excluding electronic games incidental to the operation of a restaurant); a so called "flea market" or other operation for the sale of used goods (excluding antique stores); night club, discotheque or dance hall; hotel or other lodging facilities; offices (except incidental to a retail operation); school (including without limitation trade school or class sessions of any nature whatsoever) within two hundred feet (200') of the Premises; gun range; any business or use which omits offensive odors, fumes, dust or vapor, or constitutes a public or private nuisance, or emits loud noice or sounds which are objectionable, or creates a fire, explosive or other hazard; manufacturing facility; warehousing (except incidental to a retail operation); adult book store or similar store selling or exhibiting pornographic materials as a substantial part of its business and which prohibits the admission of minors. E-2 3. Landlord shall not sell, lease, rent or permit any other premises in the Shopping Center to be used or occupied for other than retail uses customarily found in similar shopping centers in the state and county where the Shopping Center is located. 4. Landlord covenants and agrees that there shall be no restaurants within two hundred (200) feet of the Premises. 5. Landlord covenants and agrees that no portion of the Shopping Center shall be used for offices excepting (i) offices incidental to retail uses, and (ii) offices providing services to the general public and customarily found in similar shopping centers (e.g. banking for finance services, real estate or securities brokerage services, financial or tax planning services, accounting, insurance or legal services, optical, medical or dental services or travel agencies). 6. The Prohibited Uses set forth above shall be subject to the existing leases of the present (as of the date of this Lease) Occupants of the Shopping Center, as the same, from time to time, may be amended and/or extended or renewed, but no such amendment shall change the definition of "Prohibited Uses" as used in this Lease. E-3 EXHIBIT E-1 (i) The following restrictions in Landlord's Lease with Netco Foods, Inc., a California corporation, dated May 25, 1988, for the premises designated "D" on the Site Plan: 1. No restaurant shall be located within two hundred feet form the entrance of the Premises; 2. No office other than a travel agency or real estate firm, neither being larger than two thousand (2,000) square feet, shall be located within two hundred fifty (250) feet of the front entrance; 3. No training or educational facility shall be located within two hundred (200) feet of the front entrance to the Premises. (ii) The following restrictions in Landlord's Lease with Home Club, Inc., a Delaware corporation, dated June 6, 1988, as amended, for the premises designated "H" on the Site Plan: The building envelopes designated "Shops F" and "Shops G" on the Lease Plan (Rev. 1) may not exceed a total of twenty-two thousand (22,000) square feet of floor area and may not be used, in whole or in part, for restaurant and/or bar or office purposes, other than office use incidental to the operation of a retail business other- wise permitted by the Lease. "Shops F" and "Shops G" are defined in the subject Home Club, Inc., Lease as the Premises leased to Tenant by this Lease. (iii) The following restriction in Landlord's Lease with HomeTown Buffet, Inc., a Delaware corporation, dated May 15, 1992, for the premises designated "A" on the Site Plan: A restriction against the operation of a sit-down family-oriented buffet style restaurant. References to the above respective existing leases shall include any such lease as amended, extended and/or renewed. E-1 EXHIBIT E-2 1. The following prohibited uses: (a) For entertainment purposes such as: cinema, theater, skating rink, bowling alley, bar, tavern, discotheque, dance hall, amusement gallery, poolroom, pool hall, health club, gym, massage parlor or off-track betting facility. (b) For the repair, servicing, renting, leasing or sale of any motor vehicle including, but not limited to: operation of a dealership relating to motorcycles, automobiles, trucks and/or recreational vehicles, including trailers. (c) For any non-retail purpose, provided that this shall not be construed to prohibit office, storage, repair and/or alteration facilities incidental to retailing. (d) For the operation of a hardware store or home improvement center or for the purpose of selling home improvement items including, but not limited to, lumber, building materials and/or garden supplies, unless such sales are incidental to a permitted retail operation. For the purposes of this paragraph (d), such sales shall be "incidental" if they do not exceed fifteen percent (15%) of the sales in such store. (e) For any business, trade or profession which requires or has a license or permit to conduct a pharmacy, or which employs or is required to employ a registered or licensed pharmacist, or for the conduct of any store, business, trade or profession which is called, labelled, named or is commonly known is referred to as a "drug store," "pharmacy" or "apothecary." (f) As a retail grocery, meat or produce store of any nature or the sale of fresh or frozen meat, produce, vegetables or dairy products. (g) As a mortuary, church, book store or other establishment which prohibits the admission of minors or those below a specified age such as eighteen (18) years because of merchandise and/or activities explicitly dealing with or depicting human sexuality, so-called head shops, video stores, off-track betting parlors, pawn shops, junkyards, flea markets, recycling facilities, massage parlors, car wash facilities, nightclubs, dance halls, secondhand stores (other than "antique" stores), dry-cleaning or laundry plants. (h) For any use or purpose not customarily found in first-class retail shopping centers, similar to the Shopping Center, in the Northern California area. (i) As a restaurant or food service use including, without limitation, fast-food restaurants or for professional office or other office uses, other than an office incidental to the operation of another permitted use. E-2-1 (j) As a pet store or any other store whose primary business consists of (i) providing animal grooming services, veterinary or veterinary wellness clinic, (ii) selling pets, pet supplies or pet-related accessories and/or (iii) providing any other service or product customarily available at a veterinary wellness clinic, pet or supply store. For the purposes of this paragraph, "primary business" shall mean a business which utilizes more than twenty percent (20%) of its floor area for such uses or which comprises more than twenty percent (20%) of its sales. (k) For so long as a consumer electronics and/or household appliances store has not ceased to be operating in the Shopping Center for a continuous period in excess of six (6) months (excepting any periods during which remodeling or any restoration work is being conducted with due diligence), for the operation of a store (i) having as its primary business the sale of consumer electronics and automotive electronics products, household appliances and related goods; the warehousing and servicing of the same and/or the installation into motor vehicles of car stereo, audio and telephone systems and similar electronic equipment or (ii) offering installation into motor vehicles of car stereo systems. E-2-2 HOME CLUB 4. (A) The Demised Premises may be used for any retail and/or wholesale use and any other related uses permitted by any applicable laws, provided that any use must be open for sales to the public. (B) No premises in the Shopping Center, including the Demised Premises, shall be used for any non-retail purposes (the following shall not be deemed non-retail: barber shops, insurance agencies, travel agencies, medical, dental or optometric facilities, beauty salons, banks, small loan offices, real estate offices and gasoline service stations, and the following, if incidental to retailing: other offices, storage, repairs and alteration facilities). (C) As long as any retail sales activity is conducted in the Shopping Center no premises in the Shopping Center, including the Demised Premises, shall be used for any entertainment purposes such as a cinema, theater, skating rink, bowling alley, bar, discotheque, dance hall, amuse- ment gallery, poolroom, health club, massage parlor, or off-track betting facility, or for automobile, truck or recreational vehicle dealerships. (D) Landlord agrees that so long as the Demised Premises are used as a wholesale and/or retail home improvement store (or have ceased to be so used within the past 12 months, or such longer period as may be reasonable in the event of a casualty loss which requires additional time for reconstruction), no other premises in the Shopping Center (except the Drug Store, as defined and discussed below) shall be used for the purpose of selling home improvement items, including, but not limited to, lumber, building materials and/or garden supplies, except that other stores may sell such items as an incidental part of their business. For the purposes of this Paragraph 4(D), such sales shall be "incidental" if they do not exceed 15% of the sales in such store. If a super drug store executes a lease to operate in the Shopping Center ("Drug Store"), then such Drug Store shall not use its premises for the purpose of operating a hardware or home improvement store, so long as the Demised Premises are used as a wholesale and/or retail home improvement store (or have ceased to be so used within the past 12 months, or such longer period as may be reasonable in the event of a casualty loss which requires additional time for reconstruction). If Landlord shall grant any exclusive uses to other tenants in the Shopping Center, then, except as provided in Paragraph 4(E) below, such grants shall not be binding upon the Demised Premises and Landlord shall expressly exempt the Demised Premises from such restrict- ions. (E) Notwithstanding the foregoing, the Demised Premises may not be used for: (a) a food supermarket so long as a food supermarket containing not less than 40,000 square feet is operating in the Shopping Center; or (b) a drug store with a pharmacy which is required to employ a registered or licensed pharmacist, so long as a drug store with a pharmacist contain- ing not less than 20,000 square feet is operating in the Shopping Center (or has ceased to operate within the past 12 months, or such longer period as may be reasonable in the event of a casualty loss which requires additional time for reconstruction). EXHIBIT G --------- TENANT'S PROTOTYPE SIGNAGE AND PROPOSED ELEVATION DESIGNS G-1 [SOUTH EXTERIOR ELEVATION MAP] [EAST/NORTH EXTERIOR ELEVATION MAP] [FLOOR PLAN] EXHIBIT H SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENT THIS AGREEMENT is entered into as of the_______day of___________, 19__, between ___________________, a ______________________, with a place of business at _____________________, _______________________, _____________________("Mortgagee"), and Barnes & Noble Superstores, Inc., a Delaware corporation, having an office at 122 Fifth Avenue, New York, New York 10011 ("Tenant"). RECITALS A. Mortgagee has made a loan to____________________________("Landlord") in the original principal amount of $____________________ (the "Loan"). B. Mortgagee is the holder of a mortgage or deed of trust securing the Loan (the "Mortgage") covering that certain parcel of land owned by Landlord and described on Exhibit A attached hereto and made a part hereof, together with the improvements erected thereon, commonly known as "___________________" (the "Shopping Center"). C. By a certain Lease entered into between Landlord and Tenant, dated as of___________________, 19__ (the "Lease"), Landlord leased to Tenant certain premises within the Shopping Center, as outlined on Exhibit B attached hereto and made a part hereof (the "Premises"). D. A copy of the Lease has been delivered to Mortgagee, the receipt of which is hereby acknowledged. E. The parties hereto desire to effect the subordination of the Lease to the Mortgage and to provide for the non-disturbance of Tenant by the holder of the Mortgage or any purchaser under a foreclosure or deed in lieu thereof. AGREEMENT In consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto agree as follows: 1. Mortgagee hereby consents to and approves the Lease and all of the terms and conditions thereof. 2. Tenant covenants and agrees with Mortgagee that the Lease is hereby made and shall continue hereafter to be subject and subordinate to the lien of the Mortgage, and to all modifications and extensions thereof, with the same force and effect as if the Mortgage had been executed and delivered prior to the execution and delivery of the Lease and without regard to the order of priority of recording the Mortgage, subject, however, to the provisions of this Agreement. 3. Tenant certifies that the Lease is presently in full force and effect and unmodified and Tenant as of this date has no knowledge of any default, charge, lien or claim of offset under the Lease. 4. Mortgagee agrees that, so long as Tenant is not in default under the Lease beyond any applicable cure period provided for in the Lease: (a) Tenant shall not be named or joined as a party or otherwise in any suit, action or proceeding for foreclosure by the Mortgagee or to enforce; any rights under the Mortgage or the Loan H-1 (unless Tenant must be named or joined as a party in order for Mortgagee to pursue such suit, action or proceeding, in which event Mortgagee and Tenant shall enter into a new lease upon the same terms and conditions as were contained in the Lease). (b) The possession by Tenant of the Premises and Tenant's rights under the Lease shall not be disturbed, affected or impaired by (i) any suit, action or proceeding under the Mortgage or the Loan or for foreclosure under the Mortgage, or any other enforcement of any rights under the Mortgage or any other documents pertaining to the Loan, (ii) any judicial or non-judicial foreclosure, sale or execution of the Premises or the Shopping Center, or any deed given in lieu of foreclosure, or (iii) any default under the Mortgage or the Loan. (c) All condemnation awards and insurance proceeds paid or payable with respect to the Premises or any other part of the Shopping Center and received by Mortgagee shall be applied and paid in the manner set forth in the Lease. (d) Neither the Mortgage nor any other security instrument executed in connection with the Loan shall cover or be construed as subjecting in any manner to the lien thereof any trade fixtures, signs or other personal property at any time furnished or installed by or for Tenant in or on the Premises, except to the extent of any interest of Landlord in and to same. 5. If Mortgagee or any future holder of the Mortgage or any other transferee under the Mortgage shall become the owner of the Shopping Center or any part thereof by reason of foreclosure of the Mortgage, or if the Shopping Center or any part thereof shall be sold as a result of any action or proceeding to foreclose the Mortgage, or by transfer of ownership by deed given in lieu of foreclosure, the Lease shall continue in full force and effect, without necessity for executing any new lease, as a direct lease between Tenant and the then owner of the Shopping Center as "Landlord" under the Lease, upon all of the same terms, covenants and provisions contained in the Lease, and in such event: (a) Tenant shall be bound to such new owner under all of the terms, covenants and provisions of the Lease for the remainder of the term thereof (including also any extension periods, if Tenant elects or has elected to exercise its option to extend the term) and Tenant hereby agrees to attorn to such new owner and to recognize such new owner as "Landlord" under the Lease; and (b) Such new owner shall be bound to Tenant under and hereby assumes all of the terms, covenants and provisions of the Lease for the remainder of the term thereof (including also any extension periods, if Tenant elects or has elected to exercise its option to extend the term), and Tenant shall, from and after the date such new owner succeeds to the interest of "Landlord" under the Lease, have the same remedies against such new owner for the breach of any covenant contained in the Lease; provided, however, that such new owner shall not (i) be bound by any rent or additional rent which Tenant might have paid for more than one month in advance to any prior landlord (including Landlord), or (ii) be personally liable for any breach of the Lease by or other act or omission of any prior landlord (including Landlord) or (iii) be bound by any amendment or modification of the Lease made without Mortgagee's consent which would reduce fixed annual rent or any other monetary obligation of Tenant under the Lease or (iv) be subject to any offsets or defenses which Tenant might have against any prior landlord (including Landlord), except for any offsets against rents or other charges payable by Tenant under the Lease specifically permitted under the Lease based upon a default by Landlord (provided that Tenant shall have provided the notice and opportunity to cure to Mortgagee provided for in Paragraph 26.4 of the Lease). 6. Tenant agrees to provide Mortgagee, and the successors and assigns of Mortgagee of which Tenant has received written notice, with notice of any breach or default by Landlord which would give rise to the right of Tenant to terminate or offset any amounts due Landlord under the Lease (it being understood that a right of offset expressly set forth in the Lease shall not be affected by the aforesaid notice requirement except as provided in 5(b)(iv) above), and, thereafter, the opportunity to cure such breach or default by Landlord as provided in Paragraph 26.4 of the Lease. Mortgagee shall H-2 have no obligation to cure (and shall have no liability or obligation for not curing) any breach or default by Landlord, except (i) to the extent that Mortgagee agrees or undertakes otherwise in writing or (ii) if such breach or default continues into the period during which Mortgagee or such new owner has possession or control of the Premises. 7. Any notices or communications given under this Agreement shall be in writing and shall be deemed given on the earlier of actual receipt or three (3) days after deposit in the U.S. Mail, by registered or certified mail, return receipt requested, postage prepaid, at the respective addresses set forth above, or at such other address as the party entitled to notice may designate by written notice as provided herein. 8. This Agreement shall bind and inure to the benefit the parties hereto and their respective successors and assigns. 9. This Agreement contains the entire agreement between the parties and cannot be changed, modified, waived or cancelled except by an agreement in writing executed by the parties against whom enforcement of such modification, change, waiver or cancellation is sought. 10. This Agreement and the covenants contained herein shall run with and shall bind the land on which the Shopping Center is located. 11. The term "Mortgagee," as used herein, shall include any person or entity succeeding to Landlord's interests in and to the Premises by reason of any power of sale or judicial foreclosure proceedings under the Mortgage or by deed of lieu of foreclosure under the Mortgage. The term "Mortgage," as used herein, shall mean the Mortgage, as the same may from time to time be amended and/or modified. 12. To the extent that the Lease shall entitle Tenant to notice of the existence of any mortgage or deed of trust, this Agreement shall constitute such notice to Tenant with respect to the Mortgage. 13. Tenant shall not permit Tenant's leasehold estate under the Lease to become subordinate to the lien of any deed of trust or other security instrument made or created by Landlord, other than the Mortgage, unless the holder of such deed of trust or other security instrument H-3 delivers a non-disturbance agreement to Tenant in commercially reasonable form (subject, with respect to Landlord, to the terms and conditions of the Mortgage and/or any other loan document executed by Landlord in connection with the loan secured by the Mortgage). EXECUTED as of the date first written above. MORTGAGEE: ___________________________________ By:________________________________ Name:______________________________ Title:_____________________________ TENANT: BARNES & NOBLE SUPERSTORES, INC. By:________________________________ Name:______________________________ Title:_____________________________ H-4 THE STATE OF Section COUNTY OF ________________ Section On_______________________________ before me, Date Name and Title of Officer personally appeared Name of Signer(s) [ ] personally known to me - OR - [ ] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary Public H-5 THE STATE OF Section COUNTY OF ________________ Section On_______________________________ before me, Date Name and Title of Officer personally appeared Name of Signer(s) [ ] personally known to me - OR - [ ] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary Public H-6 EXHIBIT I MEMORANDUM OF LEASE THIS MEMORANDUM OF LEASE is entered into as of the day of , 1996, by and between Chico Crossroads Center, a California limited partnership ("Landlord"), and Barnes & Noble Superstores, Inc., a Delaware corporation ("Tenant"). 1. Pursuant to a Lease Agreement (the "Lease") executed by Landlord and Tenant, dated , 1996, Landlord has leased to Tenant certain Premises which are part of a Shopping Center constructed or to be constructed on the property described in Exhibit A attached hereto, together with all of Landlord's appurtenant rights, privileges and easements. 2. The term of the Lease shall commence on the Commencement Date set forth in the Lease and shall expire upon the expiration of the fifteenth (15th) Lease Year as determined by the provisions of the Lease. 3. Tenant has an option to extend the term of the Lease for three (3) periods of five (5) years each, on the same terms and conditions as stated in the Lease. 4. This Memorandum of Lease is subject to all of the terms, conditions and understandings set forth in the Lease, which are incorporated herein by reference and made a part hereof, as though copied verbatim herein. In the event of a conflict between the terms and conditions of this Memorandum of Lease and the terms and conditions of the Lease, the terms and conditions of the Lease shall prevail. 5. Landlord agrees that, during the term of the Lease, it will not construct or permit to be constructed any building, sign, tower or other structure or improvement, or, unless required by law, plant any tree or other growing plant (except replacements of existing trees or plants, provided same will not exceed nor is reasonably anticipated to exceed four feet in height), or make any other change whatsoever in the area depicted as the No Build Area on Exhibit B of the Lease except as expressly permitted under the Lease. 6. Except with respect to the premises under leases with Homebase, Food 4 Less, Circuit City Office Depot and Hometown Buffet to the extent permitted thereby, Landlord shall not lease or permit the use of space in the Shopping Center for the following: (i) any bowling alley; (ii) any arcade; (iii) any tavern or bar within five hundred (500) feet of the Premises, except to the extent incidental to a restaurant operated primarily for on-premises consumption; (iv) any health club, spa or gymnasium; (v) any night club or discotheque; (vi) any second hand or surplus store; (vii) any mobile home park or trailer court; (viii) any dumping, disposing, incineration or reduction of garbage (exclusive of appropriately screened dumpsters located in the rear of any building); (ix) any fire sale, bankruptcy sale (unless pursuant to a court order) or auction house operation, (x) any central laundry or dry cleaning plant or laundromat within five hundred (500) feet of the Premises (except that this prohibition shall not be applicable to on-site service provided solely for pickup and delivery by the ultimate consumer, including nominal supporting facilities); (xi) any automobile, truck, trailer or R.V. sales, leasing, display or repair; (xii) any skating rink; (xiii) any living quarters, sleeping apartments or lodging rooms; (xiv) any veterinary hospital, animal raising facilities or pet shop (except that this prohibition only prohibits a pet shop if it is adjacent to the Premises and excludes the existing pet store at the Shopping Center and certain replacements thereof); (xv) any mortuary; (xvi) any establishment selling or exhibiting pornographic materials; (xvii) except for Building A indicated on the site plan annexed to the Lease, any restaurant within three hundred feet (300') of the Premises; (xviii) any movie theater within three hundred feet (300') of the Premises; (xix) any separately demised newsstand; or (xx) any use which is a public or private nuisance. 7. Except as may be permitted by certain existing leases set forth in the Lease and except as may be permitted by certain future leases to Major Replacement Tenants, to the extent such leases contain Permitted Future Exclusives (as such terms are defined in the Lease), Landlord, and its successors and I-1 assigns, shall not operate or permit under any circumstances to be operated within the Shopping Center any other store selling or displaying for sale books, books on tape and books on other media, magazines, periodicals, computer software or computer games, or any other coffee bar of coffee shop in which coffee, similar beverages and products incidental thereto are the primary items offered for sale. The incidental sale of such items in connection with the overall business of another operator or tenant shall not be deemed a violation of this Paragraph 7. As used herein, "incidental sale" shall mean less than fifty (50) linear feet of shelf space of such operator's or tenant's sales area is devoted, in the aggregate, to the sale and/or display of the aforesaid items, except with respect to Major Replacement Tenants for which incidental sale shall mean less than ten percent of floor area, but in no event greater than one thousand (1,000) square feet (subject to an exclusion on limitations on computer software and computer games for Major Replacement Tenants for which the sale or rental of computer software and computer games is not their primary use). 8. Landlord hereby gives and grants to Tenant during the term of the Lease, for the benefit of Tenant and Tenant's subtenants, licensees and concessionaires, and their respective employees, contractors, customers, invitees and deliverymen, the right to use all of the Common Areas (as defined in the Lease), in common with Landlord and all other tenants and occupants of the Shopping Center and their respective employees, contractors, assigns, customers, invitees and deliverymen. The rights hereby granted with respect to the Common Areas shall run with and bind the Shopping Center and the land on which it is located, shall be binding upon the Landlord and Landlord's successors in title to all or any part of the Shopping Center, and shall constitute an irrevocable, nonexclusive easement appurtenant to the Premises for the benefit of, and shall be enforceable by, Tenant and its successors and assigns throughout the term of the Lease. EXECUTED as of the date first written above. LANDLORD: CHICO CROSSROADS CENTER By:______________________________ Name: Title: TENANT: BARNES & NOBLE SUPERSTORES, INC. By:______________________________ Name: Mitchell S. Klipper Title: Executive Vice President I-2 THE STATE OF CALIFORNIA Section COUNTY OF__________________Section On_______________________________ before me, Date Name and Title of Officer personally appeared Name of Signer(s) [ ] personally known to me - OR - [ ] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary Public I-3 THE STATE OF NEW YORK Section COUNTY OF__________________Section On_______________________________ before me, Date Name and Title of Officer personally appeared Name of Signer(s) [ ] personally known to me - OR - [ ] proved to me on the basis of satisfactory evidence to be the person(s) whose name(s) is/are subscribed to the within instrument and acknowledged to me that he/she/they executed same in his/her/their authorized capacity(ies), and that by his/her/their signature(s) on the instrument the person(s), or the entity upon behalf of which the person(s) acted, executed the instrument. WITNESS my hand and official seal. Signature of Notary Public I-4 EX-10.14 19 1996 STOCK OPTION PLAN OF REGISTRANT BASIC U.S. REIT, INC. 1996 STOCK OPTION PLAN 1. DEFINITIONS. As used in this Plan, the following definitions apply to the terms indicated below: A. "BOARD" means the Board of Directors of the Company. B. "COMPANY" means Basic U.S. REIT, Inc., a Maryland corporation. C. "FAIR MARKET VALUE" of a Share on a given day means, if the Shares are traded in a public market, the mean between the highest and lowest quoted selling prices of a Share as reported on the principal securities exchange on which the Shares are then listed or admitted to trading; or if not so reported, the mean between the highest and lowest quoted trading prices of a Share if traded on a national market system, or the mean between the highest asked price and the lowest bid price, as the case may be, as reported on the National Association of Securities Dealers Automated Quotation System. If the Shares shall not be so traded, the Fair Market Value shall be determined by the Board taking into account all relevant facts and circumstances. D. "GRANTEE" means a person who is either an Optionee or an Optionee-Shareholder. E. "INCENTIVE STOCK OPTION" means an option, whether granted under this Plan or otherwise, that qualifies as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code. F. "OPTION" means a right to purchase Shares, either now or hereafter owned by the Company as treasury stock or authorized but unissued, under the terms and conditions of this Plan as evidenced by an option certificate or agreement for Shares in such form, not inconsistent with this Plan, as the Board may adopt for general use or for specific cases from time to time. G. "OPTIONEE" means a person other than an Optionee-Shareholder to whom an option is granted under this Plan. H. "OPTIONEE-SHAREHOLDER" means a person to whom an Option is granted under this Plan and who at the time such Option is granted owns, actually or constructively, stock of the Company or of a Parent or Subsidiary possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of such Parent or Subsidiary. I. "NONQUALIFIED OPTION" means an Option that is not an Incentive Stock Option. J. "PARENT" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of granting an Option, each of the corporations in the unbroken chain (other than the Company) owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. K. "PLAN" means this Basic U.S. REIT, Inc. 1996 Stock Option Plan, including any amendments to the Plan. L. "SHARE" means a share of the Company's common stock, par value $.01 per share. M. "SUBSIDIARY" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of granting an Option, each of the corporations in the unbroken chain (other than the last corporation in the chain) owns stock possessing fifty percent (50%) or more of the total combined voting power of all classes of stock in one of the other corporations in the chain. N. Options shall be deemed "granted" under this Plan on the date on which the Board, by appropriate action, approves the grant of an Option hereunder or on such subsequent date as the Board may designate. O. As used herein, the masculine includes the feminine, the plural includes the singular, and the singular includes the plural. 2. PURPOSE. The purposes of the Plan are as follows: A. To secure for the Company and its shareholders the benefits arising from share ownership by those directors, officers and key employees of the Company and its Subsidiaries who will be responsible for the Company's future growth and continued success. The Plan is intended to provide an incentive to directors, officers and key employees by providing them with an opportunity to acquire an equity interest or increase an existing equity interest in the Company, thereby increasing their personal stake in its continued success and progress. B. To enable the Company and its Subsidiaries to obtain and retain the services of directors, officers and key employees, by providing them with an opportunity to acquire Shares under the terms and conditions and in the manner contemplated by this Plan. 3. PLAN ADOPTION AND TERM. A. This Plan shall become effective upon its adoption by the Board, and Options may be issued upon such adoption and from time to time thereafter; provided, however, that the approval of the Company's shareholders shall be obtained within 12 months of the date of adoption -2- of the Plan. If the Plan is not approved by the affirmative vote of the holders of a majority of all shares present in person or by proxy, at a duly called shareholders' meeting at which a quorum representing a majority of all voting stock is present in person or by proxy and voting on this Plan or by the unanimous written consent of all shareholders of the Company, then this Plan and all Options then outstanding under it shall forthwith automatically terminate and be of no force and effect. B. Subject to the provisions hereinafter contained relating to amendment or discontinuance, this Plan shall continue to be in effect for ten (10) years from the date of adoption of this Plan by the Board. No Options may be granted hereunder except within such period of ten (10) years. 4. ADMINISTRATION OF PLAN. A. This Plan shall be administered by the Board. Except as otherwise expressly provided in this Plan, the Board shall have authority to interpret the provisions of the Plan, to construe the terms of any Option, to prescribe, amend and rescind rules and regulations relating to the Plan, to determine the terms and provisions of Options granted hereunder, and to make all other determinations in the judgment of the Board necessary or desirable for the administration of the Plan. Without limiting the foregoing, the Board shall, to the extent and in the manner contemplated herein, exercise the discretion granted to it to determine to whom Incentive Stock Options and Nonqualified Options shall be granted, how many Shares shall be subject to each such Option, whether a Grantee shall be required to surrender for cancellation an outstanding Option as a condition to the grant of a new Option, and the prices at which Shares shall be sold to Grantees. The Board may correct any defect or supply any omission or reconcile any inconsistency in the Plan or in any Option in the manner and to the extent it shall deem expedient to carry the Plan into effect and shall be the sole and final judge of such expediency. B. No member of the Board shall be liable for any action taken or omitted or any determination made by him in good faith relating to the Plan, and the Company shall indemnify and hold harmless each member of the Board and each other employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Board) arising out of any act or omission in connection with the Plan, unless arising out of such person's own fault or bad faith. 5. ELIGIBILITY. Directors, officers and key employees of the Company and its Subsidiaries shall be eligible for selection by the Board to be granted Options. A Grantee may, if he or she is otherwise eligible, be granted an additional Option or Options if the Board shall so determine. Incentive Stock Options may be granted only to persons who are employees of the Company or a Subsidiary. 6. OPTIONS. -3- A. Subject to adjustment as provided in Paragraph 13 hereof, Options may be granted pursuant to the Plan for the purchase of not more than an aggregate of 250,000 Shares; provided, however, that if prior to the termination of the Plan, an Option shall expire or terminate for any reason without having been exercised in full, the unpurchased Shares subject thereto shall again be available for the purposes of the Plan. B. The aggregate fair market value (determined as of the time Options are granted) of the stock with respect to which Incentive Stock Options may be or become exercisable for the first time by a Grantee during any calendar year (whether granted under this Plan or any other plan of the Company or any Parent or Subsidiary corporation) shall not exceed $100,000. To the extent an Incentive Stock Option may be or become exercisable in violation of this limitation, it shall be deemed to be a Nonqualified Option. 7. OPTION PRICE. The purchase price per Share deliverable upon the exercise of an Option shall be determined by the Board, but shall not be less than 100% of the Fair Market Value of such Share on the date the Option is granted (110% of the Fair Market Value of such Share on the date an Incentive Stock Option is granted to an Optionee-Shareholder). 8. DURATION OF OPTIONS. Each Option and all rights thereunder shall expire and the Option shall no longer be exercisable on a date not later than five (5) years from the date on which the Option was granted, or such lesser period of time as the Board designates at the time of the grant of an Option. Options may expire and cease to be exercisable on such earlier date as the Board may determine at the time of grant. Options shall be subject to termination before their expiration dates as provided herein. 9. CONDITIONS RELATING TO EXERCISE OF OPTIONS. A. The Shares subject to any Option may be purchased at any time at least six (6) months after the date of grant and during the term of the Option, unless, at the time an Option is granted, the Board shall have fixed a different period or periods in which exercise must take place. To the extent an Option is not exercised when it initially becomes exercisable, or is exercised only in part, the Option or remaining part thereof shall not expire but shall be carried forward and shall be exercisable until the expiration or termination of the Option. Partial exercise as to whole Shares is permitted from time to time, provided that no partial exercise of an Option shall be for a number of Shares having a purchase price of less than $100. B. Except to the extent otherwise specified by the Board, no Option shall be transferable by the Grantee thereof other than by will or by the laws of descent and distribution, and Options shall be exercisable during the lifetime of a Grantee only by such Grantee or, to the extent that such exercise would not prevent an Option from qualifying as an Incentive Stock Option under the Internal Revenue Code, by his or her guardian or legal representative. C. Certificates for Shares purchased upon exercise of Options shall be issued either in the name of the Grantee or in the name of the Grantee and another person jointly with the -4- right of survivorship. Such certificates shall be delivered as soon as practical following the date the Option is exercised. D. An Option shall be exercised by the delivery to the Company at its principal office, to the attention of its Secretary, of written notice of the number of Shares with respect to which the Option is being exercised, and of the name or names in which the certificate for the Shares is to be issued, and by paying the purchase price for the Shares. The purchase price shall be paid in cash or by certified check or bank cashier's check. E. Notwithstanding any other provision in this Plan, no Option may be exercised unless and until (i) this Plan has been approved by the shareholders of the Company, and (ii) the Shares to be issued upon the exercise thereof have been registered under the Securities Act of 1933 and applicable state securities laws, or are, in the opinion of counsel to the Company, exempt from such registration. The Company shall not be under any obligation to register under applicable Federal or state securities laws any Shares to be issued upon the exercise of an Option granted hereunder, or to comply with an appropriate exemption from registration under such laws in order to permit the exercise of an Option or the issuance and sale of Shares subject to such Option. If the Company chooses to comply with such an exemption from registration, the certificates for Shares issued under the Plan may, at the direction of the Board, bear an appropriate legend restricting the transfer or pledge of the Shares represented thereby, and the Board may also give appropriate stop- transfer instructions to the transfer agent of the Company. F. Any person exercising an Option or transferring or receiving Shares shall comply with all regulations and requirements of any governmental authority having jurisdiction over the issuance, transfer or sale of securities of the Company or over the extension of credit for the purposes of purchasing or carrying any margin securities, or the requirements of any stock exchange or national market or automated quotation system on which the Shares may be listed, and as a condition to receiving any Shares, shall execute all such instruments as the Board in its sole discretion may deem necessary or advisable. G. Each Option shall be subject to the requirement that if the Board shall determine that the listing, registration or qualification of the Shares subject to such Option upon any securities exchange, national market or automated quotation system or under any state or federal law, or the consent or approval of any governmental or regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such Option or the issuance or purchase of Shares thereunder, such Option may not be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effective or obtained free of any conditions not acceptable to the Board. 10. EFFECT OF TERMINATION OF EMPLOYMENT OR DEATH. A. In the event of termination of a Grantee's employment or membership on the Board for any reason except for cause, any outstanding Option held by such Grantee shall, to the extent such Option was exercisable prior to such termination, remain exercisable at any time prior to its expiration date or, if earlier, the 90th day after such termination. -5- B. In the event of a Grantee's removal from the Board or discharge from employment for cause, all rights of any kind under any outstanding Option held by such Grantee shall immediately lapse and terminate. For purposes of this Agreement, cause means willful misconduct that relates to the Company. C. Whether an authorized leave of absence or absence in military or government service shall constitute termination of employment shall be determined by the Board. Transfer of employment between the Company and a Subsidiary corporation or between one Subsidiary corporation and another shall not constitute termination of employment. 11. NO SPECIAL EMPLOYMENT RIGHTS. Nothing contained in the Plan or in any Option shall confer upon any Grantee any right with respect to the continuation of his or her employment by the Company or a Subsidiary or interfere in any way with the right of the Company or a Subsidiary, subject to the terms of any separate employment agreement to the contrary, at any time to terminate such employment or to increase or decrease the compensation of the Grantee from the rate in existence at the time of the grant of an Option. 12. RIGHTS AS A SHAREHOLDER. The Grantee of an Option shall have no rights as a shareholder with respect to any Shares covered by an Option until the date of issuance of a certificate to him for such Shares. Except as otherwise expressly provided in the Plan, no adjustment shall be made for dividends or other rights for which the record date occurs prior to the date of issuance of such certificate. 13. ANTI-DILUTION PROVISION. In case the Company shall (i) declare a dividend or dividends on its Shares payable in shares of its capital stock, (ii) subdivide its outstanding Shares, (iii) combine its outstanding Shares into a smaller number of Shares, or (iv) issue any shares of capital stock by reclassification of its Shares (including any such reclassification in connection with a consolidation or merger in which the Company is the continuing corporation), the number of Shares authorized under the Plan will be adjusted proportionately. Similarly, in any such event, the Board may make such adjustments in the number of Shares subject to unexercised Options and the Option prices as it deems equitable. 14. WITHHOLDING TAXES. Whenever an Option is to be exercised under the Plan, the Company shall have the right to require the Grantee, as a condition of exercise of the Option, to remit to the Company an amount sufficient to satisfy the Company's (or a Subsidiary's) federal, state and local withholding tax obligation, if any, that will, in the sole opinion of the Board, result from the exercise. 15. AMENDMENT OF THE PLAN. The Board may at any time and from time to time terminate or modify or amend the Plan in any respect, except that, without shareholder approval, the Board may not (a) increase the number of Shares which may be issued under the Plan, or (b) modify the requirements as to eligibility for participation under the Plan. The termination or modification or amendment of the Plan shall not, without the consent of a Grantee, affect his rights under an -6- Option previously granted to him or her. With the consent of the Grantee, the Board may amend outstanding Options in a manner not inconsistent with the Plan. 16. MISCELLANEOUS. A. It is expressly understood that this Plan grants powers to the Board but does not require their exercise; nor shall any person, by reason of the adoption of this Plan, be deemed to be entitled to the grant of any Option; nor shall any rights begin to accrue under the Plan except as Options may be granted hereunder. B. All expenses of the Plan, including the cost of maintaining records, shall be borne by the Company. 17. GOVERNING LAW. This Plan and all rights hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware. -7- EX-23.3 20 CONSENT OF PRICE WATERHOUSE LLP CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Prospectus constituting part of this Registration Statement on Form S-11 of our reports dated September 23, 1996 relating to the statements of revenue and certain expenses of Chico Crossroads Center Ltd. and Miami Gardens Associates, and our report dated September 30, 1996 relating to the Balance Sheet of Basic U.S. REIT, Inc. which appear in such prospectus. We also consent to the reference to us under the heading "Experts" in such Prospectus. /s/Price Waterhouse LLP Price Waterhouse LLP New York, New York September 30, 1996 -----END PRIVACY-ENHANCED MESSAGE-----