SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended December 31, 1997
1-12571
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(Commission File No.)
INTELLICELL CORP.
(Exact name of registrant as specified in its charter)
Delaware 95-4467726
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(State of incorporation) (I.R.S. Employer
Identification No.)
9314 Eton Avenue, Chatsworth, California 91311
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(Address of principal executive offices including zip code)
Registrant's telephone number, including area code: (818) 709-2300
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Securities registered pursuant to Section 12(b) of the Act:
Title of Class Name of Each Exchange Which Registered
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Common Stock, $0.01 par value Boston Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
Title of Class
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Warrants to purchase Common Stock
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 preceding 12 months (or for such shorter period that the
registrant as required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. YES |X| NO: |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant' s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 31, 1998 was approximately $7,870,200 (based on the
closing sales price of such stock as of such date on the Nasdaq SmallCap Market
on March 31, 1998). No other capital stock is outstanding. Shares of Common
Stock held by each officer and director and by each person who owned 10% or more
of the outstanding Common Stock have been excluded in that such persons may be
deemed to be affiliates. This determination of affiliate status is not
necessarily conclusive and may not apply for other purposes.
As of March 31, 1998 there were 4,415,902 shares of the registrant's
Common Stock outstanding.
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PART I
Item 1. Business.
The statements which are not historical facts contained in this
Annual Report are forward looking statements that involve risks and
uncertainties, including but not limited to, possible delays in the
Company's expansion efforts, changes in wireless communication markets
and technologies, the nature of possible supplier or customer
arrangements which may become available to the Company in the future,
possible technological obsolescence, uncollectible accounts receivable,
slow moving inventory, lack of adequate financing, increased
competition and unfavorable general economic conditions. The Company's
actual results may differ materially from the results discussed in any
forward looking statement.
General
Intellicell Corp. (the "Company") is engaged in the wholesale distribution
of wireless communications products. The Company offers cellular telephones and
accessories from leading manufacturers featuring brand names such as AT&T,
Audiovox, Ericsson, Mitsubishi, Motorola, Nokia, NEC, OKI, Panasonic, Pioneer,
Qualcomm, Samsung and Sony. The Company also offers a proprietary line of
accessory products under the Intellicell name. The Company has developed a
customer base of more than 2,100 wholesalers, carriers, agents, dealers and
retailers.
The Company's objective is to capitalize on wireless communications
opportunities in markets in which the Company believes it can achieve
significant growth. The Company intends to implement its business strategy by
(i) offering a broad product selection, (ii) targeting emerging foreign markets,
(iii) establishing strategic relationships and (iv) expanding through
acquisitions.
Recent Developments
In March 1998, in response to the significant losses sustained during the
fiscal year ended December 31, 1997 and continuing intense competition
encountered by the Company, the Company reduced its work force by fourteen (14)
employees or thirty five (35%) percent. The Company is also seeking to
effectuate other cost-savings measures.
The losses incurred by the Company are attributable to various factors,
including the intense price competition in the wireless communications industry.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations." The Company has failed to sustain significant supplier
relationships with leading manufacturers of analog and
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digital cellular products. The Company's supplier relationships have been
primarily other wholesale distributors. As a result, the Company's supply of
product is inconsistent, of higher cost and does not typically include price
protection and promotional allowances when compared to the products which are
obtained directly from manufacturers. In addition, the wide acceptance of the
digital personal communications services ("PCS") format has had an adverse
effect on the demand for the analog and digital cellular products sold by the
Company. Manufacturers in the digital PCS market have selected distribution
channels which do not currently include the Company. There can be no assurance
that the Company will establish additional strategic relationships with
manufacturers of analog and digital cellular products or secure any strategic
relationships allowing it to access digital PCS products directly. The Company's
financial results will continue to be adversely affected if it is unable to
secure (i) additional supplier relationships with manufacturers of analog and
digital cellular products and (ii) a consistent supply of digital PCS products
at commercially competitive rates. See "Competition."
In March 1998, the Company signed a non-exclusive distribution agreement
with Sony Electronic Inc Wireless Telecommunications Company ("Sony"), pursuant
to which the Company will distribute analog and cellular digital telephones and
accessories to carriers and retailers.
In February 1998, the Company relocated its executive offices and
warehouse facilities. The leased facility, located in Chatsworth, California, is
comprised of approximately 36,000 square feet of office, operations and
warehouse. See "Item 2 Properties."
In January 1998, the Company entered into a revolving line of credit
agreement (the "Credit Agreement") with BankAmerica Business Credit, Inc.
("BankAmerica") which expires in January 2001 and provides for borrowings of up
to a maximum of $12 million based on a maximum of 80% of eligible accounts
receivable and the lesser of $6 million or 50% of eligible inventory as defined
in the Credit Agreement. Borrowings under the Credit Agreement bears interest at
prime rate plus one half of one percent (0.5%) per annum. The Credit Agreement
is collateralized by substantially all of the assets of the Company. The Credit
Agreement prohibits the Company from paying dividends or incurring additional
indebtedness except for trade indebtedness and, initially, requires the Company
to maintain a tangible net worth of no less than $5.5 million and annual
earnings before interest, taxes, depreciation and amortization of $500,000.
The Company was in violation of the tangible net worth covenant under the
Credit Agreement at December 31, 1997. In April 1998, BankAmerica waived such
default of the tangible net worth covenant and revised the Credit Agreement by
amendment (the "Amendment"). Pursuant to the Amendment, the maximum borrowing
has been reduced from $12 million to $6 million, with such borrowings limited to
80% of eligible accounts receivable and the lesser of $1 million or 50% of
eligible telephone inventory as defined in the Amendment. Borrowings under the
Amendment bear interest at the prime rate plus two and one-half percent (2.5%)
per annum. The Credit Agreement, as amended, requires the Company to meet
monthly
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levels of tangible net worth and earnings before interest, taxes, depreciation
and amortization. All other provisions of the Credit Agreement remain in effect.
On November 18, 1997, the Board of Directors of the Company declared the
payment of a dividend to its shareholders in the form of a warrant to purchase
Common Stock of the Company. Record owners of Common stock as of December 10,
1997, received one warrant for every two shares of Common Stock held. Each
warrant entitles the holder to purchase one share of Common Stock at a price of
$4.00 per share for a three year period, subject to adjustment in certain
circumstances. The warrants are redeemable by the Company, upon notice of not
less than 30 days, at a price of $.10 per warrant in the event the closing bid
quotation of the Common Stock on all 20 of the trading days ending on the third
day prior to the day on which the Company gives notice has been at least $7.00
per share; provided, however, that no such right of redemption or exercise shall
exist prior to the time that such shares of Common Stock underlying the warrants
have been registered under the Securities Act of 1933, as amended. Ben Neman,
Chairman, Chief Executive Officer and President of the Company waived his rights
to receive dividends on the shares of Common Stock held by him. The Company's
independent public accountants determined the fair market value of the warrants
to equal $1,983,000. This amount has been charged to retained earnings and
credited to additional paid-in capital.
The Wireless Communications Industry
The wireless communications industry provides voice and data
communications services through cellular telephone, PCS, satellite, enhanced
specialized mobile radio ("ESMR") and paging services. Advances in system
technology and equipment, combined with lower equipment prices and service
charges, have increased consumer acceptance and driven dramatic increases in
worldwide demand for wireless communications products and services.
United States Market
The domestic market for wireless communications products and services has
grown substantially. According to the Cellular Telecommunications Industry
Association, the number of Cellular subscribers in the United States has
increased from approximately 4.4 million in 1990 to approximately 48.7 million
by June 1997, growing by more than 5.8 million, or approximately 12.3%, in the
last six months of 1997 alone. The number of cellular and PCS subscribers in the
United States is projected to reach approximately 93.2 million by the year 2000.
It is estimated that market penetration for cellular subscribers in the United
States, based on population, was approximately 17.6% at December 31, 1997.
The Company believes that the United States cellular market is expanding
primarily due to decreases in monthly services fees and retail prices for
cellular telephones and a significant product replacement cycle. Many cellular
service providers are upgrading their existing cellular systems from analog
radio frequency to digital radio frequency technology. Digital systems offer
certain advantages over analog systems, including improved quality of voice and
data
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transmission and greater system capacity, thereby enabling carriers to add
additional subscribers. The Company believes that proliferation of digital
systems will increase demand for cellular service and new cellular products.
International Market
The markets for cellular products and services outside the United States
also have grown significantly. According to industry sources, wireless
subscribers increased by 65 million, or 48%, to 200 million total subscribers
from 1996 to 1997. The Company has been successful in expanding its
international sales, with such sales as a percentage of total net sales
increasing from 5.2% for the year ended December 31, 1996 to 17.6 % for the year
ended December 31, 1997. It is estimated that market penetration for cellular
subscribers outside the United States, based on population, was less than 4% at
the end of 1997.
The Company expects that rapid growth in international markets will
continue as low market penetration, economic growth and high population density
result in increased demand for cellular communications products and services.
The Company also believes that cellular systems in certain of these countries
offer lower-cost alternatives to the construction of conventional telephone
facilities because they do not require substantial investment in infrastructure.
Due to these factors and the limited availability and quality of land-line
service, the Company believes that consumers in many countries outside of the
United States will increasingly utilize wireless services. These markets present
attractive expansion opportunities.
Emerging Wireless Technologies
In addition to growth in the cellular market, the emergence of new wireless
communications technologies and services, such as the PCS, EMR and satellite
communications systems, is expected to increase the capabilities associated with
wireless communications including seamless roaming, increased service coverage,
improved signal quality and greater data transmission capacity. PCS consists of
cellular type services, including advanced voice and data transmissions using
small, light-weight wireless telephones or hand-held computers. PCS also offers
greater functionality resulting in lower cost service options and lighter
handsets with longer battery life. PCS has been introduced in markets throughout
the United States. Upon the widespread commercial introduction of these
services, demand for wireless communications products and services is expected
to increase.
Prior to 1995, the United States Federal Communications Commission (the
"FCC") allowed two carriers to provide cellular service to each metropolitan
service area. In connection with the auctioning of PCS licenses in 1995 and
1996, the FCC added three PCS carriers to each metropolitan service area,
increasing the total number of potential carriers to five per market. The
Company believes that this increase in the number of wireless service providers
will increase competition and the demand for wireless communications products
and services through lower prices, increased advertising and improved service
quality.
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During late 1994, the FCC awarded mobile satellite licenses to major
corporations that are investing in satellites which will enable them to provide
wireless phone, data, fax and paging services on a global basis. In addition,
other corporations announced their intention to enter the mobile satellite
market and launch networks, which would permit computers to bypass local
telephone exchanges and connect directly to the Internet.
Regulatory Trends
The Company believes that the Telecommunications Act of 1996 will
ultimately serve to reverse the trends associated with the breakup of AT&T and
the Bell System that separated long distance and local telephone service. This
Act permits long distance, cable and wireless companies to compete in local
markets. The Company believes that such deregulation will significantly increase
competition that will translate into lower costs and increased numbers of
subscribers.
Strategy
The Company's objective is to capitalize on wireless communication
opportunities in markets in which the Company believes it can achieve
significant growth. The Company has developed a strategy which includes certain
key elements. There can be no assurance that the Company's objectives can be
achieved given the Company's current financial condition and the significant
competitive conditions which the Company encounters. The key elements are as
follows:
Expand Through Acquisitions. Assuming financing is available, of which no
assurance can be given, the Company is seeking to expand through acquisitions of
companies, which the Company believes will provide significant growth potential.
Any decision to make an acquisition will be based upon the business prospects
and competitive position of the acquisition candidate and the extent to which
any business would enhance the Company's prospects and maximize revenues.
Potential acquisition candidates may include companies with alternative
distribution channels for cellular products.
On December 24, 1997, the Company signed a non-binding letter of intent to
acquire all of the outstanding stock of Wholesale Cellular Latina del Peru, S.A.
("WCL"), a wholesale distributor of wireless communications products based in
Peru, for $3.5 million. The parties are currently renegotiating the purchase
price downward as a result of WCL's results of operations for the fiscal year
ended December 31, 1997. The purchase price would be paid through the issuance
of unregistered shares of the Company's common stock, subject to post-closing
adjustment. The acquisition, if consummated, would be accounted for using the
purchase method. The purchase price would be allocated principally to goodwill
which would be amortized over 20 years. The acquisition is conditioned upon
obtaining the approval of BankAmerica. BankAmerica has indicated that it will
not provide the necessary consent to the
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transaction. Accordingly, the acquisition of WCL cannot be consummated unless
the Company obtains the consent of BankAmerica or can arrange an alternate
credit facility with a lender that consents to the transaction.
Target Emerging Foreign Markets. The Company is targeting emerging foreign
markets in which cellular products are believed to have potential for
significant market penetration. The Company believes that certain markets are
likely to achieve greater penetration based on anticipated economic growth and
the increasing numbers of carriers. Many of these markets, particularly in Latin
American countries, are characterized by low penetration rates, high population
densities and inadequate land-line service. The Company anticipates that it will
initially seek to achieve penetration in regions with fast-growing economies and
wireless markets. Additionally, the Company will seek to further establish a
position in Latin America by developing relationships with established carriers
and industry participants.
Establish Strategic Relationships. The Company will seek to establish
strategic marketing arrangements with partners who will provide knowledge,
experience and financial resources appropriate to a specific opportunity and who
will enhance the Company's ability to achieve significant penetration in
particular markets. The Company will also seek to obtain maximum exposure of
wireless products by targeting alternative distribution channels, including mass
merchandisers and retailers with access to significant consumer markets. In
March, 1998, the Company entered into an agreement with Sony Electronic Inc.,
Wireless Telecommunications Company ("Sony") pursuant to which it will
distribute cellular telephones and accessories to carriers and retailers.
Offer Broad Product Selection. The Company distributes a broad selection
of popular brand name products and accessories. The Company analyzes customer
purchasing patterns and industry trends to anticipate demand for new products.
The emergence of new wireless communications technologies, including digital
cellular technology, PCS and satellite communications systems, is expected to
dramatically increase demand for wireless products and services. The Company
intends to evaluate cost, effectiveness and the potential of future wireless
services as primary considerations in selecting products for particular markets.
The Company is making an effort to develop relationships with equipment
manufacturers and other potential providers of emerging wireless products and
services which will position it to capitalize on evolving industry standards and
trends. No relationships have been developed to date and no assurance can be
given that such relationships with key players in the emerging wireless product
and service industry will be developed.
The Company's strategy and current and future marketing plans are subject
to change as a result of a number of factors, including inability to obtain
products at commercially competitive rates, adequate financing, progress or
delays in the Company's expansion efforts, changes in wireless communications
markets and technologies, the nature of possible supplier or customer
arrangements which may become available to it in the future, and competitive
factors. There can
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be no assurance that the Company will be able to successfully expand its
operations or achieve its other strategic objectives.
Products
The Company offers a broad selection of wireless products from leading
manufacturers. The Company's product offerings include a variety of hand-held
and mobile cellular telephones featuring prominent brand names such as AT&T,
Ericsson, Mitsubishi, Motorola, Nokia, NEC, Audiovox, OKI, Panasonic, Pioneer,
Qualcomm, Samsung and Sony. The Company continually reviews and evaluates
cellular products in determining the mix of products purchased for resale to
customers and seeks to acquire distribution rights for products which the
Company believes have the potential for significant market penetration. For the
years ended December 31, 1995, 1996, and 1997, approximately, 80.0%, 74.6% and
92.0%, respectively, of the Company's revenues were derived from sales of
cellular telephones. For such periods, a significant portion of the Company's
cellular telephone sales represented Motorola and Audiovox products. Motorola
products (63% of 1997 telephone sales) are not available to the Company directly
from the manufacturer and as such the Company does not obtain price protection,
cooperative advertising and marketing allowances on such products.
In addition, the Company offers brand name and proprietary lines of
cellular accessory products under the Intellicell name, consisting principally
of batteries, battery eliminators, conditioner and plug-in chargers, cases,
antennas and "hands-free" kits. For the years ended December 31, 1995, 1996, and
1997, sales of accessories accounted for approximately 20.0%, 25.4% and 7.9%,
respectively, of the Company's revenues. The Company commenced marketing its
proprietary line of accessory products in 1995. For the years ended December 31,
1995, 1996, and 1997, sales of proprietary accessory products accounted for
approximately 5.6%, 2.9%, and 2.6%, respectively, of the Company's revenues. The
Company does not intend on focusing its marketing activities on the sale of
proprietary accessory products.
Customers
The Company has developed a customer base of more than 2,100 wholesalers,
carriers, agents, dealers and retailers. The Company believes that these
categories of customers will continue to be the primary purchasers of the
Company's products.
For the years ended December 31, 1995, 1996 and 1997, sales of cellular
products to the Company's five largest customers accounted for approximately
48.7%, 48.8% and 36.2%, respectively, of the Company's revenues. For the year
ended December 31, 1995, sales of cellular products to Downtown Cellular
Distributors ("Downtown") and Brightpoint Inc. ("Brightpoint") accounted for
approximately 24.7% and 10.4%, respectively, of the Company's revenues. For the
year ended December 31, 1996, sales to Brightpoint and Downtown accounted for
approximately 17.1% and 15.9%, respectively, of the Company's revenues. For the
year ended December 31, 1997, sales to Downtown and Brightpoint accounted for
approximately
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11.7% and 11.4%, respectively, of the Company's revenues. For such periods, no
other customer accounted for more than 10% of the Company's revenues.
In February 1998, the Company learned that the business and associated
assets of Downtown had been assumed by Cellstar Corporation ("Cellstar") a
supplier/customer and competitor of the Company, which the Company believes
maintained a first priority security interest in and to the assets of Downtown.
As a result, in 1997, the Company expensed $1,665,000 to bad debt expense to
reserve the unpaid receivable from Downtown. The Company is in the process of
investigating its legal remedies in connection with the foregoing.
Brightpoint and Cellstar are two of the Company's primary
customer/supplier competitors. Failure or delay by these or other
customer/suppliers in purchasing and/or supplying competitive products on
favorable terms, or at all, would materially adversely affect the Company's
sales, operating margins and the Company's ability to obtain and deliver
products on a timely and competitive basis. See "Competition."
The Company generally sells its products pursuant to customer purchase
orders and ships product orders received by 4:00 P.M. local time the same day.
Unless otherwise requested, substantially all of the Company's products are
delivered within two days of receipt of customer orders by common carrier.
Because orders are filled shortly after receipt, backlog is not material to the
Company's business.
The Company sells its products to customers in foreign markets, including
Israel, Paraguay, Mexico, Peru, Brazil and Canada and to United States-based
exporters of cellular products. For the years ended December 31, 1995, 1996 and
1997, sales of the Company's products to customers in foreign markets accounted
for 0.4%, 5.2%, and 17.6% respectively, of the Company's revenues. The 1997
foreign sales of 17.6% is comprised as follows: Peru-8.3%, Brazil-4%,
Paraguay-2.3%, Other Foreign Countries-3%. During the 1997 fiscal year, no other
country accounted for more than 10% of the Company's foreign market sales. The
Company is seeking to continue to expand product sales in foreign markets. No
assurance can be given that the Company will be able to do so.
Suppliers
The Company has established relationships with leading manufacturers and
distributors of wireless products. The Company generally negotiates directly
with suppliers in an effort to obtain adequate inventories of popular brand name
products on favorable pricing terms. Inventory purchases are based on quality,
price, service, customer demand, product availability and brand name
recognition. Product manufacturers typically provide warranties, which the
Company extends to its customers.
For the years ended December 31, 1995, 1996 and 1997, the Company's four
largest suppliers accounted for approximately 67.0%, 54.1% and 43.9%,
respectively, of product purchases. For the year ended December 31, 1995,
Brightpoint, Cellstar, Pacific Unplugged
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Communications ("Unplugged") and Best Cellular Distributors ("Best Cellular")
accounted for approximately 28.3%, 13.7%, 13.6% and 11.4%, respectively, of
product purchases, with Brightpoint, Best Cellular, Sony and Cellstar accounting
for approximately 26.1%, 10.2%, 9.6% and 8.2%, respectively, of product
purchases for the year ended December 31, 1996. For the year ended December 31,
1997, Brightpoint, Progressive Concepts, Inc. and Audiovox, accounted for
approximately 11.9%, 11.8%, and 11.0% respectively, of product purchases. For
these periods, none of the Company's other suppliers accounted for more than 10%
of product purchases. Brightpoint and Cellstar are two of the Company's primary
competitors. Failure or delay by these or other suppliers in supplying
competitive products on favorable terms, or at all, could materially adversely
affect the Company's operating margins and the Company's ability to obtain and
deliver products on a timely and competitive basis. See "Competition."
The Company has entered into non-exclusive arrangements with Audiovox,
NEC, OKI Telecom, Panasonic Telecommunications and Systems Company and Sony
pursuant to which the Company distributes cellular telephones and accessories to
carriers, retailers and, with the exception of Sony products, wholesalers. Such
arrangements are terminable on short notice. The Company purchases products from
the above manufacturers and other distributors pursuant to purchase orders
placed from time to time in the ordinary course of business. The Company
believes that its relationships with its suppliers are satisfactory, although it
is seeking to establish more supplier relationships with manufacturers.
The Company generally places orders to its suppliers by facsimile on a
daily basis. Purchase orders are typically filled within one to seven days and
cellular products are shipped to the Company's warehouses by common carrier.
The Company obtains all of its proprietary accessory products from
manufacturers in Taiwan and is dependent on such manufacturers to provide
sufficient quantities of products on favorable terms. The Company currently pays
import duties of between 2.4% and 5.9% of the cost of its accessory products.
Sales, Marketing and Distribution
The Company's executive officers and sales staff of twelve (12) persons
are responsible for all of the Company's marketing and sales efforts. The
Company's sales personnel are paid a base salary plus commission (generally 15%
of gross profit represented by their sales). In addition, the Company's Vice
President, Business Development is paid a base salary plus a bonus based on
certain performance levels. The Company maintains agreements with its sales
personnel, which contain confidentiality provisions and prohibit such
individuals from competing with the Company.
The Company's sales staff consists of ten account executives. The Company
has assigned specific customers to each account executive, who is responsible
for maintaining all customer relations with their assigned group of customers.
Because of the service-oriented nature of the Company's business, the Company's
executive officers devote a substantial amount of time to
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developing and maintaining continuing personal relationships with the Company's
customers. The Company's ability to expand its customer base may be limited by
the number of marketing personnel and will be largely dependent upon the efforts
of such individuals.
In an effort to increase its sales in foreign markets, primarily Latin
America, the Company in November 1997, began operation in a 12,800 square foot
warehouse and office facility in Miami, Florida. The facility will handle sales
into the southeastern region of the United States and Latin America.
The Company believes that product recognition by customers and consumers
is an important factor in the marketing of the products sold by the Company.
Accordingly, the Company promotes its product lines through advertising in trade
publications and attendance at national and regional trade shows. The Company
also solicits customers through direct mail and telemarketing activities. The
Company's manufacturers and dealers use a variety of methods to promote their
products directly to consumers, including print and media advertising.
Asset Management
Accounts. For the years ended December 31, 1995, 1996 and 1997,
approximately 63.5% , 79.3% and 93.6%, respectively, of the Company's sales were
made on open account. The Company generally offers 30-day open account terms to
its customers. As of December 31, 1996 and 1997, trade accounts receivable
averaged 35.6 and 31.5 days for sales made on open account, respectively. As a
result of the Company's aggressive sales practices, the Company experienced bad
debt expense in 1997 of $3,627,000 (4.4% of 1997 sales) as compared to $380,000
for 1996 (0.5% of 1996 sales). The Company engages credit rating associations
that provide credit rating information in connection with individual customer
accounts, attempts to monitor its customer's creditworthiness and seeks to
obtain advance payment or letters of credit from its foreign customers. All
foreign sales are made in United States dollars. As direct and indirect foreign
sales increase, the Company will become subject to risks inherent in foreign
trade, including credit risk, shipping delays, trade restrictions, international
political, regulatory and economic developments.
Inventory. On average, the Company has historically turned inventory
approximately 14.2 times per year. The Company takes physical inventory on a
quarterly basis. On an annual basis, cumulative physical inventory adjustments
have accounted for less than 1% of total purchases during the years ended
December 31, 1995, 1996 and 1997.
Management Information Systems. The Company believes that inventory
control and other information systems are important factors in providing
customers with competitive prices and rapid delivery of variety of products.
Accordingly, the Company currently maintains financial, accounting and
management controls for its operations through the use of a centralized
accounting system and a computerized management information system. The
Company's management information system is designed to enable the Company to
adapt to new product developments and to enhance corporate productivity through
the integration of sales inventory
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controls, purchasing and financial and credit control. The Company believes that
the system allows the Company to provide value to its customers through general
efficiency, and timely and accurate product and pricing information. Internally,
the system provides management and other key employees with detailed account
information, including buying and credit histories and current account status,
as well as pricing and product availability information. During fiscal 1997, the
Company made significant investment in maintenance and in upgrading its computer
system and anticipates continuing to make such investment. The Company believes
that the management information system will support its anticipated level of
operations.
Year 2000 Compliance. During 1997, the Company began converting its
computer systems to be year 2000 compliant (e.g., to recognize the difference
between '99 and '00 as one year instead of negative 99 years). At December 31,
1997, approximately 50% of the Company's systems were compliant, with all
systems expected to be compliant by the end of 1998. The total cost of the
project is not expected to exceed $100,000. Maintenance or modification costs
will be expensed as incurred, while the costs of new software will be
capitalized and amortized over the software's useful life. As of December 31,
1997, approximately $26,000 has been spent on new software. This entire amount
has been capitalized and will be amortized over the software's useful life.
Competition
The markets for wireless communication products are characterized by
intense price competition and significant price erosion over the life of a
product. The Company competes principally on the basis of price and product
availability. The Company competes with numerous well-established wholesale
distributors and manufacturers of wireless equipment, including the Company's
customers and suppliers, as well as with providers of cellular services, most of
which possess substantially greater financial, marketing, personnel and other
resources than the Company and have established reputations for success in the
sale and service of cellular products. Certain of these competitors have the
financial resources necessary to enable them to withstand substantial price
competition and implement extensive advertising and promotional campaigns, both
generally and in response to efforts by additional competitors to enter into new
markets or introduce new products.
The Company has experienced and expects to continue to experience
significant price competition in the sale of analog and cellular digital
products. The Company believes this price competition is reflective of the lack
of direct supplier relationships of high demand digital cellular product and the
advent and customer acceptance of digital PCS products. The primary suppliers of
product and the primary customers of the Company have been other wholesale
distributors. The supply of product from other wholesale distributors as
compared to supplies from manufacturers is inconsistent, of higher cost, on less
favorable terms and typically is without price protection and promotional
allowances. The Company will continue to seek to establish supplier
relationships with leading manufacturers of analog and digital cellular
products. No assurance can be given that the Company will be able to establish
such relationships. The Company expects its competitors to offer new and
existing products and
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services at prices necessary to gain and retain market share. Certain of the
Company's competitors have substantial financial resources, which enable them to
withstand sustained price competition or market downturn better than the
Company. Furthermore, no assurance can be given that competitors of the Company
(many of which are the Company's suppliers) will not develop enhanced services
that the Company will not be able to match based on its industry and financial
position.
Additionally, it is the Company's belief that the wide acceptance of the
digital PCS format has had a negative impact on the demand for analog and
cellular digital product. The Company has not secured a strategic relationship
allowing it to access digital PCS products directly. Manufacturers currently in
the digital PCS market have selected distributors and distribution channels
other than the Company. As other manufacturers present their products to the
digital PCS market they may compete directly with the Company, or enter into
joint ventures or strategic relationships with the Company's competitors, in
which case the Company's ability to access and sell such products could be
reduced or eliminated. The Company's results of operations, net sales,
profitability and financial condition have been and will continue to be
adversely impacted until access to a consistent supply of digital PCS products
at commercially competitive rates is established.
The cellular distribution industry is characterized by low barriers to
entry and frequent introduction of new products. The industry is evolving with
value-added services becoming of increased importance to the market. This
evolution will increase entry barriers as value added services require increased
human resources, management information systems and equipment. The Company's
ability to continue to compete successfully will be dependent on its ability to
anticipate and respond both strategically and financially to various competitive
factors affecting the industry, including new products and services, changes in
consumer preferences, demographic trends, international, national, regional and
local economic conditions particularly recessionary conditions adversely
affecting consumer spending and discount pricing strategies and promotional
activities by carriers.
The Company's primary competitors include Brightpoint, Cellstar, Com-Quest
Wireless Distributing Company, Arizona Wholesale Supply Company (a/k/a QDI),
Unplugged and Progressive Concepts, Inc. ("Progressive"). For the year ended
1997, the Company purchased from the foregoing entities 64.5% of its Motorola
product purchases, with such products comprising 63.5% of the Company's
telephone sales for the 1997 year. The occurrence of either increased price
competition and/or the lack of supply of such products would have an adverse
effect on the Company.
The markets for wireless communications products are characterized by
rapidly changing technology and evolving industry standards, often resulting in
product obsolescence or short product life cycles. Accordingly, the Company's
success is dependent upon its ability to anticipate technological changes in the
industry and to continually identify, obtain and successfully market new
products that satisfy evolving industry and customer requirements. The use of
alternative wireless technologies, including PCS and satellite communications
systems,
-12-
<PAGE>
will reduce demand for existing cellular products, increasing risk associated
with the granting of credit and inventory obsolescence Upon widespread
commercial introduction, PCS, satellite communications systems and other new
wireless technologies could materially change the types of products sold by the
Company and its suppliers and result in significant price competition. There can
be no assurance that the Company will be able to continue to compete
successfully, or will have the financial capability to sustain its business
particularly as domestic cellular markets mature and the Company seeks to enter
into new markets and market new products and services.
Trademark
The Company currently holds a federal trademark registration for the name
"Intellicell" for use in connection with wireless accessory products.
Employees
As a result of the Company's recent workforce reduction, at March 31,
1998, the Company had twenty six employees, of which two are in executive
positions, ten are engaged in sales and marketing, five are engaged in warehouse
operations and nine are engaged in accounting and administrative activities.
There are no employees covered by a collective bargaining agreement. The Company
believes that its relations with its employees are satisfactory.
Item 2. Properties
In February 1998, the Company moved its executive offices and warehouse to
a 36,000 square foot leased facility in Chatsworth, California. This facility
provides 23,000 square feet of warehouse and 13,000 square feet of operations
and office space. The lease is for a three year term beginning February 1, 1998,
and provides for an initial monthly rental of $18,495 with annual escalation
based on the Consumer Price Index. At the end of the initial lease term, the
Company has an option to extend the lease for a period of three years.
In November 1997, the Company commenced operations out of a 12,800 square
foot leased warehouse and office facility in Miami, Florida. The facility will
handle sales into the southeastern region of the United States and Latin
America. The lease has an initial monthly rental of $7,441 with annual
escalation. At the end of the initial lease term of 5 years and 2 months, the
Company has an option to extend the lease for a period of five years.
The Company believes that its existing facilities are adequate for its
current and future requirements and that additional space will be available as
needed to accommodate future expansion of its operations.
Item 3. Legal Proceedings
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<PAGE>
In October 1996, ArrayComm Incorporated, ("ArrayComm"), filed an action
against the Company in United States District Court for the Northern District of
California seeking a judgment to cancel the Company's trademark registration of
the name "Intellicell". In January 1998, the parties settled the action wherein
both parties recognized the others right to use the name "Intellicell" for the
products listed in their respective trademark registrations. Under this
settlement the Company will not contest the use of variations of the mark by
ArrayComm such as "Intellawave" and ArrayComm will not contest the use of the
Company's name, Intellicell Corp. No damages or monetary settlement were
incurred or awarded.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders through the solicitation of
proxies or otherwise during the fourth quarter of the fiscal year covered by
this Report.
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<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock has traded on the Nasdaq SmallCap Market
("Nasdaq") under the symbol "FONE" since the Company's initial public offering
on December 18, 1996. The following table sets forth, for the period indicated,
the high and low sales prices of the Company's Common Stock as reported by
Nasdaq. Such prices may include inter-dealer prices, without retail mark-up,
markdown or commission and may not necessarily represent actual transactions.
High Low
---- ---
Year Ended December 31, 1996
----------------------------
Fourth Quarter (commencing
December 18, 1996) $8.00 $5.00
Year Ended December 31, 1997
----------------------------
First Quarter $9.38 $6.25
Second Quarter $7.88 $4.25
Third Quarter $9.75 $7.13
Fourth Quarter $7.75 $2.75
Such quotations reflect inter-dealer bids, without retail mark-up,
mark-down or commissions, and may not reflect actual transactions.
On March 31, 1998, the closing price of the Common Stock on Nasdaq was
$3.125. As of March 31, 1998, there were approximately twenty four holders of
record of the Company's Common Stock. The Company believes that there are in
excess of 400 beneficial owners of its Common Stock whose shares are held in
"street name."
Dividend Policy
To date, other than S corporation distributions made prior to its initial
public offering, the Company has not paid any cash dividends on its Common
Stock. The payment of cash dividends, if any, in the future is within the
discretion of the Company's Board of Directors and will depend upon the
Company's earnings, its capital requirements and financial condition and other
relevant factors. The Board of Directors does not intend to declare any cash
dividends in the foreseeable future, but instead intends to retain all earnings,
if any, for use in the Company's business operations. The payment of cash
dividends is restricted under the terms of the
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<PAGE>
Company's loan agreement with BankAmerica. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Recent Sales of Unregistered Securities
There were no sales of unregistered securities of the Company during the
fiscal year ended December 31, 1997.
Item 6. Selected Financial Data
The following selected financial data are derived from the Financial
Statements of the Company which have been audited by BDO Seidman, LLP,
independent certified accountants for the years ended December 31, 1997 and 1996
and Richard A. Eisner & Company, LLP, for the years ended December 31, 1995,
1994, and 1993. Such selected financial data should be read in conjunction with
the Company's financial statements and related notes set forth herein commencing
on page F-1.
Statement of Operations Data:
(in thousands, except share and per share data)
Year ended December 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net Sales $ 20,496 $ 56,447 $ 69,850 $ 81,225 $ 81,401
Cost of sales 19,846 54,402 67,485 77,555 77,862
Gross profit 650 2,045 2,365 3,670 3,539
Selling, general and administrative
expenses 647 1,505 1,877 2,747 7,630
Non-recurring legal, auditing and
professional fees -- -- -- -- 1,300
Income (loss) 3 540 488 923 (5,391)
Other income (expense) (25) (103) (86) (392) (391)
Income (loss) from operations (22) 437 402 531 (5,782)
Income tax expense (benefit) -- -- -- (308) 334
Net income - historical $ (22) $ 437 $ 402 $ 839 $ (6,116)
Pro forma net income (loss) (1) $ (19) $ 257 $ 236 $ 315 $ (6,116)
</TABLE>
-16-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Pro forma net income (loss) per share
(basic and diluted) (2) $ (0.01) $ 0.13 $ 0.12 $ 0.15 $ (1.37)
Weighted average number of
common shares outstanding (basic) 2,030,000 2,030,000 2,030,000 2,113,674 $ 4,451,182
Weighted average number of
common shares outstanding (diluted 2,030,000 2,030,000 2,030,000 2,114,641 4,451,182
</TABLE>
Balance Sheet Data:
(in thousands)
As of December 31,
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Working capital (deficiency) $ (151) $ (175) $ (243) $ 8,432 $ 3,596
Total assets 2,077 7,250 8,604 16,025 11,414
Short-term debt -- 445 2,490 -- 3,402
Total liabilities 2,212 7,392 8,590 7,216 7,381
Stockholders' equity (capital
deficiency) (135) (142) 14 8,809 4,033
</TABLE>
(1) Includes pro forma adjustments for income taxes. See Note 9 to Notes to
Financial Statements.
(2) Based on pro forma net income and the weighted average number of shares of
Common Stock outstanding.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
The statements which are not historical facts contained in this Annual
Report are forward looking statements that involve risks and
uncertainties, including but not limited to, possible delays in the
Company's expansion efforts, changes in wireless communications markets
and technologies, the nature of possible supplier or customer arrangements
which may become available to the Company in the future, possible product
obsolescence, uncollectible accounts receivable, slow moving inventory,
lack of adequate financing, increased competition and unfavorable general
economic conditions. The Company's actual results may differ materially
from the results discussed in any forward looking statement.
-17-
<PAGE>
Results of Operations
In connection with the audit of the Company's financial statements for the
year ended December 31, 1996, in fiscal 1997, the Company incurred non-recurring
expenses of $1,024,000, consisting primarily of professional fees, including the
fees of its prior auditor, fees of special counsel and a special auditor
retained by the Company's Audit Committee. See "Changes in and Disagreements
with Accountants on Accounting and Financial Disclosure" (Item 9). Additionally,
the Company incurred $276,000 of legal and professional fees associated with the
negotiation and investigation of the acquisition of Unplugged. This potential
acquisition was abandoned in December 1997.
In February 1998, the Company became aware that the business and
associated assets of one of its major customers had been assumed by another
creditor of this customer. As a result, in 1997, the Company expensed $1,665,000
to bad debt expense to reserve the unpaid receivable from this customer. The
Company is in the process of investigating its legal remedies in connection with
the foregoing.
The following table sets forth for the periods indicated, the percentage
of net sales represented by certain items reflected in the Company's statement
of operations. The statement of operations contained in the Company's financial
statements and the following table include pro forma adjustment for income
taxes. See Note 9 to Notes to the Financial Statements.
Percentages of Net Sales
Year Ended December 31,
1995 1996 1997
------ ------ ------
Net sales 100.0% 100.0% 100.0%
Cost of sales 96.6 95.5 95.6
Gross profit 3.4 4.5 4.4
Selling, general and administrative
expenses 2.7 3.4 9.4
Non-recurring legal and auditing
fees -- -- 1.6
Income (loss) from operations .7 1.1 (6.6)
Interest expense .1 .5 .5
Net (loss) income .6 1.0 (7.5)
Pro forma net (loss) income .3 .4 (7.5)
-18-
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales were essentially flat from year to year increasing by
approximately $176,000, or 0.22%, from 1996 to 1997. For 1997, domestic sales
were $67,048,000 (82.4%) and foreign sales were $14,353,000 (17.6%) as compared
to domestic sales of $77,034,000 (94.8%) and foreign sales of $4,191,000 (5.2%)
for 1996. For the year ended December 31, 1997, accessory sales decreased by
$14,186,000 or 68.6%, with such decrease offset by increased phone sales of
$14,362,000, a 23.7% increase from such sales for the prior year.
Gross profit decreased by $131,000, or 3.6%, from 1996 to 1997 and as a
percentage of net sales decreased from approximately 4.5% to approximately 4.4%
respectively, during these periods. The decrease in gross profit from 1996 to
1997 is primarily the result of an increase in the inventory obsolescence
provision for 1997 of $197,000 (0.2% of 1997 sales) over such provision for
1996. In future periods, gross profit may be adversely affected by merchandise,
freight and other costs, price competition and by changes in the mix of products
offered by the Company.
Selling, general and administrative expenses increased by approximately
$4,883,000 or 177.8%, from 1996 to 1997, and increased from 3.4% to 9.4%, as a
percentage of net sales. The most significant items accounting for this increase
are an increase in bad debt expense for doubtful accounts receivable of
$2,508,000 and doubtful notes receivable of $739,000, payroll and related costs
of $625,000, (with such increase comprised of $110,000 for executive officers,
$150,000 for accounting and administration and $365,000 for sales and marketing
compensation). The increase in payroll and payroll related costs for 1997 as
compared to 1996 was primarily the result of having three accounting and one
executive position filled for only part of 1996 while the increase in
compensation expense related to sales and marketing reflects both increased
compensation levels and the number of personnel involved in this effort.
Additional increases for 1997 over 1996 were associated with expense for
non-capitalizable equipment repair and maintenance of $258,000 primarily
associated with the Company's computer system, legal, auditing and professional
fees of $141,000, and increased loan fee expense associated with the replaced
line of credit of $172,000.
In 1997, the Company incurred non-recurring expenses totaling $1,300,000.
Of this amount $1,024,000 was incurred in connection with the audit of the
Company's financial statements for the year ended December 31, 1996, consisting
primarily of professional fees, including the fees of its prior auditor, fees of
special counsel and a special auditor retained by the Company's Audit Committee.
See "Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure" (Item 9). In December 1997, the Company terminated acquisition
negotiations with Pacific Unplugged Communications, Inc.. Such negotiations had
been ongoing since a non-binding letter of intent was signed by the parties in
August 1997. In connection with the proposed acquisition the Company incurred
and expensed, as non-recurring, $276,000 of professional and legal fees.
Income from operations was $923,000 for 1996, as compared to an operating
loss of $5,391,000 for 1997, a decrease of $6,314,000 or 684%. The 1997
operating loss is primarily due
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<PAGE>
to increased selling, general and administrative expenses and non-recurring
expenses for 1997, as described above.
Interest expense for 1996 and 1997 was $431,000 and $444,000,
respectively. Interest expense is primarily attributable to borrowings under the
Company's line of credit with CIT which during 1997, averaged $3,016,000
(1996-$3,700,000) at an average interest rate of 10.25% (1996- 10%) per annum.
At December 31, 1997, there was $3,402,000 (1996 - nil) of borrowing under this
credit line.
Historical net income decreased from $839,000 for 1996 to a historical net
loss of $6,116,000 for 1997, a decrease of $6,955,000 or 829%. The decrease in
net income resulted from an increase in selling, general and administrative
expenses and non-recurring legal and auditing and professional fees and expenses
and the reversal of a deferred tax benefit recorded in December 1996 in
accordance with FASB 109, "Accounting for Income Taxes". A net deferred tax
benefit of $330,000 was recognized upon termination of the Company's S
corporation election in December 1996. At December 31, 1997, the Company has
recorded a net deferred tax asset of $2,626,000 representing the future benefit
of net operating losses and timing differences and has established a valuation
reserve in an equal amount reflecting current assessment of the uncertain
realizability of this asset.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales increased by $11,375,000, or 16.3%, from 1995 to 1996. The
increase in net sales was primarily attributable to the expanded level of the
Company's operations and primarily reflects higher-volume sales. For 1996,
domestic and foreign net sales were $77,034,000 and $4,191,000, respectively, or
94.8% and 5.2%, respectively, of the Company's net sales.
Gross profit increased by $1,305,000, or 55.2%, from 1995 to 1996 and as a
percentage of net sales increased from 3.4% to 4.5% during these periods. The
increase in gross profit as primarily due to the purchase of inventories at
lower per unit costs as a result of volume discounts and, to a lesser extent,
increased sales of higher-margin cellular telephones. In future periods, gross
profit may be adversely affected by merchandise, freight and other costs, price
competition and by changes in the mix of products offered by the Company.
Selling, general and administrative expenses increased by $870,000, or
46.4%, from 1995 to 1996, and increased from 2.7% to 3.4%, as a percentage of
net sales. The increase in absolute dollars was attributable to the Company's
expanded level of operations and reflects increases in payroll and related costs
and bad debt and collection expense. The Company expects these expenses will
continue to increase in absolute dollars in connection with higher levels of
sales.
Income from operations was $488,000 for 1995, as compared to $923,000 for
1996, an increase of $435,000, or 89.1%. Income from operations as a percentage
of net sales increased from 0.7% to 1.1% during these periods. The increase as
primarily attributable to the increase in gross profit, partially offset by an
increase in selling, general and administrative expenses.
-20-
<PAGE>
Interest expense increased by $364,000, or 543%, from 1995 to 1996. The
increase was attributable to borrowings under the Company's line of credit with
CIT, used to finance expanded levels of operations. Borrowings under the line of
credit averaged $3,700,000 at an average rate of 10% per annum. There were no
borrowings under this line of credit at December 31, 1996.
Historical net income increased from $402,000 for 1995 to $839,000 for
1996, an increase of $437,000, or 108.7%. The increase in net income resulted
from an increase in gross profit, and a deferred tax benefit in accordance with
FASB 109, "Accounting for Income Taxes," partially offset by higher selling,
general and administrative expense and higher interest expense. A net deferred
tax benefit of $330,000, was recognized upon termination of the Company's S
corporation election. No valuation allowance has been established as it is more
likely than not that the deferred tax asset will be realized. Net income as a
percentage of net sales increased from 0.6% in 1995 to 1.0% in 1996. Pro forma
net income increased from $236,000 in 1995 to $315,000 in 1996, an increase of
33.5%.
Liquidity and Capital Resources
Typically, the Company's primary cash requirements have been to fund
increased levels of inventories, accounts receivable and operations. The Company
has historically satisfied its working capital requirements principally through
cash flow from operations and borrowings. At December 31, 1997, the Company had
working capital of $3,596,000 compared to working capital of $8,432,000 at
December 31, 1996. The decrease in working capital is primarily attributable to
increased borrowings under the Company's credit line and increased allowances
for doubtful accounts and notes receivable. The losses sustained from operations
including the effect of $3,627,000 of bad debt expense during 1997, has
significantly reduced the Company's liquidity. Additionally, as a result of the
Company's operating losses, certain vendors have restricted credit to the
Company.
Net cash used in operating activities was $5,374,000 in 1997, and
$6,716,000 in 1996. The decrease in cash used for 1997 was primarily
attributable the net loss, an increase in accounts receivable and a decrease in
accounts payable which were partially offset by decreases in inventories,
deposits for purchase of inventory, increases in the allowances for doubtful
accounts and notes receivable and proceeds from the repayment of other
receivables. Net cash provided by investing activities was $1,505,000 in 1997,
and $510,000 in 1996. The increase in cash provided by investing activities was
primarily attributable to proceeds from the repayment of notes receivable. Net
cash provided by financing activities was $3,869,000 in 1997, and $6,206,000 in
1996. The decrease was primarily attributable to the proceeds of the Company's
initial public offering of Common Stock in December 1996 and a decrease in the
bank overdraft position at December 31, 1997, partially offset by the payment of
loans payable and S corporation distributions in 1996. In 1996 the Company
received net proceeds from its initial public offering of $8,047,000, of which
$2,715,000 was used to repay indebtedness and $5,332,000 was used in connection
with expansion, primarily inventory purchases and payments of accounts payable.
In January 1997, the managing underwriter exercised an over-allotment option
(the "Over-allotment
-21-
<PAGE>
Option") to purchase an additional 300,000 shares, resulting in net proceeds of
$1,341,000. At December 31, 1997, the Company had a bank overdraft position of
$250,000.
Net cash used in operating activities was $6,716,000 in 1996, as compared
to net cash provided by operating activities of $246,000 in 1995. The increase
in cash used was primarily attributable to increased levels of inventory and
accounts receivable. Net cash provided by investing activities was $510,000 in
1996, as compared to net cash used of $579,000 in 1995. The increase in cash
provided by investing activities was attributable to proceeds from the repayment
of notes receivable and advances to officers, employees and others. Net cash
provided by financing activities was $6,206,000 in 1996, as compared to net cash
used in financing activities of $25,000 in 1995. The increase was attributable
to the proceeds of the Company's initial public offering of Common Stock in
December 1996 and the bank overdraft position, partially offset by the payment
of loans payable and S corporation distributions. At December 31, 1996, the
Company had a bank overdraft position of $1,012,000. The Company received net
proceeds from its initial public offering of $8,047,000, of which $2,715,000 was
used to repay indebtedness and $5,332,000 was used in connection with expansion,
primarily inventory purchases and payments of accounts payable.
In January 1998, the Company entered into a new loan agreement with
BankAmerica Business Credit, Inc. ("BankAmerica") which provides for borrowings
under a line of credit of up to $12,000,000. Advances under the line of credit
are based on a borrowing formula equal to the sum of (i) 80% of eligible
accounts receivable and (ii) the lower of $6,000,000 or 50% of eligible
inventory. Interest accrues on such advances at the prime lending rate plus one
half of one percent (.5%) per annum and is payable monthly. The credit line
expires in January 2001. At March 31, 1998, $2,885,000 was outstanding under the
line of credit.
All of the Company's assets (including inventories and receivables) are
pledged as collateral for the loan with BankAmerica, and the Company is
prohibited from incurring additional indebtedness, except for trade
indebtedness, which could limit the Company's ability to expand its operations.
In addition to financial covenants requiring the Company to maintain a tangible
net worth of $5.5 million and annual earnings of $500,000 before interest,
taxes, depreciation and amortization, the Company's agreement with BankAmerica
limits or prohibits the Company, subject to certain exceptions, from declaring
or paying cash dividends, making capital distributions or other payments to
stockholders, merging or consolidating with another corporation, selling assets
(other than in the ordinary course of business), creating liens or security
interests on the Company's assets and entering into transactions with
affiliates.
At December 31, 1997, the Company was in violation of the tangible net
worth covenant. In April 1998, BankAmerica waived the December 31, 1997 default
of the tangible net worth covenant and revised the Credit Agreement by
amendment. See "Item 1 - Business--Recent Developments."
At December 31, 1996, Ben Neman, Chairman, President and Chief Executive
Officer of the Company, personally guaranteed up to $500,000 of the Company's
indebtedness to CIT its
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<PAGE>
former finance company. Pursuant to the terms of the Company's loan agreement
with CIT, such guarantee was released in April 1997. There can be no assurance
that any such personal guarantee will be available to the Company in the future.
In connection with the loan agreement with its former finance company, the
Company issued to CIT warrants to purchase 15,000 shares of Common Stock at an
exercise price of $5.00 per share. Such warrants remain outstanding as of the
date of this report.
In December 1995, the Company converted $2,000,000 of a trade payable
balance to Brightpoint, Inc. into a loan bearing interest at the rate of 9.1%
per annum repayable in twelve equal monthly installments of $175,000. Payments
under such loan were made through May 1996 and, in July 1996, the Company issued
a promissory note evidencing the remaining outstanding principal balance of
$1,188,577. In December 1996, $1,000,000 of the principal amount of such note
was converted into 223,464 shares of Common Stock, and the remaining $234,000 of
principal and accrued interest was repaid. During 1997, Brightpoint Inc. sold
its Common Stock holdings in the Company.
The Company has increasingly emphasized the sale of products on open
account and has purchased increased levels of inventories to support an
expanding customer base. For the years ended December 31, 1995, 1996 and 1997,
63.5%, 79.3% and 93.6% of the Company's sales were made on open account.
Inventory turns decreased from 20.2 times during fiscal 1995 to 15.9 times
during fiscal 1996 and to 14.2 times during 1997 reflecting increased average
inventories of $3.3 million for 1995, $4.8 million for 1996 and $5.4 million for
1997.
The Company's trade accounts receivable, less allowances for doubtful
accounts at December 31, 1997, was $6,578,000 as compared to $6,287,000 at
December 31, 1996. As of December 31, 1997, accounts 90 days past due were
approximately 9.9% of aggregate trade accounts receivable as compared to 14.7%
of aggregate trade accounts receivable at December 31, 1996.
The allowance for doubtful accounts receivable was $2,697,000 at December
31, 1997, and $428,000 at December 31, 1996. The increase in the allowance for
doubtful accounts receivable results primarily from the Company's largest
customer (11.7% of total 1997 sales) sustaining severe financial difficulties.
The Company currently believes that this customer is out of business and that
its assets have been taken over by another supplier/customer and competitor. The
Company is in the process of investigating its legal remedies in connection with
the foregoing. Other significant increases in the allowance for doubtful account
receivable relate to 44 domestic accounts aggregating $577,000 and 7 foreign
accounts aggregating $456,000.
At December 31, 1997, notes receivable, less the allowance for doubtful
notes receivable was $195,000 as compared to $337,000 at December 31, 1996. The
allowance for doubtful notes receivable at December 31, 1997, was $739,000 while
at December 31, 1996, no such allowance was recorded. Notes receivable are the
result of converting aged accounts receivable into interest
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<PAGE>
bearing promissory notes with a fixed maturity. Of the notes receivable for
which an allowance is provided, one note due from a foreign customer accounts
for 71% of the total.
Bad debt expense for trade accounts receivable and notes receivable
equaled $3,627,000 or 4.5% of the Company's revenues for 1997, and was less than
1% of revenues for 1996.
The Company believes the allowances for doubtful accounts receivable and
doubtful notes receivable are adequate for the size and nature of its
receivables. Nevertheless, further delays in the collection or the
uncollectibility of accounts receivable will continue to have an adverse effect
on the Company's liquidity and working capital position. Because of market
considerations the Company will offer open account terms to additional
customers, which will subject the Company to increased credit risks,
particularly in foreign markets, and could require the Company to increase its
allowance for doubtful accounts. The Company attempts to minimize losses on
credit sales by monitoring its customers' creditworthiness. The Company seeks to
obtain letters of credit or similar security in connection with open account
sales to customers located in foreign markets.
At December 31, 1997, the Company's inventory reserve was $550,000, which
the Company believes is currently adequate for obsolescence and net realizable
value, given the size and nature of its inventories. The amounts the Company
will ultimately realize could, however differ materially from the amounts
estimated in arriving at the inventory reserve.
Prior to its initial public offering in December 1996, the Company elected
to be taxed as an S corporation and, accordingly, was not subject to income
taxes. Net income had been taxed for federal and state income purposes directly
to the Company's stockholders. For the years ended December 31, 1994, 1995 and
1996, the Company made S corporation distributions to its stockholders in the
amounts of $444,000, $166,000 and $1,091,000, respectively. Excess distributions
for the year ended December 31, 1996 to the Company's President in the amount of
$454,000 were repaid by the delivery of 101,562 shares of the Company's Common
Stock held by the Company's President for cancellation. See Item 13 "Certain
Transactions."
In October 1996, ArrayComm Incorporated, ("ArrayComm"), filed an action
against the Company in United States District Court for the Northern District of
California seeking a judgment to cancel the Company's trademark registration of
the name "Intellicell". In January 1998, the parties settled the action wherein
both parties recognized the others right to us the name "Intellicell" for the
products listed in their respective trademark registrations. Under this
settlement the Company will not contest the use of variations of the mark by
ArrayComm such as "Intellawave" and ArrayComm will not contest the use of the
Company's name, Intellicell Corp. No damages or monetary settlement were
incurred or awarded.
The Company relocated its executive offices and warehouse to larger
facilities in February 1998. This new facility located in Chatsworth, California
is comprised of approximately 13,000 square feet of office and operations area
and 23,000 square feet of warehouse. The facility is leased with an initial term
of three years with one three year option to extend. The Company has
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<PAGE>
incurred approximately $200,000 in capital expenditures in 1998 for leasehold
improvements, furniture, fixtures and equipment associated with these
facilities.
In November 1997 the Company opened a Miami, Florida office comprised of
10,000 square feet of warehouse and 2,000 square feet of office space. The
facility is leased with an initial term of five years and two months with a
option to extend for an additional five years.
The Company has no other material commitments for capital expenditures.
Based on currently proposed plans and assumptions relating to its
operations, the Company believes that projected cash flow from operations and
available cash resources, including its revolving line of credit, may be
(although no assurance can be given that it will be), sufficient to satisfy its
near-term cash requirements. The Company currently does not have significant
borrowing availability under its credit facility. Under the Company's line of
credit, the Company is prohibited from incurring additional indebtedness, except
for trade indebtedness. There can be no assurance that additional financing will
be available to the Company on commercially reasonable terms, or at all. In
addition, in response to the significant losses sustained during the fiscal year
ended December 31, 1997 and continuing intense competition encountered by the
Company, the Company reduced its work force by fourteen (14) employees or thirty
five (35%) percent. The Company is also seeking to address its liquidity
concerns by attempting to secure more favorable contracts for supply of products
with manufacturers of digital PCS and digital cellular equipment. In addition,
the Company intends on establishing more stringent criteria to evaluate
creditworthiness prior to extending credit to customers. No assurance can be
given that these measures will help to alleviate the liquidity concerns faced by
the Company.
Seasonality
Sales of the Company's products are seasonal and are a function of
consumer sales with peak product shipments typically occurring in the third and
fourth quarters.
Inflation
Inflation has historically not had a material effect on the Company's
operations.
Year 2000 Compliance
See "Item 1 - Business -- Asset Management --Year 2000 Compliance."
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income", (SFAS No. 130) issued by the Financial Accounting
Standards Board (FASB) is effective for financial statements with fiscal years
beginning after December 15, 1997. Earlier application is
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<PAGE>
permitted. SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The Company does not expect adoption of SFAS No. 130 to
have a material effect, if any, on its financial position or results of
operations.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information", (SFAS No. 131) issued by the
FASB is effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. SFAS No. 131 requires that
public companies report certain information about operating segments, products,
services and geographical areas in which they operate and their major customers.
The Company does not expect adoption of SFAS No. 131 to have a material effect,
if any, on its financial position or results of operations.
Item 8. Financial Statements and Supplementary Data
The financial statements appear in a separate section of this report as
pages F-1 through F- 27 following Part IV. The unaudited Quarterly Results of
Operations are as follows (in thousands except per share data):
<TABLE>
<CAPTION>
1997 First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales $ 21,782 $ 19,211 $ 20,512 $ 19,896
Gross profit 1,292 1,180 622 445
Pro forma net loss (382) (48) (2,033) (3,653)
Pro forma net loss per share (0.08) (0.01) (0.46) (0.82)
<CAPTION>
1996 First Second Third Fourth
<S> <C> <C> <C> <C>
Net sales $ 22,288 $ 20,182 $ 23,519 $ 15,236
Gross profit 952 923 1,262 533
Pro forma net income (loss) 150 218 129 (182)
Pro forma net income (loss) per share 0.07 0.10 0.06 (0.08)
</TABLE>
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
On April 9, 1997, Richard A. Eisner & Company, LLP ("Eisner"), the
accounting firm that audited the Company's financial statements at December 31,
1994 and 1995 and for the years ended December 31, 1993, 1994 and 1995, resigned
as the Company's independent auditor. The report of Eisner for the fiscal years
ended December 31, 1993, 1994 and 1995 did not contain an adverse opinion or a
disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit
scope or accounting principles. During the audit period for the fiscal years
ended December 31, 1993, 1994 and 1995, and during the interim period prior to
Eisner's resignation, there were no disagreements with Eisner on any matter of
accounting principles or practices, financial statement disclosure or auditing
scope or procedure. However, in its letter of resignation addressed to the
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<PAGE>
Company's Board of Directors, Eisner concluded that it was "unable to rely on
the integrity of management." In a subsequent letter filed as an Exhibit to the
Company's Current Report on Form 8-K, Eisner stated that its resignation
followed an expanded scope investigation in response to allegations with respect
to the 1996 financial statements made to Eisner by the Company's controller, and
that during Eisner's investigation evidence came to its attention that
contradicted statements made to Eisner by management.
Effective April 19, 1997, the Company engaged BDO Seidman, LLP as
independent auditors to audit the Company's annual financial statements. During
the Company's two fiscal years, and the subsequent interim period prior to its
engagement, neither the Company nor any person acting on behalf of the Company
consulted BDO Seidman, LLP regarding (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the type
of audit opinion that might be rendered on the Company's financial statements or
(ii) any matters that were either the subject of a disagreement or a reportable
event.
PART III
Item 10. Directors and Executive Officers of the Registrant
The directors and executive officers of the Company are as follows:
Name Age Position
---- --- --------
Ben Neman 40 Chairman of the Board, President
and Chief Executive Officer
James E. Bunting 49 Executive Vice President, Chief
Operating Officer and Director
John C. Snyder II 52 Vice President and Chief Financial Officer
Vinay Sharma 50 Director
J. Sherman Henderson 53 Director
Ben Neman, a founder of the Company, has been Chairman, President and
Chief Executive Officer of the Company since its inception. From September 1983
to January 1991, Mr. Neman was owner and President of Car Tronics of California,
a company engaged in the retail sale of cellular and other automotive electronic
consumer products.
James E. Bunting has been Executive Vice President and Chief Operating
Officer of the Company since July 1996 and a director since October 1996. From
July 1996 until April 1997, Mr. Bunting served as the Company's Chief Financial
Officer. Prior to joining the Company, Mr.
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<PAGE>
Bunting served as the financial officer of AirTouch Teletrac, a subsidiary of
AirTouch Communications, a company engaged in vehicle location and wireless
communications, from February 1990 to January 1996.
John C. Snyder II has been Vice President and Chief Financial Officer of
the Company since April 30, 1997. Prior to joining the Company, Mr. Snyder was
Chief Financial Officer of Cleveland Wrecking Company, a nationwide demolition
and environmental contractor, from March 1995 through April 1997. From January
1993 to March 1995 Mr. Snyder was engaged in financial business consulting
activities through J. Snyder & Associates. Prior thereto, Mr. Snyder was Chief
Financial and Administrative Officer of Pedus Services, a human resources
provider, from 1982 to 1992.
Vinay Sharma has been a director of the Company since October 1996. Mr.
Sharma has been a partner with the law firm Sharma & Herron since March 1992.
Mr. Sharma received his Masters in Business Administration in June 1974 and
Juris Doctor degree in May 1982 from the University of California at Berkeley.
J. Sherman Henderson has been a director of the Company since February
1998. Since 1993, Mr. Henderson has been President, CEO and founder of UniDial
Communications, a long-distance phone service reseller and full service
distributor of telecommunications products and services. Prior to this time and
until 1989, Mr. Henderson was a principal and founder of Charter Network, a
Midwest long distance phone carrier.
All directors hold office until the next annual meeting of stockholders
and the election and qualification of their successors. Officers are elected
annually by the Board of Directors and serve at the discretion of the Board.
Messrs. Sharma and Henderson are members of the Company's Audit Committee.
In addition to the Company's executive officers and directors, Mr. Meir
Abramov is a key employee of the Company. Mr. Abramov, age 29, has been a Vice
President of the Company in charge of purchasing and large account sales for
more than the past four years.
The Company has agreed, until December 17, 1999, if so requested by Sands
Brothers & Co., Ltd. ("Sands"), the Representative of the several underwriters
of the Company's initial public offering, to nominate and use its best efforts
to elect a designee of Sands as a director or, at Sands' option, as a non-voting
advisor to the Company's Board of Directors. Sands exercised its right to
designate Mr. Alan M. Bluestine, a managing director of Sands Brothers, as a
nonvoting advisor to the Company's Board of Directors on June 6, 1997.
Business of the Board of Directors
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<PAGE>
During the fiscal year ended December 31, 1997, the Company's Board of
Directors held ten meetings. All Directors attended these meetings.
Item 11. Executive Compensation
The following table discloses the compensation for the persons serving as
the Company's principal executive officer and operating officer during the
fiscal years ended December 31, 1996 and 1997. No other officer of the Company
received compensation in excess of $100,000 for the Company's fiscal years ended
December 31, 1996 and 1997.
Summary Compensation Table
Annual Compensation
-------------------
Compensation
Awards
Securities
Underlying
Year Salary($) Bonus($) Options(#)
Ben Neman 1997 72,000
Chief Executive Officer 1996 72,000 12,000
1995 75,000
James E. Bunting
Chief Operating Officer 1997 70,000 75,000
1996 35,000 50,000
Option Grants in Fiscal Year Ended December 31, 1997
No options were granted to applicable Officers during the fiscal year
ended December 31, 1997.
Option Exercises in 1997 Fiscal Year
There were no options for the purchase of Common Stock exercised during
the year ended December 31, 1997.
The following table sets forth information concerning the value of
unexercised stock options held by the Chief Executive and Operating Officers as
of December 31, 1997. No options were exercised during the fiscal year ended
December 31, 1997.
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<PAGE>
Aggregated Fiscal Year End Option Values
Number of Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
At December 31, 1997 At December 31, 1997*
Name Exercisable Unexercisable Exercisable Unexercisable
Ben Neman 4,000 8,000 $-0- $-0-
James E. Bunting 16,667 33,333 $-0- $-0-
* Year-end values for unexercised in-the-money options represent the positive
spread between the exercise price of such options and the year-end market value
of the Common Stock which was $5.00 on December 31, 1997.
Employment Agreements
The Company has entered into a three-year employment agreement with Mr.
Neman, effective December 17, 1996, which is automatically renewable and
provides for an annual base compensation of $72,000 and such bonus as the Board
of Directors may from time to time determine. The employment agreement provides
for employment on a full-time basis and contains a provision that Mr. Neman will
not compete or engage in a business competitive with the current or anticipated
business of the Company during the term of the employment agreement and for a
period of one year thereafter. The agreement provides that if Mr. Neman is
terminated without cause (including as a result of a change in control), he will
be entitled to receive severance pay equal to the base compensation through the
term of the agreement, provided that if he is terminated during the third year
or the last year of any renewal term, he will be entitled to receive additional
compensation equal to the base compensation received from the Company during the
one-year period prior to the date of termination.
The Company has entered into a three-year agreement, dated as of July 1,
1996, with Mr. Bunting which provides for an annual base compensation of $70,000
and such bonus as the Board of Directors may from time to time determine. The
employment agreement contains a confidentiality provision, and a covenant not to
compete with the Company for a period of one year following termination of
employment. The agreement provides that if Mr. Bunting is terminated without
cause (including as a result of a change in control), the employee will be paid
an amount equal to four months of his annual salary in consideration of his
agreement not to compete with the Company and an amount equal to two months of
his annual salary as severance. In connection with such employment agreement,
the Company granted to Mr. Bunting an option to purchase an aggregate of 50,000
shares of Common Stock at an exercise price of $5.00 per share. The options are
exercisable as to one-third of the shares covered thereby on the first, second
and third anniversaries of the date of grant.
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<PAGE>
The Company has entered into a three-year employment agreement with Mr.
Abramov, effective as of December 17, 1996, which provides for an annual base
compensation of $66,000 and an annual bonus of $66,000.
The Company has entered into a three-year agreement, dated as of April 30,
1997, with Mr. Snyder which provides for an annual base compensation of $70,000
and an annual bonus of $50,000. The employment agreement contains a
confidentiality provision, and a covenant not to compete with the Company for a
period of one year following termination of employment. The agreement provides
that if Mr. Snyder is terminated without cause (including as a result of a
change in control), the employee will be paid an amount equal to six months of
his annual salary and bonus in consideration of his agreement not to compete
with the Company. In June 1997, the Agreement was amended to allow termination
of employment only upon the unanimous consent of the Company's independent
directors. In connection with such employment agreement, the Company granted to
Mr. Snyder an option to purchase an aggregate of 50,000 shares of Common Stock
at an exercise price of $6.63 per share. The options are exercisable as to
one-third of the shares covered thereby on the first, second and third
anniversaries of the date of grant.
In January 1998, the Board of Directors approved a salary adjustment for
Messrs. Neman and Bunting to $100,000 and $140,000 per year, respectively.
However, the Board of Directors is currently discussing a rollback or reduction
in the salaries of certain executive officers' salaries.
Stock Option Plans
In October 1996, the Company adopted the 1996 Stock Option Plan (the "1996
Plan"), as amended, and in February 1998 the Board of Directors of the Company
adopted the 1998 Stock Option Plan (the "1998 Plan; together with the 1996 Plan
hereinafter the "Plans") pursuant to which 460,000 and 540,000 shares of Common
Stock respectively are currently reserved for issuance upon the exercise of
options designated as either (i) options intended to constitute incentive stock
options ("ISOs") under the Internal Revenue Code of 1986, as amended (the
"Code") or (ii) non-qualified options. Until such time as the shareholders of
the Company approve the 1998 Plan, only non-qualified stock options can be
issued thereunder.
Under the Plans (subject, however, to the above-referenced shareholder
approval with respect to the 1998 Plan), ISOs may be granted under the Plans to
employees and officers of the Company. Non-qualified options may be granted to
consultants, directors (whether or not they are employees), employees or
officers of the Company.
The Plans are intended to qualify under Rule 16b-3 under the Securities
Exchange Act of 1934, and are administered by the Board of Directors. The Board,
within the limitations of the Plans, determines the persons to whom options will
be granted, the number of shares to be covered by each option, whether the
options granted are intended to be ISOs, the duration and rate of exercise of
each option, the option purchase price per share and the manner of exercise, and
the
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<PAGE>
time, manner and form of payment upon exercise of an option. Unless sooner
terminated the 1996 Plan and the 1998 Plan will expire in October 2006 and
February 2008, respectively.
ISOs granted under the Plans may not be granted at a price less than the
fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). The aggregate fair market value of shares for which ISOs granted
to any employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company) may not exceed
$100,000. Non-qualified options granted under the Plans may not be granted at a
price less than the fair market value of the Common Stock on the date of grant.
Options granted under the Plans will expire not more than ten years from the
date of grant (five years in the case of ISOs granted to persons holding 10% or
more of the voting stock of the Company). All options granted under the Plans
are not transferable during an optionee's lifetime but are transferable at death
by will or by the laws of descent and distribution. In general, upon termination
of employment of an optionee, all options granted to such person which are not
exercisable on the date of such termination immediately terminate, and any
options that are exercisable terminate 90 days following termination of
employment.
The Plans contain anti-dilution provisions authorizing appropriate
adjustments in certain circumstances. Shares of Common Stock subject to options
which expire without being exercised or which are canceled as a result of the
cessation of employment are available for further grants. No shares of Common
Stock of the Company may be issued to any optionee until the full option price
has been paid. The Board may grant individual options under the Plans with more
stringent provisions than those specified in the Plans.
As of the date of this Annual Report, options to purchase an aggregate of
338,750 shares of Common Stock are outstanding under the 1996 Plan. Of such
options, options to purchase have been granted to the following individuals at
the indicated price; Mr. Neman, 12,000 at $5.50, Mr. Bunting, 50,000 at $5.00,
and Mr. Snyder, 50,000 at $6.63.
As of the date of this Annual Report, options to purchase an aggregate of
300,000 shares of Common Stock are outstanding under the 1998 Plan. Of such
options, 100,000 options were granted at $3.81 per share to: Messrs. Henderson
and Sharma, and to Sands Brothers & Co., Ltd., the Company's investment banker.
The Company also granted, in October 1996, options to purchase 65,000
shares outside of the 1996 Plan at an exercise price of $5.00 per share, all of
which are outstanding as of the date of this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of March 31, 1998, based on
information obtained from the persons named below, with respect to the
beneficial ownership of shares of
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<PAGE>
Common Stock by (i) each person known by the Company to be the beneficial owner
of more than five percent of the outstanding shares of Common Stock, (ii) the
Company's Chief Executive Officer, (iii) each of the Company's directors and
(iv) all executive officers and directors as a group:
Amount and Nature Percentage of
Name and Address Of Beneficial Outstanding
Of Beneficial Owner Ownership (3) Shares Owned
Mellon Bank Corporation (1) 357,500 8.1%
Ben Neman (2)(4) 1,824,105 40.0
James E. Bunting(2)(5) 21,667 0.5
Vinay Sharma (6) -- --
J. Sherman Henderson (7) 20,000 0.4
Meir Abramov(8) 72,333 1.6
--------- ----
All executive officers and
Directors as a group (five persons)(9) 1,938,105 42.5
(1) The principal business office is c/o One Mellon Bank Center, Pittsburgh,
Pennsylvania 15258.
(2) The address for each of such individuals is in care of the Company, 9314
Eton Avenue, Chatsworth, California 91311.
(3) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from March 31, 1998 upon the
exercise of options or warrants. Each beneficial owner's percentage
ownership is determined by assuming that options or warrants that are held
by such person (but not those held by any other person) and which are
exercisable within 60 days of March 31, 1998 have been exercised. Unless
otherwise indicated, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock beneficially owned by them.
(4) Excludes 72,333 shares of outstanding Common Stock transferable upon
exercise of options granted by Mr. Neman to Mr. Abramov, an employee of
the Company. Such options total 217,000 and are exercisable as to
one-third of the shares covered thereby commencing October 1997. Includes
4,000 shares issuable upon exercise of options held by Mr. Neman. Does not
include options to purchase 8,000 shares of Common Stock.
(5) Includes 16,667 shares issuable upon exercise of options. Does not include
options to purchase 33,333 shares of Common Stock.
(6) Does not include options to purchase 100,000 shares of Common Stock.
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<PAGE>
(7) Does not include options to purchase 100,000 shares of Common Stock and
warrants to purchase 10,000 shares of common stock.
(8) Includes 72,333 shares of outstanding Common Stock transferable upon
exercise of options granted by Mr. Neman to Mr. Abramov, an employee of
the Company. Does not include 144,667 of such options.
(9) Includes an aggregate of 20,667 shares issuable upon exercise of options.
Does not include options to purchase an aggregate of 291,333 shares of
Common Stock.
Item 13. Certain Relationships and Related Transactions.
Between January 1, 1995, and June 30, 1996, the Company made aggregate
non-interest bearing advances to Mr. Neman of $454,145. In December 1996, the
Company repurchased 36,000 shares of Common Stock from Mr. Neman in
consideration of the cancellation of $180,000 of such indebtedness, and Mr.
Neman repaid the remaining balance of such indebtedness.
Excess S corporation distributions for the year ended December 31, 1996,
to Mr. Neman in the amount of $454,000 were repaid by the delivery to the
Company of 101,562 shares of the Company's Common Stock held by Mr. Neman for
cancellation. The shares of Common Stock delivered by Mr. Neman were valued at
the initial public offering price of the Company's Common Stock less
underwriting discounts and commissions.
Mr. Neman had personally guaranteed up to $500,000 of the Company's
indebtedness to CIT, the Company's former finance company, with such guarantee
released in April 1997.
Cellular Specialists, a company controlled by Mr. Neman's brother, is a
customer of the Company. For the year ended December 31, 1997, the Company sold
$254,000 of cellular products to Cellular Specialists on terms no less favorable
than to an unaffiliated third party. In December 1996, the Company granted
options to purchase 35,000 shares of Common Stock at an exercise price of $5.00
per share to Mr. Neman's brother.
Digicell International Inc. ("Digicell"), a company controlled by two of
Mr. Neman's cousins, is a customer and a supplier to the Company. For the year
ended December 31, 1997, the Company sold to Digicell $1,455,000 and purchased
from Digicell $299,000 of cellular products on terms no less favorable to the
Company than could be obtained from an unaffiliated third party.
Vinay Sharma, a director of the Company, is a partner with the law firm
Sharma & Herron, one of the Company's attorneys. The Company paid such firm
approximately $14,000 during the year ended December 31, 1997, for legal
services rendered. In March 1998, options to purchase an aggregate of 100,000
shares of Common Stock at $3.81 per share were granted to Mr. Sharma under the
1998 Plan. At the same time options to purchase 50,000 shares of Common Stock
(3,000
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<PAGE>
shares at $5.00 and 47,000 shares at $8.25 granted in 1996 and 1997,
respectively) under the 1996 Plan were canceled.
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<PAGE>
PART IV
Item. 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)(1) The Financial Statements are filed as a part of this report as pages
F-1 through F-27 following the signature page.
(a)(2) Financial Statement Schedules
Schedule II - Valuation and Qualifying accounts page F-28
All other schedules are omitted because they are not applicable or
the required information is shown in the financial statements or
notes thereto.
(a)(3) Exhibits
The following Exhibits are filed herewith pursuant to Rule 601 of
Regulation of S-K and paragraph (C) of this Item 14.
Exhibit
Number Description
- ------ -----------
1.1 Form of Underwriting Agreement (1)
3.1 Certificate of Incorporation (1)
3.2 Certificate of Merger and Plan and Agreement of Merger, between Cellular
Telecom Corporation, a California corporation, and the Registrant (1)
3.3 Bylaws (1)
4.1 Specimen form of Common Stock Certificate (2)
4.2 Form of Representative's Warrant Agreement (2)
4.3 Form of Warrant issued as a dividend to Common Stock holders of Registrant
(3)
4.4 Warrant Agreement, between the Company and Continental Stock Transfer
Trust Company, as Warrant Agent dated December 17, 1997 (3)
10.1 Form of 1996 Stock Option Plan of Registrant (1)
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<PAGE>
10.2 Form of Employment Agreement between the Registrant and Ben Neman (1)
10.3 Form of Employment Agreement between the Registrant and James E. Bunting
(1)
10.4 Lease Agreement between the Registrant and California Cosmetics (1)
10.5 Credit Facility and Security Agreement, dated June 18, 1996, by and
between the Registrant and CIT Group/Credit Finance, Inc. and related
documents (1)
10.6 Form of Employment Agreement between the Registrant and John C. Snyder II,
dated April 30, 1997 (4)
10.7 Lease Agreement between the Company and Northpark Industrial, dated
December 22, 1997 (4)
10.8 Lease Agreement between the Company and AMB Industrial Income Fund, Inc.,
dated July 18, 1997 (4)
10.9 Loan and Security Agreement, dated January 12, 1998, by and between the
Registrant and BankAmerica Business Credit Inc. (4)
10.10 Form of Amendment to Loan and Security Agreement referred to in Exhibit
10.9 (4)
10.11 Form of 1998 Stock Option Plan (4)
27 Financial Data Schedule (for SEC only) (4)
- ----------
(1) Incorporated by reference to Registrant's Form S-1 Registration Statement
filed with the Commission on November 4, 1996.
(2) Incorporated by reference to Registrants Amendment No. 1 to Form S-1
Registration Statement filed with the Commission on December 9, 1996.
(3) Incorporated by reference to Registrant's Form 8-A Registration Statement
filed with the Commission on December 5, 1997.
(4) Filed herewith.
(b) Reports on Form 8-K:
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<PAGE>
Report on Form 8-K, dated November 25, 1997, with the Securities and Exchange
Commission reporting the declaration of a dividend to shareholders in the form
of a warrant to purchase Common Stock of the Company under Item 5.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
INTELLICELL CORP
Dated: April 13 , 1998
By: /s/ Ben Neman
-------------
Ben Neman
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Ben Neman Chief Executive Officer, April 13, 1998
- ------------- President and Chairman of the
Ben Neman Board, (Principal Executive
Officer)
/s/ James E. Bunting Executive Vice President, April 13, 1998
- -------------------- Chief Operating Officer and
James E. Bunting Director
/s/ John C. Snyder II Vice President and Chief April 13, 1998
- --------------------- Financial Officer (Principal
John C. Snyder II Financial and Accounting
Officer)
/s/ J. Sherman Henderson Director April 13, 1998
- ------------------------
J. Sherman Henderson
/s/ Vinay Sharma Director April 13, 1998
- ----------------
Vinay Sharma
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<PAGE>
Intellicell Corp.
Financial Statements
Years Ended December 31, 1996 and 1997
<PAGE>
Intellicell Corp.
Financial Statements
Years Ended December 31, 1996 and 1997
<PAGE>
Intellicell Corp.
Index to Financial Statements
<TABLE>
<S> <C>
Report of Independent Certified Public Accountants F-2
Report of Independent Auditors F-3
Balance sheets as of December 31, 1996 and 1997 F-4
Statements of operations for the years ended December 31, 1995,
1996 and 1997 F-6
Statements of changes in stockholders' equity (capital deficiency) for the years
ended December 31, 1995, 1996 and 1997 F-7
Statements of cash flows for the years ended December 31, 1995,
1996 and 1997 F-8
Notes to financial statements F-10
Report of Independent Auditors on Schedule F-27
Schedule II - Valuation and qualifying accounts F-28
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Intellicell Corp.
Chatsworth, California
We have audited the accompanying balance sheets of Intellicell Corp. as of
December 31, 1996 and 1997 and the related statements of income, stockholders'
equity, and cash flows for each of the years then ended. We have also audited
the schedule listed in the accompanying index. These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements and
schedule. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Intellicell Corp. at
December 31, 1996 and 1997, and the results of its operations and its cash flows
for each of the years then ended in conformity with generally accepted
accounting principles.
Also, in our opinion, the schedule presents fairly in all material
respects, the information set forth therein.
BDO SEIDMAN, LLP
Los Angeles, California
March 6, 1998
Except for Notes 5 and 13
which are as of April 10, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders Intellicell Corp.
Chatsworth, California
We have audited the accompanying statements of operations, changes in
stockholders' equity (capital deficiency), and cash flows for Intellicell Corp.
for the year ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above presented
fairly, in all material respects, the results of the operations and cash flows
of Intellicell Corp. for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.
Richard A. Eisner & Company, LLP
New York, New York
September 13, 1996
F-3
<PAGE>
Intellicell Corp.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
-------------------------
1996 1997
----------- -----------
<S> <C> <C>
Assets
Current assets:
Accounts receivable, net of allowance for doubtful
accounts of $428,000 and $2,697,000 $ 6,287,000 $ 6,578,000
Inventories, net of reserve of $442,000 and $550,000 6,437,000 3,494,000
Notes receivable, net of allowance for doubtful
notes of $0 and $739,000 337,000 195,000
Other receivables 500,000 --
Deposits for purchase of inventory 1,443,000 271,000
Deferred tax asset 353,000 --
Prepaid expenses and other current assets 268,000 439,000
----------- -----------
Total current assets 15,625,000 10,977,000
Property and equipment, net of accumulated depreciation
of $36,000 and $98,000 156,000 286,000
Goodwill, net of accumulated amortization of $13,000
and $23,000 87,000 77,000
Deferred financing costs, net of accumulated amortization
of $58,000 118,000 --
Other assets 39,000 74,000
----------- -----------
Total assets $16,025,000 $11,414,000
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
Intellicell Corp.
Balance Sheets
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1997
------------ ------------
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities:
Bank overdraft $ 1,012,000 $ 250,000
Revolving credit facility -- 3,402,000
Accounts payable 5,994,000 3,425,000
Accrued expenses 187,000 304,000
------------ ------------
Total current liabilities 7,193,000 7,381,000
Deferred tax liability 23,000 --
------------ ------------
Total liabilities 7,216,000 7,381,000
------------ ------------
Commitments and contingencies (Note 8)
Stockholders' equity
Preferred stock - $.01 par value, 1,000,000 shares
authorized and none issued -- --
Common stock - $.01 par value, 15,000,000 shares authorized,
4,217,464 and 4,415,902 shares issued and outstanding
at December 31, 1996 and 1997 42,000 44,000
Additional paid-in capital 8,925,000 11,792,000
Retained earnings 296,000 (7,803,000)
Due from officer (454,000) --
------------ ------------
Total stockholders' equity 8,809,000 4,033,000
------------ ------------
Total liabilities and stockholders' equity $ 16,025,000 $ 11,414,000
============ ============
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
Intellicell Corp.
Statements of Operations
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Net sales $ 69,850,000 $ 81,225,000 $ 81,401,000
Cost of sales 67,485,000 77,555,000 77,862,000
------------ ------------ ------------
Gross profit 2,365,000 3,670,000 3,539,000
Selling, general and administrative
expenses 1,877,000 2,747,000 7,630,000
Non-recurring legal and auditing fees -- -- 1,300,000
------------ ------------ ------------
Income (loss) from operations 488,000 923,000 (5,391,000)
Other income (expense):
Interest (expense) (67,000) (431,000) (444,000)
Other income (loss) (19,000) 39,000 53,000
------------ ------------ ------------
Income (loss) before income taxes 402,000 531,000 (5,782,000)
Taxes on income -- (308,000) 334,000
------------ ------------ ------------
Net income (loss) - Historical $ 402,000 $ 839,000 $ (6,116,000)
============ ============ ============
Basic earnings (loss) per share $ 0.20 $ 0.40 $ (1.37)
============ ============ ============
Diluted earnings (loss) per share $ 0.20 $ 0.40 $ (1.37)
============ ============ ============
Pro forma amounts (unaudited):
Income (loss) before income taxes $ 402,000 $ 531,000 $ (5,782,000)
Taxes on income 166,000 216,000 334,000
------------ ------------ ------------
Net income (loss) $ 236,000 $ 315,000 $ (6,116,000)
============ ============ ============
Basic earnings (loss) per share $ 0.12 $ 0.15 $ (1.37)
============ ============ ============
Diluted earnings (loss) per share $ 0.12 $ 0.15 $ (1.37)
============ ============ ============
</TABLE>
See accompanying notes to financialstatements.
F-6
<PAGE>
Intellicell Corp.
Statements of Changes in Stockholders' Equity (Capital Deficiency)
Years Ended December 31, 1995, 1996 and 1997
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings
---------------------------- Paid-in (Accumulated Due From
Shares Amount Capital Deficit) Officer Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 2,030,000 $ -- $ -- $ (142,000) $ -- $ (142,000)
Distributions to stockholders -- -- -- (166,000) -- (166,000)
Capital contribution -- 100,000 -- -- -- 100,000
Net income for the year -- -- -- 402,000 -- 402,000
Advances to officer -- -- -- -- (180,000) (180,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1995 2,030,000 100,000 -- 94,000 (180,000) 14,000
Net income for the period January 1,
1996 to December 21, 1996 -- -- -- 543,000 -- 543,000
Withdrawal of undistributed S
corporation earnings -- -- -- (637,000) (454,000) (1,091,000)
Reorganization with $.01 par value
common stock -- (80,000) 80,000 -- -- --
Common stock issued as consideration
for note payable 223,464 2,000 998,000 -- -- 1,000,000
Common stock acquired from officer
as settlement of balance due from
officer and retirement of such shares (36,000) -- (180,000) -- 180,000 --
Common stock issued pursuant to initial
public offering (net of expense) 2,000,000 20,000 8,027,000 -- -- 8,047,000
Net income for the period December 22,
1996 to December 31, 1996 -- -- -- 296,000 -- 296,000
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996 4,217,464 42,000 8,925,000 296,000 (454,000) 8,809,000
Common stock issued pursuant to initial
public offering over-allotment
provisions 300,000 3,000 1,337,000 -- -- 1,340,000
Common stock acquired from officer as
settlement of balance due from
officer and retirement of such shares (101,562) (1,000) (453,000) -- 454,000 --
Stock warrant dividend (Note 6) -- -- 1,983,000 (1,983,000) -- --
Net loss for the year -- -- -- (6,116,000) -- (6,116,000)
------------ ------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 4,415,902 $ 44,000 $ 11,792,000 $ (7,803,000) $ -- $ 4,033,000
============ ============ ============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
Intellicell Corp.
Statements of Cash Flows
<TABLE>
<CAPTION>
Increase (Decrease) in Cash Years Ended December 31,
--------------------------------------------
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) - historical $ 402,000 $ 839,000 $ (6,116,000)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 5,000 91,000 303,000
Provision for doubtful accounts receivable 305,000 380,000 2,888,000
Provision for doubtful notes receivable -- -- 739,000
Provision for inventory reserves 123,000 410,000 607,000
Change in net deferred tax (asset) liability -- (330,000) 330,000
Proceeds from sale of marketable securities 57,000 -- --
Loss on marketable securities 19,000 -- --
Changes in operating assets and liabilities:
Increase in accounts receivable (1,588,000) (2,615,000) (5,474,000)
(Increase) decrease in inventories (78,000) (3,532,000) 2,336,000
(Increase) decrease in deposits for purchases
of inventory -- (1,443,000) 1,172,000
(Increase) decrease in other receivables -- (500,000) 500,000
(Increase) decrease in prepaid expenses and
other current assets 29,000 (246,000) (171,000)
(Increase) decrease in other assets (84,000) 53,000 (35,000)
Increase (decrease) in accounts payable and
accrued expenses 1,056,000 177,000 (2,453,000)
------------ ------------ ------------
Net cash provided by (used in) operating activities 246,000 (6,716,000) (5,374,000)
------------ ------------ ------------
Cash flows from investing activities:
Purchases of property and equipment (44,000) (111,000) (193,000)
Advances to officer (324,000) -- --
Repayments of advances to officer -- 192,000 --
Loans to employees and third parties (211,000) -- --
Repayments of loans to employees and third parties -- 211,000 --
Repayments of notes receivable -- 218,000 1,698,000
------------ ------------ ------------
Net cash provided by (used in) investing activities (579,000) 510,000 1,505,000
------------ ------------ ------------
Cash flows from financing activities:
Net proceeds from sale of common stock -- 8,047,000 1,341,000
Bank overdraft (payments) 96,000 916,000 (762,000)
Proceeds from loans payable 490,000 -- --
Payments on loans payable (445,000) (1,490,000) --
Distributions to stockholders (166,000) (1,091,000) --
Deferred financing costs -- (176,000) (112,000)
Advances under credit facility -- 43,923,000 80,096,000
Repayments under credit facility -- (43,923,000) (76,694,000)
------------ ------------ ------------
Net cash provided by (used in) financing activities (25,000) 6,206,000 3,869,000
------------ ------------ ------------
Net increase (decrease) in cash (358,000) -- --
Cash - beginning of period 358,000 -- --
------------ ------------ ------------
Cash - end of period $ -- $ -- $ --
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
F-8
<PAGE>
Intellicell Corp.
Statements of Cash Flows
(Continued)
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid for interest $ 67,000 $ 431,000 $ 444,000
Cash paid for income taxes 5,000 20,000 223,000
Supplemental schedule of non-cash financing activities:
Conversion of trade payable into loan payable 2,000,000 -- --
Goodwill recorded in connection with shares
purchased by officer 100,000 -- --
Conversion of trade receivables into notes receivable -- 555,000 2,295,000
Common stock acquired from officer as settlement of
balance due from officer and retirement of such
shares -- 180,000 454,000
Issuance of common stock as consideration for note
payable -- 1,000,000 --
Reorganization of common stock -- 80,000 --
Note receivable issued for excess distribution -- 454,000 --
Fair value of stock warrant dividends -- -- 1,983,000
</TABLE>
See accompanying notes to financial statements.
F-9
<PAGE>
Intellicell Corp.
Notes to Financial Statements
NOTE 1 - THE COMPANY AND BASIS OF PRESENTATION
Intellicell Corp. (the "Company") was incorporated in California during March
1994, under the name Cellular Telecom Corporation. The Company is successor to
the wholesale distribution business of Cellular Telecom Partnership (the
"Partnership"), a California general partnership organized in 1991 to engage in
the retail and wholesale distribution of cellular products and accessories. In
March 1994, the Partnership, in effect transferred all of the assets, subject to
the liabilities (which exceeded the assets by $82,000), of its wholesale
distribution business to the Company in exchange for which the partners of the
Partnership received all of the outstanding shares of common stock of the
Company. The ownership percentages of each owner in the Partnership and the
Company before and immediately after this transaction were the same. As such,
the Company accounted for this transaction as a combination of entities under
common control similar to a pooling of interests. The Partnership, which had the
same ownership as the Company, continued its retail operations through August
1996, at which time it was dissolved.
In October 1996, the Company effected a 10,150 for 1 stock split. The financial
statements give retroactive effect to this transaction.
In connection with the Company's initial public offering in December 1996, the
Company reorganized under the laws of the State of Delaware and changed its name
to Intellicell Corp. The Company's authorized capital stock consists of
15,000,000 shares of common stock, par value $.01 per share and 1,000,000 shares
of preferred stock, par value $.01 per share.
The Company has developed a customer base of more than 2,100 wholesalers,
carriers, agents, dealers and retailers in both the domestic and international
market place. The Company is engaged in the wholesale distribution of cellular
products and accessories. International sales were $4,191,000 and $14,353,000
for the years ended December 31, 1996 and 1997, respectively.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
Inventories
Inventories, consisting of cellular telephones and accessories, are stated at
the lower of cost or market. Cost is determined using the weighted average cost
method. Management has recorded an inventory reserve for obsolescence based on
estimated net realizable value. The amounts the Company will ultimately realize
could differ materially from the amounts estimated in arriving at the reserves.
F-10
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenues Recognition
Revenue is recognized when wireless communication equipment is shipped to
customers.
Property and Equipment
Property and equipment are stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets. The average
lives used for depreciation range from three to five years. Maintenance and
repairs that neither materially add to the value of the property or equipment or
prolong its life are expensed. Betterment's or renewals are capitalized when
incurred.
Promotional
Advertising costs are expensed as incurred.
Income Taxes
The Company elected to be treated as an S corporation under the Internal Revenue
Code for the years ended December 31, 1995 and for the period January 1, 1996
through December 21, 1996. In lieu of corporate income taxes, the shareholders
of an S corporation are taxed on their proportionate share of the Company's
taxable income. Upon completion of its initial public offering in December 1996,
the Company terminated its election as an S corporation and became subject to
both federal and state income taxes. Therefore, no provision or liability for
federal or state income taxes has been included in the historical financial
statements through the termination of the Company's status as an S corporation.
See Note 9 for pro forma information regarding the income tax provision which
would have been recorded if the Company had been a taxable corporation, based on
the tax laws in effect during those periods.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Accounting Standards No. 128, Earnings per Share (SFAS No. 128). SFAS No. 128
specifies the computation, presentation and disclosure requirements for earnings
per share and is effective for periods ending after December 15, 1997. The
statement requires the restatement of all prior period earnings per share (EPS)
data presented. The new standard requires a reconciliation of the numerator and
denominator of basic EPS computation to the numerator and denominator of the
diluted EPS computation. During the year the Company adopted this statement and
restated EPS for the prior year accordingly. Under SFAS 128, earnings per share
for 1996 changed from $0.14 to $0.15 per share and for 1995, earnings per share
remained the same.
Staff Accounting Bulletin 98 (SAB 98) requires historical earnings (loss) per
share to be presented.
F-11
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk
Financial instruments that potentially subject the Company to credit risk
consist principally of trade receivables. The Company extends credit to a
substantial number of its customers and performs ongoing credit evaluations of
those customers' financial condition while, as is customary in the industry,
requiring no collateral. Customers that have not been extended credit by the
Company are on a cash-on-delivery basis.
The Company maintains substantially all of its cash in one commercial bank.
Fair Value of Financial Instrument
The carrying amounts of trade receivables, other current assets, trade accounts
payable, bank overdraft, revolving credit facility, accrued expenses and notes
receivable approximate fair value because of the short maturity of those
instruments.
Amortization of Intangible Assets
Deferred financing costs are being amortized on a straight-line basis over the
term of the revolving credit facility.
Goodwill is being amortized on a straight-line basis over a ten year period.
Impairment of Long-Lived Assets
In accordance with Financial Accounting Standards Board Statement No. 121,
"Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of (SFAS No. 121), the Company is required to recognize impairment
losses for long-lived assets used in operations and certain identifiable
intangibles when events or changes in circumstances indicate the carrying amount
of an asset may not be recoverable. SFAS No. 121 also requires that long-lived
assets and certain identifiable intangibles held for sale, other than those held
for discontinued operations, be reported at the lower of carrying amount or fair
value less cost of disposal. Adoption of the Statement and its application did
not have an impact on the Company's financial position or results of operation.
Stock-Based Compensation
As of January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), which
established a fair value method of accounting for stock-based compensation
plans. In accordance with SFAS 123, the Company has chosen to continue to
account for stock-based compensation utilizing the intrinsic value method
prescribed in APB 25. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the fair
F-12
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based Compensation (CONTINUED)
market price of the Company's stock at the date of grant over the amount an
employee must pay to acquire the stock. Also, in accordance with SFAS 123, the
Company has provided footnote disclosure with respect to stock-based employee
compensation. The cost of stock-based employee compensation is measured at the
grant date based on the value of the award and recognizes this cost over the
service period. The value of the stock-based award is determined using a pricing
model whereby compensation cost is the excess of the fair market value of the
stock as determined by the model at grant date or other measurement date over
the amount an employee must pay to acquire the stock.
New Accounting Pronouncements
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income", (SFAS No. 130) issued by the Financial Accounting Standards Board
(FASB) is effective for financial statements with fiscal years beginning after
December 15, 1997. Earlier application is permitted. SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. The Company does not
expect adoption of SFAS No. 130 to have a material effect, if any, on its
financial position or results of operations.
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information", (SFAS No. 131) issued by the FASB is
effective for financial statements with fiscal years beginning after December
15, 1997. Earlier application is permitted. SFAS No. 131 requires that public
companies report certain information about operating segments, products,
services and geographical areas in which they operate and their major customers.
The Company does not expect adoption of SFAS No. 131 to have a material effect,
if any, on its financial position or results of operations.
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment are summarized as follows:
December 31,
-----------------------
1996 1997
-------- --------
Office equipment, furniture and fixtures $ 26,000 $ 78,000
Computer equipment 138,000 196,000
Computer software 4,000 31,000
Other equipment 10,000 54,000
Leasehold improvements 14,000 25,000
-------- --------
192,000 384,000
Accumulated depreciation 36,000 98,000
-------- --------
Balance $156,000 $286,000
======== ========
Depreciation expense was $5,000, $21,000 and $63,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
F-13
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 4 - NOTES RECEIVABLE
Notes receivable result from the conversion of aged accounts receivable into
interest bearing promissory notes with a fixed maturity. During 1997, the
Company converted $2,295,000 ($555,000 in 1996) of trade accounts receivable
into notes receivable. These notes are not collateralized, bear interest at
rates ranging from 0% to 10% and are repayable in periods ranging from four to
twenty-four months. At December 31, 1997, notes receivable were $934,000 with an
associated allowance for doubtful notes receivable of $739,000. At December 31,
1996, the Company had a note receivable of $377,000 with an allowance for
doubtful note receivable of $0.
NOTE 5 - CREDIT FACILITY AND LOAN PAYABLE
Credit Facility
In October 1996, the Company entered into a revolving line of credit agreement
with a finance company, with an expiration in June 1998, and provided for
borrowings of up to a maximum of $7,500,000 based on a maximum of 82% of
eligible accounts receivable and 50% of eligible inventory as defined in the
agreement. Borrowings under the agreement bear interest at prime rate plus one
and three-quarters percent (1.75%) per annum. At December 31, 1997, the Company
was paying interest on advances at a rate of 10.25% per annum. The credit
facility is collateralized by substantially all of the assets of the Company,
prohibits the Company from paying dividends or incurring additional
indebtedness, except for trade indebtedness, and requires the Company to
maintain a tangible net worth of $4,500,000 and working capital of $1,500,000
subsequent to the closing of the initial public offering.
In January 1998, the Company entered into a new revolving line of credit
agreement with a different finance company which expires in January 2001, and
provides for borrowings of up to a maximum of $12,000,000 based on a maximum of
80% of eligible receivables and the lesser of $6,000,000 or 50% of eligible
inventory as defined in the agreement. Borrowing under the agreement bears
interest at prime rate plus one half of one percent (0.5%) per annum. The credit
facility is collateralized by substantially all of the assets of the Company.
The agreement prohibits the Company from paying dividends or incurring
additional indebtedness except for trade indebtedness and, initially, requires
the Company to maintain a tangible net worth of no less than $5,500,000 at
December 31, 1997, and annual earnings before interest, taxes, depreciation and
amortization of $500,000.
The Company was in violation of the tangible net worth covenant at December 31,
1997.
In April 1998, BankAmerica waived the December 31, 1997, default of the tangible
net worth covenant, and revised the January 1998 credit agreement. Under the
revised credit agreement the maximum borrowing is reduced from $12 million to $6
million, with such borrowings limited to 80% of eligible accounts receivable and
the lesser of $1 million or 50% of eligible telephone inventory as defined in
the agreement. Borrowing under the revised credit agreement bears interest at
the prime rate plus two and one-half percent (2.5%) per annum. The revised
credit agreement requires the Company to meet monthly levels of tangible net
worth and earnings before interest, taxes, depreciation and amortization. All
other significant restrictive covenants and prohibitions of the January 1998
agreement are included in the April 1998 revised agreement (Note 13).
The Company expensed in 1997, the remaining unamortized deferred financing costs
and an early termination fee associated with the replaced revolving line of
credit totaling $124,000 (see Note 12).
F-14
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 5 - CREDIT FACILITY AND LOAN PAYABLE
Loan Payable
At December 31, 1996 and 1997, the Company had no notes payable. In December
1995, the Company converted $2,000,000 of its trade payable balance to its
largest supplier who is also a significant customer discussed in Note 8, into a
loan payable bearing interest at a rate of approximately 9.1% per annum and
repayable in twelve monthly payments of $175,000. In July 1996, the Company
issued a $1,189,000 note payable in order to satisfy the then outstanding
balance of the loan payable. Of this amount, $1,000,000 automatically converted
into 223,464 shares of common stock at $4.475 per share on the effective date of
the initial public offering which represented 5.3% of the then outstanding
common stock and the principal balance including accrued interest was repaid
prior to December 31, 1997. Such shares were subsequently divested (see Note 6).
NOTE 6 - STOCKHOLDERS' EQUITY
Common Stock
In March 1994, 100 shares (pre-stock split) of the Company's common stock were
issued to each of its two stockholders, one of whom is the Company's President
and Chief Executive Officer (the "President"). In August 1995, pursuant to a
stockholders' agreement, the President purchased all of the shares owned by the
other stockholder for an aggregate of $115,000 and agreed to assume all
guarantees made to suppliers by the other stockholder on behalf of the Company.
In connection therewith goodwill in the amount of $100,000 was recorded for the
excess of the amount paid over the proportionate share of the net assets
obtained by the President.
See Note 1 for details of the Company's stock split and reorganization, which
resulted in the recording of 2,030,000 shares of Common Stock.
In December 1996, the Company consummated its initial public offering of
2,000,000 shares of common stock at $5.00 per share, with net proceeds to the
Company (after underwriting discounts, commissions and offering expenses) of
$8,047,000 ($9,347,000 including the exercise of the underwriter's over
allotment option for 300,000 shares in January 1997).
In 1996, on the effective date of the Company's initial public offering,
$1,000,000 of the principal amount of a note payable (see Note 5) was
automatically converted into 223,464 shares of common stock. Additionally, the
Company acquired and retired 36,000 shares of common stock from the President as
settlement of $180,000 due from such officers.
During 1997 the President repaid 1996 excess S corporation distributions in the
amount of $454,000 by delivering to the Company 101,562 shares of the Company's
common stock held by him. These shares were subsequently cancelled (see Note 7).
F-15
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
1996 Stock Option Plan
In October, 1996 the Company adopted a stock option plan (the "1996 Plan"),
pursuant to which as amended, options to purchase up to 460,000 shares of common
stock may be granted as either incentive stock options ("ISOs") under the
Internal Revenue Code of 1986, as amended, or nonqualified stock options. ISOs
may be granted under the 1996 Plan to employees and officers of the Company.
Nonqualified stock options may be granted to consultants, directors (whether or
not they are employees), employees or officers of the Company. The 1996 Plan is
administered by a committee of the Board of Directors which, within the
limitations of the 1996 Plan, determines the persons to whom options will be
granted, the number of shares to be covered by each option, whether the options
are intended to be ISOs, the duration and rate of exercise of each option, the
exercise price and manner of exercise, and the time, manner and form of payment
upon exercise of an option. Options granted under the 1996 Plan may not be
granted at a price less than the fair market value of the common stock on the
date of grant and will expire not more than ten years from the date of grant. Of
the options to purchase common stock by the Company in October 1996, 12,000
shares were granted to the President at $5.50 per share.
Options to purchase Common Stock of the Company granted under the 1996 Plan were
102,000 in 1997 and 280,750 in 1996 with such options granted at the closing
market value at the date of grant. Of the options granted under the 1996 Plan,
options forfeited were 103,000 in 1997 and 0 in 1996.
Other Stock Options
In October 1995, the President granted, to an employee, options to purchase
217,000 of his (split adjusted) shares of common stock at $1.00 per share (see
Note 8). The options will vest as to one-third in each of October 1997, 1998 and
1999. Management believes that the exercise price of these options reflects the
fair value of the stock on the date of grant, and accordingly, no compensation
has been recorded. All of these options remain outstanding at December 31, 1997.
In addition, on October 31, 1996, the Company issued to other individuals
options to purchase 65,000 shares of common stock at $5.00 per share. All of
these options remain outstanding at December 31, 1997.
The Company applies APB Opinion 25 and related interpretations in accounting for
its options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the measurement
date, no compensation cost is recorded. Had compensation cost for the Company's
stock option grants to employees been determined based on the fair value at the
grant date consistent with the method of SFAS 123, the Company's net income
(loss) and earnings (loss) per share for the years ended December 31, 1996 and
1997 would not be materially different.
FASB Statement 123, Accounting for Stock-Based Compensation, requires the
Company to provide pro forma information regarding net income and earnings per
share as if compensation cost for the Company's stock option plans had been
determined in accordance with the fair value based method prescribed in FASB
Statement 123. The Company estimates the fair value of each stock option at the
grant date by using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1996: dividend yield of 0
percent; expected volatility of 40 percent; risk-free interest rate of 5.68
percent; and expected lives of 2 years and for grants in 1997: dividend yield of
0 percent; expected volatility of 17 percent; risk-free interest rate varying
between 5.5 and 5.9 percent; and expected lives of 2 years.
F-16
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
Other Stock Options (Continued)
Under the accounting provisions of FASB Statement 123, the Company's net income
and earnings per share for 1997 and 1996 would have been reduced to the pro
forma amounts indicated below:
1996 1997
----------- -----------
Net income (loss)
As reported $ 839,000 $(6,116,000)
Pro forma $ 807,000 $(6,252,000)
Basic earnings (loss) per share
As reported $ 0.40 $ (1.37)
Pro forma $ 0.38 $ (1.40)
Diluted earnings per share
As reported $ 0.40 $ (1.37)
Pro forma $ 0.38 $ (1.40)
Due to the fact that the Company's stock option programs vest over many years
and additional awards are made each year, the above proforma numbers are not
indicative of the financial impact had the disclosure provisions of FASB 123
been applicable to all years of previous option grants.
A summary of the status of the Company's stock option and related information
for the years ending December 31, 1996 and 1997 is presented below:
Weighted
Average
Number Price Per Exercise
of Shares Share Price
----------- ----------- -----
Outstanding at beginning of year -- -- --
Granted 345,750 $5.00-$5.50 $5.02
----------- ----------- -----
Balance at December 31, 1996 345,750 $5.00-$5.50 $5.02
Granted 102,000 $6.63-$8.25 $7.45
Forfeited (103,000) $5.00 $5.00
----------- ----------- -----
Balance at December 31, 1997 344,750 $5.00-$8.25 $5.74
=========== =========== =====
At December 31, 1996 and 1997, there were 114,250 and 115,250 options to
purchase Common Stock of the Company available for grant, respectively. At
December 31, 1996, no outstanding options to purchase Common Stock of the
Company were exercisable. At December 31, 1997, there were 140,583 of such
options exercisable at prices ranging from $5.00 to $5.50 with a weighted
average exercise price of $5.02, and a weighted average fair value of options
granted during the year of $1.21.
F-17
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
Other Stock Options (Continued)
The following schedule summarizes information about fixed stock options
outstanding at December 31, 1997.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- ---------------------------
Weighted Weighted
Average Average
Number Exercise Remaining Number Exercise
Date of Grant of Shares Price Life (Years) of Shares Price
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
October 31, 1996 230,750 $ 5.00 3.8 136,583 $ 5.00
October 31, 1996 12,000 $ 5.50 3.8 4,000 $ 5.50
April 30, 1997 50,000 $ 6.63 4.3 -- --
July 8, 1997 47,000 $ 8.25 4.6 -- --
September 15, 1997 5,000 $ 8.25 4.7 -- --
---------- ------- -------- ---------- --------------
344,750 $ 5.74 3.0 140,583 $ 5.02
========== ======= ======== ========== ==============
</TABLE>
Warrants
Pursuant to the revolving line of credit agreement, the Company issued to its
former finance company warrants to purchase 15,000 shares of common stock at an
exercise price of $5.00 per share. The warrants are exercisable after one year
from the grant date and have an expiration date of December 2001. The above
mentioned warrants were outstanding at December 31, 1997.
In connection with the Company's initial public offering in December 1996,
warrants to purchase 200,000 shares of common stock at an exercise price of
$5.50 per share were sold to the underwriter of such offering, at nominal cost.
Such warrants were outstanding at December 31, 1997.
On November 18, 1997, the Company declared the payment of a dividend to its
shareholders in the form of a warrant to purchase Common Stock of the Company.
Record owners of Common Stock as of December 10, 1997, received one warrant for
every two shares of Common Stock held. Each warrant entitles the holder to
purchase one share of Common Stock at $4.00 per share for a three year period,
subject to adjustment in certain circumstances. The warrants are redeemable by
the Company, upon notice of not less than 30 days at $.10 per warrant in the
event the closing bid quotation of the Common Stock on all 20 of the trading
days ending on the third day prior to the day on which the Company gives notice
has been at least $7.00 per share; provided however that no such right of
redemption or exercise shall exist prior to the time that such shares of Common
Stock underlying the warrants have been registered under the Securities Act of
1933, as amended. The President of the Company has agreed to waive his rights to
receive 946,219 warrant dividends on the 1,892,438 shares of Common Stock held
by him. Accordingly, amounts equal to fair market value of $1,983,000, (based on
the black scholes model using quoted market prices as adjusted) of the
additional shares issued have been charged to retained earnings and credited to
additional paid-in capital.
F-18
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
Warrants (Continued)
The table below summarizes the transactions related to the Company's warrants to
purchase common stock:
Weighted-
Average
Number Exercise
of Shares Price
--------- ---------
Warrants declared at December 17, 1996 215,000 $5.47
--------- -----
Balance at December 31, 1996 215,000 $5.47
Warrants declared December 10, 1997 1,261,732 $4.00
--------- -----
Balance at December 31, 1997 1,476,732 $4.22
========= =====
All warrants are exercisable as of December 31, 1997.
Computation of Earnings Per Share
<TABLE>
<CAPTION>
For the Year ended December 31, 1997
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
(Historical and
Pro Forma)
----------- ------------- --------
Basic loss per share:
<S> <C> <C> <C>
Net loss attributable to common stockholders $(6,116,000) 4,451,182 $ (1.37)
=========== =========== ========
</TABLE>
Options and warrants to purchase 1,821,482 shares were outstanding at December
31, 1997, but were not included in the computation of diluted loss per common
share because the effect would be antidilutive.
<TABLE>
<CAPTION>
For the Year ended December 31, 1996
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------\
<S> <C> <C> <C>
Basic earnings per share:
Historical net income attributable to common
stockholders $ 839,000 2,113,674 $ 0.40
Effect of dilutive securities:
Weighted average options outstanding at end of year -- 967 --
--------- --------- --------
Diluted earnings per share:
Historical income available to common stockholders $ 839,000 2,114,641 $ 0.40
========= ========= ========
</TABLE>
F-19
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 6 - STOCKHOLDERS' EQUITY (CONTINUED)
Computation of Earnings Per Share (Continued)
<TABLE>
<CAPTION>
For the Year ended December 31, 1996
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- --------- --------
<S> <C> <C> <C>
Basic earnings per share:
Pro forma net income attributable to
common stockholders $ 315,000 2,113,674 $ 0.15
Effect of dilutive securities:
Weighted average options outstanding at end of year -- 967 --
--------- --------- --------
Diluted earnings per share:
Pro forma income available to common stockholders $ 315,000 2,114,641 $ 0.15
========= ========= ========
</TABLE>
Options to purchase 212,000 shares of common stock at $5.50 per share were
outstanding during the second half of 1996 and were not included in the
computation of diluted earnings per share because the options' exercise price
was greater than the average market price of the common shares. The options,
which expire in 2001, remained outstanding at the end of the year.
<TABLE>
<CAPTION>
For the Year ended December 31, 1995
------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
--------- --------- --------
<S> <C> <C> <C>
Basic and diluted earnings per share:
Historical net income attributable to
common stockholders $ 402,000 2,030,000 $ 0.20
========= ========= ========
Basic and diluted earnings per share:
Pro forma net income attributable to
common stockholders $ 236,000 2,030,000 $ 0.12
========= ========= ========
</TABLE>
There were no options to purchase shares of common stock outstanding at December
31, 1995.
NOTE 7 - DUE FROM OFFICER
During 1996, the Company made excess S corporation distributions of $454,000 to
the President, who then owned 100% of the Company's outstanding stock. As a
result, the Company reflected as "Due from officer", a component of equity, the
amount of $454,000 at December 31, 1996. The President repaid this amount by the
delivery of 101,562 shares of the Company's common stock held by him, to the
Company. Such shares were subsequently cancelled (see Note 6).
F-20
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 8 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
Operating Leases
In November 1997, the Company began operation in a 12,800 square foot leased
warehouse and office facility in Miami, Florida. The facility will handle sales
into the southeastern region of the United States and Latin America. The lease
has an initial monthly rental of $7,441 with annual escalation. At the end of
the initial lease term of 5 years and 2 months, the Company has an option to
extend the lease for an additional 5 years.
Subsequent to December 31, 1997, the Company moved its executive offices and
warehouse to a 36,000 square foot leased facility in Chatsworth, California. The
lease is for a three year term beginning February 1, 1998, and provides for an
initial monthly rental of $18,495 with annual escalation based on the Consumer
Price Index. At the end of the initial lease term the Company has an option to
extend the lease for a period of three years.
The Company is obligated under long-term operating leases for office and
warehouse facilities in Chatsworth, California and Miami, Florida through the
year 2002. Future minimum lease payments due under non-cancelable operating
lease agreements are as follows:
Year ending
December 31, Amount
------------ ------
1998 $292,735
1999 314,801
2000 318,516
2001 118,934
2002 122,562
Rent expense for the years ended December 31, 1995, 1996 and 1997, was $73,000,
$84,000 and $124,000, respectively.
Employment Agreements and Officers' Salaries
During the years ended December 31, 1995, 1996 and 1997, directors' and
officers' salaries, aggregated $150,000, $107,000 and $297,000, respectively.
The Company has an employment agreement with the President which provides for a
three-year term which commenced on December 17, 1996, minimum annual
compensation of $72,000 ($100,000 effective January 1, 1998) and such bonus as
the Board of Directors may from time to time determine.
The Company has an employment agreement with an officer for a three-year term
which commenced on July 1, 1996, and provides for minimum annual compensation of
$70,000 ($140,000 effective January 1, 1998) and such bonus as the Board of
Directors may from time to time determine and the granting of options to
purchase up to an aggregate of 50,000 shares, of common stock at an exercise
price of $5.00 per share. The options are exercisable as to one-third of the
shares covered thereby on the first, second and third anniversaries of the date
on which they were granted.
F-21
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 8 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
Employment Agreements and Officers' Salaries (Continued)
The Company also has an employment agreement with an employee which commenced in
December 1996, and provides for a three-year term and annual compensation of
$132,000. This employee has options to purchase 217,000 shares of the
President's common stock (see Note 6).
The Company has an employment agreement with an officer for a three-year term
which commenced on April 30, 1997, and provides for minimum annual compensation
of $120,000 and the granting of options to purchase up to an aggregate of 50,000
shares, of common stock at an exercise price $6.63 per share. The options are
exercisable as to one-third of the shares covered thereby on the first, second
and third anniversaries of the date on which they were granted.
Major Customers
During the years ended December 31, 1995, 1996 and 1997, a single customer
accounted for 25%, 16% and 12% of the Company's sales, respectively.
During the years ended December 31, 1995, 1996 and 1997, a second customer, who
is also the largest supplier discussed below and was a debt/equity holder until
1997, (see Note 5) accounted for 10%, 17% and 11%, of the Company's sales,
respectively.
Concentration of Suppliers
The Company is dependent on third-party equipment manufacturers and distributors
for all of its supply of cellular telephones and accessories. One supplier, who
is also the second largest customer discussed above, and a debt/equity holder
until 1997 (see Note 5), accounted for 28%, 26% and 12% of the Company's
purchases during the years ended December 31, 1995, 1996 and 1997, respectively.
Such manufacturers and distributors may at any time impose price increases or
otherwise determine not to continue to sell product to the Company on
commercially reasonable terms, or at all. A change in suppliers could cause a
delay in the supply of product and a possible loss of sales, which may adversely
affect the Company's operating results. Although there are a limited number of
suppliers, management believes other suppliers could provide sufficient
quantities of products on commercially reasonable terms.
The Company obtains substantially all of its proprietary accessory products from
manufacturers in Taiwan and is dependent on such manufacturers to provide
sufficient quantities of products on favorable terms. Any change in suppliers
may cause a delay in sales which would adversely affect operating results.
Supplier/Customer Transactions
Due to the limited supply of merchandise and the nature of the competitive
environment, the Company may purchase and sell inventory from/to the same
supplier/customer. These types of same supplier/customer transactions are often
at low gross profit margins. Such transactions are included in sales and
amounted to approximately $5,300,000 and $1,900,000 for the years ended December
31, 1996 and 1997, respectively.
F-22
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 8 - COMMITMENTS, CONTINGENCIES AND OTHER MATTERS (CONTINUED)
Litigation
In October 1996, an action was filed against the Company seeking a judgement to
cancel the Company's trademark registration for the name "Intellicell". In
January 1998, the parties settled the action wherein both parties recognize the
others right to use the name "Intellicell" for the products listed in their
respective trademark registrations. Under this settlement no damages or monetary
settlement was incurred or awarded.
NOTE 9 - PRO FORMA INCOME TAXES (BENEFIT)
In December 1996, as a result of the Company's initial public offering, its
election to be treated as an S corporation for federal and California tax
purposes was terminated. As an S corporation, the Company's income was subject
to tax at the shareholder level, not the corporate level. Accordingly, the
accompanying financial statements include unaudited pro forma adjustments for
income taxes required to be provided had the Company's S corporation status not
been in effect. The provision for income taxes consists of the following:
Year ended December 31,
-----------------------------------------
1995 1996 1997
(pro forma, (pro forma,
unaudited) unaudited)
--------- --------- ---------
Current:
Federal $ 164,000 $ 415,000 $ --
State 50,000 113,000 --
--------- --------- ---------
214,000 528,000 --
--------- --------- ---------
Deferred:
Federal (41,000) (271,000) 280,000
State (7,000) (41,000) 54,000
--------- --------- ---------
(48,000) (312,000) 334,000
--------- --------- ---------
Pro forma taxes on income $ 166,000 $ 216,000 $ --
========= ========= =========
Provision for income taxes $ -- $ -- $ 334,000
========= ========= =========
F-23
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 9 - PRO FORMA INCOME TAXES (BENEFIT) (CONTINUED)
Income tax expense (benefit) differed from the amounts computed by applying the
statutory federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------
1995 1996 1997
(pro forma (pro forma
unaudited) unaudited)
----------- ----------- -----------
<S> <C> <C> <C>
Income taxes at the federal statutory rate $ 139,000 $ 181,000 $(1,966,000)
State taxes, net of federal taxes 25,000 31,000 (338,000)
Nondeductible expenses 2,000 4,000 12,000
Less: valuation allowance -- -- 2,626,000
----------- ----------- -----------
As per statements of operations $ 166,000 $ 216,000 $ 334,000
=========== =========== ===========
</TABLE>
As a result of the Company's change in tax status in December 1996, the Company
implemented Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." As a result of its implementation, the Company recorded an income
tax benefit of $308,000 for the year ended December 31, 1996, which included
recognition of a net deferred tax asset of $330,000 and a tax expense in that
year of $22,000. No valuation allowance was established at December 31, 1996 as
management believed it was more likely than not the net deferred tax asset would
be realized.
Deferred income taxes reflect the net effect of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Management established a 100%
valuation allowance as of December 31, 1997, because it cannot be determined if
it is more likely than not that the net deferred tax asset will be realized in
future periods. Significant components of the Company's deferred tax position
are as follows:
<TABLE>
<CAPTION>
As of December 31,
---------------------------
1996 1997
----------- -----------
<S> <C> <C>
Deferred tax asset:
Inventory reserves $ 177,000 $ 219,000
Accounts and notes receivable allowances 172,000 1,368,000
Net operating loss carryforward -- 1,017,000
Other 4,000 41,000
----------- -----------
Deferred tax asset 353,000 2,645,000
Deferred tax (liability):
Depreciation (23,000) (19,000)
----------- -----------
Net deferred tax asset 330,000 2,626,000
Valuation allowance -- (2,626,000)
----------- -----------
Net deferred tax asset $ 330,000 $ --
=========== ===========
</TABLE>
F-24
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 9 - PRO FORMA INCOME TAXES (BENEFIT) (CONTINUED)
For tax purposes the Company has available a Federal net operating loss
carryforward of approximately $2,552,000. The loss carryforward will expire in
2017. For State purposes, the Company has available a net operating loss
carryforward of $1,276,000.
NOTE 10 - RELATED PARTY TRANSACTIONS
During the year the Company paid $14,000 in legal fees to a law firm of one of
the directors. Also the Company granted to this director options to purchase
47,000 common shares at $8.25 per share (1996 -3000 common shares at $5.00 per
share) under the 1996 stock option plan (Note 6).
The retail division of the Partnership described in Note 1 was a customer of the
Company. For the year ended December 31, 1995, the Company sold approximately
$42,000 of cellular products to the Partnership at cost. The Company made no
sales to the Partnership during the year ended December 31, 1996. In August
1996, the Partnership was dissolved and all amounts due from the Partnership
were assumed by the President.
During the years ended December 31, 1995, 1996 and 1997, the Company sold
approximately $675,000, $423,000 and $254,000, respectively, of cellular
products to a company, which is owned by the President's brother. In December
1996, the Company granted options to purchase 35,000 shares of common stock at
an exercise price of $5.00 per share to the President's brother.
A company owned by the President's cousins purchased cellular products from the
Company in the amounts of $87,000 and $1,455,000 for the years ended December
31, 1996 and 1997, respectively. The Company purchased cellular products from
this entity in the amount of $299,000 in 1997 and made no purchases in 1996.
NOTE 11 - NON-RECURRING LEGAL AND AUDITING FEES
During 1997, in connection with the audit of the Company's financial statements
for year ended December 31, 1996, (see 1997 Form 10-K, Item 9) the Company
incurred non-recurring expenses of $1,024,000 consisting primarily of
professional fees, including the fees of its prior and current auditors, fees of
special counsel and a special auditor retained by the Company's Audit Committee.
In August 1997, the Company entered into a non-binding letter of intent to
acquire all of the outstanding stock of Pacific Unplugged Communications, Inc.
and Unplugged de Mexico (Unplugged). In December 1997, the Company terminated
its negotiations with Unplugged. As a result the Company expensed $276,000 of
professional and legal fees incurred associated with the proposed acquisition.
NOTE 12 - FOURTH QUARTER ADJUSTMENTS
During the fourth quarter of 1997, the Company recorded additional reserves to
its allowance for doubtful accounts receivable of $2,015,000, primarily to
reflect the financial difficulties of one of its major customers, a $299,000
($388,000 in fourth quarter 1996) increase to its inventory reserve to reflect
an adjustment for obsolescence and net realizable value, a $276,000 write-off of
deferred acquisition costs, primarily legal and professional fees, associated
with an abandoned acquisition, $124,000 write-off of deferred financing costs
and early termination fee associated with a replaced credit facility and a
$330,000 provision for income taxes to increase the deferred tax asset valuation
allowance to reflect current assessment of realizability.
F-25
<PAGE>
Intellicell Corp.
Notes to Financial Statements
(Continued)
NOTE 13 - SUBSEQUENT EVENTS
Acquisition
In December 1997, the Company signed a non-binding letter of intent to acquire
all of the outstanding stock of Wholesale Cellular del Peru S.A. (WCL), a
Peruvian wholesale distributor of cellular phones and accessories. In
March/April of 1998, the Company signed an acquisition agreement calling for
closing date in the month of April 1998. The purchase price will consist of
unregistered shares of the Company's common stock valued at $3,500,000 subject
to adjustment.
The acquisition will be accounted for using the purchase method. The purchase
price will be allocated principally to goodwill which will be amortized over 20
years.
The acquisition is conditioned upon obtaining the approval of BankAmerica.
BankAmerica has indicated that it will not provide the necessary consent to the
transaction. Accordingly, the acquisition of WCL will not be consummated unless
the Company can arrange an alternate credit facility with a lender that consents
to the transaction.
1998 Stock Option Plan
In February 1998, the Company adopted a stock option plan (the "1998 Plan"),
pursuant to which, options to purchase up to 540,000 shares of common stock may
be granted as either incentive stock options ("ISOs") under the Internal Revenue
Code of 1986, as amended, or nonqualified stock options. ISOs may be granted
under the 1998 Plan to employees and officers of the Company. Nonqualified stock
options may be granted to consultants, directors (whether or not they are
employees), employees or officers of the Company. The 1998 Plan is administered
by the Board of Directors which, within the limitations of the 1998 Plan,
determines the persons to whom options will be granted, the number of shares to
be covered by each option, whether the options are intended to be ISOs, the
duration and rate of exercise of each option, the exercise price and manner of
exercise, and the time, manner and form of payment upon exercise of an option.
Options granted under the 1998 Plan may not be granted at a price less than the
fair market value of the common stock on the date of grant and will expire not
more than ten years from the date of grant.
On March 5, 1998, options to purchase an aggregate of 300,000 shares of Common
Stock were granted and were outstanding under the 1998 Plan. Of such options,
100,000 options were granted at $3.81 per share to each of Messrs. Henderson and
Sharma and to Sands Brothers & Co., Ltd.
F-26
<PAGE>
REPORT OF INDEPENDENT AUDITORS ON SCHEDULE
Board of Directors and Stockholders Intellicell Corp.
Chatsworth, California
The audit referred to in our report dated September 13, 1996 included
Schedule II for the year ended December 31, 1995.
In our opinion, such schedule presents fairly the information set forth
therein in compliance with the applicable accounting regulation of the
Securities and Exchange Commission.
Richard A. Eisner & Company, LLP
New York, New York
September 13, 1996
F-27
<PAGE>
Intellicell Corp.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Additions
Balance ----------------------- Balance
at the Charged to Charged to at the
Beginning Cost and Other End of
Description of Period Expenses Accounts Deductions the Period
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1995:
Allowance for doubtful accounts receivable $ 80,000 $ 305,000 $ -- $ 185,000(a) $ 200,000
Reserve for inventory obsolescence 146,000 123,000 -- 237,000(b) 32,000
For the year ended December 31, 1996:
Allowance for doubtful accounts receivable $ 200,000 $ 380,000 $ -- $ 152,000(a) $ 428,000
Reserve for inventory obsolescence 32,000 410,000 -- -- 442,000
For the year ended December 31, 1997:
Allowance for doubtful accounts receivable $ 428,000 $2,888,000 $ -- $ 619,000(a) $2,697,000
Allowance for doubtful notes receivables -- 739,000 -- -- 739,000
Reserve for inventory obsolescence 442,000 607,000 -- 499,000(b) 550,000
</TABLE>
(a) Accounts written off
(b) Inventory written off
F-28
EMPLOYMENT AGREEMENT
AGREEMENT dated as of April 30, 1997 between Intellicell Corp., a
Delaware corporation (the "Employer" or the "Company"), and John Snyder, II (the
"Employee").
W I T N E S S E T H :
WHEREAS, the Employer desires, subject to approval of the Board of
Directors of the Company (the "Board"), to employ the Employee as its Vice
President and Chief Financial Officer and to be assured of his services as such
on the terms and conditions hereinafter set forth; and
WHEREAS, the Employee is willing to accept such employment on such
terms and conditions;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements hereinafter set forth, and intending to be legally bound hereby, the
Employer and the Employee hereby agree as follows:
1. Term. Employer hereby agrees to employ Employee, and Employee
hereby agrees to serve Employer for a three-year period commencing effective as
of April 30, 1997 (the "Effective Date") (such period being herein referred to
as the "Term"
2. Employee Duties.
(a) During the term of this Agreement, the Employee shall have
the duties and responsibilities of Vice President and Chief Financial Officer of
the Employer, reporting directly to the President and Executive Vice President
of Employer and the Board.
(b) The Employee shall devote all of his business time,
attention, knowledge and skills faithfully, diligently and to the best of his
ability, in furtherance of the business and activities of the Company. The
principal place of performance by the Employee of his duties hereunder shall be
the Company's principal executive offices or such other place as the Board shall
determine, although the Employee may be required to travel outside of the area
where the Company's principal executive offices are located in connection with
the business of the Company.
3. Compensation.
(a) During the term of this Agreement, the Employer shall pay
the Employee a salary (the "Salary") at a rate of $70,000 per annum, payable
bi-weekly, or at such other times as may mutually be agreed upon between the
Employer and the Employee. The Employer shall also pay the Employee a bonus (the
<PAGE>
"Bonus") of $50,000 per annum, payable quarterly. Such Salary and Bonus may be
increased at the discretion of the Board.
(b) In addition to the foregoing, the Employee shall be
entitled to such other cash bonuses and such other compensation in the form of
stock, stock options or other property or rights as may from time to time be
awarded to him by the Board during the term of his employment hereunder. The
Company agrees, subject to Board approval, to grant to Employee five-year
incentive stock options to purchase an aggregate of 50,000 shares of Common
Stock, exercisable as to one-third of the Shares covered thereby on the first,
second and third anniversaries of the date of grant, at an exercise price equal
to the fair market value of the Company's Common Stock on the date of grant.
4. Benefits.
(a) During the term of this Agreement, the Employee shall have
the right to participate in such health and disability insurance plans which the
Company may provide to its senior executive officers and for which the Employee
is eligible, the premiums of which shall be paid by the Company.
(b) During the term of this Agreement, the Employee will be
entitled to paid vacation in accordance with the Company's policy. Such vacation
may be taken in the Employee's discretion with the prior approval of the
Employer, and at such time or times as are not inconsistent with the reasonable
business needs of the Company.
5. Travel Expenses. All travel and other expenses, including
business class air fare (or coach fares when business class is not available),
incident to the rendering of services reasonably incurred on behalf of the
Company by the Employee during the term of this Agreement shall be paid by the
Employer, provided that such expenses are preapproved by the President of the
Company, upon presentation of appropriate documentation therefor.
6. Termination. Notwithstanding the provisions of Section 1 hereof,
the Employee's employment with the Employer may be earlier terminated as
follows:
(a) By action taken by the Board, the Employee may be
discharged for cause (as hereinafter defined), effective as of such time as the
Board shall determine. Upon discharge of the Employee pursuant to this Section
6(a), the Employer shall have no further obligation or duties to the Employee,
except for payment of Salary and Bonus through the effective date of
termination, and as provided in Section 5, and the Employee shall have no
further obligations or duties to the Employer, except as provided in Section 7.
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<PAGE>
(b) In the event of (i) the death of the Employee or (ii) by
action of the Board in the event of the inability of the Employee, by reason of
physical or mental disability, to continue substantially to perform his duties
hereunder for an aggregate period of 180 days during the term of this agreement,
during which 180 day period Salary and any other benefits hereunder shall not be
suspended or diminished. Upon any termination of the Employee's employment under
this Section 6(b), the Employer shall have no further obligations or duties to
the Employee, except as provided in Section 5, and the Employee shall have no
further obligations or duties to the Employer, except as provided in Section 7.
(c) In the event that Employee's employment with the Employer
is terminated by action taken by the Board without cause within the first 90
days of the date of this Agreement, then the Employer shall have no further
obligation or duties to Employee, except for payment of Salary and Bonus through
the second full month following the effective date of termination and as
provided in Section 5, and Employee shall have no further obligations or duties
to the Employer, except as provided in Section 7.
(d) In the event that Employee's employment with the Employer
is terminated by action taken by the Board without cause at any time after the
first 90 days following the date of this Agreement, or if the Employee resigns
from his employment at any time after 90 days following the date of this
Agreement due to a disagreement with the Employer's President or Executive Vice
President concerning a material item relating to the Company's financial
reporting obligations, then the Employer shall have no further obligations or
duties to the Employee, except for payment of Salary and Bonus through the sixth
full month following the effective date of termination and as provided in
Section 5, and Employee shall have no further obligations or duties to the
Employer, except as provided in Section 7.
(e) For purposes of this Agreement, the Company shall have
"cause" to terminate the Employee's employment under this Agreement upon (i) the
failure by the Employee to substantially perform his duties under this
Agreement, (ii) the engaging by the Employee in criminal misconduct (including
embezzlement and criminal fraud) which is materially injurious to the Company,
monetarily or otherwise, (iii) the conviction of the Employee of a felony, (iv)
gross negligence on the part of the Employee or (v) other misconduct of the
Employee in the performance of his duties hereunder. The Company shall give
written notice to the Employee, which notice shall specify the grounds for the
proposed termination and the Employee shall be given thirty (30) days to cure if
the grounds arise under clauses (i) or (v) above.
7. Confidentiality; Noncompetition.
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<PAGE>
(a) The Employer and the Employee acknowledge that the
services to be performed by the Employee under this Agreement are unique and
extraordinary and, as a result of such employment, the Employee will be in
possession of confidential information relating to the business practices of the
Company. The term "confidential information" shall mean any and all information
(verbal or written) relating to the Company or any of its affiliates, or any of
their respective activities, other than such information which can be shown by
the Employee to be in the public domain (such information not being deemed to be
in the public domain merely because it is embraced by more general information
which is in the public domain) other than as the result of breach of the
provisions of this Section 7(a), including, but not limited to, information
relating to: trade secrets, personnel lists, financial information, research
projects, services used, pricing, customers, customer lists and prospects,
product sourcing, marketing and selling and servicing. The Employee agrees that
he will not, during his employment or subsequent to the termination of
employment, directly or indirectly, use, communicate, disclose or disseminate to
any person, firm or corporation any confidential information regarding the
clients, customers or business practices of the Company acquired by the Employee
during his employment by Employer, without the prior written consent of
Employer; provided, however, that the Employee understands that Employee will be
prohibited from misappropriating any trade secret (as defined for purposes of
California law) at any time during or after the termination of employment. At no
time during the term of this Agreement, or thereafter shall the Employee
directly or indirectly, disparage the commercial, business or financial
reputation of the Company.
(b) In consideration of Employer's hiring Employee, the
payment by the Employer to the Employee as described below and for other good
and valuable consideration, the Employee hereby agrees that he shall not, during
the period of his employment and for a period of one (1) year following such
employment, directly or indirectly, take any action which constitutes an
interference with or a disruption of any of the Company's business activities
including, without limitation, the solicitations of the Company's customers,
employees or agents.
(c) For purposes of clarification, but not of limitation, the
Employee hereby acknowledges and agrees that the provisions of subparagraph 7(b)
above shall serve as a prohibition against him, during the period referred to
therein, directly or indirectly, hiring, offering to hire, enticing, soliciting
or in any other manner persuading or attempting to persuade any officer,
employee, agent, lessor, lessee, licensor, licensee or customer who has been
previously contacted by either a representative of the Company, including the
Employee, (but only those suppliers existing during the time of the Employee's
employment by the Company, or at the termination of his
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<PAGE>
employment), to discontinue or alter his, her or its relationship with the
Company.
(d) Upon the termination of the Employee's employment for any
reason whatsoever, all documents, records, notebooks, equipment, price lists,
specifications, programs, customer and prospective customer lists and other
materials which refer or relate to any aspect of the business of the Company
which are in the possession or under the control of the Employee including all
copies thereof, shall be promptly returned to the Company.
(e) The parties hereto hereby acknowledge and agree that (i)
the Company would be irreparably injured in the event of a breach by the
Employee of any of his obligations under this Section 7, (ii) monetary damages
would not be an adequate remedy for any such breach, and (iii) the Company shall
be entitled to injunctive relief, in addition to any other remedy which it may
have, in the event of any such breach.
(f) The parties hereto hereby acknowledge that, in addition to
any other remedies the Company may have under Section 7(e) hereof, the Company
shall have the right and remedy to require the Employee to account for and pay
over to the Company all compensation, profits, monies, accruals, increments or
other benefits (collectively, "Benefits") derived or received by the Employee as
the result of any transactions constituting a breach of any of the provisions of
Section 7, and the Employee hereby agrees to account for any pay over such
Benefits to the Company.
(g) Each of the rights and remedies enumerated in Section 7(e)
and 7(f) shall be independent of the other, and shall be severally enforceable,
and all of such rights and remedies shall be in addition to, and not in lieu of,
any other rights and remedies available to the Company under law or in equity.
(h) If any provision contained in this Section 7 is hereafter
construed to be invalid or unenforceable, the same shall not affect the
remainder of the covenant or covenants, which shall be given full effect,
without regard to the invalid portions.
(i) If any provision contained in this Section 7 is found to
be unenforceable by reason of the extent, duration or scope thereof, or
otherwise, then the court making such determination shall have the right to
reduce such extent, duration, scope or other provision and in its reduced form
any such restriction shall thereafter be enforceable as contemplated hereby.
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<PAGE>
(j) It is the intent of the parties hereto that the covenants
contained in this Section 7 shall be enforced to the fullest extent permissible
under the laws and public policies of each jurisdiction in which enforcement is
sought (the Employee hereby acknowledging that said restrictions are reasonably
necessary for the protection of the Company). Accordingly, it is hereby agreed
that if any of the provisions of this Section 7 shall be adjudicated to be
invalid or unenforceable for any reason whatsoever, said provision shall be
(only with respect to the operation thereof in the particular jurisdiction in
which such adjudication is made) construed by limiting and reducing it so as to
be enforceable to the extent permissible, without invalidating the remaining
provisions of this Agreement or affecting the validity or enforceability of said
provision in any other jurisdiction.
8. General. This Agreement is further governed by the following
provisions:
(a) Notices. All notices relating to this Agreement shall be
in writing and shall be either personally delivered, sent by telecopy (receipt
confirmed) or mailed by certified mail, return receipt requested, to be
delivered at such address as is indicated below, or at such other address or to
the attention of such other person as the recipient has specified by prior
written notice to the sending party. Notice shall be effective when so
personally delivered, one business day after being sent by telecopy or five days
after being mailed.
To the Employer:
Intellicell Corp.
6929 Hayvenhurst Avenue
Van Nuys, California 91406
Attention: Ben Neman
To the Employee:
John Snyder, II
20900 Tulsa Street
Chatsworth, California 91311
With, in either case, a copy in the same manner to:
Tenzer Greenblatt LLP
405 Lexington Avenue
New York, New York 10174
Attention: Robert J. Mittman, Esq.
(b) Parties in Interest. Employee may not delegate his duties
or assign his rights hereunder. This Agreement shall inure to the benefit of,
and be binding upon, the
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<PAGE>
parties hereto and their respective heirs, legal representatives, successors and
permitted assigns.
(c) Entire Agreement. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto with
respect to the employment of the Employee by the Employer and contains all of
the covenants and agreements between the parties with respect to such employment
in any manner whatsoever. Any modification or termination of this Agreement will
be effective only if it is in writing signed by the party to be charged.
(d) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. Employee
agrees to and hereby does submit to jurisdiction before any state or federal
court of record in Los Angeles County, California, or in the state and county in
which such violation may occur, at Employer's election.
(e) Warranty. Employee hereby warrants and represents as
follows:
(i) That the execution of this Agreement and the
discharge of Employee's obligations hereunder will not breach or conflict with
any other contract, agreement, or understanding between Employee and any other
party or parties.
(ii) Employee has ideas, information and know-how
relating to the type of business conducted by Employer, and Employee's
disclosure of such ideas, information and know-how to Employer will not conflict
with or violate the rights of any third party or parties.
(f) Severability. In the event that any term or condition in
this Agreement shall for any reason be held by a court of competent jurisdiction
to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality or unenforceability shall not affect any other term or condition of
this Agreement, but this Agreement shall be construed as if such invalid or
illegal or unenforceable term or condition had never been contained herein.
(g) Execution in Counterparts. This Agreement may be executed
by the parties in one or more counterparts, each of which shall be deemed to be
an original but all of which taken together shall constitute one and the same
agreement, and shall become effective when one or more counterparts has been
signed by each of the parties hereto and delivered to each of the other parties
hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Agreement as of the date first above written.
INTELLICELL CORP.
By:/s/ Ben Neman
--------------------------------
Name: Ben Neman, President
/s/
-----------------------------------
John Snyder, II
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease"), dated for reference purposes
only, December 22, 1997, is made by and between NORTHPARK INDUSTRIAL, ("Lessor")
and INTELLICELL CORPORATION - A DELAWARE CORPORATION ("Lessee"), (collectively
the "Parties," or individually a "Party").
1.2 Premises: That certain portion of the Building, including
all improvements therein or to be provided by Lessor under the terms of this
Lease, and commonly known by the street address of 9314-24 ETON AVENUE,
CHATSWORTH 91311 located in the County of LOS ANGELES, State of CALIFORNIA and
generally described as (describe briefly the nature of the property) A FREE
STANDING INDUSTRIAL BUILDING OF APPROXIMATELY 32,447 SQUARE FEET, AKA LOT 13,
TRACT #33398, CITY OF LOS ANGELES IN AN MR-2 ZONE. ("Premises"). (See Paragraph
2 for further provisions.)
1.3 Term: 3 years and 0 months ("Original Term") commencing
FEBRUARY 1, 1998 ("Commencement Date") and ending JANUARY 31, 2001 ("Expiration
Date"). (See Paragraph 3 for for further provisionbs,)
1.4 Early Possession: __________________ ("Early Possession Date")
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $18,495.00 per month ("Base Rent"), payable on the
1st. day of each month commencing February 1998 -- See Paragraph 65 regarding
rent abatement. (See Paragraph 4 for further provisions.)
|X| If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 Base Rent Paid Upon Execution: $18,495.00 as Base Rent for the
period February 1998 --
1.7 Security Deposit: $55,485.00 -- See Paragraph 66 ("Security
Deposit"). (See paragraph 5 for further provisions.)
1.8 Permitted Use: Sales, Warehousing, and distribution and
distribution of wireless communication products. (See Paragraph 6 for further
provisions.)
1.9 Insuring Party: Lessor is the "Insuring Party" unless
otherwise stated herein. (See Paragraph 8 for further provisions.)
1.10 Real Estate Brokers: The following real estate brokers
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
Sokol Industrial Realty, Inc. represents
|X| Lessor exclusively ("Lessor's Broker"); |_| both Lessor and Lessee, and
South Park Group represents
|X| Lessor exclusively ("Lessor's Broker"); |_| both Lessee and Lessor (See
Paragraph 15 for further provisions.)
1.11 Guarantor. The obligations of the Lessee under this Lease are
to be guaranteed by _______________________________ ("Guarantor"). (See
Paragraph 37 for further provisions.)
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting
of Paragraphs 49 through 69 and Exhibits A all of which constitute a part of
this Lease.
2. Premises.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean
and free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning, heating,
and loading doors, if any, if any, in the Premises, other than those constructed
by Lessee, shall be in operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code.
Lessor warrants to Lessee that the inprovements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
dies not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that
it has been advised by the Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, compliance with Applicable
Laws as defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use, (b) that Lessee has made such investigation
as it deems necessary with reference to such matters and assumes all
responsibility therefor as the same relate to Lessee's occupancy of the Premises
and/or the terms of this Lease, and (c) that neither Lessor, nor any of Lessor's
agents, has made any oral or written representations or warranties with respect
to said matters other than as set forth in this Lease. (See Exhibit B.)
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises, in
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original
Term of this Lease are as specified in Paragraph 1.3.
3.2 Early Possission. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
Initials /s/ [Illegible]
---------------
G.S.
---------------
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<PAGE>
3.3 Delay in Possession. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
4. Rent
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessee fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain all
or any portion of said Security Deposit for the payment of any amount due Lessor
or to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request therefor deposit moneys
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor sufficient to maintain the same ratio between the Security Deposit
and the Base Rent as those amounts are specified in the Basic Provisions. Lessor
shall not be required to keep all or any part of the Security Deposit separate
from its general accounts. Lessor shall, at the expiration of earlier
termination of the term hereof and after Lessee has vacated the Premises, return
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest herein), that portion of the Security Deposit not used or applied by
Lessor. Unless otherwise expressly agreed in writing by Lessor, no part of the
Security Deposit shall be considered to be held in trust, to bear interest or
other increment for its use, or to be prepayment for any moneys to be paid by
Lessee under this Lease.
6. Use.
6.1 Use. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by Lessor, Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit, business
plan, license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Law. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 Inspection; Compliance. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in Paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty
as to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc),
7.2 (Lessors obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are reasonably or
readily accessible to Lessee, and whether or not the need for such repairs
occurs
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as a result of Lessee's use, any prior use, the elements or the age of such
portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights, landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 Lessor's Obligations. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation of
the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter In effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to make
repairs at the expense of Lessor or to terminate this Lease by reason of, any
needed repairs.
7.3 Utility Installations; Trade Fixtures; Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in Paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. Ail consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) Indemnification, Lessee shall pay, when due, all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanics' or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on or about the Premises, and Lessor shall have the
right to post notices of non-responsibility in or on the Premises as provided by
law. If Lessee shall, in good faith, contest the validity of any such lien,
claim or demand, then Lessee shall, at its sole expense defend and protect
itself, Lessor and the Premises against the same and shall pay and satisfy any
such adverse Judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises. If Lessor shall require, Lessee
shall furnish to Lessor a surety bond satisfactory to Lessor in an amount equal
to one and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership; Removal; Surrender; and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) Removal, Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, with
all of the improvements, parts and surfaces thereof clean and free of debris and
in good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good practice. Lessee's Trade Fixtures shall remain the property of
Lessee and shall be removed by Lessee subject to its obligation to repair and
restore the Premises per this Lease.
8. Insurance; Indemnity.
8.1 Payment For Insurance. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
shall include coverage for liability assumed under this Lease as an "insured
contract" for the performance of Lessee's indemnity obligations under this
Lease. The limits of said insurance required by this Lease or as carried by
Lessee shall not, however, limit the liability of Lessee nor relieve Lessee of
any obligation hereunder. All insurance to be carried by Lessee shall be primary
to and not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 Property Insurance--Building, Improvements and Rental Value.
(a) Building and Improvements. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss
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or damage to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available Insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. If Lessor is the Insuring Party, however,
Lessee Owned Alterations and Utility Installations shall be insured by Lessee
under Paragraph 8.4 rather than by Lessor. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $1,000 per occurrence,
and Lessee shall be liable for such deductible amount in the event of an Insured
Loss, as defined in Paragraph 9.1(c).
(b) Rental Value. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs, or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) Adjacent Premises. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's ads, omissions, use or occupancy of the Premises.
(d) Tenant's Improvements. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 Lessee's Property Insurance. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B-1, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. If Lessee is the
Insuring Party, Lessee shall cause to be delivered to Lessor certified copies of
policies of such insurance or certificates evidencing the existence and amounts
of such insurance with the insureds and loss payable clauses as required by this
Lease. No such policy shall be cancellable or subject to modification except
after thirty (30) days prior written notice to Lessor. Lessee shall at least
thirty (30) days prior to the expiration of such policies, furnish Lessor with
evidence of renewals or "insurance binders" evidencing renewal thereof, or
Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee to Lessor upon demand. If the Insuring Party
shall fail to procure and maintain the insurance required to be carried by the
Insuring Party under this Paragraph 8, the other Party may, but shall not be
required to, procure and maintain the same, but at Lessee's expense.
8.6 Waiver of Subrogation. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 Indemnity. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employee or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Lessor shall not be liable for any damages arising from any act or neglect of
any other tenant of Lessor. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to Lessee's
business or for any loss of income or profit therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is less
than 50% of the then Replacement Cost of the Premises immediately prior to such
damage or destruction, excluding from such calculation the value of the land and
Lessee Owned Alterations and Utility Installations.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "Insured Loss" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction or depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Partial Damage--Insured Loss. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessors expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if the required insurance was not in force or the
insurance proceeds are not sufficient to effect such repair, the Insuring Party
shall promptly contribute the shortage in proceeds (except as to the deductible
which is Lessee's responsibility) as and when required to complete said repairs.
In the event, however, the shortage in proceeds was due to the fact that, by
reason of the unique nature of the improvements, full replacement cost insurance
coverage was not commercially reasonable and available, Lessor shall have no
obligation to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds to
cover same, or adequate assurance thereof, within ten (10) days following
receipt of written notice of such shortage and request therefor. If Lessor
receives said funds or adequate assurance thereof within said ten (10) day
period, the party responsible for making the repairs shall complete them as soon
as reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within term (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If in such case Lessor does not so elect, then this Lease
shall terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right to
reimbursement from Lessor for any funds contributed by Lessee to repair any such
damage or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2., notwithstanding that
there may be some insurance coverage, but the net proceeds of any such insurance
shall be made available for the repairs if made by either Party.
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9.3 Partial Damage--Uninsured Loss. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment in such event
this Lease shall continue in full force and effect, and Lessor shall proceed to
make such repairs as soon as reasonably possible and the required funds are
available. If Lessee does not give such notice and provide the funds or
assurance thereof within the times specified above, this Lease shall terminate
as of the date specified in Lessor's notice of termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 Damage Near End of Term. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by, within twenty (20) days following the occurrence of the damage, or
before the expiration of the time provided in such option for its exercise,
whichever is earlier ("Exercise Period"), (i) exercising such option and (ii)
providing Lessor with any shortage in insurance proceeds (or adequate assurance
thereof) needed to make the repairs. If Lessee duly exercises such option during
said Exercise Period and provides Lessor with funds (or adequate assurance
thereof) to cover any shortage in insurance proceeds, Lessor shall, at Lessor's
expense repair such damage as soon as reasonably possible and this Lease shall
continue in full force and effect. If Lessee falls to exercise such option and
provide such funds or assurance during said Exercise Period, then Lessor may at
Lessor's option terminate this Lease as of the expiration of said sixty (60) day
period following the occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within ten (10) days after the expiration
of the Exercise Period, notwithstanding any term or provision in the grant of
option to the contrary.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of damage described in Paragraph 9.2 (Partial
Damage--Insured), whether or not Lessor or Lessee repairs or restores the
Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, Insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect, but subject to Lessors
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessors desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessors intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve months.
9.8 Termination--Advance Payments. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by Lessee to Lessor. Lessor shall,
in addition, return to Lessee so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waive Statutes. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. Real Property Taxes.
10.1 (a) Payment of Taxes. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable Installment Lessee
shall promptly furnish Lessor with satisfactory evidence that such taxes have
been paid. If any such taxes to be paid by Lessee shall cover any period of time
prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, end Lessee shall reimburse Lessor
therefor upon demand.
(b) Advance Payment. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment, general
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed upon the Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, levied against any legal or equitable interest of Lesser in
the Premises or in the real properly of which the Premises are a part, Lessor's
right to rent or other income therefrom, and/or Lessors business of leasing the
Premises. The term "Real Property Taxes" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in applicable law taking effect, during the term of this
Lease, including but not limited to a change in the ownership of the Premises or
in the Improvements thereon, the execution of this Lease, or any modification,
amendment or transfer thereof, and whether or not contemplated by the Parties.
10.3 Joint Assessment. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessors reasonable determination thereof, in good faith,
shall be conclusive.
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10.4 Personal Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any of
Lessee's said personal property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property or, at Lessors option, as provided in Paragraph 10.1(b).
11. Utilities. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. Assignment and Subletting.
12.1 Lessors Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in time approval or disapproval of such
assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default or
Breach by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessors determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased to an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
amount required to establish such Security Deposit a condition to Lessor's
consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, by any such
rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option end without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, and shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
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(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3. (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. ss.101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's Interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 Remedies, if Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lesser shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
term of this Lease. The worth at the time of award of the amount referred to in
provision (iii) of the prior sentence shall be computed by discounting such
amount at the discount rate of the Federal Reserve Dank of San Francisco at the
time of award plus one percent. Efforts by Lessor to mitigate damages caused by
Lessee's Default or Breach of this Lease shall not waive Lessors right to
recover damages under this Paragraph. If termination of this Lease is obtained
through the provisional remedy of unlawful detainer, Lessor shall have the right
to recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two such grace periods shall constitute both an unlawful detainer and a Breach
of this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessors interest under the Lease, shall not constitute a termination
of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture In Event Of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
Premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performances then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs, if more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall
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have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the building located on the Premises.
No reduction of Base Rent shall occur if the only portion of the Premises taken
is land on which there is no building. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor, whether
such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair,
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
[PARAGRAPHS 15.2, 15.3, 15.4 AND 15.5 DELETED]
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
tender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the lessee's interest in the prior lease. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15, upon such transfer or assignment
and delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within thirty (30) days
following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or Other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party.
23. Notices.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered in person (by hand or by messenger or courier service) or
may be sent by regular, certified or registered mail or U.S. Postal Service
Express Mail, with postage prepaid, or by facsimile transmission, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph 23.
The addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United Stales Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. Lessors
consent to, or approval of, any act shall not be deemed to render unnecessary
the obtaining of Lessor's consent to, or approval of, any subsequent or similar
act by Lessee, or be construed as the basis of an estoppel to enforce the
provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any preceding Default or
Breach by Lessee of any provision hereof, other than the failure of Lessee to
pay the particular rent so accepted. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
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28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the parties,
their personal representatives, successors and assigns and be governed by the
laws of the State in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. Subordination; Attornment; Non-Disturbance.
30.1 Subordination. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 Attornment. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises,
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. Attorney's Fees. if any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "Prevailing Party"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. Lessors Access; Showing Premises; Repairs. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "For Sale" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "For Lease" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the Premises, except that Lessee
may, with Lessor's prior written consent, install (but not on the roof) such
signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
36. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. Options.
39.1 Definition, As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2 Options Personal To Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual p6ssesslon of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple Options
to extend or renew this Lease, a later option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
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39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding any
provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall terminate
and be of no further force or effect, notwithstanding Lessee's due and timely
exercise of the Option, if, after such exercise and during the term of this
Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee for a
period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three or more notices of Default under Paragraph 13.1 during any twelve
month period, whether or not the Defaults are cured, or (iii) if Lessee commits
a Breach of this Lease.
40. Multiple Buildings. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reservations. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. Offer. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE OF
ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE
LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE
ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN
CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED
SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at BEVERLY HILLS, CA. 90211
on 1/6/98
by LESSOR:
NORTHPARK INDUSTRIAL
By /s/ Gary Siegel
-----------------------------------------------
Name Printed: Gary Siegel
Title: Partner
By: WEST AMERICA COUNT. CORP. /s/ Thomas L. Harner
-----------------------------------------------
Name Printed: Thomas L. Hamer
Title: Vice-President
Address: 8929 WILSHIRE BLVD. #400
BEVERLY HILLS, CA. 90211
Tel. No.(310) 652-8288 Fax No. (310) 652-4972
Executed at VAN NUYS, CA. 91406
on January 5, 1998
by LESSEE:
INTELLICELL CORPORATION
A DELAWARE CORPORATION
By: /s/ James Bunting
----------------------------------------------
Name Printed: JAMES BUNTING
Title: Executive Vice President
By:
----------------------------------------------
Name Printed:
Title:
Address: 6929 HAYVENHURST AVE.
VAN NUYS, CA. 91406
Tel. No.( ) Fax No. ( )
NET PAGE 10
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 345 South Figueroa
Street, Suite M-1, Los Angeles, CA 90071. (213) 687-6777. Fax No. (213)
687-8616.
(C) Copyright 1990 - By American Industrial Real Estate Association.
All rights reserved.
<PAGE>
STANDARD ADDENDUM TO NET LEASE
Lease dated: DECEMBER 22, 1997
Lessor: NORTHPARK INDUSTRIAL
Lessee: INTELLICELL CORPORATION
49) The security deposit shall be used and may be refunded only in accordance
with Paragraph 5 and in connection with this paragraph. Upon Lessee
vacating the Premises, Lessor may, in Lessor's discretion, use a portion
of Lessee's security deposit in order to obtain inspection reports on the
condition of the equipment which is part of the Premises, including but
not limited to the HVAC system and any waste-water clarifier system at the
Premises. Lessee may not use any portion of the security deposit to
satisfy any of Lessee's rental obligations hereunder including the last
month's rental payment. Any failure of Lessee to pay any of Lessee's
rental obligations when due constitutes a material breach of this Lease
for which Lessor may re-enter and take possession of the Premises in
accordance with law, notwithstanding the fact that Lessor may have
possession of a security deposit.
50) Notwithstanding the provisions of Paragraph 1.9, Lessee is the "Insuring
Party" hereunder.
51) With reference to the property insurance required by Paragraph 8.3(a),
Lessor and Lessee agree that the full replacement cost of the Premises
will be not less than $1,460,115.00 as of the Commencement Date of the
term of this Lease.
52) Notwithstanding anything to the contrary contained in Paragraphs 1.3, 1.5,
3.1, 4 or elsewhere in this Lease, Lessee's obligation to pay rent shall
continue until (i) Lessee has removed all of its property from the
Premises, (ii) Lessee has made any repairs required under Paragraph
7.4(c), (iii) Lessee has removed all Alterations, improvements, additions
and Utility Installations which Lessor requires Lessee to remove pursuant
to Paragraph 7.4(b), and (iv) Lessee has notified Lessor in writing that
all of the items (i) through (iii) of this paragraph, to the extent
applicable, have been accomplished.
53) If Lessee remains in possession of the Premises after the expiration of
the Lease term, then Lessee's occupancy of the Premises shall be deemed to
be a hold-over tenancy upon all of the provisions of this Lease pertaining
to obligations of Lessee, but not including any options or rights of first
refusal, if any, granted to Lessee under this Lease. During such holdover
tenancy, Lessee may terminate the tenancy only by giving sixty (60) days
written notice of termination to Lessor, whereas Lessor may terminate the
tenancy or change the terms of the Lease upon giving to Lessee thirty (30)
days written notice thereof. The termination date shall be the last day of
the month in which the notice requirement has been met.
54) In addition to the provisions of Paragraph 6.2, Lessor shall also have the
right, in its sole discretion, to hire an independent consultant, at
Lessee's expense, to verify the legality of the contemplated use and the
method of storage of Hazardous Substances by Lessee.
55) Lessee shall be entitled to use those parking spaces designated by Lessor
as parking spaces for the leased Premises, Lessee or Lessee's employees,
visitors, customers, or guests shall not use driveways, alleyways,
easement ways or other areas not specifically marked as parking for such
purpose.
No automotive repair, car washing, waxing and detailing, or covered
parking is permitted at any time.
Prohibited vehicles are not permitted; examples of prohibited vehicles
shall include, but shall not be limited to, trailers, campers,
recreational vehicles, boats, "dead automobiles" or automobiles parked
longer than 48 hours.
If Lessee permits or allows parking other than in designated parking
spaces or permits or allows any of the aforedescribed prohibited vehicles
to park on any portion of the parking areas or anywhere else inside or
outside the Premises, then Lessor shall have the right, without notice, in
addition to other rights and remedies it may have, to remove or tow away
the vehicle involved and charge the cost to Lessee, which cost shall be
immediately payable by Lessee upon demand by Lessor.
56) Under no circumstances shall Lessee be permitted to use the exterior areas
of the Premises, including driveways, alleyways or easement ways or
anywhere else outside the building, for the temporary or permanent storage
of any property, including but not limited to inventory, parts, work in
process, pallets, or the installation of any type of equipment, including
but not limited to air compressors or any other equipment. In the event
that any unauthorized storage or installation of equipment or property
shall occur, then Lessor shall have the right, without notice, in addition
to such other rights and remedies that it may have, to remove the property
and/or equipment at Lessee's expense, which shall be paid by Lessee upon
demand by Lessor. No lunch areas, trash containers or unauthorized
compressor sheds are permitted anywhere in the driveways, alleyways or
easement ways, or anywhere else outside the building.
57) Lessee shall not use any water, either from exterior sources or from
sources within the building, on or about the exterior area of the Premises
for any purpose whatsoever without Lessor's prior written consent. Any of
Lessee's procedures, processes or other work which require the use of
water shall be done solely within the confines of the building, and no
water shall be allowed to drain onto the exterior area of the Premises.
[GRAPHIC OMITTED]
LESSOR INITIAL HERE LESSEE INITIAL HERE
[GS] [T.H.] [JB] [ ]
<PAGE>
STANDARD ADDENDUM TO NET LEASE
(continued)
58) Except as provided in Paragraph 12.2(e) in the case of Lessor's consent to
an assignment or subletting and notwithstanding anything to the contrary
contained in Paragraph 12, in the event that Lessee requests Lessor's
signature or consent to any action or on any document, including but not
limited to loan or security documents relating to loan transactions in
which Lessee is taking part, Lessor may require Lessee to pay to Lessor an
initial minimum fee of $350.00 to cover Lessor's legal fees and costs in
reviewing and responding to each such request, and Lessee agrees to pay
additional legal fees as are actually incurred by Lessor in reviewing and
responding thereto.
59) The following provision is hereby added to Paragraph 16.1. Without
limiting the generality of Paragraph 16.1, Lessee shall at any time upon
not less than ten (10) days' prior written notice from Lessor execute,
acknowledge and deliver to Lessor or to a proposed purchaser or
encumbrancer of the Premises a statement in writing (i) certifying that
this Lease is unmodified and in full force and effect (or, if modified,
stating the nature of such modification and certifying that this Lease, as
so modified, is in full force and effect) and the date to which the rent
and other charges are paid in advance, if any, and (ii) acknowledging that
there are not, to Lessee's knowledge, any uncured defaults on the part of
the Lessor, or specifying such defaults if any are claimed. Any such
statement may be conclusively relied upon by any prospective purchaser or
encumbrancer of the Premises.
60) Lessee understands that there are no restrictions contained in this Lease
as to the type of business which may be conducted by any other present or
future tenant of any building located near or adjacent to the building in
which the Premises are located, and that Lessor may lease space to other
tenants whose business is the same or competitive with that of Lessee.
61) Lessee shall inform Lessor of any work anticipated on the roof, in
conjunction with its operation, and obtain permission to do same prior to
commencement of same. Lessee shall not, without Lessor's prior written
consent, make any alterations, improvements, additions to, or utility or
antenna installations on the roof. Should Lessee make any alterations,
etc. without the prior written consent of Lessor, Lessor may, at any time
during the term of this Lease, require that Lessee, at its expense, remove
any or all of the same and that Lessee pay to Lessor the amount of any
damage to the roof caused by Lessee or Lessor may remove same at Lessee's
expense.
Security bars or other security measures installed by Lessee require prior
written consent of Lessor. Such installations, except for electronic
security systems, shall remain as part of the Premises upon termination of
the Lease unless Lessor requests removal of such installations and
restoration of the Premises in accordance with Paragraph 7.4.
62) Lessors right under Paragraph 7.4 (B) to require that any or all Lessee
Owned Alterations or Utility Installations be removed by Lessee by the
expiration or earlier termination of this Lease applies to all tenant
improvements, including but not limited to improvements which were made to
the Premises by lessor at the request of Lessee and improvements the cost
of which was amortized over the Lease term or a portion thereof in the
form of additional rent.
63) Lessee acknowledges receipt of a copy of the Declaration of Covenants,
Conditions and Restrictions for Northpark Industrial Center recorded with
the County of Los Angeles as document numbers 79-760182 and 85-1324915.
Lessee has reviewed and approved said documents and agrees to be bound by
all the terms and conditions therein. Lessee further agrees that said
Covenants, Conditions and Restrictions shall be binding upon Lessee and
any sublessee, successor and assigns which they may have.
LESSOR: LESSEE:
NORTHPARK INDUSTRIAL INTELLICELL CORPORATION
By: /s/ Gary Siegel By: /s/ James Bunting
---------------------------------- ----------------------------------
JAMES BUNTING-EXECUTIVE VICE PRESIDENT
By: /s/ Thomas L. Harner By:
---------------------------------- ----------------------------------
AIR Net 1990
Revised: July, 97
<PAGE>
STANDARD ADDENDUM TO NET LEASE
(continued)
64. LESSOR AT ITS SOLE COST AND EXPENSE SHALL REMOVE PARTITION WALLS AND
INSTALL TWO WINDOWS AS SHOWN IN EXHIBIT A.
FREE RENT
65. LESSOR SHALL GRANT LESSEE THE MONTHS OF JANUARY, 1999 AND JANUARY, 2000
FREE OF BASE RENT DUE UNDER PARAGRAPH 1.5. DURING THE PERIODS OF FREE
RENT, LESSEE SHALL BE RESPONSIBLE FOR PAYMENTS OF PROPERTY TAXES, PROPERTY
INSURANCE, BUILDING MAINTENANCE AND RENTAL INCREASES OVER THE BASE RENT
PURSUANT TO PARAGRAPH 68.
THE ENTIRE BASE RENT OTHERWISE DUE AND PAYABLE FOR ALL THE RENT ABATEMENT
MONTHS SHALL BECOME IMMEDIATELY DUE AND PAYABLE UPON THE OCCURRENCE OF AN
EVENT OF DEFAULT BY LESSEE UNDER THIS LEASE.
SECURITY DEPOSIT TOWARDS RENT
66. NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED ELSEWHERE IN THIS LEASE
AGREEMENT, IF LESSEE IS NOT IN DEFAULT OF THIS LEASE AND LESSEE HAS PAID
RENT IN A TIMELY MANNER AND IS NOT IN DEFAULT OF ANY PROVISIONS OF THE
LEASE THROUGHOUT THE FIRST SEVENTEEN (17) MONTHS OF THIS LEASE TERM, THEN
LESSEE MAY USE A PORTION OF THE SECURITY DEPOSIT AS A RENTAL PAYMENT FOR
THE EIGHTEENTH (18) MONTH OF THIS LEASE AGREEMENT.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED ELSEWHERE IN THIS LEASE
AGREEMENT, IF LESSEE IS NOT IN DEFAULT OF THIS LEASE LEASE AND LESSEE HAS
PAID RENT IN A TIMELY MANNER THROUGHOUT THE FIRST TWENTY-NINE (29) MONTHS
OF THIS LEASE TERM, THEN LESSEE MAY USE A PORTION OF THE SECURITY DEPOSIT
AS A RENTAL PAYMENT FOR THE THIRTIETH (30th) MONTH OF THIS LEASE
AGREEMENT.
LESSEE ACKNOWLEDGES THAT UNTIL THE 18th MONTH OF THE LEASE TERM THE
SECURITY DEPOSIT TO MONTHLY RENT RATIO SHALL BE 3:1. FROM THE 18th TO THE
29th MONTH THE SECURITY DEPOSIT RATIO TO MONTHLY RENT RATIO SHALL BE 2:1
AND THEREAFTER THE REQUIRED SECURITY DEPOSIT TO MONTHLY RENT SHALL BE 1:1.
LESSEE SHALL FURNISH TO LESSOR THE NAME AND ADDRESS OF LESSEE'S LOCAL
SERVICE AGENT.
67. FOR THE FIRST SIX (6) MONTHS OF THE LEASE TERM LESSEE SHALL PROVIDE LESSOR
WITH WRITTEN NOTICE OF THE NEED FOR ROOF REPAIRS AND LESSOR SHALL, AT
LESSOR'S EXPENSE, REPAIR THE EXTERIOR ROOF. LESSOR SHALL NOT BE LIABLE FOR
DAMAGE TO ANY OF LESSEE'S PROPERTY OR FOR ANY LOSS OF BUSINESS TO LESSEE
CAUSED BY WATER DAMAGE RESULTING FROM ROOF LEAKS, PROVIDED LESSOR
REASONABLY ATTEMPTS TO CORRECT SUCH ROOF LEAKS. NOTWITHSTANDING THE
FOREGOING, LESSOR SHALL NOT BE RESPONSIBLE FOR MAKING ANY REPAIRS OF
DAMAGE CAUSED BY LESSEE OR BY AGENTS OR INDEPENDENT CONTRACTORS OF LESSEE.
LESSEE SHALL BE RESPONSIBLE FOR MAINTENANCE AND REPAIR OF THE ROOF AFTER
THE SIX (6) MONTH ROOF WARRANTY PERIOD HAS EXPIRED.
LESSOR: LESSEE:
NORTHPARK INDUSTRIAL INTELLICELL CORPORATION
By: /s/ Gary Siegel BY: /s/ JAMES BUNTING
---------------------------------- ------------------------------------
JAMES BUNTING - EXECUTIVE VICE PRESIDENT
By: /s/ Thomas L. Harner BY:
---------------------------------- ------------------------------------
<PAGE>
STANDARD ADDENDUM TO LEASE
Lease dated: DECEMBER 22 1997
Lessor: NORTHPARK INDUSTRIAL
Lessee: INTELLICELL CORPORATION
68 RENT ESCALATIONS
(a) on FEBRUARY 1, 1999 AND FEBRUARY 1, 2000, the monthly rent payable
under Paragraph 4 of the attached Lease shall be adjusted by the increase, if
any, from the date this Lease commenced, in the Consumer Price Index of the
Bureau of Labor Statistics of the U.S. Department of Labor for All Urban
Consumers, Los Angeles-Anaheim-Riverside, California (1982/84=100), "All Items",
herein referred to as "C.P.I."
(b) The monthly rent payable in accordance with Paragraph (a) of this
Addendum shall be calculated as follows: the rent payable for the first month of
this Lease, as set forth in Paragraph 4 of the attached Lease, shall be
multiplied by a fraction the numerator of which shall be the C.P.I. of the month
immediately preceding the effective date of the subject rent escalation, and the
denominator of which shall be the C.P.I. for the first month of the Lease term.
The sum so calculated shall constitute the new monthly rent hereunder, but, in
no event, shall such new monthly rent be less than the rent payable for the
month immediately preceding the date for rent adjustment.
(c) In the event the compilation and/or publication of the C.P.I. shall be
discontinued, then the index most nearly the same as the C.P.I. shall be used to
make such calculation. In the event that Lessor and Lessee cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally be Lessor and
Lessee.
(d) Lessor shall notify Lessee of any rental increases pursuant to this
Paragraph as soon as practicable after the relevant C.P.I. figures have been
released. Until such notification, Lessee shall continue to pay the rent in
effect during the prior rental period. After notification of a rental increase,
Lessee shall commence making rental payments in the increased amount and shall,
within ten (10) days after such notification, pay to Lessor the amount of any
rental increases due for previous months.
LESSOR: LESSEE:
NORTHPARK INDUSTRIAL INTELLICELL CORPORATION
By: /s/ Gary Siegel By: /s/ James Bunting
---------------------------------- ------------------------------------
JAMES BUNTING- EXECUTIVE VICE PRESIDENT
By: /s/ Thomas L. Harner By:
---------------------------------- ------------------------------------
Rev. 4/88
<PAGE>
STANDARD ADDENDUM TO LEASE
Lease dated: DECEMBER 22 1997
Lessor: NORTHPARK INDUSTRIAL
Lessee: INTELLICELL CORPORATION
69 OPTION TO EXTEND
A. Lessor hereby grants to Lessee the option to extend the term of this Lease
for a THREE (3) year period commencing when the prior term expires upon each and
all of the following terms and conditions:
(i) Lessee gives to Lessor and Lessor receives written notice of the
exercise of the option to extend this Lease for said additional term no earlier
than nine months and no later than six months prior to the time that the option
period would commence of the option were exercised, time being of the essence.
If said notification of the exercise of said option is not so given and
received, this option shall automatically expire;
(ii) The provisions of paragraph 39, including the provision relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(iv) On FEBRUARY 1, 2001 - FEBRUARY 1, 2002 AND FEBRUARY 1, 2003, the
monthly rent payable under paragraph 4 of the attached Lease shall be adjusted
by the increase, if any, from the date this Lease commenced in the C.P.I. As
used herein, the term "C.P.I. shall mean the Consumer Price Index of the Bureau
of Labor Statistics of the U.S. Department of Labor for All Urban Consumers, Los
Angeles-Anaheim-Riverside, California (1982/84 = 100), "All Items", herein
referred to as "C.P.I."
a. The monthly rent payable in accordance with paragraph A(iv) of
this Addendum shall be calculated as follows: the rent payable for the first
month of the term of this Lease, as set forth in paragraph 4 of the attached
Lease, shall be multiplied by a fraction the numerator of which shall be the
C.P.I. of the calendar month during which the adjustment is to take effect and
the denominator of which shall be the C.P.I. for the calendar month in which the
original Lease term commenced. The sum so calculated shall constitute the new
monthly rent hereunder, but, in no event, shall such new monthly rent be less
than the rent payable for the month immediately preceding the date for rent
adjustment.
b. In the event the compilation and/or publication of the C.P.I.
shall be discontinued, then the index most nearly the same as the C.P.I. shall
be used to make such calculation. In the event that Lessor and Lessee cannot
agree on such alternative index, then the matter shall be submitted for decision
to the American Arbitration Association in accordance with the rules of said
association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitrators shall be paid equally be Lessor and
Lessee.
c. Lessor shall notify Lessee of any rental increases pursuant to
this paragraph as soon as practicable after the relevant C.P.I. figures have
been released. Until such notification, Lessee shall continue to pay the rent in
effect during the prior rental period. After notification of a rental increase,
Lessee shall commence making rental payments in the increased amount and shall,
within ten (10) days after such notification, pay to Lessor the amount of any
rental increases due for previous months.
B. This option to extend, if exercised shall commence on FEBRUARY 1, 2001 and
shall end on JANUARY 31, 2004.
LESSOR: LESSEE:
NORTHPARK INDUSTRIAL INTELLICELL CORPORATION
By: /s/ Gary Siegel By: /s/ James Bunting
---------------------------------- ------------------------------------
JAMES BUNTING- EXECUTIVE VICE PRESIDENT
By: /s/ Thomas L. Hafner By:
---------------------------------- ------------------------------------
Rev. 4/88
<PAGE>
EXHIBIT "A"
Reference: Lease Agreement dated December 22, 1997 by and between Northpark
Industrial, as Lessor, and Intellicell Corp., as Lessee, for the
premises located at 9314-24 Eton Avenue, Chatsworth, CA
[GRAPHIC OMITTED]
Lessor: Lessee:
NORTHPARK INDUSTRIAL INTELLICELL CORP.
INITIAL HERE INITIAL HERE
[GS] [T.H] [JB] [ ]
LANDLORD: AMB INDUSTRIAL INCOME FUND, INC., a Maryland
corporation
c/o AMB Institutional Realty Advisors, Inc.
Sixty State Street, Suite 3700
Boston, Massachusetts 02109
TENANT: INTELLICELL CORP., a Delaware corporation
6929 Hayvenhurst Avenue
Van Nuys, California 91406
DATE OF EXECUTION: July 18, 1997
- --------------------------------------------------------------------------------
BEACON INDUSTRIAL PARK
INDUSTRIAL LEASE
- --------------------------------------------------------------------------------
<PAGE>
LEASE SUMMARY
The following is a summary of basic lease provisions with respect to
the Lease. It is an integral part of the Lease, and terms defined or dollar
amounts specified in this Summary shall have the meanings or amounts as stated,
unless expanded upon in the text of the Lease and its Exhibits, which are
attached to and made a part of this Summary.
1. Date of Lease Execution: 7/18, 1997
2. "Landlord": AMB Industrial Income Fund., Inc.
3. Landlord's Address: c/o AMB Institutional Realty Advisors,
Inc.
Sixty State Street, Suite 3700
Boston, Massachusetts 02109
with a copy to:
Codina Real Estate Management, Inc.
8323 N.W. 12th Street, Suite 115
Miami, Florida 33126
Attention: Property Manager
4. "Tenant": Intellicell Corp.
5. Tenant's Address: 6929 Hayvenhurst Avenue
Van Nuys, California 91406
6. "Guarantor": N/A
7. Guarantor's Address: N/A
8. Premises (section 1.1): As shown on Exhibit "A"
9. Building No.: 3
10. Gross Rentable Area of
Premises (section 1.1): Approximately 12,800 rentable square
feet (which includes approximately
2,002 square feet of office space)
11. Gross Rentable Area of
Building (section 2.3): Approximately 73,600 rentable square
feet
12. Tenant's Proportionate Share
(section 2.3): 17.4%
13. Permitted Use of
Premises (section 3.1): Commercial warehouse, with incidental
office use
14. Term of Lease (section 1.1): Five (5) years and two (2) months
"Commencement Date": Date of
Substantial Completion
"Expiration Date": Five (5) years and
two (2) months after the
Commencement Date
15. Option to Renew (Rider 1): One (1) term of five (5) years
16. "Minimum Rent" (section 2.2):
ANNUAL MINIMUM RENT MONTHLY PAYMENT
LEASE YEAR RATE PER SQUARE FOOT (PLUS SALES TAX)
- ---------- -------------------- ----------------
1 $6.55 $6,986.67*
* Notwithstanding the foregoing, Minimum Rent shall be abated for
the first sixty (60) days of the Term, commencing on the Commencement Date.
The annual Minimum Rent rate per square foot shall be increased on the first day
of the second (2nd) Lease Year and on the first day of each succeeding Lease
Year thereafter during the Term of the Lease by multiplying the annual Minimum
Rent rate per square foot then being paid by one hundred four (104%) percent per
annum.
-i-
<PAGE>
17. Prepaid Rent: $7,440.80 (includes sales tax) (due
upon execution of Lease; to be applied
to first full month Minimum Rent is
due)
18. Security Deposit (section 2.6): $13,973.34 (excludes sales tax) (due
upon execution of Lease)
19. Cost Pass-Throughs (section 2.3): Operating Costs
20. Base Year (section 2.3): 1997
21. Comprehensive General
Liability Insurance (section 6.1): $2,000,000.00
22. No. of Parking Spaces: Sixteen (16) unassigned spaces
23. Broker(s) (section 13.12): Codina Bush Klein o Oncor
International; ComReal of Miami, Inc.
-ii-
<PAGE>
THIS LEASE (the "Lease"), dated the 18th day of July, 1997, is made between AMB
INDUSTRIAL INCOME FUND, INC., a Maryland corporation (the "Landlord"), and
INTELLICELL CORP., a Delaware corporation (the "Tenant").
ARTICLE I. TERM.
1.1 Grant; Term. In consideration of the performance by Tenant of its
obligations under this Lease, Landlord leases to Tenant and Tenant leases from
Landlord, for the Term, the "Premises," which Premises are shown outlined on the
floor plan attached hereto and made a part hereof as Exhibit "A." The Premises
are located in that certain building in Beacon Industrial Park (the "Building"),
located in Dade County, Florida, as more particularly described in Exhibit "B,"
attached hereto and made a part hereof. The gross rentable area of the Premises
and Building are approximately as shown on the Lease Summary.
The "Term" of the Lease is the period from the Commencement Date as
specified in the Lease Summary, through the Expiration Date, as specified in the
Lease Summary. If the Premises are ready for occupancy prior to the Commencement
Date, then Tenant shall take occupancy on such date and Tenant's obligations to
pay Minimum Rent and all other charges shall commence on such date. If Landlord
cannot deliver possession of the Premises to Tenant on the Commencement Date,
this Lease shall not be void or voidable, nor shall Landlord be liable to Tenant
for any loss or damage resulting therefrom, but in that event, this Lease shall
in all ways remain in full force and effect except that Minimum Rent and other
charges shall be waived for the period between the Commencement Date and the
time when Landlord can deliver possession; provided, however, if delivery of
possession is delayed more than ninety (90) days past the scheduled Commencement
Date, Tenant may terminate this Lease upon fifteen (15) days' written notice to
Landlord, whereupon both parties shall be relieved of all further obligations
hereunder. Notwithstanding the foregoing, if delivery of possession is delayed
due to any act or omission of Tenant, then the Commencement Date shall be the
date Landlord would have delivered possession, but for Tenant's delay.
Landlord shall have no construction or improvement obligations with
respect to the Premises unless expressly set forth in a work letter agreement,
which, if executed by Landlord and Tenant, shall be incorporated as an exhibit
to this Lease. Upon the expiration of five (5) business days following the
Commencement Date, the Premises shall be conclusively deemed to be accepted by
Tenant unless Tenant shall have given Landlord written notice of any contended
defects in the Premises.
ARTICLE II. RENT.
2.1 Covenant to Pay. Tenant shall pay to Landlord all sums due hereunder
from time to time from the Commencement Date without prior demand, together with
all applicable Florida sales tax thereon; however, unless otherwise provided in
this Lease, payments other than Tenant's regular monthly payments of Minimum
Rent and Operating Costs shall be payable by Tenant to Landlord within five (5)
days following demand. All rent or other charges that are required to be paid by
Tenant to Landlord shall be payable at Landlord's address indicated on the Lease
Summary. Minimum Rent and Additional Rent for any "Lease Year" consisting of
less than twelve (12) months shall be prorated on a per diem basis, based upon a
period of 365 days. "Lease Year" means the twelve (12) full calendar months
commencing on the Commencement Date. However, the final Lease Year may contain
less than twelve (12) months due to expiration or sooner termination of the
Term. Tenant agrees that its covenant to pay rent and all other sums under this
Lease is an independent covenant and that all such amounts are payable without
counterclaim, set-off, deduction, abatement, or reduction whatsoever, except as
expressly provided for in this Lease.
2.2 Minimum Rent. Subject to any escalation which may be provided for in
this Lease, Tenant shall pay Minimum Rent for the Term in the initial amount
specified in the Lease Summary, which, except for the first installment, shall
be payable throughout the Term in equal monthly installments in advance on the
first day of each calendar month of each year of the Term, such monthly
installments to be in the amounts (subject to escalation) specified in the Lease
Summary. The first monthly installment of Minimum Rent shall be due on the date
of this Lease. The Minimum Rent described above shall be adjusted at the
beginning of the second and each succeeding Lease Year during the Term of this
Lease as provided in the Lease Summary.
2.3 Operating Costs. Tenant shall pay to Landlord Tenant's proportionate
share of the amount by which the annual Operating Costs, as hereinafter defined,
for each calendar year exceed the Operating Costs incurred during the Base Year
specified in the Lease Summary. Such excess is referred to for purposes of this
Lease as the "Increased Operating Costs." Tenant's obligation to pay its
proportionate share of Increased Operating Costs shall commence as of the
beginning of the first full calendar year following the Base Year. The amount of
Increased Operating Costs payable to Landlord may be estimated by Landlord for
such period as Landlord determines from time to time (not to exceed twelve (12)
months), and Tenant agrees to pay to Landlord the amounts so estimated in equal
installments, in advance, on the first day of each month during such period.
Notwithstanding the foregoing, when bills for all or any portion of Increased
Operating Costs so estimated are actually received by Landlord, Landlord may
bill Tenant for Tenant's proportionate share thereof, less any amount previously
paid by Tenant to Landlord on account of such item(s) by way of estimated
Increased Operating Costs payments.
Within a reasonable period of time after the end of the period for
which estimated payments have been made, Landlord shall submit to Tenant a
statement from Landlord setting forth the actual amounts payable by Tenant based
on actual costs. If the amount Tenant has paid based on estimates is less than
the amount due based on actual costs, Tenant shall pay such deficiency within
five (5) days after submission of such statement. If the amount paid by Tenant
is greater than the amount actually due, the excess may be retained by Landlord
to be credited and applied by Landlord to the next due installments of Tenant's
proportionate share of Increased Operating Costs, or as to the final Lease Year,
provided Tenant is not in default, Landlord will refund such excess to Tenant.
Tenant's proportionate share of actual Increased Operating Costs for the final
estimate period of the Term of this Lease shall be due and payable even though
it may not be finally calculated until after the expiration of the Term.
Accordingly, Landlord shall have the right to continue to hold Tenant's security
deposit following expiration of the Term until Tenant's share of actual
Increased Operating Costs has been paid.
For purposes of this Lease, Tenant's proportionate share shall be a
fraction, the numerator of which is the gross rentable area of the Premises, and
the denominator of which is the gross rentable area of the Building. Tenant's
proportionate share is as set forth in the Lease Summary. The term "Operating
Costs" shall mean any amounts paid or payable whether by Landlord or by others
on behalf of Landlord, arising out of Landlord's maintenance, operation, repair,
replacement (if such replacement increases operating efficiency) and
administration of the Building and Common Areas, including, without limitation:
(i) the cost of all real estate, personal property and other ad valorem taxes,
and any other levies, charges, local improvement rates, and assessments
whatsoever assessed or charged against the Building and Common Areas, the
equipment and improvements therein contained, and including any amounts assessed
or charged in substitution for or in lieu of any such taxes, excluding only
income or capital gains taxes imposed upon Landlord, and including all costs
associated with the appeal of any assessment on taxes; (ii) the cost of
insurance which Landlord is obligated or permitted to obtain under this Lease
and any deductible amount applicable to any claim made by Landlord under such
insurance; (iii) the cost of security; (iv) the cost of landscaping; and (v) a
reasonable management fee.
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2.4 Payment of Personal Property Taxes. Tenant shall pay, when due, all
taxes attributable to the personal property, trade fixtures, business,
occupancy, or sales of Tenant or any other occupant of the Premises and to the
use of the Building by Tenant or such other occupant.
2.5 Rent Past Due. If any payment due from Tenant shall be overdue more
than five (5) days, a late charge of five (5%) percent of the delinquent sum may
be charged by Landlord. If any payment due from Tenant shall remain overdue for
more than fifteen (15) days, an additional late charge in an amount equal to the
lesser of the highest rate permitted by law or one and one-half (1 1/2%) percent
per month (eighteen (18%) percent per annum) of the delinquent amount may be
charged by Landlord, such charge to be computed for the entire period for which
the amount is overdue and which shall be in addition to and not in lieu of the
five (5%) percent late charge or any other remedy available to Landlord.
2.6 Security Deposit. Landlord acknowledges receipt of a security deposit
in the amount specified on the Lease Summary to be held by Landlord, without any
liability for interest thereon, as security for the performance by Tenant of all
its obligations under this Lease. Landlord shall be entitled to commingle the
security deposit with Landlord's other funds. If Tenant defaults in any of its
obligations under this Lease, Landlord may at its option, but without prejudice
to any other rights which Landlord may have, apply all or part of the security
deposit to compensate Landlord for any loss, damage, or expense sustained by
Landlord as a result of such default. If all or any part of the security deposit
is so applied, Tenant shall restore the security deposit to its original amount
on demand of Landlord. Subject to the provisions of section 2.3, within thirty
(30) days following termination of this Lease, if Tenant is not then in default,
the security deposit will be returned by Landlord to Tenant
2.7 Landlord's Lien. To secure the payment of all rent and other sums of
money due and to become due hereunder and the faithful performance of this Lease
by Tenant, Tenant hereby gives to Landlord an express contract lien and security
interest on all property now or hereafter acquired (including fixtures,
equipment, chattels, and merchandise) which may be placed in the Premises and
also upon all proceeds of any insurance which may accrue to Tenant by reason of
destruction of or damage to any such property. Such property shall not be
removed therefrom without the written consent of Landlord until all arrearages
in rental and other sums of money then due to Landlord hereunder shall first
have been paid. All exemption laws are hereby waived in favor of said lien and
security interest. This lien and security interest is given in addition to
Landlord's statutory lien and shall be cumulative thereto. Landlord shall, in
addition to all of its rights hereunder, also have all of the rights and
remedies of a secured party under the Uniform Commercial Code as adopted in the
State in which the Premises is located. To the extent permitted by law, this
Lease shall constitute a security agreement under Article 9 of the Florida
Uniform Commercial Code. Notwithstanding the foregoing, Landlord agrees to
subordinate its lien to a bona fide institutional lender providing acquisition
financing or lease financing for Tenant's furniture, fixtures, and equipment, so
that Landlord will have a second lien on such furniture, fixtures, and
equipment.
ARTICLE III. USE OF PREMISES.
3.1 Permitted Use. The Premises shall be used and occupied only for the
use specified in the Lease Summary. Tenant shall carry on its business on the
premises in a reputable manner and shall not do, omit, permit, or suffer to be
done or exist upon the Premises anything which shall result in a nuisance,
hazard, or bring about a breach of any provision of this Lease or any applicable
municipal or other governmental law or regulation. Tenant shall observe all
reasonable rules and regulations established by Landlord from time to time for
the Building. The rules and regulations in effect as of the date hereof are
attached to and made a part of this Lease as Exhibit "C." The names for the
Building and the business park of which the Building is a part, which Landlord
may from time to time adopt, and every name or mark adopted by Landlord in
connection with the Building shall be used by Tenant only in association with
the business carried on in the Premises during the Term and Tenant's use thereof
shall be subject to such reasonable regulation as Landlord may from time to time
impose.
3.2 Compliance with Laws. The Premises shall be used and occupied in a
safe, careful, and proper manner so as not to contravene any present or future
governmental or quasigovernmental laws, regulations, or orders, or the
requirements of Landlord's or Tenant's insurers. If due to Tenant's use of the
Premises, repairs, improvements, or alterations are necessary to comply with any
of the foregoing, Tenant shall pay the entire cost thereof.
3.3 Signs. Except with the prior written consent of Landlord, Tenant shall
not erect install, display, inscribe, paint, or affix any signs, lettering, or
advertising medium upon or above any exterior portion of the Premises. Any
exterior signage shall be installed at Tenant's expense, and such signage shall
comply with Landlord's sign criteria as adopted from time to time. The design
and specification of such signage (including camera-ready artwork) shall be
submitted for Landlord's prior written approval.
3.4 Environmental Provisions. Tenant warrants and represents that it will
not use or employ Landlord's and/or the Building property, facilities,
equipment, or services to handle, transport, store, treat, or dispose of any
hazardous waste or hazardous substance, whether or not it was generated or
produced on the Premises; and, Tenant further warrants and represents that any
activity on or relating to the Premises shall be conducted in full compliance
with all applicable environmental laws. In addition, Landlord reserves the right
to cause the Premises to be periodically inspected (but not more than one (1)
time per calendar quarter) by a reputable environmental consulting firm. The
cost of such inspections, as well as the cost to comply with such consultant's
recommendations, shall be borne by Tenant. Tenant agrees to defend, indemnify,
and hold harmless Landlord against any and all claims, costs, expenses, damages,
liability, and the like, which Landlord may hereafter be liable for, suffer,
incur, or pay arising under any applicable environmental laws and resulting from
or arising out of any breach of the warranties and representations contained in
this section 3.4, or out of any act, activity, or violation of any applicable
laws on the part of Tenant, its agents, employees, or assigns. Tenant's
liability under this section 3.4 shall survive the expiration or any termination
of this Lease.
ARTICLE IV. ACCESS AND ENTRY.
4.1 Right of Examination. Landlord shall be entitled at all reasonable
times and upon reasonable notice (but no notice is required in emergencies) to
enter the Premises to examine them; to make such repairs, alterations, or
improvements thereto as Landlord considers necessary or reasonably desirable; to
have access to underfloor facilities and access panels to mechanical shafts and
to check, calibrate, adjust, and balance controls and other parts of the
heating, air conditioning, ventilating, and climate control systems. Landlord
reserves to itself the right to install, maintain, use, and repair pipes, ducts,
conduits, vents, wires, and other installations leading in, through, over, or
under the Premises and for this purpose, Landlord may take all material into and
upon the Premises which is required therefor. Tenant shall not unduly obstruct
any pipes, conduits, or mechanical or other electrical equipment so as to
prevent reasonable access thereto. Landlord reserves the right to use all
exterior walls and roof area. Landlord shall exercise its rights under this
section, to the extent possible in the circumstances, in such manner so as to
minimize interference with Tenant's use and enjoyment of the Premises.
4.2 Right to Show Premises. Landlord and its agents have the right to
enter the Premises at all reasonable times and upon reasonable notice to show
them to prospective purchasers, lenders, or anyone having a prospective interest
in the Building, and,
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during the last six months of the Term (or the last six (6) months of any
renewal term if this Lease is renewed), to show them to prospective tenants.
Landlord shall exercise its rights under this section, to the extent possible in
the circumstances, in such manner so as to minimize interference with Tenant's
use and enjoyment of the Premises.
ARTICLE V. MAINTENANCE, REPAIRS, AND ALTERATIONS.
5.1 Maintenance and Repairs by Landlord. Landlord covenants to keep the
following in good repair as a prudent owner: (i) the structure of the Building
including exterior walls and roofs; and (ii) the entrances, sidewalks,
corridors, parking areas and other facilities from time to time comprising the
Common Areas. The cost of such maintenance and repairs shall be included in
Operating Costs. So long as Landlord is acting in good faith, Landlord shall not
be responsible for any damages caused to Tenant by reason of failure of any
equipment or facilities serving the Building or delays in the performance of any
work for which Landlord is responsible pursuant to this Lease. Notwithstanding
any other provisions of this Lease, if any part of the Building is damaged or
destroyed or requires repair, replacement, or alteration as a result of the act
or omission of Tenant, its employees, agents, invitees, licensees, or
contractors, Landlord shall have the right to perform same and the cost of such
repairs, replacement, or alterations shall be paid by Tenant to Landlord upon
demand. In addition, if, in an emergency, it shall become necessary to make
promptly any repairs or replacements required to made by Tenant, Landlord may
re-enter the Premises and proceed forthwith to have the repairs or replacements
made and pay the costs thereof. Upon demand, Tenant shall reimburse Landlord for
the cost of making the repairs.
5.2 Maintenance and Repairs by Tenant. Tenant shall, at its sole cost,
repair and maintain and replace when necessary the Premises including, but not
limited to, base building mechanical and electrical systems, all to a standard
consistent with a first class building, with the exception only of those repairs
which are the obligation of Landlord pursuant to this Lease. Without limiting
the generality of the foregoing, Tenant is specifically required to maintain and
make repairs to (i) the portion of any pipes, lines, ducts, wires, or conduits
contained within the Premises; (ii) windows, plate glass, doors, and any
fixtures or appurtenances composed of glass; (iii) Tenant's sign; (iv) any
heating or air conditioning equipment serving the Premises ("HVAC") (which shall
include, without limitation, a preventive maintenance HVAC service contract,
which service contract shall be entered into between Tenant and one of
Landlord's approved HVAC contractors. Such service contract shall include,
without limitation, preventive HVAC maintenance no less than quarterly); (v) the
Premises or the Building when repairs to the same are necessitated by any act or
omission of Tenant, or the failure of Tenant to perform its obligations under
this Lease. All repair and maintenance performed by Tenant in the Premises shall
be performed by contractors or workmen approved by Landlord, which shall not be
unreasonably withheld. At the expiration or earlier termination of the Term,
Tenant shall surrender the Premises to Landlord in as good condition and repair
as Tenant is required to maintain the Premises throughout the Term, reasonable
wear and tear excepted. Tenant shall also furnish, maintain, and replace all
electric light bulbs, tubes, and tube casings located within or serving the
Premises and Tenant's signage, all at Tenant's sole cost and expense. Landlord
will assign to Tenant the benefit of any manufacturer's warranties with respect
to the mechanical, electrical, and plumbing systems.
5.3 Approval of Tenant's Alterations. No alterations (including, without
limitation, repairs, replacements, additions, or modifications to the Premises
by Tenant), other than minor or cosmetic alterations which are interior and
nonstructural, shall be made to the Premises without Landlord's written
approval, which, as to exterior or structural alterations may be withheld in
Landlord's sole discretion. Any alterations by Tenant shall be performed at the
sole cost of Tenant, by contractors and workmen approved by Landlord, in a good
and workmanlike manner, and in accordance with all applicable laws and
regulations.
5.4 Removal of Improvements and Fixtures. All leasehold improvements
(other than unattached, movable trade fixtures which can be removed without
damage to the Premises) shall at the expiration or earlier termination of this
Lease become Landlord's property. Tenant may, during the Term, in the usual
course of its business, remove its trade fixtures, provided that Tenant is not
in default under this Lease; and Tenant shall, at the expiration or earlier
termination of the Term, at its sole cost, remove such of the leasehold
improvements (except for improvements installed by Landlord prior to the
Commencement Date) and trade fixtures in the Premises as Landlord shall require
to be removed and restore the Premises to the condition existing prior to such
removal. Tenant shall at its own expense repair any damage caused to the
Building by such removal. If Tenant does not remove its trade fixtures at the
expiration or earlier termination of the Term, the trade fixtures shall, at the
option of Landlord, become the property of Landlord and may be removed from the
Premises and sold or disposed of by Landlord in such manner as it deems
advisable without any accounting to Tenant.
5.5 Liens. Tenant shall promptly pay for all materials supplied and work
done in respect of the Premises by, through, or under Tenant so as to ensure
that no lien is recorded against any portion of the Building or against
Landlord's or Tenant's interest therein. If a lien is so recorded, Tenant shall
discharge it promptly by payment or bonding. If any such lien against the
Building or Landlord's interest therein is recorded and not discharged by Tenant
as above required within fifteen (15) days following written notice to Tenant,
Landlord shall have the right to remove such lien by bonding or payment and the
cost thereof shall be paid immediately from Tenant to Landlord. Landlord and
Tenant expressly agree and acknowledge that no interest of Landlord in the
Premises or the Building shall be subject to any lien for improvements made by
Tenant in or for the Premises, and Landlord shall not be liable for any lien for
any improvements made by Tenant, such liability being expressly prohibited by
the terms of this Lease. In accordance with applicable laws of the State of
Florida, Landlord has filed in the public records of Dade County, Florida, a
public notice containing a new and correct copy of this paragraph, and Tenant
hereby agrees to inform all contractors and materialmen performing work in or
for or supplying materials to the Premises of the existence of said notice.
5.6 Utilities. Tenant shall pay to Landlord, or as Landlord directs, all
gas, electricity, water, and other utility charges applicable to the Premises as
separately metered or, if not so metered, as part of Tenant's proportionate
share of Increased Operating Costs. Tenant shall pay the cost of janitorial,
garbage removal, and trash removal services for the Premises and the cost of
heating, ventilating, and air conditioning the Premises.
ARTICLE VI. INSURANCE AND INDEMNITY.
6.1 Tenant's Insurance. Tenant shall, throughout the Term (and any other
period when Tenant is in possession of the Premises), maintain at its sole cost
the following insurance:
(A) All risks property insurance, naming Tenant and Landlord as
insured parties, containing a waiver of subrogation rights which Tenant's
insurers may have against Landlord. Such insurance shall insure property of
every kind owned by Tenant in an amount not less than the full replacement cost
thereof (new), with such cost to be adjusted no less than annually.
(B) Comprehensive general liability insurance. Such policy shall
contain inclusive limits per occurrence of not less than the amount specified in
the Lease Summary; provide for severability of interests; and include Landlord
and any mortgagee of Landlord as additional insureds.
(C) Worker's compensation and employer's liability insurance in
compliance with applicable legal requirements.
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(D) Any other form of insurance which Tenant or Landlord, acting
reasonably, requires from time to time in form, in amounts, and for risks
against which a prudent tenant would insure.
All policies referred to above shall: (i) be taken out with insurers
licensed to do business in Florida and reasonably acceptable to Landlord, (ii)
be in a form reasonably satisfactory to Landlord; (iii) be non-contributing
with, and shall apply only as primary and not as excess to any other insurance
available to Landlord or any mortgagee of Landlord; (iv) contain an undertaking
by the insurers to notify Landlord by certified mail not less than thirty (30)
days prior to any material change, cancellation, or termination, and (v) with
respect to subsection (A), contain replacement cost, demolition cost, and
increased cost of construction endorsements. Certificates of insurance on
Landlord's standard form or, if required by a mortgagee, copies of such
insurance policies certified by an authorized officer of Tenant's insurer as
being complete and current, shall be delivered to Landlord promptly upon
request. If a) Tenant fails to take out or to keep in force any insurance
referred to in this section 6.1, or should any such insurance not be approved by
either Landlord or any mortgagee, and b) Tenant does not commence and continue
to diligently cure such default within forty-eight (48) hours after written
notice by Landlord to Tenant specifying the nature of such default, then
Landlord has the right, without assuming any obligation in connection therewith,
to effect such insurance at the sole cost of Tenant and all outlays by Landlord
shall be paid by Tenant to Landlord without prejudice to any other rights or
remedies of Landlord under this Lease. Tenant shall not keep or use in the
Premises any article which may be prohibited by any fire or casualty insurance
policy in force from time to time covering the Premises or the Building.
6.2 Loss or Damage. Landlord shall not be liable for any death or injury
arising from or out of any occurrence in, upon, at, or relating to the Building
or damage to property of Tenant or of others located on the Premises or
elsewhere in the Building, nor shall it be responsible for any loss of or damage
to any property of Tenant or others from any cause, UNLESS SUCH DEATH, INJURY,
LOSS, OR DAMAGE RESULTS FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE
LANDLORD OR ITS AGENTS. Without limiting the generality of the foregoing,
Landlord shall not be liable for any injury or damage to persons or property
resulting from fire, explosion, falling plaster, falling ceiling tile, falling
fixtures, steam, gas, electricity, water, rain, flood, or leaks from any part of
the Premises or from the pipes, sprinklers, appliances, plumbing works, roof,
windows, or subsurface of any floor or ceiling of the Building or from the
street or any other place or by dampness, or by any other cause whatsoever.
Tenant agrees to indemnify Landlord and hold it harmless from and against any
and all loss (including loss of Minimum Rent and additional rent payable in
respect to the Premises), claims, actions, damages, liability, and expense of
any kind whatsoever (including attorneys' fees and costs at all tribunal
levels), UNLESS CAUSED BY THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF LANDLORD
OR ITS AGENTS, arising from any occurrence in, upon, or at the Premises, or the
occupancy, use, or improvement by Tenant or its agents or invitees of the
Premises or any part thereof, or occasioned wholly or in part by any act or
omission of Tenant its agents, employees, and invitees or by anyone permitted to
be on the Premises by Tenant.
6.3 Landlord's Insurance. Landlord shall throughout the Term carry: (i)
"all risks" insurance on the Building and the machinery and equipment contained
therein or servicing the Building and owned by Landlord (excluding any property
with respect to which Tenant and other tenants are obliged to insure pursuant to
section 6.1 or similar sections of their respective leases); (ii) public
liability and property damage insurance with respect to Landlord's operations in
the Building; and (iii) such other forms of insurance as Landlord or its
mortgagee reasonably considers advisable. Such insurance shall be in such
reasonable amounts and with such reasonable deductions as would be carried by a
prudent owner of a similar building, having regard to size, age, and location.
ARTICLE VII. DAMAGE AND DESTRUCTION.
7.1 Damage to Premises. If the Premises are partially destroyed due to
fire or other casualty, Landlord shall diligently repair the Premises, to the
extent of its obligations under section 5.1, and Minimum Rent shall abate
proportionately to the portion of the Premises, if any, rendered untenantable
from the date of destruction or damage until Landlord's repairs have been
substantially completed. If the Premises are totally destroyed due to fire or
other casualty, Landlord shall diligently repair the Premises to the extent only
of its obligations pursuant to section 5.1, and Minimum Rent shall abate
entirely from the date of destruction or damage to such date which is the
earlier of (i) the date tenantable, or (ii) thirty (30) days after Landlord's
repairs have been substantially completed. Upon being notified by Landlord that
Landlord's repairs have been substantially completed, Tenant shall diligently
perform all other work required to fully restore the Premises for use in
Tenant's business, in every case at Tenant's cost and without any contribution
to such cost by Landlord, whether or not Landlord has at any time made any
contribution to the cost of supply, installation, or construction of leasehold
improvements in the Premises. Tenant agrees that during any period of
reconstruction or repair of the Premises, it will continue the operation of its
business within the Premises to the extent practicable. If all or any part of
the Premises shall be damaged by fire or other casualty and the fire or other
casualty is caused by the fault of neglect of Tenant or Tenant's agents, guest,
or invitees, rent and all other charges shall not abate.
7.2 Termination for Damage. Notwithstanding section 7.1, if damage or
destruction which has occurred to the Premises or the Building is such that in
the reasonable opinion of Landlord such reconstruction or repair cannot be
completed within one hundred twenty (120) days of the happening of the damage or
destruction, Landlord may, at its option. terminate this Lease on notice to
Tenant given within thirty (30) days after such damage or destruction and Tenant
shall immediately deliver vacant possession of the Premises in accordance with
the terms of this Lease.
ARTICLE VIII. ASSIGNMENT, SUBLEASES, AND TRANSFERS.
8.1 Transfer by Tenant. Tenant shall not enter into, consent to, or permit
any Transfer, as hereinafter defined, without the prior written consent of
Landlord in each instance, which consent shall not be unreasonably withheld. For
purposes of this Lease, "Transfer" means an assignment of this Lease in whole or
in part; a sublease of all or any part of the Premises; any transaction whereby
the rights of Tenant under this Lease or to the Premises are transferred to
another; any mortgage or encumbrance of this Lease or the Premises or any part
thereof or other arrangement under which either this Lease or the Premises
become security for any indebtedness or other obligations; and if Tenant is a
corporation or a partnership, the transfer of a controlling interest in the
stock of the corporation or partnership interests, as applicable. If there is a
permitted Transfer, Landlord may collect rent or other payments from the
transferee and apply the net amount collected to the rent or other payments
required to be paid pursuant to this Lease but no acceptance by Landlord of any
payments by a transferee shall be deemed a waiver of any provisions hereof
regarding Tenant. Notwithstanding any Transfer, Tenant shall not be released
from any of its obligations under this Lease. Landlord's consent to any Transfer
shall be subject to the further condition that if the Minimum Rent and
additional rent pursuant to such Transfer exceeds the Minimum Rent and
additional rent payable under this Lease, the amount of such excess shall be
paid to Landlord. If, pursuant to a permitted Transfer, Tenant receives from the
transferee, either directly or indirectly, any consideration other than Minimum
Rent and additional rent for such Transfer, either in the form of cash, goods,
or services, Tenant shall, upon receipt thereof, pay to Landlord an amount
equivalent to such consideration.
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8.2 Assignment by Landlord. Landlord shall have the unrestricted right to
sell, lease, convey, or otherwise dispose of the Building or any part thereof
and this Lease or any interest of Landlord in this Lease. To the extent that the
purchaser or assignee from Landlord assumes the obligations of Landlord under
this Lease, Landlord shall thereupon and without further agreement be released
of all further liability under this Lease. If Landlord sells its interest in the
Premises, it shall deliver the security deposit to the purchaser and Landlord
will thereupon be released from any further liability with respect to the
security deposit or its return to Tenant and the purchaser shall become directly
responsible to Tenant.
ARTICLE IX. DEFAULT.
9.1 Defaults. A default by Tenant shall be deemed to have occurred
hereunder, if and whenever: (i) any Minimum Rent or Tenant's proportionate share
of Increased Operating Costs is not paid within five (5) days after written
notice from Landlord; (ii) any other additional rent is in arrears and is not
paid within five (5) days after written notice by Landlord; (iii) Tenant has
breached any of its obligations in this Lease (other than the payment of rent)
and Tenant fails to remedy such breach within fifteen (15) days (or such shorter
period as may be provided in this Lease, or if such breach cannot reasonably be
remedied within fifteen (15) days (or such shorter period), then if Tenant fails
to immediately commence to remedy and thereafter proceed diligently to remedy
such breach, in each case after notice in writing from Landlord; (iv) Tenant
becomes bankrupt or insolvent; (v) any of Landlord's policies of insurance with
respect to the Building are cancelled or adversely changed as a result of
Tenant's use or occupancy of the Premises; or (vi) the business operated by
Tenant in the Premises shall be closed by governmental or court order for any
reason.
9.2 Remedies. In the event of any default hereunder by Tenant, then
without prejudice to any other rights which it has pursuant to this Lease or at
law or in equity, Landlord shall have the following rights and remedies, which
are cumulative and not alternative:
(A) Landlord may cancel this Lease by notice to Tenant and retake
possession of the Premises for Landlord's or Tenant's account. Tenant shall then
quit and surrender the Premises to Landlord. Tenant's liability under all of the
provisions of this Lease shall continue notwithstanding any expiration and
surrender, or any re-entry, repossession, or disposition hereunder.
(B) Landlord may enter the Premises as agent of Tenant to take
possession of any property of Tenant on the Premises, to store such property at
the expense and risk of Tenant or to sell or otherwise dispose of such property
in such manner as Landlord may see fit without notice to Tenant. Re-entry and
removal may be effectuated by summary dispossess proceedings, by any suitable
action or proceeding, or otherwise. Landlord shall not be liable in any way in
connection with its actions pursuant to this section, to the extent that its
actions are in accordance with law.
(C) If this Lease is cancelled under subsection (A) above, Tenant
shall remain liable (in addition to accrued liabilities) to the extent legally
permissible for all rent and all of the charges Tenant would have been required
to pay until the date this Lease would have expired had such cancellation not
occurred. Tenant's liability for rent shall continue notwithstanding re-entry or
repossession of the Premises by Landlord. In addition to the foregoing, Tenant
shall pay to Landlord such sums as the court which has jurisdiction thereover
may adjudge as reasonable attorneys' fees with respect to any successful lawsuit
or action instituted by Landlord to enforce the provisions of this Lease.
(D) Landlord may relet all or any part of the Premises for all or
any part of the unexpired portion of the Term of this Lease or for any longer
period, and may accept any rent then attainable; grant any concessions of Rent,
and agree to paint or make any special repairs, alterations, and decorations for
any new Tenant as it may deem advisable in its sole and absolute discretion.
Landlord shall be under no obligation to relet or to attempt to relet the
Premises, except as expressly set forth below.
(E) If this Lease is cancelled in accordance with subsection (A)
above, and Landlord so elects, the rent hereunder shall be accelerated and
Tenant shall pay Landlord damages in the amount of any and all sums which would
have been due for the remainder of the Term (reduced to present value using a
discount factor equal to the stated prime lending rate on the date of Tenant's
default by Landlord's then existing mortgagee or, if there is no mortgagee, by
Barnett Bank, NationsBank, or First Union, as chosen by Landlord). Prior to or
following payment in full by Tenant of such discounted sum promptly upon demand,
Landlord shall use good faith efforts to relet the Premises. If Landlord
receives consideration as a result of a reletting of the Premises relating to
the same time period for which Tenant has paid accelerated rent, such
consideration actually received by Landlord, less any and all of Landlord's cost
of repairs, alterations, additions, redecorating, and other expenses in
connection with such reletting of the Premises, shall be a credit against such
discounted sum, and such discounted sum shall be reduced if not yet paid by
Tenant as called for herein, or if Tenant has paid such discounted sum, such
credited amount shall be repaid to Tenant by Landlord (provided said credit
shall not exceed the accelerated amount).
(F) Landlord may remedy or attempt to remedy any default of Tenant
under this Lease for the account of Tenant and to enter upon the Premises for
such purposes. No notice of Landlord's intention to perform such covenants need
be given Tenant unless expressly required by this Lease. Landlord shall not be
liable to Tenant for any loss or damage caused by acts of Landlord in remedying
or attempting to remedy such default and Tenant shall pay to Landlord all
reasonable expenses incurred by Landlord in connection with remedying or
attempting to remedy such default. Any expenses incurred by Landlord shall
accrue interest from the date of payment by Landlord until repaid by Tenant at
the highest rate permitted by law.
9.3 Costs. Tenant shall pay to Landlord on demand all costs incurred by
Landlord, including attorneys' fees and costs at all tribunal levels, incurred
by Landlord in enforcing any of the obligations of Tenant under this Lease. In
addition, upon any default by Tenant, Tenant shall be also liable to Landlord
for the reasonable expenses to which Landlord may be put in re-entering the
Premises; repossessing the Premises; painting, altering, or dividing the
Premises; combining the Premises with an adjacent space for any new tenant,
putting the Premises in proper repair; protecting and preserving the Premises by
placing watchmen and caretakers therein; reletting the Premises (including
attorneys' fees and disbursements, marshall's fees, and brokerage fees, in so
doing); and any other expenses reasonably incurred by Landlord. Notwithstanding
anything to the contrary contained in this Lease, in the event of any litigation
between Landlord and Tenant arising out of this Lease or Tenant's use and
occupancy of the Premises, the prevailing party shall be entitled to recover its
costs and expenses incurred in such litigation, including attorneys' fees, at
all levels, including appeals.
9.4 Additional Remedies; Waiver. The rights and remedies of Landlord set
forth herein shall be in addition to any other right and remedy now and
hereinafter provided by law. All rights and remedies shall be cumulative and
non-exclusive of each other. No delay or omission by Landlord in exercising a
right or remedy shall exhaust or impair the same or constitute a waiver of, or
acquiescence to, a default.
9.5 Default by Landlord. In the event of any default by Landlord, Tenant's
exclusive remedy shall be an action for damages or injunction, but prior to any
such action Tenant will give Landlord written notice specifying such default
with particularity, and Landlord shall have a period of thirty (30) days
following the date of such notice in which to commence the appropriate cure of
such default. Unless and until Landlord fails to commence and diligently pursue
the appropriate cure of such default after such notice
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or complete same within a reasonable period of time, Tenant shall not have any
remedy or cause of action by reason thereof. Notwithstanding any provision of
this Lease, Landlord shall not at any time have any personal liability under
this Lease. In the event of any breach or default by Landlord of any term or
provision of this Lease, Tenant agrees to look solely to the equity or interest
then-owned by Landlord in the Building, and in no event shall any deficiency
judgment be sought or obtained against Landlord.
ARTICLE X. ESTOPPEL CERTIFICATE; SUBORDINATION.
10.1 Estoppel Certificate. Within ten (10) days after written request by
Landlord, Tenant shall deliver in a form supplied by Landlord, an estoppel
certificate to Landlord as to the status of this Lease, including whether this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect as modified and
identifying the modification agreements); the amount of Minimum Rent and
additional rent then being paid and the dates to which same have been paid;
whether or not there is any existing or alleged default by either party with
respect to which a notice of default has been served, or any facts exist which,
with the passing of time or giving of notice, would constitute a default and, if
there is any such default or facts, specifying the nature and extent thereof;
and any other matters pertaining to this Lease as to which Landlord shall
request such certificate. Landlord, and any prospective purchaser, lender, or
ground lessor shall have the right to rely on such certificate.
10.2 Subordination; Attornment. This Lease and all rights of Tenant shall
be subject and subordinate to any and all mortgages, security agreements, or
like instruments resulting from any financing, refinancing, or collateral
financing (including renewals or extensions thereof), and to any and all ground
leases, made or arranged by Landlord of its interests in all or any part of the
Building), from time to time in existence against the Building, whether now
existing or hereafter created; provided, however, that, so long as no default or
event which, with the passing of time or giving of notice would constitute a
default, exists under this Lease, any such lender or ground lessor shall not
disturb Tenant's possession of the Premises by joining Tenant as a defendant in
a foreclosure or eviction proceeding. Such subordination shall not require any
further instrument to evidence such subordination. However, on request, Tenant
shall further evidence its agreement to subordinate this Lease and its rights
under this Lease to any and all documents and to all advances made under such
documents. The form of such subordination shall be made as required by Landlord,
its lender, or ground lessor. Tenant shall, if requested by such mortgagee,
owner, or purchaser, or by any person succeeding to the interest of such
mortgagee, owner, or purchaser, as the result of the enforcement of the remedies
provided by law or the applicable security instrument held by such mortgagee,
owner, or purchaser, automatically become the tenant of any such mortgagee,
owner, purchaser, or successor-in-interest, without any change in the terms or
other provisions of this Lease; provided, however, that said mortgagee, owner,
purchaser, or successor shall not be bound by (a) any payment of rent or
additional rent for more than one month in advance, or (b) any security deposit
or the like not actually received by such mortgagee, owner, or purchaser, or
successor, or (c) any amendment or modification in this Lease made without the
consent of such mortgagee, owner, purchaser, or successor, or (d) any
construction obligation, free rent, or other concession or monetary allowance,
or (e) any set-off, counterclaim, or the like otherwise available against
Landlord, or (f) any act or omission of any prior landlord (including Landlord).
Upon request by said mortgagee, owner, or purchaser, or successor, Tenant shall
execute and deliver an instrument or instruments confirming its attornment.
ARTICLE XI. CONTROL OF BUILDING BY LANDLORD.
11.1 Use and Maintenance of Common Areas. Tenant and those doing business
with Tenant for purposes associated with Tenant's business on the Premises,
shall have a non-exclusive license to use the Common Areas for their intended
purposes during normal business hours in common with others entitled thereto and
subject to any rules and regulations imposed by Landlord. Landlord shall keep
the Common Areas in good repair and condition and shall clean the Common Areas
when necessary. Subject to all of the terms, provisions, covenants, and
conditions contained herein, Tenant shall have the right to use the number of
parking spaces indicated in the Lease Summary in the parking lot which Landlord
shall provide for the use of tenants of the Building. Landlord shall not be
liable for any damage to automobiles of any nature whatsoever to, or any theft
of, automobiles or other vehicles or the contents thereof, while in or about the
parking lots. Tenant acknowledges that its non-exclusive right to use any
parking facilities forming part of the Building may be subject to such rules and
regulations as reasonably imposed by Landlord from time to time. Tenant
acknowledges that all Common Areas shall at all times be under the exclusive
control and management of Landlord. For purposes of this Lease, "Common Areas"
shall mean those areas, facilities, utilities, improvements, equipment, and
installations of the Building which serve or are for the benefit of the tenants
of more than one component of the Building and which are not designated or
intended by Landlord to be leased, from time to time, or which are provided or
designated from time to time by Landlord for the benefit or use of all tenants
in the Building, their employees, customers, and invitees, in common with others
entitled to the use or benefit of same.
11.2 Alterations by Landlord. Landlord may (i) alter, add to, subtract
from, construct improvements on, re-arrange, and construct additional facilities
in, adjoining, or proximate to the Building; (ii) relocate the facilities and
improvements in or comprising the Building or erected on the land; (iii) do such
things on or in the Building as required to comply with any laws, by-laws,
regulations, orders, or directives affecting the land or any part of the
Building; and (iv) do such other things on or in the Building as Landlord, in
the use of good business judgments determines to be advisable, provided that
notwithstanding anything contained in this section 11.2, access to the Premises
shall be available at all times. Landlord shall not be in breach of its
covenants for quiet enjoyment or liable for any loss, costs, or damages, whether
direct or indirect, incurred by Tenant due to any of the foregoing.
11.3 Covenants, Conditions, and Restrictions. Tenant hereby acknowledges
and agrees that the Building of which the Premises is a part, and Tenants
occupancy thereof, is subject to a Master Declaration of Covenants, Conditions,
and Restrictions for Beacon Industrial Park (the "Declaration"), which
Declaration has been recorded among the Public Records of Dade County, Florida.
Copies of the Declaration are located at Landlord's management office and may be
reviewed by Tenant during Landlord's normal business hours. Tenant hereby
acknowledges the existence of such Declaration and agrees to be bound by the
terms thereof (and any amendments or modifications thereto). Tenant hereby
agrees to reimburse Landlord, within five (5) days after demand therefor, for
the proportionate share of Common Expenses attributable to the Premises, as
described in the Declaration. It is Landlord's intention not to double charge
Tenant for any expenses pursuant to section 2.3 of this Lease and the
Declaration. The expenses solely relating to the Building are intended to be
charged pursuant to section 2.3 of this Lease. Those expenses that are incurred
by Landlord on a park-wide basis (such as, by way of example only and not as a
limitation, park-wide security, if any) are passed-through pursuant to the
Declaration.
11.4 Tenant Relocation. Landlord shall have the right, at any time upon
sixty (60) days written notice to Tenant, to relocate Tenant into other space
within the Building comparable to the Premises. Upon such relocation, such new
space shall be deemed the Premises and the prior space originally demised shall
in all respects be released from the effect of this Lease. If Landlord elects to
relocate Tenant as above described, (i) the new space shall contain
approximately the same as, or greater usable area than the
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original space, (ii) Landlord shall improve the new space, at Landlord's sole
cost, to at least the standards of the original space, (iii) Landlord shall pay
the reasonable costs of moving Tenant's trade fixtures and furnishings from the
original space to the new space, (iv) as total compensation for all other costs,
expenses, and damages which Tenant may suffer in connection with the relocation,
including but not limited to, lost profit or business interruption, no Minimum
Rent or Operating Costs shall be due or payable for the first full calendar
month of Tenant's occupancy of the new space, and Landlord shall not be liable
for any further indirect or special expenses of Tenant resulting from the
relocation, (v) Minimum Rent, Tenant's proportionate share of Operating Costs,
and all other charges hereunder shall be the same for the new space as for the
original space, notwithstanding that the new space may be larger than the
original space, and (vi) all other terms of this Lease shall apply to the new
space as the Premises, except as otherwise provided in this paragraph.
ARTICLE XII. CONDEMNATION.
12.1 Total or Partial Taking. If the whole of the Premises, or such
portion thereof as will make the Premises unusable for the purposes leased
hereunder, shall be taken by any public authority under the power of eminent
domain or sold to public authority under threat or in lieu of such taking, the
Term shall cease as of the day possession or title shall be taken by such public
authority, whichever is earlier ("Taking Date"), whereupon the rent and all
other charges shall be paid up to the Taking Date with a proportionate refund by
Landlord of any rent and all other charges paid for a period subsequent to the
Taking Date. If less than the whole of the Premises, or less than such portion
thereof as will make the Premises unusable for the purposes leased hereunder,
the Term shall cease only as to the part so taken as of the Taking Date, and
Tenant shall pay rent and other charges up to the Taking Date, with appropriate
credit by Landlord (toward the next installment of rent due from Tenant) of any
rent or charges paid for a period subsequent to the Taking Date. Minimum Rent
and other charges payable to Landlord shall be reduced in proportion to the
amount of the Premises taken.
12.2 Taking For Temporary Use. If there is a taking of the Premises for
temporary use, this Lease shall continue in full force and effect, and Tenant
shall continue to comply with Tenants obligations under this Lease, except to
the extent compliance shall be rendered impossible or impracticable by reason of
the taking. Minimum Rent and other charges payable to Landlord shall be reduced
in proportion to the amount of the Premises taken for the period of such
temporary use.
12.3 Award. All compensation awarded or paid upon a total or partial
taking of the Premises or Building including the value of the leasehold estate
created hereby shall belong to and be the property of Landlord without any
participation by Tenant; Tenant shall have no claim to any such award based on
Tenants leasehold interest. However, nothing contained herein shall be construed
to preclude Tenant, at its cost, from independently prosecuting any claim
directly against the condemning authority in such condemnation proceeding for
damage to, or cost of removal of, stock, trade fixtures, furniture, and other
personal property belonging to Tenant; provided, however, that no such claim
shall diminish or otherwise adversely affect Landlord's award or the award of
any mortgagee.
ARTICLE XIII. GENERAL PROVISIONS
13.1 Delay. Except as expressly provided in this Lease, whenever Landlord
or Tenant is delayed in the fulfillment of any obligation under this Lease,
other than the payment of rent or other charges, by an unavoidable occurrence
which is not the fault of the party delayed in performing such obligation, then
the time for fulfillment of such obligation shall be extended during the period
in which such circumstances operate to delay the fulfillment of such obligation.
13.2 Holding Over. If Tenant remains in possession of the Premises after
the end of the Term without having executed and delivered a new lease or an
agreement extending the Term, there shall be no tacit renewal of this Lease or
the Term, and Tenant shall be deemed to be occupying the Premises as a Tenant
from month to month at a monthly Minimum Rent payable in advance on the first
day of each month equal to twice the monthly amount of Minimum Rent payable
during the last month of the Term, and otherwise upon the same terms as are set
forth in this Lease, so far as they are applicable to a monthly tenancy.
13.3 Waiver; Partial Invalidity. If either Landlord or Tenant excuses or
condones any default by the other of any obligation under this Lease, this shall
not be a waiver of such obligation in respect of any continuing or subsequent
default and no such waiver shall be implied. All of the provisions of this Lease
are to be construed as covenants even though not expressed as such. If any such
provision is held or rendered illegal or unenforceable it shall be considered
separate and severable from this Lease and the remaining provisions of this
Lease shall remain in force and bind the parties as though the illegal or
unenforceable provision had never been included in this Lease.
13.4 Recording. Neither Tenant nor anyone claiming under Tenant shall
record this Lease or any memorandum hereof in any public records without the
prior written consent of Landlord.
13.5 Notices. Any notice, consent, or other instrument required or
permitted to be given under this Lease shall be in writing and shall be
delivered in person, or sent by certified mail, return receipt requested, or
overnight express mail courier, postage prepaid, addressed (i) if to Landlord,
at the address set forth on the Lease Summary; and (ii) if to Tenant, at the
Premises or, prior to Tenant's occupancy of the Premises, at the address set
forth on the Lease Summary. Any such notice or other instruments shall be deemed
to have been given and received on the day upon which personal delivery is made
or, if mailed, then forty-eight (48) hours following the date of mailing. Either
party may give notice to the other of any change of address and after the giving
of such notice, the address therein specified is deemed to be the address of
such party for the giving of notices. If postal service is interrupted or
substantially delayed, all notices or other instruments shall be delivered in
person or by overnight express mail courier.
13.6 Successors: Joint and Several Liability. The rights and liabilities
created by this Lease extend to and bind the successors and assigns of Landlord
and the heirs, executors, administrators, and permitted successors and assigns
of Tenant. No rights, however, shall inure to the benefit of any transferee
unless such Transfer complies with the provisions of Article VIII. If there is
at any time more than one Tenant or more than one person constituting Tenant,
their covenants shall be considered to be joint and several and shall apply to
each and every one of them.
13.7 Captions and Section Numbers. The captions, section numbers, article
numbers, and table of contents appearing in this Lease are inserted only as a
matter of convenience and in no way affect the substance of this Lease.
13.8 Extended Meanings. The words "hereof," "hereto," "hereunder," and
similar expressions used in this Lease relate to the whole of this Lease and not
only to the provisions in which such expressions appear. This Lease shall be
read with all changes in number and gender as may be appropriate or required by
the context. Any reference to Tenant includes, when the context allows, the
employees, agents, invitees, and licensees of Tenant and all others over whom
Tenant might reasonably be expected to exercise control. This Lease has been
fully reviewed and negotiated by each party and their counsel and shall not be
more strictly construed against either party.
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<PAGE>
13.9 Entire Agreement; Government Law; Time. This Lease and the Exhibits
and Riders, if any, attached hereto are incorporated herein and set forth the
entire agreement between Landlord and Tenant concerning the Premises and there
are no other agreements or understandings between them. This Lease and its
Exhibits and Riders may not be modified except by agreement in writing executed
by Landlord and Tenant. This Lease shall be construed in accordance with and
governed by the laws of the State of Florida. Time is of the essence of this
Lease.
13.10 No Partnership. Nothing in this Lease creates any relationship
between the parties other than that of lessor and lessee and nothing in this
Lease constitutes Landlord a partner of Tenant or a joint venturer or member of
a common enterprise with Tenant
13.11 Quiet Enjoyment. If Tenant pays rent and other charges and fully
observes and performs all of its obligations under this Lease, Tenant shall be
entitled to peaceful and quiet enjoyment of the Premises for the Term without
interruption or interference by Landlord or any person claiming through
Landlord.
13.12 Brokerage. Landlord and Tenant each represent and warrant one to the
other that except as set forth in the Lease Summary, neither of them has
employed any broker in connection with the negotiations of the terms of this
Lease or the execution thereof. Landlord and Tenant hereby agree to indemnify
and to hold each other harmless against any loss, expense, or liability with
respect to any claims for commissions or brokerage fees arising from or out of
any breach of the foregoing representation and warranty. Landlord recognizes the
broker(s) specified in the Lease Summary as the sole broker(s) with whom
Landlord has dealt in this transaction and agrees to pay any commissions
determined to be due said broker(s). Tenant acknowledges that Codina Klein
Realty, Inc. represents solely Landlord with respect to this Lease.
13.13 TRIAL BY JURY. LANDLORD AND TENANT EACH HEREBY WAIVES ITS RIGHTS TO
A JURY TRIAL OF ANY ISSUE OR CONTROVERSY ARISING UNDER THIS LEASE.
EXECUTED as of the day and first year above written.
WITNESSES: LANDLORD:
AMB INDUSTRIAL INCOME FUND, INC., a Maryland
corporation
By: AMB Institutional Realty Advisors,
Inc., its authorized agent
/s/ Teri M. George By: /s/ Kent D. Greenawalt
- -------------------------- -------------------------------
Kent D. Greenawalt
/s/ Amiee Valzuela Its: Asset Manager
- --------------------------
TENANT:
INTELLICELL CORP., a Delaware corporation
/s/ [ILLEGIBLE] V.P. CFO By: /s/ James E. Bunting
- -------------------------- ---------------------------------
/s/ [ILLEGIBLE] V.P. MKTG. Name: James E. Bunting
- -------------------------- Title: EXECUTIVE VICE PRESIDENT, COO
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EXHIBIT "A"
[GRAPHIC OMITTED]
[OFFICE AREA PRELIMINARY SPACE PLAN]
<PAGE>
EXHIBIT "B"
Legal Description of Building and Land
Lot 5, Block 3, of BIP SUBDIVISION, according to the Plat thereof recorded in
Plat Book 146, Page 22 of the Public Records of Dade County, Florida.
<PAGE>
EXHIBIT "C"
RULES AND REGULATIONS
1. Security. The Landlord may from time to time adopt appropriate systems
and procedures for the security or safety of the Building, any persons
occupying, using, or entering the same, or any equipment, furnishings, or
contents thereof, and the Tenant shall comply with the Landlord's reasonable
requirements relative thereto.
2. Return of Keys. At the end of the Term, the Tenant shall promptly
return to the Landlord all keys for the Building and Premises which are in the
possession of the Tenant. In the event any Tenant fails to return keys, Landlord
may retain $50.00 of Tenant's security deposit for locksmith work and
administration.
3. Repair, Maintenance, Alterations, and Improvements. The Tenant shall
carry out Tenant's repair, maintenance, alterations, and improvements in the
Premises only during times agreed to in advance by the Landlord and in a manner
which will not interfere with the rights of other tenants in the Building.
4. Water Fixtures. The Tenant shall not use water fixtures for any purpose
for which they are not intended, nor shall water be wasted by tampering with
such fixtures. Any cost or damage resulting from such misuse by the Tenant shall
be paid for by the Tenant.
5. Personal Use of Premises. The Premises shall not be used or permitted
to be used for residential, lodging, or sleeping purposes or for the storage of
personal effects or property not required for business purposes.
6. Heavy Articles. The Tenant shall not place in or move about the
Premises without the Landlord's prior written consent any safe or other heavy
article which in the Landlord's reasonable opinion may damage the Building, and
the Landlord may designate the location of any such heavy articles in the
Premises.
7. Bicycles, Animals. The Tenant shall not bring any animals or birds into
the Building, and shall not permit bicycles or other vehicles inside or on the
sidewalks outside the Building except in areas designated from time to time by
the Landlord for such purposes.
8. Deliveries. The Tenant shall ensure that deliveries of supplies,
fixtures, equipment, furnishings, wares, and merchandise to the Premises are
made through such entrances, elevators, and corridors and at such times as may
from time to time be designated by the Landlord, and shall promptly pay or cause
to be paid to the Landlord the cost of repairing any damage in the Building
caused by any person making improper deliveries.
9. Solicitations. The Landlord reserves the right to restrict or prohibit
canvassing, soliciting, or peddling in the Building.
10. Food and Beverages. Only persons approved from time to time by the
Landlord may prepare, solicit orders for, sell, serve, or distribute foods or
beverages in the Building, or use the Common Areas for any such purpose. Except
with the Landlord's prior written consent and in accordance with arrangements
approved by the Landlord, the Tenant shall not permit on the Premises the use of
equipment for dispensing food or beverages or for the preparation, solicitation
of orders for, sale, serving, or distribution of food or beverages.
11. Refuse. The Tenant shall place all refuse in proper receptacles
provided by the Tenant at its expense in the Premises or in receptacles (if any)
provided by the Landlord for the Building, and shall keep sidewalks and
driveways outside the Building, and lobbies, corridors, stairwells, ducts, and
shafts of the Building, free of all refuse.
12. Obstructions. The Tenant shall not obstruct or place anything in or on
the sidewalks or driveways outside the Building or in the lobbies, corridors,
stairwells, or other Common Areas, or use such locations for any purpose except
access to and exit from the Premises without the Landlord's prior written
consent. The Landlord may remove at the Tenant's expense any such obstruction or
thing caused or placed by the Tenant (and unauthorized by the Landlord) without
notice or obligation to the Tenant.
13. Proper conduct. The Tenant shall not conduct itself in any manner
which is inconsistent with the character of the Building as a first quality
building or which will impair the comfort and convenience of other tenants in
the Building.
14. Employees, Agents, and Invitees. In these Rules and Regulations,
"Tenant" includes the employees, agents, invitees, and licensees of the Tenant
and others permitted by the Tenant to use or occupy the Premises.
15. Parking. If the Landlord designates tenant parking areas for the
Building, the Tenant shall park its vehicles and shall cause its employees and
agents to park their vehicles only in such designated parking areas. The Tenant
shall furnish the Landlord, upon request, with the current license numbers of
all vehicles owned or used by the Tenant or its employees or agents and the
Tenant thereafter shall notify the Landlord of any changes in such numbers
within five (5) days after the occurrence thereof. In the event of failure of
the Tenant or its employees or agents to park their vehicles in such designated
parking areas, the Tenant shall forthwith on demand pay to the Landlord the sum
of Twenty and No/100 ($20.00) Dollars per day per each car so parked. Landlord
may itself or through any agent designated for such purpose, make, administer,
and enforce additional rules and regulations regarding parking by tenants and by
their employees or agents, including, without limitation, rules and regulations
permitting the Landlord or such agent to move any vehicles improperly parked to
the designated tenant or employee parking areas. No disabled vehicle shall be
left in the parking areas of the Building for more than 24 hours.
<PAGE>
EXHIBIT "D"
WORK LETTER AGREEMENT
THIS WORK LETTER AGREEMENT (the "Work Letter"), dated as of 7/18, 1997, is
attached to and made part of that certain Lease by and between AMB INDUSTRIAL
INCOME FUND, INC., a Maryland corporation (the "Landlord"), and INTELLICELL
CORP., a Delaware corporation (the "Tenant"). The terms, definitions, and other
provisions of the Lease are hereby incorporated into this Work Letter by
reference as if set forth in full.
IN CONSIDERATION OF the execution of the Lease and the mutual covenants and
conditions hereinafter set forth, Landlord and Tenant agree as follows:
(a) Landlord, at its expense (subject to the provisions of paragraph
(e), below), will cause Substantial Completion, as hereinafter defined, of the
tenant improvements (the "Tenant Improvements") to the Premises, in accordance
with plans and specifications for the Premises to be prepared by Tenant's
architect, at Tenant's expense (except as otherwise expressly provided below).
Tenant's architect and engineer for purposes of the plans and specifications for
the Tenant Improvements are subject to the prior written approval of Landlord,
which will not be unreasonably withheld or delayed. If Tenant elects to retain
Landlord's architect and/or engineer, such architect and/or engineer shall
nonetheless be considered to be Tenant's agent(s) for purposes of this Work
Letter. Tenant agrees to furnish to Landlord within five (5) business days after
the date of the Lease, a detailed set of plans and specifications for the Tenant
Improvements, time being of the essence with respect to the delivery of the
plans and specifications (and any revisions thereto). The plans and
specifications shall be in a form sufficient to obtain a building permit from
Metropolitan Dade County, Florida. The plans and specifications shall be subject
to Landlord's review and approval. Landlord shall accept or notify Tenant of its
objections to the plans and specifications within five (5) days after receipt
thereof. If Landlord requires more than five (5) days to approve the plans and
specifications, Landlord shall not be deemed to be in default hereunder or
otherwise liable in damages to Tenant. Should Tenant fail to submit the plans
and specifications within the time period set forth above, or if Tenant fails to
make any modifications Landlord may require within five (5) days of notice
thereof, then each such event shall be deemed to be a Tenant's delay as
described below. Notwithstanding Landlord's review and approval of the plans and
specifications, Landlord assumes no responsibility whatsoever, and shall not be
liable, for the manufacturer's, architect's, or engineer's design or performance
of any structural, mechanical, electrical, or plumbing systems or equipment of
Tenant. Once Landlord approves the plans and specifications, Tenant shall, at
Tenant's expense, provide Landlord with three (3) sets of the plans and
specifications which shall be signed and dated by both parties, with two sets
retained by Landlord and one set retained by Tenant. Changes to the plans and
specifications shall be made only by written addendum signed by both parties.
Tenant, at Tenant's expense, shall provide additional sets of the plans and
specifications upon request by Landlord. "Substantial Completion" shall mean
that a certificate of occupancy has been obtained for the Premises and that the
Tenant Improvements are sufficiently complete so as to allow Tenant to occupy
the Premises for the use and purposes intended without unreasonable disturbance
or interruption; provided that Landlord, its employees, agents, and contractors,
shall be allowed to enter upon the Premises at any reasonable time(s) following
Substantial Completion as necessary to complete any unfinished details pursuant
to a punchlist to be prepared by Tenant and delivered to Landlord within thirty
(30) days following the date of Substantial Completion.
(b) Within five (5) days following receipt of the final approved
plans and specifications for the Premises, Landlord shall have its contractor(s)
prepare an estimated budget (the "Construction Budget") of the cost of the
Tenant Improvements, and shall submit same to Tenant. The Construction Budget
shall be in reasonable detail and shall reflect a unit cost for all improvements
which is reasonable in amount, given the then current market conditions
pertinent to labor and material costs for such construction. The cost of the
Tenant Improvements, as set forth in the Construction Budget, shall also include
the cost of all utilities, air conditioning, and other services provided during
construction, plus a construction coordination fee equal to ten (10%) percent of
the cost of all non-Building-standard items reflected in the plans and
specifications, in order to reimburse Landlord for its time and expense involved
in the management and supervision of such non-standard items. The Construction
Budget shall be used as a basis for calculating Tenant's Costs, as hereinafter
defined, if any. Within five (5) days after receipt of the Construction Budget,
Tenant shall either approve the Construction Budget as submitted or provide
Landlord with modifications to the plans and specifications. If Tenant fails to
approve the Construction Budget or submit modifications to the plans and
specifications, for any reason whatsoever, within five (5) days, then either of
such events shall be deemed to be a delay caused by Tenant. If Tenant timely
submits modifications to the plans and specifications, Landlord shall, within
five (5) business days, review and approve the modified plans and specifications
(and provide a revised Construction Budget), or disapprove the modified plans
and specifications (and give Tenant its reasons for disapproval). If Tenant so
submits modified plans and specifications, then the time from such submission
until a Construction Budget is finally acknowledged and approved shall be deemed
to be a delay in Substantial Completion caused by Tenant. Following final
completion of the Tenant Improvements, Landlord shall provide Tenant with a
statement of actual costs thereof, including the cost of any approved change
orders. Landlord's general contractor shall be licensed and insured in the State
of Florida and Dade County.
(c) Upon Substantial Completion of the Premises, Tenant, at its
expense, shall install its furniture, trade fixtures, and equipment so that
Tenant can occupy the Premises for the use and purposes intended. Tenant may
begin to install such items prior to Substantial Completion; provided, however,
that no such pre-Substantial Completion installation shall in any way delay or
interfere with Landlord's work pursuant to this Work Letter and Tenant shall
arrange a meeting to coordinate with Landlord prior to any such pre-Substantial
Completion installation. Any such pre-Substantial Completion installation of
furniture, fixtures, and equipment shall be at Tenant's sole risk, and if at any
time such entry shall cause disharmony, impediment, or interference with
Landlord's work, then Tenant's right to enter the Premises prior to Substantial
Completion may be withdrawn by Landlord upon 48 hours' notice to Tenant. Such
access shall at all times
<PAGE>
be subject to the Landlord's rules and regulations regarding such access. If the
parties agree that Tenant will undertake to construct or install some portion of
the Tenant Improvements or retain its own subcontractors to perform any other
work, Tenant shall only use contractor(s), subcontractor(s), or material
supplier(s) first approved by Landlord ("Tenant's Contractors"). Tenant shall be
responsible for obtaining all necessary permits and approvals at Tenant's sole
expense in connection with the work performed by Tenant's Contractors. Tenant
shall advise Tenant's Contractors that no interest of Landlord in the Premises
or Building shall be subject to liens to secure payment of any amount due for
work performed or materials installed in the Premises and that Landlord has
recorded a notice to that effect in the public records of Dade County, Florida.
Landlord shall permit Tenant and Tenant's Contractors to enter the Premises to
accomplish any work as agreed, however, Tenant agrees to insure that Tenant's
Contractors do not impede Landlord's contractor(s) in performance of their
respective tasks. Landlord shall not be liable in any way for any injury, loss,
damage, or delay which may be caused by or arise from such entry by Tenant, its
employees, or Tenant's Contractors, and Tenant agrees to indemnify and hold
harmless Landlord, its agents, and employees from and against any and all costs,
expenses, damage, loss, or liability, including, but not limited to, reasonable
attorneys' fees and costs, which arise out of, is occasioned by, or is in any
way attributable to the work being performed by Tenant's Contractors. Prior to
any work being performed by any Tenant's Contractor, Tenant shall provide to
Landlord certificates of insurance evidencing that Tenant has the required
comprehensive general liability insurance required of Tenant under the Lease, as
well as certificates of insurance in forms and in amounts satisfactory to
Landlord evidencing that each Tenant's Contractor has in effect (and shall
maintain at all times during the course of the work hereunder) workers'
compensation insurance to cover full liability under workers' compensation laws
of the State of Florida with employers' liability coverage and comprehensive
general liability and builder's risk insurance for the hazards of operations,
independent contractors, products and completed operations.
(d) Tenant shall be responsible for any delay (including associated
costs) in Substantial Completion resulting from any of the following causes:
(i) Tenant's failure to timely submit (or submit to Landlord
any proposed modifications or additions to) the plans and specifications, unless
such failure is due to causes beyond Tenant's control (except that delays by
Tenant's architect and/or engineer shall be deemed to be a delay caused by
Tenant); or
(ii) Tenant's failure to pay any portion of Tenant's Costs, as
hereinafter defined, when due; or
(iii) Tenant's specification of special materials or finishes,
or special installations, which special items cannot be delivered or completed
within Landlord's construction schedule (subject to Landlord's obligation to
give Tenant prior notice of same at the time of such specification); or
(iv) any change in the plans and specifications caused by
Tenant once finally approved and accepted by Landlord, even though Landlord may
approve such change (Landlord agrees to estimate the delay to be caused by a
change order, provided Tenant expressly requests such estimate at the time it
requests a change order); or
(v) any other delay in Substantial Completion directly
attributable to the negligent or willful acts or omissions of Tenant, its
employees, or agents.
If any delay caused by Tenant results in or contributes to a delay
in Substantial Completion, then Substantial Completion shall be deemed to have
occurred as of the date Landlord would have otherwise achieved Substantial
Completion, but for Tenant's delay. Landlord will specify in writing to Tenant
the Tenant delay(s) which resulted in or contributed to a delay in Substantial
Completion.
(e) Landlord's Building-standard specifications for the warehouse
portion and the office portion of the Premises are attached hereto and made a
part hereof as Exhibit "D-1." To the extent that the plans and specifications
reflect that the Tenant Improvements are comprised entirely of Landlord's
Building-standard methods and materials, then Landlord will be responsible to
reimburse Tenant for the fees and costs incurred with respect to preparation of
the plans and specifications. In addition, to the extent that the Tenant
Improvements to the Premises are comprised entirely of Landlord's
Building-standard methods and materials, then Landlord's contractors shall
construct the Tenant Improvements, at Landlord's expense. Any and all
non-Building-standard improvements to the Premises (including, without
limitation, the fees and costs incurred with respect to preparation of the plans
and specifications for the non-Building-standard improvements) will be at
Tenant's expense ("Tenant's Costs"). Tenant's Costs shall be paid to Landlord as
follows:
(i) Prior to commencement of construction of the Tenant
Improvements, Tenant shall pay Landlord an amount equal to fifty (50%) percent
of the Tenant's Costs, as such amount is then determined by reference to the
Construction Budget.
(ii) When fifty (50%) of the Tenant Improvements are complete in
accordance with the plans and specifications (as verified in writing by
Landlord's architect), Tenant shall pay Landlord an amount equal to the
remaining unpaid balance of Tenant's Costs, as such amount can then be
reasonably determined by Landlord based on available information.
(iii) Within ten (10) days following Landlord's submittal to Tenant
of a final accounting of Tenant's Costs, Tenant shall pay Landlord the then
remaining balance of Tenant's Costs, or Landlord shall reimburse Tenant as to
any excess amounts previously paid, as the case may be.
Tenant's Costs represent a reimbursement of monies expended by
Landlord on Tenant's behalf. Payment when due shall be a condition to Landlord's
continued performance under this Work Letter. Any delay in construction of
-2-
<PAGE>
the Tenant Improvements or in Tenant taking occupancy of the Premises resulting
from Tenant's failure to make any Tenant's Costs payments when due shall be
Tenant's responsibility. Tenant's failure to pay any portion of Tenant's Costs
when due shall constitute a default under the Lease (subject to any applicable
notice requirements or grace periods), entitling Landlord to all of its remedies
thereunder.
(f) Notwithstanding anything to the contrary contained in paragraph
(e) or Exhibit "D-1," (i) as part of Tenant Costs, Tenant shall be responsible
to pay Seventeen Thousand and No/100 ($17,000.00) Dollars toward the cost to
construct the office space in the Premises in excess of 1,280 square feet, and
(ii) Landlord, at its expense, shall be responsible to install hot water to the
restrooms and the kitchen area in the Premises.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Work
Letter as of the day and first year above written.
WITNESSES: LANDLORD:
AMB INDUSTRIAL INCOME FUND, INC., a
Maryland corporation
By: AMB Institutional Realty Advisors, Inc.,
its authorized agent
/s/ Teri M. George By: /s/ Kent D. Greenawalt
- ------------------------ --------------------
/s/ [ILLEGIBLE] Kent D. Greenawalt
Its: Asset Manager
TENANT
INTELLICELL CORP., a Delaware corporation
/s/ [ILLEGIBLE] V.P. CFO By: /s/ James E. Bunting
- -------------------------- ------------------------------------
/s/ [ILLEGIBLE] V.P. MKTG. Name: James E. Bunting
- -------------------------- Title: Executive Vice President, COO
-3-
<PAGE>
EXHIBIT "D-1"
BUILDING-STANDARD IMPROVEMENTS
GENERAL NOTES:
1. For the purposes of this Work Letter, the rentable area of the
warehouse portion and office portion of the Premises shall be as set forth in
the Lease.
2. Specifications are intended to denote quality only; the manufacturer or
provider of the items are at the sole discretion of Landlord.
3. Any changes, additions, deletions, or substitutions shall be at the
sole expense of Tenant. No exchanges or credits are given for quantities
requested that are less than those provided by Landlord.
4. Where ratios are given, the standard practice will be to round "up"
from 1/2 or greater, and round "down" for less than 1/2.
5. All above Building-standard items purchased by the Tenant shall meet
minimum state and local codes.
6. All finish selections (whether Building-standard or above) shall be
completed by Tenant prior to the commencement of construction.
WAREHOUSE AREA IMPROVEMENTS:
1. DEMISING PARTITIONS: Those walls that separate the rentable space from
one tenant to another. These one (1) hour fire rated walls shall be installed
from floor to underside of roof deck and shall include 6"-18" gauge metal studs
12" o/c with 5/8" type "X" wall board, taped, spackled, and painted white. 1/2"
plywood will be applied at a height of 4' and painted white.
2. CEILINGS: Exposed joists with shop coat of primer and roofdeck in
unpainted and unfinished condition.
3. FLOOR: Existing finished and sealed concrete floor.
4. WAREHOUSE LIGHTING FIXTURES: HID or equal light fixtures as required by
code, one (1) fixture per 1,350 warehouse square feet. Fixtures shall be hung at
roof joist height.
5. ELECTRICAL OUTLETS: One (1) wall mounted duplex electrical outlet shall
be provided per single bay of warehouse area. The outlet shall be located on the
wall near the dock height doors, in each bay.
6. LIGHT SWITCHES: One (1) light switch, or minimum to comply with code,
shall be provided, located near the office area.
7. TELEPHONE OUTLETS: One (1) telephone outlet shall be provided in
warehouse area, located near dock doors.
8. EXIT LIGHTS: Lighted, wall mounted exit light signs per minimum code
requirements for standard exits. Exit lights for additional above-standard exits
shall be at Tenant's expense.
9. VENTILATION: Building-standard exhaust fans with no less capacity than
two (2) changes per hour.
10. PRIMARY ENTRANCE: A single primary entrance shall be provided per the
Building-standard for Premises location. The entrance shall consist of one (1)
storefront entrance, approximately 10' wide by 8' high, and shall include one
(1) 3' x 8' glass door and adjoining glazed side panels. One (1) overhead canopy
shall be provided. Signage shall be subject to Landlord's signage criteria.
11. SECONDARY ENTRANCE/EXIT: One (1) painted metal rated door and frame
assembly will be installed in the warehouse area to comply with minimum code
requirements. Door shall have heavy duty satin finish stainless steel lockset
with single-sided deadbolt, standard "Exit" sign, and concrete stairs and
handrail to comply with code. Entrance will not be the primary handicap entrance
to the Premises, and will not require sidewalk or handicap ramp.
OFFICE SPACE IMPROVEMENTS:
1. PARTITIONS:
(a) Warehouse/Office Partitions: Those walls that separate the office
portion of the Premises from the warehouse. It is assumed that the office will
be located adjacent to one demising wall. Therefore, only two (2)
warehouse/office partitions shall be considered Building-standard. These walls
shall be 3 5/8" - 20 gauge metal studs 24" on center with 5/8" wall board on
each side, taped, spackled, and painted with two (2) coats (minimum) as required
to cover. The height of this wall shall be minimum as required by code.
<PAGE>
(b) Standard Partitions: Those walls located inside the office portion of
the Premises. It is assumed that 35% of the office is "open" space, or 12 lineal
feet of wall per 100 square feet of the office portion of the Premises. These
walls shall be 2 1/2" - 24 gauge metal studs 24" on center with 5/8" wall board
on each side, taped, spackled, and painted with two (2) coats (minimum) as
required to cover. The height of the walls shall extend to the ceiling grid.
(c) Toilet walls: Those walls in the restroom areas and shall be 5/8"
water resistant wall board on standard partition studs, taped, spackled, and
painted.
2. WALL FINISHES:
(a) All walls shall be painted with two (2) coats flat finish latex paint
as required to cover. All walls shall be painted one (1) color, which color
shall be selected by Tenant from Building-standard color chart.
(b) Toilet walls shall be painted with epoxy high gloss paint to comply
with building code. Color shall be standard white.
(c) Vinyl base shall be standard 4" cove vinyl wall base. The base shall
be one (1) color, to be selected by Tenant from Building-standard.
3. FLOOR COVERING:
(a) General office areas shall be 12" x 12" vinyl composition tile (VCT)
or 28 oz. textured nylon loop carpet glued down to existing concrete floor slab
as selected by Tenant from Building-standard.
(b) Storage, telephone, and lounge areas shall be VCT selected by Tenant
from Building-standard.
(c) Toilet rooms shall be 12" x 12" VCT as selected by Tenant from
Building-standard. Should a janitorial room be added by Tenant, the floor
covering shall be the same as the toilet rooms.
4. DOORS, FRAMES, AND HARDWARE:
(a) Single swing 6' - 8" x 3' - 0", paint grade, pre-hung hollow core wood
doors and wood frames shall be provided assuming 35% open office space, or
approximately 1 door per 300 square feet of office space. Finish will be two (2)
coats of semi-gloss paint, as selected by Tenant from Building-standard, one (1)
coat throughout.
(b) One (1) 6' - 8" x 3' - 0", paint grade wood, pre-hung solid core door
with wood frame shall be provided from office to warehouse.
(c) Hardware included shall be a satin finish stainless steel lever
passage set (not lockable), one pair of standard steel butt hinges, and a floor
mounted standard steel door stop for every standard interior door. Locksets are
not provided as a standard.
5. WINDOW COVERING:
(a) White 2" PVC solid vertical blinds. Blinds shall be mounted in exposed
aluminum track and will be retractable.
6. CEILINGS:
(a) Entire office portion of the Premises shall be 2' x 4' x 5/8" fissured
flush lay-in acoustical ceiling tile such as Armstrong Minaboard Designer
Fissured #755B (or equal), to be installed in 1" white suspended ceiling grid,
9' - 0" above finish floor.
7. PLUMBING:
(a) Sprinkler heads to be semi-concealed with a chrome finish. Sprinkler
design to comply with minimum code requirements for standard office buildout.
(b) A minimum number of restroom(s) shall be provided per current South
Florida Building Code. Each restroom shall have one (1) wall hung lavatory
china, one (1) mirror, one (1) water closet, and accessories. All toilet
fixtures and accessories to be Building-standard, and installed per Americans
with Disabilities guidelines as of the date of the Lease. If more than one
restroom is required by code, they shall be located adjacent to one another. Hot
water is not provided as a standard.
(c) One (1) metal utility sink shall be provided in the warehouse. The
location of the sink shall be on the warehouse/office partition, within ten (10)
feet of the plumbing stack in the toilet rooms. Any location beyond the 10' is
not considered a standard. The sink shall not be enclosed in a closet or a room.
<PAGE>
8. CABINETS, CABINETRY:
(a) One (1) 2' x 4' lower "kitchen" cabinet with a fixed single shelf and
laminated counter top shall be provided. The counter top shall include a 4"
backsplash, with mica selection from Building-standard. A single 12" x 18"
stainless steel sink with cold water only shall be provided integral with the
cabinet. The cabinet shall be located so that the plumbing wall shall be shared
with the restroom(s). Hot water is not provided as a standard.
9. LIGHTING:
(a) Fluorescent light fixtures shall be 2' x 4' Lithonia 2SP-332-A 12/120V
- - GLR/ES - with 3 lamps at 32 watts (3-F32) or equal, color white, with acrylic
lens. One (1) fixture shall be provided for every 85 square feet of office
space.
(b) One light switch shall be provided for every 300 square feet of office
space. Switches shall be Leviton Single Pole or equal commercial grade, 20 amps,
color white.
(c) Emergency/Exit shall be minimum per code for minimum required
entrances only. Exit signs provided for entrances not required by code shall be
at Tenant's expense.
10. ELECTRICAL & COMMUNICATIONS:
(a) One duplex electrical outlet shall be provided for every 125 square
feet of office space. Outlets shall be Leviton Single Pole or equal commercial
grade, 20 amps, color white.
(b) One telephone wall outlet shall be provided for every 200 square feet
of office space. Telephone outlet shall consist of a utility box with "pull
string" only. Conduit shall extend 6" above acoustical ceiling. Telephone wiring
and outlet wall plates shall be provided by Tenant at its expense.
(c) A 4' x 4' telephone equipment "mounting board" painted the same color
as the wall shall be provided with a single duplex outlet. If a dedicated
circuit is required, it shall be at Tenant's expense.
11. HVAC:
(a) Only the office portion of the Premises shall be air conditioned,
through Building-standard packaged rooftop A/C units, approximately one (1) ton
per 300 square feet of office space. Supply and return air grills shall be 2' x
2' lay in type Building-standard.
12. EXTERIOR WINDOWS:
(a) Exterior windows as shown on building plans are considered
Building-standard. Any additional windows or doors added to Building are
considered an expense to the Tenant, including but not limited to all window
coverings, hardware, concrete, and landscaping.
<PAGE>
RIDER NUMBER 1 TO LEASE
Intellicell Corp.
OPTION TO RENEW
A. Landlord hereby grants Tenant the option to renew (the "Renewal
Option") the initial Term (not to include, for purposes of this Rider only, the
Renewal Term, as hereinafter defined) for one (1) additional term of sixty (60)
months (the "Renewal Term"), commencing as of the date immediately following the
expiration of the Term, such option to be subject to the covenants and
conditions hereinafter set forth in this Rider.
B. Tenant shall give Landlord written notice (the "Renewal Notice") of
Tenant's election to exercise its Renewal Option not later than one hundred
eighty (180) days prior to the expiration of the initial term of the Lease;
provided that Tenant's failure to give the Renewal Notice by said date, whether
due to Tenant's oversight or failure to cure any existing defaults or otherwise,
shall render the Renewal Option null and void.
C. Tenant shall not be permitted to exercise the Renewal Option at any
time during which Tenant is in default under the Lease, subject to applicable
notice and grace periods (if any). If Tenant fails to cure any default under the
Lease prior to the commencement of the Renewal Term, subject to applicable
notice and grace periods, the Renewal Term shall be immediately cancelled,
unless Landlord elects to waive such default, and Tenant shall forthwith deliver
possession of the Premises to Landlord as of the expiration or earlier
termination of the then-current term of the Lease.
D. Tenant shall be deemed to have accepted the Premises in "as-is"
condition as of the commencement of the Renewal Term, subject to any other
repair and maintenance obligations of Landlord under the Lease, it being
understood and agreed that Landlord shall have no additional obligation to
renovate or remodel the Premises or any portion of the Building as a result of
Tenant's renewal of the Lease.
E. The covenants and conditions of the Lease in force during the original
Term, as the same may be modified from time to time, shall continue to be in
effect during the Renewal Term, except as follows:
(1) The "Commencement Date" for the purpose of the Lease shall be
the first day of the Renewal Term.
(2) The Minimum Rent for the Renewal Term shall be an amount equal
to the then Fair Market Rental Value of the Premises. "Fair Market Rental Value"
of the Premises shall be an amount determined by Landlord on the basis of the
then-prevailing market rental rate for industrial space comparable to the
Premises as reflected in one or more leases executed by Landlord with new
tenants of the Building within the twelve-month period immediately preceding
commencement of the Renewal Term. If Landlord has not executed any lease with
new tenants within said twelve-month period, the new prevailing market rental
rate determination shall be based on new leases for premises comparable to the
Premises herein, as executed within said twelve-month period by owners of other
industrial properties located in west Dade County, Florida. However, in no event
shall Minimum Rent for any year of the Renewal Term be less than the amount of
Minimum Rent for the immediately prior year.
(3) Following expiration of the Renewal Term as provided herein,
Tenant shall have no further right to renew or extend the Lease.
F. Tenant's option to renew the Lease shall not be transferable by Tenant,
except in conjunction with a permissible Transfer in accordance with the
applicable provisions of the Lease.
<PAGE>
NOTICE REQUIRED BY CHAPTER 88-285, LAWS
OF FLORIDA
Chapter 88-285, Laws of Florida, requires the following notice to be
provided with respect to the contract for sale and purchase of any building, or
a rental agreement for any building:
"RADON GAS: Radon is a naturally occurring radioactive gas that,
when it has accumulated in a building in sufficient quantities, may present
health risks to persons who are exposed to it over time. Levels of radon that
exceed federal and state guidelines have been found in buildings in Florida.
Additional information regarding radon and radon testing may be obtained from
your county public health unit."
INTELLICELL CORP., a Delaware
corporation
By: /s/ James E. Bunting
---------------------------------
Name: James E. Bunting
Title: EXECUTIVE VICE PRESIDENT, COO
Date: 7/14/97
RECEIPT OF SIGNAGE CRITERIA
Pursuant to that certain Lease entered into between the undersigned
Tenant and AMB Industrial Income Fund, Inc. ("Landlord"), the undersigned, by
its execution below, hereby acknowledges receipt of Landlord's signage criteria
as such criteria exists on the date hereof.
INTELLICELL CORP., a Delaware
corporation
By: /s/ James E. Bunting
---------------------------------
Name: James E. Bunting
Title: EXECUTIVE VICE PRESIDENT, COO
Date: 7/14/97
<PAGE>
V. SIGNAGE STANDARDS
A. ALLOWABLE SIGNS
1. All User/Tenants will be allowed a primary User/Tenant I.D. sign on
each building elevation facing a street consisting of the company
name and corporate logo only (Sign Type A), located in the
designated sign band of the specific building where the User/Tenant
is utilizing space. The User/Tenant's sign may not exceed 3/5 of the
allowable height of the sign band (Example: 5'-0" H sign band or
3'-0" sign and 1'-0" space top and bottom). (See Exhibit A-1 to
A-3.)
2. The size of the allowed Tenant I.D sign (Sign Type A) will be
determined by the amount of space the Tenant leases as follows: All
signage shall be surface mounted and shall be located on building
entrance features such as s towers or sign-walls, or within a
signage banked area located at the top of the building parapet,
based upon 1-1/2", height per 1" of height of the principal building
facade. Building User/Tenant signage shall be a maximum length of
3O' for a single half acre user or a two bay Tenant. There will be a
maximum allowable increment of 10' of length of signage per acre of
land or two bay lease areas to a maximum of 60' of total length per
user/tenant.
3. No sign shall exceed 3'-0" in overall height or (see Exhibit A) the
exact location for any Tenant signs must be approved by the Owner
prior to any fabrication or installation of signs. A side setback of
3'-0" from Tenant side lease line with adjacent Tenants' must be
observed.
4. Methods of fabrication for Sign Type A are shown in Exhibit B. (It
consists of four possible ways to manufacture illuminated of
non-0illuminaged signs as the primary Tenant I.D.
a. Non-illuminated aluminum or intra (PVC Board) 1" thick letter,
pin mounted on spacers 1/2" off the face of the building.
b. Non-illuminated reverse channel type letters.
c. Illuminated channel letters.
d. Illuminated reverse channel letters.
All details shown in Exhibit B must be followed by the sign
fabricator. No exceptions or substitution will be allowed.
5. Each Tenant space shall have a postal I.D. number at the front
entrance designed, fabricated and installed by the Owner. It shall
not be removed or relocated.
6. In addition to Sign Type A, each User/Tenant will be allowed one
Sign Type B which consists of a 2'-0"H x 2'-O"W max. area on the
front glass next to the entry door. The sign may be applied to the
glass by silkscreening printing or by computer generated vinyl die
cut letters. The corporate logo, corporate name, business hours,
etc., may appear in this sign. (Exhibit A1-A3)
<PAGE>
7. In addition to the Sign Type A & B, the Tenant will be allowed one
Sign Type C located on one rear "main door" at the loading dock
area. The sign shall be located on the door in an area l'-6"H x
l'-6"W max. centered on the door 5'-6" from top of sign to floor.
This sign must be made from computer generated vinyl die cut
letters. (Exhibit D).
8. All signs must be permitted by the Tenants' sign fabricator through
the normal Dade County Sign code procedure prior to fabrication and
installation, and a copy of the sign permit must be given to the
Owner before installation, along with a copy of sign manufacturer's
permit shop drawings.
9. A Tenant may identify his loading dock doors with a 9" high, 1/2"
thick aluminum cut out postal address numbers (Sign Type D), painted
black (Exhibit C). No other signs allowed in this area except at
main door. (Exhibit D.)
B. TEMPORARY MARKETING SIGNS
1. Signs used to identify a site or building for sale or lease must be
of a format compatible to the Beacon Industrial Park Signage format.
2. No sign shall be taller than 8' from grade. All signs shall be 4'
wide by 8' 6" high framed with 4"x4" support posts to meet all local
and building zoning codes.
3. The back of sign shall be totally enclosed with a finished sheet of
plywood. Front face sides, top and back shall be painted the same
colors. Colors to match Beacon Industrial Park standard signs.
C. GENERAL NOTES
1. A tenant at Beacon Industrial Park shall be defined as any occupant
of a building/facility, located within the Beacon Industrial Park,
whether Owner occupied of leased to a third party.
2. All building/Tenant signage shall be designed in accordance with
Metro Dade County regulations and the Park's Development Guidelines.
3. No fluorescent light box type signs allowed.
4. Owner must approve all signs for Tenant space prior to fabrication
and installation. Final location of any sign will be determined
solely with Owner approval.
5. Tenant must use Owner approved sign company at Tenant's expense for
all sign needs, to ensure quality and conformity. (A list of
approved sign fabricators is available)
6. Tenant must use Owner approved sign designer when applicable at
Tenant's sole expense.
7. Tenant to supply Camera Ready Artwork for any logos to be used,
including color specifications and designations using the
PMS-Pantone Matching System. All colors to be approved by Owner
and/or his design consultant prior to any fabrication.
8. Electricity for signs and hookup for electrical signs is at sole
cost of Tenant. Tenant must use Owner approved contractor for this
work.
<PAGE>
[GRAPHIC OMITTED]
(Tenant Primary I.D. Signage - 2 Bays)
EXHIBIT A-1
6/10/94
<PAGE>
[GRAPHIC OMITTED]
(Illegible)
EXHIBIT A-2
<PAGE>
[GRAPHIC OMITTED]
(Illegible)
EXHIBIT A-3
<PAGE>
[GRAPHIC OMITTED]
(Illegible)
EXHIBIT B
<PAGE>
[GRAPHIC OMITTED]
(Typical Tenant Loading Dock Door)
EXHIBIT C
6/10/94
<PAGE>
[GRAPHIC OMITTED]
(TYPICAL TENANT MAN DOOR @ WAREHOUSE/FLEX SPACE; ONLY ONE DOOR SIGN ALLOWED)
EXHIBIT D
6/10/94
<PAGE>
TENANT'S ACKNOWLEDGMENT
This Tenant's Acknowledgment is made as of December 19, 1997, with reference to
that certain Second Addendum to Lease (herein refereed to as the "Lease"), dated
July 18, 1997 between AMB industrial Income Fund, Inc., a Maryland corporation
(the "Landlord") and Intellicell Corporation, a Delaware corporation (the
"Tenant") pursuant to which Tenant leased from Landlord those certain Premises,
as defined in the Lease, located in the Beacon Industrial Park, Miami, Florida.
The Tenant hereby confirms the following:
(i) The Commencement Date, as defined in the Lease is October 28, 1997,
and the Expiration Date, as defined in the Lease is December 27,
2002.
(ii) All of Landlord's work, as defined in that certain Work Letter
Agreement between Landlord and Tenant, attached in the lease as
Exhibit "D" (the Work Letter) has been completed in accordance with
the Work Letter and Landlord shall have no further obligation to
furnish, render, or supply any work, labor, service, material,
fixture(s), equipment, or decoration to render the Premises, as
defined in the Lease, ready for Tenant's occupancy.
WlTNESSES: TENANT:
Intellicell, Corp, a
Delaware Corporation
By: [Illegible]
-----------------------------
LOAN AND SECURITY AGREEMENT
Dated as of January 12, 1998
Among
BANKAMERICA BUSINESS CREDIT, INC.
as the Lender
and
INTELLICELL CORP.
as the Borrower
<PAGE>
TABLE OF CONTENTS
Page
----
1. DEFINITIONS ........................................................... 1
1.1 Accounting Terms ................................................ 16
1.2 Other Terms ..................................................... 17
2. LOANS AND LETTERS OF CREDIT ........................................... 17
2.1 Total Facility .................................................. 17
2.2 Revolving Loans ................................................. 17
2.3 Letters of Credit ............................................... 18
2.4 Automated Clearing House Transfers and Overdrafts ............... 22
3. INTEREST AND OTHER CHARGES............................................. 22
3.1 Interest ........................................................ 22
3.2 Conversion and Continuation Elections ........................... 23
3.3 Maximum Interest Rate ........................................... 24
3.4 Closing Fee ..................................................... 25
3.5 Letter of Credit Fee ............................................ 25
4. PAYMENTS AND PREPAYMENTS.............................................. 25
4.1 Revolving Loans ................................................. 25
4.2 Place and Form of Payments; Extension of Time ................... 25
4.3 Application and Reversal of Payments ............................ 25
4.4 Indemnity for Returned Payments ................................. 25
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS......................... 26
6. TAXES, YIELD PROTECTION AND ILLEGALITY................................. 26
6.1 Taxes ........................................................... 26
6.2 Illegality ...................................................... 27
6.3 Increased Costs and Reduction of Return ......................... 28
6.4 Funding Losses .................................................. 28
6.5 Inability to Determine Rates .................................... 28
6.6 Survival ........................................................ 29
7. COLLATERAL............................................................. 29
7.1 Grant of Security Interest ...................................... 29
7.2 Perfection and Protection of Security Interest .................. 29
7.3 Location of Collateral .......................................... 30
7.4 Title to, Liens on, and Sale and Use of Collateral .............. 31
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TABLE OF CONTENTS
(cont'd)
Page
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7.5 Appraisals ...................................................... 31
7.6 Access and Examination .......................................... 31
7.7 Insurance ....................................................... 31
7.8 Collateral Reporting ............................................ 32
7.9 Accounts ........................................................ 32
7.10 Collection of Accounts; Payments ................................ 34
7.11 Inventory ....................................................... 34
7.12 Equipment ....................................................... 35
7.13 Documents, Instruments, and Chattel Paper ....................... 35
7.14 Right to Cure ................................................... 36
7.15 Power of Attorney ............................................... 36
7.16 Lender's Rights, Duties, and Liabilities ........................ 36
8. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES...................... 37
8.1 Books and Records ............................................... 37
8.2 Financial Information ........................................... 37
8.3 Notices to Lender ............................................... 39
9. GENERAL WARRANTIES AND REPRESENTATIONS................................. 40
9.1 Authorization, Validity, and Enforceability of this
Agreement and the Loan Documents ............................ 40
9.2 Validity and Priority of Security Interest ...................... 41
9.3 Organization and Qualification .................................. 41
9.4 Corporate Name; Prior Transactions .............................. 41
9.5 Subsidiaries and Affiliates ..................................... 41
9.6 Financial Statements and Projections ............................ 41
9.7 Capitalization .................................................. 42
9.8 Solvency ........................................................ 42
9.9 Debt ............................................................ 42
9.10 Distributions ................................................... 42
9.11 Title to Property ............................................... 42
9.12 Adequate Assets ................................................. 42
9.13 Real Property; Leases ........................................... 42
9.14 Proprietary Rights .............................................. 42
9.15 Trade Names and Terms of Sale ................................... 43
9.16 Litigation ...................................................... 43
9.17 Restrictive Agreements .......................................... 43
9.18 Labor Disputes .................................................. 43
9.19 Environmental Laws .............................................. 43
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<PAGE>
TABLE OF CONTENTS
(cont'd)
Page
----
9.20 No Violation of Law ............................................. 44
9.21 No Default ...................................................... 44
9.22 ERISA Compliance ................................................ 45
9.23 Taxes ........................................................... 45
9.24 Use of Proceeds ................................................. 45
9.25 Private Offerings ............................................... 46
9.26 Broker's Fees ................................................... 46
9.27 No Material Adverse Change ...................................... 46
9.28 Disclosure ...................................................... 46
10. AFFIRMATIVE AND NEGATIVE COVENANTS..................................... 46
10.1 Taxes and Other Obligations ..................................... 46
10.2 Corporate Existence and Good Standing ........................... 46
10.3 Compliance with Law and Agreements .............................. 47
10.4 Maintenance of Property and Insurance ........................... 47
10.5 Environmental Laws .............................................. 47
10.6 ERISA ........................................................... 47
10.7 Mergers, Consolidations, Acquisitions, or Sales ................. 47
10.8 Distributions; Capital Changes .................................. 48
10.9 Transactions Affecting Collateral or Obligations ................ 48
10.10 Guaranties ...................................................... 48
10.11 Debt ............................................................ 48
10.12 Prepayment ...................................................... 48
10.13 Transactions with Affiliates .................................... 48
10.14 Management Compensation ......................................... 48
10.15 Business Conducted .............................................. 49
10.16 Liens ........................................................... 49
10.17 Sale and Leaseback Transactions ................................. 49
10.18 New Subsidiaries ................................................ 49
10.19 Restricted Investments .......................................... 49
10.20 Capital Expenditures ............................................ 49
10.21 Operating Lease Obligations ..................................... 49
10.22 EBITDA .......................................................... 49
10.23 Adjusted Tangible Net Worth ..................................... 50
10.24 Further Assurances .............................................. 50
11. CLOSING; CONDITIONS TO CLOSING ........................................ 50
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<PAGE>
TABLE OF CONTENTS
(cont'd)
Page
----
11.1 Conditions Precedent to Making of Loans and Issuance of Letters of
Credit on the Closing Date .................................. 50
11.2 Conditions Precedent to Each Loan ............................... 52
12. DEFAULT; REMEDIES ..................................................... 52
12.1 Events of Default ............................................... 52
13. REMEDIES .............................................................. 54
14. TERM AND TERMINATION................................................... 55
15. MISCELLANEOUS.......................................................... 56
15.1 Cumulative Remedies; No Prior Recourse to Collateral ............ 56
15.2 No Implied Waivers .............................................. 56
15.3 Severability .................................................... 56
15.4 Governing Law ................................................... 56
15.5 Consent to Jurisdiction and Venue; Service of Process ........... 56
15.6 Waiver of Jury Trial ............................................ 57
15.7 Arbitration; Reference Proceeding ............................... 57
15.8 Survival of Representations and Warranties ...................... 58
15.9 Other Security and Guaranties ................................... 58
15.10 Fees and Expenses ............................................... 58
15.11 Notices ......................................................... 59
15.12 Indemnification ................................................. 60
15.13 Waiver of Notices ............................................... 61
15.14 Binding Effect; Assignment ...................................... 61
15.15 Modification .................................................... 61
15.16 Counterparts .................................................... 61
15.17 Captions ........................................................ 61
15.18 Right of Set-Off ................................................ 61
15.19 Participating Lender's Security Interests ....................... 62
15.20 Confidentiality ................................................. 62
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<PAGE>
LOAN AND SECURITY AGREEMENT, dated as of January 12, 1998, by and
between BANKAMERICA BUSINESS CREDIT, INC., a Delaware corporation, with offices
at 55 South Lake Avenue, Suite 900, Pasadena, California 91101 (the "Lender"),
and INTELLICELL CORP., a Delaware corporation, with offices at 6929 Hayvenhurst
Avenue, Van Nuys, California 91406 (the "Borrower")
W I T N E S S E T H
WHEREAS, the Borrower has requested the Lender to make available to
the Borrower a revolving line of credit for loans and letters of credit in an
amount not to exceed $12,000,000, which extensions of credit the Borrower will
use to repay certain existing indebtedness and for its working capital needs and
general business purposes;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt of which is hereby acknowledged, the Borrower and the Lender hereby
agree as follows:
1. DEFINITIONS. As used herein:
"Account" means the Borrower's right to payment for a sale or lease
and delivery of goods or rendition of services.
"Account Debtor" means each Person obligated in any way on or in
connection with an Account.
"ACH Settlement Risk Reserve" means any and all reserves which the
Lender from time to time establishes, in its sole discretion, with respect to
ACH Transactions.
"ACH Transactions" means all debts, liabilities, and obligations now
or hereafter owing from the Borrower to the Bank arising from or related to the
automatic clearing house transfer of funds by the Bank for the account of the
Borrower pursuant to agreement or overdrafts.
"Adjusted Tangible Assets" means all of the Borrower's assets
except: (a) deferred assets, other than prepaid insurance and prepaid taxes; (b)
patents, copyrights, trademarks, trade names, franchises, goodwill, and other
similar intangibles; (c) Restricted Investments; (d) unamortized debt discount
and expense; (e) assets of the Borrower constituting Intercompany Accounts; (f)
fixed assets to the extent of any write-up in the book value thereof resulting
from a revaluation effective after the Closing Date; and (g) notes receivable
owing from customers of the Borrower.
"Adjusted Tangible Net Worth" means, at any date: (a) the book value
(after deducting related depreciation, obsolescence, amortization, valuation,
and other proper reserves as determined in accordance with GAAP) at which the
Adjusted Tangible Assets would be shown on a balance sheet of the Borrower at
such date prepared in accordance with GAAP less (b) the amount at which the
Borrower's liabilities would be shown on such balance sheet, including as
liabilities all
<PAGE>
reserves for contingencies and other potential liabilities which would be shown
on such balance sheet or disclosed in the notes thereto.
"Affiliate" means: (a) a Person which, directly or indirectly,
controls, is controlled by or is under common control with, the Borrower; (b) a
Person which beneficially owns or holds, directly or indirectly, five percent or
more of any class of voting stock of the Borrower; or (c) a Person in which five
percent of any class of the voting stock is beneficially owned or held, directly
or indirectly, by the Borrower. The term "control" (including the terms
"controlled by" and "under common control with"), means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of the Person in question.
"Anniversary Date" means each anniversary of the Closing Date.
"Availability" means at any time the lesser of:
(a) The amount of Twelve Million and 00/100 Dollars
($12,000,000.00) (the "Maximum Revolving Credit Line") or
(b) The sum of
(i) up to eighty percent (80%) of the Net Amount of
Eligible Accounts, and
(ii) the lesser of
a) Six Million and 00/100 ($6,000,000.00); or
b) up to fifty percent (50%) of the value of
Eligible Inventory;
provided, however, that at all times Availability shall be reduced by the sum
of:
(a) the unpaid balance of Revolving Loans at that time;
(b) the aggregate undrawn face amount of all outstanding
Letters of Credit which the Lender has caused to be issued or obtained for the
Borrower's account;
(c) reserves for accrued interest on the Revolving Loans and
reserves for accounts payable 30 days or more past due date;
(d) the Environmental Compliance Reserve;
(e) the ACH Settlement Risk Reserve; and
(f) all other reserves which the Lender in its reasonable
discretion
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<PAGE>
deems necessary or desirable to maintain with respect to the Borrower's account,
including, without limitation, with respect to any amounts which the Lender may
be obligated to pay in the future for the account of the Borrower.
"Bank" means Bank of America National Trust and Savings Association
in San Francisco, California.
"Borrowing" means a borrowing hereunder consisting of Revolving
Loans made by the Lender to the Borrower or the issuance of Letters of Credit
hereunder.
"Business Day" means (a) any day that is not a Saturday, Sunday, or
a day on which banks in San Francisco, California, are required or permitted to
be closed, and (b) with respect to all notices, determinations, fundings and
payments in connection with the LIBOR Rate or LIBOR Revolving Loans, any day
that is a Business Day pursuant to clause (a) above and that is also a day on
which trading is carried on by and between banks in the London interbank market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Public Authority, or any other law, rule
or regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling a bank.
"Capital Expenditures" means all payments due (whether or not paid)
during a Fiscal Year in respect of the cost of any fixed asset or improvement,
or replacement, substitution, or addition thereto, which has a useful life of
more than one year, including, without limitation, those arising in connection
with the direct or indirect acquisition of such assets by way of increased
product or service charges or offset items or in connection with Capital Leases.
"Capital Lease" means any lease of Property by the Borrower that, in
accordance with GAAP, should be reflected as a liability on the balance sheet of
the Borrower.
"Closing Date" means the date of this Agreement.
"Closing Fee" has the meaning specified in Section 3.4.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" has the meaning given to such term in Section 7.1
"Contaminant" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or other substance or material, the handling, release, or possession
of which is regulated to protect health, safety, or the environment, or any
constituent of any such substance or waste.
"Debt" means all liabilities, obligations and indebtedness of the Borrower
to any
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<PAGE>
Person, of any kind or nature, now or hereafter owing, arising, due or payable,
howsoever evidenced, created, incurred, acquired or owing, whether primary,
secondary, direct, contingent, fixed or otherwise, and including, without in any
way limiting the generality of the foregoing: (a) the Borrower's liabilities and
obligations to trade creditors; (b) all Obligations; (c) all obligations and
liabilities of any Person secured by any Lien on the Borrower's Property, even
though the Borrower shall not have assumed or become liable for the payment
thereof; provided, however, that all such obligations and liabilities which are
limited in recourse to such Property shall be included in Debt only to the
extent of the book value of such Property as would be shown on a balance sheet
of the Borrower prepared in accordance with GAAP; (d) all obligations or
liabilities created or arising under any Capital Lease or conditional sale or
other title retention agreement with respect to Property used or acquired by the
Borrower, even if the rights and remedies of the lessor, seller or lender
thereunder are limited to repossession of such Property; provided, however, that
all such obligations and liabilities which are limited in recourse to such
Property shall be included in Debt only to the extent of the book value of such
Property as would be shown on a balance sheet of the Borrower prepared in
accordance with GAAP; (e) all accrued pension fund and other employee benefit
plan obligations and liabilities; (f) all obligations and liabilities under
Guaranties; and (g) deferred taxes.
"Default" means any event or condition which, with notice, the
passage of time, the happening of any other condition or event or any
combination thereof, would constitute an Event of Default.
"Distribution" means, in respect of any corporation: (a) the payment
or making of any dividend or other distribution of Property in respect of
capital stock of such corporation, other than distributions in capital stock of
the same class; or (b) the redemption or other acquisition by such corporation
of any capital stock of such corporation.
"DOL" means the United States Department of Labor or any successor
department or agency.
"EBITDA" means, for any period of Borrower, earnings of Borrower
before interest expense, taxes, depreciation and amortization, determined in
accordance with GAAP.
"Eligible Accounts" means those Accounts which are not ineligible as
the basis for Revolving Loans, based on the following criteria and on such other
criteria as the Lender may from time to time establish in its reasonable
commercial discretion. Without intending to limit the Lender's discretion to
establish other criteria of eligibility, Eligible Accounts shall not include any
Account:
(a) with respect to which more than 90 days have elapsed since
the date of the original invoice therefor or if it is more than 60 days past
due;
(b) with respect to which any of the representations,
warranties, covenants, and agreements contained in this Agreement are not or
have ceased to be complete and correct or have been breached;
-4-
<PAGE>
(c) with respect to which, in whole or in part, a check,
draft, trade acceptance or other instrument for the payment of money has been
received, presented for payment and returned uncollected for any reason;
(d) which represents a progress billing (as hereinafter
defined) or as to which the Borrower has extended the time for payment without
the consent of the Lender; for the purposes hereof, "progress billing" means any
invoice for goods sold or leased or services rendered under a contract or
agreement pursuant to which the Account Debtor's obligation to pay such invoice
is conditioned upon the Borrower's completion of any further performance under
the contract or agreement;
(e) as to which any one or more of the following events has
occurred with respect to the Account Debtor on such Account: death or judicial
declaration of incompetency of an Account Debtor who is an individual; the
filing by or against the Account Debtor of a request or petition for
liquidation, reorganization, arrangement, adjustment of debts, adjudication as a
bankrupt, winding-up, or other relief under the bankruptcy, insolvency, or
similar laws of the United States, any state or territory thereof, or any
foreign jurisdiction, now or hereafter in effect; the making of any general
assignment by the Account Debtor for the benefit of creditors; the appointment
of a receiver or trustee for the Account Debtor or for any of the assets of the
Account Debtor, including, without limitation, the appointment of or taking
possession by a "custodian," as defined in the Federal Bankruptcy Code; the
institution by or against the Account Debtor of any other type of insolvency
proceeding (under the bankruptcy laws of the United States or otherwise) or of
any formal or informal proceeding for the dissolution or liquidation of,
settlement of claims against, or winding up of affairs of, the Account Debtor;
the sale, assignment, or transfer of all or any material part of the assets of
the Account Debtor; the nonpayment generally by the Account Debtor of its debts
as they become due; or the cessation of the business of the Account Debtor as a
going concern;
(f) owed by an Account Debtor if the aggregate dollar amount
of all Accounts owed by such Account Debtor exceeds a credit limit determined by
Lender in its sole discretion, but only to the extent such Accounts exceed such
limit;
(g) owed by an Account Debtor which: (i) does not maintain its
chief executive office in the United States; or (ii) is not organized under the
laws of the United States or any state thereof; or (iii) is the government of
any foreign country or sovereign state, or of any state, province, municipality,
or other political subdivision thereof, or of any department, agency, public
corporation, or other instrumentality thereof; except to the extent that payment
of such Account is secured or supported by (A) a letter of credit issued by, or
confirmed by a bank acceptable to, Lender, or (B) foreign credit insurance
provided by an insurer acceptable to Lender (provided that advances against
Accounts supported by foreign credit insurance shall not exceed $1,000,000 at
any time), in each case in amounts and on terms acceptable to Lender in its
discretion;
(h) owed by an Account Debtor which is an Affiliate or
employee of
-5-
<PAGE>
the Borrower;
(i) except as provided in clause (k) below, as to which either
the perfection, enforceability, or validity of the Security Interest in such
Account, or the Lender's right or ability to obtain direct payment to the Lender
of the Proceeds of such Account, is governed by any federal, state, or local
statutory requirements other than those of the UCC;
(j) which is owed by an Account Debtor to which the Borrower
is indebted in any way, or which is subject to any right of setoff or recoupment
by the Account Debtor, unless the Account Debtor has entered into an agreement
acceptable to the Lender to waive setoff and recoupment rights; or if the
Account Debtor thereon has disputed liability or made any claim with respect to
any other Account due from such Account Debtor; but in each such case only to
the extent of such indebtedness, setoff, recoupment, dispute, or claim;
(k) which is owed by the government of the United States of
America, or any department, agency, public corporation, or other instrumentality
thereof, unless the Federal Assignment of Claims Act of 1940, as amended, and
any other steps necessary to perfect the Security Interest and protect the
Lender's rights therein, have been complied with to the Lender's satisfaction
with respect to such Account;
(l) which is owed by any state, municipality, or other
political subdivision of the United States of America, or any department,
agency, public corporation, or other instrumentality thereof and as to which the
Lender determines that its Security Interest therein is not or cannot be
perfected;
(m) which arises out of a sale to an Account Debtor on a
bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment,
or other repurchase or return basis;
(n) which is evidenced by a promissory note or other
instrument or by chattel paper, or which is owing from an Account Debtor any
portion of whose obligations to the Borrower is evidenced by a promissory note;
(o) if fifty percent (50%) or more of the aggregate dollar
amount of outstanding Accounts owed at such time by the Account Debtor thereon
is classified as ineligible under the other criteria set forth herein;
(p) with respect to which the Account Debtor is located in any
state requiring the filing of a Notice of Business Activities Report or similar
report in order to permit the Borrower to seek judicial enforcement in such
state of payment of such Account, unless such Borrower has qualified to do
business in such state or has filed a Notice of Business Activities Report or
equivalent report for the then current year;
(q) which arises out of a sale not made in the ordinary course
of the
-6-
<PAGE>
Borrower's business;
(r) with respect to which the goods giving rise to such
Account have not been shipped and delivered to and accepted by the Account
Debtor or the services giving rise to such Account have not been performed by
the Borrower, and, if applicable, accepted by the Account Debtor, or the Account
debtor revokes its acceptance of such goods or services;
(s) which is not subject to a first priority and perfected
security interest in favor of the Lender;
(t) if the terms of such Account are cash-on-delivery (C.O.D.)
(not to exceed $500,000 at any one time, subject to all other criteria for
eligibility), or if the account debtor thereon has a credit with Borrower, to
the extent of such credit;
(u) if Lender believes in its reasonable credit judgment that
the prospect of collection of such Account is impaired or that the Account may
not be paid by reason of the Account Debtor's financial inability to pay; or
(v) which is owed by an Account Debtor which the Lender, in
its reasonable credit judgment, otherwise deems to be uncreditworthy.
If any Account at any time ceases to be an Eligible Account by
reason of any of the foregoing exclusions or any failure to meet any other
eligibility criteria established by the Lender in the exercise of its reasonable
discretion then such Account shall promptly be excluded from the calculation of
Eligible Accounts.
"Eligible Inventory" means Inventory, valued at the lower of cost
(on a first-in, first-out basis) or market, that constitutes first quality
finished goods and that: (a) is not, in the Lender's reasonable opinion, Slow
Moving, obsolete or unmerchantable; (b) is located at Premises owned or leased
by the Borrower or on Premises otherwise reasonably acceptable to the Lender,
provided, however, that Inventory located on Premises leased to the Borrower
shall not be Eligible Inventory unless the Borrower shall have delivered to the
Lender a written waiver, duly executed on behalf of the appropriate landlord and
in form and substance acceptable to the Lender, of all Liens which the landlord
for such Premises may be entitled to assert against such Eligible Inventory; (c)
is subject to the Lender's first priority perfected security interest; (d) is
not work-in-process, spare parts (other than finished goods held for sale as
accessories), packaging and shipping materials, supplies, bill- and-hold
Inventory, returned, defective or damaged Inventory, or refurbished Inventory to
the extent the aggregate value thereof is in excess of $200,000, or Inventory
delivered to the Borrower on consignment; and (e) the Lender, in the exercise of
its reasonable discretion, deems eligible as the basis for Revolving Loans based
on such collateral and credit criteria as the Lender may from time to time
establish. If any Inventory at any time ceases to be Eligible Inventory, such
Inventory shall promptly be excluded from the calculation of Eligible Inventory.
"Environmental Compliance Reserve" means all reserves which the
Lender from time
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to time establishes for amounts that are reasonably required to be expended in
order for the Borrower and the Borrower's operations and Property to comply with
Environmental Laws or in order to correct any violation by the Borrower or the
Borrower's operations or Property of Environmental Laws.
"Environmental Laws" means all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidance, orders and consent decrees
relating to health, safety, hazardous substances, and environmental matters
applicable to the Borrower's business and facilities (whether or not owned by
it). Such laws and regulations include but are not limited to the Resource
Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., as amended; the
Comprehensive Environmental Response Compensation and Liability Act, 42 U.S.C.
ss. 9601 et seq., as amended; the Toxic Substances Control Act, 15 U.S.C. ss.
2601 et seq., as amended; the Clean Water Act, 33 U.S.C. ss. 466 et seq., as
amended; the Clean Air Act, 42 U.S.C. ss. 7401 et seq., as amended; state and
federal lien and environmental cleanup programs; and U.S. Department of
Transportation regulations.
"Environmental Lien" means a Lien in favor of any Public Authority
for (a) any liability under any Environmental Laws, or (b) damages arising from,
or costs incurred by such Public Authority in response to, a Release or
threatened Release of a Contaminant into the environment.
"Equipment" means all of the Borrower's now owned and hereafter
acquired machinery, equipment, furniture, furnishings, fixtures, and other
tangible personal property (except Inventory), including, without limitation,
data processing hardware and software, motor vehicles, aircraft, dies, tools,
jigs, and office equipment, as well as all of such types of property leased by
the Borrower and all of the Borrower's rights and interests with respect thereto
under such leases (including, without limitation, options to purchase); together
with all present and future additions and accessions thereto, replacements
therefor, component and auxiliary parts and supplies used or to be used in
connection therewith, and all substitutes for any of the foregoing, and all
manuals, drawings, instructions, warranties and rights with respect thereto;
wherever any of the foregoing is located.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Borrower within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means, with respect to the Borrower, any ERISA
Affiliate or any Pension Plan, the occurrence of any of the following: (a) a
Reportable Event; (b) a withdrawal by a substantial employer (as defined in
Section 4001 (a)(12) of ERISA) subject to Section 4063 of ERISA; (c) a cessation
of operations which is treated as a withdrawal under Section 4062(e) of ERISA;
(d) a complete or partial withdrawal under Section 4203 or 4205 of ERISA from a
Multiemployer Plan; (e) a notification that a Multiemployer Plan is in
reorganization under
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Section 4242 of ERISA; (f) the filing of a notice of intent to terminate a
Pension Plan under 4041 of ERISA; (g) the treatment of an amendment of a Pension
Plan as a termination under 4041 of ERISA; (h) the termination of a
Multiemployer Plan under Section 4041A of ERISA; (i) the commencement of
proceedings by the PBGC to terminate a Pension Plan under 4042 of ERISA; (j) an
event or condition which could reasonably be expected to constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, a Pension Plan; or (k) the imposition of any liability
under Title IV of ERISA, other than PBGC premiums due but not delinquent under
Section 4007 of ERISA.
"Event of Default" has the meaning specified in Section 12.1.
"Financial Statements" means, according to the context in which it
is used, the financial statements attached hereto as Exhibit B-l, or any
financial statements required to be given to the Lender pursuant to Sections
8.2(a), (b) and (c), or any combination thereof.
"Fiscal Year" means the Borrower's fiscal year for financial
accounting purposes. The current Fiscal Year of the Borrower will end on
December 31, 1998.
"Funding Date" means the date on which a Borrowing occurs.
"GAAP" means at any particular time generally accepted accounting
principles in the United States as in effect at such time.
"Guaranty" by any Person means all obligations of such Person which
in any manner directly or indirectly guarantee or assure, or in effect guarantee
or assure, the payment or performance of any indebtedness, dividend or other
obligation of any other Person (the "guaranteed obligations"), or assure or in
effect assure the holder of the guaranteed obligations against loss in respect
thereof, including, without limitation, any such obligations incurred through an
agreement, contingent or otherwise: (a) to purchase the guaranteed obligations
or any Property constituting security therefor; (b) to advance or supply funds
for the purchase or payment of the guaranteed obligations or to maintain a
working capital or other balance sheet condition; or (c) to lease Property or to
purchase any debt or equity securities or other Property or services.
"Intercompany Accounts" means all assets and liabilities, however
arising, which are due to the Borrower from, which are due from the Borrower to,
or which otherwise arise from any transaction by the Borrower with, any
Affiliate.
"Interest Period" means, as to any LIBOR Revolving Loan, the period
commencing on the Funding Date of such Loan or on the Conversion/Continuation
Date on which the Loan is converted into or continued as a LIBOR Revolving Loan,
and ending on the date one, two, or three months thereafter as selected by the
Borrower in its Notice of Borrowing or Notice of Conversion/Continuation;
provided, however, that:
(i) if any Interest Period would otherwise end on a day
that is
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not a Business Day, that Interest Period shall be extended to the
following Business Day unless the result of such extension would be
to carry such Interest Period into another calendar month, in which
event such Interest Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to a LIBOR Revolving
Loan that begins on the last Business Day of a calendar month (or on
a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the
last Business Day of the calendar month at the end of such Interest
Period; and
(iii) no Interest Period shall extend beyond the Stated
Termination Date or any renewal term.
"Inventory" means all of the Borrower's now owned and hereafter
acquired inventory, goods, merchandise, and other personal property, wherever
located, to be furnished under any contract of service or held for sale or
lease, all raw materials, work-in-process, finished goods, returned goods, and
materials and supplies of any kind, nature or description which are or might be
used or consumed in the Borrower's business or used in connection with the
manufacture, packing, shipping, advertising, selling or finishing of such goods,
merchandise and such other personal property, and all documents of title or
other documents representing them.
"IRS" means the Internal Revenue Service or any successor agency.
"Latest Projections" means: (a) on the Closing Date and thereafter
until the Lender receives new projections pursuant to Section 8.2(f), the
projections of the Borrower's monthly financial condition, results of
operations, and cash flow for the one-year period ending December 31, 1998,
attached hereto as Exhibit B-2; and (b) thereafter, the projections most
recently received by the Lender pursuant to Section 8.2(f).
"Letters of Credit" has the meaning specified in Section 2.3.
"Letter of Credit Fee" has the meaning specified in Section 3.5.
"LIBOR Interest Rate Determination Date" means each date of
calculating the LIBOR Rate for purposes of determining the interest rate with
respect to an Interest Period. The LIBOR Interest Rate Determination Date for
any LIBOR Revolving Loan shall be the second Business Day prior to the first day
of the related Interest Period for such LIBOR Revolving Loan.
"LIBOR Rate" means, for any Interest Period, with respect to LIBOR
Revolving Loans comprising part of the same Borrowing, the rate of interest per
annum (rounded upward to the next 1/1000th of 1.0%) determined as follows:
LIBOR Rate =__________ LIBOR
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1.00 - Eurodollar Reserve
Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1.0%) in effect on
such day (whether or not applicable to the Lender) under regulations
issued from time to time by the Federal Reserve Board for
determining the maximum reserve requirement (including any
emergency, supplemental or other marginal reserve requirement) with
respect to Eurocurrency funding (currently referred to as
"Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum (rounded upward
to the next 1/16 of 1%) notified to the Lender by Bank as the rate
of interest at which United States Dollar deposits in the
approximate amount of the Loan to be made or continued as, or
converted into, a LIBOR Revolving Loan and having a maturity
comparable to such Interest Period would be offered by Bank's
applicable lending office to major banks in the London interbank
market at their request at approximately 11:00 a.m. (London time)
two Business Days prior to the commencement of such Interest Period.
"LIBOR Revolving Loan" means a Revolving Loan during any period in
which it bears interest based on the LIBOR Rate.
"Lien" means: (a) any interest in Property securing an obligation
owed to, or a claim by, a Person other than the owner of the Property, whether
such interest is based on the common law, statute, or contract, and including
without limitation, a security interest, charge, claim, or lien arising from a
mortgage, deed of trust, encumbrance, pledge, hypothecation, assignment, deposit
arrangement, agreement, security agreement, conditional sale or trust receipt or
a lease, consignment or bailment for security purposes; and (b) to the extent
not included under clause (a), any reservation, exception, encroachment,
easement, right-of-way, covenant, condition, restriction, lease or other title
exception or encumbrance affecting Property.
"Loans" means, collectively, all loans and advances provided for in
Section 2.
"Loan Documents" means this Agreement, the Term Note, the Patent and
Trademark Assignments, and all other agreements, instruments, and documents
heretofore, now or hereafter evidencing, securing, guaranteeing or otherwise
relating to the Obligations, the Collateral, the Security Interest, or any other
aspect of the transactions contemplated by this Agreement.
"Maximum Rate" has the meaning specified in Section 3.3.
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3)
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of ERISA to which the Borrower or any ERISA Affiliate makes, is making, made, or
was at any time during the current year or the immediately preceding six (6)
years obligated to make contributions.
"Net Amount of Eligible Accounts" means the gross amount of Eligible
Accounts less sales, excise or similar taxes, and less returns, discounts,
claims, credits and allowances of any nature at any time issued, owing, granted,
outstanding, available or claimed in respect of such Eligible Accounts.
"Notice of Borrowing" has the meaning specified in Section 2.2(b).
"Notice of Conversion/Continuation" has the meaning specified in
Section 3.2(b).
"Obligations" means all present and future loans, advances,
liabilities, obligations, covenants, duties, and Debt owing by the Borrower to
the Lender, whether or not arising under this Agreement, whether or not
evidenced by any note, or other instrument or document, whether arising from an
extension of credit, opening of a letter of credit, acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including, without
limitation, those acquired by assignment from others, and any participation by
the Lender in the Borrower's debts owing to others), whether absolute or
contingent, due or to become due, primary or secondary, as principal or
guarantor, and including, without limitation, all interest, charges, expenses,
fees, attorneys' fees, filing fees and any other sums chargeable to the Borrower
hereunder, under another Loan Document, or under any other agreement or
instrument with the Lender. "Obligations" includes, without limitation, (a) all
debts, liabilities, and obligations now or hereafter owing from Borrower to
Lender under or in connection with the Letters of Credit and (b) all debts,
liabilities and obligations now or hereafter owing from the Borrower to the
Lender arising from or related to ACH Transactions.
"Other Taxes" means any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any other Loan Documents.
"Participating Lender" means any Person who shall have been granted
the right by the Lender to participate in the Loans and who shall have entered
into a participation agreement in form and substance satisfactory to the Lender.
"Patent and Trademark Assignment" means, collectively, the Security
Agreement (Intellectual Property) dated as of the date hereof, between the
Borrower and the Lender and the various documents and agreements executed in
connection therewith, all to further evidence and further perfect the Lender's
Security Interest in the Borrower's present and future Proprietary Rights
specified therein.
"Payment Account" means each blocked bank account or bank account
associated with a lock box, established pursuant to Section 7.10, to which the
funds of the Borrower (including, without limitation, Proceeds of Accounts and
other Collateral) are deposited or credited, and which
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is maintained in the name of the Lender or the Borrower, as the Lender may
determine, on terms acceptable to the Lender.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to the functions thereof.
"Pension Plan" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which the Borrower or an ERISA Affiliate
sponsors, maintains, or to which it makes, is making, or is obligated to make
contributions or, in the case of a Multiemployer Plan, has made contributions at
any time during the current year or the immediately preceding six (6) plan
years.
"Permitted Liens" means: (a) Liens for taxes not yet delinquent or
Liens for taxes in an amount not to exceed $100,000 being contested in good
faith by appropriate proceedings diligently pursued, provided that a reserve or
other appropriate provision, if any, as shall be required by GAAP shall have
been made therefor on the applicable Financial Statements and that a stay of
enforcement of any such Lien is in effect; (b) Liens in favor of the Lender; (c)
Liens arising by operation of law in favor of warehousemen, landlords, carriers,
mechanics, materialmen, laborers, employees or suppliers, incurred in the
ordinary course of business of the Borrower and not in connection with the
borrowing of money, for sums not yet delinquent or which are being contested in
good faith and by proper proceedings diligently pursued, provided that a reserve
or other appropriate provision, if any, required by GAAP shall have been made
therefor on the applicable Financial Statements and a stay of enforcement of any
such Lien is in effect; (d) Liens in connection with workers' compensation or
other unemployment insurance incurred in the ordinary course of the Borrower's
business; (e) Liens created by deposits of cash to secure performance of bids,
tenders, leases (to the extent permitted under this Agreement), or trade
contracts, incurred in the ordinary course of business of the Borrower and not
in connection with the borrowing of money; (f) Liens arising by reason of cash
deposit for surety or appeal bonds in the ordinary course of business of the
Borrower; (g) Liens of or resulting from any judgment or award, the time for the
appeal or petition for rehearing of which has not yet expired, or in respect of
which the Borrower is in good faith prosecuting an appeal or proceeding for a
review, and in respect of which a stay of execution pending such appeal or
proceeding for review has been secured; (h) with respect to any Premises:
easements, rights of way, zoning and similar covenants and restrictions and
similar encumbrances which customarily exist on properties of corporations
engaged in similar activities and similarly situated and which in any event do
not materially interfere with or impair the use or operation of the Collateral
by the Borrower or the value of the Lender's Security Interest therein, or
materially interfere with the ordinary conduct of the business of the Borrower;
(i) purchase money security interests and liens of lessors under capital leases
to the extent that the acquisition or lease of the underlying asset was
permitted under Section 10.20, the security interest or lien only encumbers the
asset purchased or leased, and so long as the security interest or lien only
secures the purchase price of the asset; and (j) such Liens as are set forth on
Exhibit A hereto.
"Permitted Rentals" has the meaning specified in Section 10.21.
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"Person" means any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, limited liability company
association, corporation, Public Authority, or any other entity.
"Plan" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which the Borrower or an ERISA Affiliate sponsors or maintains or to
which the Borrower or an ERISA Affiliate makes, is making, or is obligated to
make contributions and includes any Pension Plan.
"Premises" means the land identified by addresses on Schedule 9.13
together with all buildings, improvements, and fixtures thereon and all
tenements, hereditaments, and appurtenances belonging or in any way appertaining
thereto, and which constitutes all of the real property in which the Borrower
has any interests on the Closing Date and any land added to Schedule 9.13 from
time to time.
"Proceeds" means all products and proceeds of any Collateral, and
all proceeds of such proceeds and products, including, without limitation, all
cash and credit balances, all payments under any indemnity, warranty or guaranty
payable with respect to any Collateral, all awards for taking by eminent domain,
all proceeds of fire or other insurance, and all money and other Property
obtained as a result of any claims against third parties or any legal action or
proceeding with respect to Collateral.
"Property" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Proprietary Rights" means all of the Borrower's now owned and
hereafter arising or acquired: licenses, franchises, permits, patents, patent
rights, copyrights, works which are the subject matter of copyrights,
trademarks, trade names, trade styles, patent and trademark applications and
licenses and rights thereunder, including without limitation those patents,
trademarks and copyrights set forth on Schedule 9.14, and all other rights under
any of the foregoing, all extensions, renewals, reissues, divisions,
continuations and continuations-in-part of any of the foregoing, and all rights
to sue for past, present, and future infringement of any of the foregoing;
inventions, trade secrets, formulae, processes, compounds, drawings, designs,
blueprints, surveys, reports, manuals, and operating standards; goodwill;
customer and other lists in whatever form maintained; and trade secret rights,
copyright rights, rights in works of authorship, and contract rights relating to
computer software programs, in whatever form created or maintained.
"Public Authority" means the government of any country or sovereign
state, or of any state, province, municipality, or other political subdivision
thereof, or any department, agency, public corporation or other instrumentality
of any of the foregoing.
"Receivables" means all of the Borrower's now owned and hereafter
arising or acquired: Accounts (whether or not earned by performance), including
Accounts owed to the Borrower by any of its Subsidiaries or Affiliates, together
with all interest, late charges, penalties, collection fees, and other sums
which shall be due and payable in connection with any Account;
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proceeds of any letters of credit naming the Borrower as beneficiary; contract
rights, chattel paper, instruments, documents, investment property, general
intangibles (including without limitation choses in action, causes of action,
tax refunds, tax refund claims, and Reversions and other amounts payable to the
Borrower from or with respect to any Plan) and all forms of obligations owing to
the Borrower (including, without limitation, in respect of loans, advances, and
extensions of credit by the Borrower to its Subsidiaries and Affiliates);
guarantees and other security for any of the foregoing; goods represented by or
the sale, lease or delivery of which gave rise to any of the foregoing;
merchandise returned to or repossessed by the Borrower and rights of stoppage in
transit, replevin, and reclamation; and other rights or remedies of an unpaid
vendor, lienor, or secured party.
"Reference Rate" means the rate of interest publicly announced from
time to time by the Bank as its reference rate. It is a rate set by the Bank
based upon various factors including the Bank's costs and desired return,
general economic conditions, and other factors, and is used as a reference point
for pricing some loans. However, the Bank may price loans at, above, or below
such announced rate. Any changes in the Reference Rate shall take effect on the
day specified in the public announcement of such change.
"Reference Rate Revolving Loans" means a Revolving Loan during any
period in which it bears interest based on the Reference Rate.
"Release" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any real
estate or other property, including the movement of Contaminants through or in
the air, soil, surface water, groundwater or real estate or other property.
"Reportable Event" means any of the events set forth in Section
4043(b) of ERISA or the regulations thereunder, other than any such event for
which the 30-day notice requirement under ERISA has been waived in regulations
issued by the PBGC.
"Requirement of Law" means any law (statutory or common), treaty,
rule or regulation or determination of an arbitrator or of a Public Authority.
"Restricted Investment" means any acquisition of Property by the
Borrower or any of its Subsidiaries in exchange for cash or other Property,
whether in the form of an acquisition of stock, debt security, or other
indebtedness or obligation, or the purchase or acquisition of any other
Property, or a loan, advance, capital contribution, or subscription, except
acquisitions of the following: (a) fixed assets to be used in the business of
the Borrower, so long as the acquisition costs thereof constitute Capital
Expenditures permitted hereunder; (b) current assets arising from the sale or
lease of goods or rendition of services in the ordinary course of business of
the Borrower; (c) direct obligations of the United States of America, or any
agency thereof, or obligations guaranteed by the United States of America,
provided that such obligations mature within one year from the date of
acquisition thereof; (d) certificates of deposit maturing within one year from
the date of acquisition, banker's acceptances, Eurodollar bank deposits, or
overnight bank deposits, in each case issued by, created by, or with a bank or
trust company organized under the laws of the
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United States or any state thereof having capital and surplus aggregating at
least $100,000,000; and (e) commercial paper given the highest rating by a
national credit rating agency and maturing not more than 270 days from the date
of creation thereof.
"Reversions" means any funds which may become due to the Borrower in
connection with the termination of any Plan or other employee benefit plan.
"Revolving Loans" has the meaning specified in Section 2.2.
"Security Interest" means collectively the Liens granted to the
Lender in the Collateral pursuant to this Agreement, the other Loan Documents,
or any other agreement or instrument.
"Slow Moving" means with respect to Inventory of Borrower, the
amount of Inventory in any SKU in excess of the prior six months' sales of such
SKU, with allowance for new products as determined by Lender.
"Solvent" shall mean when used with respect to any Person that: (a)
the fair value of all its Property is in excess of the total amount of its debts
(including contingent liabilities); (b) it is able to pay its debts as they
mature; and (c) it does not have unreasonably small capital for the business in
which it is engaged or for any business or transaction in which it is about to
engage.
"Stated Termination Date" has the meaning specified in Section 14.
"Subsidiary" of a Person means any corporation, association,
partnership, joint venture or other business entity of which more than 50% of
the voting stock or other equity interests (in the case of Persons other than
corporations), is owned or controlled directly or indirectly by the Person, or
one or more of the Subsidiaries of the Person, or a combination thereof. Unless
the context otherwise clearly requires, references herein to a "Subsidiary"
refer to a Subsidiary of the Borrower.
"Supporting Letter of Credit" has the meaning specified in Section
2.3(g).
"Taxes" means any and all present or future taxes, assessments,
levies, imposts, impositions, deductions, charges or withholdings, and all
liabilities with respect thereto, excluding, in the case of the Lender, such
taxes (including income taxes or franchise taxes) as are imposed on or measured
by the Lender's net income by the jurisdiction (or any political subdivision
thereof) under the laws of which the Lender is organized or maintains a lending
office.
"Total Facility" has the meaning specified in Section 2.1.
"UCC" means the Uniform Commercial Code (or any successor statute)
of the State of California or of any other state the laws of which are required
by Section 9103 thereof to be applied in connection with the issue of perfection
of security interests.
"Unused Line Fee" has the meaning specified in Section 3.1(c).
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1.1 Accounting Terms. Any accounting term used in this Agreement
shall have, unless otherwise specifically provided herein, the meaning
customarily given in accordance with GAAP, and all financial computations
hereunder shall be computed, unless otherwise specifically provided herein, in
accordance with GAAP as consistently applied and using the same method for
inventory valuation as used in the preparation of the Financial Statements.
1.2 Other Terms. All other undefined terms contained in this
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein.
Wherever appropriate in the context, terms used herein in the singular also
include the plural, and vice versa, and each masculine, feminine, or neuter
pronoun shall also include the other genders.
2. LOANS AND LETTERS OF CREDIT.
2.1 Total Facility. Subject to all of the terms and conditions of
this Agreement, the Lender shall make available a total credit facility of up to
$12,000,000 (the "Total Facility") for the Borrower's use from time to time
during the term of this Agreement. The Total Facility shall be comprised of a
revolving line of credit up to the limits of the Availability, consisting of
revolving loans and letters of credit as described in Sections 2.2 and 2.3.
2.2 Revolving Loans.
(a) The Lender shall, upon the Borrower's request from time to
time, make revolving loans (the "Revolving Loans") to the Borrower up to the
limits of the Availability. The Lender, in its discretion, may elect to exceed
the limits of the Availability on one or more occasions, but if it does so, the
Lender shall not be deemed thereby to have changed the limits of the
Availability or to be obligated to exceed the limits of the Availability on any
other occasion. If the unpaid balance of the Revolving Loans exceeds the
Availability (with Availability determined for this purpose as if the amount of
the Revolving Loans were zero), then the Lender may refuse to make or may
otherwise restrict Revolving Loans on such terms as the Lender determines until
such excess has been eliminated, and the amount of such excess shall be due upon
demand by the Lender. The Borrower may request Revolving Loans either
telephonically or in writing. Each oral request for a Revolving Loan shall be
conclusively presumed to be made by a person authorized by the Borrower to do so
and the crediting of a Revolving Loan to the Borrower's deposit account, or
transmittal to such Person as the Borrower shall direct, shall conclusively
establish the obligation of the Borrower to repay such Revolving Loan as
provided herein. The Lender will charge all Revolving Loans and other
Obligations to a loan account of the Borrower maintained with the Lender. All
fees, commissions, costs, expenses, and other charges under or pursuant to the
Loan Documents, and all payments made and out-of-pocket expenses incurred by the
Lender pursuant to the Loan Documents, will be charged as Revolving Loans to the
Borrower's loan account as of the date due from the Borrower or the date paid or
incurred by the Lender, as the case may be.
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(b) Procedure for Borrowing.
(i) Each Borrowing shall be made upon the Borrower's
irrevocable written notice ("Notice of Borrowing") delivered to the Lender
(which notice must be received by the Lender (1) prior to 10:30 a.m. (Los
Angeles time) three Business Days prior to the requested Funding Date, in the
case of LIBOR Revolving Loans and (2) no later than 10:00 a.m. on the requested
Funding Date, in the case of Reference Rate Revolving Loans), specifying:
(A) the amount of the Borrowing;
(B) the requested Funding Date, which shall be a
Business Day;
(C) whether the Revolving Loans requested are to
be Reference Rate Revolving Loans or LIBOR Revolving Loans or a combination
thereof; and
(D) the duration of the Interest Period if all or
part of the requested Revolving Loans are to be LIBOR Revolving Loans. If the
Notice of Borrowing fails to specify the duration of the Interest Period for any
Borrowing comprised of LIBOR Revolving Loans, such Interest Period shall be
three months; provided, however, that with respect to the Borrowings to be made
on the Closing Date, such Borrowings will consist of Reference Rate Revolving
Loans only.
(ii) After giving effect to any Borrowing, there may not
be more than two (2) different Interest Periods in effect.
(iii) With respect to any request for Reference Rate
Revolving Loans, in lieu of delivering the above-described Notice of Borrowing
the Borrower may give the Lender telephonic notice of such request by the
required time, with such telephonic notice to be confirmed in writing within 24
hours of the giving of such notice but Lender shall be entitled to rely on the
telephonic notice in making such Revolving Loans.
2.3 Letters of Credit.
(a) Subject to the terms and conditions of this Agreement, the
Lender shall, upon the Borrower's request from time to time, cause merchandise
or standby letters of credit to be issued for the Borrower's account (the
"Letters of Credit"). The Lender will not cause to be issued any Letter of
Credit if: (i) the maximum face amount of the requested Letter of Credit, plus
the aggregate undrawn face amount of all outstanding Letters of Credit, would
exceed $2,000,000; (ii) the maximum face amount of the requested Letter of
Credit, and all commissions, fees, and charges due from Borrower to Lender in
connection with the issuance thereof, would cause the Availability to be
exceeded at such time; or (iii) the expiration date of the Letter of Credit
would exceed the Stated Termination Date or any renewal term or be greater
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than twelve (12) months from the date of issuance. All payments made and
expenses incurred by the Lender pursuant to or in connection with the Letters of
Credit will be charged to the Borrower's loan account as Revolving Loans.
(b) Other Conditions. In addition to being subject to the
satisfaction of the applicable conditions precedent contained in Section 11, the
obligation of the Lender to cause to be issued any Letter of Credit is subject
to the following conditions precedent having been satisfied in a manner
satisfactory to the Lender:
(i) The Borrower shall have delivered to the proposed
issuer of such Letter of Credit, at such times and in such manner as such
proposed issuer may prescribe, an application in form and substance satisfactory
to such proposed issuer and the Lender for the issuance of the Letter of Credit
and such other documents as may be required pursuant to the terms thereof, and
the form and terms of the proposed Letter of Credit shall be satisfactory to the
Lender and such proposed issuer; and
(ii) As of the date of issuance, no order of any court,
arbitrator or Public Authority shall purport by its terms to enjoin or restrain
money center banks generally from issuing letters of credit of the type and in
the amount of the proposed Letter of Credit, and no law, rule or regulation
applicable to money center banks generally and no request or directive (whether
or not having the force of law) from any Public Authority with jurisdiction over
money center banks generally shall prohibit, or request that the proposed issuer
of such Letter of Credit refrain from, the issuance of letters of credit
generally or the issuance of such Letters of Credit.
(c) Issuance of Letters of Credit.
(i) Request for Issuance. The Borrower shall give the
Lender two (2) Business Days' prior written notice of the Borrower's request for
the issuance of a Letter of Credit. Such notice shall be irrevocable and shall
specify the original face amount of the Letter of Credit requested, the
effective date (which date shall be a Business Day) of issuance of such
requested Letter of Credit, whether such Letter of Credit may be drawn in a
single or in partial draws, the date on which such requested Letter of Credit is
to expire (which date shall be a Business Day), the purpose for which such
Letter of Credit is to be issued, and the beneficiary of the requested Letter of
Credit. The Borrower shall attach to such notice the proposed form of the Letter
of Credit that the Lender is requested to cause to be issued.
(ii) No Extensions or Amendment. The Lender shall not
be obligated to cause any Letter of Credit to be extended or amended unless the
requirements of this Section 2.3 are met as though a new Letter of Credit were
being requested and issued.
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(d) Payments Pursuant to Letters of Credit.
(i) Payment of Letter of Credit Obligations. The
Borrower agrees to reimburse the issuer for any draw under any Letter of Credit
immediately upon demand, and to pay the issuer of the Letter of Credit the
amount of all other obligations and other amounts payable to such issuer under
or in connection with any Letter of Credit immediately when due, irrespective of
any claim, setoff, defense or other right which the Borrower may have at any
time against such issuer or any other Person.
(ii) Revolving Loans to Satisfy Reimbursement
Obligations. In the event that the issuer of any Letter of Credit honors a draw
under such Letter of Credit and the Borrower shall not have repaid such amount
to the issuer of such Letter of Credit pursuant to Section 2.3(d)(i), the Lender
shall pay the issuer and such amount when paid shall constitute a Reference Rate
Revolving Loan which shall be deemed to have been requested by the Borrower.
(e) Compensation for Letters of Credit.
(i) Letter of Credit Fee. The Borrower agrees to pay to
the Lender with respect to each Letter of Credit, the Letter of Credit Fee
specified in, and in accordance with the terms of, Section 3.5.
(ii) Issuer Fees and Charges. The Borrower shall pay to
the issuer of any Letter of Credit, or to the Lender, for the account of the
issuer of any such Letter of Credit, solely for such issuer's account, such fees
and other charges as are charged by such issuer for letters of credit issued by
it, including, without limitation, its standard fees from time to time for
issuing, administering, amending, renewing, paying and canceling letters of
credit and all other fees associated with issuing or servicing letters of
credit, as and when assessed.
(f) Indemnification; Exoneration; Power of Attorney
(i) Indemnification. In addition to amounts payable as
elsewhere provided in this Section 2.3, the Borrower hereby agrees to protect,
indemnify, pay and save the Lender harmless from and against any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses (including
reasonable attorneys' fees) which the Lender may incur or be subject to as a
consequence, direct or indirect, of the issuance of any Letter of Credit or the
provision of any credit support or enhancement in connection therewith. The
agreement in this Section 2.3(f)(i) shall survive payments of all Obligations
and the termination of this Agreement.
(ii) Assumption of Risk by the Borrower. As among the
Borrower and the Lender, the Borrower assumes all risks of the acts and
omissions of, or misuse of any of the Letters of Credit by, the respective
beneficiaries of such Letters of Credit. In furtherance and not in limitation of
the foregoing, the Lender shall not be responsible for: (A) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any document
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submitted by any Person in connection with the application for and issuance of
and presentation of drafts with respect to any of the Letters of Credit, even if
it should prove to be in any or all respects invalid, insufficient, inaccurate,
fraudulent or forged; (B) the validity or sufficiency of any instrument
transferring or assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds thereof, in whole or in
part, which may prove to be invalid or ineffective for any reason; (C) the
failure of the beneficiary of any Letter of Credit to comply duly with
conditions required in order to draw upon such Letter of Credit; (D) errors,
omissions, interruptions, or delays in transmission or delivery of any messages,
by mail, cable, telegraph, telex or otherwise, whether or not they be in cipher;
(E) errors in interpretation of technical terms; (F) any loss or delay in the
transmission or otherwise of any document required in order make a drawing under
any Letter of Credit or of the proceeds thereof; (G) the misapplication by the
beneficiary of any Letter of Credit of the proceeds of any drawing under such
Letter of Credit; or (H) any consequences arising from causes beyond the control
of the Lender, including, without limitation, any act or omission, whether
rightful or wrongful, of any present or future de jure or de facto Public
Authority. None of the foregoing shall affect, impair or prevent the vesting of
any rights or powers of the Lender under this Section 2.3.
(iii) Exoneration. In furtherance and extension, and not
in limitation, of the specific provisions set forth above, any action taken or
omitted by the Lender under or in connection with any of the Letters of Credit
or any related certificates, if taken or omitted in the absence of gross
negligence or willful misconduct, shall not put the Lender under any resulting
liability to the Borrower or relieve the Borrower of any of its obligations
hereunder to any such Person.
(iv) Power of Attorney. In connection with all Inventory
financed by Letters of Credit, the Borrower hereby appoints the Lender, or the
Lender's designee, as its attorney, with full power and authority: (a) to sign
and/or endorse the Borrower's name upon any warehouse or other receipts; (b) to
sign the Borrower's name on bills of lading and other negotiable and
non-negotiable documents; (c) to clear Inventory through customs in the Lender's
or the Borrower's name, and to sign and deliver to customs officials powers of
attorney in the Borrower's name for such purpose; (d) to complete in the
Borrower's or the Lender's name, any order, sale or transaction, obtain the
necessary documents in connection therewith, and collect the proceeds thereof;
and (e) to do such other acts and things as are necessary in order to enable the
Lender to obtain possession of the Inventory and to obtain payment of the
Obligations. Neither the Lender nor its designee, as the Borrower's attorney,
will be liable for any acts or omissions, nor for any error of judgment or
mistakes of fact or law. This power, being coupled with an interest, is
irrevocable until all Obligations have been paid and satisfied.
(v) Account Party. The Borrower hereby authorizes and
directs any issuer of a Letter of Credit to name the Borrower as the "Account
Party" therein and to deliver to the Lender all instruments, documents and other
writings and property received by the issuer pursuant to the Letter of Credit,
and to accept and rely upon the Lender's instructions
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and agreements with respect to all matters arising in connection with the Letter
of Credit or the application therefor.
(vi) Control of Inventory. In connection with all
Inventory financed by Letters of Credit, the Borrower will, at the Lender's
request, instruct all suppliers, carriers, forwarders, warehouses or others
receiving or holding cash, checks, Inventory, documents or instruments in which
the Lender holds a security interest to deliver them to the Lender and/or
subject to the Lender's order, and if they shall come into the Borrower's
possession, to deliver them, upon request, to the Lender in their original form.
The Borrower shall also, at the Lender's request, designate the Lender as the
consignee on all bills of lading and other negotiable and non-negotiable
documents.
(g) Supporting Letter of Credit; Cash Collateral. If,
notwithstanding the provisions of this Section 2.3 and Section 14, any Letter of
Credit is outstanding upon the termination of this Agreement, then upon such
termination the Borrower shall deposit with the Lender, at its discretion, with
respect to each Letter of Credit then outstanding, either (A) a standby letter
of credit (a "Supporting Letter of Credit") in form and substance satisfactory
to the Lender, issued by an issuer satisfactory to the Lender in an amount equal
to the greatest amount for which such Letter of Credit may be drawn, under which
Supporting Letter of Credit the Lender is entitled to draw amounts necessary to
reimburse the Lender for payments made by the Lender under such Letter of Credit
or under any credit support or enhancement provided through the Lender with
respect thereto, or (B) cash in an amount necessary to reimburse the Lender for
payments made by the Lender under such Letter of Credit or under any credit
support or enhancement provided through the Lender. Such Supporting Letter of
Credit or deposit of cash shall be held by the Lender, as security for, and to
provide for the payment of, the aggregate undrawn amount of such Letters of
Credit remaining outstanding.
2.4 Automated Clearing House Transfers and Overdrafts. The Borrower
may request and the Lender may, in its sole and absolute discretion, arrange for
the Borrower to obtain from the Bank ACH Transactions. The Borrower agrees to
indemnify and hold the Lender harmless from all losses, liabilities, costs,
expenses and claims incurred by the Lender arising from or related to such ACH
Transactions. The Borrower acknowledges and agrees that the obtaining of ACH
Transactions from the Bank (a) is in the sole and absolute discretion of the
Bank, (b) is subject to all rules and regulations of the Bank, and (c) is due to
the Bank relying on the indemnity of the Lender to the Bank with respect to all
risks of loss associated with the ACH Transactions.
3. INTEREST AND OTHER CHARGES.
3.1 Interest.
(a) All Obligations shall bear interest on the unpaid
principal amount thereof from the date made until paid in full in cash at a rate
determined by reference to the Reference Rate or the LIBOR Rate and Sections
3.1(a)(i) or (ii), as applicable, but not to exceed
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the Maximum Rate. Subject to the provisions of Section 3.2, any of the Loans may
be converted into, or continued as, Reference Rate Revolving Loans or LIBOR
Revolving Loans in the manner provided in Section 3.2. If at any time Loans are
outstanding with respect to which notice has not been delivered to Lender in
accordance with the terms of this Agreement specifying the basis for determining
the interest rate applicable thereto, then those Loans shall be Reference Rate
Revolving Loans and shall bear interest at a rate determined by reference to the
Reference Rate until notice to the contrary has been given to the Lender and
such notice has become effective. Except as otherwise provided herein, the
Obligations shall bear interest as follows:
(i) For all Obligations, other than LIBOR Revolving
Loans, then at a fluctuating per annum rate equal to one-half of one percent
(0.50%) (the "Reference Rate Margin") plus the Reference Rate; and
(ii) If the Loans are LIBOR Revolving Loans, then at a
per annum rate equal to two and three-quarters percent (2.75%) (the "LIBOR
Margin") plus the LIBOR Rate determined for the applicable Interest Period.
Each change in the Reference Rate shall be reflected in the interest rate
described in (i) above as of the effective date of such change. All interest
charges shall be computed on the basis of a year of three hundred sixty (360)
days and actual days elapsed. All interest shall be payable to Lender on the
first day of each month hereafter.
(b) If any Event of Default occurs, then, from the date such
Event of Default occurs until it is cured, or if not cured until all Obligations
are paid and performed in full, the Borrower will pay interest on the unpaid
principal balance from time to time of the Revolving Loans at a per annum rate
2.0% greater than the rate of interest otherwise specified herein for Reference
Rate Revolving Loans, and the Letter of Credit Fee shall be increased to three
and one-half percent (3.5%) per annum. During the continuance of an Event of
Default, Borrower shall not be entitled to request or convert to LIBOR Revolving
Loans.
(c) Unused Line Fee. For every month during the term of this
Agreement, the Borrower shall pay the Lender a fee (the "Unused Line Fee") in an
amount equal to three-eighths of one percent (0.375%) per annum, multiplied by
the average daily amount by which the Maximum Revolving Credit Line exceeds the
sum of (i) the average daily outstanding amount of Revolving Loans during such
month and (ii) the average daily undrawn face amount of all outstanding Letters
of Credit during such month, with the unpaid balance calculated for this purpose
by applying payments immediately upon receipt. Such a fee, if any, shall be
calculated on the basis of a year of three hundred sixty (360) days and actual
days elapsed, and shall be payable to the Lender on the first day of each month
with respect to the prior month.
3.2 Conversion and Continuation Elections.
(a) The Borrower may, upon irrevocable written notice to the
Lender
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in accordance with Section 3.2(b):
(i) elect, as of any Business Day, in the case of
Reference Rate Revolving Loans to convert any such Loans (or any part thereof in
an amount not less than $1,000,000, or that is in an integral multiple of
$1,000,000 in excess thereof) into LIBOR Revolving Loans; or
(ii) elect, as of the last day of the applicable
Interest Period, to continue any LIBOR Revolving Loans having Interest Periods
expiring on such day (or any part thereof in an amount not less than $1,000,000,
or that is in an integral multiple of $1,000,000 in excess thereof);
provided, that if at any time the aggregate amount of LIBOR Revolving Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $1,000,000, such LIBOR Revolving Loans shall
automatically convert into Reference Rate Revolving Loans, and on and after such
date the right of the Borrower to continue such Loans as, and convert such Loans
into, LIBOR Revolving Loans, as the case may be, shall terminate.
(b) The Borrower shall deliver a notice ("Notice of
Conversion/Continuation") to be received by the Lender not later than 10:30 a.m.
(Los Angeles time) at least two Business Days in advance of the date of
conversion or continuing, if the Loans are to be converted into or continued as
LIBOR Revolving Loans and not later than 10:30 a.m. (Los Angeles time) on the
date of conversion, in the case of conversion to Reference Rate Revolving Loans,
and specifying:
(i) the proposed Conversion/Continuation Date;
(ii) the aggregate amount of Loans to be converted or
continued;
(iii) the type of Loans resulting from the proposed
conversion or continuation; and
(iv) with respect to LIBOR Revolving Loans, the duration
of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable
to LIBOR Revolving Loans, the Borrower has failed to select timely a new
Interest Period to be applicable to LIBOR Revolving Loans or if any Default or
Event of Default then exists, the Borrower shall be deemed to have elected to
convert such LIBOR Revolving Loans into Reference Rate Revolving Loans effective
as of the expiration date of such Interest Period.
(d) During the existence of a Default or Event of Default, the
Borrower may not request a LIBOR Revolving Loan or elect to have a Loan
converted into or
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continued as a LIBOR Revolving Loan.
(e) After giving effect to any conversion or continuation of
Loans, there may not be more than two (2) different Interest Periods in effect.
3.3 Maximum Interest Rate. In no event shall any interest rate
provided for hereunder exceed the maximum rate permissible for corporate
borrowers under applicable law for loans of the type provided for hereunder (the
"Maximum Rate"). If, in any month, any interest rate, absent such limitation,
would have exceeded the Maximum Rate, then the interest rate for that month
shall be the Maximum Rate, and, if in future months, that interest rate would
otherwise be less than the Maximum Rate, then that interest rate shall remain at
the Maximum Rate until such time as the amount of interest paid hereunder equals
the amount of interest which would have been paid if the same had not been
limited by the Maximum Rate. In the event that, upon payment in full of the
Obligations under this Agreement, the total amount of interest paid or accrued
under the terms of this Agreement is less than the total amount of interest
which would, but for this Section 3.3, have been paid or accrued if the interest
rates otherwise set forth in this Agreement had at all times been in effect,
then the Borrower shall, to the extent permitted by applicable law, pay the
Lender, an amount equal to the difference between (a) the lesser of (i) the
amount of interest which would have been charged if the Maximum Rate had, at all
times, been in effect or (ii) the amount of interest which would have accrued
had the interest rates otherwise set forth in this Agreement, at all times, been
in effect and (b) the amount of interest actually paid or accrued under this
Agreement. In the event that a court determines that the Lender has received
interest and other charges hereunder in excess of the Maximum Rate, such excess
shall be deemed received on account of, and shall automatically be applied to
reduce, the Obligations other than interest, in the inverse order of maturity,
and if there are no Obligations outstanding, the Lender shall refund to the
Borrower such excess.
3.4 Closing Fee. The Borrower will pay the Lender on the Closing
Date a closing fee in the amount of $90,000 (the "Closing Fee").
3.5 Letter of Credit Fee. The Borrower agrees to pay to the Lender a
fee (the "Letter of Credit Fee") equal to one and one-half percent (1.5%) per
annum of the undrawn face amount of each Letter of Credit issued for the
Borrower's account at the Borrower's request, plus all out-of-pocket costs, fees
and expenses incurred by the Lender in connection with the application for,
issuance of, or amendment to any Letter of Credit, which costs, fees and
expenses could include a "fronting fee" required to be paid by the Lender to
such issuer for the assumption of the settlement risk in connection with the
issuance of such Letter of Credit. The Letter of Credit Fee shall be payable
monthly in arrears on the first day of each month following any month in which a
Letter of Credit was issued and/or in which a Letter of Credit remains
outstanding. The Letter of Credit Fee shall be computed on the basis of a
360-day year for the actual number of days elapsed.
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4. PAYMENTS AND PREPAYMENTS.
4.1 Revolving Loans. The Borrower shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, upon the termination of this Agreement for any reason. In addition, and
without limiting the generality of the foregoing, the Borrower shall pay to the
Lender, on demand, the amount by which the unpaid principal balance of the
Revolving Loans at any time exceeds the Availability at such time (with
Availability determined for this purpose as if the amount of the Revolving Loans
were zero).
4.2 Place and Form of Payments; Extension of Time. All payments of
principal, interest, premium, and other sums due to the Lender shall be made at
the Lender's address set forth in Section 15.11. Except for Proceeds received
directly by the Lender, all such payments shall be made in immediately available
funds. If any payment of principal, interest, premium, or other sum to be made
hereunder becomes due and payable on a day other than a Business Day, the due
date of such payment shall be extended to the next succeeding Business Day and
interest thereon shall be payable at the applicable interest rate during such
extension.
4.3 Application and Reversal of Payments. The Lender shall determine
in its sole discretion the order and manner in which Proceeds of Collateral and
other payments that the Lender receives are applied to the Revolving Loans,
interest thereon, and the other Obligations, and the Borrower hereby irrevocably
waives the right to direct the application of any payment or Proceeds. The
Lender shall have the continuing and exclusive right to apply and reverse and
reapply any and all such Proceeds and payments to any portion of the
Obligations.
4.4 Indemnity for Returned Payments. IF AFTER RECEIPT OF ANY PAYMENT
WHICH IS APPLIED TO THE PAYMENT OF ALL OR ANY PART OF THE OBLIGATIONS, THE
LENDER IS FOR ANY REASON COMPELLED TO SURRENDER SUCH PAYMENT TO ANY PERSON
BECAUSE SUCH PAYMENT IS INVALIDATED, DECLARED FRAUDULENT, SET ASIDE, DETERMINED
TO BE VOID OR VOIDABLE AS A PREFERENCE, IMPERMISSIBLE SETOFF, OR A DIVERSION OF
TRUST FUNDS, OR FOR ANY OTHER REASON, THEN: THE OBLIGATIONS OR PART THEREOF
INTENDED TO BE SATISFIED SHALL BE REVIVED AND CONTINUE AND THIS AGREEMENT SHALL
CONTINUE IN FULL FORCE AS IF SUCH PAYMENT HAD NOT BEEN RECEIVED BY THE LENDER
AND THE BORROWER SHALL BE LIABLE TO PAY TO THE LENDER AND HEREBY DOES INDEMNIFY
THE LENDER AND HOLD THE LENDER HARMLESS FOR THE AMOUNT OF SUCH PAYMENT
SURRENDERED. The provisions of this Section 4.4 shall be and remain effective
notwithstanding any contrary action which may have been taken by the Lender in
reliance upon such payment, and any such contrary action so taken shall be
without prejudice to the Lender's rights under this Agreement and shall be
deemed to have been conditioned upon such payment having become final and
irrevocable. The provisions of this Section 4.4 shall survive the termination of
this Agreement.
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5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS. The Borrower agrees
that the Lender's books and records showing the Obligations and the transactions
pursuant to this Agreement and the other Loan Documents shall be admissible in
any action or proceeding arising therefrom, and shall constitute prima facie
proof thereof, irrespective of whether any Obligation is also evidenced by a
promissory note or other instrument. The Lender will provide to the Borrower a
monthly statement of Loans, payments, and other transactions pursuant to this
Agreement. Such statement shall be deemed correct, accurate, and binding on the
Borrower and as an account stated (except for reversals and reapplications of
payments made as provided in Section 4.3 and corrections of errors discovered by
the Lender), unless the Borrower notifies the Lender in writing to the contrary
within thirty (30) days after such statement is rendered. In the event a timely
written notice of objections is given by the Borrower, only the items to which
exception is expressly made will be considered to be disputed by the Borrower.
6. TAXES, YIELD PROTECTION AND ILLEGALITY
6.1 Taxes.
(a) Any and all payments by the Borrower to the Lender under
this Agreement and any other Loan Document shall be made free and clear of, and
without deduction or withholding for any Taxes. In addition, the Borrower shall
pay all Other Taxes.
(b) The Borrower agrees to indemnify and hold harmless the
Lender for the full amount of Taxes or Other Taxes (including any Taxes or Other
Taxes imposed by any jurisdiction on amounts payable under this Section) paid by
the Lender and any liability (including penalties, interest, additions to tax
and expenses) arising therefrom or with respect thereto, whether or not such
Taxes or Other Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days after the date the Lender makes
written demand therefor.
(c) If the Borrower shall be required by law to deduct or
withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to Lender, then:
(i) the sum payable shall be increased as necessary so
that after making all required deductions and withholdings (including deductions
and withholdings applicable to additional sums payable under this Section) the
Lender receives an amount equal to the sum it would have received had no such
deductions or withholdings been made;
(ii) the Borrower shall make such deductions and
withholdings;
(iii) the Borrower shall pay the full amount deducted or
withheld to the relevant taxing authority or other authority in accordance with
applicable law; and
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(iv) the Borrower shall also pay to the Lender at the
time interest is paid, all additional amounts which the Lender specifies as
necessary to preserve the after-tax yield the Lender would have received if such
Taxes or Other Taxes had not been imposed.
(d) Within 30 days after the date of any payment by the
Borrower of Taxes or Other Taxes, the Borrower shall furnish the Lender the
original or a certified copy of a receipt evidencing payment thereof, or other
evidence of payment satisfactory to the Lender.
6.2 Illegality.
(a) If the Lender determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Public Authority has asserted that
it is unlawful, for the Lender or its applicable lending office to make LIBOR
Revolving Loans, then, on notice thereof by the Lender to the Borrower, any
obligation of the Lender to make, convert or continue LIBOR Revolving Loans
shall be suspended until the Lender notifies the Borrower that the circumstances
giving rise to such determination no longer exist.
(b) If the Lender determines that it is unlawful to maintain
any LIBOR Revolving Loan, the Borrower shall, upon its receipt of notice of such
fact and demand from the Lender, prepay in full such LIBOR Revolving Loans then
outstanding, together with interest accrued thereon and amounts required under
Section 6.4, either on the last day of the Interest Period thereof, if the
Lender may lawfully continue to maintain such LIBOR Revolving Loans to such day,
or immediately, if the Lender may not lawfully continue to maintain such LIBOR
Revolving Loans. If the Borrower is required to so prepay any LIBOR Revolving
Loan, then concurrently with such prepayment, the Borrower shall borrow from the
Lender, in the amount of such repayment, a Reference Rate Revolving Loan.
6.3 Increased Costs and Reduction of Return.
(a) If the Lender determines that, due to either (i) the
introduction of or any change in the interpretation of any law or regulation or
(ii) the compliance by the Lender with any guideline or request from any central
bank or other Public Authority (whether or not having the force of law), there
shall be any increase in the cost to the Lender of agreeing to make or making,
funding or maintaining any LIBOR Revolving Loans, then the Borrower shall be
liable for, and shall from time to time, upon demand, pay to the Lender,
additional amounts as are sufficient to compensate the Lender for such increased
costs.
(b) If the Lender shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration of
any Capital Adequacy Regulation by any central bank or other Public Authority
charged with the interpretation or administration thereof, or
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(iv) compliance by the Lender or any corporation controlling the Lender with any
Capital Adequacy Regulation, affects or would affect the amount of capital,
reserves, or special deposits required or expected to be maintained by the
Lender or any corporation controlling the Lender and (taking into consideration
such Lender's or such corporation's policies with respect to capital adequacy
and such Lender's desired return on capital) determines that the amount of such
capital, reserves, or special deposits is increased as a consequence of its
loans, credits or obligations under this Agreement, then, upon demand of the
Lender to the Borrower, the Borrower shall pay to the Lender, from time to time
as specified by the Lender, additional amounts sufficient to compensate the
Lender for such increase. Notwithstanding the foregoing, all such amounts shall
be subject to the provisions of Section 3.3.
6.4 Funding Losses. The Borrower shall reimburse the Lender and hold
the Lender harmless from any loss or expense which the Lender may sustain or
incur as a consequence of:
(a) the failure of the Borrower to make on a timely basis any
payment of principal of any LIBOR Revolving Loan;
(b) the failure of the Borrower to borrow, continue or convert
a Loan after the Borrower has given (or is deemed to have given) a Notice of
Borrowing or a Notice of Conversion/Continuation;
(c) the prepayment or other payment (including after
acceleration thereof) of any LIBOR Revolving Loan on a day that is not the last
day of the relevant Interest Period; including any such loss or expense arising
from the liquidation or re-employment of funds obtained by it to maintain its
LIBOR Revolving Loans or from fees payable to terminate the deposits from which
such funds were obtained.
6.5 Inability to Determine Rates. If the Lender determines that for
any reason adequate and reasonable means do not exist for determining the LIBOR
Rate for any requested Interest Period with respect to a proposed LIBOR
Revolving Loan, or that the LIBOR Rate for any requested Interest Period with
respect to a proposed LIBOR Revolving Loan does not adequately and fairly
reflect the cost to the Lender of funding such Loan, the Lender will promptly so
notify the Borrower. Thereafter, the obligation of the Lender to make or
maintain LIBOR Revolving Loans hereunder shall be suspended until the Lender
revokes such notice in writing. Upon receipt of such notice, the Borrower may
revoke any Notice of Borrowing or Notice of Conversion/Continuation then
submitted by it. If the Borrower does not timely revoke such Notice, the Lender
shall make, convert or continue the Loans, as proposed by the Borrower, in the
amount specified in the applicable notice submitted by the Borrower, but such
Loans shall be made, converted or continued as Reference Rate Revolving Loans
instead of LIBOR Revolving Loans.
6.6 Survival. The agreements and obligations of the Borrower in this
Section 6 shall survive the payment of all other Obligations.
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7. COLLATERAL.
7.1 Grant of Security Interest.
(a) As security for the Obligations, the Borrower hereby
grants to the Lender a continuing security interest in, lien on, and assignment
of: (i) all Receivables, Inventory, Equipment, Proprietary Rights and Proceeds,
wherever located and whether now existing or hereafter arising or acquired; (ii)
all moneys, securities and other property and the Proceeds thereof, now or
hereafter held or received by, or in transit to, the Lender from or for the
Borrower, whether for safekeeping, pledge, custody, transmission, collection or
otherwise, including, without limitation, all of the Borrower's deposit
accounts, credits, and balances with the Lender and all claims of the Borrower
against the Lender at any time existing; (iii) all of Borrower's deposit
accounts with any financial institutions with which Borrower maintains deposits;
and (iv) all books, records and other Property relating to or referring to any
of the foregoing, including, without limitation, all books, records, ledger
cards, data processing records, computer software and other property and general
intangibles at any time evidencing or relating to the Receivables, Inventory,
Equipment, Proprietary Rights, Proceeds, and other property referred to above
(all of the foregoing, and all other property in which the Lender may at any
time be granted a Lien, being herein collectively referred to as the
"Collateral"). The Lender shall have all of the rights of a secured party with
respect to the Collateral under the UCC and other applicable laws.
(b) All Obligations shall constitute a single loan secured by
the Collateral. The Lender may, in its sole discretion, (i) exchange, waive, or
release any of the Collateral, (ii) apply Collateral and direct the order or
manner of sale thereof as the Lender may determine, and (iii) settle,
compromise, collect, or otherwise liquidate any Collateral in any manner, all
without affecting the Obligations or the Lender's right to take any other action
with respect to any other Collateral.
7.2 Perfection and Protection of Security Interest. The Borrower
shall, at its expense, perform all steps requested by the Lender at any time to
perfect, maintain, protect, and enforce the Security Interest including, without
limitation: (a) executing and recording of the Patent and Trademark Assignment
and executing and filing financing or continuation statements, and amendments
thereof, in form and substance satisfactory to the Lender; (b) delivering to the
Lender the original certificates of title for motor vehicles with the Security
Interest properly endorsed thereon; (c) delivering to the Lender the originals
of all instruments, documents, and chattel paper, and all other Collateral of
which the Lender determines it should have physical possession in order to
perfect and protect the Security Interest therein, duly endorsed or assigned to
the Lender without restriction; (d) delivering to the Lender warehouse receipts
covering any portion of the Collateral located in warehouses and for which
warehouse receipts are issued; (e) transferring Inventory to warehouses
designated by the Lender; (f) placing notations on the Borrower's books of
account to disclose the Security Interest; (g) executing and delivering to the
Lender a security agreement relating to the Reversions in form and substance
satisfactory to the Lender; (h) delivering to the Lender all letters of credit
on which the Borrower
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is named beneficiary; and (i) taking such other steps as are deemed necessary by
the Lender to maintain the Security Interest. To the extent permitted by
applicable law, the Lender may file, without the Borrower's signature, one or
more financing statements disclosing the Security Interest. The Borrower agrees
that a carbon, photographic, photostatic, or other reproduction of this
Agreement or of a financing statement is sufficient as a financing statement. If
any Collateral is at any time in the possession or control of any warehouseman,
bailee or any of the Borrower's agents or processors, then the Borrower shall
notify the Lender thereof and shall notify such Person of the Security Interest
in such Collateral and, upon the Lender's request, instruct such Person to hold
all such Collateral for the Lender's account subject to the Lender's
instructions. If at any time any Collateral is located on any Premises that are
not owned by the Borrower, then the Borrower shall obtain written waivers, in
form and substance satisfactory to the Lender, of all present and future Liens
to which the owner or lessor or any mortgagee of such Premises may be entitled
to assert against the Collateral. From time to time, the Borrower shall, upon
Lender's request, execute and deliver confirmatory written instruments pledging
to the Lender the Collateral, but the Borrower's failure to do so shall not
affect or limit the Security Interest or the Lender's other rights in and to the
Collateral. So long as this Agreement is in effect and until all Obligations
have been fully satisfied in accordance with the terms hereof, the Security
Interest shall continue in full force and effect in all Collateral (whether or
not deemed eligible for the purpose of calculating the Availability or as the
basis for any advance, loan, extension of credit, or other financial
accommodation).
7.3 Location of Collateral. The Borrower represents and warrants to
the Lender that: (a) Schedule 7.3 hereto is a correct and complete list of the
Borrower's chief executive office, the location of its books and records, the
locations of the Collateral, and the locations of all of its other places of
business and (b) Schedule 7.3 correctly identifies any of such facilities and
locations that are not owned by the Borrower and sets forth the names of the
owners and lessors or sublessors of, and, to the best of the Borrower's
knowledge, the holders of any mortgages on, such facilities and locations. The
Borrower covenants and agrees that it will not maintain any Collateral at any
location other than those listed on Schedule 7.3, and it will not otherwise
change or add to any of such locations, unless it gives the Lender at least 30
days prior written notice thereof and executes any and all financing statements
and other documents that the Lender requests in connection therewith.
7.4 Title to, Liens on, and Sale and Use of Collateral. The Borrower
represents and warrants to the Lender that: (a) all Collateral is and will
continue to be owned by the Borrower free and clear of all Liens whatsoever,
except for the Security Interest and other Permitted Liens; (b) the Security
Interest will not be subject to any prior Lien except for the Liens described in
(b), (c), (e), (f), (h) and (i) of the definition of Permitted Liens; (c) the
Borrower will use, store, and maintain the Collateral with all reasonable care
and will use the Collateral for lawful purposes only; and (d) the Borrower will
not, without the Lender's prior written approval, sell, lease, or dispose of or
permit the sale, lease or disposition of the Collateral or any portion thereof,
except for sales of Inventory in the ordinary course of business and as
permitted by Section 7.12. The inclusion of Proceeds in the Collateral shall not
be deemed the
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Lender's consent to any sale or other disposition of the Collateral except as
expressly permitted herein.
7.5 Appraisals. Whenever a Default or Event of Default exists, and
at such other times as the Lender requests (not more than once prior to the
Stated Termination Date, unless there is an Event of Default or an adverse audit
finding in the judgment of Lender, reasonably exercised), the Borrower shall, at
its expense and upon the Lender's request, provide the Lender with appraisals or
updates thereof (with such scope and detail as the Lender shall require) of any
or all of the Collateral from an appraiser acceptable to the Lender.
7.6 Access and Examination. The Lender may at all reasonable times
have access to, examine, audit, make extracts from and inspect the Borrower's
records, files, and books of account and the Collateral and may discuss the
Borrower's affairs with the Borrower's officers and management. The Borrower
will deliver to the Lender any instrument necessary for the Lender to obtain
records from any service bureau maintaining records for the Borrower. The Lender
may, at any time when an Event of Default exists and at the Borrower's expense,
make copies of all of the Borrower's books and records, or require the Borrower
to deliver such copies to the Lender. The Lender may, without expense to the
Lender, use such of the Borrower's personnel, supplies, and Premises as may be
reasonably necessary for maintaining or enforcing the Security Interest. The
Lender shall have the right, at any time, in the Lender's name or in the name of
a nominee of the Lender, to verify the validity, amount or any other matter
relating to the Accounts, by mail, telephone, or otherwise.
7.7 Insurance. The Borrower shall insure the Collateral against loss
or damage by fire with extended coverage, theft, burglary, pilferage, loss in
transit, and such other hazards as the Lender shall specify, in amounts, under
policies and by insurers acceptable to the Lender. Upon Lender's request,
Borrower shall also maintain flood insurance for any Equipment and Inventory
located in an area designated as "flood prone" or a "flood risk area,"
(hereinafter "SFHA") as defined by the Flood Disaster Protection Act of 1973, in
an amount to be reasonably determined by the Lender, and shall comply with the
additional requirements of the National Flood Insurance Program as set forth
therein. The Borrower shall cause the Lender to be named in each such policy as
secured party or mortgagee and loss payee or additional insured, in a manner
acceptable to the Lender. Each policy of insurance shall contain a clause or
endorsement requiring the insurer to give not less than thirty (30) days prior
written notice to the Lender in the event of cancellation of the policy for any
reason whatsoever and a clause or endorsement stating that the interest of the
Lender shall not be impaired or invalidated by any act or neglect of the
Borrower or the owner of any premises where Collateral is located nor by the
occupation of such premises for purposes more hazardous than are permitted by
such policy. The Borrower shall pay, upon Lender's request, all fees incurred by
the Lender to determine whether any of the Collateral is located in a SFHA. The
Borrower shall also pay all premiums for such insurance when due, and shall
deliver to the Lender certificates of insurance and, if requested, photocopies
of the policies. If the Borrower fails to pay such fees or to procure such
insurance or the premiums therefor when due, the Lender may (but shall not be
required to) do so and charge the
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costs thereof to the Borrower's loan account as a Revolving Loan. The Borrower
shall promptly notify the Lender of any loss, damage or destruction to the
Collateral or arising from its use, whether or not covered by insurance. The
Lender is hereby authorized to collect all insurance proceeds directly. After
deducting from such proceeds the expenses, if any, incurred by Lender in the
collection or handling thereof, the Lender may apply such proceeds to the
reduction of the Obligations in such order as Lender determines, or at the
Lender's option may permit or require the Borrower to use such money, or any
part thereof, to replace, repair, restore or rebuild the Collateral in a
diligent and expeditious manner with materials and workmanship of substantially
the same quality as existed before the loss, damage or destruction.
7.8 Collateral Reporting. The Borrower will provide the Lender with
the following documents at the following times in form satisfactory to the
Lender: (a) on a daily basis, a schedule of Accounts created since the last such
schedule, a schedule of collections of accounts receivable and a schedule of
credit memos and reports; (b) upon request, copies of invoices, credit memos,
shipping and delivery documents; (c) monthly agings of accounts receivable no
later than the 10th day of the following month; (d) monthly, a report of the
inventory balance (by location, including Inventory turnover analysis by SKU and
a reconciliation) based on the perpetual inventory reports by category, no later
than the 15th day of the following month; (e) monthly agings of accounts payable
no later than the 10th day of the following month; (f) upon request, copies of
purchase orders, invoices, and delivery documents for Inventory and Equipment
acquired by the Borrower; (g) such other reports as to the Collateral as the
Lender shall request from time to time; and (h) certificates of an officer of
the Borrower certifying as to the foregoing. If any of the Borrower's records or
reports of the Collateral are prepared by an accounting service or other agent,
the Borrower hereby authorizes such service or agent to deliver such records,
reports, and related documents to the Lender.
7.9 Accounts.
(a) The Borrower hereby represents and warrants to the Lender
and agrees with the Lender that: (i) each existing Account represents, and each
future Account will represent, a bona fide sale or lease and delivery of goods
by the Borrower, or rendition of services by the Borrower, in the ordinary
course of the Borrower's business; (ii) each existing Account is, and each
future Account will be, for a liquidated amount payable by the Account Debtor
thereon on the terms set forth in the invoice therefor or in the schedule
thereof delivered to the Lender, without offset, deduction, defense, or
counterclaim; (iii) no payment will be received with respect to any Account, and
no credit, discount, or extension, or agreement therefor will be granted on any
Account, except as reported to the Lender in accordance with this Agreement;
(iv) each copy of an invoice delivered to the Lender by the Borrower will be a
genuine copy of the original invoice sent to the Account Debtor named therein;
and (v) all goods described in each invoice will have been delivered to the
Account Debtor and all services of the Borrower described in each invoice will
have been performed.
(b) The Borrower shall not redate any invoice or sale or make
sales on extended dating beyond that customary in the Borrower's business or
extend or modify any
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Account. If the Borrower becomes aware of any matter affecting any Account,
including information regarding the Account Debtor's creditworthiness, the
Borrower will promptly so advise the Lender.
(c) The Borrower shall not accept any note or other instrument
in excess of $50,000 per occurrence or $100,000 in the aggregate (except a check
or other instrument for the immediate payment of money) with respect to any
Account without the Lender's prior written consent, which consent shall be in
the reasonable credit judgment of Lender. If the Lender consents to the
acceptance of any such note or other instrument, it shall be considered as
evidence of the Account and not payment thereof, and the Borrower will promptly
deliver such note or instrument to the Lender appropriately endorsed. Without
limiting the foregoing, prior to the Closing Date the Borrower shall deliver to
the Lender all notes receivable and similar instruments, appropriately endorsed,
to be held by the Lender as additional Collateral hereunder. Regardless of the
form of presentment, demand, notice of dishonor, protest, and notice of protest
with respect thereto, the Borrower will remain liable thereon until such note or
instrument is paid in full.
(d) The Borrower shall notify the Lender promptly of all
disputes and claims with Account Debtors and settle or adjust them at no expense
to the Lender, but no discount, credit or allowance shall be granted to any
Account Debtor without the Lender's consent, except for discounts, credits and
allowances made or given in the ordinary course of the Borrower's business when
no Event of Default exists hereunder. Upon request, the Borrower shall send the
Lender a copy of each credit memorandum . The Lender may at all times when an
Event of Default exists hereunder settle or adjust disputes and claims directly
with customers or Account Debtors for amounts and upon terms which the Lender
considers advisable and, in all cases, the Lender will credit the Borrower's
loan account with only the net amounts received by the Lender in payment of any
Accounts.
(e) If an Account Debtor returns any Inventory to the Borrower
when no Event of Default exists, then the Borrower shall promptly determine the
reason for such return and shall issue a credit memorandum to the Account Debtor
in the appropriate amount. Upon request, the Borrower shall immediately report
to the Lender any return. Each such report shall indicate the reasons for the
returns and the locations and condition of the returned Inventory. In the event
any Account Debtor returns Inventory to the Borrower when an Event of Default
exists, the Borrower shall: (i) hold the returned Inventory in trust for the
Lender; (ii) segregate all returned Inventory from all of its other Property;
(iii) dispose of the returned Inventory solely according to the Lender's written
instructions; and (iv) not issue any credits or allowances with respect thereto
without the Lender's prior written consent. All returned Inventory shall remain
subject to the Security Interest. Whenever any Inventory is returned, the
related Account shall be deemed ineligible, and Availability shall be adjusted
accordingly.
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7.10 Collection of Accounts; Payments.
(a) Until the Lender notifies the Borrower to the contrary,
the Borrower shall make collection of all Accounts and other Collateral for the
Lender, shall receive all payments as the Lender's trustee, and shall
immediately deliver all payments to the Lender in their original form duly
endorsed in blank or deposit them into a Payment Account established at the
Lender's request, as the Lender may direct. Prior to the Closing Date, the
Borrower shall establish a lock-box service for collections of Accounts at a
bank mutually acceptable to the Lender and the Borrower and pursuant to
documentation satisfactory to the Lender. The Borrower shall instruct all
Account Debtors to make all payments directly to the address established for
such service. If, notwithstanding such instructions, the Borrower receives any
Proceeds of Accounts, it shall receive such payments as the Lender's trustee,
and shall immediately deliver such payments to the Lender in their original form
duly endorsed in blank or deposit them into a Payment Account, as the Lender may
direct. All collections received in any such lock-box or Payment Account or
directly by the Borrower or the Lender, and all funds in any Payment Account or
other account to which such collections are deposited, shall be the sole
property of the Lender and subject to the Lender's sole control. The Lender or
the Lender's designee may, at any time, notify obligors that the Accounts have
been assigned to the Lender and of the Security Interest therein, and may
collect them directly and charge the collection costs and expenses to the
Borrower's loan account as a Revolving Loan. At the Lender's request, the
Borrower shall execute and deliver to the Lender such documents as the Lender
shall require to grant the Lender access to any post office box in which
collections of Accounts are received.
(b) If sales of Inventory are made for cash, the Borrower
shall immediately deliver to the Lender the identical checks, cash, or other
forms of payment which the Borrower receives.
(c) All payments received by the Lender on account of Accounts
or as Proceeds of other Collateral will be the Lender's sole property and will
be credited to the Borrower's loan account (conditional upon final collection)
after allowing one (1) Business Day for collection.
(d) In the event the Borrower repays all of the Obligations
upon the termination of this Agreement, other than through the Lender's receipt
of payments on account of Accounts or Proceeds of other Collateral, such payment
will be credited (conditional upon final collection) to the Borrower's loan
account one (1) Business Day after the Lender's receipt thereof.
7.11 Inventory. The Borrower represents and warrants to the Lender
that all of the Inventory is and will be held for sale or lease, or to be
furnished in connection with the rendition of services in the ordinary course of
the Borrower's business and is and will be fit for such purposes. The Borrower
will keep the Inventory in good and marketable condition, at its own expense.
The Borrower will not, without prior written notice to the Lender, acquire or
accept any Inventory on consignment or approval. The Borrower agrees that all
Inventory will
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be produced and sold in accordance with the Federal Fair Labor Standards Act of
1938, as amended, and all rules, regulations, and orders thereunder, and if the
Lender determines that any Inventory of the Borrower was produced or sold not in
accordance with such Act, the Lender may (in addition to its other rights and
remedies) establish reserves against Availability equal to the value of such
Inventory, as determined by the Lender. The Borrower will maintain a perpetual
inventory reporting system at all times. The Borrower will conduct a physical
count of the Inventory at least once per Fiscal Year, and at such other times as
the Lender requests, and shall promptly supply the Lender with a copy of such
count accompanied by a report of the value of such Inventory (valued at the
lower of cost, on an average weighted cost basis, or market value). The Borrower
will not, without the Lender's prior written consent, sell any Inventory on a
bill-and-hold, guaranteed sale, sale and return, sale on approval, consignment,
or other repurchase or return basis.
7.12 Equipment. The Borrower represents and warrants to the Lender
that all of the Equipment is and will be used or held for use in the Borrower's
business and is and will be fit for such purposes. The Borrower shall keep and
maintain the Equipment in good operating condition and repair (ordinary wear and
tear excepted) and shall make all necessary replacements thereof. The Borrower
shall promptly inform the Lender of any material additions to or deletions from
the Equipment. The Borrower shall not permit any Equipment to become a fixture
to real property or an accession to other personal property, unless the Lender
has a valid, perfected, and first priority Security Interest in such real or
personal property. The Borrower will not, without the Lender's prior written
consent, alter or remove any identifying symbol or number on the Equipment. The
Borrower shall not, without the Lender's prior written consent, sell, lease as a
lessor, or otherwise dispose of any of the Equipment; provided, however, that
the Borrower may dispose of obsolete or unusable Equipment having an orderly
liquidation value no greater than $10,000 individually and $50,000 in the
aggregate in any Fiscal Year, without the Lender's consent, subject to the
conditions set forth below. In the event any of the Equipment is sold,
transferred or otherwise disposed of with the Lender's prior written consent or
as otherwise permitted hereby and: (a) such sale, transfer or disposition is
effected without replacement of such Equipment, or such Equipment is replaced by
Equipment leased by the Borrower, or by Equipment purchased by the Borrower
subject to a lien or other right constituting a Permitted Lien, then the
Borrower shall deliver all of the cash proceeds of any such sale, transfer or
disposition to the Lender, which proceeds shall be applied to the repayment of
the Obligations; or (b) such sale, transfer or disposition is made in connection
with the purchase by the Borrower of replacement Equipment (other than subject
to a Permitted Lien), then the Borrower shall use the proceeds of such sale,
transfer or disposition to finance the purchase by the Borrower of replacement
Equipment and shall deliver to the Lender written evidence of the use of the
proceeds for such purchase. All replacement Equipment purchased by the Borrower
shall be free and clear of all liens, claims and encumbrances, except for the
Security Interest and other Permitted Liens.
7.13 Documents, Instruments, and Chattel Paper. The Borrower
represents and warrants to the Lender that: (a) all documents, instruments, and
chattel paper describing,
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evidencing, or constituting Collateral, and all signatures and endorsements
thereon, are and will be complete, valid, and genuine; and (b) all goods
evidenced by such documents, instruments, and chattel paper are and will be
owned by the Borrower free and clear of all Liens other than Permitted Liens.
7.14 Right to Cure. The Lender may, in its sole discretion and at
any time, pay any amount or do any act required of the Borrower hereunder to
preserve, protect, maintain or enforce the Obligations, the Collateral or the
Security Interest, and which the Borrower fails to pay or do, including, without
limitation, payment of any judgment against the Borrower, any insurance premium,
any warehouse charge, any finishing or processing charge, any landlord's claim,
and any other Lien upon or with respect to the Collateral. All payments that the
Lender makes under this Section 7.14 and all out-of-pocket costs and expenses
that the Lender pays or incurs in connection with any action taken by it
hereunder shall be charged to the Borrower's loan account as a Revolving Loan.
Any payment made or other action taken by the Lender under this Section 7.14
shall be without prejudice to any right to assert an Event of Default hereunder
and to proceed thereafter as herein provided.
7.15 Power of Attorney. The Borrower hereby appoints the Lender and
the Lender's designees as the Borrower's attorney, with power: (a) to endorse
the Borrower's name on any checks, notes, acceptances, money orders, or other
forms of payment or security that come into the Lender's possession; (b) to sign
the Borrower's name on any invoice, bill of lading, or other document of title
relating to any Collateral, on drafts against customers, on assignments of
Accounts, on notices of assignment, financing statements and other public
records, on verifications of Accounts and on notices to Account Debtors and to
file any such financing statements by electronic means with or without a
signature as authorized or required by applicable law or filing procedure; (c)
to notify the post office authorities, when an Event of Default exists, to
change the address for delivery of the Borrower's mail to an address designated
by the Lender and to receive, open and dispose of all mail addressed to the
Borrower; (d) to send requests for verification of Accounts to Account Debtors;
and (e) to do all things necessary to carry out this Agreement. The Borrower
ratifies and approves all acts of such attorney. Neither the Lender nor the
attorney will be liable for any acts or omissions or for any error of judgment
or mistake of fact or law. This power, being coupled with an interest, is
irrevocable until this Agreement has been terminated and the Obligations have
been fully satisfied.
7.16 Lender's Rights, Duties, and Liabilities. The Borrower assumes
all responsibility and liability arising from or relating to the use, sale, or
other disposition of the Collateral. The Obligations shall not be affected by
any failure of the Lender to take any steps to perfect the Security Interest or
to collect or realize upon the Collateral, nor shall loss of or damage to the
Collateral release the Borrower from any of the Obligations. The Lender may (but
shall not be required to), without notice to or consent from the Borrower, sue
upon or otherwise collect, extend the time for payment of, modify or amend the
terms of, compromise or settle for cash, credit, or otherwise upon any terms,
grant other indulgences, extensions, renewals, compositions, or releases, and
take or omit to take any other action with respect to the Collateral,
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any security therefor, any agreement relating thereto, any insurance applicable
thereto, or any Person liable directly or indirectly in connection with any of
the foregoing, without discharging or otherwise affecting the liability of the
Borrower for the Obligations or under this Agreement or any other agreement now
or hereafter existing between the Lender and the Borrower.
8. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.
8.1 Books and Records. The Borrower shall maintain, at all times,
correct and complete books, records and accounts in which complete, correct and
timely entries are made of its transactions in accordance with GAAP consistent
with those applied in the preparation of the Financial Statements. The Borrower
shall, by means of appropriate entries, reflect in such books, records and
accounts and in all Financial Statements proper liabilities and reserves for all
taxes and proper provision for depreciation and amortization of Property and bad
debts, all in accordance with GAAP. The Borrower shall maintain at all times
books and records pertaining to the Collateral in such detail, form, and scope
as the Lender shall reasonably require, including without limitation records of:
(a) all payments received and all credits and extensions granted with respect to
the Accounts; (b) the return, rejection, repossession, stoppage in transit,
loss, damage, or destruction of any Inventory; and (c) all other dealings
affecting the Collateral.
8.2 Financial Information. The Borrower shall promptly furnish to
the Lender or its agents all such financial information as the Lender shall
reasonably request, and notify its auditors and accountants that the Lender is
authorized to obtain such information directly from them. Without limiting the
foregoing, the Borrower and its Subsidiaries will furnish to the Lender, in such
detail as the Lender shall request, the following:
(a) As soon as available, but in any event not later than 90
days after the close of each Fiscal Year, consolidated and consolidating audited
balance sheets, a report of Capital Expenditures, and statements of income and
expense, retained earnings, cash flow and changes in financial position and
stockholders equity for the Borrower and its consolidated Subsidiaries, if any,
for such Fiscal Year, and the accompanying notes thereto, setting forth in each
case in comparative form figures for the previous Fiscal Year, all in reasonable
detail, fairly presenting the financial position and the results of operations
of the Borrower and its consolidated Subsidiaries, if any, as at the date
thereof and for the Fiscal Year then ended, and prepared in accordance with
GAAP. Such statements shall be examined in accordance with generally accepted
auditing standards and accompanied by a report thereon unqualified as to scope
by independent certified public accountants selected by the Borrower and
reasonably satisfactory to the Lender.
(b) As soon as available, but in any event not later than 45
days after the close of each fiscal quarter other than the fourth quarter of a
Fiscal Year, consolidated and consolidating unaudited balance sheets of the
Borrower and its consolidated Subsidiaries, if any, as at the end of such
quarter, a report of Capital Expenditures, and consolidated and consolidating
unaudited statements of income and expense, cash flow and changes in financial
position for the Borrower and its consolidated Subsidiaries, if any, for such
quarter and for the
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period from the beginning of the Fiscal Year to the end of such quarter,
together with the accompanying notes thereto, all in reasonable detail, fairly
presenting the financial position and results of operation of the Borrower and
its consolidated Subsidiaries, if any, as at the date thereof and for such
periods, prepared in accordance with GAAP consistent with the audited Financial
Statements required pursuant to Section 8.2(a). Such statements shall be
certified to be correct and complete by the chief financial or accounting
officer of the Borrower, subject to normal year-end adjustments.
(c) As soon as available, but in any event not later than 30
days after the end of each month, consolidated and consolidating unaudited
balance sheets of the Borrower and its consolidated Subsidiaries, if any, as at
the end of such month, a report of Capital Expenditures, and consolidated and
consolidating unaudited statements of income and expenses and cash flow for the
Borrower and its consolidated Subsidiaries, if any, for such month and for the
period from the beginning of the Fiscal Year to the end of such month, all in
reasonable detail, fairly presenting the financial position and results of
operation of the Borrower and its consolidated Subsidiaries, if any, as at the
date thereof and for such periods, and prepared in accordance with GAAP
consistent with the audited Financial Statements required pursuant to Section
8.2(a). Such statements shall be certified to be correct and complete by the
chief financial or accounting officer of the Borrower, subject to normal
year-end adjustments.
(d) With each of the audited Financial Statements delivered
pursuant to Section 8.2(a), a certificate of the independent certified public
accountants that examined such statements to the effect that they have reviewed
and are familiar with the Loan Documents and that, in examining such Financial
Statements, they did not become aware of any fact or condition which then
constituted a Default or Event of Default, except for those, if any, described
in reasonable detail in such certificate.
(e) With each of the annual audited and quarterly unaudited
Financial Statements delivered pursuant to Sections 8.2(a) and 8.2(b), a
certificate of the chief executive or chief financial officer of the Borrower
(i) setting forth in reasonable detail the calculations required to establish
that the Borrower was in compliance with its covenants set forth in Sections
10.20 through 10.24 during the period covered in such Financial Statements, and
(ii) stating that, except as explained in reasonable detail in such certificate,
(A) all of the representations and warranties of the Borrower contained in this
Agreement and the other Loan Documents are correct and complete as at the date
of such certificate as if made at such time, (B) no Default or Event of Default
then exists or existed during the period covered by such Financial Statements
and (iii) describing and analyzing in reasonable detail all material trends,
changes and developments in such Financial Statements. If such certificate
discloses that a representation or warranty is not correct or complete, or that
a covenant has not been complied with, or that a Default or Event of Default
existed or exists, such certificate shall set forth what action the Borrower has
taken or proposes to take with respect thereto.
(f) No sooner than 90 days and no later than 30 days prior to
the beginning of each Fiscal Year, consolidated and consolidating projected
balance sheets,
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statements of income and expense, and statements of cash flow for the Borrower
and its Subsidiaries, if any, as at the end of and for each month of such Fiscal
Year.
(g) Promptly after their preparation, copies of any and all
proxy statements, financial statements, and reports which the Borrower makes
available to its stockholders and copies of any regular, periodic and special
reports or registration statements (including without limitation Forms 10-K and
10-Q) which the Borrower files with the Securities and Exchange Commission or
any governmental authority which may be substituted therefor, or any national
securities exchange.
(h) Promptly after filing with the PBGC, DOL, or IRS, a copy
of each annual report or other filing or notice filed with respect to each Plan
of the Borrower or any ERISA Affiliate.
(i) Such additional information as the Lender may from time to
time reasonably request regarding the financial and business affairs of the
Borrower or a Subsidiary, if any, including, without limitation, projections of
future operations on both a consolidated and consolidating basis.
8.3 Notices to Lender. The Borrower shall notify the Lender in
writing of the following matters at the following times:
(a) Immediately after becoming aware of the existence of any
Default or Event of Default.
(b) Immediately after becoming aware that the holder of any
capital stock of the Borrower or of any Debt has given notice or taken any
action with respect to a claimed default.
(c) Immediately after becoming aware of any material adverse
change in the Borrower's Property, business, operations, or condition (financial
or otherwise).
(d) Immediately after becoming aware of any pending or
threatened action, suit, proceeding, or counterclaim by any Person, or any
pending or threatened investigation by a Public Authority, which may materially
and adversely affect the Collateral, the repayment of the Obligations, the
Lender's rights under the Loan Documents, or the Borrower's Property, business,
operations, or condition (financial or otherwise).
(e) Immediately after becoming aware of any pending or
threatened strike, work stoppage, material unfair labor practice claim, or other
material labor dispute affecting the Borrower or any of its Subsidiaries, if
any.
(f) Immediately after becoming aware of any violation of any
law, statute, regulation, or ordinance of a Public Authority applicable to
Borrower, any Subsidiary, if
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any, or their respective Properties which may materially and adversely affect
the Collateral, the repayment of the Obligations, the Lender's rights under the
Loan Documents, or the Borrower's Property, business, operations, or condition
(financial or otherwise).
(g) Immediately after becoming aware of any violation by the
Borrower of Environmental Laws or immediately upon receipt of any notice that a
Public Authority has asserted that the Borrower is not in compliance with
Environmental Laws or that its compliance is being investigated.
(h) Thirty (30) days prior to the Borrower changing its name
or the address of its chief executive office.
(i) Immediately after becoming aware of any ERISA Event,
accompanied by any materials required to be filed with the PBGC with respect
thereto; immediately after the Borrower's receipt of any notice concerning the
imposition of any withdrawal liability under Section 4042 of ERISA with respect
to a Plan; immediately upon the establishment of any Pension Plan not existing
at the Closing Date or the commencement of contributions by the Borrower to any
Pension Plan to which the Borrower was not contributing at the Closing Date; and
immediately upon becoming aware of any other event or condition regarding a Plan
or the Borrower's or an ERISA Affiliate's compliance with ERISA, which may
materially and adversely affect the Borrower's Property, business, operation, or
condition (financial or otherwise).
Each notice given under this Section 8.3 shall describe the subject matter
thereof in reasonable detail and shall set forth the action that the Borrower
has taken or proposes to take with respect thereto.
9. GENERAL WARRANTIES AND REPRESENTATIONS.
The Borrower continuously warrants and represents to the Lender, at
all times during the term of this Agreement and until all Obligations have been
satisfied, that, except as hereafter disclosed to and accepted by the Lender in
writing:
9.1 Authorization, Validity, and Enforceability of this Agreement
and the Loan Documents. The Borrower has the corporate power and authority to
execute, deliver and perform this Agreement and the other Loan Documents, to
incur the Obligations, and to grant the Security Interest. The Borrower has
taken all necessary corporate action (including, without limitation, obtaining
approval of its stockholders, if required) to authorize its execution, delivery,
and performance of this Agreement and the other Loan Documents. No consent,
approval, or authorization of, or declaration or filing with, any Public
Authority, and no consent of any other Person, is required in connection with
the Borrower's execution, delivery, and performance of this Agreement and the
other Loan Documents, except for those already duly obtained. This Agreement and
the other Loan Documents have been duly executed and delivered by the Borrower
and constitute the legal, valid and binding obligations of the Borrower,
enforceable
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against the Borrower in accordance with their respective terms without defense,
setoff, or counterclaim. The Borrower's execution, delivery, and performance of
this Agreement and the other Loan Documents do not and will not conflict with,
or constitute a violation or breach of, or constitute a default under, or result
in the creation or imposition of any Lien upon the Property of the Borrower or
any of its Subsidiaries (except as contemplated by this Agreement and the other
Loan Documents) by reason of the terms of (a) any mortgage, lease, agreement, or
instrument to which the Borrower or any of its Subsidiaries is a party or which
is binding upon it, (b) any judgment, law, statute, rule or governmental
regulation applicable to the Borrower or any of its Subsidiaries, or (c) the
Certificate or Articles of Incorporation or Bylaws of the Borrower or any of its
Subsidiaries.
9.2 Validity and Priority of Security Interest. The provisions of
this Agreement and the other Loan Documents create legal and valid Liens on all
the Collateral in the Lender's favor, and when all proper filings, recordings,
and other actions necessary to perfect such Liens have been made or taken, such
Liens will constitute perfected and continuing Liens on all the Collateral,
having priority over all other Liens on the Collateral except for the Permitted
Liens identified in Section 7.4 and enforceable against the Borrower and all
third parties.
9.3 Organization and Qualification. The Borrower: (a) is duly
incorporated and organized and validly existing in good standing under the laws
of the State of Delaware; (b) is qualified to do business as a foreign
corporation and is in good standing in the States of Florida (under the name
Cellular Telecom Corporation) and California, which are the only states in which
qualification is necessary in order for it to own or lease its Property and
conduct its business; and (c) has all requisite power and authority to conduct
its business and to own its Property.
9.4 Corporate Name; Prior Transactions. The Borrower has not, during
the past five years, been known by or used any other corporate or fictitious
name, or been a party to any merger or consolidation, or acquired all or
substantially all of the assets of any Person, or acquired any of its Property
out of the ordinary course of business, except as set forth on Schedule 9.4.
9.5 Subsidiaries and Affiliates. Schedule 9.5 is a correct and
complete list of the name and relationship to the Borrower of each and all of
the Borrower's Subsidiaries and other Affiliates. Each Subsidiary is (a) duly
incorporated and organized and validly existing in good standing under the laws
of its state of incorporation set forth on Schedule 9.5, and (b) qualified to do
business as a foreign corporation and in good standing in the states set forth
opposite its name on Schedule 9.5, which are the only states in which such
qualification is necessary in order for it to own or lease its Property and
conduct its business.
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9.6 Financial Statements and Projections.
(a) The Borrower has delivered to the Lender the audited
balance sheet and related statements of income, retained earnings, changes in
financial position, and changes in stockholders equity for the Borrower as of
December 31, 1996 and for the Fiscal Year then ended, accompanied by the report
thereon of the Borrower's independent certified public accountants, BDO Seidman.
The Borrower has also delivered to the Lender the unaudited balance sheet and
related statements of income and changes in financial position for the Borrower,
as at October 31, 1997 and for the 10 months then ended. Such financial
statements are attached hereto as Exhibit B-l. All such financial statements
have been prepared in accordance with GAAP and present accurately and fairly the
Borrower's financial position as at the dates thereof and its results of
operations for the periods then ended.
(b) The Latest Projections represent the Borrower's best
estimate of the Borrower's future financial performance for the periods set
forth therein. The Latest Projections have been prepared on the basis of the
assumptions set forth therein, which the Borrower believes are fair and
reasonable in light of current and reasonably foreseeable business conditions.
9.7 Capitalization. The Borrower's authorized capital stock consists
of 15,000,000 shares of common stock, par value $0.01 per share, of which
4,415,902 shares are validly issued and outstanding, fully paid and
nonassessable, and of which 40% is owned beneficially and of record by Ben Neman
with the balance of such shares owned publicly with no other known ownership
concentration in excess of 10%.
9.8 Solvency. The Borrower is Solvent prior to and after giving
effect to the making of each Revolving Loan.
9.9 Debt. The Borrower has no Debt, except (a) the Obligations, (b)
Debt set forth in the most recent Financial Statements delivered to the Lender,
or the notes thereto, (c) trade payables and other contractual obligations
arising in the ordinary course of Borrower's business since the date of such
Financial Statements, and (d) Debt incurred since the date of such Financial
Statements to finance Capital Expenditures permitted hereby.
9.10 Distributions. Since January 1, 1997, no Distribution has been
declared, paid, or made upon or in respect of any capital stock or other
securities of the Borrower except as set forth on Schedule 9.10.
9.11 Title to Property. Except for Property which the Borrower
leases, the Borrower has good and marketable title in fee simple to the Premises
and good, indefeasible, and merchantable title to all of its other Property
including, without limitation, the assets reflected on the most recent Financial
Statements delivered to the Lender, except as disposed of since the date thereof
in the ordinary course of Borrower's business.
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9.12 Adequate Assets. The Borrower possesses adequate assets for the
conduct of its business.
9.13 Real Property; Leases. Schedule 9.13 is a correct and complete
list of all real property owned by the Borrower, all leases and subleases of
real or personal property by the Borrower as lessee or sublessee, and all leases
and subleases of real or personal property by the Borrower as lessor or
sublessor. Each of such leases and subleases is valid and enforceable in
accordance with its terms and is in full force and effect and no default by any
party to any such lease or sublease exists.
9.14 Proprietary Rights. Schedule 9.14 is a correct and complete
list of all the Borrower's Proprietary Rights. None of the Proprietary Rights is
subject to any licensing agreement or similar arrangement except as set forth on
Schedule 9.14. None of the Proprietary Rights infringes on or conflicts with any
other Person's Property and no other Person's Property infringes on or conflicts
with the Proprietary Rights. The Proprietary Rights described on Schedule 9.14
constitute all of the Property of such type necessary to the current and
anticipated future conduct of the Borrower's business.
9.15 Trade Names and Terms of Sale. All trade names or styles under
which the Borrower will sell Inventory or create Accounts, or to which
instruments in payment of Accounts may be made payable, are listed on Schedule
9.15.
9.16 Litigation. Except as set forth on Schedule 9.16, there is no
pending or, to the best of the Borrower's knowledge, threatened action, suit,
proceeding, or counterclaim by any Person, or investigation by any Public
Authority, or any basis for any of the foregoing, which may materially and
adversely affect the Collateral, the repayment of the Obligations, the Lender's
rights under the Loan Documents, or the Borrower's Property, business,
operations, or condition (financial or otherwise).
9.17 Restrictive Agreements. The Borrower is not a party to any
contract or agreement, and is not subject to any charter or other corporate
restriction, which affects its ability to execute, deliver, and perform the Loan
Documents and repay the Obligations or which materially and adversely affects
the Borrower's Property, business, operations, or condition (financial or
otherwise).
9.18 Labor Disputes. Except as set forth on Schedule 9.18: (a) there
is no collective bargaining agreement or other labor contract covering employees
of the Borrower or any of its Subsidiaries; (b) no such collective bargaining
agreement or other labor contract is scheduled to expire during the term of this
Agreement; (c) no union of other labor organization is seeking to organize, or
to be recognized as, a collective bargaining unit of employees of the Borrower
or any of its Subsidiaries or for any similar purpose; and (d) there is no
pending or, to the best of the Borrower's knowledge, threatened strike, work
stoppage, material unfair labor practice claims, or other material labor dispute
against or affecting the Borrower or any of its Subsidiaries or their respective
employees.
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9.19 Environmental Laws.
(a) The Borrower and its Subsidiaries have complied in all
material respects with all Environmental Laws applicable to their respective
Premises and businesses, and neither the Borrower nor any Subsidiary nor any of
their respective present Premises or operations, nor their past property or
operations, is subject to any enforcement order from or liability agreement with
any Public Authority or private Person respecting (i) compliance with any
Environmental Law or (ii) any potential liabilities and costs or remedial action
arising from the Release or threatened Release of a Contaminant.
(b) The Borrower and its Subsidiaries have obtained all
permits necessary for their current operations under Environmental Laws, and all
such permits are in good standing and the Borrower and its Subsidiaries are in
compliance with all terms and conditions of such permits.
(c) Neither the Borrower nor any of its Subsidiaries, nor, to
the best of the Borrower's knowledge, any of its predecessors in interest, has
stored, treated or disposed of any hazardous waste, as defined pursuant to 40
CFR Part 261 or any equivalent Environmental Law, on any Premises.
(d) Neither the Borrower nor any of its Subsidiaries has
received any summons, complaint, order or similar written notice that it is not
currently in compliance with, or that any Public Authority is investigating its
compliance with, any Environmental Laws or that it is or may be liable to any
other Person as a result of a Release or threatened Release of a Contaminant.
(e) None of the present or past operations of the Borrower and
its Subsidiaries is the subject of any investigation by any Public Authority
evaluating whether any remedial action is needed to respond to a Release or
threatened Release of a Contaminant.
(f) There is not now, nor to the best of the Borrower's
knowledge has there ever been on or in the Premises:
(i) any underground storage tanks or surface
impoundments,
(ii) any asbestos containing material, or
(iii) any polychlorinated biphenyls (PCB's) used in
hydraulic oils, electrical transformers or other equipment.
(g) Neither the Borrower nor any of its Subsidiaries has filed
any notice under any requirement of Environmental Law reporting a spill or
accidental and unpermitted release or discharge of a Contaminant into the
environment.
(h) Neither the Borrower nor any of its Subsidiaries has
entered into
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any negotiations or settlement agreements with any Person (including, without
limitation, the prior owner of its property) imposing material obligations or
liabilities on the Borrower or any of its Subsidiaries with respect to any
remedial action in response to the Release of a Contaminant or environmentally
related claim.
(i) None of the products manufactured, distributed or sold by
the Borrower or any of its Subsidiaries contains asbestos material.
(j) No Environmental Lien has attached to any Premises of the
Borrower or any of its Subsidiaries.
9.20 No Violation of Law. The Borrower is not in violation of any
law, statute, regulation, ordinance, judgment, order, or decree applicable to it
which violation would in any respect materially and adversely affect the
Collateral, the repayment of the Obligations, the Lender's rights under the Loan
Documents, or the Borrower's Property, business, operations, or condition
(financial or otherwise).
9.21 No Default. The Borrower is not in default with respect to any
note, indenture, loan agreement, mortgage, lease, deed, or other agreement to
which the Borrower is a party or bound, which default could reasonably be
expected to materially and adversely affect the Collateral, the repayment of the
Obligations, the Lender's rights under the Loan Documents, or the Borrower's
Property, business, operations, or condition (financial or otherwise).
9.22 ERISA Compliance.
(a) Each Plan is in compliance in all material respects with
the applicable provisions of ERISA, the Code and other applicable federal and
state law. Each Plan which is intended to qualify under Section 401(a) of the
Code has received a favorable determination letter from the IRS and to the best
knowledge of the Borrower, nothing has occurred which would cause the loss of
such qualification. The Borrower and each ERISA Affiliate have made all required
contributions to any Plan subject to Section 412 of the Code, and no application
for a funding waiver or an extension of any amortization period pursuant to
Section 412 of the Code has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of
Borrower, threatened claims, actions or lawsuits, or action by any Public
Authority, with respect to any Plan which has resulted or could reasonably be
expected to result in a material adverse effect on the Borrower's business or
operations. There has been no prohibited transaction or violation of the
fiduciary responsibility rules with respect to any Plan which has resulted or
could reasonably be expected to result in a material adverse effect on the
Borrower's business or operations.
(c) (i) No ERISA Event has occurred or is reasonably expected
to occur; (ii) no Pension Plan has any unfunded pension liability; (iii) neither
the Borrower nor any ERISA Affiliate has incurred, or reasonably expects to
incur, any liability under Title IV of
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ERISA with respect to any Pension Plan (other than premiums due and not
delinquent under Section 4007 of ERISA); (iv) neither the Borrower nor any ERISA
Affiliate has incurred, or reasonably expects to incur, any liability (and no
event has occurred which, with the giving of notice under Section 4219 of ERISA,
would result in such liability) under Section 4201 or 4243 of ERISA with respect
to a Multiemployer Plan; and (v) neither the Borrower nor any ERISA Affiliate
has engaged in a transaction that could subject any Person to Section 4069 or
4212(c) of ERISA.
9.23 Taxes. The Borrower and its Subsidiaries have filed all tax
returns and other reports required to be filed and have paid all Taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets that are otherwise due and payable.
9.24 Use of Proceeds. None of the transactions contemplated in this
Agreement (including, without limitation, the use of proceeds from the Loans)
will violate or result in the violation of Section 7 of the Securities Exchange
Act of 1934, as amended, or any regulations issued pursuant thereto, including
without limitation, Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System ("Federal Reserve Board"), 12 CFR, Chapter II. Borrower
does not own or intend to carry or purchase any "margin stock" within the
meaning of said Regulation U or G. None of the proceeds of the loans will be
used, directly or indirectly, to purchase or carry (or refinance any borrowing,
the proceeds of which were used to purchase or carry) any "security" within the
meaning of the Securities Exchange Act of 1934, as amended.
9.25 Private Offerings. Borrower has not, directly or indirectly,
offered the Loans for sale to, or solicited offers to buy part thereof from, or
otherwise approached or negotiated with respect thereto with any prospective
purchaser other than Lender. Borrower hereby agrees that neither it nor anyone
acting on its behalf has offered or will offer the Loans or any part thereof or
any similar securities for issue or sale to or solicit any offer to acquire any
of the same from anyone so as to bring the issuance thereof within the
provisions of Section 5 of the Securities Act of 1933, as amended.
9.26 Broker's Fees. No Person is entitled to any brokerage or
finder's fee with respect to the transactions described in this Agreement.
9.27 No Material Adverse Change. No material adverse change has
occurred in the Borrower's Property, business, operations, or condition
(financial or otherwise) since the date of the Financial Statements delivered to
the Lender. On the basis of a comprehensive review and assessment undertaken by
Borrower of Borrower's computer applications and inquiry made of Borrower's
material suppliers, vendors and customers Borrower reasonably believes that the
"Year 2000 problem" (that is, the risk that computer applications used by any
person may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999) will not
result in a material adverse change in the operations, business, properties, or
condition (financial or otherwise) of the Borrower.
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9.28 Disclosure. Neither this Agreement nor any document or
statement furnished to the Lender by or on behalf of the Borrower hereunder
contains any untrue statement of a material fact or omits to state any material
fact necessary in order to make the statements contained herein or therein not
misleading.
10. AFFIRMATIVE AND NEGATIVE COVENANTS. The Borrower covenants that, so
long as any of the Obligations remain outstanding or this Agreement is in
effect, unless otherwise consented to in writing by Lender in its sole
discretion:
10.1 Taxes and Other Obligations. The Borrower and each of its
Subsidiaries shall: (a) file when due all tax returns and other reports which it
is required to file, pay, or provide for the payment, when due, of all Taxes,
fees, assessments and other governmental charges against it or upon its
Property, income, and franchises, make all required withholding and other tax
deposits, and establish adequate reserves for the payment of all such items, and
shall provide to the Lender, upon request, satisfactory evidence of its timely
compliance with the foregoing; and (b) pay when due all Debt owed by it and
perform and discharge in a timely manner all other obligations undertaken by it;
provided, however that the Borrower and its Subsidiaries need not pay any tax,
fee, assessment, governmental charge, or Debt, or perform or discharge any other
obligation, that it is contesting in good faith by appropriate proceedings
diligently pursued.
10.2 Corporate Existence and Good Standing. The Borrower and each of
its Subsidiaries shall maintain its corporate existence and its qualification
and good standing in all states necessary to conduct its business and own its
Property, and shall obtain and maintain all licenses, permits, franchises and
governmental authorizations necessary to conduct its business and own its
Property.
10.3 Compliance with Law and Agreements. The Borrower and each of
its Subsidiaries shall comply with the terms and provisions of each judgment,
law, statute, rule, and governmental regulation applicable to it and each
contract, mortgage, lien, lease, indenture, order, instrument, agreement, or
document to which it is a party or by which it is bound.
10.4 Maintenance of Property and Insurance. The Borrower and each of
its Subsidiaries shall: (a) maintain all of its Property necessary and useful in
its business in good operating condition and repair, ordinary wear and tear
excepted; and (b) in addition to the insurance required by Section 7.7, maintain
with financially sound and reputable insurers such other insurance with respect
to its Property and business against casualties and contingencies of such types
(including, without limitation, business interruption, environmental liability,
public liability, product liability, and larceny, embezzlement or other criminal
misappropriation) and in such amounts as is customary for Persons of established
reputation engaged in the same or a similar business and similarly situated,
naming the Lender as additional insured under each such policy.
10.5 Environmental Laws. The Borrower shall conduct its business in
full
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compliance with all Environmental Laws applicable to it, including, without
limitation, those relating to the Borrower's generation, handling, use, storage,
and disposal of hazardous and toxic wastes and substances. The Borrower shall
take prompt and appropriate action to respond to any noncompliance with
Environmental Laws and shall regularly report to the Lender on such response.
Without limiting the generality of the foregoing, whenever the Borrower gives
notice to the Lender pursuant to Section 8.3(g) the Borrower shall, at the
Lender's request and the Borrower's expense: (a) cause an independent
environmental engineer acceptable to the Lender to conduct such tests of the
site where the Borrower's noncompliance or alleged noncompliance with
Environmental Laws has occurred and prepare and deliver to the Lender a report
setting forth the results of such tests, a proposed plan for responding to any
environmental problems described therein, and an estimate of the costs thereof;
and (b) provide to the Lender a supplemental report of such engineer whenever
the scope of the environmental problems, or the Borrower's response thereto or
the estimated costs thereof, shall change.
10.6 ERISA. The Borrower shall cause each Plan, which has been
designated to be so, to be qualified within the meaning of Section 401(a) of the
Code and to be administered in all respects in compliance with Section 401(a) of
the Code. The Borrower shall cause each Plan to be administered in all respect
in compliance with ERISA.
10.7 Mergers, Consolidations, Acquisitions, or Sales. Neither the
Borrower nor any of its Subsidiaries shall enter into any transaction of merger,
reorganization, or consolidation, or transfer, sell, assign, lease, or otherwise
dispose of all or any part of its Property, or wind up, liquidate or dissolve,
or agree to do any of the foregoing, except sales of Inventory in the ordinary
course of its business and dispositions of equipment otherwise permitted hereby.
10.8 Distributions; Capital Changes. Neither the Borrower nor any of
its Subsidiaries shall: (a) directly or indirectly declare or make, or incur any
liability to make, any Distribution, except Distributions to the Borrower by a
Subsidiary wholly owned by the Borrower; or (b) make any change in its capital
structure which could adversely affect the repayment of the Obligations.
10.9 Transactions Affecting Collateral or Obligations. Neither the
Borrower nor any of its Subsidiaries shall enter into any transaction which
materially and adversely affects the Collateral or the Borrower's ability to
repay the Obligations.
10.10 Guaranties. Neither the Borrower nor any of its Subsidiaries
shall make, issue, or become liable on any Guaranty, except Guaranties in favor
of the Lender and endorsements of instruments for deposit.
10.11 Debt. Neither the Borrower nor any of its Subsidiaries shall
incur or maintain any Debt, other than: (a) the Obligations; (b) trade payables
and contractual obligations to suppliers and customers incurred in the ordinary
course of business; and (c) other Debt existing on the Closing Date and
reflected in the Financial Statements attached as Exhibit B-l.
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10.12 Prepayment. Neither the Borrower nor any of its Subsidiaries
shall voluntarily prepay any Debt, except the Obligations in accordance with
their terms.
10.13 Transactions with Affiliates. Except as set forth below,
neither the Borrower nor any of its Subsidiaries shall: sell, transfer,
distribute, or pay any money or Property to any Affiliate, or lend or advance
money or Property to any Affiliate, or invest in (by capital contribution or
otherwise) or purchase or repurchase any stock or indebtedness or any Property
of any Affiliate, or become liable on any Guaranty of the indebtedness,
dividends, or other obligations of any Affiliate. Notwithstanding the foregoing,
if no Event of Default has occurred and is continuing, the Borrower and its
Subsidiaries may engage in transactions with Affiliates in the ordinary course
of business in amounts and upon terms fully disclosed to the Lender and no less
favorable to the Borrower or such Subsidiary than would obtain in a comparable
arm's length transaction with a third party who is not an Affiliate; provided,
that (i) the aggregate amount of Receivables and other obligations owing from
Affiliates to Borrower shall not exceed $500,000 at any one time and (ii) all
Receivables and other obligations owing from Affiliates to Borrower shall be
paid within 30 days of the date of invoice.
10.14 Management Compensation. Neither the Borrower nor any of its
Subsidiaries shall, directly or indirectly: (a) pay any compensation in any form
(including, without limitation, salary, bonuses, commissions, fees, and
incentive compensation) to any Management Person (as hereinafter defined) in
excess of the amounts for such Person set forth on Schedule 10.14, which amounts
represent annual salaries for 1998, except for reasonable fees for professional
services rendered in the ordinary course of Borrower's business on an arm's
length basis or (b) pay any such compensation to any Management Person in
respect of any subsequent Fiscal Year which exceeds 15% of such Person's
compensation in respect of the immediately preceding Fiscal Year. For the
purposes hereof, "Management Person" means: (x) Ben Neman, James Bunting and
John Snyder, and each director of the Borrower and (y) any Person succeeding to
any or all of the positions or duties of a Person listed in clause (x).
10.15 Business Conducted. The Borrower and its Subsidiaries shall
not engage, directly or indirectly, in any line of business other than the
businesses in which the Borrower and its Subsidiaries are engaged on the Closing
Date.
10.16 Liens. Neither the Borrower nor any of its Subsidiaries shall
create, incur, assume, or permit to exist any Lien on any Property now owned or
hereafter acquired by any of them, except Permitted Liens.
10.17 Sale and Leaseback Transactions. Neither the Borrower nor any
of its Subsidiaries shall, directly or indirectly, enter into any arrangement
with any Person providing for the Borrower or a Subsidiary to lease or rent
Property that the Borrower or a Subsidiary has or will sell or otherwise
transfer to such Person.
10.18 New Subsidiaries. The Borrower shall not, directly or
indirectly, organize or acquire any Subsidiary other than those listed on
Schedule 10.18.
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10.19 Restricted Investments. Neither the Borrower nor any of its
Subsidiaries shall make any Restricted Investment.
10.20 Capital Expenditures. Neither the Borrower nor any of its
Subsidiaries shall make or incur any Capital Expenditure if, after giving effect
thereto, the aggregate amount of all Capital Expenditures by the Borrower and
its Subsidiaries in any Fiscal year would exceed $200,000.
10.21 Operating Lease Obligations. Neither the Borrower nor any of
its Subsidiaries shall enter into any lease of real or personal property as
lessee or sublessee (other than Capital Leases), if, after giving effect
thereto, the aggregate amount of Rentals (as hereinafter defined) payable by the
Borrower and its Subsidiaries in any Fiscal Year in respect of such lease and
all other such leases would exceed $330,000 (such amount being referred to
herein as "Permitted Rentals"). The term "Rentals" means all payments due from
the lessee or sublessee under a lease, including, without limitation, basic
rent, percentage rent, property taxes, utility or maintenance costs, and
insurance premiums.
10.22 EBITDA. The Borrower will achieve EBITDA of not less than the
following amounts as of the end of the corresponding periods, calculated on a
cumulative fiscal year-to-date basis:
Period Amount
------ ------
fiscal quarter ended 03/31/98 $125,000
fiscal quarter ended 06/30/98 250,000
fiscal quarter ended 09/30/98 375,000
fiscal quarter ended 12/31/98 500,000
fiscal quarter ended 03/31/99 187,500
fiscal quarter ended 06/30/99 375,000
fiscal quarter ended 09/30/99 562,500
fiscal quarter ended 12/31/99 750,000
fiscal quarter ended 03/31/00 and each first 250,000
fiscal quarter thereafter
fiscal quarter ended 06/30/00 and each second 500,000
fiscal quarter thereafter
fiscal quarter ended 09/30/00 and each third 750,000
fiscal quarter thereafter
fiscal quarter ended 12/31/00 and each fiscal
year-end thereafter 1,000,000
10.23 Adjusted Tangible Net Worth. The Borrower will maintain
Adjusted Tangible Net Worth of not less than the following amounts during the
following periods:
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Period Amount
------ ------
fiscal quarter ended 12/31/97 $5,500,000
fiscal quarter ended 03/31/98 5,500,000
fiscal quarter ended 06/30/98 5,500,000
fiscal quarter ended 09/30/98 5,500,000
fiscal quarter ended 12/31/98 5,600,000
fiscal quarter ended 03/31/99 5,600,000
fiscal quarter ended 06/30/99 5,850,000
fiscal quarter ended 09/30/99 5,850,000
fiscal quarter ended 12/31/99 6,100,000
fiscal quarter ended 03/31/00 6,100,000
fiscal quarter ended 06/30/00 6,400,000
fiscal quarter ended 09/30/00 6,400,000
fiscal quarter ended 12/31/00 and thereafter 6,750,000
10.24 Further Assurances. The Borrower shall execute and deliver, or
cause to be executed and delivered, to the Lender such documents and agreements,
and shall take or cause to be taken such actions, as the Lender may, from time
to time, request to carry out the terms and conditions of this Agreement and the
other Loan Documents.
11. CLOSING; CONDITIONS TO CLOSING. The Lender will not be obligated to
make the initial Loans or to obtain any Letters of Credit on the Closing Date,
unless the following conditions precedent have been satisfied in a manner
satisfactory to Lender:
11.1 Conditions Precedent to Making of Loans and Issuance of Letters
of Credit on the Closing Date.
(a) Representations and Warranties; Covenants. The Borrower's
representations and warranties contained in this Agreement and the other Loan
Documents shall be correct and complete; the Borrower shall have performed and
complied with all covenants, agreements, and conditions contained herein and in
the other Loan Documents which are required to have been performed or complied
with.
(b) Delivery of Documents. The Borrower shall have delivered,
or caused to be delivered, to the Lender such documents, instruments and
agreements as the Lender shall request in connection herewith, duly executed by
all parties thereto other than the Lender, and in form and substance
satisfactory to the Lender and its counsel.
(c) Termination of Liens. The Lender shall have received duly
executed UCC-3 Termination Statements and other instruments, in form and
substance satisfactory to the Lender, as shall be necessary to terminate and
satisfy all Liens on the Property of the Borrower and its Subsidiaries except
Permitted Liens.
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(d) Closing Fee. The Borrower shall have paid in full the
Closing Fee.
(e) Payment of Fees and Expenses. The Borrower shall have paid
all fees and expenses of the Lender's outside counsel, Orrick, Herrington &
Sutcliffe LLP, and all other fees and expenses of the Lender incurred in
connection with any of the Loan Documents and the transactions contemplated
thereby.
(f) Required Approvals. The Lender shall have received
certified copies of all consents or approvals of any Public Authority or other
Person which the Lender determines is required in connection with the
transactions contemplated by this Agreement.
(g) No Material Adverse Change. There shall have occurred no
material adverse change in the Borrower's business or financial condition or in
the Collateral since September 30, 1997, and the Lender shall have received a
certificate of Borrower's chief executive officer to such effect.
(h) Proceedings. All proceedings to be taken in connection
with the transactions contemplated by this Agreement, and all documents,
contemplated in connection herewith, shall be satisfactory in form and substance
to the Lender and its counsel.
(i) Projections. The Lender shall have received and approved
the Borrower's Latest Projections.
(j) Opinion. The Lender shall have received the opinion of
Borrower's counsel, which opinion shall be in form and substance acceptable to
the Lender and its counsel.
(k) Dominion of Funds. The lock-box account required pursuant
to Section 7.10(a) hereof shall have been established.
(l) Excess Availability. After taking into account the
Revolving Loans and the Letters of Credit issued on the Closing Date and with
all obligations of the Borrower being current, there shall be remaining
Availability of at least $1,500,000.
11.2 Conditions Precedent to Each Loan. The obligation of the Lender
to make each Loan or to provide for the issuance of any Letter of Credit shall
be subject to the conditions precedent that on the date of any such extension of
credit the following statements shall be true, and the acceptance by the
Borrower of any extension of credit shall be deemed to be a statement to the
effect set forth in clauses (a) and (b), with the same effect as the delivery to
the Lender of a certificate signed by the chief executive officer and chief
financial officer of the Borrower, dated the date of such extension of credit,
stating that:
(a) The representations and warranties contained in this
Agreement and the other Loan Documents are correct in all material respects on
and as of the date of such
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extension of credit as though made on and as of such date, except to the extent
the Lender has been notified by the Borrower that any representation or warranty
is not correct and the Lender has explicitly waived in writing compliance with
such representation or warranty; and
(b) No Default or Event of Default has occurred and is
continuing, or would result from such extension of credit.
12. DEFAULT; REMEDIES.
12.1 Events of Default. It shall constitute an event of default
("Event of Default") if any one or more of the following shall occur for any
reason:
(a) failure to make payment of principal, interest, fees or
premium on any of the Obligations when due;
(b) any representation or warranty made or deemed made by the
Borrower in this Agreement, any of the other Loan Documents, any Financial
Statement, or any certificate furnished by the Borrower or any Subsidiary at any
time to the Lender shall prove to be untrue in any material respect as of the
date when made, deemed made, or furnished;
(c) default shall occur in the observance or performance of
any of the covenants and agreements contained in this Agreement, the other Loan
Documents, or any other agreement entered into at any time to which the Borrower
and the Lender are party, or if any such agreement or document shall terminate
(other than in accordance with its terms or with the written consent of the
Lender) or become void or unenforceable without the written consent of the
Lender;
(d) default shall occur in the payment of any principal or
interest on any indebtedness for borrowed money (other than the Obligations)
beyond any period of grace provided with respect thereto;
(e) the Borrower or any Subsidiary shall: (i) file a voluntary
petition in bankruptcy or file a voluntary petition or an answer or otherwise
commence any action or proceeding seeking reorganization, arrangement or
readjustment of its debts or for any other relief under the Federal Bankruptcy
Code, as amended, or under any other bankruptcy or insolvency act or law, state
or federal, now or hereafter existing, or consent to, approve of, or acquiesce
in, any such petition, action or proceeding; (ii) apply for or acquiesce in the
appointment of a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar officer for it or for all or any part of its Property; (iii)
make an assignment for the benefit of creditors; or (iv) be unable generally to
pay its debts as they become due;
(f) an involuntary petition shall be filed or an action or
proceeding otherwise commenced seeking reorganization, arrangement or
readjustment of the Borrower's or any Subsidiary's debts or for any other relief
under the Federal Bankruptcy Code, as amended, or
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under any other bankruptcy or insolvency act or law, state or federal, now or
hereafter existing;
(g) a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar officer for the Borrower or any Subsidiary or for all or any
part of their Property shall be appointed involuntarily; or a warrant of
attachment, execution or similar process shall be issued against any part of the
Property of the Borrower or any Subsidiary;
(h) the Borrower or any Subsidiary shall file a certificate of
dissolution under applicable state law or shall be liquidated, dissolved or
wound-up or shall commence or have commenced against it any action or proceeding
for dissolution, winding-up or liquidation, or shall take any corporate action
in furtherance thereof;
(i) all or any part of the Property of the Borrower shall be
nationalized, expropriated or condemned, seized or otherwise appropriated, or
custody or control of such Property or of the Borrower shall be assumed by any
Public Authority or any court of competent jurisdiction at the instance of any
Public Authority, except where contested in good faith by proper proceedings
diligently pursued where a stay of enforcement is in effect;
(j) one or more final judgments for the payment of money
aggregating in excess of $100,000 (whether or not covered by insurance) shall be
rendered against the Borrower or any Subsidiary and the Borrower or such
Subsidiary shall fail to discharge the same within thirty (30) days from the
date of notice of entry thereof or to appeal therefrom;
(k) any loss, theft, damage or destruction of any item or
items of Collateral occurs which: (i) materially and adversely affects the
operation of the Borrower's business or (ii) is material in amount and is not
adequately covered by insurance;
(l) Ben Neman ceases to own or have the right to control the
voting of at least 33% of the voting stock of Borrower;
(m) any event or condition shall occur or exist with respect
to a Plan that could, in the Lender's reasonable judgment, subject the Borrower
or any Subsidiary to any tax, penalty or liability under ERISA, the Code or
otherwise which in the aggregate is material in relation to the business,
operations, Property or financial or other condition of the Borrower; or
(n) there occurs any material adverse change in the Borrower's
Property, business, operations, or condition (financial or otherwise).
13. REMEDIES.
(a) If an Event of Default exists, the Lender may, without
notice to or demand on the Borrower, do one or more of the following at any time
or times and in any order: (i) reduce the Availability or one or more of the
elements thereof; (ii) restrict the amount of or refuse to make Revolving Loans
and restrict or refuse to arrange for Letters of Credit;
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(iii) terminate this Agreement; (iv) declare any or all Obligations to be
immediately due and payable (provided however that upon the occurrence of any
Event of Default described in Sections 12.1(e). 12.1(f), 12.1(g), or 12.1(h),
all Obligations shall automatically become immediately due and payable without
declaration or demand); and (v) pursue its other rights and remedies under the
Loan Documents and applicable law.
(b) If an Event of Default exists: (i) the Lender shall have,
in addition to all other rights, the rights and remedies of a secured party
under the UCC; (ii) the Lender may, at any time, take possession of the
Collateral and keep it on the Borrower's premises, at no cost to the Lender, or
remove any part of it to such other place or places as the Lender may desire, or
the Borrower shall, upon the Lender's demand, at the Borrower's cost, assemble
the Collateral and make it available to the Lender at a place reasonably
convenient to the Lender; and (iii) the Lender may sell and deliver any
Collateral at public or private sales, for cash, upon credit or otherwise, at
such prices and upon such terms as the Lender deems advisable, in its sole
discretion, and may, if the Lender deems it reasonable, postpone or adjourn any
sale of the Collateral by an announcement at the time and place of sale or of
such postponed or adjourned sale without giving a new notice of sale. Without in
any way requiring notice to be given in the following manner, the Borrower
agrees that any notice by the Lender of sale, disposition or other intended
action hereunder or in connection herewith, whether required by the UCC or
otherwise, shall constitute reasonable notice to the Borrower if such notice is
mailed by registered or certified mail, return receipt requested, postage
prepaid, or is delivered personally against receipt, at least five (5) days
prior to such action to the Borrower's address specified in or pursuant to
Section 15.11. If any Collateral is sold on terms other than payment in full at
the time of sale, no credit shall be given against the Obligations until the
Lender receives payment, and if the buyer defaults in payment, the Lender may
resell the Collateral without further notice to the Borrower. In the event the
Lender seeks to take possession of all or any portion of the Collateral by
judicial process, the Borrower irrevocably waives: (a) the posting of any bond,
surety or security with respect thereto which might otherwise be required; (b)
any demand for possession prior to the commencement of any suit or action to
recover the Collateral; and (c) any requirement that the Lender retain
possession and not dispose of any Collateral until after trial or final
judgment. The Borrower agrees that the Lender has no obligation to preserve
rights to the Collateral or marshal any Collateral for the benefit of any
Person. The Lender is hereby granted a license or other right to use, without
charge, the Borrower's labels, patents, copyrights, name, trade secrets, trade
names, trademarks, and advertising matter, or any similar property, in
completing production of, advertising or selling any Collateral, and the
Borrower's rights under all licenses and all franchise agreements shall inure to
the Lender's benefit. The proceeds of sale shall be applied first to all
expenses of sale, including attorneys' fees, and second, in whatever order the
Lender elects, to all Obligations. The Lender will return any excess to the
Borrower or such other Person as shall be legally entitled thereto and the
Borrower shall remain liable for any deficiency.
(c) If an Event of Default occurs, the Borrower hereby waives
(i) all rights to notice and hearing prior to the exercise by the Lender of the
Lender's rights to repossess the Collateral without judicial process or to
replevy, attach or levy upon the Collateral without
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notice or hearing, and (ii) all rights of setoff and counterclaim against the
Lender.
(d) If the Lender terminates this Agreement upon an Event of
Default, the Borrower shall pay the Lender, immediately upon termination, a fee
equal to the early termination fee that would have been payable under Section 14
if this Agreement had been terminated on that date pursuant to the Borrower's
election.
14. TERM AND TERMINATION. This Agreement shall expire on January __, 2001
(the "Stated Termination Date") unless earlier terminated or automatically
extended as provided in this Section. This Agreement shall automatically be
renewed on the Stated Termination Date for successive one-year terms, unless
this Agreement is terminated as provided below. The Lender and the Borrower
shall have the right to terminate this Agreement, without premium or penalty, on
the Stated Termination Date or at the end of any renewal term by giving the
other written notice not less than sixty (60) days prior to the end of such term
by registered or certified mail. The Borrower may also terminate this Agreement
at any time prior to the Stated Termination Date or any renewal term if: (a) it
gives the Lender sixty (60) days prior written notice of termination by
registered or certified mail; (b) it pays and performs all Obligations on or
prior to the effective date of termination; and (c) it pays the Lender, on or
prior to the effective date of termination, and in addition to any other
prepayment premium required hereunder and the fees required by Section 6.4, (i)
three percent (3.0%) of the average amount of the Revolving Loans and Letters of
Credit outstanding during the prior 180 day period (or lesser period if within
180 days of the Closing Date) if such termination is made on or prior to the
first Anniversary Date; (ii) two percent (2.0%) of the average amount of the
Revolving Loans and Letters of Credit outstanding during the prior 180 day
period if such termination is after the first Anniversary Date but prior to the
second Anniversary Date; and (iii) one percent (1.0%) of the average amount of
the Revolving Loans and Letters of Credit outstanding during the prior 180 day
period if such termination is after the second Anniversary Date, but prior to
the third Anniversary Date or any subsequent Anniversary Date. Notwithstanding
the foregoing, if, after the first Anniversary Date, the Obligations are repaid
in full as the result of a refinancing by Bank or one of Bank's Affiliates,
Borrower will not be obligated to pay the prepayment premiums set forth in
clauses (ii) or (iii) above. In addition, if Borrower prepays the Obligations in
full within 60 days after Lender has charged Borrower additional amounts
pursuant to Section 6.3(b), the prepayment premiums set forth above shall be
reduced by one-half. The Lender may also terminate this Agreement without notice
upon and at any time during the continuation of an Event of Default. Upon the
effective date of termination of this Agreement for any reason whatsoever, all
Obligations shall become immediately due and payable and Borrower shall
immediately arrange for the cancellation of Letters of Credit then outstanding.
Notwithstanding the termination of this Agreement, until all Obligations are
paid and performed in full, the Lender shall retain all its rights and remedies
hereunder (including, without limitation, in all then existing and after-arising
Collateral).
15. MISCELLANEOUS.
15.1 Cumulative Remedies; No Prior Recourse to Collateral. The
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enumeration herein of the Lender's rights and remedies is not intended to be
exclusive, and such rights and remedies are in addition to and not by way of
limitation of any other rights or remedies that the Lender may have under the
UCC or other applicable law. The Lender shall have the right, in its sole
discretion, to determine which rights and remedies are to be exercised and in
which order. The exercise of one right or remedy shall not preclude the exercise
of any others, all of which shall be cumulative. The Lender may, without
limitation, proceed directly against the Borrower to collect the Obligations
without any prior recourse to the Collateral.
15.2 No Implied Waivers. No act, failure or delay by the Lender
shall constitute a waiver of any of its rights and remedies. No single or
partial waiver by the Lender of any provision of this Agreement or any other
Loan Document, or of breach or default hereunder or thereunder, or of any right
or remedy which the Lender may have, shall operate as a waiver of any other
provision, breach, default, right or remedy or of the same provision, breach,
default, right or remedy on a future occasion. No waiver by the Lender shall
affect its rights to require strict performance of this Agreement.
15.3 Severability. If any provision of this Agreement shall be
prohibited or invalid, under applicable law, it shall be ineffective only to
such extent, without invalidating the remainder of this Agreement.
15.4 Governing Law. This Agreement shall be deemed to have been made
in the State of California and shall be governed by and interpreted in
accordance with the laws of such state, except that no doctrine of choice of law
shall be used to apply the laws of any other state or jurisdiction.
15.5 Consent to Jurisdiction and Venue; Service of Process. The
Borrower agrees that, in addition to any other courts that may have jurisdiction
under applicable laws, any action or proceeding to enforce or arising out of
this Agreement or any of the other Loan Documents may be commenced in the
Superior Court of the State of California for Los Angeles County, or in the
United States District Court for the Central District of California, and the
Borrower consents and submits in advance to such jurisdiction and agrees that
venue will be proper in such courts on any such matter. The Borrower hereby
waives personal service of process and agrees that a summons and complaint
commencing an action or proceeding in any such court shall be properly served
and shall confer personal jurisdiction if served by registered or certified mail
to the Borrower. Should the Borrower fail to appear or answer any summons,
complaint, process or papers so served within thirty (30) days after the mailing
or other service thereof, it shall be deemed in default and an order or judgment
may be entered against it as demanded or prayed for in such summons, complaint,
process or papers. The choice of forum set forth in this section shall not be
deemed to preclude the enforcement of any judgment obtained in such forum, or
the taking of any action under this Agreement to enforce the same, in any
appropriate jurisdiction.
15.6 Waiver of Jury Trial. THE BORROWER HEREBY WAIVES
TRIAL BY JURY, RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE
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COUNTERCLAIMS IN ANY LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION
WITH, OR ARISING OUT OF THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE
OBLIGATIONS OR THE COLLATERAL, OR ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT
HERETO OR THERETO, OR ANY OTHER CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN THE
BORROWER AND THE LENDER. THE BORROWER CONFIRMS THAT THE FOREGOING WAIVERS ARE
INFORMED AND FREELY MADE.
15.7 Arbitration; Reference Proceeding.
(a) ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES,
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS AGREEMENT
OR ANY AGREEMENTS OR INSTRUMENTS RELATING HERETO OR DELIVERED IN CONNECTION
HEREWITH AND ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL AT THE
REQUEST OF ANY PARTY BE DETERMINED BY ARBITRATION. THE ARBITRATION SHALL BE
CONDUCTED IN ACCORDANCE WITH THE UNITED STATES ARBITRATION ACT (TITLE 9, U.S.
CODE), NOTWITHSTANDING ANY CHOICE OF LAW PROVISION IN THIS AGREEMENT, AND UNDER
THE COMMERCIAL RULES OF THE AMERICAN ARBITRATION ASSOCIATION ("AAA"). THE
ARBITRATION SHALL BE CONDUCTED WITHIN LOS ANGELES COUNTY, CALIFORNIA. THE
ARBITRATOR(S) SHALL GIVE EFFECT TO STATUTES OF LIMITATION IN DETERMINING ANY
CLAIM. ANY CONTROVERSY CONCERNING WHETHER AN ISSUE IS ARBITRABLE SHALL BE
DETERMINED BY THE ARBITRATOR(S). JUDGMENT UPON THE ARBITRATION AWARD MAY BE
ENTERED IN ANY COURT HAVING JURISDICTION. THE INSTITUTION AND MAINTENANCE OF AN
ACTION FOR JUDICIAL RELIEF OR PURSUIT OF A PROVISIONAL OR ANCILLARY REMEDY SHALL
NOT CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE PLAINTIFF, TO
SUBMIT THE CONTROVERSY OR CLAIM TO ARBITRATION IF ANY OTHER PARTY CONTESTS SUCH
ACTION FOR JUDICIAL RELIEF.
(b) Notwithstanding the provisions of subparagraph (a), no
controversy or claim shall be submitted to arbitration without the consent of
all parties if, at the time of the proposed submission, such controversy or
claim arises from or relates to an obligation to the Lender which is secured by
real property collateral located in California. If all parties do not consent to
submission of such a controversy or claim to arbitration, the controversy or
claim shall be determined as provided in subparagraph (c).
(c) A controversy or claim which is not submitted to
arbitration as provided and limited in subparagraphs (a) and (b) shall, at the
request of any party, be determined by a reference in accordance with California
Code of Civil Procedure Section 638 et seq. If such an election is made, the
parties shall designate to the court a referee or referees selected under the
auspices of the AAA in the same manner as arbitrators are selected in
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AAA-sponsored proceedings. The presiding referee of the panel, or the referee if
there is a single referee, shall be an active attorney or retired judge.
Judgment upon the award rendered by such referee or referees shall be entered in
the court in which such proceeding was commenced in accordance with California
Code of Civil Procedure Sections 644 and 645.
(d) No provision of this paragraph shall limit the right of
either party to this Agreement to exercise self-help remedies such as setoff, to
foreclose against or sell any real or personal property collateral or security,
or to obtain provisional or ancillary remedies from a court of competent
jurisdiction before, after, or during the pendency of any arbitration or other
proceeding. The exercise of a remedy does not waive the right of either party to
resort to arbitration or reference. At the Lender's option, foreclosure under a
deed of trust or mortgage may be accomplished either by exercise of power of
sale under the deed of trust or mortgage or by judicial foreclosure.
15.8 Survival of Representations and Warranties. All of the
Borrower's representations and warranties contained in this Agreement shall
survive the execution, delivery, and acceptance thereof by the parties,
notwithstanding any investigation by the Lender or its agents.
15.9 Other Security and Guaranties. The Lender may, without notice
or demand and without affecting the Borrower's obligations hereunder, from time
to time: (a) take from any Person and hold collateral (other than the
Collateral) for the payment of all or any part of the Obligations and exchange,
enforce or release such collateral or any part thereof; and (b) accept and hold
any endorsement or guaranty of payment of all or any part of the Obligations and
release or substitute any such endorser or guarantor, or any Person who has
given any Lien in any other collateral as security for the payment of all or any
part of the Obligations, or any other Person in any way obligated to pay all or
any part of the Obligations.
15.10 Fees and Expenses. The Borrower shall pay to the Lender on
demand all costs and expenses that the Lender pays or incurs in connection with
the negotiation, preparation, consummation, administration, enforcement, and
termination of this Agreement and the other Loan Documents, including, without
limitation: (a) attorneys' and paralegals' fees and disbursements of counsel to
the Lender (including, without limitation, a reasonable estimate of the
allocable cost of in-house counsel and staff); (b) costs and expenses including
attorneys' and paralegals' fees and disbursements (including, without
limitation, a reasonable estimate of the allocable cost of in-house counsel and
staff) for any amendment, supplement, waiver, consent, or subsequent closing in
connection with the Loan Documents and the transactions contemplated thereby;
(c) costs and expenses of lien and title searches and title insurance; (d)
Taxes, fees and other charges for filing financing statements and continuations,
and other actions to perfect, protect, and continue the Security Interest; (e)
sums paid or incurred to pay any amount or take any action required of the
Borrower under the Loan Documents that the Borrower fails to pay or take; (f)
costs of appraisals, inspections, and verifications of the Collateral,
including, without limitation, travel, lodging, and meals together with an
allocated charge of $600 per day for each auditor employed by the Lender for
inspections of the Collateral and the Borrower's operations;
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<PAGE>
(g) costs and expenses of forwarding loan proceeds, collecting checks and other
items of payment, and establishing and maintaining Payment Accounts and lock
boxes; (h) all amounts that the Borrower is required to pay in connection with
the Letters of Credit; (i) costs and expenses of preserving and protecting the
Collateral; and (j) costs and expenses including attorneys' and paralegals' fees
and disbursements (including, without limitation, a reasonable estimate of the
allocable cost of in-house counsel and staff) paid or incurred to obtain payment
of the Obligations, enforce the Security Interest, sell or otherwise realize
upon the Collateral, and otherwise enforce the provisions of the Loan Documents,
or to defend any claims made or threatened against the Lender arising out of the
transactions contemplated hereby (including without limitation, preparations for
and consultations concerning any such matters). The foregoing shall not be
construed to limit any other provisions of the Loan Documents regarding costs
and expenses to be paid by the Borrower. All of the foregoing costs and expenses
shall be charged to the Borrower's loan account as Revolving Loans. In any
arbitration between the parties conducted pursuant to Section 15.7, the
prevailing party shall be entitled to reimbursement of its reasonable attorneys'
fees and costs in connection therewith in addition to all other relief to which
the prevailing party or parties may be entitled.
15.11 Notices. Except as otherwise provided herein, all notices,
demands, and requests that either party is required or elects to give to the
other shall be in writing, shall be delivered personally against receipt, or
sent by recognized overnight courier services, or mailed by registered or
certified mail, return receipt requested, postage prepaid, and shall be
addressed to the party to be notified as follows:
If to the Lender: BankAmerica Business Credit, Inc.
55 South Lake Avenue, Suite 900
Pasadena, California 91101
Attention: Portfolio Manager
with a copy to: Bank of America N.T. & S.A., Legal Department
10124 Old Grove Road
San Diego, California 92131
Attention: Thomas Montgomery, Esq.
and a copy to: Orrick, Herrington & Sutcliffe LLP
777 South Figueroa Street, Suite 3200
Los Angeles, California 90017
Attention: Gary D. Samson, Esq.
If to the Borrower: Intellicell Corp.
6929 Hayvenhurst Ave.
Van Nuys, California 91406
Attention: James Bunting
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<PAGE>
with a copy to: Sharma & Herron
12400 Wilshire Boulevard, Suite 400
Los Angeles, California 90025
Attention: Vinay Sharma, Esq.
or to such other address as each party may designate for itself by like notice.
Any such notice, demand, or request shall be deemed given when received if
personally delivered or sent by overnight courier, or when deposited in the
United States mails, postage paid, if sent by registered or certified mail.
15.12 Indemnification. BORROWER HEREBY INDEMNIFIES, DEFENDS AND
HOLDS LENDER, AND ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL,
HARMLESS FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES,
DEFICIENCIES, JUDGMENTS, PENALTIES OR EXPENSES IMPOSED ON, INCURRED BY OR
ASSERTED AGAINST ANY OF THEM, WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL ARISING
OUT OF OR BY REASON OF ANY LITIGATION, INVESTIGATIONS, CLAIMS, OR PROCEEDINGS
(WHETHER BASED ON ANY FEDERAL, STATE OR LOCAL LAWS OR OTHER STATUTES OR
REGULATIONS, INCLUDING, WITHOUT LIMITATION, SECURITIES, ENVIRONMENTAL, OR
COMMERCIAL LAWS AND REGULATIONS, UNDER COMMON LAW OR AT EQUITY, OR ON CONTRACT
OR OTHERWISE) COMMENCED OR THREATENED, WHICH ARISE OUT OF OR ARE IN ANY WAY
BASED UPON THE NEGOTIATION, PREPARATION, EXECUTION, DELIVERY, ENFORCEMENT,
PERFORMANCE OR ADMINISTRATION OF THIS AGREEMENT, ANY OTHER LOAN DOCUMENT, OR ANY
UNDERTAKING OR PROCEEDING RELATED TO ANY OF THE TRANSACTIONS CONTEMPLATED HEREBY
OR ANY ACT, OMISSION TO ACT, EVENT OR TRANSACTION RELATED OR ATTENDANT THERETO,
INCLUDING, WITHOUT LIMITATION, AMOUNTS PAID IN SETTLEMENT, COURT COSTS, AND THE
FEES AND EXPENSES OF COUNSEL REASONABLY INCURRED IN CONNECTION WITH ANY SUCH
LITIGATION, INVESTIGATION, CLAIM OR PROCEEDING AND FURTHER INCLUDING, WITHOUT
LIMITATION, ALL LOSSES, DAMAGES (INCLUDING CONSEQUENTIAL DAMAGES), EXPENSES OR
LIABILITIES SUSTAINED BY THE LENDER IN CONNECTION WITH ANY ENVIRONMENTAL
INSPECTION, MONITORING, SAMPLING, OR CLEANUP OF THE ENCUMBERED REAL ESTATE
REQUIRED OR MANDATED BY ANY ENVIRONMENTAL LAW; PROVIDED, HOWEVER, THAT BORROWER
SHALL NOT INDEMNIFY LENDER, ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND
COUNSEL FROM SUCH DAMAGES RESULTING FROM THEIR GROSS NEGLIGENCE OR WILLFUL
MISCONDUCT. Without limiting the foregoing, if, by reason of any suit or
proceeding of any kind, nature, or description against Borrower, or by Borrower
or any other party against Lender, which in Lender's sole discretion makes it
advisable
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for Lender to seek counsel for protection and preservation of its liens and
security assets, or to defend its own interest, such expenses and counsel fees
shall be allowed to Lender. To the extent that the undertaking to indemnify, pay
and hold harmless set forth in this Section 15.12 may be unenforceable because
it is violative of any law or public policy, Borrower shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable law,
to the payment and satisfaction of all indemnified matters incurred by Lender.
The foregoing indemnity shall survive the payment of the Obligations and the
termination of this Agreement. All of the foregoing costs and expenses shall be
part of the Obligations and secured by the Collateral.
15.13 Waiver of Notices. Unless otherwise expressly provided herein,
the Borrower waives presentment, protest and notice of demand or dishonor and
protest as to any instrument, as well as any and all other notices to which it
might otherwise be entitled. No notice to or demand on the Borrower which the
Lender may elect to give shall entitle the Borrower to any or further notice or
demand in the same, similar or other circumstances.
15.14 Binding Effect; Assignment. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective
representatives, successors and assigns of the parties hereto; provided,
however, that no interest herein may be assigned by the Borrower without the
prior written consent of the Lender. The rights and benefits of the Lender
hereunder shall, if the Lender so agrees, inure to any party acquiring any
interest in the Obligations or any part thereof.
15.15 Modification. This Agreement is intended by the Borrower and
the Lender to be the final, complete, and exclusive expression of the agreement
between them. This Agreement supersedes any and all prior oral or written
agreements relating to the subject matter hereof and may not be contradicted by
evidence of prior, contemporaneous or subsequent oral agreements of the parties.
There are no oral agreements between the parties. No modification, rescission,
waiver, release, or amendment of any provision of this Agreement shall be made,
except by a written agreement signed by the Borrower and a duly authorized
officer of the Lender.
15.16 Counterparts. This Agreement may be executed in any number of
counterparts, and by the Lender and the Borrower in separate counterparts, each
of which shall be an original, but all of which shall together constitute one
and the same agreement.
15.17 Captions. The captions contained in this Agreement are for
convenience only, are without substantive meaning and should not be construed to
modify, enlarge, or restrict any provision.
15.18 Right of Set-Off. Whenever an Event of Default exists, the
Lender is hereby authorized at any time and from time to time, to the fullest
extent permitted by law, to set off and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held and other
indebtedness at any time owing by the Lender or any affiliate of the Lender to
or for the credit or the account of the Borrower against any and all of the
Obligations,
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<PAGE>
whether or not then due and payable. Lender agrees promptly to notify Borrower
after any such set-off and application made by Lender, provided that the failure
to give such notice shall not affect the validity of such set-off and
application.
15.19 Participating Lender's Security Interests. The Lender may,
without notice to or consent by the Borrower, grant one or more participations
in the Loans to Participating Lenders. If a Participating Lender shall at any
time with the Borrower's knowledge participate with the Lender in the Loans, the
Borrower hereby grants to such Participating Lender, and the Lender and such
Participating Lender shall have and are hereby given, a continuing lien on and
security interest in any money, securities and other property of the Borrower in
the custody or possession of the Participating Lender, including the right of
setoff, to the extent of the Participating Lender's participation in the
Obligations, and such Participating Lender shall be deemed to have the same
right of set-off to the extent of Participating Lender's participation in the
Obligations under this Agreement as it would have it were a direct lender.
15.20 Confidentiality. The Borrower agrees that, subject to the
Borrower's and the Lender's prior written consent for uses other than in a
traditional tombstone (disclosing in such tombstone, however, only the amount of
the credit facility provided by, and the parties to, this Agreement), which
consents shall not be unreasonably withheld or delayed, the Lender may use the
Borrower's name in advertising and promotional material and in conjunction
therewith disclose the general terms of this Agreement. The Lender agrees to
take normal and reasonable precautions and exercise due care to maintain the
confidentiality of all confidential information provided to the Lender by or on
behalf of the Borrower, under this Agreement or any other Loan Document, and
neither the Lender nor any of its Affiliates shall use any such information
other than in connection with or in enforcement of this Agreement and the other
Loan Documents, except to the extent that such information (i) was or becomes
generally available to the public other than as a result of disclosure by the
Lender, or (ii) was or becomes available on a nonconfidential basis from a
source other than the Borrower, provided that such source is not bound by a
confidentiality agreement with the Borrower known to the Lender; provided,
however, that the Lender may disclose such information (1) at the request of or
pursuant to any requirement of any governmental authority to which the Lender is
subject or in connection with an examination of the Lender by any such
governmental authority; (2) pursuant to subpoena or other court process; (3)
when required to do so in accordance with the provisions of any applicable
requirement of law; (4) to the extent reasonably required in connection with any
litigation or proceeding (including, but not limited to, any bankruptcy
proceeding) to which the Lender or any of its Affiliates may be party (or a
party in interest with respect to any bankruptcy proceeding), (5) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Loan Document; (6) to the Lender's independent auditors,
accountants, attorneys and other professional advisors; (7) to any prospective
Participating Lender or assignee under any assignment and acceptance, actual or
potential, provided that such prospective Participating Lender or assignee
agrees to keep such information confidential to the same extent required of the
Lender hereunder; (8) as expressly permitted under the terms of any other
document or agreement regarding confidentiality to which the Borrower is party
or is
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<PAGE>
deemed party with the Lender, and (9) to its Affiliates.
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<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written.
INTELLICELL CORP.
By:.............................
Title:
BANKAMERICA BUSINESS
CREDIT INC.
By:..............................
Title:
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<PAGE>
List of Exhibits/Schedules
Exhibit A Permitted Liens
Exhibit B Financial Statements and Projections
_____ Exhibit B-1 Financial Statement
_____ Exhibit B-2 Projections
Schedule 7.3 Location of Collateral, etc.
Schedule 9.4 Corporate Name; Prior Transactions
Schedule 9.5 Subsidiaries and Affiliates
Schedule 9.10 Distributions
Schedule 9.13 Real Property and Leases
Schedule 9.14 Proprietary Rights Collateral (patents, trademarks, and
copyrights)
Schedule 9.15 Trade Names and Styles
Schedule 9.16 Litigation
Schedule 9.18 Labor Disputes
Schedule 10.14 Management Compensation
Schedule 10.18 New Subsidiaries
-1-
<PAGE>
EXHIBIT A
PERMITTED LIENS
None
-2-
<PAGE>
EXHIBIT B-1
FINANCIAL STATEMENTS
See attached.
-3-
<PAGE>
EXHIBIT B-2
PROJECTIONS
See attached.
-4-
<PAGE>
SCHEDULE 7.3
LOCATION OF COLLATERAL, ETC.
6929 Hayvenhurst Avenue
Van Nuys, CA 91406
9314-9324 Eton Avenue
Chatsworth, CA 91311
10913 N.W. 30th Street, #103
Miami, FL 33172
-5-
<PAGE>
SCHEDULE 9.4
CORPORATE NAME; PRIOR TRANSACTIONS
Cellular Telecom Corporation, a California corporation organized under
Subchapter S of the Internal Revenue Code, was merged into Intellicell Corp. on
October 18, 1996.
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<PAGE>
SCHEDULE 9.5
SUBSIDIARIES AND AFFILIATES
SUBSIDIARIES: Intellicell Acquisition, Inc., a Delaware corporation
Intellicell International Acquisition, Inc., a Cayman Islands
corporation
AFFILIATES: Cellular Specialists, Inc.
Ben Neman
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<PAGE>
SCHEDULE 9.10
DISTRIBUTIONS
On November 18, 1997, the Board of Directors of Intellicell Corp. (the
"Company") declared the payment of a dividend to its shareholders in the form of
1,261,732 warrants to purchase Common Stock of the Company. Record owners of
Common Stock as of December 10, 1997, are entitled to one warrant for every two
shares of Common Stock held. Ben Neman, Chairman, CEO and President has waived
his rights to receive the warrants that would be issued on the shares of Common
Stock held by him. No fractional warrants shall be issuable in connection with
the payment of the dividend.
Each warrant will entitle the holder to purchase one share of Common Stock
at a price of $4.00 per share for a three year period, subject to adjustment in
certain circumstances. The warrants shall redeemable by the Company, upon notice
of not less than 30 days, at a price of $.10 per warrant in the event the
closing bid quotation of the Common Stock on all 20 of the trading days ending
on the third day prior to the day on which the Company gives notice has been at
least $7.00 per share; provided, however, that no such right of redemption shall
exist prior to the time that such shares of Common Stock underlying the warrants
have been registered under the Securities Act of 1933, as amended. The Company
intends to make an application for warrants to be listed and traded on the
NASDAQ SmallCap Market.
-8-
<PAGE>
SCHEDULE 9.13
REAL PROPERTY AND LEASES
REAL PROPERTY: 1. 6929 Hayvenhurst Avenue
Van Nuys, CA 91406
2. 9314-9324 Eton Avenue
Chatsworth, CA 91311
3. 10913 N.W. 30th Street, #103
Miami, FL 33172
PERSONAL PROPERTY: 1993 Isuzu NPR
Hasel Leasing
Lease dated 2/95 (48 months)
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<PAGE>
SCHEDULE 9.14
PROPRIETARY RIGHTS COLLATERAL
REGISTERED TRADEMARKS:
Trademark Jurisdiction Reg. Date Registration No.
INTELLICELL United States 10/01/96 2,004,710
TRADEMARK APPLICATIONS:
Trademark Jurisdiction Date Filed Registration No.
INTELLICELL United States 10/02/95 75-000,622
THE INTELLIGENT CHOICE United States 01/13/95 74-621,992
REGISTERED COPYRIGHTS: None.
COPYRIGHT APPLICATIONS: None.
REGISTERED PATENTS: None.
PATENT APPLICATIONS: None.
LICENSES BY BORROWER: None.
LICENSES TO BORROWER: None.
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<PAGE>
SCHEDULE 9.15
TRADE NAMES AND STYLES
Cellular Telecom Corporation (in Florida)
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<PAGE>
SCHEDULE 9.16
LITIGATION
Arraycom Inc. v. Intellicell (as described in Borrower's 10Q for September 30,
1997)
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<PAGE>
SCHEDULE 9.18
LABOR DISPUTES
LABOR CONTRACTS: None.
ORGANIZING ACTIVITY: None.
DISPUTES: None.
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<PAGE>
SCHEDULE 10.14
MANAGEMENT COMPENSATION
Ben Neman $150,000
Jim Bunting $140,000
John Snyder $120,000
-14-
<PAGE>
SCHEDULE 10.18
NEW SUBSIDIARIES
Intellicell Acquisition, Inc., a Delaware corporation
Intellicell International Acquisition, Inc., a Cayman Islands corporation
-15-
WAIVER AND AMENDMENT NO. 1 TO
LOAN AND SECURITY AGREEMENT
THIS WAIVER AND AMENDMENT NO. 1 TO LOAN AND SECURITY AGREEMENT
("Amendment") is dated as of April 15, 1998 and is entered into by and between
BankAmerica Business Credit, Inc. ("Lender") and Intellicell Corp. ("Borrower").
All capitalized terms used herein but not otherwise defined shall have the
meanings ascribed to them in the Agreement (as hereinafter defined).
WITNESSETH
WHEREAS, the Borrower and the Lender have entered into that certain Loan
and Security Agreement dated as of January 12, 1998, as amended and supplemented
(the "Agreement");
WHEREAS, an Event of Default has occurred under the Agreement; and
WHEREAS, the Borrower desires to have the Event of Default waived and to
amend the Agreement and the Lender is willing to do so, subject to the terms and
conditions stated herein;
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Borrower and Lender hereby agree as follows:
Section 1. Waiver of Default. The Lender hereby waives the Event of
Default arising from the failure of the Borrower to maintain the minimum
tangible net worth required by Section 10.23 of the Agreement for the fiscal
quarter ending December 31, 1997. This waiver is only applicable and shall only
be effective for the specific instance, for the specific purpose, and for the
specific period for which given. Such waiver is expressly limited to the facts
and circumstances referred to herein and shall not operate (a) as a waiver of or
consent to non-compliance with any other section of the Agreement or any other
Loan Document, (b) as a waiver of or a restriction on or prejudice with respect
to any right, power or remedy of the Lender under the Agreement or any other
Loan Document, or (c) as a waiver of or consent to any other Event of Default or
Event under the Agreement or any other Loan Document.
Section 2. Amendment to the Agreement. The Lender and Borrower agree that
the Agreement shall be amended as follows:
A. Amendment to Section 1. Section 1 of the Agreement is amended by
adding the following definition:
"`Amendment Date' means April 15, 1998."
B. Amendment to Section 1. The definition of "Availability" in
Section 1 of the Agreement is amended in its entirety to read as follows:
<PAGE>
"`Availability' means at any time the lesser of:
(a) The amount of Six Million and 00/100 Dollars
($6,000,000.00) (the `Maximum Revolving Credit Line') or
(b) The sum of
(i) up to eighty percent (80%) of the Net Amount of
Eligible Accounts, and
(ii) the lesser of
a) One Million and 00/100 Dollars ($1,000,000);
or
b) up to fifty percent (50%) of the value of
Eligible Inventory;
provided, however, that at all time Availability shall be reduced by
the sum of:
(a) the unpaid balance of Revolving Loans at that time;
(b) the aggregate undrawn face amount of all outstanding
Letters of Credit which the Lender has caused to be issued or
obtained for the Borrower's account;
(c) reserves for accrued interest on the Revolving Loans and
reserves for accounts payable 30 days or more past due date;
(d) the Environmental Compliance Reserve;
(e) all other reserves which the Lender in its reasonable
discretion deems necessary or desirable to maintain with respect to
the Borrower's account, including, without limitation, with respect
to any amounts which the Lender may be obligated to pay in the
future for the account of the Borrower."
C. Amendment to Section 1. The definition of "Eligible Inventory" in
Section 1 of the Agreement is amended in its entirety to read as follows:
"`Eligible Inventory' means Inventory, valued at the lower of
cost (on a first-in, first-out basis) or market, that constitutes
first quality finished goods and that: (a) is not, in the Lender's
reasonable opinion, Slow Moving, obsolete or unmerchantable; (b) is
located at Premises owned or leased by the Borrower
<PAGE>
or on Premises otherwise reasonably acceptable to the Lender,
provided, however, that Inventory located on Premises leased to the
Borrower shall not be Eligible Inventory unless the Borrower shall
have delivered to the Lender a written waiver, duly executed on
behalf of the appropriate landlord and in form and substance
acceptable to the Lender, of all Liens which the landlord for such
Premises may be entitled to assert against such Eligible Inventory;
(c) is subject to the Lender's first priority perfected security
interest; (d) is not work-in-process, spare parts, accessories,
packaging and shipping materials, supplies, bill-and-hold Inventory,
returned, defective or damaged Inventory, or refurbished Inventory
to the extent the aggregate value thereof is in excess of $200,000,
or Inventory delivered to the Borrower on consignment; and (e) the
Lender, in the exercise of its reasonable discretion, deems eligible
as the basis for Revolving Loans based on such collateral and credit
criteria as the Lender may from time to time establish. If any
Inventory at any time ceases to be Eligible Inventory, such
Inventory shall promptly be excluded from the calculation of
Eligible Inventory."
D. Amendment of Section 3. Section 3.1 of the Agreement is amended
in its entirety to read as follows:
"3.1 Interest. All Obligation shall bear interest on the
unpaid principal amount thereof from the date made until paid in
full in cash at a fluctuating per annum rate equal to two and
one-half percent (2.50%) (the `Reference Rate Margin') plus the
Reference Rate. Each change in the Reference Rate shall be reflected
in the interest rate as of the effective date of such change. All
interest charges shall be computed on the basis of a year of three
hundred sixty (360) days and actual days elapsed. All interest shall
be payable to Lender on the first day of each month hereafter.
Notwithstanding any provision of the Agreement to the contrary, all
Loans shall be Reference Rate Revolving Loans and no LIBOR Reference
Rate Loans shall be available to the Borrower at any time after the
Amendment Date."
E. Amendment to Section 10. Section 10.22 of the Agreement is
amended in its entirety to read as follows:
"10.22 EBITDA. The Borrower will achieve a monthly EBITDA of
not less than the following amounts calculated as of the end of the
following months:
Period
Month ending 4/30/98 ($78,000)
Month ending 5/31/98 ($78,000)
<PAGE>
Month ending 6/30/98 ($36,000)
Month ending 7/31/98 ($37,000)
Month ending 8/31/98 ($37,000)
Month ending 9/30/98 ($19,000)
Month ending 10/31/98 ($28,000)
Month ending 11/30/98 ($28,000)
Month ending 12/31/98 ($1,000)
Month ending 1/31/99 and at the end of Not less than Zero
each month thereafter"
F. Amendment to Section 10. Section 10.23 of the Agreement is
amended in its entirety to read as follows:
"10.23 Adjusted Tangible Net Worth. The Borrower will maintain
Adjusted Tangible Net Worth of not less than the following amounts
during the following periods:
Period
Month ending 3/31/98 $3,000,000
Month ending 4/30/98 $2,930,000
Month ending 5/31/98 $2,802,000
Month ending 6/30/98 $2,715,000
Month ending 7/30/98 $2,628,000
Month ending 8/31/98 $2,541,000
Month ending 9/30/98 $2,472,000
Month ending 10/30/98 $2,394,000
Month ending 11/30/98 $2,315,000
Month ending 12/31/98 and at the end of $2,264,000
each month thereafter"
Section 3. Conditions. The effectiveness of this Amendment is subject
to the satisfaction of the following conditions precedent:
A. Amendment. Fully executed copies of this Amendment signed by the
Borrower shall be delivered to Lender.
B. Resolution. A certificate executed by the Secretary or Assistant
Secretary of Borrower certifying that the Borrower's Board of Directors
has adopted resolutions authorizing the execution, delivery and
performance by the Borrower of the Amendment shall be delivered to Lender.
C. Other Documents. Borrower shall have executed and delivered to
the Lender
<PAGE>
such other documents and instruments as Lender may require.
D. Amendment Fee. The payment of an Amendment Fee to Lender by
Borrower in the amount of $25,000.
Section 4. Miscellaneous.
A. Survival of Representations and Warranties. All representations
and warranties made in the Agreement or any other document or documents
relating thereto, including, without limitation, any Loan Document
furnished in connection with this Amendment, shall survive the execution
and delivery of this Amendment and the other Loan Documents, and no
investigation by Lender or any closing shall affect the representations
and warranties or the right of Lender to rely thereon.
B. Reference to Agreement. The Agreement, each of the Loan
Documents, and any and all other agreements, documents or instruments now
or hereafter executed and delivered pursuant to the terms hereof, or
pursuant to the terms of the Agreement as amended hereby, are hereby
amended so that any reference therein to the Agreement shall mean a
reference to the Agreement as amended hereby.
C. Agreement Remains in Effect. The Agreement and the Loan Documents
remain in full force and effect and the Borrower ratifies and confirms its
agreements and covenants contained therein. The Borrower hereby confirms
that, after giving effect to this Amendment, no Event of Default or Event
exists as of such date.
D. Severability. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
E. APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE
PERFORMABLE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA.
F. Successors and Assigns. This Amendment is binding upon and shall
inure to the benefit of Lender and Borrower and their respective
successors and assigns; provided, however, that Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior
written consent of Lender.
<PAGE>
G. Counterparts. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an
original, but all of which when taken together shall constitute one and
the same instrument.
H. Headings. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
I. Expenses of Lender. Borrower agrees to pay on demand (i) all
costs and expenses reasonably incurred by Lender in connection with the
preparation, negotiation and execution of this Amendment and the other
Loan Documents executed pursuant hereto and any and all subsequent
amendments, modifications, and supplements hereto or thereto, including,
without limitation, the costs and fees of Lender's legal counsel and the
allocated cost of Lender's in-house counsel and (ii) all costs and
expenses reasonably incurred by Lender in connection with the enforcement
or preservation of any rights under the Agreement, this Amendment and/or
other Loan Documents, including, without limitation, the costs and fees of
Lender's legal counsel and the allocated cost of Lender's in-house
counsel.
J. ACH Transaction. Effective as of Amendment Date, the Borrower
acknowledges that no ACH Transactions will be available from Bank.
K. NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS AS WRITTEN, REPRESENTS THE FINAL AND ENTIRE AGREEMENT BETWEEN
LENDER AND BORROWER AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN LENDER AND
BORROWER.
IN WITNESS WHEREOF, the parties have executed this Amendment under seal on
the date first written above.
INTELLICELL CORP.
By:
Name:
Title:
BANKAMERICA BUSINESS CREDIT, INC.
By:
Name:
Title:
<PAGE>
CERTIFICATE OF RESOLUTION
I, , hereby certify that:
I am the duly qualified and acting secretary of Intellicell Corporation, a
Delaware corporation
The following is a true copy of resolutions duly adopted by the board of
directors of the corporation at a special meeting held on April , 1998, at which
a quorum was present and which voted thereon:
"RESOLVED that the terms of Amendment No. 1 to Loan and Security
Agreement between the corporation and BankAmerica Business
Credit, Inc. are hereby approved and ratified.
FURTHER RESOLVED, that any one officer of this corporation is hereby
authorized and directed, on behalf of this corporation, to make, execute,
and deliver to BankAmerica Business Credit Inc., any and all documents and
to do any and all acts necessary or desirable to effectuate the foregoing
resolution."
These resolutions are in conformity with the articles of incorporation and
bylaws of the corporation, have never been modified or repealed, and are now in
full force and effect.
IN WITNESS WHEREOF, I have set my hand and the seal of the corporation on
the day of April, 1998.
-------------------------------
, Secretary
[Seal]
1998 STOCK OPTION PLAN
OF
INTELLICELL CORP.
1. Purpose
Intellicell Corp. (the "Company") desires to attract and retain the best
available talent and encourage the highest level of performance in order to
continue to serve the best interests of the Company, and its stockholders. By
affording key personnel the opportunity to acquire proprietary interests in the
Company and by providing them incentives to put forth maximum efforts for the
success of the business, the 1998 Stock Option Plan of Intellicell Corp. (the
"1998 Plan") is expected to contribute to the attainment of those objectives.
The word "Subsidiary" or "Subsidiaries" as used herein, shall mean any
corporation, fifty percent or more of the voting stock of which is owned by the
Company.
2. Scope and Duration
Options under the 1998 Plan may be granted in the form of incentive stock
options ("Incentive Options") as provided in Section 422 of the Internal Revenue
Code of 1986, as amended (the "Code"), or in the form of nonqualified stock
options ("Non-Qualified Options"). (Unless otherwise indicated, references in
the 1998 Plan to "options" include Incentive Options and Non-Qualified Options.)
The maximum aggregate number of shares as to which options may be granted from
time to time under the 1998 Plan is 540,000 shares of the Common Stock of the
Company ("Common Stock"), which shares may be, in whole or in part, authorized
but unissued shares or shares reacquired by the Company. If an option shall
expire, terminate or be surrendered for cancellation for any reason without
having been exercised in full, the shares represented by the option or portion
thereof not so exercised shall (unless the 1998 Plan shall have been terminated)
become available for subsequent option grants under the 1998 Plan. As provided
in paragraph 13, the 1998 Plan shall become effective on February 20, 1998, and
unless terminated sooner pursuant to paragraph 14, the 1998 Plan shall terminate
on February 19, 2008, and no option shall be granted hereunder after that date.
3. Administration
The 1998 Plan shall be administered by the Board of Directors of the
Company. The Board of Directors shall have plenary authority in its discretion,
subject to and not inconsistent with the express provisions of the 1998 Plan, to
grant options covered by each option, the term of each option, the persons to
whom, and the time or times at which, options shall be granted and the number of
shares to be covered by each option; to designate options as Incentive Options
or Non-Qualified Options; to interpret the 1998
<PAGE>
plan; to prescribe, amend and rescind rules and regulations relating to the 1998
Plan; to determine the terms and provisions of the option agreements (which need
not be identical) entered into in connection with options under the 1998 Plan;
and to make all other determinations deemed necessary or advisable for the
administration of the 1998 Plan. The Board of Directors may delegate to one or
more of its members or to one or more agents such administrative duties as it
may deem advisable, and the Board of Directors or any person to whom it has
delegated duties as aforesaid may employ one or more persons to render advice
with respect to any responsibility the Board of Directors or the Committee or
such person may have under the 1998 Plan.
4. Eligibility; Factors to be Considered in Granting Options
Incentive Options shall be limited to persons who are employees of the
Company or its present and future Subsidiaries and at the date of grant of any
option are in the employ of the Company or its present and future Subsidiaries.
In determining the employees to whom Incentive Options shall be granted and the
number of shares to be covered by each Incentive Option, the Board of Directors
shall take into account the nature of employees' duties, their present and
potential contributions to the success of the Company and such other factors as
it shall deem relevant in connection with accomplishing the purposes of the 1998
Plan. An employee who has been granted an option or options under the 1998 Plan
may be granted an additional option or options, subject, in the case of
Incentive Options, to such limitations as may be imposed by the Code on such
options. Except as provided below, a Non-Qualified Option may be granted to any
person, including, but not limited to, employees, independent agents,
consultants and attorneys, who the Board of Directors believes has contributed,
or will contribute, to the success of the Company.
5. Option Price
The purchase price of the Common Stock covered by each option shall be
determined by the Board of Directors but in no event shall the purchase price be
less than 100% of the Fair Market Value (as defined in paragraph 15 below) of a
share of the Common Stock on the date on which the option is granted. Such price
shall be subject to adjustment as provided in paragraph 12 below. The Board of
Directors shall determine the date on which an option is granted; in the absence
of such a determination, the date on which the Board of Directors adopts a
resolution granting an option shall be considered the date on which such option
is granted.
6. Term of Options
The term of each option shall be not more than ten years from the date of
grant, as the Board of Directors shall determine, subject to earlier termination
as provided in paragraphs 10 and 11 below.
7. Exercise of Options
2
<PAGE>
(a) Subject to the provisions of the 1998 Plan and unless otherwise
provided in the option agreement, options granted under the 1998 Plan shall
become exercisable as determined by the Board of Directors. In its discretion,
the Board of Directors may, in any case or cases, prescribe that options granted
under the 1998 Plan become exercisable in installments or provide that an option
may be exercisable in full immediately upon the date of its grant. The Board of
Directors may, in its sole discretion, also provide that an option granted
pursuant to the 1998 Plan shall immediately become exercisable in full upon the
happening of any of the following events; (i) the first purchase of shares of
Common Stock pursuant to a tender offer or exchange offer (other than an offer
by the Company) for all, or any part of, the Common Stock, (ii) the approval by
the stockholders of the Company of an agreement for a merger in which the
Company will not survive as an independent, publicly owned corporation, a
consolidation, or a sale, exchange or other disposition of all or substantially
all of the Company's assets, (iii) with respect to an employee, on his 65th
birthday, or (iv) with respect to an employee, on the employee's involuntary
termination from employment, except as provided in Section 10 herein. In the
event of a question or controversy as to whether or not any of the events
hereinabove described has taken place, a determination by the Board of Directors
that such event has or has not occurred shall be conclusive and binding upon the
Company and participants in the 1998 Plan.
(b) Any option at any time granted under the 1998 Plan may contain a
provision to the effect that the optionee (or any persons entitled to act under
Paragraph 11 hereof) may, at any time at which Fair Market Value is in excess of
the exercise price and prior to exercising the option, in whole or in part,
request that the Company purchase all or any portion of the option as shall then
be exercisable at a price equal to the difference between (i) an amount equal to
the option price multiplied by the number of shares subject to that portion of
the option in respect of which such request shall be made and (ii) an amount
equal to such number of shares multiplied by the fair market value of the
Company's Common Stock (within the meaning of Section 422 of the Code and the
treasury regulations promulgated thereunder) on the date of purchase. The
Company shall have no obligation to make any purchase pursuant to such request,
but if it elects to do so, such portion of the option as to which the request is
made shall be surrendered to the Company. The purchase price for the portion of
the option to be so surrendered shall be paid by the Company, at the election of
the Board of Directors either in cash or in shares of Common Stock (valued as of
the date and in the manner provided in clause (ii) above), or in any combination
of cash and Common Stock, which may consist, in whole or in part, of shares of
authorized but unissued Common Stock or shares of Common Stock held in the
Company's treasury. No fractional share of Common Stock shall be issued or
transferred and any fractional share shall be disregarded. Shares covered by
that portion of any option purchased by the Company pursuant hereto and
surrendered to the Company shall not be available for the granting of further
options under the Plan. All determinations to be made by the Company hereunder
shall be made by the Board of Directors.
3
<PAGE>
(c) An option may be exercised, at any time or from time to time (subject,
in the case of Incentive Options, to such restrictions as may be imposed by the
Code), as to any or all full shares as to which the option has become
exercisable until the expiration of the period set forth in Paragraph 6 hereof,
by the delivery to the Company, at its principal place of business, of (i)
written notice of exercise in the form specified by the Board of Directors
specifying the number of shares of Common Stock with respect to which the option
is being exercised and signed by the person exercising the option as provided
herein, (ii) payment of the purchase price; and (iii) in the case of
Non-Qualified Options, payment in cash of all withholding tax obligations
imposed on the Company by reason of the exercise of the option. Upon acceptance
of such notice, receipt of payment in full, and receipt of payment of all
withholding tax obligations, the Company shall cause to be issued a certificate
representing the shares of Common Stock purchased. In the event the person
exercising the option delivers the items specified in (i) and (ii) of this
Subsection (C), but not the item specified in (iii) hereof, if applicable, the
option shall still be considered exercised upon acceptance by the Company for
the full number of shares of Common Stock specified in the notice of exercise
but the actual number of shares issued shall be reduced by the smallest number
of whole shares of Common Stock which, when multiplied by the Fair Market Value
of the Common Stock as of the date the option is exercised, is sufficient to
satisfy the required amount of withholding tax.
(d) The purchase price of the shares as to which an option is exercised
shall be paid in full at the time of exercise. Payment shall be made in cash,
which may be paid by check or other instrument acceptable to the Company; in
addition, subject to compliance with applicable laws and regulations and such
conditions as the Board of Directors may impose, the Board of Directors in its
sole discretion, may on a case-by-case basis elect to accept payment in shares
of Common Stock of the Company which are already owned by the option holder,
valued at the Fair Market Value thereof (as defined in paragraph 15 below) on
the date of exercise; provided, however, that with respect to Incentive Options,
no such discretion may be exercised unless the option agreement permits the
payment of the purchase price in that manner.
(e) Except as provided in paragraphs 10 and 11 below, no option granted to
an employee may be exercised at any time by such employee unless such employee
is then an employee of the Company or a Subsidiary.
8. Incentive Options
(a) With respect to Incentive Options granted, the aggregate Fair Market
Value (determined in accordance with the provisions of paragraph 15 at the time
the Incentive Option is granted) of the Common Stock or any other stock of the
Company or its current or future Subsidiaries with respect to which incentive
stock options, as defined in Section 422 of the Code, are exercisable for the
first time by any employee during any calendar year (under all incentive stock
option plans of the Company and its parent and subsidiary corporation's, as
those terms are defined in Section 424 of the Code) shall not exceed $100,000.
4
<PAGE>
(b) No Incentive Option may be awarded to any employee who immediately
prior to the date of the granting of such Incentive Option owns more than 10% of
the combined voting power of all classes of stock of the Company or any of its
Subsidiaries unless the exercise price under the Incentive Option is at least
110% of the Fair Market Value and the option expires within 5 years from the
date of grant.
(c) In the event of amendments to the Code or applicable regulations
relating to Incentive Options subsequent to the date hereof, the Company may
amend the provisions of the 1998 Plan, and the Company and the employees holding
options may agree to amend outstanding option agreements, to conform to such
amendments.
9. Non-Transferability of Options
Options granted under the 1998 Plan shall not be transferable otherwise
than by will or the laws of descent and distribution, and options may be
exercised during the lifetime of the optionee only by the optionee. No transfer
of an option by the optionee by will or by the laws of descent and distribution
shall be effective to bind the Company unless the Company shall have been
furnished with written notice thereof and a copy of the will and such other
evidence as the Company may deem necessary to establish the validity of the
transfer and the acceptance by the transferor or transferees of the terms and
conditions of such option.
10. Termination of Employment
In the event that the employment of an employee to whom an option has been
granted under the 1998 Plan shall be terminated (except as set forth in
paragraph 11 below), such option may be, subject to the provisions of the 1998
Plan, exercised (to the extent that the employee was entitled to do so at the
termination of his employment) at any time within ninety (90) days after such
termination, but not later than the date on which the option terminates;
provided, however, that any option which is held by an employee whose employment
is terminated for cause or voluntarily without the consent of the Company shall,
to the extent not theretofore exercised, automatically terminate as of the date
of termination of employment. As used herein, "cause" shall mean conduct
amounting to fraud, dishonesty, negligence, or engaging in competition or
solicitations in competition with the Company and breaches of any applicable
employment agreement between the Company and the optionee. Options granted to
employees under the 1998 Plan shall not be affected by any change of duties or
position so long as the holder continues to be a regular employee of the Company
or any of its current or future Subsidiaries. Any option agreement or any rules
and regulations relating to the 1998 Plan may contain such provisions as the
Board of Directors shall approve with reference to the determination of the date
employment terminates and the effect of leaves of absence. Nothing in the 1998
Plan or in any option granted pursuant to the 1998 Plan shall confer upon any
employee any right to continue in the employ of the Company or any of its
Subsidiaries or parent or affiliated companies or interfere in any way with the
right of the
5
<PAGE>
Company or any such Subsidiary or parent of affiliated companies to terminate
such employment at any time.
11. Death or Disability of Employee
If an employee to whom an option has been granted under the 1998 Plan
shall die while employed by the Company or a Subsidiary or within ninety (90)
days after the termination of such employment (other than termination for cause
or voluntary termination without the consent of the Company), such option may be
exercised, to the extent exercisable by the employee on the date of death, by a
legatee or legatees of the employee under the employee's last will, or by the
employee's personal representative or distributees, at any time within one year
after the date of the employee's death, but not later than the date on which the
option terminates. In the event that the employment of an employee to whom an
option has been granted under the 1998 Plan shall be terminated as the result of
a disability, such option may be exercised, to the extent exercisable by the
employee on the date of such termination, at any time within one year after the
date of such termination, but not later than the date on which the option
terminates.
12. Adjustments Upon Changes in Capitalization, Etc.
Notwithstanding any other provision of the 1998 Plan, the Board of
Directors may, at any time, make or provide for such adjustments to the 1996
Plan, to the number and class of shares issuable thereunder or to any
outstanding options as it shall deem appropriate to prevent dilution or
enlargement of rights, including adjustments in the event of changes in the
outstanding Common Stock by reason of stock dividends, split-ups,
recapitalizations, mergers, consolidations, combinations or exchanges of shares
separations, reorganizations, liquidations and the like. In the event of any
offer to holders of Common Stock generally relating to the acquisition of their
shares, the Board of Directors may make such adjustment as it deems equitable in
respect of outstanding options and rights, including in its discretion revision
of outstanding options and rights so that they may be exercisable for the
consideration payable in the acquisition transaction. Any such determination by
the Board of Directors shall be conclusive. Any fractional shares resulting from
such adjustments shall be eliminated.
13. Effective Date
The 1998 Plan shall become effective on February 20, 1998.
14. Termination and Amendment
The Board of Directors of the Company may suspend, terminate, modify or
amend the 1998 Plan, provided that any amendment that would increase the
aggregate number of shares which may be issued under the 1998 Plan, materially
increase the benefits accruing to participants under the 1998 Plan, or
materially modify the requirements as to eligibility for participation in the
1998 Plan, shall be subject to the
6
<PAGE>
approval of the Company's stockholders, except that any such increase or
modification that may result from adjustments authorized by paragraph 12 does
not require such approval. No suspension, termination, modification or amendment
of the 1998 Plan may, without the consent of the employee to whom an option
shall theretofore have been granted, effect the rights of such employee under
such option.
15. Miscellaneous
As said term is used in the 1998 Plan, the "Fair Market Value" of a share
of Common Stock on any day means: (a) if the principal market for the Common
Stock is a national securities exchange or the National Association of
Securities Dealers Automated Quotations System ("NASDAQ"), the closing sales
price of the Common Stock on such day as reported by such exchange or market
system, or on a consolidated tape reflecting transactions on such exchange or
market system, or (b) if the principal market for the Common Stock is not a
national securities exchange and the Common Stock is not quoted on NASDAQ, the
mean between the highest bid and lowest asked prices for the Common Stock on
such day as reported by the National Quotation Bureau, Inc.; provided that if
clauses (a) and (b) of this paragraph are both inapplicable, or if no trades
have been made or no quotes are available for such day, the Fair Market Value of
the Common Stock shall be determined by the Board of Directors shall be
conclusive as to the Fair Market Value of the Common Stock.
The Board of Directors or the Committee may require, as a condition to the
exercise of any options granted under the 1998 Plan, that to the extent required
at the time of exercise, (i) the shares of Common Stock reserved for purposes of
the 1998 Plan shall be duly listed, upon official notice of issuance, upon stock
exchange(s) on which the Common Stock is listed, (ii) a Registration Statement
under the Securities Act of 1933, as amended, with respect to such shares shall
be effective, and/or (iii) the person exercising such option deliver to the
Company such documents, agreements and investment and other representations as
the Board of Directors shall determine to be in the best interests of the
Company.
During the term of the 1998 Plan, the Board of Directors in its
discretion, may offer one or more option holders the opportunity to surrender
any or all unexpired options for cancellation or replacement. If any options are
so surrendered, the Board of Directors may then grant new Non-Qualified or
Incentive Options to such holders for the same or different numbers of shares at
higher or lower exercise prices than the surrendered options. Such new options
may have a different term and shall be subject to the provisions of the 1998
Plan the same as any other option.
Anything herein to the contrary notwithstanding, the Board of Directors
may, in its sole discretion, impose more restrictive conditions on the exercise
of an option granted pursuant to the 1998 Plan; however, any and all such
conditions shall be specified in the option agreement limiting and defining such
option.
7
<PAGE>
16. Compliance with SEC Regulations
It is the Company's intent that the 1998 Plan comply in all respects with
Rule 16b-3 of the Act and any regulations promulgated thereunder. If any
provision of the 1998 Plan is later found not to be in compliance with said
Rule, the provisions shall be deemed null and void. All grants and exercises of
Incentive Options under the 1998 Plan shall be executed in accordance with the
requirements of Section 16 of the Act, as amended, and any regulations
promulgated thereunder.
8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary information extracted from the consolidated
financial statements included in the registrant's Annual Report on Form 10-K of
which this schedule is an exhibit thereto and is qualified in its entirety by
reference to such consolidated financial statements.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 0 0
<SECURITIES> 0 0
<RECEIVABLES> 6,715,000 9,275,000
<ALLOWANCES> 428,000 2,697,000
<INVENTORY> 6,437,000 3,494,000
<CURRENT-ASSETS> 15,625,000 10,977,000
<PP&E> 192,000 384,000
<DEPRECIATION> 36,000 98,000
<TOTAL-ASSETS> 16,025,000 11,414,000
<CURRENT-LIABILITIES> 7,216,000 7,381,000
<BONDS> 0 0
0 0
0 0
<COMMON> 42,000 44,000
<OTHER-SE> 8,767,000 3,989,000
<TOTAL-LIABILITY-AND-EQUITY> 16,025,000 11,414,000
<SALES> 81,225,000 81,401,000
<TOTAL-REVENUES> 81,225,000 81,401,000
<CGS> 77,555,000 77,862,000
<TOTAL-COSTS> 77,555,000 77,862,000
<OTHER-EXPENSES> 0 1,300,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 431,000 0
<INCOME-PRETAX> 531,000 (5,782,000)
<INCOME-TAX> (308,000) 334,000
<INCOME-CONTINUING> 839,000 (6,116,000)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 839,000 (6,116,000)
<EPS-PRIMARY> 0 <F1> (1.37)
<EPS-DILUTED> 0 <F1> (1.37)
<FN>
<F1> Historical EPS is not presented as the Company was an S corporation for
substantially the entire period presented. After giving effect to income taxes
pro forma basic earnings per share for the year ended December 31, 1996 was
$0.15 and pro forma diluted earnings per share was $0.15.
</FN>
</TABLE>
