Lease Agreement Dated August 22, 1997

EXHIBIT 10.1
LEASE AGREEMENT


THIS LEASE, made this 22nd day of August, 1997, between MCCONNELL DEVELOPMENT, INC. and 700 FRENCHTOWN DEVELOPMENT CORPORATION, a Delaware limited liability corporation (hereinafter called "Landlord"), and AMAZON.COM, INC. a Delaware corporation, (hereinafter called "Tenant"). In consideration of the premises and the covenants, conditions and rents hereinafter set forth, it is agreed as follows:


1. PREMISES AND TERM; RENEWAL OPTIONS


(a) Landlord does hereby lease, demise and let to Tenant, and Tenant does hereby lease, take and accept from Landlord, the "Premises", known as Centerpointe Business Complex, 700 Frenchtown Road, New Castle, Delaware, being comprised of approximately two hundred thousand (200,000) square feet of space located in a one story warehouse building ("Building") to be built by Landlord, as outlined in red on the building and site plan attached hereto-as EXHIBIT A, which Building shall contain a net leasable area of two hundred thousand (200,000) square feet and is located on all that lot of ground in New Castle, Delaware more fully described in EXHIBIT B attached hereto.


The Premises shall be delivered to Tenant in two phases: (i) the first phase ("Phase I Premises") shall be delivered on or before November 1, 1997, and shall consist of 100,000 square feet, including 5,000 square feet of finished office space, in the area designated as the Phase I Premises on Exhibit B; and (ii) the second phase ("Phase II Premises") shall be delivered on or before January 1, 1998, and shall consist of the remaining 100,000 square feet, including 5,000 square feet of finished office space, in the area designated as the Phase II Premises on Exhibit B. As used in this Lease, "Premises" includes the Phase I Premises and the Phase II Premises.


(b) The term of this Lease with respect to the Phase I Premises shall commence on the date which is later to occur of the date on which the Phase I Premises are substantially completed (as defined below) or November 1, 1997 ("Phase I Commencement Date"). The term of this Lease with respect to the Phase II Premises shall commence on the date which is later to occur of the date upon which the Phase II Premises are substantially completed or January 1, 1998 ("Phase II Commencement Date"). The term of this Lease shall expire on the last day of the 60th full month after the Phase I Commencement Date ("Termination Date"). Landlord shall give Tenant written notice of Landlord's making application for a certificate of occupancy for each phase of the Premises fifteen (15) days prior to making such application, and upon Landlord's receipt of a temporary certificate of occupancy for each phase of the Premises, Landlord shall immediately give Tenant written notice thereof. When the substantial completion date for each phase has been determined, Landlord and Tenant shall within 5 business days thereafter execute a written agreement confirming such date as the applicable Commencement Date.


If Landlord, for any reason, cannot deliver possession of each phase of the Premises to Tenant upon the applicable Commencement Date, this Lease shall not be void or violable, but the provisions of Section 2(c)shall apply. Notwithstanding the foregoing, if Landlord cannot deliver


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2 possession of all of the Premises to Tenant on or before April 1, 1998, this Lease shall be voidable by Tenant upon written notice to Landlord within 30 days thereafter.


Each phase of the Premises shall be deemed "substantially completed" when (i) such phase is accessible and fully usable by Tenant for its normal business operations, (ii) a valid temporary certificate of occupancy permitting the use of such phase of the Premises for Tenant's intended use has been issued by the City of New Castle, Delaware, and (iii) RHJ Associates has executed a certificate to Tenant certifying that Landlord's Work (as defined in Section 2) has been substantially completed in accordance with the plans and specifications approved by Landlord and Tenant. The foregoing notwithstanding, a phase of the Premises shall not be deemed to be substantially completed if any details of construction, decoration or mechanical adjustment, or cleanup remain to be done in the Premises or any part thereof, that will, in Tenant's reasonable judgment, substantially impair, reduce or hinder its ability to utilize such phase of the Premises, or that might expose any of Tenant's computers, electrical or electronic equipment to damage or reduced performance.


(c) Tenant shall have the option to renew the term of this Lease for two renewal terms (each, a "Renewal Term") of five (5) years each, such renewals to be upon the covenants, terms and conditions as set forth in this Lease, except that annual rent for a Renewal Term shall be established as described below. In order to exercise an option to renew, Tenant shall give written notice to Landlord not less than one hundred eighty (180) days prior to the end of the then-current Lease term.


The annual rent for each Renewal Term shall be equal to the "Fair Market Rental Value" (defined below) of the Premises as of the commencement of such Renewal Term.


"Fair Market Rental Value" shall be determined as follows: Landlord and Tenant shall seek to agree as to the Fair Market Rental Value within thirty (30) days after Tenant gives Landlord notice of its election to renew this Lease. If Landlord and Tenant do not agree about Fair Market Rental Value within such thirty (30) day period, the following provisions shall apply:


Within fifteen (15) days after the expiration of the above-mentioned
thirty (30) day period, Landlord and Tenant shall each identify an
impartial person to act as a valuation expert and notify the other
thereof. The expert specified in each such notice must be a commercial
real estate M.A.I. appraiser conducting business in New Castle, Delaware
and having not less than five (5) years' active experience as a real
estate M.A.I appraiser in the commercial and industrial leasing market
in New Castle, Delaware. If either party fails to appoint an expert
within such fifteen (15) day period, then the determination of the
expert first appointed shall be final, conclusive and binding on both
parties.


The named experts shall together determine the Fair Market Rental Value.
In making such determination, the experts shall consider the rentals at
which leases are being concluded for comparable space in comparable
buildings in the New Castle, Delaware region. If the experts fail to
agree on the Fair Market Rental Value within thirty (30)


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days of their appointment and the difference in their conclusions about
Fair Market Rental Value is ten percent (10%) or less of the lower of
the two determinations, Fair Market Rental Value shall be the average of
the two determinations.


If the two experts fail to agree on Fair Market Rental Value and the
difference between the two determinations exceeds ten percent (10%) of
the lower of the two determinations, then the experts shall appoint a
third expert, similarly impartial and qualified, to determine the Fair
Market Rental Value. Such third expert shall determine the Fair Market
Rental Value within thirty (30) days of his or her appointment, and the
average of the determinations of the two closest experts is final,
conclusive and binding on Landlord and Tenant. Landlord and Tenant shall
each execute and deliver an agreement confirming annual rent for the
Renewal Term.


Landlord and Tenant shall each pay the fees of any expert appointed by
Landlord and Tenant, respectively, and Landlord and Tenant shall each
pay one-half (1/2) of the fees of the third expert, if any.


Notwithstanding anything to the contrary contained herein, in no event shall the annual rent payable during either Renewal Term be less than the annual rent which was payable during the preceding term.


2. LANDLORD'S WORK; RELOCATION OPTION


(a) Landlord shall, at no cost to Tenant, construct the Building, which shall be a twenty-four (24) foot clear warehouse building containing approximately 200,000 leasable rentable square feet of space, and shall finish the interior of the Premises on a "turn key" basis, pursuant to this Lease, the Work Letter attached, hereto as Exhibit C, and the space plan prepared by RHJ Associates dated August 21, 1997, a copy of which is attached hereto as Exhibit D. (Such construction of the Building and such finishing of the interior of the Premises on a "turn-key" basis are referred to collectively as "Landlord's Work"). In connection with Landlord's Work, Landlord shall provide, at its cost and expense, all preliminary and final plans, drawings and specifications, and Landlord shall arrange and pay for all necessary and desirable architectural and space planning work. All plans and specifications for the finishing of the interior of the Premises, all architectural and space planning work, and the cost of the work to finish the interior of the Premises, shall be mutually approved by Landlord and Tenant. Tenant agrees that when any such approval is requested of Tenant by Landlord, Tenant shall respond to Landlord within five (5) business days of Landlord's request. In the event that Tenant shall disapprove of any item for which its approval is sought, Tenant shall clearly state the reasons therefor. The parties agree that in the event that all plans and specifications for the finishing of the interior of the Premises, all architectural and space planning work, and the cost of the work to finish the interior of the Premises are not agreed upon by Landlord and Tenant on or before September 15, 1997, then Landlord shall not be obligated to deliver the Phase I Premises on or before November 1, 1997 or the Phase II Premises on or before January 1, 1998; rather the applicable commencement date shall be extended by one day for each day between September 15, 1997 and the date that all such items have been approved. All of Landlord's Work shall be done in a good and workmanlike manner. All of Landlord's Work shall


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4 be done in compliance with the approved plans and specifications, all applicable provisions of this Lease and all applicable laws, ordinances, directions, rules and regulations of governmental authorities having jurisdiction thereof. Landlord shall, at its sole cost and expense, obtain any governmental permits required in connection with Landlord's Work.


(b) Landlord shall promptly correct all defects in Landlord's Work and all failures of Landlord's Work to conform to the plans and specifications for such Work which have been agreed upon by Landlord and Tenant, which defects or nonconformities are discovered before or within one year after the date upon which Tenant first occupies the applicable phase of the Premises. Landlord shall bear all costs of correcting Landlord's Work. Landlord and Tenant shall each give the other prompt written notice after discovering the existence of any such defects or nonconformities in Landlord's Work.


(c) If, on or before September 30, 1997, Landlord and Tenant agree that the Phase I Premises are not likely to be completed by November 1, 1997, or if the Phase I Premises are not in fact substantially completed by November 1, 1997, then Landlord shall provide occupancy for Tenant in an approximately 36,000 square foot warehouse building controlled by Landlord and located at 1600 Johnson Way, New Castle, Delaware ("Temporary Space"). Tenant shall have occupancy in the Temporary Space commencing November 1, 1997 and terminating fifteen (l5)days after the Phase I Premises have been substantially completed. Tenant's occupancy in the Temporary Space shall be free of rent and all other charges.


In addition, if the Phase I Premises are not substantially completed by November 1, 1997, then for every day thereafter that the Phase I Premises are late, Landlord shall pay to Tenant the amount of One Thousand Four Hundred Dollars ($1,400) per day for every day until the Phase I Premises have been substantially completed. If the Premises are not substantially completed by April 1, 1998, and Tenant terminates this Lease pursuant to Section 1(b), then Landlord shall immediately pay all amounts owed under this Section 2(c) to Tenant. If the Premises are substantially completed prior to April 1, 1998, all amounts owed by Landlord to Tenant under this Section 2(c) and not paid by Landlord may be deducted from and offset against Basic Rental and all other additional rent until all such amounts have been recovered by Tenant. Landlord's maximum obligation under this Section 2(c) shall be Two Hundred Fifty Thousand Dollars ($250,000). This Section 2(c) shall survive the termination of this Lease. Tenant shall be allowed to vacate the Temporary Space when the Phase I Commencement Date has been achieved.


3. RENT


(a) Tenant covenants to pay to Landlord at such place as Landlord shall from time to time direct, basic rent ("Basic Rental") computed at Four and 44/100 Dollars ($4.44) per year per leasable square foot. Accordingly, the Basic Rental for the Phase I Premises shall be $37,000.00 per month, and the Basic Rental for the Phase II Premises shall be $37,000.00 per month. Such Basic Rental shall be payable in equal monthly installments in advance and without demand, commencing on the Phase I Commencement Date and the Phase II Commencement Date, as the case may be.


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Landlord and Tenant acknowledge and agree that the precise leasable square foot area of the Premises cannot be determined until such time as the Premises are substantially completed. Upon the substantial completion of each phase of the Premises, Landlord and Tenant shall, at Landlord's expense, determine the precise leasable square foot area of the Premises using the BOMA standard of measurement for industrial type space and, upon such determination, Landlord and Tenant shall execute a certificate setting forth such area, and based upon such area, the Basic Rental payable under this Section 3. Within 30 days after such determination is made, if the actual leasable square foot area of each phase of the Premises is determined to be less than 100,000 square feet, Landlord shall refund any excess Basic Rental previously paid by Tenant. If the actual leasable square foot area of each phase of the Premises is determined to be greater than 103,000 square feet, Tenant shall be under no obligation to pay Basic Rental for any space in excess of 103,000 leasable square feet.


(b) The payment of Basic Rental shall be net to the Landlord, and accordingly shall be in addition to and over and above all other payments to be made by Tenant as hereinafter provided and all expenses pertaining to the ownership, maintenance and use of the premises, except as expressly set forth herein, it being the purpose and intent of the Landlord and Tenant that the rent payable hereunder shall when received by Landlord be absolutely net to it, and that except as expressly provided in Section 11(c) hereafter all costs, charges, expenses and obligations of every kind relating to the ownership of the Premises and the use thereof which may arise or become due during the term of this Lease shall be paid by Tenant and that Landlord shall be indemnified and saved harmless by Tenant from and against same.


(c) Tenant covenants to pay when due, without any abatement, deduction or set-off, the rent provided for herein and to pay as additional rent when due all other sums, costs, charges and expenses payable by Tenant under this Lease, and, in the event of any nonpayment thereof, such sums shall be collected as rent, and Landlord shall have all the rights and remedies provided for herein or by law in the case of nonpayment of rent. All payments of rent, additional rent, and any other charges required to be paid hereunder which are not paid promptly by Tenant to Landlord when due shall be subject to a late charge of one and 1.0% per month outstanding.


4. TAXES


Tenant covenants to pay Landlord, as additional rental, one hundred percent (100%) of any real estate taxes and assessments, as hereinafter defined, levied on the land and improvements of which the Premises are a part as follows:


(a) Real estate taxes and assessments shall be adjusted and pro-rated to the Commencement Date or the Termination Date of the term as the case may be.


(b) Tenant shall pay its share of such real estate taxes and assessments as set forth above within thirty (30) days before such taxes and assessments are delinquent, provided that Landlord has delivered a statement of its calculations supported by copies of the actual billings rendered to Landlord.


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(c) For purposes of this paragraph, the term "real estate taxes and assesments" shall include any public charges against the land and improvements of which the Premises are a part (including assessments by any County, Municipal, Metropolitan District or Commission). Landlord represents to Tenant that it has been advised by the City of New Castle that the Premises is entitled to the benefit of a ten-year real estate tax abatement program (applicable to the City of New Castle portion of the tax bill only), which shall be in effect for ten years from and after the Phase I Commencement Date. If the Premises do not receive the benefit of the ten (10) year real estate abatement program, then Landlord and Tenant shall each be responsible for one-half (1/2) of all additional taxes due during the Lease term by reason of not receiving the abatement.


(d) The Tenant shall have the right to contest the amount or validity, in whole or in part, of any increase in such real estate taxes and assessments in the name of the Landlord or the Tenant, as required, by appropriate proceedings diligently conducted in good faith and the Landlord agrees to fully cooperate in any such efforts by the Tenant, at the expense of Tenant. If the payment of the tax or assessment would operate as a bar to the proceedings or to materially interfere with its prosecution, the Tenant may require the Landlord to postpone or to defer the payment of the tax (and Landlord may require the Tenant to post bond or security to defer the payment) so long as the Premises would not, in the reasonable opinion of Landlord by reason of the postponement, be in danger of being forfeited or lost. Any interest or penalty incurred by reason of the postponement of the payment of the taxes shall be paid by the Tenant.


5. INTENTIONALLY DELETED.


6. SNOW REMOVAL, PARKING LOT MAINTENANCE, GRASS CUTTING,
LANDSCAPING, SECURITY, 1% MANAGEMENT FEES, COMMON AREA ELECTRIC,
AND OTHER COMMON AREA CHARGES


(a) Tenant covenants to pay Landlord, as additional rental, one hundred percent (100%) of all reasonable costs incurred for snow removal, parking lot maintenance, grass cutting, landscaping, security, common area electric, and other common area charges (collectively, "Common Area Expenses") during the term of the Lease. The Common Area Expenses shall also include (i) a management fee ("Management Fee") for Landlord's services in operating and maintaining the common areas, such fee not to exceed one percent (1%) of the Basic Rental per year and (ii) fire and extended coverage insurance to be maintained by Landlord with respect to the Building, rental insurance covering a period of twelve (12) months and Three Million Dollars ($3,000,000) coverage for general commercial liability insurance. Notwithstanding the foregoing, the following items shall be excluded (or as applicable, deducted) from Common Area Expenses: costs resulting from the correction of any latent construction defects in all or any portion of the Premises, or any condition that is not in compliance with applicable laws, codes, rules or regulations; payments of principal, interest or other payments on any kinds of mortgages or trust deeds or other liens securing all or any part of the Premises; Landlord's general overhead and other expenses not related to Premises; legal and professional fees incurred by Landlord in negotiating and enforcing a ground lease and financing for the Premises and leases with other tenants; the cost of defending against claims relating to the existence or release of hazardous substances or materials at the Premises and cost of cleanup of any such hazardous substances or materials (except with respect to those costs for which Tenant is otherwise responsible pursuant to the express terms of this Lease);


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7 and amounts received by Landlord through proceeds of insurance to the extent proceeds are compensation for expenses that were previously included in the Common Area Expenses.


(b) Annual Estimate of Common Area Expenses


No later than thirty (30) days prior to the Phase I Commencement Date, Landlord shall estimate and notify Tenant in writing of the amount of Common Area Expenses to be paid by Tenant for the remainder of the calendar year in which the Phase I Commencement Date occurs. During the remainder of such calendar year, Tenant shall pay Common Area Expenses to Landlord based upon such estimate. Such Common Area Expenses shall be payable as additional rent, in equal monthly installments, in the same manner and together with Basic Rental.


No later than ninety (90) days after the commencement of each calendar year after the calendar year in which the Phase I Commencement Date occurs, Landlord shall estimate and notify Tenant in writing of the amount of Common Area Expenses to be paid by Tenant for the then-current calendar year. Within thirty (30) days after Tenant's receipt of such estimate from Landlord, Tenant shall pay Landlord, as additional rent, an amount equal to the product obtained by multiplying such estimate by a fraction, the numerator of which shall be the number of months of such calendar year that will have elapsed prior to the first day of the month immediately following Tenant's receipt of such estimate from Landlord, and the denominator of which shall be twelve (12). Commencing on the first day of the month immediately following Tenant's receipt of such estimate from Landlord, Common Area Expenses shall be payable as additional rent, in equal monthly installments equaling 1/12th of such estimate, in the same manner and together with Basic Rental.


(c) Reconciliation of Common Area Expenses


Between ninety (90) and one hundred twenty (120) days following the expiration of each calendar year, Landlord shall prepare and deliver to Tenant an itemized accounting (together with copies of bills and invoices) of actual Common Area Expenses incurred during the prior calendar year and such accounting shall reflect Tenant's share of each of such actual Common Area Expenses and the method of computation thereof. If the additional rent paid by Tenant under this Section 6 during the preceding calendar year was less than the actual amount of Tenant's share of Common Area Expenses, Landlord shall so notify Tenant and Tenant shall pay the difference to Landlord within 30 days after receipt of such notice. Such amount shall be deemed to have accrued during the prior calendar year and shall be due and payable from Tenant even though the term of this Lease shall have expired or this Lease has been terminated prior to Tenant's receipt of this notice. If the additional rent paid by Tenant under this Section 6 was greater than the actual amount of Tenant's share of Common Area Expenses, then the amount of such overpayment shall be credited by Landlord to all present rent due under this Lease, or refunded to Tenant if no further rental payments are due Landlord from Tenant under this Lease.


(d) Statements Binding


The statements of Common Area Expenses to be furnished by Landlord as provided above shall be certified as true and correct by Landlord, and shall be prepared in


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8 reasonable detail by Landlord. The statements thus furnished to Tenant shall constitute a final determination as between Landlord and Tenant of Common Area Expenses for the periods represented thereby, unless Tenant, within 90 days after they are furnished, shall give notice to Landlord that it disputes their accuracy or their appropriateness, which notice shall specify the particular respects in which the statement is inaccurate or inappropriate. Pending the resolution of such dispute, Tenant shall pay to Landlord the uncontested portion of Common Area Expenses. Within thirty (30) days after the resolution of such dispute, Tenant shall pay to Landlord any deficiency in the amount of Common Area Expenses previously paid by it to Landlord. Tenant shall have the right, during reasonable business hours and upon three (3) business days' prior written notice to Landlord, to examine and/or audit Landlord's books and records with respect to Common Area Expenses paid or payable by Tenant, and if such examination reveals that Landlord overstated Common Area Expenses by five percent (5%) or more, the cost of such examination and/or audit shall be paid by Landlord.


(e) Common Area Expense Projection


Landlord currently projects that Tenant's share of Common Area Expenses will equal $11,833.33 per month (excluding utility charges), plus the monthly share of the Management Fee, for the initial twelve (12) full months of the Lease term after the Phase I Commencement Date and the Phase II Commencement Date.


7. UTILITIES


Tenant shall pay for all charges for gas, electricity, light, heat, all public charges for sanitary sewage discharged from the Premises and for water consumed on the Premises, power and all other utilities and telephone or other communication services used, rendered or supplied upon or in connection with the Premises.


8. LIENS OR ENCUMBRANCES


Tenant shall not suffer the Premises or any erection of improvements thereon to become subject to any lien, charge or encumbrances, and shall indemnify Landlord against all such liens, charges and encumbrances.


9. USE OF PREMISES


Tenant shall use and occupy the Premises throughout the term hereof solely for the purpose of a warehouse and distribution facility, together with associated offices and other incidental uses related thereto.


10. ALTERATIONS AND IMPROVEMENTS


(a) Upon completion of the Landlord's Work in accordance with Section 2 hereof, Landlord shall assign to Tenant any warranties relating to such Landlord's Work to the extent that


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9 such are given to Landlord by its contractors or subcontractors and shall have no further obligation to make any alterations or improvements to the Premises except as provided in Sections 2 and 11(c) hereof.


(b) Tenant further covenants that it will at no time or times make any alterations, improvements or changes of any kind to the Premises without first submitting the plans thereof and securing the prior written consent of the Landlord, which consent shall not be unreasonably withheld or delayed; provided, however, that Tenant may, at its own option and without having to secure the consent, written or otherwise of the Landlord,


(1) make any alterations or changes of any kind to the Premises which may be required by any governmental order or regulation, and, so long as such alterations or changes are not of a character required to be performed by Landlord hereunder, such alterations or changes shall, if made by Tenant, be made, at no expense to Landlord; and


(2) undertake any landscaping or similar work with respect to the Premises (including the improvements constructed as part o ...