Lease Agreement Dated 08/30/1999

EXHIBIT 10.1


LEASE AGREEMENT


IRE No.: 334090


LANDLORD: THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY


TENANT: DS DISTRIBUTION, INC.


Date: August 30, 1999


Property: 407 Heron Drive
Building A, The Gateway Buildings
Pureland Industrial Complex
Logan Township, Gloucester County
Bridgeport, New Jersey 08014


TABLE OF CONTENTS


1. Basic Lease Provisions....................... 1 2. Premises..................................... 3 3. Term and Commencement of Lease............... 3 4. Rent Payments................................ 5 5. Repairs and Maintenance...................... 11 6. Utilities.................................... 15 7. Signs........................................ 15 8. Usage........................................ 15 9. Compliance with Laws, Rules and Regulations.. 16 10. [Intentionally Omitted]...................... 16 11. Indemnification, Waiver and Release.......... 16 12. Insurance.................................... 16 13. Waiver of Subrogation........................ 18 14. Tenant Improvements.......................... 18 15. Alteration and Improvements.................. 23 16. Mechanics Liens.............................. 23 17. Condemnation................................. 23 18. Hazardous Substances......................... 24 19. Fire and Casualty............................ 30 20. Hold Harmless................................ 31 21. Quiet Enjoyment.............................. 32


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22. Landlord's Right of Entry.................... 32 23. Assignment or Sublease....................... 32 24. Landlord's Lien.............................. 33 25. Uniform Commercial Code...................... 34 26. Default by Tenant............................ 34 27. Remedies for Tenant's Default................ 34 28. Waiver of Default or Remedy.................. 35 29. Acts of God; Force Majeure................... 35 30. Attorney's Fees.............................. 35 31. Holding Over................................. 36 32. Rights of First Mortgage..................... 36 33. Estoppel Certificates........................ 36 34. Successors................................... 36 35. Guaranty of Lease............................ 37 36. Definitions.................................. 37 37. Construction of Language..................... 37 38. Notice....................................... 37 39. Agreement and Limitation of Warranties....... 38 40. Brokerage Commission......................... 38 41. Waiver by Jury Trial......................... 39 42. Choice of Law................................ 39 43. Forum Selection Clause....................... 39 44. Authority.................................... 39


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45. Right of First Offer.......................... 40 46. Antenna, Auxiliary Power Supply and Parking
Spaces........................................ 42 47. [RESERVED].................................... 43


Exhibits - --------


Exhibit A--Floor Plan(s) Exhibit B--Rules and Regulations Exhibit C--Insurance Questionnaire Exhibit D--Guaranty of Lease Exhibit E--Tenant Acceptance of Premises Exhibit F--License Agreement


Schedules - ---------


Schedule 9--Title Documents Schedule 14.1--Shell Work


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LEASE AGREEMENT


THIS LEASE is made as of the 30/th/ day of August, 1999, by and between THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY, a Wisconsin corporation (hereinafter referred to as "Landlord"), and DS DISTRIBUTION, INC., a Delaware corporation (hereinafter referred to as "Tenant").


In consideration of the mutual covenants contained in this Lease and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by each party hereto, Landlord and Tenant agree as follows:


1. Basic Lease Provisions. As used in this Lease, the terms set forth
---------------------- below shall have the corresponding meanings set forth below.


1.1 Premises The Building set forth on the Floor
Plan attached hereto as Exhibit "A"
and made a part hereof constituting
270,378 rentable square feet,
including a mezzanine area with an
additional 5,800 square feet, together
with the Lot and all easements
appurtenant to such Lot.


1.2 Lot The parcel of ground known as Block
44, Lot 7.07, consisting of
approximately 819,208 square feet
located at the intersection of Heron
Drive and Center Square Road in the
Pureland Industrial Complex with
approximately 626 feet of frontage
along Heron Drive and 400 feet of
frontage along Center Square Road.


1.3 Project The three parcels of land located on
Heron Drive in the Pureland Industrial
Complex and owned by Landlord,
together with the three buildings
erected on such parcels, and which
together contain approximately 496,145
square feet of rentable space.


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1.4 Building The building located on the Lot at the
Building Address.


1.5 Building Address 407 Heron Drive Building A, The
Gateway Building Pureland Industrial
Complex Logan Township, Gloucester
County Bridgeport, New Jersey 08014


1.6 Term Sixty (60) months, with two (2)
options to renew for an additional
period of five (5) years each, subject
to Section 45.1 of the Lease.


1.7 Lease Commencement Date Date of signing of Lease


1.8 Rent Commencement Date As set forth in Section 3 of Lease
Tenant Improvements


1.9 Base Rent $1,226,623.90 per year (representing
$4.54 PSF)


1.10 Security Deposit $102,218.66


1.11 Tenant's Address 13920 SE Eastgate Way
Suite 300
Bellevue, Washington 98005


1.12 Landlord's Address 720 E. Wisconsin Avenue
Milwaukee, Wisconsin 53202


1.13 Manager Lanard & Axilbund
399 Market Street
Philadelphia, PA 19106


1.14 Landlord's Broker GMH Realty, Inc.
510 Pedricktown Road
Bridgeport, New Jersey 08014


1.15 Tenant's Broker Staubach Company of Pennsylvania 225
City Line Avenue, Suite 103
Bala Cynwyd, Pennsylvania 19004


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1.16 Tenant's Proportionate Share With respect to a particular expense
or amount attributable solely to the
Premises for which Tenant is
responsible, 100% of such expense or
amount, or with respect to a
particular expense or amount
attributable to the Project, the
percentage of all rentable space
receiving benefit of the expense which
is represented by the Premises


2. Premises. Landlord hereby leases to Tenant and Tenant hereby rents from Landlord the Premises.


3. Term and Commencement of Lease. This Lease shall be effective on the Lease Commencement Date. The Term of the Lease shall begin upon the Rent Commencement Date as defined herein. The "Rent Commencement Date" shall be that date which is the earlier of (1) January 1, 2000, or (2) the date of issuance of a temporary certificate of occupancy for the Premises. Notwithstanding the foregoing, in the event that the Premises is divided into Warehouse, Pharmacy and Office Phases as described in Section 14(D) below, with respect to the Pharmacy and Office Phases, the Rent Commencement Date for each such Phase shall be deemed to have occurred upon issuance of a temporary certificate of occupancy for such Phase (whether or not such certificate of occupancy is issued before or after January 1, 2000), provided that in all events the Rent Commencement Date shall be deemed to have occurred with respect to the Warehouse Phase by January 1, 2000. The Term shall expire on that date which is the 5th anniversary of the first date on which the entire Premises (and no lesser portion thereof) is covered by a certificate or certificates of occupancy permitting use and occupancy by Tenant as described in Section 14. All rental charges hereunder shall commence on the Rent Commencement Date.


3.1 Renewal of Term. Tenant shall have two (2) successive options to renew the Term of the Lease upon its expiration for an additional period of five (5) years each, subject to potential extension pursuant to Section 45.1 below (each a "Renewal Term," which if exercised shall be deemed part of the Term), and subject to the following provisions:


(a) In order to exercise either option to renew the Lease, Tenant must give Landlord written notice of its election to renew not later than 365 days before the expiration of the then-current Term. All terms of the Lease shall remain in full force


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and effect for the Renewal Term, except that the Base Rent applicable during the period of renewal shall be at ninety-five percent (95%) of the then-prevailing market rate of rent and all other charges for comparable space, which market rate shall be calculated as the market rental rate for a new tenant not yet in occupancy which receives no allowances for improvements above a base building shell (e.g., as in the case of this Lease, including the Landlord's Work as defined herein, but not including the remainder of the Tenant Improvements as defined herein beyond the Landlord's Work), with such market rate to reflect such factors as the Tenant's use of the Premises, location of the Building, size of rental area, condition of the Premises, and the time the particular rate under consideration becomes effective. However, in no event shall the Base Rent for the Renewal Term be less than that in effect at the expiration of the immediately preceding Term of the Lease. If Tenant exercises either option in accordance with the foregoing, then Landlord shall notify Tenant in writing of the market rate of rent to apply during the applicable Renewal Term, as determined by real estate brokers or other professionals selected by Landlord. Landlord shall provide such statement within 15 days after receiving the notice of exercise of the applicable option.


(b) If Tenant does not accept Landlord's determination of the market rate of rent contained in its notice to Tenant under subsection (A) above, then Tenant shall within 15 days after receiving Landlord's statement notify Landlord in writing that it elects to have such value determined by a panel of 3 licensed real estate brokers or appraisers, one of whom shall be selected by Landlord within 5 days after the end of such 15 day period, one of whom shall be selected by Tenant within 5 days after the end of such 15 day period, and the third of whom shall be selected by the first two within 10 days after the first two are selected. Each broker or appraiser, within 10 days after the third such party is so selected, shall submit a determination of such market rent, and the mean of the two closest determinations shall be binding on the parties for purposes of calculating rent during the applicable Renewal Term. Landlord and Tenant shall each pay the fee of the broker or appraiser selected by it and they shall share equally the payment of the fee of the third such party. If Tenant does not notify Landlord within 15 days after receiving the Landlord's statement of value of its election to have the market rate determined by the independent panel, the rate set forth in Landlord's notice given under subsection (A) above shall be binding on the parties.


(c) Notwithstanding the appraisal procedure set forth above, Tenant shall have the right to cancel and rescind its exercise of the renewal option herein, provided that Tenant notifies Landlord in writing of such election on or before the date which is 270 days prior to the expiration of the then-current Term, and further provided that the Tenant pays all of the costs of the appraisers described in the immediately preceding paragraph (b) of this section.


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(d) If Tenant fails to give notice exercising either of the foregoing options by the date required herein, or if at the time Tenant exercises either such option or at commencement of the applicable Renewal Term there exists an uncured Event of Default hereunder past applicable notice and grace periods, then Tenant's right and option to renew shall be automatically terminated and of no further force or effect.


4. Rent Payments.


4.1 Base Rent. During the Term of this Lease following the Rent Commencement Date, Tenant shall pay to Landlord the Base Rent, payable in equal monthly installments, in advance, on the first day of each and every calendar month during the Term, delivered to the Manager's Address or at any other address as designated from time to time. One monthly installment of Base Rent shall be payable by Tenant on the date of execution of this Lease for the first month's rent. If the Rent Commencement Date occurs on a day other than the first day of the calendar month, the rent for such partial month shall be prorated for each day at the rate of one-thirtieth (1/30) of the full monthly installment of rent. Tenant shall pay, as additional rent, all other sums due under this Lease.


Notwithstanding the foregoing, in the event that the Premises is divided into Warehouse, Pharmacy and Office Phases as described in Section 14(D) below, and pursuant to Section 3 above the Rent Commencement Date shall have occurred with respect to any of such Phases without the others, then upon such partial Rent Commencement Date, the Tenant shall begin making payments of Base Rent and Additional Rent as provided above in amounts which are allocable, pro rata on a square foot basis, to the applicable Phase, provided that such rental obligations shall begin with respect to the Warehouse Phase by January 1, 2000 notwithstanding the fact that a certificate of occupancy may not have been issued for the Warehouse Phase by such date (except if such non-issuance is due to the Landlord's negligence or intentional misconduct as provided elsewhere herein).


4.2 Security Deposit. On the date of execution of this Lease by Tenant, Tenant shall pay to Landlord the Security Deposit to be held for the performance by Tenant of Tenant's covenants and obligations under this Lease, it being expressly understood that the Security Deposit shall not be considered an advance payment of rent or a measure of Landlord's damage in case of default by Tenant. Upon the occurrence of any Event of Default by Tenant or breach by Tenant of Tenant's covenants under this Lease, Landlord may, from time to time, without prejudice to any other remedy, use the Security Deposit to the extent necessary to make good any arrears of rent and/or any damage, injury, expense or liability caused to Landlord by


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the Event of Default or breach of covenant, with any remaining balance of the Security Deposit to be returned by Landlord to Tenant thirty (30) days after termination of this Lease.


4.3 Additional Rent. In addition to the foregoing, Tenant shall pay as additional rent (the "Additional Rent") the following:


(a) Impositions. During the Term of this Lease following the Rent Commencement Date, Tenant shall pay to Landlord an amount equal to one-hundred percent (100%) of the Impositions (as defined below) which are attributable solely to the Premises ("Tenant's Proportionate Share of Impositions"). For any year during the Term or any renewal thereof which is not a full calendar year, Impositions shall be prorated between Landlord and Tenant on a 365 day calendar year basis. The term "Impositions" shall mean all taxes, assessments, ad valorem real estate taxes, excises, personal property taxes, any kind (including without limitation fees "in-lieu" of any such tax or assessment) of fee service payments, levies, any tax imposed in substitution, partially or totally, of any tax previously included within the definition of Impositions, any additional tax the nature of which was previously included within the definition of Impositions, and any other charges, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever which shall or may during the Term of this Lease be assessed, levied, charged, confirmed or imposed upon or become payable out of or become a lien upon the Premises or Landlord's estate therein or any part thereof or the appurtenances thereto or the sidewalks or streets adjacent thereto.


The term "Impositions" shall not include any of the following: (i) any special tax district taxes or similar taxes or assessments (other than those in the nature of ad valorem taxes or assessments or usage fees) which are extraordinary and which are imposed for the recovery of the costs of constructing infrastructure improvements or for the repayment of financing of such costs, (ii) any future taxes or assessments or charges under local improvement districts, community facilities districts or similar arrangements undertaken by or with the consent of Landlord for the purpose of financing improvements to or for the benefit of the Premises or other properties owned by the Landlord, (iii) any correction of or supplement to any tax or assessment applicable to any period prior to the Rent Commencement Date or the portion of any tax or assessment applicable to any period prior to the Rent Commencement Date, regardless of when imposed, (iv) any municipal, state or federal income taxes assessed against Landlord, or any municipal state or federal capital stock or levy, estate, succession, inheritance or transfer taxes payable by Landlord, or any franchise taxes, or (v) any tax or assessment similar to a capital stock or franchise tax imposed upon any non-corporate owner (the taxes enumerated in this sentence are


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collectively referred to as "Landlord's Taxes.). In addition, the term Impositions shall not include any taxes or other amounts imposed in connection with any tax parcel other than the tax parcel or parcels on which the Premises is located. If any assessment, whether general, special, ordinary or extraordinary, for which Tenant is liable under this Lease as an "Imposition" is assessed in whole or in part against the Premises which may be payable over a term of years, Landlord will exercise its right to make payment over such term of years, and only such portion of any such tax or assessment which falls due within each year of this Lease and is reasonably attributable to such year shall be used in the determination of Tenant's payment obligation hereunder. Landlord further agrees to pay any real property taxes sufficiently in advance to achieve any available discounts or other savings.


Tenant shall also pay to Landlord during the Term of this Lease or any renewals thereof any rental, sales, and use taxes or other similar taxes (but not income taxes), if any, levied or imposed by any city, state, county or other governmental body having authority in the amount levied by such governmental body with respect to the Base Rent and/or Additional Rent due hereunder (collectively, "Additional Impositions").


Additional Impositions and Tenant's Proportionate Share of Impositions shall be paid by Tenant in equal monthly installments in an amount equal to one- twelfth (l/12th) of the amount of Additional Impositions and Tenant's Proportionate Share of Impositions as reasonably estimated by Landlord from time to time in written notice to Tenant given at least 30 days prior to the date on which such amounts are to become effective. Within a reasonable amount of time after the actual amount of Additional Impositions and Impositions can be determined for each year, Landlord shall deliver to Tenant a written statement, which shall be conclusive between the parties hereto, setting forth Landlord's calculation of the Additional Impositions and Impositions and Tenant's Proportionate Share of Impositions for such year. If the aggregate amount of estimated monthly payments made by Tenant in any year for Additional Impositions and Tenant's Proportionate Share of Impositions is less than the actual amount set forth on Landlord's statement, then within 30 days Tenant shall pay to Landlord as Additional Rent upon demand the amount of such deficiency; if the aggregate amount of monthly estimated payments made by Tenant to Landlord exceeds the actual amount as set forth on Landlord's statement, and if Tenant is not otherwise in default hereunder, the amount of such excess will be applied by Landlord to reduce the installments of such Additional Rent due hereunder for the next year (unless the refund amount is greater than $5,000, in which event Landlord shall pay the amount to Tenant upon making the calculation); and if there is any such excess for the last year of the term and if Tenant is not otherwise in default hereunder, the amount thereof will be refunded by Landlord to Tenant.


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Tenant shall have the right to file an appeal and contest the real estate taxes and assessments applicable to the Premises in the event that the Landlord refuses to conduct such an appeal upon demand of Tenant. In the event of any such appeal by Tenant, Tenant shall indemnify Landlord against all expenses incurred in connection with such appeal, against any claims arising out of the result of such appeal or any dismissal thereof, and against any increase in real estate taxes assessed against the Premises resulting from such appeal.


(b) Utilities and Other Operating Costs: Electric and gas service shall be separately metered. Tenant shall pay 50% of the costs of all utilities consumed at the Premises between the Lease Commencement Date and the Rent Commencement Date. Beginning upon the Rent Commencement Date, Tenant shall pay when due all charges for electricity and gas consumed in connection with the Premises. Upon request, Landlord shall furnish Tenant with copies of the applicable bills for utilities. Tenant shall pay to Landlord an amount equal to one-hundred percent (100%) of the Operating Costs (as defined below) which are attributable solely to the Premises ("Tenant's Proportionate Share of Operating Costs"). As used herein, "Operating Costs" means the amount of all costs to Landlord of operating and maintaining the Premises, including (1) cost of wages and salaries of all employees engaged in the operation and maintenance of the Premises, including but not limited to payroll taxes, insurance and benefits (provided that such wages and salaries shall be prorated to the extent any such employees are also engaged with respect to other projects); (2) cost of supplies used in the maintenance and repair of the Premises; (3) all costs of maintaining and repairing any utility lines and systems on the Premises; (4) costs incurred under all maintenance and service agreements for the Premises, including trash removal, snow and ice removal and landscaping; (5) cost of general maintenance, replacements and repairs to the Building, parking areas, sidewalks and surrounding landscaping at the Premises; (6) all property management fees and expenses; (7) the costs of any minor repairs and alterations to portions of the Premises other than the roof, walls and other structural portions of the Building which are required or made necessary by law or changes in law; (8) cost of any capital improvements made to the Building that, in Landlord's reasonable judgment, will reduce other operating expenses or increase energy efficiency, provided such costs are amortized over the useful life of the improvement in accordance with generally accepted accounting principles ("GAAP") at such rates as may have been paid by Landlord on funds borrowed for the purpose of constructing such capital improvements or, if no such funds were borrowed, at such reasonable rates as are not in conflict with GAAP; (9) cost of any licenses or permits required by any public authority; and (10) any owner's association or similar fees or assessments (if any) applicable to the Premises which are imposed under covenants recorded in the land


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records with respect to the Premises. Notwithstanding the foregoing, "Operating Costs" shall not include (a) any costs of initial construction of the Building or of additions of space to the Building, or of constructing and dedicating Heron Drive, including but not limited to paving, striping or replacement of 1999 drought damaged vegetation or other landscaping; (b) principal, interest, ground lease or other debt service payments; (c) any fees or costs for property management services which are in excess of the prevailing market rate, taking into account any special factors related to the operation of the Building (i.e., which are in excess of that reached through arms-length bargaining); (d) marketing costs, advertising costs or leasing or brokerage commissions; (e) any costs which are recovered through insurance or condemnation proceeds; (f) executive salaries and compensation; (g) costs and expenses incurred in connection with collections or other enforcement of other tenants leases; (h) costs of initial build-out or improvements to other tenants' spaces; (i) expenses for any special services or utilities provided solely to, or otherwise recovered entirely from, any other individual tenant in the Project; (j) rent or other bad debt losses or reserves therefor; (k) transfer taxes, deed recordation taxes or other costs directly attributable to the sale of the Building or any ownership interest therein, (l) depreciation, (m) costs incurred in connection with the sale, financing, refinan ...