SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Quarterly Period Ended June 30, 1996
or
( ) Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period From ____________ To _____________
Commission File Number: 1-14208
MOSSIMO, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0684524
------------------------------- ------------------------
(State or other jurisdiction of (I.R.S. Employer ID No.)
incorporation or organization)
15320 Barranca Parkway
Irvine, California 92618
---------------------- ---------
(Address of principal (Zip Code)
executive offices)
(714) 453-1300
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the proceeding 12 months (or for any shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes..X.. No .....
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Common Stock, par value 15,000,000
$.001 per share (Outstanding on August 12, 1996)
(Class)
Exhibit Index on Page 18
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MOSSIMO, INC.
INDEX TO FORM 10-Q
PART I - FINANCIAL INFORMATION
ITEM 1 - Financial Statements
Balance Sheets as of December 31, 1995
and June 30, 1996 (unaudited)................................................3
Statements of Income for the three month and six month
periods ended June 30, 1995 and 1996 (unaudited).............................4
Statements of Cash Flows for the six month
periods ended June 30, 1995 and 1996 (unaudited).............................5
Notes to Financial Statements............................................... 7
ITEM 2 - Management's Discussion and Analysis of Results
of Operations and Financial Condition........................................9
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K...................................16
SIGNATURES..................................................................17
EXHIBIT INDEX...............................................................18
EXHIBITS....................................................................19
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MOSSIMO, INC.
BALANCE SHEETS
(in thousands)
(unaudited)
ASSETS
DECEMBER 31 JUNE 30,
1995 1996
----------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 481 $ 7,205
Accounts receivable, net 844 3,366
Due from factor 3,255 15,322
Royalties receivable 683 595
Inventories 9,773 15,911
Prepaid expenses 588 1,275
Deferred taxes -- 700
------- -------
Total current assets 15,624 44,374
PROPERTY AND EQUIPMENT, net 1,420 1,923
OTHER ASSETS 118 246
------- -------
$17,162 $46,543
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,032 $ 2,654
Accrued liabilities 887 3,516
Income taxes payable 6 1,365
Current portion of deferred rent 28 34
Current portion of long-term debt 26 43
Current portion of capital lease obligations 24 50
S distribution note -- 150
------- -------
Total current liabilities 3,003 7,812
DEFERRED RENT, net of current portion 94 78
LONG-TERM DEBT, net of current portion 17 38
CAPITAL LEASE OBLIGATIONS, net of current portion 13 13
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.001; authorized
shares 3,000,000, no shares issued or
outstanding -- --
Common stock, par value $.001; authorized
shares 30,000,000, issued and outstanding
13,000,000 and 15,000,000 shares 13 15
Additional paid-in capital 1,187 31,703
Retained earnings 12,835 6,884
------- -------
14,035 38,602
------- -------
$17,162 $46,543
======= =======
See accompanying notes to financial statements
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<TABLE>
MOSSIMO, INC. - STATEMENTS OF INCOME
(in thousands, except per share data) (unaudited)
<CAPTION>
For The Three Months For the Six Months
Ended June 30, Ended June 30,
-------------------- ------------------
1996 1995 1996 1995
------ ------ ------ ------
<S> <C> <C> <C> <C>
NET SALES $ 25,601 $ 18,196 $ 50,002 $ 34,989
COST OF SALES 14,503 10,233 28,376 19,176
-------- -------- -------- --------
GROSS PROFIT 11,098 7,963 21,626 15,813
ROYALTY INCOME 911 871 2,193 1,929
-------- -------- -------- --------
12,009 8,834 23,819 17,742
OPERATING EXPENSES
General and administrative 1,940 1,467 3,619 2,790
Selling 2,065 1,273 4,293 2,649
Marketing 1,043 558 1,705 1,103
Design 432 208 885 410
-------- -------- -------- --------
5,480 3,506 10,502 6,952
-------- -------- -------- --------
OPERATING INCOME 6,529 5,328 13,317 10,790
OTHER EXPENSE (INCOME):
Interest expense (109) 53 (47) 24
Other 1 (51) (1) (51)
-------- -------- -------- --------
(108) 2 (48) (27)
-------- -------- -------- --------
INCOME BEFORE TAXES 6,637 5,326 13,365 10,817
PROVISION FOR INCOME TAXES 2,671 81 3,581 178
-------- -------- -------- --------
NET INCOME $ 3,966 $ 5,245 $ 9,784 $ 10,639
======== ======== ======== ========
NET INCOME PER COMMON AND
COMMON EQUIVALENT SHARES 0.26
========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING 15,210
========
PRO FORMA DATA
Historical income before provision
for income taxes $ 5,326 13,365 $ 10,817
Pro forma provision for income taxes 2,169 5,429 4,407
-------- -------- --------
PRO FORMA NET INCOME $ 3,157 $ 7,936 $ 6,410
======== ======== ========
PRO FORMA NET INCOME PER COMMON
AND COMMON EQUIVALENT SHARE $ 0.24 $ 0.54 $ 0.49
======== ======== ========
PRO FORMA WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 13,000 14,601 13,000
======== ======== ========
</TABLE>
See accompanying notes to financial statements
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MOSSIMO, INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
(in thousands)
(unaudited)
1995 1996
CASH FLOWS FROM OPERATING ACTIVITIES: ------- -------
Net income $ 10,639 $ 9,784
Adjustment to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 158 233
Loss on disposition of property and
equipment 5 2
Deferred rent (108) (10)
Provision for doubtful receivables 107 36
Changes in:
Accounts receivable (442) (2,522)
Due from factor (186) (8,330)
Royalties receivable (25) 88
Inventories (3,136) (6,138)
Prepaid expenses 0 (687)
Other assets (63) (128)
Accounts payable 989 622
Accrued liabilities 228 2,630
Income taxes payable 24 659
-------- --------
Net cash provided (used) by
operating activities 8,190 (3,761)
======== ========
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for acquisition of property and
equipment (409) (638)
Proceeds from disposition of property
and equipment 96 0
-------- --------
Net cash used by investing activities (313) (638)
======== ========
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (18) (17)
Proceeds from note payable 12 0
Repayment of capital lease obligations (20) (19)
Net change in factor advances 0 (3,773)
Dividends paid (7,801) (17,208)
Net proceeds from issuance of common stock 0 32,140
Repayment of note payable to stockholder (225) 0
-------- --------
Net cash (used) provided by financing
activities (8,052) 11,123
======== ========
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS (175) 6,724
CASH AND CASH EQUIVALENTS,
beginning of period 407 481
-------- --------
CASH AND CASH EQUIVALENTS, end of period $ 232 $ 7,205
======== ========
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION -
Cash paid during the period for:
Interest $ 40 $ 131
======== ========
Income taxes $ 111 $ 2,913
======== ========
SCHEDULE OF NONCASH INVESTING AND FINANCING
TRANSACTIONS:
Contractual obligations incurred for
the acquisition of equipment $ 20 $ 100
======== ========
S distribution note payable to
stockholder $ 0 $ 150
======== ========
See accompanying notes to financial statements
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MOSSIMO, INC.
NOTES TO FINANCIAL STATEMENTS
1. Basis of Presentation
---------------------
The accompanying financial statements of Mossimo, Inc. ("Mossimo" or the
"Company") have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Accordingly, they do not include all
of the information and footnotes required by generally accepted accounting
principles ("GAAP") for complete financial statements. The financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's registration statement on Form S-1 (33-80597) declared
effective by the SEC on February 21, 1996.
In the opinion of management, the financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair statement
of the balance sheets as of December 31, 1995 and June 30, 1996, the statements
of income for the three month and six month periods ended June 30, 1995 and
1996, and the statements of cash flows for the six month periods ended June 30,
1995 and 1996. Operating results for the three month and six month periods ended
June 30, 1996 are not necessarily indicative of the results that may be expected
for the entire fiscal year ending December 31, 1996.
On February 15, 1996, the company effected a 13,000-for-one stock split of its
common stock. All share and per share amounts included in the accompanying
financial statements and footnotes have been restated to reflect the stock
split.
2. Initial Public Offering
-----------------------
In February 1996, the Company completed an initial public offering of 2,000,000
shares of its common stock for $18 per share, netting proceeds to the Company
after underwriting discounts and expenses of approximately $32.4 million.
Proceeds to the Company were used to repay indebtedness consisting of $5.6
million in outstanding advances under the Company's factoring agreement and pay
$17.2 million in connection with the final S corporation distribution. (See Note
5.) The remaining proceeds will be used for general corporate purposes,
including the construction of in-store shops and tenant improvements and
equipment for a new headquarters and distribution facility expected to be
occupied by the Company in the first half of 1997.
3. Pro Forma Data
--------------
PRO FORMA NET INCOME - Pro forma net income represents the results of operations
adjusted to reflect a provision for income taxes on historical income before
provision for income taxes, which gives effect to the change in the Company's
income tax status to a C corporation as a result of the public sale of its
common stock.
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The principal difference between the pro forma income tax rate and the federal
statutory rate of 35% relates to state income taxes.
PRO FORMA NET INCOME PER SHARE - Historical net income per common share is not
presented because it is not indicative of the ongoing entity.
Pro forma net income per share has been computed by dividing pro forma net
income by the weighted average number of shares of common stock outstanding
during the period.
4. Income Taxes
------------
Prior to February 27, 1996, the Company had elected to be taxed as an S
corporation under the provisions of the Internal Revenue Code and similar
statutes in the State of California. Accordingly, the Company's taxable income
was treated as if it were distributed to the sole stockholder, who was
responsible for payment of taxes thereon. In addition, the Company was subject
to a California franchise tax rate of 1.5%. Effective February 27, 1996, the
Company converted to a C corporation and became subject to Federal and State
income taxes on an ongoing basis. As a result, the Company recorded $700,000 of
deferred income tax assets on February 27, 1996.
5. Stockholders' Equity
--------------------
In conjunction with its initial public offering, the Company terminated its S
corporation status and distributed to its stockholder $17.2 million representing
previously earned and undistributed taxable S corporation earnings as of
February 27, 1996 in the form of promissory notes (S distribution notes). The
estimated remaining amount payable to stockholder for previously earned and
undistributed taxable S corporation earnings under the S distribution notes was
$150,000 at June 30, 1996.
In accordance with a regulation of the Securities and Exchange Commission, the
Company reclassified $1,624,000 to additional paid in capital for that portion
of the previously earned and undistributed taxable S corporation earnings at
February 27, 1996 which was in excess of the balance of retained earnings at
such date.
6. Credit Agreement
----------------
In February 1996, the Company entered into a $10 million unsecured line of
credit with a bank. The credit agreement contains certain restrictive covenants
that require the maintenance of various financial levels and ratios and
prohibits the payment of dividends by the Company.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion includes the operations of Mossimo, Inc. for
each of the periods discussed. This discussion and analysis should be read in
conjunction with the Company's Registration Statement on Form S-1 (33-80597)
declared effective by the SEC on February 21, 1996.
Results of operations
- ---------------------
The following table sets forth pro forma operating results (as a
percentage of net sales), for the periods indicated. Pro forma operations
reflect adjustments to historical operating results for federal and state income
taxes as if the Company had been taxed as a C Corporation rather than an S
Corporation.
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<TABLE>
<CAPTION>
Three Month Period Six Month Period
Ended June 30, Ended June 30,
------------------ ----------------
(in thousands) (in thousands)
1995 1996 1995 1996
---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $18,196 100.0% $25,601 100.0% $34,989 100.0 $50,002 100.0
Cost of Sales 10,233 56.2 14,503 56.7 19,176 54.8 28,376 56.7
------ ----- ------ ----- ------ ----- ------ -----
Gross Profit 7,963 43.8 11,098 43.3 15,813 45.2 21,626 43.3
Royalty Income 871 4.8 911 3.6 1,929 5.5 2,193 4.4
Operating Expenses:
General and administrative 1,467 8.1 1,940 7.6 2,790 8.0 3,619 7.2
Selling 1,273 7.0 2,065 8.1 2,649 7.6 4,293 8.6
Marketing 558 3.1 1,043 4.1 1,103 3.2 1,705 3.4
Design 208 1.1 432 1.6 410 1.1 885 1.8
------ ----- ------ ----- ------ ----- ------ -----
3,506 19.3 5,480 21.4 6,952 19.9 10,502 21.0
------ ----- ------ ----- ------ ----- ------ -----
Operating Income 5,328 29.3 6,529 25.5 10,790 30.8 13,317 26.7
Other Expense (Income) 2 (0.0) (108) (0.4) (27) (0.1) (48) (0.1)
------ ----- ------ ----- ------ ----- ------ -----
Income Before Income Taxes 5,326 29.3 6,637 25.9 10,817 30.9 13,365 26.8
Provision for Income Taxes 81 0.4 2,671 10.4 178 0.5 3,581 7.2
------ ----- ------ ----- ------ ----- ------ -----
Net Income $ 5,245 28.8 $ 3,966 15.5 $10,639 30.4 $ 9,784 19.6
====== ===== ====== ===== ====== ===== ====== =====
Pro Forma Provision for
Income Taxes 2,169 12.0 4,407 12.6 5,429 10.9
------- ----- ------- ----- ------- -----
Pro Forma Net Income $ 3,157 17.3 $ 6,410 18.3 $ 7,936 15.9
======= ===== ======= ===== ======= =====
</TABLE>
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Three Months Ended June 30, 1996 and 1995
- ------------------------------------------
Net sales increased 40.7% to $25.6 million in 1996 from $18.2
million in 1995, an increase of $7.4 million. The Company's increase in net
sales was principally driven by increased sales to new and existing wholesale
customers as they expanded their purchases to include a more complete line of
Mossimo products. Men's activewear represented approximately 50.3% of the
Company's net sales in 1996. Activewear net sales increased approximately 4.3%
over men's activewear net sales in 1995. Men's sportswear represented
approximately 35.1% of the Company's net sales in 1996. Net sales in 1996
increased approximately 103.5% over such sales in 1995, primarily as a result of
increased sales of knit shirts, woven shirts and denim. Net sales of the
Company's eyewear increased approximately 51.4% to $1.0 million in 1996 from
$669,000 in the comparable period in 1995. Net sales of the Company's women's
sportswear lines, sold in a test delivery to stores during this period,
increased from $152,000 in 1995 to $2.6 million in 1996 primarily as a result of
increased sales of denim and related products.
Gross profit increased to $11.1 million in 1996 from $8.0 million in
1995. Gross profit as a percentage of net sales decreased to 43.3% in 1996, from
43.8% in 1995. The decrease resulted primarily from a change in the mix of sales
with sportswear representing a higher percentage of sales in 1996 than in 1995.
Royalty income increased 4.8% to $911,000 in 1996 from $871,000 in
1995, primarily due to increased sales by the Company's women's swimwear and
bodywear licensee. The Company did not offset expenses against royalty income
prior to 1996. The Company offset $46,000 of expenses against royalty income in
the second quarter of 1996.
Operating expenses increased to $5.5 million in 1996 from $3.5
million in 1995. Operating expenses increased in all categories. Selling expense
increased to $2.1 million in 1996 from $1.3 million in 1995 primarily as a
result of commissions on higher levels of sales, the addition of women's sales
representatives who were salaried rather than paid on commission and the opening
of two new showrooms. Increases in general and administrative ($1.9 million in
1996 compared to $1.5 million in 1995), marketing ($1.0 million in 1996 compared
to $558,000 in 1995) and design ($432,000 in 1996 compared to $208,000 in 1995)
reflect in part increases in staffing levels necessary to manage higher levels
of net sales and the expansion of the Company's product offerings, including
men's and women's sportswear, and the Company's new advertising campaign. The
costs of such campaign for 1996 were concentrated in the first two quarters of
that year. Operating expenses as a percentage of net sales increased from 19.3%
in 1995 to 21.4% in 1996.
Interest income increased to $109,000 in 1996 compared to an expense
of $53,000 in 1995. The increase was attributable to interest earned on
investment of cash generated from the Company's initial public offering in
short-term municipal securities.
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<PAGE>
Due to the Company's conversion to a C corporation in 1996, the
provision for income taxes increased from $81,000 in the 1995 period to $2.7
million in the 1996 period.
Six Months Ended June 30, 1996 and 1995
- ------------------------------------------
Net sales increased 42.9% to $50.0 million in 1996 from $35.0
million in 1995. The Company's increase in net sales was principally driven by
increased sales to new and existing wholesale customers as they expanded their
purchases to include a more complete line of Mossimo products. Men's activewear
represented approximately 51.9% of the Company's net sales in 1996. Activewear
net sales increased approximately 10.3% over men's activewear net sales in 1995.
Men's sportswear represented approximately 38.7% of the Company's net sales in
1996. Net sales in 1996 increased approximately 106.7% over such sales in 1995,
primarily as a result of increased sales of knit shirts, woven shirts and denim.
Net sales of the Company's eyewear increased approximately 40.4% to $1.6 million
in 1996 from $1.1 million in the comparable period in 1995. Net sales of the
Company's women's sportswear line, sold in a test delivery to stores during the
second quarter of 1996, increased from $428,000 in 1995 to $2.7 million in 1996
primarily as a result of increased sales of denim and related products.
Gross profit increased to $21.6 million in 1996 from $15.8 million
in 1995. Gross profit as a percentage of net sales decreased to 43.3% in 1996,
from 45.2% in 1995. The decrease resulted primarily from a change in the mix of
sales with men's and women's sportswear representing a higher percentage of
sales in 1996 than in 1995.
Royalty income increased 13.7% to $2.2 million in 1996 from $1.9
million in 1995, primarily due to increased sales by the Company's women's
swimwear and bodywear licensee and, to a lesser extent, increased sales by the
Company's Canadian licensee.
Operating expenses increased to $10.5 million in 1996 from $7.0
million in 1995. Operating expenses increased in all categories. Selling expense
increased to $4.3 million in 1996 from $2.6 million in 1995 primarily as a
result of commissions on higher levels of sales and the addition of women's
sales representatives who are salaried rather than paid on commission. Increases
in general and administrative ($3.6 million in 1996 compared to $2.8 million in
1995), marketing ($1.7 million in 1996 compared to $1.1 million in 1995) and
design ($885,000 in 1996 compared to $410,000 in 1995) reflect in part increases
in staffing levels necessary to manage higher levels of net sales and the
expansion of the Company's product offerings, including men's and women's
sportswear, and the Company's new advertising campaign. The costs of such
campaign for 1996 were concentrated in the first two quarters of that year.
Operating expenses as a percentage of net sales increased from 19.9% in 1995 to
21.0% in 1996.
Interest income increased to $47,000 in 1996 compared to
an expense of $24,000 in 1995. The increase was attributable to
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interest earned on investment of cash generated from the Company's and initial
public offering in short-term municipal securities.
Due to the Company's conversion to a C corporation in 1996, the
provision for income taxes increased from $178,000 in the 1995 period to $3.6
million in the 1996 period.
Liquidity and Capital Resources
- -------------------------------
Historically, the Company has relied primarily upon internally
generated funds supplemented by borrowings as needed to finance its operations
and make distributions to its stockholder. Cash used by operating activities
(including changes in amounts due to or from its factor) totaled $3.8 million in
the 1996 period and cash provided by operating activities totaled $8.2 million
in the 1995 period. This change reflects increases in inventory, accounts
receivable and amounts due from factor resulting from increased offerings of
men's and women's sportswear, the opening of a new account at the end of the
second quarter with a new retail customer and no debt to set off against amounts
due from factor, respectively. Cash used by the Company's investing activities
totaled $638,000 and $313,000 in the 1996 and 1995 periods, respectively,
primarily for the purchase of property and equipment. Cash provided by financing
activities in 1996 totaled $11.1 million, principally reflecting the net
proceeds of the sale of the common stock in the Company's initial public
offering less dividends paid to its stockholder prior to such offering. Cash
used by financing activities in 1995 totaled $8.1 million. At June 30, 1996, the
Company had working capital of $36.5 million.
Capital expenditures totaled $638,000 and $409,000 in the 1996 and
1995 periods, respectively. Capital expenditures in 1996 primarily included
funds for construction of additional in-store shops.
In May 1996, the Company entered into a 10 year lease for its new
headquarters and distribution facility in Irvine, California which it expects to
occupy in the first or second quarter of 1997. The Company anticipates that it
will incur approximately $2.5 million in capital expenditures in connection with
such facility primarily for tenant improvements and equipment.
In June 1996, the Company formed a wholly-owned subsidiary,
Giannico, Inc. ("Giannico"), which will be engaged in the screen printing of tee
shirts. The Company anticipates that it will incur approximately $400,000 in
capital expenditures in connection with the formation and operation of Giannico
over the next 5 month period. The Company intends to finance its capital
expenditures with a combination of proceeds from its initial public offering,
cash generated from operations and lessor financing.
Historically, the Company has sold a substantial portion of its
trade accounts receivable to a factor which assumes the credit risk with respect
to collection of such accounts. The factor pays the Company the receivable
amount after the factor receives payment from the Company's customer or, if
earlier, shortly following the bankruptcy or insolvency of the customer or
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when the receivable becomes 120 days past due. The Company may request advances
against a percentage, determined by the factor, of the qualifying accounts
receivable factored at any time before their maturity date. The factor charges a
commission on the net sales factored and interest at a negotiated rate over
prime on advances. The factor approves the credit of the Company's customers
prior to sale. If the factor disapproves a sale to a customer and the Company
decides to proceed with the sale, the Company may factor or retain the
receivable but will bear the credit risk in either case. In addition, the
Company does not factor receivables from certain accounts at its election. The
amount of receivables for which the Company bore the credit risk was $4.2
million at June 30, 1996 and $1.4 million at December 31, 1995. The increase is
the result of the Company's sales to a new retail customer, with respect to
which the Company's factor did not assume the credit risk, and an increase in
royalties. The factoring agreement can be terminated at any time by the factor
upon 180 days prior notice. Advances on accounts sold to the factor are payable
on demand. The factoring agreement includes a letter of credit facility. All
obligations under the factoring agreement are collateralized by the Company's
inventory. The Company also has an unsecured $10 million line of credit from a
bank to supplement the liquidity provided by the factoring agreement. There were
no outstanding borrowings under the line of credit at June 30, 1996. Such credit
agreement requires the maintenance of various financial levels and ratios, which
could limit amounts available to be borrowed under the line.
By reason of the Company's treatment as an S corporation for federal
and state income tax purposes, the Company historically has provided to its
principal stockholder funds for the payment of income taxes on the earnings of
the Company. In addition, the Company has historically paid dividends to its
principal stockholder to provide a return on investment. In connection with its
initial public offering, the Company's S corporation status was terminated and
the Company declared the final S corporation distribution of its previously
undistributed earnings. For the six months ended June 30, 1996, the Company paid
dividends, including amounts attributable to the payment of taxes and the final
S corporation distribution of $17.2 million. All such payments were in the first
quarter of 1996. For the foreseeable future, earnings will be retained in the
operations of the business.
The Company believes that funds generated from operations, the net
proceeds of its initial public offering and available borrowing sources will be
sufficient to meet operating needs and capital expenditures for the next 12
months.
Seasonality
- -----------
The Company's business is impacted by the general seasonal trends
that are characteristic of the apparel industry. However, due primarily to the
significant growth that the Company has experienced, quarterly sales and profit
trends have not reflected the normal apparel industry seasonality. During 1996
and in future years, the Company expects that its sales may reflect
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<PAGE>
greater seasonal trends as its growth rate moderates and as men's and women's
sportswear become a larger percentage of apparel sales.
Impact of Recent Accounting Pronouncements
- ------------------------------------------
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for
Stock-Based Compensation," which will be effective for the Company beginning
January 1, 1996. SFAS No. 123 requires expanded disclosures of stock-based
compensation arrangements with employees and encourages (but does not require)
compensation cost to be measured based on the fair value of the equity
instrument awarded. Companies are permitted, however, to continue to apply APB
Opinion No. 25, which recognizes compensation cost based on the intrinsic value
of the equity instrument awarded. The Company will continue to apply APB Opinion
No. 25 to its stock based compensation awards to employees.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are included herein:
3.1 Certificate of Incorporation of the Company<F*>
3.2 Bylaws of the Company<F*>
10.1 Lease dated May 3, 1996 between Mossimo, Inc. and
The Irvine Company
11 Computation of Earnings per Common Share
27 Financial Data Schedule
[FN]
<F*> (Incorporated by reference from the Company's Registration
Statement on Form S-1, File Number 33-80597)
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the three
months ended June 30, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
August 14, 1996 Mossimo, Inc.
/s/ Mossimo Giannulli
--------------------------------
Mossimo Giannulli
Chairman of the Board,
Chief Executive Officer,
President (authorized officer)
August 14, 1996
/s/ Eric R. Hohl
--------------------------------
Eric R. Hohl
Chief Operating Officer, Chief
Financial Officer, Secretary
(principal financial and accounting
officer)
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<PAGE>
INDEX TO EXHIBITS
Sequential
Exhibit Page
Number Description Number
- --------------------------------------------------------------------------------
3.1 Articles of Incorporation of the Company<F*>
3.2 Bylaws of the Company<F*>
10.1 Lease dated May 3, 1996 between Mossimo, Inc.
and The Irvine Company 19
11 Computation of Earnings per Common Share 87
27 Financial Data Schedule 88
[FN]
<F*> (Incorporated by reference from the Company's
Registration Statement on Form S-1, File
Number 33-80597)
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<PAGE>
INDUSTRIAL LEASE
(Single Tenant; Net)
BETWEEN
THE IRVINE COMPANY
AND
MOSSIMO, INC.
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<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. BASIC LEASE PROVISIONS . . . . . . . . . . . . . . 1
ARTICLE II. PREMISES . . . . . . . . . . . . . . . . . . . . . 2
SECTION 2.1. LEASED PREMISES . . . . . . . . . . . . . . . 2
SECTION 2.2. ACCEPTANCE OF PREMISES . . . . . . . . . . . 3
SECTION 2.3. BUILDING NAME AND ADDRESS . . . . . . . . . . 3
ARTICLE III. TERM . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 3.1. GENERAL . . . . . . . . . . . . . . . . . . . 3
SECTION 3.2. DELAY IN POSSESSION . . . . . . . . . . . . . 4
ARTICLE IV. RENT AND OPERATING EXPENSES . . . . . . . . . . . 4
SECTION 4.1. BASIC RENT . . . . . . . . . . . . . . . . . 4
SECTION 4.2. OPERATING EXPENSES . . . . . . . . . . . . . 5
SECTION 4.3. SECURITY DEPOSIT . . . . . . . . . . . . . . 7
ARTICLE V. USES . . . . . . . . . . . . . . . . . . . . . . . 8
SECTION 5.1. USE . . . . . . . . . . . . . . . . . . . . . 8
SECTION 5.2. SIGNS . . . . . . . . . . . . . . . . . . . . 8
SECTION 5.3. HAZARDOUS MATERIALS . . . . . . . . . . . . . 9
ARTICLE VI. COMMON AREAS; SERVICES . . . . . . . . . . . . . . 12
SECTION 6.1. UTILITIES AND SERVICES . . . . . . . . . . . 12
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS . . 12
SECTION 6.3. USE OF COMMON AREAS . . . . . . . . . . . . . 13
SECTION 6.4. PARKING . . . . . . . . . . . . . . . . . . . 13
SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD . . . . . . 14
ARTICLE VII. MAINTAINING THE PREMISES . . . . . . . . . . . . . 14
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR . . . . . . . 14
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR . . . . . . 15
SECTION 7.3. ALTERATIONS . . . . . . . . . . . . . . . . . 15
SECTION 7.4. MECHANIC'S LIENS . . . . . . . . . . . . . . 16
SECTION 7.5. ENTRY AND INSPECTION . . . . . . . . . . . . 17
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY . . . . 17
ARTICLE IX. ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . 18
SECTION 9.1. RIGHTS OF PARTIES . . . . . . . . . . . . . . 18
SECTION 9.2. EFFECT OF TRANSFER . . . . . . . . . . . . . 20
SECTION 9.3. SUBLEASE REQUIREMENTS . . . . . . . . . . . . 20
SECTION 9.4. [See Rider Page 9-A] . . . . . . . . . . . . 21
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ARTICLE X. INSURANCE AND INDEMNITY . . . . . . . . . . . . . 21
SECTION 10.1. TENANT'S INSURANCE . . . . . . . . . . . . . 21
SECTION 10.2. LANDLORD'S INSURANCE . . . . . . . . . . . . 21
SECTION 10.3. TENANT'S INDEMNITY . . . . . . . . . . . . . 21
SECTION 10.4. LANDLORD'S NONLIABILITY . . . . . . . . . . . 22
SECTION 10.5. WAIVER OF SUBROGATION . . . . . . . . . . . . 22
ARTICLE XI. DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . 23
SECTION 11.1. RESTORATION . . . . . . . . . . . . . . . . . 23
SECTION 11.2. LEASE GOVERNS . . . . . . . . . . . . . . . . 24
ARTICLE XII. EMINENT DOMAIN . . . . . . . . . . . . . . . . . . 24
SECTION 12.1. TOTAL OR PARTIAL TAKING . . . . . . . . . . . 24
SECTION 12.2. TEMPORARY TAKING . . . . . . . . . . . . . . 25
SECTION 12.3. TAKING OF PARKING AREA . . . . . . . . . . . 25
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS . 25
SECTION 13.1. SUBORDINATION . . . . . . . . . . . . . . . . 25
SECTION 13.2. ESTOPPEL CERTIFICATE . . . . . . . . . . . . 26
SECTION 13.3. FINANCIALS . . . . . . . . . . . . . . . . . 26
ARTICLE XIV. DEFAULTS AND REMEDIES . . . . . . . . . . . . . . 27
SECTION 14.1. TENANT'S DEFAULTS . . . . . . . . . . . . . . 27
SECTION 14.2. LANDLORD'S REMEDIES . . . . . . . . . . . . . 28
SECTION 14.3. LATE PAYMENTS . . . . . . . . . . . . . . . . 30
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM . . . . . . . . 30
SECTION 14.5. DEFAULT BY LANDLORD . . . . . . . . . . . . . 31
SECTION 14.6. EXPENSES AND LEGAL FEES . . . . . . . . . . . 31
SECTION 14.7. WAIVER OF JURY TRIAL . . . . . . . . . . . . 31
SECTION 14.8. SATISFACTION OF JUDGMENT . . . . . . . . . . 31
SECTION 14.9. [Deleted] . . . . . . . . . . . . . . . . . . 32
ARTICLE XV. END OF TERM . . . . . . . . . . . . . . . . . . . 32
SECTION 15.1. HOLDING OVER . . . . . . . . . . . . . . . . 32
SECTION 15.2. MERGER ON TERMINATION . . . . . . . . . . . . 32
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY . 32
ARTICLE XVI. PAYMENTS AND NOTICES . . . . . . . . . . . . . . . 33
ARTICLE XVII. RULES AND REGULATIONS . . . . . . . . . . . . . . 33
ARTICLE XVIII. BROKER'S COMMISSION . . . . . . . . . . . . . . . 34
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST . . . . . . . . . 34
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<PAGE>
ARTICLE XX. INTERPRETATION . . . . . . . . . . . . . . . . . . 34
SECTION 20.1. GENDER AND NUMBER . . . . . . . . . . . . . . 34
SECTION 20.2. HEADINGS . . . . . . . . . . . . . . . . . . 35
SECTION 20.3. JOINT AND SEVERAL LIABILITY . . . . . . . . . 35
SECTION 20.4. SUCCESSORS . . . . . . . . . . . . . . . . . 35
SECTION 20.5. TIME OF ESSENCE . . . . . . . . . . . . . . . 35
SECTION 20.6. CONTROLLING LAW . . . . . . . . . . . . . . . 35
SECTION 20.7. SEVERABILITY . . . . . . . . . . . . . . . . 35
SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES . . . . . . . 35
SECTION 20.9. INABILITY TO PERFORM . . . . . . . . . . . . 35
SECTION 20.10. ENTIRE AGREEMENT . . . . . . . . . . . . . . 36
SECTION 20.11. QUIET ENJOYMENT . . . . . . . . . . . . . . . 36
SECTION 20.12. SURVIVAL . . . . . . . . . . . . . . . . . . 36
ARTICLE XXI. EXECUTION AND RECORDING . . . . . . . . . . . . . 36
SECTION 21.1. COUNTERPARTS . . . . . . . . . . . . . . . . 36
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY . . . . . 36
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER . . . 36
SECTION 21.4. RECORDING . . . . . . . . . . . . . . . . . . 37
SECTION 21.5. AMENDMENTS . . . . . . . . . . . . . . . . . 37
ARTICLE XXII. MISCELLANEOUS . . . . . . . . . . . . . . . . . . 37
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS . . . . . . . . 37
SECTION 22.2. [Deleted] . . . . . . . . . . . . . . . . . . 37
SECTION 22.3. [Deleted] . . . . . . . . . . . . . . . . . . 37
SECTION 22.4. MORTGAGEE PROTECTION . . . . . . . . . . . . 37
SECTION 22.5. COVENANTS AND CONDITIONS . . . . . . . . . . 38
SECTION 22.6. SECURITY MEASURES . . . . . . . . . . . . . . 38
SECTION 22.7. EXISTING LEASE . . . . . . . . . . . . . . . 38
EXHIBITS
Exhibit A Description of the Premises
Exhibit B Environmental Questionnaire
Exhibit C Landlord's Disclosures
Exhibit D Insurance Requirements
Exhibit E Rules and Regulations
Exhibit X Work Letter
Exhibit Y Project Site Plan
Exhibit Z Notice of Special Tax
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<PAGE>
INDUSTRIAL LEASE
----------------
(Single Tenant; Net)
THIS LEASE is made as of the 3rd day of May , 199 6 ,
------ ------ ---
by and between The Irvine Company, a Michigan corporation, hereafter
called "Landlord," and MOSSIMO, INC., a Delaware corporation ,
--------------------------------------
hereinafter called "Tenant."
ARTICLE I. BASIC LEASE PROVISIONS
Each reference in this Lease to the "Basic Lease Provisions"
shall mean and refer to the following collective terms, the application of
which shall be governed by the provisions in the remaining Articles of this
Lease.
1. Premises: The Premises are more particularly described in
Section 2.1.
Address of Building: To be determined
---------------------------------------
2. Project Description (if applicable): See Exhibit Y attached
hereto.
-----------------------
3. Use of Premises: See Rider Page 1-A.
-------------------------------------------
4. Estimated Commencement Date: May 1, 1997
--------------------------------
5. Lease Term: One Hundred Twenty (120) months, plus such
--------------------------
additional days as may be required to cause this Lease to terminate on
the final day of the calendar month.
6. Basic Rent: One Hundred Eleven Thousand Six Hundred Ninety-Four
----------------------------------------------------
Dollars ($111,694.00) per month, based on $ .54 per rentable
---------- --------
square foot, subject to adjustment in accordance with Item 8
below.
Basic Rent is subject to adjustment as follows: N/A
7. Guarantor(s): N/A
-------------------------------------------------
8. Floor Area of Premises: approximately 206,840 rentable square
----------
feet [See Rider Page 1-A]
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<PAGE>
9. Security Deposit $ 111,694.00
--------------------------------------------
10. Broker(s): CB Commercial
---------------------------------------------------
11. Additional Insureds: Insignia*O'Donnell Commercial Group, Inc.
-----------------------------------------
12. Address for Payments and Notices:
LANDLORD TENANT
Insignia*O'Donnell Commercial Prior to Commencement Date:
Group, Inc. --------------------------
One Technology Drive, Suite F-207 15320 Barranca Parkway
Irvine, CA 92718 Irvine, CA 92718
with a copy of notices to: After Commencement Date:
-----------------------
IRVINE INDUSTRIAL COMPANY To be determined
P.O. Box 6370
Newport Beach, CA 92658-6370
Attn: Vice President,
Industrial Operations
13. Tenant's Liability Insurance Requirement: $ 2,000,000.00
------------------
14. Vehicle Parking Spaces: Three Hundred Thirty-Five ( 335 )
---------------------------- ------
15. Estimated Space Plan Approval Date: N/A
--------------------------
Exhibits:
A Description of Premises E Rules and Regulations
B Environmental Questionnaire X Work Letter
C Landlord's Disclosures Y Project Site Plan
D Insurance Requirements Z Notice of Special Tax
Riders: Rider Pages: 1-A, 2-A, 3-A, 4-A, 5-A, 6-A, 7-A, 8-A,
---------------------------------------------------------
9-A, 10-A, 11-A, 12-A, 13-A, 14-A, 16-A
---------------------------------------------------------
ARTICLE II. PREMISES
SECTION 2.1. LEASED PREMISES. Landlord leases to Tenant and Tenant
leases from Landlord the premises shown in Exhibit A (the "Premises"),
including the building identified in Item 1 of the Basic Lease Provisions
and containing approximately the floor area set forth in Item 8 of the
Basic Lease Provisions. It is understood that the Premises consist of one
office building (the "Office Building") comprising approximately 42,840
rentable square feet and one warehouse building (the "Warehouse Building")
comprising approximately 164,000 rentable square feet (which together with
the underlying real
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<PAGE>
property, shall collectively be referred to as the "Building"). The
Premises is a portion of the project shown in Exhibit Y (the "Project").
SECTION 2.2. ACCEPTANCE OF PREMISES. Except as provided in Section 2.4
below, Tenant acknowledges that neither Landlord nor any representative of
Landlord has made any representation or warranty with respect to the
Premises or the Building or the suitability or fitness of either for any
purpose, including without limitation any representations or warranties
regarding zoning or other land use matters, and that neither Landlord nor
any representative of Landlord has made any representations or warranties
regarding (i) what other tenants or uses may be permitted or intended in
the Building and the Project, or (ii) any exclusivity of use by Tenant with
respect to its permitted use of the Premises as set forth in Item 3 of the
Basic Lease Provisions. Tenant further acknowledges that neither Landlord
nor any representative of Landlord has agreed to undertake any alterations
or additions or construct any improvements to the Premises except as
expressly provided in this Lease. The taking of possession or use of the
Premises by Tenant for any purpose other than construction shall
conclusively establish that the Premises and the Building were in
satisfactory condition and in conformity with the provisions of this Lease
in all respects, except for those matters which Tenant shall have brought
to Landlord's attention on a written punch list, and except for Landlord's
express obligations under Section 2.4 of this Lease. The list shall be
limited to any items required to be accomplished by Landlord under the Work
Letter attached as Exhibit X, and shall be delivered to Landlord within
sixty (60) days after the term ("Term") of this Lease commences as provided
in Article III below. Nothing contained in this Section shall affect the
commencement of the Term or the obligation of Tenant to pay rent. Landlord
shall diligently complete all punch list items of which it is notified as
provided above.
SECTION 2.3. BUILDING NAME AND ADDRESS. Tenant shall not utilize any
name selected by Landlord from time to time for the Building and/or the
Project as any part of Tenant's corporate or trade name. Landlord shall
have the right to change the name, address, number or designation of the
Building or Project without liability to Tenant.
SECTION 2.4. [See Rider Page 2-A]
ARTICLE III. TERM
SECTION 3.1. GENERAL. The Term shall be for the period shown in Item 5
of the Basic Lease Provisions. Subject to the provisions of Section 3.2
below, the Term shall commence ("Commencement Date") on the earlier of (a)
the date upon which all relevant governmental authorities have approved the
Tenant Improvements in accordance with applicable building codes, as
evidenced by written approval thereof in accordance with the building
permits issued for the Tenant Improvements or issuance of a temporary or
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<PAGE>
final certificate of occupancy for the Premises, or (b) the date Tenant
acquires possession or commences use of the Premises for any purpose other
than construction of Tenant Improvements by Tenant under the Work Letter.
Within ten (10) days after possession of the Premises is tendered to
Tenant, the parties shall memorialize on a form provided by Landlord the
actual Commencement Date and the expiration date ("Expiration Date") of
this Lease. Tenant's failure to execute that form shall not affect the
validity of Landlord's determination of those dates.
SECTION 3.2. DELAY IN POSSESSION. If Landlord, for any reason
whatsoever, cannot deliver possession of the Premises to Tenant on or
before the Estimated Commencement Date, this Lease shall not be void or
voidable nor shall Landlord be liable to Tenant for any resulting loss or
damage. However, Tenant shall not be liable for any rent and the
Commencement Date shall not occur until Landlord delivers possession of the
Premises and the Premises are in fact available for Tenant's occupancy with
any Tenant Improvements that have been approved as per Section 3.1(a)
above, except that if Landlord's failure to so deliver possession on the
Estimated Commencement Date is attributable to any action or inaction by
Tenant (including without limitation any Tenant Delay described in the Work
Letter, if any, attached to this Lease), then the Commencement Date shall
not be advanced to the date on which possession of the Premises is tendered
to Tenant, and Landlord shall be entitled to full performance by Tenant
(including the payment of rent) from the date Landlord would have been able
to deliver the Premises to Tenant but for Tenant's delay(s).
[See Rider Page 2-A]
ARTICLE IV. RENT AND OPERATING EXPENSES
SECTION 4.1. BASIC RENT. From and after the Commencement Date, Tenant
shall pay to Landlord without deduction or offset (except as expressly
provided in Sections 6.1 and 14.5 of this Lease), Basic Rent for the
Premises in the total amount shown (including subsequent adjustments, if
any) in Item 6 of the Basic Lease Provisions. Any rental adjustment shown
in Item 6 shall be deemed to occur on the specified monthly anniversary of
the Commencement Date, whether or not that date occurs at the end of a
calendar month. The rent shall be due and payable in advance commencing on
the Commencement Date (as prorated for any partial month) and continuing
thereafter on the first day of each successive calendar month of the Term.
No demand, notice or invoice shall be required for the payment of Basic
Rent. An installment of rent in the amount of one (1) full month's Basic
Rent at the initial rate specified in Item 6 of the Basic Lease Provisions
shall be delivered to Landlord concurrently with Tenant's execution of this
Lease and shall be applied against the Basic Rent first due hereunder.
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<PAGE>
SECTION 4.2. OPERATING EXPENSES.
(a) Tenant shall pay to Landlord, as additional rent, "Building
Costs" and "Property Taxes," as those terms are defined below, incurred by
Landlord in the operation of the Building and Project. For convenience of
reference, Property Taxes and Building Costs shall be referred to
collectively as "Operating Expenses".
(b) Commencing prior to the start of the first full "Expense
Recovery Period" (as defined below) of the Lease, and prior to the start of
each full or partial Expense Recovery Period thereafter, Landlord shall
give Tenant a written estimate of the amount of Operating Expenses for the
Expense Recovery Period. If Landlord has not furnished its written estimate
for any Expense Recovery Period by the time set forth above, Tenant shall
continue to pay cost reimbursements at the rates established for the prior
Expense Recovery Period, if any; provided that when the new estimate is
delivered to Tenant, Tenant shall, at the next monthly payment date, pay
any accrued cost reimbursements based upon the new estimate. For purposes
hereof, "Expense Recovery Period" shall mean every twelve month period
during the Term (or portion thereof for the first and last lease years)
commencing July 1 and ending June 30. [See Rider Page 3-A]
(c) Within one hundred twenty (120) days after the end of each
Expense Recovery Period, Landlord shall furnish to Tenant a statement
showing in reasonable detail the actual or prorated Operating Expenses
incurred by Landlord during the period, and the parties shall within thirty
(30) days thereafter make any payment or allowance necessary to adjust
Tenant's estimated payments, if any, to Tenant's actual owed amounts as
shown by the annual statement. Any delay or failure by Landlord in
delivering any statement hereunder shall not constitute a waiver of
Landlord's right to require Tenant to pay Operating Expenses pursuant
hereto. Any amount due Tenant shall be credited against installments next
coming due under this Section 4.2, and any deficiency shall be paid by
Tenant together with the next installment. If Tenant has not made estimated
payments during the Expense Recovery Period, any amount owing by Tenant
pursuant to subsection (a) above shall be paid to Landlord in accordance
with Article XVI. Should Tenant fail to object in writing to Landlord's
determination of actual Operating Expenses within one hundred eighty (180)
days following delivery of Landlord's initial expense statement, or ninety
(90) days following delivery of Landlord's expense statement for each of
the succeeding Expense Recovery Period, then Landlord's determination of
actual Operating Expenses for the applicable Expense Recovery Period shall
be conclusive and binding on the parties and any future claims to the
contrary shall be barred. [See Rider Page 3-A]
(d) Even though the Lease has terminated and the Tenant has
vacated the Premises, when the final determination is made of Operating
Expenses for the Expense Recovery Period in which the Lease terminates,
Tenant shall upon notice pay the entire increase due over the estimated
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<PAGE>
expenses paid. Conversely, any overpayment made in the event expenses
decrease shall be rebated by Landlord to Tenant.
(e) If, at any time during any Expense Recovery Period, any one
or more of the Operating Expenses are increased to a rate(s) or amount(s)
in excess of the rate(s) or amount(s) used in calculating the estimated
expenses for the year, then the estimate of Operating Expenses shall be
increased for the month in which such rate(s) or amount(s) becomes
effective and for all succeeding months by an amount equal to the increase.
Landlord shall give Tenant written notice of the amount or estimated amount
of the increase, the month in which the increase will become effective, and
the month for which the payments are due. Tenant shall pay the increase to
Landlord as a part of Tenant's monthly payments of estimated expenses as
provided in paragraph (b) above, commencing with the month in which
effective.
(f) The term "Building Costs" shall include all expenses of
operation and maintenance of the Building and of the Building's
proportionate share of the Project, if applicable (determined as the
rentable square footage of the Building divided by the rentable square
footage of all space in the Project), to the extent such expenses are not
billed to and paid directly by Tenant. For so long as Tenant is the tenant
of one hundred percent (100%) of the rentable square footage of this
Project, Tenant's proportionate share of the Project shall be one hundred
percent (100%). Building Costs shall include the following charges by way
of illustration but not limitation: water and sewer charges; insurance
premiums or reasonable premium equivalents should Landlord elect to
self-insure any risk that Landlord is authorized to insure hereunder;
license, permit, and inspection fees; heat; light; power; air conditioning;
supplies; materials; equipment; tools; establishment of reasonable reserves
for replacements and/or repair of Common Area improvements (if applicable)
subject to the provisions of Section 4.2(f)(ix) below, equipment and
supplies; costs incurred in connection with compliance of any laws or
changes in laws amicable to the Building or the Project; the cost of any
capital investments (other than tenant improvements for specific tenants)
subject to the provisions of Section 4.2(f)(v) below; labor; reasonably
allocated wages and salaries, fringe benefits, and payroll taxes for
administrative and other personnel directly applicable to the Building
and/or Project, including both Landlord's personnel and outside personnel;
any expense incurred pursuant to Sections 6.1, 6.2 6.4, 7.2, and 10.2; and
a reasonable overhead/management fee for the professional operation of the
Building and Project not to exceed a competitive market management fee.
Notwithstanding anything to the contrary contained herein, the amount of
such overhead/management fee to be charged to Tenant shall be determined by
multiplying the actual fee charged (which from time to time may be with
respect to the entire Project, a portion of the Project only, the Building
only, or the Project together with other properties owned by Landlord
and/or its affiliates) by a fraction, the numerator of which is the floor
area of the Premises (as set forth in Item No. 8 of the Basic Lease
Provisions) and the denominator of which is the total square footage of
space charged with such fee actually leased to tenants (including
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<PAGE>
Tenant). It is understood that Building Costs shall include
competitive charges for direct services provided by any subsidiary or
division of Landlord. [See Rider Page 3-A]
(g) The term "Property Taxes" as used herein shall include
the following: (i) all real estate taxes or personal property taxes,
as such property taxes may be reassessed from time to time; and
(ii) other taxes, charges and assessments which are levied with
respect to this Lease or to the Building and/or the Project, and any
improvements, fixtures and equipment and other property of Landlord
located in the Building and/or the Project, except that general net
income and franchise taxes imposed against Landlord shall be excluded;
and (iii) all assessments and fees for public improvements, services,
and facilities and impacts thereon, including without limitation
arising out of any Community Facilities Districts, "Mello Roos"
districts, similar assessment districts, and any traffic impact
mitigation assessments or fees; (iv) any tax, surcharge or assessment
which shall be levied in addition to or in lieu of real estate or
personal property taxes, other than taxes covered by Article VIII; and
(v) costs and expenses incurred in contesting the amount or validity
of any Property Tax by appropriate proceedings. [See Rider Page 3-A]
SECTION 4.3. SECURITY DEPOSIT. Concurrently with Tenant's delivery of
this Lease, Tenant shall deposit with Landlord the sum, if any, stated in
Item 9 of the Basic Lease Provisions, to be held by Landlord as security
for the full and faithful performance of Tenant's obligations under this
Lease (the "Security Deposit"). Subject to the last sentence of this
Section, the Security Deposit shall be understood and agreed to be the
property of Landlord upon Landlord's receipt thereof, and may be utilized
by Landlord in its discretion towards the payment of all prepaid expenses
by Landlord for which Tenant would be required to reimburse Landlord under
this Lease, including without limitation brokerage commissions and Tenant
Improvement costs. Upon any default by Tenant, including specifically
Tenant's failure to pay rent or to abide by its obligations under Sections
7.1 and 15.3 below, whether or not Landlord is informed of or has knowledge
of the default, the Security Deposit shall be deemed to be automatically
and immediately applied, without waiver of any rights Landlord may have
under this Lease or at law or in equity as a result of the default, as a
setoff for full or partial compensation for that default. If any portion of
the Security Deposit is applied after a default by Tenant, Tenant shall
within five (5) days after written demand by Landlord deposit cash with
Landlord in an amount sufficient to restore the Security Deposit to its
original amount. Landlord shall not be required to keep this Security
Deposit separate from its general funds, and Tenant shall not be entitled
to interest on the Security Deposit. If Tenant fully performs its
obligations under this Lease, the Security Deposit or any balance thereof
shall be returned to Tenant (or, at Landlord's option, to the last assignee
of Tenant's interest in this Lease) after the expiration of the Term,
provided that Landlord may retain the Security Deposit to the extent and
until such time as all amounts due from Tenant in accordance with this
Lease have been determined and paid in full.
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<PAGE>
ARTICLE V. USES
SECTION 5.1. USE. Tenant shall use the Premises only for the purposes
stated in Item 3 of the Basic Lease Provisions, all in accordance with
applicable laws and restrictions and pursuant to approvals to be obtained
by Tenant from all relevant and required governmental agencies and
authorities. The parties agree that any contrary use shall be deemed to
cause material and irreparable harm to Landlord and shall entitle Landlord
to injunctive relief in addition to any other available remedy. Tenant, at
its expense, shall procure, maintain and make available for Landlord's
inspection throughout the Term, all governmental approvals, licenses and
permits required for the proper and lawful conduct of Tenant's permitted
use of the Premises. Tenant shall not do or permit anything to be done in
or about the Premises which will in any way interfere with the rights of
other occupants of the Building or the Project, if any, or use or allow the
Premises to be used for any unlawful purpose, nor shall Tenant permit any
nuisance or commit any waste in the Premises or the Project. Tenant shall
not do or permit to be done anything which will invalidate or increase the
cost of any insurance policy(ies) covering the Building, the Project and/or
their contents (unless Tenant pays such additional cost within fifteen (15)
days following notice from Landlord, and shall comply with all applicable
insurance underwriters rules and the requirements of the Pacific Fire
Rating Bureau or any other organization performing a similar function.
Tenant shall comply at its expense with all present and future laws,
ordinances, restrictions, regulations, orders, rules and requirements of
all governmental authorities that pertain to Tenant or its use of the
Premises, including without limitation all federal and state occupational
health and safety requirements, whether or not Tenant's compliance will
necessitate expenditures or interfere with its use and enjoyment of the
Premises. Tenant shall comply at its expense with all present and future
covenants, conditions, easements or restrictions now or hereafter affecting
or encumbering the Building and/or Project, and any amendments or
modifications thereto, including without limitation the payment by Tenant
of any periodic or special dues or assessments charged against the Premises
or Tenant which may be allocated to the Premises or Tenant in accordance
with the provisions thereof (and subject to any limitation in this Lease).
[See Rider Page 4-A] Tenant shall promptly upon demand reimburse Landlord
for any additional insurance premium charged by reason of Tenant's failure
to comply with the provisions of this Section, and shall indemnify Landlord
from any liability and/or expense resulting from Tenant's noncompliance.
SECTION 5.2. SIGNS. (a) Except as approved in writing by
Landlord, in its reasonable discretion, Tenant shall have no right to
maintain identification signs in any location in, on or about the
Premises, the Building or the Project and shall not place or erect any
signs, displays or other advertising materials that are visible from
the exterior of the Building. The size, design, graphics, material,
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style, color and other physical aspects of any permitted sign shall be
subject to Landlord's written approval prior to installation (which
approval may be withheld in Landlord's discretion), any covenants,
conditions or restrictions encumbering the Premises, Landlord's signage
program for the Project, as in effect from time to time and approved by the
City of Irvine ("Signage Criteria"), and any applicable municipal or other
governmental permits and approvals. Tenant acknowledges having received and
reviewed a copy of the current Signage Criteria for the Project. Tenant
shall be responsible for the cost of any permitted sign, including the
fabrication, installation, maintenance and removal thereof. If Tenant fails
to maintain its sign, or if Tenant fails to remove same upon termination of
this Lease and repair any damage caused by such removal, Landlord may do so
at Tenant's expense. [See Rider Page 4-A]
SECTION 5.3. HAZARDOUS MATERIALS.
(a) For purposes of this Lease, the term "Hazardous Materials"
includes (i) any "hazardous materials" as defined in Section 25501(k) of
the California Health and Safety Code, (ii) any other substance or matter
which results in liability to any person or entity from exposure to such
substance or matter under any statutory or common law theory, and (iii) any
substance or matter which is in excess of permitted levels set forth in any
federal, California or local law or regulation pertaining to any hazardous
or toxic substance, material or waste.
(b) Tenant shall not cause or permit any Hazardous Materials to
be brought upon, stored, used, generated, released or disposed of on,
under, from or about the Premises (including without limitation the soil
and groundwater thereunder) without the prior written consent of Landlord.
Notwithstanding the foregoing, Tenant shall have the right, without
obtaining prior written consent of Landlord, to utilize within the Premises
standard office products that may contain Hazardous Materials (such as
photocopy toner, "White Out", and the like) [See Rider Page 4-A] all of the
other terms and provisions of this Section 5.3, shall apply with respect to
Tenant's storage, use and disposal of all such products. Landlord may, in
its reasonable discretion, place such conditions as Landlord deems
appropriate with respect to any such Hazardous Materials, and may further
require that Tenant demonstrate that any such Hazardous Materials are
necessary or useful to Tenant's business and will be generated, stored,
used and disposed of in a manner that complies with all applicable laws and
regulations pertaining thereto and with good business practices. Tenant
understands that Landlord may utilize an environmental consultant to assist
in determining conditions of approval in connection with the storage,
generation, release, disposal or use of Hazardous Materials by Tenant on or
about the Premises, and/or to conduct periodic inspections of the storage,
generation, use, release and/or disposal of such Hazardous Materials by
Tenant on and from the Premises, and Tenant agrees that any reasonable
costs incurred by Landlord in connection therewith (not to exceed $500.00
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in each instance) shall be reimbursed by Tenant to Landlord as additional
rent hereunder upon demand.
(c) Prior to the execution of this Lease, Tenant shall complete,
execute and deliver to Landlord an Environmental Questionnaire and
Disclosure Statement (the "Environmental Questionnaire") in the form of
Exhibit B attached hereto. The completed Environmental Questionnaire shall
be deemed incorporated into this Lease for all purposes, and Landlord shall
be entitled to rely fully on the information contained therein. On each
anniversary of the Commencement Date until the expiration or sooner
termination of this Lease, Tenant shall disclose to Landlord in writing the
names and amounts of all Hazardous Materials which were stored, generated,
used, released and/or disposed of on, under or about the Premises for the
twelve-month period prior thereto, and which Tenant desires to store,
generate, use, release and/or dispose of on, under or about the Premises
for the succeeding twelve-month period. In addition, to the extent Tenant
is permitted to utilize Hazardous Materials upon the Premises, Tenant shall
promptly provide Landlord with complete and legible copies of all the
following environmental documents relating thereto: reports filed pursuant
to any self-reporting requirements; permit applications, permits,
monitoring reports, workplace exposure and community exposure warnings or
notices and all other reports, disclosures, plans or documents (even those
which may be characterized as confidential) relating to water discharges,
air pollution, waste generation or disposal, and underground storage tanks
for Hazardous Materials; orders, reports, notices, listings and
correspondence (even those which may be considered confidential) of or
concerning the release, investigation of, compliance, cleanup, remedial and
corrective actions, and abatement of Hazardous Materials; and all
complaints, pleadings and other legal documents filed by or against Tenant
related to Tenant's use, handling, storage, release and/or disposal of
Hazardous Materials.
(d) Landlord and its agents shall have the right, but not the
obligation, to inspect, sample and/or monitor the Premises and/or the soil
or groundwater thereunder at any time to determine whether Tenant is
complying with the terms of this Section 5.3, and in connection therewith
Tenant shall provide Landlord with full access to all relevant facilities,
records and personnel. If Tenant is not in compliance with any of the
provisions of this Section 5.3, or in the event of a release of any
Hazardous Material on, under or about the Premises caused or permitted by
Tenant, its agents, employees, contractors, licensees or invitees, Landlord
and its agents shall have the right, but not the obligation, without
limitation upon any of Landlord's other rights and remedies under this
Lease, to immediately enter upon the Premises without notice and to
discharge Tenant's obligations under this Section 5.3 at Tenant's expense,
including without limitation the taking of emergency or long-term remedial
action. Landlord and its agents shall endeavor to minimize interference
with Tenant's business in connection therewith, but shall not be liable for
any such interference. In addition, Landlord, at Tenant's expense, shall
have the right, but not the obligation, to join and participate in any
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legal proceedings or actions initiated in connection with any claims
arising out of the storage, generation, use, release and/or disposal by
Tenant or its agents, employees, contractors, licensees or invitees of
Hazardous Materials on, under, from or about the Premises.
(e) If the presence of any Hazardous Materials on, under, from or
about the Premises or the Project caused or permitted by Tenant or its
agents, employees, contractors, licensees or invitees results in (i) injury
to any person, (ii) injury to or any contamination of the Premises or the
Project, or (iii) injury to or contamination of any real or personal
property wherever situated, Tenant, at its expense, shall promptly take all
actions necessary to return the Premises and the Project and any other
affected real or personal property owned by Landlord to the condition
existing prior to the introduction of such Hazardous Materials and to
remedy or repair any such injury or contamination, including without
limitation, any cleanup, remediation, removal, disposal, neutralization or
other treatment of any such Hazardous Materials. Notwithstanding the
foregoing, Tenant shall not, without Landlord's prior written consent, take
any remedial action in response to the presence of any Hazardous Materials
on, under or about the Premises or the Project or any other affected real
or personal property owned by Landlord or enter into any similar agreement,
consent, decree or other compromise with any governmental agency with
respect to any Hazardous Materials claims; provided however, Landlord's
prior written consent shall not be necessary in the event that the presence
of Hazardous Materials on, under or about the Premises or the Project or
any other affected real or personal property owned by Landlord (i) imposes
an immediate threat to the health, safety or welfare of any individual or
(ii) is of such a nature that an immediate remedial response is necessary
and it is not possible to obtain Landlord's consent before taking such
action. To the fullest extent permitted by law, Tenant shall indemnify,
hold harmless, protect and defend (with attorneys acceptable to Landlord)
Landlord and any successors to all or any portion of Landlord's interest in
the Premises and the Project and any other real or personal property owned
by Landlord from and against any and all liabilities, losses, damages,
diminution in value, judgments, fines, demands, claims, recoveries,
deficiencies, costs and expenses (including without limitation attorneys'
fees, court costs and other professional expenses), whether foreseeable or
unforeseeable, arising directly or indirectly out of the use, generation,
storage, treatment, release, on- or off-site disposal or transportation of
Hazardous Materials on, into, from, under or about the Premises, the
Building and the Project and any other real or personal property owned by
Landlord caused or permitted by Tenant, its agents, employees, contractors,
licensees or invitees, specifically including without limitation the cost
of any required or necessary repair, restoration, cleanup or detoxification
of the Premises, the Building and the Project and any other real or
personal property owned by Landlord, and the preparation of any closure or
other required plans, whether or not such action is required or necessary
during the Term or after the expiration of this Lease. If Landlord at any
time discovers that Tenant or its agents, employees, contractors, licensees
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or invitees may have caused or permitted the release of a Hazardous
Material on, under, from or about the Premises or the Project or any other
real or personal property owned by Landlord, Tenant shall, at Landlord's
request, immediately prepare and submit to Landlord a comprehensive plan,
subject to Landlord's approval, specifying the actions to be taken by
Tenant to return the Premises or the Project or any other real or personal
property owned by Landlord to the condition existing prior to the
introduction of such Hazardous Materials. Upon Landlord's approval of such
cleanup plan, Tenant shall, at its expense, and without limitation of any
rights and remedies of Landlord under this Lease or at law or in equity,
immediately implement such plan and proceed to cleanup such Hazardous
Materials in accordance with all applicable laws and as required by such
plan and this Lease. The provisions of this subsection (e) shall expressly
survive the expiration or sooner termination of this Lease.
(f) Landlord hereby discloses to Tenant, and Tenant hereby
acknowledges, certain facts relating to Hazardous Materials at the Project
known by Landlord to exist as of the date of this Lease, as more
particularly described in Exhibit C attached hereto. Tenant shall have no
liability or responsibility with respect to the Hazardous Materials facts
described in Exhibit C, nor with respect to any Hazardous Materials which
were not caused or permitted by Tenant, its agents, employees, contractors,
licensees or invitees. [See Rider Page 5-A] Notwithstanding the preceding
four sentences, Tenant agrees to notify its agents, employees, contractors,
licensees, and invitees of any exposure or potential exposure to Hazardous
Materials at the Premises that Landlord brings to Tenant's attention.
ARTICLE VI. COMMON AREAS; SERVICES
SECTION 6.1. UTILITIES AND SERVICES. Tenant shall be responsible for
and shall pay promptly, directly to the appropriate supplier, all charges
for water, gas, electricity, sewer, heat, light, power, telephone, refuse
pickup, janitorial service, interior landscape maintenance and all other
utilities, materials and services furnished directly to Tenant or the
Premises or used by Tenant in, on or about the Premises during the Term,
together with any taxes thereon. Landlord shall not be liable for damages
or otherwise for any failure or interruption of any utility or other
service furnished to the Premises, and no such failure or interruption
shall be deemed an eviction or entitle Tenant to terminate this Lease or
withhold or abate any rent due hereunder. [See Rider Page 5-A] Landlord
shall at all reasonable times have free access to all electrical and
mechanical installations of Landlord.
SECTION 6.2. OPERATION AND MAINTENANCE OF COMMON AREAS. During the
Term, Landlord shall operate all Common Areas within the Project. The term
"Common Areas" shall mean all areas which are not held for exclusive use by
persons entitled to occupy space, and all other appurtenant areas and
improvements provided by Landlord for the common use of Landlord and
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tenants and their respective employees and invitees, including without
limitation parking areas and structures, driveways, sidewalks, landscaped
and planted areas, hallways and interior stairwells not located within the
premises of any tenant (in the event another tenant shall occupy any
portion of the Project), common electrical rooms and roof access entries,
common entrances and lobbies, elevators, and restrooms not located within
the premises of any tenant. [See Rider Page 6-A]
SECTION 6.3. USE OF COMMON AREAS. The occupancy by Tenant of the
Premises shall include the use of the Common Areas in common with Landlord
and with all others for whose convenience and use the Common Areas may be
provided by Landlord, subject, however, to compliance with all rules and
regulations as are prescribed from time to time by Landlord. [See Rider
Page 6-A] Landlord shall operate and maintain the Common Areas in the
manner Landlord may determine to be appropriate. All costs incurred by
Landlord for the maintenance and operation of the Common Areas shall be
included in Building Costs unless any particular cost incurred can be
charged to a specific tenant of the Project, if more than one (1) tenant
shall at any time occupy any portion of the Project. Landlord shall at all
times during the Term have exclusive control of the Common Areas, and may
restrain any use or occupancy, except as authorized by Landlord's rules and
regulations. Tenant shall keep the Common Areas clear of any obstruction or
unauthorized use related to Tenant's operations. Nothing in this Lease
shall be deemed to impose liability upon Landlord for any damage to or loss
of the property of, or for any injury to, Tenant, its invitees or
employees. Landlord may temporarily close any portion of the Common Areas
for repairs, remodeling and/or alterations, to prevent a public dedication
or the accrual of prescriptive rights, or for any other reason deemed
sufficient by Landlord, without liability to Landlord.
SECTION 6.4. PARKING. Tenant shall be entitled, without additional
charge, to the number of vehicle parking spaces set forth in Item 14 of the
Basic Lease Provisions, which spaces shall be unreserved and unassigned, on
those portions of the Common Areas designated by Landlord for parking.
Tenant shall not use more parking spaces than such number. [See Rider Page
6-A] All parking spaces shall be used only for parking by vehicles no
larger than full size passenger automobiles or pickup trucks. Tenant shall
not permit or allow any vehicles that belong to or are controlled by Tenant
or Tenant's employees, suppliers, shippers, customers or invitees to be
loaded, unloaded or parked in areas other than those designated by Landlord
for such activities. If Tenant permits or allows any of the prohibited
activities described above, then Landlord shall have the right, without
notice, in addition to such other rights and remedies that Landlord may
have, to remove or tow away the vehicle involved and charge the costs to
Tenant. Parking within the Common Areas shall be limited to striped parking
stalls, and no parking shall be permitted in any driveways, access ways or
in any area which would prohibit or impede the free flow of traffic within
the Common Areas. Nothing contained in this Lease shall be deemed to create
liability upon Landlord for any damage to motor vehicles of visitors or
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employees, for any loss of property from within those motor vehicles, or
for any injury to Tenant, its visitors or employees, unless ultimately
determined to be caused by the sole active negligence or willful misconduct
of Landlord, its agents, servants and employees. Landlord shall have the
right to establish, and from time to time amend, and to enforce against all
users all reasonable rules and regulations (including the designation of
areas for employee parking) that Landlord may deem necessary and advisable
for the proper and efficient operation and maintenance of parking within
the Common Areas. Landlord shall have the right to construct, maintain and
operate lighting facilities within the parking areas; to restrict parking
by tenants, their officers, agents and employees to employee parking areas;
and to do and perform such other acts in and to the parking areas and
improvements therein as, in the use of good business judgment, Landlord
shall determine to be advisable. Any person using the parking area shall
observe all directional signs and arrows and any posted speed limits. In no
event shall Tenant interfere with the use and enjoyment of the parking area
by other tenants of the Project or their employees or invitees. [See Rider
Page 6-A] Parking areas shall be used only for parking vehicles. Tenant
shall be liable for any damage to the parking areas caused by Tenant or
Tenant's employees, suppliers, shippers, customers or invitees, including
without limitation damage from excess oil leakage. Tenant shall have no
right to install any fixtures, equipment or personal property in the
parking areas. [See Rider Page 6-A]
SECTION 6.5. CHANGES AND ADDITIONS BY LANDLORD. Landlord reserves the
right to make alterations or additions to the Project, or to the attendant
fixtures, equipment and Common Areas. Landlord may at any time relocate or
remove any of the various buildings (other than the Building), parking
areas, and other Common Areas, and may add buildings and areas to the
Project from time to time. No change shall entitle Tenant to any abatement
of rent or other claim against Landlord, provided that the change does not
deprive Tenant of reasonable access to or use of the Premises. [See Rider
Page 6-A]
ARTICLE VII. MAINTAINING THE PREMISES
SECTION 7.1. TENANT'S MAINTENANCE AND REPAIR. Tenant at its sole
expense shall comply with all applicable laws and governmental regulations
governing the Premises and make all repairs necessary to keep the Premises
in the condition as existed on the Commencement Date (or on any later date
that the improvements may have been installed), excepting ordinary wear and
tear, including without limitation the electrical and mechanical systems,
any air conditioning, ventilating or heating equipment which serves the
Premises, all walls, glass, windows, doors, door closures, hardware,
fixtures, electrical, plumbing, fire extinguisher equipment and other
equipment. Any damage or deterioration of the Premises shall not be deemed
ordinary wear and tear if the same could have been prevented by good
maintenance practices by Tenant. As part of its maintenance obligations
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hereunder, Tenant shall, at Landlord's request, provide Landlord with
copies of all maintenance schedules, reports and notices prepared by, for
or on behalf of Tenant. Tenant shall obtain preventive maintenance
contracts from a licensed heating and air conditioning contractor to
provide for regular inspection and maintenance of the heating, ventilating
and air conditioning systems servicing the Premises, all subject to
Landlord's approval. All repairs shall be at least equal in quality to the
original work, shall be made only by a licensed contractor approved in
writing in advance by Landlord and shall be made only at the time or times
approved by Landlord. Any contractor utilized by Tenant shall be subject to
Landlord's standard requirements for contractors, as modified from time to
time. Landlord shall have the right at all times to inspect Tenant's
maintenance of all equipment (including without limitation air
conditioning, ventilating and heating equipment), and may impose reasonable
restrictions and requirements with respect to repairs, as provided in
Section 7.3, and the provisions of Section 7.4 shall apply to all repairs.
Alternatively, Landlord may elect to make any repair or maintenance
required hereunder on behalf of Tenant and at Tenant's expense, and Tenant
shall promptly reimburse Landlord for all, costs incurred upon submission
of an invoice. [See Rider Page 6-A]
SECTION 7.2. LANDLORD'S MAINTENANCE AND REPAIR. Subject to Section 7.1
and Article XI, Landlord shall provide service, maintenance and repair with
respect to the roof, foundations, and footings of the Building, all
landscaping, walkways, parking areas, Common Areas, exterior lighting, and
the exterior surfaces of the exterior walls of the Building, except that
Tenant at its expense shall make all repairs which Landlord deems
reasonably necessary as a result of the act or negligence of Tenant, its
agents, employees, invitees, subtenants or contractors. Landlord shall have
the right to employ or designate any reputable person or firm, including
any employee or agent of Landlord or any of Landlord's affiliates or
divisions, to perform any service, repair or maintenance function. Landlord
need not make any other improvements or repairs except as specifically
required under this Lease, and nothing contained in this Section, except as
expressly provided in Section 2.4 hereof, shall limit Landlord's right to
reimbursement from Tenant for maintenance, repair costs and replacement
costs as provided elsewhere in this Lease. Tenant understands that it shall
not make repairs at Landlord's expense or by rental offset. Tenant further
understands that Landlord shall not be required to make any repairs to the
roof, foundations or footings unless and until Tenant has notified Landlord
in writing of the need for such repair and Landlord shall have a reasonable
period of time thereafter to commence and complete said repair, if
warranted. All costs of any maintenance and repairs on the part of Landlord
provided hereunder shall be considered part of Building Costs. [See Rider
Page 7-A]
SECTION 7.3. ALTERATIONS. [See Rider Page 7-A] (i) affect the
exterior of the Building or outside areas (or be visible from
adjoining sites), or (ii) affect or penetrate any of the structural
portions of the Building, including but not limited to the roof, or
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(iii) require any change to the basic floor plan of the Premises, any
substantial change to any structural or mechanical systems of the Premises,
or any governmental permit as a prerequisite to the construction thereof,
or (iv) unreasonably interfere in any manner with the proper functioning of
or Landlord's access to any mechanical, electrical, plumbing or HVAC
systems, facilities or equipment located in or serving the Building, or (v)
diminish the value of the Premises, in Landlord's reasonable determination.
Landlord may impose, as a condition to its consent, any requirements that
Landlord in its discretion may deem reasonable or desirable, including but
not limited to a requirement that all work be covered by a lien and
completion bond satisfactory to Landlord and requirements as to the manner,
time, and contractor for performance of the work. Tenant shall obtain all
required permits for the work and shall perform the work in compliance with
all applicable laws, regulations and ordinances, all covenants, conditions
and restrictions affecting the Project, and the Rules and Regulations
(hereafter defined). If any governmental entity requires, as a condition to
any proposed alterations, additions or improvements to the Premises by
Tenant, that improvements be made to the Common Areas, and if Landlord
consents to such improvements to the Common Areas, then Tenant shall, at
Tenant's sole expense, make such required improvements to the Common Areas
in such manner, utilizing such materials, and with such contractors
(including, if required by Landlord, Landlord's contractors) as Landlord
may require in its sole discretion. Under no circumstances shall Tenant
make any improvement which incorporates any Hazardous Materials, including
without limitation asbestos-containing construction materials into the
Premises. Any request for Landlord's consent shall be made in writing and
shall contain architectural plans describing the work in detail reasonably
satisfactory to Landlord. Unless Landlord otherwise agrees in writing, all
alterations, additions or improvements affixed to the Premises (excluding
moveable trade fixtures and furniture) shall become the property of
Landlord and shall be surrendered with the Premises at the end of the Term,
except that Landlord may, by notice to Tenant, require Tenant to remove by
the Expiration Date, or sooner termination date of this Lease, all or any
alterations, decorations, fixtures, additions, improvements and the like
installed either by Tenant or by Landlord at Tenant's request and to repair
any damage to the Premises arising from that removal. [See Rider Page 7-A]
SECTION 7.4. MECHANIC'S LIENS. Tenant shall keep the Premises free
from any liens arising out of any work performed, materials furnished, or
obligations incurred by or for Tenant. Upon request by Landlord, Tenant
shall promptly cause any such lien to be released by posting a bond in
accordance with California Civil Code Section 3143 or any successor
statute. In the event that Tenant shall not, within thirty (30) days
following the imposition of any lien, cause the lien to be released of
record by payment or posting of a proper bond, Landlord shall have, in
addition to all other available remedies, the right to cause the lien to be
released by any means it deems proper, including payment of or defense
against the claim giving rise to the lien. All expenses so incurred by
Landlord, including Landlord's attorneys' fees, and any consequential or
other damages incurred by Landlord arising out of such lien, shall be
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reimbursed by Tenant promptly following Landlord's demand, together with
interest from the date of payment by Landlord at the maximum rate permitted
by law until paid. Tenant shall give Landlord no less than twenty (20)
days' prior notice in writing before commencing construction of any kind on
the Premises so that Landlord may post and maintain notices of
non-responsibility on the Premises.
SECTION 7.5. ENTRY AND INSPECTION. Landlord shall at all reasonable
times, upon [See Rider Page 7-A] have the right to enter the Premises to
inspect them, to supply services in accordance with this Lease, to protect
the interests of Landlord in the Premises, and to submit the Premises to
prospective or actual purchasers or encumbrance holders (or, during the
last one hundred and eighty (180) days of the Term or when an uncured
Tenant default exists, to prospective tenants), all without being deemed to
have caused an eviction of Tenant and without abatement of rent except as
provided elsewhere in this Lease. Landlord shall have the right, if
desired, to retain a key which unlocks all of the doors in the Premises,
excluding Tenant's vaults and safes, and Landlord shall have the right to
use any and all means which Landlord may deem proper to open the doors in
an emergency in order to obtain entry to the Premises, and any entry to the
Premises obtained by Landlord shall not under any circumstances be deemed
to be a forcible or unlawful entry into, or a detainer of, the Premises, or
any eviction of Tenant from the Premises.
ARTICLE VIII. TAXES AND ASSESSMENTS ON TENANT'S PROPERTY
Tenant shall be liable for and shall pay, at least ten (10) days
before delinquency, all taxes and assessments levied against all personal
property of Tenant located in the Premises, and against any alterations,
additions or like improvements made to the Premises by or on behalf of
Tenant. When possible Tenant shall cause its personal property, Above
Standard Improvements and alterations to be assessed and billed separately
from the real property of which the Premises form a part. If any taxes on
Tenant's personal property, and/or alterations are levied against Landlord
or Landlord's property and if Landlord pays the same, or if the assessed
value of Landlord's property is increased by the inclusion of a value
placed upon the personal property, and/or alterations of Tenant and if
Landlord pays the taxes based upon the increased assessment, Tenant shall
pay to Landlord the taxes so levied against Landlord or the bill which is
assessed against Landlord separately, or Landlord and Tenant jointly, is
attributable to Tenant's alterations and personal property, Landlord's
reasonable determination shall be conclusive.
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ARTICLE IX. ASSIGNMENT AND SUBLETTING
SECTION 9.1. RIGHTS OF PARTIES.
(a) Notwithstanding any provision of this Lease to the contrary,
Tenant will not, either voluntarily or by operation of law, assign, sublet,
encumber, or otherwise transfer all, or any part of Tenant's interest in
this Lease, or permit the Premises to be occupied by anyone other than
Tenant, without Landlord's prior written consent, which consent shall not
unreasonably be withheld in accordance with the provisions of Section
9.1.(b). No assignment (whether voluntary, involuntary or by operation of
law) and no subletting shall be valid or effective without Landlord's prior
written consent and, at Landlord's election, any such assignment or
subletting or attempted assignment or subletting shall constitute a
material default of this Lease. Landlord shall not be deemed to have given
its consent to any assignment or subletting by any other course of action.
To the extent not prohibited by provisions of the Bankruptcy Code, 11
U.S.C. Section 101 et seq. (the "Bankruptcy Code"), including Section
365(f)(1), Tenant on behalf of itself and its creditors, administrators and
assigns waives the applicability of Section 365(e) of the Bankruptcy Code
unless the proposed assignee of the Trustee for the estate of the bankrupt
meets Landlord's standard for consent as set forth in Section 9.1(b) of
this Lease. If this Lease is assigned to any person or entity pursuant to
the provisions of the Bankruptcy Code, any and all monies or other
considerations to be delivered in connection with the assignment shall be
delivered to Landlord, shall be and remain the exclusive property of
Landlord and shall not constitute property of Tenant or of the estate of
Tenant within the meaning of the Bankruptcy Code. Any person or entity to
which this Lease is assigned pursuant to the provisions of the Bankruptcy
Code shall be deemed to have assumed all of the obligations arising under
this Lease on and after the date of the assignment, and shall upon demand
execute and deliver to Landlord an instrument confirming that assumption.
(b) If Tenant desires to transfer an interest in this Lease, it
shall first notify Landlord of its desire and shall submit in writing to
Landlord: (i) the name and address of the proposed transferee; (ii) the
nature of any proposed subtenant's or assignee's business to be carried on
in the Premises; (iii) the terms and provisions of any proposed sublease or
assignment, including a copy of the proposed assignment or sublease form;
(iv) evidence of insurance of the proposed assignee or subtenant complying
with the requirements of Exhibit D hereto; (v) a completed Environmental
Questionnaire from the proposed assignee or subtenant; and (vi) any other
information requested by Landlord and reasonably related to the transfer.
Except as provided in Subsection (e) of this Section, Landlord shall not
unreasonably withhold its consent, provided: (1) the use of the Premises
will be consistent with the provisions of this Lease and with Landlord's
commitment to other tenants of the Project; (2) the proposed assignee or
subtenant has not been required by any prior landlord, lender or
governmental authority to take remedial action in connection with
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Hazardous Materials contaminating a property arising out of the proposed
assignee's or subtenant's actions or use of the property in question and is
not subject to any enforcement order issued by any governmental authority
in connection with the use, disposal or storage of a Hazardous Material;
(3) at Landlord's election, insurance requirements shall be brought into
conformity with Landlord's then current reasonable leasing practice; (4)
any proposed subtenant or assignee demonstrates that it is financially
responsible by submission to Landlord of all reasonable information as
Landlord may request concerning the proposed subtenant or assignee,
including, but not limited to, a balance sheet of the proposed subtenant or
assignee as of a date within ninety (90) days of the request for Landlord's
consent and statements of income or profit and loss of the proposed
subtenant or assignee for the two-year period preceding the request for
Landlord's consent, and/or a certification signed by the proposed subtenant
or assignee that it has not been evicted or been in arrears in rent at any
other leased premises for the 3-year period preceding the request for
Landlord's consent; (5) any proposed subtenant or assignee demonstrates to
Landlord's reasonable satisfaction a record of successful experience in
business; (6) the proposed assignee or subtenant is not an existing tenant
of the Project or a prospect with whom Landlord is negotiating to become a
tenant at the Project; and (7) the proposed transfer will not impose
additional burdens or adverse tax effects on Landlord.
If Landlord consents to the proposed transfer, Tenant may within ninety
(90) days after the date of the consent effect the transfer upon the terms
described in the information furnished to Landlord; provided that any
material change in the terms shall be subject to Landlord's consent as set
forth in this Section. Landlord shall approve or disapprove any requested
transfer within thirty (30) days following receipt of Tenant's written
request, the information set forth above, and the fee set forth below.
(c) Notwithstanding the provisions of Subsection (b) above, in
lieu of consenting to a proposed assignment [See Rider Page 8-A], Landlord
may elect to (i) sublease the Premises (or the portion proposed to be
subleased), or take an assignment of Tenant's interest in this Lease, upon
the same terms as offered to the proposed subtenant or assignee (excluding
terms relating to the purchase of personal property, the use of Tenant's
name or the continuation of Tenant's business), or (ii) terminate this
Lease as to the portion of the Premises proposed to be subleased or
assigned with a proportionate abatement in the rent payable under this
Lease, effective on the date that the proposed sublease or assignment would
have become effective. Landlord may thereafter, at its option, assign or
re-let any space so recaptured to any third party, including without
limitation the proposed transferee of Tenant.
(d) Tenant agrees that fifty percent (50%) of any base rental
amounts paid by the assignee or subtenant, however described, in excess of
(i) the Basic Rent payable by Tenant hereunder, or in the case of a
sublease of a portion of the Premises, in excess of the Basic Rent
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reasonably allocable to such portion, plus (ii) Tenant's direct
out-of-pocket costs which Tenant certifies to Landlord have been paid [See
Rider Page 8-A] shall be the property of Landlord and such amounts shall be
payable directly to Landlord by the assignee or subtenant or, at Landlord's
option, by Tenant. At Landlord's request, a written agreement shall be
entered into by and among Tenant, Landlord and the proposed assignee or
subtenant confirming the requirements of this subsection.
(e) Tenant shall pay to Landlord a fee of Five Hundred Dollars
($500.00) if and when any transfer hereunder is requested by Tenant. Such
fee is hereby acknowledged as a reasonable amount to reimburse Landlord for
its costs of review and evaluation of a proposed assignee/sublessee, and
Landlord shall not be obligated to consent to such transfer unless and
until such fee is paid.
SECTION 9.2. EFFECT OF TRANSFER. No subletting or assignment, even
with the consent of Landlord, shall relieve Tenant of its obligation to pay
rent and to perform all its other obligations under this Lease. Moreover,
Tenant shall indemnify and hold Landlord harmless, as provided in Section
10.3, for any act or omission by an assignee or subtenant. Each assignee,
other than Landlord, shall be deemed to assume all obligations of Tenant
under this Lease and shall be liable jointly and severally with Tenant for
the payment of all rent, and for the due performance of all of Tenant's
obligations, under this Lease. No transfer shall be binding on Landlord
unless any document memorializing the transfer is delivered to Landlord and
both the assignee/subtenant and Tenant deliver to Landlord an executed
consent to transfer instrument prepared by Landlord and consistent with the
requirements of this Article. The acceptance by Landlord of any payment due
under this Lease from any other person shall not be deemed to be a waiver
by Landlord of any provision of this Lease or to be a consent to any
transfer. Consent by Landlord to one or more transfers shall not operate as
a waiver or estoppel to the future enforcement by Landlord of its rights
under this Lease.
SECTION 9.3. SUBLEASE REQUIREMENTS. The following terms and
conditions shall apply to any subletting by Tenant of all or any part
of the Premises and shall be deemed included in each sublease:
(a) Each and every provision contained in this Lease (other than
with respect to the payment of rent hereunder) is incorporated by reference
into and made a part of such sublease, with "Landlord" hereunder meaning
the sublandlord therein and "Tenant" hereunder meaning the subtenant
therein.
(b) Tenant hereby irrevocably assigns to Landlord all of Tenant's
interest in all rentals and income arising from any sublease of the
Premises, and Landlord may collect such rent and income and apply same
toward Tenant's obligations under this Lease; provided, however, that until
a default occurs in the performance of Tenant's obligations under this
Lease, Tenant shall have the right to receive and collect the sublease
rentals. Landlord shall not, by reason of this assignment or the collection
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of sublease rentals, be deemed liable to the subtenant for the performance
of any of Tenant's obligations under the sublease. Tenant hereby
irrevocably authorizes and directs any subtenant, upon receipt of a written
notice from Landlord stating that an uncured default exists in the
performance of Tenant's obligations under this Lease, to pay to Landlord
all sums then and thereafter due under the sublease. Tenant agrees that the
subtenant may rely on that notice without any duty of further inquiry and
notwithstanding any notice or claim by Tenant to the contrary. Tenant shall
have no right or claim against the subtenant or Landlord for any rentals so
paid to Landlord.
(c) In the event of the termination of this Lease, Landlord may,
at its sole option, take over Tenant's entire interest in any sublease and,
upon notice from Landlord, the subtenant shall attorn to Landlord. In no
event, however, shall Landlord be liable for any previous act or omission
by Tenant under the sublease or for the return of any advance rental
payments or deposits under the sublease that have not been actually
delivered to Landlord, nor shall Landlord be bound by any sublease
modification executed without Landlord's consent or for any advance rental
payment by the subtenant in excess of one month's rent. The general
provisions of this Lease, including without limitation those pertaining to
insurance and indemnification, shall be deemed incorporated by reference
into the sublease despite the termination of this Lease.
SECTION 9.4. [See Rider Page 9-A]
ARTICLE X. INSURANCE AND INDEMNITY
SECTION 10.1. TENANT'S INSURANCE. Tenant, at its sole cost and
expense, shall provide and maintain in effect the insurance described
in Exhibit D. Evidence of that insurance must be delivered to
Landlord prior to the Commencement Date.
SECTION 10.2. LANDLORD'S INSURANCE. [See Rider Page 9-A]
SECTION 10.3. TENANT'S INDEMNITY. To the fullest extent permitted by
law, Tenant shall defend, indemnify, protect, save and hold harmless
Landlord, [See Rider Page 9-A] any corporations or other entities
controlling, controlled by or under common control with Landlord, from and
against any and all claims, liabilities, costs or expenses arising either
before or after the Commencement Date from Tenant's use or occupancy of the
Premises, the Building or the Common Areas, or from the conduct of its
business, or from any activity, work, or thing done, permitted or suffered
by Tenant or its agents, employees, invitees or licensees in or about the
Premises, the Building or the Common Areas, or from any default in the
performance of any obligation on Tenant's part to be performed under this
Lease, or from any act or negligence of Tenant or its agents, employees,
visitors, patrons, guests, invitees or licensees. Landlord may, at
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its option, require Tenant to assume Landlord's defense in any action
covered by this Section through counsel reasonably satisfactory to
Landlord. [See Rider Page 9-A] The provisions of this section shall
expressly survive the expiration or sooner termination of this Lease.
SECTION 10.4. LANDLORD'S NONLIABILITY. Landlord shall not be liable to
Tenant, its employees, agents and invitees, and Tenant hereby waives all
claims against Landlord for loss of or damage to any property, or any
injury to any person, or loss or interruption of business or income, or any
other loss, cost, damage, injury or liability whatsoever (including without
limitation any consequential damages and lost profit or opportunity costs)
resulting from, but not limited to, Acts of God, acts of civil disobedience
or insurrection, acts or omissions of other tenants within the Project or
their agents, employees, contractors, guests or invitees, fire, explosion,
falling plaster, steam, gas, electricity, water or rain which may leak or
flow from or into any part of the Building or from the breakage, leakage,
obstruction or other defects of the pipes, sprinklers, wires, appliances,
plumbing, air conditioning, electrical works or other fixtures in the
Building, whether the damage or injury results from conditions arising in
the Premises or in other portions of the Project. [See Rider Page 10-A] It
is understood that any such condition may require the temporary evacuation
or closure of all or a portion of the Building. Except as provided in
Sections 11.1 and 12.1 below, there shall be no abatement of rent and no
liability of Landlord by reason of any injury to or interference with
Tenant's business (including without limitation consequential damages and
lost profit or opportunity costs) arising from the making of any repairs,
alterations or improvements to any portion of the Building, including
repairs to the Premises, nor shall any related activity by Landlord
constitute an actual or constructive eviction; provided, however, that in
making repairs, alterations or improvements, Landlord shall interfere as
little as reasonably practicable with the conduct of Tenant's business in
the Premises. Neither Landlord nor its agents shall be liable for
interference with light or other similar intangible interests. Tenant shall
immediately notify Landlord in case of fire or accident in the Premises,
the Building or the Project and of defects in any improvements or
equipment.
SECTION 10.5. WAIVER OF SUBROGATION. Landlord and Tenant each hereby
waives all rights of recovery against the other and the other's agents on
account of loss and damage occasioned to the property of such waiving party
to the extent only that such loss or damage is required to be insured
against or, in fact is insured against, under any "all risk" property
insurance policies required by this Article XI (notwithstanding any self
insurance program with respect to such risks which may then be in effect).
By this waiver it is the intent of the parties that neither Landlord nor
Tenant shall be liable to any insurance company (by way of subrogation or
otherwise) insuring the other party for any loss or damage insured against
under any "all-risk" property insurance policies required by this Article,
even though such loss or damage might be occasioned by the negligence of
such party, its agents, employees, contractors, guests or invitees.
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The provisions of this Section shall not limit the indemnification
provisions elsewhere contained in this Lease. [See Rider Page 10-A]
ARTICLE XI. DAMAGE OR DESTRUCTION
SECTION 11.1. RESTORATION.
(a) If the Building is damaged, Landlord shall repair that damage
as soon as reasonably possible, at its expense, unless: (i) Landlord
reasonably determines that more than $100,000 of the cost of repair is not
covered by Landlord's fire and extended coverage insurance (notwithstanding
any self insurance program with respect to such risks which may then be in
effect) plus such additional amounts Tenant elects, at its option, to
contribute, excluding however the amount of a reasonable deductible (not to
exceed $10,000.00) (for which Tenant shall be responsible for Tenant's
proportionate share); (ii) Landlord reasonably determines that the Premises
cannot, with reasonable diligence, be fully repaired by Landlord (or cannot
be safety repaired because of the presence of hazardous factors, including
without limitation Hazardous Materials, earthquake faults, and other
similar dangers) within two hundred seventy (270) days after the date of
the damage; (iii) an event of default by Tenant has occurred and is
continuing at the time of such damage; or (iv) the damage occurs during the
final twelve (12) months of the Term (and would cost more than $100,000.00
to repair). Should Landlord elect not to repair the damage for one of the
preceding reasons, Landlord shall so notify Tenant in writing within thirty
(30) days after the damage occurs and this Lease shall terminate as of the
date of that notice.
(b) Unless Landlord elects to terminate this Lease in accordance
with subsection (a) above, this Lease shall continue in effect for the
remainder of the Term; provided that so long as Tenant is not in default
under this Lease, if the damage is so extensive that Landlord reasonably
determines that the Premises cannot, with reasonable diligence, be repaired
by Landlord (or cannot be safely repaired because of the presence of
hazardous factors, earthquake faults, and other similar dangers) so as to
allow Tenant's substantial use and enjoyment of the Premises within two
hundred seventy (270) days after the date of damage, [See Rider Page 10-A]
then Tenant may elect to terminate this Lease by written notice to Landlord
within the thirty (30) day period stated in subsection (a).
(c) Commencing on the date of any damage to the Building, and
ending on the sooner of the date the damage is repaired or the date this
Lease is terminated, the rental to be paid under this Lease shall be abated
in the same proportion that the floor area of the Building that is rendered
unusable by the damage from time to time bears to the total floor area of
the Building. [See Rider Page 10-A]
(d) Notwithstanding the provisions of subsections (a), (b)
and (c) of this Section, and subject to the provisions of Section 10.5
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above, the cost of any repairs shall be borne by Tenant, and Tenant shall
not be entitled to rental abatement or termination rights, if the damage is
due to the gross negligence or wilful misconduct of Tenant or its
employees, subtenants, invitees or representatives. In addition, the
provisions of this Section shall not be deemed to require Landlord to
repair any improvements or fixtures that Tenant is obligated to repair or
insure pursuant to any other provision of this Lease.
(e) Tenant shall fully cooperate with Landlord in removing
Tenant's personal property and any debris from the Premises to facilitate
all inspections of the Premises and the making of any repairs.
Notwithstanding anything to the contrary contained in this Lease, if
Landlord in good faith believes there is a risk of injury to persons or
damage to property from entry into the Building or Premises following any
damage or destruction thereto, Landlord may restrict entry into the
Building or the Premises by Tenant, its employees, agents and contractors
in a non-discriminatory manner, without being deemed to have violated
Tenant's rights of quiet enjoyment to, or made an unlawful detainer of, or
evicted Tenant from, the Premises. Upon request, Landlord shall consult
with Tenant to determine if there are safe methods of entry into the
Building or the Premises solely in order to allow Tenant to retrieve files,
data in computers, and necessary inventory, subject however to all
indemnities and waivers of liability from Tenant to Landlord contained in
this Lease and any additional indemnities and waivers of liability which
Landlord may require.
SECTION 11.2. LEASE GOVERNS. Tenant agrees that the provisions of this
Lease, including without limitation Section 11.1, shall govern any damage
or destruction and shall accordingly supersede any contrary statute or rule
of law.
ARTICLE XII. EMINENT DOMAIN
SECTION 12.1. TOTAL OR PARTIAL TAKING. If all or a material portion of
the Premises is taken by any lawful authority by exercise of the right of
eminent domain, or sold to prevent a taking, either Tenant or Landlord may
terminate this Lease effective as of the date possession is required to be
surrendered to the authority. In the event title to a portion of the
Premises is taken or sold in lieu of taking, and if Landlord elects to
restore the Premises in such a way as to alter the Premises materially,
either party may terminate this Lease, by written notice to the other
party, effective on the date of vesting of title. In the event neither
party has elected to terminate this Lease as provided above, then Landlord
shall promptly, after receipt of a sufficient condemnation award, proceed
to restore the Premises to substantially their condition prior to the
taking, and a proportionate allowance shall be made to Tenant for the rent
corresponding to the time during which, and to the part of the Premises of
which, Tenant is deprived on account of the taking and restoration. In the
event of a taking, Landlord shall be entitled to the entire amount of the
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condemnation award without deduction for any estate or interest of Tenant;
provided that nothing in this Section shall be deemed to give Landlord any
interest in, or prevent Tenant from seeking any award against the taking
authority for, the taking of personal property and fixtures belonging to
Tenant or for relocation or business interruption expenses recoverable from
the taking authority.
SECTION 12.2. TEMPORARY TAKING. No temporary taking of the Premises
shall terminate this Lease or give Tenant any right to abatement of rent,
and any award specifically attributable to a temporary taking of the
Premises shall belong entirety to Tenant. A temporary taking shall be
deemed to be a taking of the use or occupancy of the Premises for a period
of not to exceed one hundred eighty (180) days.
SECTION 12.3. TAKING OF PARKING AREA. In the event there shall be a
taking of the parking area such that Landlord can no longer provide
sufficient parking to comply with Item 14 of the Basic Provisions of this
Lease, Landlord may substitute reasonably equivalent parking for up to but
not exceeding 52 spaces in a location reasonably close to the Building;
provided that if Landlord fails to make that substitution within sixty days
following the taking and if the taking materially impairs Tenant's use and
enjoyment of the Premises, Tenant may, at its option, terminate this Lease
by written notice to Landlord. If this Lease is not so terminated by
Tenant, there shall be no abatement of rent and this Lease shall continue
in effect.
ARTICLE XIII. SUBORDINATION; ESTOPPEL CERTIFICATE; FINANCIALS
SECTION 13.1. SUBORDINATION. At the option of Landlord, this Lease
shall be either superior or subordinate to all ground or underlying leases,
mortgages and deeds of trust, if any, which may hereafter affect the
Premises, and to all renewals, modifications, consolidations, replacements
and extensions thereof; provided, that so long as Tenant is not in default
under this Lease beyond any applicable cure period, this Lease shall not be
terminated or Tenant's quiet enjoyment of the Premises disturbed in the
event of termination of any such ground or underlying Lease, or the
foreclosure of any such mortgage or deed of trust, to which Tenant has
subordinated this Lease pursuant to this Section. In the event of a
termination or foreclosure, Tenant shall become a tenant of and attorn to
the successor-in-interest to Landlord upon the same terms and conditions as
are contained in this Lease, and shall execute any instrument reasonably
required by Landlord's successor for that purpose. Tenant shall also, upon
written request of Landlord, execute and deliver all instruments as may be
required from time to time to subordinate the rights of Tenant under this
Lease to any ground or underlying Lease or to the lien of any mortgage or
deed of trust (provided that such instruments include the nondisturbance
and attornment provisions set forth above), or, if requested by Landlord,
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to subordinate, in whole or in part, any ground or underlying lease or the
lien of any mortgage or deed of trust to this Lease. [See Rider Page 11-A]
SECTION 13.2. ESTOPPEL CERTIFICATE.
(a) Tenant shall, at any time upon not less than ten (10) days
prior written notice from Landlord, execute, acknowledge and deliver to
Landlord, in any form that Landlord may reasonably require, a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of the modification and
certifying that this Lease, as modified, is in full force and effect) and
the dates to which the rental, additional rent and other charges have been
paid in advance, if any, and (ii) acknowledging that, to Tenant's actual
knowledge, there are no uncured defaults on the part of Landlord, or
specifying each default if any are claimed, and (iii) setting forth all
further information that Landlord may reasonably require. Tenant's
statement may be relied upon by any prospective purchaser or encumbrancer
of the Premises.
(b) Notwithstanding any other rights and remedies of Landlord,
Tenant's failure to deliver any estoppel statement within the provided time
shall be conclusive upon Tenant that (i) this Lease is in full force and
effect, without modification except as may be represented by Landlord, (ii)
there are no uncured defaults in Landlord's performance, and (iii) not more
than one month's rental has been paid in advance.
SECTION 13.3. FINANCIALS.
(a) Tenant shall deliver to Landlord, prior to the execution of
this Lease and thereafter at any time upon Landlord's request, Tenant's
current tax returns and financial statements, certified true, accurate and
complete by the chief financial officer of Tenant, including a balance
sheet and profit and loss statement for the most recent prior year
(collectively, the "Statements"), which Statements shall accurately and
completely reflect the financial condition of Tenant. Landlord agrees that
it will keep the Statements confidential, except that Landlord shall have
the right to deliver the same to any proposed purchaser or encumbrancer of
the Premises. [See Rider Page 11-A]
(b) Tenant acknowledges that Landlord is relying on the
Statements in its determination to enter into this Lease, and Tenant
represents to Landlord, which representation shall be deemed made on the
date of this Lease and again on the Commencement Date, that no material
change in the financial condition of Tenant, as reflected in the
Statements, has occurred since the date Tenant delivered the Statements to
Landlord. The Statements are represented and warranted by Tenant to be
correct and to accurately and fully reflect Tenant's true financial
condition as of the date of submission by any Statements to Landlord.
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ARTICLE XIV. DEFAULTS AND REMEDIES
SECTION 14.1. TENANT'S DEFAULTS. In addition to any other event
of default set forth in this Lease, the occurrence of any one or more
of the following events shall constitute a default by Tenant:
(a) The failure by Tenant to make any payment of rent or
additional rent required to be made by Tenant, as and when due, where the
failure continues for a period of ten (10) days after written notice from
Landlord to Tenant; provided, however, that any such notice shall be in
lieu of, and not in addition to, any notice required under California Code
of Civil Procedure Section 1161 and 1161(a) as amended. For purposes of
these default and remedies provisions, the term "additional rent" shall be
deemed to include all amounts of any type whatsoever other than Basic Rent
to be paid by Tenant pursuant to the terms of this Lease.
(b) Assignment, sublease, encumbrance or other transfer of the
Lease by Tenant, either voluntarily or by operation of law, whether by
judgment, execution, transfer by intestacy or testacy, or other means,
without the prior written consent of Landlord (unless otherwise permitted
by the terms of Section 9.4 of this Lease).
(c) The discovery by Landlord that any financial statement
provided by Tenant, or by any affiliate, successor or guarantor of Tenant,
was materially false.
(d) The failure of Tenant to timely and fully provide any
subordination agreement, estoppel certificate or financial statements in
accordance with the requirements of Article XIII.
(e) The failure or inability by Tenant to observe or perform any
of the express or implied covenants or provisions of this Lease to be
observed or performed by Tenant, other than as specified in any other
subsection of this Section, where the failure continues for a period of
thirty (30) days after written notice from Landlord to Tenant or such
shorter period as is specified in any other provision of this Lease;
provided, however, that any such notice shall be in lieu of, and not in
addition to, any notice required under California Code of Civil Procedure
Section 1161 and 1161(a) as amended. However, if the nature of the failure
is such that more than thirty (30) days are reasonably required for its
cure, then Tenant shall not be deemed to be in default if Tenant commences
the cure within thirty (30) days, and thereafter diligently pursues the
cure to completion.
(f) (i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing by or against Tenant of a petition to
have Tenant adjudged a Chapter 7 debtor under the Bankruptcy Code or to
have debts discharged or a petition for reorganization or arrangement under
any law relating to bankruptcy (unless, in the case of a petition filed
against Tenant, the same is dismissed within thirty (30) days); (iii) the
appointment of a trustee or receiver to take possession of substantially
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all of Tenant's assets located at the Premises or of Tenant's interest in
this Lease, if possession is not restored to Tenant within thirty (30)
days; (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where the seizure is not discharged within thirty
(30) days; or (v) Tenant's convening of a meeting of its creditors for the
purpose of effecting a moratorium upon or composition of its debts.
Landlord shall not be deemed to have knowledge of any event described in
this subsection unless notification in writing is received by Landlord, nor
shall there be any presumption attributable to Landlord of Tenant's
insolvency. in the event that any provision of this subsection is contrary
to applicable law, the provision shall be of no force or effect.
SECTION 14.2. LANDLORD'S REMEDIES.
(a) In the event of any default by Tenant, beyond any applicable
cure period, then in addition to any other remedies available to Landlord,
Landlord may exercise the following remedies:
(i) Landlord may terminate Tenant's right to possession of
the Premises by any lawful means, in which case this Lease shall terminate
and Tenant shall immediately surrender possession of the Premises to
Landlord. Such termination shall not affect any accrued obligations of
Tenant under this Lease. Upon termination, Landlord shall have the right to
reenter the Premises and remove all persons and property. Landlord shall
also be entitled to recover from Tenant:
(1) The worth at the time of award of the unpaid rent
and additional rent which had been earned at the time of termination;
(2) The worth at the time of award of the amount by
which the unpaid rent and additional rent which would have been earned
after termination until the time of award exceeds the amount of such loss
that Tenant proves could have been reasonably avoided;
(3) The worth at the time of award of the amount by
which the unpaid rent and additional rent for the balance of the Term after
the time of award exceeds the amount of such loss that Tenant proves could
be reasonably avoided;
(4) Any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under this Lease or which in the ordinary course of things
would be likely to result from Tenant's default, including, but not limited
to, the cost of recovering possession of the Premises, refurbishment of the
Premises, marketing costs, commissions and other reasonable expenses of
reletting, including necessary repair, [See Rider Page 12-A] the
unamortized portion of any tenant improvements and brokerage commissions
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funded by Landlord in connection with this Lease, reasonable attorneys'
fees, and any other reasonable costs; and
(5) At Landlord's election, all other amounts in
addition to or in lieu of the foregoing as may be permitted by law. The
term "rent" as used in this Lease shall be deemed to mean the Basic Rent
and all other sums required to be paid by Tenant to Landlord pursuant to
the terms of this Lease. Any sum, other than Basic Rent, shall be computed
on the basis of the average monthly amount accruing during the twenty-four
(24) month period immediately prior to default, except that if it becomes
necessary to compute such rental before the twenty-four (24) month period
has occurred, then the computation shall be on the basis of the average
monthly amount during the shorter period. As used in subparagraphs (1) and
(2) above, the "worth at the time of award" shall be computed by allowing
interest at the rate of ten percent (10%) per annum. As used in
subparagraph (3) above, the "worth at the time of award" shall be computed
by discounting the amount at the discount rate of the Federal Reserve Bank
of San Francisco at the time of award plus one percent (1%).
(ii) Landlord may elect not to terminate Tenant's right to
possession of the Premises, in which event Landlord may continue to enforce
all of its rights and remedies under this Lease, including the right to
collect all rent as it becomes due. Efforts by the Landlord to maintain,
preserve or relet the Premises, or the appointment of a receiver to protect
the Landlord's interests under this Lease, shall not constitute a
termination of the Tenant's right to possession of the Premises. In the
event that Landlord elects to avail itself of the remedy provided by this
subsection (ii), Landlord shall not unreasonably withhold its consent to an
assignment or subletting of the Premises subject to the reasonable
standards for Landlord's consent as are contained in this Lease.
(b) The various rights and remedies reserved to Landlord in this
Lease or otherwise shall be cumulative and, except as otherwise provided by
California law, Landlord may pursue any or all of its rights and remedies
at the same time.
(c) No delay or omission of Landlord to exercise any right or
remedy shall be construed as a waiver of the right or remedy or of any
default by Tenant. The acceptance by Landlord of rent shall not be a (i)
waiver of any preceding breach or default by Tenant of any provision of
this Lease, other than the failure of Tenant to pay the particular rent
accepted, regardless of Landlord's knowledge of the preceding breach or
default at the time of acceptance of rent, or (ii) a waiver of Landlord's
right to exercise any remedy available to Landlord by virtue of the breach
or default. The acceptance of any payment from a debtor in possession, a
trustee, a receiver or any other person acting on behalf of Tenant or
Tenant's estate shall not waive or cure a default under Section 14.1. No
payment by Tenant or receipt by Landlord of a lesser amount than the rent
required by this Lease shall be deemed to be other than a partial payment
on account of the earliest due stipulated rent, nor shall any endorsement
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or statement on any check or letter be deemed an accord and satisfaction
and Landlord shall accept the check or payment without prejudice to
Landlord's right to recover the balance of the rent or pursue any other
remedy available to it. No act or thing done by Landlord or Landlord's
agents during the Term shall be deemed an acceptance of a surrender of the
Premises, and no agreement to accept a surrender shall be valid unless in
writing and signed by Landlord. No employee of Landlord or of Landlord's
agents shall have any power to accept the keys to the Premises prior to the
termination of this Lease, and the delivery of the keys to any employee
shall not operate as a termination of the Lease or a surrender of the
Premises.
SECTION 14.3. LATE PAYMENTS.
(a) Any rent due under this Lease that is not received by
Landlord within ten 10 days of the date when due shall bear interest at the
Bank of America prime lending rate plus three percent (3%) from the date
due until fully paid. The payment of interest shall not cure, any default
by Tenant under this Lease. In addition, Tenant acknowledges that the late
payment by Tenant to Landlord of rent will cause Landlord to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult and impracticable to ascertain. Those costs may include, but are
not limited to, administrative, processing and accounting charges, and late
charges which may be imposed on Landlord by the terms of any ground Lease,
mortgage or trust deed covering the Premises. Accordingly, if any rent due
from Tenant shall not be received by Landlord or Landlord's designee within
ten (10) days after the date due, then Tenant shall pay to Landlord, in
addition to the interest provided above, a late charge in a sum equal to
the greater of five percent (5%) of the amount overdue or Two Hundred Fifty
Dollars ($250.00) for each delinquent payment. Acceptance of a late charge
by Landlord shall not constitute a waiver of Tenant's default with respect
to the overdue amount, nor shall it prevent Landlord from exercising any of
its other rights and remedies. [See Rider Page 13-A]
(b) Following each second consecutive installment of rent that is
not paid within five (5) days following notice of nonpayment from Landlord,
Landlord shall have the option to require that Tenant increase the amount,
if any, of the Security Deposit by one hundred percent (100%). Should
Tenant deliver to Landlord, at any time during the Term, two (2) or more
insufficient checks, the Landlord may require that all monies then and
thereafter due from Tenant be paid to Landlord by cashier's check.
SECTION 14.4. RIGHT OF LANDLORD TO PERFORM. All covenants and
agreements to be performed by Tenant under this Lease shall be performed at
Tenant's sole cost and expense and without any abatement of rent or right
of set-off. Except as expressly provided in Sections 6.1 or 14.5 of this
Lease. If Tenant fails to pay any sum of money, other than rent, or fails
to perform any other act on its part to be performed under this Lease, and
the failure continues beyond any applicable grace period set forth in
Section 14.1, then in addition to any other available remedies, Landlord
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may, at its election make the payment or perform the other act on Tenant's
part. Landlord's election to make the payment or perform the act on
Tenant's part shall not give rise to any responsibility of Landlord to
continue making the same or similar payments or performing the same or
similar acts. Tenant shall, promptly upon demand by Landlord, reimburse
Landlord for all sums paid by Landlord and all necessary incidental costs,
together with interest at the maximum rate permitted by law from the date
of the payment by Landlord. Landlord shall have the same rights and
remedies if Tenant fails to pay those amounts as Landlord would have in the
event of a default by Tenant in the payment of rent.
SECTION 14.5. DEFAULT BY LANDLORD. Landlord shall not be deemed
to be in default in the performance of any obligation under this
Lease, unless and until it has failed to perform the obligation within
thirty (30) days after written notice by Tenant to Landlord specifying
in reasonable detail the nature and extent of the failure; provided,
however, that if the nature of Landlord's obligation is such that more
than thirty (30) days are required for its performance, then Landlord
shall not be deemed to be in default if it commences performance
within the thirty (30) day period and thereafter diligently pursues
the cure to completion. [See Rider Page 13-A]
SECTION 14.6. EXPENSES AND LEGAL FEES. All sums reasonably incurred by
Landlord in connection with any event of default by Tenant under this Lease
or holding over of possession by Tenant after the expiration or earlier
termination of this Lease, including without limitation all costs, expenses
and actual accountants, appraisers, attorneys and other professional fees,
and any collection agency or other collection charges, shall be due and
payable by Tenant to Landlord on demand, and shall bear interest at the
rate of ten percent (10%) per annum. Should either Landlord or Tenant bring
any action in connection with this Lease, the prevailing party shall be
entitled to recover as a part of the action its reasonable attorneys' fees,
and all other costs. The prevailing party for the purpose of this paragraph
shall be determined by the trier of the facts.
SECTION 14.7. WAIVER OF JURY TRIAL. LANDLORD AND TENANT EACH
ACKNOWLEDGES THAT IT IS AWARE OF AND HAS HAD THE ADVICE OF COUNSEL OF ITS
CHOICE WITH RESPECT TO ITS RIGHTS TO TRIAL BY JURY. AND EACH PARTY DOES
HEREBY EXPRESSLY AND KNOWINGLY WAIVE AND RELEASE ALL SUCH RIGHTS TO TRIAL
BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER PARTY
HERETO AGAINST THE OTHER (AND/OR AGAINST ITS OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, OR SUBSIDIARY OR AFFILIATED ENTITIES) ON ANY MATTERS
WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, TENANT'S
USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM OF INJURY OR DAMAGE.
SECTION 14.8. SATISFACTION OF JUDGMENT. The obligations of
Landlord do not constitute the personal obligations of the individual
partners, trustees, directors, officers or shareholders of Landlord or
its constituent partners. Should Tenant recover a money judgment
against Landlord, such judgment shall be satisfied only out of the
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proceeds of sale received upon execution of such judgment and levied
thereon against the right, title and interest of Landlord in the Project
and out of the rent or other income from such property receivable by
Landlord or out of consideration received by Landlord from the sale or
other disposition of all or any part of Landlord's right, title or interest
in the Project, and no action for any deficiency may be sought or obtained
by Tenant. [See Rider Page 13-A]
SECTION 14.9. [Deleted]
ARTICLE XV. END OF TERM
SECTION 15.1. HOLDING OVER. This Lease shall terminate without further
notice upon the expiration of the Term, and any holding over by Tenant
after the expiration shall not constitute a renewal or extension of this
Lease, or give Tenant any rights under this Lease, except when in writing
signed by both parties. If Tenant holds over for any period after the
expiration (or earlier termination) of the Term without the prior written
consent of Landlord, such possession shall constitute a tenancy at
sufferance only; such holding over with the prior written consent of
Landlord shall constitute a month-to-month tenancy commencing on the first
(1st) day following the termination of this Lease. If Tenant fails to
surrender the Premises upon the expiration of this Lease despite demand to
do so by Landlord, Tenant shall indemnify and hold Landlord harmless from
all loss or liability, including without limitations any claims made by any
succeeding tenant relating to such failure to surrender. Acceptance by
Landlord of rent after the termination shall not constitute a consent to a
holdover or result in a renewal of this Lease. The foregoing provisions of
this Section are in addition to and do not affect Landlord's right of
re-entry or any other rights of Landlord under this Lease or at law.
SECTION 15.2. MERGER ON TERMINATION. The voluntary or other surrender
of this Lease by Tenant, or a mutual termination of this Lease, shall
terminate any or all existing subleases unless Landlord, at its option,
elects in writing to treat the surrender or termination as an assignment to
it of any or all subleases affecting the Premises.
SECTION 15.3. SURRENDER OF PREMISES; REMOVAL OF PROPERTY. Upon the
Expiration Date or upon any earlier termination of this Lease, Tenant shall
quit and surrender possession of the Premises to Landlord in as good order,
condition and repair as when received or as hereafter may be improved by
Landlord or Tenant, reasonable wear and tear and repairs which are
Landlord's obligation excepted, and shall, without expense to Landlord,
remove or cause to be removed from the Premises all personal property and
debris, except for any items that Landlord may by written authorization
allow to remain. Tenant shall repair all damage to the Premises resulting
from the removal, which repair shall include the patching and fitting of
holes and repair of structural damage, provided that Landlord may instead
elect to repair any structural damage at Tenant's expense. If Tenant shall
fail to comply with the provisions of this Section, Landlord may effect
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the removal and/or make any repairs, and the cost to Landlord shall be
additional rent payable by Tenant upon demand. If Tenant fails to remove
Tenant's personal property from the Premises upon the expiration of the
Term, Landlord may remove, store, dispose of and/or retain such personal
property, at Landlord's option, in accordance with then applicable laws,
all at the expense of Tenant. If requested by Landlord, Tenant shall
execute, acknowledge and deliver to Landlord an instrument in writing
releasing and quitclaiming to Landlord all right, title and interest of
Tenant in the Premises.
ARTICLE XVI. PAYMENTS AND NOTICES
All sums payable by Tenant to Landlord shall be paid, without
deduction or offset, except as expressly provided in Section 6.1 and 14.5
of this Lease, in lawful money of the United States to Landlord at its
address set forth in Item 12 of the Basic Lease Provisions, or at any other
place as Landlord may designate in writing. Unless this Lease expressly
provides otherwise, as for example in the payment of rent pursuant to
Section 4.1, all payments due and payable within ten (10) days after
demand. All payments requiring proration shall be prorated on the basis of
a thirty (30) day month and a three hundred sixty (360) day year. Any
notice, election, demand, consent, approval or other communication to be
given or other document to be delivered by either party to the other may be
delivered in person or by courier or overnight delivery service to the
other party, or may be deposited in the United States mail, duty registered
or certified, postage prepaid, return receipt requested, and addressed to
the other party at the address set forth in Item 12 of the Basic Lease
Provisions, or if to Tenant, at that address or, from and after the
Commencement Date, at the Premises (whether or not Tenant has departed
from, abandoned or vacated the Premises), or may be delivered by telegram,
telex or telecopy, provided that receipt thereof is telephonically
confirmed. Either party may, by written notice to the other, served in the
manner provided in this Article, designate a different address. If any
notice or other document is sent by mail, it shall be deemed served or
delivered twenty-four (24) hours after mailing. If more than one person or
entity is named as Tenant under this Lease, service of any notice upon any
one of them shall be deemed as service upon all of them.
ARTICLE XVII. RULES AND REGULATIONS
Tenant agrees to observe faithfully and comply strictly with the Rules
and Regulations, attached as Exhibit E, and any reasonable and
nondiscriminatory amendments, modifications and/or additions as may be
adopted and published by written notice to tenants by Landlord for the
safety, care, security, good order, or cleanliness of the Premises, and
Project and Common Areas (if applicable). Landlord shall not be liable to
Tenant for any violation of the Rules and Regulations or the breach of any
covenant or condition in any lease by any other tenant of the Project,
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if any, or such tenant's agents, employees, contractors, quests or
invitees. One or more waivers by Landlord of any breach of the Rules and
Regulations by Tenant or by any other tenant(s) shall not be a waiver of
any subsequent breach of that rule or any other. Tenant's failure to keep
and observe the Rules and Regulations shall constitute a default under this
Lease. In the case of any conflict between the Rules and Regulations and
this Lease, this Lease shall be controlling.
ARTICLE XVIII. BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease the
firm(s), if any, whose name(s) is (are) stated in Item 10 of the Basic
Lease Provisions, and agree that Landlord shall be responsible for the
payment of brokerage commissions to those broker(s) unless otherwise
provided in this Lease. Tenant and Landlord each warrants to the other that
it has had no dealings with any other real estate broker or agent in
connection with the negotiation of this Lease, and each agrees to indemnify
and hold the other harmless from any cost, expense or liability (including
reasonable attorneys' fees) for any compensation, commissions or charges
claimed by any other real estate broker or agent employed or claiming to
represent or to have been employed by the indemnifying party in connection
with the negotiation of this Lease. The foregoing agreement shall survive
the termination of this Lease. If Tenant fails to take possession of the
Premises or if this Lease otherwise terminates prior to the Expiration Date
as the result of failure of performance by Tenant, Landlord shall be
entitled to recover from Tenant the unamortized portion of any brokerage
commission funded by Landlord in addition to any other damages to which
Landlord may be entitled.
ARTICLE XIX. TRANSFER OF LANDLORD'S INTEREST
In the event of any transfer of Landlord's interest in the Premises,
the transferor shall be automatically relieved of all obligations on the
part of Landlord accruing under this Lease from and after the date of the
transfer, provided that any funds held by the transferor in which Tenant
has an interest shall be turned over, subject to that interest, to the
transferee and Tenant is notified of the transfer as required by law. It is
intended that the covenants and obligations contained in this Lease on the
part of Landlord shall, subject to the foregoing, be binding on Landlord,
its successors and assigns, only during and in respect to their respective
successive periods of ownership.
ARTICLE XX. INTERPRETATION
SECTION 20.1. GENDER AND NUMBER. Whenever the context of this
Lease requires, the words "Landlord" and "Tenant" shall include the
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plural as well as the singular, and words used in neuter, masculine or
feminine genders shall include the others.
SECTION 20.2. HEADINGS. The captions and headings of the
articles and sections of this Lease are for convenience only, are not
a part of this Lease and shall have no effect upon its construction or
interpretation.
SECTION 20.3. JOINT AND SEVERAL LIABILITY. If more than one person or
entity is named as Tenant, the obligations imposed upon each shall be joint
and several and the act of or notice from, or notice or refund to, or the
signature of, any one or more of them shall be binding on all of them with
respect to the tenancy of this Lease, including, but not limited to, any
renewal, extension, termination or modification of this Lease.
SECTION 20.4. SUCCESSORS. Subject to Articles IX and XIX, all rights
and liabilities given to or imposed upon Landlord and Tenant shall extend
to and bind their respective heirs, executors, administrators, successors
and assigns. Nothing contained in this Section is intended, or shall be
construed, to grant to any person other than Landlord and Tenant and their
successors and assigns any rights or remedies under this Lease.
SECTION 20.5. TIME OF ESSENCE. Time is of the essence with
respect to the performance of every provision of this Lease.
SECTION 20.6. CONTROLLING LAW. This Lease shall be governed by
and interpreted in accordance with the laws of the State of
California.
SECTION 20.7. SEVERABILITY. If any term or provision of this Lease,
the deletion of which would not adversely affect the receipt of any
material benefit by either party or the deletion of which is consented to
by the party adversely affected, shall be held invalid or unenforceable to
any extent, the remainder of this Lease shall not be affected and each term
and provision of this Lease shall be valid and enforceable to the fullest
extent permitted by law.
SECTION 20.8. WAIVER AND CUMULATIVE REMEDIES. One or more waivers by
Landlord or Tenant of any breach of any term, covenant or condition
contained in this Lease shall not be a waiver of any subsequent breach of
the same or any other term, covenant or condition. Consent to any act by
one of the parties shall not be deemed to render unnecessary the obtaining
of that party's consent to any subsequent act. No breach by Tenant of this
Lease shall be deemed to have been waived by Landlord unless the waiver is
in a writing signed by Landlord. The rights and remedies of Landlord under
this Lease shall be cumulative and in addition to any and all other rights
and remedies which Landlord may have.
SECTION 20.9. INABILITY TO PERFORM. In the event that either
party shall be delayed or hindered in or prevented from the
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performance of any work or in performing any act required under this Lease
by reason of any cause beyond the reasonable control of that party, then
the performance of the work or the doing of the act shall be excused for
the period of the delay and the time for performance shall be extended for
a period equivalent to the period of the delay. The provisions of this
Section shall not operate to excuse Tenant from the prompt payment of rent
or from the timely performance of any other obligation under this Lease
within Tenant's reasonable control.
SECTION 20.10. ENTIRE AGREEMENT. This Lease and its exhibits and other
attachments cover in full each and every agreement of every kind between
the parties concerning the Premises, the Building, and the Project, and all
preliminary negotiations, oral agreements, understandings and/or practices,
except those contained in this Lease, are superseded and of no further
effect. Tenant waives its rights to rely on any representations or promises
made by Landlord or others which are not contained in this Lease. No verbal
agreement or implied covenant shall be held to modify the provisions of
this Lease, any statute, law, or custom to the contrary notwithstanding.
SECTION 20.11. QUIET ENJOYMENT. Upon the observance and performance of
all the covenants, terms and conditions on Tenant's part to be observed and
performed, and subject to the other provisions of this Lease, Tenant shall
peaceably and quietly hold and enjoy the Premises for the Term without
hindrance or interruption by Landlord or any other person claiming by or
through Landlord.
SECTION 20.12. SURVIVAL. All covenants of Landlord or Tenant which
reasonably would be intended to survive the expiration or sooner
termination of this Lease, including without limitation any warranty or
indemnity hereunder, shall so survive and continue to be binding upon and
inure to the benefit of the respective parties and their successors and
assigns.
ARTICLE XXI. EXECUTION AND RECORDING
SECTION 21.1. COUNTERPARTS. This Lease may be executed in one
or more counterparts, each of which shall constitute an original and
all of which shall be one and the same agreement.
SECTION 21.2. CORPORATE AND PARTNERSHIP AUTHORITY. If Tenant is a
corporation or partnership, each individual executing this Lease on behalf
of the corporation or partnership represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of the corporation
or partnership, and that this Lease is binding upon the corporation or
partnership in accordance with its terms. Tenant shall, at Landlord's
request, deliver a certified copy of its board of directors' resolution or
partnership agreement or certificate authorizing or evidencing the
execution of this Lease.
SECTION 21.3. EXECUTION OF LEASE; NO OPTION OR OFFER. The
submission of this Lease to Tenant shall be for examination purposes
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only, and shall not constitute an offer to or option for Tenant to lease
the Premises. Execution of this Lease by Tenant and its return to Landlord
shall not be binding upon Landlord, notwithstanding any time interval,
until Landlord has in fact executed and delivered this Lease to Tenant, it
being intended that this Lease shall only become effective upon execution
by Landlord and delivery of a fully executed counterpart to Tenant.
SECTION 21.4. RECORDING. Tenant shall not record this Lease
without the prior written consent of Landlord. Tenant, upon the
request of Landlord, shall execute and acknowledge a "short form"
memorandum of this Lease for recording purposes. [See Rider
Page 16-A]
SECTION 21.5. AMENDMENTS. No amendment or termination of this Lease
shall be effective unless in writing signed by authorized signatories of
Tenant and Landlord, or by their respective successors in interest. No
actions, policies, oral or informal arrangements, business dealings or
other course of conduct by or between the parties shall be deemed to modify
this Lease in any respect.
SECTION 21.6. EXECUTED COPY. Any fully executed photocopy or
similar reproduction of this Lease shall be deemed an original for all
purposes.
SECTION 21.7. ATTACHMENTS. All exhibits, amendments, riders and
addenda attached to this Lease are hereby incorporated into and made a
part of this Lease.
ARTICLE XXII. MISCELLANEOUS
SECTION 22.1. NONDISCLOSURE OF LEASE TERMS. Tenant acknowledges and
agrees that the terms of this Lease are confidential and constitute
proprietary information of Landlord. Disclosure of the terms could
adversely affect the ability of Landlord to negotiate other leases and
impair Landlord's relationship with other tenants. Accordingly, Tenant
agrees that it, and its partners, officers, directors, employees and
attorneys, shall not intentionally and voluntarily disclose the terms and
conditions of this Lease to any other tenant or apparent prospective tenant
of the Project, either directly or indirectly, without the prior written
consent of Landlord, provided, however, that Tenant may disclose the terms
to prospective subtenants or assignees under this Lease.
SECTION 22.2. [Deleted]
SECTION 22.3. [Deleted]
SECTION 22.4. MORTGAGEE PROTECTION. No act or failure to act on
the part of Landlord which would otherwise entitle Tenant to be
relieved of its obligations hereunder or to terminate this Lease shall
result in such a release or termination unless (a) Tenant has given
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notice by registered or certified mail to any beneficiary of a deed of
trust or mortgage covering the Premises whose address has been furnished to
Tenant and (b) such beneficiary is afforded a reasonable opportunity to
cure the default by Landlord (which in no event shall be less than sixty
(60) days), including, if necessary to effect the cure, time to obtain
possession of the Premises by power of sale or judicial foreclosure
provided that such foreclosure remedy is diligently pursued. Tenant agrees
that each beneficiary of a deed of trust or mortgage covering the Premises
is an express third party beneficiary hereof, and Tenant shall comply with
any written directions by any beneficiary to pay rent due hereunder
directly to such beneficiary without determining whether an event of
default exists under such beneficiary's deed of trust. [See Rider Page
16-A]
SECTION 22.5. COVENANTS AND CONDITIONS. All of the provisions of this
Lease shall be construed to be conditions as well as covenants as though
the words specifically expressing or imparting covenants and conditions
were used in each separate provision.
SECTION 22.6. SECURITY MEASURES. Tenant hereby acknowledges that
Landlord shall have no obligation whatsoever to provide guard service or
other security measures for the benefit of the Premises or the Project.
Tenant assumes all responsibility for the protection of Tenant, its agents,
invitees and property from acts of third parties. Nothing herein contained
shall prevent Landlord, at its sole option, from providing security
protection for the Project or any part thereof, in which event the cost
thereof shall be included within the definition of Building Costs.
SECTION 22.7. EXISTING LEASE. [See Rider Page 16-A]
LANDLORD: TENANT:
THE IRVINE COMPANY, MOSSIMO, INC.,
a Michigan corporation -----------------------------
a Delaware corporation
-----------------------------
By /s/ Clarence W. Barker By /s/ Mossimo Giannulli
-------------------------- --------------------------
Clarence W. Barker, Title Chief Executive Officer
President, Irvine Industrial and President
Company, a division of The
Irvine Company
By /s/ Richard G. Sim By /s/ Eric R. Hohl
-------------------------- --------------------------
Richard G. Sim Title Chief Operating Officer
Executive Vice President and Chief Financial
Officer
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RIDER PAGE 1-A
1. The following is inserted where indicated in Item 3 of the Basic
Lease Provisions:
"General office, shipping, warehousing, manufacturing, fabric cutting,
wholesale and off-Premises phone or electronic sales of Tenant's
merchandise, construction and painting of promotional materials and
fixtures (including, without limitation, tables, stands, racks, displays
and trade show booths, and other uses incidental to Tenant's business that
do not violate applicable laws and restrictions. Notwithstanding the
foregoing, no on-Premises retail uses shall be permitted except for not
more than four (4) Friday/Saturday "warehouse" sales to the general public
per calendar year, provided that Tenant shall abide by any reasonable
traffic regulations imposed by Landlord in connection with such sales, and
that Tenant shall obtain and abide by any necessary City permits and other
applicable laws and restrictions in connection with such sales."
2. The following is added at the end of Item 8 of the Basic Lease
Provisions:
"Tenant's approval of the Preliminary TI Plans in accordance with the Work
Letter shall also include Tenant's approval of Landlord's Architect's
measurement of the actual Floor Area of the Premises, measured as follows:
the aggregate floor area of the Premises within the outside facades of the
Buildings, less the area of any second floor penetrations (i.e., second
floor lobby and stair penetrations and elevator and mechanical shafts),
shall be calculated by Landlord's Architect. The Basic Rent shall be
adjusted to an amount equal to $.54 per square foot of the Floor Area of
the Premises so calculated and approved by Tenant. The parties shall
memorialize the Basic Rent so adjusted on a form provided by Landlord."
RIDER PAGE 1-A
Page 1 of 1
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RIDER PAGE 2-A
1. The following is added as Section 2.4 of the Lease:
"LANDLORD'S RESPONSIBILITIES. Landlord shall repair any defects in the
construction, including both materials and workmanship, of the Building
and/or the Common Areas, and shall warrant that the HVAC, electrical, water
and plumbing systems are in good working order and condition, at Landlord's
sole cost and expense and not as a Building Cost of the Project, for a
period of three (3) years from and after the Commencement Date. Any
construction guaranties and warranties with respect to the Building which
extend beyond said three (3) year period, shall be assigned jointly to
Tenant and Landlord, provided that Landlord shall make any such repairs as
provided in Section 7.2 of the Lease. In addition to Landlord's
responsibilities for construction defects as provided in this Section 2.4,
Landlord shall also correct, repair or replace, at Landlord's sole cost and
expense and not as a Building Cost of the Project: (i) the structural
elements of the roof structure (but not the roof membranes whose
replacement cost shall be treated as a Building Cost), and the exterior
walls and foundations of the Building, except for those repairs or
replacements resulting from the acts or negligence of Tenant, its agents,
employees, invitees, subtenants or contractors, and (ii) any non-compliance
of the Tenant Improvements, the Shell Improvements or the Project with all
applicable laws and building codes in effect on or before the Commencement
Date, including without limitation, the provisions of Title III of the
Americans With Disabilities Act ("ADA"), provided that all other ADA
compliance issues regarding the Premises, including without limitation,
Tenant's construction of any alterations or other improvements in the
Premises and in connection with the operation of Tenant's business and
employment practices in the Premises, shall be the responsibility of Tenant
at its sole cost and expense. The repairs, corrections or replacements
required of Landlord under this Section 2.4 shall be made promptly
following written notice from Tenant."
2. The following is added at the end of Section 3.2 of the Lease:
"Notwithstanding any contrary provisions of this Section 3.2, if the
Commencement Date has not occurred by that date which is one hundred twenty
(120) days from and after the Estimated Commencement Date, then Tenant may,
by ten (10) days' prior written notice to Landlord, given within thirty
(30) days thereafter but prior to the actual occurrence of the Commencement
Date, elect to terminate this Lease and recover all sums deposited
hereunder. Such termination shall be effective ten (10) days after the date
of any such notice unless the Commencement Date shall occur within said ten
(10) days. The foregoing one hundred twenty (120) day period shall,
however, be extended for the period of any delay caused by Tenant or its
agents, including without limitation any "Tenant Delay" as specified
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in the Work Letter, and/or for any delay (not to exceed forty-five (45)
days in the aggregate) caused by a matter beyond the reasonable control of
Landlord, including without limitation any unanticipated delay in obtaining
governmental permits or approvals."
3. The following are added as Sections 3.3 and 3.4 of the Lease:
"3.3 COMMENCEMENT DATE. It is understood that the Office Building and the
Warehouse Building may be constructed on different project schedules, which
could result in one Building being completed prior to the other. In such
event, upon Landlord's notice of tender of possession of the Premises
within either the Office or the Warehouse Building, as required and
pursuant to the provisions of Section 3.1(a) above, then Tenant shall
commence leasing such space (the "Completed Premises") in accordance with
the provisions of this Lease, except that Tenant shall pay Basic Rent only
as to the Completed Premises on a per-square-foot basis. In addition,
Tenant's monthly rent payable under the Existing Lease (as defined in
Section 22.7 hereinbelow) shall be reduced in proportion to the amount of
space Tenant vacates upon occupancy of the Completed Premises. It is
further understood that, notwithstanding the foregoing provisions of this
Section 3.3, the "Commencement Date" of this Lease, and the commencement of
the one hundred twenty (120)-month Term, shall occur on the date when all
relevant governmental authorities have approved the Tenant Improvements
within both the Office Building and the Warehouse Building as more
specifically provided in Section 3.1(a) above, or Tenant acquires
possession or occupancy of both the Office Building and the Warehouse
Building as more specifically provided in Section 3.1(b) above, whichever
first occurs."
3.4 RIGHT TO EXTEND THIS LEASE. Provided that Tenant is not in material
default (after the expiration of any applicable cure periods) under any
provision of this Lease, either at the time of exercise of the extension
right granted herein or at the time of the commencement of such extension,
and provided further that Tenant is occupying at least fifty percent (50%)
of the entire Premises, then Tenant may extend the Term of this Lease for
one (1) period of sixty (60) months. Tenant shall exercise its right to
extend the Term by and only by delivering to Landlord, not less than twelve
(12) months or more than fifteen (15) months prior to the expiration date
of the Term, Tenant's irrevocable written notice of its commitment to
extend (the "Commitment Notice"). The Basic Rent payable under the Lease
during any extension of the Term shall be at the fair market rental,
including subsequent adjustments, for comparable industrial/office space,
provided that such rate shall in no event be less than the rate payable by
Tenant during the final month of the initial Term. In the event that the
parties are not able to agree on the fair market rental within one hundred
twenty (120) days prior to the expiration date of the Term, then either
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party may elect, by written notice to the other party, to cause said
rental, including subsequent adjustments, to be determined by appraisal as
follows.
Within ten (10) days following receipt of such appraisal election, the
parties shall attempt to agree on an appraiser to determine the fair market
rental. If the parties are unable to agree in that time, then each party
shall designate an appraiser within ten (10) days thereafter. Should either
party fail to so designate an appraiser within that time, then the
appraiser designated by the other party shall determine the fair rental
value. Should each of the parties timely designate an appraiser, then the
two appraisers so designated shall appoint a third appraiser within ten
(10) days thereafter. If the appraisers are unable to so appoint such third
appraiser, then either party may apply to JAMS/ENDISPUTE, Orange,
California, or its successor ("JAMS") for the appointment of such
appraiser. Any appraiser designated hereunder shall have an M.A.I.
certification with not less than five (5) years experience in the valuation
of commercial industrial buildings in Orange County, California.
Within thirty (30) days following the selection of the third appraiser,
each of the appraisers shall determine the fair market rental value,
including subsequent adjustments, of the Premises. In determining such
value, the appraisers shall first consider rental comparables for similarly
improved space in the Irvine Spectrum area with appropriate adjustments for
differences in location, quality and other relevant factors. If adequate
comparables do not exist in the Irvine Spectrum area, then the appraisers
may consider rental comparables from other market areas in Orange County,
California. The appraisers may consider such factors as tenant improvement
allowances and "free rent" in determining the comparables, provided such
factors are comparable with existing conditions at the Premises. In no
event, however, shall the appraiser attribute factors for brokerage
commissions to reduce said fair market rental. The fair market value of the
Premises shall be the arithmetic mean of the two (2) appraisals so
determined which are closest in value. Each party shall bear the cost of
its own appointed appraiser, and the fees of the third appraiser shall be
shared equally by both parties.
Within twenty (20) days after the determination of the fair market rental,
Landlord shall prepare a reasonably appropriate amendment to this Lease for
the extension period and Tenant shall execute and return same to Landlord
within ten (10) days. Should the fair market rental not be established by
the commencement of the extension period, then Tenant shall continue paying
rent at the rate in effect during the last month of the initial Term, and a
lump sum adjustment shall be made promptly upon the determination of such
new rental.
If Tenant fails to timely comply with any of the provisions of this
paragraph, Tenant's right to extend the Term shall be extinguished and the
Lease shall automatically terminate as of the expiration date of
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the Term, without any extension and without any liability to Landlord.
Tenant shall have no other right to extend the Term beyond the single sixty
(60) month extension created by this paragraph. Unless agreed to in a
writing signed by Landlord and Tenant, any extension of the Term, whether
created by an amendment to this Lease or by a holdover of the Premises by
Tenant, or otherwise, shall be deemed a part of, and not in addition to,
any duly exercised extension period permitted by this paragraph.
Tenant's rights under this paragraph 3.4 may be assigned only in connection
with (i) an assignment of all of Tenant's rights under this Lease as part
of a "Permitted Transfer" as defined in Section 9.4 of the Lease, or (ii)
an assignment of all of Tenant's rights under this Lease to an assignee
approved by Landlord in accordance with Section 9.1 of this Lease. Except
as provided in the preceding sentence, Tenant's rights under this Section
3.4 are personal to Tenant and may not be assigned to or exercised by any
other party (including any sublessee), and any such attempt to so assign
such rights shall be void from its inception.
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RIDER PAGE 3-A
1. The following is added at the end of Section 4.2(b) of the Lease:
"Notwithstanding any contrary provision in this Section 4.2, Landlord
hereby agrees that the amount of Operating Costs payable by Tenant
hereunder shall not exceed Twelve Cents ($.12) per square foot per month
during the Expense Recovery Period ended June 30, 1998; provided, however,
that the foregoing increase limitation shall exclude any increase in
Property Taxes during such period to the extent attributable to (i) any
increases to the costs of constructing the Tenant and Shell Improvements
(as defined in the Work Letter) that cause the total cost of constructing
such Improvements to exceed $6,988,680.00 in the aggregate and that are
caused by changes requested by Tenant (including, without limitation, the
cost of the ESFR sprinkler system, and the dock levelers and dock bumpers
set forth in the Work Letter) or by any governmental agency to the approved
Site Plan and Elevations, the Preliminary Plans and/or Preliminary Shell
Plans, or the TI Working Drawings or Shell Working Drawings (as those terms
are defined in the Work Letter), or (ii) an increase (excluding Special
Assessments) in the existing basic tax rate. Thereafter, for each
succeeding Expense Recovery Period during the initial Term of this Lease,
the amount of Building Costs payable by Tenant (exclusive of Property
Taxes, insurance costs, amortized capital costs includable in Building
Costs pursuant to Section 4.2(f)(v) below, unanticipated repair costs and
the costs of painting and re-slurrying the parking areas) shall not
increase by more than (i) six percent (6%) per Expense Recovery Period on a
compound but non-cumulative basis, or (ii) the percentage increase of the
"CPI Index" (the Consumer Price Index of Urban Wage Earners and Clerical
Workers, Los Angeles Metropolitan Area Average, All Items (1982-1984 = 100)
for each Expense Recovery Period on a compound but non-cumulative basis,
whichever is greater, over Five Cents ($.05) per square foot of the
Premises for the Expense Recovery Period ended June 30, 1998."
2. The following is added at the end of Section 4.2(c) of the Lease:
"Provided Tenant is not then in material default after the expiration of
any applicable cure periods, Tenant shall have the right to cause a
licensed accountant to audit Landlord's Operating Expenses. In no event,
however, shall such accountant be compensated by Tenant on a "contingency"
basis, or on any other basis tied to the results of said audit. Tenant
shall give notice to Landlord of Tenant's intent to audit within one
hundred eighty (180) days following delivery of Landlord's initial expense
statement and within ninety (90) days after delivery of Landlord's expense
statement for each of the succeeding Expense Recovery Periods. Such audit
shall be conducted at a mutually agreeable time during normal business
hours at the office of Landlord or its management agent where the records
are maintained. If Tenant's audit determines that actual Operating
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Expenses have been overstated by more than five percent (5%), then subject
to Landlord's right to review and/or contest the audit results, Landlord
shall reimburse Tenant for the reasonable out-of-pocket costs of such
audit. Tenant's rent shall be appropriately adjusted to reflect any
overstatement in Operating Expenses. In the event of a dispute between
Landlord and Tenant regarding the results of such audit, either party may
elect to submit the matter for binding arbitration with JAMS/ENDISPUTE, or
its successor, in Orange County, California.
All of the information obtained by Tenant and/or its auditor in connection
with such audit, as well as any compromise, settlement, or adjustment
reached between Landlord and Tenant as a result thereof, shall be held in
strict confidence and, except as may be required pursuant to litigation and
except for inadvertent disclosures despite Tenant's reasonable efforts to
keep the disclosed information confidential, shall not be disclosed to any
third party, directly or indirectly, by Tenant or its auditor or any of
their officers, agents or employees. Landlord may require Tenant's auditor
to execute a separate confidentiality agreement affirming the foregoing as
a condition precedent to any audit."
3. The following is added at the end of Section 4.2(f) of the Lease:
" . . . and may include a reasonable allocation of the cost of
Building Cost services rendered to the Project as well as to other
project(s) in Landlord's portfolio. Notwithstanding any provisions of
this Section 4.2(f) to the contrary, "Building Costs" shall not
include, and Landlord shall be solely responsible for:
(i) Interest, principal or payments owing on any mortgage or
ground lease or other financing costs of Landlord;
(ii) Depreciation or any other "noncash" expense items;
(iii) Building Costs that are reimbursed by or recovered from
insurance proceeds or third parties, or Property Taxes that are rebated or
reimbursed by taxing authorities, provided that if such costs or Taxes are
reimbursed, rebated or recovered in a later Expense Recovery Period, such
costs shall be credited in such later Period (which obligation shall
survive the termination of the Lease);
(iv) Costs incurred by Landlord pursuant to Section 2.4 of this
Lease;
(v) Costs of any capital (as determined under GAAP, as defined below)
improvements to the Building or Project, or rentals and costs incurred in
leasing equipment ordinarily considered to be of a capital nature (as
determined under GAAP), except that Building Costs may include capital
improvements to the Building and the Project (excluding, however, in any
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event, the cost of the Tenant Improvements and the Shell Improvements): (A)
relating to the replacement, rehabilitation, repair and maintenance of the
Building and the Project (but excluding the cost of construction of new
buildings or capital facilities), (B) relating to compliance with laws
(except as otherwise provided in this Lease), and (C) relating to
improvements that increase energy efficiency, in each case to the extent of
the amortized amount thereof over the useful life of such improvement
calculated at a market cost of funds, all as reasonably determined by
Landlord, for each such year of useful life during the Term. As used
herein, "GAAP" means generally accepted accounting principles, consistently
applied;
(vi) Costs incurred as a result of a casualty or condemnation, other
than costs for which Tenant is specifically made liable pursuant to
Articles XI and XII, respectively;
(vii) Landlord's legal, professional or consultant fees, other than to
the extent that Tenant is specifically made liable for such fees pursuant
to any provision of this Lease and other than the fees for landscaping,
roofing and engineering training consultants to the extent Landlord
reasonably determines that such fees will improve service or reduce overall
Building Costs;
(viii) Costs relating in any manner to Hazardous Materials (as defined
in Section 5.3 below), other than costs for which Tenant is specifically
made liable by the provisions of Section 5.3 below; and
(ix) Reserves, except that Landlord may establish reasonable reserves
for noncapitalized replacements, repairs and maintenance (as determined
under GAAP), and in all events Landlord shall have the right to reserve for
painting and re-slurrying costs.
4. The following is added at the end of Section 4.2(g) of the Lease:
"In no event, however, will Tenant be responsible for payment of any
assessment district payments pursuant to Assessment District 85-7, or any
successor assessment district, or pursuant to any future assessment
district formed for the purpose of constructing new infrastructure in the
Irvine Spectrum area (collectively, the "Special Assessments")."
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RIDER PAGE 4-A
1. The following is added where indicated in Section 5.1 of the
Lease:
"Notwithstanding the foregoing, Landlord shall not impose (or vote for or
consent to) any subsequent covenants, conditions, easements or restrictions
on the Project which would unreasonably interfere with Tenant's permitted
uses of the Premises."
2. The following is added as Section 5.2(b) of the Lease:
"(b) EXTERIOR SIGNAGE. Tenant shall have the right to install exterior
signage on the Building and, subject to the Sign Criteria, on any monument
signage constructed for the Project, which signage shall consist only of
the name "Mossimo" (except as herein provided). The type, location and
design of such signage shall be subject to the prior written approval of
the City of Irvine and Landlord. Landlord's approval shall not be withheld
so long as the signage is in conformance with the Irvine Spectrum Sign
Criteria. Fabrication, installation, insurance, and maintenance of such
signage shall be at Tenant's sole cost and expense. Except for the
foregoing, no sign, advertisement or notice visible from the exterior of
the Premises shall be inscribed, painted or affixed by Tenant on any part
of the Premises without the prior consent of Landlord. Tenant's signage
right shall belong solely to Mossimo, Inc., a Delaware corporation and may
not be transferred or assigned without Landlord's prior written consent,
which consent shall not be unreasonably withheld as to any assignee or
sublessee. It shall be reasonable, however, for Landlord not to consent to
any such transfer of signage rights to any entity whose name Landlord
determines, in its sole and absolute discretion, will diminish the value of
the Premises or Landlord's surrounding portfolio of properties. Tenant
shall also remove such signage promptly following the expiration or earlier
termination of this Lease. Any such removal shall be at Tenant's sole
expense, and Tenant shall bear the cost of any resulting repairs to the
Building that are reasonably necessary due to the removal."
3. The following is inserted where indicated in Section 5.3(b) of
the Lease:
" . . . and any other Hazardous Materials that are necessary and
appropriate for the operation of Tenant's business on the Premises,
PROVIDED, HOWEVER, that: (i) Landlord shall approve, which approval
shall not be unreasonably withheld, any new Hazardous Materials not
shown on the Environmental Questionnaire initially delivered to
Landlord or annually updated by Tenant, (ii) Tenant shall store, use
and dispose of all such Hazardous Materials in compliance with all
applicable laws, and (iii) . . . "
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RIDER PAGE 5-A
1. The following is inserted where indicated in Section 5.3(f) of
the Lease:
" . . . nor with respect to any Hazardous Materials, other than those
described on EXHIBIT C attached hereto, which existed in, on or under the
Premises on or before the Commencement Date. Landlord shall take
responsibility, at its sole cost and expense, for any
governmentally-ordered clean-up, remediation, removal, disposal,
neutralization or other treatment of Hazardous Materials conditions
described in this Section 5.3(f). The foregoing obligation on the part of
Landlord shall include the reasonable costs (including, without limitation,
reasonable attorney's fees) of defending Tenant (with attorneys reasonably
acceptable to Tenant) from and against any legal action or proceeding
instituted by any governmental agency in connection with such clean-up,
remediation, removal, disposal, neutralization or other treatment of such
conditions, provided that Tenant promptly tenders such defense to Landlord.
The obligation on the part of Landlord contained in this Section 5.3(f) is
personal to Landlord and shall not be binding on, nor inure against any
lender acquiring the Premises by foreclosure of its mortgage or deed of
trust or deed in lieu of foreclosure during its period of ownership of the
Premises.
2. The following provisions are added where indicated in Section 6.1
of the Lease:
"Notwithstanding the foregoing, if the operation of Tenant's business on
the Premises is materially disrupted in excess of two (2) business days
because an essential utility service to the Premises is interrupted as the
result of the acts or negligence of Landlord, its authorized agents,
employees or contractors, then Tenant's Basic Rent shall abate commencing
on the third (3rd) business day following Tenant's notice to Landlord until
such service is restored to the Premises. Landlord shall use its diligence
to promptly restore such interrupted service to the Premises."
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RIDER PAGE 6-A
1. The following is added at the end of Section 6.2 of the Lease:
"Notwithstanding the above, the Common Areas (i) include all parking,
driveways and access points shown on the site plan of the Project attached
as Exhibit Y, and (ii) do not include any areas outside of the boundaries
of the Project as shown in Exhibit Y."
2. The following is inserted where indicated in Section 6.3 of the
Lease:
"Notwithstanding the foregoing, Landlord agrees that, so long as this Lease
covers the entire Building, Tenant shall have the sole and exclusive right
to use the Common Areas subject to Landlord's rights contained in this
Lease, and in compliance with all rules and regulations as are reasonably
prescribed from time to time by Landlord."
3. The following is inserted as the third (3rd) sentence of Section
6.4 of the Lease:
"Notwithstanding the preceding two sentences, Landlord agrees that, so long
as this Lease covers the entire Building, Tenant shall have the sole and
exclusive right to use the parking spaces on those portions of the Common
Areas designated for parking, subject to Landlord's rights contained in
this Lease, and in compliance with all rules and regulations as are
reasonably prescribed from time to time by Landlord."
4. The following is inserted where indicated prior to the sentence
beginning "Parking areas shall be used . . . " in Section 6.4 of
the Lease:
"Landlord agrees that the provisions contained in the preceding four (4)
sentences of this Section 6.4 shall not be binding on Tenant so long as
Tenant is the sole tenant of the Project."
5. The following is added at the end of Section 6.4 of the Lease:
"Notwithstanding the above, so long as this Lease covers the entire
Building, Landlord shall have no right to designate employee parking zones,
and Tenant shall have the right to (i) designate reserved spaces, (ii) park
vehicles overnight, (iii) park trucks and other delivery vehicles in the
loading and/or delivery areas of the Common Area, and (iv) redesignate the
location of loading and delivery zones, but with Landlord's prior
reasonable consent."
6. The following is added at the end of Section 6.5 of the Lease:
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"Notwithstanding the above, so long as this Lease covers the entire
Building, Landlord shall have no right without Tenant's consent to (i) add
any other buildings, kiosks or other structures in the Project, (ii) change
the configuration of the parking, driveways and access points (except as
may be required by governmental authorities), or (iii) grant to any third
parties (i.e., other than Tenant) the right to use any of the Common Areas.
Tenant's foregoing consent may be withheld in Tenant's sole and absolute
discretion as to the matters described in subsections (i) and (iii) above,
and in Tenant's reasonable discretion as to the matters described in
subsection (ii) above."
7. The following is added at the end of Section 7.1 of the Lease:
"Notwithstanding the above, Tenant shall have no liability for those costs
that are excluded from the definition of Building Costs in Section 4.2(f)
above."
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RIDER PAGE 7-A
1. The following is added at the end of Section 7.2 of the Lease:
"Notwithstanding the above, Landlord shall be solely liable for those costs
that are excluded from the definition of Building Costs in Section 4.2(f)
above."
2. The following is added where indicated in Section 7.3 of the
Lease:
"Tenant shall make no alterations, additions or improvements to the
Premises except as provided in this Section 7.3. Without the prior consent
of Landlord, Tenant may make the following alterations, additions or
improvements: (i) wall coverings and flooring alterations, and (ii) any
alteration, addition or improvement the cost of which shall not exceed
Forty-Three Thousand Dollars ($43,000.00) in the aggregate during each
thirty (30) month period of the Term for any such alterations, additions or
improvements to the Office Building, or Forty-Three Thousand Dollars
($43,000.00) in the aggregate during each thirty (30) month period of the
Term for any such alterations, additions or improvements to the Warehouse
Building. Landlord's consent for any alterations, additions or improvements
shall be required to the extent the aggregate costs during such thirty (30)
month periods during the Term exceed the amounts set forth in subsection
(ii) above, such consent not to be unreasonably withheld. Notwithstanding
the provisions of the preceding two (2) sentences, however, Landlord's
consent, which may be withheld in Landlord's sole and absolute discretion,
shall be required for any alteration, improvements or addition which shall:
. . . "
3. The following is added at the end of Section 7.3 of the Lease:
"Landlord shall advise Tenant in writing, concurrently with its consent as
to any particular alteration, improvement or addition, whether Landlord
shall require all or any portion of such alteration, improvement or
addition to be removed at the end of the Term; provided that Tenant shall
request, in writing, that Landlord make such election when Landlord's
consent is sought as to such particular alteration, improvement or
addition. Notwithstanding the foregoing: (i) all of Tenant's personal
property, trade fixtures, equipment and inventory, including without
limitation all telephone and communication systems, computer systems, safes
and vaults, storage racks and compartments, paint booth and furniture,
shall remain Tenant's property and shall be removed by Tenant upon
expiration or termination of the Lease, and Tenant shall repair any damage
to the Premises arising from such removal, and (ii) Tenant shall have no
obligation to remove upon the expiration or termination of the Lease
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any of the Tenant Improvements installed by Landlord in connection
with the initial construction of the Building or the Common Areas."
4. The following is inserted where indicated in Section 7.5 of the
Lease:
" . . . at least twenty-four (24) hours' written or oral notice
(except in emergencies, when no notice shall be required), with a
representative of Tenant present if Tenant so desires, and subject to
Tenant"s reasonable security requirements, . . . "
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RIDER PAGE 8-A
1. The following is inserted where indicated in Section 9.1(c) of
the Lease:
" . . . , a subletting of the entire Premises or a subletting so much
of the entire Premises such that the remainder is not viable as a
separate space for leasing in Landlord's reasonable determination,
. . . "
2. The following is inserted where indicated in Section 9.1(d) of
the Lease:
" . . . in connection with the sublease or assignment (such as, but
not limited to, attorneys fees, broker commissions, tenant improvement
costs or monetary payments made to or on behalf of the subtenant or
assignee with respect to existing leases), . . . "
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RIDER PAGE 9-A
1. The following is added as Section 9.4 of the Lease:
"Tenant may without Landlord's consent: (i) subject to the conditions
described in subsections (A) through (C) below, assign the Lease to any
successor corporation or other entity resulting from a merger or
consolidation of Tenant or to any purchaser of all or substantially all of
Tenant's assets or to any corporation or other entity that directly or
indirectly controls, is controlled by, or is under common control with
Tenant, provided that such successor entity assumes in writing all of
Tenant's obligations under this Lease, (ii) sell all or any portion of its
capital stock in any public or private sale, and (iii) sublease up to fifty
percent (50%) of the Premises (subject to the other requirements of this
Article IX that apply to subleases other than the requirement for
Landlord's consent). Each of the foregoing transfers described in the
foregoing subsections (i) through (iii) is referred to herein as a
"Permitted Transfer". Each of the following shall be a condition to the
consummation of any Permitted Transfer by Tenant described in subsection
9.4(i) above: (A) the net worth of the successor entity after such merger,
consolidation or purchase of assets is at least equal to the lesser of
Twenty Million Dollars ($20,000,000.00), or the net worth of Tenant
immediately prior to such merger, consolidation or purchase of assets,
evidence of which net worth, reasonably satisfactory to Landlord, shall be
presented to Landlord prior thereto, (B) Tenant shall provide to Landlord,
prior to such merger, consolidation or purchase of assets, written notice
thereof and such documentation evidencing such transfer as Landlord may
reasonably request in connection therewith, and (C) all of the other terms
and requirements of this Article IX, other than Landlord's consent, shall
apply with respect to such transfer. In the event of a proposed assignment
of this Lease, which would otherwise qualify as a "Permitted Transfer" (as
defined above) except that the successor entity shall fail the net worth
test set forth in subsection (A) above, then such assignment shall be
subject to Landlord's approval as provided in this Article IX, but Landlord
shall not have the "recapture" election set forth in Section 9.1(c) as to
such an assignment. In the event that a Permitted Transfer is not a matter
of public knowledge and Tenant desires to maintain the confidentiality of
such transaction, Tenant may provide the required information pursuant to
subsection (B) above within thirty (30) days following the consummation of
such transfer."
2. The following is added at the end of Section 10.1 of the Lease:
"Tenant may obtain all or any portion of the insurance required herein
pursuant to blanket policies of insurance."
3. The following is added as Section 10.2 of the Lease:
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"Section 10.2. LANDLORD'S INSURANCE. Landlord shall provide the following
types of insurance, with or without deductibles and in amounts and
coverages as may be determined by Landlord in its sole and absolute
discretion (but subject to the requirements and limitations set forth
herein): "all risk" property insurance for the full replacement of the cost
of the Building, subject to standard exclusions, including the Tenant
Improvements or other leasehold improvements made by Landlord, and
commercial general liability insurance with a minimum liability limit of
Two Million Dollars ($2,000,000.00) (which commercial general liability
policy shall name Tenant as an additional insured). Landlord in its sole
and absolute discretion may obtain property insurance covering such other
risks as Landlord or its mortgagees may from time to time deem appropriate
(provided that Landlord shall not elect to obtain earthquake insurance, and
consider the cost therefor as a Building Cost of the Project, unless such
coverage is obtained for all or substantially all of Landlord's industrial
lease portfolio). Landlord shall not be required to carry insurance of any
kind on Tenant's property, including leasehold improvements constructed by
Tenant, trade fixtures, furnishings, equipment, plate glass, signs and all
other items of personal property, and shall not be obligated to repair or
replace that property should damage occur. All proceeds of insurance
maintained by Landlord upon the Building and the Project shall be the
property of Landlord, whether or not Landlord is obligated to or elects to
make any repairs. At Landlord's option, Landlord may self-insure all or any
portion of the risk for which Landlord elects or shall be obligated to
provide insurance coverage hereunder, including, without limitation, by the
creation of a self-insurance retention fund, a reasonable portion of the
cost of which fund shall be allocated as a Building Cost instead and in
lieu of Tenant's obligation for payment of deductibles hereunder. In the
event The Irvine Company, or any entity that directly or indirectly
controls, is controlled by, or is under common control with The Irvine
Company, or any entity resulting from a merger or consolidation of The
Irvine Company or any of the foregoing entities, or a purchaser of all or
substantially all of The Irvine Company's assets, is no longer the Landlord
under this Lease, then such new Landlord shall have at all times during
such period of self-insurance a net worth (determined in accordance with
generally accepted accounting principles, consistently applied) of at least
Twenty Million Dollars ($20,000,000.00)."
4. The following is inserted where indicated in Section 10.3 of the
Lease:
" . . . , Landlord's employees, officers, directors and shareholders,
Landlord's management company(ies) (and their respective employees,
officers, directors and shareholders), any lender holding a mortgage
encumbering the Premises, and . . . "
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<PAGE>
5. The following provisions are inserted where indicated prior to
the last sentence of Section 10.3 of the Lease:
"To the fullest extent permitted by law, Landlord shall defend, indemnify,
protect, save and hold harmless Tenant, its agents and any and all
affiliates of Tenant, including without limitation, any corporations or
other entities controlling, controlled by or under common control with
Tenant and their respective employees, officers, directors and
shareholders, from and against any and all claims, liabilities, costs or
expenses arising in connection with Landlord's acts or willful misconduct
in performing the repairs, operation and maintenance of the Building and
the Common Areas of the Project. Tenant may, at its option, require
Landlord to assume Tenant's defense in any action covered by this indemnity
obligation through counsel reasonably satisfactory to Tenant."
RIDER PAGE 9-A
Page 3 of 3
-78-
<PAGE>
RIDER PAGE 10-A
1. The following is added where indicated in Section 10.4 of the
Lease:
"The foregoing provisions for Landlord's nonliability shall not immunize
Landlord for liability for personal injury or for damage to Tenant's
personal property on the Premises which damage or injury results from the
negligent acts or omission of Landlord or its authorized agents, employees
or contractors."
2. The following is added at the end of Section 10.5 of the Lease:
"Each party shall be responsible for obtaining such endorsements or
provisions in its applicable policies of insurance that shall permit the
foregoing waiver of subrogation without such endorsements or provisions
having the effect of invalidating the coverage of the policy. The foregoing
waiver of subrogation shall extend to any deductible amount maintained by
either party in their respective policies of insurance.
3. The following is inserted where indicated in Section 11.1(b) of
the Lease:
"or if the damage occurs during the final twelve (12) months of the Term
(and would cost more than One Hundred Thousand Dollars ($100,000.00) to
repair),"
4. The following is added at the end of Section 11.1(c) of the
Lease:
"So long as Tenant maintains the business interruption policy of insurance
required by paragraph 1 of Exhibit D of this Lease, and makes diligent
efforts to collect any claims made thereunder, Tenant shall have an
abatement of rent as provided in this Section.
RIDER PAGE 10-A
Page 1 of 1
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<PAGE>
RIDER PAGE 11-A
1. The following is added at the end of Section 13.1 of the Lease:
"All subordination instruments to be executed by Tenant pursuant to this
Section shall require the holder of the encumbrance to be bound by: (i) any
security deposit or prepaid rent provided for by the terms of the Lease
(provided that Tenant shall promptly reimburse Landlord for Landlord's
actual and reasonable cost of any required letter of credit resulting from
the foregoing requirement that the holder be bound by the security deposit
or prepaid rent, unless the foregoing requirement is waived by Tenant),
(ii) the provisions of this Lease relating to the construction of the
Tenant and Shell Improvements by Landlord, and (iii) the provisions of this
Lease relating to the use of insurance proceeds to restore or repair the
Premises following a casualty loss or taking by eminent domain, unless said
holder can demonstrate impairment of its security."
2. The following is added at the end of Section 13.3(a) of the
Lease:
"Notwithstanding the above, so long as Tenant is a publicly traded company
regulated by the Securities and Exchange Commission ("SEC"), Tenant's
obligation to provide financial statements shall be satisfied by providing
Landlord with copies of Tenant's current financial statements filed with
the SEC, and in no event shall Tenant be required to provide financial
statements more than twice per year."
RIDER PAGE 11-A
Page 1 of 1
-80-
<PAGE>
RIDER PAGE 12-A
1. The following provisions are inserted where indicated in Section
14.2(a)(i)(4) of the Lease:
"(provided that any such costs of a new lease having a term in excess of
the then remaining Term of this Lease shall be prorated over its term and
Tenant shall be liable only for the cost so allocated to the then remaining
Term of this Lease)"
RIDER PAGE 12-A
Page 1 of 1
-81-
<PAGE>
RIDER PAGE 13-A
1. The following is added at the end of Section 14.3(a) of the
Lease:
"Notwithstanding the above, the first late payment in any calendar year
shall not incur any late charge or late interest unless Landlord gives
Tenant written notice thereof, and Tenant fails to pay such amount within
two (2) business days following receipt of such notice.
2. The following is added at the end of Section 14.5 of the Lease:
"If Landlord shall fail to perform any repair, maintenance or service
obligation required under this Lease after notice and within the applicable
time period described above, or immediately in the event of an emergency,
then Tenant may (but shall have no obligation to) perform such repair,
maintenance or service itself and offset the cost thereof against rent in
accordance with the following procedure. Tenant shall give Landlord a
second notice ("Self-Help Notice") stating that Tenant intends to perform
such repair, maintenance or service. If Landlord fails to commence (and
thereafter diligently pursue until completion) such repair, maintenance or
service within the applicable time period described above, or immediately
in the event of an emergency, then Tenant shall have the right to itself
perform the repair, maintenance or service and Landlord shall be
responsible for Tenant's reasonable out-of-pocket costs incurred in so
performing such repairs, maintenance or service. Such costs shall be paid
within fifteen (15) days following submission by Tenant of its itemized
invoice. Any dispute involving the operation of these provisions added to
this Section 14.5 shall be resolved by binding arbitration following notice
from either party, before a single retired judge at JAMS, or its successor.
In the event Jams shall find in favor of Tenant, then Tenant shall have the
right to offset the amount of any monetary arbitration award in favor of
Tenant against Basic Rent next due and owing following such award by JAMS.
In the event that the work affects the Building's structural, mechanical,
electrical, heating, ventilating, air conditioning, life safety or plumbing
components or systems, then Tenant shall endeavor to use only those
contractors used or approved by Landlord for such work. If those
contractors are unwilling or unable to perform the work (or are unknown to
Tenant), Tenant may retain the services of qualified, reputable, licensed
and bonded contractors with experience in similar Building systems."
3. The following is added at the end of Section 14.8 of the Lease:
"Nothing in this Section, however, shall affect Tenant's right to make a
claim against and recover damages or other relief from any insurance
RIDER PAGE 13-A
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<PAGE>
company (or self-insurance program) insuring Landlord with respect to any
liability covered by such insurance policy. Further, Landlord covenants
that it shall at all times maintain a minimum equity (i.e., market value
less encumbrances) of Five Million Dollars ($5,000,000.00) in the Project
(and violation of such covenant shall result in personal liability of
Landlord up to such amount)."
RIDER PAGE 13-A
Page 2 of 2
-83-
<PAGE>
RIDER PAGE 14-A
1. The following is inserted where indicated in Section 15.1 of the
Lease:
"In either of such events, Possession shall be subject to all of the terms
of this Lease, except that for the initial two (2) months of holding over
by Tenant, the monthly Basic Rent shall be at the same rate per rentable
square foot that Tenant is paying for the month immediately preceding the
date of termination. For the third (3rd) and fourth (4th) months of holding
over by Tenant, the monthly Basic Rent shall be the greater of (a) one
hundred twenty-five percent (125%) of the Basic Rent for the month
immediately preceding the date of termination. Thereafter, the monthly
Basic Rent shall be one hundred fifty percent (150%) of the Basic Rent for
the month immediately preceding the date of termination."
RIDER PAGE 14-A
Page 1 of 1
-84-
<PAGE>
RIDER PAGE 16-A
1. The following is added at the end of Section 21.4 of the Lease:
"Landlord agrees to record a memorandum of the Lease if Tenant elects
to obtain a leasehold policy of title insurance."
2. The following is added at the end of Section 22.4 of the Lease:
"(such performance by Tenant to such beneficiary shall fully discharge
Tenant's obligation to Landlord, and Landlord hereby releases Tenant of and
from any claims in connection with such performance)"
3. The following is added as Section 22.7 of the Lease:
"SECTION 22.7. TERMINATION OF EXISTING LEASE. Landlord and Tenant are
currently parties to a lease dated June 24, 1991 for space in a building
located at 15320 Barranca Parkway, Irvine, California (the "Barranca
Premises"), which lease was amended by that certain First Amendment to
Lease dated May 27, 1994 and by that certain Second Amendment to Lease of
even date with this Lease (as amended, the "Existing Lease"). Landlord and
Tenant agree that the rights and obligations of the parties under the
Existing Lease shall terminate in their entirety, effective as of midnight
on the day preceding the Commencement Date of this Lease (as such date is
determined in accordance with Section 3.1(b) of the Lease), provided that
such termination shall not relieve Tenant of (a) any accrued obligation or
liability under the Existing Lease as of said termination date, or (b) any
obligation under the Existing Lease which was reasonably intended to
survive the expiration or termination thereof. Tenant understands and
agrees that it shall completely vacate the Barranca Premises by midnight on
the day preceding the Commencement Date of this Lease and shall remove all
property therefrom in accordance with the provisions of Section 19.1 of the
Lease. It is understood that the term of the Existing Lease is scheduled to
expire on September 30, 1997 and, during the period commencing October 1,
1997 and ending upon the Commencement Date of this Lease, Tenant shall be
occupying the Barranca Premises on a holdover basis in accordance with
Section 19.2 of the Existing Lease, but Landlord shall waive Tenant's
monthly holdover premium charges (i.e., the excess rental payable over the
rate in effect during the final month of the scheduled term of the Existing
Lease) as set forth in said Section 19.2. It is further understood that in
accordance with the provisions of Section 3.3 hereinabove, the Office and
Warehouse Buildings may be completed and ready for Tenant's occupancy at
different times. In this regard, notwithstanding any contrary provision in
this Section 22.7, Tenant shall be permitted to vacate the Barranca
Premises in stages as necessary to take occupancy of the Completed Premises
(as defined in Section 3.3), and, in such event, Landlord shall adjust the
RIDER PAGE 16-A
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<PAGE>
monthly rent payable by Tenant under the Existing Lease as provided in said
Section 3.3. Notwithstanding the above, if this Lease is terminated for any
reason (other than Tenant's default) prior to Tenant's taking occupancy of
the Premises, Tenant's right to holdover in the Barranca Premises without
any rent premium or other penalty shall continue for a period of six (6)
months following such termination."
RIDER PAGE 16-A
Page 2 of 2
-86-
<PAGE>
EXHIBIT 11
MOSSIMO, INC.
COMPUTATION OF NET INCOME PER SHARE
(in thousands, except per share data)
Six Months Ended Three Months Ended
June 30, 1996 June 30, 1996
---------------- ------------------
Weighted average shares outstanding
during the period 14,418 15,000
Dilutive effect of stock options 175 202
Equivalent shares issuable for the
outstanding S distribution note 8 8
------- -------
14,601 15,210
------- =======
Net income for primary income
per share $ 3,966
=======
Net income per share $ 0.26
=======
Pro forma net income for primary
income per share $ 7,952
=======
Pro forma net income per share $ 0.54
=======
-87-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,205
<SECURITIES> 0
<RECEIVABLES> 19,738
<ALLOWANCES> 455
<INVENTORY> 15,911
<CURRENT-ASSETS> 44,374
<PP&E> 2,770
<DEPRECIATION> 848
<TOTAL-ASSETS> 46,543
<CURRENT-LIABILITIES> 7,812
<BONDS> 0
0
0
<COMMON> 15
<OTHER-SE> 38,587
<TOTAL-LIABILITY-AND-EQUITY> 46,543
<SALES> 25,601
<TOTAL-REVENUES> 26,512
<CGS> 14,503
<TOTAL-COSTS> 5,480
<OTHER-EXPENSES> (108)
<LOSS-PROVISION> 2,671
<INTEREST-EXPENSE> (109)
<INCOME-PRETAX> 6,637
<INCOME-TAX> 2,671
<INCOME-CONTINUING> 3,966
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,966
<EPS-PRIMARY> 0.26
<EPS-DILUTED> 0.26
</TABLE>
