exv10w7c



 





EXHIBIT 10.7c




SECOND LEASE AMENDMENT

AND AGREEMENT




     This Second Lease Amendment and Agreement (this “Second Amendment”) is
made and entered into to be effective as of June 30, 2004, by and between
CP/HERS WALNUT HILL, L.P., a Delaware limited partnership (“Landlord”) and ZALE
DELAWARE, INC., a Delaware corporation (“Tenant”).



RECITALS




     A. Principal Mutual Life Insurance Company (“Original Landlord”) entered
into that certain Lease dated as of September 17, 1992 (the “Original Lease”)
with Zale Corporation, as debtor and debtor-in-possession, as tenant (“Original
Tenant”) with respect to the land described on Exhibit A attached hereto and
made a part hereof and the remainder of the “Premises” as defined in the
Original Lease (and hereinafter so referenced), the street address of which is
901 West Walnut Hill Lane, Irving, Texas.



     B. Original Tenant assigned to Tenant all of Original Tenant’s rights,
title and interests in and to the Original Lease, and Tenant accepted such
assignment and expressly assumed and agreed to perform all of the terms,
covenants, conditions, obligations and liabilities required of the Original
Tenant under the Original Lease, all as evidenced by that certain Memorandum of
Assignment of Lease dated as of July 30, 1993, executed between Original Tenant
and Tenant.



     C. Original Landlord and Tenant entered into that certain First Lease
Amendment and Agreement dated effective as of February 1, 1996 (the “First
Amendment”) amending the Original Lease in certain respects (the Original Lease
as so amended is sometimes collectively referred to herein as the “Lease”).



     D. Landlord is the current owner of the Premises and the landlord’s
interest under the Lease, and Tenant is the current owner of the leasehold
estate and all of the tenant’s rights, title, interests, obligations and
liabilities under the Lease, free and clear of any mortgages or encumbrances on
said leasehold estate.



     E. Landlord and Tenant desire to amend the Lease as hereinafter provided.



     NOW, THEREFORE, FOR TEN DOLLARS ($10.00) IN HAND PAID, the mutual
covenants and agreements herein contained, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:



AGREEMENT




     1. Recitals and Attachments. The Recitals set forth above are
incorporated herein and made a part hereof by this reference and Attachment I,
Attachment II and Attachment III hereto are hereby made a part of this Second
Amendment and of the Lease.



 









 





     2. Amendments. The Lease is hereby amended as follows:



     (a) Section 2 of the Lease is hereby deleted in its entirety and is
replaced with the following in that Tenant has exercised its options with
respect to the remaining Extension Periods:




     “2. TERM. The term of this Lease (the “Term”) shall be
approximately twenty-five (25) years, six (6) months, and fourteen (14)
days beginning on September 17, 1992 (the “Commencement Date”) and
expiring March 31, 2018 (the “Expiration Date”). There shall be no
rights to renew or extend the Term beyond the Expiration Date.”



     (b) Subsection 3.a. of the Lease is hereby deleted in its entirety and is
replaced with the following:




     “a. Basic Rental. Landlord hereby acknowledges receipt of Tenant’s
payment in full of “Basic Rental” (herein so called) through and
including December 31, 2003. Tenant shall pay Basic Rental during the
remaining portion of the Term according to the following schedule:



	 	 	 	 	 	 	 
	 	 	Annual Rental
	 	Annual
	 	Monthly

	Time Period
	 	Basic Rate per RSF
	 	Basic Rental
	 	Basic Rental

	01/01/04 – 06/30/04
	 	$8.75	 	$3,140,235.00	 	$261,686.25
	07/01/04 – 12/31/04
	 	$0.00	 	$0.00	 	$0.00
	01/01/05 – 09/30/05
	 	$8.75	 	$3,140,235.00	 	$261,686.25
	10/01/05 – 03/31/08
	 	$9.25	 	$3,319,677.00	 	$276,639.75
	04/01/08 – 06/30/08
	 	$9.50	 	$3,409,398.00	 	$284,116.50
	07/01/08 – 12/31/08
	 	$0.00	 	$0.00	 	$0.00
	01/01/09 – 12/31/09
	 	$10.00	 	$3,588,840.00	 	$299,070.00
	01/01/10 – 12/31/10
	 	$10.25	 	$3,678,561.00	 	$306,546.75
	01/01/11 – 12/31/11
	 	$10.50	 	$3,768,282.00	 	$314,023.50
	01/01/12 – 12/31/12
	 	$10.75	 	$3,858,003.00	 	$321,500.25
	01/01/13 – 12/31/13
	 	$11.25	 	$4,037,445.00	 	$336,453.75
	01/01/14 – 12/31/14
	 	$11.50	 	$4,127,166.00	 	$343,930.50
	01/01/15 – 12/31/15
	 	$11.75	 	$4,216,887.00	 	$351,407.25
	01/01/16 – 12/31/16
	 	$12.00	 	$4,306,608.00	 	$358,884.00
	01/01/17 – 03/31/18
	 	$12.25	 	$4,396,329.00	 	$366,360.75








     Basic Rental shall be abated during the two (2) respective six (6) month
periods as referenced above.”



     (c) Subsection 3.b.(i) of the Lease is hereby deleted in its entirety and
is replaced with the following:



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     “(i) all insurance and insurance-related expenses applicable to the
Premises, including commercially reasonable deductible amounts acceptable
to Landlord from time to time during the Term, but not exceeding
$100,000.00 per occurrence.”



     (d) Subsection 3.c. of the Lease is amended by deleting the fourth
sentence and replacing it with the following:




     “Tenant shall pay to Landlord Scheduled Rent required under this
Lease (and any applicable Additional Rent payable directly to Landlord
pursuant to this Lease) without deduction or setoffs, at Tenant’s option,
either (i) by wire transfer of immediately available funds according to
the following wiring instructions:


JPMorgan Chase

ABA #021-000-021

Account Name: CP/HERS Walnut Hill

Account Number: 777-230-100




     or (ii) by check payable to Landlord and delivered to the following
lockbox address:


CP/HERS Walnut Hill

General Post Office

P. O. Box 5410

New York, New York 10087-5410.”




     (e) Subsection 3.c. of the Lease is also amended by deleting the last
sentence thereof and replacing it with the following:




     “Tenant shall pay Taxes directly to taxing authorities, and shall
pay the premiums for all insurance (other than the all-risk property
insurance to be carried by Landlord with respect to the Premises, subject
to the last sentence of Subsection 10.a. if and to the extent Tenant
satisfies the condition to maintaining such property insurance and
maintains such property insurance) directly to its insurers, prior to
delinquency. Tenant shall deliver to Landlord evidence satisfactory to
Landlord of payment in full of all Taxes and insurance premiums prior to
the date on which any such amounts would become delinquent, and shall, at
Landlord’s written request, deliver evidence of payment in full of any
other portions of the Additional Rent as Landlord may reasonably require.
Tenant shall reimburse Landlord within thirty (30) days following
receipt of Landlord’s invoice therefor for (i) the cost of the all-risk
property insurance to be carried by Landlord with respect to the
Premises, subject to the last sentence of Subsection 10.a. if and to the
extent Tenant satisfies the condition to maintaining such property
insurance and maintains such property insurance, and (ii) for the amount
of any deductible incurred by Landlord with respect to any claim Landlord
makes with respect to the insurance to be carried by Landlord with
respect to the Premises pursuant to express provisions of the Lease, if
any insured loss exceeding Landlord’s deductible amount with respect to
such insurance occurs at the Premises. Tenant, at its sole cost and
expense, shall be responsible for repairing any and all damage to the
Premises for which the costs do not exceed the applicable deductible
amount. Notwithstanding the foregoing, if any insured



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loss or uninsured loss was caused by the gross negligence or willful
misconduct of Landlord, its agents, employees or contractors, Tenant
shall not be required to pay the deductible therefor (if an insured loss)
or for the cost of the repair (if an uninsured loss), as applicable, and
in such event, Landlord will make the amount of the applicable insurance
deductible available to fund that portion of the repair costs (if an
insured loss) or pay for the costs of the repair (if an uninsured loss),
as applicable.”



     (f) Subsection 6.b. of the Lease is hereby deleted, as are all references
to Tenant’s obligations to perform separation of utilities with respect to the
Premises. The parties acknowledge that Tenant has fulfilled all its
obligations under the Lease and the Agreement Regarding Utilities dated
September 17, 1992 (as amended by First Amendment to Agreement Regarding
Utilities dated as of February 1, 1996) regarding the separation of utilities
serving Lots 1, 3, 4, 5 and 6 of Las Colinas, Sector X First Installment,
Revised for the City of Irving, Dallas County, Texas, an addition according to
the map or plat thereof recorded in Volume 85068, Page 2623, Map Records,
Dallas County, Texas, from the utilities serving the Premises (i.e., Lot 2,
described on such plat).



     (g) Subsection 7.b. of the Lease is amended by deleting all the language
added to the end of such Subsection pursuant to Subsection 2(k) of the First
Amendment.



     (h) Subsection 7.c. of the Lease is hereby deleted in its entirety and is
replaced with the following:




     “c. Repairs; Maintenance. Tenant, at its expense, shall maintain
the Premises to the Zale Headquarters Standard and, except as hereinafter
expressly provided, in good repair and condition, and perform routine
care of landscaping and regular mowing of grass, and servicing,
maintenance, repair and replacements of all aspects of the Premises
including, without limitation, servicing, maintenance, and repairs of
Tenant Capital Items and Landlord Capital Items, and replacements of
Tenant Capital Items (but not replacements of Landlord Capital Items),
all in a manner consistent with the Zale Headquarters Standard, subject
to ordinary wear and tear, casualty and condemnation. Landlord, at its
expense, shall replace Landlord Capital Items (if necessary during the
Term) in accordance with the Zale Headquarters Standard. As used in this
Lease, “Landlord Capital Items” shall mean the roof, roof membrane,
foundation slab, foundation, curtain wall, interior permanent
load-bearing walls and support columns and other structural components of
the Building and parking structure. As used in this Lease, “Tenant
Capital Items” shall mean all non-structural components and all operating
systems and components of the Building, including without limitation the
heating, ventilating and air conditioning systems, the plumbing,
mechanical and electrical systems, all other Building systems, elevators,
escalators, the paved parking areas, sidewalks and driveways, all
non-structural aspects of the parking structure, and any above-ground
storage tanks now existing or hereafter placed in or on the Premises,
including without limitation any such tanks installed to replace those
described in Section 24 of this Lease. Regarding the parking structure,
for example (without limitation), crack(s) in the façade(s), tier(s),
and/or column(s) of the parking structure capable of being repaired by
patching, sealing or replacements of immaterial areas or sections of
concrete of the parking structure shall be considered non-structural
repairs or



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replacements and accordingly are Tenant Capital Items for which
Tenant shall be responsible at its cost. Serious structural defects
requiring replacements of major portions or the entirety of the
façade(s), tier(s) and/or column(s) or material areas or sections of
concrete of the parking structure would be examples of replacements of
Landlord Capital Items for which Landlord would be responsible at its
cost. Tenant Capital Items shall also include any utility lines,
conduits, meters or other equipment located on lands abutting or adjacent
to the Premises that are owned or leased by Tenant or its affiliate(s) to
the extent that same pertain to utilities serving the Premises.
“Casualty” shall include damage by fire, storm, flood, explosion, falling
objects, riot, insurrection, acts of war and acts of God. Tenant shall,
throughout the Term, take good care of the Premises and keep them free
from waste or nuisance and, at the end of the Term, deliver the Premises
and all improvements and equipment therein (other than Tenant’s Property
that Tenant elects to remove or Landlord requires be removed) clean and
free of trash and in good repair and condition, except for ordinary wear
and tear and casualty between the last necessary repair, replacement, or
restoration made by Tenant or Landlord pursuant to such party’s
respective obligations under this Lease. On the first day of each month
during the Term, Tenant shall deliver to Landlord a completed maintenance
checklist, the form of which is attached hereto as Exhibit C, together
with copies of all Service Contracts (defined below) that have not
previously been delivered by Tenant to Landlord, including, without
limitation, for janitorial, landscaping, elevator and escalator service,
and for routine maintenance of all Building systems including, without
limitation, mechanical, electrical and plumbing systems, and life-safety
and HVAC systems. Landlord, at its sole cost and expense, may from time
to time inspect the Premises to ensure Tenant is complying with its
obligations under this Section 7 and the other provisions of this Lease;
currently, Landlord anticipates making such inspections on a
quarter-annual basis, but may make such inspections more frequently in
its reasonable discretion. Any entry by Landlord under this Section 7
shall be during Tenant’s normal business hours, following reasonable oral
notice by Landlord to Tenant. Landlord’s representatives shall be
accompanied at all times during such inspections by representatives
designated by Tenant, and Landlord shall strictly observe all security
procedures reasonably promulgated by Tenant from time to time during the
Term applicable to such visits. If any inspection reveals that Tenant is
not properly and timely performing any maintenance, repair and/or
replacement obligations with respect to the Premises including, without
limitation, its servicing, maintenance, and repair (but not replacement)
obligations with respect to Landlord Capital Items, in the manner
required hereunder, Landlord may notify Tenant as to such matters, and
Tenant shall promptly perform the applicable servicing, maintenance,
repair and/or replacement obligations in a manner as necessary to
maintain the Premises to the Zale Headquarters Standard and all
improvements and equipment therein in good order and condition. If such
failure by Tenant pertains to (i) any of the matters described on Exhibit
C attached hereto, (ii) any servicing, repair or maintenance obligations
of Tenant hereunder with respect to Tenant Capital Items and/or Landlord
Capital Items, (iii) any replacement obligations with respect to Tenant
Capital Items, or (iv) any of the other matters necessary to maintain the
Premises to the Zale Headquarters Standard (any of such matters
constituting and being hereinafter referred to as a “Material Tenant
Repair”), Landlord shall notify Tenant of such failure in writing. If
Tenant fails to perform a Material Tenant Repair after receipt



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of written notice from Landlord describing the work to be performed,
within the period specified in such notice by Landlord (which specified
period shall be a commercially reasonable length of time given the scope
of the work to be performed, sufficient to complete the type of work
described in such notice and may vary from notice to notice) (the
“Designated Cure Period”), and such failure continues for an additional
ten (10) day period following Landlord’s second written notice of the
need for such Material Tenant Repair, Landlord shall be entitled to (y)
cause such specific Material Tenant Repair to be performed as required
under the terms of this Lease and/or (z) declare an Event of Default
under this Lease, without any further notice, grace or cure rights.
Tenant shall pay to Landlord within thirty (30) days after receipt from
Landlord of Landlord’s written demand therefor, the actual costs incurred
by Landlord in performing the Material Tenant Repair (collectively, the
“Maintenance Charges”).




     In addition, if Landlord reasonably determines that emergency
repairs are necessary to avoid imminent personal injury or imminent
substantial damage to the Premises (an “Emergency Repair”), and Landlord
is unable to contact Tenant, despite Landlord’s reasonable, good faith
efforts to do so given the circumstances of the specific emergency, or
if, after contacting Tenant, Tenant refuses or fails to act promptly and
appropriately, Landlord shall be entitled to cause the Emergency Repair
to be made in a manner that complies, as closely as possible given the
circumstances, with all of Tenant’s security procedures. Landlord shall
notify Tenant as soon as practicable of the Emergency Repair and the work
undertaken to alleviate the immediate emergency. Tenant shall pay
Landlord within thirty (30) days following written demand, for the actual
cost of work performed by or on behalf of Landlord to effect the
Emergency Repair.




     For purposes of this Lease, the “Zale Headquarters Standard” shall
be as described on Exhibit E, attached hereto and made a part hereof for
all purposes.




     With respect to any improvement, alteration or addition proposed by
Tenant pursuant to Subsection 7.b. and/or any Material Tenant Repair
required to be made by Tenant pursuant to this Subsection 7.c. of an
estimated cost exceeding $500,000.00, Landlord reserves the right to
require Tenant, prior to commencement of such work, to comply with one of
the following at Landlord’s election: (i) to post payment and/or
performance bonds or (ii) to provide other assurances reasonably
acceptable to Landlord (such as a letter of credit or other security) to
ensure timely payment and performance of such items.




     Notwithstanding anything in this Lease to the contrary, during the
final five (5) years of the Term, if Tenant is obligated to make (and
makes) a replacement of a Tenant Capital Item the cost of which exceeds
$250,000.00, that has a useful life that extends beyond the Expiration
Date, Landlord will reimburse Tenant proportionately for the cost of the
replacement within thirty (30) days following completion thereof, to the
extent that the remaining useful life of such Tenant Capital Item
(assuming normal use and proper maintenance and repair), extends beyond
the Expiration Date. The useful lives of certain replacement Tenant
Capital Item shall be determined by reference to the estimated service
lives of various system components surveyed and compiled by the Technical



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Committee of the American Society of Heating, Refrigerating and Air
Conditioning Engineers, Inc. (“ASHRAE”) and set forth in Chapter 36 of
the 2003 ASHRAE Handbook, Heating, Ventilating and Air Conditioning
Applications, Inch-Pound Edition, adjusted for local conditions (“ASHRAE
Standards”), as same may be updated from time to time during the Term.
If the useful life of the replacement Tenant Capital Item is not
addressed by ASHRAE Standards, the useful life of such replacement Tenant
Capital Item shall be determined by Landlord in its reasonable judgment.
For purposes of the calculation of the reimbursement obligation of
Landlord pursuant to this paragraph, the useful life of such replacement
item shall be the lesser of (i) the actual useful life of such item or
(ii) seven (7) years, notwithstanding that a longer useful life may be
indicated by ASHRAE Standards (if applicable) or may otherwise apply.”



     (i) Subsection 7.d. of the Lease is amended by (1) deleting the phrase
“Subject to the provisions of this Lease regarding Hard Construction which is
the subject of Reimbursable Tenant Expenditures, all” and replacing it with
“All” in the first sentence thereof, (2) to add the phrase “using good quality
materials consistent with the Zale Headquarters Standard” after the phrase
“good and workmanlike manner” appearing in the fourth (4th) sentence thereof
and (3) to delete the last sentence thereof.



     (j) A new Subsection 7.f. is added to the Lease as follows:




     “f. Annual Budget. No later than thirty (30) days prior to the end
of Tenant’s fiscal year (which currently runs August 1 through July 31),
Tenant shall deliver to Landlord, for its approval, but only as
contemplated below, a budget setting forth the repair, maintenance and
capital expenditures expected to be incurred by Tenant in connection with
the maintenance and operation of the Premises in accordance with the Zale
Headquarters Standard during the following fiscal year (including without
limitation proposed expenditures for repairs to Landlord Capital Items
and Tenant Capital Items and replacements to Tenant Capital Items). Each
such budget shall be in the form attached hereto as Exhibit G. In the
event that the amount budgeted for repairs and maintenance required by
Tenant under this Lease with respect to a specific line item shows a
decrease of more than ten percent (10%) for the same line item from the
preceding fiscal year, or if the aggregate budget amount for such fiscal
year decreases by more than three percent (3%) from the aggregate budget
amount from the preceding fiscal year (in either case, “Material
Reduction”), Tenant shall include a written justification of such reduced
amount. If Landlord, acting reasonably and in good faith, rejects
Tenant’s justification of the Material Reduction as being non-compliant
with the Zale Headquarters Standard, Landlord shall notify Tenant in
writing within thirty (30) days following Landlord’s receipt of Tenant’s
justification that Landlord reasonably disputes same. Thereafter, the
parties shall promptly proceed in good faith until an approved budget is
achieved. In the event of a budget dispute, the preceding fiscal year’s
approved budget shall apply to the fiscal year in dispute until an
approved budget is achieved for the fiscal year in dispute. If the
approved budget for the fiscal year in dispute is not achieved after good
faith efforts by both parties on or prior to the expiration of the third
(3rd) month of the applicable fiscal year, then the preceding fiscal
year’s approved budget escalated to reflect any net increase in the
Consumer Price Index during such fiscal year shall be the revised budget
applicable to the fiscal year in dispute. As used herein, “Consumer
Price



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Index” or “CPI” shall mean the Consumer Price Index, Dallas-Fort
Worth, Texas, All Urban Consumers (base index year 1982-84=100), as
published by the United States Department of Labor, Bureau of Labor
Statistics or, if that index is revised or no longer published, such
alternative index as Landlord reasonably shall select in good faith to
produce results equivalent, as nearly as possible, to those that would
have been obtained if the Consumer Price Index had not been so revised or
discontinued. The CPI escalation factor shall be the quotient resulting
from dividing the CPI number for the first month of the fiscal year in
dispute (or latest published CPI number that is available) by the CPI
number for the first month of the previous fiscal year. Within sixty
(60) days after the expiration of each fiscal year, Tenant shall deliver
to Landlord a detailed statement (i) setting forth the actual expenses
incurred by Tenant in maintaining the Premises during such fiscal year
and (ii) stating in comparative form the expenses actually incurred by
Tenant in maintaining the Premises during the fiscal year in question and
the amounts set forth in such fiscal year’s approved budget. Each such
statement shall be certified by the either chief financial officer of
Tenant or Tenant’s manager or director over facilities as being true and
correct in all material respects. NOTWITHSTANDING ANY OTHER PROVISIONS
OF THIS SUBSECTION 7F, IT IS UNDERSTOOD AND AGREED THAT NO APPROVAL BY
LANDLORD OF ANY BUDGET OR ANY ITEM THEREIN, NOR ANY FAILURE OF LANDLORD
TO OBJECT TO ANY BUDGET OR ANY ITEM THEREIN, NOR ANY REASONS EXPRESSED
FOR ANY OBJECTION BY LANDLORD, NOR THE AMOUNT OF ANY BUDGET ITEM, WHETHER
LESS THAN OR MORE THAN PRIOR FISCAL YEARS, SHALL IN ANY WAY INDICATE ANY
CONSENT OF OR WAIVER BY LANDLORD, OR IN ANY WAY PERTAIN TO OR AFFECT, (1)
ANY OF TENANT’S OBLIGATIONS UNDER THIS LEASE WITH RESPECT TO MAINTAINING
THE PREMISES AT THE ZALE HEADQUARTERS STANDARD, OR (2) ANY OTHER
PROVISIONS OF THIS LEASE PERTAINING TO TENANT’S MAINTENANCE AND REPAIR
OBLIGATIONS.”



     (k) The first sentence of Section 8 of the Lease is hereby deleted in its
entirety and is replaced with the following:




     “Tenant shall (a) continuously occupy at least fifty-one percent
(51%) of the Building and use the Premises only for lawful purposes
consistent with the uses permitted which are consistent with other office
buildings in the vicinity of the Building (the “Permitted Use”), (b)
comply with all laws, orders, rules, private restrictions and restrictive
covenants, and regulations relating to the use, condition, and occupancy
of the Premises, including without limitation, at Tenant’s cost, making
any repairs to Tenant Capital Items and Landlord Capital Items and/or
replacements of Tenant Capital Items in order to comply therewith, (c)
within sixty (60) days after the Commencement Date, deliver to Landlord a
narrative description of a life safety plan for the Building and make
such modifications thereto as Landlord may reasonably request in order to
comply with changes in applicable laws (the “Safety Plan”), and (d)
continuously implement the Safety Plan (with such modifications thereto
as Landlord may from time to time reasonably request in order to comply
with changes in applicable laws) and deliver to Landlord narrative
descriptions thereof (and any amendments thereto, and affirming Tenant’s
compliance therewith).”



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     (l) Subsection 10.a. of the Lease is amended by deleting the first
sentence thereof and replacing it with the following:




     “Landlord shall insure (subject to the last sentence of this
Subsection 10.a. if and to the extent Tenant satisfies the condition to
maintaining such insurance and maintains such insurance as provided
herein), at Tenant’s cost, the Premises with a policy or policies
covering the following: (i) “All Risk” property insurance excluding any
coinsurance provision, in an amount adequate to cover the full
replacement cost of the Building and other improvements (including rental
loss coverage for the benefit of Landlord for the actual loss sustained),
(ii) Boiler and Machinery coverage to the extent not covered under the
“All Risk” above, and (iii) such other insurance and/or amounts of
coverage as Landlord may reasonably require to the extent customarily
carried on property similar to the Premises.”



     (m) Subsection 10.a. of the Lease is also amended by adding the following
clause at the end of the second sentence thereof “and (4) excess or umbrella
commercial general liability insurance coverage in excess of the primary
coverage set forth in clause (1) above of not less than $10,000,000 per
occurrence/general aggregate”.



     (n) The first sentence of Subsection 10.b. of the Lease is amended by
deleting the phrase “regardless of whether the negligence of the other party
caused such loss” and replacing it with “REGARDLESS OF CAUSE, INCLUDING WITHOUT
LIMITATION, WHETHER THE NEGLIGENCE OF THE OTHER PARTY CAUSED SUCH LOSS.”



     (o) Section 15 of the Lease is hereby deleted in its entirety. Landlord
hereby releases and relinquishes any landlord’s lien or right to assert a
landlord’s lien it may have, now or in the future, arising by operation of law,
under statute or by contract, in any detached, movable personal property of any
kind owned by Tenant and located on the Premises now or in the future.



     (p) Subsection 17.e. of the Lease is amended by deleting the sentence
beginning with “For purposes of” and ending with “ABA No.: 073000228”.



     (q) A new Subsection 17.f. is added to the Lease as follows:




     “f. submit the matter to arbitration as provided in Subsection 18.b.
below.”



     (r) The first sentence of Subsection 18.b. of the Lease is amended by
deleting the phrase “Tenant Allowance Amounts” and replacing it with “any
allowances payable to Tenant”. In addition, the second sentence of clause (ii)
of Subsection 18.b. is deleted and is replaced with the following:




     “In the event that the arbitration results in a decision in favor of
a party requiring the other party to pay or reimburse the other party any
sum or make an expenditure to a third party, the obligated party shall
comply with the requirements of such arbitration decision within ten (10)
days of the time set by the arbitrator(s) to do so.”



     (s) Subsection 19.a. of the Lease is amended by deleting clauses (iii) and
(iv) thereof and replacing them with the following:



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     ”(iii) necessary repairing, restoring, altering, remodeling,
painting, cleaning, or otherwise putting the Premises into condition to
relet the Premises to another single-tenant in the Las Colinas, Texas
market, and making any Material Tenant Repairs that Tenant was required
to perform pursuant to the Lease on or prior to the termination of
Tenant’s possession of the Premises or this Lease but did not perform in
accordance with the Lease (subject to the cost allocation provisions of
Section 7.d. hereof pertaining to certain late-term replacements of
Tenant Capital Items, if applicable), (iv) if Tenant is dispossessed of
the Premises and this Lease is not terminated, reletting all or any part
of the Premises (including brokerage commissions attributable to the
unexpired portion of this Lease, costs of such necessary tenant finish
work, and other costs incidental to such reletting and making any
Material Tenant Repairs that Tenant was required to perform pursuant to
the Lease on or prior to the termination of Tenant’s possession of the
Premises or this Lease but did not perform in accordance with the Lease
(subject to the cost allocation provisions of Section 7.d. hereof
pertaining to certain late-term replacements of Tenant Capital Items, if
applicable).”



     (t) The last sentence of the first paragraph of Section 24 of the Lease is
hereby deleted and is replaced with the following:




     “Tenant acknowledges the presence and its use of one above-ground
storage tank for diesel fuel for use in connection with Tenant’s back-up
electric generator on the Premises, and Tenant hereby agrees to maintain
the registration of same as required by law, indemnifies and holds
harmless Landlord with respect to such tanks, shall properly maintain
such tanks as required by law (including, without limitation, the
implementation and maintenance of proper primary and secondary
containment measures), and shall remove same from the Premises, at
Tenant’s sole cost and expense, under Landlord’s supervision and
direction and in compliance with all applicable laws, within thirty (30)
days following the expiration or termination of this Lease.”



     (u) Exhibits B, E and F to the Original Lease, and Attachment I to the
First Amendment are hereby deleted in their entirety. A replacement Exhibit E
to the Original Lease is attached to this Second Amendment as Attachment II. A
new Exhibit G to the Original Lease is attached to this Second Amendment as
Attachment III. The parties acknowledge and agree that a replacement Exhibit C
to the Original Lease shall be implemented in connection with the replacement
or refurbishment of the Building chillers contemplated pursuant to Section 6
of, and Attachment I to, this Second Amendment, in accordance with manufacturer
recommendations.



     (v) The addresses for notices to Landlord as shown beside Landlord’s
signature block to the Original Lease are deleted and replaced with the
following:




“CP/HERS Walnut Hill, L.P.

c/o ING Clarion Partners

230 Park Avenue, 12th Floor

New York, New York 10169

Attention: Portfolio Manager



-10-









 





With a copy to:


CP/HERS Walnut Hill, L.P.

c/o ING Clarion Realty Services

5950 Berkshire Lane, Suite 560

Dallas, Texas 75225

Attention: General Manager


With a copy to:


CP/HERS Walnut Hill, L.P.

c/o ING Clarion Partners

One Federal Street, 18th Floor

Boston, Massachusetts 02110

Attention: Portfolio Manager”



     3. Representations by Landlord. Landlord hereby represents to Tenant as
follows:



     (a) Landlord is the current owner of the Premises, subject to various
easements and other title exceptions; provided, however, that such title
exceptions do not include any mortgages, deeds of trust or other security
instruments pursuant to which Landlord has encumbered the Premises.



     (b) Landlord has the power and authority to execute and deliver this
Second Amendment and to perform its obligations hereunder, and Landlord has
taken all necessary action to authorize the execution and delivery of this
Second Amendment. This Second Amendment has been duly authorized, executed and
delivered by Landlord and does not conflict with, contravene or constitute a
default under or breach of any (i) agreements, contracts or documents to which
Landlord is a party or by which Landlord is bound, or (ii) law, statute, rule,
ordinance, regulation or public or private restriction governing or pertaining
to Landlord. The execution and delivery of this Second Amendment by Landlord
requires no consent, approval, joinder or action by any other party or entity
(governmental, judicial or private) or by any other officer, director, or
committee or board of Landlord, which has not been previously and properly
obtained.



     4. Representations by Tenant. Tenant hereby represents to Landlord as
follows:



     (a) Tenant has not received any notice of default with respect to any of
the restrictions, covenants, conditions or requirements of The Las Colinas
Association or any of the restrictions, covenants, conditions or requirements
now of record with respect to the Premises. There are no delinquent monetary
obligations, assessments or other fees or amounts owed to the Las Colinas
Association for which Tenant has been invoiced. Tenant represents and warrants
to Landlord that it has paid the 2004 assessment to the Las Colinas Association
in the amount of $30,119.21 prior to the date hereof.



     (b) Tenant has the power and authority to execute and deliver this Second
Amendment and to perform its obligations hereunder, and Tenant has taken all
necessary action



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to authorize the execution and delivery of this Second Amendment. This
Second Amendment has been duly authorized, executed and delivered by Tenant and
does not conflict with, contravene or constitute a default under or breach of
any (i) agreements, contracts or documents to which Tenant is a party or by
which Tenant is bound, (ii) law, statute, rule, ordinance, regulation or public
or private restriction governing or pertaining to Tenant, or (iii) any
litigation or legal or administrative proceedings affecting Tenant, and is not
adversely affected by any litigation or legal or administrative proceedings
affecting Tenant. The execution and delivery of this Second Amendment by
Tenant requires no consent, approval, joinder or action by any other party or
entity (governmental, judicial or private) or by any other officer, director,
committee or board of Tenant, which has not been previously and properly
obtained.



     (c) Tenant is not currently the subject of or involved in, any insolvency
proceeding or bankruptcy case.



     5. Access Statutes Compliance. Section 5 of the First Amendment is hereby
deleted in its entirety. As of the date of this Second Amendment, Tenant
assumes the responsibility with respect to the entirety of the Premises,
including without limitation the lobby areas, building access and egress, and
related sidewalks, driveways, ramps and curbs, and parking areas, escalators
and elevators of the Building for compliance with the Americans With
Disabilities Act of 1990, the Texas Architectural Barriers Act and any other
federal, state, county, or municipal laws, codes, statutes or ordinances now or
hereafter enacted governing the same or similar subject matter (as such
statutes may be amended from time to time, the “Access Statutes”), it being the
intent of the parties that Landlord shall have no compliance responsibilities
whatsoever with respect to Access Statutes, all such compliance
responsibilities being hereby assumed by Tenant, irrespective of existing
conditions at the Premises.



     6. Premises Improvements.



     (a) Tenant, at its sole cost and expense shall make the improvements
described on Attachment I to this Second Amendment within the applicable time
periods described on Attachment I in accordance with mutually acceptable plans,
specifications, contractors, pricing and scheduling pursuant to Section 7 and
other applicable provisions of the Lease (except that the cost allocation
provisions of Subsection 7.c. pertaining to certain late-term replacements of
Tenant Capital Items shall not apply to such work). The improvements set forth
on Attachment I shall be considered Material Repairs for purposes of Section 7
of the Lease. Landlord will supervise the construction and/or installation of
the improvements set forth on Attachment I, and Tenant shall pay Landlord a
construction supervision fee in the amount of two percent (2%) of the total
design and construction costs of such improvements prior to commencement of the
applicable portion thereof, it being acknowledged and agreed that such
improvements shall be performed in phases as provided in Attachment I.



     (b) Landlord, at its expense, agrees to repair and/or replace, as
necessary in Landlord’s reasonable judgment, in accordance with mutually
acceptable plans and specifications and otherwise consistent with the Zale
Headquarters Standard on or prior to June 30, 2006, the existing sidewalks and
pavers at the circular driveway and entrance to the Building at a cost not to
exceed $60,000.00. Tenant shall be responsible for any such costs exceeding
$60,000.00.



-12-









 





     7. Broker’s Fees. Landlord and Tenant represent to each other that the
only brokers, finders or similar parties involved with respect to the execution
of this Second Amendment as The Staubach Company, representing Tenant, and ING
Clarion Realty Services, representing Landlord, and Landlord and Tenant hereby
indemnify and hold harmless each other with respect to any fees or commissions
claimed by any other brokers, finders or similar parties. Landlord shall be
responsible for paying to The Staubach Company within thirty (30) days after
the execution of this Second Amendment, a fee for all services rendered in
connection with the execution of this Second Amendment, as specified in and as
required by the terms of a separate agreement pertaining thereto executed
between Landlord and The Staubach Company. Except for the fee to be paid to
The Staubach Company as specified in and as required by the terms of the
separate agreement pertaining thereto between Landlord and The Staubach Company
described in this Section, no other amounts shall be owed to The Staubach
Company by Landlord in connection with the execution of this Second Amendment
and/or the other documents executed contemporaneously herewith. Landlord shall
pay all amounts owing to ING Clarion Realty Services, as and when due, if any,
and Landlord shall indemnify and hold Tenant harmless from any claim for
payment made by ING Clarion Realty Services for any brokerage fee or commission
in connection herewith.



     8. Miscellaneous.



     (a) The terms and conditions hereof may not be modified, amended, altered
or otherwise affected except by instrument in writing executed by Landlord and
Tenant.



     (b) Except as extended and expressly modified by the First Amendment and
by this Second Amendment, the terms and conditions of the Original Lease are
and will remain in full force and effect as originally written.



     (c) This Second Amendment may be executed in several counterparts, and all
so executed will constitute one and the same instrument, binding on the parties
hereto, notwithstanding that the parties are not signatories to the same
counterpart.



     (d) This Second Amendment shall be binding upon the parties hereto, their
successors and assigns, and shall inure to the benefit of the parties’
respective legal representatives, successors and assigns.



     (e) If any provision of this Second Amendment is held to be illegal or
unenforceable, such fact shall not affect any other provision of this Second
Amendment, and this Second Amendment shall be construed as if such provision
had never been contained herein.



     (f) The captions, headings and arrangements used in this Second Amendment
are for convenience only and do not in any way affect, limit, amplify or
otherwise modify the terms and provisions hereof.



     (g) THIS SECOND AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE LAWS OF THE UNITED
STATES APPLICABLE TO THE TRANSACTIONS IN TEXAS.



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     (h) The Original Lease, the First Amendment and this Second Amendment,
contain the entire agreement between the parties hereto with respect to the
matters set forth herein. No variations, modifications or changes hereof shall
be binding upon any party unless set forth in a document duly executed by the
parties hereto. Except as expressly provided in this Second Amendment, this
Second Amendment completely supersedes and replaces all prior written and oral
communications between Landlord and Tenant and their respective agents and
representatives regarding the subject matter hereof, all such communications
being entirely merged into this Second Amendment and extinguished for all
purposes upon the execution hereof and being of no further force or effect
whatsoever.



     (i) Contemporaneously with the execution of this Second Amendment,
Landlord and Tenant will execute and deliver that certain Memorandum of Second
Amendment to Lease, of even date herewith, to be recorded in the Real Property
Records of Dallas County, Texas, for the purpose of putting all parties on
notice of the existence of this Second Amendment.



[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]




-14-









 







EXECUTED TO BE EFFECTIVE AS OF THE DATE ABOVE FIRST WRITTEN.




	 	 	 	 	 
	TENANT:
	 	ZALE DELAWARE, INC.,
	 
	 	a Delaware corporation
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	
 
	

	 	 	 	Sue E. Gove
	

	 	 	 	Executive Vice President and
	

	 	 	 	Chief Operating Officer
	 
	 	 	 	 
	 
	 	 	 	 
	LANDLORD:
	 	CP/HERS WALNUT HILL, L.P.,
	 
	 	a Delaware limited partnership
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	
 
	

	 	 	 	Mark M. Weld
	

	 	 	 	Authorized Person







-15-









 





ATTACHMENT I




	 	 	 	 	 
	Capital Expenditure
	 	Minimum Specifications
	 	Deadline

	1. Replace cooling tower

	 	Capacity and
specifications equal
to or exceeding
existing equipment
with stainless steel
basins and variable
frequency drive
(suggested models:
	 	June 30, 2006
	

	 	2-Cell Marley
Crossflow Model
#NC8307K2 or
#NC8306JZ or
Baltimore Air Coil
(BAC) Model
#3552A-NM-2)	 	 
	 
	 	 	 	 
	2. Replace or refurbish chillers

	 	Capacity and
specifications equal
to or exceeding
existing equipment
with variable
frequency drive on
flakt fan(s)
	 	June 30, 2006
	 
	 	 	 	 
	3. Replace energy management
system

	 	Specifications to be
mutually agreed to by
the parties
	 	June 30, 2007
	 
	 	 	 	 
	4. Install new fire panels and
associated devices

	 	Addressable
intelligent fire
panel with voice
evacuation and all
associated initiating
and notification
devices, large enough
to accommodate 20%
additional expansion
capability and
meeting or exceeding
all applicable legal
and/or code
requirements
(including, without
limitation, Texas
Accessibility
Standards).
	 	June 30, 2007






All specifications, contractors and pricing shall require Landlord’s approval
in its reasonable discretion. Landlord has estimated the aggregate costs of
such items to be approximately $1,800,000 (inclusive of Landlord’s construction
management fees; provided, however, if the actual aggregate costs of such items
inclusive of Landlord’s construction management fee is less than $1,800,000,
Tenant shall only be required to expend the actual aggregate costs). Tenant
will be required to submit bid(s) from three (3) reputable and qualified
contractors reasonably approved by Landlord for each phase of the work at least
sixty (60) days prior to commencement of the work for such phase. Landlord
will have thirty (30) days to respond to Tenant’s bids with its approval (such
approval not to be unreasonably withheld, conditioned or delayed), or its
reasons for disapproval, as applicable, after consultation with Landlord’s
consultants. Each phase of the work will be performed in accordance with
contracts approved by Landlord (such approval not to be unreasonably withheld,
conditioned or delayed).



A-I-1




 









 







ATTACHMENT II




Replacement Exhibit E to Original Lease




“ZALE HEADQUARTERS STANDARD”




     For purposes of this Lease, the “Zale Headquarters Standard” shall be the
standard required to maintain the Premises improvements in overall good
condition and repair and the exterior facades of the Premises improvements and
the surrounding grounds, landscaping, sidewalks, driveways, paving, and other
exterior common areas in a neat and attractive appearance, all in Landlord’s
reasonable judgment. Such standard as applied to the interiors of the Premises
shall be consistent with the standards of similarly-classed single-tenant
office building properties of comparable age in the Las Colinas area of Irving,
Texas recognizing that portions of the Premises are distribution areas; and
such standard as applied to the exteriors of the Premises shall be consistent
with the standards of similarly-classed office building properties of
comparable age in the general vicinity of the Premises (regardless of whether
such properties are single-tenant or multi-tenant).



A-II-1




 









 





ATTACHMENT III




New Exhibit G to Original Lease




“FORM OF ANNUAL BUDGET”




	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	Contracted	 	Contract
	 	 	Budget
	 	Service Provider
	 	Expiration Date

	REPAIRS & MAINTENANCE
	 	 	 	 	 	 	 	 	 	 	 	 
	Maintenance and Engineering Salaries
	 	 	 	 	 	 	 	 	 	 	 	 
	HVAC
	 	 	 	 	 	 	 	 	 	 	 	 
	Annual chiller inspection
	 	 	 	 	 	 	 	 	 	 	 	 
	Elevator / Escalators
	 	 	 	 	 	 	 	 	 	 	 	 
	Monthly maintenance
	 	 	 	 	 	 	 	 	 	 	 	 
	Annual QEI license fee required by state
	 	 	 	 	 	 	 	 	 	 	 	 
	Water Treatment
	 	 	 	 	 	 	 	 	 	 	 	 
	Electrical
	 	 	 	 	 	 	 	 	 	 	 	 
	Annual infrared electrical inspection
	 	 	 	 	 	 	 	 	 	 	 	 
	Landscaping
	 	 	 	 	 	 	 	 	 	 	 	 
	Exterior landscape maintenance (incl color chgs)
	 	 	 	 	 	 	 	 	 	 	 	 
	Irrigation repairs
	 	 	 	 	 	 	 	 	 	 	 	 
	Pest Control
	 	 	 	 	 	 	 	 	 	 	 	 
	Security Inspections (Annual)
	 	 	 	 	 	 	 	 	 	 	 	 
	Electrical
	 	 	 	 	 	 	 	 	 	 	 	 
	Fire panel
	 	 	 	 	 	 	 	 	 	 	 	 
	Fire panel monitoring
	 	 	 	 	 	 	 	 	 	 	 	 
	Fire extinguishers
	 	 	 	 	 	 	 	 	 	 	 	 
	Generator maintenance
	 	 	 	 	 	 	 	 	 	 	 	 
	Fuel treatment
	 	 	 	 	 	 	 	 	 	 	 	 
	Cleaning Services
	 	 	 	 	 	 	 	 	 	 	 	 
	Contract cleaning
	 	 	 	 	 	 	 	 	 	 	 	 
	Window cleaning
	 	 	 	 	 	 	 	 	 	 	 	 
	Trash services
	 	 	 	 	 	 	 	 	 	 	 	 
	Unplanned Repairs Contingency
	 	 	 	 	 	 	 	 	 	 	 	 
	Parking Lot
	 	 	 	 	 	 	 	 	 	 	 	 
	Sweeping / Striping
	 	 	 	 	 	 	 	 	 	 	 	 
	Utilities
	 	 	 	 	 	 	 	 	 	 	 	 
	Electricity
	 	 	 	 	 	 	 	 	 	 	 	 
	Water
	 	 	 	 	 	 	 	 	 	 	 	 
	TOTAL REPAIRS & MAINTENANCE
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	TAXES & INSURANCE
	 	 	 	 	 	 	 	 	 	 	 	 
	Real Estate Taxes
	 	 	 	 	 	 	 	 	 	 	 	 
	Insurance
	 	 	 	 	 	 	 	 	 	 	 	 
	Property
	 	 	 	 	 	 	 	 	 	 	 	 
	Liability
	 	 	 	 	 	 	 	 	 	 	 	 
	TOTAL TAXES & INSURANCE
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	CAPITAL
	 	 	 	 	 	 	 	 	 	 	 	 
	Project Description:
	 	 	 	 	 	 	 	 	 	 	 	 
	project 1
	 	 	 	 	 	 	 	 	 	 	 	 
	project 2
	 	 	 	 	 	 	 	 	 	 	 	 
	project 3
	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 	 	 
	TOTAL CAPITAL BUDGET
	 	 	 	 	 	 	 	 	 	 	 	 







A-III-1