<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 1997.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STAR TELECOMMUNICATIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 4813 77-0362681
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
223 EAST DE LA GUERRA STREET
SANTA BARBARA, CALIFORNIA 93101
(805) 899-1962
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
CHRISTOPHER E. EDGECOMB
CHIEF EXECUTIVE OFFICER
STAR TELECOMMUNICATIONS, INC.
223 EAST DE LA GUERRA STREET
SANTA BARBARA, CALIFORNIA 93101
(805) 899-1962
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
<TABLE>
<S> <C>
CARLA S. NEWELL NEIL WOLFF
ANTHONY M. ALLEN ARMANDO CASTRO
CRAIG M. SCHMITZ JASON B. WACHA
GUNDERSON DETTMER STOUGH WILSON SONSINI GOODRICH & ROSATI,
VILLENEUVE FRANKLIN & HACHIGIAN, LLP PROFESSIONAL CORPORATION
155 CONSTITUTION DRIVE 650 PAGE MILL ROAD
MENLO PARK, CALIFORNIA 94025 PALO ALTO, CALIFORNIA 94304-1050
(415) 321-2400 (415) 493-9300
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]__________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]__________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value............. $74,750,000 $22,652
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED FEBRUARY 7, 1997
PROSPECTUS
- ----------------
6,500,000 SHARES
STAR TELECOMMUNICATIONS, INC.
COMMON STOCK
Of the 6,500,000 shares of Common Stock offered hereby, 5,500,000 shares
are being sold by the Company and 1,000,000 shares are being sold by the Selling
Stockholders. The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders. See "Principal and Selling Stockholders."
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $8.00 and $10.00 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The Company has applied to have the Common Stock approved for
quotation on the Nasdaq National Market under the symbol STRX.
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 5.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDERS
- -------------------------------------------------------------------------------------------------------
Per Share.......................... $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3)........................... $ $ $ $
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $1,025,000.
(3) The Company and one of the Selling Stockholders have granted to the
Underwriters a 30-day option to purchase up to 975,000 additional shares of
Common Stock solely to cover over-allotments, if any. If all such shares are
purchased, the total Price to Public, Underwriting Discount, Proceeds to
Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
------------------
The shares of Common Stock are offered by the several Underwriters subject
to prior sale, receipt and acceptance by them and subject to the right of the
Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be available
for delivery on or about , 1997 at the office of the agent of
Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST ALEX. BROWN & SONS
INCORPORATED
, 1997
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE COMMENCED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus. The Common Stock offered hereby involves a high
degree of risk. See "Risk Factors."
THE COMPANY
STAR Telecommunications ("STAR" or the "Company") is an international long
distance provider offering highly reliable, low cost switched voice services on
a wholesale basis, primarily to U.S. based long distance carriers. STAR provides
international long distance service to over 200 foreign countries through a
flexible network of resale arrangements with long distance providers, various
foreign termination relationships, international gateway switches, and leased
and owned transmission facilities. The Company has grown its revenues rapidly by
capitalizing on the deregulation of international telecommunications markets, by
combining sophisticated information systems with flexible routing techniques and
by leveraging management's industry expertise. STAR commenced operations as an
international long distance provider in August 1995 and increased its revenues
from $16.1 million in 1995 to $208.1 million in 1996.
The Company serves the large and growing international long distance
telecommunications market. According to industry sources, worldwide gross
revenues in this market were approximately $57 billion in 1995 and the volume of
international traffic on the public telephone network is expected to grow at a
compound annual growth rate of 12% or more from 1995 through the year 2000. A
segment of this market, the resale of international long distance capacity, has
experienced particularly rapid growth. According to FCC data, total billed
revenue of U.S. resellers of international switched services increased
approximately 55% from 1994 to 1995, from approximately $1.1 billion to $1.7
billion.
STAR markets to small and medium size long distance companies that do not
have the critical mass to invest in their own international transmission
facilities or to obtain volume discounts from the larger facilities-based
carriers. STAR also markets to larger long distance companies seeking lower
rates and overflow capacity. The Company had 89 customers at the end of 1996.
STAR operates international gateway switching facilities in New York and Los
Angeles and holds ownership positions in five digital undersea fiber optic
cables. The Company is installing an international gateway switch in London,
England, and plans to invest in additional undersea fiber optic cables. STAR's
switching facilities are linked to a proprietary reporting system, which the
Company believes provides it with a competitive advantage by permitting
management on a real-time basis to determine the most cost-effective termination
alternatives, monitor customer usage and manage gross margins by route.
In 1995 and 1996, the Company rapidly built its wholesale customer base,
traffic volume and revenue by offering favorable rates compared to other long
distance providers. STAR now seeks to lower its cost of services and improve its
gross margin by negotiating lower rates with domestic and foreign providers of
transmission capacity and, when justified by traffic volume, invest in network
facilities and enter into fixed cost arrangements, including long term leases.
In addition, the Company intends to market its international long distance
services directly to commercial customers overseas, with an initial focus on the
U.K. and selected European cities.
The Company was incorporated in Nevada in September 1993 as STAR Vending,
Inc. and will reincorporate in Delaware as STAR Telecommunications, Inc. prior
to the closing of this offering. The Company's executive offices are located at
223 East De La Guerra Street, Santa Barbara, California 93101. Its telephone
number at that location is (805) 899-1962.
3
<PAGE> 5
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company............... 5,500,000 shares
Common Stock offered by the Selling 1,000,000 shares
Stockholders....................................
Common Stock to be outstanding after the 23,238,651 shares(1)
offering........................................
Use of proceeds................................... Repayment of indebtedness, capital
expenditures, working capital and
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............ STRX
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share and per minute data)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1994 1995 1996
----- ------- --------
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues............................................................... $ 176 $16,125 $208,086
Gross profit........................................................... 176 1,768 19,656
Income (loss) from operations.......................................... (114) (423) 2,229
Net income (loss)...................................................... $(122) $ (568) $ 868
Pro forma net income per share(2)...................................... $ 0.05
Pro forma number of shares used in per share computations(2)........... 18,795
OTHER CONSOLIDATED FINANCIAL AND OPERATING DATA:
EBITDA(3).............................................................. $(121) $ (375) $ 3,202
Capital expenditures................................................... 21 1,062 7,838
Billed minutes of use.................................................. -- 38,106 479,681
Revenue per billed minute of use(4).................................... $ -- $0.4102 $ 0.4288
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------
ACTUAL AS ADJUSTED(5)
------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit).................................................. $(2,343) $ 42,201
Total assets............................................................... 58,704 95,141
Long-term liabilities...................................................... 6,044 5,578
Retained earnings.......................................................... 868 868
Stockholders' equity....................................................... 14,349 59,359
</TABLE>
- ------------------------------
(1) Based on the number of shares outstanding as of December 31, 1996. Excludes
2,535,000 shares subject to outstanding options as of December 31, 1996 at a
weighted average exercise price of approximately $2.58 per share. Also
excludes 1,845,000 shares reserved for issuance under the Company's stock
plans. See "Management--1997 Omnibus Stock Incentive Plan," "--1996 Outside
Director Nonstatutory Stock Option Plan" and Notes 8 and 10 of Notes to
Consolidated Financial Statements.
(2) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in computing pro
forma net income per share.
(3) EBITDA represents earnings before interest income and expense, income taxes,
depreciation and amortization expense. EBITDA does not represent cash flows
as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all the
Company's cash needs. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities or other
measures of liquidity determined in accordance with generally accepted
accounting principles.
(4) Represents gross call usage revenue per billed minute. Amounts exclude other
revenue-related items such as finance charges.
(5) Adjusted to reflect the sale of 5,500,000 shares of Common Stock by the
Company at an assumed public offering price of $9.00 per share and the
application of the estimated net proceeds therefrom. See "Use of Proceeds"
and "Capitalization."
------------------------------
Unless otherwise indicated, the information in this Prospectus (i) assumes
no exercise of the Underwriters' overallotment option, (ii) assumes the
reincorporation of the Company from Nevada to Delaware before the effective date
of this offering, and the associated changes in the Company's charter documents,
(iii) reflects a 3-for-2 split of the Company's capital stock in connection with
the reincorporation, and (iv) except in the Consolidated Financial Statements,
reflects the conversion of all outstanding shares of Preferred Stock into Common
Stock upon completion of the offering.
4
<PAGE> 6
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the shares
of Common Stock offered hereby. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ materially from those projected in the forward-looking statements.
Factors that may cause such a difference include, but are not limited to, those
set forth below and elsewhere in this Prospectus.
Risks Associated with Limited Operating History in the International
Telecommunications Market.
The Company was incorporated in September 1993, but did not commence its
current business as an international long distance provider until the third
quarter of 1995. As a result, the Company's business must be considered in light
of the risks faced by early stage companies in the rapidly evolving
international telecommunications market. Early stage companies must respond to
external factors, such as competition and changing regulations, without the
resources, infrastructure and broader business base of more established
companies. Early stage companies also must respond to these risks while
simultaneously developing systems, adding personnel and entering new markets. As
a result, these risks can have a much greater effect on early stage companies.
If the Company does not successfully address such risks, the Company's business,
operating results and financial condition would be materially adversely
affected. See "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Operating Results Subject to Significant Fluctuations.
The Company's quarterly operating results are difficult to forecast with
any degree of accuracy because a number of factors subject these results to
significant fluctuations. As a result, the Company believes that
period-to-period comparisons of its operating results are not necessarily
meaningful and should not be relied upon as indications of future performance.
Factors Influencing Operating Results, including Revenues, Costs and
Margins. The Company's revenues, costs and expenses have fluctuated
significantly in the past and are likely to continue to fluctuate significantly
in the future as a result of numerous factors. The Company's revenues in any
given period can vary due to factors such as call volume fluctuations,
particularly in regions with relatively high per-minute rates; the addition or
loss of major customers, whether through competition, merger, consolidation or
otherwise; the loss of economically beneficial routing options for the
termination of the Company's traffic; financial difficulties of major customers;
pricing pressure resulting from increased competition; and technical
difficulties with or failures of portions of Company's network that impact the
Company's ability to provide service to or bill its customers. The Company's
cost of services and operating expenses in any given period can vary due to
factors such as fluctuations in rates charged by carriers to terminate the
Company's traffic; the timing of capital expenditures, and other costs
associated with acquiring or obtaining other rights to switching and other
transmission facilities; changes in the Company's sales incentive plans; and
costs associated with changes in staffing levels of sales, marketing, technical
support and administrative personnel. In addition, the Company's operating
results can vary due to factors such as changes in routing due to variations in
the quality of vendor transmission capability; the amount of, and the accounting
policy for, return traffic under operating agreements; actions by domestic or
foreign regulatory entities; the level, timing and pace of the Company's
expansion in international and commercial markets; and general domestic and
international economic and political conditions. Since the Company does not
generally have long term arrangements for the purchase or resale of long
distance services, and since rates fluctuate significantly over short periods of
time, the Company's gross margins are subject to significant fluctuations over
short periods of time. The Company's gross margins also may be negatively
impacted in the longer term by competitive pricing pressures.
Recent Examples of Factors Affecting Operating Results. In the fourth
quarter of 1996, one of the Company's major customers informed the Company that
it was experiencing financial difficulties and
5
<PAGE> 7
would be unable to pay in full, on a timely basis, approximately $6 million in
outstanding accounts receivable. The Company accepted a secured note in the
principal amount of approximately $3.4 million in lieu of past due payments. The
Company has increased its reserves in the fourth quarter of 1996 by $3.8 million
to account for the potential inability to collect on the note or the accounts
receivable from this customer. There can be no assurance that the note or the
accounts receivable will be paid, that the Company will be able to obtain
adequate recourse from the assets securing the note, if necessary, or that the
Company's reserves will be adequate. The Company's ability to collect these
outstanding amounts would be adversely affected to the extent that this
customer's financial condition deteriorates further or the customer commences
bankruptcy proceedings. In addition, the Company's revenue growth slowed in the
fourth quarter of 1996 relative to the prior quarter primarily due to the
Company significantly reducing the traffic it received from a major customer
experiencing financial difficulties, a relatively smaller decrease in traffic
from another major customer due to pricing changes and transmission quality
problems on several high volume routes that caused customers to choose alternate
routes. If similar events occur in the future, such events could have a material
adverse affect on the Company's business, operating results or financial
condition. See "--Dependence on Other Long Distance Providers and Customer
Concentration."
No Assurance that Recent Growth Will Continue; Potential Impact on Net
Income and Market Expectations. Although the Company's revenues have increased
in each of the last seven quarters, such growth should not be considered
indicative of future revenue growth or operating results. If revenue levels fall
below expectations, net income is likely to be disproportionately adversely
affected because a proportionately smaller amount of the Company's operating
expenses varies with its revenues. This effect is likely to increase as a
greater percentage of the Company's cost of services are associated with owned
and leased facilities. There can be no assurance that the Company will be able
to achieve or maintain profitability on a quarterly or annual basis in the
future.
Due to all of the foregoing factors, it is likely that in some future
quarter the Company's operating results will be below the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Risks of International Telecommunications Business.
The Company has to date generated substantially all its revenues by
providing international telecommunications services to its customers on a
wholesale basis. The international nature of the Company's operations involves
certain risks, such as changes in U.S. and foreign government regulations and
telecommunications standards, dependence on foreign partners, tariffs, taxes and
other trade barriers, the potential for nationalization and economic downturns
and political instability in foreign countries. In addition, the Company's
business could be adversely affected by a reversal in the current trend toward
deregulation of telecommunications carriers. The Company will be increasingly
subject to these risks to the extent that the Company proceeds with the planned
expansion of its international operations.
Risk of Dependence on Foreign Partners. The Company will increasingly rely
on foreign partners to terminate its traffic in foreign countries and to assist
in installing transmission facilities and network switches, complying with local
regulations, obtaining required licenses, and assisting with customer and vendor
relationships. The Company may have limited recourse if its foreign partners do
not perform under their contractual arrangements with the Company. The Company's
arrangements with foreign partners may expose the Company to significant legal,
regulatory or economic risks.
Risks Associated with Foreign Government Control and Highly Regulated
Markets. Governments of many countries exercise substantial influence over
various aspects of the telecommunications market. In some cases, the government
owns or controls companies that are or may become competitors of the Company or
companies (such as national telephone companies) upon which the Company and its
foreign partners may depend for required interconnections to local telephone
networks and other
6
<PAGE> 8
services. Accordingly, government actions in the future could have a material
adverse effect on the Company's operations. In highly regulated countries in
which the Company is not dealing directly with the dominant local exchange
carrier, the dominant carrier may have the ability to terminate service to the
Company or its foreign partner and, if this occurs, the Company may have limited
or no recourse. In countries where competition is not yet fully established and
the Company is dealing with an alternative carrier, foreign laws may prohibit or
impede the entry of such new carriers in the market.
Risks Associated with International Settlement Rates, International Traffic
and Foreign Currency Fluctuations. The Company's revenues and cost of long
distance services are sensitive to changes in international settlement rates,
imbalances in the ratios between outgoing and incoming traffic and foreign
currency fluctuations. International rates charged to customers are likely to
decrease in the future for a variety of reasons, including increased competition
between existing long distance providers, new entrants into the market and the
consummation of joint ventures among large international long distance providers
that facilitate targeted pricing and cost reductions. There can be no assurance
that the Company will be able to increase its traffic volume or reduce its
operating costs sufficiently to offset any resulting rate decreases. In
addition, the Company expects that an increasing portion of the Company's net
revenue and expenses will be denominated in currencies other than U.S. dollars,
and changes in exchange rates may have a significant effect on the Company's
results of operations. As the Company continues to pursue a strategy of entering
into operating agreements where it is economically advantageous to do so, the
Company's results of operations will become increasingly subject to the risks of
changes in international settlement rates and foreign currency fluctuations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Foreign Corrupt Practices Act. The Company is also subject to the Foreign
Corrupt Practices Act ("FCPA"), which generally prohibits U.S. companies and
their intermediaries from bribing foreign officials for the purpose of obtaining
or keeping business. The Company may be exposed to liability under the FCPA as a
result of past or future actions taken without the Company's knowledge by
agents, strategic partners and other intermediaries. Such liability could have a
material adverse effect on the Company's business, operating results and
financial condition.
Potential Adverse Affects of Government Regulation.
The Company's business is subject to various U.S. federal laws,
regulations, agency actions and court decisions. The Company's international
facilities-based and resale services are subject to regulation by the Federal
Communications Commission (the "FCC"). The FCC requires authorization prior to
leasing capacity, acquiring international facilities, and/or initiating
international service. Prior FCC approval is also required to transfer control
of an authorized carrier. The Company is also subject to the FCC rules that
regulate the manner in which international services may be provided, including,
for instance, the circumstances under which carriers may provide international
switched services by using private lines or route traffic through third
countries.
The FCC's Private Line Resale Policy. The FCC's private line resale policy
prohibits a carrier from reselling international private leased circuits to
provide switched services to a country unless the FCC has found that the country
affords U.S. carriers equivalent opportunities to engage in similar activities
in that country. Certain of the Company's arrangements with foreign carriers
involve the transmission of switched services for termination in a country that
has not been found by the FCC to offer equivalent resale opportunities. These
arrangements are with foreign carriers that are not the dominant carriers in
their respective foreign countries. There can be no assurance that the FCC, upon
viewing these alternate carrier arrangements, would permit these arrangements
under its private line resale policy. If the FCC finds that these arrangements
conflict with its policy, among other measures, it may issue a cease and desist
order or impose fines on the Company, which could have a material adverse effect
on the Company's business, operating results and financial condition. It is also
possible that the regulatory agency of the foreign government would find that
foreign law does not permit the operation of alternate carriers or that the
alternate carriers have not met foreign law requirements for
7
<PAGE> 9
such operations. Such a finding could have a material adverse effect on the
Company's business, operating results and financial condition.
FCC Policies on Transit and Refile. The FCC is currently considering
whether to limit or prohibit the practice whereby a carrier routes, through its
facilities in a third country, traffic originating from one country and destined
for another country. The FCC has permitted third country calling where all
countries involved consent to the routing arrangements (referred to as
"transiting"). Under certain arrangements referred to as "refiling," the carrier
in the destination country does not consent to receiving traffic from the
originating country and does not realize the traffic it receives from the third
country is actually originating from a different country. The FCC to date has
made no pronouncement as to whether refile arrangements comport either with U.S.
or International Telecommunications Union ("ITU") regulations. It is possible
that the FCC will determine that refiling violates U.S. and/or international
law, which could have a material adverse effect on the Company's business,
operating results and financial condition.
The FCC's International Settlements Policy. The Company is also required
to conduct its international business in compliance with the FCC's international
settlements policy (the "ISP"). The ISP establishes the permissible arrangements
for U.S.-based carriers and their foreign counterparts to settle the cost of
terminating each other's traffic over their respective networks. It is possible
that the FCC would take the view that some of the Company's arrangements with
alternative foreign carriers do not comply with the existing ISP rules. If the
FCC, on its own motion or in response to a challenge filed by a third party,
determines that the Company's foreign carrier arrangements do not comply with
FCC rules, among other measures, it may issue a cease and desist order or impose
fines on the Company. Such action could have a material adverse effect on the
Company's business, operating results and financial condition.
Recent and Potential FCC Actions. Regulatory action that has been and may
be taken in the future by the FCC may enhance the intense competition faced by
the Company. The FCC recently enacted certain changes in its rules designed to
permit more flexibility in its ISP as a method of achieving lower cost-based
accounting rates as more facilities-based competition is permitted in foreign
markets. Specifically, the FCC has decided to allow U.S. carriers, subject to
certain competitive safeguards, to propose methods to pay for international call
termination that deviate from traditional bilateral accounting rates and the
ISP. The FCC has also proposed to establish lower ceilings ("benchmarks") for
the rates that U.S. carriers will pay foreign carriers for the termination of
international services. In separate proceedings, the FCC is considering
equivalency determinations for Australia, Chile, Denmark, Finland, Hong Kong and
Mexico. While these rule changes may provide more flexibility to the Company to
respond more rapidly to changes in the global telecommunications market, it will
also provide similar flexibility to the Company's competitors. The FCC is also
considering certain other international policy issues in several rulemaking
proceedings and in response to specific applications and petitions filed by
other telecommunications carriers, including mandating lower international
accounting rates. The resolution of these proceedings could have an adverse
effect on the Company's business.
Foreign Regulations. The Company may also be subject to regulation in
foreign countries in connection with certain of its business activities. For
example, the Company's use of transit, international simple resale ("ISR") or
other routing arrangements may be affected by laws or regulations in either the
transited or terminating foreign jurisdiction. Foreign countries, either
independently or jointly as members of the ITU, may have adopted or may adopt
laws or regulatory requirements for which compliance would be difficult or
expensive, that could force the Company to choose less cost-effective routing
alternatives and that could adversely affect the Company's business, operating
results and financial condition.
In the United Kingdom ("U.K."), the Company's services are subject to
regulations by the Office of Telecommunications ("Oftel"). The regulatory regime
currently being introduced by Oftel to facilitate competition has a direct and
material effect on the ability of the Company to conduct its
8
<PAGE> 10
business in the U.K. The Company has been granted a license to provide
international facilities-based voice services from the U.K. The Company has
applied for a license to provide ISR services over leased lines to all
international points from the U.K. There can be no assurance that the Company
will be granted the ISR license in the immediate future, or at all. Failure to
obtain such authority would prevent the Company from providing certain resale
services in the U.K. and would limit the Company's ability to expand its
operations. Future changes in government regulation could have a material
adverse effect on the Company's business, operating results or financial
condition.
To the extent that it seeks to provide telecommunications services in other
non-U.S. markets, the Company is subject to the developing laws and regulations
governing the competitive provision of telecommunications services in those
markets. The Company currently plans to provide a limited range of services in
Belgium, France, Germany and Mexico, as permitted by regulatory conditions in
those markets, and to expand its operations as these markets implement scheduled
liberalization to permit competition in the full range of telecommunications
services in the next several years. The nature, extent and timing of the
opportunity for the Company to compete in these markets will be determined, in
part, by the actions taken by the governments in these countries to implement
competition and the response of incumbent carriers to these efforts. There can
be no assurance that these countries will implement competition in the near
future, or at all, or that the Company will be able to take advantage of any
such liberalization in a timely manner. See "Business--Government Regulation."
Regulation of Customers. The Company's customers are also subject to
actions taken by domestic or foreign regulatory authorities that may affect the
ability of customers to deliver traffic to the Company. Regulatory sanctions
have been imposed on certain of the Company's customers in the past. While such
sanctions have not adversely impacted the volume of traffic received by the
Company from such customers to date, future regulatory actions could materially
adversely affect the volume of traffic received from a major customer, which
could have a material adverse effect on the Company's business, financial
condition and results of operations.
Dependence on Availability of Transmission Capacity.
During fiscal 1996, substantially all of the Company's revenue was derived
from the sale of international long distance services terminated through resale
arrangements with other long distance providers. The Company purchased capacity
from 37 vendors as of December 31, 1996, four of which accounted for a majority
of the Company's capacity during 1996. There can be no assurance that such
resale arrangements will continue to be available to the Company on a
cost-effective basis or at all. Currently, most transmission capacity used by
the Company is obtained on a variable, per minute basis, subjecting the Company
to the possibility of unanticipated price increases and service cancellations.
The Company also requires high voice quality transmission capacity, which may
not always be available at cost-effective rates. If the Company is not able to
continue to enter into cost-effective resale arrangements with its primary
vendors, or is unable to locate suitable replacement vendors that offer
sufficient, high quality alternative capacity, the Company's business, operating
results and financial condition could be materially adversely affected. For
instance, to the extent that the Company's variable costs increase, the Company
may experience reduced or, in certain circumstances, negative margins for some
services. As its traffic volume increases on particular routes, the Company
expects to decrease its reliance on variable usage arrangements and enter into
fixed monthly or longer-term leasing or ownership arrangements, subject to
obtaining any requisite authorization. To the extent that the Company does so,
and incorrectly projects traffic volume in a particular geographic area, the
Company would experience higher fixed costs without a related increase in
revenue. The Company has invested substantial resources and intends to continue
to invest in developing its own global transmission and switching facilities,
which is a capital intensive and time-consuming process. There can be no
assurance that the Company will successfully complete development of its global
network in a timely manner and within budget. See "Business--Network."
9
<PAGE> 11
Management of Changing Business.
Increased Demands on Management and Need to Continue to Improve
Systems. The Company has recently experienced significant revenue growth and
has expanded the number of its employees and the geographic scope of its
operations. These factors have resulted in increased responsibilities for
management personnel and placed increased demands upon the Company's operating
and financial systems. The Company expects that its expansion into foreign
countries will lead to increased financial and administrative demands, such as
increased operational complexity associated with expanded network facilities,
administrative burdens associated with managing an increasing number of
relationships with foreign partners and expanded treasury functions to manage
foreign currency risks. The Company's accounting systems and policies have been
developed as the Company has experienced significant growth, and the Company
will require additional personnel, systems and policies to comply with the
reporting requirements of a publicly held company. Although the Company plans to
switch over to a new financial accounting system in 1997, there can be no
assurance that the Company's personnel, systems, procedures and controls will be
adequate to support the Company's future operations. Difficulties encountered in
the Company's transition to a new accounting system or the failure to implement
and improve the Company's operation, financial and management systems as needed
to accommodate any expansion of the Company's business could have a material
adverse effect on the Company's business, operating results and financial
condition. See "--Dependence on Key Personnel," "Business--Employees" and
"Management."
Risks of Expansion into Commercial Market. While the Company has focused
to date solely on the wholesale market, the Company intends to expand into the
commercial market and such expansion will increase the risk of bad debt exposure
and lead to higher operating costs. The Company also may be required to update
and improve its billing systems and procedures and/or hire new management
personnel to handle the demands of the commercial market. There can be no
assurance that the Company will be able to effectively manage the costs of and
risks associated with expansion into the commercial market.
Risks Associated with Complex Switching and Information Systems Hardware and
Software.
The Company's information systems and its Northern Telecom and
Stromberg-Carlson switching equipment are expensive to purchase, complex to
install and maintain, and subject to hardware defects and software bugs. The
Company may experience technical difficulties with its hardware or software
which could adversely affect the Company's ability to provide service to its
customers, manage its network, collect billing information, or perform other
vital functions. For example, in the fourth quarter of 1996 the Company
experienced difficulties associated with the installation of a software upgrade
to its switching equipment. If similar events occur in the future, such events
could have a material adverse affect on the Company's business, operating
results or financial condition.
Dependence on Key Personnel.
The Company's success depends to a significant degree upon the efforts of
senior management personnel and a group of employees with longstanding industry
relationships and technical knowledge of the Company's operations, in
particular, Christopher E. Edgecomb, the Company's Chief Executive Officer. Mr.
Edgecomb is bound by the terms of a Non-Compete Agreement, which restricts the
Company's ability to offer domestic interexchange products and services until
September 1997 and solicit certain customers for an 18 month period thereafter.
Several of the Company's key management personnel joined the Company in the past
six months, including the Company's Chief Financial Officer and Executive Vice
President--Operations and Engineering. The Company's management team has limited
experience working together and there can be no assurance that they can
successfully integrate as a management team. The Company believes that its
future success will depend in large part upon its continuing ability to attract
and retain highly skilled personnel. Competition for qualified, high-level
telecommunications personnel is intense and there can be no assurance that the
Company will be successful in attracting and retaining such personnel. The loss
of the services of one or more of
10
<PAGE> 12
the Company's key individuals, or the failure to attract and retain other key
personnel, could materially adversely affect the Company's business, operating
results and financial condition. See "Management."
Significant Competition.
The international telecommunications industry is intensely competitive and
subject to rapid change. The Company's competitors in the international
wholesale switched long distance market include large, facilities-based
multinational corporations and PTTs, smaller facilities-based providers in the
U.S. and overseas that have emerged as a result of deregulation, switched-based
resellers of international long distance services and international joint
ventures and alliances among such companies. International wholesale switched
long distance providers compete on the basis of price, customer service,
transmission quality, breadth of service offerings and value-added services. The
Company believes that competition will continue to increase, placing downward
pressure on prices. Such pressure could adversely affect the Company's gross
margins if the Company is not able to reduce its costs commensurate with such
price reductions.
Competition from Domestic and International Companies and Alliances. The
U.S.-based international telecommunications services market is dominated by
American Telephone & Telegraph Co. ("AT&T"), MCI Communications Corp. ("MCI")
and Sprint Communications Company L.P. ("Sprint"). The Company also competes
with WorldCom, Inc., Pacific Gateway Exchange, Inc., TresCom International, Inc.
and other U.S.-based and foreign long distance providers, many of which have
considerably greater financial and other resources and more extensive domestic
and international communications networks than the Company. The Company
anticipates that it will encounter additional competition as a result of the
formation of global alliances among large long distance telecommunications
providers. For example, MCI and British Telecommunications recently announced a
proposed merger that would create a global telecommunications company called
Concert, which could create significantly increased competition. Many of the
Company's current competitors are also the Company's customers. The Company's
business would be materially adversely affected to the extent that a significant
number of such customers limit or cease doing business with the Company for
competitive or other reasons. Consolidation in the telecommunications industry
could not only create even larger competitors with greater financial and other
resources, but could also adversely affect the Company by reducing the number of
potential customers for the Company's services.
Competition from New Technologies. The telecommunications industry is in a
period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite transmission capacity for
services similar to those provided by the Company. Such technologies include
satellite-based systems, such as the proposed Iridium and GlobalStar systems,
utilization of the Internet for international voice and data communications and
digital wireless communication systems such as personal communications services
("PCS"). The Company is unable to predict which of many possible future product
and service offerings will be important to maintain its competitive position or
what expenditures will be required to develop and provide such products and
services.
Increased Competition as a Result of a Changing Regulatory
Environment. The FCC recently granted AT&T's petitions to be classified as a
non-dominant carrier in the domestic interstate and international markets, which
has allowed AT&T to obtain relaxed pricing restrictions and relief from other
regulatory constraints, including reduced tariff notice requirements. These
reduced regulatory requirements could make it easier for AT&T to compete with
the Company. In addition, the Telecommunications Act of 1996 (the
"Telecommunications Act"), which substantially revises the Communications Act of
1934 (the "Communications Act"), permits and is designed to promote additional
competition in the intrastate, interstate and international telecommunications
markets by both U.S.-based and foreign companies, including the Regional Bell
Operating Companies ("RBOCs"). RBOCs, as well as other existing or potential
competitors of the Company, have significantly more resources than the Company.
The Company also expects that competition from resellers will increase
11
<PAGE> 13
in the future along with increasing deregulation of telecommunications markets
worldwide. As a result of these and other factors, there can be no assurance
that the Company will continue to compete favorably in the future. See
"--Potential Adverse Affects of Government Regulation," "Business--Competition"
and "Business--Government Regulation."
Dependence on Other Long Distance Providers and Customer Concentration.
The Company's primary business as a wholesale long distance provider makes
it highly dependent upon traffic delivered to the Company by other long distance
providers pursuant to arrangements that can generally be terminated by the
provider on short notice. While the list of the Company's most significant
customers varies from quarter to quarter, the Company's five largest customers
accounted for approximately 43% of revenues in the year ended December 31, 1996.
During 1996, the Company's largest customer, Cherry Communications, Inc.,
("CCI") accounted for approximately 21% of the Company's revenue. The Company
could lose significant customer traffic for many reasons, including the entrance
into the market of significant new competitors with lower rates than the
Company, downward pressure on the overall costs of transmitting international
calls, transmission quality problems, changes in U.S. or foreign regulations, or
unexpected increases in the Company's cost structure as a result of expenses
related to installing a global network or otherwise. Any significant loss of
customer traffic would have a material adverse effect on the Company's business,
operating results and financial condition.
The Company's customer concentration also amplifies the risk of non-payment
by customers. The Company's two largest customers accounted for approximately
38% of the Company's gross accounts receivable as of December 31, 1996. In the
fourth quarter of 1996, one of the Company's major customers informed the
Company that it was experiencing financial difficulties and would be unable to
pay in full, on a timely basis, approximately $6 million in outstanding accounts
receivable. As a result, the Company has converted a portion of the account
receivable into a note from the customer due in March 1997 in the principal
amount of approximately $3.4 million, secured by certain of the customer's
assets. The Company has increased its reserves in the fourth quarter of 1996 by
$3.8 million to account for the potential inability to collect on the note or
the accounts receivable from this customer. There can be no assurance that the
note or the accounts receivable will be paid, that the Company will be able to
obtain adequate recourse from the assets securing the note, if necessary, or
that the Company's reserves will be adequate. The Company's ability to collect
these outstanding amounts would be adversely affected to the extent that this
customer's financial condition deteriorates further or the customer commences
bankruptcy proceedings. While the Company performs ongoing credit evaluations of
its customers, it generally does not require collateral to support accounts
receivable from its customers and there can be no assurance that reserves will
be adequate in future periods. The inability of the Company to collect
significant accounts receivable in any given period could have a material
adverse effect on the Company's cash flow and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Capital Expenditures; Potential Need for Additional Financing.
Expansion of the Company's network facilities will require a significant
investment in equipment and facilities. While the Company believes that the
proceeds of this offering, combined with other sources of liquidity, will be
sufficient to fund its capital requirements for the next 12 months, the Company
may be required to obtain additional financing depending on factors such as the
rate and extent of the Company's international expansion, increased investment
in ownership rights in fiber optic cable and increased sales and marketing
expenses to support international wholesale and commercial operations. Issuance
of additional equity securities would result in dilution to stockholders. There
can be no assurance that additional financing will be available on terms
acceptable to the Company, or at all. The Company's inability to fund its
capital requirements would have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
12
<PAGE> 14
Risks Related to STAR Trademark.
The Company has been advised that trademark registration may not be
available for the "STAR Telecommunications" mark because several companies in
telecommunications-related industries hold registered trademarks that include
the word "star." Such companies could allege that the Company's use of the STAR
Telecommunications mark is confusingly similar to existing trademarks. While the
Company has not received any communication from a third party with respect to
its use of its trademark, there can be no assurance that a third party utilizing
a similar mark will not allege that the Company's use infringes its rights, that
the Company would successfully defend any claim of infringement or that the
Company would not be ordered to cease using the mark and/or pay any damages. The
adoption of a new trademark or any related litigation could be costly,
negatively affect customer relationships, result in confusion in the market and
have a material adverse effect on the Company's business, operating results and
financial condition.
Effects of Natural Disasters and Other Catastrophic Events.
The Company's business is susceptible to natural disasters such as
earthquakes, as well as other catastrophic events such as fire, terrorism and
war. While the Company has taken a number of steps to prevent its network from
being affected by natural disasters, fire and the like, such as building
redundant systems for power supply to the switching equipment, there can be no
assurance that any such systems will prevent the Company's switches from
becoming disabled in the event of an earthquake, power outage or otherwise. The
failure of the Company's network, or a significant decrease in telephone traffic
resulting from effects of a natural or man-made disaster, could have a material
adverse effect on the Company's relationship with its customers and the
Company's business, operating results and financial condition. See
"Business--Network."
No Prior Trading Market for Common Stock.
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active trading market will
develop or be sustained after this offering. The initial public offering price
was determined through negotiations among the Company, the Selling Stockholders
and the representatives of the Underwriters based on several factors and may not
be indicative of the market price of the Common Stock after this offering. See
"Underwriting."
Potential Volatility of Stock Price.
The market price of the shares of Common Stock is likely to be highly
volatile and may be significantly affected by factors such as actual or
anticipated fluctuations in the Company's operating results, changes in federal
and international regulations, activities of the largest domestic providers,
industry consolidation and mergers, conditions and trends in the international
telecommunications market, adoption of new accounting standards affecting the
telecommunications industry, changes in recommendations and estimates by
securities analysts, general market conditions and other factors. In addition,
the stock market has from time to time experienced significant price and volume
fluctuations that have particularly affected the market prices for the common
stocks of emerging growth companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. In the past,
following periods of volatility in the market price of a particular company's
securities, securities class action litigation has often been brought against
the company. There can be no assurance that such litigation will not occur in
the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse effect upon the Company's business, operating
results and financial condition. See "Underwriting."
13
<PAGE> 15
Control of Company by Officers, Directors and Major Stockholders.
Upon the consummation of this offering, the officers, directors, major
stockholders and their affiliates in the aggregate will beneficially own
approximately 52.0% of the outstanding shares of Common Stock and the Company's
Chief Executive Officer will beneficially own approximately 43.7% of the
outstanding shares. These stockholders will be able to exercise control over all
matters requiring stockholder approval, including the election of directors and
approval of significant corporate transactions. Such concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company. See "Principal and Selling Stockholders."
Effect of Certain Charter Provisions; Anti-takeover Effects of Certificate of
Incorporation, Bylaws and Delaware Law.
Upon completion of this offering, the Company's Board of Directors will
have the authority to issue up to 5,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions, including
voting and conversion rights of such shares, without any further vote or action
by the Company's stockholders. The rights of the holders of Common Stock will be
subject to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company. The Company has no current plans to issue shares of Preferred Stock.
The Company is also subject to the anti-takeover provisions of Section 203 of
the Delaware General Corporation Law, which will prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved in
a prescribed manner. The application of Section 203 could have an effect of
delaying or preventing a change of control of the Company. In addition, upon the
closing of the offering the Company's Certificate of Incorporation will provide
for a classified Board of Directors such that approximately only one-third of
the members of the Board will be elected at each annual meeting of stockholders.
Classified Boards may have the effect of delaying, deferring or discouraging
changes in control of the Company. Further, certain provisions of the Company's
Certificate of Incorporation and Bylaws and of Delaware law could delay or make
more difficult a merger, tender offer or proxy contest involving the Company.
Additionally, certain Federal regulations require prior approval of certain
transfers of control of telecommunications companies, which could also have the
effect of delaying, deferring or preventing a change of control. See
"Description of Capital Stock--Preferred Stock" and "--Anti-takeover Effects of
Provisions of the Certificate of Incorporation, Bylaws and Delaware Law."
Shares Eligible for Future Sale.
On the date of this Prospectus, only the 6,500,000 shares offered hereby
(assuming no exercise of the Underwriters' over-allotment option) will be
immediately eligible for sale in the public market. An additional approximately
11,614,000 shares of Common Stock will be eligible for sale beginning 181 days
after the date of this Prospectus, unless earlier released, in whole or in part
and with or without notice to the public, by Hambrecht & Quist LLC. At various
times after 181 days after the date of this Prospectus, an additional
approximately 5,125,000 shares will become eligible for sale in the public
market upon expiration of their respective two-year holding periods, subject to
certain volume and resale restrictions as set forth in Rule 144 under the
Securities Act of 1933, as amended (the "Securities Act"). The Securities and
Exchange Commission has recently proposed to reduce the Rule 144 holding
periods. If enacted, such modification will have a material effect on the timing
of when shares of Common Stock become eligible for resale. In addition, the
Company intends to register, following the effective date of this offering, a
total of approximately 2,550,000 shares of Common Stock subject to outstanding
options or reserved for issuance under the Company's stock and option plans.
Certain stockholders holding approximately 4,239,000 shares of Common Stock are
14
<PAGE> 16
entitled to registration rights with respect to their shares of Common Stock. If
such stockholders, by exercising their demand registration rights, cause a large
number of securities to be registered and sold in the public market, such sales
could have an adverse effect on the market price of the Company's Common Stock.
Sales of substantial amounts of such shares in the public market after this
offering, or the prospect of such sales, could adversely affect the market price
of the Common Stock. Such sales also might make it more difficult for the
Company to sell equity securities or equity related securities in the future at
a time and price that the Company deems appropriate. See "Description of Capital
Stock," "Shares Eligible for Future Sale" and "Underwriting."
Immediate and Substantial Dilution.
The purchasers of Common Stock in this offering will experience immediate
and substantial dilution. To the extent outstanding options to purchase the
Company's Common Stock are exercised, there will be further dilution. See
"Dilution."
Forward-Looking Statements.
This Prospectus contains forward-looking statements, which may be deemed to
include statements in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," regarding the Company's strategy to lower
its cost of services and improve its gross margin, its expectation that return
traffic under operating agreements will be immaterial through at least the first
half of 1997, its intention to begin providing international long distance
services to commercial customers in certain European countries in the second
half of 1997, the Company's belief that this traffic has the potential to
generate higher gross margins, its belief that price declines may be offset in
part by increased calling volumes and decreased costs and its belief in the
sufficiency of capital resources. Forward-looking statements in "Business" may
be deemed to include projected growth in international telecommunications
traffic; the Company's strategy of marketing its services to foreign-based long
distance providers, expanding its U.S. and developing European switching
capabilities, and expanding into foreign commercial markets and in the longer
term into the U.S. commercial market; and the Company's expectations that its
London switch will be operational in mid-1997 and that it will acquire ownership
rights in three trans-Pacific cables. Actual results could differ from those
projected in any forward-looking statements for the reasons detailed in the
other sections of this "Risk Factors" portion of the Prospectus, or elsewhere in
the Prospectus.
15
<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
to be sold by the Company in this offering are estimated to be $45.0 million
($51.6 million if the Underwriters' over-allotment option is exercised in full),
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company. The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Stockholders.
The Company intends to use approximately $8.6 million of the proceeds of
the offering for the repayment of outstanding indebtedness under credit
facilities, including (i) approximately $7.8 million outstanding under a
revolving line of credit that bears interest at a rate of the bank's prime rate
plus 1.0%, certain amounts of which are convertible at the time of funding into
short-term obligations that bear interest either at LIBOR plus 3.5% or the
bank's cost of funds rate plus 3.5%, and which expires on May 1, 1997, (ii)
approximately $733,000 outstanding under a bank loan that bears interest at a
rate of prime plus 1.5% and which expires on October 1, 1999 and (iii)
approximately $26,000 outstanding under the revolving lines of credit with
Christopher E. Edgecomb that bear interest at a rate of 9% and expire on March
30, 1998. The Company intends to use approximately $33.7 million of the proceeds
of the offering for capital expenditures during 1997 to acquire digital fiber
optic cable capacity and to acquire and install new switching equipment. The
remainder of the proceeds are expected to be used for working capital, expansion
of the Company's marketing and sales organization and general corporate
purposes. Although the Company may use a portion of the net proceeds for
possible acquisition of businesses that are complementary to those of the
Company, there are no current plans in this regard. Pending such uses, the
Company plans to invest the net proceeds in short-term, interest-bearing,
investment grade securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business--Strategy" and
"Certain Transactions."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its Common
Stock and does not expect to do so in the foreseeable future. The Company
anticipates that all future earnings, if any, generated from operations will be
retained by the Company to develop and expand its business. Any future
determination with respect to the payment of dividends will be at the discretion
of the Board of Directors and will depend upon, among other things, the
Company's operating results, financial condition and capital requirements, the
terms of then-existing indebtedness, general business conditions and such other
factors as the Board of Directors deems relevant. In addition, the terms of the
Company's revolving credit facility with Comerica Bank, which is collateralized
by its accounts receivable, prohibits the payment of cash dividends without the
lender's consent.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of December 31, 1996 and (ii) the capitalization of the Company as adjusted
to reflect changes in the Company's charter documents in connection with the
reincorporation into Delaware and the conversion of the preferred stock into
common stock on the closing of this offering, the sale of the shares of Common
Stock offered hereby (assuming an offering price of $9.00 per share) and the
application of the estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term liabilities, less current portion............................ $ 6,044 $ 5,578
-------
Stockholders' equity:
Preferred stock: $0.001 par value, 1,367,050 shares authorized,
1,367,047 issued and outstanding on an actual basis; 5,000,000
authorized, no shares issued and outstanding as adjusted.......... 1 --
Common stock: $0.001 par value, 100,000,000 shares authorized,
16,371,604 shares issued and outstanding on an actual basis;
50,000,000 shares authorized, 23,238,651 shares outstanding as
adjusted(1)....................................................... 16 23
Additional paid-in capital............................................. 13,464 58,468
Retained earnings...................................................... 868 868
------- -------
Stockholders' equity................................................. 14,349 59,359
------- -------
Total capitalization................................................. $20,393 $64,937
======= =======
</TABLE>
- ------------------------------
(1) Excludes 2,535,000 shares subject to outstanding options as of December 31,
1996 at a weighted average exercise price of approximately $2.58 per share.
Also excludes 1,845,000 shares reserved for issuance under the Company's
stock plans. See "Management--1997 Omnibus Stock Incentive Plan," "--1996
Outside Directors Nonstatutory Stock Option Plan" and Notes 8 and 10 of
Notes to Consolidated Financial Statements.
17
<PAGE> 19
DILUTION
The net tangible book value of the Company's Common Stock as of December
31, 1996, giving effect to the conversion of all outstanding shares of Preferred
Stock into Common Stock upon the closing of this offering, was $14,349,000, or
approximately $0.81 per share. "Net tangible book value" per share represents
the amount of total tangible assets of the Company less total liabilities,
divided by 17,738,651 shares of Common Stock outstanding. Net tangible book
value dilution per share represents the difference between the amount per share
paid by purchasers of shares of Common Stock in the offering made hereby and the
pro forma net tangible book value per share of Common Stock immediately after
completion of the offering. After giving effect to the sale of 5,500,000 shares
of Common Stock in this offering at an assumed offering price of $9.00 per share
and the application of the estimated net proceeds therefrom, the pro forma net
tangible book value of the Company as of December 31, 1996 would have been
$59,359,000, or $2.55 per share. This represents an immediate increase in net
tangible book value of $1.74 per share to existing stockholders and an immediate
dilution in net tangible book value of $6.45 per share to purchasers of Common
Stock in the offering. Investors participating in this offering will incur
immediate, substantial dilution. This is illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $9.00
Pro forma net tangible book value per share before the offering.... $0.81
Increase per share attributable to new investors................... 1.74
-----
Pro forma net tangible book value per share after the offering....... 2.55
-----
Net tangible book value dilution per share to new investors.......... $6.45
=====
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1996, the difference between the existing stockholders and the purchasers of
shares in the offering with respect to the number of shares purchased from the
Company, the total consideration paid and the average price per share paid:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ----------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.... 17,738,651 76.3% $13,481,000 21.4% $0.76
New stockholders(1)...... 5,500,000 23.7 49,500,000 78.6 $9.00
---------- ----- ---------- -----
Totals......... 23,238,651 100.0% $62,981,000 100.0%
========== ===== ========== =====
</TABLE>
- ------------------------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 16,738,651, or 72.0% (16,553,311, or
68.9%, if the over-allotment option is exercised in full), and will increase
the number of shares held by new stockholders to 6,500,000, or 28.0%
(7,475,000, or 31.1%, if the over-allotment option is exercised in full), of
the total number of shares of Common Stock outstanding after this offering.
See "Principal and Selling Stockholders."
As of December 31, 1996, there were 2,535,000 shares subject to outstanding
options at a weighted average exercise price of approximately $2.58 per share,
and 1,845,000 shares reserved for issuance under the Company's stock plans. To
the extent outstanding options are exercised, there will be further dilution to
new investors. See "Management--1997 Omnibus Stock Incentive Plan," "--1996
Outside Director Nonstatutory Stock Option Plan" and Notes 8 and 10 of Notes to
Consolidated Financial Statements.
18
<PAGE> 20
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected Consolidated financial data should be read in
conjunction with the Consolidated Financial Statements and Notes thereto and
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations," which are included elsewhere in this Prospectus. The statement of
operations data for the years ended 1994, 1995 and 1996, and the balance sheet
data at December 31, 1995 and 1996 are derived from audited financial statements
included elsewhere in this Prospectus. The balance sheet data at December 31,
1994 are derived from audited financial statements not included in this
Prospectus. Although incorporated in 1993, the Company did not commence business
until 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------ ------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AND PER MINUTE DATA)
<S> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $ 176 $16,125 $208,086
Cost of services............................................ -- 14,357 188,430
------ ------- ------
Gross profit........................................ 176 1,768 19,656
Operating expenses:
Selling, general and administrative expenses............. 290 2,063 16,354
Depreciation and amortization............................ -- 128 1,073
------ ------- ------
Income (loss) from operations....................... (114) (423) 2,229
Other income (expense):
Interest income.......................................... -- -- 83
Interest expense......................................... -- (64) (589)
Other expense............................................ (7) (80) (100)
------ ------- ------
Income (loss) before provision for income taxes.......... (121) (567) 1,623
Provision for income taxes.................................. 1 1 755
------ ------- ------
Net income (loss)................................... $ (122) $ (568) $ 868
====== ======= ======
Net income (loss) per share(1).............................. $(0.01) $ (0.03) $ 0.05
====== ======= ======
Shares used in per share computations(1).................... 15,791 16,874 17,896
Pro forma net income per share(1)........................... $ 0.05
Pro forma number of shares used in per share
computations(1).......................................... 18,795
OTHER CONSOLIDATED FINANCIAL AND OPERATING DATA:
EBITDA(2)................................................... $ (121) $ (375) $ 3,202
Capital expenditures........................................ 21 1,062 7,838
Billed minutes of use....................................... -- 38,106 479,681
Revenue per billed minute of use(3)......................... $ -- $0.4102 $ 0.4288
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1994 1995 1996
----- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)..................................... $(236) $(1,400) $(2,343)
Total assets.................................................. 139 12,869 58,704
Long-term liabilities, net of current portion................. -- 712 6,044
Retained earnings (deficit)................................... (122) (690) 868
Stockholders' equity.......................................... (112) 413 14,349
</TABLE>
- ------------------------------
(1) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used in computing net
income (loss) per share.
(2) EBITDA represents earnings before interest income and expense, income taxes,
depreciation and amortization expense. EBITDA does not represent cash flows
as defined by generally accepted accounting principles and does not
necessarily indicate that cash flows are sufficient to fund all the
Company's cash needs. EBITDA should not be considered in isolation or as a
substitute for net income, cash flows from operating activities or other
measures of liquidity determined in accordance with generally accepted
accounting principles.
(3) Represents gross call usage revenue per billed minute. Amounts exclude other
revenue related items such as finance charges.
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere in this
Prospectus. This discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual results could differ materially
from those anticipated in the forward-looking statements as a result of certain
factors, including, but not limited to those discussed in "Risk Factors" and
elsewhere in this Prospectus.
OVERVIEW
The Company is an international long distance provider focused primarily on
providing highly reliable, low cost switched voice long distance services to
U.S. and foreign-based telecommunications companies. The Company currently
offers U.S.-originated long distance service to over 200 countries worldwide
through its flexible network of resale arrangements with other long distance
providers, various foreign termination relationships, international gateway
switches and leased and owned transmission facilities. While the Company was
incorporated in 1993, it did not commence its current business as a provider of
long distance services until the second half of 1995. During 1994, the Company
was primarily engaged in activities outside the international telecommunications
industry. During the six months ended June 1995, the Company primarily acted as
an agent for, and provided various consulting services to, companies in the
telecommunications industry. While the Company incurred expenses in the first
half of 1995 related to the start-up of its service as a long distance provider,
the Company did not install its first international gateway switch in Los
Angeles until June 1995. The Company recognized initial revenue as an
international long distance provider in August 1995. In June 1996, the Company
began operation of its second switching facility in New York.
From the third quarter of 1995 through the fourth quarter of 1996, the
Company focused primarily on building international traffic volume. The
Company's customer base grew from 32 customers at the end of 1995 to 89
customers at the end of 1996. Minutes of use increased from 34.3 million in the
fourth quarter of 1995 to 152.2 million in the fourth quarter of 1996. Revenue
grew from $14.0 million in the fourth quarter of 1995 to $68.4 million in the
fourth quarter of 1996.
Revenue. Currently, all of the Company's revenue is generated by the sale
of international long distance services on a wholesale basis to other, primarily
domestic, long distance providers. In the fourth quarter of 1996, the Company
began to provide international long distance services to foreign-based
telecommunications companies. The Company records revenues from the sale of long
distance services at the time of customer usage. The Company's agreements with
its wholesale customers are short term in duration and the rates charged to
customers are subject to change from time to time, generally with five days
notice to the customer. However, the Company is beginning to offer longer term,
fixed price arrangements for certain countries. The Company's five largest
customers accounted for approximately 43% of gross revenues in 1996. The
Company's largest customer, Cherry Communications, Inc. ("CCI"), accounted for
approximately 21% of revenue in 1996 and 17% in the fourth quarter of 1996. Any
loss of, or decrease in usage by, the Company's major customers could have a
material adverse effect on the Company's business operating results and
financial condition. See "Risk Factors--Dependence on Other Long Distance
Providers and Customer Concentration."
Gross Margin. The Company pursued a strategy in 1995 and 1996 of
attracting customers and building calling volume and revenue by offering
favorable rates compared to other long distance providers. This strategy
adversely impacted the Company's gross margin, and will continue to impact gross
margin to the extent that the Company continues to seek to build volume on
selected routes. Having significantly increased its call volume in 1996, the
Company is now focusing on lowering its cost of services and improving its gross
margin by (i) leveraging the Company's traffic volumes and information systems
to negotiate lower variable usage based costs with domestic and foreign
providers of transmission capacity, (ii) continuing to invest in the Company's
owned network facilities and to
20
<PAGE> 22
enter into other fixed cost arrangements, such as long-term leases, when traffic
volumes justify such investment and (iii) continuing to utilize the Company's
sophisticated information systems to route calls over the most cost-effective
routes.
Cost of services includes those costs associated with the transmission and
termination of international long distance services and has historically
consisted largely of payments to other long distance providers and, to a lesser
extent, line costs. Currently, most transmission capacity used by the Company is
obtained on a variable, per minute basis. As a result, most of the Company's
current cost of services is variable. The Company's contracts with its vendors
provide that rates may fluctuate, with rate change notice periods varying from
five days to one year, with certain of the Company's longer term arrangements
requiring the Company to meet minimum usage commitments in order to avoid
penalties. Such variability and the short-term nature of many of the contracts
subject the Company to the possibility of unanticipated cost increases and the
loss of cost-effective routing alternatives. Included in the Company's cost of
services are accruals for rate and minute disputes and unreconciled billing
differences between the Company and its vendors. Each quarter management reviews
the cost of services accrual and adjusts the balance for resolved items. See
"Risk Factors--Dependence on Availability of Transmission Capacity."
The Company has initially obtained transmission capacity on a variable, per
minute basis from other long distance providers, and is now in the process of
acquiring capacity on a fixed-cost basis, either through leasing or the purchase
of its own facilities, when traffic volume makes such a commitment
cost-effective. As the Company increases the portion of traffic transmitted over
owned or leased international facilities, cost of services will have an
increasing proportion of fixed costs, reflecting lease, ownership and
maintenance costs of the Company's owned network facilities.
The Company currently has operating agreements with long distance providers
in Norway, Denmark, Australia and Colombia, and is in the process of negotiating
additional operating agreements for other countries. Operating agreements
provide for the termination of traffic in, and return traffic to, the
international long distance providers' respective countries at a negotiated
"accounting rate." Under a traditional operating agreement, the international
long distance provider that originates more traffic compensates the long
distance provider in the other country by paying an additional "settlement
payment." The Company currently expects that any return traffic that it will
receive under such agreements will be immaterial through at least the first half
of 1997.
The Company intends to begin providing international long distance services
to commercial customers in certain European countries in the second half of
1997. In the longer term, the Company also plans to expand into commercial
markets in the U.S. and in other deregulating countries. The Company believes
that traffic from commercial customers has the potential to generate higher
gross margins than wholesale traffic. The Company also expects, however, that an
expansion into this market will also increase the risk of bad debt exposure and
lead to higher operating costs. See "Risk Factors--Management of Changing
Business" and "--Dependence on Other Long Distance Providers and Customer
Concentration."
Prices in the international long distance market have declined in recent
years and, as competition continues to increase, the Company believes that
prices are likely to continue to decline. Additionally, the Company believes
that the increasing trend of deregulation of international long distance
telecommunications will result in greater competition, which could adversely
affect the Company's revenue per minute and gross margin. The Company believes,
however, that the effect of such decreases in prices may be offset in part by
increased calling volumes and decreased costs.
Operating Expenses. Selling, general and administrative costs consist
primarily of personnel costs, tradeshow and travel expenses, commissions and
consulting fees and professional fees, as well as an accrual for bad debt
expense at the rate of 1.5% of gross revenues per month. These expenses have
been increasing over the past year, which is consistent with the Company's
recent growth, accelerated expansion into Europe, and investment in systems and
facilities. The Company expects this trend to continue and believes that
additional selling, general and administrative expenses will be necessary to
21
<PAGE> 23
support the expansion of sales and marketing efforts, the expansion into
commercial markets and operations.
Foreign Exchange. Although the Company's functional currency is the U.S.
dollar, the Company expects to derive an increasing percentage of its net
revenue from international operations and changes in exchange rates may have a
significant effect on the Company's results of operations. For example, the
accounting rate under operating agreements is often defined in monetary units
other than U.S. dollars, such as "special drawing rights" or "SDRs." To the
extent that the dollar declines relative to units such as SDRs, the dollar
equivalent accounting rate would increase. In addition, as the Company expands
into the commercial market in foreign countries, its exposure to foreign
currency rate fluctuations is expected to increase. The Company may choose to
limit such exposure by the purchase of forward foreign exchange contracts or
similar hedging strategies. There can be no assurance that any currency hedging
strategy would be successful in avoiding exchange-related losses. See "Risk
Factors--Risks of International Telecommunications Business."
Factors Affecting Future Operating Results. The Company's quarterly
operating results are difficult to forecast with any degree of accuracy because
a number of factors subject these results to significant fluctuations. As a
result, the Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful and should not be relied upon as
indications of future performance.
The Company's revenues, costs and expenses have fluctuated significantly in
the past and are likely to continue to fluctuate significantly in the future as
a result of numerous factors. The Company's revenues in any given period can
vary due to factors such as call volume fluctuations, particularly in regions
with relatively high per-minute rates; the addition or loss of major customers,
whether through competition, merger, consolidation or otherwise; the loss of
economically beneficial routing options for the termination of the Company's
traffic; financial difficulties of major customers; pricing pressure resulting
from increased competition; and technical difficulties with or failures of
portions of Company's network that impact the Company's ability to provide
service to or bill its customers. The Company's cost of services and operating
expenses in any given period can vary due to factors such as fluctuations in
rates charged by carriers to terminate the Company's traffic; the timing of
capital expenditures, and other costs associated with acquiring or obtaining
other rights to switching and other transmission facilities; changes in the
Company's sales incentive plans; and costs associated with changes in staffing
levels of sales, marketing, technical support and administrative personnel. In
addition, the Company's operating results can vary due to factors such as
changes in routing due to variations in the quality of vendor transmission
capability; the amount of, and the accounting policy for, return traffic under
operating agreements; actions by domestic or foreign regulatory entities; the
level, timing and pace of the Company's expansion in international and
commercial markets; and general domestic and international economic and
political conditions. Since the Company does not generally have long term
arrangements for the purchase or resale of long distance services, and since
rates fluctuate significantly over short periods of time, the Company's gross
margins are subject to significant fluctuations over short periods of time. The
Company's gross margins also may be negatively impacted in the longer term by
competitive pricing pressures.
Although the Company's revenues have increased in each of the last eight
quarters, such growth should not be considered indicative of future revenue
growth or operating results. If revenue levels fall below expectations, net
income is likely to be disproportionately adversely affected because a
proportionately smaller amount of the Company's operating expenses varies with
its revenues. This effect is likely to increase as a greater percentage of the
Company's cost of services are associated with owned and leased facilities.
There can be no assurance that the Company will be able to achieve or maintain
profitability on a quarterly or annual basis in the future. See "Risk
Factors--Risks Associated with Limited Operating History in the International
Telecommunications Market" and "--Operating Results Subject to Significant
Fluctuations."
22
<PAGE> 24
RESULTS OF OPERATIONS
In 1994 the Company was primarily engaged in activities outside the
international telecommunications industry. During the six months ended June
1995, the Company primarily acted as an agent for, and provided consulting
services to, companies in the telecommunications industry. The Company
discontinued this business in September 1995 and, as a result, the Company
believes that a comparison of financial condition and results of operations
between the years ended 1994 and 1995 is not meaningful.
YEARS ENDED DECEMBER 31, 1996 AND 1995
Revenues. Revenues increased to $208.1 million in 1996 from $16.1 million
in 1995, with minutes of use increasing to 479.7 million in 1996, as compared to
38.1 million minutes of usage in the prior year. The increase in revenue
resulted from the Company's commencement of operations as an international long
distance carrier, an increase in the number of customers as compared to the
prior year and an increase in minutes of traffic from new and existing
customers. The increase in traffic is also attributable to an increase in the
number of routes with favorable rates that the Company was able to offer to
customers. Any loss of, or decrease in usage by, the Company's major customers
could have a material adverse effect on the Company's business operating results
and financial condition. See "Risk Factors--Dependence on Other Long Distance
Providers and Customer Concentration."
Gross Margin. Gross profit increased to $19.7 million in 1996 from $1.8
million for 1995. Gross margin decreased to 9.4% in 1996 from 11.0% in 1995,
reflecting the change from the Company's prior consulting business to operating
as an international long distance carrier. Gross margin was positively impacted
during 1996 by the negotiation of lower rates on routes with significant
traffic, and negatively impacted by increases in traffic on routes with lower
margins.
Selling, General and Administrative. Selling, general and administrative
expenses increased to $16.4 million in 1996 from $2.1 million in 1995, but
decreased as a percentage of revenue to 7.9% from 12.8% in the prior period.
Selling, general and administrative expenses increased between periods as the
Company increased its employee base and incurred payroll, employee benefits,
commission and related expenses. The Company also established a reserve for
doubtful accounts to reflect its significantly higher revenue levels and
invested in sales and marketing activities including tradeshows and travel. In
particular, the Company increased its reserve for doubtful accounts by $3.8
million in the fourth quarter as a result of financial difficulties experienced
by one of its major customers. The Company believes that selling, general and
administrative expenses will continue to increase in absolute dollars but may
fluctuate as a percentage of revenues.
Depreciation. Depreciation increased to $1.1 million for 1996 from
$128,000 for 1995, but decreased as a percentage of revenues to 0.5% from 0.8%
in the prior period. Depreciation increased in absolute dollars as a result of
the Company's acquisition of operating equipment and leasehold improvements
associated with its Los Angeles and New York switching facilities and switch
site buildouts. The Company expects depreciation expense to increase as the
Company expands its ownership of switching and transmission facilities through
purchase or use of capital leases.
Other Income (Expense). Other expense, net, increased to $606,000 in 1996
from $144,000 in 1995. This increase is primarily due to a $100,000 legal
settlement in the second quarter of 1996 as well as $589,000 in interest expense
incurred under various bank and stockholder lines of credit. This increase was
offset by $83,000 in interest income on short term investments and cash
equivalents from funds raised in private placements of equity securities during
the first three quarters of 1996.
Provision for Income Taxes. The Company had no provision for federal
income taxes in 1995, since the Company incurred a loss for the year. In
addition, the Company was an S corporation during 1995 and thus was only subject
to 1.5% tax on taxable income for state purposes with a minimum of $800 per
year. The pro forma provision for income taxes, assuming the Company was a C
corporation for all periods presented, does not differ from the actual tax
provision during 1995. During 1996 the provision for income taxes increased to
$755,000 which represents an effective tax rate of 46.5%.
23
<PAGE> 25
QUARTERLY RESULTS OF OPERATIONS
The Company initiated its international telecommunications business in the
third quarter of 1995. The following tables set forth certain unaudited
statement of operations data for each of the six quarters in the period ended
December 31, 1996, as well as the percentage of the Company's revenues
represented by each item. The unaudited financial statements have been prepared
on the same basis as the audited financial statements contained herein and
include all adjustments (consisting only of normal recurring adjustments) that
the Company considers necessary for a fair presentation of such information when
read in conjunction with the Company's Consolidated Financial Statements and
Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1996 1996 1996 1996
--------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND PER MINUTE DATA)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................................... $ 1,622 $13,993 $35,667 $42,852 $61,169 $68,398
Cost of services........................................... 1,420 12,926 32,286 38,754 56,527 60,863
------- ------- ------- ------- ------- -------
Gross profit............................................. 202 1,067 3,381 4,098 4,642 7,535
Operating expenses:
Selling, general and administrative expenses............. 536 1,068 1,803 2,573 3,665 8,313
Depreciation and amortization............................ 21 100 108 156 343 466
------- ------- ------- ------- ------- -------
Total operating expenses................................. 557 1,168 1,911 2,729 4,008 8,779
Income (loss) from operations.............................. (355) (101) 1,470 1,369 634 (1,244)
Other income (expense):
Interest income.......................................... -- -- -- 28 42 13
Interest expense......................................... -- (60) (78) (109) (173) (229)
Other expense............................................ -- (80) -- (100) -- --
------- ------- ------- ------- ------- -------
Income (loss) before provision for income taxes........ (355) (241) 1,392 1,188 503 (1,460)
Provision for income taxes................................. -- 1 544 485 217 (491)
------- ------- ------- ------- ------- -------
Net income (loss)...................................... $ (355) $ (242) $ 848 $ 703 $ 286 $ (969)
======= ======= ======= ======= ======= =======
AS A PERCENTAGE OF REVENUE
-------------------------------------------------------
Revenue.................................................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of services........................................... 87.5 92.4 90.5 90.4 92.4 89.0
------- ------- ------- ------- ------- -------
Gross profit............................................. 12.5 7.6 9.5 9.6 7.6 11.0
Operating expenses:
Selling, general and administrative expenses............. 33.0 7.6 5.1 6.0 6.0 12.2
Depreciation and amortization............................ 1.3 0.7 0.3 0.4 0.6 0.7
------- ------- ------- ------- ------- -------
Total operating expenses............................ 34.3 8.3 5.4 6.4 6.6 12.8
Income (loss) from operations.............................. (21.9) (0.7) 4.1 3.2 1.0 (1.8)
Other income (expense):
Interest income.......................................... -- -- -- 0.1 0.1 --
Interest expense......................................... -- (0.4) (0.2) (0.3) (0.3) (0.3)
Other expense............................................ -- (0.6) -- (0.2) -- --
------- ------- ------- ------- ------- -------
Income (loss) before provision for income taxes........ (21.9) (1.7) 3.9 2.8 0.8 (2.1)
Provision for income taxes................................. -- -- 1.5 1.1 0.4 (0.7)
------- ------- ------- ------- ------- -------
Net income (loss)...................................... (21.9)% (1.7)% 2.4% 1.6% 0.5% (1.4)%
======= ======= ======= ======= ======= =======
CONSOLIDATED OPERATING DATA:
Billed minutes of use...................................... 3,783 34,323 85,375 104,098 137,963 152,245
Revenue per billed minute of use(1)........................ $0.3999 $0.4113 $0.4149 $0.4071 $0.4400 $0.4413
</TABLE>
- ------------------------------
(1) Represents gross call usage revenue per billed minute. Amounts exclude other
revenue related items such as finance charges.
24
<PAGE> 26
Revenues. Revenues increased each quarter since the Company first
recognized revenue as a long distance carrier in the quarter ended September 30,
1995. These increases reflected the increase in minutes of usage over the
respective quarters as the Company increased its customer base and as usage
increased among existing customers. The Company's revenue growth in the quarter
ending June 30, 1996 was slower relative to the quarter ended March 31, 1996
because of limited port capacity at both the Los Angeles and the New York switch
sites. The Company increased its port capacity by installing new switches at
both the Los Angeles and the New York switch sites in June and July of 1996. As
a result, the quarter ending September 30, 1996 reflects revenue growth
attributable to the additional port capacity of the new switches in Los Angeles
and New York. The Company's revenue growth slowed in the fourth quarter of 1996
relative to the prior quarter primarily due to the Company significantly
reducing the traffic it received from a major customer experiencing financial
difficulties, a relatively smaller decrease in traffic from another major
customer due to pricing changes and transmission quality problems on several
high volume routes that caused customers to choose alternative routes.
Gross Margin. Gross margin fluctuated significantly from the quarter ended
September 30, 1995 through the quarter ended December 31, 1996. Gross margin
decreased to 7.6% in the quarter ended December 31, 1995 from 12.5% in the
quarter ended September 30, 1995, reflecting the Company's continued transition
from a higher margin consulting business as well as the Company's strategy of
attracting customers and building traffic volume by offering favorable rates
compared to other long distance providers. Gross margin for the quarters ended
March 31, 1996 and June 30, 1996 improved to 9.5% and 9.6%, respectively as the
Company gained traffic volume and customers for selected higher margin routes.
As traffic volumes increased, the Company negotiated lower rates on these
routes. Increased volume also distributed the fixed costs of the Los Angeles and
New York switch sites over a larger number of minutes. Gross margin for the
quarter ended September 30, 1996 declined because of the loss of the lowest cost
routing options on three relatively profitable routes. The Company elected to
maintain customer traffic on these routes at the same prices while management
sought alternative routing arrangements. New rates for these routes were
negotiated and effective in the late third quarter of 1996. The Company's gross
margins improved to 11.0% in the fourth quarter of 1996 due in part to lower
costs on several major routes and the adjustment of the cost of services accrual
to reflect both the settlement of disputes and the favorable reconciliation of
vendor bills. However, the improvement in the Company's gross margin was offset
by lower traffic minutes on higher margin routes due to quality problems with
the most cost-effective routing option and by higher volume traffic to several
lower margin countries.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses have increased in each quarter since the Company
commenced operation as an international long distance provider in July 1995.
These increases in expenses are the result of increased payroll and related
expenses as the Company has built its sales, marketing and administrative
staffs, expansion of the Company's tradeshow and travel activities, increases in
commissions and consulting fees related to higher revenue levels and the
establishment of reserves for doubtful accounts. Selling, general and
administrative expenses have fluctuated as a percentage of revenues. Selling,
general and administrative expenses were higher in the quarter ended December
31, 1995 than in the prior period, due to the establishment of a reserve for
doubtful accounts. These expenses for the quarter ended December 31, 1996
increased to 12.2% of revenues largely as a result of $3.8 million increase in
the allowance for doubtful accounts for the uncertainty of payment from one
customer currently experiencing financial difficulties.
Depreciation. Depreciation increased in the quarter ended December 31,
1995 as a result of the Company's acquisition of operating equipment and
leasehold improvements for its Los Angeles switching facility. Depreciation also
increased in the quarters ended September 30, 1996 and December 31, 1996 as a
result of the addition of a third switch in Los Angeles and the increase in
operating equipment and leasehold improvements related to the New York switching
facility.
25
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
To date, the Company has funded its business primarily through funds
advanced from an officer of the Company, bank debt, the private sale of equity
and, since the first quarter of 1996, cash generated from operations. The
Company generated net cash from operating activities of approximately $500,000
in 1996, primarily comprised of net income plus an increase in provision for
doubtful accounts and accrued line costs, offset in part by an increase in
accounts receivable. The Company's investing activities used cash of
approximately $17.7 million during 1996 primarily resulting from capital
expenditures offset in part by the issuance of Common and Preferred Stock. The
Company's financing activities provided cash of approximately $18.8 million
during 1996 primarily from borrowings under bank and officer's lines of credit,
the sale of Common Stock and the sale of Preferred Stock, offset by repayments
of portions of the lines of credit from an officer.
In the fourth quarter of 1996, the Company converted a portion of the
accounts receivable from a customer into a note. The note is in the principal
amount of approximately $3.4 million, bearing interest at 10% per year, secured
by certain of the customers assets, and is due in full in March 1997. The
Company increased its allowance for doubtful accounts in the fourth quarter of
1996 by $3.8 million to provide for the potential inability to collect on the
note or the accounts receivable from this customer. However, there can be no
assurance that the note or the accounts receivable will be paid, that the
Company will be able to obtain adequate recourse from the assets securing this
note, if necessary, or that the Company's reserves will be adequate. See "Risk
Factors--Dependence on Other Long Distance Providers and Customer
Concentration."
As of December 31, 1995 and 1996, the Company had cash and cash equivalents
of approximately $164,000 and $1.7 million, respectively, and a working capital
deficit of approximately $1.4 million and $2.3 million, respectively. The
Company has (i) approximately $7.8 million outstanding under a revolving line of
credit that bears interest at a rate of the bank's prime rate plus 1.0%, certain
amounts of which are convertible at the time of funding into short-term
obligations that bear interest either at LIBOR plus 3.5% or the bank's cost of
funds rate plus 3.5%, and which expires on May 1, 1997, (ii) $733,000
outstanding under an equipment lease line that bears interest at a rate of prime
plus 1.5% and which expires on October 1, 1999, (iii) approximately $5.6 million
outstanding under seven equipment leases relating to the Company's switching
facilities, including approximately $3.2 million outstanding under a lease for
the acquisition of the Company's switching equipment in New York and (iv)
approximately $26,000 outstanding under the revolving lines of credit with
Christopher E. Edgecomb that bear interest at a rate of 9% and expire on March
30, 1998. The Company intends to use approximately $8.6 million of the proceeds
from this offering for the repayment of indebtedness under certain of these
credit facilities. The Company anticipates making capital expenditures of
approximately $33.7 million in 1997 to expand the Company's global network. See
"Use of Proceeds."
The Company currently is in discussions to obtain a new line of credit to
provide it with additional funding to meet its capital requirements and will use
capital lease financings as appropriate. There can be no assurance that the
Company will be able to obtain a new line of credit or additional capital lease
financing on commercially reasonable terms, if at all. The Company believes that
the net proceeds from the offering, borrowing capacity under a new line of
credit and available vendor financing, will be sufficient to fund the Company's
net cash used in operating activities, capital expenditures and other cash needs
for the next 18 months. Additional funding through the incurrence of debt or
sale of additional equity may be required to meet the Company's growth plans
beyond the first half of 1998, although there can be no assurance that such
additional funds can be obtained on acceptable terms, if at all. If necessary
funds are not available, the Company's business and results of operations and
the future expansion of the business could be materially adversely affected.
26
<PAGE> 28
BUSINESS
OVERVIEW
STAR Telecommunications is an international long distance provider offering
highly reliable, low cost switched voice services on a wholesale basis,
primarily to U.S. based long distance carriers. STAR provides international long
distance service to over 200 foreign countries through a flexible network of
resale arrangements with long distance providers, various foreign termination
relationships, international gateway switches, and leased and owned transmission
facilities. The Company has grown its revenues rapidly by capitalizing on the
deregulation of international telecommunications markets, by combining
sophisticated information systems with flexible routing techniques and by
leveraging management's industry expertise. STAR commenced operations as an
international long distance provider in August 1995 and increased its revenues
from $16.1 million in 1995 to $208.1 million in 1996.
INDUSTRY BACKGROUND
The international long distance telecommunications services industry
consists of all transmissions of voice and data that originate in one country
and terminate in another. This industry is undergoing a period of fundamental
change which has resulted in substantial growth in international
telecommunications traffic. According to industry sources, worldwide gross
revenues for providers of international voice telephone service were
approximately $57 billion in 1995 and the volume of international traffic on the
public telephone network is expected to grow at a compound annual growth rate of
12% or more from 1995 through the year 2000.
From the standpoint of a U.S.-based long distance providers, the industry
can be divided into two major segments: the U.S. international market,
consisting of all international calls billed in the U.S. and the overseas
market, consisting of all international calls billed in countries other than the
U.S. The U.S. international market has experienced substantial growth in recent
years with gross revenues from international long distance telephone services
rising from approximately $8.0 billion in 1990 to approximately $14.9 billion in
1995, according to FCC data.
The Company believes that a number of trends in the international
telecommunications market will continue to drive growth in international
traffic, including:
- continuing deregulation and privatization of telecommunications markets;
- pressure to reduce international outbound long distance rates paid by end
users driven by increased competition among U.S. long distance carriers
and among emerging foreign long distance carriers in deregulated
countries;
- the dramatic increase in the availability of telephones and the number of
access lines in service around the world;
- the increasing globalization of commerce, trade and travel;
- the proliferation of communications devices such as faxes, cellular
telephones, pagers and data communications devices;
- increasing demand for data transmission services, including the Internet;
and
- the increased utilization of high quality digital undersea cable and
resulting expansion of bandwidth availability.
The Development of the U.S. and Overseas Markets
The 1984 deregulation of the U.S. telecommunications industry enabled the
emergence of new long distance companies in the U.S. Today, there are over 500
U.S. long distance companies, most of which are small or medium sized companies.
In order to be successful, these small and medium size companies have to offer
their customers a full range of services, including international long distance.
27
<PAGE> 29
However, most of these carriers do not have the critical mass to receive volume
discounts on international traffic from the larger facilities-based carriers
such as AT&T, MCI and Sprint. In addition, these small and medium sized
companies have only a limited ability to invest in international facilities. New
international carriers such as STAR have emerged to take advantage of this
demand for less expensive international bandwidth. These emerging international
carriers act as aggregators of international traffic for smaller carriers,
taking advantage of larger volumes to obtain volume discounts on international
routes (resale traffic), or investing in facilities when volume on particular
routes justify such investments. Over time, as these emerging international
carriers have become established, they have also begun to carry overflow traffic
from the larger long distance providers that own overseas transmission
facilities.
In an increasingly competitive market for international and domestic
telecommunications, the resale market for telecommunications services has
expanded rapidly. According to FCC data, total billed revenue of U.S. resellers
of international switched services increased approximately 55% from 1994 to
1995, from approximately $1.1 billion to $1.7 billion. The expansion of the
resale market has also been facilitated by the significant increase in
international fiber optic cable capacity, creating new routing options for
providers of resale services as facilities-based carriers seek to fill that new
capacity.
Deregulation and privatization have also allowed new long distance
providers to emerge in foreign markets. By eroding the traditional monopolies
held by single national providers, many of which are wholly or partially
government owned (often referred to as Post, Telephone and Telegraphs or
"PTTs"), deregulation is providing U.S.-based providers the opportunity to
negotiate more favorable agreements with both the traditional PTTs and emerging
foreign providers. In addition, deregulation in certain foreign countries is
enabling U.S.-based providers establish local switching and transmission
facilities in order to terminate their own traffic and begin to carry
international long distance traffic originated in that country.
International Switched Long Distance Services
International switched long distance services are provided through
switching and transmission facilities that automatically route calls to circuits
based upon a predetermined set of routing criteria. The call typically
originates on a local exchange carrier's network and is transported to the
caller's domestic long distance carrier. The domestic long distance provider
then carries the call to an international gateway switch. An international long
distance provider picks up the call at its gateway and sends it directly or
through one or more other long distance providers to a corresponding gateway
switch operated in the country of destination. Once the traffic reaches the
country of destination, it is then routed to the party being called though that
country's domestic telephone network.
International long distance providers can generally be categorized by their
ownership and use of switches and transmission facilities. The largest U.S.
carriers, such as AT&T, MCI and Sprint, primarily utilize owned transmission
facilities and generally use other long distance providers to carry their
overflow traffic. Since only very large carriers have transmission facilities
that cover the over 200 countries to which major long distance providers
generally offer service, a significantly larger group of long distance providers
own and operate their own switches but either rely solely on resale agreements
28
<PAGE> 30
with other long distance carriers to terminate their traffic or use a
combination of resale agreements and owned facilities in order to terminate
their traffic as shown below:
[DIAGRAM DEPICTING ROUTE OF INTERNATIONAL TELEPHONE CALL FROM THE
ORIGINATING TELEPHONE, THROUGH THE LOCAL EXCHANGE CARRIER, LONG DISTANCE
PROVIDER, STAR'S INTERNATIONAL GATEWAY SWITCH AND THEN TO THE TERMINATING
COUNTRY EITHER THROUGH THE COMPANY'S OWNED, IRU OR LEASED FACILITIES OR THROUGH
RESALE ARRANGEMENTS WITH THIRD PARTIES.]
Operating Agreements. Under traditional operating agreements,
international long distance traffic is exchanged under bilateral agreements
between international long distance providers in two countries. Operating
agreements provide for the termination of traffic in, and return traffic to, the
international long distance providers' respective countries at a negotiated
"accounting rate." Under a traditional operating agreement, the international
long distance provider that originates more traffic compensates the long
distance provider in the other country by paying an additional "settlement
payment."
Under a typical operating agreement both carriers jointly own the
transmission facilities between two countries. A carrier gains ownership rights
in a digital fiber optic cable by purchasing direct ownership in a particular
cable prior to the time the cable is placed in service, acquiring an
"Indefeasible Right of Use" ("IRU") in a previously installed cable, or by
leasing or obtaining capacity from another long distance provider that either
has direct ownership or IRU rights in the cable. In situations where a long
distance provider has sufficiently high traffic volume, routing calls across
directly owned or IRU cable is generally more cost-effective on a per call basis
than the use of short-term variable capacity arrangements with other long
distance providers or leased cable. However, direct ownership and acquisition of
IRU rights require a company to make an initial investment of its capital based
on anticipated usage.
Transit Arrangements. In addition to utilizing an operating agreement to
terminate traffic delivered from one country directly to another, an
international long distance provider may enter into transit arrangements
pursuant to which a long distance provider in an intermediate country carries
the traffic to a country of destination. Transit requires agreement among the
carriers in all the countries involved and is generally used for overflow
traffic or where a direct circuit is unavailable or not volume justified.
Resale Arrangements. Resale arrangements typically involve the wholesale
purchase and sale of transmission and termination services between two long
distance providers on a variable, per minute basis. The resale of capacity,
which was first permitted with the deregulation of the U.S. market, enabling the
emergence of new international long distance providers that rely at least in
part on capacity acquired on a wholesale basis from other long distance
providers. International long distance
29
<PAGE> 31
calls may be routed through a facilities-based carrier with excess capacity, or
through multiple long distance resellers between the originating long distance
provider and the facilities-based carrier that ultimately terminates the
traffic. Resale arrangements set per minute prices for different routes, which
may be guaranteed for a set time period or subject to fluctuation following
notice. The resale market for international capacity is constantly changing, as
new long distance resellers emerge and existing providers respond to fluctuating
costs and competitive pressures. In order to be able to effectively manage costs
when utilizing resale arrangements, long distance providers need timely access
to changing market data and must quickly react to changes in costs through
pricing adjustments or routing decisions.
Alternative Termination Arrangements. As the international long distance
market has deregulated, long distance providers have developed alternative
termination arrangements in an effort to decrease their costs of terminating
international traffic. Some of the more significant of these arrangements
include refiling, international simple resale ("ISR") and ownership of switching
facilities in foreign countries. Refiling of traffic, which takes advantage of
disparities in settlement rates between different countries, allows traffic to a
destination country to be treated as if it originated in another country that
enjoys lower settlement rates with the destination country, thereby resulting in
a lower overall termination cost. The difference between transit and refiling is
that, with respect to transit, the long distance provider in the destination
country has a direct relationship with the originating long distance provider
and is aware of the arrangement, while with refiling, it is likely that the long
distance provider in the destination country is not aware that the received
traffic originated in another country and with another carrier. To date, the FCC
has made no pronouncement as to whether refiling complies with either U.S. or
International Telecommunications Union ("ITU") regulations. With ISR, a long
distance provider completely bypasses the settlement system by connecting an
international leased private line to the public switched telephone network
("PSTN") of a foreign country or directly to premises of a customer or foreign
partner. While ISR currently is only sanctioned by applicable regulatory
authorities on a limited number of routes, including U.S.-U.K., U.S.-Sweden,
U.S.-New Zealand, U.K.-Worldwide and Canada-U.K., it is increasing in use and is
expected to expand significantly as deregulation of the international
telecommunications market continues. In addition, deregulation has made it
possible for U.S.-based long distance providers to establish their own switching
facilities in certain foreign countries, enabling them to directly terminate
traffic. See "--Government Regulation."
The highly competitive and rapidly changing international
telecommunications market has created a significant opportunity for carriers
that can offer high quality, low cost international long distance service.
Deregulation, privatization, the expansion of the resale market and other trends
influencing the international telecommunications market are driving decreased
termination costs, a proliferation of routing options, and increased
competition. Successful companies among both the emerging and established
international long distance companies will need to aggregate enough traffic to
lower costs of both facilities-based or resale opportunities, maintain systems
which enable analysis of multiple routing options, to invest in facilities and
switches and remain flexible enough to locate and route traffic through the most
advantageous routes.
THE STAR APPROACH
STAR offers high quality, reliable switched international long distance
services primarily to U.S.-based telecommunications companies that are seeking
to utilize low cost routing alternatives to augment their own service and to
address increased competition in their markets. The Company is also expanding to
serve foreign-based international long distance providers. The Company provides
international long distance service to over 200 foreign countries through a
flexible network consisting of resale arrangements with other long distance
providers, various foreign termination relationships, international gateway
switches and leased and owned transmission facilities. STAR continuously
monitors the market for long distance services, detecting trends in traffic
flow, international network availability and pricing. The Company believes that
this market knowledge enables it to react quickly to address market
opportunities and to take advantage of changing market conditions. STAR utilizes
its
30
<PAGE> 32
flexible network structure and state-of-the-art digital switching technology to
continuously reroute traffic to the most cost-effective transmission alternative
for a particular country. STAR is further developing its network by establishing
strategic relationships with foreign PTTs and other foreign providers of long
distance services and building network facilities, where existing and
anticipated traffic volumes justify such investment.
STRATEGY
The Company's objective is to be a leading provider of highly reliable, low
cost switched international long distance services on a wholesale basis to U.S.
and foreign-based telecommunications companies, as well as on a retail basis to
commercial customers. Key elements of the Company's strategy include the
following:
Capitalize on Projected International Long Distance Growth. The Company
believes that the international long distance market provides attractive
opportunities due to its higher revenue and profit per minute, and greater
projected growth rate as compared to the domestic long distance market. The
Company targets international markets with high volumes of traffic, relatively
high rates per minute and prospects for deregulation and privatization. The
Company believes that the ongoing trend toward deregulation and privatization
will create new opportunities for the Company in international markets. While
the Company has focused to date primarily on providing services for U.S.-based
long distance providers, the Company also intends in the future to expand the
international long distance services it offers to foreign-based long distance
providers to the extent allowed by U.S. and international governmental
regulations.
Leverage Traffic Volume to Reduce Costs. The Company has focused and is
continuing to focus on building its volumes of international long distance
traffic. Higher traffic volumes strengthen the Company's negotiating position
with vendors, customers and potential foreign partners, which allows the Company
to lower its costs of service. In addition, higher traffic volumes on particular
routes allow the Company to lower its cost of services on these routes by
transitioning from acquiring capacity on a variable cost, per minute basis to
fixed cost arrangements such as longer-term capacity agreements with major
carriers, long-term leases and ownership of facilities.
Expand Switching and Transmission Facilities. The Company is continuing to
pursue a flexible approach to expanding and enhancing its network facilities by
investing in both switching and transmission facilities where traffic volumes
justify such investments. The Company intends to expand its U.S. switching
facilities through the addition of switching facilities in Miami, Dallas and
Atlanta. The Company is also in the process of developing switching capabilities
in foreign countries with the addition of an international gateway switch in
London, England, and is planning to install a network of switches in selected
European cities.
Leverage Information Systems and Switching Capabilities. The Company
leverages its sophisticated information systems to analyze its routing
alternatives, and select the most cost-effective routing from among the
Company's network of resale arrangements with other long distance providers,
operating agreements and other alternative termination relationships. The
Company has invested significant resources in the development of software to
track specific usage information by customer and cost and profit information on
specific routes on a daily basis. The Company's information systems are critical
components in managing its customer and vendor relationships, routing traffic to
the most cost-effective alternative, and targeting marketing efforts.
Maintain High Quality. The Company believes that reliability, call
completion rates, voice quality, rapid set up time and a high level of customer
and technical support are key factors evaluated by U.S. and foreign-based
telecommunications companies in selecting a carrier for their international
traffic. The Company has installed state-of-the-art Northern Telecom and
Stromberg-Carlson switching equipment, is fully compliant with international C-7
and domestic SS-7 signaling standards, and strives to provide a consistently
high level of customer and technical support. The Company has technical
31
<PAGE> 33
support personnel at its facilities 24 hours per day, seven days per week to
assist its customers and to continually monitor network operation.
Expand Into Commercial Market. The Company intends to market its
international long distance services directly to commercial customers in foreign
countries, with an initial focus on the U.K. and selected European cities. The
Company intends to initially provide services to closed user groups comprised of
corporate customers. As regulatory restrictions ease in these foreign markets,
the Company intends to aggregate long distance traffic from a broader range of
commercial customers that will be routed over the Company's network back to the
U.S. or to an alternate destination. In the longer term, the Company also plans
to expand into commercial markets in the U.S. and in other deregulating
countries.
NETWORK
The Company provides international long distance services to over 200
foreign countries through a flexible, switched-based network consisting of
resale arrangements with other long distance providers, various foreign
termination relationships, international gateway switches and leased and owned
transmission facilities. The Company's network employs state-of-the-art digital
switching and transmission technologies and is supported by comprehensive
monitoring and technical support personnel who are at the Company's facilities
24 hours per day, seven days per week.
Termination Arrangements
International long distance traffic is ultimately terminated at the
destination point pursuant to termination relationships between a provider of
telecommunications services in the originating country and a provider in the
terminating country. The Company seeks to retain flexibility and maximize its
termination opportunities by utilizing a continuously changing mix of routing
alternatives, including resale arrangements, operating agreements and other
advantageous termination arrangements. This diversified approach is intended to
enable the Company to take advantage of the rapidly evolving international
telecommunications market in order to provide low cost international long
distance service to its customers.
The Company utilizes resale arrangements to provide it with multiple
options for routing traffic through its switches to each destination country.
Traffic under resale arrangements typically terminates pursuant to a third
party's correspondent relationships. The Company purchased capacity from 37
vendors as of December 31, 1996, four of which provided the majority of the
Company's capacity. The majority of this capacity is obtained on a variable, per
minute basis. The Company's contracts with its vendors provide that rates may
fluctuate, with rate change notice periods varying from five days to one year,
with certain of the Company's longer term arrangements requiring the Company to
make minimum usage commitments in order to avoid penalties. As a result of
deregulation and competition in the international telecommunications market, the
pricing of termination services varies by carrier depending on such factors as
call traffic and time of day. Since the Company does not typically enter into
long term contracts with these providers, pricing can change significantly over
short periods of time. These changes subject the Company to unanticipated price
increases and service cancellations. The Company's proprietary information
systems enable the Company to track the pricing variations in the international
telecommunications market on a daily basis, allowing the Company's management to
locate and reroute traffic to the most cost-effective alternatives. If the
Company is not able to continue to enter into cost-effective resale arrangements
with its primary vendors, or is unable to locate suitable replacement vendors
the Company may not be able to obtain sufficient, high quality alternative
capacity, in which case the Company's business, operating results and financial
condition could be materially adversely affected. See "Risk Factors--Dependence
on Availability of Transmission Capacity."
The Company currently has operating agreements with carriers in Norway,
Denmark, Australia and Colombia and is in the process of negotiating additional
operating agreements for other countries.
32
<PAGE> 34
The Company has been and will continue to be selective in entering into
operating agreements. The Company also has agreements with two providers of long
distance services in the Asia/Pacific Rim region for termination of U.S.
originated traffic that the Company aggregates in the U.S. and routes over a
leased network to such countries. The Company is exploring similar relationships
with carriers in other countries. The FCC or foreign regulatory agencies may
take the view that such arrangements are not in compliance with current
regulatory policies relating to private line resale. The operations of
alternative carriers like the Company's partners, who compete with the PTT, may
not be permitted by foreign regulatory agencies. To the extent that the revenue
generated under such arrangements becomes a significant portion of overall
revenue, the loss of such arrangements, whether as a result of regulatory
problems or otherwise, could have a material adverse effect on the Company's
business, operating results and financial condition. In addition, the FCC could
impose a range of sanctions on the Company, including fines or forfeitures, to
the extent it determined any of the Company's arrangements to be non-compliant
with FCC rules. See "Risk Factors--Risks of International Telecommunications
Business," "--Potential Adverse Affects of Government Regulation" and
"Business--Government Regulation."
Switches and Transmission Facilities
International long distance traffic to and from the U.S. is generally
transmitted through an international gateway switching facility across undersea
digital fiber optic cable or via satellite to a termination point. International
gateway switches are digital computerized routing facilities that receive calls,
route calls through transmission lines to their destination and record
information about the source, destination and duration of calls. The switches
are linked to digital fiber optic cables, which are typically owned by consortia
of international carriers. The Company's global network facilities include both
international gateway switches and rights to use undersea digital fiber optic
cable.
The Company has international gateway switches, together with sophisticated
switching software, installed in Los Angeles and New York City. Each gateway
includes a Northern Telecom DMS 250/300 and two Stromberg-Carlson DCO switches.
The software in the Company's switches provide continuous and detailed feedback
about incoming and outgoing call traffic to the Company's proprietary reporting
software and to its billing system. The reporting software provides detailed
real-time vendor and customer usage reports, which allow the Company to seek the
most cost-effective routing of calls and to target customers who might absorb
increased levels of traffic. The Company has installed multiple redundancies
into its switching facilities to decrease the risk of a network failure. For
example, the Company employs both battery and generator power back-up and has
installed hardware that automatically shifts the system to auxiliary power
during a power outage, rather than relying on manual override. In addition, the
Company has contracted with a third party to provide the Company with access to
a mobile emergency power supply.
The Company's Los Angeles-based switch generally routes the majority of the
Company's Asian and Pacific Rim traffic and a portion of the Company's South
American traffic, while the New York switch generally routes the majority of the
Company's European and African traffic and the remainder of the South American
traffic. The Company plans to add switching facilities in Dallas, Texas, Miami,
Florida and Atlanta, Georgia to more efficiently address the South and Central
American markets. The Company is also installing a gateway switch in London,
England, which will serve as the focal point for the routing of calls through a
network of switches to be located in selected European cities. The Company
currently expects the London switch to be operational in mid-1997. There can be
no assurance that these facilities will become operational within the time frame
currently anticipated by the Company.
The Company currently owns or has IRUs in three trans-Atlantic (Canus-1,
Cantat-3 and TAT-12/13) and two interEuropean (Odin and Rioja) digital fiber
optic cables serving the U.K., Norway and Denmark. The Company expects to
acquire ownership rights in three trans-Pacific cables (including TPC-5 and
APCN) serving Australia and the Philippines and is in the process of negotiating
to acquire ownership rights or IRUs in other cables. The Company plans to
increase its investment in
33
<PAGE> 35
direct and IRU ownership of cable in situations where the Company enters into
operating agreements and in other situations in which it determines that such an
investment would enhance operating efficiency or reduce transmission costs.
SALES, MARKETING AND CUSTOMERS
The Company markets its services on a wholesale basis to other
telecommunications companies through its experienced direct sales force and
marketing/account management team who leverage the long term industry
relationships of the Company's senior management. The Company reaches its
customers primarily through domestic and international trade shows and through
relationships gained from years of experience in the telecommunications
industry. As of December 31, 1996, the Company had 11 sales and marketing
employees.
The Company's sales and marketing employees utilize the extensive, customer
specific usage reports and network utilization data generated by the Company's
sophisticated information systems to negotiate agreements with customers and
prospective customers more effectively and to rapidly respond to changing market
conditions. The Company believes that it has been able to compete more
effectively as a result of the personalized service and ongoing senior
management-level attention that is given to each customer.
In connection with the Company's proposed expansion into the commercial
market, the Company expects to utilize a direct sales force. Establishment of a
sales force capable of effectively expanding the Company's services into the
retail market can be expected to require substantial efforts and management and
financial resources. See "Risk Factors--Management of Changing Business."
The Company's wholesale customers include both facilities-based carriers
and switch-based long distance providers that purchase the Company's services
for resale to their own customers. As of December 31, 1996, the Company provided
switched long distance services to 89 customers, including eight of the twelve
largest U.S.-based long distance carriers. In 1996, the Company's largest
customer, CCI, accounted for approximately 21% of the Company's revenue. No
other customer accounted for more than 10% of the Company's revenue during such
period. In 1995, CCI accounted for 36.5% of the Company's revenue. In 1994,
during which time the Company was engaged in activities unrelated to its current
business, the Company's largest customer, CareTel, accounted for 56% of the
Company's revenue. Any loss or decrease in usage by the Company's major
customers could have a material adverse effect on the Company's business,
operating result or financial condition. See "Risk Factors--Dependence on Other
Long Distance Providers and Customer Concentration."
INFORMATION AND BILLING SYSTEMS
The Company's operations use advanced information systems including call
data collection and call data storage linked to a proprietary reporting system.
The Company also maintains redundant billing systems for rapid and accurate
customer billing. The Company's systems enable it, on a real-time basis to
determine the most cost-effective termination alternatives, monitor customer
usage and manage profit margins. The Company's systems also enable it to ensure
accurate and timely billing and reduce routing errors.
The Company's proprietary reporting software compiles call, price and cost
data into a variety of reports which the Company can use to re-program its
routes on a real time basis. The Company's reporting software can generate the
following reports as needed:
- customer usage, detailing usage by country and by time period within
country, in order to track sales and rapidly respond to any loss of
traffic from a particular customer;
- country usage, subtotaled by vendor or customer, which assists the
Company with route and network planning;
34
<PAGE> 36
- vendor rates, through an audit report that allows management to determine
at a glance which vendors have the lowest rates for a particular country
in a particular time period;
- vendor usage by minute, enabling the Company to verify and audit vendor
bills;
- dollarized vendor usage to calculate the monetary value of minutes passed
to the Company's vendors, which assists with calculating operating margin
when used in connection with the customer reports; and
- loss reports used to rapidly highlight routing alternatives that are
operating at a loss as well as identifying routes experiencing
substantial overflow.
The Company has built multiple redundancies into its billing and call data
collection systems. Two call collector computers receive redundant call
information simultaneously, one of which produces a file every 24 hours for
billing purposes while the other immediately forwards the call data to corporate
headquarters for use in customer service and traffic analysis. The Company
maintains two independent and redundant billing systems in order to both verify
billing internally and to ensure that bills are sent out on a timely basis. All
of the call data, and resulting billing data, are continuously backed up on tape
drives and redundant storage devices.
COMPETITION
The international telecommunications industry is intensely competitive and
subject to rapid change. The Company's competitors in the international
wholesale switched long distance market include large, facilities-based
multinational corporations and PTTs, smaller facilities-based providers in the
U.S. and overseas that have emerged as a result of deregulation, switched-based
resellers of international long distance services and international joint
ventures and alliances among such companies. International wholesale switched
long distance providers compete on the basis of price, customer service,
transmission quality, breadth of service offerings and value-added services. The
Company believes that it competes favorably on the basis of price, transmission
quality and customer service. The Company believes that competition will
continue to increase, placing downward pressure on prices. Such pressure could
adversely affect the Company's gross margins if the Company is not able to
reduce its costs commensurate with such price reductions.
Competition from Domestic and International Companies and Alliances. The
U.S.-based international telecommunications services market is dominated by
AT&T, MCI and Sprint. The Company also competes with WorldCom, Inc., Pacific
Gateway Exchange, Inc., TresCom International, Inc. and other U.S.-based and
foreign long distance providers, many of which have considerably greater
financial and other resources and more extensive domestic and international
communications networks than the Company. The Company anticipates that it will
encounter additional competition as a result of the formation of global
alliances among large long distance telecommunications providers. For example,
MCI and British Telecommunications recently announced a proposed merger that
would create a global telecommunications company called Concert, which could
create significantly increased competition. Many of the Company's current
competitors are also the Company's customers. The Company's business would be
materially adversely affected to the extent that a significant number of such
customers limit or cease doing business with the Company for competitive or
other reasons. Consolidation in the telecommunications industry could not only
create even larger competitors with greater financial and other resources, but
could also adversely affect the Company by reducing the number of potential
customers for the Company's services.
Competition from New Technologies. The telecommunications industry is in a
period of rapid technological evolution, marked by the introduction of new
product and service offerings and increasing satellite transmission capacity for
services similar to those provided by the Company. Such technologies include
satellite-based systems, such as the proposed Iridium and GlobalStar systems,
utilization of the Internet for international voice and data communications and
digital wireless communication systems such as personal communications services
("PCS"). The Company is unable to
35
<PAGE> 37
predict which of many possible future product and service offerings will be
important to maintain its competitive position or what expenditures will be
required to develop and provide such products and services.
Increased Competition as a Result of a Changing Regulatory
Environment. The FCC recently granted AT&T's petitions to be classified as a
non-dominant carrier in the domestic interstate and international markets, which
has allowed AT&T to obtain relaxed pricing restrictions and relief from other
regulatory constraints, including reduced tariff notice requirements. These
reduced regulatory requirements could make it easier for AT&T to compete with
the Company. In addition, the Telecommunications Act permits and is designed to
promote additional competition in the intrastate, interstate and international
telecommunications markets by both U.S.-based and foreign companies, including
the RBOCs. RBOCs, among other existing or potential competitors of the Company,
have significantly more resources than the Company. The Company also expects
that competition from resellers will increase in the future along with
increasing deregulation of telecommunications markets worldwide. See "Risk
Factors--Potential Adverse Affects of Government Regulation" and "--Significant
Competition."
GOVERNMENT REGULATION
The Company provides international facilities-based and resale services
subject to the regulatory jurisdiction of the FCC. The Company also may be
subject to regulation in foreign countries in connection with certain business
activities. For example, the Company's use of transit agreements or
arrangements, if any, may be affected by regulations in either the transited or
terminating foreign jurisdiction. There can be no assurance that the FCC or
foreign countries will not adopt regulatory requirements that could adversely
affect the Company. See "Risk Factors--Potential Adverse Affects of Government
Regulation."
Federal Regulation
General Requirements. The Company must comply with the requirements of
common carriage under the Communications Act, including the offering of service
on a non-discriminatory basis at just and reasonable rates, and obtaining FCC
approval prior to any assignment of authorizations or any transfer de jure or de
facto control of the Company. The FCC has authority to enforce the
Communications Act and its rules as they may apply to carriers such as the
Company either in proceedings initiated upon its own motion or in response to
challenges by third parties.
The FCC has established different levels of regulation for dominant and
non-dominant carriers. The Company is classified as a non-dominant carrier for
international service. The Communications Act and the FCC's rules require all
international carriers, including the Company, to obtain authority under Section
214 of the Communications Act prior to leasing or acquiring capacity, and/or
initiating international telecommunications services. Carriers must also file at
the FCC and maintain tariffs containing the rates, terms, and conditions
applicable to their services, as well as comply with various FCC reporting and
contract filing requirements. The trend at the FCC has been to reduce regulation
and facilitate competition. The FCC recently declared AT&T to be a non-dominant
international carriers. Nevertheless, an otherwise non-dominant U.S.-based
carrier may be subject to dominant carrier regulation on a specific
international route if it is affiliated with a foreign carrier operating at the
foreign point. The Company has no affiliations that would subject it to dominant
carrier treatment on any route.
International Services. FCC rules require the Company to obtain
facilities-based Section 214 authorization to operate its channels of
communication via satellites and undersea fiber optic cables, and Section 214
resale authority to resell international services. The Company holds both
facilities-based and resale international authorizations, including a "global"
Section 214 authorization that provides broad authority to offer switched and
private line international services. As required by FCC rules, the Company has
filed an international tariff with the FCC.
36
<PAGE> 38
The FCC imposes few restrictions on the resale of international switched
services. The FCC does, however, limit the resale of international private lines
for the provision of services interconnected to the public switched network at
one end or at both ends, generally referred to as "private line resale." Private
line resale is permitted only on those routes where the FCC has found that U.S.
carriers have equivalent opportunities to offer similar services in the foreign
country. The FCC permits private line resale to Canada, the U.K., Sweden and New
Zealand and is considering applications for equivalency determinations in
Australia, Denmark, Chile, Finland, Hong Kong and Mexico.
The Company has entered into agreements with certain foreign carriers to
provide switched services over leased lines. The Company has agreed to pay a
termination charge to compensate the foreign carriers for terminating the
services over their networks. It is possible that the FCC would adopt the view
that these arrangements do not comply with the private line resale policy and
filing requirements that pertain to certain carrier agreements. In that event,
the FCC could, among other measures, impose a cease and desist order and/or
impose fines on the Company. There can be no assurance that the FCC's action in
this regard, if any, would not have a material adverse effect on the Company's
business.
The Company must also conduct its international business in compliance with
the FCC's international settlements policy ("ISP"). The ISP establishes the
permissible arrangements for U.S.-based carriers and the foreign correspondents
to settle the cost of terminating each other's traffic over their respective
networks. The precise terms of settlement are established on a correspondent
agreement, also referred to as an operating agreement. Among other terms, the
operating agreement establishes the types of service covered by the agreement,
the division of revenues between the carrier that bills for the call and the
carrier that terminates the call at the other end, the frequency of settlements
(i.e., monthly or quarterly), the currency in which payments will be made, the
formula for calculating traffic flows between countries, technical standards,
procedures for the settlement of disputes, the effective date of the agreement
and the term of the agreement.
The amount of payments (the "settlement rate") is determined by the
negotiated accounting rate specified in the operating agreement. Under the ISP,
unless prior FCC approval is obtained, the settlement rate generally must be
onehalf of the accounting rate. Carriers must obtain waivers of the FCC's rules
if they wish to use an accounting rate that differs from the prevailing rate or
vary the settlement rate from one-half of the accounting rate. As a result of
the FCC's pro-competition policies, the recent trend has been to reduce
accounting rates.
The Company is also subject to the FCC's "uniform settlements policy"
designed to eliminate foreign carriers' incentives and opportunities to
discriminate in their operating agreements among different U.S. carriers through
"whipsawing." Whipsawing refers to the practice of a foreign carrier varying the
accounting and/or settlement rate offered to different U.S. carriers for the
benefit of the foreign carrier, who could secure various incentives by favoring
one U.S.-based carrier over another. Under the uniform settlements policy, U.S.
carriers can only enter into operating agreements that contain the same
accounting rate offered to all U.S. carriers. When a U.S. carrier negotiates an
accounting rate with a foreign correspondent that is lower than the accounting
rate offered to another U.S. carrier for the same service, the U.S. carrier with
the lower rate must file a notification letter with the FCC. If a U.S. carrier
varies the terms and conditions of its operating agreement in addition to
lowering the accounting rate, then the U.S. carrier must request a waiver of the
FCC's rule. U.S. carriers are also subject to the principle of proportionate
return to assure that competing U.S. carriers have roughly equitable
opportunities to receive the return traffic from foreign correspondent that
reduces the marginal cost of providing international service. Consistent with
its procompetition policies, the FCC prohibits U.S. carriers from bargaining for
any special concessions from foreign partners.
The FCC is currently considering whether to limit or prohibit the practice
whereby a carrier routes, through its facilities in a third country, traffic
originating from one country and destined for another country. The FCC has
permitted third country calling where all countries involved consent to
37
<PAGE> 39
the routing arrangements (referred to as "transiting"). Under certain
arrangements referred to as "refiling," the carrier in the destination country
does not consent to receiving traffic from the originating country and does not
realize the traffic it receives from the third country is actually originating
from a different country. The FCC to date has made no pronouncement as to
whether refile arrangements comport either with U.S. or ITU regulations. It is
possible that the FCC will determine that refiling, as defined, violates U.S.
and/or international law. To the extent that the Company's traffic is routed
through a third country to reach a destination country, such an FCC
determination with respect to transiting and refiling could have a material
adverse effect on the Company's business operating results and financial
condition.
The FCC is considering these and other international service issues in the
context of several policy rulemaking proceedings and in response to specific
petitions and applications filed by other international carriers. In one recent
proceeding, the FCC reduced regulatory requirements of nondominant international
telecommunications service providers such as the Company. The FCC also recently
enacted certain changes in its rules designed to permit more flexibility in its
ISP as a method of achieving lower cost-based accounting rates as more
facilities-based competition is permitted in foreign markets. Specifically, the
FCC has decided to allow U.S. carriers, subject to certain competitive
safeguards, to propose methods to pay for international call termination that
deviate from traditional bilateral accounting rates and the ISP. While this rule
change may provide more flexibility to the Company to respond more rapidly to
changes in the global telecommunications market, it will also provide similar
flexibility to the Company's competitors. In addition, the FCC has also recently
proposed revisions to its international settlement "benchmark" rates, which are
the FCC's target ceilings for prices that U.S. carriers should pay to foreign
carriers for terminating U.S. calls overseas. The FCC has also proposed that
private line resale be permitted to countries with accounting rates within the
new benchmarks even if the FCC has not decided that such countries offer
equivalent opportunities to U.S. carriers. The FCC's proposal is intended to
move settlement rates closer to the costs that would be reflected in a
competitive international telecommunications market. The FCC's continuing
resolution of issues in such proceedings either may facilitate the Company's
international business or adversely affect the Company's international business
(by, for example, liberalizing requirements that predominately affect larger
carriers). The Company is unable to predict how the FCC will resolve pending
international policy issues or how such resolution will affect its international
business.
International telecommunications service providers are required to file
copies of their contracts with other carriers, including operating agreements,
at the FCC within 30 days of execution. The Company has filed both of its
operating agreements with European carriers (including accounting rate terms)
with the FCC. The FCC's rules also require the Company to file periodically a
variety of reports regarding its international traffic flows and revenues and
use of international facilities. The FCC is engaged in a rulemaking proceeding
in which it has proposed to reduce certain reporting requirements of common
carriers. The Company is unable to predict the outcome of this proceeding or its
effect of the Company.
Foreign Ownership and Affiliations. The Communications Act limits the
ownership of an entity holding a radio license by non-U.S. citizens, foreign
corporations and foreign governments. The Company does not currently hold any
radio licenses. Although these ownership restrictions currently do not apply to
non-radio facilities, such as fiber optic cable, there can be no assurance that
such restrictions will not be imposed on the operation of non-radio facilities
used for the provision of international services. The FCC also regulates the
extent to which U.S. international services carriers may become affiliated with
foreign carriers. U.S. carries must report to the FCC a 10% ownership
affiliation with a foreign dominant carrier and may be regulated as a dominant
carrier on specific routes if it has a 25% or more affiliation with a foreign
dominant carrier. Foreign-affiliated carriers may also be subject to the FCC's
"effective competitive opportunity" test, which examines, in determining whether
the foreign carrier or its affiliate may provide services in the U.S. market,
the extent to which U.S. carriers are afforded effective competitive
opportunities to compete for like services in destination
38
<PAGE> 40
countries where the foreign carrier has market power. The Company does not
currently have any foreign affiliations, but there can be no assurance that
these rules will not prevent the Company from implementing its business plans in
the future.
Foreign Regulation
United Kingdom. In the U.K., the Company's services are subject to
regulation by the U.K. Office of Telecommunications. The U.K. generally permits
competition in all sectors of the telecommunications market, subject to
licensing requirements and license conditions. Individual licenses (with
standard conditions) are required for the provision of facilities-based services
and for the provision of ISR services over leased international lines. The
Company has applied to the U.K. Secretary for Trade and Industry for a license
to provide ISR and has been granted a license to provide international
facilities-based voice services to all international points from the U.K.
Implementation of these licenses would permit the Company to engage in
cost-effective routing of traffic between the U.S. and the U.K. and beyond.
There can be no assurance, however, that the Company will be granted the
requested ISR license in the immediate future, or at all. Failure to obtain such
licenses would prevent the Company from providing certain resale services in the
U.K. and would limit the Company's ability to expand its operations. Even if
such authority is granted, the Company would likely be subject to certain
conditions that could limit its ability to provide the lowest cost service to
certain countries than would otherwise be possible absent the conditions. In
addition, there can be no assurance that future changes in regulation and
government will not have a material adverse effect on the Company's business,
operating results and financial condition.
Other Countries. The Company plans to initiate a variety of services in
certain European countries including Belgium, France and Germany. These services
will include value-added services to closed user groups and other voice services
as regulatory liberalization in those countries permits. These and other
countries have announced plans or adopted laws to permit varying levels of
competition in the telecommunications market. Although the Company plans to
obtain authority to provide service under current and future laws of those
countries, or, where permitted, provide service without government
authorization, there can be no assurance that foreign laws will be adopted and
implemented permitting such activities. Moreover, there can be no assurance of
the nature and pace of liberalization in any of these markets. The Company's
inability to take advantage of such liberalization could have a material adverse
affect on the Company's ability to expand its services as planned.
EMPLOYEES
As of December 31, 1996, the Company employed 100 full-time employees. The
Company is not subject to any collective bargaining agreement and it believes
that its relationships with its employees are good.
PROPERTIES
The Company's principal offices are located in Santa Barbara, California in
four facilities providing an aggregate of approximately 17,659 square feet of
office space. Approximately 5,332 square feet of this office space is leased
pursuant to two leases that both expire in July 1999. The remaining
approximately 12,327 square feet of office space is located in two buildings and
is rented by the Company pursuant to a lease that expires in June 2003. The
Company also leases approximately 16,595 square feet of space for its switching
facility in Los Angeles, California under a sublease and a lease expiring in
April 2006, approximately 7,922 square feet of space for its switching facility
in New York, New York under a lease expiring in April 2006, approximately 6,167
square feet of space for its switching facility in Dallas, Texas under a lease
expiring in March 2007, and approximately 8,000 square feet of space for its
switching facility in London, England under a lease expiring in July 2006. The
Company believes that its facilities are adequate to support its current needs
and that additional facilities will be available as needed.
39
<PAGE> 41
LITIGATION
In February 1996, the Company filed an action in Santa Barbara County
Superior Court against Communication Telesystems International ("CTS") seeking
$2.0 million in damages for an alleged breach of two contracts with CTS. The
Company claims that CTS failed to pay moneys due to the Company and made certain
demands that CTS was not entitled to make under the contract and that CTS then
repudiated the contracts. CTS filed a separate action against the Company,
seeking to recover liquidated damages of $6.0 million for the Company's alleged
breach of one of the contracts. CTS claims that it is entitled to liquidated
damages as a result of the Company's failure to deliver an increased cash
deposit. The two actions have been consolidated and trial has been set for June
6, 1997. The Company expects to file a motion for summary judgment prior to
trial. The Company believes that CTS's counterclaim is without merit and intends
to vigorously pursue its claims and to vigorously defend against CTS's
counterclaim. There can be no assurance, however, that the Company will prevail
either in its claim or in defending against CTS's counterclaim. In addition,
whether or not the Company were to prevail in any litigation, such litigation
could be time consuming and costly.
40
<PAGE> 42
MANAGEMENT
OFFICERS AND DIRECTORS
The officers and directors of the Company, and their ages as of December
31, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------- --- -------------------------------------------
<S> <C> <C>
Christopher E. Edgecomb............ 37 Chief Executive Officer, Treasurer and
Director
Mary A. Casey(1)................... 34 President, Chief Operating Officer,
Secretary and Director
David Vaun Crumly.................. 33 Executive Vice President--Sales and
Marketing
James E. Kolsrud................... 52 Executive Vice President--Operations and
Engineering
Kelly D. Enos...................... 38 Chief Financial Officer
Gordon Hutchins, Jr.(2)............ 47 Director
John R. Snedegar(1)(2)............. 47 Director
Roland A. Van der Meer(1)(2)....... 36 Director
</TABLE>
- ------------------------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Christopher E. Edgecomb co-founded the Company in September 1993, served as
President of the Company until January 1996 and has served as the Company's
Chief Executive Officer and Chairman of the Board since January 1996. Mr.
Edgecomb has been a Director of the Company since its inception. Prior to that
time, Mr. Edgecomb was a founder and the Executive Vice President of West Coast
Telecommunications ("WCT"), a nation-wide long distance carrier, from August
1989 to December 1994. Prior to founding WCT, Mr. Edgecomb was President of
Telco Planning, a telecommunications consulting firm, from January 1986 to July
1989. Prior to that time, Mr. Edgecomb held senior level sales and marketing
positions with TMC Communications, American Network and Bay Area Teleport.
Mary A. Casey has been a Director and Secretary of the Company since
co-founding the Company in September 1993 and has served as the Company's
President since January 1996. Prior to that time, Ms. Casey was Director of
Customer Service at WCT from December 1991 to June 1993, and served as Director
of Operator Services at Call America, a long distance telecommunications
company, from May 1988 to December 1991.
David Vaun Crumly has served as the Company's Executive Vice
President--Sales and Marketing since January 1996. Prior to that time, Mr.
Crumly was Director of Carrier Sales of WCT from June 1992 to June 1995. Prior
to joining WCT, Mr. Crumly served in various sales and marketing capacities with
Metromedia, a long-distance company, from September 1990 to June 1992 and with
Claydesta, a long-distance company, from May 1987 to September 1989.
James E. Kolsrud has served as the Company's Executive Vice
President--Operations and Engineering since September 1996. Prior to joining the
Company, Mr. Kolsrud was an international telecommunications consultant from
March 1995 to September 1996. Prior to that time, he was a Vice President,
Corporate Engineering and Administration of IDB Communications Group, Inc.
("IDB"), an international communications company, from October 1989 to March
1995, and prior to that time, he was President of the International Division of
IDB.
Kelly D. Enos has served as the Company's Chief Financial Officer since
December 1996. Prior to that time, Ms. Enos was an independent consultant in the
merchant banking field from February 1996 to November 1996 and a Vice President
of Fortune Financial, a merchant banking firm, from April 1995 to January 1996.
Ms. Enos served as a Vice President of Oppenheimer & Co., Inc., an investment
bank, from July 1994 to March 1995 and a Vice President of Sutro & Co., an
investment bank, from January 1991 to June 1994.
41
<PAGE> 43
Gordon Hutchins, Jr. has served as a Director of the Company since January
23, 1996. Mr. Hutchins has been President of GH Associates, a management
consulting company, since July 1989. Prior to founding GH Associates, Mr.
Hutchins served as President and Chief Executive Officer of ICC
Telecommunications, a competitive access provider, and held senior management
positions with several other companies in the telecommunications industry. Mr.
Hutchins serves as a director of United Digital Network, Inc., a long distance
telecommunications company.
John R. Snedegar has served as a Director of the Company since January 23,
1996. Mr. Snedegar has been the President of United Digital Network, Inc., a
long distance telecommunications company, since June 1990. Mr. Snedegar serves
as a director of StarBase Corporation, a software development company.
Roland A. Van der Meer has served as a Director of the Company since July
8, 1996. Mr. Van der Meer has been a partner with Partech International, a
venture capital firm, since April 1993. Prior to that time, Mr. Van der Meer was
a partner with Communications Ventures from April 1987 to February 1993.
BOARD COMPOSITION
The Company currently has authorized seven directors, and five acting
directors. In accordance with the terms of the Company's Certificate of
Incorporation, upon the closing of the offering the terms of office of the Board
of Directors will be divided into three classes; Class I, whose term will expire
at the annual meeting of stockholders to be held in 1998; Class II, whose term
will expire at the annual meeting of stockholders to be held in 1999; and Class
III, whose term will expire at the annual meeting of stockholders to be held in
2000. The Class I directors are Gordon Hutchins, Jr. and John R. Snedegar, the
Class II directors are Roland A. Van der Meer and Mary A. Casey, and the Class
III director is Christopher E. Edgecomb. At each annual meeting of stockholders
after the initial classification, the successors to directors whose term will
then expire will be elected to serve from the time of election and qualification
until the third annual meeting following election. This classification of the
Board of Directors may have the effect of delaying or preventing changes in
control or changes in management of the Company.
Each officer is elected by and serves at the discretion of the Board of
Directors. Each of the Company's officers and directors, other than nonemployee
directors, devotes substantially full time to the affairs of the Company. The
Company's nonemployee directors devote such time to the affairs of the Company
as is necessary to discharge their duties. There are no family relationships
among any of the directors, officers or key employees of the Company.
DIRECTOR COMPENSATION
The Company's non-employee directors receive $2,000 for each Board meeting
attended and $1,000 for each telephonic Board meeting. In addition, each
non-employee director is reimbursed for out-of-pocket expenses incurred in
connection with attendance at meetings of the Board of Directors and its
committees. In 1996, Messrs. Hutchins and Snedegar were each granted stock
options to purchase 15,000 shares of the Company's Common Stock. In 1997,
Messrs. Hutchins, Snedegar and Van der Meer were each granted stock options to
purchase 7,500 shares of the Company's Common Stock. See "Certain
Transactions--Transactions with Outside Directors."
EXECUTIVE COMPENSATION
The following Summary Compensation Table sets forth the compensation earned
by the Company's Chief Executive Officer and four other executive officers who
earned (or would have earned) salary and bonus in excess of $100,000 for
services rendered in all capacities to the Company and its subsidiaries for the
fiscal year ended December 31, 1996 (the "Named Officers").
42
<PAGE> 44
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------ UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) OPTIONS(#) COMPENSATION($)
- ------------------------------------------------- ------------ ------------ ---------------
<S> <C> <C> <C>
Christopher E. Edgecomb.......................... $360,000 0 $ 9,223(1)
Chief Executive Officer and Treasurer
Mary A. Casey.................................... 156,042(2) 0 15,028(3)
President, Chief Operating Officer and
Secretary
John D. Marsch................................... 160,000(4) 600,000 4,000(5)
Executive Vice President--STAR Europe
David Vaun Crumly................................ 298,002 300,000 3,920(3)
Executive Vice President--Sales and Marketing
Kelly D. Enos.................................... 12,500(6) 112,500 0
Chief Financial Officer
</TABLE>
- ------------------------------
(1) Consists of life insurance and health insurance premiums paid by the
Company.
(2) Ms. Casey's annual salary is currently set at $195,000.
(3) Consists of life insurance and health insurance premiums and a car allowance
paid by the Company.
(4) Mr. Marsch joined the Company in May 1996.
(5) Consists of a car allowance paid by the Company.
(6) Ms. Enos joined the Company in December 1996; her annual salary is currently
set at $150,000.
The following table contains information concerning the stock option grants
made to each of the Named Officers named below for the year ended December 31,
1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE
-------------------------------------------------------- VALUE AT ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF
SECURITIES OPTIONS STOCK
UNDERLYING GRANTED TO PRICE APPRECIATION
OPTIONS EMPLOYEES EXERCISE OR OPTION TERM(1)
GRANTED IN BASE PRICE EXPIRATION -------------------
NAME (#) FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---------------------------- ---------- ----------- ----------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
John D. Marsch.............. 300,000(2) 12.98% $1.33 02/28/06 $250,929 $635,903
300,000(3) 12.98 1.33 04/30/06 250,929 635,903
David Vaun Crumly........... 270,000(4) 11.69 1.00 01/21/06 169,802 430,310
30,000(5) 1.30 2.00 05/14/06 37,734 95,625
Kelly D. Enos............... 112,500(6) 4.87 5.47 12/09/06 387,006 980,749
</TABLE>
- ------------------------------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission. There can
be no assurance provided to any executive officer or any other holder of the
Company's securities that the actual stock price appreciation over the
10-year option term will be at the assumed 5% and 10% levels or at any other
defined level. Unless the market price of the Common Stock appreciates over
the option term, no value will be realized from the option grants made to
the executive officer.
(2) The option will become fully vested and exercisable upon the closing of the
offering.
(3) The option is fully vested and exercisable.
(4) The option is vested and exercisable with respect to 90,000 of the option
shares and becomes fully vested and exercisable with respect to the balance
upon the closing of the offering.
43
<PAGE> 45
(5) The option is vested and exercisable with respect to 7,500 of the option
shares and becomes exercisable with respect to the balance in three equal
annual installments on December 31, 1997, 1998 and 1999, respectively.
(6) The option becomes exercisable in four equal annual installments on December
2, 1997, 1998, 1999 and 2000, respectively.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
No options were exercised by the Named Officers for the fiscal year ended
December 31, 1996. No stock appreciation rights were exercised during such year
or were outstanding at the end of that year. The following table sets forth
certain information with respect to the value of stock options held by each of
the Named Officers as of December 31, 1996.
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT FY-END(#) OPTIONS AT FY-END($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John D. Marsch................................ 300,000 300,000 $ 1,521,000 $ 1,521,000
David Vaun Crumly............................. 97,500 202,500 519,000 1,071,000
Kelly D. Enos................................. 0 112,500 0 0
</TABLE>
- ------------------------------
(1) Based on the fair market value of the Company's Common Stock at year-end
($6.40 per share, as determined by the Company's Board of Directors) less
the exercise price payable for such shares.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Company's Board was formed in May, 1996,
and the members of the Compensation Committee are Gordon Hutchins, Jr., John R.
Snedegar and Roland A. Van der Meer. None of these individuals was at any time
during the year ended December 31, 1996, or at any other time, an officer or
employee of the Company. No member of the Compensation Committee of the Company
serves as a member of the board of directors or compensation committee of any
entity that has one or more executive officers serving as a member of the
Company's Board or Compensation Committee.
1997 OMNIBUS STOCK INCENTIVE PLAN
The Company's 1997 Omnibus Stock Incentive Plan (the "Omnibus Plan") was
adopted by the Board of Directors on January 30, 1997, subject to stockholder
approval, as the successor to the Company's 1996 Supplemental Option Plan (the
"Supplemental Plan"). The Company has reserved 2,250,000 shares for issuance
under the Omnibus Plan. This share reserve is comprised of (i) the 1,500,000
shares that were available for issuance under the Supplemental Plan, plus (ii)
an increase of 750,000 shares. As of December 31, 1996, no shares had been
issued under the Omnibus Plan, options for 695,250 shares were outstanding (from
the Supplemental Plan) and 1,554,750 shares remained available for future grant.
Shares of Common Stock subject to outstanding options, including options granted
under the Supplemental Plan, which expire or terminate prior to exercise, will
be available for future issuance under the Omnibus Plan. In addition, if stock
appreciation rights ("SARs") and stock units are settled under the Omnibus Plan,
then only the number of shares actually issued in settlement will reduce the
number of shares available for future issuance under this plan.
Under the Omnibus Plan, employees, outside directors and consultants may be
awarded options to purchase shares of Common Stock, SARs, restricted shares and
stock units. Options may be incentive stock options designed to satisfy section
422 of the Internal Revenue Code or nonstatutory stock options not designed to
meet such requirements. SARs may be awarded in combination with options,
44
<PAGE> 46
restricted shares or stock units, and such an award may provide that the SARs
will not be exercisable unless the related options, restricted shares or stock
units are forfeited.
The Omnibus Plan will be administered by a committee designated by the
board of directors of the Company and comprised of two or more directors (the
"Committee"). The Committee has the complete discretion to determine which
eligible individuals are to receive awards; determine the award type, number of
shares subject to an award, vesting requirements and other features and
conditions of such awards; interpret the Omnibus Plan; and make all other
decisions relating to the operation of the Omnibus Plan.
The exercise price for options granted under the Omnibus Plan may be paid
in cash or in outstanding shares of Common Stock. Options may also be exercised
on a cashless basis, by a pledge of shares to a broker or by promissory note.
The payment for the award of newly issued restricted shares will be made in
cash. If an award of SARs, stock units or restricted shares from the Company's
treasury is granted, no cash consideration is required.
The Committee has the authority to modify, extend or assume outstanding
options and SARs or may accept the cancellation of outstanding options and SARs
in return for the grant of new options or SARs for the same or a different
number of shares and at the same or a different exercise price.
The Board may determine that an outside director may elect to receive his
or her annual retainer payments and meeting fees from the Company in the form of
cash, options, restricted shares, stock units or a combination thereof. The
Board will decide how to determine the number and terms of the options,
restricted shares or stock units to be granted to outside directors in lieu of
annual retainers and meeting fees.
Upon a change in control, the Committee may determine that an option or SAR
will become fully exercisable as to all shares subject to such option or SAR. A
change in control includes a merger or consolidation of the Company, certain
changes in the composition of the Board and acquisition of 50% or more of the
combined voting power of the Company's outstanding stock. In the event of a
merger or other reorganization, outstanding options, SARs, restricted shares and
stock units will be subject to the agreement of merger or reorganization, which
may provide for the assumption of outstanding awards by the surviving
corporation or its parent, their continuation by the Company (if the Company is
the surviving corporation), accelerated vesting and accelerated expiration, or
settlement in cash.
The Board may amend or terminate the Omnibus Plan at any time. Amendments
may be subject to stockholder approval to the extent required by applicable
laws. In any event, the Omnibus Plan will terminate on January 22, 2007, unless
sooner terminated by the Board.
1996 OUTSIDE DIRECTOR NONSTATUTORY STOCK OPTION PLAN
The Company's 1996 Outside Director Nonstatutory Stock Option Plan (the
"Director Plan") was ratified and approved by the Board of Directors as of May
14, 1996. The Company has reserved 300,000 shares of Common Stock for issuance
under the Director Plan. As of December 31, 1996, no shares have been issued
under the Director Plan, options for 60,000 shares were outstanding and 240,000
shares remained available for future grant. If an outstanding option expires or
terminates unexercised, then the shares subject to such option will again be
available for issuance under the Director Plan.
Under the Director Plan, outside directors of the Company may receive
nonstatutory options to purchase shares of Common Stock. The Director Plan will
be administered by the Board or the Compensation Committee (known as "Plan
Administrator"). The Plan Administrator has the discretion to determine which
eligible individuals will receive options, the number of shares subject to each
option, vesting requirements and any other terms and conditions of such options.
The exercise price for options granted under the Director Plan will be at
least 85% of the fair market value of the Common Stock on the option grant date,
shall be 110% of the fair market value of the Common Stock on the option grant
date if the option is granted to a holder of more than 10% of the
45
<PAGE> 47
Common Stock outstanding and may be paid in cash, check or shares of Common
Stock. The exercise price may also be paid by cashless exercise or pledge of
shares to a broker.
The Plan Administrator may modify, extend or renew outstanding options or
accept the surrender of such options in exchange for the grant of new options,
subject to the consent of the affected optionee.
Upon a change in control, the Board may accelerate the exercisability of
outstanding options and provide an exercise period during which such accelerated
options may be exercised. The Board also has the discretion to terminate any
outstanding options that had been accelerated and had not been exercised during
such exercise period. In the event of a merger of the Company into another
corporation in which holders of Common Stock receive cash for their shares, the
Board may settle the option with a cash payment equal to the difference between
the exercise price and the amount paid to holders of Common Stock pursuant to
the merger.
The Board may amend or terminate the Director Plan at any time. In any
event, the Director Plan will terminate on May 14, 2006, unless earlier
terminated by the Board.
EMPLOYMENT CONTRACTS AND CHANGE OF CONTROL ARRANGEMENTS
The Company has an employment agreement with Mary A. Casey, pursuant to
which Ms. Casey holds the position of President of the Company, is paid an
annual salary of $16,250 per month, was granted a right to purchase 1,227,273
shares of Common Stock, and is eligible to receive a bonus, as determined by the
Chief Executive Officer and Board of Directors. The agreement also provides that
Ms. Casey will receive a severance payment equal to $7,000 per month for the
first six months after termination of employment, and an additional payment of
$7,000 per month for the next six months, minus any amounts earned by her from
other employment during such period. In addition, the agreement provides that if
Ms. Casey's employment is terminated (other than for cause) within four months
after a Sale Transaction (as defined below), she will continue to receive the
compensation provided in this agreement until the expiration of the agreement on
December 31, 1998, instead of the severance payments described above. A Sale
Transaction is an acquisition of more than 75% of the voting securities of the
Company, pursuant to a tender offer or exchange offer approved in advance by the
Board of Directors.
In January 1996, the Company entered into an employment agreement with
David Vaun Crumly pursuant to which Mr. Crumly became Executive Vice President
of the Company. The agreement provides for an annual salary of $10,000 per month
with an annual increase, plus incentive bonuses tied to gross revenues of the
Company. The agreement also provides for a commission on certain accounts of the
Company and an option to purchase 270,000 shares of Common Stock at an exercise
price of $1.00 per share. In addition, in the event of a Sale Transaction, Mr.
Crumly will receive a bonus payment equal to the lesser of $1,500,000 or a
percentage of the monthly gross sales of accounts relating to customers
introduced to the Company by Mr. Crumly. If his employment is terminated in
certain circumstances, without cause, within four months after a Sale
Transaction, Mr. Crumly is entitled to receive the compensation provided in this
agreement, minus any compensation earned by other employment, until the
expiration of the agreement on December 31, 1998.
In December 1996, the Company entered into an employment agreement with
Kelly D. Enos, pursuant to which Ms. Enos became Chief Financial Officer of the
Company. The agreement provides for an annual salary of $150,000 and an option
to purchase 112,500 shares of Common Stock at an exercise price of $5.47 per
share. The agreement also provides that Ms. Enos will receive a severance
payment equal to the compensation which she would have received under the
remaining term of this agreement if she terminates the agreement as a result of
the Company's default of its material obligations and duties under this
agreement or if she is terminated by the Company without cause within four
months after a Sale Transaction.
46
<PAGE> 48
CERTAIN TRANSACTIONS
TRANSACTIONS WITH OUTSIDE DIRECTORS
The Company provided services to Digital Network, Inc. ("DNI") in the
amount of approximately $250,000 in 1996. DNI is a wholly owned subsidiary of
United Digital Network, Inc. ("UDN"), and John R. Snedegar, a Director of the
Company, is President of UDN. Gordon Hutchins, Jr., a Director of the Company,
serves on UDN's Board of Directors.
Gordon Hutchins, Jr. is the sole owner of GH Associates, a management
consulting company that provides consulting services to the Company. In 1996,
the Company made payments of approximately $154,000 to GH Associates for
consulting services. In addition, in consideration for the consulting services,
the Company granted to Mr. Hutchins a nonstatutory option to purchase 150,000
shares of Common Stock at an exercise price of $3.00 under the Company's prior
Amended and Restated 1996 Stock Incentive Plan.
On May 15, 1996, the Company granted to Messrs. Hutchins and Snedegar each
a nonstatutory option to purchase 15,000 shares of Common Stock at an exercise
price of $2.00 per share under the Company's 1996 Outside Director Nonstatutory
Stock Option Plan. On January 30, 1997, the Company granted to Messrs. Hutchins,
Snedegar and Van der Meer each a nonstatutory option to purchase 7,500 shares of
Common Stock at an exercise price of $7.20 per share under the Company's 1996
Outside Director Nonstatutory Stock Option Plan.
TRANSACTIONS WITH EXECUTIVE OFFICERS
On October 4, 1996, the Company entered into a $12 million line of credit
with Comerica Bank. The total amount outstanding under this line of credit as of
December 31, 1996 was approximately $7.8 million. This line of credit is
guaranteed by Christopher E. Edgecomb, the Company's Chief Executive Officer.
Mr. Edgecomb does not receive any additional compensation in connection with
such guarantee. The Company has entered into lines of credit with Mr. Edgecomb
in the aggregate amount of $1,448,042 that expire on March 30, 1998. Borrowings
under the lines of credit bear interest at a rate of 9.0% and the total amount
outstanding under the lines of credit as of December 31, 1996 was approximately
$26,000.
Mr. Edgecomb owns Star Aero Services, Inc. ("Star Aero"), which has
ownership interests in five airplanes that the Company utilizes for business
travel from time to time. For the years ended December 31, 1995 and 1996, the
Company paid $144,000 and $68,000, respectively, in costs related to the use of
Star Aero services. As of December 31, 1996, the Company had a receivable from
Star Aero of approximately $115,000.
David Vaun Crumly had controlling ownership of three companies that resold
transmission capacity to the Company during 1996. As of December 31, 1996, the
Company had made deposits on behalf of these companies of approximately $758,000
and had made payments of approximately $240,000 for such services. In addition,
the Company has agreed to reimburse approximately $7,500 in legal fees incurred
by such companies in connection with a dispute with the provider of the capacity
that was resold to STAR.
INDEMNIFICATION
The Company's Certificate of Incorporation limits the liability of its
directors for monetary damages arising from a breach of their fiduciary duty as
directors, except to the extent otherwise required by the Delaware General
Corporation Law. Such limitation of liability does not affect the availability
of equitable remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify its directors
and officers to the fullest extent permitted by Delaware law, including in
circumstances in which indemnification is otherwise discretionary under Delaware
law. The Company has also entered into indemnification
47
<PAGE> 49
agreements with its officers and directors containing provisions that may
require the Company, among other things, to indemnify such officers and
directors against certain liabilities that may arise by reason of their status
or service as directors or officers (other than liabilities arising from willful
misconduct of a culpable nature), to advance their expenses incurred as a result
of any proceeding against them as to which they could be indemnified, and to
obtain directors' and officers' insurance if available on reasonable terms.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans between the
Company and its officers, directors, principal stockholders and their affiliates
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested outside directors on the Board of
Directors, and will continue to be on terms no less favorable to the Company
than could be obtained from unaffiliated third parties.
48
<PAGE> 50
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of its Common Stock as of December 31, 1996, and
as adjusted to reflect the sale of shares offered hereby and the conversion of
all outstanding shares by Preferred Stock into shares of Common Stock by (i)
each person who is known by the Company to own beneficially more than five
percent of the Company's Common Stock, (ii) each of the Company's directors,
(iii) each of the Named Officers and (iv) all current officers and directors as
a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED OWNED
BEFORE THE OFFERING NUMBER OF AFTER THE OFFERING(2)
------------------------ SHARES BEING ------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) NUMBER PERCENT(3) OFFERED NUMBER PERCENT(3)
- ------------------------------------------ ---------- ---------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Entities affiliated with the Hunt Family
Trusts(4)............................... 1,499,998 8.5% -- 1,499,998 6.5%
3900 Thanksgiving Tower
Dallas, Texas 75201
Gotel Investments, Ltd.................... 1,371,609 7.7 -- 1,371,609 5.9
16, Rue de la Pelissiere
1204, Geneva
Switzerland
Gordon Hutchins, Jr.(5)................... 66,000 * -- 66,000 *
John R. Snedegar(6)....................... 15,000 * -- 15,000 *
Roland A. Van der Meer(7)................. 413,761 2.3 -- 413,761 1.8
Christopher E. Edgecomb................... 11,296,743 63.7 868,000 10,428,743 44.9
Mary A. Casey(8).......................... 1,317,340 7.4 132,000 1,185,340 5.1
David Vaun Crumly(9)...................... 427,500 2.4 -- 427,500 1.8
James E. Kolsrud.......................... 15,000 * -- 15,000 *
Kelly D. Enos............................. -- * -- -- *
All directors and executive officers as a
group (8 persons)(10)................... 13,551,344 74.9% 1,000,000 12,551,344 53.2%
</TABLE>
- ------------------------------
* Represents beneficial ownership of less than 1% of the outstanding shares of
Common Stock.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or investment power
with respect to securities. Unless otherwise indicated, the address for each
listed stockholder is c/o STAR Telecommunications, Inc., 223 East De La
Guerra Street, Santa Barbara, California 93101. To the Company's knowledge,
except as indicated in the footnotes to this table and pursuant to
applicable community property laws, the persons named in the table have sole
voting and investment power with respect to all shares of Common Stock.
(2) Assumes no exercise of the Underwriters' over-allotment option. See
"Underwriting."
(3) Percentage of beneficial ownership is based on 17,738,651 shares of Common
Stock outstanding as of December 31, 1996, and 23,238,651 shares of Common
Stock after the completion of this offering. The number of shares of Common
Stock beneficially owned includes the shares issuable pursuant to stock
options that are exercisable within 60 days of December 31, 1996 and, where
indicated below, shares issuable pursuant to stock options that are
exercisable upon the closing of the offering. Shares issuable pursuant to
stock options are deemed outstanding for computing the percentage of the
person holding such options but are not outstanding for computing the
percentage of any other person. The number of shares of Common Stock
outstanding after this offering includes 5,500,000 shares of Common Stock
being offered for sale by the Company in this offering.
(4) Consists of 499,998 shares held by Lyda Hunt--Herbert Trusts--David Shelton
Hunt, 250,000 shares held by Lyda Hunt--Herbert Trusts--Bruce William Hunt,
250,000 shares held by Lyda Hunt--Herbert Trusts--Douglas Herbert Hunt,
250,000 shares held by Lyda Hunt--Herbert Trusts--Barbara Ann Hunt and
250,000 shares held by Lyda Hunt--Herbert Trusts--Lyda Bunker Hunt.
49
<PAGE> 51
(5) Consists of 66,000 shares issuable upon the exercise of stock options
exercisable within sixty days of December 31, 1996.
(6) Consists of 15,000 shares issuable upon the exercise of stock options
exercisable within sixty days of December 31, 1996.
(7) Consists of 136,705 shares held by Parvest U.S. Partners II C.V., 91,137
shares held by Partech U.S. Partners III C.V., 182,274 shares held by U.S.
Growth Fund Partners C.V., and 3,645 shares held by Partech International
Salary Deferral Plan U/A Dated 1/1/92 FBO: Roland A. Van der Meer. Mr. Van
der Meer, a director of the Company, is a general partner of Parvest U.S.
Partners II C.V., Partech U.S. Partners III C.V. and U.S. Growth Fund
Partners C.V. (collectively, the "Partech Entities"). Mr. Van der Meer is
the beneficiary of the Partech International Salary Deferral Plan U/A Dated
1/1/92 FBO: Roland A. Van der Meer. Mr. Van der Meer disclaims beneficial
ownership of shares held by the Partech Entities, except for his
proportional interest therein.
(8) If the over-allotment option is exercised in full, the number of shares
beneficially owned by Ms. Casey after the offering will be reduced to
1,000,000 shares, or 4.3%.
(9) Consists of 150,000 shares of Common Stock, 270,000 shares of Common Stock
issuable upon the exercise of stock options exercisable upon the closing of
the offering and 7,500 shares of Common Stock issuable upon the exercise of
stock options exercisable within sixty days of December 31, 1996.
(10) Includes 358,500 shares issuable upon the exercise of stock options
exercisable within sixty days of December 31, 1996, and where indicated
above, shares issuable pursuant to stock options that are exercisable upon
the closing of the offering.
50
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $0.001 par value, and
5,000,000 shares of Preferred Stock, $0.001 par value.
COMMON STOCK
As of December 31, 1996, there were 17,738,651 shares of Common Stock
outstanding that were held of record by approximately 47 stockholders. There
will be 23,238,651 shares of Common Stock outstanding (assuming no exercise of
the Underwriters' over-allotment option and assuming no exercise after December
31, 1996, of outstanding options) after giving effect to the sale of the shares
of Common Stock to the public offered hereby and the conversion of the Company's
Preferred Stock into Common Stock at a one-to-one ratio.
The holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may be
applicable to any outstanding Preferred Stock, the holders of Common Stock are
entitled to receive ratably such dividends, if any, as may be declared from time
to time by the Board of Directors out of funds legally available therefor. See
"Dividend Policy." In the event of the liquidation, dissolution, or winding up
of the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining after payment of liabilities, subject to prior distribution
rights of Preferred Stock, if any, then outstanding. The Common Stock has no
preemptive or conversion rights or other subscription rights. There are no
redemption or sinking fund provisions applicable to the Common Stock. All
outstanding shares of Common Stock are fully paid and nonassessable, and the
shares of Common Stock to be issued upon completion of this offering will be
fully paid and nonassessable.
PREFERRED STOCK
The Company's Amended and Restated Certificate of Incorporation authorizes
5,000,000 shares of Preferred Stock. The Board of Directors has the authority to
issue the Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
any series or the designation of such series, without further vote or action by
the stockholders. The issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company without
further action by the stockholders and may adversely affect the voting and other
rights of the holders of Common Stock. The issuance of Preferred Stock with
voting and conversion rights may adversely affect the voting power of the
holders of Common Stock, including the loss of voting control to others. At
present, the Company has no plans to issue any of the Preferred Stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF THE CERTIFICATE OF INCORPORATION, BYLAWS
AND DELAWARE LAW
Certificate of Incorporation and Bylaws
The Company's Amended and Restated Certificate of Incorporation provides
that, upon the closing of this offering, the Board of Directors will be divided
into three classes of directors, with each class serving a staggered three-year
term. The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of the Company and may maintain the incumbency of the Board of Directors, as the
classification of the Board of Directors generally increases the difficulty of
replacing a majority of the directors. The Certificate of Incorporation also
provides that, effective upon the closing of this offering, all stockholder
actions must be effected at a duly called meeting and not by a consent in
writing. Further, provisions of the Bylaws and the Amended and Restated
Certificate of Incorporation provide that the stockholders may amend the Bylaws
or certain provisions of the Certificate of Incorporation only with the
affirmative vote of 75% of the Company's capital stock. These provisions of the
Certificate of
51
<PAGE> 53
Incorporation and Bylaws could discourage potential acquisition proposals and
could delay or prevent a change in control of the Company. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions that may
involve an actual or threatened change of control of the Company. These
provisions are designed to reduce the vulnerability of the Company to an
unsolicited acquisition proposal. The provisions also are intended to discourage
certain tactics that may be used in proxy fights. However, such provisions could
have the effect of discouraging others from making tender offers for the
Company's shares and, as a consequence, they also may inhibit fluctuations in
the market price of the Company's shares that could result from actual or
rumored takeover attempts. Such provisions also may have the effect of
preventing changes in the management of the Company. See "Risk Factors--Effect
of Certain Charter Provisions; Anti-takeover Effects of Certificate of
Incorporation, Bylaws, and Delaware Law."
Delaware Takeover Statute
The Company is subject to Section 203 of the Delaware General Corporation
Law ("Section 203"), which, subject to certain exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder for a period of three years following the date that such stockholder
became an interested stockholder, unless: (i) prior to such date, the board of
directors of the corporation approved either the business combination or the
transaction that resulted in the stockholder becoming an interested stockholder;
(ii) upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at least
85% of the voting stock of the corporation outstanding at the time the
transaction commenced, excluding for purposes of determining the number of
shares outstanding those shares owned (x) by persons who are directors and also
officers and (y) by employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer; or (iii) on or subsequent
to such date, the business combination is approved by the board of directors and
authorized at an annual or special meeting of stockholders, and not by written
consent, by the affirmative vote of at least 66 2/3% of the outstanding voting
stock that is not owned by the interested stockholder.
Section 203 defines business combination to include: (i) any merger or
consolidation involving the corporation and the interested stockholder; (ii) any
sale, transfer, pledge or other disposition of 10% or more of the assets of the
corporation involving the interested stockholder; (iii) subject to certain
exceptions, any transaction that results in the issuance or transfer by the
corporation of any stock of the corporation to the interested stockholder; (iv)
any transaction involving the corporation that has the effect of increasing the
proportionate share of the stock of any class or series of the corporation
beneficially owned by the interested stockholder; or (v) the receipt by the
interested stockholder of the benefit of any loans, advances, guarantees,
pledges or other financial benefits provided by or through the corporation. In
general, Section 203 defines an interested stockholder as any entity or person
beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by such entity or person.
REGISTRATION RIGHTS
After this offering, the holders of approximately 4,239,000 shares of
Common Stock will be entitled to certain rights with respect to the registration
of such shares under the Securities Act. Under the terms of the agreement
between the Company and the holders of such registrable securities, if the
Company proposes to register any of its securities under the Securities Act,
either for its own account or for the account of other security holders
exercising registration rights, such holders are entitled to notice of such
registration and are entitled to include shares of such Common Stock therein.
Additionally, certain holders are also entitled to demand registration rights
pursuant to which they may require the Company to file a registration statement
under the Securities Act at its expense with respect to their shares of Common
Stock, and the Company is required to use its best efforts to effect
52
<PAGE> 54
such registration. Further, holders may require the Company to file additional
registration statements on Form S-3 at the Company's expense. All of these
registration rights are subject to certain conditions and limitations, among
them the right of the underwriters of an offering to limit the number of shares
included in such registration and the right of the Company not to effect a
requested registration within six months following an offering of the Company's
securities, including the offering made hereby.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer Corp., 1745 Gardena Avenue, Glendale, California 91204, and its
telephone number is (818) 502-1404.
53
<PAGE> 55
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 23,238,651 shares
of Common Stock outstanding. Of this amount, the 6,500,000 shares offered hereby
will be available for immediate sale in the public market as of the date of this
Prospectus. Approximately 11,614,000 additional shares will be available for
sale in the public market following the expiration of 180-day lockup agreements
with the Representatives of the Underwriters or the Company, subject in some
cases to compliance with the volume and other limitations of Rule 144.
<TABLE>
<CAPTION>
DAYS AFTER DATE OF APPROXIMATE SHARES
THIS PROSPECTUS ELIGIBLE FOR FUTURE SALE COMMENT
- ------------------------- ------------------------ --------------------------------------------
<S> <C> <C>
Upon Effectiveness....... 6,500,000 Freely tradeable shares sold in offering and
shares saleable under Rule 144(k) that are
notsubject to 180-day lockup
180 days................. 11,614,000 Lockup released; shares saleable under
Rule144, 144(k) or 701
Thereafter............... 5,125,000 Restricted securities held for two years or
less
</TABLE>
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years is entitled to sell within any three-month period commencing 90 days after
the date of this Prospectus a number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of Common Stock (approximately 232,400
shares immediately after the offering) or (ii) the average weekly trading volume
during the four calendar weeks preceding such sale, subject to the filing of a
Form 144 with respect to such sale. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale who has beneficially
owned his or her shares for at least three years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations described above.
Persons deemed to be affiliates must always sell pursuant to Rule 144, even
after the applicable holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for the Common Stock
of the Company, the personal circumstances of the sellers and other factors.
Prior to this offering, there has been no public market for the Common Stock,
and there can be no assurance that a significant public market for the Common
Stock will develop or be sustained after the offering. Any future sale of
substantial amounts of the Common Stock in the open market may adversely affect
the market price of the Common Stock offered hereby.
The Company, its directors, executive officers, stockholders with
registration rights and certain other stockholders have agreed pursuant to the
Underwriting Agreement and other agreements that they will not sell any Common
Stock without the prior consent of Hambrecht & Quist LLC for a period of 180
days from the date of this Prospectus (the "180-day Lockup Period"), except that
the Company may, without such consent, grant options and sell shares pursuant to
the Stock Plan and the Purchase Plan and sell shares upon the exercise of an
outstanding warrant.
Any employee or consultant to the Company who purchased his or her shares
pursuant to a written compensatory plan or contract is entitled to rely on the
resale provisions of Rule 701, which permits nonaffiliates to sell their Rule
701 shares without having to comply with the public information, holding period,
volume limitation or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Prospectus. As of the date of this Prospectus, the holders of options
exercisable into approximately 1,487,562 shares of Common Stock will be eligible
to sell their shares upon the expiration of the 180-day Lockup Period.
The Company intends to file a registration statement on Form S-8 under the
Securities Act to register options to purchase shares of Common Stock issued or
reserved for issuance under the Company's stock plans within 180 days after the
date of this Prospectus, thus permitting the resale of
54
<PAGE> 56
such shares by nonaffiliates in the public market without restriction under the
Securities Act. The Company intends to register these options on Form S-8, along
with options that have not been issued under the Company's stock plans as of the
date of this Prospectus.
In addition, after this offering, the holders of approximately 4,239,000
shares of Common Stock will be entitled to certain rights with respect to
registration of such shares under the Securities Act. Registration of such
shares under the Securities Act would result in such shares becoming freely
tradeable without restriction under the Securities Act (except for shares
purchased by affiliates of the Company) immediately upon the effectiveness of
such registration. See "Description of Capital Stock--Registration Rights."
55
<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, a
syndicate of Underwriters named below (the "Underwriters"), for whom Hambrecht &
Quist LLC and Alex. Brown & Sons Incorporated are acting as representatives (the
"Representatives"), have severally agreed to purchase from the Company and the
Selling Stockholders an aggregate of 6,500,000 shares of Common Stock. The
number of shares of Common Stock that each Underwriter has agreed to purchase is
set forth opposite its name below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
--------------------------------------------------------------------- ----------------
<S> <C>
Hambrecht & Quist LLC................................................
-------
Alex. Brown & Sons Incorporated......................................
-------
Total......................................................
=======
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase shares of Common Stock are subject to the approval of
certain legal matters by counsel and to certain other conditions. If any of the
shares of Common Stock are purchased by the Underwriters pursuant to the
Underwriting Agreement, all such shares of Common Stock (other than the shares
of Common Stock covered by the over-allotment option described below) must be so
purchased.
Prior to this offering, there has been no established trading market for
the Common Stock. The initial price to the public for the Common Stock offered
hereby will be determined by negotiation among the Company, the Representatives
and the representatives of the Selling Stockholders. The factors considered in
determining the initial price to the public will include the history of and the
prospects for the industry in which the Company competes, the ability of the
Company's management, the past and present operations of the Company, the
historical results of operations of the Company, the prospects for future
earnings of the Company, the general condition of the securities markets at the
time of this offering and the recent market prices of securities of generally
comparable companies.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act, or
to contribute to payments that the Underwriters may be required to make in
respect thereof.
The Company has been advised by the Representatives that the Underwriters
propose to offer the Common Stock to the public initially at the price to the
public set forth on the cover page of this Prospectus and to certain dealers
(who may include the Underwriters) at such price less a concession not to exceed
$ per share. The Underwriters may allow, and such dealers may reallow,
discounts not in excess of $ per share to any other Underwriter and
certain other dealers; and that after the initial public offering, the price to
the public, the concession and the discount to dealers may be changed by the
Representatives.
The Company and one of the Selling Stockholders have granted to the
Underwriters an option to purchase up to an aggregate of 975,000 additional
shares of Common Stock at the initial public offering price less underwriting
discounts and commissions solely to cover over-allotments. Such option may be
exercised at any time until 30 days after the date of this Prospectus. To the
extent that the Underwriters exercise such option, each of the Underwriters will
be committed, subject to certain conditions, to purchase a number of option
shares proportionate to such Underwriter's initial commitment as indicated in
the preceding table.
The Representatives have informed the Company that they do not expect to
make sales to accounts over which they exercise discretionary authority in
excess of 5% of the number of shares of Common Stock offered hereby.
The Company, its officers, directors, stockholders with registration rights
and certain other stockholders, have agreed not to offer, sell, contract to sell
or otherwise dispose of any shares of
56
<PAGE> 58
Common Stock or any securities convertible into or exchangeable for Common Stock
for the 180-day Lockup Period without the prior written consent of Hambrecht &
Quist LLC and provided that the Company may issue shares of Common Stock upon
the exercise of an outstanding warrant, grant options and issue shares of Common
Stock upon the exercise of options under its Stock Plan. See "Shares Eligible
for Future Sale."
In July 1996, H&Q Star Vending Investors, L.P. purchased 364,546 shares of
the Company's Series A Preferred Stock for approximately $2.0 million, as part
of a financing in which the Company sold an aggregate of 1,367,047 shares of
Series A Preferred Stock to a group of 22 investors for an aggregate purchase
price of approximately $7.5 million. Hambrecht & Quist Management Corporation
and H&Q Star Vending Investment Management, L.L.C. are the general partners of
H&Q Star Vending Investors, L.P. Hambrecht & Quist Management Corporation is a
wholly owned subsidiary of Hambrecht & Quist California, which also owns 99% of
Hambrecht & Quist LLC. The interests of H&Q Star Vending Investment Management,
L.L.C. are beneficially owned by persons affiliated with Hambrecht & Quist LLC,
including its President and Chief Executive Officer.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
company by Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP
("Gunderson Dettmer"), Menlo Park, California. Certain legal matters in
connection with the offering will be passed upon for the Underwriters by Wilson
Sonsini Goodrich & Rosati, Professional Corporation. A partnership including
partners of Gunderson Dettmer is a partner in H&Q Star Vending Investors, L.P.,
a stockholder in the Company, and as a result maintains an indirect beneficial
interest in 4,105 shares of the Company.
EXPERTS
The Consolidated Financial Statements of STAR Telecommunications, Inc. as
of December 31, 1995 and 1996 and for each of the years in the three year period
ended December 31, 1996, included in this Prospectus and elsewhere in this
Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as set forth in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said reports.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules to the Registration Statement. For
further information with respect to the Company and such Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part of the Registration Statement. Statements contained in
this Prospectus concerning the contents of any contract or any other document
referred to are not necessarily complete; reference is made in each instance to
the copy of such contract or document filed as an exhibit to the Registration
Statement. Each such statement is qualified in all respects by such reference to
such exhibit. The Registration Statement, including exhibits and schedules
thereto, may be inspected without charge at the Commission's principal office in
Washington, D.C., and copies of all or any part thereof may be obtained from
such office after payment of fees prescribed by the Commission. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission at http://www.sec.gov.
57
<PAGE> 59
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Financial Statements:
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-5
Consolidated Statements of Stockholders' Equity....................................... F-6
Consolidated Statements of Cash Flows................................................. F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 60
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To STAR Vending, Inc.:
After the reincorporation discussed in Note 10a of the Notes to
Consolidated Financial Statements is effected, we expect to be in a position to
render the following audit report.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 30, 1997
"REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders
of STAR Telecommunications, Inc.:
We have audited the accompanying consolidated balance sheets of STAR
Telecommunications, Inc. (a Delaware corporation) and subsidiary as of December
31, 1995 and 1996, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. 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 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 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 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 STAR Telecommunications,
Inc. and subsidiary as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP"
Los Angeles, California
, 1997
F-2
<PAGE> 61
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1995 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash and cash equivalents..................................... $ 164,000 $ 1,719,000
Short-term investments........................................ -- 1,630,000
Accounts and note receivable, net of allowance of $208,000 and
$6,182,000 at December 31, 1995 and 1996, respectively..... 10,046,000 27,754,000
Receivable from related parties............................... 50,000 115,000
Prepaid expenses and other assets............................. 84,000 1,729,000
Deferred income taxes......................................... -- 3,021,000
----------- -----------
Total current assets.................................. 10,344,000 35,968,000
----------- -----------
Property and Equipment:
Operating equipment........................................... 1,353,000 8,653,000
Leasehold improvements........................................ 370,000 4,214,000
Computer equipment............................................ 187,000 1,604,000
Furniture and fixtures........................................ 61,000 435,000
----------- -----------
1,971,000 14,906,000
Less-accumulated depreciation and amortization................ (128,000) (1,201,000)
----------- -----------
1,843,000 13,705,000
----------- -----------
Other Assets:
Investments................................................... -- 153,000
Deposits...................................................... 682,000 7,630,000
Other......................................................... -- 1,248,000
----------- -----------
682,000 9,031,000
----------- -----------
Total assets.......................................... $12,869,000 $58,704,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 62
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1996
----------- -----------
<S> <C> <C>
Current Liabilities:
Revolving lines of credit......................................... $ 1,330,000 $ 7,814,000
Revolving lines of credit with stockholder........................ 1,198,000 26,000
Current portion of long-term debt................................. -- 267,000
Current portion of capital lease obligations...................... 143,000 827,000
Accounts payable.................................................. 8,515,000 6,260,000
Accrued line costs................................................ 476,000 19,494,000
Accrued expenses.................................................. 82,000 1,623,000
Taxes payable..................................................... -- 2,000,000
----------- -----------
Total current liabilities................................. 11,744,000 38,311,000
----------- -----------
Long-Term Liabilities:
Long-term debt, net of current portion............................ -- 466,000
Capital lease obligations, net of current portion................. 712,000 4,808,000
Deferred compensation............................................. -- 116,000
Deferred income taxes............................................. -- 565,000
Other............................................................. -- 89,000
----------- -----------
712,000 6,044,000
----------- -----------
Commitments and Contingencies (Note 5)
Stockholders' Equity:
Preferred Stock $.001 par value:
Authorized -- 1,367,050 shares
Issued and outstanding -- 1,367,047 shares at December 31,
1996.......................................................... -- 1,000
Common Stock $.001 par value:
Authorized -- 100,000,000 shares
Issued and outstanding -- 13,500,000 shares at December 31,
1995 and 16,371,604 shares at December 31, 1996............... 13,000 16,000
Additional paid-in capital........................................ 1,090,000 13,464,000
Retained earnings (deficit)....................................... (690,000) 868,000
----------- -----------
Stockholders' equity........................................... 413,000 14,349,000
----------- -----------
Total liabilities and stockholders' equity................ $12,869,000 $58,704,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-4
<PAGE> 63
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
--------- ----------- -------------
<S> <C> <C> <C>
Revenues........................................... $ 176,000 $16,125,000 $ 208,086,000
Cost of services................................... -- 14,357,000 188,430,000
--------- ------------ ------------
Gross profit.................................. 176,000 1,768,000 19,656,000
Operating expenses:
Selling, general and administrative expenses..... 290,000 2,063,000 16,354,000
Depreciation and amortization.................... -- 128,000 1,073,000
--------- ------------ ------------
290,000 2,191,000 17,427,000
--------- ------------ ------------
Income (loss) from operations................. (114,000) (423,000) 2,229,000
--------- ------------ ------------
Other income (expense):
Interest income.................................. -- -- 83,000
Interest expense................................. -- (64,000) (589,000)
Loss on investment............................... (7,000) (80,000) --
Legal settlement................................. -- -- (100,000)
--------- ------------ ------------
(7,000) (144,000) (606,000)
--------- ------------ ------------
Income (loss) before provision for income
taxes....................................... (121,000) (567,000) 1,623,000
Provision for income taxes (Note 7)................ 1,000 1,000 755,000
--------- ------------ ------------
Net income (loss).................................. $(122,000) $ (568,000) $ 868,000
========= ============ ============
Net income (loss) per common share (Note 2):
Historical....................................... $ (0.01) $ (0.03) $ 0.05
Pro Forma (unaudited)............................ $ 0.05
Weighted average number of common shares
outstanding (Note 2):
Historical....................................... 15,791,000 16,874,000 17,896,000
Pro Forma (unaudited)............................ 18,795,000
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE> 64
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK ADDITIONAL RETAINED
------------------ -------------------- PAID-IN EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ------ ----------- ------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1993.............. -- $ -- -- $ -- $ -- $ -- $ --
Issuance of common stock................ -- -- 12,151,215 12,000 (2,000) -- 10,000
Net loss................................ -- -- -- -- -- (122,000) (122,000)
--------- ------ ---------- ------- ----------- --------- -----------
Balance, December 31, 1994.............. -- -- 12,151,215 12,000 (2,000) (122,000) (112,000)
Issuance of common stock................ -- -- 1,348,785 1,000 102,000 -- 103,000
Conversion of debt to equity............ -- -- -- -- 990,000 -- 990,000
Net loss................................ -- -- -- -- -- (568,000) (568,000)
--------- ------ ---------- ------- ----------- --------- -----------
Balance, December 31, 1995.............. -- 13,500,000 13,000 1,090,000 (690,000) 413,000
Effect of termination of the
S-Corporation election................ -- -- -- -- (690,000) 690,000 --
Issuance of common stock................ -- -- 2,871,604 3,000 5,565,000 -- 5,568,000
Issuance of preferred stock............. 1,367,047 1,000 -- -- 7,499,000 -- 7,500,000
Net income.............................. -- -- -- -- -- 868,000 868,000
--------- ------ ---------- ------- ----------- --------- -----------
Balance, December 31, 1996.............. 1,367,047 $1,000 16,371,604 $16,000 $13,464,000 $ 868,000 $14,349,000
========= ====== ========== ======= =========== ========= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE> 65
STAR TELECOMMUNICATIONS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------
1994 1995 1996
--------- ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income (loss).................................... $(122,000) $ (568,000) $ 868,000
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization..................... -- 128,000 1,073,000
Loss on investment................................ 7,000 80,000 --
Provision for doubtful accounts................... -- 208,000 5,974,000
Deferred income taxes............................. -- -- (2,456,000)
Deferred compensation............................. -- -- 116,000
Decrease (increase) in assets:
Accounts and note receivable...................... -- (10,254,000) (23,682,000)
Receivable from related parties................... -- (50,000) (65,000)
Prepaid expenses and other assets................. -- (84,000) (1,645,000)
Increase (decrease) in liabilities:
Accounts payable.................................. 32,000 8,476,000 (2,255,000)
Accrued line costs................................ -- 476,000 19,018,000
Accrued expenses.................................. 20,000 62,000 1,541,000
Taxes payable..................................... -- -- 2,000,000
--------- ------------ ------------
Net cash provided by (used in) operating
activities................................. (63,000) (1,526,000) 487,000
--------- ------------ ------------
Cash Flows From Investing Activities:
Capital expenditures................................. (21,000) (1,062,000) (7,838,000)
Purchases of investments............................. (80,000) -- (1,783,000)
Increase in deposits................................. (23,000) (659,000) (6,948,000)
Other................................................ -- -- (1,159,000)
--------- ------------ ------------
Net cash used in investing activities........ (124,000) (1,721,000) (17,728,000)
--------- ------------ ------------
Cash Flows From Financing Activities:
Borrowings under lines of credit..................... -- 1,460,000 14,474,000
Repayments under lines of credit..................... -- (130,000) (7,990,000)
Borrowings under lines of credit with stockholder.... 192,000 3,418,000 701,000
Repayments under lines of credit with stockholder.... -- (1,319,000) (1,873,000)
Borrowings under long-term debt...................... -- -- 800,000
Repayments under long-term debt...................... -- -- (67,000)
Payments under capital lease obligations............. -- (33,000) (317,000)
Issuance of common stock............................. 10,000 -- 5,568,000
Issuance of preferred stock.......................... -- -- 7,500,000
--------- ------------ ------------
Net cash provided by financing activities.... 202,000 3,396,000 18,796,000
--------- ------------ ------------
Increase In Cash And Cash Equivalents.................. 15,000 149,000 1,555,000
Cash And Cash Equivalents, beginning of period......... -- 15,000 164,000
--------- ------------ ------------
Cash and Cash Equivalents, end of period............... $ 15,000 $ 164,000 $ 1,719,000
========= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-7
<PAGE> 66
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. NATURE OF BUSINESS
STAR Telecommunications, Inc. and subsidiary (the Company or STAR), a
Delaware corporation, is an international long distance provider focused
primarily on providing low cost switched voice long distance services to U.S.
and foreign-based telecommunications companies. The Company currently offers
U.S.-originated long distance service through its network of resale arrangements
with other long distance providers, foreign termination relationships,
international gateway switches and leased and owned transmission facilities.
While the Company was incorporated in 1993, it did not commence its current
business as a provider of long distance services until the second half of 1995.
During 1994, the Company was primarily engaged in activities outside the
international telecommunications industry. During the six months ended June
1995, the Company primarily acted as an agent for, and provided various
consulting services to, companies in the telecommunications industry. In
November 1996, the Company established a wholly owned subsidiary (STAR Europe
Limited) in London, England.
The Company is subject to various risks in connection with the operation of
its business. These risks include, but are not limited to, regulations (See Note
5f), dependence on transmission facilities-based carriers and suppliers, price
competition and competition from larger industry participants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
STAR Telecommunications, Inc. and its wholly owned subsidiary STAR Europe
Limited, after elimination of all significant intercompany accounts and
transactions which were not material during 1996.
b. Revenue Recognition
The Company records revenues for long distance telecommunications sales at
the time of customer usage. Finance charges for customer late payments are
included in revenues and amount to $32,000 and $1,467,000 for the years ended
December 31, 1995 and 1996, respectively. The Company had no revenue from
finance charges during 1994.
c. Cost of Services
Cost of services represents direct charges from vendors that the Company
incurs to deliver service to its customers. These include leasing costs for the
dedicated phone lines which form the Company's network and rate-per-minute
charges from other carriers that terminate international traffic on behalf of
the Company.
d. Accounting for International Long Distance Traffic
At the end of 1996, the Company entered into operating agreements with
telecommunication carriers in foreign countries under which international long
distance traffic is both originated and terminated on the Company's network. The
Company records international settlement revenues and related costs as the
traffic is recorded in the switch. For the year ended December 31, 1996,
$178,000 in revenue has been recorded in connection with these contracts.
F-8
<PAGE> 67
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
e. Property and Equipment
Property and equipment are carried at cost. Depreciation and amortization
of property and equipment is computed using the straight-line method over the
following estimated useful lives:
<TABLE>
<S> <C>
Operating equipment...................................... 5-25 years
Leasehold improvements................................... Life of lease
Computer equipment....................................... 3 years
Furniture and fixtures................................... 5 years
</TABLE>
Operating equipment includes assets financed under capital lease
obligations of $888,000 at December 31, 1995 and $5,985,000 at December 31,
1996. Operating equipment at December 31, 1996 also includes two Indefeasible
Rights of Use (IRU) in cable systems amounting to $110,000 and one interest in
an international cable amounting to $148,000. These assets are amortized over
the life of the agreements of 10 to 25 years.
Replacements and betterments, renewals and extraordinary repairs that
extend the life of the asset are capitalized; other repairs and maintenance are
expensed. The cost and accumulated depreciation applicable to assets sold or
retired are removed from the accounts and the gain or loss on disposition is
recognized in other income or expense.
f. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents, receivables, other
assets, revolving lines of credit, notes payable, capital lease obligations,
accounts payable, and accrued liabilities approximate their fair value.
g. Statements of Cash Flows
During the years ended December 31, 1995 and 1996, cash paid for interest
was $43,000 and $530,000, respectively. For the same periods, cash paid for
income taxes amounted to $1,000 and $1,211,000 respectively. The Company paid no
cash for interest or income taxes during 1994.
Non-cash investing and financing activities are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
------- ---------- ----------
<S> <C> <C> <C>
Equipment purchased through capital leases........... $ -- $ 888,000 $5,097,000
Debt converted to equity............................. -- 1,093,000 --
</TABLE>
These non-cash transactions are excluded from the statements of cash flows.
Cash equivalents consist primarily of money market accounts. The Company
considers all highly liquid investments with an original maturity of three
months or less to be cash equivalents.
h. Stock Split
On January 23, 1996, the Board of Directors authorized an increase to the
authorized number of common shares from 10,000 to 100,000,000 and effected a
8,100.8109-for-1 stock split of the Company's issued and outstanding shares. All
common shares have been retroactively restated to reflect the effect of the
stock split.
On July 22, 1996, the Company changed the par value of its common stock
from $0.01 per share to $0.001 per share. All common shares have been
retroactively restated to reflect the effect of this change (also see Note 10
for post year-end restructuring and stock split).
F-9
<PAGE> 68
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
i. Concentrations of Risk
The Company's accounts and note receivable consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Accounts receivable............................................... $10,254,000 $30,523,000
Note receivable................................................... -- 3,413,000
----------- -----------
10,254,000 33,936,000
Less allowance.................................................... (208,000) (6,182,000)
----------- -----------
$10,046,000 $27,754,000
=========== ===========
</TABLE>
The allowance for doubtful accounts at December 31, 1996 includes a reserve
in the amount of $3.8 million to provide for the potential inability to collect
on the note and receivable from one customer.
The Company's two largest customers account for approximately 44 percent
and 38 percent of gross accounts receivable at December 31, 1995 and 1996,
respectively. Each of these customers represents more than 10 percent of gross
accounts receivable at December 31, 1995 and 1996. These customers represent
approximately 47 percent of revenues during the year ended December 31, 1995 and
30 percent of revenues for the year ended December 31, 1996. Each of these
customers represents more than 10 percent of sales in 1995 while only one
represents more than 10 percent of sales in 1996. The Company performs ongoing
credit evaluations of its customers. The Company's allowance for doubtful
accounts is based on current market conditions.
Purchases from the three largest vendors for the year ended December 31,
1995 amounted to 49 percent of total purchases. Purchases from the four largest
vendors for the year ended December 31, 1996 amounted to 51 percent of total
purchases.
Included in the Company's balance sheet at December 31, 1995 and 1996, are
the net assets of the Company's international telecommunication switching
equipment which is located in Los Angeles at a cost of $1,288,000 at December
31, 1995 and in Los Angeles and New York at a cost of $8,205,000 at December 31,
1996. In addition, approximately $179,000 of equipment is located in foreign
countries at December 31, 1996.
j. Earnings Per Common Share
Net income per common share for the years ended December 31, 1994, 1995 and
1996 is based on the weighted average number of common shares outstanding. For
all periods presented, per share information was computed pursuant to the rules
of the Securities and Exchange Commission (SEC), which require that common
shares issued by the Company during the twelve months immediately preceding the
Company's initial public offering plus the number of common shares issuable
pursuant to the grant of options issued during the same period, be included in
the calculation of the shares outstanding using the treasury stock method from
the beginning of all periods presented.
F-10
<PAGE> 69
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following schedule summarizes the information used to compute earnings
per common share:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Income (loss)........................... $ (122,000) $ (568,000) $ 868,000
Weighted average common shares outstanding.. 14,005,000 15,088,000 16,110,000
Dilutive effect of stock options pursuant to
SEC rules................................. 1,786,000 1,786,000 1,786,000
----------- ----------- -----------
Weighted average common shares used to
compute earnings per
share -- Historical....................... 15,791,000 16,874,000 17,896,000
=========== ===========
Conversion of preferred stock weighted
average shares -- Pro Forma (unaudited)... 899,000
-----------
Weighted average shares used to compute
earnings per share -- Pro Forma
(unaudited)............................... 18,795,000
===========
Net income (loss) per common share:
Historical................................ $ (0.01) $ (0.03) $ 0.05
=========== ===========
Pro Forma (unaudited)..................... $ 0.05
===========
</TABLE>
k. 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 period. Actual results could differ from those estimates.
l. Recently Issued Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of,"
which requires impairment losses to be recorded on long-lived assets used in
operations when indications of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amounts. The Company adopted SFAS 121 during 1995 which had no impact
on the Company's financial position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." SFAS 123 encourages, but does not require, a fair value based
method of accounting for employee stock options or similar equity instruments.
It also allows an entity to elect to continue to measure compensation cost under
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees," but requires pro forma disclosure of net income and earnings per
share as if the fair value based method had been applied. The Company adopted
this standard in 1996, electing to measure compensation cost under APB 25 and
complying with the pro forma disclosure requirements. Therefore, the adoption of
SFAS 123 had no impact on the Company's financial position or results of
operations.
F-11
<PAGE> 70
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. LINES OF CREDIT
a. Bank Lines of Credit
On November 13, 1995, the Company entered into an agreement for a one-year
$1 million revolving credit facility. On October 4, 1996 the bank increased the
revolving credit facility to $12 million, including draws on the line and
outstanding letters of credit, and extended it to May 1, 1997. Any borrowings
under this facility are limited by the balance in eligible accounts, as defined,
and bear interest at the prime rate plus 1 percent (9.25 percent at December 31,
1996). The agreement allows the Company to convert certain amounts into
short-term obligations that bear interest at the bank's LIBOR rate plus 3.5
percent at the time of funding (9.1 percent at December 31, 1996) or the bank's
cost of fund's rate plus 3.5 percent at the time of funding. Upon maturity of
these short-term obligations, the interest rate on these borrowings converts
back to prime plus 1 percent. This facility is collateralized by virtually all
assets of the Company. Performance under the revolving credit facility has been
guaranteed up to $10 million by the majority shareholder and officer of the
Company. The agreement contains certain financial and non-financial covenants
which include, among other restrictions, maintenance of minimum levels of net
income, tangible effective net worth and working capital. At December 31, 1996,
there were no unused amounts available to be borrowed against this line of
credit. In addition, the bank issued a waiver to cure non-compliance under the
tangible effective net worth, current ratio, ratio of total liabilities to
tangible effective net worth, net income after taxes for the fourth quarter of
1996 and the stockholder subordination covenants for the period ended December
31, 1996 and continuing through March 30, 1997, when new covenants come into
effect.
The Company entered into a one-year $100,000 revolving line of credit on
July 19, 1995. This facility's interest rate was the prime rate plus 1 percent
and it was paid off and terminated on July 19, 1996.
The weighted average interest rate on the above facilities during the year
ended December 31, 1995 and 1996 was 10.21 percent and 9.68 percent,
respectively.
b. Lines of Credit with Stockholder
At December 31, 1996, the Company's revolving lines of credit with the
majority stockholder and chief executive officer of the Company totaled
$1,448,000 and mature on March 30, 1998. Interest is payable at maturity at a
rate of 9 percent. There was $1,422,000 available to be borrowed against these
lines of credit at December 31, 1996. The Company recognized interest expense
relating to this debt of $0, $11,000 and $34,000 for the years ended December
31, 1994, 1995 and 1996, respectively.
4. LONG-TERM DEBT
a. Note Payable
On October 4, 1996, the Company entered into an $800,000 variable rate
installment note with a bank. The agreement calls for monthly payments of
$22,222 plus interest at the prime rate plus 1.5 percent (9.75 percent at
December 31, 1996). The note is due in full by October 1, 1999 and is
collateralized by related equipment of the Company with a cost of $787,000.
F-12
<PAGE> 71
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b. Capital Lease Obligation
The Company leases various telecommunications equipment under capital lease
arrangements. Minimum future lease payments under these capital leases at
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
-----------------------------------------------------------------
<S> <C>
1997............................................................. $1,490,000
1998............................................................. 1,490,000
1999............................................................. 1,490,000
2000............................................................. 1,408,000
2001............................................................. 981,000
Thereafter....................................................... 748,000
----------
7,607,000
Less: Amount representing interest............................... 1,972,000
----------
5,635,000
Less: Current portion............................................ 827,000
----------
$4,808,000
==========
</TABLE>
Accumulated amortization related to assets financed under capital leases
was $59,000 and $324,000 at December 31, 1995 and 1996, respectively. The
Company had no assets financed under capital leases during 1994.
5. COMMITMENTS AND CONTINGENCIES
a. Operating Leases
The Company leases office space, dedicated private telephone lines,
equipment and other items under various agreements expiring through 2006. At
December 31, 1996, the minimum aggregate payments under non-cancelable operating
leases are summarized as follows:
<TABLE>
<CAPTION>
OFFICE FACILITIES TELECOMMUNICATIONS
YEAR ENDING DECEMBER 31, AND EQUIPMENT FACILITIES AND EQUIPMENT TOTAL
-------------------------------- ----------------- ------------------------ -----------
<S> <C> <C> <C>
1997............................ $ 393,000 $ 1,293,000 $ 1,686,000
1998............................ 364,000 1,591,000 1,955,000
1999............................ 309,000 1,710,000 2,019,000
2000............................ 241,000 1,710,000 1,951,000
2001............................ 214,000 1,441,000 1,655,000
Thereafter...................... 281,000 3,616,000 3,897,000
---------- ----------- -----------
$ 1,802,000 $ 11,361,000 $13,163,000
========== =========== ===========
</TABLE>
Office facility and equipment rent expense for the years ended December 31,
1994, 1995 and 1996 was approximately $7,000, $125,000 and $832,000,
respectively. Telecommunications facility and equipment rent expense was
approximately $604,000 in 1995 and $4,875,000 in 1996 and is included in cost of
services in the accompanying statements of operations.
b. Employment Agreements
During 1996, the Company entered into employment agreements with several
employees and amended the employment agreement of the Company president. Some of
these agreements provide for a continuation of salaries in the event of a
termination, with or without cause, following a change in
F-13
<PAGE> 72
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
control of the Company. One agreement provides for a guaranteed salary
continuation of at least six months after termination and another, under certain
conditions, for a payment of at least $1,500,000 in the event of a change in
control of the Company.
The Company entered into a consulting agreement on February 29, 1996 which
was converted to an employment agreement on May 1, 1996. The employment
agreement is with an officer of the Company. It is for a two year period and
provides for continuation of salary and certain benefits for up to 12 months
after termination. The Company also entered into two separate stock option
agreements with this officer (see Note 8).
During 1996, the Company expensed $116,000 of deferred compensation
relating to these agreements.
c. Purchase Commitments
The Company is obligated under various service agreements with long
distance carriers to pay minimum usage charges of approximately $51,995,000,
$11,685,000 and $900,000 for the twelve months ending December 31, 1997, 1998
and 1999, respectively. The Company anticipates exceeding the minimum usage
volume with these vendors.
d. Letters of Credit
At December 31, 1996, the Company has eight standby letters of credit
outstanding, which expire between January 2, 1997 and June 4, 1997. These
letters of credit total $4,751,000, of which $2,501,000 are secured by the bank
line of credit and $2,250,000 are secured by short-term investments.
e. Legal Matters
The Company is subject to litigation from time to time in the ordinary
course of business. In February 1996, the Company filed an action in Santa
Barbara County Superior Court against Communication Telesystems International
("CTS") seeking $2.0 million in damages for an alleged breach of two contracts
with CTS. The Company claims that CTS failed to pay moneys due to the Company
and made certain demands that CTS was not entitled to make under the contract
and that CTS then repudiated the contracts. CTS filed a separate action against
the Company, seeking to recover liquidated damages of $6.0 million for the
Company's alleged breach of one of the contracts. CTS claims that it is entitled
to liquidated damages as a result of the Company's failure to deliver an
increased cash deposit. The two actions have been consolidated and trial has
been set for June 6, 1997. The Company expects to file a motion for summary
judgment prior to trial. The Company believes that CTS's counterclaim is without
merit and intends to vigorously pursue its claims and to vigorously defend
against CTS's counterclaim. There can be no assurance, however, that the Company
will prevail either in its claim or in defending against CTS's counterclaim.
During 1996, the Company settled a disagreement with a former consultant to
the Company for a payment of $100,000.
f. Telecommunications Legislation Revisions
In the United States, the Federal Communications Commission and relevant
state Public Service Commissions have the authority to regulate interstate and
intrastate rates, respectively, ownership of transmission facilities, and the
terms and conditions under which the Company's services are provided.
Legislation that substantially revised the U.S. Communications Act of 1934
was signed into law on February 8, 1996. The legislation has specific guidelines
under which the regional operating companies
F-14
<PAGE> 73
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(RBOCs) can provide long distance services, which will permit the RBOCs to
compete with the Company in providing domestic and international long distance
services. Further, the legislation, among other things, opens local service
markets to competition from any entity (including long distance carriers, such
as AT&T, cable television companies and utilities).
Because the legislation opens the Company's markets to additional
competition, particularly from the RBOCs, the Company's ability to compete may
be affected. Moreover, as a result of and to implement the legislation, certain
federal and other governmental regulations will be amended or modified, and any
such amendment or modification could have an effect on the Company's business,
results of operations and financial condition.
g. Cable Agreements
The Company entered into two separate construction and maintenance
agreements for transatlantic cable. One agreement is for 10 years and the other
for 24 years. The cost associated with these cables is dependent on the final
number of participants. As of December 31, 1996, no amounts have been paid
relating to these agreements.
6. RELATED PARTY TRANSACTIONS
The majority stockholder and chief executive officer of the Company owns
two-thirds of Star Aero Services, Inc. (Star Aero). Star Aero's principal assets
represent airplanes which it provides to the Company for business travel on an
as needed basis. In return, the Company pays for costs related to the airplanes.
Star Aero reimburses the Company for certain costs relating to the maintenance
of the planes. For the years ended December 31, 1994, 1995 and 1996, the Company
paid $0, $144,000 and $68,000, respectively, in costs related to the use of Star
Aero services. As of December 31, 1995 and 1996, the Company has a receivable
from Star Aero of $50,000 and $115,000, respectively.
During 1995, the Company invested $128,000 in a company related to an
employee of STAR. During 1995 and 1996, the Company purchased consulting
services from a company owned by a board member in the amount of $60,000 and
$154,000, respectively. During the year ended December 31, 1995 and 1996, the
Company also provided long distance telephone service to a company controlled by
another board member in the amount of $43,000 and $250,000 respectively. During
1996, the Company purchased telecommunication services from three companies
controlled by a Company executive for $240,000 and made up front payments in the
amount of $758,000, which are included in deposits in the accompanying financial
statements at December 31, 1996.
7. INCOME TAXES
Through December 31, 1995, the Company had elected to be taxed as an
S-Corporation for both federal and state income tax purposes. While the election
was in effect, all taxable income, deductions, losses and credits of the Company
were included in the tax returns of the shareholders. Accordingly, for federal
income tax purposes, no tax benefit, liability or provision has been reflected
in the accompanying financial statements at December 31, 1994 and 1995 and for
the years then ended. For state tax purposes, an S-Corporation is subject to a
1.5 percent tax on taxable income, with a minimum tax of approximately $1,000
annually. Effective January 1, 1996, the Company terminated its S-Corporation
election and is now taxable as a C-Corporation. The Company accounts for income
taxes in accordance with SFAS No. 109, "Accounting for Income Taxes," under
which deferred assets and liabilities are provided on differences between
financial reporting and taxable income using enacted tax rates. Deferred income
tax expenses or credits are based on the changes in deferred income tax assets
or liabilities from period to period. The net deferred tax asset at December 31,
1994 and 1995 is not material and has been fully reserved.
F-15
<PAGE> 74
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has recorded a gross deferred tax asset of $3,021,000 at
December 31, 1996. Realization is dependent on generating sufficient taxable
income in the future. Although realization is not assured, management believes
it is more likely than not that the deferred tax asset will be realized.
The components of the net deferred tax assets at December 31, 1995 and 1996
are as follows:
<TABLE>
<CAPTION>
1995 1995
HISTORICAL PRO FORMA 1996
---------- --------- ----------
<S> <C> <C> <C>
Deferred tax asset:
Allowance for bad debts............................. $ 3,000 $83,000 $2,481,000
Accrued line cost................................... -- -- 201,000
Vacation accrual.................................... -- -- 24,000
Deferred compensation............................... -- -- 47,000
Accrued bonus....................................... -- -- 25,000
Accrued interest.................................... -- 6,000 --
State income taxes.................................. -- -- 243,000
------- -------- ----------
3,000 89,000 3,021,000
Deferred tax liability:
Depreciation........................................ (1,000) (59,000) (565,000)
------- -------- ----------
Subtotal.............................................. 2,000 30,000 2,456,000
Valuation reserve..................................... (2,000) (30,000) --
------- -------- ----------
Net deferred tax asset................................ $ -- $ -- $2,456,000
======= ======== ==========
</TABLE>
The provision for income taxes for the years ended December 31, 1994, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
1994 1995 1996
------ ------ ----------
<S> <C> <C> <C> <C>
Current - Federal taxes.................................. $ -- $ -- $2,495,000
- State taxes.................................... 1,000 1,000 716,000
------ ------
1,000 1,000 3,211,000
------ ------
Deferred - Federal taxes.................................. -- -- (1,904,000)
- State taxes.................................... -- -- (552,000)
------ ------ ----------
-- -- (2,456,000)
------ ------ ----------
Provision for income taxes................................. $1,000 $1,000 $ 755,000
====== ====== =========
</TABLE>
There is no difference between historical and pro forma provision for
income taxes for the years ended December 31, 1994 and 1995 because the amount
of provision is the minimum state taxes payable.
F-16
<PAGE> 75
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate for the years ended December 31, 1994, 1995
and 1996 are as follows:
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA 1996
--------------- -------------------- ----------------
1994 1995 1994 1995 AMOUNT PERCENT
------ ------ -------- --------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Income taxes at the statutory federal
rate.................................. $ -- $ -- $(41,000) $(193,000) $552,000 34.0%
State income taxes, net of federal
income tax effect..................... 1,000 1,000 1,000 1,000 99,000 6.1%
Tax benefits not recognized............. -- -- 41,000 193,000 -- --
Meals and gifts......................... -- -- -- -- 104,000 6.4%
------ ------ -------- --------- -------- -----
$1,000 $1,000 $ 1,000 $ 1,000 $755,000 46.5%
====== ====== ======== ========= ======== =====
</TABLE>
8. STOCK OPTIONS
On January 22, 1996, the Company adopted the 1996 Stock Incentive Plan (the
"Plan"). The Plan, which was amended on March 31, 1996, provides for the
granting of stock options to purchase up to 1,080,000 shares of common stock and
terminates January 22, 2006. Options granted become exercisable at a rate of not
less than 20 percent per year for five years.
Subsequent to the adoption of the Plan, the Company granted two employees
options to purchase a total of 540,000 shares of the Company's common stock
exercisable at the fair market value of $1.00 per share as determined by the
Board of Directors. One-third of the options are exercisable immediately. The
remaining options are exercisable equally on January 2, 1997 and 1998.
In May 1996, the Company issued an additional 505,650 stock options to
certain employees and consultants under the Plan, of which 15,900 were
subsequently canceled. The options are exercisable at fair market value of $2.00
per share at the date of issuance, and vest through August 2000.
In connection with the consulting agreement and subsequent employment
agreement with an officer of the Company, the Company entered into two separate
stock option agreements. The first agreement, dated March 1, 1996, provides for
300,000 non-incentive stock options exercisable immediately. The options are
exercisable at fair market value at the date of issuance, which was $1.33 per
share, and expire in 10 years. The second stock option agreement was entered
into on May 1, 1996 for an additional 300,000 shares to also be issued at $1.33
per share. These options vest half on March 1, 1997 and half on March 1, 1998.
These options, which expire in 10 years, may be subject to accelerated vesting
if a change in control occurs, as defined.
On May 15, 1996, the Company granted 150,000 options, valued at $2.00 per
share at the date of issuance to a director. Of these options 34 percent are
exercisable immediately. The remaining options are exercisable equally on May
15, 1997 and 1998.
On May 14, 1996, the Company adopted the 1996 Outside Director Non
Statutory Stock Option Plan. The number of shares which may be issued under this
plan upon exercise of options may not exceed 300,000 shares. The exercise price
of an option is determined by the Board of Directors and may not be less than 85
percent of the fair market value of the common stock at the time of grant and
has to be 110 percent of the fair market value of the common stock at the time
of grant if the option is granted to a holder of more than 10 percent of the
common stock outstanding. At the discretion of the administrator, the options
vest at a rate of not less than 20 percent per year, which may accelerate upon a
change in control, as defined. The plan expires on May 14, 2006. On May 15,
1996, the Company issued 60,000 options under this plan at $2.00 per share,
which vest immediately and expire 10 years from the grant date.
F-17
<PAGE> 76
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On September 23, 1996, the Company adopted the 1996 Supplemental Stock
Option Plan. The plan which expires on August 31, 2006, replaces the Plan and
has essentially the same features. The Company can issue options or other rights
to purchase up to 1,500,000 shares of stock which expire up to 10 years after
the date of grant, except for incentive options issued to a 10 percent
shareholder, which expire five years after the date of grant. On September 23,
1996, the Company granted 189,750 options under this plan at $5.47 per share,
which vest through September 2000 of which 8,250 shares were subsequently
canceled (4,500 after year-end).
In October 1996, the Company issued 381,750 options at $5.47 per share, as
determined by the Board of Directors, and in December 1996, an additional
127,500 options were issued at $5.47 per share. The Board of Directors
determined the market value of the December options to be $6.40 per share. The
Company is recognizing the difference between the market value at the date of
grant and the exercise price as compensation expense over the vesting period.
Stock Option information with respect to the Company's stock option plans
is as follows:
<TABLE>
<CAPTION>
COMMON AVAILABLE OPTION AGGREGATE
SHARES FOR PRICE OPTION
RESERVED GRANT OPTIONS PER SHARE PRICE
--------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995........... -- -- -- $ -- $ --
Adoption of 1996 Stock Incentive
Plan................................. 1,080,000 1,080,000 -- -- --
Options granted under 1996 Stock
Incentive Plan....................... -- (1,045,650) 1,045,650 1.00-2.00 1,551,000
Canceled Options....................... -- 15,900 (15,900) 2.00 (32,000)
Options granted outside a plan......... 750,000 -- 750,000 1.33-2.00 1,300,000
Adoption of 1996 Outside Director Non
Statutory Stock Option Plan.......... 300,000 300,000 -- -- --
Granted under 1996 Outside Director Non
Statutory Stock Option Plan.......... -- (60,000) 60,000 2.00 120,000
Adoption of 1996 Supplemental Stock
Option Plan.......................... 1,500,000 1,500,000 -- -- --
Options granted under 1996 Supplemental
Stock Option Plan.................... -- (699,000) 699,000 5.47 3,824,000
Canceled Options....................... -- 3,750 (3,750) 5.47 (21,000)
--------- ---------- --------- ---------- ----------
Balance at December 31, 1996........... 3,630,000 1,095,000 2,535,000 $1.00-5.47 $6,742,000
========= ========== ========= ========== ==========
</TABLE>
The Company has elected to adopt FASB No. 123 for disclosure purposes only
and applies Accounting Principle Board (APB) Opinion No. 25 and related
interpretations in accounting for its plans. Since the Company issued options to
consultants, approximately $3,000 in compensation cost was recognized relating
to consultant options.
Had compensation cost for stock options awarded under these plans been
determined based on the fair value at the dates of grant consistent with the
methodology of FASB No. 123, the Company's net income and earnings per share for
the year ended December 31, 1996 would have reflected the following pro-forma
amounts:
<TABLE>
<CAPTION>
NET INCOME EARNINGS PER SHARE
---------- ------------------
<S> <C> <C>
As reported.............................................. $868,000 $ 0.05
Pro-Forma................................................ $239,000 $ 0.01
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method of option pricing with the following assumptions used
for the grants; weighted average risk-
F-18
<PAGE> 77
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
free interest rate of 6.4%; expected dividend yields of 0.00 percent; and an
expected life of 10 years. Because the Company did not have a stock option
program prior to 1996, the resulting pro forma compensation cost may not be
representative of that to be expected in future years.
A summary of the status of the Company's three stock option plans at
December 31, 1996 and activity during 1996 is presented in the table below:
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
--------- ----------------
<S> <C> <C> <C>
Outstanding at December 31, 1995........................ -- $ --
Granted................................................. 2,554,650 $ 2.58
Exercised............................................... -- $ --
Forfeited............................................... 19,650 $ 2.66
Expired................................................. -- $ --
Outstanding at December 31, 1996........................ 2,535,000 $ 2.46
Exercisable at end of year.............................. 672,000 $ 1.50
Weighted average fair value of options granted.......... $1.29
</TABLE>
1,839,750 of the options outstanding at December 31, 1996 have an exercise
price between $1.00 and $2.00, a weighted average exercise price of $1.49 with a
weighted average remaining contractual life of 9.5 years and 672,500 of these
options are exercisable. 695,250 of the options outstanding have an exercise
price of $5.47 and a weighted average remaining contractual life of 9.9 years,
none of which are exercisable.
9. CAPITAL STOCK
During 1994, the Company issued 12,151,215 shares of stock to the Company's
founder for $10,000. During 1995, this stockholder converted $990,000 of debt
into capital for no additional shares. During 1995, the Company also issued
1,348,785 shares to another executive of the Company on conversion of a loan.
On February 23, 1996, the Company sold 1,500,000 shares of common stock to
various investors for $1,500,000. These stockholders entered into an agreement
containing a non-dilution covenant. The covenant allows the investors to
purchase sufficient shares of common stock to maintain their current interest in
the Company in the event of future stock sales. The stock purchase agreement
gives the investors the same rights of first refusal, registration or other
rights as the Company may grant to other stockholders.
On July 12, 1996, the Company sold 1,371,604 shares of common stock to an
investor for $4,068,000. Concurrent with this stock sale, the Company entered
into a registration rights agreement with the investor. According to this
agreement, the Company has to use its best efforts to effect registration of
these shares. The stock purchase agreement also provides for non dilution rights
and rights of first refusal which terminate upon an underwritten public offering
of common stock over $5,000,000 and certain merger transactions.
On July 25, 1996, the Company sold 1,367,047 shares of Series A preferred
stock to a group of investors for $7,500,000. The holders of preferred shares
have voting rights and are entitled to receive annual noncumulative dividends of
$0.33 per share, payable only if and when declared by the Board of Directors.
Additional distributions or dividends are to be distributed to common and
preferred shareholders proportionately. These preferred shares also have
liquidation preference in the amount of $5.4863 per share plus declared but
unpaid dividends, and may be converted to common stock at the
F-19
<PAGE> 78
STAR TELECOMMUNICATIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
option of the holder. In the event of a public offering, as defined, each such
preferred share automatically converts to a share of common stock. See Note 2
for pro forma earnings per share computation assuming the preferred stock had
been converted into common stock at the date of issuance in 1996.
In connection with this transaction, the Company and buyers of the
preferred shares entered into an investors rights agreement which obligates the
Company to file up to two registration statements to register such shares. These
stockholders also may require the company to file additional registration
statements on Form S-3, subject to certain conditions and limitations.
Holders of approximately $2,870,000 shares of common stock are also
entitled to certain registration rights.
10. SUBSEQUENT EVENT
a. Reincorporation
On January 30, 1997, the Board of Directors approved the merger of STAR
Vending, Inc., a Nevada corporation (d.b.a. STAR Telecommunications, Inc.) with
STAR Telecommunications, Inc., a Delaware corporation. All shares of Star
Vending, Inc. will be converted into STAR Telecommunications, Inc. shares at the
ratio of 3-for-2. The accompanying financial statements have been retroactively
restated to reflect the effect of the restructuring and related stock split. The
board of directors approved that upon the consummation of the initial public
offering, the Company's share capital will be changed to 5,000,000 preferred
shares at $0.001 per share and 50,000,000 common shares at $0.001 per share. No
preferred shares will be issued or outstanding.
b. Stock Options
On January 30, 1997, the Board of Directors approved the 1997 Omnibus Stock
Incentive Plan to replace the existing 1996 supplemental plan upon the effective
date of the initial public offering (IPO). The plan provides for awards to
employees, outside directors and consultants in the form of restricted shares,
stock units, stock options and stock appreciation rights. The maximum number of
shares available for issuance under this plan may not exceed 750,000 shares plus
the number of shares still unissued under the supplemental option plan. Options
granted to any one optionee may not exceed more than 750,000 common shares per
year subject to certain adjustments. Incentive stock options may not have a term
of more than 10 years from the date of grant.
On January 30, 1997, the Board of Directors also approved the grant of
87,000 incentive stock options to vest over four years and 22,500 options under
the Outside Director's plan. The options were granted at the then current market
value of $7.20 per share, as determined by the Board of Directors. The board
also approved accelerated vesting of options in certain instances following a
change in control, as defined.
c. Purchase Commitments
In January 1997, the Company entered into an agreement to purchase
switching equipment with a cost of $3.8 million to be installed in London,
England.
The Company also has been accepted to purchase IRUs at a total cost of
approximately $1.3 million for lines in the Pacific Rim and entered into a 10
year facility lease in Dallas, Texas at a cost of approximately $130,000 per
year.
F-20
<PAGE> 79
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH
OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM IT IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary...................... 3
Risk Factors............................ 5
Use of Proceeds......................... 16
Dividend Policy......................... 16
Capitalization.......................... 17
Dilution................................ 18
Selected Consolidated Financial Data.... 19
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 20
Business................................ 27
Management.............................. 41
Certain Transactions.................... 47
Principal and Selling Stockholders...... 49
Description of Capital Stock............ 51
Shares Eligible for Future Sale......... 54
Underwriting............................ 56
Legal Matters........................... 57
Experts................................. 57
Additional Information.................. 57
Index to Consolidated Financial
Statements............................ F-1
</TABLE>
------------------
UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------------------------------------
------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
6,500,000 SHARES
STAR TELECOMMUNCATIONS,
INC.
COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
HAMBRECHT & QUIST
ALEX. BROWN & SONS
INCORPORATED
, 1997
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD filing fees.
<TABLE>
<S> <C>
SEC Registration fee.................................................. $ 22,652.00
NASD fee.............................................................. 7,975.00
Nasdaq National Market listing fee.................................... 37,187.50
Printing and engraving expenses....................................... 135,000.00
Legal fees and expenses............................................... 445,000.00
Accounting fees and expenses.......................................... 345,000.00
Blue sky fees and expenses............................................ 10,000.00
Transfer agent fees................................................... 5,000.00
Miscellaneous fees and expenses....................................... 17,185.50
-------------
Total....................................................... $1,025,000.00
=============
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award or a corporation's Board of Directors to grant indemnification to
directors and officers in terms sufficiently broad to permit such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act"). Article VII, Section 6, of the Registrant's
Bylaws provides for mandatory indemnification of its directors and officers and
permissible indemnification of employees and other agents to the maximum extent
permitted by the Delaware General Corporation Law. The Registrant's Amended and
Restated Certificate of Incorporation provides that, pursuant to Delaware law,
its directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty as directors to the Company and its stockholders. This
provision in the Amended and Restated Certificate of Incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Company for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
The Registrant has entered into Indemnification Agreements with its officers and
directors, a form of which is attached as Exhibit 10.1 hereto and incorporated
herein by reference. The Indemnification Agreements provide the Registrant's
officers and directors with further indemnification to the maximum extent
permitted by the Delaware General Corporation Law. Reference is made to Section
7 of the Underwriting Agreement contained in Exhibit 1.1 hereto, indemnifying
officers and directors of the Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since inception, the Company has issued and sold the following securities:
1. The Registrant has issued 13,500,000 shares of its Common Stock pursuant
to direct issuances to employees in consideration for services provided
by such employees.
II-1
<PAGE> 81
2. On February 23, 1996, the Registrant issued and sold 1,500,000 shares of
its Common Stock to a group of six investors for an aggregate purchase
price of $1,500,000.00.
3. On July 12, 1996, the Registrant issued and sold 1,371,609 shares of its
Common Stock to Gotel Investments Ltd. for an aggregate purchase price
of $4,068,651.00.
4. On July 25, 1996, the Registrant issued and sold 1,367,047 shares of its
Series A Preferred Stock to a group of twenty-two investors for an
aggregate purchase price of $7,500,003.51.
The issuances described in Item 15(1) were deemed exempt from registration
under the Securities Act in reliance upon Rule 701 promulgated under the
Securities Act or Section 4(2) of the Securities Act. The issuances of the
securities described in Item 15(2), Item 15(3) and Item 15(4) were deemed to be
exempt from registration under the Securities Act in reliance on Section 4(2) of
such Act as transactions by an issuer not involving any public offering. In
addition, the recipients of securities in each such transaction represented
their intentions to acquire the securities for investment only and not with a
view to or for sale in connection with any distribution thereof and appropriate
legends were affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement (preliminary form).
3.1 Certificate of Incorporation of the Registrant, as amended to date.
3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant to be
filed in connection with Delaware reincorporation prior to the closing of the
offering made hereby.
3.3* Form of Restated Certificate of Incorporation of the Registrant to be filed upon the
closing of the offering made hereby.
3.4 Bylaws of the Registrant.
3.5* Form of Bylaws of the Registrant to be filed upon the closing of the offering made
hereby.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, and 3.5.
4.2* Specimen Common Stock certificate.
4.3 Registration Rights Agreement, dated September 24, 1996, between the Registrant and
the investors named therein.
4.4 Registration Rights Agreement, dated July 12, 1996, between the Registrant and the
investor named therein.
4.5 Investor Rights Agreement dated July 25, 1996, between the Registrant and the
investors named therein.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP.
10.1 Form of Indemnification Agreement.
10.2 1996 Amended and Restated Stock Incentive Plan.
10.3 1996 Outside Director Nonstatutory Stock Option Plan.
10.4* 1997 Omnibus Stock Incentive Plan.
10.5 Employment Agreement between the Registrant and Mary Casey dated July 14, 1995, as
amended.
10.6 Employment Agreement between the Registrant and Kelly Enos dated December 2, 1996.
10.7 Employment Agreement between the Registrant and David Vaun Crumly dated January 1,
1996.
</TABLE>
II-2
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ------------------------------------------------------------------------------------
<C> <S>
10.8 Employment Agreement between the Registrant and James Kolsrud dated December 18,
1996.
10.9 Consulting Agreement between the Registrant and Gordon Hutchins, Jr. dated May 1,
1996.
10.10 Nonstatutory Stock Option Agreement between the Registrant and Gordon Hutchins, Jr.
dated May 15, 1996.
10.11 Free Standing Commercial Building Lease between the Registrant and Thomas M. Spear,
as receiver for De La Guerra Court Investments, dated for reference purposes as of
March 1, 1996.
10.12 Standard Office Lease--Gross between the Registrant and De La Guerra Partners, L.P.
dated for reference purposes as of July 9, 1996.
10.13 Office Lease between the Registrant and WHUB Real Estate Limited Partnership dated
June 28, 1996, as amended.
10.14 Standard Form of Office Lease between the Registrant and Hudson Telegraph Associates
dated February 28, 1996.
10.15 Agreement for Lease between the Registrant and Telehouse International Corporation
of Europe Limited dated July 16, 1996.
10.16 Sublease between the Registrant and Borton, Petrini & Conron dated March 20, 1994,
as amended.
10.17 Office Lease between the Registrant and One Wilshire Arcade Imperial, Ltd. dated
June 28, 1996.
10.18 Lease Agreement between the Registrant and Telecommunications Finance Group dated
April 6, 1995.
10.19 Lease Agreement between the Registrant and Telecommunications Finance Group dated
January 3, 1996, as amended.
10.20* Master Lease Agreement between the Registrant and NTFC Capital Corporation dated
December 20, 1996.
10.21 Variable Rate Installment Note between the Registrant and Metrobank dated October 4,
1996.
10.22 Assignment of Purchase Order and Security Interest between the Registrant and DSC
Finance Corporation dated January 1, 1996.
10.23* Line of Credit Promissory Note between the Registrant and Christopher E. Edgecomb
dated November 7, 1996, as amended.
10.24* Office Lease Agreement between the Registrant and Beverly Hills Center LLC effective
as of April 1, 1997.
11.1 Computation of Earnings Per Share.
21.1 Subsidiary of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Accountants.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II -- Valuation and Qualifying Accounts
II-3
<PAGE> 83
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the Delaware General Corporation Law, the Certificate of
Incorporation or the Bylaws of the Registrant, the Underwriting Agreement, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of Prospectus shall
be deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Santa
Barbara, State of California, on this 6th day of February, 1997.
STAR TELECOMMUNICATIONS, INC.
By: /s/ CHRISTOPHER E. EDGECOMB
--------------------------------------
Christopher E. Edgecomb
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each individual whose signature
appears below constitutes and appoints Christopher E. Edgecomb, Kelly D. Enos
and Mary A. Casey, and each of them, his or her true and lawful
attorneys-in-fact and agents with full power of substitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or his or
her or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED,
THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<C> <S> <C>
/s/ CHRISTOPHER E. EDGECOMB Chief Executive Officer and February 6, 1997
Director (Principal Executive
- ---------------------------------------- Officer)
Christopher E. Edgecomb
/s/ KELLY D. ENOS Chief Financial Officer February 6, 1997
(Principal
- ---------------------------------------- Financial and Accounting Officer)
Kelly D. Enos
/s/ MARY A. CASEY President and Director February 6, 1997
- ----------------------------------------
Mary A. Casey
/s/ GORDON HUTCHINS, JR. Director February 6, 1997
- ----------------------------------------
Gordon Hutchins, Jr.
/s/ JOHN R. SNEDEGAR Director February 6, 1997
- ----------------------------------------
John R. Snedegar
/s/ ROLAND A. VAN DER MEER Director February 6, 1997
- ----------------------------------------
Roland A. Van der Meer
</TABLE>
II-5
<PAGE> 85
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To STAR Vending, Inc.:
After the reincorporation discussed in Note 10a of the Notes to
Consolidated Financial Statements is effected, we expect to be in a position to
render the following audit report.
ARTHUR ANDERSEN LLP
Los Angeles, California
January 30, 1997
"REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of STAR Telecommunications, Inc.:
We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of STAR Telecommunications, Inc., included
in this registration statement and have issued our report thereon dated January
30, 1997. Our audits were made for the purpose of forming an opinion on the
basic consolidated financial statements taken as a whole. The schedule of
valuation and qualifying accounts is the responsibility of the Company's
management and is presented for the purpose of complying with the Securities and
Exchange Commission's rules and is not part of the basic consolidated financial
statements. This schedule has been subjected to the auditing procedures applied
in the audits of the basic consolidated financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP"
Los Angeles, California
, 1997
S-1
<PAGE> 86
SCHEDULE II
STAR TELECOMMUNICATIONS, INC.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT BALANCE AT
BEGINNING OF END OF
PERIOD PROVISION WRITE-OFF PERIOD
------------ --------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Allowance for doubtful accounts
1994.......................................... $ -- $ -- $ -- $ --
1995.......................................... $ -- $ 208 $ -- $ 208
1996.......................................... $208 $ 6,793 $(819) $6,182
Deferred tax asset valuation allowance
1994.......................................... $ -- $ -- $ -- $ --
1995.......................................... $ -- $ 30 $ -- $ 30
1996.......................................... $ 30 $ -- $ (30) $ --
</TABLE>
S-2
<PAGE> 87
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. EXHIBIT PAGE NUMBER
- ------- -----------------------------------------------------------------------
<C> <S> <C>
1.1 Form of Underwriting Agreement (preliminary form).
3.1 Certificate of Incorporation of the Registrant, as amended to date.
3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be filed in connection with Delaware reincorporation
prior to the closing of the offering made hereby.
3.3* Form of Restated Certificate of Incorporation of the Registrant to be
filed upon the closing of the offering made hereby.
3.4 Bylaws of the Registrant.
3.5* Form of Bylaws of the Registrant to be filed upon the closing of the
offering made hereby.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4, and 3.5.
4.2* Specimen Common Stock certificate.
4.3 Registration Rights Agreement, dated September 24, 1996, between the
Registrant and the investors named therein.
4.4 Registration Rights Agreement, dated July 12, 1996, between the
Registrant and the investor named therein.
4.5 Investor Rights Agreement dated July 25, 1996, between the Registrant
and the investors named therein.
5.1* Opinion of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian,
LLP.
10.1 Form of Indemnification Agreement.
10.2 1996 Amended and Restated Stock Incentive Plan.
10.3 1996 Outside Director Nonstatutory Stock Option Plan.
10.4* 1997 Omnibus Stock Incentive Plan.
10.5 Employment Agreement between the Registrant and Mary Casey dated July
14, 1995, as amended.
10.6 Employment Agreement between the Registrant and Kelly Enos dated
December 2, 1996.
10.7 Employment Agreement between the Registrant and David Vaun Crumly dated
January 1, 1996.
10.8 Employment Agreement between the Registrant and James Kolsrud dated
December 18, 1996.
10.9 Consulting Agreement between the Registrant and Gordon Hutchins, Jr.
dated May 1, 1996.
10.10 Nonstatutory Stock Option Agreement between the Registrant and Gordon
Hutchins, Jr. dated May 15, 1996.
10.11 Free Standing Commercial Building Lease between the Registrant and
Thomas M. Spear, as receiver for De La Guerra Court Investments, dated
for reference purposes as of March 1, 1996.
10.12 Standard Office Lease--Gross between the Registrant and De La Guerra
Partners, L.P. dated for reference purposes as of July 9, 1996.
10.13 Office Lease between the Registrant and WHUB Real Estate Limited
Partnership dated June 28, 1996, as amended.
10.14 Standard Form of Office Lease between the Registrant and Hudson
Telegraph Associates dated February 28, 1996.
10.15 Agreement for Lease between the Registrant and Telehouse International
Corporation of Europe Limited dated July 16, 1996.
10.16 Sublease between the Registrant and Borton, Petrini & Conron dated
March 20, 1994, as amended.
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. EXHIBIT PAGE NUMBER
<C> <S> <C>
10.17 Office Lease between the Registrant and One Wilshire Arcade Imperial,
Ltd. dated June 28, 1996.
10.18 Lease Agreement between the Registrant and Telecommunications Finance
Group dated April 6, 1995.
10.19 Lease Agreement between the Registrant and Telecommunications Finance
Group dated January 3, 1996, as amended.
10.20* Master Lease Agreement between the Registrant and NTFC Capital Corpora-
tion dated December 20, 1996.
10.21 Variable Rate Installment Note between the Registrant and Metrobank
dated October 4, 1996.
10.22 Assignment of Purchase Order and Security Interest between the
Registrant and DSC Finance Corporation dated January 1, 1996.
10.23* Line of Credit Promissory Note between the Registrant and Christopher
E. Edgecomb dated November 7, 1996, as amended.
10.24* Office Lease Agreement between the Registrant and Beverly Hills Center
LLC effective as of April 1, 1997.
11.1 Computation of Earnings Per Share.
21.1 Subsidiary of the Registrant.
23.1 Consent of Arthur Andersen LLP, Independent Accountants.
23.2* Consent of Counsel. Reference is made to Exhibit 5.1.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 1.1
6,500,000 SHARES
STAR TELECOMMUNICATIONS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
March , 1997
HAMBRECHT & QUIST LLC
ALEX. BROWN & SONS INCORPORATED
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, California 94104
Ladies and Gentlemen:
Star Telecommunications, Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell 5,500,000 shares of its authorized but
unissued Common Stock, $.001 par value (herein called the Common Stock), and the
stockholders of the Company named in Part A of Schedule II hereto (the
"Underwritten Selling Stockholders") propose to sell an aggregate of 1,000,000
shares of Common Stock of the Company (said 6,500,000 shares of Common Stock
being herein called the Underwritten Stock). The Company proposes to grant to
the Underwriters (as hereinafter defined) an option to purchase up to 789,660
additional shares of Common Stock (the "Company Option Stock") and a certain
stockholder of the Company named in Part B of Schedule II hereto (the
"Additional Selling Stockholder") proposes to grant to the Underwriters an
option to purchase up to 185,340 additional shares of Common Stock (the
"Additional Selling Stockholder Option Stock") said 975,000 shares of Common
Stock being herein called Option Stock (herein called the Option Stock and with
the Underwritten Stock herein collectively called the Stock). The Common Stock
is more fully described in the Registration Statement and the Prospectus
hereinafter mentioned. The Underwritten Selling Stockholders and the Additional
Selling Stockholder are hereinafter referred to as "Selling Stockholders".
The Company and the Selling Stockholders severally hereby confirm the
agreements made with respect to the purchase of the Stock by the several
underwriters, for whom you are acting, named in Schedule I hereto (herein
collectively called the Underwriters, which term shall also include any
underwriter purchasing Stock pursuant to Section 3(b) hereof). You represent and
warrant that you have been authorized by each of the other Underwriters to enter
into this Agreement on its behalf and to act for it in the manner herein
provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333- ), including the related preliminary prospectus, for
the registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, all exhibits and financial statements, all information
omitted therefrom in reliance upon Rule 430A and contained in the Prospectus
referred to below, in the form in which it became effective, and any
<PAGE> 2
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or the effectiveness of such amendment)
such prospectus as so supplemented or amended. The term Preliminary Prospectus
as used in this Agreement shall mean each preliminary prospectus included in
such registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS.
(a) Each of the Company and the Selling Stockholders listed in Part A of
Schedule II hereby severally represents and warrants as follows; provided that
the Selling Stockholders make the following representations and warranties
severally and to their knowledge after due inquiry:
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, has full corporate
power and authority to own or lease its properties and conduct its business
as described in the Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property owned
or leased or the nature of the business transacted by it makes
qualification necessary (except where the failure to be so qualified would
not have a material adverse effect on the business, properties, financial
condition or results of operations of the Company and its subsidiaries,
taken as a whole).
(ii) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
materially adverse change or any development including a prospective
material adverse change in the business, properties, financial condition or
results of operations of the Company and its subsidiaries, taken as a
whole, whether or not arising from transactions in the ordinary course of
business, other than as set forth in the Registration Statement and the
Prospectus, and since such dates, except in the ordinary course of
business, neither the Company nor any of its subsidiaries has entered into
any material transaction not referred to in the Registration Statement and
the Prospectus.
(iii) Each part of the Registration Statement and the Prospectus
comply, and on the Closing Date (as hereinafter defined) and any later date
on which Option Stock is to be purchased, the Prospectus will comply, in
all material respects, with the provisions of the Securities Act and the
rules and regulations of the Commission thereunder; on the Effective Date,
the Registration Statement did not contain any untrue statement of a
material fact and did not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading; and, on the Effective Date the Prospectus did not and, on the
Closing Date and any later date on which Option Stock is to be purchased,
will not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading;
provided, however, that none of the representations and warranties in this
subparagraph (iii) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus made in reliance upon and in
2
<PAGE> 3
conformity with information herein or otherwise furnished in writing to the
Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus.
(iv) The outstanding capital stock of the Company and its subsidiaries
has been validly authorized, is fully paid and nonassessable, was issued in
compliance with applicable federal and state securities laws, and was
issued free of any preemptive right, right of first refusal or similar
right. The Stock is duly and validly authorized, is (or, in the case of
shares of the Stock to be sold by the Company, will be, when issued and
sold to the Underwriters as provided herein) duly and validly issued, fully
paid and nonassessable and conforms to the description thereof in the
Prospectus. No further approval or authority of the stockholders or the
Board of Directors of the Company will be required for the transfer and
sale of the Stock to be sold by the Selling Stockholders or the issuance
and sale of the Stock as contemplated herein. No preemptive right, or right
of refusal in favor, exists with respect to the Stock, or the issue and
sale thereof, or with respect to the exercise of options or other rights to
purchase securities of the Company after the sale of the Stock pursuant to
the Certificate of Incorporation or Bylaws of the Company. There is no
contractual preemptive right that has not been waived, right of first
refusal or right of co-sale which exists with respect to the Stock being
sold by the Selling Stockholders or the issue and sale of the Stock.
(v) The Registration Statement and Prospectus comply as to form in all
material respects with the requirements of the Securities Act and with
rules and regulations of the Commission thereunder.
(vi) All holders of securities of the Company and its subsidiaries
having rights to the registration of shares of Common Stock, or other
securities, because of the filing of the Registration Statement by the
Company have waived such rights or such rights have expired by reason of
lapse of time following notification of the Company's intent to file the
Registration Statement.
(vii) The issue and sale by the Company and the Selling Stockholders
of the shares of Stock sold by the Company and the Selling Stockholders as
contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, the Articles of Incorporation or Bylaws of the
Company or any agreement or instrument to which the Company is a party or
any applicable law or regulation, or any order, writ, injunction or decree,
of any jurisdiction, court or governmental instrumentality.
(viii) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as
have been (or will before the Closing Date have been) obtained under the
Securities Act and such as may be required under state securities or blue
sky laws in connection with the purchase and distribution of the Stock by
the Underwriters.
(ix) This Agreement has been duly authorized, executed and delivered
by the Company and the Selling Stockholders and constitutes a valid and
binding obligation of each of them enforceable in accordance with its
terms.
(x) Prior to the Closing Date the Stock to be issued and sold by the
Company will be approved for listing on the Nasdaq National Market by the
National Association of Securities Dealers, Inc.
(xi) The Company has complied with all provisions of Section 517.075,
Florida Statutes (Chapter 92-198, Laws of Florida), relating to issuers
doing business with the Government of Cuba or with any person or affiliate
located in Cuba.
(xii) The Company and its subsidiaries have all necessary consents,
authorizations approvals, orders, certificates and permits of and from, and
have made all declarations and filings with, all U.S. and foreign, federal
state or provincial, local and other governmental authorities, all self-
3
<PAGE> 4
regulatory organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business in
the manner described in the Prospectus, except to the extent that the
failure to obtain or file wold not have material adverse effect on the
Company and its subsidiaries, taken as a whole and except as otherwise
described in the Prospectus. Neither the Company nor any of its
subsidiaries have received any notice of proceedings relating to, and does
not have reason to believe that any governmental body or agency is
considering limiting, suspending, modifying or revoking, any such consent,
authorization, approval, order, certificate or permit which, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, would have a material adverse effect on the Company or its
subsidiaries, taken as a whole.
(xiii) The Company and its subsidiaries have all necessary
applications, statements, reports, information, forms, consents,
authorizations, approvals, orders, certificates and permits ("Licenses") of
and from all United States federal or state authorities, including the FCC
and State Public Utilities Commissions to own, lease, license and use its
properties and assets and to conduct its business in the manner described
in the Prospectus, except to the extent that the failure to obtain or file
would not have a material adverse effect on the Company and its
subsidiaries, taken as a whole, and except as described in the Prospectus.
(xiv) The Licenses are in full force and effect without conditions
that would have a material adverse effect on the Company's or its
subsidiaries' operations except for such conditions that would have a
material adverse effect on the Company's or its subsidiaries' operations
except for such conditions imposed generally by the FCC upon such licenses
or conditions stated on the face of the Licenses, (ii) all express
conditions in the Licenses have been satisfied where the failure to satisfy
such conditions would have a material adverse effect on the Company's or
its subsidiaries' operations as described in the Registration Statement and
the Prospectus, and (iii) neither the Company nor any of its subsidiaries
have received any notification that any revocation or limitation of the
Licenses is threatened or pending that would have a material adverse effect
on the Company's or its subsidiaries operations as described in the
Registration Statement and Prospectus.
(xv) The Licenses are validly issued. The Company and its subsidiaries
have filed with the FCC all applications, statements, reports, information,
forms, or any other document required under the Communications Act, except
where the failure to so file would not have a material adverse effect on
the Company's and its subsidiaries' ability to provide its services as
described in the Registration Statement and the Prospectus and such filings
or submissions were in compliance with applicable laws or regulations when
filed or submitted and no deficiencies have been asserted by the FCC with
respect to such filings or submissions except where the deficiency is of
such a nature that failure to cure any such deficiency would not have a
material adverse effect on the Company's and its subsidiaries ability to
provide its services as described in the Registration Statement and
Prospectus, and, the information contained in such filings or submissions
was, in all material respects, accurate, complete and up-to-date at the
time the filings or submissions were made.
(xvi) With respect to matters relating to the regulation of long
distance telecommunications carriers administered by United States federal
or state authorities, including, and not limited to, the FCC and State
Public Utilities Commissions, the execution and delivery by the Company of,
and the performance by the Company of its obligations under, this Agreement
will not contravene any provisions of applicable law or any judgment, order
or decree of any governmental body, agency or court having jurisdiction
over the Company or any subsidiary, and no consent, approval, authorization
or order of, or qualification with, any governmental body or agency is
required for the performance by the Company of its obligations under this
Agreement.
(xvii) There is no proceeding, formal or informal complaint or
investigation before the FCC against the Company or any of its subsidiaries
or any of the Licenses or based on any violation or
4
<PAGE> 5
alleged violation by the Company or any of its subsidiaries of the
Communications Act except for proceedings affecting the industry generally
to which neither the Company nor any of its subsidiaries is a specific
party.
(xviii) Neither the execution, delivery and performance of the
Underwriting Agreement by the Company and the Selling Stockholders not the
stock issuance and sale described in the Registration Statement and
Prospectus, will conflict with, violate or require any authorization,
approval, or consent under the Commissions Act or result in a breach or
violation of any of the terms or provisions of, or constitute a default
under, or cause any forfeiture or impairment of, any of the Licenses.
(xix) The Company owns or possesses adequate licenses or other rights
to use all patents, copyrights, trademarks, service marks, trade names,
technology and know-how necessary (in any material respect) to conduct its
business in the manner described in the Prospectus and, except as disclosed
in the Prospectus, the Company has not received any notice of infringement
or conflict with (and knows of no infringement or conflict with) asserted
rights of others with respect to any patents, copyrights, trademarks,
service marks, trade names, technology or know-how which could result in
any material adverse effect on the Company, taken as a whole; and, except
as disclosed in the Prospectus, the discoveries, inventions, products or
processes of the Company referred to in the Prospectus do not, to the
knowledge of the Company, infringe or conflict with any right or patent of
any third party, or any discovery, invention, product or process which is
the subject of a patent application filed by any third party, known to the
Company which could have a material adverse effect on the Company, taken as
a whole.
(xx) Neither the Company nor any other person associated with or
acting on behalf of the Company including, without limitation, any
director, officer, agent, or employee of the Company has, directly or
indirectly, while acting on behalf of the Company, (i) used any corporate
funds for unlawful contributions, gifts, entertainment, or other unlawful
expenses relating to political activity; (ii) made any unlawful
contribution to any candidate for foreign or domestic office, or to any
foreign or domestic government officials or employees or other person
charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof or to foreign or domestic political parties or campaigns from
corporate funds, or failed to disclose fully any contribution in violation
of law; (iii) violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended; or (iv) made any other unlawful payment.
(xxi) Neither the Company nor, to the Company's knowledge, any
employee or agent of the Company has made any payment of funds of the
Company or received or retained any funds which constitutes a violation by
the Company of any law, rule or regulation or of a character required to be
disclosed in the Prospectus.
(xxii) With respect to state certificates of public convenience and
necessity of other operating authorizations issued by state and public
utility commissions or similar state governmental agencies (collectively
"PUCs" and individually a "PUC") (such PUC certificates and authorizations
are hereinafter referred to collectively as the "State Authorizations")
held by the Company and its subsidiaries, such State Authorizations are in
full force and effect and are unimpaired by any act or omission of the
Company or any of its employees or agents or the Company's subsidiaries, in
each case except where such authorization is not required or where the
failure to so hold any such State Authorization would not have a material
adverse effect on the Company or its business, properties, business
prospects, condition (financial or otherwise) or results of operations. The
State Authorizations are all of the licenses, authorizations, consents and
approvals necessary from the PUCs in order to allow the Company and its
subsidiaries to own its assets and carry on its business as currently being
conducted, except where the failure to so hold any State Authorizations
would not have a material adverse effect on the Company or its
subsidiaries, or its business, properties, business prospects, condition
(financial or otherwise) or results of opera-
5
<PAGE> 6
tions. To the best of the Company's knowledge, there are no proceedings of
any kind, including but not limited to rulemaking proceedings of general
applicability in the industry or industries in which the Company operates,
by or before any PUC, now pending or threatened, which, if adversely
determined, would have a material adverse effect on the Company or its
business, properties, business prospects, condition (financial or
otherwise) or results of operations. Neither the execution and delivery of
this Agreement and the Pricing Agreement or the consummation of the
transactions contemplated herein and therein and in the Registration
Statement will conflict with or result in a breach of, or require any
authorization, approval or consent under the Communications Act of 1934, as
amended, or the rules of the Federal Communications Commission (the "FCC")
or the communications statutes of any state or the policies or rules of any
PUC. All applications, reports and other filings required by the FCC or any
PUC to be filed as of the date hereof with respect to any FCC license or
the State Authorizations, as the case may be, have been duly and currently
filed as of the date hereof, except where the failure to so file would not
have a material adverse effect on the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of
operations.
(xxiii) The Company and its subsidiaries have filed with the
applicable foreign and domestic regulatory authorities each and every
statement, report, information or form required by any applicable law,
regulation or order, except where the failure to so file would not have a
material adverse effect on the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of
operations, and all such filings or submissions were in compliance with
applicable laws when filed, and no deficiencies have been asserted by any
regulatory commission, agency or authority with respect to such filings or
submissions, except where the failure to so file or cure any such
deficiency would not have a material adverse effect on the Company or its
business, properties, business prospects, condition (financial or
otherwise) or results of operations. The Company and its subsidiaries have
maintained in full force and effect all licenses and permits necessary or
proper for the conduct of its business, except where the failure to do so
would not have a material adverse effect on the Company or its business,
properties, business prospects, condition (financial or otherwise) or
results of operations, and neither the Company nor any of its subsidiaries
have received any notification that any revocation or limitation thereof is
threatened or pending that would have such an effect. Except as disclosed
in the Registration Statement and the Prospectus, there is not pending any
change under any law, regulation, license or permit that would have a
material adverse effect on the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of
operations. Neither the Company nor any or its subsidiaries have received
any notice of, or, to the knowledge of the Company and its subsidiaries,
been threatened with or is under investigation with respect to, a violation
or a possible violation of any provision of any law, regulation or order,
except such violation or violations as would not have a material adverse
effect on the Company or its business, properties, business
prospects,.condition (financial or otherwise) or results of operations.
(xxiv) There is no legal or governmental proceeding pending or
threatened to which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or its subsidiaries is subject
that is required to be described in the Registration Statement or the
Prospectus and is not so described; or any statute, regulation, contract or
other document that is required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement that is not described or filed.
(xxv) The Company and its subsidiaries have all necessary consents,
authorizations, approvals, orders, certificates and permits of and from,
and has made all declarations and filings with, all governmental
authorities, to own, lease, license and use its properties and assets and
to conduct its business in the manner described in the Prospectus, except
to the extent that the failure to obtain or file such would not have a
material adverse effect on the Company.
(xxvi) The Company and its subsidiaries (i) are in compliance with
applicable laws and regulations relating to the protection of human health
and safety, the environment or hazardous
6
<PAGE> 7
or toxic substances or wastes, pollutants or contaminants ("Environmental
Laws"), (ii) have received all permits, licenses or other approvals
required under applicable Environmental Laws to conduct its business, and
(iii) are in compliance with all terms and conditions of any such permit,
license or approval, except where such noncompliance, failure to receive or
failure to comply would not have a material adverse effect on the Company.
(xxvii) The Company is not, and upon receipt and pending application
of the net proceeds from the sale of the Stock to be sold by the Company in
the manner described in the Prospectus will not be, an "investment company"
or an "affiliated person" of or "promoter" or "principal underwriter" for
an "investment company", as such terms are defined in the Investment
Company Act of 1940, as amended.
(xxviii) No action has been taken by the Company or any of its
subsidiaries or any of the Selling Stockholders which would constitute a
violation of any noncompetition (or similar) agreement between Christopher
E. Edgecomb and any other.
(b) Each Selling Stockholder, severally and not jointly, hereby represents
and warrants as follows:
(i) Such Selling Stockholder has full power and authority to enter
into this Agreement and the Agreement and Power of Attorney. All
authorizations and consents necessary for the execution and delivery by
such Selling Stockholder of the Agreement and Power of Attorney, and for
the execution of this Agreement on behalf of such Selling Stockholder, have
been given. Each of the Agreement and Power of Attorney and this Agreement
has been duly authorized, executed and delivered by or on behalf of such
Selling Stockholder and constitutes a valid and binding agreement of such
Selling Stockholder and is enforceable against such Selling Stockholder in
accordance with the terms thereof and hereof.
(ii) Such Selling Stockholder now has, and at the time of delivery
thereof hereunder will have , (1) good and marketable title to the Shares
to be sold by such Selling Stockholder hereunder, free and clear of all
liens, encumbrances and claims whatsoever (other than pursuant to the
Agreement and Power of Attorney); and (2) full legal right and power, and
all authorizations and approvals required by law, to sell, transfer and
deliver such Shares to the Underwriters hereunder and to make the
representations, warranties and agreements made by such Selling Stockholder
herein. Upon the delivery of and payment for such Shares hereunder, such
Selling Stockholder will deliver good and marketable title thereto, free
and clear of all liens, encumbrances and claims whatsoever.
(iii) On the Closing Date or Option Closing Date, as the case may be,
all stock transfer or other taxes (other than income taxes) which are
required to be paid in connection with the sale and transfer of the Shares
to be sold by such Selling Stockholder to the several Underwriters
hereunder will have been fully paid or provided for by such Selling
Stockholder and all laws imposing such taxes will have been fully complied
with.
(iv) The performance of this Agreement and the consummation of the
transactions contemplated hereby will not result in the creation or
imposition of any lien, charge or encumbrance upon any of the assets of
such Selling Stockholder pursuant to the terms or provisions of, or result
in a breach or violation of any of the terms or provisions of, or
constitute a default under, or result in the acceleration of any obligation
under, if such Selling Stockholder is a corporation or partnership, the
organization documents of such Selling Stockholder, or, as to all such
Selling Stockholders, any contract or other agreement to which such Selling
Stockholder is a party or by which such Selling Stockholder or any of its
property is bound or affected, or under any ruling, decree, judgment,
order, statute, jurisdiction over such Selling Stockholder or the property
of such Selling Stockholder.
(v) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for
the consummation by such Selling
7
<PAGE> 8
Stockholder of the transactions on its part contemplated herein and in the
Agreement and Power of Attorney, except such as have been obtained under
the Act or the Rules and Regulations and such as may be required under
state securities or Blue Sky laws or the by-laws and rules of the NASD in
connection with the purchase and distribution by the Underwriters of the
Shares to be sold by such Selling Stockholder.
(vi) Other than as permitted by the Act and the Rules and Regulations,
such Selling Stockholder has not distributed and will not distribute any
preliminary prospectus, the Prospectus or any other offering material in
connection with the offering and sale of the Shares. Such Selling
Stockholder has not taken, directly or indirectly, any action designed, or
which might reasonably be expected, to cause or result in, under the Act or
otherwise, or which has caused or resulted in, stabilization or
manipulation of the price of any security of the Company to facilitate the
sale or resale of the Shares.
(vii) Neither such Selling Stockholder nor any of such Selling
Stockholder's affiliates directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control
with, or has any other association (within the meaning of Article I,
Section 1(m) of the by-laws of the NASD) or affiliation with, any member
firm of the NASD.
(viii) Certificates in negotiable form for the Shares to be sold
hereunder by such Selling Stockholder have been placed in custody, for the
purpose of making delivery of such Shares under this Agreement, under the
Agreement and Power of Attorney which appoints and
as custodian (the "Custodian") for each Selling
Stockholder. Such Selling Stockholder agrees that the Shares represented by
the certificates held in custody for him or it under the Agreement and
Power of Attorney are for the benefit of and coupled with and subject to
the interest hereunder of the Custodian, the Attorney-in-Fact, the
Underwriters, each other Selling Stockholder and the Company, that the
arrangements made by such Selling Stockholder for such custody and the
appointment of the Custodian and the Attorney-in -Fact by such Selling
Stockholder are irrevocable, and that the obligations of such Selling
Stockholder hereunder shall not be terminated by operation of law, whether
by the death, disability, incapacity or liquidation of any Selling
Stockholder or the occurrence of any other event. If any Selling
Stockholder should die, become disabled or incapacitated or be liquidated
or if any other such event should occur before the delivery of the Shares
hereunder, certificates for the Shares shall be delivered by the Custodian
in accordance with the terms and conditions of this Agreement and actions
taken by the Attorney-in-Fact and the Custodian pursuant to the Agreement
and Power of Attorney, shall be as valid as if such death, liquidation,
incapacity or other event had not occurred, regardless of whether or not
the Custodian or the Attorney-in-Fact, or either of them, shall have
received notice thereof.
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to the
terms and conditions herein set forth, the Company agrees to issue and sell
5,500,000 shares of the Underwritten Stock to the several Underwriters, each
Selling Stockholder agrees to sell to the several Underwriters the number of
shares of Underwritten Stock set forth in Part A of Schedule II opposite the
name of such Selling Stockholder, and each of the Underwriters agrees to
purchase from the Company and the Selling Stockholders the respective aggregate
number of shares of Underwritten Stock set forth opposite its name in Schedule
I. The price at which such shares of Underwritten Stock shall be sold by the
Company and the Selling Stockholders and purchased by the several Underwriters
shall be $ per share. The obligation of each Underwriter to the Company and
each of the Selling Stockholders shall be to purchase from the Company and the
Selling Stockholders that number of shares of the Underwritten Stock which
represents the same proportion of the total number of shares of the Underwritten
Stock to be sold by each of the Company and the Selling Stockholders pursuant to
this Agreement as the number of shares of the Underwritten Stock set forth
opposite the name of such Underwriter in Schedule I hereto represents of the
total number of shares of the Underwritten Stock
8
<PAGE> 9
to be purchased by all Underwriters pursuant to this Agreement, as adjusted by
you in such manner as you deem advisable to avoid fractional shares. In making
this Agreement, each Underwriter is contracting severally and not jointly;
except as provided in paragraphs (b) and (c) of this Section 3, the agreement of
each Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or refuse
(otherwise than for a reason sufficient to justify the termination of this
Agreement under the provisions of Section 8 or 9 hereof) to purchase and pay for
the number of shares of the Stock agreed to be purchased by such Underwriter or
Underwriters, the Company or the Selling Stockholders shall immediately give
notice thereof to you, and the non-defaulting Underwriters shall have the right
within 24 hours after the receipt by you of such notice to purchase, or procure
one or more other Underwriters to purchase, in such proportions as may be agreed
upon between you and such purchasing Underwriter or Underwriters and upon the
terms herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company and the Selling Stockholders shall have the right, within 24 hours next
succeeding the 24-hour period above referred to, to make arrangements with other
underwriters or purchasers satisfactory to you for purchase of such shares and
portion on the terms herein set forth. In any such case, either you or the
Company and the Selling Stockholders shall have the right to postpone the
Closing Date determined as provided in Section 5 hereof for not more than seven
business days after the date originally fixed as the Closing Date pursuant to
said Section 5 in order that any necessary changes in the Registration
Statement, the Prospectus or any other documents or arrangements may be made. If
neither the non-defaulting Underwriters nor the Company and the Selling
Stockholders shall make arrangements within the 24-hour periods stated above for
the purchase of all the shares of the Stock which the defaulting Underwriter or
Underwriters agreed to purchase hereunder, this Agreement shall be terminated
without further act or deed and without any liability on the part of the Company
or the Selling Stockholders to any non-defaulting Underwriter and without any
liability on the part of any non-defaulting Underwriter to the Company or the
Selling Stockholders. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the several Underwriters to purchase, severally and not
jointly, up to 789,660 in the aggregate of the Company Option Stock from the
Company, and the Additional Selling Stockholder grants an option to the
Underwriters to purchase, severally and not jointly, up to 185,340 shares in the
aggregate of the Additional Option Stock from the Additional Selling
Stockholder, at the same price per share as the Underwriters shall pay for the
Underwritten Stock. Said options may be exercised only to cover over-allotments
in the sale of the Underwritten Stock by the Underwriters and may be exercised
in whole or in part at any time (but not more than once) on or before the
thirtieth day after the date of this Agreement upon written or telegraphic
notice by you to the Company setting forth the aggregate number of shares of the
Option Stock as to which the several Underwriters are exercising the option.
Delivery of certificates for the shares of Option Stock, and payment therefor,
shall be made as provided in Section 5 hereof. The number of shares of the
Option Stock to be purchased by each Underwriter shall be the same percentage of
the total number of shares of the Option Stock to be purchased by the several
9
<PAGE> 10
Underwriters as such Underwriter is purchasing of the Underwritten Stock, as
adjusted by you in such manner as you deem advisable to avoid fractional shares.
The number of shares of Option Stock to be purchased from the Company and from
the Additional Selling Stockholder shall be allocated between the Company and
the Additional Selling Stockholder in the same proportion as the maximum number
of shares of Company Option Stock bears to the maximum number of shares of
Additional Selling Stockholder Option Stock.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth in the last paragraph on the front cover page
and under "Underwriting" in the Registration Statement, any Preliminary
Prospectus and the Prospectus relating to the Stock filed by the Company
(insofar as such information relates to the Underwriters) constitutes the only
information furnished by the Underwriters to the Company for inclusion in the
Registration Statement, any Preliminary Prospectus, and the Prospectus, and you
on behalf of the respective Underwriters represent and warrant to the Company
that the statements made therein are correct.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock and
the Option Stock (if the option granted by Section 3(c) hereof shall have been
exercised not later than 7:00 A.M., San Francisco time, on the date two business
days preceding the Closing Date), and payment therefor, shall be made at the
office of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, at 7:00
a.m., San Francisco time, on the fourth business day after the date of this
Agreement, or at such time on such other day, not later than seven full business
days after such fourth business day, as shall be agreed upon in writing by the
Company and you. The date and hour of such delivery and payment (which may be
postponed as provided in Section 3(b) hereof) are herein called the Closing
Date.
(b) If the option granted by Section 3(c) hereof shall be exercised after
7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Gunderson Dettmer Stough
Villeneuve Franklin & Hachigian, LLP, at 7:00 a.m., San Francisco time, on the
third business day after the exercise of such option.
(c) Payment for the Stock purchased from the Company shall be made to the
Company or its order and payment for the Stock purchased from the Selling
Stockholders shall be made to the Custodian for the account of the Selling
Stockholders, in each case by one or more certified or official bank check or
checks in same day funds. Such payment shall be made upon delivery of
certificates for the Stock to you for the respective accounts of the several
Underwriters against receipt therefor signed by you. Certificates for the Stock
to be delivered to you shall be registered in such name or names and shall be in
such denominations as you may request at least one business day before the
Closing Date, in the case of Underwritten Stock, and at least one business day
prior to the purchase thereof, in the case of the Option Stock. Such
certificates will be made available to the Underwriters for inspection, checking
and packaging at the offices of Lewco Securities Corporation, 2 Broadway, New
York, New York 10004 on the business day prior to the Closing Date or, in the
case of the Option Stock, by 3:00 p.m., New York time, on the business day
preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
and the Selling Stockholders for shares to be purchased by any Underwriter whose
check shall not have been received by you on the Closing Date or any later date
on which Option Stock is purchased for the account of such Underwriter. Any such
payment by you shall not relieve such Underwriter from any of its obligations
hereunder.
10
<PAGE> 11
6. FURTHER AGREEMENTS OF THE COMPANY AND THE SELLING STOCKHOLDERS. The
Company, and to the extent specified below the Selling Stockholders,
respectively severally covenant and agree as follows:
(a) The Company will (i) prepare and timely file with the Commission under
Rule 424(b) a Prospectus containing information previously omitted at the time
of effectiveness of the Registration Statement in reliance on Rule 430A and (ii)
not file any amendment to the Registration Statement or supplement to the
Prospectus of which you shall not previously have been advised and furnished
with a copy or to which you shall have reasonably objected in writing or which
is not in compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the event of (i)
the request by the Commission for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to you a
signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each
post-effective amendment, if any, to the Registration Statement (together with,
in each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the Underwriters as many additional
copies of the Prospectus and as many copies of any supplement to the Prospectus
and of any amended prospectus, filed by the Company with the Commission, as you
may reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is required by
law to be delivered by an Underwriter or dealer any event relating to or
affecting the Company, or of which the Company shall be advised in writing by
you, shall occur as a result of which it is necessary, in the opinion of counsel
for the Company or of counsel for the Underwriters, to supplement or amend the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a purchaser of the Stock,
the Company will forthwith prepare and file with the Commission a supplement to
the Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a material fact
or omit to state any material fact necessary in order to make the statements
therein, in the light of the circumstances existing at the time such Prospectus
is delivered to such purchaser, not misleading. If, after the initial public
offering of the Stock by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the Stock may be sold by the several
Underwriters to use the Prospectus, as from time to time amended or
supplemented, in
11
<PAGE> 12
connection with the sale of the Stock in accordance with the applicable
provisions of the Securities Act and the applicable rules and regulations
thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company will
submit to you, for your information, a copy of any post-effective amendment to
the Registration Statement and any supplement to the Prospectus or any amended
prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the Stock for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date hereof, the
Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission (including the Report on Form SR required by Rule 463 of the
Commission under the Securities Act).
(h) Not later than the 45th day following the end of the fiscal quarter
first occurring after the first anniversary of the Effective Date, the Company
will make generally available to its security holders an earnings statement in
accordance with Section 11(a) of the Securities Act and Rule 158 thereunder.
(i) The Company and the Selling Stockholders jointly and severally agree to
pay all costs and expenses incident to the performance of their obligations
under this Agreement, including all costs and expenses incident to (i) the
preparation, printing and filing with the Commission and the National
Association of Securities Dealers, Inc. of the Registration Statement, any
Preliminary Prospectus and the Prospectus, (ii) the furnishing to the
Underwriters of copies of any Preliminary Prospectus and of the several
documents required by paragraph (c) of this Section 6 to be so furnished, (iii)
the printing of this Agreement and related documents delivered to the
Underwriters, (iv) the preparation, printing and filing of all supplements and
amendments to the Prospectus referred to in paragraph (d) of this Section 6, (v)
the furnishing to you and the Underwriters of the reports and information
referred to in paragraph (g) of this Section 6 and (vi) the printing and
issuance of stock certificates, including the transfer agent's fees. The Selling
Stockholders will pay any transfer taxes incident to the transfer to the
Underwriters of the shares of Stock being sold by the Selling Stockholders.
(j) The Company and the Selling Stockholders jointly and severally agree to
reimburse you, for the account of the several Underwriters, for blue sky fees
and related disbursements (including counsel fees and disbursements and cost of
printing memoranda for the Underwriters) paid by or for the account of the
Underwriters or their counsel in qualifying the Stock under state securities or
blue sky laws and in the review of the offering by the NASD.
(k) Without the prior written consent of Hambrecht & Quist LLC on behalf of
the Underwriters, the Company will not, for a period of 180 days following the
commencement of the public offering of the Stock by the Underwriters, directly
or indirectly, (i) sell, offer, contract to sell, make any short sale, pledge,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase or otherwise transfer or
dispose of any shares of Common Stock or any securities convertible into or
exchangeable or exercisable for or any rights to purchase or acquire Common
Stock or (ii) enter into any swap or other agreement that transfers, in whole or
in part, any of the economic consequences or ownership of Common Stock, whether
any such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise. The
foregoing sentence shall not apply to (A) the Stock to be sold to the
Underwriters
12
<PAGE> 13
pursuant to this Agreement, (B) shares of Common Stock issued by the Company
upon the exercise of options granted under the stock option plans of the Company
(the "Option Plans") or upon the exercise of warrants outstanding as of the date
hereof, all as described in footnote (*) to the table under the caption
"Capitalization" in the Preliminary Prospectus, and (C) the grant of options to
purchase Common Stock under the Option Plans.
(l) The Company has obtained from each director and officer of the Company,
whether or not the individual owns securities of the Company, from each
stockholder (other than as consented to by the Representatives) and from each
holder of an option or other right to acquire the Company's securities, an
agreement with you that, without the prior written consent of Hambrecht & Quist
LLC on behalf of the Underwriters, such person or entity will not, for a period
of 180 days following the commencement of the public offering of the Stock by
the Underwriters, directly or indirectly, (i) sell, offer, contract to sell,
make any short sale, pledge, sell any option or contract to purchase, purchase
any option or contract to sell, grant any option, right or warrant to purchase
or otherwise transfer or dispose of any shares of Common Stock or any securities
convertible into or exchangeable or exercisable for or any rights to purchase or
acquire Common Stock or (ii) enter into any swap or other agreement that
transfers, in whole or in part, any of the economic consequences or ownership of
Common Stock, whether any such transaction described in clause (i) or (ii) above
is to be settled by delivery of Common Stock or such other securities, in cash
or otherwise.
(m) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the Stock has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(n) The Company is familiar with the Investment Company Act of 1940, as
amended, and has in the past conducted its affairs, and will in the future
conduct its affairs, in such a manner to ensure that the Company was not and
will not be an "investment company" or a company "controlled" by an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) Subject to the provisions of paragraph (f) of this Section 7, the
Company and the Selling Stockholders, joint and severally (as described in
paragraph (f) of this Section 7), agree to indemnify and hold harmless each
Underwriter and each person (including each partner or officer thereof) who
controls any Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Securities Exchange Act of 1934, as amended
(herein called the Exchange Act), or the common law or otherwise, and the
Company and the Selling Stockholders jointly and severally agree to reimburse
each such Underwriter and controlling person for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary
13
<PAGE> 14
Prospectus or the Prospectus (as amended or as supplemented if the Company shall
have filed with the Commission any amendment thereof or supplement thereto) or
the omission or alleged omission to state therein a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that (1) the indemnity
agreements of the Company and the Selling Stockholders contained in this
paragraph (a) shall not apply to any such losses, claims, damages, liabilities
or expenses if such statement or omission was made in reliance upon and in
conformity with information furnished as herein stated or otherwise furnished in
writing to the Company by or on behalf of any Underwriter for use in any
Preliminary Prospectus or the Registration Statement or the Prospectus or any
such amendment thereof or supplement thereto and (2) the indemnity agreement
contained in this paragraph (a) with respect to any Preliminary Prospectus shall
not inure to the benefit of any Underwriter from whom the person asserting any
such losses, claims, damages, liabilities or expenses purchased the Stock which
is the subject thereof (or to the benefit of any person controlling such
Underwriter) if at or prior to the written confirmation of the sale of such
Stock a copy of the Prospectus (or the Prospectus as amended or supplemented)
was not sent or delivered to such person (excluding the documents incorporated
therein by reference) and the untrue statement or omission of a material fact
contained in such Preliminary Prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented) unless the failure is the result of
noncompliance by the Company or the Selling Stockholders with paragraph (c) of
Section 7 hereof. Each Selling Stockholder shall only be liable under this
paragraph with respect to (A) information pertaining to such Selling Stockholder
furnished by or on behalf of such Selling Stockholder expressly for use in any
Preliminary Prospectus or the Registration Statement or the Prospectus or any
such amendment thereof or supplement thereto or (B) facts that would constitute
a breach of any representation, warranty or covenant of such Selling Stockholder
set forth in Sections 2(b) or 6(l) hereof. The indemnity agreements of the
Company and the Selling Stockholders contained in this paragraph (a) and the
representations and warranties of the Company and the Selling Stockholders
contained in Section 2 and Section 3, respectively, hereof shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any indemnified party and shall survive the delivery of and
payment for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company and the Selling Stockholders, each of the Company's officers who signs
the Registration Statement on his own behalf or pursuant to a power of attorney,
each of the Company's directors, each other Underwriter and each person
(including each partner or officer thereof) who controls the Company or any such
other Underwriter within the meaning of Section 15 of the Securities Act, and
the Selling Stockholders from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified parties or any of them
may become subject under the Securities Act, the Exchange Act, or the common law
or otherwise and to reimburse each of them for any legal or other expenses
(including, except as otherwise hereinafter provided, reasonable fees and
disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, if such statement
or omission was made in reliance upon and in conformity with information
furnished as herein stated or otherwise furnished in writing to the Company by
or on behalf of such indemnifying Underwriter for use in the Registration
Statement or the Prospectus or any such amendment thereof or
14
<PAGE> 15
supplement thereto. The indemnity agreement of each Underwriter contained in
this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b) of
this Section 7 agrees that, upon the service of a summons or other initial legal
process upon it in any action or suit instituted against it or upon its receipt
of written notification of the commencement of any investigation or inquiry of,
or proceeding against, it in respect of which indemnity may be sought on account
of any indemnity agreement contained in such paragraphs, it will promptly give
written notice (herein called the Notice) of such service or notification to the
party or parties from whom indemnification may be sought hereunder. No
indemnification provided for in such paragraphs shall be available to any party
who shall fail so to give the Notice if the party to whom such Notice was not
given was unaware of the action, suit, investigation, inquiry or proceeding to
which the Notice would have related and was prejudiced by the failure to give
the Notice, but the omission so to notify such indemnifying party or parties of
any such service or notification shall not relieve such indemnifying party or
parties from any liability which it or they may have to the indemnified party
for contribution or otherwise than on account of such indemnity agreement. Any
indemnifying party shall be entitled at its own expense to participate in the
defense of any action, suit or proceeding against, or investigation or inquiry
of, an indemnified party. Any indemnifying party shall be entitled, if it so
elects within a reasonable time after receipt of the Notice by giving written
notice (herein called the Notice of Defense) to the indemnified party, to assume
(alone or in conjunction with any other indemnifying party or parties) the
entire defense of such action, suit, investigation, inquiry or proceeding, in
which event such defense shall be conducted, at the expense of the indemnifying
party or parties, by counsel chosen by such indemnifying party or parties and
reasonably satisfactory to the indemnified party or parties; provided, however,
that (i) if the indemnified party or parties reasonably determine that there may
be a conflict between the positions of the indemnifying party or parties and of
the indemnified party or parties in conducting the defense of such action, suit,
investigation, inquiry or proceeding or that there may be legal defenses
available to such indemnified party or parties different from or in addition to
those available to the indemnifying party or parties, then counsel for the
indemnified party or parties shall be entitled to conduct the defense to the
extent reasonably determined by such counsel to be necessary to protect the
interests of the indemnified party or parties and (ii) in any event, the
indemnified party or parties shall be entitled to have counsel chosen by such
indemnified party or parties participate in, but not conduct, the defense. If,
within a reasonable time after receipt of the Notice, an indemnifying party
gives a Notice of Defense and the counsel chosen by the indemnifying party or
parties is reasonably satisfactory to the indemnified party or parties, the
indemnifying party or parties will not be liable under paragraphs (a) through
(c) of this Section 7 for any legal or other expenses subsequently incurred by
the indemnified party or parties in connection with the defense of the action,
suit, investigation, inquiry or proceeding, except that (A) the indemnifying
party or parties shall bear the legal and other expenses incurred in connection
with the conduct of the defense as referred to in clause (i) of the proviso to
the preceding sentence and (B) the indemnifying party or parties shall bear such
other expenses as it or they have authorized to be incurred by the indemnified
party or parties. If, within a reasonable time after receipt of the Notice, no
Notice of Defense has been given, the indemnifying party or parties shall be
responsible for any legal or other expenses incurred by the indemnified party or
parties in connection with the defense of the action, suit, investigation,
inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable or
insufficient to hold harmless an indemnified party under paragraph (a) or (b) of
this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of each
15
<PAGE> 16
indemnifying party in connection with the statements or omissions that resulted
in such losses, claims, damages or liabilities, or actions in respect thereof,
as well as any other relevant equitable considerations. The relative benefits
received by the Company and the Selling Stockholders on one hand, and the
Underwriters on the other, shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Stock received by
the Company and the Selling Stockholders and the total underwriting discount
received by the Underwriters, as set forth in the table on the cover page of the
Prospectus, bear to the aggregate public offering price of the Stock. Relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by each
indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.
The parties agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were to be determined by pro rata allocation
(even if the Underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this paragraph (d). The
amount paid by an indemnified party as a result of the losses, claims, damages
or liabilities, or actions in respect thereof, referred to in the first sentence
of this paragraph (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigation,
preparing to defend or defending against any action or claim which is the
subject of this paragraph (d). Notwithstanding the provisions of this paragraph
(d), no Underwriter shall be required to contribute any amount in excess of the
underwriting discount applicable to the Stock purchased by such Underwriter. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this paragraph (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) Neither the Company nor the Selling Stockholders will, without the
prior written consent of each Underwriter, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit or
proceeding in respect of which indemnification may be sought hereunder (whether
or not such Underwriter or any person who controls such Underwriter within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act is
a party to such claim, action, suit or proceeding) unless such settlement,
compromise or consent includes an unconditional release of such Underwriter and
each such controlling person from all liability arising out of such claim,
action, suit or proceeding.
(f) The term "jointly and severally" in the second and eighth lines of
paragraph (a) of this Section 7 means that the Company's obligation is joint and
several with the obligation of each of the Selling Stockholders, but that the
obligation of a Selling Stockholder is several and not joint with the obligation
of the Company or any other Selling Stockholder. The liability of each Selling
Stockholder under the indemnity, contribution and reimbursement agreements
contained in the provisions of this Section 7 and Section 11 hereof shall be
limited to an amount equal to the price to the underwriters of the stock sold by
such Selling Stockholder to the Underwriters. The Company and the Selling
Stockholders may agree, as among themselves and without limiting the rights of
the Underwriters under this Agreement, as to the respective amounts of such
liability for which they each shall be responsible.
16
<PAGE> 17
8. TERMINATION. This Agreement may be terminated by you at any time prior
to the Closing Date by giving written notice to the Company and the Selling
Stockholders if after the date of this Agreement trading in the Common Stock
shall have been suspended, or if there shall have occurred (i) the engagement in
hostilities or an escalation of major hostilities by the United States or the
declaration of war or a national emergency by the United States on or after the
date hereof, (ii) any outbreak of hostilities or other national or international
calamity or crisis or change in economic or political conditions if the effect
of such outbreak, calamity, crisis or change in economic or political conditions
in the financial markets of the United States would, in the Underwriters'
reasonable judgment, make the offering or delivery of the Stock impracticable,
(iii) suspension of trading in securities generally or a material adverse
decline in value of securities generally on the New York Stock Exchange, the
American Stock Exchange, The Nasdaq Stock Market, or limitations on prices
(other than limitations on hours or numbers of days of trading) for securities
on either such exchange or system, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or order
of, or commencement of any proceeding or investigation by, any court,
legislative body, agency or other governmental authority which in the
Underwriters' reasonable opinion materially and adversely affects or will
materially or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in the
Underwriters' reasonable opinion has a material adverse effect on the securities
markets in the United States. If this Agreement shall be terminated pursuant to
this Section 8, there shall be no liability of the Company or the Selling
Stockholders to the Underwriters and no liability of the Underwriters to the
Company or the Selling Stockholders; provided, however, that in the event of any
such termination the Company and the Selling Stockholders agree to indemnify and
hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Stockholders under
this Agreement, including all costs and expenses referred to in paragraphs (i)
and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company and the Selling Stockholders of all of their
respective obligations to be performed hereunder at or prior to the Closing Date
or any later date on which Option Stock is to be purchased, as the case may be,
and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and
no proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the Stock hereunder
and the validity and form of the certificates representing the Stock, all
corporate proceedings and other legal matters incident to the foregoing,
and the form of the Registration Statement and of the Prospectus (except as
to the financial statements contained therein), shall have been approved at
or prior to the Closing Date by Wilson Sonsini Goodrich & Rosati, P.C.,
counsel for the Underwriters.
(c) You shall have received from Gunderson Dettmer Stough Villeneuve
Franklin & Hachigian, LLP, counsel for the Company and the Selling
Stockholders, an opinion, addressed to the Underwriters and dated the
Closing Date, covering the matters set forth in Annex A hereto, and if
Option Stock is purchased at any date after the Closing Date, an additional
opinion from such counsel, addressed to the Underwriters and dated such
later date, confirming that the statements expressed as of the Closing Date
in such opinion remain valid as of such later date.
(d) You shall have received from Seed, Mackall & Cole, counsel for the
Company, a letter addressed to the Underwriters and dated the Closing Date,
stating that such counsel is not aware of any pending or threatened
litigation involving the Company or any of its subsidiaries, and if Option
Stock is purchased at any date after the Closing Date, an additional letter
from such
17
<PAGE> 18
counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such
letter remain valid as of such later date.
(e) You shall have received from Swidler, Berlin, regulatory counsel
for the Company, an opinion, addressed to the Underwriters and dated the
Closing Date, covering the matters set forth in Annex B hereto, and if
Option Stock is purchased at any date after the Closing Date, an additional
opinion from such counsel, addressed to the Underwriters and dated such
later date, confirming that the statements expressed as of the Closing Date
in such opinion remain valid as of such later date.
(f) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state any material fact required to be stated therein or
necessary in order to make the statements therein, respectively, not
misleading, (ii) since the Effective Date, no event has occurred which
should have been set forth in a supplement or amendment to the Prospectus
which has not been set forth in such a supplement or amendment, (iii) since
the respective dates as of which information is given in the Registration
Statement in the form in which it originally became effective and the
Prospectus contained therein, there has not been any material adverse
change or any development involving a prospective material adverse change
in or affecting the business, properties, financial condition or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, and, since such dates, except in the ordinary
course of business, the Company has not entered into any material
transaction not referred to in the Registration Statement in the form in
which it originally became effective and the Prospectus contained therein,
(iv) the Company does not have any material contingent obligations which
are not disclosed in the Registration Statement and the Prospectus, (v)
there are not any pending or known threatened legal proceedings to which
the Company is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not disclosed
in the Registration Statement and the Prospectus, (vi) there are not any
franchises, contracts, leases or other documents which are required to be
filed as exhibits to the Registration Statement which have not been filed
as required, (vii) the representations and warranties of the Company herein
are true and correct in all material respects as of the Closing Date or any
later date on which Option Stock is to be purchased, as the case may be,
and (viii) there has not been any material change in the market for
securities in general or in political, financial or economic conditions
from those reasonably foreseeable as to render it impracticable in your
reasonable judgment to make a public offering of the Stock, or a material
adverse change in market levels for securities in general (or those of
companies in particular) or financial or economic conditions which render
it inadvisable to proceed.
(g) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the Attorney-in-Fact for
the Selling Stockholders, stating that the representations and warranties
of the Selling Stockholders herein are true and correct in all material
respects as of the Closing Date or any later date on which Option Stock is
to be purchased, as the case may be.
(h) You shall have received on the Closing Date and on any later date
on which Option Stock is purchased a certificate, dated the Closing Date or
such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers
of said certificate have carefully examined the Registration Statement in
the form in which it originally became effective and the Prospectus
contained therein and any supplements or amendments thereto, and that the
statements included in clauses (i) through (vii) of paragraph (d) of this
Section 9 are true and correct.
(i) You shall have received from Arthur Andersen LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and any
later date on which Option Stock is purchased, confirming that they are
independent public accountants with respect to the Company within the
18
<PAGE> 19
meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
letter delivered to you concurrently with the execution of this Agreement
(herein called the Original Letter), but carried out to a date not more
than three business days prior to the Closing Date or such later date on
which Option Stock is purchased (i) confirming, to the extent true, that
the statements and conclusions set forth in the Original Letter are
accurate as of the Closing Date or such later date, as the case may be, and
(ii) setting forth any revisions and additions to the statements and
conclusions set forth in the Original Letter which are necessary to reflect
any changes in the facts described in the Original Letter since the date of
the Original Letter or to reflect the availability of more recent financial
statements, data or information. The letters shall not disclose any change,
or any development involving a prospective change, in or affecting the
business or properties of the Company which, in your sole judgment, makes
it impractical or inadvisable to proceed with the public offering of the
Stock or the purchase of the Option Stock as contemplated by the
Prospectus.
(j) You shall have received from Arthur Andersen LLP a letter stating
that their review of the Company's system of internal accounting controls,
to the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at December 31, 1996,
did not disclose any weakness in internal controls that they considered to
be material weaknesses.
(k) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the qualification
referred to in paragraph (f) of Section 6 hereof.
(l) Prior to the Closing Date, the Stock to be issued and sold by the
Company shall have been duly authorized for listing by the Nasdaq National
Market.
(m) On or prior to the Closing Date, you shall have received from all
directors, officers, stockholders and holders of options or rights to
acquire securities of the Company agreements, in form reasonably
satisfactory to Hambrecht & Quist LLC, stating that without the prior
written consent of Hambrecht & Quist LLC on behalf of the Underwriters,
such person or entity will not, for a period of 180 days following the
commencement of the public offering of the Stock by the Underwriters,
directly or indirectly, (i) sell, offer, contract to sell, make any short
sale, pledge, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any
rights to purchase or acquire Common Stock or (ii) enter into any swap or
other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of
Common Stock or such other securities, in cash or otherwise.
All the agreements, opinions, certificates and letters mentioned above or
elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Wilson Sonsini Goodrich & Rosati, P.C., counsel for
the Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company and the Selling Stockholders. Any such termination shall be without
liability of the Company or the Selling Stockholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Stockholders; provided, however, that (i) in the event of such termination, the
Company and the Selling Stockholders agree to indemnify and hold harmless the
Underwriters from all costs or expenses incident to the performance of the
obligations of the Company and the Selling Stockholders under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company or the Selling
Stockholders to perform any agreement herein, to fulfill any of the conditions
herein, or to
19
<PAGE> 20
comply with any provision hereof other than by reason of a default by any of the
Underwriters, the Company will reimburse the Underwriters severally upon demand
for all out-of-pocket expenses (including reasonable fees and disbursements of
counsel) that shall have been incurred by them in connection with the
transactions contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY AND THE SELLING
STOCKHOLDERS. The obligation of the Company and the Selling Stockholders to
deliver the Stock shall be subject to the conditions that (a) the Registration
Statement shall have become effective and (b) no stop order suspending the
effectiveness thereof shall be in effect and no proceedings therefor shall be
pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not be
fulfilled, this Agreement may be terminated by the Company and the Selling
Stockholders by giving notice to you. Any such termination shall be without
liability of the Company and the Selling Stockholders to the Underwriters and
without liability of the Underwriters to the Company or the Selling
Stockholders; provided, however, that in the event of any such termination the
Company and the Selling Stockholders jointly and severally agree to indemnify
and hold harmless the Underwriters from all costs or expenses incident to the
performance of the obligations of the Company and the Selling Stockholders under
this Agreement, including all costs and expenses referred to in paragraphs (i)
and (j) of Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to their other
obligations under Section 7 of this Agreement, the Company and the Selling
Stockholders hereby jointly and severally agree to reimburse on a quarterly
basis the Underwriters for all reasonable legal and other expenses incurred in
connection with investigating or defending any claim, action, investigation,
inquiry or other proceeding arising out of or based upon any statement or
omission, or any alleged statement or omission, described in paragraph (a) of
Section 7 of this Agreement, notwithstanding the absence of a judicial
determination as to the propriety and enforceability of the obligations under
this Section 11 and the possibility that such payments might later be held to be
improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company and the Selling Stockholders and the several
Underwriters and, with respect to the provisions of Section 7 hereof, the
several parties (in addition to the Company, the Selling Stockholders and the
several Underwriters) indemnified under the provisions of said Section 7, and
their respective personal representatives, successors and assigns. Nothing in
this Agreement is intended or shall be construed to give to any other person,
firm or corporation any legal or equitable remedy or claim under or in respect
of this Agreement or any provision herein contained. The term "successors and
assigns" as herein used shall not include any purchaser, as such purchaser, of
any of the Stock from any of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104; and if to the Company, shall be mailed,
telegraphed or delivered to it at its office, 223 East De La Guerra Street,
Santa Barbara, California 93101, Attention: Christopher Edgecomb; and if to the
Selling Stockholders, shall be mailed, telegraphed or delivered to the Selling
Stockholders in care of at . All notices
given by telegraph shall be promptly confirmed by letter.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the Stock
20
<PAGE> 21
under this Agreement; provided, however, that if this Agreement is terminated
prior to the Closing Date, the provisions of paragraphs (k) and (l) of Section 6
hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
This Agreement shall be governed by, and construed in accordance with, the
laws of the State of California.
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
STAR TELECOMMUNICATIONS, INC.
By:
------------------------------------
Christopher E. Edgecomb
Chief Executive Officer
SELLING STOCKHOLDERS
------------------------------------
Christopher E. Edgecomb
------------------------------------
Mary A. Casey
The foregoing Agreement is hereby confirmed and accepted as of the date first
above written.
HAMBRECHT & QUIST LLC
ALEX. BROWN & SONS INCORPORATED
By Hambrecht & Quist LLC
By:
--------------------------------------------------------
Managing Director
Acting on behalf of the several Underwriters, including themselves, named in
Schedule I hereto.
21
<PAGE> 22
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
- ------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC............................
Alex. Brown & Sons Incorporated..................
-------
Total.................................. 6,500,000
=======
</TABLE>
<PAGE> 23
SCHEDULE II
SELLING STOCKHOLDERS
PART A
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITTEN SHARES
NAME OF UNDERWRITTEN SELLING STOCKHOLDER TO BE SOLD
- ------------------------------------------------- -------------------
<S> <C>
Christopher E. Edgecomb.......................... 868,000
Mary A. Casey.................................... 132,000
---------
1,000,000
=========
</TABLE>
PART B
<TABLE>
<CAPTION>
NUMBER OF
SHARES
NAME OF ADDITIONAL SELLING STOCKHOLDER TO BE SOLD
- ------------------------------------------------- -------------------
<S> <C>
Mary A. Casey.................................... 185,340
===============
</TABLE>
<PAGE> 24
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF GUNDERSON DETTMER STOUGH VILLENEUVE
FRANKLIN & HACHIGIAN, LLP
COUNSEL FOR THE COMPANY AND THE SELLING STOCKHOLDERS
(i) Each of the Company and its subsidiaries have been duly incorporated
and is validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified as a foreign corporation
and in good standing in each state of the United States of America and in each
foreign country in which its ownership or leasing of property requires such
qualification (except where the failure to be so qualified would not have a
material adverse effect on the business, properties, financial condition or
results of operations of the Company and its subsidiaries, and has full
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; all the issued and
outstanding capital stock of the Company and each of the subsidiaries of the
Company has been duly authorized and validly issued and is fully paid and
nonassessable, and is owned by the Company free and clear of all liens,
encumbrances and security interests, and to the best of such counsel's
knowledge, no options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into shares of
capital stock or ownership interests in such subsidiaries are outstanding; no
preemptive right, or right of refusal in favor, exists with respect to the
Stock, or the issue and sale thereof, or with respect to the exercise of options
or other rights to purchase securities of the Company after the sale of the
Stock, pursuant to the Certificate of Incorporation or Bylaws of the Company and
there is no contractual preemptive right that has not been waived, right of
first refusal or right of co-sale which exists with respect to the Stock being
sold by the Selling Stockholders or the issue and sale of the Stock; there are
no subsidiaries of the Company;
(ii) the authorized capital stock of the Company consists of
shares of Stock, of which there are outstanding shares, and
shares of Common Stock, $ par value, of which there are
outstanding shares (including the Underwritten Stock plus the number
of shares of Option Stock issued on the date hereof); proper corporate
proceedings have been taken validly to authorize such authorized capital stock;
all of the outstanding shares of such capital stock (including the Underwritten
Stock and the shares of Option Stock issued, if any) have been duly and validly
issued and are fully paid and nonassessable; any Option Stock purchased after
the Closing Date, when issued and delivered to and paid for by the Underwriters
as provided in the Underwriting Agreement, will have been duly and validly
issued and be fully paid and nonassessable; and no preemptive rights of, or
rights of refusal in favor of, stockholders exist with respect to the Stock, or
the issue and sale thereof, pursuant to the Certificate of Incorporation or
Bylaws of the Company and, to the knowledge of such counsel, there are no
contractual preemptive rights that have not been waived, rights of first refusal
or rights of co-sale which exist with respect to the issue and sale of the Stock
or with respect to the exercise of options or other rights to purchase
securities of the Company after the sale of the Stock;
(iii) the Registration Statement has become effective under the Securities
Act and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement or suspending or preventing the use
of the Prospectus is in effect and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and with the rules
and regulations of the Commission thereunder;
(v) such counsel have no reason to believe that the Registration Statement
(except as to the financial statements and schedules and other financial and
statistical data contained or incorporated by reference therein, as to which
such counsel need not express any opinion or belief) at the Effective Date
contained any untrue statement of a material fact or omitted to state a material
fact required to
<PAGE> 25
be stated therein or necessary to make the statements therein not misleading, or
that the Prospectus (except as to the financial statements and schedules and
other financial and statistical data contained or incorporated by reference
therein, as to which such counsel need not express any opinion or belief) as of
its date or at the Closing Date (or any later date on which Option Stock is
purchased), contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading;
(vi) the information required to be set forth in the Registration Statement
in answer to Items 9, 10 (insofar as it relates to such counsel) and 11(c) of
Form S-1 is to the best of such counsel's knowledge accurately and adequately
set forth therein in all material respects or no response is required with
respect to such Items, the description of the Company's stock option plans and
the options granted and which may be granted thereunder in the Prospectus
accurately and fairly presents the information required to be shown with respect
to said plans and options to the extent required by the Securities Act and the
rules and regulations of the Commission thereunder;
(vii) such counsel has reviewed all contracts, leases or other documents
referred to in the Registration Statement and the Prospectus and such contracts,
leases or other documents are fairly summarized or disclosed therein, and filed
as exhibits thereto as required, and all such contracts to which the Company is
a party have been duly authorized, executed and delivered by the Company,
constitute valid and binding agreements of the Company and, subject to
applicable bankruptcy laws, are enforceable against the Company in accordance
with the terms thereof;
(viii) such counsel do not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(ix) the Underwriting Agreement has been duly authorized, executed and
delivered by the Company;
(x) the issue and sale by the Company of the shares of Stock sold by the
Company and the Selling Stockholders as contemplated by the Underwriting
Agreement will not conflict with, or result in a breach of, the Certificate of
Incorporation or Bylaws of the Company or any of its subsidiaries or any
agreement or instrument known to such counsel to which the Company or any of its
subsidiaries is a party or any applicable law or regulation, or so far as is
known to such counsel, any order, writ, injunction or decree, of any
jurisdiction, court or governmental instrumentality;
(xi) all holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement;
(xii) no consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Stock by
the Underwriters;
(xiii) the Stock issued and sold by the Company and the Selling
Stockholders will been duly authorized for listing by the Nasdaq National Stock
Market;
(xiv) the Company is not, and upon receipt and pending application of the
net proceeds from the sale of the Stock to be sold by the Company in the manner
described in the Prospectus will not be, an "investment company" or an
"affiliated person" of or "promoter" or "principal underwriter" for an
"investment company", as such terms are defined in the Investment Company Act of
1940, as amended;
2
<PAGE> 26
(xv) The Company and its subsidiaries have complied with all provisions of
Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida), relating to
issuers doing business with the Government of Cuba or with any person or
affiliate located in Cuba;
(xvi) Neither the Company nor any other person associated with or acting on
behalf of the Company including, without limitation, any director, officer,
agent, or employee of the Company has, directly or indirectly, while acting on
behalf of the Company, (i) used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political activity;
(ii) made any unlawful contribution to any candidate for foreign or domestic
office, or to any foreign or domestic government officials or employees or other
person charged with similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any jurisdiction
thereof or to foreign or domestic political parties or campaigns from corporate
funds, or failed to disclose fully any contribution in violation of law; (iii)
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or (iv) made any other unlawful payment;
(xvii) Each Selling Stockholder has full power and authority to enter into
this Agreement and the Agreement and Power of Attorney. All authorizations and
consents necessary for the execution and delivery by such Selling Stockholder of
the Agreement and Power of Attorney, and for the execution of this Agreement on
behalf of such Selling Stockholder, have been given. Each of the Agreement and
Power of Attorney and this Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Stockholder and constitutes a valid
and binding agreement of such Selling Stockholder and is enforceable against
such Selling Stockholder in accordance with the terms thereof and hereof;
(xviii) Each Selling Stockholder now has, and at the time of delivery
thereof hereunder will have; (1) good and marketable title to the Shares to be
sold by such Selling Stockholder hereunder, free and clear of all liens,
encumbrances and claims whatsoever (other than pursuant to the Agreement and
Power of Attorney); and (2) full legal right and power to sell, transfer and
deliver such Shares to the Underwriters hereunder and to make the
representations, warranties and agreements made by such Selling Stockholder
herein;
(xix) No consent, approval, authorization or order of, or any filing or
declaration with, any court or governmental agency or body is required for the
consummation by such Selling Stockholder of the transactions on its part
contemplated herein and in the Agreement and Power of Attorney, except such as
have been obtained under the Act or the Rules and Regulations and such as may be
required under state securities or Blue Sky laws or the by-laws and rules of the
NASD in connection with the purchase and distribution by the Underwriters of the
Shares to be sold by such Selling Stockholder; and
(xx) To the best of our knowledge, none of the Selling Stockholders,
directly or indirectly through one or more intermediaries, controls, is
controlled by, is under common control with, or has any other association
(within the meaning of Article I, Section 1(m) of the bylaws of the NASD) or
affiliation with, any member firm of the NASD.
Counsel rendering the foregoing opinion may rely as to questions of law not
involving the laws of the United States or of the State of Delaware, upon
opinions of local counsel satisfactory in form and scope to counsel for the
Underwriters. Copies of any opinions so relied upon shall be delivered to the
Representatives and to counsel for the Underwriters and the foregoing opinion
shall also state that counsel knows of no reason the Underwriters are not
entitled to rely upon the opinions of such local counsel.
3
<PAGE> 27
ANNEX B
MATTERS TO BE COVERED IN THE OPINION OF SWIDLER, BERLIN
REGULATORY COUNSEL FOR THE COMPANY
Such counsel are familiar with the business of the Company and have read
the Registration Statement and the Prospectus, including particularly the
portions of the Registration Statement and the Prospectus referring to
regulatory issues and:
(i) with respect to matters relating to the regulation of long distance
telecommunications carriers administered by United States federal or state
authorities, including the FCC and State Public Utilities Commissions
(collectively "Regulatory Matters"), such counsel (A) has no reason to believe
that (except for financial statements and supporting notes and schedules and
other financial and statistical data contained therein, as to which such counsel
need not comment) the Registration Statement and the prospectus included therein
at the time the Registration Statement became effective contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading (in
the case of the prospectus, in light of the circumstances under which they were
made) and (B) has no reason to believe that (except for financial statements and
supporting notes and schedules and other financial statistical data contained
therein, as to which such counsel need not comment) the Prospectus contains any
untrue statement of a material fact or omits to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(ii) the statements relating to Regulatory Matters in the Prospectus under
the captions "Risk Factors -- Potential Adverse Affects of Government Regulation
and -- Significant Competition," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Summary" and
"Business -- Industry Background -- Network, and -- Government Regulation",
insofar as such statements constitute summaries of the legal matters, documents
or proceedings referred to therein, fairly summarize the matters referred to
therein;
(iii) Schedule 1 hereto accurately and completely lists all of the
licenses, permits, and authorizations issued by the FCC (collectively, the
"Licenses") necessary for the Company to carry on its business as described in
the Registration Statement and Prospectus. Schedule 2 hereto accurately and
completely lists all pending applications filed by the Company with the FCC;
(iv) to the best of our knowledge, the Licenses are validly issued.
"Validly issued" as used herein means that the Licenses have been issued through
the means of regular FCC procedures applied in conformity with the
Communications Act and prior FCC practice and there is no legal basis under the
Communications Act to conclude that the Company cannot hold one or more of the
Licenses as a matter of law. To the best of our knowledge, (i) the Licenses are
in full force and effect without conditions that would have a material adverse
effect on the Company's operations except for such conditions that would have a
material adverse effect on the Company's operations except for such conditions
imposed generally by the FCC upon such licenses or conditions stated on the face
of the Licenses, (ii) all express conditions in the Licenses have been satisfied
where the failure to satisfy such conditions would have a material adverse
effect on the Company's operations as described in the Registration Statement
and the Prospectus, and (iii) the Company has not received any notification that
any revocation or limitation of the Licenses is threatened or pending that would
have a material adverse effect on the Company's operations as described in the
Registration Statement and Prospectus;
(v) except as specified in Schedule 3 hereto, the Company has filed with
the FCC all applications, statements, reports, information, forms, or any other
document required under the Communications Act, except where the failure to so
file would not have a material adverse effect on the Company's ability to
provide its services as described in the Registration Statement and the
Prospectus and, to the best of our knowledge, such filings or submissions were
in compliance with applicable laws or regulations when filed or submitted and no
deficiencies have been asserted by the FCC with respect to such filings or
submissions except where the deficiency is of such a nature that failure to cure
any such
<PAGE> 28
deficiency would not have a material adverse effect on the Company's ability to
provide its services as described in the Registration Statement and Prospectus,
and, the information contained in such filings or submissions was, in all
material respects, accurate, complete and up-to-date at the time the filings or
submissions were made;
(vi) the Company has filed with the applicable foreign and domestic
regulatory authorities each and every statement, report, information or form
required by any applicable law, regulation or order, except where the failure to
so file would not have a material adverse effect on the Company or its business,
properties, business prospects, condition (financial or otherwise) or results of
operations, and all such filings or submissions were in compliance with
applicable laws when filed, and no deficiencies have been asserted by any
regulatory commission, agency or authority with respect to such filings or
submissions, except where the failure to so file or cure any such deficiency
would not have a material adverse effect on the Company or its business,
properties, business prospects, condition (financial or otherwise) or results of
operations. The Company has maintained in full force and effect all licenses and
permits necessary or proper for the conduct of its business, except where the
failure to do so would not have a material adverse effect on the Company or its
business, properties, business prospects, condition (financial or otherwise) or
results of operations, and the Company has not received any notification that
any revocation or limitation thereof is threatened or pending that would have
such an effect. Except as disclosed in the Registration Statement and the
Prospectus, there is not pending any change under any law, regulation, license
or permit that would have a material adverse effect on the Company or its
business, properties, business prospects, condition (financial or otherwise) or
results of operations. The Company has not received any notice of, or, to our
knowledge, been threatened with or is under investigation with respect to, a
violation or a possible violation of any provision of any law, regulation or
order, except such violation or violations as would not have a material adverse
effect on the Company or its business, properties, business prospects, condition
(financial or otherwise) or results of operations;
(viii) with respect to state certificates of public convenience and
necessity of other operating authorizations issued by state and public utility
commissions or similar state governmental agencies (collectively "PUCs" and
individually a "PUC") (such PUC certificates and authorizations are hereinafter
referred to collectively as the "State Authorizations") held by the Company,
such State Authorizations are in full force and effect and are unimpaired by any
act or omission of the Company or any of its employees or agents, in each case
except where such authorization is not required or where the failure to so hold
any such State Authorization would not have a material adverse effect on the
Company or its business, properties, business prospects, condition (financial or
otherwise) or results of operations. The State Authorizations are all of the
licenses, authorizations, consents and approvals necessary from the PUCs in
order to allow the Company to own its assets and carry on its business as
currently being conducted, except where the failure to so hold any State
Authorizations would not have a material adverse effect on the Company or its
business, properties, business prospects, condition (financial or otherwise) or
results of operations. To the best of our knowledge, there are no proceedings of
any kind, including but not limited to rulemaking proceedings of general
applicability in the industry or industries in which the Company operates, by or
before any PUC, now pending or threatened, which, if adversely determined, would
have a material adverse effect on the Company or its business, properties,
business prospects, condition (financial or otherwise) or results of operations.
Neither the execution and delivery of this Agreement and the Pricing Agreement
or the consummation of the transactions contemplated herein and therein and in
the Registration Statement will conflict with or result in a breach of, or
require any authorization, approval or consent under the Communications Act of
1934, as amended, or the rules of the Federal Communications Commission (the
"FCC") or the communications statutes of any state or the policies or rules of
any PUC;
(ix) to the best of our knowledge, there is no proceeding, formal or
informal complaint or investigation before the FCC against the Company or any of
the Licenses identified in Schedule 1 or based on any violation or alleged
violation by the Company of the Communications Act except for proceedings
affecting the industry generally to which the Company is not a specific party;
and
2
<PAGE> 29
With respect to subparagraph (i) above, Swidler, Berlin may state that its
opinion and belief is based upon its participation in the preparation of the
Registration Statement and Prospectus and any amendments or supplements thereto
and review and discussion of the contents thereof, but are without independent
check or verification, except as specified. In rendering its opinion, Swidler,
Berlin may rely, to the extent it deems proper, and without limitation, on
public files, documents, certificates on file with or issued by public
officials, and certificates of responsible officers of the Company.
3
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
STAR TELECOMMUNICATIONS, INC.
ARTICLE I
The name of this corporation is Star Telecommunications, Inc.
ARTICLE II
The address of the registered office of this corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The Name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or
promoted is to engage in any lawful act or activity for which corporations may
be organized under the General Corporation Law of Delaware.
ARTICLE IV
This corporation is authorized to issue one class of stock,
which shall be designated Common Stock, $.001 par value. The total number of
shares which the corporation is authorized to issue is One Million (1,000,000)
shares.
ARTICLE V
The name and mailing address of the incorporator is Patricia
A. Walberg, Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 600
Hansen Way, Second Floor, Palo Alto, California 94304.
ARTICLE VI
Except as otherwise provided in this Certificate of
Incorporation, in furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to make, repeal, alter,
amend and rescind any or all of the Bylaws of this corporation.
ARTICLE VII
The number of directors of the corporation shall be fixed from
time to time by, or in the manner provided in, the bylaws or amendment thereof
duly adopted by the Board of Directors or by the stockholders.
1
<PAGE> 2
ARTICLE VIII
Elections of directors need not be by written ballot unless
the Bylaws of the corporation shall so provide.
ARTICLE IX
Meetings of stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. The books of the corporation may
be kept (subject to any provision contained in the statutes) outside the State
of Delaware at such place or places as may be designated from time to time by
the Board of Directors or in the Bylaws of the corporation.
ARTICLE X
A director of the corporation shall not be personally liable
to the corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director derived any
improper personal benefit. If the Delaware General Corporation Law is amended
after approval by the stockholders of this Article to authorize corporation
action further eliminating or limiting the personal liability of directors then
the liability of a director of the corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law as so
amended.
Any repeal or modification of the foregoing provisions of this
Article X by the stockholders of the corporation shall not adversely affect any
right or protection of a director of the corporation existing at the time of
such repeal or modification.
ARTICLE XI
To the fullest extent permitted by applicable law, this
corporation is also authorized to provide indemnification of (and advancement of
expenses to) such agents (and any other persons to which Delaware law permits
this corporation to provide indemnification) through Bylaw provisions,
agreements with such agents or other persons, vote of stockholders or
disinterested directors or otherwise, in excess of the indemnification and
advancement otherwise permitted by Section 145 of the General Corporation Law of
the State of Delaware, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for breach of duty to this
corporation, its stockholders, and others.
Any repeal or modification of any of the foregoing provisions
of this Article XI shall not adversely affect any right or protection of a
director, officer, agent or other person existing at the time of, or increase
the liability of any director of this corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification.
2
<PAGE> 3
ARTICLE XII
The corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
3
<PAGE> 4
IN WITNESS WHEREOF, the undersigned has signed this
Certificate this 13th day of September, 1996.
------------------------------
Patricia A. Walberg
4
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
STAR TELECOMMUNICATIONS, INC.,
A DELAWARE CORPORATION
STAR Telecommunications, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"General Corporation Law")
DOES HEREBY CERTIFY:
FIRST: That this corporation was originally incorporated on
September 13, 1996, pursuant to the General Corporation Law.
SECOND: That the Board of Directors duly adopted resolutions
proposing to amend and restate the Certificate of Incorporation of this
corporation, declaring said amendment and restatement to be advisable and in the
best interests of this corporation and its stockholders, and authorizing the
appropriate officers of this corporation to solicit the consent of the
stockholders therefor, which resolution setting forth the proposed amendment and
restatement is as follows:
"RESOLVED, that the Certificate of Incorporation of this
corporation be amended and restated in its entirety as follows:
ARTICLE I
The name of this corporation is STAR Telecommunications, Inc.
(the "Corporation").
ARTICLE II
The address of the registered office of this corporation in
the State of Delaware is 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
A. Classes of Stock. This Corporation is authorized to issue
two classes of stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which this Corporation is
authorized to issue is fifty-one million three hundred sixty-seven thousand
fifty (51,367,050) shares. Fifty million (50,000,000) shares shall be Common
Stock, par value of $0.001 per share, and one million three hundred sixty-seven
thousand fifty (1,367,050) shares shall be Series A Preferred Stock, par value
of $0.001 per share.
B. Rights, Preferences and Restrictions of Preferred Stock.
The rights, preferences, privileges, and restrictions granted to and imposed on
the Series A Preferred Stock (the "Series A Preferred Stock") are as follows:
<PAGE> 2
1. Distributions.
(a) The holders of shares of Series A Preferred Stock
shall be entitled to receive dividends, out of any assets legally available
therefor, prior and in preference to any declaration or payment of any
distribution (but excluding any dividends payable in Common Stock or other
securities and rights convertible into or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock of this
Corporation) on the Common Stock of this Corporation, at the rate of $0.3267 per
share per annum, payable only when and if declared by the Board of Directors.
Such dividends shall not be cumulative and no right shall accrue to the holders
of Series A Preferred Stock by reason of the fact that dividends on such shares
are not declared in any year, nor shall any undeclared dividends bear or accrue
interest.
After payment of any such dividends, any additional dividends
or distributions shall be distributed among all holders of Common Stock and all
holders of Series A Preferred Stock in proportion to the number of shares of
Common Stock which would be held by each such holder if all shares of Series A
Preferred Stock were converted to Common Stock at the then effective conversion
rate.
2. Liquidation Preference.
(a) In the event of any liquidation, dissolution, or
winding up of this Corporation, either voluntary of involuntary, the holders of
Series A Preferred Stock shall be entitled to receive, prior and in preference
to any distribution of any of the assets of this Corporation to the holders of
Common Stock by reason of their ownership thereof, an amount per share equal to
$5.4863 for each outstanding share of Series A Preferred Stock (the "Original
Series A Issue Price"), plus any declared but unpaid dividends on such share
(such amount of declared but unpaid dividends being referred to herein as the
"Premium"). If upon the occurrence of such event, the assets and funds thus
distributed among the holders of the Series A Preferred Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then the entire assets and funds of this Corporation
legally available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock in proportion to the amount of such
stock owned by each such holder.
(b) Upon the completion of the distribution required
by subparagraph (a) of this Section 2, the remaining assets of this Corporation
available for distribution to stockholders shall be distributed among the
holders of Common Stock pro rata based on the number of shares of Common Stock
held by each.
(c) A consolidation or merger of this Corporation (a
"Merger") with or into any other corporations (other than a wholly owned
subsidiary corporation) wherein the stockholders of the Company immediately
before such merger or consolidation do not retain in substantially the same
proportions as their ownership of shares of the Company's voting stock
immediately before such event, directly or indirectly (including, without
limitation, through their ownership of shares of the voting stock of a
corporation which, as a result of such merger or consolidation, owns this
Corporation either directly or through one or more subsidiaries), at least a
majority of the beneficial interest in the voting stock of this Corporation
immediately after such
2
<PAGE> 3
merger or consolidation; or a sale, conveyance, or other disposition of all or
substantially all of this Corporation's property or business, shall be deemed to
be a liquidation, dissolution, or winding up within the meaning of this Section
2. In any of such events, if the consideration received by this Corporation is
other than in cash or indebtedness, its value will be deemed to be its fair
market value. In the case of publicly traded securities, fair market value shall
mean the average closing market price for such securities for the thirty (30)
consecutive trading days ending three (3) business days prior to such
consolidation, merger, or sale is consummated. If such considerations is in a
form other than publicly traded securities, its fair market value shall be
determined in good faith by the Board of Directors of this Corporation.
3. Redemption. The Series A Preferred Stock is not redeemable.
4. Conversion. The holders of the Series A Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Subject to subsections 4(d),
4(e) and 4(f) hereof: each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share, at the office of this Corporation or any transfer agent
for such stock, into one share of Common Stock, such share being fully paid and
nonassessable.
(b) Automatic Conversion. Subject to subsections
4(d), 4(e) and 4(f) hereof: each share of Series A Preferred Stock shall
automatically be converted into one share of Common Stock immediately upon the
earlier of (i) the Corporation's sale of its Common Stock in a firm commitment
underwritten public offering pursuant to a registration statement on Form S-1
under the Securities Act of 1933, as amended, the public per share offering
price of which would value the Company's total pre-offering capitalization (on a
fully-diluted basis) at $150,000,000 or more, and where aggregate proceeds to
the Company are at least $10,000,000 (a "Public Offering"), or (ii) the date
specified by written consent or agreement of the holders of a majority of the
then outstanding shares of Series A Preferred Stock.
(c) Mechanics of Conversion. Before any holder of
Series A Preferred Stock shall be entitled to convert the same into shares of
Common Stock, it shall surrender the certificate or certificates therefor, duly
endorsed, at the office of this Corporation or of any transfer agent for the
Series A Preferred Stock, and shall give written notice to this Corporation at
its principal corporate office, of the election to convert the same and shall
state therein the name or names in which the certificate or certificates for
shares of Common Stock are to be issued. This Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holder of
Series A Preferred Stock, or the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of such
surrender of the shares Series A Preferred Stock to be converted, and the person
or persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date. If the conversion is in connection
with a Merger or an
3
<PAGE> 4
underwritten offering of securities registered pursuant to the Securities Act of
1933, the conversion may, at the option of any holder tendering Series A
Preferred Stock for conversion, be conditioned upon the closing of the Merger or
with the underwriters of the sale of securities pursuant to such offering, in
which event the person(s) entitled to receive the Common Stock upon conversion
of the Series A Preferred Stock shall not be deemed to have converted such
Series A Preferred Stock until immediately prior to the closing of such sale of
securities.
(d) Adjustment for Combinations or Subdivisions of
Common Stock. In the event this Corporation at any time or from time to time
effects a subdivision or combination of its outstanding Common Stock into a
greater or lesser number of shares, then and in each such event the respective
conversion rate for the Series A Preferred Stock shall be increased or decreased
proportionately.
(e) Other Distributions. In the event this
Corporation shall declare a distribution payable in securities of other persons,
evidences of indebtedness issued by this Corporation or other persons, assets
(excluding cash dividends), then, in each case for the purpose of this
subsection 4(e), the holders of the Series A Preferred Stock shall be entitled
to a proportionate share of any such distribution as though they were the
holders of the number of shares of Common Stock of this Corporation into which
their shares of Series A Preferred Stock are convertible as of the record date
fixed for the determination of the holders of Common Stock of this Corporation
entitled to receive such distribution.
(f) Recapitalizations. If at any time or from time to
time there shall be a recapitalization of the Common Stock (other than a
subdivision, combination or merger or sale of assets transaction provided for
elsewhere in this Section 4 or Section 2) provision shall be made so that the
holders of the Series A Preferred Stock shall thereafter be entitled to receive
upon conversion of the Series A Preferred Stock the number of shares of stock or
other securities or property of this Corporation or otherwise, to which a holder
of the number of shares of Common Stock deliverable upon conversion of such
shares of Preferred Stock would have been entitled on such recapitalization. In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of the
Series A Preferred Stock after the recapitalization to the end that the
provisions of this Section 4 shall be applicable after that event as nearly
equivalent as may be practicable.
(g) No Impairment. This Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by this Corporation, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and in the taking of all
such actions as may be necessary or appropriate in order to protect the
Conversion Rights of the holders of the Series A Preferred Stock against
impairment.
(h) No Fractional Shares and Certificate as to
Adjustments.
4
<PAGE> 5
(i) No fractional shares shall be issued
upon the conversion of any share or shares of the Series A Preferred Stock, and
the number of shares of Common Stock to be issued shall be rounded to the
nearest whole share. Whether or not fractional shares are issuable upon such
conversion shall be determined on the basis of the total number of shares of
Series A Preferred Stock the holder is at the time converting into Common Stock
and the number of shares of Common Stock issuable upon such aggregate
conversion.
(ii) Upon the occurrence of each adjustment
or readjustment of the Conversion Price of Series A Preferred Stock pursuant to
this Section 4, this Corporation, at its expense, shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Series A Preferred Stock a certificate setting forth
such adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. This Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (a) such
adjustment and readjustment, (b) the conversion rate then in effect, and (c) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of Series A
Preferred Stock.
(i) Notice of Record Date. In the event of any taking
by this Corporation of a record of the holders of any class of securities for
the purposes of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any right to
subscriber for, purchase or otherwise acquire any shares of stock of any class
or any other securities or property, or to receive any other right, this
Corporation shall mail to each holder of Series A Preferred Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion.
This Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock, solely for the purpose of
effecting the conversion of the shares of Series A Preferred Stock, such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all outstanding shares of the Series A Preferred Stock; and if
any at any time the number of authorized but unissued shares of Common Stock
shall not be sufficient to effect the conversion of all then outstanding shares
of the Series A Preferred Stock, in addition to such other remedies as shall be
available to the holder of such Preferred Stock, this Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purposes, including, without limitation, engaging
in best efforts to obtain the requisite shareholder approval of any necessary
amendment to these articles.
(k) Notices. Any notice required by the provisions of
this Section 4 to be given to the holders of shares of Series A Preferred Stock
shall be deemed given three (3) days after deposited in the United States mail,
postage prepaid, and addressed to each holder or record at his address appearing
on the books of this Corporation.
5
<PAGE> 6
5. Voting Rights.
(a) The holder of each share of Series A Preferred
Stock shall have the right to one vote for each share of Common Stock into which
such Series A Preferred Stock could then be converted (with any fractional share
determined on an aggregate conversion basis being rounded to the nearest whole
share), and with respect to such vote, such holder shall have full voting rights
and powers equal to the voting rights and powers of the holders of Common Stock,
and shall be entitled, notwithstanding any provision hereof, to notice of any
stockholders' meeting in accordance with the Bylaws of this Corporation, and
shall be entitled to vote, together with holders of Common Stock, with respect
to any question upon which holders of Common Stock have the right to vote.
(b) At each annual or other election of Directors,
the holders a majority of the then outstanding shares of Series A Preferred
Stock, voting together as a single class, shall be entitled to elect one (1)
director of this Corporation. Such director may be removed only with the written
consent of the holders of a majority of the then outstanding shares of Series A
Preferred Stock, voting together as a single class. Any vacancy occurring
because of the death, resignation, or removal of a director elected by the
holders of Series A Preferred Stock shall be filled by the vote or written
consent of the holders of a majority of the then outstanding shares of Series A
Preferred Stock.
6. Protective Provisions. So long as at least 683,525 shares
of Series A Preferred Stock are outstanding (subject to stock splits,
combinations or recapitalizations), this Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock, voting as a separate class:
(a) sell, convey, or otherwise dispose of or encumber
all or substantially all of its property or business ("Sale of Assets") or
effect or consummate a Merger; provided however, that no such prior approval
shall be required if the consideration received in such Sale of Assets or Merger
reflects a total valuation exceeding $150,000,000; or
(b) alter or change the rights, preferences, or
privileges of the Series A Preferred Stock or increase the authorized number of
shares thereof; or
(c) create any new class or series of stock or any
other securities convertible into equity securities of this Corporation senior
to the Series A Preferred Stock with respect to conversion, redemption,
distributions, voting rights, or liquidation; or
(d) voluntarily dissolve or liquidate this
Corporation; or
(e) apply any of its assets to the assumption,
retirement, purchase or acquisition, directly or indirectly, of any shares of
any class or series of this Corporation's stock, except from employees and
directors upon termination of employment or services pursuant to repurchase
rights set forth in repurchase agreements.
6
<PAGE> 7
7. Status of Converted Stock. In the event any shares of
Series A Preferred Stock shall be converted pursuant to Section 4 hereof, the
shares so converted shall be canceled, and shall not be issuable by this
Corporation. The Certificate of Incorporation of this Corporation shall be
appropriately amended to effect the corresponding reduction in this
Corporation's authorized capital stock.
C. Common Stock.
1. Dividend Rights. Subject to the prior rights of holders of
all classes of stock at the time outstanding having prior rights as to
dividends, the holders of the Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of any assets of this Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
2. Liquidation Rights. Upon the liquidation, dissolution, or
winding up of this Corporation, the assets of this Corporation shall be
distributed as provided in subsection 2(b) of this Article III hereof.
3. Redemption. The Common Stock is not redeemable.
4. Voting Rights. The holder of each share of Common Stock
shall have the right to one vote, and shall be entitled to notice of any
stockholders' meeting in accordance with the Bylaws of this Corporation, and
shall be entitled to vote upon such matters and in such manner as may be
provided by law.
ARTICLE IV
Except as otherwise provided in this Amended and Restated
Certificate of Incorporation, in furtherance and not in limitation of the powers
conferred by statute, the Board of Directors is expressly authorized to make,
repeal, alter, amend and rescind any or all of the Bylaws of this corporation.
Any adoption, amendment or repeal of Bylaws of the Corporation by the Board of
Directors shall require the approval of a majority of the total number of
authorized directors (whether or not there exist any vacancies in previously
authorized directorships at the time any resolution providing for adoption,
amendment or repeal is presented to the Board). The stockholders shall also have
power to adopt, amend or repeal the Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the stockholders shall
require, in addition to any vote of the holders of any class or series of stock
of this Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least a majority of the voting power of
all of the then outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class; provided, however, that following the closing of the Corporation's
initial public offering pursuant to an effective registration statement under
the Securities Act of 1933, as amended (the "1933 Act"), covering the offer and
sale of Common Stock of the Corporation (the "Initial Public Offering"), any
such adoption, amendment or repeal of Bylaws of the Corporation by the
stockholders shall require, in addition to any vote of the holders of any class
or series of stock of this Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of
7
<PAGE> 8
the holders of at least seventy-five percent (75%) of the voting power of all of
the then outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors, voting together as a single class.
ARTICLE V
The number of directors of the corporation shall be fixed from
time to time by a Bylaw or amendment thereof duly adopted by the Board of
Directors. Except as provided by applicable law and the Protective Provisions,
the Board of Directors shall have the exclusive power and authority to fill any
vacancies or an newly created directorships on the Board of Directors and the
stockholders shall have no right to fill such vacancies. A director appointed by
the Board of Directors to fill a vacancy shall serve for the remainder of the
term of the vacated directorship he is filling.
Following the closing of the Corporation's initial public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common
Stock of the corporation (the "Initial Public Offering"), the directors shall be
divided into three classes, as nearly equal in number as reasonably possible,
with the term of office of the first class to expire at the 1998 annual meeting
of stockholders, the term of office of the second class to expire at the 1999
annual meeting of stockholders and the term of office of the third class to
expire at the 2000 annual meeting of stockholders. At each annual meeting of
stockholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election. The foregoing notwithstanding, each director shall serve
until his successor shall have been duly elected and qualified, unless he shall
resign, become disqualified, disabled or shall otherwise be removed.
At each annual election, directors chosen to succeed those
whose terms then expire shall be of the same class as the directors they
succeed, unless by reason of any intervening changes in the authorized number of
directors, the Board shall designate one or more directorships whose term then
expires as directorships of another class in order more nearly to achieve
equality of number of directors among the classes.
Notwithstanding the rule that the three classes shall be as
nearly equal in number of directors as possible, in the event of any change in
the authorized number of directors each director then continuing to serve as
such shall nevertheless continue as a director of the class of which he is a
member until the expiration of his current term, or his prior death, resignation
or removal. If any newly created directorship may, consistently with the rule
that the three classes shall be as nearly equal in number of directors as
possible, be allocated to either class, the Board shall allocate it to that of
the available class whose term of office is due to expire at the earliest date
following such allocation.
8
<PAGE> 9
ARTICLE VI
Elections of directors need not be by written ballot unless
the Bylaws of this corporation shall so provide.
ARTICLE VII
Following the closing of the Corporation's Initial Public
Offering, and except as otherwise provided in this Certificate of Incorporation,
any action required or permitted to be taken by the stockholders of the
Corporation must be effected at an annual or special meeting of the stockholders
of the Corporation, and no action required to be taken or that may be taken at
any annual or special meeting of the stockholders of the Corporation may be
taken without a meeting except by the unanimous written consent of all
stockholders entitled to vote on such action, and the power of stockholders to
consent in writing to the taking of any action by less than unanimous consent of
all such stockholders is specifically denied.
ARTICLE VIII
A director of this corporation shall not be personally liable
to this corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to this corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the General Corporation
Law, or (iv) for any transaction from which the director derived any improper
personal benefit.
If the General Corporation Law is amended after approval by
the stockholders of this Article to authorize corporation action further
eliminating or limiting the personal liability of directors, then the liability
of a director of this corporation shall be eliminated or limited to the fullest
extent permitted by the General Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of this corporation shall not adversely affect any right or
protection of a director of this corporation existing at the time of such repeal
or modification.
ARTICLE IX
In addition to any vote of the holders of any class or series
of the stock of this Corporation required by law or by this Certificate of
Incorporation, the affirmative vote of the holders of a majority of the voting
power of all of the then outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class, shall be required to amend or repeal the provisions of ARTICLE I,
ARTICLE II, and ARTICLE III of this Certificate of Incorporation.
Notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, following
the closing of the Corporation's Initial Public Offering, the affirmative vote
of the holders of at least seventy-five
9
<PAGE> 10
percent (75%) of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be required to amend or
repeal any provision of this Certificate of Incorporation not specified in the
preceding sentence.
* * *
THIRD: That thereafter said amendment and restatement was duly
adopted in accordance with the provisions of Section 242 and Section 245 of the
General Corporation Law by obtaining a majority vote of each of the Common Stock
and Preferred Stock, in favor of said amendment and restatement.
10
<PAGE> 11
IN WITNESS WHEREOF, the undersigned has signed this
Certificate this ___ day of ____________________, 1997.
---------------------------
Christopher E. Edgecomb
Chief Executive Officer
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
STAR TELECOMMUNICATIONS, INC.
A DELAWARE CORPORATION
ARTICLE I OFFICES
SECTION 1. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware.
SECTION 2. The corporation may also have offices at such
other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. All meetings of the stockholders for the election
of directors shall be held at such time and place, within or without the State
of Delaware, as may be fixed from time to time by the Board of Directors, and
stated in the notice of the meeting. Meetings of stockholders for any other
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
SECTION 2. Annual meetings of stockholders shall be held at
such date and time as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting, at which they shall elect by
a plurality vote a board of directors, and transact such other business as may
properly be brought before the meeting.
SECTION 3. Written notice of the annual meeting stating the
place, date and hour of the meeting shall be given to each stockholder entitled
to vote at such meeting not fewer than ten (10) nor more than sixty (60) days
before the date of the meeting.
SECTION 4. The officer who has charge of the stock ledger of
the corporation shall prepare and make, at least ten (10) days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting and showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
<PAGE> 2
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
SECTION 5. Special meetings of the stockholders, for any
purpose or purposes, unless otherwise prescribed by statute or by the
certificate of incorporation, may be called by the president and shall be called
by the president or secretary at the request in writing of a majority of the
Board of Directors, or at the request in writing of stockholders owning not less
than ten percent (10%) of the entire capital stock of the corporation issued and
outstanding and entitled to vote. Such request shall state the purpose or
purposes of the proposed meeting.
SECTION 6. Written notice of a special meeting stating the
place, date and hour of the meeting and the purpose or purposes for which the
meeting is called, shall be given not fewer than ten (10) nor more than sixty
(60) days before the date of the meeting, to each stockholder entitled to vote
at such meeting.
SECTION 7. Business transacted at any special meeting of
stockholders shall be limited to the purposes stated in the notice.
SECTION 8. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted that might have been transacted at the meeting as originally noticed.
If the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
SECTION 9. When a quorum is present at any meeting, the vote
of the holders of a majority of the stock having voting power present in person
or represented by proxy shall decide any question brought before such meeting,
unless the question is one upon which by express provision of the statutes or of
the certificate of incorporation, a different vote is required, in which case
such express provision shall govern and control the decision of such question.
SECTION 10. Unless otherwise provided in the certificate of
incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder, but no proxy shall be voted on
after three (3) years from its date, unless the proxy provides for a longer
period.
SECTION 11. Unless otherwise provided in the certificate of
incorporation, any action required to be taken at any annual or special meeting
of the stockholders of the corporation, or any action which may be taken at any
annual or special meeting of such
2
<PAGE> 3
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than unanimous written consent shall be given to those stockholders who have not
consented in writing. Any written consent may be revoked by a writing received
by the Secretary of the Corporation prior to the time that written consents of
the number of shares required to authorize the proposed action have been filed
with the Secretary.
Notwithstanding the above provisions of this Section 11,
effective upon a closing of an initial public offering of the corporation's
securities pursuant to a registration statement filed under the Securities Act
of 1933, as amended, the stockholders of the corporation may not take action by
written consent without a meeting but must take any such actions at a duly
called annual or special meeting.
ARTICLE III
DIRECTORS
SECTION 1. The number of directors shall be fixed from time
to time exclusively by the Board of Directors pursuant to a resolution adopted
by a majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption). Directors need not be
stockholders.
SECTION 2. Vacancies and newly created directorships
resulting from any increase in the authorized number of directors may be filled
by a majority of the directors then in office, though less than a quorum, or by
a sole remaining director, and the directors so chosen shall hold office until
the next annual election and until their successors are duly elected and shall
qualify, unless sooner displaced. If there are no directors in office, then an
election of directors may be held in the manner provided by statute.
SECTION 3. The business of the corporation shall be managed
by or under the direction of its board of directors, which may exercise all such
powers of the corporation and do all such lawful acts and things as are not by
statute or by the certificate of incorporation or by these bylaws directed or
required to be exercised or done by the stockholders.
MEETINGS OF THE BOARD OF DIRECTORS
SECTION 4. The Board of Directors of the corporation may hold
meetings, both regular and special, either within or without the State of
Delaware.
SECTION 5. The first meeting of each newly elected Board of
Directors shall be held at such time and place as shall be fixed by the vote of
the stockholders at the annual meeting and no notice of such meeting shall be
necessary to the newly elected directors in order legally to
3
<PAGE> 4
constitute the meeting, provided a quorum shall be present. In the event of the
failure of the stockholders to fix the time or place of such first meeting of
the newly elected Board of Directors, or in the event such meeting is not held
at the time and place so fixed by the stockholders, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors, or as shall be
specified in a written waiver signed by all of the directors.
SECTION 6. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the board.
SECTION 7. Special meetings of the Board of Directors may be
called by the president on ten (10) days' notice to each director by mail or
forty-eight (48) hours notice to each director either personally or by
telephone, telegram or facsimile; special meetings shall be called by the
president or secretary in like manner and on like notice on the written request
of two (2) directors unless the board consists of only one director, in which
case special meetings shall be called by the president or secretary in like
manner and on like notice on the written request of the sole director.
SECTION 8. At all meetings of the board a majority of the
directors shall constitute a quorum for the transaction of business and the act
of a majority of the directors present at any meeting at which there is a quorum
shall be the act of the Board of Directors, except as may be otherwise
specifically provided by statute or by the certificate of incorporation. If a
quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
SECTION 9. Unless otherwise restricted by the certificate of
incorporation of these bylaws, any action required or permitted to be taken at
any meeting of the Board of Directors or of any committee thereof may be taken
without a meeting, if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
SECTION 10. Unless otherwise restricted by the certificate of
incorporation or these bylaws, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
COMMITTEES OF DIRECTORS
SECTION 11. The Board of Directors may, by resolution passed
by a majority of the whole board, designate one (1) or more committees, each
committee to consist of one (1) or more of the directors of the corporation. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee.
4
<PAGE> 5
In the absence of disqualification of a member of a committee,
the member or members thereof present at any meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may unanimously
appoint another member of the Board of Directors to act at the meeting in the
place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution
of the Board of Directors, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the corporation, and may authorize the seal of the corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority in reference to amending the certificate of incorporation,
adopting an agreement of merger or consolidation, recommending to the
stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or amending the
bylaws of the corporation; and, unless the resolution or the certificate of
incorporation expressly so provide, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the Board of Directors.
SECTION 12. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
COMPENSATION OF DIRECTORS
SECTION 13. Unless otherwise restricted by the certificate of
incorporation or these bylaws, the Board of Directors shall have the authority
to fix the compensation of directors. The directors may be paid their expenses,
if any, of attendance at each meeting of the Board of Directors and may be paid
a fixed sum for attendance at each meeting of the Board of Directors or a stated
salary as director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor. Members
of special or standing committees may be allowed like compensation for attending
committee meetings.
REMOVAL OF DIRECTORS
SECTION 14. Unless otherwise restricted by the certificate of
incorporation or bylaw, any director or the entire Board of Directors may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.
ARTICLE IV
NOTICES
SECTION 1. Whenever, under the provisions of the statutes or
of the certificate of incorporation or of these bylaws, notice is required to be
given to any director or stockholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or stockholder, at his address as it appears on the records of the
corporation, with postage thereon prepaid, and such notice shall be deemed to be
given at the
5
<PAGE> 6
time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram, telephone or facsimile.
SECTION 2. Whenever any notice is required to be given under
the provisions of the statutes or of the certificate of incorporation or of
these bylaws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
ARTICLE V
OFFICERS
SECTION 1. The officers of the corporation shall be chosen by
the Board of Directors and shall be a president, treasurer and a secretary. The
Board of Directors may elect from among its members a Chairman of the Board and
a Vice Chairman of the Board. The Board of Directors may also choose one or more
vice-presidents, assistant secretaries and assistant treasurers. Any number of
offices may be held by the same person, unless the certificate of incorporation
or these bylaws otherwise provide.
SECTION 2. The Board of Directors at its first meeting after
each annual meeting of stockholders shall choose a president, a treasurer, and a
secretary, and may choose vice presidents, assistant secretaries and assistant
treasurers.
SECTION 3. The Board of Directors may appoint such other
officers and agents as it shall deem necessary who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the board.
SECTION 4. The salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
SECTION 5. The officers of the corporation shall hold office
until their successors are chosen and qualify. Any officer elected or appointed
by the Board of Directors may be removed at any time by the affirmative vote of
a majority of the Board of Directors. Any vacancy occurring in any office of the
corporation shall be filled by the Board of Directors.
THE CHAIRMAN OF THE BOARD
SECTION 6. The Chairman of the Board, if any, shall preside
at all meetings of the Board of Directors and of the stockholders at which he or
she shall be present. He or she shall have and may exercise such powers as are,
from time to time, assigned to him or her by the Board and as may be provided by
law.
SECTION 7. In the absence of the Chairman of the Board, the
Vice Chairman of the Board, if any, shall preside at all meetings of the Board
of Directors and of the stockholders at which he or she shall be present. He or
she shall have and may exercise such powers as are, from time to time, assigned
to him or her by the Board and as may be provided by law.
6
<PAGE> 7
THE PRESIDENT AND VICE-PRESIDENTS
SECTION 8. The president shall be the chief operating officer
of the corporation; and in the absence of the Chairman and Vice Chairman of the
Board the president shall preside at all meetings of the stockholders and the
Board of Directors; the president shall have general and active management of
the business of the corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect.
SECTION 9. The president shall execute bonds, mortgages and
other contracts requiring a seal, under the seal of the corporation, except
where required or permitted by law to be otherwise signed and executed and
except where the signing and execution thereof shall be expressly delegated by
the Board of Directors to some other officer or agent of the corporation.
SECTION 10. In the absence of the president or in the event
of the president's inability or refusal to act, the vice-president, if any, (or
in the event there be more than one vice-president, the vice-presidents in the
order designated by the directors, or in the absence of any designation, then in
the order of their election) shall perform the duties of the president, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the president. The vice-presidents shall perform such other duties and have
such other powers as the Board of Directors may from time to time prescribe.
THE SECRETARY AND ASSISTANT SECRETARY
SECTION 11. The secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The secretary or she shall give, or cause to
be given, notice of all meetings of the stockholders and special meetings of the
Board of Directors, and shall perform such other duties as may be prescribed by
the Board of Directors or president, under whose supervision he or she shall be.
The secretary shall have custody of the corporate seal of the corporation and
the secretary, or an assistant secretary, shall have authority to affix the same
to any instrument requiring it and when so affixed, it may be attested by his
signature or by the signature of such assistant secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the corporation and to attest the affixing by his signature.
SECTION 12. The assistant secretary, or if there be more than
one, the assistant secretaries in the order determined by the Board of Directors
(or if there be no such determination, then in the order of their election)
shall, in the absence of the secretary or in the event of his inability or
refusal to act, perform the duties and exercise the powers of the secretary and
shall perform such other duties and have such other powers as the board of
directors may from time to time prescribe.
TREASURER AND ASSISTANT TREASURERS
SECTION 13. The treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books
7
<PAGE> 8
belonging to the corporation and shall deposit all moneys and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the Board of Directors. Unless otherwise appointed, the
chief financial officer shall be the treasurer.
SECTION 14. The treasurer shall disburse the funds of the
corporation as may be ordered by the Board of Directors, taking proper vouchers
for such disbursements, and shall render to the president and the Board of
Directors, at its regular meetings, or when the Board of Directors so requires,
an account of all his or her transactions as treasurer and of the financial
condition of the corporation.
SECTION 15. If required by the Board of Directors, the
treasurer shall give the corporation a bond (which shall be renewed every six
years) in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of the
treasurer's office and for the restoration to the corporation, in case of the
treasurer's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in the treasurer's
possession or under the treasurer's control belonging to the corporation.
SECTION 16. The assistant treasurer, or if there shall be
more than one, the assistant treasurers in the order determined by the Board of
Directors (or if there be no such determination, then in the order of their
election) shall, in the absence of the treasurer or in the event of the
treasurer's inability or refusal to act, perform the duties and exercise the
powers of the treasurer and shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
ARTICLE VI
CERTIFICATE OF STOCK
SECTION 1. Every holder of stock in the corporation shall be
entitled to have a certificate, signed by, or in the name of the corporation by,
the chairman or vice-chairman of the Board of Directors, or the president or a
vice-president and the treasurer or an assistant treasurer, or the secretary or
an assistant secretary of the corporation, certifying the number of shares owned
by such stockholder in the corporation.
Certificates may be issued for partly paid shares and in such
case upon the face or back of the certificates issued to represent any such
partly paid shares, the total amount of the consideration to be paid therefor,
and the amount paid thereon shall be specified.
If the corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the corporation shall
issue to represent such class or series of stock, provided that, except as
otherwise provided in section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set
8
<PAGE> 9
forth on the face or back of the certificate that the corporation shall issue to
represent such class or series of stock, a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative, participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights.
SECTION 2. Any of or all the signatures on the certificate
may be facsimile. In case any officer, transfer agent or registrar who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he or she were such officer, transfer agent or registrar at the date of
issue.
LOST CERTIFICATES
SECTION 3. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
TRANSFER OF STOCK
SECTION 4. Upon surrender to the corporation or the transfer
agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
FIXING RECORD DATE
SECTION 5. In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholder or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) nor less than ten (10) days before the
date of such meeting, nor more than sixty (60) days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
9
<PAGE> 10
REGISTERED STOCKHOLDERS
SECTION 6. The corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or not it shall have
express or other notice thereof, except as otherwise provided by the laws of
Delaware.
ARTICLE VII
GENERAL PROVISIONS
DIVIDENDS
SECTION 1. Dividends upon the capital stock of the
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation.
SECTION 2. Before payment of any dividend, there may be set
aside out of any funds of the corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the corporation, or
for such other purposes as the directors shall think conducive to the interest
of the corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
CHECKS
SECTION 3. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
FISCAL YEAR
SECTION 4. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
SEAL
SECTION 5. The Board of Directors may adopt a corporate seal
having inscribed thereon the name of the corporation, the year of its
organization and the words "Corporate Seal, Delaware". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
10
<PAGE> 11
INDEMNIFICATION
SECTION 6. The corporation shall, to the fullest extent
authorized under the laws of the State of Delaware, as those laws may be amended
and supplemented from time to time, indemnify any director made, or threatened
to be made, a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of being a director of the
corporation or a predecessor corporation or, at the corporation's request, a
director or officer of another corporation, provided, however, that the
corporation shall indemnify any such agent in connection with a proceeding
initiated by such agent only if such proceeding was authorized by the Board of
Directors of the corporation. The indemnification provided for in this Section 6
shall: (i) not be deemed exclusive of any other rights to which those
indemnified may be entitled under any bylaw, agreement or vote of stockholders
or disinterested directors or otherwise, both as to action in their official
capacities and as to action in another capacity while holding such office, (ii)
continue as to a person who has ceased to be a director, and (iii) inure to the
benefit of the heirs, executors and administrators of such a person. The
corporation's obligation to provide indemnification under this Section 6 shall
be offset to the extent of any other source of indemnification or any otherwise
applicable insurance coverage under a policy maintained by the corporation or
any other person.
Expenses incurred by a director of the corporation in
defending a civil or criminal action, suit or proceeding by reason of the fact
that he or she is or was a director of the corporation (or was serving at the
corporation's request as a director or officer of another corporation) shall be
paid by the corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of such director to
repay such amount if it shall ultimately be determined that such director is not
entitled to be indemnified by the corporation as authorized by relevant sections
of the General Corporation Law of Delaware. Notwithstanding the foregoing, the
corporation shall not be required to advance such expenses to an agent who is a
party to an action, suit or proceeding brought by the corporation and approved
by a majority of the Board of Directors of the corporation that alleges willful
misappropriation of corporate assets by such agent, disclosure of confidential
information in violation of such agent's fiduciary or contractual obligations to
the corporation or any other willful and deliberate breach in bad faith of such
agent's duty to the corporation or its stockholders.
The foregoing provisions of this Section 6 shall be deemed to
be a contract between the corporation and each director who serves in such
capacity at any time while this bylaw is in effect, and any repeal or
modification thereof shall not affect any rights or obligations then existing
with respect to any state of facts then or theretofore existing or any action,
suit or proceeding theretofore or thereafter brought based in whole or in part
upon any such state of facts.
The Board of Directors in its discretion shall have power on
behalf of the corporation to indemnify any person, other than a director, made a
party to any action, suit or proceeding by reason of the fact that such person,
their testator or intestate, is or was an officer or employee of the
corporation.
11
<PAGE> 12
To assure indemnification under this Section 6 of all
directors, officers and employees who are determined by the corporation or
otherwise to be or to have been "fiduciaries" of any employee benefit plan of
the corporation that may exist from time to time, Section 145 of the General
Corporation Law of Delaware shall, for the purposes of this Section 6, be
interpreted as follows: an "other enterprise" shall be deemed to include such an
employee benefit plan, including without limitation, any plan of the corporation
that is governed by the Act of Congress entitled "Employee Retirement Income
Security Act of 1974," as amended from time to time; the corporation shall be
deemed to have requested a person to serve an employee benefit plan where the
performance by such person of his duties to the corporation also imposes duties
on, or otherwise involves services by, such person to the plan or participants
or beneficiaries of the plan; excise taxes assessed on a person with respect to
an employee benefit plan pursuant to such Act of Congress shall be deemed
"fines."
ARTICLE VIII
AMENDMENTS
SECTION 1. These bylaws may be altered, amended or repealed
or new bylaws may be adopted by stockholders holding at least seventy-five
percent (75%) of the Company's outstanding capital stock ("Amending
Stockholders") or by the Board of Directors, when such power is conferred upon
the Board of Directors by the certificate of incorporation at any regular
meeting of the stockholders or of the Board of Directors or by the Amending
Stockholders at any special meeting of the stockholders or by the Board of
Directors at any special meeting of the Board of Directors if notice of such
alteration, amendment, repeal or adoption of new bylaws be contained in the
notice of such special meeting. If the power to adopt, amend or repeal bylaws is
conferred upon the Board of Directors by the certificate or incorporation it
shall not divest or limit the power of the stockholders to adopt, amend or
repeal bylaws.
12
<PAGE> 13
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of September 24, 1996 by and among LYDA HUNT-HERBERT TRUSTS-DAVID SHELTON HUNT,
LYDA HUNT-HERBERT TRUSTS-BRUCE WILLIAM HUNT, LYDA HUNT-HERBERT TRUSTS-DOUGLAS
HERBERT HUNT, LYDA HUNT-HERBERT TRUSTS-BARBARA ANN HUNT, LYDA HUNT-HERBERT
TRUSTS-LYDA BUNKER HUNT (individually, a "Holder," or, collectively, the
"Holders") and STAR VENDING, INC., a Nevada corporation (the "Company").
RECITALS:
A. The Holders are the holders of 1,000,000 shares (the "Shares") of
the common stock of the Company ("Common Stock"), which were issued and sold by
the Company pursuant to that certain Stock Purchase Agreement dated as of
February 23, 1996 (the "Stock Purchase Agreement") among the Company, the
Holders and Prosper Value Fund, L.P.
B. Section 7.1(e) of the Stock Purchase Agreement accords the Holders
the right to receive certain rights accorded to other holders of Common Stock by
the Company subsequent to the date of the Stock Purchase Agreement.
C. The Company and Gotel Investments, Ltd., a British Virgin Islands
corporation ("Gotel"), are entering into a Stock Purchase Agreement and a
Registration Rights Agreement of even date herewith (together, the "Gotel
Agreements") pursuant to which Gotel is receiving certain rights of the type
contemplated by Section 7.1(e) of the Stock Purchase Agreement.
D. In connection with the Gotel Agreements and the transactions
contemplated thereby, the Company has agreed to grant to the Holders the
registration rights set forth herein in full satisfaction of any obligations
arising under Section 7.1 of the Stock Purchase Agreement in connection with the
Gotel Agreements.
AGREEMENT:
1
<PAGE> 14
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Form S-3" shall mean such form under the Securities Act or
any successor registration form under the Securities Act subsequently adopted by
the SEC.
"Initial Public Offering" shall mean the initial registration
of shares of Common Stock by the Company.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
and including post-effective amendments and all material incorporated by
reference in such Prospectus.
"Register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a Registration Statement and
taking all other actions that are necessary or appropriate in connection
therewith, and the declaration or ordering of effectiveness of such Registration
Statement by the SEC.
"Registration Expenses" shall have the meaning set forth in
Section 7.
"Registrable Securities" shall mean (i) the Shares, and (ii)
any securities issued or issuable with respect to such Shares by way of a stock
dividend, stock split, combination of shares, recapitalization, restructuring,
merger, consolidation or other reorganization of the Company, provided that such
term shall not include any such shares of Common Stock sold to the public by a
Holder pursuant to a Registration Statement or to Rule 144 under the Securities
Act or sold by a Holder in a private transaction in which such Holder's rights
hereunder were not assigned and shall not include any shares that are eligible
for resale to the public (x) within any three (3)-month period under Rule 144(e)
of the Securities Act, or (y) without any volume restriction under Rule 144(k)
of the Securities Act.
2
<PAGE> 15
"Registration Statement" shall mean any registration statement
of the Company in compliance with the Securities Act that covers Registrable
Securities pursuant to the provisions of this Agreement, including, without
limitation, the Prospectus, all amendments and supplements to such Registration
Statement, including all post-effective amendments, all exhibits and all
material incorporated by reference in such Registration Statement.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Underwritten registration" or "underwritten offering" shall
mean a registration in which securities of the Company are sold to an
underwriter or through an underwriter as agent for reoffering to the public.
2. COMPANY REGISTRATION. If the Company shall determine to register any
shares of Common Stock for its own account or for the account of any stockholder
(other than a registration relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
benefit plan or to an SEC Rule 145 transaction), the Holders shall be entitled
to include Registrable Securities in such registration (and related underwritten
offering, if any) on the following terms and conditions:
(a) The Company shall promptly give written notice of such
determination to each Holder and each such Holder shall have the right to
request, by written notice given to the Company within fifteen (15) days of the
receipt by such Holder of such notice, that a specific number of Registrable
Securities be included in such Registration Statement.
(b) If the Registration Statement relates to an underwritten
offering, the notice called for by Section 2(a) shall specify the name of the
managing underwriter for such offering and the number of securities to be
registered for the account of the Company and for the account of any of the
other stockholders of the Company.
(c) If the Registration Statement relates to an underwritten
offering, each Holder to be included therein must sell such Holder's Registrable
Securities on the same basis provided in the underwriting arrangements approved
by the
3
<PAGE> 16
Company.
(d) If the managing underwriter for the underwritten offering
under the Registration Statement to be filed by the Company determines that
inclusion of all or any portion of the Registrable Securities in such offering
would adversely affect the ability of the underwriter for such offering to sell
all of the securities requested to be included for sale in such offering, the
number of shares that may be included in such registration in such offering
shall be allocated as follows: (i) first, the Company shall be permitted to
include all shares of capital stock to be registered thereby and (ii) second,
the Holders shall be allowed to include such additional amount as the managing
underwriter deems appropriate, such amount to be allocated among such Holders
and any other selling stockholders on a pro rata basis based on the total number
of shares of capital stock held thereby. The foregoing sentence notwithstanding,
if the underwritten offering is being registered by the Company at the instance
of another shareholder or shareholders to whom the Company has granted the right
to require that the Company undertake such registration (hereinafter, "Demand
Right Holders"), then the managing underwriter of such offering may reduce the
number of the Holders' Registrable Securities included in such offering, or
exclude them entirely, without any reduction of the shares to be included in
such offering by any such Demand Right Holders.
(e) Holders shall have the right to withdraw their Registrable
Securities from the Registration Statement at any time prior to the effective
date thereof, but if the same relates to an underwritten offering, they may only
do so during the time period and on terms deemed appropriate by the underwriters
for such underwritten offering.
(f) The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section 2 prior to the effective
date of such registration, whether or not any Holder has elected to include such
securities in such registration.
3. RESTRICTIONS ON PUBLIC SALE BY HOLDERS. Each Holder whose
Registrable Securities are included (in whole or in part) in a Registration
Statement filed by the Company under Section 2 for sale in an underwritten
offering agrees, if requested by the managing underwriter of such offering, not
to sell, make any short sale of, loan, grant any option for the purchase of,
dispose of or effect any public sale or distribution of securities of the same
series and class as (or securities
4
<PAGE> 17
exchangeable or exercisable for or convertible into securities of the same
series and class as) the Registrable Securities included in the Registration
Statement, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such underwritten registration), during the ten (10)-day
period prior to, and during the one hundred eighty (180)-day period (or shorter
period requested by the underwriter) beginning on the closing date of such
underwritten offering, to the extent timely notified in writing by the Company
or the managing underwriter.
4. REGISTRATION PROCEDURES. In connection with the Company's
registration obligations pursuant to Section 2 hereof, subject to Sections 2(d)
and 2(f), the Company will use its best efforts to effect such registration to
permit the sale of the Registrable Securities covered thereby in accordance with
the intended method or methods of disposition thereof, and pursuant thereto the
Company will as expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its best efforts to cause
such Registration Statement to become effective, and, upon the request of the
Holders, keep such registration statement effective for up to ninety (90) days,
provided that, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company will furnish to the Holders of
the Registrable Securities covered by such Registration Statement, their
counsel, and the underwriters, if any, and their counsel, copies of all such
documents proposed to be filed at least ten (10) days prior thereto. The Company
will not include or name any Holder in any Registration Statement or Prospectus
without the consent of such Holder, unless required to do so by the Securities
Act and the rules and regulations thereunder.
(b) prepare and file with the SEC such amendments,
post-effective amendments and supplements to the Registration Statement and the
Prospectus as may be necessary to comply with the provisions of the Securities
Act and the rules and regulations thereunder with respect to the disposition of
all securities covered by such Registration Statement.
(c) promptly notify the selling Holders (i) when the
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to the Registration Statement or the Prospectus or
for additional information, (iii) of the issuance by the SEC of
5
<PAGE> 18
any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (iv) if at any time the
representations and warranties of the Company contemplated by Section 4(l) cease
to be true and correct, (v) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose and (vi) of the happening of any event which makes
any statement made in the Registration Statement, the Prospectus or any document
incorporated therein by reference untrue or which requires the making of any
changes in the Registration Statement, the Prospectus or any document
incorporated therein by reference in order to make the statements therein not
misleading.
(d) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible moment.
(e) furnish to each selling Holder, without charge, at least
one signed copy of the Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference).
(f) deliver to each selling Holder, without charge, such
reasonable number of conformed copies of the Registration Statement (and any
post-effective amendment thereto) and such number of copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
(and any documents incorporated by reference therein) as such Holder may
reasonably request, all in full conformity with the Securities Act; the Company
consents to the use of the Prospectus or any amendment or supplement thereto by
each of the selling Holders in connection with the offer and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto.
(g) prior to any offering of Registrable Securities covered by
a Registration Statement, register or qualify or cooperate with the selling
Holders in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any such selling Holder reasonably requests, and use its best
efforts to keep each such registration or qualification effective, including
through new filings, or amendments or renewals, during the period such
Registration Statement is required to be kept effective pursuant to the terms of
this Agreement; and do any and all other acts or things
6
<PAGE> 19
necessary or advisable to enable the disposition in all such jurisdictions
reasonably requested by the Holders of the Registrable Securities covered by
such Registration Statement, provided that under no circumstances shall the
Company be required in connection therewith or as a condition thereof to qualify
to do business or to file a general consent to service of process in any such
states or jurisdictions.
(h) upon the occurrence of any event contemplated by Section
4(c)(vi) above, prepare a supplement or post-effective amendment to the
Registration Statement or the Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
(i) make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the Securities Act, no
later than sixty (60) days after the end of any twelve (12)-month period (or
ninety (90) days, if such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or, if not sold to underwriters in
such an offering or (ii) beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said twelve (12)-month period.
(j) use its best efforts to cause all Registrable Securities
covered by each Registration Statement to be listed subject to notice of
issuance, prior to the date of the first sale of such Registrable Securities
pursuant to such Registration Statement, on each securities exchange on which
the Common Stock issued by the Company are then listed, and admitted to trading
on The Nasdaq Stock Market, if the Common Stock is then admitted to trading on
The Nasdaq Stock Market.
Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 4(c)(vi) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
under the Prospectus related to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(h) hereof, or until it is advised in writing by the
Company that the use of the Prospectus may be resumed. It shall be a condition
precedent to the
7
<PAGE> 20
obligations of the Company to take any action pursuant to this Section 4 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself and the
Registrable Securities held by it as shall be required by the Securities Act to
effect the registration of such Holder's Registrable Securities.
5. REGISTRATION EXPENSES. All expenses incident to any registration to
be effected hereunder and incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, NASD, stock exchange and
qualification fees, fees and disbursements of the Company's counsel and of
independent certified public accountants of the Company (all such expenses being
herein called "Registration Expenses") will be borne by the Company. The Holders
shall bear (i) all underwriting commissions (and transfer taxes, if any)
relating to the Registrable Securities registered and (ii) the fees and expenses
of legal counsel and accountants to the Holders.
6. INDEMNIFICATION.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder, its officers, directors and employees
and each person who controls such Holder (within the meaning of Section 15 of
the Securities Act) from and against any and all losses, claims, damages and
liabilities (including any investigation, legal or other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted) to which such Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or any amendment or
supplement thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act or any state securities or blue
sky laws in connection with the Registration Statement, Prospectus or
preliminary prospectus or any amendment or supplement thereto, provided that the
Company will not be liable to any Holder to the extent that such loss, claim,
damage or liability arises from or
8
<PAGE> 21
is based upon any untrue statement or omission based upon written information
furnished to the Company by such Holder.
(b) Indemnification by Holder of Registrable Securities. Each
Holder of Registrable Securities whose Registrable Securities are sold under a
Prospectus which is a part of a Registration Statement agrees to indemnify and
hold harmless the Company, its directors and each officer who signed such
Registration Statement and each person who controls the Company (within the
meaning of Section 15 of the Securities Act), and each other person whose
securities are sold under the Prospectus which is a part of such Registration
Statement (and such person's officers, directors and employees and each person
who controls such person within the meaning of Section 15 of the Securities
Act), from and against any and all losses, claims, damages and liabilities
(including any investigation, legal or other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted) to which the Company or any other such person
may become subject under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement, Prospectus or preliminary prospectus or any
amendment or supplement thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act or any state securities
or blue sky laws in connection with the Registration Statement, Prospectus or
preliminary prospectus or any amendment or supplement thereto, to the extent
that such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue statement of a material fact or omission of a material
fact that was made in the Prospectus, the Registration Statement, or any
amendment or supplement thereto, in reliance upon and in conformity with
information furnished in writing to the Company by such Holder expressly for use
therein, provided that in no event shall the aggregate liability of any selling
Holder of Registrable Securities exceed the amount of the net proceeds received
by such Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation. The Company and the selling Holders shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as customarily furnished by such
9
<PAGE> 22
persons in similar circumstances.
(c) Conduct of Indemnification Proceedings. Any person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party, provided that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person and not of
the indemnifying party unless (A) the indemnifying party has agreed to pay such
fees or expenses, (B) the indemnifying party shall have failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such person,
or (C) in the reasonable judgment of such person, based upon advice of its
counsel, a conflict of interest may exist between such person and the
indemnifying party with respect to such claims (in which case, if the person
notifies the indemnifying party in writing that such person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such person). If such defense is not assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnified party will be required to consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by all claimants or plaintiffs to such indemnified party of a release
from all liability in respect to such claim or litigation. Any indemnifying
party who is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to such claim.
As used in this Section 6(c), the terms "indemnifying party", "indemnified
party" and other terms of similar import are intended to include only the
Company (and its officers, directors and control persons as set forth above) on
the one hand, and the Holders (and their officers, directors, employees and
control persons as set forth above) on the other hand, as applicable.
(d) Contribution. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
10
<PAGE> 23
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in such proportion as
is appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other but
also the relative fault of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. Notwithstanding the
foregoing, no Holder shall be required to contribute any amount in excess of the
amount such holder would have been required to pay to an indemnified party if
the indemnity under Section 6(b) hereof was available. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligation of any person to
contribute pursuant to this Section 6(d) shall be several and not joint.
(e) Timing of Payments. An indemnifying party shall make
payments of all amounts required to be made pursuant to the foregoing provisions
of this Section 6 to or for the account of the indemnified party from time to
time promptly upon receipt of bills or invoices relating thereto or when
otherwise due or payable.
(f) Survival. The indemnity and contribution agreements
contained in this Section 6 shall remain in full force and effect and shall
survive the transfer of such Registrable Securities by such Holder; provided
that such transfer is in compliance with all agreements between the Company and
the transferring Holder.
7. RULE 144. Upon the earlier to occur of (i) the registration of the
Common Stock pursuant to Section 12 of the Exchange Act, or (ii) the
consummation of an underwritten initial public offering of the Common Stock, the
Company covenants that it will file, on a timely basis, the reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and it will take such further action
as any Holder may reasonably request (including, without limitation, compliance
with the current public information requirements of Rule 144(c) under the
Securities Act), all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the conditions provided by Rule 144 under the
Securities Act, as
11
<PAGE> 24
such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder, the
Company will deliver to such Holder a written statement verifying that it has
complied with such information and requirements.
8. NO INCONSISTENT AGREEMENTS. The Company will not enter into any
agreement offering registration rights to any holder of Common Stock that
conflict with or violate the rights set forth herein without the consent of each
Holder, which consent may be granted or withheld in the sole discretion of each
such Holder.
9. ASSIGNMENT OF RIGHTS. The Holders may assign their rights under this
Agreement to any transferee of the Registrable Securities of any Holder, if (i)
such transfer is in compliance with all agreements between the Company and the
transferring Holder, (ii) such transferee has acquired all of the Registrable
Securities held by such Holder on the date hereof, and (iii) such transferee has
executed this Agreement and agreed to be bound by the terms hereof.
10. SPECIFIC PERFORMANCE. Each Holder, in addition to being entitled to
exercise all rights provided herein or granted by law, including without
limitation, the recovery of monetary damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
11. NOTICES. All notices required or permitted under the terms of this
Agreement shall be delivered in the manner called for in the Stock Purchase
Agreement.
12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the Company and any corporation resulting from any merger
or consolidation of the Company with or into such corporation (in which the
Company is not the surviving corporation) or any corporation whose securities
are issued in exchange for the Company's shares of common stock.
13. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained
12
<PAGE> 25
herein shall not be affected or impaired thereby.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and shall supersede and
preempt any prior understandings, agreements or representations, written or
oral, by or among the parties hereto.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be original, and all of which together shall
constitute one instrument.
16. AMENDMENT. Any provision of this Agreement may be amended, waived
or modified only by a writing signed by the Company and by each Holder.
17. GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and performed in such State.
This choice of governing law is made in accordance with Section 1646.5 of the
California Civil Code. Any action with respect to this Agreement may be brought
in any state or federal court located in, or having jurisdiction over, the
County of Santa Barbara, State of California. Each party accepts, for itself and
its permitted successors and assigns, the jurisdiction of the aforesaid courts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE COMPANY: STAR VENDING, INC.
By
--------------------------------------
Mary Casey
President
THE HOLDERS:
LYDA HUNT-HERBERT TRUSTS- LYDA HUNT-HERBERT TRUSTS-
DAVID SHELTON HUNT BRUCE WILLIAM HUNT
By By
----------------------------------- -------------------------------------
Walter P. Roach, Trustee Walter P. Roach, Trustee
By By
----------------------------------- -------------------------------------
Gage A. Prichard, Trustee Gage A. Prichard, Trustee
13
<PAGE> 26
LYDA HUNT-HERBERT TRUSTS-
DOUGLAS HERBERT HUNT
By
-----------------------------------
Walter P. Roach, Trustee
By
-----------------------------------
Gage A. Prichard, Trustee
LYDA HUNT-HERBERT TRUSTS-
BARBARA ANN HUNT
By
-----------------------------------
Walter P. Roach, Trustee
By
-----------------------------------
Gage A. Prichard, Trustee
LYDA HUNT-HERBERT TRUSTS-
LYDA BUNKER HUNT
By
-----------------------------------
Walter P. Roach, Trustee
By
-----------------------------------
Gage A. Prichard, Trustee
14
<PAGE> 27
Exhibit 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of July 12, 1996 by and between STAR Vending, Inc., a Nevada corporation (the
"Company") and Gotel Investments, Ltd., a British Virgin Island corporation (the
"Holder").
RECITALS:
A. Pursuant to the terms and conditions of that certain Stock Purchase
Agreement dated of even date herewith (the "Stock Purchase Agreement") between
the Company and Holder, the Company will issue and sell to the Holder 914,406
shares (the "Shares") of the common stock of the Company ("Common Stock").
B. In connection with the transactions contemplated by the Stock
Purchase Agreement, the Company has agreed to grant to the Holder the
registration rights set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Form S-3" shall mean such form under the Securities Act or
any successor registration form under the Securities Act subsequently adopted by
the SEC.
"Initial Public Offering" shall mean the initial registration
of shares of Common Stock by the Company.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
and including post-effective amendments and all material incorporated by
reference in such Prospectus.
1
<PAGE> 28
"Register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a Registration Statement and
taking all other actions that are necessary or appropriate in connection
therewith, and the declaration or ordering of effectiveness of such Registration
Statement by the SEC.
"Registration Expenses" shall have the meaning set forth in
Section 7.
"Registrable Securities" shall mean (i) the Shares, and (ii)
any securities issued or issuable with respect to such Shares by way of a stock
dividend, stock split, combination of shares, recapitalization, restructuring,
merger, consolidation or other reorganization of the Company, provided that such
term shall not include any such shares of Common Stock sold to the public by the
Holder pursuant to a Registration Statement or to Rule 144 under the Securities
Act or sold by the Holder in a private transaction in which the Holder's rights
hereunder were not assigned and shall not include any shares that are eligible
for resale to the public (x) within any three (3)-month period under Rule 144(e)
of the Securities Act, or (y) without any volume restriction under Rule 144(k)
of the Securities Act.
"Registration Statement" shall mean any registration statement
of the Company in compliance with the Securities Act that covers Registrable
Securities pursuant to the provisions of this Agreement, including, without
limitation, the Prospectus, all amendments and supplements to such Registration
Statement, including all post-effective amendments, all exhibits and all
material incorporated by reference in such Registration Statement.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Underwritten registration" or "underwritten offering" shall
mean a registration in which securities of the Company are sold to an
underwriter or through an underwriter as agent for reoffering to the public.
2. COMPANY REGISTRATION. If the Company shall determine to register any
shares of Common Stock for its own account or for the account of any stockholder
(other than a registration relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
2
<PAGE> 29
benefit plan or to an SEC Rule 145 transaction), the Holder shall be entitled to
include Registrable Securities in such registration (and related underwritten
offering, if any) on the following terms and conditions:
3
<PAGE> 30
(a) The Company shall promptly give written notice of such
determination to the Holder and the Holder shall have the right to request, by
written notice given to the Company within fifteen (15) days of the receipt by
the Holder of such notice, that a specific number of Registrable Securities be
included in such Registration Statement.
(b) If the Registration Statement relates to an underwritten
offering, the notice called for by Section 2(a) shall specify the name of the
managing underwriter for such offering and the number of securities to be
registered for the account of the Company and for the account of any of the
other stockholders of the Company.
(c) If the Registration Statement relates to an underwritten
offering, to be included therein, the Holder must sell its Registrable
Securities on the same basis provided in the underwriting arrangements approved
by the Company.
(d) If the managing underwriter for the underwritten offering
under the Registration Statement to be filed by the Company determines that
inclusion of all or any portion of the Registrable Securities in such offering
would adversely affect the ability of the underwriter for such offering to sell
all of the securities requested to be included for sale in such offering, the
number of shares that may be included in such registration in such offering
shall be allocated as follows: (i) first, the Company shall be permitted to
include all shares of capital stock to be registered thereby and (ii) second,
the Holder shall be allowed to include such additional amount as the managing
underwriter deems appropriate, such amount to be allocated among the Holder and
any other selling stockholders on a pro rata basis based on the total number of
shares of capital stock held thereby. The foregoing sentence notwithstanding, if
the underwritten offering is being registered by the Company at the instance of
another shareholder or shareholders to whom the Company has granted the right to
require that the Company undertake such registration (hereinafter, "Demand Right
Holders"), then the managing underwriter of such offering may reduce the number
of the Holder's Registrable Securities included in such offering, or exclude
them entirely, without any reduction of the shares to be included in such
offering by any such Demand Right Holders.
(e) The Holder shall have the right to withdraw its
Registrable Securities from the Registration Statement at any time prior to the
effective date thereof, but if the same relates to an underwritten offering, it
may only do so during the time period and on terms deemed appropriate by the
underwriters for
4
<PAGE> 31
such underwritten offering.
(f) The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section 2 prior to the effective
date of such registration, whether or not the Holder has elected to include such
securities in such registration.
3. RESTRICTIONS ON PUBLIC SALE BY HOLDER. If the Holder's Registrable
Securities are included (in whole or in part) in a Registration Statement filed
by the Company under Section 2 for sale in an underwritten offering, the Holder
agrees, if requested by the managing underwriter of such offering, not to sell,
make any short sale of, loan, grant any option for the purchase of, dispose of
or effect any public sale or distribution of securities of the same series and
class as (or securities exchangeable or exercisable for or convertible into
securities of the same series and class as) the Registrable Securities included
in the Registration Statement, including a sale pursuant to Rule 144 under the
Securities Act (except as part of such underwritten registration), during the
ten (10)-day period prior to, and during the one hundred eighty (180)-day period
(or shorter period requested by the underwriter) beginning on the closing date
of such underwritten offering, to the extent timely notified in writing by the
Company or the managing underwriter.
4. REGISTRATION PROCEDURES. In connection with the Company's
registration obligations pursuant to Section 2 hereof, subject to Sections 2(d)
and 2(f), the Company will use its best efforts to effect such registration to
permit the sale of the Registrable Securities covered thereby in accordance with
the intended method or methods of disposition thereof, and pursuant thereto the
Company will as expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its best efforts to cause
such Registration Statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to ninety (90) days,
provided that, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company will furnish to the Holder of the
Registrable Securities covered by such Registration Statement, their counsel,
and the underwriters, if any, and their counsel, copies of all such documents
proposed to be filed at least ten (10) days prior thereto. The Company will not
include or name Holder in any Registration Statement or Prospectus without the
consent of the Holder, unless required to do so by the Securities Act and the
rules and regulations thereunder.
5
<PAGE> 32
(b) prepare and file with the SEC such amendments,
post-effective amendments and supplements to the Registration Statement and the
Prospectus as may be necessary to comply with the provisions of the Securities
Act and the rules and regulations thereunder with respect to the disposition of
all securities covered by such Registration Statement.
(c) promptly notify the selling Holder (i) when the
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to the Registration Statement or the Prospectus or
for additional information, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose, (iv) if at any time the representations and
warranties of the Company contemplated by Section 4(l) cease to be true and
correct, (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose and (vi) of the happening of any event which makes any statement made in
the Registration Statement, the Prospectus or any document incorporated therein
by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading.
(d) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible moment.
(e) furnish to the selling Holder, without charge, at least
one signed copy of the Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference).
(f) deliver to each selling Holder, without charge, such
reasonable number of conformed copies of the Registration Statement (and any
post-effective amendment thereto) and such number of copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
(and any documents incorporated by reference therein) as such Holder may
reasonably request, all in full conformity with the Securities Act; the Company
consents to the use of the Prospectus or any amendment or supplement thereto by
the selling Holder in connection with the offer and sale of the Registrable
Securities
6
<PAGE> 33
covered by the Prospectus or any amendment or supplement thereto.
(g) prior to any offering of Registrable Securities covered by
a Registration Statement, register or qualify or cooperate with the selling
Holder in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as such selling Holder reasonably requests, and use its best
efforts to keep each such registration or qualification effective, including
through new filings, or amendments or renewals, during the period such
Registration Statement is required to be kept effective pursuant to the terms of
this Agreement; and do any and all other acts or things necessary or advisable
to enable the disposition in all such jurisdictions reasonably requested by the
Holder of the Registrable Securities covered by such Registration Statement,
provided that under no circumstances shall the Company be required in connection
therewith or as a condition thereof to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(h) upon the occurrence of any event contemplated by Section
4(c)(vi) above, prepare a supplement or post-effective amendment to the
Registration Statement or the Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
(i) make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the Securities Act, no
later than sixty (60) days after the end of any twelve (12)-month period (or
ninety (90) days, if such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or, if not sold to underwriters in
such an offering or (ii) beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said twelve (12)-month period.
(j) use its best efforts to cause all Registrable Securities
covered by each Registration Statement to be listed subject to notice of
issuance, prior to the date of the first sale of such Registrable Securities
pursuant to such Registration Statement, on each securities exchange on which
the Common Stock issued by the Company are then listed, and admitted to trading
on
7
<PAGE> 34
The Nasdaq Stock Market, if the Common Stock is then admitted to trading on The
Nasdaq Stock Market.
The Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 4(c)(vi) hereof, the
Holder will forthwith discontinue disposition of Registrable Securities under
the Prospectus related to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(h) hereof, or until it is advised in writing by the
Company that the use of the Prospectus may be resumed. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 4 with respect to the Registrable Securities of the selling Holder that
such Holder shall furnish to the Company such information regarding itself and
the Registrable Securities held by it as shall be required by the Securities Act
to effect the registration of such Holder's Registrable Securities.
5. REGISTRATION EXPENSES. All expenses incident to any registration to
be effected hereunder and incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, NASD, stock exchange and
qualification fees, fees and disbursements of the Company's counsel and of
independent certified public accountants of the Company (all such expenses being
herein called "Registration Expenses") will be borne by the Company. The Holders
shall bear (i) all underwriting commissions (and transfer taxes, if any)
relating to the Registrable Securities registered and (ii) the fees and expenses
of legal counsel and accountants to the Holders.
6. INDEMNIFICATION.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Holder, its officers, directors and employees
and each person who controls the Holder (within the meaning of Section 15 of the
Securities Act) from and against any and all losses, claims, damages and
liabilities (including any investigation, legal or other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted) to which such Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material
8
<PAGE> 35
fact contained in any Registration Statement, Prospectus or preliminary
prospectus or any amendment or supplement thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act or
any state securities or blue sky laws in connection with the Registration
Statement, Prospectus or preliminary prospectus or any amendment or supplement
thereto, provided that the Company will not be liable to the Holder to the
extent that such loss, claim, damage or liability arises from or is based upon
any untrue statement or omission based upon written information furnished to the
Company by the Holder.
(b) Indemnification by Holder of Registrable Securities. If
the Holder's Registrable Securities are sold under a Prospectus which is a part
of a Registration Statement, the Holder agrees to indemnify and hold harmless
the Company, its directors and each officer who signed such Registration
Statement and each person who controls the Company (within the meaning of
Section 15 of the Securities Act), and each other person whose securities are
sold under the Prospectus which is a part of such Registration Statement (and
such person's officers, directors and employees and each person who controls
such person within the meaning of Section 15 of the Securities Act), from and
against any and all losses, claims, damages and liabilities (including any
investigation, legal or other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted) to which the Company or any other such person may become subject
under the Securities Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or any amendment or supplement
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act or any state securities or blue sky laws in
connection with the Registration Statement, Prospectus or preliminary prospectus
or any amendment or supplement thereto, to the extent that such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement of a material fact or omission of a material fact that was made in the
Prospectus, the Registration Statement, or any amendment or supplement thereto,
in reliance upon and in conformity with information furnished in writing to the
Company
9
<PAGE> 36
by the Holder expressly for use therein, provided that in no event shall the
aggregate liability of the Holder exceed the amount of the net proceeds received
by the Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation. The Company and the selling Holder shall be entitled
to receive indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution, to
the same extent as customarily furnished by such persons in similar
circumstances.
(c) Conduct of Indemnification Proceedings. Any person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party, provided that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person and not of
the indemnifying party unless (A) the indemnifying party has agreed to pay such
fees or expenses, (B) the indemnifying party shall have failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such person,
or (C) in the reasonable judgment of such person, based upon advice of its
counsel, a conflict of interest may exist between such person and the
indemnifying party with respect to such claims (in which case, if the person
notifies the indemnifying party in writing that such person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such person). If such defense is not assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnified party will be required to consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by all claimants or plaintiffs to such indemnified party of a release
from all liability in respect to such claim or litigation. Any indemnifying
party who is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to such claim.
As used in this Section 6(c), the terms "indemnifying party", "indemnified
party" and other terms of similar import are intended to include only the
Company (and its officers, directors and control persons as set forth above) on
the one hand, and the Holders (and their officers, directors, employees and
control persons as set forth above) on the other
10
<PAGE> 37
hand, as applicable.
(d) Contribution. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in such proportion as
is appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other but
also the relative fault of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. Notwithstanding the
foregoing, the Holder shall not be required to contribute any amount in excess
of the amount the Holder would have been required to pay to an indemnified party
if the indemnity under Section 6(b) hereof was available. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligation of any person to
contribute pursuant to this Section 6(d) shall be several and not joint.
(e) Timing of Payments. An indemnifying party shall make
payments of all amounts required to be made pursuant to the foregoing provisions
of this Section 6 to or for the account of the indemnified party from time to
time promptly upon receipt of bills or invoices relating thereto or when
otherwise due or payable.
11
<PAGE> 38
(f) Survival. The indemnity and contribution agreements
contained in this Section 6 shall remain in full force and effect and shall
survive the transfer of such Registrable Securities by the Holder; provided that
such transfer is in compliance with all agreements between the Company and the
transferring Holder.
7. RULE 144. Upon the earlier to occur of (i) the registration of the
Common Stock pursuant to Section 12 of the Exchange Act, or (ii) the
consummation of an underwritten initial public offering of the Common Stock, the
Company covenants that it will file, on a timely basis, the reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and it will take such further action
as any Holder may reasonably request (including, without limitation, compliance
with the current public information requirements of Rule 144(c) under the
Securities Act), all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the conditions provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of the
Holder, the Company will deliver to such Holder a written statement verifying
that it has complied with such information and requirements.
8. NO INCONSISTENT AGREEMENTS. The Company will not enter into any
agreement offering registration rights to any holder of Common Stock that
conflict with or violate the rights set forth herein without the consent of the
Holder, which consent may be granted or withheld in the sole discretion of the
Holder.
9. ASSIGNMENT OF RIGHTS. The Holder may assign its rights under this
Agreement to any transferee of the Registrable Securi ties of the Holder, if (i)
such transfer is in compliance with all agreements between the Company and the
transferring Holder, (ii) such transferee has acquired at least twenty-five
percent (25%) of the Registrable Securities originally held by the Holder, and
(iii) such transferee has executed this Agreement and agreed to be bound by the
terms hereof (it being understood, however, that the transferring Holder shall
retain all of such Holder's rights hereunder with respect to all Registrable
Securities not so transferred by such transferring Holder).
10. SPECIFIC PERFORMANCE. The Holder, in addition to being entitled to
exercise all rights provided herein or granted by law, including without
limitation, the recovery of monetary damages, will be entitled to specific
performance of its rights
12
<PAGE> 1
EXHIBIT 4.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of September 24, 1996 by and among LYDA HUNT-HERBERT TRUSTS-DAVID SHELTON HUNT,
LYDA HUNT-HERBERT TRUSTS-BRUCE WILLIAM HUNT, LYDA HUNT-HERBERT TRUSTS-DOUGLAS
HERBERT HUNT, LYDA HUNT-HERBERT TRUSTS-BARBARA ANN HUNT, LYDA HUNT-HERBERT
TRUSTS-LYDA BUNKER HUNT (individually, a "Holder," or, collectively, the
"Holders") and STAR VENDING, INC., a Nevada corporation (the "Company").
RECITALS:
A. The Holders are the holders of 1,000,000 shares (the "Shares") of
the common stock of the Company ("Common Stock"), which were issued and sold by
the Company pursuant to that certain Stock Purchase Agreement dated as of
February 23, 1996 (the "Stock Purchase Agreement") among the Company, the
Holders and Prosper Value Fund, L.P.
B. Section 7.1(e) of the Stock Purchase Agreement accords the Holders
the right to receive certain rights accorded to other holders of Common Stock by
the Company subsequent to the date of the Stock Purchase Agreement.
C. The Company and Gotel Investments, Ltd., a British Virgin Islands
corporation ("Gotel"), are entering into a Stock Purchase Agreement and a
Registration Rights Agreement of even date herewith (together, the "Gotel
Agreements") pursuant to which Gotel is receiving certain rights of the type
contemplated by Section 7.1(e) of the Stock Purchase Agreement.
D. In connection with the Gotel Agreements and the transactions
contemplated thereby, the Company has agreed to grant to the Holders the
registration rights set forth herein in full satisfaction of any obligations
arising under Section 7.1 of the Stock Purchase Agreement in connection with the
Gotel Agreements.
AGREEMENT:
1
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Form S-3" shall mean such form under the Securities Act or
any successor registration form under the Securities Act subsequently adopted by
the SEC.
"Initial Public Offering" shall mean the initial registration
of shares of Common Stock by the Company.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
and including post-effective amendments and all material incorporated by
reference in such Prospectus.
"Register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a Registration Statement and
taking all other actions that are necessary or appropriate in connection
therewith, and the declaration or ordering of effectiveness of such Registration
Statement by the SEC.
"Registration Expenses" shall have the meaning set forth in
Section 7.
"Registrable Securities" shall mean (i) the Shares, and (ii)
any securities issued or issuable with respect to such Shares by way of a stock
dividend, stock split, combination of shares, recapitalization, restructuring,
merger, consolidation or other reorganization of the Company, provided that such
term shall not include any such shares of Common Stock sold to the public by a
Holder pursuant to a Registration Statement or to Rule 144 under the Securities
Act or sold by a Holder in a private transaction in which such Holder's rights
hereunder were not assigned and shall not include any shares that are eligible
for resale to the public (x) within any three (3)-month period under Rule 144(e)
of the Securities Act, or (y) without any volume restriction under Rule 144(k)
of the Securities Act.
2
<PAGE> 3
"Registration Statement" shall mean any registration statement
of the Company in compliance with the Securities Act that covers Registrable
Securities pursuant to the provisions of this Agreement, including, without
limitation, the Prospectus, all amendments and supplements to such Registration
Statement, including all post-effective amendments, all exhibits and all
material incorporated by reference in such Registration Statement.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Underwritten registration" or "underwritten offering" shall
mean a registration in which securities of the Company are sold to an
underwriter or through an underwriter as agent for reoffering to the public.
2. COMPANY REGISTRATION. If the Company shall determine to register any
shares of Common Stock for its own account or for the account of any stockholder
(other than a registration relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
benefit plan or to an SEC Rule 145 transaction), the Holders shall be entitled
to include Registrable Securities in such registration (and related underwritten
offering, if any) on the following terms and conditions:
(a) The Company shall promptly give written notice of such
determination to each Holder and each such Holder shall have the right to
request, by written notice given to the Company within fifteen (15) days of the
receipt by such Holder of such notice, that a specific number of Registrable
Securities be included in such Registration Statement.
(b) If the Registration Statement relates to an underwritten
offering, the notice called for by Section 2(a) shall specify the name of the
managing underwriter for such offering and the number of securities to be
registered for the account of the Company and for the account of any of the
other stockholders of the Company.
(c) If the Registration Statement relates to an underwritten
offering, each Holder to be included therein must sell such Holder's Registrable
Securities on the same basis provided in the underwriting arrangements approved
by the
3
<PAGE> 4
Company.
(d) If the managing underwriter for the underwritten offering
under the Registration Statement to be filed by the Company determines that
inclusion of all or any portion of the Registrable Securities in such offering
would adversely affect the ability of the underwriter for such offering to sell
all of the securities requested to be included for sale in such offering, the
number of shares that may be included in such registration in such offering
shall be allocated as follows: (i) first, the Company shall be permitted to
include all shares of capital stock to be registered thereby and (ii) second,
the Holders shall be allowed to include such additional amount as the managing
underwriter deems appropriate, such amount to be allocated among such Holders
and any other selling stockholders on a pro rata basis based on the total number
of shares of capital stock held thereby. The foregoing sentence notwithstanding,
if the underwritten offering is being registered by the Company at the instance
of another shareholder or shareholders to whom the Company has granted the right
to require that the Company undertake such registration (hereinafter, "Demand
Right Holders"), then the managing underwriter of such offering may reduce the
number of the Holders' Registrable Securities included in such offering, or
exclude them entirely, without any reduction of the shares to be included in
such offering by any such Demand Right Holders.
(e) Holders shall have the right to withdraw their Registrable
Securities from the Registration Statement at any time prior to the effective
date thereof, but if the same relates to an underwritten offering, they may only
do so during the time period and on terms deemed appropriate by the underwriters
for such underwritten offering.
(f) The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section 2 prior to the effective
date of such registration, whether or not any Holder has elected to include such
securities in such registration.
3. RESTRICTIONS ON PUBLIC SALE BY HOLDERS. Each Holder whose
Registrable Securities are included (in whole or in part) in a Registration
Statement filed by the Company under Section 2 for sale in an underwritten
offering agrees, if requested by the managing underwriter of such offering, not
to sell, make any short sale of, loan, grant any option for the purchase of,
dispose of or effect any public sale or distribution of securities of the same
series and class as (or securities
4
<PAGE> 5
exchangeable or exercisable for or convertible into securities of the same
series and class as) the Registrable Securities included in the Registration
Statement, including a sale pursuant to Rule 144 under the Securities Act
(except as part of such underwritten registration), during the ten (10)-day
period prior to, and during the one hundred eighty (180)-day period (or shorter
period requested by the underwriter) beginning on the closing date of such
underwritten offering, to the extent timely notified in writing by the Company
or the managing underwriter.
4. REGISTRATION PROCEDURES. In connection with the Company's
registration obligations pursuant to Section 2 hereof, subject to Sections 2(d)
and 2(f), the Company will use its best efforts to effect such registration to
permit the sale of the Registrable Securities covered thereby in accordance with
the intended method or methods of disposition thereof, and pursuant thereto the
Company will as expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its best efforts to cause
such Registration Statement to become effective, and, upon the request of the
Holders, keep such registration statement effective for up to ninety (90) days,
provided that, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company will furnish to the Holders of
the Registrable Securities covered by such Registration Statement, their
counsel, and the underwriters, if any, and their counsel, copies of all such
documents proposed to be filed at least ten (10) days prior thereto. The Company
will not include or name any Holder in any Registration Statement or Prospectus
without the consent of such Holder, unless required to do so by the Securities
Act and the rules and regulations thereunder.
(b) prepare and file with the SEC such amendments,
post-effective amendments and supplements to the Registration Statement and the
Prospectus as may be necessary to comply with the provisions of the Securities
Act and the rules and regulations thereunder with respect to the disposition of
all securities covered by such Registration Statement.
(c) promptly notify the selling Holders (i) when the
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to the Registration Statement or the Prospectus or
for additional information, (iii) of the issuance by the SEC of
5
<PAGE> 6
any stop order suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose, (iv) if at any time the
representations and warranties of the Company contemplated by Section 4(l) cease
to be true and correct, (v) of the receipt by the Company of any notification
with respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose and (vi) of the happening of any event which makes
any statement made in the Registration Statement, the Prospectus or any document
incorporated therein by reference untrue or which requires the making of any
changes in the Registration Statement, the Prospectus or any document
incorporated therein by reference in order to make the statements therein not
misleading.
(d) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible moment.
(e) furnish to each selling Holder, without charge, at least
one signed copy of the Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference).
(f) deliver to each selling Holder, without charge, such
reasonable number of conformed copies of the Registration Statement (and any
post-effective amendment thereto) and such number of copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
(and any documents incorporated by reference therein) as such Holder may
reasonably request, all in full conformity with the Securities Act; the Company
consents to the use of the Prospectus or any amendment or supplement thereto by
each of the selling Holders in connection with the offer and sale of the
Registrable Securities covered by the Prospectus or any amendment or supplement
thereto.
(g) prior to any offering of Registrable Securities covered by
a Registration Statement, register or qualify or cooperate with the selling
Holders in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as any such selling Holder reasonably requests, and use its best
efforts to keep each such registration or qualification effective, including
through new filings, or amendments or renewals, during the period such
Registration Statement is required to be kept effective pursuant to the terms of
this Agreement; and do any and all other acts or things
6
<PAGE> 7
necessary or advisable to enable the disposition in all such jurisdictions
reasonably requested by the Holders of the Registrable Securities covered by
such Registration Statement, provided that under no circumstances shall the
Company be required in connection therewith or as a condition thereof to qualify
to do business or to file a general consent to service of process in any such
states or jurisdictions.
(h) upon the occurrence of any event contemplated by Section
4(c)(vi) above, prepare a supplement or post-effective amendment to the
Registration Statement or the Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
(i) make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the Securities Act, no
later than sixty (60) days after the end of any twelve (12)-month period (or
ninety (90) days, if such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or, if not sold to underwriters in
such an offering or (ii) beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said twelve (12)-month period.
(j) use its best efforts to cause all Registrable Securities
covered by each Registration Statement to be listed subject to notice of
issuance, prior to the date of the first sale of such Registrable Securities
pursuant to such Registration Statement, on each securities exchange on which
the Common Stock issued by the Company are then listed, and admitted to trading
on The Nasdaq Stock Market, if the Common Stock is then admitted to trading on
The Nasdaq Stock Market.
Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 4(c)(vi) hereof,
such Holder will forthwith discontinue disposition of Registrable Securities
under the Prospectus related to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(h) hereof, or until it is advised in writing by the
Company that the use of the Prospectus may be resumed. It shall be a condition
precedent to the
7
<PAGE> 8
obligations of the Company to take any action pursuant to this Section 4 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself and the
Registrable Securities held by it as shall be required by the Securities Act to
effect the registration of such Holder's Registrable Securities.
5. REGISTRATION EXPENSES. All expenses incident to any registration to
be effected hereunder and incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, NASD, stock exchange and
qualification fees, fees and disbursements of the Company's counsel and of
independent certified public accountants of the Company (all such expenses being
herein called "Registration Expenses") will be borne by the Company. The Holders
shall bear (i) all underwriting commissions (and transfer taxes, if any)
relating to the Registrable Securities registered and (ii) the fees and expenses
of legal counsel and accountants to the Holders.
6. INDEMNIFICATION.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless each Holder, its officers, directors and employees
and each person who controls such Holder (within the meaning of Section 15 of
the Securities Act) from and against any and all losses, claims, damages and
liabilities (including any investigation, legal or other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted) to which such Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in any
Registration Statement, Prospectus or preliminary prospectus or any amendment or
supplement thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act or any state securities or blue
sky laws in connection with the Registration Statement, Prospectus or
preliminary prospectus or any amendment or supplement thereto, provided that the
Company will not be liable to any Holder to the extent that such loss, claim,
damage or liability arises from or
8
<PAGE> 9
is based upon any untrue statement or omission based upon written information
furnished to the Company by such Holder.
(b) Indemnification by Holder of Registrable Securities. Each
Holder of Registrable Securities whose Registrable Securities are sold under a
Prospectus which is a part of a Registration Statement agrees to indemnify and
hold harmless the Company, its directors and each officer who signed such
Registration Statement and each person who controls the Company (within the
meaning of Section 15 of the Securities Act), and each other person whose
securities are sold under the Prospectus which is a part of such Registration
Statement (and such person's officers, directors and employees and each person
who controls such person within the meaning of Section 15 of the Securities
Act), from and against any and all losses, claims, damages and liabilities
(including any investigation, legal or other expenses reasonably incurred in
connection with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted) to which the Company or any other such person
may become subject under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
any Registration Statement, Prospectus or preliminary prospectus or any
amendment or supplement thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading and (iii) any violation or alleged violation
by the Company of the Securities Act, the Exchange Act or any state securities
or blue sky laws in connection with the Registration Statement, Prospectus or
preliminary prospectus or any amendment or supplement thereto, to the extent
that such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue statement of a material fact or omission of a material
fact that was made in the Prospectus, the Registration Statement, or any
amendment or supplement thereto, in reliance upon and in conformity with
information furnished in writing to the Company by such Holder expressly for use
therein, provided that in no event shall the aggregate liability of any selling
Holder of Registrable Securities exceed the amount of the net proceeds received
by such Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation. The Company and the selling Holders shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as customarily furnished by such
9
<PAGE> 10
persons in similar circumstances.
(c) Conduct of Indemnification Proceedings. Any person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party, provided that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person and not of
the indemnifying party unless (A) the indemnifying party has agreed to pay such
fees or expenses, (B) the indemnifying party shall have failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such person,
or (C) in the reasonable judgment of such person, based upon advice of its
counsel, a conflict of interest may exist between such person and the
indemnifying party with respect to such claims (in which case, if the person
notifies the indemnifying party in writing that such person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such person). If such defense is not assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnified party will be required to consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by all claimants or plaintiffs to such indemnified party of a release
from all liability in respect to such claim or litigation. Any indemnifying
party who is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to such claim.
As used in this Section 6(c), the terms "indemnifying party", "indemnified
party" and other terms of similar import are intended to include only the
Company (and its officers, directors and control persons as set forth above) on
the one hand, and the Holders (and their officers, directors, employees and
control persons as set forth above) on the other hand, as applicable.
(d) Contribution. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
10
<PAGE> 11
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in such proportion as
is appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other but
also the relative fault of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. Notwithstanding the
foregoing, no Holder shall be required to contribute any amount in excess of the
amount such holder would have been required to pay to an indemnified party if
the indemnity under Section 6(b) hereof was available. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligation of any person to
contribute pursuant to this Section 6(d) shall be several and not joint.
(e) Timing of Payments. An indemnifying party shall make
payments of all amounts required to be made pursuant to the foregoing provisions
of this Section 6 to or for the account of the indemnified party from time to
time promptly upon receipt of bills or invoices relating thereto or when
otherwise due or payable.
(f) Survival. The indemnity and contribution agreements
contained in this Section 6 shall remain in full force and effect and shall
survive the transfer of such Registrable Securities by such Holder; provided
that such transfer is in compliance with all agreements between the Company and
the transferring Holder.
7. RULE 144. Upon the earlier to occur of (i) the registration of the
Common Stock pursuant to Section 12 of the Exchange Act, or (ii) the
consummation of an underwritten initial public offering of the Common Stock, the
Company covenants that it will file, on a timely basis, the reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and it will take such further action
as any Holder may reasonably request (including, without limitation, compliance
with the current public information requirements of Rule 144(c) under the
Securities Act), all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the conditions provided by Rule 144 under the
Securities Act, as
11
<PAGE> 12
such Rule may be amended from time to time, or (b) any similar rule or
regulation hereafter adopted by the SEC. Upon the request of any Holder, the
Company will deliver to such Holder a written statement verifying that it has
complied with such information and requirements.
8. NO INCONSISTENT AGREEMENTS. The Company will not enter into any
agreement offering registration rights to any holder of Common Stock that
conflict with or violate the rights set forth herein without the consent of each
Holder, which consent may be granted or withheld in the sole discretion of each
such Holder.
9. ASSIGNMENT OF RIGHTS. The Holders may assign their rights under this
Agreement to any transferee of the Registrable Securities of any Holder, if (i)
such transfer is in compliance with all agreements between the Company and the
transferring Holder, (ii) such transferee has acquired all of the Registrable
Securities held by such Holder on the date hereof, and (iii) such transferee has
executed this Agreement and agreed to be bound by the terms hereof.
10. SPECIFIC PERFORMANCE. Each Holder, in addition to being entitled to
exercise all rights provided herein or granted by law, including without
limitation, the recovery of monetary damages, will be entitled to specific
performance of its rights under this Agreement. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of this Agreement and hereby agrees to waive the
defense in any action for specific performance that a remedy at law would be
adequate.
11. NOTICES. All notices required or permitted under the terms of this
Agreement shall be delivered in the manner called for in the Stock Purchase
Agreement.
12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the Company and any corporation resulting from any merger
or consolidation of the Company with or into such corporation (in which the
Company is not the surviving corporation) or any corporation whose securities
are issued in exchange for the Company's shares of common stock.
13. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained
12
<PAGE> 13
herein shall not be affected or impaired thereby.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and shall supersede and
preempt any prior understandings, agreements or representations, written or
oral, by or among the parties hereto.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be original, and all of which together shall
constitute one instrument.
16. AMENDMENT. Any provision of this Agreement may be amended, waived
or modified only by a writing signed by the Company and by each Holder.
17. GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and performed in such State.
This choice of governing law is made in accordance with Section 1646.5 of the
California Civil Code. Any action with respect to this Agreement may be brought
in any state or federal court located in, or having jurisdiction over, the
County of Santa Barbara, State of California. Each party accepts, for itself and
its permitted successors and assigns, the jurisdiction of the aforesaid courts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
THE COMPANY: STAR VENDING, INC.
By
--------------------------------------
Mary Casey
President
THE HOLDERS:
LYDA HUNT-HERBERT TRUSTS- LYDA HUNT-HERBERT TRUSTS-
DAVID SHELTON HUNT BRUCE WILLIAM HUNT
By By
----------------------------------- -------------------------------------
Walter P. Roach, Trustee Walter P. Roach, Trustee
By By
----------------------------------- -------------------------------------
Gage A. Prichard, Trustee Gage A. Prichard, Trustee
13
<PAGE> 14
LYDA HUNT-HERBERT TRUSTS-
DOUGLAS HERBERT HUNT
By
-----------------------------------
Walter P. Roach, Trustee
By
-----------------------------------
Gage A. Prichard, Trustee
LYDA HUNT-HERBERT TRUSTS-
BARBARA ANN HUNT
By
-----------------------------------
Walter P. Roach, Trustee
By
-----------------------------------
Gage A. Prichard, Trustee
LYDA HUNT-HERBERT TRUSTS-
LYDA BUNKER HUNT
By
-----------------------------------
Walter P. Roach, Trustee
By
-----------------------------------
Gage A. Prichard, Trustee
14
<PAGE> 1
Exhibit 4.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is entered into as
of July 12, 1996 by and between STAR Vending, Inc., a Nevada corporation (the
"Company") and Gotel Investments, Ltd., a British Virgin Island corporation (the
"Holder").
RECITALS:
A. Pursuant to the terms and conditions of that certain Stock Purchase
Agreement dated of even date herewith (the "Stock Purchase Agreement") between
the Company and Holder, the Company will issue and sell to the Holder 914,406
shares (the "Shares") of the common stock of the Company ("Common Stock").
B. In connection with the transactions contemplated by the Stock
Purchase Agreement, the Company has agreed to grant to the Holder the
registration rights set forth herein.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
shall have the following respective meanings:
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time.
"Form S-3" shall mean such form under the Securities Act or
any successor registration form under the Securities Act subsequently adopted by
the SEC.
"Initial Public Offering" shall mean the initial registration
of shares of Common Stock by the Company.
"Prospectus" shall mean the prospectus included in any
Registration Statement, as amended or supplemented by any prospectus supplement
and including post-effective amendments and all material incorporated by
reference in such Prospectus.
1
<PAGE> 2
"Register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a Registration Statement and
taking all other actions that are necessary or appropriate in connection
therewith, and the declaration or ordering of effectiveness of such Registration
Statement by the SEC.
"Registration Expenses" shall have the meaning set forth in
Section 7.
"Registrable Securities" shall mean (i) the Shares, and (ii)
any securities issued or issuable with respect to such Shares by way of a stock
dividend, stock split, combination of shares, recapitalization, restructuring,
merger, consolidation or other reorganization of the Company, provided that such
term shall not include any such shares of Common Stock sold to the public by the
Holder pursuant to a Registration Statement or to Rule 144 under the Securities
Act or sold by the Holder in a private transaction in which the Holder's rights
hereunder were not assigned and shall not include any shares that are eligible
for resale to the public (x) within any three (3)-month period under Rule 144(e)
of the Securities Act, or (y) without any volume restriction under Rule 144(k)
of the Securities Act.
"Registration Statement" shall mean any registration statement
of the Company in compliance with the Securities Act that covers Registrable
Securities pursuant to the provisions of this Agreement, including, without
limitation, the Prospectus, all amendments and supplements to such Registration
Statement, including all post-effective amendments, all exhibits and all
material incorporated by reference in such Registration Statement.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time.
"SEC" shall mean the Securities and Exchange Commission.
"Underwritten registration" or "underwritten offering" shall
mean a registration in which securities of the Company are sold to an
underwriter or through an underwriter as agent for reoffering to the public.
2. COMPANY REGISTRATION. If the Company shall determine to register any
shares of Common Stock for its own account or for the account of any stockholder
(other than a registration relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
2
<PAGE> 3
benefit plan or to an SEC Rule 145 transaction), the Holder shall be entitled to
include Registrable Securities in such registration (and related underwritten
offering, if any) on the following terms and conditions:
3
<PAGE> 4
(a) The Company shall promptly give written notice of such
determination to the Holder and the Holder shall have the right to request, by
written notice given to the Company within fifteen (15) days of the receipt by
the Holder of such notice, that a specific number of Registrable Securities be
included in such Registration Statement.
(b) If the Registration Statement relates to an underwritten
offering, the notice called for by Section 2(a) shall specify the name of the
managing underwriter for such offering and the number of securities to be
registered for the account of the Company and for the account of any of the
other stockholders of the Company.
(c) If the Registration Statement relates to an underwritten
offering, to be included therein, the Holder must sell its Registrable
Securities on the same basis provided in the underwriting arrangements approved
by the Company.
(d) If the managing underwriter for the underwritten offering
under the Registration Statement to be filed by the Company determines that
inclusion of all or any portion of the Registrable Securities in such offering
would adversely affect the ability of the underwriter for such offering to sell
all of the securities requested to be included for sale in such offering, the
number of shares that may be included in such registration in such offering
shall be allocated as follows: (i) first, the Company shall be permitted to
include all shares of capital stock to be registered thereby and (ii) second,
the Holder shall be allowed to include such additional amount as the managing
underwriter deems appropriate, such amount to be allocated among the Holder and
any other selling stockholders on a pro rata basis based on the total number of
shares of capital stock held thereby. The foregoing sentence notwithstanding, if
the underwritten offering is being registered by the Company at the instance of
another shareholder or shareholders to whom the Company has granted the right to
require that the Company undertake such registration (hereinafter, "Demand Right
Holders"), then the managing underwriter of such offering may reduce the number
of the Holder's Registrable Securities included in such offering, or exclude
them entirely, without any reduction of the shares to be included in such
offering by any such Demand Right Holders.
(e) The Holder shall have the right to withdraw its
Registrable Securities from the Registration Statement at any time prior to the
effective date thereof, but if the same relates to an underwritten offering, it
may only do so during the time period and on terms deemed appropriate by the
underwriters for
4
<PAGE> 5
such underwritten offering.
(f) The Company shall have the right to terminate or withdraw
any registration initiated by it under this Section 2 prior to the effective
date of such registration, whether or not the Holder has elected to include such
securities in such registration.
3. RESTRICTIONS ON PUBLIC SALE BY HOLDER. If the Holder's Registrable
Securities are included (in whole or in part) in a Registration Statement filed
by the Company under Section 2 for sale in an underwritten offering, the Holder
agrees, if requested by the managing underwriter of such offering, not to sell,
make any short sale of, loan, grant any option for the purchase of, dispose of
or effect any public sale or distribution of securities of the same series and
class as (or securities exchangeable or exercisable for or convertible into
securities of the same series and class as) the Registrable Securities included
in the Registration Statement, including a sale pursuant to Rule 144 under the
Securities Act (except as part of such underwritten registration), during the
ten (10)-day period prior to, and during the one hundred eighty (180)-day period
(or shorter period requested by the underwriter) beginning on the closing date
of such underwritten offering, to the extent timely notified in writing by the
Company or the managing underwriter.
4. REGISTRATION PROCEDURES. In connection with the Company's
registration obligations pursuant to Section 2 hereof, subject to Sections 2(d)
and 2(f), the Company will use its best efforts to effect such registration to
permit the sale of the Registrable Securities covered thereby in accordance with
the intended method or methods of disposition thereof, and pursuant thereto the
Company will as expeditiously as possible:
(a) Prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its best efforts to cause
such Registration Statement to become effective, and, upon the request of the
Holder, keep such registration statement effective for up to ninety (90) days,
provided that, before filing any Registration Statement or Prospectus or any
amendments or supplements thereto, the Company will furnish to the Holder of the
Registrable Securities covered by such Registration Statement, their counsel,
and the underwriters, if any, and their counsel, copies of all such documents
proposed to be filed at least ten (10) days prior thereto. The Company will not
include or name Holder in any Registration Statement or Prospectus without the
consent of the Holder, unless required to do so by the Securities Act and the
rules and regulations thereunder.
5
<PAGE> 6
(b) prepare and file with the SEC such amendments,
post-effective amendments and supplements to the Registration Statement and the
Prospectus as may be necessary to comply with the provisions of the Securities
Act and the rules and regulations thereunder with respect to the disposition of
all securities covered by such Registration Statement.
(c) promptly notify the selling Holder (i) when the
Prospectus or any Prospectus supplement or post-effective amendment has been
filed, and, with respect to the Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by the SEC
for amendments or supplements to the Registration Statement or the Prospectus or
for additional information, (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the initiation of
any proceedings for that purpose, (iv) if at any time the representations and
warranties of the Company contemplated by Section 4(l) cease to be true and
correct, (v) of the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for such
purpose and (vi) of the happening of any event which makes any statement made in
the Registration Statement, the Prospectus or any document incorporated therein
by reference untrue or which requires the making of any changes in the
Registration Statement, the Prospectus or any document incorporated therein by
reference in order to make the statements therein not misleading.
(d) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of the Registration Statement at the
earliest possible moment.
(e) furnish to the selling Holder, without charge, at least
one signed copy of the Registration Statement and any post-effective amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those incorporated
by reference).
(f) deliver to each selling Holder, without charge, such
reasonable number of conformed copies of the Registration Statement (and any
post-effective amendment thereto) and such number of copies of the Prospectus
(including each preliminary prospectus) and any amendment or supplement thereto
(and any documents incorporated by reference therein) as such Holder may
reasonably request, all in full conformity with the Securities Act; the Company
consents to the use of the Prospectus or any amendment or supplement thereto by
the selling Holder in connection with the offer and sale of the Registrable
Securities
6
<PAGE> 7
covered by the Prospectus or any amendment or supplement thereto.
(g) prior to any offering of Registrable Securities covered by
a Registration Statement, register or qualify or cooperate with the selling
Holder in connection with the registration or qualification of such Registrable
Securities for offer and sale under the securities or blue sky laws of such
jurisdictions as such selling Holder reasonably requests, and use its best
efforts to keep each such registration or qualification effective, including
through new filings, or amendments or renewals, during the period such
Registration Statement is required to be kept effective pursuant to the terms of
this Agreement; and do any and all other acts or things necessary or advisable
to enable the disposition in all such jurisdictions reasonably requested by the
Holder of the Registrable Securities covered by such Registration Statement,
provided that under no circumstances shall the Company be required in connection
therewith or as a condition thereof to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions.
(h) upon the occurrence of any event contemplated by Section
4(c)(vi) above, prepare a supplement or post-effective amendment to the
Registration Statement or the Prospectus or any document incorporated therein by
reference or file any other required document so that, as thereafter delivered
to the purchasers of the Registrable Securities, the Prospectus will not contain
an untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein not misleading.
(i) make generally available to its security holders earnings
statements satisfying the provisions of Section 11(a) of the Securities Act, no
later than sixty (60) days after the end of any twelve (12)-month period (or
ninety (90) days, if such period is a fiscal year) (i) commencing at the end of
any fiscal quarter in which Registrable Securities are sold to underwriters in a
firm or best efforts underwritten offering, or, if not sold to underwriters in
such an offering or (ii) beginning with the first month of the Company's first
fiscal quarter commencing after the effective date of the Registration
Statement, which statements shall cover said twelve (12)-month period.
(j) use its best efforts to cause all Registrable Securities
covered by each Registration Statement to be listed subject to notice of
issuance, prior to the date of the first sale of such Registrable Securities
pursuant to such Registration Statement, on each securities exchange on which
the Common Stock issued by the Company are then listed, and admitted to trading
on
7
<PAGE> 8
The Nasdaq Stock Market, if the Common Stock is then admitted to trading on The
Nasdaq Stock Market.
The Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in Section 4(c)(vi) hereof, the
Holder will forthwith discontinue disposition of Registrable Securities under
the Prospectus related to the applicable Registration Statement until such
Holder's receipt of the copies of the supplemented or amended Prospectus
contemplated by Section 4(h) hereof, or until it is advised in writing by the
Company that the use of the Prospectus may be resumed. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 4 with respect to the Registrable Securities of the selling Holder that
such Holder shall furnish to the Company such information regarding itself and
the Registrable Securities held by it as shall be required by the Securities Act
to effect the registration of such Holder's Registrable Securities.
5. REGISTRATION EXPENSES. All expenses incident to any registration to
be effected hereunder and incident to the Company's performance of or compliance
with this Agreement, including without limitation all registration and filing
fees, fees and expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, NASD, stock exchange and
qualification fees, fees and disbursements of the Company's counsel and of
independent certified public accountants of the Company (all such expenses being
herein called "Registration Expenses") will be borne by the Company. The Holders
shall bear (i) all underwriting commissions (and transfer taxes, if any)
relating to the Registrable Securities registered and (ii) the fees and expenses
of legal counsel and accountants to the Holders.
6. INDEMNIFICATION.
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless the Holder, its officers, directors and employees
and each person who controls the Holder (within the meaning of Section 15 of the
Securities Act) from and against any and all losses, claims, damages and
liabilities (including any investigation, legal or other expenses reasonably
incurred in connection with, and any amount paid in settlement of, any action,
suit or proceeding or any claim asserted) to which such Holder may become
subject under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, at common law or otherwise, insofar as such losses,
claims, damages or liabilities arise out of or are based upon (i) any untrue
statement or alleged untrue statement of a material
8
<PAGE> 9
fact contained in any Registration Statement, Prospectus or preliminary
prospectus or any amendment or supplement thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading and (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act or
any state securities or blue sky laws in connection with the Registration
Statement, Prospectus or preliminary prospectus or any amendment or supplement
thereto, provided that the Company will not be liable to the Holder to the
extent that such loss, claim, damage or liability arises from or is based upon
any untrue statement or omission based upon written information furnished to the
Company by the Holder.
(b) Indemnification by Holder of Registrable Securities. If
the Holder's Registrable Securities are sold under a Prospectus which is a part
of a Registration Statement, the Holder agrees to indemnify and hold harmless
the Company, its directors and each officer who signed such Registration
Statement and each person who controls the Company (within the meaning of
Section 15 of the Securities Act), and each other person whose securities are
sold under the Prospectus which is a part of such Registration Statement (and
such person's officers, directors and employees and each person who controls
such person within the meaning of Section 15 of the Securities Act), from and
against any and all losses, claims, damages and liabilities (including any
investigation, legal or other expenses reasonably incurred in connection with,
and any amount paid in settlement of, any action, suit or proceeding or any
claim asserted) to which the Company or any other such person may become subject
under the Securities Act, the Exchange Act or other federal or state statutory
law or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities arise out of or are based upon (i) any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus or any amendment or supplement
thereto, (ii) the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading and (iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act or any state securities or blue sky laws in
connection with the Registration Statement, Prospectus or preliminary prospectus
or any amendment or supplement thereto, to the extent that such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement of a material fact or omission of a material fact that was made in the
Prospectus, the Registration Statement, or any amendment or supplement thereto,
in reliance upon and in conformity with information furnished in writing to the
Company
9
<PAGE> 10
by the Holder expressly for use therein, provided that in no event shall the
aggregate liability of the Holder exceed the amount of the net proceeds received
by the Holder upon the sale of the Registrable Securities giving rise to such
indemnification obligation. The Company and the selling Holder shall be entitled
to receive indemnities from underwriters, selling brokers, dealer managers and
similar securities industry professionals participating in the distribution, to
the same extent as customarily furnished by such persons in similar
circumstances.
(c) Conduct of Indemnification Proceedings. Any person
entitled to indemnification hereunder will (i) give prompt notice to the
indemnifying party of any claim with respect to which it seeks indemnification
and (ii) permit such indemnifying party to assume the defense of such claim with
counsel reasonably satisfactory to the indemnified party, provided that any
person entitled to indemnification hereunder shall have the right to employ
separate counsel and to participate in the defense of such claim, but the fees
and expenses of such counsel shall be at the expense of such person and not of
the indemnifying party unless (A) the indemnifying party has agreed to pay such
fees or expenses, (B) the indemnifying party shall have failed to assume the
defense of such claim and employ counsel reasonably satisfactory to such person,
or (C) in the reasonable judgment of such person, based upon advice of its
counsel, a conflict of interest may exist between such person and the
indemnifying party with respect to such claims (in which case, if the person
notifies the indemnifying party in writing that such person elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense of such claim on behalf of
such person). If such defense is not assumed by the indemnifying party, the
indemnifying party will not be subject to any liability for any settlement made
without its consent (but such consent will not be unreasonably withheld). No
indemnified party will be required to consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by all claimants or plaintiffs to such indemnified party of a release
from all liability in respect to such claim or litigation. Any indemnifying
party who is not entitled to, or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one counsel for
all parties indemnified by such indemnifying party with respect to such claim.
As used in this Section 6(c), the terms "indemnifying party", "indemnified
party" and other terms of similar import are intended to include only the
Company (and its officers, directors and control persons as set forth above) on
the one hand, and the Holders (and their officers, directors, employees and
control persons as set forth above) on the other
10
<PAGE> 11
hand, as applicable.
(d) Contribution. If for any reason the foregoing indemnity is
unavailable, then the indemnifying party shall contribute to the amount paid or
payable by the indemnified party as a result of such losses, claims, damages,
liabilities or expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party on the one hand and the
indemnified party on the other, or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law or provides a lesser sum to the
indemnified party than the amount hereinafter calculated, in such proportion as
is appropriate to reflect not only the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other but
also the relative fault of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. Notwithstanding the
foregoing, the Holder shall not be required to contribute any amount in excess
of the amount the Holder would have been required to pay to an indemnified party
if the indemnity under Section 6(b) hereof was available. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligation of any person to
contribute pursuant to this Section 6(d) shall be several and not joint.
(e) Timing of Payments. An indemnifying party shall make
payments of all amounts required to be made pursuant to the foregoing provisions
of this Section 6 to or for the account of the indemnified party from time to
time promptly upon receipt of bills or invoices relating thereto or when
otherwise due or payable.
11
<PAGE> 12
(f) Survival. The indemnity and contribution agreements
contained in this Section 6 shall remain in full force and effect and shall
survive the transfer of such Registrable Securities by the Holder; provided that
such transfer is in compliance with all agreements between the Company and the
transferring Holder.
7. RULE 144. Upon the earlier to occur of (i) the registration of the
Common Stock pursuant to Section 12 of the Exchange Act, or (ii) the
consummation of an underwritten initial public offering of the Common Stock, the
Company covenants that it will file, on a timely basis, the reports required to
be filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and it will take such further action
as any Holder may reasonably request (including, without limitation, compliance
with the current public information requirements of Rule 144(c) under the
Securities Act), all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the conditions provided by Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the SEC. Upon the request of the
Holder, the Company will deliver to such Holder a written statement verifying
that it has complied with such information and requirements.
8. NO INCONSISTENT AGREEMENTS. The Company will not enter into any
agreement offering registration rights to any holder of Common Stock that
conflict with or violate the rights set forth herein without the consent of the
Holder, which consent may be granted or withheld in the sole discretion of the
Holder.
9. ASSIGNMENT OF RIGHTS. The Holder may assign its rights under this
Agreement to any transferee of the Registrable Securi ties of the Holder, if (i)
such transfer is in compliance with all agreements between the Company and the
transferring Holder, (ii) such transferee has acquired at least twenty-five
percent (25%) of the Registrable Securities originally held by the Holder, and
(iii) such transferee has executed this Agreement and agreed to be bound by the
terms hereof (it being understood, however, that the transferring Holder shall
retain all of such Holder's rights hereunder with respect to all Registrable
Securities not so transferred by such transferring Holder).
10. SPECIFIC PERFORMANCE. The Holder, in addition to being entitled to
exercise all rights provided herein or granted by law, including without
limitation, the recovery of monetary damages, will be entitled to specific
performance of its rights
12
<PAGE> 13
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
11. NOTICES. All notices required or permitted under the terms of this
Agreement shall be delivered in the manner called for in the Stock Purchase
Agreement.
12. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of and be binding upon the Company and any corporation resulting from any merger
or consolidation of the Company with or into such corporation (in which the
Company is not the surviving corporation) or any corporation whose securities
are issued in exchange for the Company's shares of common stock.
13. SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
14. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the parties with respect to the subject matter hereof and shall supersede and
preempt any prior understandings, agreements or representations, written or
oral, by or among the parties hereto.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be original, and all of which together shall
constitute one instrument.
16. AMENDMENT. Any provision of this Agreement may be amended, waived
or modified only by a writing signed by the Company and by each Holder.
17. GOVERNING LAW. This Agreement and the legal relations between the
parties shall be governed by and construed in accor dance with the laws of the
State of California applicable to contracts made and performed in such State.
This choice of governing law is made in accordance with Section 1646.5 of the
California Civil Code. Any action with respect to this Agreement may be brought
in any state or federal court located in, or having jurisdiction over, the
County of Santa Barbara, State of California. Each party accepts, for itself and
its permitted successors and assigns, the jurisdiction of the aforesaid courts.
13
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
COMPANY: STAR VENDING, INC.
By:
-----------------------------
Christopher Edgecomb
President
GOTEL: GOTEL INVESTMENTS. LTD.
By:
-----------------------------
Name:
----------------------
Title:
----------------------
14
<PAGE> 1
EXHIBIT 4.5
STAR VENDING, INC
INVESTOR RIGHTS AGREEMENT
July 25, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. Registration Rights......................................................................................1
1.1 Definitions......................................................................................1
1.2 Request for Registration.........................................................................2
1.3 Company Registration.............................................................................3
1.4 Obligations of the Company.......................................................................3
1.5 Furnish Information..............................................................................4
1.6 Expenses of Demand Registration..................................................................4
1.7 Expenses of Company Registration.................................................................4
1.8 Underwriting Requirements........................................................................5
1.9 Delay of Registration............................................................................5
1.10 Indemnification..................................................................................5
1.11 Reports Under Securities Exchange Act of 1934....................................................7
1.12 Form S-3 Registration............................................................................8
1.13 Assignment of Registration Rights................................................................9
1.14 Market Stand-Off Agreement.......................................................................9
1.15 Termination of Registration Rights..............................................................10
1.16 Limitations on Subsequent Registration Rights...................................................10
2 Covenants of the Company................................................................................10
2.1 Delivery of Financial Statements................................................................10
2.2 Termination of Covenants........................................................................11
2.3 Participation Right.............................................................................11
2.4 Inspection......................................................................................12
2.5 Board Expenses..................................................................................12
2.6 Observer Rights.................................................................................13
2.7 Future Issuances of Common Stock................................................................13
3. Miscellaneous...........................................................................................13
3.1 Successors and Assigns..........................................................................13
3.2 Governing Law...................................................................................13
3.3 Counterparts....................................................................................13
3.4 Titles and Subtitles............................................................................13
3.5 Notices.........................................................................................13
3.6 Expenses........................................................................................14
3.7 Amendments and Waivers..........................................................................14
3.8 Severability....................................................................................14
3.9 Aggregation of Stock............................................................................14
3.10 Entire Agreement................................................................................14
</TABLE>
SCHEDULE A - Schedule of Investors
i
<PAGE> 3
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT is made as of the 25th day of
July, 1996, by and between Star Vending, Inc., a Nevada corporation (the
"Company"), and the investors listed on the Schedule of Investors attached as
Schedule A hereto, each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, the Company and the Investors are parties to that
certain Series A Preferred Stock Purchase Agreement of even date herewith (the
"Series A Agreement"); and
WHEREAS, in order to further induce the Investors to enter
into the Series A Agreement, the Company and the Investors hereby agree that
this Agreement shall govern the rights of the Investors to cause the Company to
register shares of Common Stock and certain other matters as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "register,"
"registered," and "registration" refer to a registration effected by preparing
and filing a registration statement or similar document in compliance with the
Securities Act of 1933, as amended (the "Act"), and the declaration or ordering
of effectiveness of such registration statement or document;
(b) The term "Registrable
Securities" means (1) the Common Stock of the Company issuable or issued upon
conversion of the Series A Preferred Stock issued pursuant to the Series A
Agreement, and (2) any Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right, or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, such Series A Preferred Stock, or Common Stock;
(c) The number of shares of
"Registrable Securities then outstanding" shall be determined by the number of
shares of Common Stock then outstanding that are Registrable Securities, and the
number of shares of Common Stock issuable pursuant to then exercisable or
convertible securities that are Registrable Securities;
(d) The term "Initial Public
Offering" means the initial sale of the Company's Common Stock in an
underwritten public offering pursuant to a registration statement under the
Securities Act of 1933, as amended;
1
<PAGE> 4
(e) The term "Holder" means any
person owning or having the right to acquire Registrable Securities or any
assignee thereof in accordance with Section 1.13 hereof; and
(f) The term "Form S-3" means such
form under the Act as in effect on the date hereof or any registration form
under the Act subsequently adopted by the Securities and Exchange Commission
("SEC") which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
1.2 Request for Registration.
(a) If the Company shall receive at
any time after July 31, 1997, a written request from the Holders that the
Company file a registration statement under the Act for a public offering in
which the aggregate proceeds from the offering payable to such Holders would
exceed $10,000,000, then the Company shall use its commercially reasonable
efforts to, within ten (10) days of the receipt thereof, give written notice of
such request to all Holders and shall, subject to the limitations of subsection
1.2(b) hereof, effect as soon as practicable, and in any event shall use its
commercially reasonable efforts to effect within one hundred twenty (120) days
of the receipt of such request, the registration under the Act of all
Registrable Securities which the Holders request to be registered within twenty
(20) days of the mailing of such notice by the Company in accordance with
Section 3.5 hereof.
(b) If the Holders initiating the
registration request hereunder ("Initiating Holders") intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 1.2 and the Company shall include such information in the written
notice referred to in subsection 1.2(a) hereof. The underwriter will be selected
by a majority in interest of the Initiating Holders and shall be reasonably
acceptable to the Company. In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders and such Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in subsection
1.4(e) hereof) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
2
<PAGE> 5
(c) The Company is obligated to
effect only two (2) such registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing,
if the Company shall furnish to Holders requesting a registration statement
pursuant to this Section 1.2, a certificate signed by the Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company shall
have the right to defer taking action with respect to such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the Initiating Holders. This right shall not be utilized more than once in any
twelve month period.
1.3 Company Registration. If (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its stock or other securities under the Act in connection with
the public offering of such securities solely for cash (other than a
registration relating solely to the sale of securities to participants in a
Company stock plan, or a registration on any form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of the Registrable Securities), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given within twenty (20)
days after mailing of such notice by the Company in accordance with Section 3.5
hereof, the Company shall, subject to the provisions of Section 1.8 hereof,
cause to be registered under the Act all of the Registrable Securities that each
such Holder has requested to be registered.
1.4 Obligations of the Company. Whenever required
under this Section 1 to effect the registration of any Registrable Securities,
the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
commercially reasonable efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective for
up to one hundred twenty (120) days.
(b) Prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.
(c) Furnish to the Holders such
numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents as they
may reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
3
<PAGE> 6
(d) Use its reasonable efforts to
register and qualify the securities covered by such registration statement under
such other securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders, provided that the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such states
or jurisdictions.
(e) In the event of any underwritten
public offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.
(f) Notify each Holder of
Registrable Securities covered by such registration statement at any time when a
prospectus relating thereto is required to be delivered under the Act of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.
1.5 Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Registrable Securities of any selling Holder that
such Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.6 Expenses of Demand Registration. All expenses
other than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2 hereof,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees (not to exceed $25,000.00) and disbursements of
one counsel for the selling Holders shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 1.2 hereof if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered, in which case all participating
Holders shall bear such expenses, unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 1.2 hereof; provided further, however, that if at the time
of such withdrawal, the Holders have learned of a material adverse change in the
condition or business of the Company from that known to the Holders at the time
of their request, then the Holders shall not be required to pay any of such
expenses and shall retain their rights pursuant to Section 1.2 hereof.
1.7 Expenses of Company Registration. The Company
shall bear and pay all expenses incurred in connection with any registration,
filing, or qualification of Registrable Securities with respect to the
registrations pursuant to Section 1.3 hereof for each Holder, including (without
limitation) all registration, filing, and qualification fees, printers and
4
<PAGE> 7
accounting fees relating or apportionable thereto and the fees (not to exceed
$25,000.00) and disbursements of counsel for the selling Holders hereunder, but
excluding underwriting discounts and commissions relating to the Registrable
Securities.
1.8 Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock, the
Company shall not be required under Section 1.3 hereof to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
it (or by other persons entitled to select the underwriters), and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be required
to include in the offering only that number of such securities, including
Registrable Securities, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities proposed to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall the amount of securities of
the selling Holders included in the offering be reduced below thirty percent
(30%) of the total amount of securities included in such offering.
Notwithstanding the foregoing sentence, if such offering is the Company's
Initial Public Offering the selling shareholders may be excluded entirely if the
underwriters make the determination described above and no other shareholder's
securities are included. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners, and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder," and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder," as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any
right to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.10 Indemnification. In the event any Registrable
Securities are included in a registration statement under this Section 1:
(a) To the extent permitted by law,
the Company will indemnify and hold harmless each Holder, any underwriter (as
defined in the Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Act or the Securities Exchange
Act of 1934, as amended (the "1934 Act"), against any losses,
5
<PAGE> 8
claims, damages, or liabilities (joint or several) to which they may become
subject under the Act, or the 1934 Act, or other federal or state law, insofar
as such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, underwriter, or controlling person.
(b) To the extent permitted by law,
each selling Holder, severally and not jointly, will indemnify and hold harmless
the Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within the
meaning of the Act, any underwriter, any other Holder selling securities in such
registration statement and any controlling person of any such underwriter or
other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, or the 1934 Act, or other federal or state law, insofar as such losses,
claims, damages, or liabilities (or actions in respect thereto) arise out of or
are based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in connection
with such registration; and each such Holder will pay, as incurred, any legal or
other expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 1.10(b), in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this subsection 1.10(b) shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Holder,
which consent shall not be unreasonably withheld; provided, that, in no event
shall any indemnity under this subsection 1.10(b) exceed the gross proceeds from
the offering received by such Holder.
(c) Within 30 days after receipt by
an indemnified party under this Section 1.10 of notice of the commencement of
any action (including any governmental action), such indemnified party will, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 1.10, deliver to the indemnifying party a written notice of
6
<PAGE> 9
the commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to retain
one separate counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel retained by
the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceedings. The failure to deliver written
notice to the indemnifying party within such 30-day period, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10. The indemnifying party shall not be
liable for any settlement of any proceeding without its written consent or, in
the alternative, without full release of its liability.
(d) If the indemnification provided
for in this Section 1.10 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, liability, claim,
damage, or expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing,
to the extent that the provisions on indemnification and contribution contained
in the underwriting agreement entered into in connection with the underwritten
public offering are in conflict with the foregoing provisions, the provisions in
the underwriting agreement shall control.
(f) The obligations of the Company
and Holders under this Section 1.10 shall survive the completion of any offering
of Registrable Securities in a registration statement under this Section 1, and
otherwise.
1.11 Reports Under Securities Exchange Act of 1934.
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
7
<PAGE> 10
(a) make and keep public information
available, as those terms are understood and defined in SEC Rule 144, at all
times after ninety (90) days after the effective date of the first registration
statement filed by the Company for the offering of its securities to the general
public;
(b) take such action, including the
voluntary registration of its Common Stock under Section 12 of the 1934 Act, as
is necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such action to be taken as soon as practicable after the
end of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely
manner all reports and other documents required of the Company under the Act and
the 1934 Act; and
(d) furnish to any Holder, so long
as the Holder owns any Registrable Securities, forthwith upon request (i) a
written statement by the Company that it has complied with the reporting
requirements of SEC Rule 144 (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company), the
Act, and the 1934 Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall
receive from any Holder or Holders of the Registrable Securities then
outstanding a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, the Company
will:
(a) promptly give written notice of
the proposed registration, and any related qualification or compliance, to all
other Holders; and
(b) as soon as practicable, effect
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within 15 days after receipt of such
written notice from the Company; provided, however, that the Company shall not
be obligated to effect any such registration, qualification or compliance,
pursuant to this Section 1.12: (1) if Form S-3 is not available for such
offering; (2) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public (net of any underwriters' discounts or commissions) of less than
$2,500,000; (3) if the Company shall furnish to the Holders a certificate signed
by the Chief
8
<PAGE> 11
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such Form S-3 registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than 120 days
after receipt of the request of the Holder or Holders under this Section 1.12;
provided, however, that the Company shall not utilize this right more than once
in any twelve-month period; (4) if the Company has already effected one
registration on Form S-3 for the Holders pursuant to this Section 1.12 within
the prior twelve-month period; or (5) in any particular jurisdiction in which
the Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) Subject to the foregoing, the
Company shall file a registration statement covering the Registrable Securities
and other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders. All expenses incurred in
connection with a registration requested pursuant to this Section 1.12,
including (without limitation) all registration, filing, qualification,
printer's and accounting fees and the reasonable fees (not to exceed $25,000.00)
and disbursements of counsel for the selling Holder or Holders, but excluding
any underwriters' discounts or commissions associated with Registrable
Securities, shall be borne by the Company.
1.13 Assignment of Registration Rights. Subject to
the Company's prior written consent, the rights to cause the Company to register
Registrable Securities pursuant to this Section 1 may be assigned (but only with
all related obligations) by a Holder to a transferee or assignee of such
securities, provided that such assignment shall be effective only if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Act. Notwithstanding the
foregoing, a Holder may assign registration rights to its partners or limited
partners, including spouses and ancestors, lineal descendants, and siblings of
such partners or spouses who acquire Registrable Securities by gift, will, or
intestate succession.
1.14 "Market Stand-Off" Agreement. Each of the
Investors hereby agrees that, during the period of duration (not to exceed 180
days) specified by the Company and an underwriter of Common Stock or other
securities of the Company, following the effective date of the Initial Public
Offering, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly, sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Common Stock included in such registration; provided, however, that all
officers and directors of the Company, and all other 1% shareholders enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities of
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
9
<PAGE> 12
1.15 Termination of Registration Rights. No Holder
shall be entitled to exercise any rights provided for in this Section 1 on such
date after the closing of the Initial Public Offering if all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144(k) during any 90-day period.
1.16 Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company shall not, without the
prior written consent of the Holders of a majority of the outstanding
Registrable Securities, enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder (a) to include such securities in any registration filed
under Sections 1.2 or 1.3 hereof, unless under the terms of such agreement, such
holder or prospective holder may include such securities in any such
registration only to the extent that the inclusion of his securities will not
reduce the amount of the Registrable Securities of the Holders which is included
or (b) to make a demand registration which could result in such registration
statement being declared effective prior to the earlier of the date set forth in
subsection 1.2(a) or within one hundred eighty (180) days of the effective date
of any registration effected pursuant to Section 1.2.
2. Covenants of the Company.
2.1 Delivery of Financial Statements. The Company
shall furnish the following information to Investors:
(a) as soon as practicable, but in
any event within one hundred twenty (120) days after the end of each fiscal year
of the Company, an income statement for such fiscal year, a balance sheet of the
Company and statement of shareholder's equity as of the end of such year, and a
statement of cash flows for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("GAAP") and audited by nationally recognized independent
accountants;
(b) within forty-five (45) days of
the end of each quarter, an unaudited income statement and statement of cash
flows and balance sheet for and as of the end of such month and each of the two
previous months, in reasonable detail;
(c) as soon as practicable, but in
any event thirty (30) days prior to the end of each fiscal year, a budget for
the next fiscal year, prepared on a monthly basis, including balance sheets and
statements of cash flows for such months and, as soon as prepared, any other
budgets or revised budgets prepared by the Company;
(d) with respect to the financial
statements called for in subsection (b) of this Section 2.1, an instrument
executed by the Chief Financial Officer or President of the Company and
certifying that such financials were prepared in accordance with GAAP
consistently applied with prior practice for earlier periods (with the exception
of footnotes that may be required by GAAP) and fairly present the financial
condition of the Company and its results of operation for the period specified,
subject to year-end audit adjustment; and
10
<PAGE> 13
(e) such other information relating
to the financial condition, business or corporate affairs of the Company as the
Investors or any assignee of the Investors may from time to time reasonably
request, provided, however, that the Company shall not be obligated under this
subsection (e) or any other subsection of Section 2.1 to provide information
which it deems in good faith to be a trade secret or similar confidential
information.
The information provided pursuant to this subsection
2.1 shall be used by each Investor or any permitted assignee of each Investor
solely in furtherance of its interests as an investor in the Company, and such
Investor and any permitted assignee of such Investor shall maintain the
confidentiality of all information of the Company obtained under this subsection
2.1, unless such information (i) was known by such Investor or permitted
assignee prior to its disclosure to them by the Company, (ii) is disclosed to
such Investor or permitted assignee without restriction as a matter of right by
a third party not affiliated with or working for the Company, or (iii) has
become publicly available through no fault of such Investor or permitted
assignee. Notwithstanding the foregoing, an Investor may disclose, if
applicable, (i) to Investor's general and limited partners, or (ii) Investor's
Board of Directors or executive officers such information provided that such
general or limited partners, or such Board of Directors or executive officers
agree to be bound by the terms of this Section 2.1.
2.2 Termination of Covenants. The covenants set forth
in Sections 2.1, 2.3, 2.4, 2.5, 2.6 and 2.7 hereof shall terminate as to the
Investors and be of no further force or effect following the Company's Initial
Public Offering, or when the Company first becomes subject to the periodic
reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever
event shall first occur.
2.3 Participation Right. Subject to the terms and
conditions specified in this Section 2.3, the Company hereby grants to each
Investor a participation right with respect to future sales by the Company of
its Shares (as hereinafter defined). Each Investor shall be entitled to
apportion the participation right hereby granted it among itself, its partners,
and affiliates in such proportions as it deems appropriate. Each time the
Company proposes to offer any shares of, or securities convertible into or
exercisable for any shares of, any class of its capital stock ("Shares"), the
Company shall first make an offering of such Shares to each Investor in
accordance with the following provisions:
(a) The Company shall deliver a
notice pursuant to Section 3.5 hereof ("Notice") to the Investor stating (i) its
bona fide intention to offer such Shares, (ii) the number of such Shares to be
offered, and (iii) the price and terms, if any, upon which it proposes to offer
such Shares.
(b) Within 20 calendar days after
receipt of the Notice, each Investor may elect to purchase, at the price and on
the terms specified in the Notice, up to that portion of such Shares which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion or exercise of convertible or exercisable securities
then held by such Investor bears to the total number of shares of Common Stock
of the Company then outstanding (assuming full conversion of all outstanding
convertible securities). The
11
<PAGE> 14
Company shall promptly, in writing, inform each Investor which purchases all the
shares available to it ("Fully-Exercising Investor") of any other Investor's
failure to do likewise. During the ten-day period commencing after receipt of
such information, each Fully-Exercising Investor shall be entitled to obtain
that portion of the Shares for which Investors are entitled to subscribe but
which are not subscribed for by the Investors which is equal to the proportion
that the number of shares of Common Stock issued and held, or issuable upon
conversion or exercise of convertible or exercisable securities then held, by
such Fully-Exercising Investor bears to the total number of shares of Common
Stock issued and held, or issuable upon conversion or exercise of convertible or
exercisable securities then held, by all Fully-Exercising Investors who wish to
purchase some of the unsubscribed shares.
(c) If all Shares which an Investor
is entitled to obtain pursuant to subsection 2.3(b) hereof are not elected to be
obtained as provided in subsection 2.3(b) hereof, the Company may, during the
60-day period following the expiration of the period provided in subsection
2.3(b) hereof, offer the remaining unsubscribed portion of such Shares to any
person or persons at a price not less than, and upon terms no more favorable to
the offeree than those specified in the Notice. If the Company does not enter
into an agreement for the sale of the Shares within such period, or if such
agreement is not consummated within 30 days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such Shares shall not be
offered unless first reoffered to the Investors in accordance herewith.
(d) The participation right in this
paragraph 2.3 shall not be applicable (i) to the future issuance or sale of
shares of Common Stock (or options therefor) to Company employees, directors,
officers, or consultants for the primary purpose of soliciting or retaining
their employment or services (excluding options to purchase shares of the
Company's Common Stock outstanding as of the date hereof), provided such number
of shares shall not exceed 360,000 unless unanimously approved by the Company's
Board of Directors, (ii) the issuance of Series A Preferred Stock pursuant to
the Series A Agreement, (iii) to or after consummation of the Company's Initial
Public Offering, (iv) the issuance of Common Stock pursuant to the conversion of
the Series A Preferred Stock, and (v) the issuance of securities in connection
with a bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock, or otherwise.
2.4 Inspection. The Company shall permit each
Investor, at such Investor's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by the Investor; provided, however, that
the Company shall not be obligated pursuant to this Section 2.4 to provide
access to any information which it reasonably considers to be a trade secret or
similar confidential information.
2.5 Board Expenses. Unless otherwise approved by the
Board of Directors, the Company shall reimburse members of the Company's Board
of Directors, within thirty (30) days after the Company's receipt of a bill
therefor, for all reasonable expenses (including coach class travel expenses)
incurred by such members to attend meetings of the Company's Board of Directors.
12
<PAGE> 15
2.6 Observer Rights. The Company shall invite a
representative of Hambrecht & Quist and Partech International to attend all
meetings of its Board of Directors in a nonvoting observer capacity and, in this
respect, shall give such representative copies of all notices, minutes,
consents, and other materials that it provides to its directors; provided,
however, that such representative shall agree to hold in confidence and trust
and to act in a fiduciary manner with respect to all information so provided;
and, provided further, that the Company reserves the right to withhold any
information and to exclude such representative from any meeting or portion
thereof if access to such information or attendance at such meeting could
adversely affect the attorney-client privilege between the Company and its
counsel or would result in disclosure of trade secret to such representative of
if such Investor or its representative is a direct competitor of the Company.
2.7 Future Issuances of Common Stock. Without the
consent of the Board of Directors, including the consent of the director elected
by, or a representative for, the holders of the Company's Series A Preferred
Stock, the Company shall not issue Common Stock (or options therefore) to
Company employees, directors, officers, or consultants for the primary purpose
of soliciting or retaining their employment or services, in excess of 22,900
shares.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and assigns of the
parties (including transferees of any shares of Registrable Securities). Nothing
in this Agreement, express or implied, is intended to confer upon any party
other than the parties hereto or their respective successors and assigns any
rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed
by and construed under the laws of the State of California as applied to
agreements among California residents entered into and to be performed entirely
within California.
3.3 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery or facsimile to the party to
be notified or five (5) days following deposit with the United States Post
Office, by registered or certified mail, postage prepaid and addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or
13
<PAGE> 16
at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
3.6 Expenses. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which such party may be
entitled.
3.7 Amendments and Waivers. Any term of this
Agreement may be amended and the observance of any term of this Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Each Investor
acknowledges and agrees that any amendment or waiver effected in accordance with
this paragraph shall be binding upon all holders of any Registrable Securities,
each future holder of all such Registrable Securities, and the Company, whether
or not such holder in fact consented to such amendment or waiver.
3.8 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
3.9 Aggregation of Stock. All shares of Registrable
Securities held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
3.10 Entire Agreement. This Agreement constitutes the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof.
14
<PAGE> 17
IN WITNESS WHEREOF, the parties have executed this Investor
Rights Agreement as of the date first above written.
STAR VENDING, INC.
By:_____________________________________
Chris Edgecomb, President
and Chief Executive Officer
Address: 740 State Street, Suite 202
Santa Barbara, CA 93101
INVESTORS:
________________________________________
Please Print or Type Name of Investor
By:_____________________________________
Signature
___________________________________
Please print name
___________________________________
Title, if applicable
Address: _______________________________
_______________________________
<PAGE> 18
Schedule of Investors
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
US Growth Fund Partners CV 121,516
Parvest US Partners II CV 91,137
Partech US Partners III CV 60,758
Nippon Investment & Finance Co. Ltd. 36,455
Threecedars S.A. 36,455
Double Black Diamond II LLC 9,114
Partech International Salary Deferral Plan 2,430
U/A dtd. 1/1/92 FBO:
Thomas G. McKinley
Partech International Salary Deferral Plan 2,430
U/A dtd. 1/1/92 FBO:
Roland A. Van der Meer
Tradeinvest Limited 2,430
Multinvest Limited 1,822
H&Q Star Vending Investors, L.P. 243,031
Barry L. Guterman 5,314
Pacific Star Telecommunications Limited 25,946
Brett Messing and Maria Messing 50,000
Penny Meepos, Trustee of the Steven Kelen Trust "B" 18,227
Steven I. Kelen 18,227
Bancommerce Capital Corporation 50,000
</TABLE>
S-1
<PAGE> 19
<TABLE>
<CAPTION>
<S> <C>
Steven J. Simenhoff 12,151
Peter and Kathy Hartz Revocable Trust 10,000
Richard J. Simenhoff 8,000
Jeffrey C. Barbakow 100,000
Harvey Collins 5,924
TOTAL: 911,367
=======
</TABLE>
S-2
<PAGE> 1
Exhibit 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into as
of ___________, 1997, between STAR Telecommunications, Inc., a Delaware
corporation ("the Company"), and <<Name>> ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the
Company; and
WHEREAS, the Board of Directors of the Company has adopted
Bylaws (the "Bylaws") providing for the indemnification of the officers and
directors of the Company to the maximum extent authorized by Section 145 of the
Delaware General Corporation Law, as amended ("Law"); and
WHEREAS, the Bylaws and the Law, by their nonexclusive nature,
permit contracts between the Company and the officers or directors of the
Company with respect to indemnification of such officers or directors; and
WHEREAS, in accordance with the authorization as provided by
the Law, the Company may purchase and maintain a policy or policies of
director's and officer's liability insurance ("D & O Insurance"), covering
certain liabilities which may be incurred by its officers or directors in the
performance of their obligations to the Company; and
WHEREAS, as a result of recent developments affecting the
terms, scope and availability of D & O Insurance there exists general
uncertainty as to the extent of protection afforded Company officers and
directors by such D & O Insurance and said uncertainty also exists under
statutory and bylaw indemnification provisions; and
WHEREAS, in recognition of past services and in order to
induce Indemnitee to continue to serve as an officer or director of the Company,
the Company has determined and agreed to enter into this contract with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued
service as an officer or director after the date hereof, the parties hereto
agree as follows:
1. Indemnity of Indemnitee. The Company hereby agrees to hold
harmless and indemnify Indemnitee to the full extent authorized or permitted by
the provisions of the Law, as such may be amended from time to time, and Article
VII, Section 6 of the Bylaws, as such may be amended. In furtherance of the
foregoing indemnification, and without limiting the generality thereof:
(a) Proceedings Other Than Proceedings by or in
the Right of the Company. Indemnitee shall be entitled to the rights of
indemnification provided in this Section l(a) if, by reason of his Corporate
Status (as hereinafter defined), he is, or is threatened to be
<PAGE> 2
made, a party to or participant in any Proceeding (as hereinafter defined) other
than a Proceeding by or in the right of the Company. Pursuant to this Section
1(a), Indemnitee shall be indemnified against all Expenses (as hereinafter
defined), judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or on his behalf in connection with such
Proceeding or any claim, issue or matter therein, if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the best interests
of the Company and, with respect to any criminal Proceeding, had no reasonable
cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 1(b) if, by reason of his Corporate Status, he is, or is
threatened to be made, a party to or participant in any Proceeding brought by or
in the right of the Company to procure a judgment in its favor. Pursuant to this
Section 1(b), Indemnitee shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection with such Proceeding
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company; provided, however, that, if
applicable law so provides, no indemnification against such Expenses shall be
made in respect of any claim, issue or matter in such Proceeding as to which
Indemnitee shall have been adjudged to be liable to the Company unless and to
the extent that the Court of Chancery of the State of Delaware shall determine
that such indemnification may be made.
(c) Indemnification for Expenses of a Party Who
is Wholly or Partly Successful. Notwithstanding any other provision of this
Agreement, to the extent that Indemnitee is, by reason of his Corporate Status,
a party to and is successful, on the merits or otherwise, in any Proceeding, he
shall be indemnified to the maximum extent permitted by law against all Expenses
actually and reasonably incurred by him or on his behalf in connection
therewith. If Indemnitee is not wholly successful in such Proceeding but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, the Company shall indemnify
Indemnitee against all Expenses actually and reasonably incurred by him or on
his behalf in connection with each successfully resolved claim, issue or matter.
For purposes of this Section and without limitation, the termination of any
claim, issue or matter in such a Proceeding by dismissal, with or without
prejudice, shall be deemed to be a successful result as to such claim, issue or
matter.
2. Additional Indemnity. In addition to, and without regard to
any limitations on, the indemnification provided for in Section 1, the Company
shall and hereby does indemnify and hold harmless Indemnitee against all
Expenses, judgments, penalties, fines and amounts paid in settlement actually
and reasonably incurred by him or on his behalf if, by reason of his Corporate
Status he is, or is threatened to be made, a party to or participant in any
Proceeding (including a Proceeding by or in the right of the Company),
including, without limitation, all liability arising out of the negligence or
active or passive wrongdoing of Indemnitee. The only limitation that shall exist
upon the Company's obligations pursuant to this Agreement shall be that the
Company shall not be obligated to make any payment to Indemnitee that is finally
determined (under the procedures, and subject to the presumptions, set forth in
Sections 6 and 7 hereof) to be unlawful under Delaware law.
2
<PAGE> 3
3. Contribution in the Event of Joint Liability.
(a) Whether or not the indemnification provided
in Sections 1 and 2 hereof is available, in respect of any threatened, pending
or completed action, suit or proceeding in which Company is jointly liable with
Indemnitee (or would be if joined in such action, suit or proceeding), Company
shall pay, in the first instance, the entire amount of any judgment or
settlement of such action, suit or proceeding without requiring Indemnitee to
contribute to such payment and Company hereby waives and relinquishes any right
of contribution it may have against Indemnitee. Company shall not enter into any
settlement of any action, suit or proceeding in which Company is jointly liable
with Indemnitee (or would be if joined in such action, suit or proceeding)
unless such settlement provides for a full and final release of all claims
asserted against Indemnitee.
(b) Without diminishing or impairing the
obligations of the Company set forth in the preceding subparagraph, if, for any
reason, Indemnitee shall elect or be required to pay all or any portion of any
judgment or settlement in any threatened, pending or completed action, suit or
proceeding in which Company is jointly liable with Indemnitee (or would be if
joined in such action, suit or proceeding), Company shall contribute to the
amount of expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred and paid or payable by
Indemnitee in proportion to the relative benefits received by the Company and
all officers, directors or employees of the Company other than Indemnitee who
are jointly liable with Indemnitee (or would be if joined in such action, suit
or proceeding), on the one hand, and Indemnitee, on the other hand, from the
transaction from which such action, suit or proceeding arose; provided, however,
that the proportion determined on the basis of relative benefit may, to the
extent necessary to conform to law, be further adjusted by reference to the
relative fault of Company and all officers, directors or employees of the
Company other than Indemnitee who are jointly liable with Indemnitee (or would
be if joined in such action, suit or proceeding), on the one hand, and
Indemnitee, on the other hand, in connection with the events that resulted in
such expenses, judgments, fines or settlement amounts, as well as any other
equitable considerations which the law may require to be considered. The
relative fault of Company and all officers, directors or employees of the
Company other than Indemnitee who are jointly liable with Indemnitee (or would
be if joined in such action, suit or proceeding), on the one hand, and
Indemnitee, on the other hand, shall be determined by reference to, among other
things, the degree to which their actions were motivated by intent to gain
personal profit or advantage, the degree to which their liability is primary or
secondary, and the degree to which their conduct is active or passive.
(c) Company hereby agrees to fully indemnify and
hold Indemnitee harmless from any claims of contribution which may be brought by
officers, directors or employees of the Company other than Indemnitee who may be
jointly liable with Indemnitee.
4. Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that Indemnitee is, by
reason of his Corporate Status, a witness in any Proceeding to which Indemnitee
is not a party, he shall be indemnified against all Expenses actually and
reasonably incurred by him or on his behalf in connection therewith.
3
<PAGE> 4
5. Advancement of Expenses. Notwithstanding any other
provision of this Agreement, the Company shall advance all reasonable Expenses
incurred by or on behalf of Indemnitee in connection with any Proceeding by
reason of Indemnitee's Corporate Status within ten days after the receipt by the
Company of a statement or statements from Indemnitee requesting such advance or
advances from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee and shall include or be preceded or accompanied by an
undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Any advances and undertakings to repay pursuant to this
Section 5 shall be unsecured and interest free. Notwithstanding the foregoing,
the obligation of the Company to advance Expenses pursuant to this Section 5
shall be subject to the condition that, if, when and to the extent that the
Company determines that Indemnitee would not be permitted to be indemnified
under applicable law, the Company shall be entitled to be reimbursed, within
thirty (30) days of such determination, by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced or thereafter commences legal proceedings in a
court of competent jurisdiction to secure a determination that Indemnitee should
be indemnified under applicable law, any determination made by the Company that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any advance of Expenses until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed).
6. Procedures and Presumptions for Determination of
Entitlement to Indemnification. It is the intent of this Agreement to secure for
Indemnitee rights of indemnity that are as favorable as may be permitted under
the law and public policy of the State of Delaware. Accordingly, the parties
agree that the following procedures and presumptions shall apply in the event of
any question as to whether Indemnitee is entitled to indemnification under this
Agreement:
(a) To obtain indemnification (including, but
not limited to, the advancement of Expenses and contribution by the Company)
under this Agreement, Indemnitee shall submit to the Company a written request,
including therein or therewith such documentation and information as is
reasonably available to Indemnitee and is reasonably necessary to determine
whether and to what extent Indemnitee is entitled to indemnification. The
Secretary of the Company shall, promptly upon receipt of such a request for
indemnification, advise the Board of Directors in writing that Indemnitee has
requested indemnification.
(b) Upon written request by Indemnitee for
indemnification pursuant to the first sentence of Section 6(a) hereof, a
determination, if required by applicable law, with respect to Indemnitee's
entitlement thereto shall be made in the specific case by one of the following
three methods, which shall be at the election of Indemnitee: (1) by a majority
vote of the disinterested directors, even though less than a quorum, or (2) by
independent legal counsel in a written opinion, or (3) by the stockholders.
4
<PAGE> 5
(c) If the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section 6(b)
hereof, the Independent Counsel shall be selected as provided in this Section
6(c). The Independent Counsel shall be selected by Indemnitee (unless Indemnitee
shall request that such selection be made by the Board of Directors). Indemnitee
or the Company, as the case may be, may, within 10 days after such written
notice of selection shall have been given, deliver to the Company or to
Indemnitee, as the case may be, a written objection to such selection; provided,
however, that such objection may be asserted only on the ground that the
Independent Counsel so selected does not meet the requirements of "Independent
Counsel" as defined in Section 13 of this Agreement, and the objection shall set
forth with particularity the factual basis of such assertion. Absent a proper
and timely objection, the person so selected shall act as Independent Counsel.
If a written objection is made and substantiated, the Independent Counsel
selected may not serve as Independent Counsel unless and until such objection is
withdrawn or a court has determined that such objection is without merit. If,
within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed.
(d) In making a determination with respect to
entitlement to indemnification hereunder, the person or persons or entity making
such determination shall presume that Indemnitee is entitled to indemnification
under this Agreement if Indemnitee has submitted a request for indemnification
in accordance with Section 6(a) of this Agreement. Anyone seeking to overcome
this presumption shall have the burden of proof and the burden of persuasion, by
clear and convincing evidence.
(e) Indemnitee shall be deemed to have acted in
good faith if Indemnitee's action is based on the records or books of account of
the Enterprise, including financial statements, or on information supplied to
Indemnitee by the officers of the Enterprise in the course of their duties, or
on the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. Whether or not the foregoing provisions of this Section 6(e) are
satisfied, it shall in any event be presumed that Indemnitee has at all times
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests
5
<PAGE> 6
of the Company. Anyone seeking to overcome this presumption shall have the
burden of proof and the burden of persuasion, by clear and convincing evidence.
(f) The Company acknowledges that a settlement
or other disposition short of final judgment may be successful if it permits a
party to avoid expense, delay, distraction, disruption and uncertainty. In the
event that any action, claim or proceeding to which Indemnitee is a party is
resolved in any manner other than by adverse judgment against Indemnitee
(including, without limitation, settlement of such action, claim or proceeding
with or without payment of money or other consideration) it shall be presumed
that Indemnitee has been successful on the merits or otherwise in such action,
suit or proceeding. Anyone seeking to overcome this presumption shall have the
burden of proof and the burden of persuasion, by clear and convincing evidence.
(g) If the person, persons or entity empowered
or selected under Section 6 to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within thirty (30) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30 day period
may be extended for a reasonable time, not to exceed an additional fifteen (15)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or information relating thereto;
and provided, further, that the foregoing provisions of this Section 6(g) shall
not apply if the determination of entitlement to indemnification is to be made
by the stockholders pursuant to Section 6(b) of this Agreement and if (A) within
fifteen (15) days after receipt by the Company of the request for such
determination the Board of Directors or the Disinterested Directors, if
appropriate, resolve to submit such determination to the stockholders for their
consideration at an annual meeting thereof to be held within seventy five (75)
days after such receipt and such determination is made thereat, or (B) a special
meeting of stockholders is called within fifteen (15) days after such receipt
for the purpose of making such determination, such meeting is held for such
purpose within sixty (60) days after having been so called and such
determination is made threat.
(h) Indemnitee shall cooperate with the person,
persons or entity making such determination with respect to Indemnitee's
entitlement to indemnification, including providing to such person, persons or
entity upon reasonable advance request any documentation or information which is
not privileged or otherwise protected from disclosure and which is reasonably
available to Indemnitee and reasonably necessary to such determination. Any
Independent Counsel, member of the Board of Directors, or stockholder of the
Company shall act reasonably and in good faith in making a determination under
the Agreement of the Indemnitee's entitlement to indemnification. Any costs or
expenses (including attorneys' fees and disbursements) incurred by Indemnitee in
so cooperating with the person, persons or entity making such determination
shall be borne by the Company (irrespective of the determination as
6
<PAGE> 7
to Indemnitee's entitlement to indemnification) and the Company hereby
indemnifies and agrees to hold Indemnitee harmless therefrom.
7. Remedies of Indemnitee.
(a) In the event that (i) a determination is
made pursuant to Section 6 of this Agreement that Indemnitee is not entitled to
indemnification under this Agreement, (ii) advancement of Expenses is not timely
made pursuant to Section 5 of this Agreement, (iii) no determination of
entitlement to indemnification shall have been made pursuant to Section 6(b) of
this Agreement within 90 days after receipt by the Company of the request for
indemnification, (iv) payment of indemnification is not made pursuant to this
Agreement within ten (10) days after receipt by the Company of a written request
therefor, or (v) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification or such determination is deemed to have been made pursuant to
Section 6 of this Agreement, Indemnitee shall be entitled to an adjudication in
an appropriate court of the State of Delaware, or in any other court of
competent jurisdiction, of his entitlement to such indemnification. Indemnitee
shall commence such proceeding seeking an adjudication within 180 days following
the date on which Indemnitee first has the right to commence such proceeding
pursuant to this Section 7(a). The Company shall not oppose Indemnitee's right
to seek any such adjudication.
(b) In the event that a determination shall have
been made pursuant to Section 6(b) of this Agreement that Indemnitee is not
entitled to indemnification, any judicial proceeding commenced pursuant to this
Section 7 shall be conducted in all respects as a de novo trial, on the merits
and Indemnitee shall not be prejudiced by reason of that adverse determination.
(c) If a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is entitled to
indemnification, the Company shall be bound by such determination in any
judicial proceeding commenced pursuant to this Section 7, absent a prohibition
of such indemnification under applicable law.
(d) In the event that Indemnitee, pursuant to
this Section 7, seeks a judicial adjudication of his rights under, or to recover
damages for breach of, this Agreement, or to recover under any directors' and
officers' liability insurance policies maintained by the Company the Company
shall pay on his behalf, in advance, any and all expenses (of the types
described in the definition of Expenses in Section 13 of this Agreement)
actually and reasonably incurred by him in such judicial adjudication,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advancement of expenses or insurance recovery.
(e) The Company shall be precluded from
asserting in any judicial proceeding commenced pursuant to this Section 7 that
the procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court that the Company is bound by
all the provisions of this Agreement.
7
<PAGE> 8
8. Non-Exclusivity; Survival of Rights; Insurance;
Subrogation.
(a) The rights of indemnification as provided by
this Agreement shall not be deemed exclusive of any other rights to which
Indemnitee may at any time be entitled under applicable law, the certificate of
incorporation of the Company, the Bylaws, any agreement, a vote of stockholders
or a resolution of directors, or otherwise. No amendment, alteration or repeal
of this Agreement or of any provision hereof shall limit or restrict any right
of Indemnitee under this Agreement in respect of any action taken or omitted by
such Indemnitee in his Corporate Status prior to such amendment, alteration or
repeal. To the extent that a change in the Law, whether by statute or judicial
decision, permits greater indemnification than would be afforded currently under
the Bylaws and this Agreement, it is the intent of the parties hereto that
Indemnitee shall enjoy by this Agreement the greater benefits so afforded by
such change. No right or remedy herein conferred is intended to be exclusive of
any other right or remedy, and every other right and remedy shall be cumulative
and in addition to every other right and remedy given hereunder or now or
hereafter existing at law or in equity or otherwise. The assertion or employment
of any right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an
insurance policy or policies providing liability insurance for directors,
officers, employees, or agents or fiduciaries of the Company or of any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise which such person serves at the request of the Company, Indemnitee
shall be covered by such policy or policies in accordance with its or their
terms to the maximum extent of the coverage available for any such director,
officer, employee or agent under such policy or policies.
(c) In the event of any payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all papers required
and take all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Company to bring suit to enforce such
rights.
(d) The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
9. Exception to Right of Indemnification. Notwithstanding any
other provision of this Agreement, Indemnitee shall not be entitled to
indemnification under this Agreement with respect to any Proceeding brought by
Indemnitee, or any claim therein, unless (a) the bringing of such Proceeding or
making of such claim shall have been approved by the Board of Directors of the
Company or (b) such Proceeding is being brought by the Indemnitee to assert his
rights under this Agreement.
10. Duration of Agreement. All agreements and obligations of
the Company contained herein shall continue during the period Indemnitee is an
officer or director of the
8
<PAGE> 9
Company (or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise) and shall continue thereafter so long as Indemnitee
shall be subject to any Proceeding (or any proceeding commenced under Section 7
hereof) by reason of his Corporate Status, whether or not he is acting or
serving in any such capacity at the time any liability or expense is incurred
for which indemnification can be provided under this Agreement. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors (including any direct or indirect
successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business or assets of the Company), assigns, spouses,
heirs, executors and personal and legal representatives. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as an
officer or director of the Company or any other enterprise at the Company's
request.
11. Security. To the extent requested by the Indemnitee and
approved by the Board of Directors of the Company, the Company may at any time
and from time to time provide security to the Indemnitee for the Company's
obligations hereunder through an irrevocable bank line of credit, funded trust
or other collateral. Any such security, once provided to the Indemnitee, may not
be revoked or released without the prior written consent of the Indemnitee.
12. Enforcement.
(a) The Company expressly confirms and agrees
that it has entered into this Agreement and assumed the obligations imposed on
it hereby in order to induce Indemnitee to serve as an officer or director of
the Company, and the Company acknowledges that Indemnitee is relying upon this
Agreement in serving as an officer or director of the Company.
(b) This Agreement constitutes the entire
agreement between the parties hereto with respect to the subject matter hereof
and supersedes all prior agreements and understandings, oral, written and
implied, between the parties hereto with respect to the subject matter hereof.
13. Definitions. For purposes of this Agreement:
(a) "Corporate Status" describes the status of a
person who is or was a director, officer, employee or agent or fiduciary of the
Company or of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving at the
express written request of the Company.
(b) "Disinterested Director" means a director of
the Company who is not and was not a party to the Proceeding in respect of which
indemnification is sought by Indemnitee.
(c) "Enterprise" shall mean the Company and any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise of which Indemnitee is
9
<PAGE> 10
or was serving at the express written request of the Company as a director,
officer, employee, agent or fiduciary.
(d) "Expenses" shall include all reasonable
attorneys' fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees, and all other disbursements
or expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, participating, or
being or preparing to be a witness in a Proceeding.
(e) "Independent Counsel" means a law firm, or a
member of a law firm, that is experienced in matters of corporation law and
neither presently is, nor in the past five years has been, retained to
represent: (i) the Company or Indemnitee in any matter material to either such
party (other than with respect to matters concerning the Indemnitee under this
Agreement, or of other indemnitees under similar indemnification agreements), or
(ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement. The Company agrees to pay the
reasonable fees of the Independent Counsel referred to above and to fully
indemnify such counsel against any and all Expenses, claims, liabilities and
damages arising out of or relating to this Agreement or its engagement pursuant
hereto.
(f) "Proceeding" includes any threatened,
pending or completed action, suit, arbitration, alternate dispute resolution
mechanism, investigation, inquiry, administrative hearing or any other actual,
threatened or completed proceeding, whether brought by or in the right of the
Company or otherwise and whether civil, criminal, administrative or
investigative, in which Indemnitee was, is or will be involved as a party or
otherwise, by reason of the fact that Indemnitee is or was a director of the
Company, by reason of any action taken by him or of any inaction on his part
while acting as an officer or director of the Company, or by reason of the fact
that he is or was serving at the request of the Company as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise; in each case whether or not he is acting or serving in any
such capacity at the time any liability or expense is incurred for which
indemnification can be provided under this Agreement; including one pending on
or before the date of this Agreement; and excluding one initiated by an
Indemnitee pursuant to Section 7 of this Agreement to enforce his rights under
this Agreement.
14. Severability. If any provision or provisions of this
Agreement shall be held by a court of competent jurisdiction to be invalid,
void, illegal or otherwise unenforceable for any reason whatsoever: (a) the
validity, legality and enforceability of the remaining provisions of this
Agreement (including without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby and shall remain enforceable to the
fullest extent permitted by law; and (b) to the fullest extent
10
<PAGE> 11
possible, the provisions of this Agreement (including, without limitation, each
portion of any section of this Agreement containing any such provision held to
be invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall be construed so as to give effect to the intent manifested
thereby.
15. Modification and Waiver. No supplement, modification,
termination or amendment of this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the provisions of
this Agreement shall be deemed or shall constitute a waiver of any other
provisions hereof (whether or not similar) nor shall such waiver constitute a
continuing waiver.
16. Notice By Indemnitee. Indemnitee agrees promptly to notify
the Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise.
17. Notices. All notices, requests, demands and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if (i) delivered by hand and receipted for by the party to whom said
notice or other communication shall have been directed, or (ii) mailed by
certified or registered mail with postage prepaid, on the third business day
after the date on which it is so mailed:
(a) If to Indemnitee, to the address set forth
below Indemnitee signature hereto.
(b) If to the Company, to:
STAR Telecommunications, Inc.
223 East De La Guerra Street
Santa Barbara, California 93101
Attention: Chief Executive Officer
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
18. Identical Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall for all purposes be deemed to be
an original but all of which together shall constitute one and the same
Agreement. Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.
19. Headings. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction thereof.
11
<PAGE> 12
20. Governing Law. The parties agree that this Agreement shall
be governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
21. Gender. Use of the masculine pronoun shall be deemed to
include usage of the feminine pronoun where appropriate.
12
<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
STAR TELECOMMUNICATIONS, INC.
By:__________________________
Christopher E. Edgecomb,
Chief Executive Officer
________________________
<<Name>>
Address: <<Address>>
<PAGE> 1
Exhibit 10.2
STAR VENDING, INC.
AMENDED AND RESTATED
1996 STOCK INCENTIVE PLAN
1. PURPOSE.
1.1 INCENTIVE TO EMPLOYEES. This Amended and Restated 1996 Stock
Incentive Plan (the "Plan") is intended to provide incentive to, and to
encourage stock ownership by, selected employees, officers, directors and
consultants of STAR Vending, Inc., a Nevada corporation (the "Company"), any
Subsidiary (as defined below) and any Parent (as defined below), so that such
employees, officers, directors and consultants may acquire a proprietary
interest in, or increase their proprietary interest in, the Company. For the
purposes of the Plan, the terms "Subsidiary" and "Parent" shall mean any present
or future corporation which would be a "subsidiary corporation" or a "parent
corporation," respectively, of the Company, as those terms are defined in
Section 424 of the Internal Revenue Code of 1986, as amended (the "Code").
1.2 STOCK INCENTIVE AWARDS. The Plan provides for the grant of options
to purchase shares of the Company's authorized but unissued Common Stock
("Shares") to selected officers, employees, directors and consultants of the
Company (sometimes collectively referred to herein as "offerees", "grantees" or
"optionees"). Options granted under the Plan may include both non-statutory
options and options intended to qualify as "incentive stock options", as that
term is defined in Section 422 of the Code ("incentive stock options").
2. ADMINISTRATION.
2.1 BOARD OF DIRECTORS. The Plan shall be administered by the Board of
Directors of the Company (the "Board") or by a Committee as defined in Section
2.2 below. The interpretation and construction by the Board or the Committee of
any provision of the Plan, or of any agreement or option issued or executed
under or pursuant to the Plan, shall be final and binding upon optionees
hereunder. No member of the Board or the Committee shall be liable for any
action or determination undertaken or made in good faith with respect to the
Plan or any agreement or option issued or executed under or pursuant to the
Plan.
2.2 COMMITTEE OF THE BOARD. The Board may, in its sole and absolute
discretion, delegate any or all of its duties and authority with respect to the
Plan to a committee of at least two (2) Directors of the Company (the
"Committee") to be appointed by and to serve at the pleasure of the Board. Once
appointed, the Committee shall continue to serve until otherwise directed by the
Board. From time to time, the Board may increase or decrease the size of the
Committee, add additional members to, remove
<PAGE> 2
members (with or without cause) from, appoint new members in substitution
therefor, and fill vacancies, however caused, in the Committee. The Committee
shall act pursuant to a vote of the majority of its members, whether present in
person or by telephonic means at a meeting of the Committee, or by the unanimous
written consent of its members, and minutes shall be kept of all of its meetings
and copies thereof shall be provided to the Board. Subject to the limitations
prescribed by the Plan and the Board, the Committee may establish and follow
such rules and regulations for the conduct of its business as it may determine
to be advisable.
2.3 ADMINISTRATIVE POWERS. Subject to the provisions of the Plan, the
Board or the Committee, as the case may be (the "Administrator"), shall have
authority to take the following actions:
(a) to construe and interpret the Plan and apply its provi sions;
(b) to promulgate, amend and rescind rules and regulations
relating to the administration of the Plan;
(c) to authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(d) to determine when options are to be granted under the Plan;
(e) from time to time to select those officers, employees,
directors and consultants to whom options shall be granted
from among the eligible officers, employees, directors and
consultants (as determined pursuant to Section 3 below) of the
Company, any Subsidiary or Parent;
(f) to determine the number of Shares to be made subject to each
option;
(g) to prescribe the terms and condition of each option,
including, without limitation, the exercise price and medium
of payment, to determine whether such option is to be
classified as an incentive stock option or as a non-statutory
stock option, and to specify the provisions of the stock
option agreement relating to such option;
(h) to amend any outstanding stock option agreement for the
purpose of modifying the exercise price as the case may be,
subject to applicable legal restrictions and to the consent of
the other party to such agreement;
-2-
<PAGE> 3
(i) to determine the duration and purpose of leaves of absences
which may be granted to employees without constituting
termination of their employment for purposes of the Plan; and
(j) to make any and all other determinations which they determine
to be necessary or advisable for administration of the Plan.
3. ELIGIBILITY.
3.1 GENERAL RULE. Any employee, officer, director or consultant of the
Company, any Subsidiary or Parent, shall be eligible to receive options granted
under the Plan and may hold more than one option.
3.2 ELIGIBLE DIRECTOR LIMITATION. Notwithstanding the provisions of
Section 3.1 above, no person shall be eligible to receive an option granted
under the Plan if at the time the option is granted, he or she is a director of
the Company and has not by resolution of the Board of Directors been designated
as an "eligible director." No member of the Committee may be designated as an
eligible director.
3.3 LIMITATION WITH RESPECT TO INCENTIVE STOCK OPTIONS.
(a) LIMITATION TO EMPLOYEES. No incentive stock option shall
be granted under the Plan except to employees (including employees who are
officers) of the Company, any Subsidiary, or any parent.
(b) LIMITATION ON AMOUNT. The aggregate Fair Market Value
(determined as of the date of grant) of Shares with respect to which incentive
stock options are exercisable for the first time by an optionee during any
calendar year (under the Plan and all such plans of the Company) shall not
exceed $100,000.
4. FAIR MARKET VALUE.
For purposes of the Plan, "Fair Market Value" of Shares of Common Stock
of the Company on any date shall mean that amount which the Administrator
determines in good faith to be the amount which a willing buyer would pay to an
equally willing seller to purchase such Shares on such date.
5. THE STOCK.
Subject to adjustment as set forth in this Section 5, the total number
of Shares which may be issued under the Plan upon exercise of options or other
rights to purchase Shares shall not exceed 720,000 Shares; provided, however,
that if any outstanding
-3-
<PAGE> 4
option shall for any reason expire or terminate unexercised, then such Shares
shall again be available for issuance under the Plan. Each time any of the
events set forth in Section 6.8(a) or Section 6.8(b) of the Plan occurs, the
number of Shares purchasable under the Plan shall be adjusted in the same manner
as the number of Shares subject to any outstanding option would be adjusted
under the provisions of Section 6.8(c) of the Plan.
6. TERMS AND CONDITIONS OF OPTIONS.
6.1 OPTION AGREEMENT. Each option granted under the Plan shall be
evidenced by an option agreement between the optionee and the Company in the
form from time to time adopted by the Administrator and containing such terms
and conditions which the Administrator deems appropriate; provided such terms
and conditions are not inconsistent with the Plan. The provisions of the various
option agreements entered into under the Plan need not be identical.
6.2 EXERCISE PRICE. Each option agreement shall state the price at
which the Shares subject to the option may be purchased (the "Exercise Price").
In the case of an incentive stock option, the Exercise Price shall not be less
than 100% of the Fair Market Value of such Shares on the date the option is
granted (as determined by the Administrator), and in the case of a non-statutory
stock option, the Exercise Price shall not be less than 85% of the Fair Market
Value of such Shares on the date the option is granted (as determined by the
Administrator); provided, however, that in the case of any stock option granted
to a "Ten Percent Shareholder" (as defined below), the Exercise Price shall not
be less than 110% of the Fair Market Value on the date the option is granted (as
determined by the Administrator). For purposes of the Plan, "Ten Percent
Shareholder" means a person who, on the date of grant by the Administrator of an
option to that person owns, either directly or through attribution as provided
in Section 424(d) of the Code, capital stock of the Company possessing more than
10% of the total combined voting power of all classes of stock of his or her
employer corporation or of any Parent or Subsidiary.
6.3 NUMBER OF SHARES. Each option agreement shall state the number of
Shares which may be purchased upon exercise, and shall specify that the option
is an incentive stock option or a non-statutory stock option.
6.4 TERM OF OPTION. Each option agreement shall provide that the option
shall terminate at the expiration of the earliest of:
(a) that date selected by the Administrator, which shall be
not more than ten (10) years after the date the option is granted or, in the
case of an incentive option granted to a
-4-
<PAGE> 5
Ten Percent Shareholder, five (5) years after the date the option is granted;
(b) thirty (30) days (one hundred eighty (180) days in the
case of a non-statutory stock option) after the date of termination of the
optionee's services to or employment with the Company, any Subsidiary or any
Parent for any reason other than those set forth in clauses (c) or (d) below;
(c) one year after the date of termination of the optionee's
employment with the Company, any Subsidiary or any Parent as a result of the
permanent and total disability of the optionee;
(d) one year after the death of the optionee, provided that
such death occurs during the optionee's employment by the Company or within
thirty (30) days after termination of such employment other than for cause.
For the purposes of Section 6.4(c), "permanent and total
disability" shall mean a disability of the type defined in Section 22(e)(3) of
the Code. An individual shall not be considered permanently disabled unless he
or she furnishes proof of the existence of such permanent disability in such
form and manner, and at such times, as the Administrator may require.
6.5 TRANSFER OF OPTION. Each option agreement shall provide that the
option shall not be transferable by the optionee otherwise than by will or the
laws of descent and distribution.
6.6 EXERCISE OF OPTION. Each option agreement shall provide that the
option shall not be exercisable during the lifetime of the optionee by any
person other than the optionee. Except as provided in Section 6.12 hereof, each
option granted pursuant to the Plan shall become exercisable, in whole or in
part, at such times as shall be set forth in the option agreement. At the
discretion of the Administrator, options may be exercisable in installments at a
rate of not less than 20% per year, in which case such installments (if more
than one) shall (to the extent not exercised) accumulate and be exercisable, in
whole or in part, in any subsequent installment period but in no event later
than the date of the termination of the option.
6.7 INVESTMENT PURPOSES. Unless and until the issuance and sale of the
Shares acquired by an optionee pursuant to the exercise of options granted under
the Plan are registered under the Act or any similar subsequent legislation,
each option agreement under the Plan shall provide that the purchase of Shares
pursuant to the option agreement shall be for investment purposes, and not with
a view to resale or distribution other than as permitted under the Act. Each
option agreement shall further provide that no Shares shall be purchased or sold
thereunder unless and until (a) any then applicable requirements
-5-
<PAGE> 6
of state or federal laws and regulatory agencies shall have been fully complied
with to the satisfaction of the Company and its counsel, and (b) if required to
do so by the Company, the optionee shall have executed and delivered to the
Company a stock restriction agreement in such form and containing such
provisions as the Administrator may require in accordance with law.
6.8 STOCK SPLITS, ETC. Each option agreement shall provide that,
subject to any required action by the shareholders of the Company:
(a) If outstanding Shares shall be subdivided into a greater
number of Shares, or a dividend in Shares or other securities of the Company
convertible into or exchangeable for the Shares (in which latter event the
number of Shares issuable upon the conversion or exchange of such securities
shall be deemed to have been distributed) shall be paid in respect of the
Shares, the Exercise Price of any outstanding option in effect immediately prior
to such subdivision or at the record date of such dividend shall, simultaneously
with the effectiveness of such subdivision or immediately after the record date
of such dividend, be proportionately reduced, and conversely, if the outstanding
Shares shall be combined into a small number of Shares, the Exercise Price of
any outstanding option in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased.
(b) In the event the Company at any time, or from time to
time, shall make or issue, or fix a record date for the determination of holders
of Shares entitled to receive, a dividend or other distribution payable in
securities of the Company other than Shares or securities convertible into or
exchangeable for Shares then and in each such event, provision shall be made so
that the holders of options shall receive upon exercise thereof, in addition to
the number of Shares receivable thereupon, the amount of securities of the
Company which they would have received had their option been exercised on the
date of such event and had thereafter, during the period from the date of such
event to and including the date of exercise, retained such securities receivable
by them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 6.8 with respect to the rights
of the holders of options.
(c) When any adjustment is required to be made in the Exercise
Price, the number of Shares purchasable upon the exercise of any outstanding
option shall be adjusted to that number of Shares determined by (i) multiplying
an amount equal to the number of Shares purchasable upon the exercise of the
option immediately prior to such adjustment by the Exercise Price in effect
immediately prior to such adjustment, and then (ii) dividing that product by the
Exercise Price in effect immediately
-6-
<PAGE> 7
after such adjustment.
(d) In the case of any capital reorganization, any
reclassification of the Shares (other than a change in par value or
recapitalization described in Section 6.8(a) or 6.8(b) hereof), or the
consolidation of the Company with, or a sale of substantially all of the assets
of the Company to (which sale is followed by a liquidation or dissolution of the
Company), or the merger of the Company with another person, except as provided
in Section 6.12 hereof, the holder of any outstanding option shall thereafter be
entitled upon exercise of the option to purchase the kind and number of Shares
or other securities or property of the surviving corporation receivable upon
such event by a holder of the number of Shares which such option entitles the
holder to purchase from the Company immediately prior to such event. In every
such case, appropriate adjustment shall be made in the application of the
provisions set forth in the option agreement and in the Plan with respect to the
rights and interests thereafter of the optionee, to the end that the provisions
set forth in the option agreement and in the Plan (including the specified
changes and other adjustments to the Exercise Price) shall thereafter be
applicable in relation to any Shares or other securities or property thereafter
purchasable upon exercise of such option.
(e) A dissolution or liquidation of the Company shall cause
each outstanding option to terminate; provided that each optionee shall have the
right exercisable during a 10-day period ending on the fifth day prior to such
dissolution or liquidation to exercise his or her option in whole or in part,
without regard to any installment provisions under his or her option agreement;
but any exercise of the option which except for the provisions of this Section
6.8(e) would not then be exercisable, shall be conditioned upon the actual
occurrence of such dissolution or liquidation, and if such dissolution or
liquidation does not occur, the optionee's exercise of the option during such
10-day period shall be null and void, and of no force and effect. For purposes
of this Section 6.8 (e) and subject to the previous sentence, any exercise of
the option by the optionee pursuant to this Section 6.8(e) shall be deemed to
occur immediately prior to the consummation of any such dissolution or
liquidation.
(f) To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive.
(g) Except as expressly provided in this Section 6.8 or in
Section 6.12, no optionee shall have any rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class, and the dissolution, liquidation, merger, consolidation or split-up
or sale of assets or stock to another corporation, or any issue
-7-
<PAGE> 8
by the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall not affect, and no adjustment by reason
thereof shall be made with respect to, the number of, or Exercise Price for, the
shares.
(h) The grant of an option pursuant to the Plan shall not
affect in any way the rights or power of the Company to make adjustments,
reclassification, reorganizations or changes of its capital or business
structure or to merge, consolidate, dissolve or liquidate, or to sell or
transfer all or any part of its business or assets.
6.9 RIGHTS AS A SHAREHOLDER. Each option agreement shall provide that
no optionee or transferee of an option shall have any rights as a shareholder
with respect to any of the Shares subject to the option until the date of
issuance of a stock certificate for such Shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distribution or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 6.8
above.
6.10 RESTRICTIONS ON TRANSFERS OF SHARES. Each option agreement may
contain such restrictions on transfer of Shares obtained pursuant to the
exercise of options as the Administrator may determine including without
limitation, rights of repurchase and rights of refusal as permitted under law.
6.11 MODIFICATION, EXTENSION AND RENEWAL OF OPTION. Subject to the
terms and conditions and within the limitations of the Plan and the Code, the
Administrator may modify (including a modification of the Exercise Price) extend
or renew outstanding options granted under the Plan, or accept the surrender of
outstanding options (to the extent not previously exercised) and authorize the
granting of new options in substitution therefor (to the extent not previously
exercised). However, no modification of an option shall be made without the
consent of the optionee which would alter or impair any rights of the optionee
under the option.
6.12 ACCELERATION.
(a) A "Change in Control" for purposes of this Plan shall mean
(i) a single entity or group of affiliated entities acquires more than 50% of
the stock of the Company issued and outstanding immediately prior to such
acquisition; or (ii) shareholders approve the consummation of any merger of the
Company or any sale or other disposition of all or substantially all of its
assets, if the shareholders of the Company immediately before such transaction
own, immediately after consummation of such transaction, equity securities
(other than options and other rights to acquire equity securities) possessing
less than 50% of the voting power of the surviving or acquiring corporation.
-8-
<PAGE> 9
(b) If a Change in Control has occurred or if the Board of
Directors determines in good faith that a Change in Control is about to occur,
the Board of Directors may determine that it is necessary or desirable to
accelerate the exercisability of all options granted hereunder. Upon such
determination, the Board of Directors shall establish the date upon which all
options not theretofore exercisable shall become exercisable, the period of time
(not in excess of 10 days) during which such options may be exercised and the
notice period required for exercise. The Board of Directors shall notify all
optionees of such date, exercise period and notice requirement.
(c) Any options subject to acceleration under this Section
that are not exercised during the exercise period estab lished by the Board of
Directors pursuant to subsection (b) above shall be treated as if no Change in
Control had occurred and shall be governed by their original terms.
Nevertheless, by a notice to that effect which is communicated in any reasonable
manner to as many of the holders of options as is feasible, the Board of
Directors may provide that any options accelerated pursuant to this Section 6.12
shall expire at the end of the exercise period established by the Board of
Directors pursuant to subsection (b).
(d) In the event of a Change in Control that consists of a
merger of the Company with or into another entity in which holders of the
Company's common stock will receive cash for their shares, the Board of
Directors, upon making the determination set forth in subsection (b) may provide
that, upon consummation of such Change in Control, all then outstanding options
granted hereunder shall be automatically converted into the right to receive
cash in an amounts equal to the difference, if any, between the price to be
received by holders of the Company's common stock for their shares and the
respective Exercise Prices of the outstanding options.
7. PAYMENT FOR SHARES.
7.1 GENERAL RULE. The Exercise Price for any Shares purchased under the
Plan shall be payable (i) in cash, (ii) by check, (iii) subject to Section 7.2,
by promissory note, (iv) at the discretion of the Administrator, with Shares
which have already been owned by the optionee for more than six months and which
are surrendered to the Company in good form for transfer (such Shares to be
valued at their Fair Market Value on the date when the new Shares are purchased
under the Plan), (v) by delivery (on a form prescribed by the Company) of an
irrevocable direction to a securities broker approved by the Company to sell
Shares and to deliver all or part of the sales proceeds to the Company in
payment of all or part of the Exercise Price and any withholding taxes, (vi) by
delivery (on a form prescribed by the Company) of an irrevocable direction to
pledge Shares to a
-9-
<PAGE> 10
securities broker or lender approved by the Company, as security for a loan, and
to deliver all or part of the loan proceeds to the Company in payment of all or
part of the Exercise Price and any withholding taxes, or (vii) by any
combination of the above, in each case as set forth in the relevant option
agreement.
7.2 PROMISSORY NOTE. The Administrator in its sole discre tion may
specify in any option agreement entered into hereunder that payment may be made
with a full recourse promissory note executed by the optionee or offeree. Such
note shall bear interest at the rate specified in the option agreement for a
term of no more than five years with interest only payable during the term.
Subject to the foregoing, the Administrator in its sole discretion shall specify
the term, interest rate and other provisions of the note. The Administrator may
require that the offeree or optionee pledge his Shares to the Company for the
purpose of securing payment for the note, and the Administrator may require that
the certificate(s) representing such Shares be held by the Company as a security
holder in order to perfect the Company's security interest.
7.3 WITHHOLDING.
(a) GENERALLY. Notwithstanding the provisions of Sections 7.1
and 7.2 hereof, whenever under any agreement evidencing options, or any shares
or any monetary amount are issued to any grantee, the Company shall be entitled
to require as a condition of delivery that the grantee agree to remit, at the
time of such delivery or at such later date as the Company may determine, an
amount sufficient to satisfy all federal, state and local withholding tax
requirements relating thereto.
(b) WITHHOLDING OF SHARES. With the consent of the
Administrator, and in accordance with any rules and procedures from time to time
adopted by the Administrator, a grantee may elect to satisfy by (i) directing
the Company to withhold a portion of the Shares otherwise deliverable or (ii)
tendering to the Company other Shares which are already owned by such grantee or
purchaser, which, in all cases, have a Fair Market Value on the date as of which
the amount of tax to be withhold is determined (the "Tax Date") equal to the
amount of tax to be paid with respect to such Shares.
(c) FORM OF ELECTION. Any election made pursuant to Paragraph
7.3(b) above must:
(i) be made in writing on or prior to the Tax
Date and specify whether all or a stated percentage of the applicable taxes will
be paid with Shares and whether the amounts so paid shall be made in accordance
with the "flat" withholding rates for supplemental wages or as determined in
accordance with the grantee's Form W-4 (or comparable state or local forms);
-10-
<PAGE> 11
(ii) be irrevocable once made; and
(iii) conform in all respects to all rules and
procedures from time to time adopted by the Administrator and be subject to
rejection by the Administrator for any reason.
8. TERM OF THE PLAN.
Unless sooner terminated by the Board in its sole discretion, the Plan
shall expire on January 22, 2006.
9. AMENDMENTS TO THE PLAN.
The Plan may be amended from time to time by the Board; provided that
any amendment which (a) increases the number of Shares which may be issued under
the Plan, (b) materially increases the benefits accruing to persons eligible to
purchase Shares under the Plan or (c) materially modifies the requirements for
eligibility for purchasing Shares under the Plan, shall not become effective
unless and until approved by the shareholders of the Company.
The Company intends that the Plan shall comply with the requirements of
Section 422 of the Code with respect to incentive stock options issued under the
Plan. Should any provisions of the Plan not be necessary to comply with the Code
requirements or should any additional provisions be necessary for the Plan to
comply with the Code requirements, the Board may amend the Plan to add or modify
the provisions of the Plan accordingly without the necessity of shareholder
approval.
10. EFFECTIVE DATE; SHAREHOLDER APPROVAL.
The Company's 1996 Stock Incentive Plan became effective as of January
22, 1996, the date it was adopted by the Board of Directors and shareholders of
the Company. The amendment and restatement of the 1996 Stock Incentive Plan
evidenced hereby is adopted by the Board of Directors as of March 31, 1996;
however, no Shares may be sold under the Plan (as amended and restated) unless
and until shareholder approval of such amendment and restatement shall have been
obtained. Options may be granted prior to obtaining shareholder approval;
provided that each option agreement shall provide that the option may not be
exercised unless such approval is obtained prior to January 22, 1997.
11. ASSUMPTION.
The terms and conditions of any outstanding options granted pursuant to
this Plan shall be assumed by, be binding upon and inure to the benefit of any
successor corporation to the Company and shall continue to be governed by, to
the extent applicable,
-11-
<PAGE> 12
the terms and conditions of this Plan.
12. ANNUAL FINANCIAL STATEMENTS.
Any person who is granted an option under the terms of this Plan shall
receive financial statements of the Company on an annual basis as long as such
person has any unexercised options outstanding as of the last day of each fiscal
year of the Company.
-12-
<PAGE> 1
EXHIBIT 10.3
STAR VENDING, INC.
1996 OUTSIDE DIRECTOR NONSTATUTORY STOCK OPTION PLAN
1. PURPOSE.
1.1 INCENTIVE TO DIRECTORS. This 1996 Outside Director Nonstatutory
Stock Option Plan (the "Plan") is intended to provide incentive to, and to
encourage stock ownership by selected outside directors of Star Vending, Inc., a
Nevada corporation (the "Company"), any Subsidiary (as defined below) and any
Parent (as defined below), so that such directors may acquire a proprietary
interest in, or increase their proprietary interest in, the Company. For the
purposes of the Plan, the terms "Subsidiary" and "Parent" shall mean any present
or future corporation which would be a "subsidiary corporation" or a "parent
corporation," respectively, of the Company, as those terms are defined in
Section 424 of the Internal Revenue Code of 1986, as amended (the "Code").
1.2 STOCK AWARDS. The Plan provides for the grant of options to
purchase shares of the Company's authorized but unissued Common Stock ("Shares")
to selected directors of the Company (sometimes referred as "offerees",
"grantees" or "optionees"). Options granted under the Plan are solely
non-statutory options, and are not intended to qualify as "incentive stock
options", as that term is defined in Section 422 of the Code.
2. ADMINISTRATION.
2.1 BOARD OF DIRECTORS. The Plan shall be administered by the Board of
Directors of the Company (the "Board") or by the Compensation Committee (the
"Committee") as defined in Section 2.2 below. The interpretation and
construction by the Board or the Committee of any provision of the Plan, or of
any agreement or option issued or executed under or pursuant to the Plan, shall
be final and binding upon optionees. No member of the Board or the Committee
shall be liable for any action or determination undertaken or made in good faith
with respect to the Plan or any agreement or option issued or executed under or
pursuant to the Plan.
2.2 COMMITTEE OF THE BOARD. The Board may, in its sole and absolute
discretion, delegate any or all of its duties and authority with respect to the
Plan to the Committee, which was created by the Board at their annual
organizational meeting held May 5, 1996. If the Committee includes any outside
directors, such outside directors shall not participate in any decisions made by
the Committee which relate to the Plan.
-1-
<PAGE> 2
2.3 ADMINISTRATIVE POWERS. Subject to the provisions of the Plan, the
Board or the Committee, as the case may be (the "Administrator"), shall have
authority to take the following actions:
(a) to construe and interpret the Plan and apply its provisions;
(b) to promulgate, amend and rescind rules and regulations
relating to the administration of the Plan;
(c) to authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan;
(d) to determine when options are to be granted under the Plan;
(e) from time to time to select those directors to whom options
shall be granted from among the eligible directors (as
determined pursuant to Section 3 below) of the Company, any
Subsidiary or Parent;
(f) to determine the number of Shares to be made subject to each
option;
(g) to prescribe the terms and condition of each option,
including, without limitation, the exercise price and medium
of payment, and to specify the provisions of the stock option
agreement relating to such option;
(h) to amend any outstanding stock option agreement for the
purpose of modifying the exercise price as the case may be,
subject to applicable legal restrictions and to the consent of
the other party to such agreement;
(i) to determine the duration and purpose of leaves of absences
which may be granted to employees without constituting
termination of their employment for purposes of the Plan; and
(j) to make any and all other determinations which they determine
to be necessary or advisable for administration of the Plan.
3. ELIGIBILITY.
Any outside director of the Company, any Subsidiary or Parent, shall be
eligible to receive options granted under the Plan and may hold more than one
option.
4. THE STOCK.
-2-
<PAGE> 3
Subject to adjustment as set forth in this Section 4, the total number
of Shares which may be issued under the Plan upon exercise of options or other
rights to purchase Shares shall not exceed 200,000 Shares; provided, however,
that if any outstanding option shall for any reason expire or terminate
unexercised, then such Shares shall again be available for issuance under the
Plan. Each time any of the events set forth in Section 5.8(a) or Section 5.8(b)
of the Plan occurs, the number of Shares purchasable under the Plan shall be
adjusted in the same manner as the number of Shares subject to any outstanding
option would be adjusted under the provisions of Section 5.8(c) of the Plan.
5. TERMS AND CONDITIONS OF OPTIONS.
5.1 OPTION AGREEMENT. Each option granted under the Plan shall be
evidenced by an option agreement between the optionee and the Company in the
form from time to time adopted by the Administrator and containing such terms
and conditions which the Administrator deems appropriate; provided such terms
and conditions are not inconsistent with the Plan. The provisions of the various
option agreements entered into under the Plan need not be identical.
5.2 EXERCISE PRICE. Each option agreement shall state the price at
which the Shares subject to the option may be purchased (the "Exercise Price").
The exercise price of an option shall be at the price determined by the
Administrator, except that (a) in no case shall the exercise price be less than
eighty-five percent (85%) of the fair market value of the stock at the time the
option is granted, and (b) the exercise price shall be one hundred ten percent
(110%) of the fair market value of the stock at the time the option is granted
if the options are granted to a person who owns, either directly or through
attribution as provided in Section 424(d) of the Internal Revenue Code, stock
possessing more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company, or any parent or subsidiary of the Company.
5.3 NUMBER OF SHARES. Each option agreement shall state the number of
Shares which may be purchased upon exercise.
5.4 TERM OF OPTION. Each option agreement shall provide that the option
shall terminate at the expiration of the earliest of:
(a) that date selected by the Administrator, which shall be
not more than ten (10) years after the date the option is granted;
(b) one hundred eighty (180) days after the date of
termination of the optionee's status as a director of the Company, any
Subsidiary or any Parent for any reason other than
-3-
<PAGE> 4
those set forth in clauses (c) or (d);
(c) one year after the date of termination of the optionee's
status as a director of the Company, any Subsidiary or any Parent as a result of
the permanent and total disability of the optionee; and
(d) one year after the death of the optionee, provided that
such death occurs during the optionee's status as a director of the Company, or
within thirty (30) days after termination of such status.
For the purposes of Section 5.4(c), "permanent and total disability" shall mean
a disability of the type defined in Section 22(e)(3) of the Code. An individual
shall not be considered permanently disabled unless he or she furnishes proof of
the existence of such permanent disability in such form and manner, and at such
times, as the Administrator may require.
5.5 TRANSFER OF OPTION. Each option agreement shall provide that the
option shall not be transferable by the optionee otherwise than by will or the
laws of descent and distribution.
5.6 EXERCISE OF OPTION. Each option agreement shall provide that the
option shall not be exercisable during the lifetime of the optionee by any
person other than the optionee. Except as provided in Section 5.12, each option
granted pursuant to the Plan shall become exercisable, in whole or in part, at
such times as shall be set forth in the option agreement. At the discretion of
the Administrator, options may be exercisable in installments at a rate of not
less than 20% per year, in which case such installments (if more than one) shall
(to the extent not exercised) accumulate and be exercisable, in whole or in
part, in any subsequent installment period but in no event later than the date
of the termination of the option.
5.7 INVESTMENT PURPOSES. Unless and until the issuance and sale of the
Shares acquired by an optionee pursuant to the exercise of options granted under
the Plan are registered under the Act or any similar subsequent legislation,
each option agreement under the Plan shall provide that the purchase of Shares
pursuant to the option agreement shall be for investment purposes, and not with
a view to resale or distribution other than as permitted under the Act. Each
option agreement shall further provide that no Shares shall be purchased or sold
thereunder unless and until (a) any then applicable requirements of state or
federal laws and regulatory agencies shall have been fully complied with to the
satisfaction of the Company and its counsel, and (b) if required to do so by the
Company, the optionee shall have executed and delivered to the Company a stock
restriction agreement in such form and containing such provisions as the
Administrator may require in accordance with law.
-4-
<PAGE> 5
5.8 STOCK SPLITS, ETC. Each option agreement shall provide that,
subject to any required action by the shareholders of the Company:
(a) If outstanding Shares shall be subdivided into a greater
number of Shares, or a dividend in Shares or other securities of the Company
convertible into or exchangeable for the Shares (in which latter event the
number of Shares issuable upon the conversion or exchange of such securities
shall be deemed to have been distributed) shall be paid in respect of the
Shares, the Exercise Price of any outstanding option in effect immediately prior
to such subdivision or at the record date of such dividend shall, simultaneously
with the effectiveness of such subdivision or immediately after the record date
of such dividend, be proportionately reduced, and conversely, if the outstanding
Shares shall be combined into a small number of Shares, the Exercise Price of
any outstanding option in effect immediately prior to such combination shall,
simultaneously with the effectiveness of such combination, be proportionately
increased.
(b) In the event the Company at any time, or from time to
time, shall make or issue, or fix a record date for the determination of holders
of Shares entitled to receive, a dividend or other distribution payable in
securities of the Company other than Shares or securities convertible into or
exchangeable for Shares then and in each such event, provision shall be made so
that the holders of options shall receive upon exercise thereof, in addition to
the number of Shares receivable thereupon, the amount of securities of the
Company which they would have received had their option been exercised on the
date of such event and had thereafter, during the period from the date of such
event to and including the date of exercise, retained such securities receivable
by them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 5.8 with respect to the rights
of the holders of options.
(c) When any adjustment is required to be made in the Exercise
Price, the number of Shares purchasable upon the exercise of any outstanding
option shall be adjusted to that number of Shares determined by (i) multiplying
an amount equal to the number of Shares purchasable upon the exercise of the
option immediately prior to such adjustment by the Exercise Price in effect
immediately prior to such adjustment, and then (ii) dividing that product by the
Exercise Price in effect immediately after such adjustment.
(d) In the case of any capital reorganization, any
reclassification of the Shares (other than a change in par value or
recapitalization described in Section 5.8(a) or 5.8(b) hereof), or the
consolidation of the Company with, or a sale of substantially all of the assets
of the Company to (which sale is
-5-
<PAGE> 6
followed by a liquidation or dissolution of the Company), or the merger of the
Company with another person, except as provided in Section 5.12 hereof, the
holder of any outstanding option shall thereafter be entitled upon exercise of
the option to purchase the kind and number of Shares or other securities or
property of the surviving corporation receivable upon such event by a holder of
the number of Shares which such option entitles the holder to purchase from the
Company immediately prior to such event. In every such case, appropriate
adjustment shall be made in the application of the provisions set forth in the
option agreement and in the Plan with respect to the rights and interests
thereafter of the optionee, to the end that the provisions set forth in the
option agreement and in the Plan (including the specified changes and other
adjustments to the Exercise Price) shall thereafter be applicable in relation to
any Shares or other securities or property thereafter purchasable upon exercise
of such option.
(e) A dissolution or liquidation of the Company shall cause
each outstanding option to terminate; provided that each optionee shall have the
right exercisable during a 10-day period ending on the fifth day prior to such
dissolution or liquidation to exercise his or her option in whole or in part,
without regard to any installment provisions under his or her option agreement;
but any exercise of the option which except for the provisions of this Section
5.8(e) would not then be exercisable, shall be conditioned upon the actual
occurrence of such dissolution or liquidation, and if such dissolution or
liquidation does not occur, the optionee's exercise of the option during such
10-day period shall be null and void, and of no force and effect. For purposes
of this Section 5.8 (e) and subject to the previous sentence, any exercise of
the option by the optionee pursuant to this Section 5.8(e) shall be deemed to
occur immediately prior to the consummation of any such dissolution or
liquidation.
(f) To the extent that the foregoing adjustments relate to
stock or securities of the Company, such adjustments shall be made by the
Administrator, whose determination in that respect shall be final, binding and
conclusive.
(g) Except as expressly provided in this Section 5.8 or in
Section 5.12, no optionee shall have any rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any stock
dividend or any other increase or decrease in the number of shares of stock of
any class, and the dissolution, liquidation, merger, consolidation or split-up
or sale of assets or stock to another corporation, or any issue by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, shall not affect, and no adjustment by reason thereof shall be
made with respect to, the number of, or Exercise Price for, the shares.
(h) The grant of an option pursuant to the Plan shall not
affect in any way the rights or power of the Company to make
-6-
<PAGE> 7
adjustments, reclassification, reorganizations or changes of its capital or
business structure or to merge, consolidate, dissolve or liquidate, or to sell
or transfer all or any part of its business or assets.
5.9 RIGHTS AS A SHAREHOLDER. Each option agreement shall provide that
no optionee or transferee of an option shall have any rights as a shareholder
with respect to any of the Shares subject to the option until the date of
issuance of a stock certificate for such Shares. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distribution or other rights for which the record date is prior to
the date such stock certificate is issued, except as provided in Section 5.8
above.
5.10 RESTRICTIONS ON TRANSFERS OF SHARES. Each option agreement may
contain such restrictions on transfer of Shares obtained pursuant to the
exercise of options as the Administrator may determine including without
limitation, rights of repurchase and rights of refusal as permitted under law.
5.11 MODIFICATION, EXTENSION AND RENEWAL OF OPTION. Subject to the
terms and conditions and within the limitations of the Plan and the Code, the
Administrator may modify (including a modification of the Exercise Price) extend
or renew outstanding options granted under the Plan, or accept the surrender of
outstanding options (to the extent not previously exercised) and authorize the
granting of new options in substitution therefor (to the extent not previously
exercised). However, no modification of an option shall be made without the
consent of the optionee which would alter or impair any rights of the optionee
under the option.
5.12 ACCELERATION.
(a) A "Change in Control" for purposes of this Plan shall mean
(i) a single entity or group of affiliated entities acquires more than 50% of
the stock of the Company issued and outstanding immediately prior to such
acquisition; or (ii) shareholders approve the consummation of any merger of the
Company or any sale or other disposition of all or substantially all of its
assets, if the shareholders of the Company immediately before such transaction
own, immediately after consummation of such transaction, equity securities
(other than options and other rights to acquire equity securities) possessing
less than 50% of the voting power of the surviving or acquiring corporation.
(b) If a Change in Control has occurred or if the Board of
Directors determines in good faith that a Change in Control is about to occur,
the Board of Directors may determine that it is necessary or desirable to
accelerate the exercisability of all options granted hereunder. Upon such
determination, the Board of Directors shall establish the date upon which all
options not theretofore exercisable shall become
-7-
<PAGE> 8
exercisable, the period of time (not in excess of 10 days) during which such
options may be exercised and the notice period required for exercise. The Board
of Directors shall notify all optionees of such date, exercise period and notice
requirement.
(c) Any options subject to acceleration under this Section
that are not exercised during the exercise period established by the Board of
Directors pursuant to subsection (b) above shall be treated as if no Change in
Control had occurred and shall be governed by their original terms.
Nevertheless, by a notice to that effect which is communicated in any reasonable
manner to as many of the holders of options as is feasible, the Board of
Directors may provide that any options accelerated pursuant to this Section 5.12
shall expire at the end of the exercise period established by the Board of
Directors pursuant to subsection (b).
(d) In the event of a Change in Control that consists of a
merger of the Company with or into another entity in which holders of the
Company's common stock will receive cash for their shares, the Board of
Directors, upon making the determination set forth in subsection (b) may provide
that, upon consummation of such Change in Control, all then outstanding options
granted hereunder shall be automatically converted into the right to receive
cash in an amounts equal to the difference, if any, between the price to be
received by holders of the Company's common stock for their shares and the
respective Exercise Prices of the outstanding options.
6. PAYMENT FOR SHARES.
6.1 GENERAL RULE. The Exercise Price for any Shares purchased under the
Plan shall be payable in (i) cash, (ii) by check, (iii) at the discretion of the
Administrator, with Shares which have already been owned by the optionee for
more than six months and which are surrendered to the Company in good form for
transfer (such shares to be valued at their Fair Market Value on the date when
the new Shares are purchased under the Plan), (iv) by delivery (on a form
prescribed by the Company) of an irrevocable direction to a securities broker
approved by the Company to sell Shares and to deliver all or part of the sales
proceeds to the Company in payment of all or part of the Exercise Price and any
withholding taxes, or (v) by delivery (on a form prescribed by the Company) of
an irrevocable direction to a securities broker or lender approved by the
Company to pledge Shares, as security for a loan, and to deliver all or part of
the loan proceeds to the Company in payment of all or part of the Exercise Price
and any withholding taxes.
6.2 WITHHOLDING.
(a) GENERALLY. Notwithstanding the provisions of Sections 6.1,
whenever under any agreement evidencing options, or
-8-
<PAGE> 9
any shares or any monetary amount are issued to any grantee, the Company shall
be entitled to require as a condition of delivery that the grantee agree to
remit, at the time of such delivery or at such later date as the Company may
determine, an amount sufficient to satisfy all federal, state and local
withholding tax requirements relating thereto.
(b) WITHHOLDING OF SHARES. With the consent of the
Administrator, and in accordance with any rules and procedures from time to time
adopted by the Administrator, a grantee may elect to satisfy by (i) directing
the Company to withhold a portion of the Shares otherwise deliverable or (ii)
tendering to the Company other Shares which are already owned by such grantee or
purchaser, which, in all cases, have a Fair Market Value on the date as of which
the amount of tax to be withhold is determined (the "Tax Date") equal to the
amount of tax to be paid with respect to such Shares.
(c) FORM OF ELECTION. Any election made pursuant to Paragraph
6.2(b) above must:
(i) be made in writing on or prior to the Tax Date
and specify whether all or a stated percentage of the applicable taxes will be
paid with Shares and whether the amounts so paid shall be made in accordance
with the "flat" withholding rates for supplemental wages or as determined in
accordance with the grantee's Form W-4 (or comparable state or local forms);
(ii) be irrevocable once made; and
(iii) conform in all respects to all rules and
procedures from time to time adopted by the Administrator and be subject to
rejection by the Administrator for any reason.
7. FAIR MARKET VALUE.
For purposes of the Plan, "Fair Market Value" of Shares of Common Stock
of the Company on any date shall mean that amount which the Administrator
determines in good faith to be the amount which a willing buyer would pay to an
equally willing seller to purchase such Shares on such date.
8. TERM OF THE PLAN.
Unless sooner terminated by the Board in its sole discretion, the Plan
shall expire on May 14, 2006.
9. AMENDMENTS TO THE PLAN.
The Plan may be amended from time to time by the Board.
-9-
<PAGE> 10
10. EFFECTIVE DATE; SHAREHOLDER APPROVAL.
This Plan shall be effective as of the date it has been adopted by the
Board of Directors of the Company.
11. ASSUMPTION.
The terms and conditions of any outstanding options granted pursuant to
this Plan shall be assumed by, be binding upon and inure to the benefit of any
successor corporation to the Company and shall continue to be governed by, to
the extent applicable, the terms and conditions of this Plan.
-10-
<PAGE> 1
Exhibit 10.5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made as of July 14,
1995 between STAR VENDING, INC., a Nevada corporation ("Star"); and MARY CASEY
("Executive").
RECITALS
A. Executive has acted as Corporate Secretary and as an operations
manager of Star since January 1994;
B. Pursuant to the terms of this Agreement, Star desires to continue to
employ Executive for a fixed term;
C. Star has requested Executive to continue to perform the duties which
Executive has performed in order to continue to have the benefit of Executive's
special knowledge, experience, reputation and abilities for the benefit of Star
and its shareholders; and
D. Executive desires to continue to perform the duties that she has
performed for Star and to utilize her special knowledge, experience, reputation
and abilities for the benefit of Star and its shareholders for the term set
forth below.
AGREEMENT
In consideration of the foregoing recitals, and intending to be legally
bound, the parties agree as follows:
1. EMPLOYMENT. Star hereby continues the employment of Executive, and
Executive hereby accepts this continued employment and agrees to exercise and
perform faithfully, exclusively, and to the best of her ability the powers and
duties of her position on the terms and conditions set forth herein.
2. EXECUTIVE'S SERVICES AND DUTIES.
2.1 NATURE OF DUTIES. During the term hereof, Executive shall:
a. Assume and perform those duties customarily
performed by the Corporate Secretary and an operations manager of a start-up
telecommunications company, including general executive duties as may be
assigned from time to time by the President;
b. Devote her full business time, ability, attention
and loyalty to the business of Star during the term of the Agreement, and
neither directly nor indirectly render any services of a business, commercial,
or professional nature to any other person, firm, corporation, or organization
for compensation, without the prior written consent of the President of Star;
and
c. As a member of the Board of Directors elected by
the shareholders of Star, perform her duties as a director without additional
compensation.
-1-
<PAGE> 2
2.2 SERVICES DEFINED BY THE PRESIDENT. The precise services to
be performed by Executive may be extended or curtailed, from time to time, at
the discretion of the President of Star, provided such services shall at all
times be of the nature customarily performed by an operations manager and
Corporate Secretary of a start-up telecommunications company.
3. TERM. The term of Executive's employment by Star pursuant to this
Agreement shall be for a period commencing with the execution of this Agreement
and ending December 31, 1996. Such term may be extended by the parties on a
year-to-year basis as may be further mutually agreed to by the parties in
writing. The term of Executive's employment is subject to earlier termination as
hereinafter provided in Paragraph 7.
4. COMPENSATION AND BENEFITS. As compensation for the services to be
rendered by Executive hereunder commencing with the Effective Date, Star shall
pay and the Executive shall accept the following compensation:
4.1 SALARY. Star shall pay to Executive a salary at the rate
of $84,000 per year. Executive's salary shall be paid in accordance with Star's
usual payroll practice. Executive shall submit timesheets in a manner consistent
with that required of Star's other exempt executive employees. Executive's
salary may be increased from time to time in the sole discretion of the
President of Star.
4.2 CASH BONUSES. In addition to the salary set forth in
Section 4.1 above, Executive may be entitled to cash bonuses as may awarded by
the President and approved by the Board of Directors from time to time, as
determined in their sole discretion.
4.3 PURCHASE OF SHARES. Concurrent with the execution of this
Agreement by the parties, Executive is purchasing shares of Star common stock
(the "Shares"), subject to the terms, conditions and restrictions set forth in
that certain Restricted Stock Agreement of even date between Star and Executive.
4.4 AUTOMOBILE ALLOWANCE. Star shall provide Executive during
the term of this Agreement, at Executive's option, with either (i) an automobile
allowance of $500 per month, or (ii) the use of a comparable automobile at an
expense to Star not in excess of such amount.
4.5 PAID VACATION LEAVE. Executive shall be entitled to an
annual vacation of three (3) weeks duration, during which time her salary shall
be paid in full. Executive is required to take this time off each year, since
Star and Executive agree that: (1) extended work without any vacation may
jeopardize Executive's creativity or productivity and thus work to Star's
disadvantage; (2) while Star may use its existing staff and resources with
minimal disruption to cover short regular vacations each year, it does not have
the resources to absorb the substantial disruption accompanying a situation
where Executive may accumulate many months of vacation and then take such
vacation all at once; and (3) Star may suffer from significant hardship
involving unfunded liabilities if Executive accumulates a large amount of unused
vacation time and then terminates her employment. If Executive for any reason
does not take part of all of such three weeks off each year the parties agree
that any vacation time earned in a fiscal year but not used during that year may
accrue to any subsequent fiscal year, but the total amount of vacation time that
may be accrued by Employee shall not exceed three weeks at any one time.
Executive confirms that as of the date of this Agreement her total accrued
unused vacation time is 15 business days.
4.6 INSURANCE AND OTHER BENEFITS. Executive shall be entitled
to participate in Star's group health insurance, life insurance and other
employee benefit programs to the same extent as other employees of Star.
-2-
<PAGE> 3
5. EXPENSES. During the term of Executive's employment hereunder,
Executive shall be entitled to receive prompt reimbursement for all reasonable
expenses incurred by Executive in performing services hereunder, including all
expenses of travel while on business or at the request of and in the service of
Star, provided that such expenses are incurred and accounted for in accordance
with the policies and procedures established by Star.
6. CONFIDENTIAL INFORMATION. Executive agrees that she will not, during
the term of this Agreement or at any time thereafter, either directly or
indirectly, disclose or make known to any other person, firm or corporation any
confidential information, trade secret, or the names or addresses of any of the
customers or vendors of Star, or any other information pertaining to them that
Executive may acquire in the performance of Executive's duties hereunder. Upon
the termination of Executive's employment by Star, Executive agrees to deliver
forthwith to Star any and all literature, documents, correspondence, and other
materials and records furnished to or acquired by Executive during the course of
such employment.
7. TERMINATION PRIOR TO EXPIRATION OF TERM.
7.1 NOTICE. The President or the Board of Directors may
terminate this Agreement and Executive's employment at any time by giving
written notice to Executive. Termination for "cause" includes without limitation
termination because of the Executive's personal dishonesty, incompetence,
willful misconduct, breach of fiduciary duty involving personal profit,
intentional failure to perform stated duties, willful violation of any law,
rule, regulation (other than traffic violations or similar offenses), or
material breach of any provision of this Agreement. If any such termination is
without cause, or if any such termination is for "cause" (other than for a
conviction of a felony or of a misdemeanor involving moral turpitude), Executive
shall receive the severance compensation described in Section 7.4 below. If such
termination is for "cause" involving a conviction of a felony or of a
misdemeanor involving moral turpitude, Executive shall have no right to receive
compensation or other benefits for any period after such termination.
Executive may terminate this Agreement and
resign from her employment at any time by giving written notice to Star. In such
case, and provided that Executive has not been convicted of a felony or of a
misdemeanor involving moral turpitude, Executive shall receive the severance
payments described in Section 7.4 below.
7.2 TERMINATION UPON DEATH. This Agreement, and the
obligations of the parties hereunder, shall terminate upon the death of
Executive. In such event, Executive's estate shall be entitled to receive
compensation accrued and payable to her as of the date of death, and all other
amounts payable hereunder, including, but not limited to, any bonuses or the
rights to any severance payments, shall thereafter cease.
7.3 TERMINATION UPON DISABILITY. The employment of Executive
may be terminated at any time by Star if Executive becomes disabled. The term
"disabled" as used herein shall mean any mental or physical illness, condition
or disability that would render the Executive unable to perform the essential
functions of her position hereunder, despite reasonable accommodation of such
illness, condition or disability by Star. If Employee is disabled and thus
terminated, she will receive the payments described at Section 7.4, below.
7.4 EFFECT ON COMPENSATION. If, as described at Section 7.1,
Executive is terminated for "cause" involving conviction for a felony or for a
misdemeanor involving moral turpitude, Executive shall be entitled to receive
compensation accrued and payable to her as of the date of any such termination,
and all other amounts payable hereunder, including, but not limited to, any
bonuses or the
-3-
<PAGE> 4
rights to any severance payments, shall thereafter cease. If
Executive's employment is terminated under Section 7.1 (other than for "cause"
involving conviction for a felony or for a misdemeanor involving moral
turpitude, or under Section 7.3, Executive shall receive the following payments:
a. For the period commencing with the date of
termination (the "Termination Date") and ending six months after such
Termination Date (the "Initial Period"), Executive shall receive $7,000 per
month, with the first payment commencing on the one month anniversary after such
Termination Date; and
b. For the period commencing with the end of such
Initial Period and ending six months later (the "Second Period"), Executive
shall receive $7,000 per month, with the first payment commencing on the one
month anniversary after the end of such Initial Period, provided, however, that
any amounts earned by Executive during this Second Period by virtue of any other
employment during such Second Period shall be deducted from amounts to which she
would be entitled hereunder.
8. REMEDIES. Executive acknowledges and agrees that Star's remedy at
law for any breach of her obligations hereunder would be inadequate, and agrees
and consents that temporary and permanent injunctive relief may be granted in
any proceeding which may be brought to enforce any provisions of this Agreement
without the necessity of proof of actual damage.
9. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of Star, its successors (by operation of law or otherwise), and its
assigns. Executive may not assign all or any part of her interest under this
Agreement without the prior written consent of Star.
10. CALIFORNIA LAW. This Agreement is to be governed by and construed
under the laws of the State of California, except to the extent superseded by
federal laws and regulations. Venue and jurisdiction shall lie in Santa Barbara
County, California.
11. INVALID PROVISIONS. Should any part of this Agreement for any
reason be declared invalid, the validity and binding effect of any remaining
portion shall not be affected, and the remaining portion of this Agreement shall
remain in full force and effect as if this Agreement had been executed with the
invalid provision eliminated.
12. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the employment of Executive by Star during
the term of this Agreement and supersedes all prior and contemporaneous
agreements, representations, and understandings of the parties. No modification,
amendment, or waiver of any of the provisions of this Agreement shall be
effective unless in writing, specifically referring hereto, and signed by both
parties. The representations, warranties, covenants and agreements of the
parties shall survive the expiration or termination of Executive's employment in
accordance with their respective terms.
13. NOTICE. Any written notice required or permitted to be given shall
be deemed delivered either when personally delivered or when mailed, registered
or certified, postage prepaid with return receipt requested, if to Employee,
addressed to Employee at the last known residence address of Employee as shown
in the records of Star, and if to Star, addressed to the President of Star at
the principal office of Star.
14, ATTORNEYS' FEES. If either party to this Agreement shall bring any
action, suit, counterclaim or appeal against the other, to enforce the terms
hereof or to declare rights hereunder, the losing party shall pay to the
prevailing party a reasonable sum for attorneys' fees and costs.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first set forth above.
"STAR"
STAR VENDING, INC.
By
---------------------------
Christopher E. Edgecomb
President
"EXECUTIVE"
---------------------------
Mary Casey
-5-
<PAGE> 6
AMENDMENT NUMBER ONE TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NUMBER ONE TO EMPLOYMENT AGREEMENT (this "Amendment") is
made and entered into as of January 1, 1996, by and among STAR VENDING, INC., a
Nevada corporation ("Star"), and MARY CASEY ("Executive").
RECITALS
A. Star and Executive are parties to that certain Employment Agreement
dated as of July 14, 1995 (the "Employment Agreement"), pursuant to which
Executive is employed by Star.
B. The parties desire to reflect Executive's promotion to President of
Star, lengthen the term of Executive's employment, adjust Executive's
compensation and make certain other changes to terms of the Employment
Agreement. In light of the foregoing, the parties hereto have determined to
amend certain provisions of the Employment Agreement as set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, and
intending to be legally bound, the parties agree to amend the Employment
Agreement as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Employment Agreement.
From and after the date hereof, the term "Agreement" as used in the Employment
Agreement will mean the Employment Agreement as amended by this Amendment,
unless and until such Employment Agreement may again be amended.
2. AMENDMENT OF SECTION 2.1(a) OF EMPLOYMENT AGREEMENT. Section 2.1(a)
of the Employment Agreement shall be amended to read in its entirety as follows:
"(a) Assume and perform those duties customarily performed by the
President and Corporate Secretary of a start-up telecommunications
company, including general executive duties as may be assigned from
time to time by the Board of Directors and the Chief Executive
Officer."
3. AMENDMENT OF SECTION 2.2 OF EMPLOYMENT AGREEMENT. Section 2.2 of the
Employment Agreement, entitled "Services Defined by the President," shall be
amended to read in its entirety as follows:
"2.2 SERVICES DEFINED BY THE CHIEF EXECUTIVE OFFICER. The precise
services to be performed by Executive may be extended or curtailed,
from time to time, at the discretion of the Chief Executive Officer of
Star, provided such services shall at all times be of the nature
customarily performed by the President and Corporate Secretary of a
start-up telecommunications company."
-1-
<PAGE> 7
4. AMENDMENT OF SECTION 3 OF EMPLOYMENT AGREEMENT. Section 3 of the
Employment Agreement, entitled "Term," shall be amended to read in its entirety
as follows:
"3. TERM. The term of Executive's employment by Star pursuant to this
Agreement shall be for a period of three years, commencing January 1,
1996 and ending December 31, 1998. The term of Executive's employment
is subject to earlier termination as hereinafter provided in Paragraph
7."
5. AMENDMENT OF SECTION 4.1 OF EMPLOYMENT AGREEMENT. Section 4.1 of the
Employment Agreement, entitled "Salary," shall be amended to read in its
entirety as follows:
"4.1 SALARY. Star shall pay Executive a monthly salary during the term
of this Agreement. This salary shall initially be $10,333.33 per month.
Executive's monthly salary shall be increased for the respective
calendar years (or applicable portion thereof) commencing January 1,
1997, and January 1, 1998, as follows:
(a) Before January 30, 1997, the parties shall ascertain from
the official Consumers Price Index for All Urban Wage Earners and
Clerical Workers (Revised Series), Los Angeles-Anaheim-Riverside
Average (1982-1984 = 100) as published by the Bureau of Labor
Statistics, Department of Labor (the "Index"), the index figure for
December 1995 (the "Base Period Index") and for December 1996 (the
"Comparison Period Index"). If the Comparison Period Index exceeds the
Base Period Index, the monthly salary payable by Star to Executive for
the entire calendar year 1997 shall be increased (but not decreased) by
multiplying Executive's then-existing monthly salary by a fraction, the
numerator of which shall be the Comparison Period Index and the
denominator of which shall be the Base Period Index. If the Comparison
Period Index does not exceed the Base Period Index, the monthly minimum
salary payable to Executive by Company during calendar 1997 shall
remain at the initial monthly salary.
(b) A similar adjustment shall be made to Executive's monthly
salary for the entire calendar year 1998; but for the purpose of such
adjustment, the Base Period Index shall be calculated as of December,
1996 and the Comparison Period Index shall be calculated as of December
1997.
(c) If the Index is no longer published, then appropriate
index figures for the Base Period Index and the Comparison Period Index
shall be derived from any successor or comparable index mutually agreed
by the parties to be authoritative.
(d) The parties acknowledge that the Comparison Period Index
figures for each year of the Employment Agreement hereunder may not be
available in a timely manner. Therefore, the monthly salary in effect
during the preceding month shall continue in effect until the
respective average index figures for the Comparison Period Indexes have
been ascertained. Upon determination of the respective Comparison
Period Indexes for each year, an appropriate adjustment shall be made,
retroactive to January 1 of 1997 and 1998, respectively, and Star shall
immediately pay to Executive any increased salary found to be due.
Executive may receive such other increases in her salary in
addition to
-2-
<PAGE> 8
those set forth above as the Board of Directors of Star may approve
from time to time. Executive's salary shall not be reduced at any time
during the term of this Agreement, but the foregoing shall not limit
Star's rights under Section 7 hereof."
6. ADDITION OF SECTION 7.5 TO EMPLOYMENT AGREEMENT. The following shall
be added as a new Section 7.5 of the Employment Agreement:
"7.5 TERMINATION WITHOUT CAUSE AFTER CERTAIN TRANSACTIONS. If
Executive's employment is terminated under Section 7.1 (other than for
"cause" involving conviction for a felony or for a misdemeanor
involving moral turpitude) within four months after the consummation of
a Sale Transaction (as defined below) relating to Star, then, instead
of the payments provided in Section 7.4, Executive shall continue to
receive the compensation provided in this Agreement until the
expiration hereof. Any amounts earned by her (other than through her
personal investment activities) prior to such expiration by virtue of
other employment shall be deducted from amounts to which she is
entitled hereunder. For the purposes of this Section 7.5, a "Sale
Transaction" shall mean the acquisition by a single entity or group of
affiliated entities (other than existing shareholders of Star or their
affiliates) of more than seventy-five percent (75%) of the voting
securities of Star pursuant to a tender offer or exchange offer
approved in advance by the Board of Directors. "
7. CONFIRMATION. Except as specifically amended by this Amendment, the
Employment Agreement will continue unchanged, and the terms and conditions of
the Employment Agreement, as amended hereby, are hereby ratified and confirmed.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first set forth above.
"STAR"
STAR VENDING, INC.
a Nevada corporation
By
-----------------------------
Christopher E. Edgecomb,
Chief Executive Officer
"EXECUTIVE"
-----------------------------
Mary Casey
-3-
<PAGE> 9
AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT
THIS AMENDMENT NUMBER TWO TO EMPLOYMENT AGREEMENT (this "Amendment") is
effective as of July 15, 1996, between STAR VENDING, INC., a Nevada corporation
("Star"), and MARY CASEY ("Executive").
RECITALS
A. Star and Executive are parties to that certain Employment Agreement
dated as of July 14, 1995 (the "Employment Agreement"), and that certain
Amendment Number One to Employment Agreement dated January 1, 1996 ("Amendment
Number One"), pursuant to which Executive is employed by Star.
B. The parties desire to adjust Executive's compensation, and thus have
determined to amend certain provisions of the Employment Agreement as set forth
in this Amendment.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, and
intending to be legally bound, the parties agree to amend the Employment
Agreement as follows:
1. DEFINED TERMS. Capitalized terms used in this Amendment and not
otherwise defined shall have the meanings ascribed to them in the Employment
Agreement and Amendment Number One. From and after the date hereof, the term
"Agreement" as used in the Employment Agreement will mean the Employment
Agreement as amended by Amendment Number One and this Amendment, unless and
until such Employment Agreement may again be amended.
2. AMENDMENT OF SECTION 4.1 OF EMPLOYMENT AGREEMENT. The first
paragraph of Section 4.1 of the Employment Agreement, entitled "Salary," shall
be amended to read in its entirety as follows:
"4.1 SALARY. Star shall pay Executive a monthly salary during the term
of this Agreement. This salary shall initially be $16,250.00 per month.
Executive's monthly salary shall be increased for the respective
calendar years (or applicable portion thereof) commencing January 1,
1997, and January 1, 1998, as follows:"
3. CONFIRMATION. Except as specifically amended by this Amendment, the
Employment Agreement and Amendment Number One will continue unchanged, and the
terms and conditions of the Employment Agreement and Amendment Number One, as
amended by this Amendment, are ratified and confirmed.
-1-
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first set forth above.
"STAR"
STAR VENDING, INC. "EXECUTIVE"
a Nevada corporation
By
------------------------------ ---------------------------
Christopher E. Edgecomb, Mary Casey
Chief Executive Officer
-2-
<PAGE> 1
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into effective
as of December 2, 1996, between STAR VENDING, INC., a Nevada corporation (the
"COMPANY") and KELLY ENOS (the "EMPLOYEE").
RECITAL:
A. The Company and Employee desire to enter into this Agreement to
assure the Company of the continuing and exclusive services of Employee and to
set forth the rights and duties of the parties.
AGREEMENT:
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. EMPLOYMENT. During the term of this Agreement, the Company shall
employ Employee, and Employee accepts employment, as Chief Financial Officer.
Employee's primary duties will be to manage the Company's financial operations
in accordance with the policies established by the Company's Board of Directors.
Employee will faithfully perform her duties to the best of her ability in
accordance with the reasonable directions of the Company as given through the
Board of Directors, the Chief Executive Officer and the President. Employee will
devote her full business time, ability, attention and loyalty to the business of
the Company during the term of this Agreement, and will not, directly or
indirectly, render any services of a business, commercial or professional nature
to any other person, firm, corporation or organization for compensation without
the prior written consent of the Company.
2. TERM. The term of Employee's employment by the Company pursuant to
this Agreement shall be for a period of two (2) years, commencing December 2,
1996 and ending December 2, 1998. The term of Employee's employment is subject
to earlier termination as provided in Section 7.
3. COMPENSATION; FRINGE BENEFITS
3.1 Base Salary. The Company shall pay Employee a monthly
salary during the term of this Agreement. This salary shall be $12,500 per
month. Employee's salary shall not be reduced at any time during the term of
this Agreement, but the foregoing shall not limit the Company's rights under
Section 7.
-1-
<PAGE> 2
3.2 Stock Options. Employee shall be awarded incentive stock
options to purchase a total of 75,000 shares of the Company's common stock
pursuant to the Company's 1996 Supplemental Stock Option Plan.
3.3 Fringe Benefits. During the employment term, Employee
shall be entitled to receive, at the Company's sole expense, the following
fringe benefits:
A. Group health insurance, paid vacation leave, life
insurance and other insurance programs as set forth in the Company's employee
manual applicable to employees generally to the same extent, and on the same
terms, as other employees of the Company; and
B. Other benefits accorded to executives of the
Company as determined from time to time by the Board of Directors.
3.4 Taxes. Compensation paid to Employee under Sections 3.1
through 3.3, inclusive, shall be subject to withholding for federal and state
income tax purposes. All payments received by Employee shall be reported on her
federal and state tax returns as compensation for employment in a manner
consistent with this Agreement.
3.5 Expenses. During the employment term, the Company shall
reimburse Employee for reasonable out-of-pocket expenses incurred in connection
with Company business. All reimbursements required by this Section 3.5 shall be
subject to such reasonable policies and record keeping as the Company may from
time to time establish for its employees.
4. CONFIDENTIAL INFORMATION. Employee shall, during the term of this
Agreement and thereafter, hold in confidence and not disclose to any person or
entity without the express prior authorization of the Company, any and all trade
secrets of the Company (including, without limitation, all customer lists and
lists of customer sources), and any and all other secret or confidential
information relating to the services, customers, sales or business affairs of
the Company or its affiliates. Employee agrees that she will not make use of any
of the above at any time after termination of her employment. Upon termination
of her employment, Employee shall deliver to the Company all documents, records,
notebooks, work papers and all similar repositories containing any information
concerning the Company, whether prepared by Employee, the Company or anyone
else. This Agreement will further incorporate any and all provisions with
respect to confidentiality, trade secrets, secret processes and data to which
Company may be required to cause its employees to agree under the terms and
provisions of any contract entered into by Company with any customer or client
thereof, or under the terms of any subcontract to which Company may be a party,
whether
-2-
<PAGE> 3
the same be in any contract to which the Company is presently a party or may,
during the course of this Agreement, become a party, or under the provisions of
any other contract with a customer of Company.
5. NO SOLICITATION OF EMPLOYEES. Employee agrees that during the term
of this Agreement, and for a period of twelve (12) months thereafter, she will
not, directly or indirectly, for herself, or as agent, or on behalf of or in
conjunction with any other person, firm, partnership, corporation or other
entity, induce or entice any employee of the Company or its affiliates to leave
such employment or cause anyone else to do so.
6. ASSIGNMENT. Employee shall not have any right to delegate or
transfer any duty or obligation to be performed by her to any third party, nor
to assign or transfer the right, if any, to receive payments under this
Agreement.
7. TERMINATION.
7.1 Methods of Termination. This Agreement and the employment
of Employee may be terminated at any time:
A. By mutual agreement of the parties.
B. By the Company if Employee dies or becomes
physically or mentally disabled (the term "disabled" shall mean any mental or
physical illness or disability that renders the Employee unable to perform the
essential functions of her position, after reasonable accommodation of such
disability by the Company).
C. By the Company, for cause, if Employee (a) has
committed any material act of dishonesty, fraud or misrepresentation or any act
of moral turpitude; (b) is in default in the performance of Employee's material
obligations, services or duties under this Agreement; or (c) has failed to
execute specific instructions from the Company's Board of Directors or executive
officers, which failure is not corrected by Employee after reasonable notice
from the Company.
D. By the Company, without cause, at any time during
the term of this Agreement.
E. By the Employee if the Company is in default of
its material obligations or duties under this Agreement.
7.2 Consequences of Termination. Employee shall be entitled to
the following compensation in the event of a termination:
A. In the event of any termination under Sections
7.1A, 7.1B, 7.1C or 7.1D, Employee (or, in the event of
-3-
<PAGE> 4
Employee's death, her estate) shall be entitled to receive compensation accrued
and payable to her as of the date of termination or death, and all other amounts
payable under this Agreement shall thereupon cease.
B. In the event of any termination under Section
7.1E, or Section 7.1D if such termination occurs within four (4) months after
the consummation of a Sale Transaction (as defined below) relating to the
Company, then Employee shall continue to receive the compensation provided in
this Agreement until the expiration of this Agreement. A "Sale Transaction"
shall mean the acquisition by a single entity or group of affiliated entities
(other than existing shareholders of the Company or their affiliates) of more
than seventy-five percent (75%) of each class of voting securities of the
Company pursuant to a tender offer or exchange offer approved in advance by the
Board of Directors. Any amounts earned by her (other than through her personal
investment activities) prior to such expiration by virtue of other employment
shall be deducted from amounts to which she is entitled under this Agreement.
7.3 IRC Violations. Any provision in this Agreement to the
contrary notwithstanding, in no event will Employee receive a payment which
would trigger the excise taxes and disallowance of deductions contemplated by
Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"). In the event that any amount calculated would result in such a payment,
such amount shall be reduced to the largest amount that would not result in such
a payment. This reduction shall apply to any and all compensation, including
compensation pursuant to stock option grants governed by separate agreement
between the Company and Employee. If, at the time of any such payment, no stock
of the Company is readily tradable on an established securities market or
otherwise, then the Company agrees to use its best efforts to cause such payment
to meet the exemption set forth in Sections 280G(b)(5)(A)(ii) and (B) of the
Code, so that no reduction will be required under this Agreement.
8. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. Employee represents and
warrants that there are no agreements or arrangements, whether written or oral,
that would be breached by Employee upon execution of this Agreement or that
would impair or prevent Employee from rendering exclusive services to the
Company during the term of this Agreement, and that Employee has not made and
will not make any commitment or do any act in conflict with this Agreement.
9. MISCELLANEOUS. This Agreement, and the legal relations between the
parties, shall be governed by and construed in accordance with the laws of the
State of California. This Agreement supersedes all prior agreements between the
parties concerning the subject matter, and constitutes the entire agreement
between the parties with respect to the subject matter.
-4-
<PAGE> 5
This Agreement may be modified only with a written instrument duly executed by
each of the parties. No waiver by any party of any breach of this Agreement
shall be deemed to be a waiver of any proceeding or succeeding breach. The
headings and titles to the Sections of this Agreement are inserted for
convenience only and shall not be deemed a part of or effect the construction or
interpretation or any provision of this Agreement. This Agreement may be
executed in counterparts, each of which shall be deemed to be an original, and
all such counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this
Agreement effective as of the date above written.
STAR VENDING, INC.
By
----------------------------
Mary Casey, President
----------------------------
Kelly Enos
-5-
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is made and entered into
as of January 1, 1996, by and between STAR VENDING, INC., a Nevada corporation
(the "COMPANY"), and DAVID VAUN CRUMLY ("EMPLOYEE").
WHEREAS, the Company and Employee desire to enter into this Agreement
to assure the Company of the continuing and exclusive services of Employee and
to set forth the rights and duties of the parties hereto.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, terms and conditions set forth herein, the parties hereto agree as
follows:
1. EMPLOYMENT. During the term hereof, the Company hereby employs
Employee, and Employee hereby accepts employment, as an Executive Vice President
of the Company. Employee's primary duties will be to manage the Company's sales
and marketing efforts in accordance with the policies established by the
Company's Board of Directors. Employee will faithfully perform his duties to the
best of his ability in accordance with the reasonable directions of the Company
as given through the Board of Directors, the Chief Executive Officer and the
President. Employee will devote his full business time, ability, attention and
loyalty to the business of the Company during the term of this Agreement, and
will not, directly or indirectly, render any services of a business, commercial,
or professional nature to any other person, firm, corporation, or organization
for compensation without the prior written consent of the Company. The foregoing
notwithstanding, the parties agree that Employee may render services to Digital
Network other than during normal business hours, provided that such activity
does not adversely affect the performance of Employee's duties to the Company or
involve Employee in any conflict of interest with respect to the Company.
2. TERM. The term of Employee's employment by the Company pursuant to
this Agreement shall be for a period of three years, commencing January 1, 1996
and ending December 31, 1998. The term of Employee's employment is subject to
earlier termination as hereinafter provided in Paragraph 7.
3. COMPENSATION; FRINGE BENEFITS
(a) Base Salary. The Company shall pay Employee a
monthly salary during the term of this Agreement. This salary
shall initially be $10,000.00 per month. Employee's monthly
salary shall be increased for the respective calendar years (or
1
<PAGE> 2
applicable portion thereof) commencing January 1, 1997, and January 1, 1998, as
follows:
(i) Before January 31, 1997, the parties shall
ascertain from the official Consumers Price Index for All Urban Wage Earners and
Clerical Workers (Revised Series), Los Angeles-Anaheim-Riverside Average
(1982-1984 = 100) as published by the Bureau of Labor Statistics, Department of
Labor (the "Index"), the index figure for December 1995 (the "Base Period
Index") and for December 1996 (the "Comparison Period Index"). If the Comparison
Period Index exceeds the Base Period Index, the monthly salary payable by the
Company to Employee for the entire calendar year 1997 shall be increased (but
not decreased) by multiplying Employee's then-existing monthly salary by a
fraction, the numerator of which shall be the Comparison Period Index and the
denominator of which shall be the Base Period Index. If the Comparison Period
Index does not exceed the Base Period Index, the monthly minimum salary payable
to Employee by Company during calendar 1997 shall remain at the initial monthly
salary.
(ii) A similar adjustment shall be made to
Employee's monthly salary for the entire calendar year 1998; but for the purpose
of such adjustment, the Base Period Index shall be calculated as of December,
1996 and the Comparison Period Index shall be calculated as of December 1997.
(iii) If the Index is no longer published, then
appropriate index figures for the Base Period Index and the Comparison Period
Index shall be derived from any successor or comparable index mutually agreed by
the parties to be authoritative.
(iv) The parties acknowledge that the Comparison
Period Index figures for each year of the Employment Agreement hereunder may not
be available in a timely manner. Therefore, the monthly salary in effect during
the preceding month shall continue in effect until the respective average index
figures for the Comparison Period Indexes have been ascertained. Upon
determination of the respective Comparison Period Indexes for each year, an
appropriate adjustment shall be made, retroactive to January 1 of 1997 and 1998,
respectively, and the Company shall immediately pay to Employee any increased
salary found to be due.
Employee may receive such other increases in his salary in
addition to those set forth above as the Board of Directors of the Company may
approve from time to time. Employee's salary shall not be reduced at any time
during the term of this Agreement, but the foregoing shall not limit the
Company's rights under Section 7 hereof.
2
<PAGE> 3
(b) Incentive Compensation. In addition to the salary set
forth in (a) above, Employee shall be entitled to receive incentive compensation
in the form of a commission on certain of the Company's accounts. This
commission shall be calculated as set forth on Exhibit A hereto and shall be
applied to those accounts specified on Exhibit B hereto. Exhibits A and B are
incorporated herein by reference. The Company's obligation to pay Employee
incentive compensation pursuant to this Section 3(b) shall automatically
terminate upon the payment of a bonus pursuant to Section 3(e) below.
(c) Stock Options. Employee shall be awarded incentive stock
options to purchase a total of 180,000 shares of the Company's common stock
pursuant to the Company's 1996 Stock Incentive Plan. This option grant shall be
evidenced by an Incentive Stock Option Agreement in the form attached hereto as
Exhibit C, which is incorporated herein by this reference.
(d) Fringe Benefits. During the employment term, Employee
shall be entitled to receive, at the Company's sole expense, the following
fringe benefits:
(i) Group health insurance, paid vacation leave, life
insurance and other insurance programs to the same extent, and on the same
terms, as other employees of the Company; and
(ii) Other benefits accorded to executives of the
Company as determined from time to time by the Board of Directors.
(e) Bonus upon Sale Transaction. In addition to all other
compensation set forth in this Section 3, upon a Sale Transaction (as defined
below), Employee shall receive a bonus subject to the following terms and
conditions:
(i) For the purposes of this Section 3(e), a
"Sale Transaction" shall mean the acquisition by a single entity or group of
affiliated entities (other than existing shareholders of the Company or their
affiliates) of more than seventy-five percent (75%) of the voting securities of
the Company pursuant to a tender offer or exchange offer approved in advance by
the Board of Directors.
(ii) For the purposes of this Section 3(e),
"Employee Accounts" shall mean those sales accounts of the Company relating to
customers introduced to the Company by Employee. A current listing of the
Employee Accounts is set forth in Exhibit D hereto, which is incorporated herein
by this reference. The parties agree that they will jointly update Exhibit D no
less frequently than each calendar quarter during the term of this Agreement, to
add accounts relating to customers subsequently introduced by Employee and to
delete accounts of
3
<PAGE> 4
customers no longer active with the Company. Such updating will be accomplished
through the reasonable determinations of the parties acting in good faith.
(iii) For the purposes of this Section 3(e),
"Monthly Gross Sales," with respect to any specified customer accounts of the
Company, shall mean the gross sales recognized by the Company during a given
calendar month for such accounts, exclusive of taxes, equipment costs, rental
charges, and other incidental charges. Monthly Gross Sales shall be determined
by the Company consistently with its customary accounting practices.
(iv) Upon the successful consummation of a Sale
Transaction prior to the termination of this Agreement, Employee shall be
entitled to receive a bonus equal to the lesser of (i) $1,500,000, or (ii) a
percentage (the "Bonus Percentage") of the Monthly Gross Sales with respect to
the Employee Accounts for the calendar month immediately preceding the date of
such consummation; provided, however, that Employee continues to be employed by
the Company until such date and no breach or default upon Employee's part under
this Agreement has then occurred and is continuing. The Bonus Percentage shall
equal ten percent (10%) of the Monthly Gross Sales from Employee Accounts for
such month up to $3,000,000; plus twenty percent (20%) of such Monthly Gross
Sales, if any, in excess of $3,000,000 but less than $5,000,000; plus thirty
percent (30%) of such Monthly Gross Sales, if any, in excess of $5,000,000. Any
bonus to which Employee is entitled under this Section 3(e) shall be paid to the
Employee in cash within ninety (90) days after the successful consummation of
the Sale, provided, however, that if the Sale Transaction involves consideration
to STAR or its shareholders other than cash (including, without limitation, a
stock-for-stock transaction), the Company in its sole discretion may in lieu of
the all cash bonus described above in this subparagraph instead pay to Employee
up to 50 percent of such bonus in the form of shares of Company stock, or shares
of the stock of any such acquirer, with such shares being valued in good faith
by the parties as of the close of any such Sale Transaction.
(f) Possible Reduction of Payments. Any provision in this
Agreement to the contrary notwithstanding, in no event will Employee receive a
payment which would trigger the excise taxes and disallowance of deductions
contemplated by Sections 280G and 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"). In the event that any amount calculated hereunder would
result in such a payment, such amount shall be reduced to the largest amount
that would not result in such a payment. This reduction shall apply to any and
all compensation, including compensation pursuant to stock option grants
governed by separate agreement between the Company and Employee. If, at the time
of any such payment, no stock of the Company is readily tradable on an
established securities market or otherwise, then the Company
4
<PAGE> 5
agrees to use its best efforts to cause such payment to meet the exemption set
forth in Sections 280G(b)(5)(A)(ii) and (B) of the Code, so that no reduction
will be required hereunder.
(g) Taxes. Compensation paid to Employee under this Section 3
shall be subject to withholding for federal and state income tax purposes. All
payments received hereunder by Employee shall be reported on his federal and
state tax returns as compensation for employment in a manner consistent with
this Agreement.
4. CONFIDENTIAL INFORMATION. Employee shall, during the term hereof and
thereafter, hold in confidence and not disclose to any person or entity without
the express prior authorization of the Company, any and all trade secrets of the
Company (including, without limitation, all customer lists and lists of customer
sources), and any and all other secret or confidential information relating to
the services, customers, sales or business affairs of the Company or its
affiliates. Employee agrees that he will not make use of any of the above at any
time after termination of his employment hereunder. Upon termination of his
employment, Employee shall deliver to the Company all documents, records,
notebooks, work papers, and all similar repositories containing any information
concerning the Company, whether prepared by Employee, the Company or anyone
else. This Agreement will further incorporate any and all provisions with
respect to confidentiality, trade secrets, secret processes and data to which
Company may be required to cause its employees to agree under the terms and
provisions of any contract entered into by Company with any customer or client
thereof, or under the terms of any subcontract to which Company may be a party,
whether the same be in any contract to which the Company is presently a party or
may, during the course of this Agreement, become a party, or under the
provisions of any other contract with a customer of Company.
5. NO SOLICITATION OF EMPLOYEES. Employee further agrees that during
the term hereof and for a period of twelve (12) months thereafter, he will not,
directly or indirectly, for himself, or as agent, or on behalf of or in
conjunction with any other person, firm, partnership, corporation or other
entity, induce or entice any employee of the Company or its affiliates to leave
such employment or cause anyone else to do so.
6. ASSIGNMENT. Employee shall not have any right to delegate or
transfer any duty or obligation to be performed by him hereunder to any third
party, nor to assign or transfer the right, if any, to receive payments
hereunder.
7. TERMINATION. This Agreement, the employment of Employee hereunder,
and any future obligation of the Company to make
5
<PAGE> 6
salary, incentive or other payments hereunder, may be terminated at any time:
(a) By mutual agreement;
(b) By the Company if Employee dies or becomes physically or
mentally disabled (the term "disabled" as used herein shall mean any mental or
physical illness or disability that renders the Employee unable to perform the
essential functions of his position hereunder, after reasonable accommodation of
such disability by the Company);
(c) By the Company, for cause, if Employee (1) has committed
any material act of dishonesty, fraud or misrepresentation or any act of moral
turpitude; (2) is in default in the performance of Employee's material
obligations, services or duties hereunder; or (3) has failed to execute specific
instructions from the Company's Board of Directors or executive officers, which
failure is not corrected by Employee after reasonable notice from the Company;
(d) By the Company, without cause, at any time during the term
of this Agreement; or
(e) By the Employee if the Company is in default of its
material obligations or duties hereunder.
In the event of any termination under clauses (a),
(b), (c) or (d) of this paragraph, Employee (or, in the event of Employee's
death, his estate) shall be entitled to receive compensation accrued and payable
to him as of the date of termination or death, and all other amounts payable
hereunder, including, but not limited to, incentive compensation, shall
thereupon cease. If Employee's employment is terminated (x) pursuant to clause
(e) of this paragraph, or (y) pursuant to clause (d) of this paragraph within
four months after the consummation of a Sale Transaction relating to the
Company, then Employee shall continue to receive the compensation provided
herein until the expiration of this Agreement. Any amounts earned by him (other
than through his personal investment activities) prior to such expiration by
virtue of other employment shall be deducted from amounts to which he is
entitled hereunder.
8. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. Employee represents and
warrants that there are no agreements or arrangements, whether written or oral,
that would be breached by Employee upon execution of this Agreement or that
would impair or prevent Employee from rendering exclusive services to the
Company during the term hereof, and that Employee has not made and will
6
<PAGE> 7
not make any commitment or do any act in conflict with this Agreement.
9. MISCELLANEOUS. This Agreement, and the legal relations between the
parties, shall be governed by and construed in accordance with the laws of the
State of California. This Agreement supersedes all prior agreements between the
parties concerning the subject matter hereof and constitutes the entire
agreement between the parties with respect thereto. This Agreement may be
modified only with a written instrument duly executed by each of the parties. No
waiver by any party of any breach of this Agreement shall be deemed to be a
waiver of any proceeding or succeeding breach. The headings and titles to the
paragraphs of this Agreement are inserted for convenience only and shall not be
deemed a part of or effect the construction or interpretation or any provision
hereof. This Agreement may be executed in several counterparts, each of which
shall be deemed to be an original, and all such counterparts together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
STAR VENDING, INC.
By____________________________________
Title_____________________________
EMPLOYEE
___________________________________
DAVID VAUN CRUMLY
7
<PAGE> 1
EXHIBIT 10.8
FIRST RESTATEMENT OF EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "AGREEMENT") is entered into effective
as of December ___, 1996, between STAR VENDING, INC., a Nevada corporation (the
"COMPANY"), and JAMES KOLSRUD (the "EMPLOYEE").
RECITAL:
A. The Company and Employee desire to hereby restate and supersede in
its entirety that certain Employment Agreement effective September 14, 1996
between Company and Employee. The purpose of this Agreement is to enter into
this Agreement to assure the Company of the continuing and exclusive services of
Employee and to set forth the rights and duties of the parties.
AGREEMENT:
NOW, THEREFORE, the parties, intending to be legally bound, agree as
follows:
1. EMPLOYMENT. During the term of this Agreement, the Company shall
employ Employee, and Employee accepts employment, as Executive Vice President -
Operations and Engineering. Employee's primary duties will be to manage the
Company's operations (other than sales and marketing) in accordance with the
policies established by the Company's Board of Directors. Employee will
faithfully perform his duties to the best of his ability in accordance with the
reasonable directions of the Company as given through the Board of Directors,
the Chief Executive Officer and the President. Employee will devote his full
business time, ability, attention and loyalty to the business of the Company
during the term of this Agreement, and will not, directly or indirectly, render
any services of a business, commercial or professional nature to any other
person, firm, corporation or organization for compensation without the prior
written consent of the Company.
2. TERM. The term of Employee's employment by the Company pursuant to
this Agreement shall be for a period of two years, commencing September 14, 1996
and ending September 13, 1998. The term of Employee's employment is subject to
earlier termination as provided in Section 7.
3. COMPENSATION; FRINGE BENEFITS
3.1 Base Salary. The Company shall pay Employee a monthly
salary during the term of this Agreement. This salary shall be $12,500 per
month. Employee's salary shall not be
-1-
<PAGE> 2
reduced at any time during the term of this Agreement, but the foregoing shall
not limit the Company's rights under Section 7.
3.2 Stock Options. Employee shall be awarded incentive stock
options to purchase a total of 100,000 shares of the Company's common stock
pursuant to the Company's 1996 Supplemental Stock Option Plan.
3.3 Fringe Benefits. During the employment term, Employee
shall be entitled to receive, at the Company's sole expense, the following
fringe benefits:
A. Group health insurance, paid vacation leave, life
insurance and other insurance programs as set forth in the Company's employee
manual applicable to employees generally to the same extent, and on the same
terms, as other employees of the Company; and
B. Other benefits accorded to executives of the
Company as determined from time to time by the Board of Directors.
3.4 Taxes. Compensation paid to Employee under Sections 3.1
through 3.3, inclusive, shall be subject to withholding for federal and state
income tax purposes. All payments received by Employee shall be reported on his
federal and state tax returns as compensation for employment in a manner
consistent with this Agreement.
3.5 Expenses. During the employment term, the Company shall
reimburse Employee for reasonable out-of-pocket expenses incurred in connection
with Company business. All reimbursements required by this Section 3.5 shall be
subject to such reasonable policies and record keeping as the Company may from
time to time establish for its employees.
4. CONFIDENTIAL INFORMATION. Employee shall, during the term of this
Agreement and thereafter, hold in confidence and not disclose to any person or
entity without the express prior authorization of the Company, any and all trade
secrets of the Company (including, without limitation, all customer lists and
lists of customer sources), and any and all other secret or confidential
information relating to the services, customers, sales or business affairs of
the Company or its affiliates. Employee agrees that he will not make use of any
of the above at any time after termination of his employment. Upon termination
of his employment, Employee shall deliver to the Company all documents, records,
notebooks, work papers and all similar repositories containing any information
concerning the Company, whether prepared by Employee, the Company or anyone
else. This Agreement will further incorporate any and all provisions with
respect to confidentiality, trade secrets, secret processes and data to which
Company may be required to cause its employees to
-2-
<PAGE> 3
agree under the terms and provisions of any contract entered into by Company
with any customer or client thereof, or under the terms of any subcontract to
which Company may be a party, whether the same be in any contract to which the
Company is presently a party or may, during the course of this Agreement, become
a party, or under the provisions of any other contract with a customer of
Company.
5. NO SOLICITATION OF EMPLOYEES. Employee agrees that during the term
of this Agreement, and for a period of twelve (12) months thereafter, he will
not, directly or indirectly, for himself, or as agent, or on behalf of or in
conjunction with any other person, firm, partnership, corporation or other
entity, induce or entice any employee of the Company or its affiliates to leave
such employment or cause anyone else to do so.
6. ASSIGNMENT. Employee shall not have any right to delegate or
transfer any duty or obligation to be performed by him to any third party, nor
to assign or transfer the right, if any, to receive payments under this
Agreement.
7. TERMINATION.
7.1 Methods of Termination. This Agreement and the
employment of Employee may be terminated at any time:
A. By mutual agreement of the parties.
B. By the Company if Employee dies or becomes
physically or mentally disabled (the term "disabled" shall mean any mental or
physical illness or disability that renders the Employee unable to perform the
essential functions of his position, after reasonable accommodation of such
disability by the Company).
C. By the Company, for cause, if Employee (a) has
committed any material act of dishonesty, fraud or misrepresentation or any act
of moral turpitude; (b) is in default in the performance of Employee's material
obligations, services or duties under this Agreement; or (c) has failed to
execute specific instructions from the Company's Board of Directors or executive
officers, which failure is not corrected by Employee after reasonable notice
from the Company.
D. By the Company, without cause, at any time during
the term of this Agreement.
E. By the Employee if the Company is in default of
its material obligations or duties under this Agreement.
F. By the Employee, without cause, at any time during
the term of this Agreement.
-3-
<PAGE> 4
7.2 Consequences of Termination. Employee shall be entitled to
the following compensation in the event of a termination:
A. In the event of any termination under Sections
7.1A, 7.1B, 7.1C, 7.1D or 7.1F, Employee (or, in the event of Employee's death,
his estate) shall be entitled to receive compensation accrued and payable to him
as of the date of termination or death, and all other amounts payable under this
Agreement shall thereupon cease.
B. In the event of any termination under Section
7.1E, or Section 7.1D if such termination occurs within four (4) months after
the consummation of a Sale Transaction (as defined below) relating to the
Company, then Employee shall continue to receive the compensation provided in
this Agreement until the expiration of this Agreement. A "Sale Transaction"
shall mean the acquisition by a single entity or group of affiliated entities
(other than existing shareholders of the Company or their affiliates) of more
than seventy-five percent (75%) of each class of voting securities of the
Company pursuant to a tender offer or exchange offer approved in advance by the
Board of Directors. Any amounts earned by him (other than through his personal
investment activities) prior to such expiration by virtue of other employment
shall be deducted from amounts to which he is entitled under this Agreement.
7.3 IRC Violations. Any provision in this Agreement to the
contrary notwithstanding, in no event will Employee receive a payment which
would trigger the excise taxes and disallowance of deductions contemplated by
Sections 280G and 4999 of the Internal Revenue Code of 1986, as amended (the
"Code"). In the event that any amount calculated would result in such a payment,
such amount shall be reduced to the largest amount that would not result in such
a payment. This reduction shall apply to any and all compensation, including
compensation pursuant to stock option grants governed by separate agreement
between the Company and Employee. If, at the time of any such payment, no stock
of the Company is readily tradable on an established securities market or
otherwise, then the Company agrees to use its best efforts to cause such payment
to meet the exemption set forth in Sections 280G(b)(5)(A)(ii) and (B) of the
Code, so that no reduction will be required under this Agreement.
8. REPRESENTATIONS AND WARRANTIES OF EMPLOYEE. Employee represents and
warrants that there are no agreements or arrangements, whether written or oral,
that would be breached by Employee upon execution of this Agreement or that
would impair or prevent Employee from rendering exclusive services to the
Company during the term of this Agreement, and that Employee has not made and
will not make any commitment or do any act in conflict with this Agreement.
-4-
<PAGE> 5
9. MISCELLANEOUS. This Agreement, and the legal relations between the
parties, shall be governed by and construed in accordance with the laws of the
State of California. This Agreement supersedes all prior agreements between the
parties concerning the subject matter, and constitutes the entire agreement
between the parties with respect to the subject matter. This Agreement may be
modified only with a written instrument duly executed by each of the parties. No
waiver by any party of any breach of this Agreement shall be deemed to be a
waiver of any proceeding or succeeding breach. The headings and titles to the
Sections of this Agreement are inserted for convenience only and shall not be
deemed a part of or effect the construction or interpretation or any provision
of this Agreement. This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, and all such counterparts together shall
constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date above written.
STAR VENDING, INC.
By________________________
Mary Casey, President
__________________________
James Kolsrud
-5-
<PAGE> 1
EXHIBIT 10.9
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (the "Agreement") is entered into effective
as of May 1, 1996, by and between STAR VENDING, INC., a Nevada corporation (the
"Company") and GORDON HUTCHINS, JR.
("Consultant").
RECITALS:
A. Consultant has certain skills relating to the telecommunications
industry and the business of the Company.
B. Consultant has been using such skills to benefit the Company, and
Company has been compensating Consultant for such services.
C. The parties desire to enter into an agreement to insure that the
Company shall continue to receive the benefit of Consultant's future advisory
services under the terms and conditions set forth in this Agreement.
AGREEMENTS:
NOW, THEREFORE, the parties, intending to be legally bound, do agree as
follows:
1. ENGAGEMENT OF SERVICES.
1.1 ENGAGEMENT OF CONSULTANT. The Company shall engage
Consultant and Consultant shall accept such engagement and perform the services
required of Consultant in an efficient, trustworthy and businesslike manner on
the terms and conditions, and during the Term (as defined in Section 2), set
forth in this Agreement.
1.2 SERVICES. Consultant shall perform operations and other
tasks as requested from time to time by the Chief Executive Officer, President
or the Board of Directors; and Consultant shall remain available during the Term
of this Agreement for reasonable consultation with the members of the Company's
professional staff in response to specific requests by the Company.
-1-
<PAGE> 2
2. TERM.
The term of Consultant's engagement shall commence on May 1, 1996,
and shall continue until April 30, 1998, unless earlier terminated (the "Term").
3. FEES AND EXPENSES.
3.1 MONTHLY COMPENSATION. The Company shall compensate Consultant
for services provided during the Term of this Agreement by making payments to
Consultant in the amount of $10,000 per calendar month. Such payments shall be
made no less frequently than once per month during the Term. All payments shall
be by means of check payable to Consultant sent via United States mail to
Consultant's address for notices as set forth on the signature page of this
Agreement, or such other address which Consultant shall provide in writing to
the Company from time to time.
3.2 STOCK OPTIONS. As additional consideration for Consultant's
agreement to provide the services, the Company shall grant Consultant
nonstatutory stock options to purchase a total of 100,000 shares of the
Company's common stock pursuant to the Nonstatutory Stock Option Agreement in
the form attached as Exhibit A.
3.3 REIMBURSABLE EXPENSES. The Company shall reimburse Consultant
for authorized expenses reasonably incurred by Consultant in the performance of
his duties under this Agreement, and documented in accordance with the Company's
expense reimbursement policy.
4. CONFIDENTIAL INFORMATION.
4.1 NONDISCLOSURE. Consultant agrees not to publish, reveal or
disclose, other than to an authorized employee of the Company, any information,
data or the like obtained during the performance of Consultant's duties under
this Agreement, including any information relating to the Company's business,
customers, contracts, bids, proposals, trade practices, trade secrets or
know-how, without the prior express written consent of an officer of the
Company, and that on termination of this Agreement for any reason, Consultant
shall not remove or retain without the express consent of an officer of the
Company any letters, papers, business plans, documents or other information of
any type or description pertaining to the Company or its affairs. The foregoing
provisions of this Section shall not include information data or the like which
is or becomes publicly available, enters the public domain, or is known or
becomes
-2-
<PAGE> 3
independent of this Agreement known to Consultant, or which Consultant is
required to disclose to a third party pursuant to Court order.
4.2 USE OF INFORMATION. Consultant agrees that Consultant will not,
during the term of this Agreement or for a period of three (3) years after the
term of this Agreement, directly or indirectly use or utilize, for Consultant's
own benefit or for the benefit of any other person or concern, any confidential
information of the Company, including any information of the type described in
Section 4.1, above, without the prior express written consent of an officer of
the Company.
4.3 PROPRIETARY RIGHTS. Consultant agrees to promptly disclose to
the Company all discoveries, improvements and inventions conceived or made by
Consultant resulting from or attributable to the performance of his duties under
this Agreement and that Consultant will execute such documents, disclose and
deliver all information and data, and do all other things which are necessary or
desirable in order to transfer ownership in or to impart a full understanding of
such discoveries, improvements, inventions and copyrights to the Company.
5. NO SOLICITATION OF EMPLOYEES.
Consultant shall not during the Term, and for a period of twelve
(12) months thereafter, directly or indirectly, for himself, or as agent, or on
behalf of or in conjunction with any other person, firm, partnership,
corporation or other entity, induce or entice any employee of the Company or its
affiliates to leave such engagement or cause anyone else to do so.
6. ASSIGNMENT.
Consultant shall not have any right to delegate or transfer any duty
or obligation to be performed by him to any third party, nor to assign or
transfer the right, if any, to receive payments.
7. TERMINATION.
This Agreement, the engagement of Consultant hereunder, and any
future obligation of the Company to make any payments hereunder, may be
terminated at any time:
7.1 By mutual agreement;
7.2 By the Company if Consultant dies or becomes physically or
mentally disabled (the term "disabled" as used
-3-
<PAGE> 4
herein shall mean any mental or physical illness or disability that renders the
Consultant unable to perform the essential functions of his position hereunder
for at least 30 days during any consecutive 180 day period);
7.3 By the Company, for cause, if Consultant (1) has committed
any material act of dishonesty, fraud or misrepresentation or any act of moral
turpitude; (2) is in default in the performance of Consultant's material
obligations, services or duties hereunder which default is not cured by
Consultant after reasonable notice from the Company; or (3) has failed to
execute specific instructions from the Company's Board of Directors or executive
officers, which failure is not corrected by Consultant after reasonable notice
from the Company;
7.4 By the Company, without cause, at any time during the term
of this Agreement, after ninety (90) days prior written notice to Consultant; or
7.5 By the Consultant if the Company is in default of its
material obligations or duties hereunder.
In the event of any termination under this section, Consultant
(or, in the event of Consultant's death, his estate) shall be entitled to
receive compensation accrued and payable to him as of the date of termination or
death, and all other amounts payable hereunder, including, but not limited to,
incentive compensation, shall thereupon cease.
8. REPRESENTATIONS AND WARRANTIES OF CONSULTANT.
Consultant represents and warrants that there are no
agreements or arrangements, whether written or oral, that would be breached by
Consultant upon the execution or performance of this Agreement or that would
impair or prevent Consultant from rendering services to the Company during the
Term, and that Consultant has not made and will not make any commitment or do
any act in conflict with this Agreement. Consultant acknowledges that the
Company has relied on the above representations and warranties in entering into
this Agreement. Consultant shall indemnify and hold harmless the Company and its
affiliates from all losses, costs, expenses (including, without limitation,
reasonable attorneys' fees and expenses) or liabilities for any breach of
Consultant's representations or warranties. The representations, warranties and
agreements made by Consultant in this Section shall survive the termination of
this Agreement.
-4-
<PAGE> 5
9. INDEPENDENT CONTRACTOR.
9.1 STATUS. Consultant acknowledges that, in performing his services
under this Agreement, Consultant shall be an independent contractor and not an
employee of the Company. Consultant shall not be entitled to incur any liability
or expense in the name of the Company, or, except as specifically provided in
this Agreement, to participate in any benefit programs established by the
Company for the benefit of its employees, or to be covered by Company's worker's
compensation insurance. Consultant shall be solely responsible for the means of
accomplishing the projects assigned to Consultant.
9.2 INCOME TAX WITHHOLDING. Consultant acknowledges that the Company
will not make any income tax withholdings from the fees payable to Consultant
under this Agreement. Consultant agrees to report all income paid to him for
state and federal income tax purposes, to pay all state and federal income,
social security and related taxes thereon when due, and to indemnify and hold
the Company free and harmless from any liability, damage, cost or expense
resulting from the failure of Consultant to make such tax payments when due.
10. PARTIAL INVALIDITY.
If any Term or provision of this Agreement is determined to be
invalid or unenforceable to any extent, the remainder of this Agreement shall
not be affected, and each term and provision of this Agreement shall be valid
and be enforced to the fullest extent permitted by law.
11. MISCELLANEOUS.
This Agreement, and the legal relations between the parties, shall
be governed by and construed in accordance with the laws of the State of
California. This Agreement, together with the attached Exhibit A, supersedes all
prior agreements between the parties concerning the subject matter hereof and
constitutes the entire agreement between the parties. This Agreement may be
modified only with a written instrument duly executed by each of the parties. No
waiver by any party of any breach of this Agreement shall be deemed to be a
waiver of any proceeding or succeeding breach. The headings and titles to the
paragraphs of this Agreement are inserted for convenience only and shall not be
deemed a part of or effect the construction or interpretation or any provision.
This Agreement may be executed in several counterparts, each of which shall be
deemed to be an original, and all such counterparts together shall constitute
but one and the same instrument.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the parties have executed this Agreement effective
as of the date first above written.
STAR VENDING, INC., a Nevada
corporation
__________________________________ ____________________________
Date By:
Mary Casey, President
Address for Notices:
STAR Vending, Inc.
740 State Street, Suite 202
Santa Barbara, California 93101
CONSULTANT
_______________________________
Gordon Hutchins, Jr.
__________________________________
Date
Address for Notices:
c/o GH Associates
1004 Woburn Court
McLean, Virginia 22102
-6-
<PAGE> 7
EXHIBIT A
<PAGE> 1
EXHIBIT 10.10
STAR VENDING, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
STAR VENDING, INC., a Nevada corporation (the "Company"), has granted
to GORDON HUTCHINS, JR. (the "Optionee"), an option (the "Option") to purchase a
total of One Hundred Thousand (100,000) shares (the "Shares") of its common
stock ("Common Stock"), subject to the terms and conditions set forth in this
Agreement.
1. NATURE OF THE OPTION. This Option is not intended to qualify as, and
under no circumstances shall be deemed to be, an Incentive Stock Option as
defined in Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code").
2. EXERCISE PRICE. The exercise price is $3.00 for each share of Common
Stock ("Exercise Price").
3. EXERCISE OF OPTION. This Option shall be exercisable during its term
as follows:
3.1 RIGHT TO EXERCISE. Subject to subsections 3.1.2, 3.1.3,
3.1.4 and 3.1.5 below, this Option shall become exercisable as follows: (1)
thirty-four percent (34%) of the shares subject to the Option shall vest as of
the Date of Grant specified below (2) thirty-three percent (33%) of the Shares
subject to the Option, at any time after May 14, 1997; and thirty-three percent
(33%) of the Shares subject to the Option, at any time after May 14, 1998.
3.2 METHOD OF EXERCISE. This Option shall be exercisable by
written notice which shall state the election to exercise the Option, the number
of shares in respect of which the Option is being exercised, and such
representations and agreements as the Company may deem to be necessary or
appropriate under any applicable law or regulation. Such written notice shall be
signed by the Optionee and shall be delivered in person or by certified mail to
the Secretary of the Company. The written notice shall be accompanied by payment
of the exercise price.
3.3 RESTRICTIONS ON EXERCISE. The Option may not be exercised
if the issuance of such Shares upon such exercise or the method of payment of
consideration for such Shares would constitute a violation of any applicable
federal or state securities or other law or regulation. The Company shall have
no obligation to register or qualify the Option or such Shares for sale under
any such law or regulation. No Shares will be issued pursuant to the exercise of
an Option unless such issuance and
-1-
<PAGE> 2
such exercise shall comply with the requirements of any stock exchange upon
which the Common Stock may then be listed. Assuming such compliance, for income
tax purposes the Shares shall be considered transferred to the Optionee on the
date on which the Option is exercised with respect to such Shares.
3.4 EXERCISABLE ONLY BY OPTIONEE; EXCEPTIONS. The Option shall
not be exercisable during the lifetime of the Optionee by any person other than
the Optionee. In the event of Optionee's death, disability or other termination
of engagement or employment, the exercisability of the Option is governed by
Sections 5, 6 and 7 below, subject to the limitation contained in Section 3.5.
3.5 EXPIRATION OF OPTION. The Option may not be exercised more
than ten (10) years from the date of grant of this Option, and may be exercised
during such term only in accordance with the terms of this Agreement. This
Option shall terminate upon any material breach of the terms of this Agreement
by Optionee including, without limitation, any breach of the representations set
forth in Section 12.
3.6 METHOD OF PAYMENT. Payment of the exercise price shall be
by cash, wire transfer, or a check payable to the Company in next day funds.
4. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, concurrently with the exercise of all or any portion of this
Option, deliver to the Company an executed Restricted Stock Agreement in the
form attached as Exhibit A.
5. TERMINATION OF STATUS AS A CONSULTANT. In the event of termination
of Optionee's engagement by the Company as a consultant for any reason other
than the permanent disability or death of the Optionee, the voluntary
termination by Optionee or for cause, Optionee may, but only within one hundred
eighty (180) days after the date of such termination (but in no event later than
the date of expiration of the term of this Option as set forth in Section 3.5),
exercise this Option to the extent that Optionee was entitled to exercise it at
the date of such termination. To the extent that Optionee was not entitled to
exercise this Option at the date of such termination, or if Optionee does not
exercise this Option within the time specified herein, the Option shall
terminate. In the event that Optionee's engagement is terminated (i) voluntarily
by Optionee, or (ii) for cause, this Option shall terminate. Cause shall be
determined as set forth in Optionee's Consulting Agreement with the Company.
Nothing contained in this Option shall confer upon the Optionee any right to
continue in his relationship with the Company or
-2-
<PAGE> 3
shall interfere in any way with the rights of the Company, which are hereby
reserved, to reduce the Optionee's compensation from the rate in existence on
the date of grant or to terminate the Optionee's relationship with the Company
for any reason.
6. DISABILITY OF OPTIONEE. In the event of termination of Optionee's
engagement with the Company as a result of Optionee's total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but only
within twelve (12) months from the date of such termination (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 3.5) exercise this Option to the extent Optionee was entitled to
exercise it at the date of such termination. To the extent that Optionee was not
entitled to exercise the Option at the date of termination, or if Optionee does
not exercise such Option (which Optionee was entitled to exercise) within the
time specified herein, the Option shall terminate.
7. DEATH OF OPTIONEE. In the event of death of Optionee during the term
of this Option and while a consultant of the Company and having been in
continuous status as a consultant since the date of grant of the Option, the
Option may be exercised at any time within twelve (12) months following the date
of death (but in no event later than the date of expiration of the term of this
Option as set forth in Section 3.5), by Optionee's estate or by a person who
acquired the right to exercise the Option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued at the date of death.
8. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by Optionee. The terms of
this Option shall be binding upon the executors, administrators, heirs and
successors of the Optionee and any successor by operation of law to the Company.
9. OPTIONEE NOT A SHAREHOLDER. Neither the Optionee nor any other
person entitled to exercise the Option shall have any of the rights or
privileges of a shareholder of the Company with respect to any of the Shares
until the date of issuance of a stock certificate for such Shares. Except as set
forth in Section 10 below, no adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property) or
distributions or other rights for which the record date is prior to the date
such stock certificate is issued.
10. ADJUSTMENT OF EXERCISE PRICE. If any of the following
events shall occur at any time or from time to time prior to the
exercise in full or expiration of the Option, the following
adjustments shall be made in the Exercise Price.
-3-
<PAGE> 4
10.1 RECAPITALIZATION. In case the Company effects a subdivision,
combination, reclassification or other recapitalization of its outstanding
shares of Common Stock into a greater or lesser number of shares of Common
Stock, the Exercise Price in effect immediately after such subdivision,
combination, reclassification or other recapitalization shall be proportionately
decreased or increased, as the case may be.
10.2 STOCK DIVIDENDS. If the Company shall declare a dividend on its
Common Stock payable in stock or other securities of the Company, the Optionee
shall, without additional cost, be entitled to receive upon the exercise of the
Option, in addition to the Shares to which the Optionee is otherwise entitled
upon such exercise, the number of shares of stock or other securities that the
Optionee would have been entitled to receive if the Optionee had been a holder,
on the record date of such dividend, of the number of Shares so purchased under
the Option. No adjustments shall be made for dividends in cash or other
property.
10.3 NUMBER OF SHARES ADJUSTED. After any adjustment of the Exercise
Price pursuant to Section 10, the number of Shares issuable at the new Exercise
Price shall be adjusted to the number obtained by (i) multiplying the number of
Shares issuable upon exercise of the Option immediately before such adjustment
by the Exercise Price in effect immediately before such adjustment and (ii)
dividing the product so obtained by the new Exercise Price.
10.4 CALCULATION OF ADJUSTMENTS. The foregoing adjustments to the
Exercise Price and the number of Shares shall be made in good faith by the Board
of Directors of the Company, whose determination in that respect shall be final,
binding and conclusive.
11. MERGER.
11.1 ASSUMPTION. In the event of any merger, consolidation or
purchase of substantially all shares of the Company where the holders of Common
Stock are to receive stock or other securities of the surviving or acquiring
company, the Option shall be assumed by, be binding upon and inure to the
benefit of such surviving or acquiring company, and shall continue to be
governed by, to the extent applicable, the terms and conditions of this
Agreement.
11.2 ADJUSTMENT. After the consummation of a consolidation or
merger of the Company with or into any other corporation, then the Optionee
shall have the right to receive the kind and amount of shares of stock or other
securities or property receivable upon such consolidation or merger by a holder
-4-
<PAGE> 5
of the number of shares of Common Stock issuable upon exercise of the Option
immediately prior to such consolidation or merger.
12. REPRESENTATIONS OF OPTIONEE. Optionee represents and warrants that
the engagement of Optionee as a consultant by the Company and the execution,
receipt and exercise of this Option by Optionee do not and will not conflict
with, violate, breach or constitute a default under, or result in the
acceleration of any obligation under, (i) any provision of any contract,
agreement, instrument, court order, arbitration award, judgment or decree to
which Optionee is a party or by which he is bound or (ii) any law, rule,
regulation or other provision or restriction of any kind or character to which
Optionee is subject.
13. GENERAL PROVISIONS.
13.1 AMENDMENTS; WAIVERS. This Agreement may be amended only by
agreement in writing of all parties. No waiver of any provision nor consent to
any exception to the terms of this Agreement shall be effective unless in
writing and signed by the party to be bound and then only to the specific
purpose, extent and instance so provided.
13.2 ENTIRE AGREEMENT. This Agreement, together with Exhibit A,
constitutes the entire agreement among the parties pertaining to the subject
matter hereof and supersedes all prior agreements and understandings of the
parties.
13.3 GOVERNING LAW. This Agreement and the legal relations between
the parties shall be governed by and construed in accordance with the laws of
the State of California applicable to contracts made and performed in such
State.
13.4 ATTORNEY'S FEES. In the event of any legal action for the
breach of this Agreement or any dispute related to or arising from this
Agreement, the prevailing party shall be entitled to reasonable attorneys' fees,
costs and expenses incurred in such action. Attorneys' fees incurred in
enforcing any judgment in respect of this Agreement are recoverable as a
separate item. The preceding sentence is intended to be severable from the other
provisions of this Agreement and to survive any judgment and, to the maximum
extent permitted by law, shall not be deemed merged into any such judgment.
13.5 RECEIPT OF AGREEMENT. Each of the parties hereto acknowledges
that such party has read this Agreement in its entirety and does hereby
acknowledge receipt of a fully executed copy thereof. A fully executed copy
shall be an original for all purposes, and is a duplicate original.
13.6 NOTICES. Any written notice required or permitted to be given
shall be deemed delivered either when personally
-5-
<PAGE> 6
delivered or when mailed, registered or certified, postage prepaid with return
receipt requested, if to Optionee, addressed to Optionee at the last residence
address of Optionee as shown in the records of the Company, and if to the
Company, addressed to the Chairman of the Board of the Company at the principal
office of the Company.
13.7 SEVERABILITY. If any provision of this Agreement is determined
to be invalid, illegal or unenforceable by any governmental entity, the
remaining provisions of this Agreement to the extent permitted by law shall
remain in full force and effect.
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the
date set forth below.
Date of Grant: May 15, 1996
STAR VENDING, INC.
a Nevada Corporation
By:_____________________
Mary Casey, President
_________________________
Gordon Hutchins, Jr.
-7-
<PAGE> 8
EXHIBIT A
<PAGE> 1
Exhibit 10.11
FREE STANDING COMMERCIAL BUILDING LEASE
THIS LEASE is made and entered into, and is dated for reference
purposes as of March 1, 1996, by and between THOMAS M. SPEAR, as receiver for De
La Guerra Court Investments, a California general partnership ("Landlord"), and
STAR VENDING, INC., a Nevada corporation ("Tenant"). Landlord hereby leases to
Tenant, and Tenant hereby leases from Landlord, the premises on the terms set
forth herein.
1. LEASED PREMISES
1.1 DESCRIPTION OF PREMISES. The premises that are the subject of this
lease consist of the free standing buildings known as 800 Santa Barbara Street,
223 East De La Guerra Street and the storage building adjacent to 223 East De La
Guerra Street, Santa Barbara, California (collectively, the "building"),
together with all parking and common areas associated with the ownership and use
of such buildings. The leased premises are described on Exhibit A and are
depicted on the plot plan attached hereto as Exhibit B.
1.2 PARKING FACILITIES. Tenant shall have the exclusive right to use
all parking located on the premises without additional charge or fee. In no
event shall Landlord permit the use of such parking by any Tenants of Landlord's
adjacent building located at 801 Garden Street, Santa Barbara, California
without Tenant's prior written consent.
1.2.1 Notwithstanding the preceding, Landlord reserves the
right to terminate this lease as to four parking spaces located on the premises
should Landlord desire to use such four parking spaces in connection with
improvements to be constructed at the adjacent building (the " Adjacent
Building"). Such parking spaces shall be designated by Landlord in a location
adjacent to the property line of the property on which the Adjacent Building is
situated. Such designation shall be subject to the reasonable approval of
Tenant.
1.2.2 Following the agreement to the location of such four
parking spaces, if Landlord exercises its right to exclude them from this lease,
the location of such parking spaces and their exclusion from this lease shall be
set forth in an amendment to this lease. Such amendment shall be subject to the
reasonable approval of both Landlord and Tenant.
1.3 PREPARATION OF PREMISES; OCCUPANCY. Landlord shall obtain a report
from a licensed electrician regarding the repairs required to be made to the
electrical supply and distribution system in the premises in order to bring such
supply and distribution system to current standards for office buildings.
Landlord shall deliver a copy of such report to Tenant promptly upon Landlord's
receipt of it. On or prior to the commencement date, Landlord shall make all
repairs, modifications and upgrades to the electrical systems serving the
buildings located on the premises to ensure that adequate amperage and
electrical service and distribution is available for normal office purposes.
Landlord and Tenant shall prepare the premises for Tenant's occupancy in
accordance with the terms of the Tenant Improvements Exhibit attached hereto as
Exhibit C.
1
<PAGE> 2
1.3.1 Landlord and Tenant agree to cause the leased premises
to be measured in accordance with BOMA Standards no later than thirty days
following the execution of this lease. Upon completion of the measurement of the
premises, the size of the premises and the minimum monthly rent payable from and
after the rent commencement date shall be set forth on the Commencement Date
Certificate in the form attached hereto as Exhibit D. Landlord and Tenant each
agree that such measurement as set forth in the Commencement Date Certificate
represents the agreed-upon size of the premises for the purposes of this lease.
1.3.2 Landlord anticipates that Landlord will be able to
deliver possession of the entire premises to Tenant on or before May 15, 1996
(the "Anticipated Delivery Date"). On or prior to the Anticipated Delivery Date,
Landlord shall take such actions as may be necessary to cause the existing
tenants to vacate the leased premises in a manner that will allow Landlord to
deliver possession of the premises to Tenant in a broom-clean condition on or
before the Anticipated Delivery Date.
1.3.3 If for any reason Landlord cannot deliver possession of
the premises to Tenant on the Anticipated Delivery Date, this lease shall not be
void or voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom. In such event, the term of this lease shall be extended
until the premises are ready for occupancy by Tenant. However, if Landlord is
unable to deliver possession of the leased premises to Tenant within thirty days
after the Anticipated Delivery Date, then Tenant may terminate this lease by
giving Landlord written notice of termination not more than sixty days following
the Anticipated Delivery Date. Both parties shall be relieved and discharged of
all liability hereunder on the effective date of termination, and Landlord shall
pay to Tenant on or before the effective date of such termination, all such
previously paid by Tenant to Landlord pursuant to this lease.
2. TERM OF LEASE
2.1 INITIAL TERM. The initial term of this lease shall begin on the
date upon which Landlord delivers to Tenant possession of the premises. Subject
to extension or sooner termination as hereinafter provided, this lease shall
continue for seven years following the commencement date. Upon the delivery of
possession of the premises to Tenant, Landlord and Tenant agree to complete,
execute and attach to this lease as an exhibit a Commencement Date Certificate
in the form attached hereto as Exhibit D. If the term of this lease begins on a
day other than the first day of a month, the Tenant shall pay, in advance, the
prorated minimum monthly rent for such partial month, and the initial term of
this lease shall be adjusted to commence on the first day of the following
month.
2.2 GRANT OF OPTIONS. Landlord hereby grants to Tenant, on the terms
and conditions set forth below, two successive options to renew this lease. Each
renewal option shall be for a renewal term of two years. Each renewal term shall
be subject to all of the provisions of this lease (except renewal options),
including, but not limited to, the provisions for increase in minimum monthly
rent. The failure of Tenant to exercise its option for any renewal term shall
nullify the option of the Tenant for any succeeding renewal terms.
2
<PAGE> 3
2.2.1 The right of Tenant to exercise its renewal options is
subject to the following conditions precedent:
(1) The lease shall be in effect at the time notice
of exercise is given and on the last day of the existing lease term; and
(2) Tenant shall not be in default under any
provisions of this lease at the time notice of exercise is given or on the last
day of the existing lease term;
(3) Tenant shall not have been in a material default
in its obligations under this lease more than three times during the preceding
term of the lease. A material default shall be defined as a default in the
payment of rent or other obligations under this lease, or a failure to maintain
insurance required under this lease, which default is not cured within any
applicable cure period provided for herein; and
(4) At least six months (i.e., one hundred eighty
days) before the last day of the existing lease term, Tenant shall have given
Landlord notice of exercise of option, which notice, once given, shall be
irrevocable and binding on the parties hereto.
2.2.2 The minimum monthly rent payable by Tenant during the
renewal term shall be the minimum monthly rent payable by Tenant immediately
prior to the commencement of the renewal term, subject, however, to annual
adjustment as provided in Section 3.2, below.
3. RENTAL
3.1 MINIMUM MONTHLY RENT. Tenant shall pay to Landlord a minimum
monthly rent, initially in the amount specified in the Commencement Date
Certificate to be completed and delivered as provided in Section 2.1, above,
calculated on the basis of $1.30 per square foot of the buildings comprising the
leased premises, as shown on the Commencement Date Certificate. Such minimum
monthly rent shall be payable in advance on the first day of each month of the
term of this lease. Minimum monthly rent for a period constituting less than a
full month shall be prorated on the basis of a thirty-day month. The minimum
monthly rent shall be adjusted at the times and in the manner specified in
Section 3.2.
3.2 ADJUSTMENT TO MINIMUM MONTHLY RENT. Commencing on the first day of
the thirteenth month of the lease term, and continuing on the first day of the
same month each year thereafter throughout the term of this lease and any
renewal term for which an option is properly exercised (the "Adjustment Date"),
Landlord shall ascertain from the official Consumers' Price Index for Urban Wage
Earners and Clerical Workers, All Items, for the Los Angeles-Anaheim-Riverside
area, 1982-84 = 100 Base, as published by the Bureau of Labor Statistics (the
"Index"), the index figure for the first day of the month four months prior to
the month in which this lease commenced (the "Base Period") and for the first
day of the same month preceding the Adjustment Date (the "Comparison Period").
The minimum monthly rent payable by Tenant from such Adjustment Date until the
next following Adjustment Date shall be determined by multiplying the minimum
monthly rent in effect on the commencement of this lease (as set forth in
Section 3.1, above) by a fraction, the numerator of which shall be the index
3
<PAGE> 4
figure for the Comparison Period and the denominator of which shall be the index
figure for the Base Period. However, in no event shall the minimum monthly rent
(a) be reduced below the minimum monthly rent payable immediately prior to such
Adjustment Date, or (b) exceed six percent (6%) of the rent payable immediately
prior to the adjustment on any single Adjustment Date.
3.2.1 The adjustments to the minimum monthly rent required
hereunder shall be cumulative, but not compounded. Should the actual percentage
change in the CPI Index figures exceed the percentage limitation set forth
above, in some adjustment periods but not in others, then any percentage change
in the CPI Index figures not taken into account on an adjustment date due to the
limitation on rental adjustments for any single adjustment period shall be taken
into account in subsequent adjustment periods in which the percentage change was
less than the maximum amount permitted by Section 3.2, above.
3.2.2 If the Index is no longer published, then appropriate
reference figures for the Base Period and the Comparison Period shall be derived
from any successor or comparable index mutually agreed by the parties to be the
closest possible index to the Index. If the parties are unable to agree, then
the substituted index shall be selected by an independent third party selected
by the mutual agreement of Landlord and Tenant upon request by either party.
3.2.3 If the Comparison Period index figure for each
Adjustment Date is not available on such date, then the minimum monthly rent in
effect immediately prior to the Adjustment Date shall continue in effect until
the index figure for the Comparison Period is available. At that time, an
appropriate adjustment shall be made (retroactive to the Adjustment Date)
between Landlord and Tenant.
3.2.4 Landlord shall give written notice to Tenant of the
adjustments made to the minimum monthly rent pursuant to this lease, setting
forth the computation thereof, on or before the applicable Adjustment Date or as
soon thereafter as practicable. No delay in computing or giving notice of any
adjustments required hereunder shall constitute a waiver of the right of either
party to have such adjustments made, retroactive to the applicable Adjustment
Date, once such computation has been made. Should any notice of adjustment given
pursuant to this Section 3.2 require the payment of increased rent accruing from
the Adjustment Date through the date on which such notice is given, Tenant shall
pay such increased amount on the next day rent is owing hereunder.
3.3 TIME AND MANNER OF PAYMENT. Tenant agrees that all rent payable by
Tenant hereunder shall be paid by Tenant to Landlord not later than the day on
which first due, without any deduction, setoff, prior notice or demand.
3.3.1 All rents shall be paid in lawful money of the United
States at such place as Landlord shall designate to Tenant from time to time in
writing.
3.3.2 Should Tenant fail to make any payment of all sums due
under this lease within ten days of the date when such payment first becomes
due, or should any check tendered in payment of rent be returned to Landlord by
Tenant's bank for any reason, then Tenant shall
4
<PAGE> 5
pay to Landlord, in addition to such rental payment, a late charge in the amount
of five percent (50%) of the amount not paid. The parties hereto agree that such
late charge is a reasonable estimate of the amount necessary to reimburse
Landlord for the damages and additional costs not contemplated by this lease
that Landlord will incur as a result of the delinquent payment or returned
check, including processing and accounting charges and late charges that may be
imposed on Landlord by its lender. Upon notice of nonpayment given by Landlord
to Tenant, the entire amount then due, including such late charge, shall
thereafter bear interest at the maximum rate then permitted by law until paid in
full.
3.4 PREPAID RENT; SECURITY DEPOSIT. Tenant shall pay to Landlord upon
execution of this lease (a) prepaid rent in the amount specified in Section 3.1,
above, which shall be allocated toward the payment of rent for the second month
of the lease term, and (b) $20,000 as a security deposit for the performance by
Tenant of its obligations under this lease. If Tenant defaults in its
performance of this lease, or in the payment of any sums owing to Landlord, then
Landlord may, but shall not be obligated to, use the security deposit, or any
portion thereof, to cure such default or to compensate Landlord for any damage,
including late charges, sustained by Landlord resulting from Tenant's default.
Immediately upon demand by Landlord, Tenant shall pay to Landlord an amount
equal to the portion of the security deposit so expended or applied by Landlord
as provided herein in order to maintain the security deposit in the original
amount initially deposited with Landlord. If Tenant is not in default at the
expiration or termination of this lease, Landlord shall return the unexpended
portion of the security deposit to Tenant, without interest. Landlord's
obligations with respect to the security deposit shall be those of debtor, and
not of a trustee, and Landlord shall be entitled to commingle the security
deposit with the general funds of Landlord.
3.5 FREE RENT. Notwithstanding any provision of this lease to the
contrary, Landlord agrees that Tenant shall not be obligated (a) to pay minimum
monthly rent during the first, thirteenth and twenty-fifth full months following
the commencement date of this lease, and (b) to reimburse Landlord for
Landlord's Operating Costs during the first full month following the
commencement date of this lease.
4. INTENTION OF PARTIES; NEGATION OF PARTNERSHIP
Nothing in this lease is intended and no provision of this lease shall
be construed to make Landlord a partner of or a joint venturer with Tenant, or
associated in any other way with Tenant in the operation of the leased premises,
or to subject Landlord to any obligation, loss, charge or expense resulting from
or attributable to Tenant's operation or use of the premises.
5. PROPERTY TAXES AND ASSESSMENTS
5.1 PERSONAL PROPERTY TAXES. Tenant shall pay before delinquency all
taxes assessed against any personal property of Tenant installed or located in
or upon the leased premises and that become payable during the term of this
lease.
5.2 REAL PROPERTY TAXES. In addition to all other rent payable by
Tenant hereunder, Tenant agrees to pay as additional rent the real property
taxes levied or assessed against the land
5
<PAGE> 6
and the building in which the leased premises are situated. Real property taxes
for any fractional portion of a fiscal year included in the lease term shall be
prorated on the basis of a 360-day year. Tenant shall pay Landlord the amount
payable by Tenant at the time and in the manner provided in Section 6.
5.3 TAXES DEFINED; SPECIAL ASSESSMENTS. The term "real property taxes"
as used in this lease shall mean and include all taxes, assessments, and other
governmental charges, general and special, ordinary and extraordinary, of any
kind and nature whatsoever, levied or assessed against all or any part of the
building and other improvements and the land of which the leased premises are a
part, including but not limited to assessment for public improvements, benefits
or facilities (including parking district assessments) which shall be levied or
assessed against the land and/or building or any part thereof, but excluding
franchise, estate, inheritance, succession, capital levy, transfer, income or
excess profits tax imposed upon Landlord. Notwithstanding the preceding, in no
event shall the term "real property taxes" include any special assessments
obtained for the financing of private improvements including, but without
limitation, seismic safety rehabilitation improvements, sprinkler improvements
or similar improvements that serve to improve the building of which the premises
are a part. If at any time during the term of this lease, under the laws of
California, or any political subdivision thereof in which the leased premises
are situated, a tax or excise on rents or any other tax, however described, is
levied or assessed against Landlord on account of the rent expressly reserved
hereunder, in addition to or as a substitute in whole or in part for taxes
assessed or imposed by California or such political subdivision on land and/or
buildings, such tax or excise shall be included within the definition of "real
property taxes," but only to the extent of the amount thereof which is lawfully
assessed or imposed as a direct result of Landlord's ownership of this lease or
of the rental accruing under this lease. With respect to any assessment which
may be levied against or upon the building, land or improvements of which the
leased premises are a part, and which under the laws then in force may be
evidenced by improvement or other bonds, or may be paid in annual installments,
Tenant shall be required to pay each year only Tenant's proportionate share of
the amount of such annual installment or portion thereof as Landlord shall be
required to pay during such year (with appropriate proration for any partial
year) and shall have no obligation to continue such payments after the
termination of this lease.
5.4 PROPERTY TAX REDUCTION. Promptly following any change of ownership
of the leased premises that occurs within two years of the execution of this
lease, Landlord shall seek any reduction in the real property taxes that might
be available under California law.
6. OPERATING & COMMON AREA COSTS
6.1 PAYMENTS BY TENANT. Subject to the provisions of Section 3.5,
above, Tenant shall pay to Landlord as additional rent on the first day of each
full calendar month of the lease term Landlord's estimated Operating Costs. If
the term of this lease begins on a day other than the first day of a month,
Tenant shall pay, in advance, its prorated share of the Landlord's Operating
Costs for such partial month. Operating Costs for any portion of an accounting
period not included within the term of this lease shall be prorated on the basis
of a 365-day year. The accounting period for determining Landlord's Operating
Costs shall be the calendar year, except
6
<PAGE> 7
that the first accounting period shall commence on the date the lease term
commences and the last accounting period shall end on the date the lease term
expires or terminates.
6.2 ESTIMATED COSTS; RECONCILIATION OF PAYMENTS. Within one hundred
twenty days after the end of each accounting period, Landlord shall exercise its
best efforts to furnish to Tenant a statement showing the actual Operating Costs
for such period, Tenant's share thereof, and the sum of the estimated payments
made by Tenant during such period. Each such statement shall be certified to be
correct by Landlord or its duly authorized agent.
6.2.1 Contemporaneously with the delivery of such accounting,
Landlord shall furnish to Tenant an estimate of the Operating Costs reasonably
anticipated by Landlord for the current accounting period, and Tenant's monthly
share thereof.
6.2.2 If Tenant's proportionate share of the actual Operating
Costs for the preceding accounting period exceeds the estimated payments made by
Tenant, then Tenant shall pay any deficiency to Landlord with the next rental
payment coming due from Tenant. Should the estimated payments made by Tenant
during the preceding accounting period exceed Tenant's proportionate share of
the Operating Costs, then the overage shall be credited against the next rental
payments becoming due from Tenant.
6.3 OPERATING COSTS DEFINED. As used in this, Landlord's Operating
Costs shall mean the following expenses paid by Landlord in connection with the
operation, repair and maintenance of the land and improvements in which the
leased premises are situated, to the extent that such costs are not paid
directly by the Tenant pursuant to the lease, whether such costs allocable to
the building or the land on which the building is situated. Such costs include
(a) the costs of utilities, heating, air conditioning, and janitorial services
(including trash removal) supplied to the building; (b) all real property taxes
(as defined in this lease) levied or assessed with respect to the land, the
building and any related improvements; (c) premiums for all casualty, public
liability and other insurance maintained by Landlord (other than earthquake
insurance) and any losses suffered which fall below the deductible limits of
such insurance; (d) any direct costs incurred by Landlord for security and fire
protection; (e) all direct costs and expense incurred by Landlord in repairing
or maintaining the building and any related improvements, including exterior
finish (but excluding the costs the items specified in Subparagraphs (a), (c)
and (d) of Section 12.1, below, except to the extent payable out of reserves
maintained as provided herein); (f) the purchase, construction, and maintenance
of refuse receptacles; (g) installing and maintaining plantings and landscaping,
directional signs and other markers, car stops and the like; (h) real property
management fees payable to third party property management firms in amounts that
do not exceed two percent (2%) of the minimum monthly rent payable hereunder;
and (i) reasonable reserves to be used for the replacement of the building roofs
and major components of the heating, ventilating and air conditioning system and
other machinery constituting an integral part of the building (collectively, the
"Reserve Items"), and for resurfacing the parking lot located on the premises.
The amount of such reserves shall be used to pay for the cost of replacement of
the Reserve Items and resurfacing the parking lot from time to time as
necessary. The amount of such reserves charged as an Operating Cost in any one
year shall not exceed the reasonably estimated cost of such repair or
replacement amortized over
7
<PAGE> 8
the useful life, as reasonably estimated by Landlord, of the Reserve Items or
parking lot surface. All costs of replacing such roofs or resurfacing the
parking lot shall be charged against such reserves. Any cost of such Reserve
Items or parking lot surface in excess of the amount reserved therefor shall be
amortized over the useful life of the replaced Reserve Item or resurfaced
parking lot, and included in Landlord's Operating Costs in any one year only to
the extent of the amortized portion properly allocable to that year. The cost of
any single expense (other than property taxes and insurance premiums) incurred
by Landlord, the cost of which exceeds one-half of one month's minimum monthly
rent payable hereunder, shall be amortized over the useful life of the item to
which such expense relates and included in Operating Costs only to the extent of
the amortized portion applicable to the period for which Landlord's Operating
Costs are being determined.
6.4 INTENTION OF PARTIES. It is the intention of the parties that the
rent payable by Tenant under the lease shall be a triple net lease. Landlord
shall be reimbursed by Tenant for all costs and expenses paid or incurred by
Landlord in connection with the leased premises and the building in which the
premises are situated, to the extent provided herein.
6.5 BOOKS AND RECORDS. Landlord shall keep at its principal place of
business full, accurate and separate books of account covering Landlord's
Operating Costs. The statements of Landlord to Tenant shall accurately reflect
the total Operating Costs shown on such books of account. Said books of account
shall be retained for Landlord for at least six months following Landlord's
delivery to Tenant of the accounting for each accounting period, as provided in
Section 6.2. Tenant shall have the right at reasonable times during the term of
the lease to inspect said books of account.
7. LANDLORD'S MANAGEMENT OF BUILDING
7.1 MANAGEMENT OF BUILDING. Landlord shall have the right, in its sole
discretion: (a) to close the common areas, if any, when and to the extent
necessary for maintenance or renovation purposes and (b) to make changes to the
common areas and parking areas, including without limitation, changes in the
location or nature of driveways, entrances, exits, parking spaces, or the
direction of the flow of traffic. In no event shall any such changes affect
Tenant's rights hereunder or interfere with ingress to and egress from or the
location of the leased premises.
7.2 RULES AND REGULATIONS. Landlord shall have the right from time to
time to promulgate, amend and enforce against Tenant and all persons upon the
leased premises, reasonable rules and regulations for the safety, care and
cleanliness of the premises and the building or for the preservation of good
order. Tenant agrees to conform to and abide by such rules and regulations, and
a violation of any of them shall constitute a default by Tenant under this
lease.
8
<PAGE> 9
8. USE; LIMITATIONS ON USE
8.1 TENANT'S USE OF PREMISE. Tenant agrees that the leased premises
shall be used and occupied only for office and related lawful purposes and for
no other purpose without Landlord's prior written consent.
8.2 LIMITATIONS ON USE. Tenant's use of the leased premises shall be in
accordance with the following requirements:
8.2.1 Insurance Hazards. Tenant shall neither engage in nor
permit others to engage in any activity or conduct that will cause the
cancellation of any fire insurance maintained by Landlord, and will pay any
increase in the fire insurance premiums attributable to Tenant's particular use
of the leased premises. Tenant shall, at Tenant's sole cost, comply with all
requirements of any insurance organization or company pertaining to the Tenant's
use of the premises necessary for the maintenance of reasonable fire and public
liability insurance covering the building.
8.2.2 Compliance with Law. Except to the extent of Landlord's
obligations under Section 8.2, above, Tenant shall, at Tenant's sole cost and
expense, comply with all of the requirements, ordinances and statutes of all
municipal, state and federal authorities now in force, or which may hereafter be
in force, pertaining to the use and occupancy of the leased premises by Tenant.
8.2.3 Waste; Nuisance. Tenant shall not commit, or suffer to
be committed, any waste of the leased premises, or any nuisance or other
unreasonable annoyance which may disturb the quiet enjoyment of the owners or
occupants of adjacent areas, buildings or properties.
8.2.4 Hazardous Substances. Tenant shall conduct its business
in compliance with all applicable laws and regulations governing the use,
storage, transportation and discharge of hazardous substance or materials.
Tenant shall indemnify, defend with counsel acceptable to Landlord and hold
Landlord harmless with respect to any claims, liability or damage to persons or
property, arising out of or involving any hazardous materials or substances
owned, used, stored or discharged by Tenant, or Tenant's agents or invitees, on
the leased premises.
A. Landlord and Tenant acknowledge and agree that
Tenant's obligations set forth in this Section 8.2.4 shall not apply with regard
to any hazardous substance or materials that existed on the premises as of the
commencement of Tenant's occupancy of the premises, or that come to be located
on the premises for reasons other than those for which Tenant is responsible, as
provided above. Landlord shall indemnify, defend with counsel reasonably
acceptable to Tenant and hold Tenant harmless with respect to any claims,
liability or damage to persons or property arising out of or involving any
hazardous materials or substances that existed on the premises prior to the
Tenant's occupancy of the premises, or that come to be located on the premises
for reasons other than those for which Tenant is responsible, as provided above.
9
<PAGE> 10
B. Landlord's and Tenant's obligations under the
foregoing indemnifications shall include, but not be limited to, the effects
resulting from of any contamination or injury to persons, property or the
environment created by the existence of such hazardous material or substance on
the premises and the cost of investigation (including consultants' and
attorneys' fees and testing), removal, remediation, restoration and/or abatement
thereof, or of any contamination therein involved, or compliance with laws in
connection therewith. These obligations shall survive the expiration or earlier
termination of this lease. No termination, cancellation or release agreement
entered into by Landlord and Tenant shall release the other party from its
obligations under this indemnification obligation unless specifically so agreed
by both parties in writing at the time of such agreement.
9. ALTERATIONS
9.1 CHANGES BY TENANT. Any alterations, additions, improvements or
changes, including any remodeling or redecorating, that Tenant may desire to
make in, to or upon the leased premises, shall be made at Tenant's sole cost and
expense and in compliance with all applicable governmental requirements. All
such alterations and improvements shall be made only after first submitting the
plans and specifications therefor to Landlord and obtaining the consent of
Landlord thereto in writing. Tenant shall give Landlord not less than five and
not more than ten days prior notice of the date on which the construction of
such alterations or improvements will begin and, at the request of Landlord,
will post and record a notice of non-responsibility on the leased premises on
Landlord's behalf. Any such alterations or improvements shall at once become a
part of the leased premises and, unless Landlord exercises its right to require
Tenant to remove any alterations that Tenant has made to the premises, shall be
surrendered to Landlord upon the expiration or sooner termination of this lease.
9.2 MECHANICS' LIENS. Tenant shall cause to be completed in accordance
with the plans and specifications therefor any improvements that Tenant causes
or permits to be commenced on the leased premises, shall pay all of the costs
thereof, and shall keep the leased premises and any improvements thereon at all
times free of mechanics' liens and other liens for labor, services, supplies,
equipment or material furnished or used for the purpose of making such
improvements.
10. UTILITIES
10.1 UTILITY SERVICE TO LEASED PREMISES. Tenant shall make all
arrangements for and shall pay the charges when due for all water, gas and heat,
light, power, telephone service, trash collection and all other services and
utilities supplied to the leased premises during the entire term of this lease.
Tenant shall promptly pay all connection and termination charges therefor. If
utilities are not separately metered for the leased premises, Tenant shall pay
its proportionate share, as reasonably determined by Landlord, of the costs
incurred by Landlord in causing utility services to be furnished to the building
of which the leased premises are a part.
10.2 INTERRUPTIONS IN SERVICE. The suspension or interruption in
utility services, or power surges or "brownouts", to the leased premises for
reasons beyond the ability of Landlord
10
<PAGE> 11
to control shall not constitute a default by Landlord or entitle Tenant to any
reduction or abatement of rent.
11. TENANT'S PERSONAL PROPERTY
11.1 INSTALLATION OF PROPERTY. Landlord shall have no interest in any
removable equipment, furniture or trade fixtures owned by Tenant or installed in
or upon the leased premises solely at the cost and expense of Tenant. Prior to
creating or permitting the creation of any lien or security or reversionary
interest in any removable personal property to be placed in or upon the leased
premises, Tenant shall obtain the written agreement of the party holding such
interest to make such repairs necessitated by the removal of such property and
any damage resulting therefrom as may be necessary to restore the leased
premises to good condition and repair, excepting only reasonable wear and tear,
in the event such property is thereafter removed from the leased premises by
such party, or by any agent or representative thereof or purchaser therefrom,
pursuant to the exercise or enforcement of any rights incident to the interest
so created, without any cost or expense to Landlord.
11.2 REMOVAL OF PERSONAL PROPERTY. Provided that Tenant is not then in
default, at the expiration of this lease, Tenant shall have the right to remove
at its own cost and expense all removable equipment, furniture or trade fixtures
owned by or installed at the expense of Tenant on the leased premises during the
term of this lease. All such personal property shall be removed prior to the
close of business on the last day of the lease term. Tenant shall make such
repairs necessitated by the removal of said property and any damage resulting
therefrom as may be necessary to restore the leased premises to good condition
and repair. Any such property not so removed shall be deemed to have been
abandoned or, at the option of Landlord, shall be removed and placed in storage
for the account and at the cost and expense of Tenant.
11.3 INSTALLATIONS TO REMAIN. Notwithstanding the preceding, should
Tenant install any driveway gates to the parking lot located on the leased
premises, Tenant shall not have the right to remove such gates. Should Tenant
install any security systems, telephone systems or computer network systems,
Tenant shall not be entitled to remove any security sensors or telephone or
computer network wiring located in the walls. Tenant shall have the right to
remove all computer, telephone system or security system hardware or equipment
other than such wiring.
12. CARE AND MAINTENANCE
12.1 LANDLORD'S MAINTENANCE. Except as otherwise provided in this
lease, Landlord shall be responsible for the repairs and maintenance specified
in this Section 12.1. The maintenance obligation of Landlord shall be limited to
any required (a) repair or replacement of the structural components of the
building shell, including exterior and bearing walls, foundations, sub-flooring
and roof, and (b) any required repair, maintenance and replacement, if
necessary, of any encased plumbing, wiring, pipes or conduits, plantings and
landscaping and the exterior of the building (unless the repair thereof is
required as a result of Tenant's misuse), and (c) any machinery or equipment
constituting an integral part of the building, including the heating,
ventilating or air conditioning systems serving the entire building; and (d) the
repair,
11
<PAGE> 12
maintenance and replacement, if necessary, of the building roofs and parking
lot. Tenant shall reimburse Landlord for the costs of maintaining, replacing and
repairing the items set forth in subparagraphs (b), (c) and (d), above, to the
extent provided in Section 6.3 of this lease.
12.2 TENANT'S MAINTENANCE. Except as otherwise provided in this lease,
Tenant shall, at its own cost and expense:
12.2.1 Maintain throughout the lease term in good and sanitary
order, condition, and repair, all portions of the leased premises, other than
that maintained by Landlord pursuant to Section 12.1, above, including, without
limitation, (a) the interior skin of the leased premises, including flooring,
plumbing, exposed wiring, paint and finish and (b) any doors or windows included
within the leased premises.
12.2.2 Notify Landlord promptly of any damage to the leased
premises or the building in which they are situated, or the common areas of the
building resulting from or attributable to the acts or omissions of Tenant or
its agents, employees or authorized representatives, and thereafter promptly to
repair all such damage at Tenant's sole cost and expense.
12.2.3 Remove immediately from the sidewalks and parking area
any litter, debris or other unsightly or offensive matter placed or deposited
thereon by the agents or customers of Tenant.
12.3 JANITORIAL SERVICE. Tenant shall provide janitorial services for
the interior of the leased premises. Landlord shall provide janitorial and trash
collection services to the balance of the leases premises, including the
exterior of the building, the landscaping and the parking lot. Tenant shall pay
its proportionate share of the costs or increased costs incurred by Landlord in
furnishing such services.
12.4 NO RIGHT TO OFFSET. Tenant waives any right that may exist under
Sections 1941 and 1942 of the California Civil Code to make repairs and to
deduct the expenses thereof from the rent payable by Tenant.
13. INDEMNITY AND INSURANCE
13.1 INDEMNIFICATION AGREEMENT. This lease is made upon the express
condition that Landlord is to be free from all liability and claims for damages
by reason of any injury to any person and damage to any property (including
Tenant's), resulting from any cause whatsoever while, in, upon, about, or in any
way connected with the leased premises or the building in which the premises are
located during the term of this lease, including without limitation, damage or
injury caused by the elements or from breakage, leakage, obstruction or other
defects of pipes, sprinklers, wires, plumbing, air conditioning, or other
electrical or mechanical fixtures or equipment, excluding only any damage or
injury caused by the breach by Landlord of a duty imposed by law or under this
lease. Tenant hereby waives all claims against Landlord for, and agrees to
indemnify, defend and hold Landlord harmless from any liability, damage, loss,
cost or expense, including attorneys' fees, for any such injury or damage to
persons or property, whether
12
<PAGE> 13
resulting from or attributable to the fault or neglect of Tenant or otherwise,
excluding only injuries or damages caused by a breach by Landlord of a duty
imposed by law or by this lease.
13.2 DUTY TO DEFEND. Should any action or proceeding be commenced
against Landlord by reason of any claim resulting from or attributable to the
use and occupancy of the leased premises by Tenant, or actions taken by or for
or permitted by Tenant in or about the premises or the common area, Tenant shall
appear in and defend such claim at Tenant's expense with counsel reasonably
satisfactory to Landlord.
13.3 PUBLIC LIABILITY AND PROPERTY DAMAGE. Tenant agrees to maintain in
force throughout the term hereof, at Tenant's sole cost and expense, a policy of
commercial general liability and property damage insurance (including, but not
limited to, automobile, personal injury, broad form contractual liability and
broad form property damage). The initial minimum limits of liability shall be
$1,000,000 per occurrence and $3,000,000 in the aggregate.
13.3.1 Such policies shall insure the contingent liability of
Landlord and the performance by Tenant of its indemnity obligations under this
lease. Landlord shall be named as an additional insured in each policy, and each
policy shall contain cross-liability endorsements.
13.3.2 Tenant further agrees to review the amount of its
insurance coverage with Landlord every five years to the end that the protection
coverage afforded thereby shall be in proportion to the protection coverage
afforded at the commencement of this lease. If the parties are unable to agree
upon the amount of said coverage prior to the expiration of each such five-year
period, then the amount of coverage to be provided by Tenant's carrier shall be
adjusted to the amounts of coverage recommended in writing by an insurance
broker selected by the mutual agreement of Landlord and Tenant or, if they are
unable to agree, then by an independent broker designated by the Board of
Directors of the Association of Independent Insurance Brokers for the city or
county in which the premises are situated.
13.4 TENANT'S PROPERTY INSURANCE. Tenant at its own cost shall maintain
on all of its personal property and removable fixtures and equipment situated
in, on or about the leased premises a policy of standard fire and extended
coverage insurance, with vandalism and malicious mischief endorsements, in an
amount not less than one hundred percent (100%) of replacement value. The
proceeds of any such policy that become payable due to damage, loss or
destruction of such property shall be used by Tenant for the repair or
replacement thereof.
13.5 BUSINESS INTERRUPTION INSURANCE. Tenant shall procure and maintain
at its own cost and expense throughout the entire lease term business
interruption insurance assuring that the minimum monthly rent will continue to
be paid to Landlord for a period of twelve months following any damage or
destruction to the premises by a risk that would be insured against by a
standard policy of fire and extended coverage insurance having vandalism and
malicious mischief endorsements.
13.6 PROOF OF INSURANCE. Each policy of insurance required of Tenant by
this lease shall be a primary policy, issued by an insurance company reasonably
satisfactory to Landlord, and shall contain an endorsement requiring thirty days
written notice from the insurer to
13
<PAGE> 14
Landlord before cancellation or change in the nature, scope or amount of
coverage. A copy of each policy shall be deposited with Landlord at the
commencement of the initial term of this lease, and thereafter prior to the
expiration of such policies and at the commencement of any renewal term.
13.7 LANDLORD'S INSURANCE. Landlord shall maintain casualty insurance
on the building in which the leased premises are situated, insuring against loss
by fire and the perils covered by an extended coverage endorsement, and public
liability insurance insuring against personal injury and property damage, in the
amounts not less than one hundred percent (100%) of replacement value and Tenant
shall be named as an additional insured in each such policy. Tenant shall pay
the premiums for such insurance. Landlord shall notify Tenant of the insurance
premiums payable by Tenant hereunder each year. Tenant shall pay Landlord the
amount payable by Tenant at the time and in the manner provided in Section 6 of
this lease.
13.8 WAIVER OF SUBROGATION. Landlord and Tenant each release the other
and their respective agents and representatives from any claims for damage to
any person or property or to the leased premises that are caused from risks
covered by insurance under this lease which is in force at the time of the loss,
and each party shall cause each policy of insurance obtained by it hereunder to
provide for a waiver of subrogation against either party in connection with any
loss covered by the policy.
14. DAMAGE OR DESTRUCTION
14.1 LANDLORD TO REPAIR. Should the leased premises or the building and
other improvements in which the premises are situated be totally or partially
damaged or destroyed, Landlord shall promptly repair the same, except that
Landlord or Tenant shall have the option to terminate this lease if (a) the
leased premises or the building and improvements in which the premises are
situated cannot reasonably be expected to be restored under existing law to
substantially the same condition as existed prior to such damage or destruction
within one hundred eighty days from the date that the insurance proceeds become
available to Landlord; or (b) if the costs of such restoration would exceed
one-half of the full insured value of the building and other improvements in
which the leased premises are situated; or (c) if the damage or destruction
results from a casualty not customarily insured against by a policy of standard
fire and extended coverage insurance having vandalism and malicious mischief
endorsements. Any notice of termination given hereunder shall be given to
Landlord or Tenant within fifteen days after Landlord determines the period of
time required for and the estimated costs of such repair or restoration, but no
later than forty-five days following the casualty.
14.2 TERMINATION; ABATEMENT OF RENT. This lease shall not be terminated
by any damage to or destruction of the leased premises or the building and other
improvements of which the premises are a part unless notice of termination is
given by Landlord to Tenant, or by Tenant to Landlord as provided by this
Section 14, and Tenant hereby waives the provisions of Sections 1932(2) and
1933(4) of the California Civil Code with respect to any such damage or
destruction.
14
<PAGE> 15
14.2.1 Should the leased premises be damaged or destroyed at
any time for more than ten consecutive days during the term of this lease, there
shall be an abatement or reduction of the minimum monthly rent between the date
of destruction and the date of completion of restoration, based on the extent to
which the destruction interferes with Tenant's use of the leased premises. No
such abatement shall exonerate any insurer from making rent continuation
payments called for by any insurance maintained pursuant to Section 13.5, above.
The rental abatement granted hereunder shall apply only to so much of Tenant's
minimum monthly rent as exceeds any such business interruption or rent
continuation insurance.
14.2.2 Should then-applicable laws or zoning ordinances
preclude the restoration or replacement of the leased premises in the manner
hereinbefore provided, then Landlord or Tenant shall have the right to terminate
this lease immediately by giving written notice of termination to Tenant. Upon
delivery of any such notice, both parties shall be released from all further
liability under this lease.
15. CONDEMNATION
15.1 ENTIRE PREMISES. Should title or possession of the whole of the
leased premises be taken by duly constituted authority in condemnation
proceedings under the exercise of the right of eminent domain, or should a
partial taking render the remaining portion of the leased premises unusable for
the conduct of Tenant's business, then this lease shall terminate upon the
vesting of title or taking of possession.
15.2 PARTIAL TAKING. Landlord shall have the right to terminate this
lease by giving thirty days prior written notice to Tenant within thirty days
after the nature and extent of the taking is finally determined if more than
twenty-five percent (25%) of the floor area of the buildings is taken by eminent
domain.
15.2.1 If Landlord does not terminate this lease as provided
herein, then this lease shall remain in full force and effect. In such event,
Landlord shall promptly make any necessary repairs or restoration at the cost
and expense of Landlord. In such event, the minimum monthly rent from and after
the date of the taking shall be reduced in the proportion that the value of the
area of the portion of the leased premises taken bears to the total value of the
leased premises immediately prior to the date of such taking or conveyance.
15.2.2 Tenant waives the provisions of Section 1265.130 of the
California Code of Civil Procedure permitting a petition by Tenant to the
Superior Court to terminate this lease in the event of a partial taking of the
leased premises.
15.3 TRANSFER UNDER THREAT OF CONDEMNATION. Any sale or conveyance by
Landlord to any person or entity having the power of eminent domain, either
under threat of condemnation or while condemnation proceedings are pending,
shall be deemed to be a taking by eminent domain under this Section 15.
15.4 AWARDS AND DAMAGES. All payments made on account of any taking by
eminent domain shall be made to Landlord, except that Tenant shall be entitled
to any award made (a) for
15
<PAGE> 16
the reasonable removal and relocation costs of any removable property that
Tenant has the right to remove, or for loss and damage to any such property that
Tenant elects or is required not to remove.
15.5 ARBITRATION. Any dispute concerning the extent to which a taking
by condemnation renders the leased premises unsuitable for continued occupancy
and use by Tenant shall be submitted to arbitration in accordance with the
then-existing rules of the American Arbitration Association.
16. ASSIGNING, SUBLETTING AND HYPOTHECATING
16.1 TRANSFERS OF LEASEHOLD ESTATE. Tenant shall not sell, transfer or
assign this lease, or any part thereof or any interest therein, or hypothecate
or grant any rights hereunder, or create or permit any subleases for the leased
premises, or permit the premises to be occupied by anyone other than Tenant or
Tenant's employees, whether voluntarily, involuntarily or by operation of law,
without in each case obtaining the prior written consent of the Landlord. Any
assignment, sublease, or other transfer of an interest in the leasehold estate
made without the consent of Landlord shall be invalid and, at the election of
Landlord, shall terminate this lease.
16.2 ORGANIZATIONAL CHANGES OF TENANT. Except as provided in Section
16.8, if Tenant is a corporation, any dissolution, merger, consolidation or
reorganization of Tenant, or the sale or transfer of more than fifty percent
(50%) of the outstanding voting stock of the corporation otherwise than through
transactions effected on a national stock exchange, or the sale or transfer in
one or a series of related transactions of more than fifty percent (50%) of the
value of the assets of Tenant, shall be deemed an assignment subject to the
provisions of this Section 16.
16.3 APPLICATIONS FOR LANDLORD'S CONSENT. If Tenant desires at any time
to assign this lease or to sublet all or any portion of the premises, Tenant
shall first notify Landlord of Tenant's desire to do so and shall submit in
writing to Landlord (i) the name of the proposed sublessee or assignee; (ii) the
nature of the proposed sublessee's or assignee's business to be carried on in
the premises; (iii) all of the terms and provisions of the proposed sublease or
assignment; and (iv) such reasonable financial information as Landlord may
request concerning the proposed sublessee or assignee, including, but not
limited to (a) a balance sheet as of a date within ninety days of the request
for Landlord's consent, and statements of income or profit and loss for the
two-year period preceding the request for Landlord's consent, all of which shall
be delivered in audited form if they are available, (b) two years' tax returns,
and (c) two years' bank statements, unless the financial statements show a
tangible net worth in excess of $5,000,000, in which case such bank statements
shall not be required. Landlord agrees to hold any such financial information
delivered to it in confidence, and to use it only for evaluating the proposed
sublease or assignment, or such other purposes as are reasonably related to
Landlord's ownership or financing of the property of which the premises are a
part. Landlord shall not unreasonably withhold or delay its consent to any
proposed assignment or subleasing. Landlord shall respond to any such requests
made by Tenant within ten business days following Tenant's delivery of any such
request. Landlord's response shall either approve such requested assignment or
subletting,
16
<PAGE> 17
or shall state the specific grounds upon which Landlord's approval is denied.
Any sublease, license, concession, franchise or other permission to use the
premises shall be expressly subject and subordinate to all applicable terms and
conditions of this lease.
16.4 ASSUMPTION BY ASSIGNEE. Each permitted assignee or transferee
shall assume all obligations of Tenant under this lease and shall be and remain
liable jointly and severally with Tenant for the payment of the rent, and for
the due performance of all the terms, covenants, conditions and agreements to be
performed by Tenant hereunder; provided, however, that a transferee other than
an assignee shall be liable to Landlord for rent only in the amount set forth in
the assignment or transfer. No assignment shall be binding on Landlord unless
such assignee or Tenant shall deliver to Landlord a counterpart of such
assignment and an instrument which contains a covenant of assumption by such
assignee satisfactory in substance and form to Landlord, consistent with the
requirements of this Section 16.4, but the failure or refusal of such assignee
to execute such instrument of assumption shall not release or discharge such
assignee from its liability as set forth above.
16.5 LANDLORD'S PARTICIPATION IN RENTAL OVERAGES. Consent by Landlord
to any subletting or assignment shall be conditioned upon payment by Tenant to
Landlord of one-half of any Rental Overages (as hereafter defined) received,
directly or indirectly, by Tenant on account of such assignment or subletting.
Landlord's share of any such Rental Overages shall be paid to Landlord within
ten days after the receipt by Tenant of the consideration upon which such Rental
Overages are based. Failure to pay Landlord its share of any Rental Overages, or
any portion or installment thereof, shall be deemed to default under this lease,
entitling Landlord to exercise all remedies available to it under this lease.
16.5.1 "Rental Overages" shall mean (a) in the case of a
subletting, any net income payable under such a sublease (after deducting all
broker fees and all other costs and expenses paid or incurred by Tenant in
securing the sublease) paid or given, directly or indirectly, by the sublessee
to Tenant pursuant to the sublease for the use of the premises, or any portion
thereof, over and above the rent and any additional rent, however denominated,
payable by Tenant to Landlord under this lease for the use of the premises (or
portion thereof), prorating as appropriate the amount payable to Tenant to
Landlord under this lease if less than all of the premises is sublet, and (b) in
the case either of an assignment or a sublease, any net payment (after deducting
(i) all brokers fees and (ii) all other costs and expenses to the extent such
other costs and expenses do not exceed an amount equal to two times the minimum
monthly rent then in effect under this lease, paid or incurred by Tenant in
securing the assignment or sublease) directly or indirectly received by the
Tenant solely in exchange for entering into the sublease or assignment.
16.5.2 Rental Overages shall not include (a) reimbursement for
any security deposit, (b) reimbursement of any improvements, fixtures or
furnishings installed in the premises by Tenant, (c) any amounts paid for the
business or assets of Tenant, other than the leasehold estate, or (d) any
payment for personal property of Tenant, including payments made for goodwill,
going concern value or similar intangible personal property.
17
<PAGE> 18
16.5.3 As used herein, consideration shall include
consideration in any form, including but not limited to, money, property,
discounts, services, credits or any other item or thing of value. Irrespective
of the form of such consideration, Landlord shall be entitled to be paid in cash
in an amount equivalent to the aggregate of the cash portion of the Rental
Overages and the value of any non-cash portion of the Rental Overages. If any
Rental Overages are to be paid or given in installments, Tenant shall pay each
such installment at the time the same is received by Tenant.
16.6 REIMBURSEMENT OF EXPENSES. Concurrently with Landlord's consent to
the proposed assignment or subletting, and as a condition thereto, Tenant shall
reimburse Landlord for the reasonable costs and expenses, including attorneys'
fees, incurred by Landlord in connection with the processing and documentation
of the proposed transfer, assignment or sublease, in an amount that does not
exceed ten percent (10%) of the rent and any additional rent, however
denominated, then payable in connection with any one transaction.
16.7 CONTINUATION OBLIGATION. No assignment or subletting by Tenant
shall relieve Tenant of its obligations under this lease, and Tenant shall
remain fully responsible to Landlord for the performance of all its obligations
under this lease, regardless of any assignment or subletting. Any such transfer,
assignment or subletting shall be subject to all of the terms and conditions of
this lease, and each successive transfer, assignment or subletting shall be made
only upon like conditions.
16.8 CERTAIN TRANSFERS. Notwithstanding the foregoing provisions of
this Section 16, Tenant shall have the right, with Landlord's consent, to assign
this lease to a corporation with which it may merge or consolidate, to any
parent or subsidiary of Tenant or a subsidiary of Tenant's parent, or to a
purchaser of substantially all of Tenant's assets. Within five business days of
any such assignment, such assignee shall deliver to Landlord written agreement
pursuant to which such assignee agrees to assume all of the obligations of the
Tenant under this lease and be bound by all of the terms hereof. In the event of
any such assignment to a parent, affiliate, subsidiary or successor by merger or
consolidation, none of the other provisions of this Section 16 shall be
applicable to such a transfer. Notwithstanding the preceding, in no event shall
any such assignment relieve the assigning Tenant of any liability whatsoever
under this lease.
17. SALE OR TRANSFER OF PREMISES
If Landlord sells or transfers all or any portion of the premises, or
the building, improvements and land of which the leased premises are a part,
then Landlord, on consummation of the sale or transfer, shall be released from
any liability thereafter accruing under this lease. If any security deposit or
prepaid rent has been paid by Tenant, Landlord shall transfer the security
deposit or prepaid rent to Landlord's successor and on such transfer Landlord
shall be discharged from any further liability with respect thereto.
18
<PAGE> 19
18. DEFAULT BY TENANT
Each of the following events shall constitute an Event of Default
within the meaning of this lease:
18.1 INSOLVENCY OF TENANT. If during the term of this lease (a) the
Tenant or any guarantor shall make an assignment for the benefit of creditors;
or (b) a voluntary or involuntary petition shall be filed by or against the
Tenant or any guarantor under any law having for its purpose the adjudication of
the Tenant or any guarantor as bankrupt, or the extension of time of payment,
composition, adjustment, modification, settlement or satisfaction of the
liabilities of the Tenant or any guarantor, or to which any property of the
Tenant or any guarantor may be subject and, if the petition be involuntary, if
said petition be granted; or (c) a receiver be appointed for the leased premises
by reason of the insolvency or alleged insolvency of the Tenant and said
receiver is not discharged within sixty days, or upon the hearing of a timely
filed petition to dismiss, absolve or otherwise terminate the receivership,
whichever shall later occur; or (d) any department of the state or federal
government, or any officer thereof duly authorized shall take possession of the
leased premises and the improvements thereon by reason of the insolvency of the
Tenant and the taking of possession shall be followed by a legal adjudication of
the insolvency, or bankruptcy, or receivership of Tenant.
18.2 BREACH OF COVENANT; ABANDONMENT, ETC. If during the term of this
lease, Tenant shall default in fulfilling any of the covenants or conditions of
this lease (other than the covenants for the payment of rent or other charges
payable by the Tenant hereunder; provided, however, that a default which is
capable of being cured shall not constitute an Event of Default unless Landlord
has given notice of such default to Tenant and Tenant has failed to cure such
default within thirty days after its receipt of such notice or, in the case of a
default which cannot with due diligence be cured within a period of thirty days,
if the Tenant has failed to proceed promptly after the service of such notice to
prosecute the curing of such default with all due diligence within a reasonable
period of time.
18.3 FAILURE TO PAY RENT, ETC. If the payment of the rent expressly
reserved hereunder, or any part of the same, or any other rent or charge
required to be paid by the Tenant hereunder or any part of the same, is not paid
when due.
19. LANDLORD'S REMEDIES
Upon the occurrence of any Event of Default:
19.1 TERMINATION. Landlord may, at Landlord's election, terminate this
lease by giving Tenant such notice as is required by Section 1161 of the
California Code of Civil Procedure, or any successor statute. On the giving of
any such notice, this lease shall be terminated and the same shall expire as
fully and completely as if the day of such notice were the date herein
specifically filed for the expiration of the term of this lease, and all of
Tenant's rights in the premises and in all improvements situated thereon shall
terminate. Subject to the provisions of Section 19.5 below, promptly after
receiving notice of termination, Tenant shall surrender and vacate the premises
and all such improvements in broom-clean condition, and
19
<PAGE> 20
Landlord may reenter and take possession of the premises and all remaining
improvements and eject all parties in possession, or eject some and not others,
or eject none. Termination of this lease pursuant to this Section 19.1 shall not
relieve Tenant from the payment of any sum then due to Landlord or from any
claim for damages previously accrued or then accruing against Tenant.
19.2 REENTRY WITHOUT TERMINATION. Landlord may, at Landlord's election,
reenter the premises and, without terminating this lease, at any time, and from
time to time relet the premises and improvements or any part of them for the
account and in the name of Tenant or otherwise. Any reletting may be for the
remainder of the term or for a longer or shorter period. Landlord may execute
any leases made under this provision either in Landlord's name or in Tenant's
name and shall be entitled to all rents from the use, operation, or occupancy of
the premises or improvements or both. Tenant shall nevertheless pay to Landlord
on the due date specified in this lease the equivalent of all sums required to
be paid by Tenant under this lease, plus Landlord's expenses, but less the
proceeds of any reletting or attornment. No act by or on behalf of Landlord
under this provision shall constitute a termination of this lease unless
Landlord gives notice of termination pursuant to Section 19.1, above.
19.3 RECOVERY OF RENT. Landlord shall be entitled at Landlord's
election to each installment of rent or to any combination of installments for
any period before termination, plus late charges and interest as provided by
Section 3.3.2, above. The proceeds of any reletting or attornment shall be
applied, when received, first to the out-of-pocket costs and expenses incurred
by Landlord in recovering possession of the premises and/or effecting such
reletting, including but not limited to attorneys' fees, court costs, brokerage
commissions and any costs of remodeling or renovation, second to any amounts
then due and unpaid by Tenant under this lease, to the extent that such proceeds
for the period covered do not exceed the amount due from and charged to Tenant
for the same period, and any remaining balance shall be held for the account of
Tenant.
19.4 LANDLORD'S DAMAGES. Landlord shall be entitled, at Landlord's
election, to recover from Tenant all damages suffered by Landlord as a result of
Tenant's default, including without limitation, the worth at the time of the
award (computed in accordance with paragraph (b) of Section 1951.2 of the
California Civil Code) of the amount by which the rent then unpaid for the
balance of the lease term exceeds the amount of such rental loss for the same
period which the Tenant proves could be reasonably avoided by Landlord.
19.5 ASSIGNMENT OF SUBRENTS. Tenant assigns to Landlord all subrents
and other sums becoming due from subtenants, licensees and concessionaires
(referred to collectively herein as "subrents") during any period in which
Landlord has the right under this lease, whether exercised or not, to reenter
the premises on account of a default by Tenant, and Tenant shall not have any
right to such sums during that period. This assignment is specifically subject
and subordinate to any and all assignments of the same subrents and other sums
made to a leasehold mortgagee under any leasehold mortgage permitted by the
provisions of this lease. Landlord may at Landlord's election reenter the
premises and improvements, without terminating this lease, and either collect
these sums or bring an action for the recovery of such sums from the obligors.
20
<PAGE> 21
19.6 REMEDIES CUMULATIVE AND NOT EXCLUSIVE. The rights, powers and
remedies of Landlord hereunder shall be in addition to all rights, powers and
remedies given by statute, rule of law and in equity, and all such remedies
shall be cumulative. The exercise of any one or more of such right, powers and
remedies shall not be construed as a waiver or election by Landlord of any other
rights, powers or remedies of Landlord arising pursuant to any provision of law
or this lease.
19.7 RIGHTS AND REMEDIES NOT WAIVED. No course of dealing between the
Tenant and the Landlord or any failure or delay on the part of the Landlord in
exercising any rights or remedies pursuant to law or arising pursuant to this
lease shall operate as a waiver of any rights or remedies of Landlord. Neither
the subsequent acceptance by Landlord of any amounts paid to it on account of or
with respect to amounts owed by Tenant pursuant to this lease, or the
application of any such amounts in reduction of outstanding rent or other
obligations due from Tenant shall constitute a waiver or cure of default, other
than default in the timely payment of the amount so accepted, regardless of
Landlord's knowledge of the preceding breach. Landlord's acceptance of rent or
any other payment after termination of this lease shall not entitle the Tenant
to have this lease reinstated. Any waiver, express or implied, by any party
hereto, of any breach by any party of any covenant or provision of this lease,
shall not be, nor be construed to be, a waiver of any subsequent breach of the
same or any other term or provision hereof.
20. LANDLORD'S RIGHT TO CURE DEFAULTS
Landlord, at any time after Tenant commits a default in the performance
of any of Tenant's obligations under this lease, shall be entitled to cure such
default, or to cause such default to be cured, at the sole cost and expense of
Tenant. If, by reason of any default by Tenant, Landlord incurs any expense or
pays any sum, or performs any act requiring Landlord to incur any expense or to
pay any sum, including attorneys fees and reasonable costs and expenses paid or
incurred by Landlord in order to prepare and post or deliver any notice
permitted or required by the provisions of this lease or otherwise permitted or
contemplated by law, to appear in any bankruptcy or insolvency proceedings, or
otherwise to enforce any of its rights under this lease, then the amount so paid
or incurred by Landlord shall be immediately due and payable to Landlord by
Tenant as additional rent. Tenant hereby authorizes Landlord to deduct said sums
from any security deposit held by Landlord. If there is no security deposit, or
if Landlord elects not to use any such security deposit, then such sums shall be
paid by Tenant immediately upon demand by Landlord, and shall bear interest at
the highest rate then permitted by law from the date on which such demand is
made until the entire amount due has been paid in full.
21. SUBORDINATION OF LEASE; ESTOPPEL
21.1 SUBORDINATION; ESTOPPEL CERTIFICATES. Tenant agrees to execute,
acknowledge and deliver to Landlord upon request:
21.1.1 Such documents and instruments as may be necessary to
subordinate this lease to (a) any mortgages or trust deeds that now exist or may
hereafter be placed upon the premises by Landlord, (b) to any and all advances
made or to be made thereunder, (c) to the interest on all obligations secured
thereby, and (d) to all renewals, modifications, consolidations,
21
<PAGE> 22
replacements and extensions thereof; provided, however, that in each case the
mortgagee or beneficiary named in any such mortgage or trust deed shall agree in
writing that, as long as Tenant performs its obligations under this lease, no
foreclosure or deed in lieu of foreclosure, or sale under the encumbrance or
other procedures to enforce the rights incident thereto, shall affect Tenant's
rights under this lease.
21.1.2 An estoppel certificate certifying in effect that this
lease is in full force and effect, that it has not been amended, that Landlord
is not in default hereunder, that Tenant claims no offsets or other amounts
against Landlord, and such other information as Landlord may reasonably request
(e.g., the current monthly rent, the amount of any security deposit, the
presence or absence of renewal or purchase options, and similar factual
matters), other than such exceptions to such matters as may be claimed by Tenant
as set forth in said estoppel certificate.
21.2 ATTORNMENT. Tenant shall attorn to any purchaser at any
foreclosure sale or to any grantee or transferee designated in any deed given in
lieu of foreclosure.
21.3 NONDISTURBANCE AGREEMENT. Concurrently with the execution of this
lease by Tenant, Landlord shall deliver to Tenant a Nondisturbance,
Subordination and Attornment Agreement in the form attached as Exhibit E from
all holders of all liens encumbering the premises. If the leased premises are
later financed with Santa Barbara Bank & Trust, then Tenant agrees to execute a
Nondisturbance, Subordination and Attornment Agreement in the form attached as
Exhibit F.
22. SIGNS AND ADVERTISING
Tenant shall be entitled to place and maintain signs to display its
trade name at such locations on the exterior of the leased premises approved by
Landlord, which signs shall conform to the reasonable requirements of Landlord
as to size and format. Tenant shall comply with all laws, rules and regulations
affecting such signage and shall obtain approval from all municipal authorities
in order to place such signage on the premises. Upon Landlord's request given
prior to the termination of this lease, Tenant shall remove all of Tenant's
signage on or prior to the expiration of the term of this lease.
23. LANDLORD'S ENTRY ON PREMISES
23.1 RIGHT OF ENTRY. Landlord and its authorized representatives shall
have the right to enter the premises at all reasonable times for any of the
following purposes:
23.1.1 To determine whether the premises are in good condition
and whether Tenant is complying with its obligations under this lease;
23.1.2 To do any necessary maintenance, repairs, or
restoration to the building or the premises that Landlord has the right or
obligation to perform;
23.1.3 To serve, post, and keep posted any notices required or
allowed under the provisions of this lease, including "for rent" or "for lease"
notices during the last six months of
22
<PAGE> 23
this lease, and any notices provided by law for the protection of Landlord's
interest in the leased premises; and
23.1.4 To shore the foundations, footings, and walls of the
building and to erect scaffolding and protective barricades around and about the
building, but not so as to prevent entry to the premises, and to do any other
act or thing necessary for the safety or preservation of the premises and the
building if any excavation or other construction is undertaken or is about to be
undertaken on any adjacent property or area.
23.2 EXERCISE OF RIGHT. Tenant shall not be entitled to an abatement or
reduction of minimum monthly rent on account of Landlord's entry and activities
interfere with Tenant's occupancy of the leased premises. Landlord shall use
reasonable care in exercising its rights under this Section in a manner that
will not interfere unreasonably with Tenant's use and occupancy of the leased
premises; however, Landlord shall not be liable for any inconvenience,
disturbance, loss of business, nuisance, or other damage arising out of
Landlord's entry on the premises as provided herein, except damage resulting
from the negligent or tortious acts or omissions of Landlord or its authorized
representatives.
24. SURRENDER ON TERMINATION; HOLDING OVER
24.1 SURRENDER OF PREMISES. Tenant agrees to return the leased premises
(except removable trade fixtures, furniture and equipment owned or installed by
Tenant), to Landlord at the expiration or sooner termination of the lease term,
in good condition and repair, reasonable wear and tear excepted. Should the
Tenant hold the leased premises with the consent of Landlord after the
expiration of the term of this lease, then such holding over shall be construed
to be only a tenancy from month-to-month and subject to all of the conditions
and agreements herein contained, except that the minimum monthly rent payable
hereunder shall be increased to one hundred fifty percent (150%) of the minimum
monthly rent payable immediately prior to the expiration of the term of the
lease.
24.2 REMOVAL OF ALTERATIONS. Landlord, by giving written notice to
Tenant at the time Landlord approves of any of Tenant's alterations, may elect
to require Tenant to remove any alterations that Tenant has made to the
premises. If Landlord so elects, Tenant, at its sole cost and expense, shall
remove the alterations specified by Landlord in its notice, and shall make such
repairs necessitated by the removal of said alterations, and any damage
resulting therefrom, as may be necessary to restore the leased premises to good
condition and repair, excepting only reasonable wear and tear, before the last
day of the lease term.
25. GENERAL PROVISIONS
25.1 NOTICES. All notices permitted or required under this lease shall
be in writing and shall be deemed to have been given upon personal delivery, or
on the first business day following the date upon which sent by telefax, or on
the second business day following the date on which sent by mail, postage
prepaid, addressed, in the case of Landlord, to its principal place of business
or, in the case of Tenant, to the leased premises or to such other address,
notice of which is given as provided herein.
23
<PAGE> 24
25.2 JOINT AND SEVERAL LIABILITY. Each person or entity named as a
Tenant in this lease, or who hereafter becomes a Party to this lease as a tenant
in the leased premises, or as an assignee of Tenant, shall be jointly and
severally liable for the full and faithful performance of each and every
covenant and obligation required to be performed by Tenant under the provisions
of this lease.
25.3 BINDINGS ON SUCCESSORS, ETC. Each of the terms, conditions, and
obligations of this lease shall extend to and bind, or inure to the benefit of
(as the case may require), the respective parties hereto, and each and every one
of their respective heirs, executors, administrators, representatives,
successors and assigns.
25.4 ATTORNEYS' FEES. Should any legal action be instituted by either
of the parties to enforce or construe any of the terms, conditions or covenants
of this lease, or the validity thereof, the party prevailing in any such action
shall be entitled to recover from the other party all court costs and reasonable
attorneys' fees to be set by the court, and the costs and fees incurred in
enforcing any judgment entered therein.
25.5 PARTIAL INVALIDITY. If any term or provision of this lease or the
application thereof to any person or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of this lease or the application of such
term or provision to persons or circumstances other than those to which it is
held invalid or unenforceable, shall not be affected thereby, and each term and
provision of this lease shall be valid and be enforceable to the fullest extent
permitted by law.
25.6 COMPLETE AGREEMENT. This lease, and the attachments and exhibits
hereto, constitute the entire agreement between the parties and may not be
altered, amended, modified or extended except by an instrument in writing signed
by the parties hereto. The parties respectively acknowledge and agree that
neither has made any representations or warranties to the other not expressly
set forth herein.
25.7 GUARANTY. The obligations of Tenant shall be guaranteed by the
execution and delivery of the Guaranty attached hereto as Exhibit G.
(Signatures appear on the following page.)
24
<PAGE> 25
IN WITNESS WHEREOF, the undersigned have executed this lease, effective
on the date specified above.
"TENANT'
STAR VENDING, INC., a Nevada corporation
By:_____________________________________
Name:________________________________
Title:_______________________________
Address for Notice:
Prior to occupancy:
740 State Street, Suite 202
Santa Barbara, California 93101
Following occupancy:
223 East De La Guerra Street
Santa Barbara, California 93101
"LANDLORD"
THOMAS M. SPEAR, as receiver for
De La Guerra Court Investments,
a California general partnership
By:_____________________________________
Thomas M. Spear
Address for Notice:
Property Management Associates
Suite 200
1017 North La Cienega
Los Angeles, California 90069
25
<PAGE> 26
EXHIBITS ATTACHED
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit A _ Legal Description
Exhibit B _ Plot Plan
Exhibit C _ Tenant Improvements Exhibit
Exhibit D _ Commencement Date Certificate
Exhibit E _ Nondisturbance, Subordination and
Attornment Agreement (FBK)
Exhibit F _ Nondisturbance, Subordination and
Attornment Agreement (SBB&T)
Exhibit G _ Guaranty
</TABLE>
26
<PAGE> 27
EXHIBIT A
DESCRIPTION:
All that certain land situated in the City of Santa Barbara, County of Santa
Barbara, State of California, described as follows:
All that certain land situated in the City of Santa Barbara, County of Santa
Barbara, State of California, described as follows:
Commencing at the Southerly corner of Block One-hundred and seventy-two (172),
said corner being formed by the intersection of the Northeasterly line of Santa
Barbara Street with the Northwesterly line of De la Guerra Street as said block
and streets are shown and designated on the official maps of said City of Santa
Barbara, and running thence in a Northeasterly direction along said
Northwesterly line of De la Guerra Street, four hundred and fifty-one 8/10
(451.8) feet to the Easterly corner of said block, said Easterly corner being
formed by the intersection of said Northwesterly line of De la Guerra Street
with the Southeasterly line of Garden Street as said streets are shown and
designated on said official maps; thence running in a Northwesterly direction
along said Southwesterly line of Garden Street, one hundred and sixty-eight 5/10
(168.5) feet to an iron pipe set in said Southwesterly line of Garden Street;
thence running into said block in a Southwesterly direction parallel with said
Northwesterly line of De la Guerra Street, one hundred and twenty-two 5/10
(122.5) feet to an iron pipe; thence running in a Northwesterly direction
parallel with said Southwesterly line of Garden Street, sixty-three 5/10 (63.5)
feet to an iron pipe; thence running South 34 (degree) 42' West, one hundred and
eighty 58/10 (180.58) feet to the Northerly corner of property of said City of
Santa Barbara; thence running in a Southeasterly direction parallel with said
Northeasterly line of Santa Barbara Street and along the Northeasterly boundary
line of said property of said City of Santa Barbara eighty-three (83) feet to
the Easterly corner of said property of said City of Santa Barbara; thence
running in a Southwesterly direction parallel with said Northwesterly line of De
La Guerra Street one hundred and fifty (150) feet to the Southerly corner of
said property of said City of Santa Barbara and to said Northeasterly line of
Santa Barbara Street; and thence running in a Southeasterly direction along said
Northeasterly line of Santa Barbara Street, one hundred and twenty-seven 5/10
(127.5) feet to the point or place of beginning.
EXCEPTING therefrom all that portion of said land described in the deed to the
City of Santa Barbara, dated May 28, 1926 and recorded June 12, 1926 as
Instrument No. 5522 in Book 98, Page 107 of Official Records.
<PAGE> 28
EXHIBIT B
[GRAPHIC]
<PAGE> 29
EXHIBIT C
TENANT IMPROVEMENTS EXHIBIT
THIS TENANT IMPROVEMENTS EXHIBIT constitutes an integral part of the
Commercial Building Lease to which it is attached by and between the following
parties:
LANDLORD: Thomas M. Spear, as receiver for De La Guerra Court Investments, A
California General Partnership
TENANT: Star Vending, Inc., a Nevada Corporation
PREMISES: 800 Santa Barbara Street and 227 E. De La Guerra Street, Santa
Barbara, California
1. GENERAL
1.1 RESPONSIBILITY. The work described in Section 2, if any, will be
performed by the Landlord (the "Landlord's Work"). The Landlord will coordinate
its work with the Tenant's Work insofar as the schedule and prudent construction
practice allow. The Landlord's contractor shall make the Premises available to
contractors retained by the Tenant in connection with the Tenant's Work provided
that such contractors (the "Contractors") shall be required by Tenant to
coordinate such access and work with the Landlord's contractor. The work
described in Section 3 will be performed and completed by the Tenant in
accordance with the Tenant's plans and specifications (the "Tenant's Work").
Tenant acknowledges that Landlord will be performing the Landlord's Work in the
Premises at the same time as the Tenant is performing the Tenant's Work.
1.2 TENANT IMPROVEMENT ALLOWANCE. Landlord shall bear the cost of all
of the Landlord's Work. Except as provided herein, Tenant shall bear the cost of
all of the Tenant's Work. Landlord shall reimburse Tenant for a portion of the
costs of the Tenant's Work which consist of improvements permanently affixed to
and a part of the Premises, in an amount not to exceed Seventy Five Thousand
Dollars ($75,000) (the "Tenant Improvement Allowance"). The Tenant Improvement
Allowance shall be paid to Tenant upon the satisfaction of the following
conditions: (a) Tenant shall have supplied Landlord with documentation showing
that Tenant's actual expenses in performing the Tenant's Work exceed the amount
of the Tenant Improvement Allowance sought to be released; (b) Tenant shall
provide Landlord with all appropriate lien releases by its Contractors,
subcontractors and vendors; (c) Tenant shall have supplied Landlord, and
Landlord shall have approved and attached to this lease as an addendum, a
schedule of the improvements acquired, constructed or installed and paid for by
the Tenant Improvement Allowance, all of which shall be owned by Landlord; and
(d) all of the improvements to be constructed by Tenant in the Premises shall be
completed in strict compliance with the approved plans and specifications for
the Tenant's Work.
1
<PAGE> 30
2. LANDLORD'S WORK
Landlord shall insure adequate amperage and electrical distribution
exists to the premises for normal office use in accordance with industry
standards.
3. TENANT'S WORK
All construction and installation of Tenant's leasehold improvements
other than as specified in Section 2, above, shall be provided at Tenant's
expense (subject to the payment of the Tenant Improvement Allowance). Landlord
acknowledges that Tenant's Work will include the installation of a security
system and a gate or other mechanism to control access to the parking lot.
Landlord consents to such improvements, subject to Tenant's compliance with any
requirements of the City of Santa Barbara in connection with them.
3.1 PERMITS AND PLANS. If required, all building and other permits
required in connection with the construction and completion of the Tenant's Work
(the "Permits") shall be obtained by Tenant prior to the commencement of the
Tenant's Work. The Permits shall be posted in a conspicuous location on the
Premises. Tenant shall obtain Landlord's prior approval of the plans and
specifications for the Tenant's Work. Such approval shall be obtained pursuant
to Section 9 of the lease. Landlord shall not unreasonably withhold or delay its
approval of such plans. One complete set of the plans and specifications for the
Tenant's Work, as approved by Landlord, shall be kept in the Premises throughout
the construction process. All construction shall be in compliance with the
approved Tenant's plans and specifications.
3.2 COMPLIANCE. All of the Tenant's Work shall comply with all
applicable provisions of the Uniform Building Code adopted by the cognizant
governmental agencies, all conditions of approval placed upon the operation of
Tenant's business in the Premises as a part of the cognizant governmental
agencies' approval of Tenant's plans and specifications, and all other
applicable laws, conditions, approvals, ordinances, rules and regulations.
4. PROCEDURES
4.1 PERFORMANCE OF TENANT'S WORK. The construction and installation of
Tenant's Work shall be completed in accordance with the following procedures:
4.1.1 Tenant shall be responsible for obtaining all necessary
approvals from all local agencies or governmental departments having
jurisdiction.
4.1.2 Tenant shall promptly deposit all trash and debris in
appropriate trash receptacles, which Tenant procures and bears all expenses of,
and shall keep the area clean and picked up during construction.
4.1.3 Tenant shall record a Notice of Completion promptly
after the completion of Tenant's Work, and shall promptly furnish Landlord a
conformed copy of such Notice, as recorded.
2
<PAGE> 31
4.1.4 Should the Tenant's Work involve any construction or
demolition for which a building permit is required by applicable ordinances,
then Tenant shall obtain "course of construction" insurance for the period
during which such Tenant's Work is being performed. Such course of construction
insurance shall name Landlord as an additional insured.
4.1.5 Tenant shall indemnify, defend and hold Landlord free
and harmless from and against any liabilities, claims, damages, losses, causes
of action, costs or expenses, including attorneys' fees, resulting from or
attributable to any injury to persons or damage to property occurring during the
course of performing Tenant's Work.
4.2 PLAN CHECK AND BUILDING CODE PERMIT APPLICATION. If required, the
Tenant shall submit to the cognizant governmental agency Tenant's plans and
specifications and building permit application at such time as is reasonably
necessary to obtain a building permit for and complete the Tenant's Work. The
Tenant shall be solely responsible for coordinating the timing of its submittal
to the governmental agencies to avoid delays in start of construction.
4.3 TENANT'S RESPONSIBILITY FOR TENANT'S PLANS AND SPECIFICATIONS.
Landlord's approval of all Tenant's plans and specifications shall be made in
accordance with the applicable Section of the lease. After the Landlord's
approval of Tenant's plans and specifications, no material changes shall be made
to such Tenant's plans and specifications without the prior written consent of
the Landlord. The Landlord's review and/or approval of plans as herein specified
is for compliance with the Landlord's criteria only, and such approval does not
relieve the Tenant of responsibility for compliance with this lease and any
documents referred to therein, any conditions of approval or other restrictions
affecting the building, field verification of dimensions and existing
conditions, discrepancies between Tenant's plans and specifications and the
as-built conditions of the premises, coordination with other trades and job
conditions, or compliance with all codes and regulations applicable to the
Tenant's Work. No responsibility for proper architecture, engineering, safety
and/or design of facilities or compliance with applicable codes and regulations
is implied or inferred from the Landlord's approval of the Tenant's plans.
3
<PAGE> 32
EXHIBIT D
COMMENCEMENT DATE CERTIFICATE
THIS EXHIBIT, when executed and delivered by the Landlord and Tenant
named in the lease to which it is attached, shall constitute an integral part of
that lease (the "Lease"). For purposes of the Lease, the following terms shall
have the meanings ascribed to them in this Exhibit:
1. COMMENCEMENT DATE. The date on which Landlord delivered possession
of the leased premises to Tenant is June 10, 1996.
2. RENT COMMENCEMENT DATE. The date on which Tenant first becomes
obligated to pay rent under the Lease is: June 10, 1996.
3. EXPIRATION DATE. The date on which the Initial Term of the Lease
expires is: June 30, 2003.
4. FREE RENT MONTHS. The months in which Tenant shall not be obligated
to pay rent, or reimburse Landlord's Operating Costs, as provided in Section 3.5
of the Lease, are the months of July, 1996, July, 1997 and July, 1998.
5. SIZE OF PREMISES. The agreed-upon size of the buildings comprising
the premises for all purposes under this Lease is Thirteen Thousand Eighty-Five
(13,085) square feet. Of this, 12,327 square feet is agreed to be office space,
the rent for which shall be the agreed upon amount (initially $1.30 per square
feet, NNN), and 758 square feet is agreed to the storage space, the rent for
which shall be one-half of the agreed upon amount (initially $0.65 per square
foot).
6. INITIAL MINIMUM MONTHLY RENT. The initial minimum monthly rent
payable pursuant to Section 3.1 of the Lease shall be Sixteen Thousand Five
Hundred Seventeen and 80/100 Dollars ($16,517.80), consisting of $16,025.10 for
the office space and $492.70 for the storage space.
7. FULL FORCE AND EFFECT. Except as supplemented by the provisions of
this Certificate, when executed by Landlord and Tenant, the terms of the Lease
shall remain in full force and effect.
8. COUNTERPARTS. This Commencement Date Certificate may be executed in
one or more counterparts, each of which shall be deemed to be an original
instrument, notwithstanding that Landlord and Tenant are not signatories to the
same counterpart.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Certificate to
be executed on the dates set forth below.
"LANDLORD" "TENANT"
THOMAS M. SPEAR, as receiver for STAR VENDING, INC.,
De La Guerra Court Investments, a Nevada corporation
a California general partnership
By:_______________________________ By:_____________________________________
Thomas M. Spear Name:________________________________
Title:_______________________________
<PAGE> 33
EXHIBIT E
Recording Requested By:
When Recorded, Return to:
FBK Investments
801 Garden Street
Suite 300
Santa Barbara, CA 93101 (Space above this line for Recorder's use)
===============================================================================
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
NOTICE: THIS AGREEMENT CONTAINS A SUBORDINATION CLAUSE WHICH MAY RESULT IN YOUR
LEASEHOLD INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF LOWER PRIORITY
THAN THE LIEN OF SOME OTHER OR LATER SECURITY INSTRUMENT.
THIS AGREEMENT, dated for reference purposes as of the ____ day of
_______, 1996, is entered into by and by and among STAR VENDING, INC., a
corporation (herein, the "Lessee"), THOMAS M. SPEAR, in his capacity as Receiver
(herein, the "Lessor"), and FBK INVESTMENTS, LLC, a California limited liability
company (herein "Investor"), and is made with reference to the following facts:
RECITALS:
A. Investor has succeeded to the entire interest of County Savings Bank
(the "Lender") as the Beneficiary of that certain Deed of Trust, Assignment of
Rents and Security Agreement executed by De La Guerra Court Investments, a
partnership, as Trustor (the "Borrower"), recorded on the 1st day of July, 1988
as Instrument No. 88-040140 in the Official Records of the County Recorder of
Santa Barbara County (herein, the "Deed of Trust"), and to the promissory note
secured thereby.
B. The Deed of Trust encumbers that certain real property more
particularly described in Exhibit A, attached hereto and by this reference
incorporated herein, and any improvements situated thereon (herein, the
"Property") for the purpose of securing the repayment of a loan previously made
by County Savings Bank to De La Guerra Court Investments (herein, the "Loan").
C. Concurrently with the execution of this Agreement, Lessee is
entering into a lease for that portion of the Premises commonly known as 223
East De La Guerra Street and 800 Santa Barbara Street (the "Premises") in Santa
Barbara, California (such lease and all amendments thereto being referred to
collectively herein as the "Lease") and desires to receive assurance from the
Investor that Investor will not disturb the possession of the Premises by Lessee
following Investor's foreclosure of the Deed of Trust.
D. Investor is willing to give such assurances provided that Lessee
performs all of its obligations under the Lease and this Subordination
Agreement.
1
<PAGE> 34
NOW, THEREFORE, for valuable consideration, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. SUBORDINATION
1.1 PRIORITY OF DEED OF TRUST. Lessee acknowledges that the Lease is
subordinate to the Deed of Trust. Accordingly, the leasehold estate arising
under the Lease, and the rights of the Lessee in, to or under the Lease and in
and to the Premises, are and shall remain in all respects and for all purposes
junior and subordinate to (a) the lien of the Deed of Trust, (b) all advances
made thereunder, (c) any and all amendments, supplements, modifications,
renewals, extensions or replacements thereof, and (d) the rights and interest of
the holder of the Deed of Trust.
1.2 SUBORDINATION TO PERMANENT LENDER. Lessee acknowledges that, after
completion of its pending foreclosure proceeding, Investor will refinance the
Property with an institutional lender from whom Lender has obtained a permanent
loan commitment. Lessee agrees to comply with Section 21 of the Lease with
respect to such institutional lender.
2. ATTORNMENT BY LESSEE
2.1 ATTORN TO INVESTOR. Should the Investor or any other Foreclosure
Purchaser (as defined in Section 2.3, below) acquire title to the Premises as
the result of a foreclosure under the Deed of Trust, or a conveyance in lieu of
foreclosure, or it Investor otherwise succeeds to the interest of the Borrower
under the Lease, Lessee (a) will attorn to and recognize Investor as the
substitute Lessor under the Lease and (b) shall be bound to Investor under all
of the terms, covenants and conditions of the Lease for the balance of the term
thereof, and any extensions or renewals thereof effected in accordance with the
terms of the Lease, with the same force and effect as if Investor were the
original Lessor under the Lease.
2.2 ADDITIONAL DOCUMENTS. Lessee's attornment to and recognition of
Investor as a substitute lessor shall be upon all of the terms, covenants,
conditions and agreements set forth in the Lease, except as amended by this
Agreement, and shall be effective and self-operative immediately upon Investor's
succeeding to the interest of the Borrower under the Lease. Upon request of
Investor, the parties shall execute and deliver appropriate agreements of
attornment and recognition, but this Agreement shall be self-executing and no
such separate agreements shall be required to effectuate Lessee's recognition of
and attornment to Investor as provided herein.
2.3 ATTORNMENT TO FORECLOSURE PURCHASERS. Subject to the performance by
Investor or its successor-in-interest of the obligations set forth in Section 3,
below, the attornment obligation of Lessee hereunder shall extend to and include
the following persons, each of whom is referred to herein as a "Foreclosure
Purchaser:" (a) Investor; (b) any person other than Investor who acquires title
to the Premises at a judicial or nonjudicial foreclosure sale conducted under or
pursuant to the Deed of Trust; and (c) any person acquiring title to the
Premises following the acquisition of title to the Premises by foreclosure, by
deed in lieu of foreclosure, or otherwise from a person indemnified in (a) or
(b) above.
2
<PAGE> 35
3. LESSEE'S RIGHTS TO POSSESSION
So long as Lessee is not in default (beyond any period given to Lessee
under the Lease to cure defaults) in the payment of rent or other amounts owing
under the Lease or in the performance of any of the terms, covenants or
conditions of the Lease or this Agreement:
3.1 INVESTOR'S DUTY TO NOT DISTURB. Neither Investor nor any other
Foreclosure Purchaser shall disturb or interfere with Lessee's possession of the
Premises or Lessees's rights and privileges under the Lease, or any extensions
or renewals thereof effected in accordance with the terms of the Lease; and
3.2 COVENANT NOT TO JOIN IN FORECLOSURE. Investor will not join Lessee
as a party defendant in any action or proceeding to foreclose upon the Deed of
Trust unless such joinder is necessary to foreclose the Deed of Trust and then
only for such purpose and not for the purpose of terminating the Lease.
3.3 PERFORMANCE. Upon the acquisition by Investor or any Foreclosure
Purchaser of title to the Property, then such person or entity shall, as long as
it continues to hold title to the Property, perform the duties and obligations
of the Lessor under the Lease to the extent that such duties and obligations
arise or continue after the date on which such person or entity has acquired
such title and are susceptible of performance by such person or entity, but
nothing herein shall be construed to require such person or entity to perform
any duty or obligation of the Lessor arising under the Lease which (a) by its
nature cannot be performed by such person or entity or (b) which arises
subsequent to the date on which such person or entity ceases to hold title to
the Property.
4. LIMITATION ON OBLIGATIONS OF INVESTOR
4.1 LIMITATION ON INVESTOR'S OBLIGATIONS. Nothing herein shall be
construed to be an assumption by Investor of any of the duties or obligations of
the Lessor under the Lease, and Investor shall not be liable for the performance
of any such duties or obligations unless and until Investor acquires title to
the leasehold estate.
4.2 LIMITATION ON LIABILITY. Neither Investor nor any other Foreclosure
Purchaser shall be bound by:
4.2.1 Any rent or additional rent which Lessee might have paid
for more than the then-current installment.
4.2.2 Any amendment or modification of the Lease made without
Investor's consent.
4.2.3 Any provision of the Lease restricting the use of other
properties owned by Investor, as Lessor, for purposes which compete with Lessee.
3
<PAGE> 36
4.3 DEFAULTS BY PRIOR LESSOR. Should any default by the Lessor under
the Lease remain uncured at the time that Investor acquires title to the
leasehold estate, Lessee will give Investor or any Foreclosure Purchaser such
time as is reasonably required to cure such default or rectify such occurrence,
provided Investor or any Foreclosure Purchaser uses reasonable diligence to
correct the same. Lessee agrees that notwithstanding any provision of the Lease
to the contrary, it will not be entitled to cancel the Lease, or to abate or
offset against the rent, or to exercise any other right or remedy, unless and
until Investor or any Foreclosure Purchaser has been given notice of default and
reasonable opportunity to cure such default as provided herein, notwithstanding
any prior failure by a prior Lessor (including Borrower) to cure such default
within a reasonable period of time after notice thereof.
5. ASSIGNMENT OF RENTS
5.1 NOTICE OF ASSIGNMENT. The Deed of Trust contains an assignment to
Investor by Borrower of Borrower's interest in and to the rents and other
payments due under the Lease, subject to license in favor of Borrower to collect
such rents for so long as Borrower is not in default under any of the documents
or instruments creating, evidencing, guaranteeing or securing the payment of or
insuring the Loan (the "Loan Documents").
5.2 REMITTANCE TO RECEIVER. Lessee understands that Lessor is a
Receiver appointed for the Property under the Deed of Trust. Lessee shall remit
all rental payments to Lessor as the Receiver for the Property until such time
as the Receiver has been discharged, and shall thereafter remit all rental
payments to the Foreclosure Purchaser acquiring title to the Property or to any
other person who succeeds to the interest of Borrower/Lessor under the Lease.
Lessee shall be credited under the Lease for all amounts remitted pursuant to
this Section 5.
6. COVENANTS AND WARRANTIES OF LESSOR AND LESSEE
6.1 COVENANT AGAINST FURTHER ENCUMBRANCE. Neither Lessor nor Lessee
shall permit the Lease to become subordinate to the lien of any mortgage or
security instrument, other than the Deed of Trust securing payment of the Loan.
6.2 PREPAID RENTS. Lessee shall not prepay, and Lessor shall not
accept, any of the rents or income due under the Lease for more than one (1)
month in advance, except with the written consent of Investor.
6.3 AMENDMENTS TO LEASE. Lessor and Lessee shall not terminate the
lease for any reason other than an uncured default by Lessee, and Lessor and
Lessee shall not alter amend the Lease, or cause or accept a surrender of the
leasehold estate, without the prior written consent of Investor.
6.4 OPTION RIGHTS. Lessee has no right, title or interest in the
Premises (except as Lessee under the Lease) arising under any option, contract,
agreement or deed, for the purchase of, or affecting, all or any part of the
Premises, whether by verbal understanding or by recorded or unrecorded
instrument, other than those rights that are expressly set forth in the Lease.
4
<PAGE> 37
7. GENERAL PROVISIONS
7.1 SUCCESSORS AND ASSIGNS. This Agreement and each and every covenant,
agreement and other provision hereof shall be binding upon the parties hereto
and their respective heirs, administrators, representatives, successors, assigns
and personal representatives, including without limitation each and every from
time to time holder of the Lease or any other person having an interest therein
and shall inure to the benefit of the Investor and its successors and assigns.
7.2 MERGER OF INTERESTS. If both the Lessor's and the Lessee's estates
in the Premises or the improvements or both become vested in the same owner, the
Lease shall nonetheless survive and shall not be terminated by the merger of
such estates except at the express written election of Investor.
7.3 GOVERNING LAW. This Agreement is made and executed under and in all
respects is to be governed by and construed in accordance with the laws of the
State where the Premises are situated.
7.4 INTERPRETATION. As used in this agreement, and whenever the context
indicates or requires, the masculine, feminine and neuter gender and the
singular or plural numbers shall each be deemed to include the other, and the
words "person" and party shall include any corporation, partnership, firm trust,
or association. The captions to the various sections and paragraphs of this
agreement are for convenience and reference purposes only and are not intended
and shall not be construed to limit the provisions to which they relate.
7.5 NOTICES. Any notices permitted or required hereunder shall be in
writing and shall be deemed to have been given (a) on the date of delivery if
delivery of a legible copy was made personally or by facsimile transmission, or
(b) on the second business day after the date on which mailed by registered or
certified mail, return receipt requested, addressed to the party for whom
intended at the address set forth on the signature page of this agreement or
such other address, notice of which is given as provided herein.
7.6 REMEDIES. Each party hereto shall be entitled to specific
performance of the covenants, agreements and rights contained in this Agreement.
It is the express intent of all parties hereto that all remedies proved at law
or in equity, including the right to specific performance as herein provided,
shall be cumulative.
7.7 MODIFICATION OR AMENDMENT. This Agreement may not be amended or
modified in any manner other than by agreement in writing signed by all of the
parties hereto.
(Signatures appear on the following page)
5
<PAGE> 38
IN WITNESS WHEREOF, the parties hereto have each caused this
Subordination, Agreement to be executed as of the date first above written.
NOTICE: THIS AGREEMENT CONTAINS A SUBORDINATION CLAUSE WHICH
ALLOWS THE LESSOR UNDER YOUR LEASE TO OBTAIN A LOAN, A PORTION
OF WHICH MAY BE EXPENDED FOR OTHER PURPOSES THAN IMPROVEMENT
OF THE LEASED PREMISES
LESSEE: LESSOR:
STAR VENDING, INC. Thomas M. Spear
- ---------------------------------- -----------------------------------
(printed name of lessee) (printed name of Borrower)
By: By:
------------------------------- --------------------------------
Printed Name: Printed Name: Thomas M. Spear
--------------------- -----------------
Title: Title: Receiver
--------------------------- --------
Address for Notices: Address for Notices:
Star Vending Inc. Thomas M. Spear
223 East De La Guerra Street 1017 N. La Cienega Blvd.
Santa Barbara, CA 93101 Suite 200
Los Angeles, CA 90069
INVESTOR:
FBK INVESTMENTS, LLC
a California limited liability company
By:
-------------------------------
Printed Name: Thomas Foley
--------------------
Title: General Manager
--------------------
ADDRESS FOR NOTICES:
FBK Investments
801 Garden Street
Suite 300
Santa Barbara, CA 93101
6
<PAGE> 39
EXHIBIT F
Recording Requested By:
When Recorded, Return to:
Real Estate Loan Division
Santa Barbara Bank & Trust
20 East Carrillo Street
PO Drawer JJ
Santa Barbara, CA 93101
Loan No. (Space above this line for Recorder's use)
===============================================================================
SUBORDINATION, NONDISTURBANCE AND ATTORNMENT AGREEMENT
NOTICE: THIS AGREEMENT CONTAINS A SUBORDINATION CLAUSE WHICH MAY RESULT IN
YOUR LEASEHOLD INTEREST IN THE PROPERTY BECOMING SUBJECT TO AND OF
LOWER PRIORITY THAN THE LIEN OF SOME OTHER OR LATER SECURITY
INSTRUMENT.
THIS AGREEMENT, dated for reference purposes as of the ___ day of
__________, 19__, is entered by and by and among
_____________________________________________, a _______________________
(herein, the "Lessee"), a ______________________________, a _______________
(herein, the "Borrower" or the "Lessor"), and SANTA BARBARA BANK & TRUST, a
California corporation (herein, "Lender"), and is made with reference to the
following facts:
RECITALS:
A. Lender has agreed to make a loan (herein, the "Loan") to Borrower,
the repayment of which will be secured by a Deed of Trust, Security Agreement,
Financing Statement and Fixture Filing (herein, the "Deed of Trust") on that
certain real property more particularly described in Exhibit A, attached hereto
and by this reference incorporated herein, and any improvements situated thereon
(herein, the "Premises").
B. Lessee is the present lessee under that certain lease in which
Borrower is named as the Lessor dated __________________, 19___, demising a
portion of the Premises (such lease and all amendments thereto being referred to
collectively herein as the "Lease").
C. The agreement pursuant to which Lender is making the Loan (herein,
the "Loan Agreement") requires the Deed of Trust be the senior encumbrance on
the Property and further requires, as a condition precedent to Lender's
disbursement of the Loan proceeds, that Lessee subordinate the Lease and its
interest in the Premises in all respects to the lien of the Deed of Trust.
D. Lender has agreed not to disturb the Lessee's possession of the
Premises provided that Lessee performs all of its obligations under the Lease
and this Subordination Agreement.
1
<PAGE> 40
NOW, THEREFORE, for valuable consideration, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. SUBORDINATION
1.1 PRIORITY OF DEED OF TRUST. The Lease is hereby subordinated to the
Deed of Trust. Accordingly, the leasehold estate arising under the Lease, and
the rights of Lessee in, to or under the Lease and in and to the Premises, are
and shall remain in all respects and for all purposes junior and subordinate to
(a) the lien of the Deed of Trust, (b) all advances made thereunder, (c) any and
all amendments, supplements, modifications, renewals, extensions or replacements
thereof, and (d) the rights and interest of the holder the Deed of Trust, as
fully and with the same effect as if the Deed of Trust had been duly executed,
acknowledged and recorded, and the indebtedness secured thereby had been fully
disbursed, prior to the execution of the Lease or possession of the Premises by
Lessee or its predecessors-in-interest.
1.2 PURCHASE OPTIONS. Any options or rights contained in the Lease to
acquire title to the Premises are hereby made subject and subordinate to the
rights of the Lender under the Deed of Trust, and any acquisition of title to
the Premises made by Lessee during the term of the Deed of Trust shall be made
subordinate and subject to the Deed of Trust unless Lender reconveys the Deed of
Trust as to that portion of the Premises acquired by Lessee. In any action or
proceeding to foreclose the Deed of Trust, the Lender shall have the right, in
its sole discretion, to extinguish any options or rights held by Lessee to
acquire title to the Premises.
1.3 DISBURSEMENT OF LOAN PROCEEDS. Lessee acknowledges that Lender is
under no obligation or duty to monitor or supervise the application or use of
the Loan proceeds. Lender has made no representations to Lessee as to whom the
Loan proceeds will be disbursed or how the proceeds will be applied or expended.
Any application or use of the Loan proceeds for purposes other than as provided
for by the Loan Agreement shall not defeat or impair in whole or in part the
subordination of the Lease to the Deed of Trust.
2. ATTORNMENT BY LESSEE
2.1 ATTORN TO LENDER. Should the Lender or any other Foreclosure
Purchaser acquire title to the Premises as the result of a foreclosure under the
Deed of Trust, or a conveyance in lieu of foreclosure, or if Lender otherwise
succeeds to the interest of Borrower under the Lease, Lessee (a) will attorn to
and recognize Lender as the substitute Lessor under the Lease, and (b) shall be
bound to Lender under all of the terms, covenants and conditions of the Lease
for the balance of the term thereof, and any extensions or renewals thereof
effected in accordance with the terms of the Lease, with the same force and
effect as if Lender were the original Lessor under the Lease.
2.2 ADDITIONAL DOCUMENTS. Lessee's attornment to and recognition of
Lender as a substitute lessor shall be upon all of the terms, covenants,
conditions and agreements set forth in the Lease, except as amended by this
Agreement, and shall be effective and self-operative immediately upon Lender's
succeeding to the interest of the Borrower under the Lease. Upon request of
Lender, the parties shall execute and deliver appropriate agreements of
attornment and
2
<PAGE> 41
recognition, but this Agreement shall be self-executing and no such separate
agreements shall be required to effectuate Lessee's recognition of and
attornment to Lender as provided herein.
2.3 ATTORNMENT TO FORECLOSURE PURCHASERS. Subject to the performance by
Lender, any Foreclosure Purchaser, or their respective successor-in-interest of
the obligations set forth in Section 3, below, the attornment obligation of
Lessee hereunder shall extend to and include the following persons, each of whom
is referred to herein as a "Foreclosure Purchaser:" (a) Lender; (b) any person
other than Lender who acquires title to the Premises at a judicial or
nonjudicial foreclosure sale conducted under or pursuant to the Deed of Trust;
and (c) any person acquiring title to the Premises following the acquisition of
title to the Premises by foreclosure or by deed in lieu of foreclosure, or
otherwise from a person identified in (a) or (b) above.
3. LESSEE'S RIGHTS TO POSSESSION
So long as Lessee is not in default (beyond any period given to Lessee
under the Lease to cure defaults) in the payment of rent or other amounts owing
under the Lease or in the performance of any of the terms, covenants or
conditions of the Lease or this Agreement:
3.1 LENDER'S DUTY TO NOT DISTURB. Neither Lender nor any other
Foreclosure Purchaser shall disturb or interfere with Lessee's possession of the
Premises or Lessees's rights and privileges under the Lease, or any extensions
or renewals thereof effected in accordance with the terms of the Lease; and
3.2 COVENANT NOT TO JOIN IN FORECLOSURE. Lender will not join Lessee as
a party defendant in any action or proceeding to foreclose upon the Deed of
Trust unless such joinder is necessary to foreclose the Deed of Trust and then
only for such purpose and not for the purpose of terminating the Lease.
3.3 PERFORMANCE. Upon the acquisition by Investor or any Foreclosure
Purchaser of title to the Property, then such person or entity shall, as long as
it continues to hold title to the Property, perform the duties and obligations
of the Lessor under the Lease to the extent that such duties and obligations
arise or continue after the date on which such person or entity has acquired
such title and are susceptible of performance by such person or entity, but
nothing herein shall be construed to require such person or entity to perform
any duty or obligation of the Lessor arising under the Lease which (a) by its
nature cannot be performed by such person or entity or (b) which arises
subsequent to the date on which such person or entity ceases to hold title to
the Property.
4. LIMITATION ON OBLIGATIONS OF LENDER
4.1 LIMITATION ON LENDER'S OBLIGATIONS. Nothing herein shall be
construed to be an assumption by Lender of any of the duties or obligations of
Lessor under the Lease, and Lender shall not be liable for the performance of
any such duties or obligations unless and until Lender acquires title to the
leasehold estate.
3
<PAGE> 42
4.2 LIMITATION ON LIABILITY. Lessee shall have no claim against Lender
or any other Foreclosure Purchaser resulting from, and neither Lender nor any
other Foreclosure Purchaser shall be liable for any act, omission and/or breach
of the Lease by any prior lessor under the Lease (including but not limited to
the Borrower).
4.2.1 In no event shall Lender or any other Foreclosure
Purchaser:
A. Assert against Lender any right of set-off or
other defense which Lessee may have against any prior lessor (including
Borrower) under the Lease on account of a default by Borrower that occurs prior
to the date on which Lessor acquires title to the leasehold estate.
B. Be liable for any act or omission of any prior
Lessor (including Borrower) under the Lease occurring prior to the date on which
Lessor acquires title to the leasehold estate.
C. Be liable for the return of any security deposit
except to the extent actually received by La1der from Borrower.
4.2.2 Neither Lender nor any other Foreclosure Purchaser shall
be bound by:
A. Any rent or additional rent which Lessee might
have paid for more than the then-current installment.
B. Any amendment or modification of the Lease made
without Lender's consent.
C. Any provision of the Lease relating to the
application of insurance or condemnation proceeds or the restoration of the
Premises by the Lessor upon the occurrence of a casualty loss thereto or a
taking thereof if such provision is inconsistent with the provisions of the Deed
of Trust.
D. Any provisions of the Lease regarding the
commencement or completion of any construction.
E. Any provision of the Lease restricting the use of
other properties owned by Lender, as Lessor, for purposes which compete with
Lessee.
4.3 DEFAULTS BY PRIOR LESSOR. Should any default by Borrower under the
Lease remain uncured at the time that Lender acquires title to the leasehold
estate, Lessee will give Lender such time as is reasonably required to cure such
default or rectify such occurrence, provided Lender uses reasonable diligence to
correct the same. Lessee agrees that notwithstanding any provision of the Lease
to the contrary, it will not be entitled to cancel the Lease, or to abate or
offset against the rent, or to exercise any other right or remedy, unless and
until Lender or any Foreclosure Purchaser have been given notice of default and
reasonable opportunity to cure such default as provided herein, notwithstanding
any prior failure by a prior
4
<PAGE> 43
Lessor (including Borrower) to cure such default within a reasonable period of
time after notice thereof.
4.4 RELEASE FROM LIABILITY UPON SALE. Upon any sale or other transfer
by a Foreclosure Purchaser of its interest in the Premises after acquiring title
to the same, such Foreclosure Purchaser shall automatically be released and
discharged from all liability thereafter arising under the Lease.
5. ASSIGNMENT OF RENTS
5.1 NOTICE OF ASSIGNMENT. The Deed of Trust contains an absolute
assignment to Lender by Borrower of Borrower's interest in and to the rents and
other payments due under the Lease, subject to a license in favor of Borrower to
collect such rents for so long as Borrower is not in default under any of the
documents or instruments creating, evidencing, guaranteeing or securing the
payment of or insuring the Loan (the "Loan Documents").
5.2 DUTY TO REMIT TO LENDER. Should Borrower default in the performance
of its obligations under the Loan Documents, Lender may, at its option, require
that all rents and other payments due under the Lease be paid directly to
Lender. Borrower hereby authorizes and directs Lessee, and the Lessee agrees, to
remit any payments due under the terms of the Lease directly to Lender upon
Lessee's receipt of notice of any such default from Lender.
5.3 CREDIT TO LESSEE. Lessee shall be credited under the lease for all
amounts remitted to Lender pursuant to this Section 5. The assignment of rents
made by Borrower is not intended and shall not be construed to diminish any of
the obligations of the Borrower under the Lease, or to impose any such
obligations on the Lender.
6. COVENANTS AND WARRANTS OF LESSOR AND LESSEE
6.1 COVENANT AGAINST FURTHER ENCUMBRANCE. Neither Lessor nor Lessee
shall permit the Lease to become subordinate to the lien of any mortgage or
security instrument, other than the Deed of Trust securing payment of the Loan.
6.2 PREPAID RENTS. Lessee shall not prepay, and Lessor shall not
accept, any of the rents or income due under the Lease for more than one (1)
month in advance, except with the written consent of Lender.
6.3 AMENDMENTS TO LEASE. Lessor and Lessee shall not alter, amend or
terminate the Lease, or cause a surrender of the leasehold estate, without the
prior written consent of Lender.
6.4 OPTION RIGHTS. Lessee has no right, title or interest in the
Premises (except as Lessee under the Lease) arising under any option, contract,
agreement or deed, for the purchase of, or affecting, all or any part of the
Premises, whether by verbal understanding or by recorded or unrecorded
instrument, other than those rights that are expressly set forth in the Lease.
5
<PAGE> 44
6.5 RELIANCE BY LENDER. Lessor and Lessee acknowledge that Lender will
be disbursing the Loan proceeds in reliance upon the agreements contained in
this Agreement, and that Lender would not make the Loan or disburse the Loan
proceeds but for the warranties and covenants given by Borrower and Lessee
pursuant to this Agreement.
7. GENERAL PROVISIONS
7.1 SUCCESSORS AND ASsIGNS. This Agreement and each and every covenant,
agreement and other provision hereof shall be binding upon the parties hereto
and their respective heirs, administrators, representatives, successors, assigns
and personal representatives, including without limitation each and every from
time to time holder of the Lease or any other person having an interest therein
and shall inure to the benefit of the Lender and its successors and assigns.
7.2 MERGER OF INTERESTS. If both the Lessor's and the Lessee's estates
in the Premises or the improvements or both become vested in the same owner, the
Lease shall nonetheless survive and shall not be terminated by the merger of
such estates except at the express written election of Lender.
7.3 GOVERNING LAW. This Agreement is made and executed under and in all
respects is to be governed by and construed in accordance with the laws of the
State where the Premises are situate.
7.4 INTERPRETATION. As used in this agreement, and whenever the context
indicates or requires, the masculine, feminine and neuter gender and the
singular or plural numbers shall each be deemed to include the other, and the
words "person" and "party" shall include any corporation, partnership, firm,
trust or association. The captions to the various sections and paragraphs of
this agreement are for convenience and reference purposes only and are not
intended and shall not be constituted to limit the provisions to which they
relate.
7.5 NOTICES. Any notices permitted or required hereunder shall be in
writing and shall be deemed to have been given (a) on the date of delivery if
delivery of a legible copy was made personally or by facsimile transmission, or
(b) on the second business day after the date on which mailed by registered or
certified mail, return receipt requested, addressed to the party for whom
intended at the address set forth on the signature page of this agreement or
such other address, notice of which is given provided herein.
7.6 REMEDIES. Each party hereto shall be entitled to specific
performance of the covenants, agreements and rights contained in this Agreement.
It is the express intent of all parties hereto that all remedies proved at law
or in equity, including the right to specific performance as herein provided,
shall be cumulative.
7.7 MODIFICATION OR AMENDMENT. This Agreement may not be amended or
modified in any manner other than by agreement in writing signed by all of the
parties hereto.
(Signatures appear on the following page)
6
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have each caused this
Subordination, Agreement to be executed as of the date first above written.
NOTICE: THIS AGREEMENT CONTAINS A SUBORDINATION CLAUSE WHICH
ALLOWS THE LESSOR UNDER YOUR LEASE TO OBTAIN A LOAN, A PORTION OF
WHICH MAY BE EXPENDED FOR OTHER THAN IMPROVEMENT OF THE
LEASED PREMISES
LESSEE: BORROWER:
- ---------------------------------- ----------------------------------------
[printed name of Lessee] [printed name of Borrower]
By: By:
------------------------------- -------------------------------------
Printed Name: Printed Name:
--------------------- ---------------------------
Title: Title:
---------------------------- ----------------------------------
Address for Notices: Address for Notices:
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
- ---------------------------------- ----------------------------------------
LESSEE:
- ----------------------------------
[printed name of Lessee]
Santa Barbara Bank & Trust
a California corporation
By:
-------------------------------
Printed Name:
---------------------
Title:
----------------------------
Address for Notices:
Real Estate Loan Division
Santa Barbara Bank & Trust
20 East Carrillo Street
P.O. Drawer JJ
Santa Barbara, CA 93102
1
<PAGE> 46
EXHIBIT G
GUARANTY OF TENANT'S OBLIGATIONS
THIS EXHIBIT constitutes an integral part of the Commercial Building
Lease between the following parties:
LANDLORD: Thomas M. Spear, as Receiver for de la Guerra Court Investments, a
California General Partnership
TENANT: STAR Vending, Inc., a Nevada Corporation
PREMISES: 800 Santa Barbara Street and 227 E. de la Guerra Street,
Santa Barbara, California
FOR VALUABLE CONSIDERATION, the undersigned, hereinafter called
"Guarantor," as an inducement to Landlord to enter into the lease, and intending
to be legally bound, hereby agree as follows:
1. GUARANTEE OF PERFORMANCE. The undersigned unconditionally guarantees to
the Landlord named in the foregoing lease, the full and faithful performance by
the Tenant named above, its successors or assigns, of all of its obligations as
Tenant under said lease, including, without limitation, the obligation to pay
rent and other charges and obligations required to be paid and performed by
Tenant under the terms of said lease. In the event of Tenant's failure, or the
failure of its successors or assigns, if any, to pay said sums or to render any
other performance required of Tenant, when due, the undersigned will forthwith
pay all amounts that may be due and will forthwith perform all of the provisions
of said lease to be performed by Tenant and pay all damages that may result from
the nonperformance thereof by Tenant.
2. PRIMARY LIABILITY. The undersigned further agree that the liability
under this Guaranty of the undersigned shall be primary. In any right of action
which may accrue to Landlord, its successors or assigns, under said lease or
this Guaranty, Landlord and its successors or assigns, at their option may
proceed against the undersigned without having taken or commenced any action or
obtained any judgment against Tenant and without applying any security deposit
or other property of Tenant or any other person held as collateral security for
the performance of the obligations of Tenant under the lease or otherwise to the
discharge of the obligations of Tenant under the lease.
3. MODIFICATIONS TO LEASE. The undersigned agree that the lease may be
altered, amended, or modified by an agreement between the Landlord and the
Tenant, or by course of conduct of the parties. This Guaranty shall continue in
full force and effect following any such alteration, modification, or amendment
of the lease, provided that the undersigned has consented to any such change.
4. GUARANTOR'S REPRESENTATIONS AND WARRANTIES. Guarantor warrants and
represents to Landlord that: (a) no representations or agreements of any kind
have been made to Guarantor
1
<PAGE> 47
which would limit or qualify in any way the terms of this Guaranty; (b) this
Guaranty is executed at Tenant's request and not at the request of Landlord; (c)
Landlord has made no representation to the undersigned as to the
credit-worthiness of Tenant; and (d) Guarantor has established adequate means of
obtaining from Tenant on a continuing basis information regarding Tenant's
financial condition. Guarantor agrees to keep adequately informed from such
means of any facts, events or circumstances which might in any way affect
Guarantor's risks under this Guaranty. Guarantor further agrees that, absent a
request for information, Landlord shall have no obligation to disclose to
Guarantor any information or documents acquired by Landlord in the course of its
relationship with Tenant.
5. GUARANTOR'S WAIVERS. Except as prohibited by applicable law, Guarantor waives
any right to require Landlord to: (a) make any presentment, protest, demand or
notice of any kind, default by Tenant or any other guarantor or surety, any
action or nonaction taken by Tenant, Landlord or any other surety of Tenants;
(b) proceed against any person, including Tenant, before proceeding against
Guarantor; (c) proceed against any collateral for the payment of amounts owing
under the lease, including collateral pledged by the Tenant, before proceeding
against Guarantor; (d) apply any payments or proceeds received against amounts
due or becoming due under the lease in any order; (e) give notice of the terms,
time and place of any sale of any collateral held by Landlord pursuant to the
Uniform Commercial Code or any other law governing such sale; (f) disclose any
information about the lease, the Tenant, any collateral, or any other guarantor
or surety, or about any action or nonaction of Landlord; or (g) pursue any
remedy or course of action in Landlord's power whatsoever. Guarantor also
consents to and waives notice of any extensions of time for performance which
Landlord may grant to Tenant and to any extensions or renewals of the term
thereof pursuant to the exercise of options contained herein by Tenant.
Guarantor further waives notice of acceptance of this Guaranty and of any
default in the payment of rent or any other amounts contained or reserved in the
lease, and notice of any breach or nonperformance of any of the covenants,
conditions or agreements contained in the lease.
6. ADDITIONAL WAIVERS BY GUARANTOR. Guarantor also waives any and all rights or
defenses arising by reason of (a) any disability or other defense of Tenant, any
other guarantor or surety or any other person; (b) the cessation from any cause
whatsoever (other than payment in full, or a cessation made by written agreement
with the Landlord), of the obligations owing by the Tenant under the lease; or
(c) any statute of limitations in any action under this Guaranty or with respect
to the lease. Guarantor waives any defense that Guarantor may have based upon
any election of remedies by Landlord which limits or destroys Guarantor's
subrogation rights or Guarantor's rights to seek reimbursement from Tenant or
any other guarantor surety, including, without limitation, any loss or rights
that Guarantor may suffer by reason of any rights or protections of Tenant in
connection with any anti-deficiency laws or other laws limiting or discharging
the Tenant's obligations. Until all obligations of Tenant under the lease have
been satisfied and discharged in full, Guarantor waives any right to enforce any
remedy that Landlord may have against Tenant or any other guarantor, surety or
other person, and further, Guarantor waives any right to participate in any
collateral for any such obligation now or hereafter held by Landlord.
2
<PAGE> 48
7. GUARANTOR'S UNDERSTANDING WITH RESPECT TO WAIVERS. Guarantor warrants and
agrees that each of the waivers set forth above is made with Guarantor's full
knowledge of its significance and consequences and that, under the
circumstances, the waivers are reasonable and not contrary to public policy or
law. If any such waiver is determined to be contrary to any applicable law or
public policy, such waivers shall be effective only to the extent permitted by
law or public policy.
8. SUBORDINATION OF TENANT'S DEBTS TO GUARANTOR. Guarantor agrees that the
obligations of Tenant to Landlord under the lease shall be prior to any claim
that Guarantor may now have or hereafter acquire against Tenant, whether or not
Tenant becomes insolvent. Guarantor hereby expressly subordinates any claim
Guarantor may have against Tenant, upon any account whatsoever, to any claim
that Landlord may now or hereafter have against Tenant under the lease. In the
event of insolvency and consequent liquidation of the assets of Tenant, through
bankruptcy, by an assignment for the benefit of creditors, by voluntary
liquidation, or otherwise, the assets of Tenant applicable to the payment of the
claims of both Landlord and Guarantor shall first be paid to Landlord and shall
be first applied by Landlord to the obligations of Tenant under the lease.
9. DISCHARGE OF OBLIGATION. Neither the obligation of the undersigned to make
payment in accordance with the terms of this Guaranty nor any remedy for the
enforcement thereof shall be impaired, modified, changed, released, or limited
in any manner whatsoever by any impairment, modification, change, release, or
limitation of the liability of Tenant, or its estate in bankruptcy, or
otherwise, or of any remedy for the enforcement thereof, resulting from the
operation of any present or future provision of the Federal Bankruptcy Code or
any other statute, or from the decision of any Court. The liability of the
undersigned under this Guaranty shall not be terminated by the death of the
undersigned. All obligations of Tenant existing prior to the death of the
undersigned, but becoming due thereafter or due but unpaid at the death of the
undersigned, shall survive and become payable by the estate of the undersigned.
10. ASSIGNMENTS. Landlord may, without notice to or the consent of the
undersigned, assign its rights under the lease, and its rights under this
Guaranty, either in whole or in part. No such assignment shall relieve the
undersigned of liability hereunder. The undersigned expressly waive the
provisions of Section 2845 of the Civil Code of California.
11. SURVIVAL OF OBLIGATION. This Guaranty will continue to be in full force and
effect even if Tenant assigns its obligations under the lease, or subleases the
premises, to any successor, assignee, or subtenant, whether or not the
undersigned is given notice of or consents to any such assignment or sublease.
12. BINDING EFFECT. This Guaranty shall bind the undersigned, their respective
successors, administrators, executors, heirs, and assigns. The liability of each
of the undersigned pursuant to this Guaranty shall be joint and several. Any
married person who executes this Guaranty expressly agrees that recourse may be
had against his or her separate property for all of his or her obligations
hereunder.
3
<PAGE> 49
13. ATTORNEYS' FEES. Should any action at law or in equity be filed or
instituted to construe the terms of, for the breach of, to enforce the terms of,
or to interpret or declare the rights of the parties under this Guaranty, the
successful party in such action shall, in addition to all other relief afforded
to the successful party, recover its costs and expenses (whether or not taxable)
and reasonable attorneys' fees incurred in such action.
14. GOVERNING LAW; VENUE. The undersigned agree that this Guaranty is made and
executed under and shall be construed in accordance with the laws of the State
of California, that the Courts of the State of California shall have
jurisdiction of any action brought upon this Guaranty and that venue may be
placed in the Superior Court of the County of Santa Barbara with service of
process in accordance with the California Code of Civil Procedure as then in
effect.
15. RELEASE OF GUARANTOR. Notwithstanding any other provision of the lease or
this Guaranty to the contrary, this Guaranty shall terminate, and the
undersigned shall be released from any obligations whatsoever under this
Guaranty or the lease, in the event that (a) the Tenant under the lease merges
into or consolidates with another company that is a "Qualified Tenant", or (b) a
person or entity other than the undersigned who is a "Qualified Guarantor"
guarantees the obligations of the Tenant under this lease, or (c) the Tenant
under the lease (1) becomes a Qualified Tenant, and (2) is not in a material
default under the terms of this lease (as defined in Section 2.2.1(3) of the
lease) during the two-year period preceding the date upon which the release of
the Guaranty is sought. A "Qualified Tenant" shall be the Tenant, or the
successor or assign of the Tenant, that (i) maintains a tangible net worth of
$5,000,000 for two consecutive calendar years, and (ii) has net cash flow,
calculated after the payment of taxes, debt service and expenses (exclusive of
depreciation, amortization and other noncash expenses) of three times the
aggregate of all of the payments owing under this lease for the last calendar
year preceding the date upon which a release of this Guaranty is sought. A
"Qualified Guarantor" shall mean a person or entity other than the undersigned
having a tangible net worth of $5,000,000 or more who guarantees this lease
utilizing the same form of guaranty as this Guaranty. Such tangible net worth
and cash flow shall be shown on audited financial statements of any such entity
or person. Landlord's consent to the release of this Guaranty shall not be
required. However, Landlord shall be entitled to review financial statements of
any such entity to confirm that the requisite net worth and cash flow are
present.
IN WITNESS WHEREOF, the undersigned have executed this Guaranty on the
date set forth below.
Date:
------------------- ----------------------------------------
Christopher Edgecomb
4
<PAGE> 1
EXHIBIT 10.12
STANDARD OFFICE LEASE--GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[GRAPHIC]
1. BASIC LEASE PROVISIONS ("Basic Lease Provisions")
1.1 PARTIES: This Lease, dated, for reference purposes only, July 9,
1996 is made by and between De la Guerra Partners, L.P., (herein called
"Lessor") and STAR Vending, Inc., a California Corporation, doing business under
the name of STAR Vending (herein called "Lessee").
1.2 PREMISES: Suite Number(s) --- , ____________ floors, consisting of
approximately 3,000 feet, more or less, as defined in paragraph 2 and as shown
on Exhibit "A" hereto (the "Premises").
1.3 BUILDING: Commonly described as being located at 25 East De La
Guerra, in the City of Santa Barbara, County of Santa Barbara, State of
California, as more particularly described in Exhibit A hereto, and as defined
in paragraph 2.
1.4 USE: General Office Use, subject to paragraph 6.
1.5 TERM: Three years and fifteen days commencing July 15, 1996
("Commencement Date") and ending July 31, 1999, as defined in paragraph 3.
1.6 BASE RENT: $4,650.00 per month, payable on the 1st day of each
month, per paragraph 4.1.
1.7 BASE RENT INCREASE: On July 1, 1997 the monthly Base Rent payable
under paragraph 1.6 above shall be adjusted as provided in paragraph 4.3 below.
1.8 RENT PAID UPON EXECUTION: $4,650.00 for first month's rent.
1.9 SECURITY DEPOSIT: $3,987.00.
1.10 LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 100% as defined in
paragraph 4.2.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 PREMISES: The Premises are a portion of a building, herein
sometimes referred to as the "Building" identified in paragraph 1.3 of the Basic
Lease Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises," including rights to the Common Areas as hereinafter specified.
2.2 Deleted.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 1 of 33 PAGES
<PAGE> 2
2.2.1 Deleted.
2.2.2 Deleted.
2.3 COMMON AREAS--DEFINITION. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 COMMON AREAS--RULES AND REGULATIONS. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations. Lessor shall not be
responsible to Lessee for the noncompliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 COMMON AREAS--CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of
the Office Building Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional relationship to the
Office Building Project.
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 2 of 33 PAGES
<PAGE> 3
3. TERM.
3.1 TERM. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 DELAY IN POSSESSION. Notwithstanding said Commencement Date, if for
any reason Lessor cannot deliver possession of the Premises to Lessee on said
date and subject to paragraph 3.2.2, 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 be obligated to pay rent or perform any other obligation
of Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within sixty (60) days following said Commencement
Date, as the same may be extended under the terms of a Work Letter executed by
Lessor and Lessee, Lessee may, at Lessee's 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, as to Lessee's obligations, Lessee first reimburses Lessor for all costs
incurred for Non-Standard Improvements and, as to Lessor's obligations, Lessor
shall return any money previously deposited by Lessee (less any offsets due
Lessor for Non-Standard Improvements); and provided further, 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 hereunder shall terminate and be of
no further force or effect.
3.2.1 POSSESSION TENDERED--DEFINED. Possession of the Premises shall be
deemed tendered to Lessee ("Tender of Possession") when (1) the improvements to
be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) Lessee has reasonable
access to the Premises, and (4) ten (10) days shall have expired following
advance written notice to Lessee of the occurrence of the matters described in
(1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 DELAYS CAUSED BY LESSEE. There shall be no abatement of rent, and
the sixty (60) day period following the Commencement Date before which Lessee's
right to cancel this Lease accrues under paragraph 3.2, shall be deemed extended
to the extent of any delays caused by acts or omissions of Lessee, Lessee's
agents, employees and contractors.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
3.4 UNCERTAIN COMMENCEMENT. In the event commencement of the Lease term is
defined as the completion of the improvements, Lessee and Lessor shall execute
an amendment to this Lease establishing the date of Tender of Possession (as
defined in paragraph 3.2.1) or the actual taking of possession by Lessee,
whichever first occurs, as the Commencement Date.
4. RENT.
4.1 BASE RENT. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set forth in paragraph 1.6 of
the Basic Lease Provisions, without offset or
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 3 of 33 PAGES
<PAGE> 4
deduction. Lessee shall pay Lessor upon execution hereof the advance Base Rent
described in paragraph 1.8 of the Basic Lease Provisions. Rent for any period
during the term hereof which is for less than one month shall be prorated based
upon the actual number of days of the calendar month involved. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may designate
in writing.
4.2 OPERATING EXPENSE INCREASE. Lessee shall pay to Lessor during the term
hereof, in addition to the Base Rent, Lessee's Share, as hereinafter defined, of
the amount by which all Operating Expenses, as hereinafter defined, for each
Comparison Year exceeds the amount of all Operating Expenses for the Base Year,
such excess being hereinafter referred to as the "Operating Expense Increase,"
in accordance with the following provisions:
(a) "Lessee's Share" is defined, for purposes of this Lease, as
the percentage set forth in paragraph 1.10 of the Basic Lease Provisions, which
percentage has been determined by dividing the approximate square footage of the
Premises by the total approximate square footage of the rentable space contained
in the Office Building Project. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(b) "Base Year" is defined as the calendar year in which the Lease
term commences.
(c) "Comparison Year" is defined as each calendar year during the
term of this Lease subsequent to the Base Year; provided, however, Lessee shall
have no obligation to pay a share of the Operating Expense Increase applicable
to the first twelve (12) months of the Lease Term (other than such as are
mandated by a governmental authority, as to which government mandated expenses
Lessee shall pay Lessee's Share, notwithstanding they occur during the first
twelve (12) months). Lessee's Share of the Operating Expense Increase for the
first and last Comparison Years of the Lease Term shall be prorated according to
that portion of such Comparison Year as to which Lessee is responsible for a
share of such increase.
(d) "Operating Expenses" is defined, for purposes of this Lease,
to include all costs, if any, incurred by Lessor in the exercise of its
reasonable discretion, for:
(i) The operation, repair, maintenance, and replacement, in
neat, clean, safe, good order and condition, of the Office Building Project,
including but not limited to, the following:
(aa) The Common Areas, including their surfaces,
coverings, decorative items, carpets, drapes and window coverings, and including
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, stairways, parkways, driveways, landscaped areas, striping, bumpers,
irrigation systems, Common Area lighting facilities, building exteriors and
roofs, fences and gates;
(bb) All heating, air conditioning, plumbing, electrical
systems, life safety equipment, telecommunication and other equipment used in
common by, or for the benefit of,
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 4 of 33 PAGES
<PAGE> 5
lessees or occupants of the Office Building Project, including elevators and
escalators, tenant directories, fire detection systems including sprinkler
system maintenance and repair.
(ii) Trash disposal, janitorial and security services;
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease stated to be an "Operating Expense";
(iv) The cost of the premiums for the liability and property
insurance policies to be maintained by Lessor under paragraph 8 hereof;
(v) The amount of the real property taxes to be paid by
Lessor under paragraph 10.1 hereof;
(vi) The cost of water, sewer, gas, electricity, and other
publicly mandated services to the Office Building Project;
(vii) Labor, salaries and applicable fringe benefits and
costs, materials, supplies and tools, used in maintaining and/or cleaning the
Office Building Project and accounting and a management fee attributable to the
operation of the Office Building Project;
(viii) Replacing and/or adding improvements mandated by any
governmental agency and any repairs or removals necessitated thereby amortized
over its useful life according to Federal income tax regulations or guidelines
for depreciation thereof (including interest on the unamortized balance as is
then reasonable in the judgment of Lessor's accountants);
(ix) Replacements of equipment or improvements that have a
useful life for depreciation purposes according to Federal income tax guidelines
of five (5) years or less, as amortized over such life.
(e) Operating Expenses shall not include the costs of replacements
of equipment or improvements that have a useful life for Federal income tax
purposes in excess of five (5) years unless it is of the type described in
paragraph 4.2(d)(viii), in which case their cost shall be included as above
provided.
(f) Operating Expenses shall not include any expenses paid by any
lessee directly to third parties, or as to which Lessor is otherwise reimbursed
by any third party, other tenant, or by insurance proceeds.
(g) Lessee's Share of Operating Expense Increase shall be payable
by Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time in advance of Lessee's Share
of the Operating Expense Increase for any Comparison Year, and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each Comparison
Year of the Lease term, on the same day as the Base Rent is due hereunder. In
the event that Lessee pays Lessor's estimate of Lessee's Share of Operating
Expense Increase as aforesaid, Lessor shall deliver to Lessee within sixty (60)
days after the expiration of each Comparison Year a reasonably detailed
statement showing Lessee's Share of the actual Operating Expense Increase
incurred during such year. If Lessee's payments under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's Share as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 5 of 33 PAGES
<PAGE> 6
Share of Operating Expense Increase next falling due. If Lessee's payments under
this paragraph during said Comparison Year were less than Lessee's Share as
indicated on said statement, Lessee shall pay to Lessor the amount of the
deficiency within ten (10) days after delivery by Lessor to Lessee of said
statement Lessor and Lessee shall forthwith adjust between them by cash payment
any balance determined to exist with respect to that portion of the last
Comparison Year for which Lessee is responsible as to Operating Expense
Increases, notwithstanding that the Lease term may have terminated before the
end of such Comparison Year.
4.3 RENT INCREASE.
4.3.1 At the times set forth in paragraph 1.7 of the Basic Lease
Provisions, the monthly Base Rent payable under paragraph 4.1 of this Lease
shall be adjusted by the increase, if any, in the Consumer Price Index of the
Bureau of Labor Statistics of the Department of Labor for All Urban Consumers,
(1982-84=100), "All Items," for the city nearest the location of the Building,
herein referred to as "C.P.I.," since the date of this Lease.
4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1
shall be calculated as follows: the Base Rent payable for the first month of the
term of this Lease, as set forth in paragraph 4.1 of this 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 commences. The sum so calculated shall constitute the new
monthly Base Rent hereunder, but, in no event, shall such new monthly Base Rent
be less than the Base Rent payable for the month immediately preceding the date
for the rent adjustment.
4.3.3 In the event the compilation and/or publication of the C.P.I.
shall be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the Index most nearly the same as the C.P.I. shall
be used to make such calculations. 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 the County in which the Premises are
located, in accordance with the then rules of said association and the decision
of the arbitrators shall be binding upon the parties, notwithstanding one party
failing to appear after due notice of the proceeding. The cost of said
Arbitrators shall be paid equally by Lessor and Lessee.
4.3.4 Lessee shall continue to pay the rent at the rate previously
in effect until the increase, if any, is determined. Within five (5) days
following the date on which the increase is determined, Lessee shall make such
payment to Lessor as will bring the increased rental current, commencing with
the effective date of such increase through the date of any rental installments
then due. Thereafter the rental shall be paid at the increased rate.
4.3.5 At such time as the amount of any change in rental required by
this Lease is known or determined, Lessor and Lessee shall execute an amendment
to this Lease setting forth such change.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use,
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 6 of 33 PAGES
<PAGE> 7
apply or retain all or any portion of said deposit for the payment of any rent
or other charge in default for the payment of any other sum to which Lessor may
become obligated by reason of Lessee's default, or to compensate Lessor for any
loss or damage which Lessor may suffer thereby. If Lessor so uses or applies all
or any portion of said deposit, Lessee shall within ten (10) days after written
demand therefor deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount then required of Lessee. If the monthly Base Rent
shall, from time to time, increase during the term of this Lease, Lessee shall,
at the time of such increase, deposit with Lessor additional money as a security
deposit so that the total amount of the security deposit held by Lessor shall at
all times bear the same proportion to the then current Base Rent as the initial
security deposit bears to the initial Base Rent set forth in paragraph 1.6 of
the Basic Lease Provisions. Lessor shall not be required to keep said security
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not heretofore
been applied by Lessor, shall be returned, without payment of interest or other
increment for its use, to Lessee (or, at Lessor's option, to the last assignee,
if any, of Lessee's interest hereunder) at the expiration of the term hereof,
and after Lessee has vacated the Premises. No trust relationship is created
herein between Lessor and Lessee with respect to said Security Deposit.
6. USE.
6.1 USE. The Premises shall be used and occupied only for the purpose set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in the state
existing on the date that the Lease term commences, but without regard to
alterations or improvements made by Lessee or the use for which Lessee will
occupy the Premises, does not violate any covenants or restrictions of record,
or any applicable building code, regulation or ordinance in effect on such Lease
term Commencement Date. In the event it is determined that this warranty has
been violated, then it shall be the obligation of the Lessor, after written
notice from Lessee, to promptly, at Lessor's sole cost and expense, rectify any
such violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at
Lessee's expense, promptly comply with all applicable statutes, ordinances,
rules, regulations, orders, covenants and restrictions of record, and
requirements of any fire insurance underwriters or rating bureaus, now in effect
or which may hereafter come into effect, whether or not they reflect a change in
policy from that now existing, during the term or any part of the term hereof,
relating in any manner to the Premises and the occupation and use by Lessee of
the Premises. Lessee shall conduct its business in a lawful manner and shall not
use or permit the use of the Premises or the Common Areas in any manner that
will tend to create waste or a nuisance or shall tend to disturb other occupants
of the Office Building Project.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee in a clean
condition on the Lease Commencement Date (unless Lessee is already in
possession) and Lessor warrants to Lessee that
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 7 of 33 PAGES
<PAGE> 8
the plumbing, lighting, air conditioning, and heating system in the Premises
shall be in good operating condition. In the event that it is determined that
this warranty has been violated, then it shall be the obligation of Lessor,
after receipt of written notice from Lessee setting forth with specificity the
nature of the violation, to promptly, at Lessor's sole cost, rectify such
violation.
(b) Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises and the Office Building Project in their condition existing
as of the Lease Commencement Date or the date that Lessee takes possession of
the Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. MAINTENANCE, REPAIRS, ALTERATIONS AND COMMON AREA SERVICES.
7.1 LESSOR'S OBLIGATIONS. Lessor shall keep the Office Building Project,
including the Premises, interior and exterior walls, roof, and common areas, and
the equipment whether used exclusively for the Premises or in common with other
premises, in good condition and repair; provided, however, Lessor shall not be
obligated to paint, repair or replace wall coverings, or to repair or replace
any improvements that are not ordinarily a part of the Building or are above
then Building standards. Except as provided in paragraph 9.5, there shall be no
abatement of rent or liability of Lessee on account of any injury or
interference with Lessee's business with respect to any improvements,
alterations or repairs made by Lessor to the Office Building Project or any part
thereof. Lessee expressly waives the benefits of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessor's
expense or to terminate this Lease because of Lessor's failure to keep the
Premises in good order, condition and repair.
7.2 LESSEE'S OBLIGATIONS.
(a) Notwithstanding Lessor's obligation to keep the Premises in
good condition and repair, Lessee shall be responsible for payment of the cost
thereof to Lessor as additional rent for that portion of the cost of any
maintenance and repair of the Premises, or any equipment (wherever located) that
serves only Lessee or the Premises, to the extent such cost is attributable to
causes beyond normal wear and tear. Lessee shall be responsible for the cost of
painting, repairing or replacing wall coverings, and to repair or replace any
Premises improvements that are not ordinarily a part of the Building or that are
above then Building standards. Lessor may, at its option, upon reasonable
notice, elect to have Lessee perform any particular such maintenance or repairs
the cost of which is otherwise Lessee's responsibility hereunder.
(b) On the last day of the term hereof, or on any sooner
termination, Lessee shall surrender the Premises to Lessor in the same condition
as received, ordinary wear and tear excepted, clean and free of debris. Any
damage or deterioration of the Premises shall not be deemed ordinary wear and
tear if the same could have been prevented by good maintenance practices by
Lessee. Lessee shall repair any damage to the Premises occasioned by the
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 8 of 33 PAGES
<PAGE> 9
installation or removal of Lessee's trade fixtures, alterations, furnishings and
equipment. Except as otherwise stated in this Lease, Lessee shall leave the air
lines, power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make
any alterations, improvements, additions, Utility Installations or repairs in,
on or about the Premises, or the Office Building Project. As used in this
paragraph 7.3 the term "Utility Installation" shall mean carpeting, window and
wall coverings, power panels, electrical distribution systems, lighting
fixtures, air conditioning, plumbing, and telephone and telecommunication wiring
and equipment. At the expiration of the term, Lessor may require the removal of
any or all of said alterations, improvements, additions or Utility
Installations, and the restoration of the Premises and the Office Building
Project to their prior condition, at Lessee's expense. Should Lessor permit
Lessee to make its own alterations, improvements, additions or Utility
Installations, Lessee shall use only such contractor as has been expressly
approved by Lessor, and Lessor may require Lessee to provide Lessor, at Lessee's
sole cost and expense, a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such improvements, to insure Lessor against
any liability for mechanic's and materialmen's liens and to insure completion of
the work. Should Lessee make any alterations, improvements, additions or Utility
Installations without the prior approval of Lessor, or use a contractor not
expressly approved by Lessor, Lessor may, at any time during the term of this
Lease, require that Lessee remove any part or all of the same.
(b) Any alterations, improvements, additions or Utility
Installations in or about the Premises or the Office Building Project that
Lessee shall desire to make shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent to Lessee's making
such alteration, improvement, addition or Utility Installation, the consent
shall be deemed conditioned upon Lessee acquiring a permit to do so from the
applicable governmental agencies, furnishing a copy thereof to Lessor prior to
the commencement of the work, and compliance by Lessee with all conditions of
said permit in a prompt and expeditious manner.
(c) 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 in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in the Premises by Lessee, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
or the Building 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 itself and Lessor 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, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 9 of 33 PAGES
<PAGE> 10
and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable attorneys' fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be made to the Premises by Lessee, including but
not limited to, floor coverings, panelings, doors, drapes, built-ins, moldings,
sound attenuation, and lighting and telephone or communication systems, conduit,
wiring and outlets, shall be made and done in a good and workmanlike manner and
of good and sufficient quality and materials and shall be the property of Lessor
and remain upon and be surrendered with the Premises at the expiration of the
Lease term, unless Lessor requires their removal pursuant to paragraph 7.3(a).
Provided Lessee is not in default, notwithstanding the provisions of this
paragraph 7.3(e), Lessee's personal property and equipment, other than that
which is affixed to the Premises so that it cannot be removed without material
damage to the Premises or the Building, and other than Utility Installations,
shall remain the property of Lessee and may be removed by Lessee subject to the
provisions of paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and
specifications for any alterations, improvements, additions or Utility
Installations.
7.4 UTILITY ADDITIONS. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, communication systems, and fire protection and detection systems, so
long as such installations do not unreasonably interfere with Lessee's use of
the Premises.
8. INSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE--LESSEE. Lessee shall, at Lessee's expense and Sima
Management, obtain and keep in force during the term of this Lease a policy of
Comprehensive General Liability insurance utilizing an Insurance Services Office
standard form with Broad Form General Liability Endorsement (GL0404), or
equivalent, in an amount of not less than $1,000,000 per occurrence of bodily
injury and property damage combined or in a greater amount as reasonably
determined by Lessor and shall insure Lessee with Lessor and Sima Management as
an additional insured against liability arising out of the use, occupancy or
maintenance of the Premises. Compliance with the above requirement shall not,
however, limit the liability of Lessee hereunder.
8.2 LIABILITY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 PROPERTY INSURANCE--LESSEE. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 10 of 33 PAGES
<PAGE> 11
coverage insurance, with vandalism and malicious mischief, sprinkler leakage and
earthquake sprinkler leakage endorsements, in an amount sufficient to cover not
less than 100% of the full replacement cost, as the same may exist from time to
time, of all of Lessee's personal property, fixtures, equipment and tenant
improvements.
8.4 PROPERTY INSURANCE--LESSOR. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project Improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Lessee shall
pay the entirety of any increase in the property insurance premium for the
Office Building Project over what it was immediately prior to the commencement
of the term of this Lease if the increase is specified by Lessor's insurance
carrier as being caused by the nature of Lessee's occupancy or any act or
omission of Lessee.
8.5 INSURANCE POLICIES. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) days after the
Commencement Date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other 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 renewals thereof.
8.6 WAIVER OF SUBROGATION. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 11 of 33 PAGES
<PAGE> 12
any breach or default in the performance of any obligation on Lessee's part to
be performed under the terms of this Lease, or arising from any act or omission
of Lessee, or any of Lessee's agents, contractors, employees, or invitees, and
from and against all costs, attorney's fees, expenses and liabilities incurred
by Lessor as the result of any such use, conduct, activity, work, things done,
permitted or suffered, breach, default or negligence, and in dealing reasonably
therewith, including but not limited to the defense or pursuit of any claim or
any action or proceeding involved therein; and in case any action or proceeding
be brought against Lessor by reason of any such matter, 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.
Lessee, as a material part of the consideration to Lessor, hereby assumes all
risk of damage to property of Lessee or injury to persons, in, upon or about the
Office Building Project arising from any cause and Lessee hereby waives all
claims in respect thereof against Lessor.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessee hereby agrees that Lessor
shall not be liable for injury to Lessee's business or any loss of income
therefrom or for loss or damage to the goods, wares, merchandise or other
property of Lessee, Lessee's employees, invitees, customers, or any other person
in or about the Premises or the Office Building Project, nor shall Lessor be
liable for injury to the person of Lessee, Lessee's employees, agents or
contractors, whether such damage or injury is caused by or results from theft,
fire, steam, electricity, gas, water or rain, or from the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures, or from any other cause, whether said
damage or injury results from conditions arising upon the Premises or upon other
portions of the Office Building Project, or from other sources or places, or
from new construction or the repair, alteration or improvement of any part of
the Office Building Project, or of the equipment, fixtures or appurtenances
applicable thereto, and regardless of whether the cause of such damage or injury
or the means of repairing the same is inaccessible, Lessor shall not be liable
for any damages arising from any act or neglect of any other lessee, occupant or
user of the Office Building Project, nor from the failure of Lessor to enforce
the provisions of any other lease of any other lessee of the Office Building
Project.
8.9 NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost to repair is less than fifty percent (50%) of the then Replacement Cost of
the building.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 12 of 33 PAGES
<PAGE> 13
(c) "Premises Building Total Destruction" shall mean if the
Building of which the Premises are a part is damaged or destroyed to the extent
that the cost to repair is fifty percent (50%) or more of the then Replacement
Cost of the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall
mean if the Office Building Project Buildings are damaged or destroyed to the
extent that the cost of repair is fifty percent (50%) or more of the then
Replacement Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8. The fact that an insured Loss has a deductible amount shall not
make the loss an uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to
be spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 PREMISES DAMAGE; PREMISES BUILDING PARTIAL DAMAGE.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is an
Insured Loss and which falls within the classification of either Premises Damage
or Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4
and 9.5, if at any time during the term of this Lease there is damage which is
not an Insured Loss and which falls within the classification of Premises Damage
or Premises Building Partial Damage, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense),
which damage prevents Lessee from making any substantial use of the Premises,
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 the date of the occurrence of such damage of Lessor's
intention to cancel and terminate this Lease as of the date of the occurrence of
such damage, in which event this Lease shall terminate as of the date of the
occurrence of such damage.
9.3 PREMISES BUILDING TOTAL DESTRUCTION; OFFICE BUILDING PROJECT TOTAL
DESTRUCTION. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 13 of 33 PAGES
<PAGE> 14
usual commercial channels) to its condition existing at the time of the damage,
but not Lessee's fixtures, equipment or tenant improvements, and this Lease
shall continue in full force and effect, or (ii) give written notice to Lessee
within thirty (30) days after the date of occurrence of such damage of Lessor's
intention to cancel and terminate this Lease, in which case this Lease shall
terminate as of the date of the occurrence of such damage.
9.4 DAMAGE NEAR END OF TERM.
(a) Subject to paragraph 9.4(b), if at any time during the last
twelve (12) months of the term of this Lease there is substantial damage to the
Premises, Lessor may at Lessor's option cancel and terminate this Lease as of
the date of occurrence of such damage by giving written notice to Lessee of
Lessor's election to do so within 30 days after the date of occurrence of such
damage.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has
an option to extend or renew this Lease, and the time within which said option
may be exercised has not yet expired, Lessee shall exercise such option, if it
is to be exercised at all, no later than twenty (20) days after the occurrence
of an Insured Loss falling within the classification of Premises Damage during
the last twelve (12) months of the term of this Lease. If Lessee duly exercises
such option during said twenty (20) day period, Lessor shall, at Lessor's
expense, repair such damage, but not Lessee's fixtures, equipment or tenant
improvements, as soon as reasonably possible and this Lease shall continue in
full force and effect. If Lessee fails to exercise such option during said
twenty (20) day period, then Lessor may at Lessor's option terminate and cancel
this Lease as of the expiration of said twenty (20) day period by giving written
notice to Lessee at Lessor's election to do so within ten (10) days after the
expiration of said twenty (20) day period by giving written notice to Lessee of
Lessor's election to do so within ten (10) days after the expiration of said
twenty (20) day period, notwithstanding any term or provision in the grant of
option to the contrary.
9.5 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event Lessor repairs or restores the Building or
Premises pursuant to the provisions of this paragraph 9, and any part of the
Premises are not usable (including loss of use due to loss of access or
essential services), the rent payable hereunder (including Lessee's Share of
Operating Expense Increase) for the period during which such damage, repair or
restoration continues shall be abated, provided (1) the damage was not the
result of the negligence of Lessee, and (2) such abatement shall only be to the
extent the operation and profitability of Lessee's business as operated from the
Premises is adversely affected. Except for said abatement of rent, if any,
Lessee shall have no claim against Lessor for any damage suffered by reason of
any such damage, destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
or the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 14 of 33 PAGES
<PAGE> 15
(c) Lessee agrees to cooperate with Lessor in connection with any
such restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 WAIVER. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the real property tax, as defined in
paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 ADDITIONAL IMPROVEMENTS. Lessee shall not be responsible for paying any
increase in real property tax specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 DEFINITION OF "REAL PROPERTY TAX." As used herein, the term "real
property tax" 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 on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax," or (ii) the nature of which was hereinbefore included within the
definition of "real property tax," or (iii) which is imposed for a service or
right not charged prior to June 1, 1978, or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications, or changes hereto, or any transfers hereof.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 15 of 33 PAGES
<PAGE> 16
10.4 JOINT ASSESSMENT. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 PERSONAL PROPERTY TAXES.
(a) Lessee shall pay prior to delinquency all taxes assessed
against and levied upon trade fixtures, furnishings, equipment and all other
personal property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay to 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.
11. UTILITIES.
11.1 SERVICES PROVIDED BY LESSOR. Lessor shall provide heating,
ventilation, air conditioning, reasonable amounts of electricity for normal
lighting and office machines, water for reasonable and normal drinking and
lavatory use; and
11.2 SERVICES EXCLUSIVE TO LESSEE. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 HOURS OF SERVICE. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
11.4 EXCESS USAGE BY LESSEE. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess expenses or costs that may arise out
of a breach of this subparagraph by Lessee. Lessor may, in its sole discretion,
install at Lessee's expense supplemental equipment and/or separate metering
applicable to Lessee's excess usage or loading.
11.5 INTERRUPTIONS. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 16 of 33 PAGES
<PAGE> 17
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by operation
of law assign, transfer, mortgage, sublet, or otherwise transfer or encumber all
or any part of Lessee's interest in the Lease or in the Premises, without
Lessor's prior written consent, which Lessor shall not unreasonably withhold.
Lessor shall respond to Lessee's request for consent hereunder in a timely
manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 LESSEE AFFILIATE. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease and (b) Lessor shall
be given written notice of such assignment and assumption. Any such assignment
shall not, in any way, affect or limit the liability of Lessee under the terms
of this Lease even if after such assignment or subletting the terms of this
Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, no assignment or subletting
shall release Lessee of Lessee's obligations hereunder or alter the primary
liability of Lessee to pay the rent and other sums due Lessor hereunder
including Lessee's Share of Operating Expense Increase, and to perform all other
obligations to be performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee
pending approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such
assignment or subletting, nor the acceptance of rent, shall constitute a waiver
or estoppel of Lessor's right to exercise its remedies for the breach of any of
the terms or conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed
by third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by 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
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 17 of 33 PAGES
<PAGE> 18
consent and such action shall not relieve such persons from liability under this
Lease or said sublease; however, such persons shall not be responsible to the
extent any such amendment or modification enlarges or increases the obligations
of the Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may
proceed directly against Lessee, any guarantors or any one else responsible for
the performance of 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.
(g) Lessor's written consent to any assignment or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no default
then exists under this Lease of the obligations to be performed by Lessee nor
shall such consent be deemed a waiver of any then existing default, except as
may be otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied
upon by Lessor in giving its consent to an assignment or subletting was
materially false shall, at Lessor's election, render Lessor's said consent null
and void.
12.4 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. Regardless of
Lessor's consent, 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 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 default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may 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 default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless
and until it has been approved in writing by Lessor. In entering into any
sublease, Lessee shall use only such form of sublessee as is satisfactory to
Lessor, and once approved by Lessor, such sublease shall not be changed or
modified without Lessor's prior written consent. Any sublease shall, by reason
of entering into a sublease under this Lease, be deemed, for the benefit of
Lessor, to have assumed and agreed to conform and comply with each and every
obligation herein to be performed by
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 18 of 33 PAGES
<PAGE> 19
Lessee other than such obligations as are contrary to or inconsistent with
provisions contained in a sublease to which Lessor has expressly consented in
writing.
(c) In the event Lessee shall default in the performance of its
obligations under this Lease, Lessor at its option and without any obligation to
do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of Lessee under such sublease from the time of
the exercise of said option to the termination of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to Lessee or for any other prior defaults of Lessee under
such sublease.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 LESSOR'S EXPENSES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including attorneys', architects', engineers' or other
consultants' fees.
12.6 CONDITIONS TO CONSENT. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. DEFAULT; REMEDIES.
13.1 DEFAULT. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee.
Vacation of the Premises shall include the failure to occupy the Premises for a
continuous period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 19 of 33 PAGES
<PAGE> 20
of three (3) days after written notice thereof from Lessor to Lessee. In the
event that Lessor serves Lessee with a Notice to Pay Rent or Quit pursuant to
applicable Unlawful Detainer statutes such Notice to Pay Rent or Quit shall also
constitute the notice required by this subparagraph.
(d) The failure by Lessee to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Lessee other than those referenced in subparagraphs (b) and (c), above, where
such failure shall continue for a period of thirty (30) days after written
notice thereof from Lessor to Lessee; provided, however, that if the nature of
Lessee's noncompliance is such that more than thirty (30) days are reasonably
required for its cure, then Lessee shall not be deemed to be in default if
Lessee commenced such cure within said thirty (30) day period and thereafter
diligently pursues such cure to completion. To the extent permitted by law, such
thirty (30) day notice shall constitute the sole and exclusive notice required
to be given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. Section 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. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 REMEDIES. In the event of any material default or breach of this Lease
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(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 Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default 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 any real estate commission actually paid; the worth at the time of award by
the court having jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the amount of such
rental loss for the same period that Lessee proves could be reasonably avoided;
that portion of the leasing commission paid by Lessor pursuant to paragraph 15
applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 20 of 33 PAGES
<PAGE> 21
shall be entitled to enforce all of Lessor's rights and remedies under this
Lease, including the right to recover the rent as it becomes due hereunder.
(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. Unpaid installments of rent and other unpaid monetary obligations of
Lessee under the terms of this Lease shall bear interest from the date due at
the maximum rate then allowable by law.
13.3 DEFAULT BY LESSOR. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee to
Lessor of Base Rent, Lessee's Share of Operating Expense Increase or 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 on Lessor by the terms of any mortgage or trust
deed covering the Office Building Project. Accordingly, if any installment of
Base Rent, Operating Expense Increase, 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 ten (10%) percent 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 represents a fair and reasonable estimate
of the costs Lessor will incur by late payment by Lessee. Acceptance of such
late charge by Lessor shall in no event constitute a waiver of Lessee's default
with respect to such overdue amount, nor prevent Lessor from exercising any of
the other rights and remedies granted hereunder.
14. CONDEMNATION. If the Premises or any portion thereof or the Office Building
Project 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; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to 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 rent and Lessee's
Share of Operating Expense Increase shall be reduced in the proportion that the
floor area of the Premises taken bears to the total floor area of the Premises.
Common Areas
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 21 of 33 PAGES
<PAGE> 22
taken shall be excluded from the Common Areas usable by Lessee and no reduction
of rent shall occur with respect thereto or by reason thereof. Lessor shall have
the option in its sole discretion to terminate this Lease as of the taking of
possession by the condemning authority, by giving written notice to Lessee of
such election within thirty (30) days after receipt of notice of a taking by
condemnation of any part of the Premises or the Office Building Project. Any
award for the taking of all or any part of the Premises or the Office Building
Project 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 separate award for loss of or damage to Lessee's trade
fixtures, removable personal property and unamortized tenant improvements that
have been paid for by Lessee. For that purpose the cost of such improvements
shall be amortized over the original term of this Lease excluding any options.
In the event that this Lease is not terminated by reason of such condemnation,
Lessor shall to the extent of severance damages received by Lessor in connection
with such condemnation, 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 pay any amount in excess of such
severance damages required to complete such repair.
15. BROKER'S FEE.
(a) The brokers involved in this transaction are Sima Brokerage,
Inc. as "listing broker" and Pacifica Commercial Realty as "cooperating broker,"
licensed real estate broker(s). A "cooperating broker" is defined as any broker
other than the listing broker entitled to a share of any commission arising
under this Lease. Upon execution of this Lease by both parties, Lessor shall pay
to said brokers jointly, or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate agreement between Lessor
and said broker(s), or in the event there is no separate agreement between
Lessor and said broker(s), the sum of $ by separate agreement, for brokerage
services rendered by said broker(s) to Lessor in this transaction.
(b) Deleted.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but
also on behalf of any person, corporation, association, or other entity having
an ownership interest in said real property or any part thereof, when such fee
is due hereunder. Any transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation of law, shall be deemed to have
assumed Lessor's obligation under this paragraph 15. Each listing and
cooperating broker shall be a third party beneficiary of the provisions of this
paragraph 15 to the extent of their interest in any commission arising under
this Lease and may enforce that right directly against Lessor; provided,
however, that all brokers having a right to any part of such total commission
shall be a necessary party to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that
neither has had any dealings with any person, firm, broker or finder (other than
the person(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 22 of 33 PAGES
<PAGE> 23
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. ESTOPPEL CERTIFICATE.
(a) Each party (as "responding party") shall at any time upon not
less than ten (10) days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party 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 the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such
statement within such time shall be a material default of this Lease by the
party who is to respond, without any further notice to such party, or it shall
be conclusive upon such party that (i) this Lease is in full force and effect,
without modification except as may be represented by the requesting party, (ii)
there are no uncured defaults in the requesting party's performance, and (iii)
if Lessor is the requesting party, not more than one month's rent has been paid
in advance.
(c) If Lessor desires to finance, refinance, or sell the Office
Building Project, or any part thereof, Lessee hereby agrees to deliver to any
lender or purchaser designated by Lessor such financial statements of Lessee as
may be reasonably required by such lender or purchaser. Such statements shall
include the past three (3) years' financial statements of Lessee. 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 only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
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. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 23 of 33 PAGES
<PAGE> 24
judgments from the date due. Payment of such interest shall not excuse or cure
any default by Lessee under this Lease; provided, however, that interest shall
not be payable on late charges incurred by Lessee nor on any amounts upon which
late charges are paid by Lessee.
20. TIME OF ESSENCE. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. ADDITIONAL RENT. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expense Increase and any other expenses payable by Lessee hereunder shall be
deemed to be rent.
22. INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS. This Lease contains all
agreements of the parties with respect to any matter mentioned herein. No prior
or contemporaneous agreement or understanding pertaining to any such matter
shall be effective. This Lease may be modified in writing only, signed by the
parties in interest at the time of the modification. Except as otherwise stated
in this Lease, Lessee hereby acknowledges that neither the real estate broker
listed in paragraph 15 hereof nor any cooperating broker on this transaction nor
the Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. NOTICES. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, whichever first occurs. Either party may
by 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 notice purposes. 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 notice to Lessee.
24. WAIVERS. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's 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 act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
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.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 24 of 33 PAGES
<PAGE> 25
26. HOLDING OVER. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be two hundred percent (200%) of the rent payable immediately preceding
the termination date of this Lease, and all Options, if any, granted under the
terms of this Lease shall be deemed terminated and be of no further effect
during said month to month tenancy.
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.
28. COVENANTS AND CONDITIONS. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. BINDING EFFECT; CHOICE OF LAW. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. SUBORDINATION.
(a) This Lease, and any Option or right of first refusal granted
hereby, at Lessor's option, shall be subordinate to any ground lease, mortgage,
deed of trust, or any other hypothecation or security now or hereafter placed
upon the Office Building Project and to any and all advances made on the
security thereof and to all renewals, modifications, consolidations,
replacements and extensions thereof. Notwithstanding such subordination,
Lessee's right to quiet possession of the Premises shall not be disturbed if
Lessee is not in default and so long as Lessee shall pay the rent and observe
and perform all of the provisions of this Lease, unless this Lease is otherwise
terminated pursuant to its terms. If any mortgagee, trustee or ground lessor
shall elect to have this Lease and any Options granted hereby prior to the lien
of its mortgage, deed of trust or ground lease, and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
mortgage, deed of trust or ground lease, whether this Lease or such Options are
dated prior or subsequent to the date of said mortgage, deed of trust or ground
lease or the date of recording thereof.
(b) Lessee agrees to execute any documents required to effectuate
an attornment, a subordination, or to make this Lease or any Option granted
herein prior to the lien of any mortgage, deed of trust or ground lease, as the
case may be. Lessee's failure to execute such documents within ten (10) days
after written demand shall constitute a material default by Lessee hereunder
without further notice to Lessee or, at Lessor's option, Lessor shall execute
such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does
hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 25 of 33 PAGES
<PAGE> 26
31. ATTORNEYS' FEES.
31.1 If either party named herein bring an action to enforce the terms
hereof or declare rights hereunder, the prevailing party in any such action,
trial or appeal thereon, shall be entitled to his reasonable attorneys' fees to
be paid by the losing party as fixed by the court in the same or a separate
suit, and whether or not such action is pursued to decision or judgment.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all attorneys' fees
reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable attorneys' fees and all other
costs and expenses incurred in the preparation and service of notice of default
and consultations in connection therewith, whether or not a legal transaction is
subsequently commenced in connection with such default.
32. LESSOR'S ACCESS.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purpose of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
32.2 All activities of Lessor pursuant to this paragraph shall be without
abatement of rent, nor shall Lessor have any liability to Lessee for the same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forcible or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
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. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. SIGNS. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 26 of 33 PAGES
<PAGE> 27
35. MERGER. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. CONSENTS. Except for paragraphs 33 (auctions) and 34 (signs) hereof,
wherever in this Lease the consent of one party, is required to an act of the
other party such consent shall not be unreasonably withheld or delayed.
37. GUARANTOR. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. QUIET POSSESSION. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. OPTIONS.
39.1 DEFINITION. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option 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; (2) the option of right of first refusal to lease other
space within the Office Building Project or other property of Lessor or the
right of first offer to lease other space within the Office Building Project or
other property of Lessor; (3) the right or option to purchase the Premises or
the Office Building Project, or the right of first refusal to purchase the
Premises or the Office Building Project or the right of first offer to purchase
the Premises or the Office Building Project, or the right or option 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. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either 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
option to extend or renew this Lease has been so exercised.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 27 of 33 PAGES
<PAGE> 28
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 time commencing from the date Lessor gives to Lessee a notice of default
pursuant to paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance
alleged in said notice of default is cured, or (ii) during the period of time
commencing on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) and continuing
until the obligation is paid, or (iii) in the event that Lessor has given to
Lessee three or more notices of default under paragraph 13.1(c), or paragraph
13.1(d), whether or not the defaults are cured, during the 12 month period of
time immediately prior to the time that Lessee attempts to exercise the subject
Option, (iv) if Lessee has committed any non-curable breach, including without
limitation those described in paragraph 13.1(b), or is otherwise in default of
any of the terms, covenants or conditions of this Lease.
(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) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, or
(iii) Lessor gives to Lessee three or more notices of default under paragraph
13.1(c), or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if
Lessee has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in default of any of the terms,
covenants and conditions of this Lease.
40. SECURITY MEASURES--LESSOR'S RESERVATIONS.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90 days
prior written notice;
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 28 of 33 PAGES
<PAGE> 29
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate;
(c) To permit any lessee the exclusive right to conduct any
business as long as such exclusive does not conflict with any rights expressly
given herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the
Building or the Office Building Project or their name(s) in connection with
Lessee's business;
(b) Suffer or permit anyone, except in emergency, to go upon the
roof of the Building.
41. EASEMENTS.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, 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 shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. 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.
43. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. CONFLICT. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 29 of 33 PAGES
<PAGE> 30
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. LENDER MODIFICATION. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. MULTIPLE PARTIES. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. WORK LETTER. This Lease is supplemented by that certain Work Letter of even
date executed by Lessor and Lessee, attached hereto as Exhibit C, and
incorporated herein by this reference.
49. ATTACHMENTS. Attached hereto are the following documents which constitute a
part of this Lease:
50. Paragraph 2.1, Premises: Lessee hereby accepts the premises "as is" with the
exception that Lessor shall install carpet and padding in the lease premises,
excluding the sunroom area, using Lessor's building standard carpet. Lessee to
select color acceptable to Lessor.
51. Paragraph 1.6, Base Rent: Lessee shall receive a rent credit of $250.00 per
month during the term of this lease, subject to adjustment pursuant to Paragraph
4.3.
52. Paragraph 52: Improvements to the premises: Lessor shall furnish and install
an HVAC system for two rooms (excluding sunroom) at an estimated cost of
$10,000, which work shall commence upon the execution of this lease.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY 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. NO REPRESENTATION OR RECOMMENDATION IS
MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL
ESTATE BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION
RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF
THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
LESSOR LESSEE
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 30 of 33 PAGES
<PAGE> 31
710 State Street Partners, L.P. STAR Vending, Inc., a California
Corporation
By By
----------------------------- -------------------------------
Jim Knell, -------------------,
Its General Partner Its President
By By
----------------------------- -------------------------------
Its Its
-------------------- -----------------------
Executed at Santa Barbara, CA Executed at Santa Barbara, CA
on March ___, 1996 on March ___, 1996
Address 115 W. Canon Peridido, #200 Address 827 State Street
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
PAGE 31 of 33 PAGES
<PAGE> 32
[GRAPHIC]
25 East De La Guerra
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
EXHIBIT A
<PAGE> 33
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
[LOGO]
Dated March 6, 1996
By and Between 710 State Street Partners, L.P.; STAR Vending, Inc.
GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in
good faith judges to be a threat to the safety, reputation, or property
of the Office Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the
Office Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles
into areas not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind
are to be inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of the
premises or Office Building Project.
9. Lessee shall not suffer or permit any thing in or around the Premises
or Building that causes excessive vibration or floor loading in any
part of the Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out
of the building only with the Lessor's knowledge and consent, and
subject to such reasonable limitations, techniques and timing, as may
be designated by Lessor. Lessee shall be responsible for any damage to
the Office Building Project arising from any such activity.
C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
EXHIBIT B
PAGE 1 of 2
<PAGE> 34
11. Lessee shall not employ any service or contractor for services or work
to be performed in the Building, except as approved by Lessor.
12. Deleted.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars
or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as provided by lessor.
18. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or
food preparation.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental
agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver
shall not constitute a waiver of any other rule or regulation or any
subsequent application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the
appropriate operation and safety of the Office Building Project and its
occupants. Lessee agrees to abide by these and such rules and
regulations.
(C) 1984 American Industrial FULL SERVICE--GROSS
Real Estate Association
EXHIBIT B
PAGE 2 of 2
<PAGE> 1
Exhibit 10.13
OFFICE LEASE
WHUB REAL ESTATE LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP
AS LANDLORD,
AND
STAR VENDING, INC.,
A NEVADA CORPORATION
AS TENANT
Dated:
June 28, 1996
Property:
740 STATE STREET
SANTA BARBARA, CALIFORNIA
NOTICE TO ALL PARTIES:
THE SUBMISSION OF THIS DOCUMENT FOR EXAMINATION, NEGOTIATION AND/OR SIGNATURE
DOES NOT CONSTITUTE AN OFFER TO LEASE, OR A RESERVATION OF, OR AN OPTION FOR THE
PREMISES. THIS DOCUMENT SHALL NOT BE BINDING AND IN EFFECT AGAINST EITHER PARTY
UNTIL AT LEAST ONE COUNTERPART, DULY EXECUTED BY LANDLORD AND TENANT, HAS BEEN
RECEIVED BY EACH OF LANDLORD AND TENANT.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
LEASE OF PREMISES ................................................................................................1
BASIC LEASE PROVISIONS ...........................................................................................1
STANDARD LEASE PROVISIONS ........................................................................................1
1. Term.........................................................................................................1
2. Rent; Operating Costs; Square Foot Specification.............................................................1
2.1 Basic Annual Rent...............................................................................1
2.2 Operating Costs.................................................................................2
2.3 Square Footage Specification....................................................................4
2.4 Books and Records...............................................................................4
3. Delinquent Payment; Handling Charges.........................................................................4
4. Security Deposit.............................................................................................4
5. Landlord's Obligations.......................................................................................4
5.1 Services........................................................................................4
5.2 Excess Utility Use..............................................................................5
5.3 Restoration of Services.........................................................................5
6. Improvements, Alterations, Repairs and Maintenance...........................................................5
6.1 Improvements; Alterations.......................................................................5
6.2 Repairs and Maintenance.........................................................................6
6.3 Mechanic's Liens................................................................................6
7. Use..........................................................................................................6
8. Assignment and Subletting....................................................................................6
8.1 Transfers; Consent..............................................................................6
8.2 Cancellation and Recapture......................................................................7
9. Insurance, Waivers, Subrogation and Indemnity................................................................7
9.1 Insurance.......................................................................................7
9.2 Waiver of Negligence; No Subrogation............................................................7
9.3 Indemnity.......................................................................................8
10. Subordination; Attornment; Notice to Landlord's Mortgagee.......................................8
10.1 Subordination...................................................................................8
10.2 Attornment......................................................................................8
10.3 Notice to Landlord's Mortgagee..................................................................8
11. Rules and Regulations...........................................................................9
12. Condemnation....................................................................................9
13. Fire or Other Casualty..........................................................................9
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
13.1 Repair Estimate; Right to Terminate.............................................................9
13.2 Repair Obligation; Abatement of Rent............................................................9
14. Parking........................................................................................10
15. Events of Default..............................................................................10
16. Remedies.......................................................................................10
17. Payment by Tenant; Non-Waiver..................................................................11
18. Surrender of Premises..........................................................................12
19. Holding Over...................................................................................12
20. Certain Rights Reserved by Landlord............................................................12
21. Substitution Space.............................................................................13
22. Miscellaneous..................................................................................13
22.1 Landlord Transfer and Liability................................................................13
22.2 Brokerage......................................................................................13
22.3 Estoppel Certificates..........................................................................13
22.4 Notices........................................................................................13
22.5 Miscellaneous..................................................................................14
23. Addenda........................................................................................14
23.A Extension Option........................................................................................14
23.A.1 Grant of Option................................................................................14
23.A.2 Basic Annual Rent..............................................................................14
23.A.3 Definition.....................................................................................14
23.A.4 Procedure for Determining the Extension FMRV...................................................14
23.A.5 Conditions to Exercise of the Extension Option.................................................15
23.B Right of First Offer....................................................................................16
23.B.1 Definitions....................................................................................16
23.B.1.1 "Available for Lease" .........................................................................16
23.B.1.2 "First Right Space" ...........................................................................16
23.B.2 First Right Space..............................................................................16
23.B.3 Miscellaneous..................................................................................16
</TABLE>
EXHIBIT "A" PREMISES OUTLINE; BUILDING FLOOR PLAN
EXHIBIT "B" CONSTRUCTION CRITERIA
EXHIBIT "C" INSURANCE REQUIREMENTS
EXHIBIT "D" BUILDING RULES AND REGULATIONS
EXHIBIT "E" GUARANTY
ii
<PAGE> 4
OFFICE LEASE
THIS OFFICE LEASE ("LEASE") is made between WHUB Real Estate Limited
Partnership, a Delaware limited partnership ("LANDLORD"), and the Tenant
described in Item 1 of the Basic Lease Provisions, as of June 28, 1996 (the
"DATE OF THIS LEASE").
LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby hires from Landlord,
subject to all of the terms and conditions set forth herein, those certain
premises (the "PREMISES") described in Item 2 of the Basic Lease Provisions and
as shown in the cross-hatched markings in the floor plan attached hereto as
Exhibit "A". The Premises are located in that certain office building (the
"BUILDING") whose street address is 740 STATE STREET, SANTA BARBARA, CALIFORNIA
93101. The Building is located on that certain land (the "LAND") which is also
improved with landscaping, parking facilities and other improvements and
appurtenances. The Land, together with all such improvements and appurtenances
and the Building, are collectively referred to herein as the "PROJECT". However,
Landlord reserves the right to make such changes, additions and/or deletions to
the Land, the Building and the Project (except for the space within the
Premises) as it shall determine from time to time, provided that such changes,
additions, and/or deletions do not materially impair Tenant's use of the
Premises or its rights under this lease.
BASIC LEASE PROVISIONS
1. Tenant: STAR VENDING, INC.
a Nevada Corporation
2. Description of Premises: Suite: 202
(the Premises is shown cross-hatched on Exhibit "A")
Rentable Area: approximately 2,332 square feet (See Section 2.3)
3. Tenant's Proportionate Share of Excess Operating Costs: 10.6%
(See Section 2.2)
4. Initial Basic Annual Rent (See Section 2.1):
(a) Initial Basic Annual Rent: $53,169.60
(b) Initial Monthly Installment of Basic Annual Rent: $4,430.80
($1.90 per square foot of rentable area)
(c) Partial Lease Month Basic Annual Rent: $ * per day
* The current monthly rent, as of the date of the Partial
Lease Month calculation, divided by thirty (30). (e.g.,
numerator = currently monthly rent; denominator - thirty
(30)).
(d) Installment payable upon execution: $4,430.80
5. CPI Increase Limits (See Section 2.1(b)):
Maximum Yearly CPI Increase: N/A
Minimum Yearly CPI Increase: N/A
6. Security Deposit: NONE (See Section 4). If no guarantee, two (2)
months security deposit required
<PAGE> 5
7. Base Operating Costs: $6.21 (per square foot per year of rentable area)
(See Section 2.2)
8. (a) Initial Term: THREE (3) years and -0- months
(b) Options to extend the term: ONE OPTION FOR THREE (3) LEASE
YEARS (See Section 23)
9. Commencement Date: THE LATER OF AUGUST 1, 1996 OR THE DATE THAT CERTAIN
___________, DATED ___________, BY AND BETWEEN WHUB REAL ESTATE LIMITED
PARTNERSHIP (AS LANDLORD) AND STAR VENDING, INC. (AS TENANT) IS
TERMINATED.
10. Broker(s): PACIFICA COMMERCIAL REALTY (See Section 22.2)
11. Address for Notices (See Section 22.4):
To: Tenant
Prior to occupancy of the Premises: After occupancy of the Premises:
740 State Street 740 State Street
Santa Barbara, California 93101 Santa Barbara, California 93101
Attn: Mary Casey - President Attn: Mary Casey - President
FAX: 805-899-2972 FAX: 805-899-2972
To: Landlord With a copy to:
WHUB Real Estate Limited Partnership WHUB Real Estate Limited Partnership
c/o J. E. Robert Companies c/o Pacific Commercial Realty
Two California Plaza 1033 Anacapa Street
350 South Grand Avenue Santa Barbara, California 93101
Forty-Sixth Floor FAX: (805) 899-2426
Los Angeles, CA 90071
Attn: Toni Steele
FAX: (213) 633-5870
12. All payments payable to Landlord under this Lease shall be sent to the
following address or to such other address as Landlord may designate.
WHUB Real Estate Limited Partnership
c/o Pacific Commercial Realty
1033 Anacapa Street
Santa Barbara, California 93101
FAX: (805) 899-2426
Attn: Kathy Foran
13. Guarantor: _________________________________
IN WITNESS WHEREOF, the parties hereto have executed this Lease,
consisting of the foregoing Basic Lease Provisions, the provisions of the
Standard Lease Provisions (the "STANDARD LEASE PROVISIONS") (consisting of
Sections 1 through 23 which follow) and Exhibits "A" through "D", inclusive, all
of which are incorporated herein by this reference. In the event of any conflict
between the provisions of the Basic Lease Provisions and the
2
<PAGE> 6
provisions of the Standard Lease Provisions, the Standard Lease Provisions shall
control. Any initially capitalized terms used herein and not otherwise defined
shall have the meanings set forth in the Standard Lease Provisions.
"LANDLORD" "TENANT"
WHUB Real Estate Limited Partnership Star Vending, Inc.
a Delaware limited partnership a Nevada corporation
By: JER WHUB Services By:, Inc. By:________________________________
a Virginia corporation Mary Casey
Its Managing General Partner Its President
By:_______________________________
Derrick E. McGavic
Vice President
3
<PAGE> 7
STANDARD LEASE PROVISIONS
1. TERM
1.1 Unless earlier terminated in accordance with the provisions hereof,
the initial term of this Lease shall be the period shown in Item 8(a) of the
Basic Lease Provisions; provided, however, in the event the Commencement Date
(defined below) occurs on a date other than the first day of a calendar month,
there shall be added to the term the partial month (the "PARTIAL LEASE MONTH")
from the Commencement Date to the first day of the calendar month following the
Commencement Date. As used herein, "TERM" shall refer to the initial term
described in Item 8(a) of the Basic Lease Provisions and, provided the same is
duly exercised and commences, the Extension Term(s), if any, described in
Section 23.A.
1.2 Subject to the provisions of this Section 1, the term shall
commence the COMMENCEMENT DATE.
1.3 Landlord may deliver the Premises to Tenant prior to, on or after
the Target Commencement Date described in Item 9 of the Basic Lease Provisions.
Landlord shall use reasonable efforts to give Tenant at least seven (7) days'
notice of the date upon which, in Landlord's good faith opinion, the
Commencement Date shall occur; provided, however, that in the event the
Commencement Date is delayed or otherwise does not occur on the date specified,
or no such notice is given, this Lease shall not be void or voidable, the term
of this Lease shall not be extended, and Landlord shall not be liable to Tenant
for any loss or damage resulting therefrom. At any time during the term,
Landlord may deliver to Tenant Landlord's standard form document for Tenant's
acknowledgment and confirmation of the Commencement Date, the Lease expiration
date and such other Lease information and terms that Landlord deems desirable
for its business purposes, which form document Tenant shall execute and deliver
to Landlord within five (5) days of receipt thereof.
2. RENT; OPERATING COSTS; SQUARE FOOT SPECIFICATION
2.1 BASIC ANNUAL RENT
(a) Subject to the provisions of this Section 2.1, Tenant
agrees to pay during the Partial Lease Month and each Lease Year (defined below)
of the term of this Lease as Basic Annual Rent ("BASIC ANNUAL RENT") for the
Premises the sums shown for such periods in Item 4 of the Basic Lease Provisions
(which shall be increased annually pursuant to Section 2.1(b)). For purposes of
this Lease, a "LEASE YEAR" shall be each twelve (12) calendar month period
commencing on (i) the Commencement Date (or an anniversary thereof) if the
Commencement Date occurs on the first day of a month, or otherwise (ii) the
first day of the calendar month following the Commencement Date (or an
anniversary thereof).
(b) Basic Annual Rent shall increase (but never decrease) once
each year, as of the first day of the second Lease Year and as of the first day
of each Lease Year thereafter (each an "ADJUSTMENT DATE") by an amount
proportionate to the percentage increase, if any, in the CPI Index (defined
below) between the calendar month prior to such Adjustment Date and the calendar
month thirteen (13) months prior to such Adjustment Date; provided, however,
that in no case shall any such increase be more than the Maximum Yearly CPI
increase set forth in Item 5 of the Basic Lease Provisions or less than the
Minimum Yearly CPI Increase set forth in Item 5 of the Basic Lease Provisions.
"CPI INDEX" means the Consumer Price Index for All Urban Consumers, All Items
(1982-84=100) for Los Angeles-Anaheim-Riverside, as published by the United
States Department of Labor, Bureau of Labor Statistics. If the CPI Index is no
longer published or for other mutually agreeable good faith reasons the consumer
price index procedure set forth herein is not satisfactory, Landlord and Tenant,
may adopt a substitute Index or procedure which reasonably reflects consumer
price increases for the Lease Year(s) at issue.
(c) Except as expressly provided to the contrary herein, Basic
Annual Rent shall be payable in equal consecutive monthly installments, in
advance, without deduction or offset, commencing on the Commencement Date and
continuing on the first day of each calendar month thereafter. The first full
monthly
<PAGE> 8
installment of Basic Annual Rent, described in Item 4(a) of the Basic Lease
Provisions, shall be payable upon Tenant's execution of this Lease. If the
Commencement Date is a day other than the first day of a calendar month, then
the Rent (defined below) for the Partial Lease Month (the "PARTIAL LEASE MONTH
RENT") shall be calculated on the per diem basis shown therefor in Item 4(a) of
the Basic Lease Provisions for the number of days between (but including) the
Commencement Date and the first day of the next calendar month. The Partial
Lease Month Rent shall be payable by Tenant prior to the date that Tenant takes
possession or commences use of the Premises for any business purpose (including
moving in). Basic Annual Rent, all forms of additional rent payable hereunder by
Tenant and all other amounts, fees, payments or charges payable hereunder by
Tenant shall (i) each constitute rent payable hereunder (and shall sometimes
collectively be referred to herein as "RENT"), (ii) be payable to Landlord when
due without any prior demand therefor in lawful money of the United States and,
except as may be expressly provided to the contrary herein, without any offset
or deduction whatsoever, and (iii) be payable to Landlord at the address
described in Item 12 of the Basic Lease Provisions or to such other person or to
such other place as Landlord may from time to time designate in writing to
Tenant.
2.2 OPERATING COSTS.
(a) Subject to the provisions of this Lease, if Operating
Costs (defined below) for the Project for any calendar year all or any portion
of which occurs during the term of this Lease (an "EXPENSE YEAR") exceed Base
Operating Costs (defined below), Tenant shall pay to Landlord pursuant to this
Section 2.2 as additional rent an amount equal to Tenant's Proportionate Share
(defined below) of such excess. "TENANT'S PROPORTIONATE SHARE" is, subject to
the provisions of this Section 2.2, the percentage number described in Item 3 of
the Basic Lease Provisions. Tenant's Proportionate Share represents a fraction,
the numerator of which is the number of square feet of rentable area in the
Premises specified in Item 2 of the Basic Lease Provisions and the denominator
of which is the number of square feet of rentable area in the Project as
reasonably determined by Landlord. "BASE OPERATING COSTS," during the term of
this Lease, including, without limitation, any Extension Term, equals the
product of (i) the amount specified in Item 7 of the Basic Lease Provisions and
(ii) the number of square feet of rentable area contained in the Project, as
reasonably determined by Landlord.
(b) "OPERATING COSTS" means all costs, expenses and
obligations incurred or payable by Landlord because of or in connection with the
operation, ownership, repair, replacement, restoration, management or
maintenance of the Project during or allocable to any Expense Year during the
term of this Lease, all as determined by sound accounting principles selected by
Landlord, consistently applied, including without limitation the following:
(i) All real property taxes, assessments, charges or
impositions and other similar governmental ad valorem or other charges
levied on or attributable to the Project or its ownership, operation or
transfer, and all taxes, charges, assessments or similar impositions
imposed in lieu or substitution (partially or totally) of the same
(collectively, "REAL ESTATE TAXES"). "REAL ESTATE TAXES" shall also
include all taxes, assessments, levies, charges or impositions (A) on
any interest of Landlord or any mortgagee of Landlord in the Project,
the Premises or in this Lease, or on the occupancy or use of space in
the Project or the Premises; (B) on the gross or net rentals or income
from the Project, including, without limitation, any gross income tax,
excise tax, sales tax or gross receipts tax levied by any federal,
state or local governmental entity with respect to the receipt of Rent;
or (D) any possessory taxes charged or levied in lieu of real estate
taxes; and
(ii) The cost of all utilities, supplies, equipment,
tools, materials, service contracts, janitorial services, waste and
refuse disposal, landscaping, and insurance (with the nature and extent
of such insurance to be carried by Landlord to be determined by
Landlord in its sole and absolute discretion); compensation and other
fringe benefits of all persons who perform services connected with the
operation, maintenance or repair of the Project (provided, however,
that if any of such persons provide services for more than one building
of Landlord, only the prorated portion of those person's wages,
salaries, other compensation, benefits, and taxes reflecting the
percentage of their monthly time devoted to the Project shall be
included in Operating Costs); personal property taxes on and
maintenance and repair of equipment and other personal property, costs
incurred for administration and management of the Project, whether by
2
<PAGE> 9
Landlord or by an independent contractor, and other management office
operational expenses (including, without limitation, a management fee),
rental expenses for or a reasonable allowance for depreciation of,
personal property used in the operation, maintenance or repair of the
Project, license, permit and inspection fees; and all inspections,
activities, alterations and improvements or other matters required by
any governmental or quasi-governmental authority or by applicable law,
for any reason, including, without limitation, capital improvements,
whether capitalized or not; all capital improvements made to the
Project or any portion thereof by Landlord (A) of a personal property
nature and related to the operation, repair, maintenance or replacement
of systems, facilities, equipment or components of, or which service
the Project or portions thereof, (B) required or provided in connection
with any law, ordinance, rule or regulation (not required when building
permits for the building were obtained), (C) which are designed to
improve the operating efficiency of the Project, or (D) determined by
Landlord to be required to keep pace or be consistent with safety or
health advances or improvements (with such capital costs to be
amortized over such periods as Landlord shall determine with a return
on capital at such rate as would have been paid by Landlord on funds
borrowed for the purpose of constructing such capital improvements);
common area repair, resurfacing, replacement operation and maintenance;
security services, if any, deemed appropriate by Landlord, and any
other cost or expense incurred or payable by Landlord in connection
with the operation, ownership, repair, replacement, restoration,
management or maintenance of the Project.
(c) Operating Costs for any Expense Year during which actual
occupancy of the Project is less than ninety-five percent (95%) of the rentable
area of the Project shall be appropriately adjusted, in accordance with sound
accounting principles, to reflect ninety-five percent (95%) occupancy of the
existing rentable area of the Project during such period.
(d) Prior to the commencement of (and from time to time
during) each calendar year of the term following the Commencement Date, Landlord
shall have the right to give to Tenant a written estimate of Tenant's
Proportionate Share of the projected excess, if any, of the Operating Costs for
the Project for such year over the Base Operating Costs. Commencing with the
first day of the calendar month following the month in which such estimate was
delivered to Tenant, Tenant shall pay such estimated amount (less amounts, if
any, previously paid toward such excess for such year) to Landlord in equal
monthly installments over the remainder of such calendar year, in advance on the
first day of each month during such year (or remaining months, if less than all
of the year remains). Subject to the provisions of this Lease, Landlord shall
endeavor to furnish to Tenant within a reasonable period after the end of each
calendar year (but not later than 180 days), a statement (a "RECONCILIATION
STATEMENT") indicating to reasonable detail the excess of Operating Costs over
Base Operating Costs for such period and the parties shall, within thirty (30)
days thereafter, make any payment or allowance necessary to adjust Tenant's
estimated payments to Tenant's actual share of such excess as indicated by such
annual Reconciliation Statement. Any payment due Landlord shall be payable by
Tenant within ten (10) days of demand from Landlord. Any amount due Tenant shall
be credited against installments next becoming due under this Section 2.2(d).
(e) Tenant shall pay ten (10) days before delinquency all
taxes and assessments levied against any personal property or trade fixtures of
Tenant in or about the Premises. If any such taxes or assessments are levied
against Landlord or Landlord's property or if the assessed value of the Project
is increased by the inclusion therein of a value placed upon such personal
property or trade fixtures, Tenant shall, within ten (10) days of demand,
reimburse Landlord for the taxes and assessments so levied against Landlord, or
any such taxes, levies and assessments resulting from such increase in assessed
value.
(f) Any delay or failure of Landlord in (i) delivering any
estimate or statement described in this Section 2.2, or (ii) computing or
billing Tenant's Proportionate Share of excess Operating Costs shall not
constitute a waiver of its right to subsequently deliver such estimate or
statement, require any increase in Rent contemplated by this Section 2.2, or in
any way waive or impair the continuing obligations of Tenant under this Section
2.2. Without limiting the generality of the foregoing, Landlord may at any time
during the term hereof recalculate and correct the amounts of Tenant's
Proportionate Share of excess Operating Costs applicable to any Expense Year
during the term, and Tenant shall pay any amount so recalculated or corrected
within ten (10) days of demand by Landlord. Tenant waives the right to dispute
or contest, and shall have no right to dispute or contest, any matter relating
to the calculation of Operating Costs or other forms of Rent under this Section
2.2 with respect
3
<PAGE> 10
to each Expense Year for which a Reconciliation Statement is given to Tenant if
no claim or dispute with respect thereto is asserted by Tenant in writing to
Landlord within one hundred eighty (180) days of delivery to Tenant of the
original or most recent Reconciliation Statement with respect thereto.
2.3 SQUARE FOOTAGE SPECIFICATION. The parties agree that for all
purposes hereunder the Premises shall be stipulated to contain the number of
square feet of rentable area described in Item 2 of the Basic Lease Provisions.
2.4 BOOKS AND RECORDS. Landlord shall keep at its principal place of
business full, accurate and separate books of account covering Landlord's
Operating Costs. Landlord's statements to Tenant shall accurately reflect the
total Operating Costs shown on such books of account. Landlord shall retain such
books of account for at least six (6) months after Landlord's delivery to Tenant
of the Reconciliation Statement. Tenant shall have the right at reasonable times
during the term of this lease to inspect such books of account.
3. DELINQUENT PAYMENT; HANDLING CHARGES. In the event Tenant is more than five
(5) days late in paying any amount of Rent or any other payment due under this
Lease, Tenant shall pay Landlord, within ten (10) days of Landlord's written
demand therefor, a late charge equal to five percent of the delinquent amount.
Following the occurrence of three instances of payment of Rent more than ten
(10) days late in any twelve (12) month period, Landlord may, without prejudice
to any other rights or remedies available to it, upon written notice to Tenant,
require that all remaining monthly installments of Rent payable under this Lease
shall be payable by cashier's check three (3) months in advance. In addition,
any amount due from Tenant to Landlord hereunder which is not paid within thirty
(30) days of the date due shall bear interest at an annual rate (the "DEFAULT
RATE") equal to ten percent (10%).
4. SECURITY DEPOSIT. Contemporaneously with the execution of this Lease, Tenant
shall pay to Landlord the amount of Security Deposit specified in Item 6 of the
Basic Lease Provisions, which shall be held by Landlord to secure Tenant's
performance of its obligations under this Lease. The Security Deposit is not an
advance payment of Rent or a measure or limit of Landlord's damages upon a
default by Tenant or an Event of Default (defined in Section 15). If Tenant
defaults with respect to any provision of this Lease, Landlord may, but shall
not be required to, use, apply or retain all or any part of the Security Deposit
(a) for the payment of any Rent or any other sum in default, (b) for the payment
of any other amount which Landlord may spend or become obligated to spend by
reason of such default by Tenant, and (c) to compensate Landlord for any other
loss or damage which Landlord may suffer by reason of such default by Tenant. If
any portion of the Security Deposit is so used or applied, Tenant shall, upon
demand therefor by Landlord, deposit with Landlord cash in an amount sufficient
to restore the Security Deposit to the amount required to be maintained by
Tenant hereunder. Upon expiration or the sooner termination of this Lease,
provided that Tenant has performed all of its obligations hereunder, Landlord
shall return to Tenant the remaining portion of the Security Deposit no later
than two weeks after the date Landlord receives possession of the Premises in
accordance with the provisions of this Lease. The Security Deposit may be
commingled by Landlord with Landlord's other funds, and no interest shall be
paid thereon. If Landlord transfers its interest in the Premises, then Landlord
may assign the Security Deposit to the transferee and thereafter Landlord shall
have no further liability or obligation for the return of the Security Deposit.
Tenant hereby waives the provisions of Section 1950.7 of the California Civil
Code, and all other provisions of Law, now or hereinafter in force, which
restricts the amount or types of claim that a landlord may make upon a security
deposit or imposes upon a landlord (or its successors) any obligation with
respect to the handling or return of security deposits.
5. LANDLORD'S OBLIGATIONS.
5.1 SERVICES. Subject to the provisions of this Lease, Landlord shall
furnish to Tenant during the term (a) city or utility company water at those
points of supply provided for general use of the tenants of the Building; (b)
subject to mandatory and voluntary governmental laws, rules and regulations,
heating and air conditioning during Business Hours (defined below) at such
temperatures and in such amounts as Landlord determines is appropriate for
normal comfort for normal office use in the Premises; (c) janitorial services to
the Premises on weekdays, other than on Holidays (defined below), for
Building-standard installations; (d) nonexclusive passenger elevator service;
and (e) adequate electrical current during Business Hours for equipment that
does not require more
4
<PAGE> 11
than 110 volts and whose electrical energy consumption does not exceed normal
office usage in a premises of the size of the Premises, as determined by
Landlord. If Tenant desires any of the services specified in this Section 5.1 at
any time (i) other than between 8:00 a.m. and 6:00 p.m. on weekdays, 9:00 a.m.
to 12:00 p.m. on Saturday, other than on Holidays ("BUSINESS HOURS") or (ii) on
Sunday or holidays observed by Landlord ("HOLIDAYS"), then such services shall
be supplied to Tenant upon the written request of Tenant delivered to Landlord
in accordance with such advance deadlines as Landlord shall specify from time to
time, and Tenant shall pay to Landlord, Landlord's then customary charge for
such services within ten (10) days after Landlord has delivered to Tenant an
invoice therefor.
5.2 EXCESS UTILITY USE. Landlord shall not be required to furnish
electrical current for and Tenant shall not install or use, without Landlord's
prior written consent, any equipment (a) that requires more than 110 volts, (b)
whose operation is in excess of, or inconsistent with, the capacity of the
Building (or existing feeders and risers to, or wiring in, the Premises) or (c)
whose electrical energy consumption exceeds normal office usage or three (3)
watts of connected load per usable square foot during Business Hours ("STANDARD
USAGE"). Subject to the provisions of this Section 5.2, if Tenant's consumption
of electricity exceeds the electricity to be provided by Landlord above or
Standard Usage, Tenant shall pay to Landlord Landlord's then customary charge
for such excess consumption within ten (10) days after Landlord has delivered to
Tenant an invoice therefor.
5.3 RESTORATION OF SERVICES. Following receipt of Tenant's request to
do so, Landlord shall use good faith efforts to restore any service specifically
to be provided under Section 5.1 that becomes unavailable and which is in
Landlord's reasonable control to restore; provided, however, that in no case
shall the unavailability of such services or any other service (or any
diminution in the quality or quantity thereof) render Landlord liable to Tenant
or any person using or occupying the Premises under or through Tenant
(including, without limitation, any contractor, employee, agent or visitor of
Tenant) (each, a "TENANT PARTY") for any damages caused thereby, constitute a
constructive eviction of Tenant, constitute a breach of any implied warranty by
Landlord, or entitle Tenant to any abatement of Tenant's rental obligations
hereunder.
6. IMPROVEMENTS, ALTERATIONS, REPAIRS AND MAINTENANCE.
6.1 IMPROVEMENTS; ALTERATIONS. Any alterations, additions, deletions,
modifications or utility installations in, of or to the improvements contained
within the Premises as of the date hereof (collectively, "ALTERATIONS") shall be
installed at Tenant's expense and only in accordance with reasonably detailed
plans and specifications which have been previously submitted to and approved in
writing by Landlord. No Alterations in or to the Premises may be made without
(a) Landlord's prior written consent, which consent shall not unreasonably be
withheld, and (b) compliance with such nondiscriminatory requirements concerning
such Alterations as Landlord may impose from time to time. Landlord may withhold
its consent in its sole discretion to any Alteration that may affect the
Building's structure or its HVAC, plumbing, telecommunications, elevator,
life-safety, electrical, mechanical or other basic systems or the appearance of
the interior common areas or exterior of the Project. All Alterations made in or
upon the Premises shall, (i) at Landlord's option, either be removed by Tenant
prior to the end of the term (and Tenant shall restore the portion of the
Premises affected to its condition existing immediately prior to such
Alteration), or shall remain on the Premises at the end of the term and (ii) be
constructed, maintained, and used by Tenant, at its risk and expense, in
accordance with all Laws. In the event that any Alteration made or initiated by
Tenant shall cause, trigger or result in any portion of the Project outside of
the Premises, any portion of the Building's Shell and core improvements
(including restrooms, if any) within the Premises or any Building system inside
or outside of the Premises being required by any governmental authority to be
altered or removed, Landlord shall perform the same at Tenant's expense and
shall charge the entire cost of such work, plus an administrative charge of ten
percent (10%) thereof, to Tenant.
6.2 REPAIRS AND MAINTENANCE.
6.2.1 Landlord shall repair and maintain in good condition (a)
all structural portions of the Premises, (b) all systems and equipment
(including plumbing, HVAC, electrical, fire/life safety, elevator and security
systems) that serve the entire building or portions of the building other than
simply the Premises, (c) the structural components of the Building, (d) the
exterior portion of the Building and the Project, and (e) all common
5
<PAGE> 12
areas located in the Building, or in or on the land. The cost of Landlord's
repair and maintenance as noted above shall be included in the operating costs
for the Project.
6.2.2 Tenant shall maintain at all times during the term the Premises
and all portions and components of the improvements and systems contained
therein in a good, clean, safe, and operable condition, and shall not permit or
allow to remain any waste or damage to any portion of the Premises. Tenant shall
repair or replace, as needed, subject to Landlord's direction and supervision,
any damage to the Building or the Project caused by Tenant or any Tenant Party.
If any such damage occurs outside of the Premises or relates to any Building
system, then Landlord may elect to repair such damage at Tenant's expense,
rather than having Tenant repair such damage. The cost of all repair or
replacement work performed by Landlord under this Section 6.2, plus an
administrative charge of ten percent (10%) thereof, shall be paid by Tenant to
Landlord. Tenant hereby waives all common law and statutory rights or provisions
inconsistent herewith, whether now or hereinafter in effect (including, without
limitation, Sections 1941, 1941.1, and 1941.2 of the California Civil Code, as
amended from time to time).
6.3 MECHANIC'S LIENS. Tenant shall not cause, suffer or permit any
mechanic's or materialman's lien, claim, or stop notice to be filed or asserted
against the Premises, the Building or any funds of Landlord for any work
performed, materials furnished, or obligation incurred by or at the request of
Tenant or any Tenant Party. If any such lien, claim or notice is filed or
asserted, then Tenant shall, within ten (10) days after Landlord has delivered
notice of the same to Tenant, either (a) pay and satisfy in full the amount of
the lien or notice or (b) diligently contest the same and deliver to Landlord a
bond or other security therefor in substance and amount (and issued by an
issuer) satisfactory to Landlord.
7. USE. Tenant shall continuously occupy and use the Premises only for general
office use or uses incidental thereto, all of which shall be consistent with the
standards of a first class office project (the "PERMITTED USE") and shall
comply, at Tenant's expense, with all Laws relating to the use, condition,
alteration, improvement, access to, and occupancy of the Premises to the extent
that such laws relate to or are triggered by (a) Tenant's particular use of the
Premises, (b) the Tenant Improvements located on the Premises, or (c) any
Alterations located on the Premises. Should any Law, standard or regulation now
or hereafter be imposed on Tenant or Landlord by any governmental body
concerning occupational, health or safety standards for employers, employees, or
tenants, then Tenant agrees, at its sole cost and expense, to comply promptly
with such Laws, standards or regulations to the extent that such laws relate to
or are triggered by (a) Tenant's particular use of the Premises, (b) the Tenant
Improvements located on the Premises, or (c) any Alterations located on the
Premises. Tenant shall conduct its business and shall cause each Tenant Party to
act in such a manner as to (a) not release or permit the release of any
Hazardous Material in, under on or about the Project or (b) not create any
nuisance or unreasonable interference with or disturbance of other tenants of
the Project or Landlord in its management of the Project. "HAZARDOUS MATERIAL"
means any hazardous, explosive, radioactive or toxic substance, material or
waste which is or becomes regulated by any local governmental authority, the
state in which the Project is located, or the United States, including, without
limitation, any material or substance which is (i) defined or listed as a
"hazardous waste," "extremely hazardous waste," "restricted hazardous waste,"
"hazardous substance," "hazardous material," "pollutant" or "contaminant" under
any Law, (ii) petroleum or a petroleum derivative, (iii) a flammable explosive,
(iv) a radioactive material, (v) a polychlorinated biphenyl, (vi) asbestos or an
asbestos derivative, or (vii) a carcinogen.
8. ASSIGNMENT AND SUBLETTING
8.1 TRANSFERS; CONSENT. Tenant shall not, without the prior written
consent of Landlord, (a) assign, transfer, mortgage, hypothecate, or encumber
this Lease or any estate or interest herein, whether directly, indirectly or by
operation of law, (b) permit any other entity to become a Tenant hereunder by
merger, consolidation, or other reorganization, (c) if Tenant is a corporation,
partnership, limited liability company, limited liability partnership, trust,
association or other business entity (other than a corporation whose stock is
publicly traded), permit, directly or indirectly, the transfer of any ownership
interest in Tenant so as to result in (i) a change in the current control of
Tenant or (ii) a transfer of twenty-five percent (25%) or more in the aggregate
in any twelve (12) month period in the beneficial ownership of such entity, (d)
sublet any portion of the Premises, (e) grant any license, concession, or other
right of occupancy of or with respect to any portion of the Premises, or (f)
permit the use of the Premises by
6
<PAGE> 13
any party other than Tenant or a Tenant Party (each of the events listed in this
Section 8.1 being referred to herein as a "TRANSFER"). If Tenant requests
Landlord's consent to any Transfer, then concurrently with such request, Tenant
shall provide Landlord with a written description of all terms and conditions of
the proposed Transfer and all consideration therefor (including a calculation of
the Transfer Profits described below), copies of the proposed documentation, and
the following information about the proposed transferee: name and address;
information reasonably satisfactory to Landlord about the proposed transferee's
business and business history; its proposed use of the Premises; banking,
financial, and other credit information; and general references sufficient to
enable Landlord to determine the proposed transferee's creditworthiness and
character. Landlord shall not unreasonably withhold its consent to any
assignment or subletting of the Premises, provided that the parties agree that
it shall be reasonable for Landlord to withhold any such consent if Landlord
determines in good faith that (A) the proposed transferee is not of a reasonable
financial standing or is not creditworthy, (B) the proposed transferee has the
power of eminent domain, is a governmental agency or an agency or part of a
foreign government, (C) the proposed transferee, or any affiliate thereof, is
then an occupant in the Project or has engaged in discussions with Landlord
concerning a lease of direct space in the Project, or (D) the proposed Transfer
would result in a breach of any obligation of Landlord or permit any other
tenant in the Project to terminate or modify its lease. Landlord may withhold
its consent to any other form of Transfer in its sole and absolute discretion.
Any Transfer made without Landlord's consent shall be void and at Landlord's
election, shall constitute an Event of Default by Tenant. Tenant shall also
reimburse Landlord immediately upon demand therefor for all of its reasonable
attorneys' fees and other costs incurred in connection with considering any
request for consent to a proposed Transfer. If Landlord consents to a proposed
Transfer, then the proposed transferee shall deliver to Landlord a written
agreement whereby the proposed transferee expressly assumes the Tenant's
obligations hereunder. Landlord's consent to a Transfer shall not release Tenant
from its obligations under this Lease, but rather Tenant and its transferee
shall be jointly and severally liable for all obligations under this Lease
allocable to the space subject to such Transfer. Landlord's consent to any
Transfer shall not waive Landlord's rights as to any subsequent Transfers.
Tenant hereby waives any suretyship defenses it may have to an action brought by
Landlord including those contained in Sections 2809, 2810, 2819, 2839, 2849,
2855, 2899 and 3433 of the California Civil Code, as now or hereafter amended,
or similar Laws of like import.
8.2 CANCELLATION AND RECAPTURE. Landlord may in its sole and absolute
discretion, within sixty (60) days after submission of Tenant's written request
for Landlord's consent to an assignment or subletting, cancel this Lease as to
the portion of the Premises proposed to be assigned or sublet as of the date
such proposed Transfer is proposed to be effective and, thereafter, Landlord may
lease such portion of the Premises to the prospective transferee (or to any
other person or entity or not at all) without liability to Tenant. If Landlord
shall not cancel this Lease within such sixty-day period and notwithstanding any
Landlord consent to the proposed Transfer, Tenant shall pay to Landlord,
immediately upon receipt thereof, the entire excess ("TRANSFER PROFITS") of all
compensation, key money and other consideration paid to or for the benefit of
Tenant (or any affiliate thereof) for a Transfer.
9. INSURANCE, WAIVERS, SUBROGATION AND INDEMNITY
9.1 INSURANCE. Tenant shall maintain throughout the term each of the
insurance policies described on Exhibit "C" attached hereto and shall otherwise
comply with each and all of the obligations and requirements provided on Exhibit
"C."
9.2 WAIVER OF NEGLIGENCE; NO SUBROGATION. Landlord and Tenant each
waives any claim, loss and cost it might have against the other for any injury
to or death of any person or persons or damage to or theft, destruction, loss,
or loss of use of any property (a "LOSS"), to the extent the same is insured
against under any insurance policy that covers the Building, the Premises,
Landlord's or Tenant's fixtures, personal property, leasehold improvements, or
business, or, in the case of Tenant's waiver, is required to be insured against
under the terms hereof, regardless of whether the negligence of the other party
caused such loss; however, such shall not include any deductible amounts on
insurance policies carried by the party required by this lease to obtain such
insurance or apply to any coinsurance penalty which such party may sustain. Each
party shall cause its insurance carrier to endorse all applicable policies
waiving the carrier's rights of recovery under subrogation or otherwise against
the other party.
7
<PAGE> 14
9.3 INDEMNITY. Subject to Section 9.2, Tenant shall indemnify, defend
and hold Landlord, J.E. Robert Companies and each of their respective parents,
shareholders, partners, lenders, contractors, affiliates and employees
(collectively, "LANDLORD INDEMNITEES") from and against all claims, demands,
proceedings, losses, obligations, liabilities, causes of action, suits,
judgments, damages, penalties, costs and expenses (including, without
limitation, attorneys' fees and court costs) (collectively "CLAIMS, LOSSES AND
COSTS") arising from or asserted in connection with (a) any act, event or
occurrence in or about the Premises or (b) Tenant's breach of any of its
covenants under this Lease or (c) the use or occupancy of the Premises by Tenant
or any Tenant Party, or (d) any act, omission, negligence or misconduct of
Tenant, or of any Tenant Party in or about the Premises, excluding any injury or
damages caused by the willful misconduct or gross negligence of Landlord or a
Landlord Indemnitee. This Section 9 shall survive termination or expiration of
this Lease.
10. SUBORDINATION; ATTORNMENT; NOTICE TO LANDLORD'S MORTGAGEE
10.1 SUBORDINATION. This Lease is subject and subordinate to all
present and future ground or master leases of the Project and to the lien of all
mortgages or deeds of trust (collectively, "SECURITY INSTRUMENTS") now or
hereafter encumbering the Project, if any, and to all renewals, extensions,
modifications, consolidations and replacements thereof, and to all advances made
or hereafter to be made upon the security of any such Security Instruments,
unless the holders of any such mortgages or deeds of trust, or the lessors under
such ground or master leases (such holders and lessors are sometimes
collectively referred to herein as "HOLDERS") require in writing that this Lease
be superior thereto. Notwithstanding any provision of this Section 10 to the
contrary, any Holder of any Security Instrument may at any time subordinate the
lien of its Security Instrument to this Lease without obtaining Tenant's consent
by giving Tenant written notice of such subordination, in which event this Lease
shall be deemed to be senior to the Security Instrument in question. Tenant
shall, within five (5) days of request to do so by Landlord, execute,
acknowledge and deliver to Landlord such further instruments or assurances as
Landlord may deem necessary or appropriate to evidence or confirm the
subordination or superiority of this Lease to any such Security Instrument.
Tenant hereby irrevocably authorizes Landlord to execute and deliver in the name
of Tenant any such instrument or instruments if Tenant fails to do so within
said five-day period.
10.2 ATTORNMENT. Tenant covenants and agrees that in the event that any
proceedings are brought for the foreclosure of any mortgage or deed of trust, or
if any ground or master lease is terminated, it shall attorn, without any
deductions or set-offs whatsoever, to the purchaser upon any such foreclosure
sale, or to the lessor of such ground or master lease, as the case may be, if so
requested to do so by such purchaser or lessor, and to recognize such purchaser
or lessor as "Landlord" under this Lease. If requested, Tenant shall enter into
a new lease with that successor on the same terms and conditions as are
contained in this Lease (for the unexpired portion of the Lease term then
remaining).
10.3 NOTICE TO LANDLORD'S MORTGAGEE. Tenant shall not seek to enforce
any remedy it may have for any default on the part of the Landlord under this
Lease without first giving written notice by certified mail, return receipt
requested, specifying the default in reasonable detail, to any Holder of a
Security Instrument whose address has been given to Tenant, and affording such
Holder a reasonable opportunity (which shall be not less than sixty (60) days)
to perform Landlord's obligations hereunder.
11. RULES AND REGULATIONS. Tenant shall comply, and shall cause each Tenant
Party to comply, with the Rules and Regulations of the Building which are
attached hereto as Exhibit "D," and all such reasonable modifications,
additions, deletions and amendments thereto as Landlord shall adopt in good
faith from time to time.
12. CONDEMNATION. If the entire Project or Premises are taken by right of
eminent domain or conveyed by Landlord in lieu thereof (a "TAKING"), this Lease
shall terminate as of the date of the Taking. If any part of the Project becomes
subject to a Taking and such Taking will prevent Tenant from conducting its
business in the Premises in a manner reasonably comparable to that conducted
immediately before such Taking for a period of more than one hundred eighty
(180) days, then Tenant may terminate this Lease as of the date of such Taking
by giving written notice to Landlord within thirty (30) days after the Taking,
and all Rent paid or payable hereunder shall be apportioned between Landlord and
Tenant as of the date of such Taking. If any material portion, but less than
all, of the Building or the Premises becomes subject to a Taking, or if Landlord
is required to pay any of the
8
<PAGE> 15
proceeds received for a Taking to any Holder of any Security Instrument, then
Landlord may terminate this Lease by delivering written notice thereof to Tenant
within thirty (30) days after such Taking, and all Rent paid or payable
hereunder shall be apportioned between Landlord and Tenant as of the date of
such Taking. If Tenant does not so terminate this Lease, then Basic Annual Rent
thereafter payable hereunder shall be abated for the duration of the Taking in
proportion to that portion of the Premises rendered untenantable by such Taking.
If any Taking occurs, then Landlord shall receive the entire award or other
compensation for the land on which the Building is situated, the Building, and
other improvements taken, and Tenant may separately pursue a claim (to the
extent it will not reduce Landlord's award) against the condemnor for the value
of Tenant's personal property which Tenant is entitled to remove under this
Lease and moving and relocation costs. Landlord and Tenant agree that the
provisions of this Section 12 and the remaining provisions of this Lease shall
exclusively govern the rights and obligations of the parties with respect to any
Taking of any portion of the Premises, the Building, the Project or the land on
which the Building is located, and Landlord and Tenant hereby waive and release
each and all of their respective common law and statutory rights inconsistent
herewith, whether now or hereinafter in effect (including, without limitation,
Section 1265.130 of the California Code of Civil Procedure, as amended from time
to time).
13. FIRE OR OTHER CASUALTY.
13.1 REPAIR ESTIMATE; RIGHT TO TERMINATE. If all or any portion of the
Premises, the Building or the Project is damaged by fire or other casualty (a
"CASUALTY"), Landlord shall, within ninety (90) days after actual discovery of
such Casualty or damage, deliver to Tenant its good faith estimate (the "DAMAGE
NOTICE") of the time period following such notice needed to repair the damage
caused by such Casualty. Landlord may elect to terminate this Lease in any case
where (a) any portion of the Premises or a material portion of the Project are
damaged and (b) either (i) Landlord estimates in good faith that the repair and
restoration of such damage under Section 13.2 ("RESTORATION") cannot reasonably
be completed (without the payment of overtime) within two hundred ten (210) days
of Landlord's actual discovery of such damage, (ii) the Holder of any Security
Instrument requires the application of any insurance proceeds with respect to
such Casualty to be applied to the outstanding balance of the obligation secured
by such Security Instrument, (iii) the cost of such Restoration is not fully
covered by insurance proceeds available to Landlord and/or payments received by
Landlord from tenants, or (iv) Tenant shall be entitled to an abatement of rent
under this Section 13 for any period of time in excess of thirty-three percent
(33%) of the remainder of the term. Such right of termination shall be
exercisable by Landlord by delivery of written notice to Tenant at any time
following the Casualty until forty-five (45) days following the later of (A)
delivery of the Damage Notice or (B) Landlord's discovery or determination of
any of the events described in clauses (i) through (iv) of the preceding
sentence and shall be effective upon delivery of such notice of termination (or
if Tenant has not vacated the Premises, upon the expiration of thirty (30) days
thereafter).
13.2 REPAIR OBLIGATION; ABATEMENT OF RENT. Subject to the provisions of
Section 13.1, Landlord shall, within a reasonable time after the discovery by
Landlord of any damage resulting from a Casualty, begin to repair the damage to
the Building and the Premises resulting from such Casualty and shall proceed
with reasonable diligence to restore the Building and the Premises to
substantially the same condition as existed immediately before such Casualty,
except for modifications required by applicable Laws or covenants, conditions
and restrictions, and modifications to the Building or the Project reasonably
deemed desirable by Landlord; provided, however, that Landlord shall not be
required to repair or replace any of the Alterations, furniture, equipment,
fixtures, and other improvements which may have been placed by, or at the
request of, Tenant or other occupants in the Building or the Premises. Landlord
shall have no liability for any inconvenience or annoyance to Tenant or injury
to Tenant's business as a result of any Casualty, regardless of the cause
therefor. Basic Annual Rent, and Additional Rent payable under Section 2.2,
shall abate if and to the extent a Casualty damages the Premises or common areas
in the Project required and essential for access thereto and as a result thereof
all or a material portion of the Premises are rendered unfit for occupancy, and
are not occupied by Tenant, for the period of time commencing on the date Tenant
vacates the portion of the Premises affected on account thereof and continuing
until the date the Restoration with respect to the Premises (and/or required
common areas) is substantially complete, as determined by Landlord's architect;
provided, however, that such abatement shall be limited to the proceeds of
rental interruption insurance proceeds with respect to the Premises and such
Casualty collected by Landlord. Landlord and Tenant agree that the provisions of
this Section 13 and the remaining provisions of this Lease shall exclusively
govern the rights and obligations of the parties with respect to any and all
damage to, or destruction of, all or any portion of the Premises
9
<PAGE> 16
or the Project, and Landlord and Tenant hereby waive and release each and all of
their respective common law and statutory rights inconsistent herewith, whether
now or hereinafter in effect (including, without limitation, Sections 1932(2)
and 1933(4) of the California Civil Code, as amended from time to time).
14. PARKING. Tenant shall have the right to the nonexclusive use of the parking
facilities of the Project for the parking of motor vehicles used by Tenant, its
officers and employees only. The use of such parking facilities shall be subject
to such reasonable rules and regulations as are adopted by Landlord from time to
time for the use of such facilities.
15. EVENTS OF DEFAULT. Each of the following occurrences shall be an "EVENT OF
DEFAULT" and shall constitute a material default and breach of this Lease by
Tenant: (a) any failure by Tenant to pay any installment of Basic Annual Rent or
to make any other payment required to be made by Tenant hereunder when due,
where such failure continues for five (5) days after delivery of written notice
of such failure by Landlord to Tenant; (b) the abandonment or vacation of the
Premises by Tenant; (c) any failure by Tenant to execute and deliver any
estoppel certificate or other document or instrument described in Section 22.3
or Section 10 requested by Landlord, where such failure continues for five (5)
days after delivery of written notice of such failure by Landlord to Tenant; (d)
any failure by Tenant to fully perform any other obligation of Tenant under this
Lease, where such failure continues for thirty (30) days (except where a shorter
period of time is specified in this Lease, in which case such shorter time
period shall apply) after delivery of written notice of such failure to Tenant;
(e) the voluntary or involuntary filing of a petition by or against Tenant or
any general partner of Tenant (i) in any bankruptcy or other insolvency
proceeding, (ii) seeking any relief under any state or federal debtor relief
law, (iii) for the appointment of a liquidator or receiver for all or
substantially all of Tenant's property or for Tenant's interest in this Lease,
or (iv) for the reorganization or modification of Tenant's capital structure
(provided, however, that if such a petition is filed against Tenant, then such
filing shall not be an Event of Default unless Tenant fails to have the
proceedings initiated by such petition dismissed within sixty (60) days after
the filing thereof); (f) the default of any guarantor of Tenant's obligations
hereunder under any guaranty of this Lease, the attempted repudiation or
revocation of any such guaranty, or the participation by any such guarantor in
any other event described in this Section 15 (as if this Section 15 referred to
such guarantor in place of Tenant); or (g) any other event, act or omission
which any other provision of this Lease identifies as an Event of Default. Any
notice of any failure of Tenant required under this Section 15 shall be in lieu
of, and not in addition to, any notice required under Section 1161 et seq. of
the California Code of Civil Procedure.
16. REMEDIES. Upon the occurrence of any Event of Default by Tenant, Landlord
shall have, in addition to any other remedies available to Landlord at law or in
equity (all of which remedies shall be distinct, separate, and cumulative), the
option to pursue any one (1) or more of the following remedies, each and all of
which shall be cumulative and nonexclusive, without any notice or demand
whatsoever:
16.1 Terminate this Lease, and Landlord may recover from Tenant the
following: (i) the worth at the time of any unpaid rent which has been earned at
the time of such termination; plus (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 Tenant
proves could have been reasonably avoided; plus (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 Tenant proves
could have been reasonably avoided; plus (iv) any other amount necessary to
compensate Landlord for all the detriment proximately caused by Tenant's failure
to perform its obligations under this Lease or which in the ordinary course of
things would be likely to result therefrom (specifically including, without
limitation, brokerage commissions and advertising expenses incurred, expenses of
remodeling the Premises or any portion thereof for a new tenant, whether for the
same or a different use, and any special concessions made to obtain a new
tenant); and (v) at Landlord's election, such other amounts in addition to or in
lieu of the foregoing as may be permitted from time to time by applicable law.
The term "RENT" as used in this Section 16(a) shall be deemed to be and to mean
all sums of every nature required to be paid by Tenant pursuant to the terms of
this Lease, whether to Landlord or to others. As used in Sections 16(a)(i) and
(ii), above, the "WORTH AT THE TIME OF
10
<PAGE> 17
AWARD" shall be computed by allowing interest at the Default Rate, but in no
case greater than the maximum amount of such interest permitted by law. As used
in Section 16(a)(iii) above, the "WORTH AT THE TIME OF AWARD" shall be computed
by discounting such amount at the discount rate of the Federal Reserve Bank of
San Francisco at the time of award plus one percent (1%).
16.2 Landlord shall have the remedy described in California Civil Code
Section 1951.4 (lessor may continue lease in effect after lessee's breach and
abandonment and recover rent as it becomes due, if lessee has the right to
sublet or assign, subject only to reasonable limitations). Accordingly, if
Landlord does not elect to terminate this Lease on account of any Event of
Default by Tenant, Landlord may, from time to time, without terminating this
Lease, enforce all of its rights and remedies under this Lease, including the
right to recover all rent as it becomes due.
16.3 Landlord shall at all times have the rights and remedies (which
shall be cumulative with each other and cumulative and in addition to those
rights and remedies available under Sections 16(a) and 16(b) above, or any law
or other provision of this Lease), without prior demand or notice except as
required by applicable law, to seek any declaratory, injunctive, or other
equitable relief, and specifically enforce this Lease, or restrain or enjoin a
violation or breach of any provision hereof.
16.4 In addition, (i) without notice, Landlord may alter locks or other
security devices at the Premises to deprive Tenant of access thereto, and
Landlord shall not be required to provide a new key or right of access to
Tenant; (ii) upon the occurrence of an Event of Default by Tenant under Section
15, if the Premises or any portion thereof are sublet, Landlord may, at its
option and in addition and without prejudice to any other remedies herein
provided or provided by law, collect directly from the sublessee all rentals
becoming due to the Tenant and apply such rentals against other sums due
hereunder to Landlord; (iii) without prejudice to any other right or remedy of
Landlord, if Tenant shall be in default under this Lease, Landlord may cure the
same at the expense of Tenant (A) immediately and without notice in the case (1)
of emergency, (2) where such default unreasonably interferes with any
other tenant in the Building, or (3) where such default will result in the
violation of Law or the cancellation of any insurance policy maintained by
Landlord and (B) in any other case if such default continues for ten (10) days
from the receipt by Tenant of notice of such default from Landlord and all costs
incurred by Landlord in curing such default(s), including, without limitation,
attorneys' fees, shall be reimbursable by Tenant as Rent hereunder upon demand,
together with interest thereon, from the date such costs were incurred by
Landlord, at the Default Rate; and (iv) Tenant hereby waives for Tenant and for
all those claiming under Tenant all rights now and hereafter existing to redeem
by order or judgment of any court or by any legal process or writ, Tenant's
right of occupancy of the Premises after any termination of this Lease.
17. PAYMENT BY TENANT; NON-WAIVER. Landlord's acceptance of Rent following an
Event of Default shall not waive Landlord's rights regarding such Event of
Default. No waiver by Landlord of any violation or breach of any of the terms
contained herein shall waive Landlord's rights regarding any future violation of
such term. Landlord's acceptance of any partial payment of Rent shall not waive
Landlord's rights with regard to the remaining portion of the Rent that is due,
regardless of any endorsement or other statement on any instrument delivered in
payment of Rent or any writing delivered in connection therewith; accordingly,
Landlord's acceptance of a partial payment of Rent shall not constitute an
accord and satisfaction of the full amount of Rent that is due.
18. SURRENDER OF PREMISES. No act by Landlord shall be deemed an acceptance of a
surrender of the Premises, and no agreement to accept a surrender of the
Premises shall be valid unless it is in writing and signed by Landlord. At the
expiration or earlier termination of this Lease, Tenant shall deliver to
Landlord the Premises with all improvements located therein in good repair and
condition, broom-clean, reasonable wear and tear excepted, and shall deliver to
Landlord all keys to the Premises. Prior to the expiration of the term or any
sooner termination thereof, (a) Tenant shall remove such Alterations and shall
restore the portion of the Premises affected by such Alterations and such
removal to its condition existing immediately prior to the making of such
Alterations and wiring as Landlord may request, (b) Tenant shall remove from the
Premises all unattached trade fixtures, furniture, equipment and personal
property located in the Premises, and all garbage, waste and debris and (c)
Tenant shall repair all damage to the Premises or the Project caused by any such
removal including, without limitation, full restoration of all holes and gaps
resulting from any such removal. All personal property and fixtures of Tenant
not so removed shall, to the extent permitted under applicable Laws, be deemed
to have been abandoned by Tenant and
11
<PAGE> 18
may be appropriated, sold, stored, destroyed, or otherwise disposed of by
Landlord without notice to Tenant and without any obligation to account for such
items.
19. HOLDING OVER. If Tenant holds over after the expiration or earlier
termination of the term hereof, with or without the express or implied consent
of Landlord, Tenant shall become and be only a tenant at sufferance at a daily
rent equal to one-thirtieth of the greater of (a) the then prevailing monthly
fair market gross rental rate as determined by Landlord in its sole and absolute
discretion, or (b) one hundred fifty percent (150%) of the monthly installment
of Basic Annual Rent (and estimated Additional Rent payable under Section 2.2)
payable by Tenant immediately prior to such expiration or termination, and
otherwise upon the terms, covenants and conditions herein specified, so far as
applicable, as reasonably determined by Landlord. Neither any provision hereof
nor any acceptance by Landlord of any rent after any such expiration or earlier
termination shall be deemed a consent to any holdover hereunder or result in a
renewal of this Lease or an extension of the term, or any waiver of any of
Landlord's rights or remedies with respect to such holdover. Notwithstanding any
provision to the contrary contained herein, (i) Landlord expressly reserves the
right to require Tenant to surrender possession of the Premises upon the
expiration of the term of this Lease or upon the earlier termination hereof or
at any time during any holdover and the right to assert any remedy at law or in
equity to evict Tenant and collect damages in connection with any such holdover,
and (ii) Tenant shall indemnify, defend and hold Landlord harmless from and
against any and all claims, demands, actions, proceedings, losses, damages,
liabilities, obligations, penalties, costs and expenses, including, without
limitation, all lost profits and other consequential damages, attorneys' fees,
consultants' fees and court costs incurred or suffered by or asserted against
Landlord by reason of Tenant's failure to surrender the Premises on the
expiration or earlier termination of this Lease in accordance with the
provisions of this Lease.
20. CERTAIN RIGHTS RESERVED BY LANDLORD. Landlord hereby reserves and shall have
the following rights with respect to the Premises and the Project: (a) to
decorate and to make inspections, repairs, alterations, additions, changes, or
improvements, whether structural or otherwise, in and about the Project,
Building, the Premises or any part thereof; to enter upon the Premises and,
during the continuance of any such work, to temporarily close doors, entryways,
public space, and corridors in the Project or the Building; to interrupt or
temporarily suspend Building services and facilities; to change the name of the
Building or the Project; and to change the arrangement and location of entrances
or passageways, doors, and doorways, corridors, elevators, stairs, restrooms, or
other public parts of the Building or the Project; (b) to take such measures as
Landlord deems advisable in good faith for the security of the Building and its
occupants; evacuating the Building for cause, suspected cause, or for drill
purposes; temporarily denying access to the Building to any person; and closing
the Building after Business Hours and on Sundays and Holidays, subject, however,
to Tenant's right to enter when the Building is closed after Business Hours
under such rules and regulations as Landlord may prescribe from time to time
during the term; and (c) to enter the Premises at reasonable hours to show the
Premises to prospective purchasers, lenders, or, during the last six (6) months
of the Term, tenants. Landlord shall exercise its rights under this Section 20
in a manner that minimizes the interference with Tenant's use of the Premises.
21. SUBSTITUTION SPACE. Upon at least sixty (60) days prior written notice,
Landlord may relocate Tenant within the Project to space which is comparable in
size, utility and condition to the Premises. If Landlord relocates Tenant,
Landlord shall reimburse Tenant for Tenant's reasonable out-of-pocket expenses
for moving Tenant's furniture, equipment and supplies from the Premises to the
relocation space and for reprinting Tenant's stationery of the same quality and
quantity as Tenant's stationery supply on hand immediately before Landlord's
notice to Tenant of the exercise of this relocation right. Upon such relocation,
the relocation space shall be deemed to be the Premises and the terms of this
Lease shall remain in full force and shall apply to the relocation space;
provided, however, that (a) if the rentable area of the relocation space is
smaller than rentable area of the Premises, then Tenant shall be entitled from
and after the relocation date to a reduction in Basic Annual Rent in proportion
to the reduction in the rentable area of the Premises, with a corresponding
reduction in Tenant's Proportionate Share and (b) if the rentable area of the
relocation space is larger than the rentable area of the Premises, then the
Basic Annual Rent and Tenant's Proportionate Share shall not be modified in any
way.
12
<PAGE> 19
22. MISCELLANEOUS.
22.1 LANDLORD TRANSFERS AND LIABILITY. Landlord may without restriction
sell, assign or transfer in any manner all or any portion of the Project, any
interest therein or any of Landlord's rights under this Lease. If Landlord
assigns its rights under this Lease, then Landlord shall automatically be
released from any further obligations hereunder, provided that the assignee
thereof assumes Landlord's obligations hereunder in writing. The liability of
Landlord to Tenant for any default by Landlord under the terms of this Lease or
with respect to any obligation or liability related to the Premises or the
Project shall be recoverable only from the interest of Landlord in the Building,
and neither Landlord nor any affiliate thereof shall have any personal liability
with respect thereto.
22.2 BROKERAGE. Neither Landlord nor Tenant has dealt with any broker
or agent in connection with the negotiation or execution of this Lease, other
than the broker(s), if any, identified in Item 10 of the Basic Lease Provisions,
whose commission shall be paid by Landlord pursuant to a separate agreement.
Each party shall indemnify the other from and against all costs, expenses,
attorneys' fees, and other liability for commissions or other compensation
claimed by any broker or agent (other than the broker(s), if any, identified in
Item 10 of the Basic Lease Provisions) claiming the same by, through, or under
such party.
22.3 ESTOPPEL CERTIFICATES. At any time and from time to time during
the term, upon request of Landlord, Tenant shall, without charge, execute,
acknowledge and deliver to Landlord within ten (10) days after Landlord's
request therefor, an estoppel certificate in recordable form containing factual
certifications and other provisions as are found in the estoppel certificate
forms requested by institutional lenders and purchasers. Tenant agrees in any
case that (a) the foregoing certificate may be relied on by anyone holding or
proposing to acquire any interest in the Project from or through Landlord or by
any mortgagee or lessor or prospective mortgagee or lessor of the Project or of
any interest therein and (b) the form of estoppel certificate shall be in the
form of, at Landlord's election, the standard form of such present or
prospective lender, lessor or purchaser (or any form substantially similar
thereto), or any other form that Landlord shall reasonably select.
22.4 NOTICES. Notices, requests, consents or other communications
desired or required to be given by or on behalf of Landlord or Tenant under this
Lease shall be effective only if given in writing and sent by (a) registered or
certified United States mail, postage prepaid, (b) nationally recognized express
mail courier that provides written evidence of delivery, fees prepaid, or (c)
facsimile and United States mail, postage prepaid, and addressed as set forth in
the Basic Lease Provisions, or at such other address in the State of California
as may be specified from time to time, in writing, or, if to Tenant, at the
Premises. Any such notice, request, consent or other communication shall only be
deemed given (i) if sent by registered or certified United States mail, on the
day it is officially recorded or delivered to or refused by the intended
recipient, (ii) if sent by nationally recognized express mail courier, on the
date it is officially recorded by such courier, (iii) if delivered by facsimile,
on the date the sender obtains written telephonic confirmation that the
electronic transmission was received, or (iv) if delivered personally, upon
delivery or, if refused by the intended recipient, upon attempted delivery.
22.5 MISCELLANEOUS. If any clause or provision of this Lease is
illegal, invalid, or unenforceable under present or future laws, then the
remainder of this Lease shall not be affected thereby. This Lease may not be
amended except by instrument in writing signed by Landlord and Tenant. No
provision of this Lease shall be deemed to have been waived by Landlord unless
such waiver is in writing signed by Landlord. The terms and conditions contained
in this Lease shall inure to the benefit of and be binding upon the parties
hereto, and upon their respective successors in interest and legal
representatives, except as otherwise herein expressly provided. This Lease
constitutes the entire agreement between Landlord and Tenant regarding the
subject matter hereof and supersedes all oral statements and prior writings
relating thereto. To the maximum extent permitted by law, Landlord and Tenant
each waive right to trial by jury in any litigation arising out of or with
respect to this Lease. This Lease shall be governed by and construed in
accordance with the laws of the State of California. If Tenant is comprised of
more than one party, each such party shall be jointly and severally liable for
Tenant's obligations under this Lease. All exhibits and attachments attached
hereto are incorporated herein by this reference.
13
<PAGE> 20
23. ADDENDA.
23.A EXTENSION OPTION
23.A.1 GRANT OF OPTION. Tenant shall have one option (the "EXTENSION
OPTION") to extend the term of this Lease as to the entire premises then subject
to this Lease for an additional term of three (3) years (the "EXTENSION TERM"),
subject to and upon the terms and conditions contained in this Section 23.A. The
Extension Term shall commence upon the day immediately following the first
scheduled date for expiration of the term ("EXPIRATION DATE") and shall end at
noon on the day preceding the third anniversary of the commencement of the
Extension Term. The Extension Term shall be upon the same terms and conditions
as are provided for in this Lease, as then amended, except that (a) there shall
be no further option to extend the term pursuant to this Section 23.A or
otherwise, (b) Tenant shall not be entitled to any credit against Rent or any
other rent concession or rent allowance or abatement of Rent, (c) Base Operating
Costs (per square foot of rentable area) shall be as specified in Item 8 of the
Basic Lease Provisions and (d) the Basic Annual Rent payable for the Extension
Term shall be determined pursuant to Section 23.A.2. Subject to the provisions
of Section 23.A.4, the Extension Option may be exercised only by Tenant giving
written notice of exercise (the "EXTENSION NOTICE") to Landlord on or before the
date that is twelve (12) months prior to the original scheduled Expiration Date.
23.A.2 BASIC ANNUAL RENT. The Basic Annual Rent per annum payable for
the Premises during the Extension Term (the "EXTENSION TERM BASIC ANNUAL RENT")
shall be equal to the greater of (a) an amount equal to ninety-five percent
(95%) of (i) the rentable area of the Premises then subject to this Lease,
multiplied by (ii) the yearly Extension FMRV (defined below) of the Premises as
of the first day of the Extension Term, as determined in accordance with this
Section 23.A.2, and (b) the amount of the Basic Annual Rent payable hereunder
for the entire Premises then subject to this Lease (without taking into account
any applicable credits or offsets) for the twelve (12) month period immediately
preceding commencement of the Extension Term. During the Extension Term, if any,
Basic Annual Rent shall be increased annually pursuant to Section 2.1(b).
23.A.3 DEFINITION. The "EXTENSION FMRV" of the Premises during the
Extension Term shall be equal to the yearly base rent per square foot of
rentable area (taking into account any base year operating costs or expense stop
applicable thereto) at which Landlord or landlords of comparable buildings in
the market area (the "MARKET") determined by Landlord to be the local
competitive market for the Project are leasing comparable space (in size,
quality, improvements and location) to renewal tenants, for a term equal to the
Extension Term and commencing as of the first day of the Extension Term.
23.A.4 PROCEDURE FOR DETERMINING THE EXTENSION FMRV. For purposes of
determining the Extension FMRV, the following procedure shall apply:
(a) If Tenant has timely given the Extension Notice, Landlord
shall within sixty (60) days thereafter deliver to Tenant a written notice of
Landlord's determination of what the Extension FMRV would be during the
Extension Term ("LANDLORD'S EXTENSION RENT NOTICE"). Within ten (10) days after
Tenant's receipt of Landlord's Extension Rent Notice, Tenant shall give Landlord
a written notice ("TENANT'S EXTENSION RESPONSE NOTICE") electing either (i) to
accept the Extension FMRV set forth in Landlord's Extension Rent Notice, in
which case the Extension FMRV shall be the Extension FMRV set forth in
Landlord's Extension Rent Notice, or (ii) to not accept Landlord's determination
of the Extension FMRV, in which case Landlord and Tenant shall endeavor to agree
upon the Extension FMRV on or before the date that is ten (10) days after
Landlord's receipt of Tenant's Extension Response Notice. If Landlord and Tenant
are unable to agree upon the Extension FMRV within such ten-day period, then the
Extension FMRV shall be determined by arbitration pursuant to paragraph (b)
below. If Tenant fails to deliver Tenant's Extension Response Notice within the
ten-day period following its receipt of Landlord's Extension Rent Notice, Tenant
shall conclusively be deemed to have accepted Landlord's determination of the
Extension FMRV as set forth in Landlord's Extension Rent Notice.
(b) If Landlord and Tenant shall fail to agree upon the
Extension FMRV within ten (10) days of the date of Landlord's receipt of
Tenant's Extension Response Notice, then, within ten (10) days thereafter,
Landlord and Tenant each shall give notice to the other setting forth the name
and address of an arbitrator
14
<PAGE> 21
designated by the party giving such notice, which arbitrator shall be an
independent real estate appraiser or consultant having at least five years
continuous experience in appraising or determining the value of office space in
the Market. If either party shall fail to give notice of such designation within
such ten-day period, then the other arbitrator chosen shall make the
determination alone. If two (2) arbitrators have been designated, such two (2)
arbitrators may consult with each other and shall, not later than the 30th day
after Landlord's receipt of Tenant's Extension Response Notice make their
determination of the Extension FMRV in writing and give notice thereof to each
other and to each of Landlord and Tenant. Such two (2) arbitrators shall have
ten (10) days after the receipt of notice of each other's determination to
confer with each other and to attempt to reach agreement as to the determination
of the Extension FMRV. If such two (2) arbitrators shall concur as to the
determination of the Extension FMRV, such determination shall be final and
binding upon Landlord and Tenant. If such two (2) arbitrators shall fail to
concur within such ten-day period, then such two (2) arbitrators shall, within
the next ten (10) days, designate a third arbitrator meeting the above
requirements for arbitrators. If the two (2) arbitrators shall fail to agree
upon the designation of such third arbitrator within such ten-day period, then
either party may apply to the AAA for the designation of such arbitrator. The
third arbitrator shall conduct such hearings and investigations on an expedited
basis as such arbitrator may deem appropriate and shall, within fifteen (15)
days after its designation, choose one of the determinations (and no other) of
the two (2) arbitrators originally selected by the parties by simultaneously
delivering to Landlord and Tenant signed and acknowledged original counterparts
of his or her determination. The costs and expenses of the arbitration and of
the third arbitrator shall be shared equally by Landlord and Tenant and each
party shall be responsible for the costs and expenses of its designated
arbitrator and its own witnesses and counsel. The arbitrators shall have the
right to consult experts in the matter under arbitration; provided, however,
that any such consultation shall be made only after five (5) days' prior notice
to Landlord and Tenant and only in their presence, with full right on their part
to cross-examine such experts. The arbitrators' final decision and award shall
be in writing, shall be binding on Landlord and Tenant and shall be
nonappealable, and counterpart copies thereof shall be delivered to Landlord and
Tenant. A judgment or order based upon such award may be entered in any court of
competent jurisdiction. In rendering their decision and award, the arbitrators
shall have no power to vary, modify or amend any provision of this Lease.
23.A.5 CONDITIONS TO EXERCISE OF THE EXTENSION OPTION. Notwithstanding
any provisions of this Section 23.A.5 to the contrary, Tenant may not exercise
the Extension Option on any date on which (a) Tenant is in default under this
Lease beyond any applicable grace, notice and cure period, and (b) there is in
effect an assignment pursuant to which this Lease has been assigned (other than
an assignment to an affiliate of Tenant) and any exercise of such Extension
Option shall be deemed null and void and of no force and effect, at the election
of Landlord, if (i) on the commencement of the Extension Term, Tenant is in
default under this Lease, beyond any grace notice, and cure period, or (ii) on
any date prior to the commencement of the Extension Term this Lease has been
assigned other than to an affiliate of Tenant. If Tenant does not timely send
the Extension Notice pursuant to the provisions of this Section 23.A.5 within
the applicable time period, time being of the essence, then Tenant shall be
deemed to have forever waived and relinquished its right to extend the term, and
any other options or rights to renew or extend the term effective after the
expiration of this Extension Option shall terminate.
23.B RIGHT OF FIRST OFFER
23.B.1 DEFINITIONS. As used herein:
23.B.1.1 "AVAILABLE FOR LEASE" means, as of any date after
Commencement Date with respect to any First Right Space, that Landlord is then
prepared to offer such First Right Space for lease in the general leasing
market, regardless of the proposed commencement date of such lease.
23.B.1.2 "FIRST RIGHT SPACE" means any space located in the
Building.
23.B.2 FIRST RIGHT SPACE. Subject to Section 23.B.1.1, if, during the
Term, any First Right Space shall become Available for Lease, Landlord shall,
prior to offering such First Right Space to any other person, deliver to Tenant
a notice (a "FIRST RIGHT AVAILABILITY NOTICE") (a) stating that Landlord intends
to offer such First Right Space for lease and (b) describing such First Right
Space and the material business terms at which Landlord intends to market such
space. If Tenant shall deliver to Landlord a notice (a "TENANT'S INTEREST
NOTICE") that it desires to
15
<PAGE> 22
engage in negotiations with Landlord regarding the leasing of such First Right
Space within five (5) business days after receipt of the First Right
Availability Notice, then for fifteen (15) days (the "NEGOTIATION PERIOD") after
Tenant so notifies Landlord, Landlord shall negotiate exclusively with Tenant to
enter into a lease or a lease amendment under which Landlord would lease such
First Right Space to Tenant; provided, however, that neither Tenant nor Landlord
shall have any obligation to agree to any provision or term with respect to such
lease or lease amendment. If Tenant does to timely deliver to Landlord a
Tenant's Interest Notice in response to a First Right Availability Notice in
accordance with this Section 23.B.2, or if an agreement for the leasing of such
First Right Space is not executed and delivered by Landlord and Tenant within
the Negotiation Period, time being of the essence, then (i) Tenant shall, until
such time, if any, as such First Right Space shall once again become Available
for Lease (after having been leased by Landlord to another person following
Tenant's failure to lease such First Right Space), have waived and relinquished
its rights under this Section 23.B.2 with respect to the First Right Space
described in such First Right Availability Notice, and (ii) Landlord shall at
any time thereafter (up until such time, if any, as such First Right Space once
again becomes Available for Lease as set forth herein) be entitled to offer,
show, market and lease such First Right Space to all others selected by Landlord
at such rental rates and upon such terms as Landlord in its sole discretion may
desire.
23.B.3 MISCELLANEOUS. Notwithstanding any provision of this Section
23.B.3 to the contrary, Tenant shall have no right to give a Tenant's Interest
Notice on any date on which Tenant (a) is in default under this Lease beyond any
applicable grace, notice and cure period or (b) occupies less than 2,332 square
feet of rentable area in the Project. At any time when Tenant (i) is so in
default under this Lease or (ii) occupies less than 2,332 square fee of rentable
area in the Project, Landlord may cancel a Tenant's Interest Notice by notice to
Tenant, and on and after the date of such notice to Tenant, Tenant shall have no
rights, and Landlord shall have no obligations, under this Section 23.B.3 with
respect to the First Right Space for which Tenant gave such Tenant's Interest
Notice.
16
<PAGE> 23
EXHIBIT "A"
PREMISES OUTLINE; BUILDING FLOOR PLAN
[to be provided by Landlord and attached]
A
<PAGE> 24
EXHIBIT "B"
CONSTRUCTION CRITERIA
A. LANDLORD WORK.
Landlord agrees to contribute the sum of Four Thousand Dollars
($4,000.00) upon execution of this Lease for Tenant's use in connection with
reconfiguration of the Premises' existing work area. Prior to commencing any
Tenant work, Tenant to comply with requirements of paragraph B.2. below.
B. TENANT WORK.
1. TENANT WORK, IN GENERAL. As a material consideration for the
execution by Landlord of the Lease, Tenant agrees to perform the Tenant Work in
the Premises with quality work using only first-class materials and workmanship.
Notwithstanding the foregoing or anything to the contrary in the Lease, any
deficiency in design and/or construction shall be solely the responsibility of
Tenant.
2. SPECIFICS OF TENANT WORK. Subject to the provisions hereof, Tenant
at its sole cost and expense, shall perform all work required to complete the
Premises to a finished condition ready to be opened for business in accordance
with the provisions hereof and of the Lease. Tenant's Work shall conform to the
criteria, procedures and schedules set forth herein and in the Lease and shall
include, without limitation, the following:
a. TENANT WORK; LIENS; INSURANCE.
(i) All stacks, vents, openings, or penetrations
of any kind, if any, through the roof
desired by Tenant shall first be approved in
writing by Landlord and then be installed by
a roofing contractor approved by Landlord.
Such work shall be at Tenant's direction. In
the event Tenant shall make such openings or
roof penetrations, Tenant shall be solely
liable for all costs and expenses to
restore, reissue or recertify the warranty
issued for the original roof and for any
costs to repair leaks or damage resulting
therefrom caused in whole or in part by such
openings or such roof penetrations.
(ii) All changes in floor level or underfloor
work shall first be approved in writing by
Landlord and then be done by the Landlord's
contractor at Tenant's direction.
(iii) To deliver to Landlord drawings with respect
to the above Tenant's Work or any additional
requirements of Tenant, which drawings shall
conform in all respects with the agreements
of Landlord as above stated and shall be
prepared in a manner satisfactory to
Landlord and shall be sufficient in all
respects so that necessary building
permit(s) can be obtained.
(iv) Tenant shall furnish Landlord with partial
and final waivers of lien from all persons
performing labor or supplying materials on
behalf of Tenant in connection with the
performance of Tenant's Work at the Premises
showing that the obligations owing to all
such persons relating to the performance of
any work for Tenant in or about the Premises
have been satisfied in full. Tenant shall
not permit any mechanic's liens to be filed
against the Premises, the Building, or the
Project for any work performed, materials
furnished or obligation incurred by or at
the request of Tenant. If such a lien is
filed, then Tenant shall, within 10 days
after Landlord has delivered notice of the
filing thereof to Tenant, either pay the
amount of the lien or diligently contest
such lien and deliver to Landlord a bond or
other security reasonably satisfactory to
"B-1"
<PAGE> 25
Landlord. If Tenant fails to timely take
either such action, then Landlord may pay
the lien claim, and any amounts so paid,
including expenses and interest, shall be
paid by Tenant to Landlord within ten days
after Landlord has invoiced Tenant therefor.
All contractors employed by Tenant shall be
licensed and insured. Tenant shall not
permit its contractor(s) to commence any
work until the following required insurance
has been obtained and certificates of
insurance evidencing such insurance have
been delivered to Landlord:
(aa) Commercial General Liability
Insurance insuring Tenant, and
naming Landlord as an additional
insured, against any and all
liability to third parties for
damages, resulting from bodily
injury (or death resulting
therefrom) or property damage,
including personal injury, in the
amount of not less than a combined
single limit of $1,000,000; and
(bb) Business and Motor Vehicle Liability
Insurance insuring Tenant, and
naming Landlord as an additional
insured, against any and all
liability to third parties for
damages, resulting from bodily
injury (or death resulting
therefrom) or property damage,
including personal injury, in the
amount of not less than a combined
single limit of $1,000,000; and
(cc) Worker's compensation insurance with
a limit of no less than $500,000,
containing a waiver of subrogation
endorsement acceptable to Landlord.
b. PERMITS AND APPROVALS.
(i) Prior to commencement of construction by
Tenant, Tenant shall obtain all necessary
permits and approvals and post same upon the
Premises as required thereby with a copy of
the permit forwarded to Landlord.
(ii) Tenant shall obtain a certificate of
occupancy ("CO"), if required by applicable
Law, and provide Landlord with a copy of the
original CO prior to occupying the Premises
for business purposes.
(iii) Tenant shall cause, for Landlord's benefit,
to be posted on the Premises notices of
nonresponsibility for Landlord.
c. APPROVALS OF TENANT'S PLANS AND SPECIFICATIONS.
(i) No construction within the Premises may
commence without Landlord's written
approval, which approval shall not
unreasonably be withheld.
(ii) Tenant shall within 30 days from the date of
the Lease prepare and deliver to Landlord,
and Landlord's architect for approval, one
(1) set of complete plans and specifications
(including all HVAC, plumbing, fire
protection and electrical engineering as
well as structural engineering, if
applicable) covering all of Tenant's
proposed work concerning the Premises, in
such detail as Landlord may require, in full
compliance with the Lease and the Exhibits
attached thereto, certified by a licensed
and registered architect and, if applicable,
a licensed and registered professional
engineer.
(iii) In the event Landlord shall notify Tenant
that Tenant's plans and specifications are
not approved, Tenant shall have 10 days from
the date of Landlord's disapproval to revise
the plans and specifications and resubmit
them to Landlord
"B-2"
<PAGE> 26
for Landlord's approval. Landlord's written
approval shall also be obtained by Tenant
prior to the undertaking of any construction
work which deviates from or modifies in any
way Tenant's approved plans and
specifications or any other work not
explicitly shown on said plans and
specifications.
d. MISCELLANEOUS.
(i) Tenant shall, if odors, excessive heat,
moisture, smoke or other air contaminants,
including but not limited to those produced
by food service facilities, beauty salons,
etc., emanate from the Premises, and where
directed by Landlord, provide separate
exhaust systems in compliance with NFPA
standards, applicable codes and other Laws
and Landlord's design criteria. Should
Tenant fail to eliminate the odor problem
(as determined by Landlord in its sole
discretion) within 30 days of Landlord's
written notice, then Landlord, at its sole
discretion, may either terminate the Lease
or install such separate exhaust system at
Tenant's expense. Tenant shall pay to
Landlord any amounts so paid by Landlord
within 10 days after Landlord has delivered
to Tenant an invoice requesting payment for
such expense.
(ii) Tenant shall submit to Landlord at least 10
days prior to the commencement of Tenant's
Work the following:
(aa) The name and address of Tenant's
general contractor, subcontractors,
and material suppliers.
(bb) The actual commencement date of
Tenant's Work and the estimated
completion date of Tenant's Work.
(cc) Certificates of insurance as set
forth in this Exhibit "B". Tenant
shall not permit its contractor(s)
to commence any work until all
required insurance has been obtained
and certified copies of the policies
have been delivered to Landlord and
Landlord has approved same.
(iii) Tenant shall apply and pay for all utility
meters, connection fees, water and sewer
fees and all other utility and governmental
surcharges imposed as a result of Tenant's
use of the Premises.
(iv) Tenant shall accumulate and remove trash
caused by construction.
(v) Tenant must provide its own temporary power
and water for construction.
(vi) Upon completion of the improvements, Tenant
shall submit to Landlord as may be required
by Landlord or applicable Law, a recorded
copy of the Notice of Completion filed in
the County Recorder's Office in the County
in which the Project is located and a copy
of the certificate of occupancy for the
Premises issued by the appropriate
governmental agency.
(vii) AMERICANS WITH DISABILITIES ACT OF 1990:
Notwithstanding anything to the contrary
contained in the Lease, Tenant shall comply
with the Americans with Disabilities Act of
1990 ("ADA"), and any amendments to the ADA,
as well as all other applicable Laws
regarding access to, employment of and
service to individuals covered by the ADA,
for work performed during the term of this
Lease. Tenant's compliance obligation will
include but not be limited to the design,
construction and alteration of the Premises
and such other
"B-3"
<PAGE> 27
areas (e.g. path of travel) as Tenant may
have to alter in order to be in compliance
with the ADA.
(viii) It is understood and agreed by Tenant that
changes in the improvements, plans and
specifications which do not materially
interfere with Tenant's use of the Premises
shall not affect, invalidate, or change this
Lease or any of its terms and provisions.
"B-4"
<PAGE> 28
EXHIBIT "C"
INSURANCE REQUIREMENTS
The following requirements shall be complied with by Tenant at all
times during the Term:
1. Insurance to be Maintained by Tenant. At all times during the Term,
Tenant shall maintain, at Tenant's expense, the following insurance coverage:
(a) "ALL RISK" or "SPECIAL CAUSES OF LOSS" property insurance
covering all physical loss to the Improvements, Alterations and Tenant's
Property in the Premises for their full replacement cost;
(b) broad form commercial general liability insurance
(including protective liability coverage on operations of independent
contractors engaged in construction and blanket contractual liability
insurance), written on a per occurrence basis with an aggregate limit of not
less than $2,000,000, a per-occurrence limit of not less than $2,000,000 and
with other limits reasonably satisfactory to Landlord;
(c) business interruption insurance covering risk of loss due
to the occurrence of any of the hazards covered by the insurance to be
maintained by Tenant described in Section 1(a) above with coverage in a face
amount of not less than the aggregate amount, for a period of twelve (12) months
following the insured-against peril, of one hundred percent (100%) of all Rent
to be paid by Tenant under this Lease;
(d) worker's compensation insurance and employer's liability
coverage in statutory limits, and California State disability insurance as
required by Law, covering all employees; and
(e) such other coverage as Landlord or any mortgagee of
Landlord may require with respect to the Premises, its use and occupancy and the
conduct or operation of business therein.
Landlord may, from time to time, but not more frequently than once
every year, adjust the minimum limits set forth above.
2. Insurer and Policy Requirements. All insurance policies to be
maintained under Section 1 (a) shall be issued by companies of recognized
responsibility, licensed to do business in the State of California, reasonably
acceptable to Landlord, and maintaining a rating of A-/XII or better in Best's
Insurance Reports-Property-Casualty (or an equivalent rating in any successor
index adopted by Best's or its successor), (b) shall provide that they may not
be canceled or modified unless Landlord and all additional insureds and loss
payees thereunder are given at least thirty (30) days prior written notice of
such cancellation or modification, (c) shall name, as additional insureds,
Landlord, J.E. Robert Companies, the property manager for the Project and any
mortgagee of Landlord whose name and address shall have been furnished to Tenant
and (d) shall be primary and noncontributory in all respects. All policies
providing property insurance coverage pursuant to Section 1(a) shall name, as
loss payees, Landlord, each Mortgagee of Landlord described above and Tenant, as
their interests may appear.
1. Evidence of Coverage; Renewals. Prior to the Commencement Date or,
in the case of insurance required during the performance of Alterations, prior
to the commencement of the Alterations, Tenant shall deliver to Landlord
certificates of insurance for the insurance coverage required by Section 1 and,
if required by Landlord, copies of the policies therefor, in each case, in form
and providing for deductibles reasonably satisfactory to Landlord. Tenant shall
procure and pay for renewals of such insurance from time to time before the
expiration thereof, and Tenant shall deliver to Landlord certificates of renewal
at least thirty (30) days before the expiration of any existing policy. If
Tenant fails to procure or maintain any insurance required by this Lease and to
pay all premiums and charges therefor, Landlord may (but shall not be obligated
to) pay the same, and Tenant shall reimburse Landlord, within twenty (20) days
after demand, for all such sums paid by Landlord.
"C-1"
<PAGE> 29
2. Additional Insurance, Blanket Insurance. Tenant shall not carry
separate or additional insurance, concurrent in form or contributing in the
event of any loss or damage with any insurance required to be obtained by Tenant
under this Lease unless the parties required by Section 2 to be named as
additional insureds or loss payees thereunder are so named. Tenant may carry any
insurance coverage required of it hereunder pursuant to blanket policies of
insurance so long as the coverage afforded Landlord and the other additional
insureds or loss payees, as the case may be, thereunder shall not be less than
the coverage that would be provided by direct policies.
3. Insurance for Alterations. During the performance of any Alteration,
Tenant shall maintain the additional insurance described in Exhibit "B".
"C-2"
<PAGE> 30
EXHIBIT "D"
BUILDING RULES AND REGULATIONS
The following rules and regulations shall apply to the Premises, the
Building, the parking garage associated therewith, and the appurtenances
thereto:
1. Sidewalks, doorways, vestibules, halls, stairways, and other similar
areas shall not be obstructed by tenants or used by any tenant for purposes
other than ingress and egress to and from their respective leased premises and
for going from one to another part of the Building.
2. No sweepings, rubbish, rags or other unsuitable material shall be
thrown or deposited therein. Damage resulting to any such fixtures or appliances
from misuse by a tenant or its agents, employees or invitees, shall be paid by
such tenant.
3. No signs, advertisements or notices shall be painted or affixed on
or to any windows or doors or other part of the Building without the prior
written consent of Landlord. No curtains or other window treatments shall be
placed between the glass and the Building standard window treatments.
4. Landlord shall provide all door locks in each tenant's leased
premises, at the cost of such tenant, and no tenant shall place any additional
door locks in its leased premises without Landlord's prior written consent.
Landlord shall furnish to each tenant a reasonable number of keys to such
tenant's leased premises, at such tenant's cost, and no tenant shall make a
duplicate thereof.
5. Movement in or out of the Building of furniture or office equipment,
or dispatch or receipt by tenants of any bulky material, merchandise or
materials which require use of elevators or stairways, or movement through the
Building entrances or lobby shall be conducted under Landlord's supervision at
such times and in such a manner as Landlord may reasonably require. Each tenant
assumes all risks of and shall be liable for all damage to articles moved and
injury to persons or public engaged or not engaged in such movement, including
equipment, property and personnel of Landlord if damaged or injured as a result
of acts in connection with carrying out this service for such tenant. Landlord
shall repair, at Tenant's sole cost and expense, any damage to the Building or
the Project caused by Tenant's activities moving in or out of the Premises and
all such costs and expenses shall be paid as Additional Rent to Landlord upon
demand therefor.
4. Corridor doors, when not in use, shall be kept closed. Nothing shall
be swept or thrown into the corridors, halls, elevator shafts or stairways. No
birds or animals shall be brought into or kept in, on or about any tenant's
leased premises. No portion of any tenant's leased premises shall at any time be
used or occupied as sleeping or lodging quarters.
5. Tenant shall cooperate with Landlord's employees in keeping its
leased premises neat and clean. Tenants shall not employ any person for the
purpose of such cleaning other than the Building's cleaning and maintenance
personnel.
6. To ensure orderly operation of the Building, no ice, mineral or
other water, towels, newspapers, etc. shall be delivered to any leased area
except by persons approved by Landlord.
7. Tenant shall not make or permit any vibration or improper,
objectionable or unpleasant noises or odors in the Building or otherwise
interfere in any way with other tenants or persons having business with them.
8. No machinery of any kind (other than normal office equipment) shall
be operated by any tenant on its leased area without Landlord's prior written
consent, nor shall any tenant use or keep in the Building any flammable or
explosive fluid or substance.
"D-1"
<PAGE> 31
9. Landlord will not be responsible for lost or stolen personal
property, money or jewelry from tenant's leased premises or public or common
areas regardless of whether such loss occurs when the area is locked against
entry or not.
10. No vending or dispensing machines of any kind may be maintained in
any leased premises without the prior written permission of Landlord.
11. Tenant shall not conduct (or permit to be conducted) any activity
on or about the Premises or Building by Tenant's employees, invitees, customers
or otherwise which will or is likely to draw pickets, demonstrators, or the
like.
12. All vehicles are to be currently licensed, in good operating
condition, parked for business purposes having to do with Tenant's business
operated in the Premises, parked within designated parking spaces, one vehicle
to each space. No vehicle shall be parked as a "BILLBOARD" vehicle in the
parking lot. Any vehicle parked improperly may be towed away. The Tenant,
Tenant's agents, employees, vendors and customers who do not operate or park
their vehicles as required shall subject the vehicle to being towed at the
expense of the owner or driver. The Landlord may place a "BOOT" on the vehicle
to immobilize it and may levy a charge of $50.00 to remove the "BOOT". The
Tenant shall indemnify, hold and save harmless the Landlord of any liability
arising from the towing or booting of any vehicles belonging to the Tenant,
Tenant's agents, vendors, employees and customers.
13. Landlord may determine the amount of electricity and other
utilities used by Tenant by any method reasonably selected by Landlord,
including, without limitation, installation of a separate meter in the high
usage portions of the Premises, installed, maintained, and read by Landlord, at
Tenant's expense. Any new or additional equipment, risers or wiring required to
meet Tenant's excess electrical requirements or otherwise requested by Tenant
shall be installed by Landlord, at Tenant's cost; provided, however, that
Landlord may, in its sole and absolute discretion, refuse to install (or modify
the installation of) such equipment risers or wiring if and to the extent, in
Landlord's judgment, the same shall (a) cause permanent damage to the Building
or the Premises, (b) cause or create a dangerous or hazardous condition, (c)
entail excessive or unreasonable alterations, repairs, or expenses, (d) violate
applicable Laws or (e) interfere with or disturb other tenants of the Building.
14. Landlord's approval of any plans and specifications submitted by
Tenant shall not be a representation by Landlord that such Alterations comply
with any Law or any other standard and Landlord shall have no liability for any
noncompliance therewith.
15. Upon completion of any Alteration made in or upon the Premises,
Tenant agrees to cause a timely Notice of Completion to be recorded in the
office of the Recorder of the County in which the Project is located in
accordance with the terms of Section 3093 of the California Civil Code or any
successor statute, and Tenant shall deliver to Landlord a legible and
reproducible copy of the "AS-BUILT" drawings of any such Alterations within ten
(10) days of completion of the same.
16. All work in the Project, including the Premises, shall be performed
only by Landlord or by contractors and subcontractors reasonably approved in
writing by Landlord. Tenant shall cause all contractors and subcontractors to
procure and maintain insurance coverage naming Landlord as an additional insured
against such risks, in such amounts, and with such companies as Landlord may
reasonably require from time to time. All such work by Tenant shall be performed
in accordance with all Laws, pursuant to a valid building permit (if and to the
extent required) and in a good and workmanlike manner, and in a manner which
does not result in any damage to the Premises, the Building, the Building
systems or any component of any of the same.
17. The Premises shall not be used for any use which is disreputable,
creates any fire hazard, or may result in an increased rate of insurance on the
Project (or any portion thereof) or its contents, or involves the use, storage
or handling of any Hazardous Material (other than customary amounts of customary
cleaning or office supplies, used and stored by Tenant in compliance with all
Laws and on a basis consistent with the standards of a first class office
project). If, because of Tenant's acts or omissions, the rate of insurance on
the Project or its contents increases, then such acts shall be an Event of
Default, Tenant shall pay to Landlord the amount of such increase on
"D-2"
<PAGE> 32
demand, and acceptance of such payment shall not waive any of Landlord's other
rights hereunder, at law or in equity.
18. Landlord reserves the right, at any time upon written notice to
Tenant, to change the location of Tenant's parking spaces within the parking
facility originally designated for such use, if any, as required by Law or by
any governmental authority.
19. Landlord reserves the right to make such changes to the parking
facilities, system and privileges as Landlord may deem necessary or reasonable
from time to time.
"D-3"
<PAGE> 33
EXHIBIT "E"
GUARANTY
(Individual)
IN CONSIDERATION OF and as a material inducement to WHUB Real Estate
Limited Partnership, a Delaware limited partnership ("LANDLORD"), executing the
within lease dated June 28, 1996 ("LEASE"), with Star Vending, Inc., a Nevada
corporation ("TENANT"), for certain premises (the "PREMISES") located in that
certain project (the "PROJECT") commonly known as The De La Guerra Building and
located at 740 State Street, Santa Barbara, California, all as more particularly
described in the Lease, and in further consideration of the sum of Ten Dollars
($10.00) and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged by the undersigned, Christopher Edgecomb, an
individual ("GUARANTOR"), whose residence is , Guarantor does hereby on behalf
of itself, its successors and assigns, unconditionally covenant and agree with
Landlord, its successors and assigns, that if default shall at any time under
the Lease be made by Tenant, its successors and assigns, in the payment of any
monthly installment of rent, or additional rent, or in the performance of any of
the terms, covenants and conditions of the Lease, and if the default shall not
have been cured within the time specified in the Lease for curing the same, then
Guarantor shall pay on demand in cash all rent and additional rent then due and
all damages incurred by Landlord as a result of or arising out of any such
default by Tenant.
THIS GUARANTY is an absolute and unconditional guaranty of payment and
performance. It shall be enforceable against Guarantor, its successors and
assigns, without the necessity for any suit or proceedings by Landlord against
Tenant, its successors and assigns, and without the necessity of any notice of
nonpayment, nonperformance or nonobservance or any notice of acceptance of this
Guaranty or any other notice or demand to which Guarantor might otherwise be
entitled, all of which Guarantor hereby expressly waives. Guarantor agrees that
the validity of this Guaranty and the obligations of Guarantor shall in no way
be terminated, affected or impaired by reason of the assertion or the failure or
delay to assert by Landlord against Tenant, or Tenant's successors and assigns,
any of the rights or remedies reserved to Landlord pursuant to the provisions of
the Lease. The single or partial exercise of any right, power or privilege under
this Guaranty shall not preclude any other or the further exercise thereof or
the exercise of any other right, power or privilege by Landlord.
THIS GUARANTY shall not be affected and the liability of the
undersigned shall not be extinguished or diminished by Landlord's receipt,
application or release of security given for the performance and observation of
the covenants and conditions in the Lease to be performed or observed by Tenant,
its successors and assigns; by the cessation from any cause whatsoever of the
liability of Tenant, its successors and assigns; by reason of sums paid or
payable to Landlord from the proceeds of any insurance policy or condemnation
award; by any nonliability of Tenant under the Lease for any reason, including
any defect or defense which may now or hereafter exist in favor of Tenant; or by
any extensions, renewals, amendments, indulgences, modifications, transfers or
assignments in whole or in part of the Lease by Landlord, whether or not notice
thereof is given to Guarantor and whether or not Guarantor's consent thereto is
obtained. This Guaranty is of payment and not of collection; it is one of active
performance and not one of suretyship for damages or otherwise. This Guaranty
extends to any and all liability which Tenant has or may have to Landlord by
reason of matters occurring before the execution of the Lease or the
commencement of the Term of the Lease, or by matters occurring after the
expiration of the Term of the Lease. Guarantor agrees that it shall have no
rights of indemnification or subrogation against Tenant and agrees that
Guarantor shall subordinate its rights of recourse against Tenant by reason of
any indebtedness or sums due to Guarantor, unless and until the Lease is
performed to the satisfaction of Landlord. Guarantor agrees that it shall not
assert any claim which it has or may have against Tenant, including any claims
under this Guaranty, until the obligations of Tenant under the Lease are fully
satisfied and discharged. The liability of Guarantor is coextensive with that of
Tenant and also joint and several.
E-1
<PAGE> 34
LANDLORD'S ACCEPTANCE of a note or additional collateral of Tenant or
of Guarantor shall not be the full cash payment or the active and primary
performance required herein. This Guaranty is given in addition to all other
guaranties which may pertain to Tenant's indebtedness and is not subordinate to
any other guaranties. Landlord's rights under all guaranties, including this
Guaranty, shall be cumulative and independently enforceable. It shall not be a
condition to the enforcement of this Guaranty that any other guaranties be
resorted to by Landlord. Should Landlord be obligated by any bankruptcy or other
law to repay to Tenant or to Guarantor or to any trustee, receiver or other
representative of either of them, any amounts previously paid to Landlord, its
successors and assigns, this Guaranty shall be reinstated in the amount of such
repayments.
GUARANTOR AGREES that it will, at any time and from time to time,
within ten (10) business days following written request by Landlord, execute,
acknowledge and deliver to Landlord an estoppel certificate certifying that this
Guaranty is unmodified and in full force and effect (or if there have been
modifications, that the same is in full force and effect as modified and stating
such modifications) and making such additional statements with respect to this
Guaranty and Guarantor's obligations hereunder as Landlord shall in good faith
request. Guarantor agrees that Landlord may utilize for such purpose any
estoppel certificate form substantially similar to any form required by any
present or prospective purchaser or lender to Landlord. Guarantor agrees that
such certificate may be relied on by anyone holding or proposing to acquire any
interest in the Project from or through Landlord or by any mortgage or lessor or
prospective mortgagee or lessor of the Project or of any interest therein.
GUARANTOR REPRESENTS and warrants that:
(a) It is not insolvent, and that there are no limitations or
prohibitions to the enforcement of this Guaranty;
(b) It is immediately benefited by the Lease, and Landlord's leasing
of the premises to Tenant thereunder;
(c) If Guarantor is a shareholder, member or other holder of any legal
or equitable interest in Tenant, it shall not transfer any stock
or other interest in Tenant without obtaining Landlord's prior
written consent, and if such consent is given, Guarantor shall
immediately obtain guaranties in this form running from all of the
transferees to Landlord;
(d) The term of existence of Tenant is and shall remain longer than
the Term of the Lease; and
(e) The execution, delivery and performance of this Guaranty are duly
authorized and do not require the consent or approval of any
individual, body or entity.
GUARANTOR AGREES that all shares of stock and rights to shares of stock
of and all other rights or interests in and to Tenant which Guarantor may own,
and all debts, rights and other claims which may be or become due to Guarantor
from Tenant, shall be subordinate to this Guaranty and to all other guaranties
which may be given by Guarantor to Landlord from time to time. Specifically, and
not by way of limitation of the foregoing, Guarantor agrees that:
(a) It shall not collect sums due under any such stock, interests,
debts, rights or claims or commence any proceedings to collect
such sums unless and until all of Tenant's indebtedness is paid in
full;
(b) It shall not cause or allow any new shares of Tenant's stock or
other interests in Tenant to be issued or allow any delivery of
such shares; and
(c) It shall enter into such further subordinations as Landlord may
reasonably require.
AS A FURTHER inducement to Landlord to make and enter into the Lease
and in consideration thereof, Guarantor covenants and agrees that in any action
or proceeding brought on, under or by virtue of this Guaranty (a) Guarantor
hereby waives trial by jury, (b) Guarantor
E-2
<PAGE> 35
agrees that any such action or proceeding shall have its venue in Los Angeles
County, California, or the United States District Court having jurisdiction over
Los Angeles County, California, and (c) Guarantor agrees to submit to the
jurisdiction of any court described in clause (b). Guarantor agrees that Tenant
shall act as Guarantor's agent for service of process in any action or
proceeding brought on or under, or by virtue of this Guaranty, and Guarantor and
Tenant agree to take any and all action necessary to appoint Tenant as
Guarantor's agent for service of process.
IF ANY PORTION or application of this Guaranty is invalid,
unenforceable or illegal for any reason, the parties agree that such invalid,
unenforceable or illegal portion or application shall not be deemed to affect
the remainder of this Guaranty.
GUARANTOR'S OBLIGATIONS and liabilities under this Guaranty are
absolute, independent of and regardless of any defenses, counterclaims,
set-offs, cross-claims or other claims which Guarantor may now have or at any
time hereafter have against Tenant or Landlord or any other person, firm,
corporation for any reason whatsoever. Guarantor further agrees that any such
defenses, counterclaims, set-offs, cross-claims or other claims which Guarantor
may have now, or at any time hereafter have, shall not be enforceable in any
independent action which would interfere with or in any way reduce the
obligations owed by Guarantor under this Guaranty. Guarantor unconditionally
waives: (a) any right to assert or claim that Guarantor is exonerated by any
action taken by Landlord which impairs Guarantor's rights to be subrogated to
Landlord's rights against Tenant; (b) the right to enforce any remedies that
Landlord now has, or later may have, against Tenant until such time as all
indebtedness of Tenant (relative to Landlord) has been satisfied; (c) any right
to participate in, proceed against, or exhaust any security now or later held by
Landlord; (d) all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance of this Guaranty; (e) all notices of the existence, creation or
incurrence of new or additional obligations under the Lease; (f) any duty of
Landlord to advise Guarantor of any information known to Landlord regarding the
financial condition of Tenant; (h) the right to proceed against Tenant or pursue
any particular remedy in Landlord's power; and (i) any defense by reason of any
disability of Tenant and any other defense based upon the termination of
Tenant's ability to perform under the Lease from any cause. Guarantor expressly
waives the provisions of Sections 2810, 2819, 2845, 2848 and 2850 of the Civil
Code of California, as recodified from time to time, except to the extent such
rights of Guarantor or obligations of Landlord are otherwise expressly addressed
in this Guaranty.
THE PROVISIONS of the Lease may be altered, affected, modified,
amended, or changed by agreement between Landlord and Tenant at any time, or by
course of conduct, without the consent of or without notice to Guarantor,
including, without limitation, any extension of the Term pursuant to the Lease
or otherwise. This Guaranty shall guaranty the performance, by Tenant and its
successors and assigns, of the Lease as so altered, affected, modified, amended
or changed. An assignment of the Lease or a sublease of all or any portion of
the Premises (whether or not in compliance with the Lease) shall not affect this
Guaranty or Guarantor's liability and obligations hereunder. If Landlord
disposes of, sells, transfers, assigns, hypothecates or otherwise conveys its
interest in the Lease, or any part thereof, "LANDLORD" as used in this Guaranty,
shall mean Landlord's successor. In the event of any assignment or sublease (as
permitted under the Lease) of all or any portion of Tenant's interest in the
Lease or to the Premises, "TENANT" as used in this Guaranty shall mean Tenant's
successor. The word "SUCCESSOR" is used herein in its most comprehensive sense
and includes any assignee, transferee, personal representative, heir or other
person or entity succeeding lawfully, and pursuant to the provisions of the
Lease to the respective rights or obligations of either party.
IN THE EVENT of the rejection or disaffirmance of the Lease by Tenant
or Tenant's Trustee in Bankruptcy pursuant to applicable bankruptcy law or any
other Law affecting creditors' rights, Guarantor will and does hereby (without
the necessity of any further agreement or act) assume all obligations and
liabilities of Tenant under the Lease as if (a) Guarantor were originally named
Tenant under said Lease and (b) there has been no rejection or disaffirmance.
Guarantor will confirm such assumption in writing at the request of Landlord
upon or after such rejection or disaffirmance, and Guarantor shall upon such
assumption (to the extent permitted by Law) have all the rights of Tenant under
the Lease.
IN THE EVENT of any legal action or proceeding brought by Landlord
against Guarantor or Tenant arising out of the Lease or this Guaranty, Landlord
shall be entitled to recover its reasonable attorneys' fees and costs incurred
in such action. Such amount shall be included in any judgment rendered in any
action or proceeding.
E-3
<PAGE> 36
IN WITNESS WHEREOF, Guarantor acting herein in its own personal and
individual capacity has executed this Guaranty this _____ day of __________,
199___.
WITNESS: GUARANTOR:
_____________________________ Christopher Edgecomb
Name
____________________________ ________________________________________
Address Address
________________________________________
Telephone Number
________________________________________
Fax Number
________________________________________
Social Security Number
________________________________________
Driver's License Number and
State of Issuance
E-4
<PAGE> 37
THIS PAGE MUST BE KEPT AS THE LAST PAGE OF THE DOCUMENT.
E-5
<PAGE> 38
FIRST AMENDMENT TO LEASE
THIS FIRST AMENDMENT TO LEASE ("First Amendment") is effective as of
June 28, 1996, by and between WHUB REAL ESTATE LIMITED PARTNERSHIP, a Delaware
limited partnership ("Landlord"), and STAR VENDING, INC., a Nevada corporation
("Tenant").
RECITALS
A. ORIGINAL LEASE. Pursuant to that certain Office Lease dated
June 28, 1996 (the "Original Lease"), Landlord leased to Tenant certain premises
consisting of approximately 2,332 rentable square feet in Suite 202 of the De La
Guerra Building (the "Building"), located at 740 State Street, Santa Barbara,
California, 93101 (the "Premises").
B. LEASE. The Original Lease, as amended by this First
Amendment, is referred to herein as the "Lease."
C. PURPOSE. Landlord and Tenant desire to amend the Original
Lease as set forth herein.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, Landlord and Tenant hereby agree that
the Original Lease shall be amended as follows:
1. PREMISES. Item 2 of the Basic Lease Provisions of the Original Lease
is hereby amended by the addition of the following:
The Premises covered by this Lease is shown cross-hatched on
Exhibit "A" attached hereto.
2. TENANT'S PROPORTIONATE SHARE. Item 3 of the Basic Lease Provisions
of the Original Lease is hereby deleted in its entirety and the following is
substituted in its place:
Tenant's Proportionate Share of Operating Costs: 10.6% (See
Section 2.2).
3. BASE OPERATING COSTS. Item 7 of the Basic Lease Provisions of the
Original Lease is hereby deleted in its entirety.
4. COMMENCEMENT DATE. Item 9 of the Basic Lease Provisions of the
Original Lease is hereby deleted in its entirety and the following is
substituted in its place:
COMMENCEMENT DATE: The later of August 1, 1996, or the date that
certain Triple Net Real Property Lease dated May 26, 1993, by and
between DLG, L.P., a California limited partnership, predecessor in
interest to WHUB Real Estate Limited Partnership, a Delaware limited
partnership, as Landlord, and Blockbuster Music Holding Corporation,
a Delaware corporation, as Tenant, is terminated.
5. GUARANTY. Item 13 of the Basic Lease Provisions of the Original
Lease, and Exhibit "E" ("Guaranty") to the Original Lease are hereby deleted in
their entirety.
6. OPERATING COSTS. Section 2.2(a) through Section 2.2(f) inclusive of
the Original Lease are hereby deleted in their entirety and the following is
substituted in their place:
1
<PAGE> 39
2.2 OPERATING COSTS.
(a) Tenant agrees to pay to Landlord, as additional
rent ("Additional Rent") for the Premises, throughout the
Term, without deduction or setoff, Tenant's Proportionate
Share of Operating Costs (as defined below). "TENANT'S
PROPORTIONATE SHARE" is, subject to the provisions of this
Section 2.2, the percentage number described in Item 3 of the
Basic Lease Provisions. Tenant's Proportionate Share
represents a fraction, the numerator of which is the number of
square feet of rentable area in the Premises specified in Item
2 of the Basic Lease Provisions and the denominator of which
is the number of square feet of rentable area in the Project
as reasonably determined by Landlord.
(b) "OPERATING COSTS" means all costs, expenses and
obligations incurred or payable by Landlord because of or in
connection with the operation, ownership, repair, replacement,
restoration, management or maintenance of the Project during
or allocable to any calendar year during the term of this
Lease, all as determined by sound accounting principles
selected by Landlord, consistently applied, including without
limitation the following:
(i) All real property taxes, assessments,
charges or impositions and other similar governmental ad
valorem or other charges levied on or attributable to the
Project or its ownership, operation or transfer, and all
taxes, charges, assessments or similar impositions imposed in
lieu or substitution (partially or totally) of the same
(collectively, "REAL ESTATE TAXES"). "REAL ESTATE TAXES" shall
also include all taxes, assessments, levies, charges or
impositions (A) on any interest of Landlord or any mortgagee
of Landlord in the Project, the Premises or in this Lease, or
on the occupancy or use of space in the Project or the
Premises; (B) on the gross or net rentals or income from the
Project, including, without limitation, any gross income tax,
excise tax, sales tax or gross receipts tax levied by any
federal, state or local governmental entity with respect to
the receipt of Rent; or (C) any possessory taxes charged or
levied in lieu of real estate taxes; and
(ii) The cost of all utilities, supplies,
equipment, tools, materials, service contracts, janitorial
services, waste and refuse disposal, landscaping, and
insurance (with the nature and extent of such insurance to be
carried by Landlord to be determined by Landlord in its sole
and absolute discretion), compensation and other fringe
benefits of all persons who perform services connected with
the operation, maintenance or repair of the Project (provided,
however, that if any of such persons provide services for more
than one building of Landlord, only the prorated portion of
those persons' wages, salaries, other compensation, benefits,
and taxes reflecting the percentage of their monthly time
devoted to the Project shall be included in Operating Costs),
personal property, taxes on and maintenance and repair of
equipment and other personal property, costs incurred for
administration and management of the Project, whether by
Landlord or by an independent contractor, and other management
office operational expenses (including, without limitation, a
management fee), rental expenses for or a reasonable allowance
for depreciation of, personal property used in the operation,
maintenance or repair of the Project, license, permit and
inspection fees, and all inspections, activities, alterations
and improvements or other matters required by any governmental
or quasi-governmental authority or by applicable law, for any
reason, including, without limitation, capital improvements,
whether capitalized or not, all capital improvements made to
the Project or any portion thereof by Landlord (A) of a
personal property nature and related to the operation, repair,
maintenance or replacement of systems, facilities, equipment
or components of, or which service the Project or portions
thereof, (B) required or provided in connection with any law,
ordinance, rule or
2
<PAGE> 40
regulation (not required when building permits for the
Building were obtained), (C) which are designed to improve the
operating efficiency of the Project, or (D) determined by
Landlord to be required to keep pace or be consistent with
safety or health advances or improvements (with such capital
costs to be amortized over such periods as Landlord shall
determine with a return on capital at such rate as would have
been paid by Landlord on funds borrowed for the purpose of
constructing such capital improvements), common area repair,
resurfacing, replacement operation and maintenance, security
services, if any, deemed appropriate by Landlord, and any
other cost or expense incurred or payable by Landlord in
connection with the operation, ownership, repair, replacement,
restoration, management or maintenance of the Project.
(c) Operating Costs for any calendar year during
which actual occupancy of the Project is less than ninety-five
percent (95%) of the rentable area of the Project shall be
appropriately adjusted, in accordance with sound accounting
principles, to reflect ninety-five (95%) occupancy of the
existing rentable area of the Project during such period.
(d) At Landlord's election, Tenant's Proportionate
Share of the Operating Costs shall be estimated by Landlord
prior to or during each calendar year. Such estimates shall be
paid by Tenant in advance, on the first day of each and every
calendar month throughout such calendar year. Within a
reasonable period following expiration of each such calendar
year (but not later than 180 days), Landlord shall calculate
the exact amount of Tenant's Proportionate Share of Operating
Costs and Landlord shall notify Tenant of the same. Any
deficiencies in the payments made by Tenant shall be paid by
Tenant to Landlord within ten (10) days of receipt of
Landlord's demand therefor. Any surplus paid by Tenant during
the preceding calendar year shall be applied against the next
monthly installments of Additional Rent due from Tenant. Any
delay or failure of Landlord in delivering any estimate or
statement described in this Section 2.2(d) or in computing or
billing Tenant's Proportionate Share of Operating Costs shall
not constitute a waiver of Landlord's right to require an
increase in rent as provided herein or in any way impair the
continuing obligations of Tenant under this Lease.
(e) Tenant shall pay, when due and before any
delinquency (to the assessing authority, if directly assessed
against Tenant, or to Landlord, if assessed against Landlord
or the Project within ten (10) days of Landlord's demand), (i)
all taxes and assessments levied against any personal property
or trade fixtures of Tenant in or about the Premises; (ii) any
sales, use excise tax or other tax imposed, assessed or levied
in connection with Tenant's payment of rent hereunder.
7. LANDLORD'S OBLIGATIONS. Section 5.1 through Section 5.3, inclusive
of the Original Lease are hereby deleted in their entirety and the following is
substituted in their place:
5.1 SERVICES. Landlord shall provide electrical, water, sewer
and gas service (if available) to the Premises. Tenant shall
duly and promptly pay to the supplier thereof all bills for
utilities consumed in the Premises measured by a separate
meter for the Premises. If Tenant shall use any utility
service for any purpose in the Premises which is or can be
measured by a separate meter for the Premises and Landlord
shall elect to supply that service, Tenant shall accept and
use the same and pay Landlord as Additional Rent for such
service within ten (10) days of the presentation of a bill by
Landlord to Tenant. Notwithstanding anything to the contrary
provided in this Section 5, Tenant acknowledges that water
service to the Project may be measured by a master meter and
that Tenant's charges for service may be allocated by
Landlord, at Landlord's option,
3
<PAGE> 41
either (i) as a percentage of the total square feet of gross
leasable area of all tenants in the Project provided water
service; (ii) based upon readings taken from a water sub-meter
for the Premises, if Landlord elects to install a sub-meter;
or (iii) on such other basis as Landlord shall reasonably
determine; provided, however, that in all cases where Tenant's
use of water service is disproportionately high in relation to
the gross leasable area of the Premises, Landlord shall have
the right to specially allocate to Tenant such portion of the
Project's water service charges as Landlord shall in good
faith determine.
5.2 EXCESS UTILITY USE. Landlord shall not be liable for, and
Tenant shall not be entitled to any abatement in rent by
reason of, any interruption or failure in the supply of
utilities. Tenant shall not install any equipment which
exceeds or overloads the capacity of the utility facilities
serving the Premises, and that if equipment installed by
Tenant requires additional utility facilities, installation of
the same shall be at Tenant's expense, but only after
Landlord's written approval of the same.
8. FULL FORCE AND EFFECT. Except as provided in this First Amendment,
the Original Lease shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this First
Amendment effective as of the date first written above.
LANDLORD: TENANT:
WHUB REAL ESTATE LIMITED STAR VENDING, INC.,
PARTNERSHIP, a Delaware limited a Nevada corporation
partnership
By: JER WHUB SERVICES, INC.,
a Virginia corporation,
its Managing General partner By:_____________________________________
Mary Casey
President
By:_______________________________
Jonathan Grossman
Vice President
4
<PAGE> 1
Exhibit 10.14
==================================================================
STANDARD FORM OF OFFICE LEASE The Real
Estate Board of New York, Inc.
==================================================================
Agreement of Lease, made as of this 28th day of February 1996, between HUDSON
TELEGRAPH ASSOCIATES, a New York limited partnership, having an address c/o
Williams Real Estate Co. Inc., 530 Fifth Avenue, New York, NY 10036 ("Owner" or
"Landlord") and STAR VENDING, INC. (doing business as Star Telecommunications,
Inc.), a Nevada corporation, having an address at 740 State Street, Santa
Barbara, CA 93101 ("Tenant").
WITNESSETH: Owner hereby leases to Tenant and Tenant hereby hires from Owner a
portion of the twelfth (12th) floor as shown hatched on Exhibit A annexed hereto
(the "premises" or "demised premises") in the building known as 60 Hudson Street
(the "Building"), in the Borough of Manhattan, City of New York, for the term
(the "Term") of approximately ten (10) years and two (2) months, to commence on
the date hereof (the "Commencement Date") and to expire on April 30, 2006 (the
"Expiration Date") (or until such Term shall cease and expire as hereinafter
provided), at the fixed annual rental rate (the "Fixed Rent") of $166,362 per
annum, subject to adjustment as hereinafter provided,
which Tenant agrees to pay in lawful money of the United States which shall be
legal tender in payment of all debts and dues, public and private, at the time
of payment, in equal monthly installments in advance on the first day of each
month during said term, at the office of Owner or such other place as Owner may
designate, without any set off or deduction whatsoever, except that Tenant shall
pay the first ____ monthly installment(s) on the execution hereof (unless this
lease be a renewal).
In the event that, at the commencement of the term of this lease, or
thereafter, Tenant shall be in default in the payment of rent to Owner pursuant
to the terms of another lease with Owner or with Owner's predecessor in
interest, Owner may at Owner's option and without notice to Tenant add the
amount of such arrears to any monthly installment of rent payable hereunder and
the same shall be payable to Owner as additional rent.
The parties hereto, for themselves, their heirs, distributees,
executors, administrators, legal representatives, successors and assigns, hereby
covenant as follows:
RENT:
1. Tenant shall pay the rent as above and as hereinafter provided.
OCCUPANCY:
2. Tenant shall use and occupy the demised premises for general office purposes,
and, to the extent permitted by the certificate of occupancy for the Building,
for the installation, operation and maintenance of equipment and facilities in
connection with Tenant's telecommunications business, and for no other purpose.
<PAGE> 2
Tenant Alterations:
3. Tenant shall make no changes in or to the demised premises of any nature
without Owner's prior written consent. Subject to prior written consent of
Owner, and to the provisions of this article, Tenant, at Tenant's expense, may
make alterations, installations, additions or improvements which are
non-structural and which do not affect utility services or plumbing and
electrical lines, in or to the interior of the demised premises by using
contractors or mechanics first approved in each instance by Owner. Tenant shall,
before making any alterations, additions, installations or improvements, at its
expense, obtain all permits, approvals and certificates required by any
governmental or quasi-governmental bodies and (upon completion) certificates of
final approval thereof and shall deliver promptly duplicates of all such
permits, approvals and certificates to Owner and Tenant agrees to carry and will
cause Tenant's contractors and sub-contractors to carry such workman's
compensation, general liability, personal and property damage insurance as Owner
may require. If any mechanic's lien is filed against the demised premises, or
the building of which the same forms a part, for work claimed to have been done
for, or materials furnished to, Tenant, whether or not done pursuant to this
article, the same shall be discharged by Tenant within thirty days thereafter,
at Tenant's expense, by payment or filing the bond required by law. All fixtures
and all paneling, partitions, railings and like installations, installed in the
premises at any time, either by Tenant or by Owner on Tenant's behalf, shall,
upon installation, become the property of Owner and shall remain upon and be
surrendered with the demised premises unless Owner, by notice to Tenant no later
than twenty days prior to the date fixed as the termination of this lease,
elects to relinquish Owner's right thereto and to have them removed by Tenant,
in which event the same shall be removed from the premises by Tenant prior to
the expiration of the lease, at Tenant's expense. Nothing in this Article shall
be construed to give Owner title to or to prevent Tenant's removal of trade
fixtures, moveable office furniture and equipment, but upon removal of any such
from the premises or upon removal of other installations as may be required by
Owner, Tenant shall immediately and at its expense, repair and restore the
premises to the condition existing prior to installation and repair any damage
to the demised premises or the building due to such removal. All property
permitted or required to be removed, by Tenant at the end of the term remaining
in the premises after Tenant's removal shall be deemed abandoned and may, at the
election of Owner, either be retained as Owner's property or may be removed from
the premises by Owner, at Tenant's expense.
Maintenance and Repairs:
4. Tenant shall, throughout the term of this lease, take good care of the
demised premises and the fixtures and appurtenances therein. Tenant shall be
responsible for all damage or injury to the demised premises or any other part
of the building and the systems and equipment thereof, whether requiring
structural or nonstructural repairs caused by or resulting from carelessness,
omission, neglect or improper conduct of Tenant, Tenant's subtenants, agents,
employees, invitees or licensees, or which arise out of any work, labor, service
or equipment done for or supplied to Tenant or any subtenant or arising out of
the installation, use or operation of the property or equipment of Tenant or any
subtenant. Tenant shall also repair all damage to the building and the demised
premises caused by the moving of Tenant's fixtures, furniture and equipment.
Tenant shall promptly make, at Tenant expense, all repairs in and to the demised
premises for which Tenant is responsible, using only the contractor for the
trade or trades in question, selected from a list of at least two contractors
per trade submitted by Owner. Any other repairs in or to the building or the
facilities and systems thereof for which Tenant is responsible shall be
performed by Owner at the Tenant's expense. Owner shall maintain in good working
order and repair the exterior and the structural portions of the building,
including the structural portions of its demised premises, and the public
portions of the building interior and the building plumbing, electrical, heating
and ventilating systems (to the extent such systems presently exist) serving the
demised premises. Tenant agrees to give prompt notice of any defective condition
in the premises for which Owner may be responsible hereunder. There shall be no
allowance to Tenant for diminution of rental value and no liability on the part
of Owner by reason of inconvenience, annoyance or injury to business arising
from Owner or others making repairs, alterations, additions or improvements in
or to any portion of the building or the demised premises or in and to the
fixtures, appurtenances or equipment thereof. It is specifically agreed that
Tenant shall not be entitled to any setoff or reduction of rent by reason of any
failure of Owner to comply with the covenants of this or any other article of
this Lease. Tenant agrees that Tenant's sole remedy at law in such instance will
be by way of an action for damages for breach of contract. The provisions of
this Article 4 shall not apply in the case of fire or other casualty which are
dealt with in Article 9 hereof.
Window Cleaning:
5. Tenant will not clean nor require, permit, suffer or allow any window in the
demised premises to be cleaned from the outside in violation of Section 202 of
the Labor Law or any other applicable law or of the Rules of the
<PAGE> 3
Board of Standards and Appeals, or of any other Board or body having or
asserting jurisdiction.
Requirements of Law, Fire Insurance, Floor Loads:
6. Prior to the commencement of the lease term, if Tenant is then in possession,
and at all times thereafter, Tenant, at Tenant's sole cost and expense, shall
promptly comply with all present and future laws, orders and regulations of all
state, federal, municipal and local governments, departments, commissions and
boards and any direction of any public officer pursuant to law, and all orders,
rules and regulations of the New York Board of Fire Underwriters, Insurance
Services Office, or any similar body which shall impose any violation, order or
duty upon Owner or Tenant with respect to the demised premises, whether or not
arising out of Tenant's use or manner of use thereof, (including Tenant's
permitted use) or, with respect to the building if arising out of Tenant's use
or manner of use of the premises or the building (including the use permitted
under the lease). Nothing herein shall require Tenant to make structural repairs
or alterations unless Tenant has by its manner of use of the demised premises or
method of operation therein, violated any such laws, ordinances, orders, rules,
regulations or requirements with respect thereto. Tenant may, after securing
Owner to Owner's satisfactions against all damages, interest, penalties and
expenses, including, but not limited to, reasonable attorney's fees, by cash
deposit or by safety bond in an amount and in a company satisfactory to Owner,
contest and appeal any such laws, ordinances, orders, rules, regulations or
requirements provided same is done with all reasonable promptness and provided
such appeal shall not subject Owner to prosecution for a criminal offense or
constitute a default under any lease or mortgage under which Owner may be
obligated, or cause the demised premises or any part thereof to be condemned or
vacated. Tenant shall not do or permit any act or thing to be done in or to the
demised premises which is contrary to law, or which will invalidate or be in
conflict with public liability, fire or other policies of insurance at any time
carried by or for the benefit of Owner with respect to the demised premises or
the building of which the demised premises form a part, or which shall or might
subject Owner to any liability or responsibility to any person or for property
damage. Tenant shall not keep anything in the demised premises except as now or
hereafter permitted by the Fire Department, Board of Fire Underwriters, Fire
Insurance Rating Organization or other authority having jurisdiction, and then
only in such manner and such quantity so as not to increase the rate for fire
insurance applicable to the building, nor use the premises in a manner which
will increase the insurance rate for the building or any property located
therein over that in effect prior to the commencement of Tenant's occupancy.
Tenant shall pay all costs, expenses, fines, penalties, or damages, which may be
imposed upon Owner by reason of Tenant's failure to comply with the provisions
of this article and if by reason of such failure the fire insurance rate shall,
at the beginning of this lease or at any time thereafter, be higher than it
otherwise would be, then Tenant shall reimburse Owner, as additional rent
hereunder, for that portion of all fire insurance premiums thereafter paid by
Owner which shall have been charged because of such failure by Tenant. In any
action or proceeding wherein Owner and Tenant are parties, a schedule or
"make-up" of rate for the building or demised premises issued by the New York
Fire Insurance Exchange, or other body making fire insurance rates applicable to
said premises shall be conclusive evidence of the facts therein stated and of
the several items and charges in the fire insurance rates then applicable to
said premises. Tenant shall not place a load upon any floor of the demised
premises exceeding the floor load per square foot area which it was designed to
carry and which is allowed by law. Owner reserves the right to prescribe the
weight and position of all safes, business machines and mechanical equipment.
Such installations shall be placed and maintained by Tenant, at Tenant's
expense, in settings sufficient, in Owner's judgement, to absorb and prevent
vibration, noise and annoyance.
Subordination:
7. This lease is subject and subordinate to all ground or underlying leases and
to all mortgages which may now or hereafter affect such leases or the real
property of which demised premises are a part and to all renewals,
modifications, consolidations, replacements and extensions of any such
underlying leases and mortgages. This clause shall be self-operative and no
further instrument of subordination shall be required by any ground or
underlying lessor or by any mortgagee, affecting any lease or the real property
of which the demised premises are a part. In confirmation of such subordination,
Tenant shall from time to time execute promptly any certificate that Owner may
request.
Property Loss, Damage Reimbursement Indemnity:
8. Owner or its agents shall not be liable for any damage to property of Tenant
or of others entrusted to employees of the building, nor for loss of or damage
to any property of Tenant by theft or otherwise, nor for any injury or damage to
persons or property resulting from any cause of whatsoever nature, unless caused
by or due to the negligence of Owner, its agents, servants or employees. Owner
or its agents will not be liable for any such
<PAGE> 4
damage caused by other tenants or persons in, upon or about said building or
caused by operations in construction of any private, public or quasi public
work. If at any time any windows of the demised premises are temporarily closed,
darkened or bricked up (or permanently closed, darkened or bricked up, if
required by law) for any reason whatsoever including, but not limited to Owner's
own acts, Owner shall not be liable for any damage Tenant may sustain thereby
and Tenant shall not be entitled to any compensation therefor nor abatement or
diminution of rent nor shall the same release Tenant from its obligations
hereunder nor constitute an eviction. Tenant shall indemnify and save harmless
Owner against and from all liabilities, obligations, damages, penalties, claims,
costs and expenses for which Owner shall not be reimbursed by insurance,
including reasonable attorneys fees, paid, suffered or incurred as a result of
any breach by Tenant, Tenant's agents, contractors, employees, invitees, or
licensees, of any covenant or condition of this lease, or the carelessness,
negligence or improper conduct of the Tenant, Tenant's agents, contractors,
employees, invitees or licensees. Tenant's liability under this lease extends to
the acts and omissions of any sub-tenant , and any agent, contractor, employee,
invitee or licensee of any sub-tenant. In case any action or proceeding is
brought against Owner by reason of any such claim, Tenant, upon written notice
from Owner, will, at Tenant's expense, resist or defend such action or
proceeding by counsel approved by Owner in writing, such approval not be
unreasonably withheld.
Destruction, Fire and Other Casualty:
9. (a) If the demised premises or any part thereof shall be damaged by fire or
other casualty, Tenant shall give immediate notice thereof to Owner and this
lease shall continue in full force and effect except as hereinafter set forth.
(b) If the demised premises are partially damaged or rendered partially unusable
by fire or other casualty, the damages thereto shall be repaired by and at the
expense of Owner and the rent and other items of additional rent, until such
repair shall be substantially completed, shall be apportioned from the day
following the casualty according to the part of the premises which is usable.
(c) If the demised premises are totally damaged or rendered wholly unusable by
fire or other casualty, then the rent and other items of additional rent as
hereinafter expressly provided shall be proportionately paid up to the time of
the casualty and thenceforth shall cease until the date when the premises shall
have been repaired and restored by Owner (or sooner reoccupied in part by Tenant
then rent shall be apportioned as provided in subsection (b) above), subject to
Owner's right to elect not to restore the same as hereinafter provided. (d) If
the demised premises are rendered wholly unusable or (whether or not the demised
premises are damaged in whole or in part) if the building shall be so damaged
that Owner shall decide to demolish it or to rebuild it, then, in any of such
events, Owner may elect to terminate this lease by written notice to Tenant,
given within 90 days after such fire or casualty, or 30 days after adjustment of
the insurance claim for such fire or casualty, whichever is sooner, specifying a
date for the expiration of the lease, which date shall not be more than 60 days
after the giving of such notice, and upon the date specified in such notice the
term of this lease shall expire as fully and completely as if such date were the
date set forth above for the termination of this lease and Tenant shall
forthwith quit, surrender and vacate the premises without prejudice however, to
Landlord's rights and remedies against Tenant under the lease provisions in
effect prior to such termination, and any rent owing shall be paid up to such
date and any payments of rent made by Tenant which were on account of any period
subsequent to such date shall be returned to Tenant. Unless Owner shall serve a
termination noticed as provided for herein, Owner shall make the repairs and
restorations under the conditions of (b) and (c) hereof, with all reasonable
expedition, subject to delays due to adjustment of insurance claims, labor
troubles and causes beyond Owner's control. After any such casualty, Tenant
shall cooperate with Owner's restoration by removing from the premises as
promptly as reasonably possible, all of Tenant's salvageable inventory and
moveable equipment, furniture, and other property. Tenant's liability for rent
shall resume five (5) days after written notice from Owner that the premises are
substantially ready for Tenant's occupancy. (e) Nothing contained hereinabove
shall relieve Tenant from liability that may exist as a result of damage from
fire or other casualty. Notwithstanding the foregoing, including Owner's
obligation to restore under subparagraph (b) above, each party shall look first
to any insurance in its favor before making any claim against the other party
for recovery for loss or damage resulting from fire or other casualty, and to
the extent that such insurance is in force and collectible and to the extent
permitted by law, Owner and Tenant each hereby releases and waives all right of
recovery with respect to subparagraphs (b), (d), and (e) above, against the
other or any one claiming through or under each of them by way of subrogation or
otherwise. The release and waiver herein referred to shall be deemed to include
any loss or damage to the demised premises and/or to any personal property,
equipment, trade fixtures, goods and merchandise located therein. The foregoing
release and waiver shall be in force only if both releasors' insurance policies
contain a clause providing that such a release or waiver shall not invalidate
the insurance. If, and to the extent, that such waiver can be obtained only by
the payment of additional premiums,
<PAGE> 5
then the party benefiting from the waiver shall pay such premium within ten days
after written demand or shall be deemed to have agreed that the party obtaining
insurance coverage shall be free of any further obligation under the provisions
hereof with respect to waiver of subrogation. Tenant acknowledges that Owner
will not carry insurance on Tenant's furniture and/or furnishings or any
fixtures or equipment, improvements, or appurtenances removable by Tenant and
agrees that Owner will not be obligated to repair any damage thereto or replace
the same. (f) Tenant hereby waives the provisions of Section 227 of the Real
Property Law and agrees that the provisions of this article shall govern and
control in lieu thereof.
Eminent Domain:
10. If the whole or any part of the demised premises shall be acquired or
condemned by Eminent Domain for any public or quasi public use or purpose, then
and in that event, the term of this lease shall cease and terminate from the
date of title vesting in such proceeding and Tenant shall have no claim for the
value of any unexpired term of said lease and assigns to Owner, Tenant's entire
interest in any such award. Tenant shall have the right to make an independent
claim to the condemning authority for the value of Tenant's moving expenses and
personal property, trade fixtures and equipment, provided Tenant is entitled
pursuant to the terms of the lease to remove such property, trade fixture and
equipment at the end of the term and provided further such claim does not reduce
Owner's award.
Assignment, Mortgage, Etc.:
11. Tenant, for itself, its heirs, distributees, executors, administrators,
legal representative, successor and assigns, expressly covenants that it shall
not assign, mortgage or encumber this agreement, nor underlet, or suffer or
permit the demised premises or any part thereof to be used by others, without
the prior written consent of Owner in each instance. Transfer of the majority of
the stock of a corporate Tenant or the majority partnership interest of a
partnership Tenant shall be deemed an assignment. If this lease be assigned, or
if the demised premises or any part thereof be underlet or occupied by anybody
other than Tenant, Owner may, after default by Tenant, collect rent from the
assignee, under-tenant or occupant, and apply the net amount collected to the
rent herein reserved, but no such assignment, underletting, occupancy or
collection shall be deemed a waiver of this covenant, or the acceptance of the
assignee, under-tenant or occupant as tenant, or a release of Tenant from the
further performance by Tenant of covenants on the part of Tenant herein
contained. The consent by Owner to an assignment or underletting shall not in
any wise be construed to relieve Tenant from obtaining the express consent in
writing of Owner to any further assignment or underletting.
Electric Current:
[GRAPHIC]
12. Rates and conditions in respect to submetering or rent inclusion, as the
case may be, to be added in RIDER attached hereto. Tenant covenants and agrees
that at all times its use of electric current shall not exceed the capacity of
existing feeders to the building or the risers or wiring installation and Tenant
may not use any electrical equipment which, in Owner's opinion, reasonably
exercised, will overload such installations or interfere with the use thereof by
other tenants of the building. The change at any time of the character of
electric service shall in no wise make Owner liable or responsible to Tenant,
for any loss, damages or expenses which Tenant may sustain.
Access to Premises:
13. Owner to Owner's agents shall have the right (but shall not be obligated) to
enter the demised premises in any emergency at any time, and, at other
reasonable times, to examine the same and to make such repairs, replacements and
improvements as Owner may deem necessary and reasonably desirable to the demised
premises or to any other portion of the building or which Owner may elect to
perform. Tenant shall permit Owner to use and maintain and replace pipes and
conduits in and through the demised premises and to erect new pipes and conduits
therein provided they are concealed within the walls, floor, or ceiling. Owner
may, during the progress of any work in the demised premises, take all necessary
materials and equipment into said premises without the same constituting an
eviction nor shall the Tenant be entitled to any abatement of rent while such
work is in progress nor to any damages by reason of loss or interruption of
business or otherwise. Throughout the term hereof Owner shall have the right to
enter the demised premises at reasonable hours for the purpose of showing the
same to prospective purchasers or mortgagees of the building, and during the
last six months of the term for the purpose of showing the same to prospective
_______. If Tenant is not present to open and permit an entry into the demised
premises, Owner or Owner's agent may enter the same whenever such entry may be
necessary or permissible by master key or forcibly and provided reasonable care
is exercised to safeguard Tenant's property, such entry shall not render Owner
or its agents liable therefor, nor in any event shall the obligations of Tenant
hereunder be affected. If during the last month of the term Tenant shall have
removed all
- ----------
[GRAPHIC] Rider to be added if necessary.
<PAGE> 6
or substantially all of Tenant's property therefrom Owner may immediately enter,
alter, renovate or redecorate the demised premises without limitation or
abatement of rent, or incurring liability to Tenant for any compensation and
such act shall have no effect on this lease or Tenant's obligations hereunder.
Vault, Vault Space, Area:
14. No Vaults, vault space or area, whether or not enclosed or covered, not
within the property line of the building is leased hereunder, anything contained
in or indicated on any sketch, blue print or plan, or anything contained
elsewhere in this lease to the contrary notwithstanding. Owner makes no
representation as to the location of the property line of the building. All
vaults and vault space and all such areas not within the property line of the
building, which Tenant may be permitted to use and/or occupy, is to be used
and/or occupied under a revocable license, and if any such license be revoked,
or if the amount of such space or area be diminished or required by any federal,
state or municipal authority or public utility, Owner shall not be subject to
any liability nor shall Tenant be entitled to any compensation or diminution or
abatement of rent, nor shall such revocation, diminution or requisition be
deemed constructive or actual eviction. Any tax, fee or charge of municipal
authorities for such vault or area shall be paid by Tenant.
Occupancy:
15. Tenant will not at any time use or occupy the demised premises in violation
of the certificate of occupancy issued for the building of which the demised
premises are a part. Tenant has inspected the premises and accepts them as is,
subject to the riders annexed hereto with respect to Owner's work, if any. In
any event, Owner makes no representation as to the condition of the premises and
Tenant agrees to accept the same subject to violations, whether or not of
record.
Bankruptcy:
16. (a) Anything elsewhere in this lease to the contrary notwithstanding, this
lease may be cancelled by Owner by the sending of a written notice to Tenant
within a reasonable time after the happening of any one or more of the following
events: (1) the commencement of a case in bankruptcy or under the laws of any
state naming Tenant as the debtor; or (2) the making by Tenant of an assignment
or any other arrangement for the benefit of creditors under any state statute.
Neither Tenant nor any person claiming through or under Tenant, or by reason of
any statute or order of court, shall thereafter be entitled to possession of the
premises demised but shall forthwith quit and surrender the premises. If this
lease shall be assigned in accordance with its terms, the provisions of this
Article 16 shall be applicable only to the party then owning Tenant's interest
in this lease.
(b) it is stipulated and agreed that in the event of the termination of
this lease pursuant to (a) hereof, Owner shall forthwith, notwithstanding any
other provisions of this lease to the contrary, be entitled to recover from
Tenant as and for liquidated damages an amount equal to the difference between
the rent reserved hereunder for the unexpired portion of the term demised and
the fair and reasonable rental value of the demised premises for the same
period. In the computation of such damages the difference between any
installment of rent becoming due hereunder after the date of termination and the
fair and reasonable rental value of the demised premises for the period for
which such installment was payable shall be discounted to the date of
termination at the rate of four percent (4%) per annum. If such premises or any
part thereof be re-let by the Owner for the unexpired term of said lease, or any
part thereof, before presentation of proof of such liquidated damages to any
court, commission or tribunal, the amount of rent reserved upon such re-letting
shall be deemed to be the fair and reasonable rental value for the part or the
whole of the premises so re-let during the term of the re-letting. Nothing
herein contained shall limit or prejudice the right of the Owner to prove for
and obtain as liquidated damages by reason of such termination, an amount equal
to the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, such damages are to be proved, whether
or not such amount be greater, equal to, or less than the amount of the
difference referred to above.
Default:
17. (1) If Tenant defaults in fulfilling any of the covenants of this lease
other than the covenants for the payment of rent or additional rent; or if the
demised premises become vacant or deserted; or if any execution or attachment
shall be issued against Tenant or any of Tenant's property whereupon the demised
premises shall be taken or occupied by someone other than Tenant; or if this
lease be rejected under Section 235 of Title 11 of the U.S. Code (bankruptcy
code); or if Tenant shall fail to move into or take possession of the premises
within thirty (30) days after the commencement of the term of this lease, then,
in any one or more of such events, upon Owner serving a written fifteen (15)
days notice upon Tenant specifying the nature of said default and upon the
expiration of said fifteen (15) days, if Tenant shall have failed to comply with
or remedy such default, or if the said default or omission complained of shall
be of a nature that the same cannot be completely cured or remedied within said
fifteen (15) day period, and if Tenant shall not have
<PAGE> 7
diligently commenced curing such default within such fifteen (15) day period,
and shall not thereafter with reasonable diligence and in good faith, proceed to
remedy or cure such default, then Owner may serve a written five (5) days'
notice of cancellation of this lease upon Tenant, and upon the expiration of
said five (5) days this lease and the term thereunder shall end and expire as
fully and completely as if the expiration of such five (5) day period were the
day herein definitely fixed for the end and expiration of this lease and the
term thereof and Tenant shall then quit and surrender the demised premises to
Owner but Tenant shall remain liable as hereinafter provided.
(2) If the notice provided for in (1) hereof shall have been given, and
the term shall expire as aforesaid; or if Tenant shall make default in the
payment of the rent reserved herein or any item of additional rent herein
mentioned or any part of either or in making any other payment herein required;
then and in any of such events Owner may without notice, re-enter the demised
premises either by force or otherwise, and dispossess Tenant by summary
proceedings or otherwise, and the legal representative of Tenant or other
occupant of demised premises and remove their effects and hold the premises as
if this lease had not been made, and Tenant hereby waives the service of notice
of intention to re-enter or to institute legal proceedings to that end. If
Tenant shall make default hereunder prior to the date fixed as the commencement
of any renewal or extension of this lease, Owner may cancel and terminate such
renewal or extension agreement by written notice.
Remedies of Owner and Waiver of Redemption:
18. In case of any such default, re-entry, expiration and/or dispossess by
summary proceedings or other wise, (a) the rent shall become due thereupon and
be paid up to the time of such re-entry, dispossess and/or expiration, (b) Owner
may re-let the premises or any part or parts thereof, either in the name of
Owner or otherwise, for a term or terms, which may at Owner's option be less
than or exceed the period which would otherwise have constituted the balance of
the term of this lease and may grant concessions or free rent or charge a higher
rental than that in this lease, and/or (c) Tenant or the legal representatives
of Tenant shall also pay Owner as liquidated damages for the failure of Tenant
to observe and perform said Tenant's covenants herein contained, any deficiency
between the rent hereby reserved and/or covenanted to be paid and the net
amount, if any, of the rents collected on account of the lease or leases of the
demised premises for each month of the period which would otherwise have
constituted the balance of the term of this lease. The failure of Owner to
re-let the premises or any part or parts thereof shall not release or affect
Tenant's liability for damages. In computing such liquidated damages there shall
be added to the said deficiency such expenses as Owner may incur in connection
with re-letting such as legal expenses, reasonable attorneys' fees, brokerage,
advertising and for keeping the demised premises in good order or for preparing
the same for re-letting. Any such liquidated damages shall be paid in monthly
installments by Tenant on the rent day specified in this lease and any suit
brought to collect the amount of the deficiency for any month shall not
prejudice in any way the rights of Owner to collect the deficiency for any
subsequent month by a similar proceeding. Owner, in putting the demised premises
in good order or preparing the same for re-rental may, at Owner's option, make
such alterations, repairs, replacements, and/or decorations in the demised
premises as Owner, in Owner's sole judgement, considers advisable and necessary
for the purpose of re-letting the demised premises, and the making of such
alterations, repairs, replacements, and/or decorations shall not operate or be
construed to release Tenant from liability hereunder as aforesaid. Owner shall
in no event be liable in any way whatsoever for failure to re-let the demised
premises, or in the event that the demised premises are re-let, for failure to
collect the rent thereof under such re-letting, and in no event shall Tenant be
entitled to receive any excess, if any, of such net rents collected over the
sums payable by Tenant to Owner hereunder. In the event of a breach or
threatened breach by Tenant of any of the covenants or provisions hereof, Owner
shall have the right of injunction and the right to invoke any remedy allowed at
law or in equity as if re-entry, summary proceedings and other remedies were not
herein provided for. Mention in this lease of any particular remedy, shall not
preclude Owner from any other remedy, in law or in equity. Tenant hereby
expressly waives any and all rights of redemption granted by or under any
present or future laws in the event of Tenant being evicted or dispossessed for
any cause, or in the event of Owner obtaining possession of demised premises, by
reason of the violation by Tenant of any of the covenants and conditions of this
lease, or otherwise.
Fees and Expenses:
19. If Tenant shall default in the observance or performance of any term or
covenant on Tenant's part to be observed or performed under or by virtue of any
of the terms or provisions in any article of this lease, after notice if
required and upon expiration of any applicable grace period if any, (except in
an emergency), then, unless otherwise provided elsewhere in this lease, Owner
may immediately or at any time thereafter and without notice perform the
obligation of Tenant thereunder. If Owner, in connection with the foregoing or
in connection with any
<PAGE> 8
default by Tenant in the covenant to pay rent hereunder, makes any expenditures
or incurs any obligations for the payment of money, including but not limited to
reasonable attorneys' fees, in instituting, prosecuting or defending any action
or proceeding, and prevails in any such action or proceeding then Tenant will
reimburse Owner for such sums so paid or obligations incurred with interest and
costs. The foregoing expenses incurred by reason of Tenant's default shall be
deemed to be additional rent hereunder and shall be paid by Tenant to Owner
within ten (10) days of rendition of any bill or statement to Tenant therefor.
If Tenant's lease term shall have expired at the time of making of such
expenditures or incurring of such obligations, such sums shall be recoverable by
Owner, as damages.
Building Alterations and Management:
20. Owner shall have the right at any time without the same constituting an
eviction and without incurring liability to Tenant therefor to change the
arrangement and/or location of public entrances, passageways, doors, doorways,
corridors, elevators, stairs, toilets or other public parts of the building and
to change the name, number or designation by which the building may be known.
There shall be no allowance to Tenant for diminution of rental value and no
liability on the part of Owner by reason of inconvenience, annoyance or injury
to business arising from Owner or other Tenants making any repairs in the
building or any such alterations, additions and improvements. Furthermore,
Tenant shall not have any claim against Owner by reason of Owner's imposition of
such controls of the manner of access to the building by Tenant's social or
business visitors as the Owner may deem necessary for the security of the
building and its occupants.
No Representations by Owner:
21. Neither Owner nor Owner's agents have made any representations or promises
with respect to the physical condition of the building, the land upon which it
is erected or the demised premises, the rents, leases, expenses of operation or
any other matter or thing affecting or related to the premises except as herein
expressly set forth and no rights, easements or licenses are acquired by Tenant
by implication or otherwise except as expressly set forth in the provisions of
this lease. Tenant has inspected the building and the demised premises and is
thoroughly acquainted with their condition and agrees to take the same "as is"
and acknowledges that the taking of possession of the demised premises by Tenant
shall be conclusive evidence that the said premises and the building of which
the same form a part were in good and satisfactory condition at the time such
possession was so taken, except as to latent defects. All understandings and
agreements heretofore made between the parties hereto are merged in this
contract, which alone fully and completely expresses the agreement between Owner
and Tenant and any executory agreement hereafter made shall be ineffective to
change, modify, discharge or effect an abandonment of in whole or in part,
unless such executory agreement is in writing and signed by the party against
whom enforcement of the change, modification, discharge or abandonment is
sought.
End of Term:
22. Upon the expiration or other termination of the term of this lease, Tenant
shall quit and surrender to Owner the demised premises, broom clean, in good
order and condition, ordinary wear and damages which Tenant is not required to
repair as provided elsewhere in this lease excepted, and Tenant shall remove all
its property. Tenant's obligation to observe or perform this covenant shall
survive the expiration or other termination of this lease. If the last day of
the term of this Lease or any renewal thereof, falls on Sunday, this lease shall
expire at noon on the preceding Saturday unless it be a legal holiday in which
case it shall expire at noon on the preceding business day.
Quiet Enjoyment:
23. Owner covenants and agrees with Tenant that upon paying the rent and
additional rent and observing and performing all the terms, covenants and
conditions, on Tenant's part to be observed and performed, Tenant may peaceably
and quietly enjoy the premises hereby demised, subject, nevertheless, to the
terms and conditions of this lease including, but not limited to, Article 31
hereof and to the ground leases, underlying leases and mortgages hereinbefore
mentioned.
Failure to Give Possession:
24. If Owner is unable to give possession of the demised premises on the date of
the commencement of the term hereof, because of the holding-over or retention of
possession of any tenant, undertenant or occupants or if the demised premises
are located in a building being constructed, because such building has not been
sufficiently completed to make the premises ready for occupancy or because of
the fact that a certificate of occupancy has not been procured or for any other
reason, Owner shall not be subject to any liability for failure to give
possession on said date and the validity of the lease shall not be impaired
under such circumstances, nor shall the same be construed in any wise to extend
the term of this lease, but the rent payable hereunder shall be abated (provided
Tenant is not responsible for Owner's inability to obtain possession or complete
construction) until after
<PAGE> 9
Owner shall have given Tenant written notice that the Owner is able to deliver
possession in condition required by this lease. If permission is given to Tenant
to enter into the possession of the demises premises or to occupy premises other
than the demised premises prior to the date specified as the commencement of the
term of this lease, Tenant covenants and agrees that such possession and/or
occupancy shall be deemed to be under all the terms, covenants, conditions and
provisions of this lease except the obligation to pay the fixed annual rent set
forth in the preamble to this lease. The provisions of this article are intended
to constitute "an express provision to the contrary" within the meaning of
Section 223-a of the New York Real Property Law.
No Waiver:
25. The failure of Owner to seek redress for violation of, or to insist upon the
strict performance of any covenant or condition of this lease or of any of the
Rules or Regulations, set forth or hereafter adopted by Owner, shall not prevent
a subsequent act which would have originally constituted a violation from having
all the force and effect of an original violation. The receipt by Owner of rent
and/or additional rent with knowledge of the breach of any covenant of this
lease shall not be deemed a waiver of such breach and no provision of this lease
shall be deemed to have been waived by Owner unless such waiver be in writing
signed by Owner. No payment by Tenant or receipt by Owner of a lesser amount
than the monthly rent herein stipulated shall be deemed to be other than on
account of the earliest stipulated rent, nor shall any endorsement or statement
of any check or any letter accompanying any check or payment as rent be deemed
an accord and satisfaction, and Owner may accept such check or payment without
prejudice to Owner's right to recover the balance of such rent or pursue any
other remedy in this lease provided. No act or thing done by Owner or Owner's
agents during the term hereby demised shall be deemed an acceptance of a
surrender of said premises, and no agreement to accept such surrender shall be
valid unless in writing signed by Owner. No employee of Owner or Owner's agent
shall have any power to accept the keys of said premises prior to the
termination of the lease and the delivery of keys to any such agent or employee
shall not operate as a termination of the lease or a surrender of the premises.
Waiver of Trial by Jury:
26. It is mutually agreed by and between Owner and Tenant that the respective
parties hereto shall and they hereby do waive trial by jury in any action
proceeding or counterclaim brought by either of the parties hereto against the
other (except for personal injury or property damage) on any matters whatsoever
arising out of or in any way connected with this lease, the relationship of
Owner and Tenant, Tenant's use of or occupancy of said premises, and any
emergency statutory or any other statutory remedy. It is further mutually agreed
that in the event Owner commences any proceeding or action for possession
including a summary proceeding for possession of the premises, Tenant will not
interpose any counterclaim of whatever nature or description in any such
proceeding including a counterclaim under Article 4 except for statutory
mandatory counterclaims.
Inability to Perform:
27. This Lease and the obligation of Tenant to pay rent hereunder and perform
all of the other covenants and agreements hereunder on part of Tenant to be
performed shall in no wise be affected, impaired or excused because Owner is
unable to fulfill any of its obligations under this lease or to supply or is
delayed in supplying any service expressly or impliedly to be supplied or is
unable to make, or is delayed in making any repair, additions, alterations or
decorations or is unable to supply or is delayed in supplying any equipment,
fixtures, or other materials if Owner is prevented or delayed from so doing by
reason of strike or labor troubles or any cause whatsoever including, but not
limited to, government preemption or restrictions or by reason of any rule,
order or regulation of any department or subdivision thereof of any government
agency or by reason of the conditions which have been or are affected, either
directly or indirectly, by war or other emergency.
Bills and Notices
28. Except as otherwise in this lease provided, a bill, statement, notice or
communication which Owner may desire or be required to give to Tenant, shall be
deemed sufficiently given or rendered if, in writing, delivered to Tenant
personally or sent by registered or certified mail addressed to Tenant at the
building of which the demised premises form a part or at the last known
residence address or business address of Tenant or left at any of the aforesaid
premises addressed to Tenant, and the time of the rendition of such bill or
statement and of the giving of such notice or communication shall be deemed to
be the time when the same is delivered to Tenant, mailed, or left at the
premises as herein provided. Any notice by Tenant to Owner must be served by
registered or certified mail addressed to Owner at the address first hereinabove
given or at such other address as Owner shall designate by written notice.
Services Provided by Owners:
29. As long as Tenant is not in default under any of the covenants of this lease
beyond the applicable grace period
<PAGE> 10
provided in this lease for the curing of such defaults, Owner shall provide: (a)
necessary elevator facilities on business days from 8 a.m. to 6 p.m. and have
one elevator subject to call at all other times; (b) heat to the demised
premises when and as required by law, on business days from 8 a.m. to 6 p.m.;
(c) water for ordinary lavatory purposes, but if Tenant uses or consumes water
for any other purposes or in unusual quantities (of which fact Owner shall be
the sole judge), Owner may install a water meter at Tenant's expense which
Tenant shall thereafter maintain at Tenant's expense in good working order and
repair to register such water consumption and Tenant shall pay for water
consumed as shown on said meter as additional rent as and when bills are
rendered; (d) the demised premises are to be kept clean by Tenant, at Tenant's
sole expense, in a manner reasonably satisfactory to Owner and no one other than
persons approved by Owner shall be permitted to enter said premises or the
building of which they are a part for such purpose. Tenant shall pay Owner the
cost of removal of any of Tenant's refuse and rubbish from the building; (e)
Deleted; (f) Owner reserves the right to stop services of the heating,
elevators, plumbing, electric, power systems or other services, if any, when
necessary by reason of accident or for repairs, alterations, replacements or
improvements necessary or desirable in the judgment of Owner for as long as may
be reasonably required by reason thereof. If the building of which the demised
premises are a part supplies manually operated elevator service, Owner at any
time may substitute automatic control elevator service and proceed diligently
with alterations necessary therefor without in any wise affecting this lease or
the obligation of Tenant hereunder.
Captions:
30. The Captions are inserted only as a matter of convenience and for reference
and in no way define, limit or describe the scope of this lease nor the intent
of any provisions thereof.
Definitions:
31. The term "office", or "offices", wherever used in this lease, shall not be
construed to mean premises used as a store or stores, for the sale or display;
at any time, of goods, wares or merchandise, of any kind, or as a restaurant,
shop, booth, bootblack or other stand, barber shop, or for other similar
purposes or for manufacturing. The term "Owner" means a landlord or lessor, and
as used in this lease means only the owner, or the mortgagee in possession, for
the time being of the land and building (or the owner of a lease of the building
or of the land and building) of which the demised premises form a part, so that
in the event of any sale or sales of said land and building or of said lease, or
in the event of a lease of said building, or of the land and building, the said
Owner shall be and hereby is entirely freed and relieved of all covenants and
obligations of Owner hereunder, and it shall be deemed and construed without
further agreement between the parties or their successor in interest, or between
the parties and the purchaser, at any such sale, or the said lessee of the
building, or of the land and building, that the purchaser or the lessee of the
building has assumed and agreed to carry out any and all covenants and
obligations of Owner, hereunder. The words "re-enter" and "re-entry" as used in
this lease are not restricted to their technical legal meaning. The term
"business days" as used in this lease shall exclude Saturdays, Sundays and all
days as observed by the State or Federal Government as legal holidays and those
designated as holidays by the applicable building service union employees
service contract or by the applicable Operating Engineers contract with respect
to HVAC service. Wherever it is expressly provided in this lease that consent
shall not be unreasonably withheld, such consent shall not be unreasonably
delayed.
Adjacent Excavation-Shoring:
32. If an excavation shall be made upon land adjacent to the demised premises,
or shall be authorized to be made, Tenant shall afford to the person causing or
authorized to cause such excavation, license to enter upon the demised premises
for the purpose of doing such work as said person shall deem necessary to
preserve the wall or the building of which demised premises form a part from
injury or damage and to support the same by proper foundations without any claim
for damages or indemnity against Owner, or diminution or abatement of rent.
Rules and Regulations:
33. Tenant and Tenant's servants, employees, agents, visitors, and licensees
shall observe faithfully, and comply strictly with, the Rules and Regulations
and such other and further reasonable Rules and Regulations as Owner or Owner's
agents may from time to time adopt. Notice of any additional rules or
regulations shall be given in such manner as Owner may elect. In case Tenant
disputes the reasonableness of any additional Rule or Regulation hereafter made
or adopted by Owner or Owner's agents, the parties hereto agree to submit the
question of the reasonableness of such Rule or Regulation for decision to the
New York office of the American Arbitration Association, whose determination
shall be final and conclusive upon the parties hereto. The right to dispute the
reasonableness of any additional Rule or Regulation upon Tenant's part shall be
deemed waived unless the same shall be asserted by service of a notice, in
writing upon Owner within fifteen (15) days after the giving of notice thereof.
Nothing in this lease contained shall be construed to impose upon Owner any duty
or
<PAGE> 11
obligation to enforce the Rules and Regulations or terms, covenants or
conditions in any other lease, as against any other tenant and Owner shall not
be liable to Tenant for violation of the same by any other tenant, its servants,
employees, agents, visitors or licensees.
Security:
34. Tenant has deposited with Owner the sum of $62,398.00 (the "Security
Deposit") as security for the faithful performance and observance by Tenant of
the terms, provisions and conditions of this lease; it is agreed that in the
event Tenant defaults in respect of any of the terms, provisions and conditions
of this lease, including, but not limited to, the payment of rent and additional
rent, Owner may use, apply or retain the whole or any part of the security so
deposited to the extent required for the payment of any rent and additional rent
or any other sum as to which Tenant is in default or for any sum which Owner may
expend or may be required to expend by reason of Tenant's default in respect of
any of the terms, covenants and conditions of this lease, including but not
limited to, any damages or deficiency in the re-letting of the premises, whether
such damages or deficiency accrued before or after summary proceedings or other
re-entry by Owner. In the event that Tenant shall fully and faithfully comply
with all of the terms, provisions, covenants and conditions of this lease, the
security shall be returned to Tenant after the date fixed as the end of the
Lease and after delivery of entire possession of the demised premises to Owner.
In the event of a sale of the land and building or leasing of the building, of
which the demised premises form a part, Owner shall have the right to transfer
the security to the vendee or lessee and Owner shall thereupon be released by
Tenant from all liability for the return of such security; and Tenant agrees to
look to the new Owner solely for the return of said security, and it is agreed
that the provisions hereof shall apply to every transfer or assignment made of
the security to a new Owner. Tenant further covenants that it will not assign or
encumber or attempt to assign or encumber the monies deposited herein as
security and that neither Owner nor its successors or assigns shall be bound by
any such assignment, encumbrance, attempted assignment or attempted encumbrance.
Estoppel Certificate:
35. Tenant, at any time, and from time to time, upon at least 10 days' prior
notice by Owner, shall execute, acknowledge and deliver to Owner, and/or to any
other person, firm or corporation specified by Owner, a statement certifying
that this Lease is unmodified and in full force and effect (or, if there have
been modifications, that the same is in full force and effect as modified and
stating the modifications), stating the dates to which the rent and additional
rent have been paid, and stating whether or not there exists any default by
Owner under this Lease, and, if so, specifying each such default.
Successors and Assigns:
36. The covenants, conditions and agreements contained in this lease shall bind
and inure to the benefit of Owner and Tenant and their respective heirs,
distributees, executors, administrators, successors, and except as otherwise
provided in this lease, their assigns. Tenant shall look only to Owner's estate
and interest in the land and building, for the satisfaction of Tenant's remedies
for the collection of a judgment (or other judicial process) against Owner in
the event of any default by Owner hereunder, and no other property or assets of
such Owner (or any partner, member, officer or director thereof, disclosed or
undisclosed), shall be subject to levy, execution or other enforcement procedure
for the satisfaction of Tenant's remedies under or with respect to this lease,
the relationship of Owner and Tenant hereunder, or Tenant's use and occupancy of
the demised premises.
<PAGE> 12
IN WITNESS WHEREOF, Owner and Tenant have respectively signed and sealed this
lease as of the day and year first above written.
HUDSON TELEGRAPH ASSOCIATES
BY: PMFWH NEWCORP., INC., GENERAL PARTNER
Witness for Owner:
By:_______________________________
....................... NAME: John Deutsch
TITLE: Vice President
STAR VENDING, INC. (dba Star Telecommunications, Inc.)
Witness for Tenant:
BY:___________________________________________________
NAME: Mary Casey
....................... TITLE: President
ACKNOWLEDGEMENTS
CORPORATE OWNER
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 , before me personally came . to me
known, who being by me duly sworn, did depose and say that he resides in
; that he is the of the corporation described in and which
executed the foregoing instrument, as OWNER; that he knows the seal of said
corporation; the seal affixed to said instrument is such corporate seal; that it
was so affixed by order of the Board of Directors of said corporation, and that
he signed his name thereto by like order.
....................................
CORPORATE TENANT
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 , before me personally came , to me
known, who being by me duly sworn, did depose and say that he resides in
; that he is the of the corporation described in and which
executed the foregoing instrument, as TENANT; that he knows the seal of said
corporation; the seal affixed to said instrument is such corporate seal; that it
was so affixed by order of the Board of Directors of said corporation, and that
he signed his name thereto by like order.
....................................
INDIVIDUAL OWNER
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 , before me
personally came to be known and known to me to be the individual
described in and who, as OWNER, executed the foregoing instrument
and acknowledged to me that he executed the same.
....................................
INDIVIDUAL TENANT
STATE OF NEW YORK, SS.:
COUNTY OF
On this day of , 19 , before me
personally came to be known and known to me to be the
individual described in and who, as TENANT, executed the
foregoing instrument and acknowledged to me that he executed the same.
....................................
<PAGE> 13
IMPORTANT - PLEASE READ
RULES AND REGULATIONS ATTACHED TO AND
MADE A PART OF THIS LEASE
IN ACCORDANCE WITH ARTICLE 33.
1. The sidewalks, entrances, driveways, passages, courts, elevators, vestibules,
stairways, corridors or halls shall not be obstructed or encumbered by any
Tenant or used for any purpose other than for ingress or egress from the demised
premises and for delivery of merchandise and equipment in a prompt and efficient
manner using elevators and passageways designated for such delivery by Owner.
There shall not be used in any space, or in the public hall of the building,
either by any Tenant or by jobbers or others in the delivery or receipt of
merchandise, any hand trucks, except those equipped with rubber tires and
sideguards. If said premises are situated on the ground floor of the building,
Tenant thereof shall further, at Tenant's expense, keep the sidewalk and curb in
front of said premises clean and free from ice, snow, dirt and rubbish.
2. The water and wash closets and plumbing fixtures shall not be used for any
purposes other than those for which they were designed or constructed and no
sweepings, rubbish, rags, acids or other substances shall be deposited therein,
and the expense of any breakage, stoppage, or damage resulting from the
violation of this rule shall be borne by the Tenant who, or whose clerks,
agents, employees or visitors, shall have caused it.
3. No carpet, rug or other article shall be hung or shaken out of any window of
the building and no Tenant shall sweep or throw or permit to be swept or thrown
from the demised premises any dirt or other substances into any of the corridors
or halls, elevators, or out of the doors or windows or stairways of the building
and Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the demised premises, or permit or suffer the demised
premises to be occupied or used in a manner offensive or objectionable to Owner
or other occupants of the building by reason of noise, odors, and/or vibrations,
or interfere in any way with other Tenants or those having business therein, nor
shall any bicycles, vehicles, animals, fish, or birds be kept in or about the
building. Smoking or carrying lighted cigars or cigarettes in the elevators of
the building is prohibited.
4. No awnings or other projections shall be attached to the outside walls of the
building without the prior written consent of Owner.
5. No sign, advertisement, notice or other lettering shall be exhibited,
inscribed, painted or affixed by any Tenant on any part of the outside of the
demised premises or the building or on the inside of the demised premise if the
same is visible from the outside of the premises without the prior written
consent of Owner, except that the name of Tenant may appear on the entrance door
of the premises. In the event of the violation of the foregoing by any Tenant,
Owner may remove same without any liability, and may charge the expense incurred
by such removal to Tenant or Tenants violating this rule. Interior signs on
doors and directory tablet shall be inscribed, painted or affixed for each
Tenant by Owner at the expense of such Tenant, and shall be of a size, color and
style acceptable to Owner.
6. No Tenant shall mark, paint, drill into, or in any way deface any part of the
demised premises or the building of which they form a part. No boring, cutting
or stringing of wires shall be permitted, except with the prior written consent
of Owner, and as Owner may direct. No Tenant shall lay linoleum, or other
similar floor covering, so that the same shall come in direct contact with the
floor of the demised premises, and, if linoleum or other similar floor covering
is desired to be used an interlining of builder's deadening felt shall be first
affixed to the floor, by a paste or other material, soluble in water, the use of
cement or other similar adhesive material being expressly prohibited.
7. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any Tenant, nor shall any changes be made in existing locks
or mechanism thereof. Each Tenant must, upon the termination of his Tenancy,
restore to Owner all keys of stores, offices and toilet rooms, either furnished
to, or otherwise procured by, such Tenant, and in the event of the loss of any
keys, so furnished, such Tenant shall pay to Owner the cost thereof.
8. Freight, furniture, business equipment, merchandise and bulky matter of any
description shall be delivered to and removed from the premises only on the
freight elevators and through the service entrances and corridors, and only
during hours and in a manner approved by Owner. Owner reserves the right to
inspect all freight to be brought into the building and to exclude from the
building all freight which violates any of these Rules and Regulations of the
lease or which these Rules and Regulations are a part.
9. Canvassing, soliciting and peddling in the building is prohibited and each
Tenant shall cooperate to prevent the same.
10. Owner reserves the right to exclude from the building all persons who do not
present a pass to the building signed by Owner. Owner will furnish passes to
persons for whom any Tenant requests same in writing. Each Tenant shall be
responsible for all persons for whom he requests such pass and shall be liable
to Owner for all acts of such persons. Tenant shall not have a claim against
Owner by reason of Owner excluding from the building any person who does not
present such pass.
11. Owner shall have the right to prohibit any advertising by any Tenant which
in Owner's opinion, tends to impair the reputation of the building or its
desirability as a building for offices, and upon written notice from Owner,
Tenant shall refrain from or discontinue such advertising.
12. Tenant shall not bring or permit to be brought or kept in or on the demised
premises, any inflammable,
<PAGE> 14
combustible, explosive, or hazardous fluid, material, chemical or substance, or
cause or permit any odors of cooking or other processes, or any unusual or other
objectionable odors to permeate in or emanate from the demised premises.
13. If the building contains central air conditioning and ventilation, Tenant
agrees to keep all windows closed at all times and to abide by all rules and
regulations issued by Owner with respect to such services. If Tenant requires
air conditioning or ventilation after the usual hours, Tenant shall give notice
in writing to the building superintendent prior to 3:00 p.m. in the case of
services required on weekdays, and prior to 3:00 p.m. on the day prior in case
of after hours service required on weekends or on holidays. Tenant shall
cooperate with Owner in obtaining maximum effectiveness of the cooling system by
lowering and closing venetian blinds and/or drapes and curtains when the sun's
rays fall directly on the windows of the demised premises.
14. Tenant shall not move any safe, heavy machinery, heavy equipment, bulky
matter, or fixtures into or out of the building without Owner's prior written
consent. If such safe, machinery, equipment, bulky matter or fixtures requires
special handling, all work in connection therewith shall comply with the
Administrative Code of the City of New York and all other laws and regulations
applicable thereto and shall be done during such hours as Owner may designate.
15. Refuse and Trash. (1) Compliance by Tenant. Tenant covenants and agrees, at
its sole cost and expense, to comply with all present and future laws, orders,
and regulations of all state, federal, municipal, and local governments,
departments, commissions and boards regarding the collection, sorting,
separation and recycling of waste products, garbage, refuse and trash. Tenant
shall sort and separate such waste products, garbage, refuse and trash into such
categories as provided by law. Each separately sorted category of waste
products, garbage, refuse and trash shall be placed in separate receptacles
reasonably approved by Owner. Such separate receptacles may, at Owner's option,
be removed from the demised premises in accordance with a collection schedule
prescribed by law. Tenant shall remove, or cause to be removed by a contractor
acceptable to Owner, at Owner's sole discretion, such items as Owner may
expressly designate. (2) Owner's Rights in Event on Noncompliance. Owner has the
option to refuse to collect or accept from Tenant waste products, garbage,
refuse or trash (a) that is not separated and sorted as required by law or (b)
which consists of such items as Owner may expressly designate for Tenant's
removal, and to require Tenant to arrange for such collection at Tenant's sole
cost and expense, utilizing a contractor satisfactory to Owner. Tenant shall pay
all costs, expenses, fines, penalties, or damages that may be imposed on Owner
or Tenant by reason of Tenant's failure to comply with the provisions of this
Building Rule 15, and, at Tenant's sole cost and expense, shall indemnity,
defend and hold Owner harmless (including reasonable legal fees and expenses)
from and against any actions, claims and suits arising from such noncompliance,
utilizing counsel reasonably satisfactory to Owner.
<PAGE> 15
RIDER TO LEASE DATED AS OF FEB. 28, 1996 BETWEEN
HUDSON TELEGRAPH ASSOCIATES, AS LANDLORD, AND
STAR VENDING, INC., AS TENANT
If and to the extent that any of the provisions of this rider conflict
or are otherwise inconsistent with any of the printed provisions of this lease,
whether or not such inconsistency is expressly noted in this rider, the
provisions of this rider shall prevail.
37. Definitions
The following terms contained in this Article 37 shall have the
meanings hereinafter set forth as such terms are used throughout this lease,
including the exhibits, schedules and riders hereto (if any).
(A) "Base Tax Year" shall mean the calendar year 1996.
(B) "Base Year Taxes" shall mean the Real Estate Taxes as finally
determined for the Base Tax Year (to wit, the average of the
Real Estate Taxes as finally determined for the July 1, 1995 -
June 30, 1996 and July 1, 1996 - June 30, 1997 tax fiscal
years).
(C) "Subsequent Tax Year" shall mean any tax fiscal year
commencing on or after July 1, 1996.
(D) "Tenant's Proportionate Share" shall mean 0.94%.
(E) "Base Operating Expenses" shall mean the Operating Expenses
incurred for 1996.
(F) "Operational Year" shall mean each calendar year during the
Term commencing with 1997.
(G) "Broker" shall mean, collectively, Williams Real Estate Co.
Inc. and Cushman & Wakefield, Inc.
(H) "Rent Commencement Date" shall mean May 1, 1996.
38. Rental Payments
(A) All payments other than Fixed Rent to be made by Tenant pursuant to
this lease shall be deemed additional rent and, in the event of any non-payment
thereof, Landlord shall have all rights and remedies provided for herein or by
law for non-payment of rent.
(B) All payments of Fixed Rent and additional rent (collectively,
"rent" or "rental") to be made by Tenant pursuant to this lease shall be made by
checks drawn upon a New York City bank which is a member of the New York
Clearing House Association or any successor thereto.
(C) If Landlord receives from Tenant any payment less than the sum of
the Fixed Rent and additional rent then due and owing pursuant to this lease,
Tenant hereby waives its right, if any, to
<PAGE> 16
designate the items to which such payment shall be applied and agrees that
Landlord in its sole discretion may apply such payment in whole or in part to
any Fixed Rent, any additional rent or to any combination thereof then due and
payable hereunder.
(D) Unless Landlord shall otherwise expressly agree in writing,
acceptance of Fixed Rent or additional rent from anyone other than Tenant shall
not relieve Tenant of any of its obligations under this lease, including the
obligation to pay Fixed Rent and additional rent, and Landlord shall have the
right at any time, upon notice to Tenant, to require Tenant to pay the Fixed
Rent and additional rent payable hereunder directly to Landlord. Furthermore,
such acceptance of Fixed Rent or additional rent shall not be deemed to
constitute Landlord's consent to an assignment of this lease or a subletting or
other occupancy of the demised premises by anyone other than Tenant, nor a
waiver of any of Landlord's rights or Tenant's obligations under this lease.
(E) Landlord's failure to timely bill all or any portion of any amount
payable pursuant to this lease for any period during the Term shall neither
constitute a waiver of Landlord's right to ultimately collect such amount or to
bill Tenant at any subsequent time retroactively for the entire amount so
unbilled, which previously unbilled amount shall be payable within thirty (30)
days after being so billed.
39. Tax Escalation
(A) For purposes of this lease, "Real Estate Taxes" shall mean all the
real estate taxes and assessments imposed by any governmental authority having
jurisdiction upon the Building and land upon which it is located ("Land")
(including specifically, but without limitation, so-called "BID" taxes) or any
tax or assessment hereafter imposed in whole or in part in substitution for such
real estate taxes and/or assessments.
(B) If the Real Estate Taxes for any Subsequent Tax Year during the
Term exceed the Base Year Taxes (as initially imposed, if not finally determined
when a payment is due pursuant to this Section (B)), Tenant shall pay Landlord
Tenant's Proportionate Share of such excess within fifteen (15) days after
Landlord shall furnish to Tenant a statement (the "Tax Statement") setting forth
the amount thereby due and payable by Tenant. If Real Estate Taxes are payable
by Landlord to the applicable taxing authority in installments, then Landlord
shall bill Tenant for Tenant's Proportionate Share of increased Real Estate
Taxes in corresponding installments, such that Tenant's payment is due and not
more than fifteen (15) days prior to the date when Landlord is obligated to pay
the Real Estate Taxes to the applicable taxing authority. If the actual amount
of Real Estate Taxes is not known to Landlord as of the date of Landlord's Tax
Statement, then Landlord may nevertheless bill Tenant for such installment on
the basis of a good faith estimate, in which event Tenant shall pay the amount
so estimated within fifteen (15) days after receipt of such bill, subject to
prompt refund by Landlord, or payment by Tenant, upon a supplemental billing by
Landlord once the amount actually owed by Tenant is determined. Upon Tenant's
request, Landlord shall provide Tenant with a copy of the current tax bill used
in the preparation of the Tax Statement.
(C) If the Base Year Taxes ultimately are reduced to less than the Real
Estate Taxes initially imposed upon the Land and the Building for the Base Tax
Year, Tenant shall pay Landlord, promptly
<PAGE> 17
upon demand, any additional amount thereby payable pursuant to Section (B) for
all applicable Subsequent Tax Years.
(D) If Landlord receives any refund of Real Estate Taxes for any
Subsequent Tax Year for which Tenant has made a payment pursuant hereto,
Landlord shall (after deducting from such refund all expenses incurred in
connection therewith) pay Tenant, if not in default hereunder, Tenant's
Proportionate Share of the net refund. Tenant shall pay Landlord Tenant's
Proportionate Share of the costs and expenses of any nature (including, without
limitation, consulting, appraisal and legal fees) incurred by Landlord in
connection with any tax protest or other proceeding or arrangement leading or
intending to lead to a reduction in Real Estate Taxes.
(E) If any Subsequent Tax Year is only partially within the Term, all
payments pursuant hereto shall be appropriately prorated, based on the portion
of the Subsequent Tax Year which is within the Term. Except as limited by
Articles 9 and 10: (1) Tenant's obligation to make the payments required by
Sections (B), (C) and (D) shall survive the Expiration Date or any sooner
termination of this lease; and (2) Landlord's obligation to make the payments
required by Section (D) shall survive the Expiration Date or any sooner
termination of this lease pursuant to Articles 9 and 10.
(F) Each Tax Statement given by Landlord pursuant to Section (B) shall
be binding upon Tenant unless, within thirty (30) days after its receipt of such
Tax Statement, Tenant notifies Landlord of its disagreement therewith,
specifying the portion thereof with which Tenant disagrees. Pending resolution
of such dispute, Tenant shall, without prejudice to its rights, pay all amounts
determined by Landlord to be due, subject to prompt refund by Landlord (without
interest) upon any contrary determination.
40. Operating Expense Escalation
(A) For all purposes of this lease, "Operating Expenses" shall mean all
costs and expenses incurred by Landlord, on an accrual basis, for the operation,
cleaning and maintenance of the Building and its plazas, garage, sidewalks and
curbs (collectively, "Landlord's Property"), including all expenses incurred as
a result of Landlord's compliance with any of its obligations hereunder, and
shall include the following items (without limitation):
(1) salaries, wages, medical, surgical and general welfare
benefits (including group life and medical insurance) and pension payments,
payroll taxes, worker's compensation, union benefits paid by employer,
unemployment insurance, social security and other similar taxes of or with
respect to employees of Landlord and/or independent contractors engaged in
operation and maintenance;
(2) payments made to independent contractors for maintenance,
cleaning and/or operation;
(3) the cost of uniforms, including dry cleaning thereof, for
employees;
(4) the cost of all gas, steam, heat, ventilation, air
conditioning and water (including sewer rental), together with any taxes
thereon;
<PAGE> 18
(5) the cost of all rent, casualty, war risk (if obtainable),
liability, excess liability, property damage, indemnification, plate glass,
multi-risk and other insurance covering Landlord and/or all or any portion of
Landlord's Property;
(6) the cost of all supplies (including cleaning supplies),
tools, materials and equipment;
(7) the cost of all charges to Landlord for electricity
consumed for the public areas of the Building and Building systems and
equipment, together with any taxes thereon;
(8) repairs or replacements made by Landlord, at its expense;
(9) straight line depreciation or amortization (including
interest at the rate of two percent (2%) in excess of the "prime rate" or "base
rate" of Citibank, N.A. at the time such expenditure is made) over a ten (10)
year period of any expenditure for a capital improvement which is intended to
result in a reduction of Operating Expenses;
(10) management fees;
(11) vault, sales, use and frontage taxes;
(12) dues and fees for trade and industry associations and
costs of their related activities, all relating to Landlord's Property;
(13) Building and home-office administrative costs and
expenses for bookkeeping and telephone;
(14) attorney's fees and fees paid to other professionals for
services rendered in connection with the maintenance and/or operation of
Landlord's Property;
(15) costs and expenses incurred by Landlord in connection
with compliance with any law, rule, order, ordinance, regulation or requirement
of any governmental authority having or asserting jurisdiction or any order,
rule, requirement or regulation of any utility company, insurer of Landlord or
the Board of Fire Underwriters (or successor organization) (collectively,
"Laws"); and
(16) all other costs and expenses incurred by Landlord for
operation and maintenance of Landlord's Property which are customary for similar
buildings in New York City.
(B) In determining the amount of the Base Operating Expenses or the
Operating Expenses for any Operational Year, if less than ninety-five percent
(95%) of the office portion of the Building shall have been occupied by tenants
at any time during any such year, the Base Operating Expenses or the Operating
Expenses for any such Operational Year shall be adjusted to an amount equal to
the like expenses which would normally be expected to have been incurred had the
occupancy of the office portion of the Building been ninety-five percent (95%)
throughout the applicable year.
(C) If Landlord is not furnishing any particular work or service (the
cost of which if performed by Landlord would constitute an Operating Expense) to
a tenant who has undertaken to
<PAGE> 19
perform such work or service in lieu of the performance thereof by Landlord, the
Operating Expenses for each Operational Year during which such situation exists
shall be increased by an amount equal to the additional Operating Expense which
reasonably would have been incurred during such period by Landlord if it had at
its own expense furnished such service or services to such tenant.
(D) In any Operational Year in which Operating Expenses exceed Base
Operating Expenses, Tenant shall pay to Landlord Tenant's Proportionate Share of
such excess.
(E) During or after the first Operational Year, Landlord shall forward
Tenant an itemized statement prepared by Landlord's accountants ("Operating
Statement") of the Base Operating Expenses. Thereafter, during each succeeding
Operational Year during the Term, Landlord shall forward to Tenant an Operating
Statement of the Operating Expenses for the prior Operational Year and a
computation of the amount payable by Tenant pursuant to this Article for such
Operational Year.
(F) With each installment of Fixed Rent payable during the first
Operational Year, Tenant shall pay Landlord the monthly sum of $200 on account
of the amount due pursuant to this Article for such Operational Year.
(G) With each installment of Fixed Rent payable during the Term during
and after the second Operational Year, Tenant shall pay to Landlord on account
of the amount payable pursuant to this Article for the then Operational Year:
(1) until Landlord forwards the applicable Operating Statement
for the preceding Operational Year, the amount of the monthly payment due during
December of such Operational Year; and
(2) after Landlord forwards the applicable Operating Statement
for the preceding Operational Year, one-twelfth (1/12th) of 110% of the amount
payable pursuant to this Article for such preceding Operational Year.
(H) Once Landlord forwards the applicable Operating Statement for the
preceding Operational Year, Landlord and/or Tenant, as the case may be, promptly
shall make appropriate payment to the other (without interest) of any amount
overpaid by Tenant or owing to Landlord for such Operational Year based on the
amount due pursuant to such Operating Statement and amounts theretofore paid by
Tenant for such preceding Operational Year.
(I) The parties' obligation to make any payment pursuant to this
Article shall survive the Expiration Date or any sooner termination of this
lease and shall be appropriately prorated for any Operational Year which is only
partially within the Term.
(J) Each Operating Statement given by Landlord pursuant to Section (E)
shall be binding upon Tenant unless, within thirty (30) days after its receipt
of such Operating Statement, Tenant notifies Landlord of its disagreement
therewith, specifying the portion thereof with which Tenant disagrees. Pending
resolution of such dispute, Tenant shall, without prejudice to its rights, pay
all amounts determined by Landlord to be due, subject to prompt refund by
Landlord (without interest) upon any contrary determination.
<PAGE> 20
41. Abatement and Adjustments of Fixed Rent
Anything herein to the contrary notwithstanding:
(A) Provided this lease shall be in full force and effect and Tenant
shall not be in default hereunder beyond any applicable notice and grace period,
the Fixed Rent shall abate from the Commencement Date through the date that is
one day prior to the Rent Commencement Date; and
(B) Effective on May 1, 2001, the Fixed Rent shall be increased to
$182,206 per annum.
42. Electricity
(A) Landlord shall (subject to the provisions of this Article and the
other applicable provisions of this lease) furnish ten (10) watts per rentable
square foot of electric current at 120/208 volts, three phase, at an end box in
the demised premises. Any additional current required by Tenant shall, if
available, be provided by Landlord (at 120/208 volts, three phase) to a location
designated by Landlord at a cost of $250.00 per amp if provided during the
twelve (12) month period after the date hereof, and if later provided, then at
Landlord's standard charge. In bringing such current from such designated
location to the premises, and in performing any other work affecting or
involving the Building electrical infrastructure, Tenant shall use only such
electrical contractors as are specified on Exhibit C. If at any time during the
Term, whether before or after Tenant's power is increased or decreased, Landlord
reasonably determines that Tenant is not using any portion of the electric
capacity then servicing the demised premises, then Landlord shall have the right
to recapture any such power not then being used by Tenant without compensation
to Tenant. (If Landlord recaptures a portion of Tenant's original ten (10) watts
per rentable square foot, and at a later date Landlord provides Tenant with
additional current, Tenant shall only be required to pay the per amp charge for
total current in excess of ten (10) watts per rentable square foot.) Tenant's
consumption of electrical energy at the demised premises shall be measured by
submeters installed by Landlord at Tenant's expense with reasonable diligence
after the Commencement Date.
(B) (1) From and after the Commencement Date, Tenant shall
purchase all electric current consumed in or in connection with the demised
premises from Landlord or Landlord's designated agent and pay therefor an amount
equal to 105% of Landlord's Average Cost (as hereinafter defined) applied to all
electricity consumed in or in connection with the demised premises during the
applicable billing period, as measured by the submeters in the demised premises.
(2) "Landlord's Average Cost" for all purposes of this lease
shall be determined by dividing (y) the total dollar amount billed to Landlord
for the Building by the public utility company providing electric current to the
Building (the "Utility Company") for the relevant billing period (including,
without limitation, all charges for "demand," fuel, "on-peak" and "off-peak"
usage, "time of day" usage and any and all other relevant adjustments and
charges) by (z) the total kilowatt hours utilized by the Building for such
billing period.
(C) Where more than one submeter measures Tenant's consumption of
electricity, the service rendered through each submeter may be computed and
billed separately in accordance with the
<PAGE> 21
provisions hereof. Bills therefor shall be rendered at such times as Landlord
may elect and shall be payable on demand as additional rent.
(D) Landlord shall not in any way be liable or responsible to Tenant
for any loss, damage or expense which Tenant may sustain or incur if either the
quantity or character of electric service is changed or is no longer available
or suitable for Tenant's requirements. Tenant's use of electric current shall
never exceed the capacity of existing feeders or risers to, or wiring
installations in, the Building and the demised premises. Any riser or risers to
supply Tenant's electrical requirements will, upon written request of Tenant, be
installed by Landlord at the sole cost and expense of Tenant if, in Landlord's
reasonable judgment, the same are necessary and will not cause adverse damage or
injury to the Building or the operation thereof or the demised premises, cause
or create a dangerous or hazardous condition, entail excessive or unreasonable
alterations, repairs or expense or interfere with or disturb other tenants or
occupants. In addition to the installation of such riser or risers, Landlord
will also, at the sole cost and expense of Tenant, install all other equipment
proper and necessary in connection therewith, subject to the aforesaid terms and
conditions. All of such costs and expense shall be paid by Tenant to Landlord
within fifteen (15) days after rendition of any bill or statement to Tenant
therefor.
(E) Landlord may discontinue such service of electric current upon
sixty (60) days notice to Tenant without being liable to Tenant therefor or
without in any way affecting this lease or the liability of Tenant hereunder or
causing a diminution of Fixed Rent. Such discontinuance shall not be deemed to
be a lessening or diminution of service within the meaning of any law, rule or
regulation now or hereafter enacted, promulgated or issued. In the event
Landlord gives such notice of discontinuance, Landlord shall permit Tenant to
receive such service direct from the Utility Company, in which event Tenant
shall, at its own cost and expense, furnish and install all risers, service
wiring, switches and other equipment necessary for such installation and
required by the Utility Company and, at its own cost and expense, maintain and
keep in good repair all such risers, wiring, switches and equipment.
(F) Tenant shall make no alterations or additions to the electric
equipment and/or appliances presently installed in the demised premises without
the prior written consent of Landlord in each instance. Rigid conduit only will
be allowed.
(G) If any tax is imposed upon Landlord's receipt from the sale or
resale of electric energy to Tenant by any federal, state or municipal
authority, where permitted by law, Tenant's pro-rata share of such taxes shall
be paid by Tenant to Landlord.
(H) Anything in Section (B) to the contrary notwithstanding, if the
Commencement Date shall occur prior to the installation and proper calibration
of the submeters, then Tenant shall pay Landlord for Tenant's consumption of
electricity in the demised premises at the rate of $990 per month during any
period when construction is taking place in the demised premises or at the rate
of $1981 per month from and after the date on which Tenant occupies all or a
portion of the demised premises for the conduct of business. In addition, if
during any time during the Term, it shall be determined that the submeters
servicing the demised premises were malfunctioning, Tenant shall pay Landlord an
amount reasonably estimated by Landlord's electrical consultant to be the amount
that would have been payable by Tenant had such malfunction not occurred.
<PAGE> 22
43. Restriction on Use
(A) Anything in Article 2 to the contrary notwithstanding, Tenant shall
not use or permit all or any part of the demised premises to be used for the:
(1) storage for purpose of sale of any alcoholic beverage in the demised
premises; (2) storage for retail sale of any product or material in the demised
premises; (3) conduct of a manufacturing, printing or electronic data processing
business, except that Tenant may operate business office reproducing equipment,
electronic data processing equipment and other business machines for Tenant's
own requirements and those with which it has a co-location agreement as provided
in Section 44 (M) (but shall not permit the use of any such equipment by or for
the benefit of any party other than Tenant and those with which it has
co-location agreements as provided in Section 44 (M)); (4) rendition of any
health or related services, conduct of a school or conduct of any business which
results in the presence of the general public in the demised premises; (5)
conduct of the business of an employment agency or executive search firm; (6)
conduct of any public auction, gathering, meeting or exhibition; (7) conduct of
a stock brokerage office or business; or (8) occupancy of a foreign, United
States, state, municipal or other governmental or quasi-governmental body,
agency or department or any authority or other entity which is affiliated
therewith or controlled thereby.
(B) Tenant shall not use or permit all or any part of the demised
premises to be used so as to impair the Building's character or dignity or
impose any additional burden upon Landlord in its operation.
(C) Tenant shall not obtain or accept for use in the demised premises
ice, drinking water, food, beverage, towel, barbering, boot blacking, floor
polishing, lighting maintenance, cleaning or other similar services from any
party not theretofore approved by Landlord (which party's charges shall not be
excessive). Such services shall be furnished only at such hours, in such places
within the demised premises and pursuant to such regulations as Landlord
prescribes.
44. Assignment, Etc.
Supplementing Article 11:
(A) Tenant shall neither: (i) publicly advertise for and/or assign,
sublet or permit the occupancy of all or any part of the demised premises at a
rental rate less than the rental rate at which Landlord is then offering to
lease comparable space in the Building; or (ii) assign this lease to or sublet
to or permit the occupancy of all or any part of the demised premises by any
other party which is then a tenant, subtenant, licensee or occupant of any space
in the Building within the twelve (12) month period preceding the date of
Landlord's receipt of Tenant's Notice pursuant to Section (B) (nor shall Tenant
accept an assignment of a lease or sublet space from any tenant, subtenant,
licensee or occupant of any space in the Building). Tenant shall designate
Williams Real Estate Co. Inc. (or the then rental agent for the Building) as its
exclusive agent in connection with any subletting of all or any part of the
premises or any assignment of this lease.
(B) If Tenant wishes to assign this lease (a transfer of more than a
fifty percent (50%) beneficial interest in Tenant, whether such transfer occurs
at one time, or in a series of related transactions, and whether of stock,
partnership interest or otherwise, by any party in interest being
<PAGE> 23
deemed an assignment of this lease), sublet all or any part of the demised
premises or permit the demised premises to be occupied by any other party,
Tenant shall so notify Landlord ("Tenant's Notice"), specifying the name of the
proposed assignee, subtenant or occupant, the nature and character of its
business and the terms of the proposed assignment, sublease or occupancy, and
providing a fully executed counterpart of the assignment, sublease, occupancy
agreement and/or other applicable documents consummating the transaction as well
as current information as to the financial responsibility and standing of the
proposed assignee, sublessee or occupant and Tenant shall also provide Landlord
with such other information as it reasonably requests. If only a portion of the
demised premises (not constituting an entire floor of the Building) is to be so
sublet or occupied, Tenant's Notice shall be accompanied by a reasonably
accurate floor plan, indicating such portion. The portion of the demised
premises to which such proposed assignment, sublease or occupancy is to be
applicable is hereinafter referred to as the "Space."
(C) With reasonable promptness after receipt of the required items as
specified in Section (B), Landlord shall notify Tenant as to whether or not it
consents to the transaction reflected therein. Landlord agrees that it will not
unreasonably withhold such consent.
(D) Anything herein to the contrary notwithstanding, Tenant may not
assign this lease or sublet all or any part of the demised premises prior to the
expiration of the first year of the Term.
(E) No assignment of this lease shall be effective unless and until
Tenant delivers to Landlord duplicate originals of the instrument of assignment
(wherein the assignee assumes the performance of Tenant's obligations under this
lease) and any accompanying documents.
(F) In the event of any such assignment, Landlord and the assignee may
modify this lease in any manner, without notice to Tenant or Tenant's prior
consent, without thereby terminating Tenant's liability for the performance of
its obligations under this lease, except that any such modification which, in
any way, increases any of such obligations shall not, to the extent of such
increase only, be binding upon Tenant.
(G) No sublease of all or any party of the demised premises (except a
Sublease) shall be effective unless and until Tenant delivers to Landlord
duplicate originals of the instrument of sublease (containing the provision
required by Section (H)) and any accompanying documents. Any such sublease shall
be subject and subordinate to this lease.
(H) Any such sublease shall contain substantially the following
provisions:
(1) "In the event of a default under any underlying lease of
all or any portion of the premises demised hereby which results in the
termination of such lease, the subtenant hereunder shall, at the option of the
lessor under any such lease ("Underlying Lessor"), attorn to and recognize the
Underlying Lessor as landlord hereunder and shall, promptly upon the Underlying
Lessor's request, execute and deliver all instruments necessary or appropriate
to confirm such attornment and recognition. Notwithstanding such attornment and
recognition, the Underlying Lessor shall not (a) be liable for any previous act
or omission of the landlord under this sublease, (b) be subject to any offset,
not expressly provided for in this sublease, which shall have accrued to the
subtenant hereunder against said landlord, or (c) be bound by any modification
of this sublease or by any prepayment of more than
<PAGE> 24
one month's rent, unless such modification or prepayment shall have been
previously approved in writing by the Underlying Lessor. The subtenant hereunder
hereby waives all rights under any present or future law to elect, by reason of
the termination of such underlying lease, to terminate this sublease or
surrender possession of the premises demised hereby.
(2) This sublease may not be assigned or the premises demised
hereunder further sublet, in whole or in part, without the prior written consent
of the Underlying Lessor."
(I) No assignment or sublease, whether or not consented to by Landlord
and whether or not any such consent is required, shall release Tenant from its
liability for the performance of Tenant's obligations hereunder during the
balance of the Term. Landlord's consent to any assignment or sublease shall not
constitute its consent to any (i) further assignment of this lease or of any
permitted sublease or (ii) further sublease of all or any portion of the
premises demised hereunder or under any permitted sublease. If a sublease to
which Landlord has consented is assigned or all or any portion of the premises
demised thereunder is sublet without the consent of Landlord in each instance
obtained, Tenant shall immediately terminate such sublease, or arrange for the
termination thereof, and proceed expeditiously to have the occupant thereunder
dispossessed.
(J) Tenant shall pay to Landlord, promptly upon demand therefor, all
costs and expenses (including, without limitation, reasonable attorneys' fees
and disbursements) incurred by Landlord in connection with any assignment of
this lease or sublease of all or any part of the demised premises.
(K) If Landlord shall give its consent to any assignment of this lease
or to any sublease or if Tenant shall otherwise enter into any assignment or
sublease permitted hereunder, Tenant shall in consideration therefor, pay to
Landlord, as and when payable to Tenant:
(1) in the case of an assignment, fifty (50%) percent of all
sums and other considerations paid to Tenant by the assignee for or by reason of
such assignment (including, but not limited to, sums paid for the sale of
Tenant's fixtures, leasehold improvements, equipment, furniture, furnishings or
other personal property); and
(2) in the case of a sublease, fifty (50%) percent of the
amount, if any, by which (i) any rents, additional charges or other
consideration payable under the sublease to Tenant by the subtenant (including,
but not limited to, sums paid for the sale or rental of Tenant's fixtures,
leasehold improvements, equipment, furniture or other personal property) exceeds
(ii) the Fixed Rent and additional rent accruing during the term of the sublease
in respect of the Space (at the rate per square foot payable by Tenant
hereunder) pursuant to the terms of this lease.
(L) Notwithstanding the foregoing, Tenant shall not be required to
obtain Landlord's consent to, and Sections (A), (B), (C), (D) and (K) of this
Article shall not apply to, any sublease or assignment from Tenant to any party
controlling, controlled by or under common control with Tenant ("control" and
its variants meaning ownership of more than 50% of the equity interests in the
party in question).
(M) Landlord acknowledges that the business to be conducted by Tenant
on the demised premises requires the installation of certain communications
equipment owned by customers of Tenant
<PAGE> 25
on the demised premises, in order for such customers to interconnect with
Tenant's terminal facilities. Landlord expressly agrees that Tenant may license
the use of portions of the demised premises to its customers solely for the
purpose of locating equipment therein without Landlord's further consent;
provided, however, that such license shall be granted only upon the execution by
Tenant and its customers of an agreement that expressly provides that (i) such
license and the rights of such licensee shall at all times be subordinate to
this lease and shall not be binding on Landlord; (ii) such license will expire
no later than the day prior to the expiration or earlier termination of this
lease; and (iii) such license shall be for equipment only and shall not grant to
the licensee the right to occupy any portion of the Building or the demised
premises.
(N) Anything in Article 11 or this Article 44 notwithstanding, subject
to all applicable provisions of this lease (including, without limitation,
Articles 2 and 43 and Sections (A)(i), (E), (F), (G), (H), (I), (J) and (M) of
this Article 44, but not including Sections (A)(ii), (B), (C), (D) or (K) of
this Article 44), Landlord's consent shall not be required to (x) Tenant's
assignment of this lease to any purchaser of all or substantially all of
Tenant's assets, (y) an acquisition of more than a fifty (50%) percent interest
in Tenant's stock or partnership interests, or (z) an assignment of this lease
to any corporation which is a successor to Tenant either by merger or
consolidation, provided that in any of such events (a) such purchaser, acquiring
party or successors to Tenant has a combined net worth and/or equity, computed
in accordance with generally accepted accounting principles, consistently
applied, at least equal to that of Tenant immediately preceding such
transaction, and (b) proof reasonably satisfactory to Landlord of such net worth
and/or equity shall have been delivered to Landlord at least ten (10) days prior
to the effective date of any such transaction.
45. Brokerage
Tenant represents that it dealt only with the Broker as broker in
connection with this lease and Landlord shall pay the Broker's commission
therefor pursuant to separate agreement. Tenant shall indemnify Landlord against
all loss, damage, liability, cost and expense (including reasonable attorney's
fees) pertaining to any other brokerage commission or like compensation which is
based on alleged actions of Tenant or its agents or representatives. Tenant's
liability hereunder shall survive any expiration or termination of this lease.
46. Building Directory
(A) Landlord shall, upon Tenant's request, list on the Building's
directory ("Directory"), the names of Tenant, any other party occupying any part
of the demised premises pursuant hereto and their officers or employees,
provided the number of Directory lines so provided by Landlord does not exceed
Tenant's Proportionate Share of the Directory's capacity.
(B) The listing of any party's name other than Tenant's shall neither
grant such party any right or interest in this lease and/or the demised premises
nor constitute Landlord's consent to any assignment or sublease to or occupancy
by such party. Such listing may be terminated by Landlord at any time, without
prior notice. The initial listing(s) on the Directory shall be provided by
Landlord without charge to Tenant. Thereafter, Tenant shall pay Landlord's
standard fee for any work performed in connection with any additions, deletions
or changes to the Directory.
<PAGE> 26
47. Exculpatory Clause
(A) Anything herein to the contrary notwithstanding, the liability of
Landlord and the partners of, or any other party which holds any interest in,
Landlord for negligence, failure to perform lease obligations or otherwise under
or in connection with this lease shall be limited to each of their respective
interests in the Land and Building. Tenant shall neither seek to enforce nor
enforce any judgment or other remedy against any other asset of Landlord, any
partner of Landlord or any party that holds any interest in Landlord.
(B) In any claim made by Tenant against Landlord alleging that Landlord
has acted unreasonably where Landlord had an obligation to act reasonably,
Tenant shall have no right to recover damages from Landlord and Tenant's sole
and exclusive recourse against Landlord shall be an action seeking specific
performance of Landlord's obligation to act reasonably; provided, however, that
Tenant's rights shall not be so limited (except to the extent provided in
Section (A)) in the event that Tenant claims that Landlord acted in bad faith.
48. Submission to Jurisdiction, Etc.
(A) This lease shall be deemed to have been made in New York County,
New York, and shall be construed in accordance with the laws of the State of New
York. All actions or proceedings relating, directly or indirectly, to this lease
shall be litigated only in courts located within the County of New York. Tenant,
any guarantor of the performance of its obligations hereunder ("Guarantor") and
their respective successors and assigns hereby subject themselves to the
jurisdiction of any state or federal court located within such county, waive the
personal service of any process upon them in any action or proceeding therein
and consent that such process may be served by certified or registered mail,
return receipt requested, directed to Tenant and any successor at Tenant's
address hereinabove set forth, to Guarantor and any successor at the address set
forth in the instrument of guaranty and to any assignee at the address set forth
in the instrument of assignment. Such service shall be deemed made two days
after such process is so mailed.
(B) Whenever any default, request, action or inaction by Tenant causes
Landlord to incur attorneys' fees and/or any other costs or expenses, Tenant
agrees that is shall pay and/or reimburse Landlord for such fees, costs or
expenses within ten (10) days after being billed therefor.
(C) If any monies owing by Tenant under this lease are paid more than
fifteen (15) days after the date such monies are payable pursuant to the
provisions of this lease, Tenant shall pay Landlord interest thereon, at the
then maximum lawful rate, for the period from the date such monies are paid.
(D) The submission of this lease to Tenant shall not constitute an
offer by Landlord to execute and exchange a lease with Tenant and is made
subject to Landlord's acceptance, execution and delivery thereof.
<PAGE> 27
49. Requests by Mortgagee or Others
(A) If any present or prospective mortgagee of the Land, Building or
any leasehold interest therein requires, as a condition precedent to issuing or
extending its loan, the modification of this lease in such manner as does not
materially lessen Tenant's rights or increase its obligations hereunder, Tenant
shall not delay or withhold its consent to such modification and shall execute
and deliver such confirming documents therefor as such mortgagee requires.
(B) If Landlord, in conjunction with any proposed sale or mortgaging of
all or any portion of the Land and Building or any leasehold interest therein,
requests the delivery of certified financial statements or other information
relating to the financial condition of Tenant, Tenant shall deliver such
certified financial statements or such other information within ten (10) days
after Landlord's written request therefor.
50. Delivery of Demised Premises
(A) Supplementing Article 21, the demised premises shall be leased to
Tenant in their "as is" condition on the Commencement Date (but broom clean) and
Landlord shall not be required to perform any work to prepare the demised
premises for Tenant's occupancy except that, with reasonable diligence after the
Commencement Date, Landlord will perform at Landlord's expense the "Landlord's
Work" hereinafter set forth. The taking of possession of the demised premises by
Tenant shall be conclusive evidence as against Tenant that, at the time such
possession was so taken, the demised premises and the Building were in good and
satisfactory condition, subject to substantial completion of the Landlord's
Work.
(B) The "Landlord's Work" shall consist of the following, which shall,
where applicable, be performed in a Building Standard manner:
(1) Provide the ten (10) watts per rentable square foot of
electric current as set forth in Section 42(A).
(2) Construct a Building Standard demising wall and entrance
door.
(3) Replace window panes that are broken on the Commencement
Date.
(4) Comply with Article 63(B).
51. Insurance
During the Term, Tenant shall pay for and keep in force general
liability policies in standard form protecting against any and all liability
occasioned by accident or occurrence, subject to customary exclusions, such
policies to be written by recognized and well-rated insurance companies
authorized to transact business in the State of New York. The minimum limits of
liability shall be a combined single limit with respect to each occurrence in an
amount of not less than $3,000,000 for injury (or death) and damage to property.
If at any time during the Term it appears that public liability or property
damage limits in the City of New York for buildings similarly situated, due
regard being given to the use and
<PAGE> 28
occupancy thereof, are higher than the foregoing limits, then Tenant shall
increase the foregoing limits accordingly. Landlord shall be named as an
additional insured in the aforesaid insurance policies and the policies shall
provide that Landlord shall be afforded not less than thirty (30) days prior
notice of cancellation of said insurance. Tenant shall deliver certificates of
insurance evidencing such policies. All premiums and charges for the aforesaid
insurance shall be paid by Tenant. If Tenant shall fail to make such payment
when due, Landlord may make it and the amount thereof shall be repaid to
Landlord by Tenant on demand and the amount thereof may, at the option of
Landlord, be added to and become a part of the additional rent payable
hereunder. Tenant shall not violate or permit to be violated any condition of
any of said policies and Tenant shall perform and satisfy the requirements of
the companies writing such policies.
52. Bankruptcy
Without limiting any of the provisions of Articles 16, 17 or 18 hereof,
if, pursuant to the Bankruptcy Code of 1978, as the same may be amended, Tenant
is permitted to assign this lease in disregard of the obligations contained in
Articles 11 and 44 hereof, Tenant agrees that adequate assurance of future
performance by the assignee permitted under such Code shall mean the deposit of
cash security with Landlord in an amount equal to the sum of one year's Fixed
Rent then reserved hereunder plus an amount equal to all additional rent payable
under this lease for the calendar year preceding the year in which such
assignment is intended to become effective, which deposit shall be held by
Landlord, without interest, for the balance of the Term as security for the full
and faithful performance of all of the obligations under this lease on the part
of Tenant yet to be performed. If Tenant receives or is to receive any valuable
consideration for such an assignment of this lease, such consideration, after
deducting therefrom (A) the brokerage commissions, if any, and other expenses
reasonably incurred by Tenant for such assignment and (B) any portion of such
consideration reasonably designated by the assignee as paid for the purchase of
Tenant's property in the demised premises, shall be and become the sole and
exclusive property of the Landlord and shall be paid over to Landlord directly
by such assignee. In addition, adequate assurance shall mean that any such
assignee of this lease shall have a net worth, exclusive of good will, equal to
at least fifteen (15) times the aggregate of the Fixed Rent reserved hereunder
plus all additional rent for the preceding calendar year as aforesaid.
53. Local Law 5/Required Alterations
Supplementing Article 6:
(A) All work performed or installations made by Tenant (or by Landlord
at Tenant's request and expense) in and to the demised premises shall be done in
a fashion such that the demised premises and the Building shall be in compliance
with the requirements of Local Law 5 of 1973 of the City of New York, as
heretofore and hereafter amended ("Local Law 5"). The foregoing shall include,
without limitation, (i) compliance with the compartmentalization requirements of
Local Law 5, (ii) relocation of existing fire detection devices, alarm signals
and/or communication devices necessitated by the alteration of the demised
premises, and (iii) installation of such additional fire control or detection
devices as may be required by applicable governmental or quasi-governmental
rules, regulations or requirements (including, without limitation, any
requirements of the New York Board of Fire
<PAGE> 29
Underwriters) as a result of Tenant's manner of use of the demised premises. In
addition, Tenant shall cause the demised premises to be connected to the
Building "Class E" system and arrange to have the demised premises and Tenant
added to the "Class E" computer.
(B) Landlord shall not be responsible for any damage to Tenant's fire
control or detection devices nor shall Landlord have any responsibility for the
maintenance or replacement thereof. Tenant shall indemnify Landlord from and
against all loss, damage, cost, liability or expense (including, without
limitation, reasonable attorneys' fees and disbursements) suffered or incurred
by Landlord by reason of the installation and/or operation of any such devices.
(C) All work and installations required to be undertaken by Tenant
pursuant to this Article shall be performed at Tenant's sole cost and expense
and in accordance with plans and specifications and by contractors previously
approved by Landlord.
(D) The fact that Landlord shall have heretofore consented to any
installations or alterations made by Tenant in the demised premises shall not
relieve Tenant of its obligations pursuant to this Article with respect to such
installations or alterations.
(E) If any utility company or governmental or quasi-governmental
authority requires any work, installation or improvement to be made to the
Building in connection with any Alteration performed by Tenant, the installation
or operation of equipment or machinery in the demised premises or for any other
reason relating to Tenant's use or occupancy of the demised premises, Tenant
shall reimburse Landlord for the cost of such work, installation or improvement
on demand.
54. Tenant's Alterations
(A) Tenant shall not make or perform, or permit the making or
performance of, any alterations, installations, improvements, additions or other
physical changes in or about the demised premises (collectively, "Alterations")
without Landlord's prior consent. Landlord agrees not unreasonably to withhold
its consent to any Alterations which are nonstructural and which do not affect
the Building's systems and facilities, provided that such Alterations are
performed only by contractors or mechanics first approved by Landlord (which
approval shall not be unreasonably withheld), do not affect any part of the
Building other than the demised premises (including, without limitation, the
exterior thereof), do not adversely affect any service required to be furnished
by Landlord to Tenant or to any other tenant or occupant of the Building and do
not reduce the value or utility of the Building. Landlord agrees to respond to
Tenant's request for approval of any such plans and specifications within ten
(10) days after receipt thereof together with any other information that may be
reasonably necessary or desirable in order to perform Landlord's review thereof.
All Alterations shall be done at Tenant's expense and at such times and in such
manner as Landlord may from time to time reasonably designate pursuant to the
conditions for Alterations prescribed by Landlord for the Building ("Alteration
Regulations"). Prior to making any Alterations, Tenant (i) shall submit to
Landlord detailed plans and specifications (including layout, architectural,
mechanical and structural drawings) for each proposed Alteration and shall not
commence any such Alteration without first obtaining Landlord's approval of such
plans and specifications, (ii) shall, at its expense, obtain all permits,
approvals and certificates required by any governmental or quasi-governmental
bodies, and (iii) shall furnish to Landlord duplicate original policies of
worker's compensation insurance (covering
<PAGE> 30
all persons to be employed by Tenant and Tenant's contractors and subcontractors
in connection with such Alteration) and comprehensive public liability
(including property damage coverage) insurance in such form, with such
companies, for such periods and in such amounts as Landlord may reasonably
require, naming Landlord and its agents as additional insureds. Upon completion
of such Alteration, Tenant, at Tenant's expense, shall obtain certificates of
final approval of such Alteration required by any governmental or
quasi-governmental bodies and shall furnish Landlord with copies thereof and
shall, within thirty (30) days of such completion, deliver a set of final "as
built" drawings to Landlord reflecting the Alteration. All Alterations shall be
made and performed in accordance with the Alteration Regulations. All materials
and equipment to be incorporated in the demised premises as a result of all
Alterations shall be new and first quality. No such materials or equipment shall
be subject to any lien, encumbrance, chattel mortgage, title retention or
security agreement. Tenant shall not, at any time prior to or during the Term,
directly or indirectly employ, or permit the employment of, any contractor,
mechanic or laborer in the demised premises, whether in connection with any
Alteration or otherwise, if, in Landlord's sole discretion, such employment will
interfere or cause any conflict with other contractors, mechanics, or laborers
engaged in the construction, maintenance or operation of the Building by
Landlord, Tenant or others. In the event of any such interference or conflict,
Tenant, upon demand of Landlord, shall cause all contractors, mechanics or
laborers causing such interference or conflict to leave the Building
immediately.
(B) No approval of any plans or specifications by Landlord or consent
by Landlord allowing Tenant to make any Alterations or any inspection of
Alterations made by or for Landlord shall in any way be deemed to be an
agreement by Landlord that the contemplated Alterations comply with any legal
requirements or insurance requirements or the certificate of occupancy for the
Building nor shall it be deemed to be a waiver by Landlord of the compliance by
Tenant of any provision of this lease.
(C) Tenant shall promptly reimburse Landlord for all actual,
out-of-pocket fees, costs and expenses paid to third parties including, but not
limited to, those of attorneys, architects and engineers, incurred by Landlord
in connection with the review of Tenant's plans and specifications and
inspecting the Alterations to determine whether the same are being or have been
performed in accordance with the approved plans and specifications thereof and
with all legal and insurance requirements.
(D) Notwithstanding anything to the contrary contained herein, Tenant
shall not be required to remove any Alterations at the expiration or earlier
termination of the Term unless Landlord so specified in its approval
notification therefor, provided that in its request for such approval Tenant
must refer to this lease provision in all capital bold-face type at least six
points larger than the type used in the rest of its letter.
55. Estoppel Certificate
Tenant, at any time, and from time to time, upon at least ten (10)
days' prior notice by Landlord, shall execute, acknowledge and deliver to
Landlord, and/or to any other person, firm or corporation specified by Landlord
("Recipient"), a statement certifying that this lease is unmodified and in full
force and effect (or, if there have been modifications, that the same is in full
force and effect as modified and stating the modifications), stating the dates
to which the Fixed Rent and additional rent
<PAGE> 31
have been paid, stating whether or not there exists any default by Landlord
under this lease, and, if so, specifying each such default, and any other
matters reasonably requested by Landlord or the Recipient.
56. Holdover
In the event Tenant shall hold over after the expiration of the Term,
the parties hereby agree that Tenant's occupancy of the demised premises after
the expiration of the Term shall be upon all of the terms set forth in this
lease except that Tenant shall pay as a use and occupancy charge for the
holdover period an amount equal to the higher of (A) an amount equal to two
times the pro rata Fixed Rent and additional rent payable by Tenant during the
last year of the Term; or (B) an amount equal to the then market rental value
for the demised premises, as established by Landlord's good faith estimate of
such market rental value.
57. Intentionally Omitted
58. Limitation on Rent
If on the Commencement Date, or at any time during the Term, the Fixed
Rent or additional rent reserved in this lease is not fully collectible by
reason of any federal, state, county or city law, proclamation, order or
regulation, or any direction of any public officer or body pursuant to law
(collectively, "Rent Law"), Tenant agrees to take such steps as Landlord may
request to permit Landlord to collect the maximum rents which may be legally
permissible from time to time during the continuance of such legal rent
restriction (but not in excess of the amounts reserved therefor under this
lease). Upon the termination of such legal rent restriction, Tenant shall pay to
Landlord, to the extent permitted by the Rent Law, an amount equal to (A) the
Fixed Rent and additional rent which would have been paid pursuant to this lease
but for such legal rent restriction, less (B) the Fixed Rent and additional rent
paid by Tenant to Landlord during the period such legal rent restriction was in
effect.
59. Acceptance of Keys
If Landlord or Landlord's managing or rental agent accepts from Tenant
one or more keys to the demised premises in order to assist Tenant in showing
the demised premises for subletting or other disposition or for the performance
of work therein for Tenant or for any other purpose, the acceptance of such key
or keys shall not constitute an acceptance of a surrender of the demised
premises nor a waiver of any of Landlord's rights or Tenant's obligations under
this lease including, without limitation, the provisions relating to assignment
and subletting and the condition of the demised premises.
60. Security Deposit
(A) Supplementing Article 34, Tenant may, at the execution of this
lease or at any time during the Term, deliver as the Security Deposit an
irrevocable letter of credit (the "Letter of Credit") in the amount of the
Security Deposit issued by a New York City commercial bank acceptable to
Landlord in its sole discretion, and in the form of the letter of credit annexed
hereto as Exhibit B, to be held by Landlord as the Security Deposit in
accordance with Article 34 and this Article 60. The Letter of Credit shall (i)
initially expire not less than one (1) year from the Commencement Date or the
date
<PAGE> 32
of issuance if delivered to Landlord thereafter, (ii) provide for automatic
renewals for periods of not less than one (1) year, and (iii) have a final
expiration date not less than four (4) months after the Expiration Date. Tenant
shall pay to Landlord, on demand and as additional rent hereunder, all fees and
charges paid by Landlord to the bank issuing the Letter of Credit in connection
with the transfer of same to any future owner of the Building. In the event of a
default by Tenant in the performance of any of the terms, provisions and
conditions of this lease, Landlord shall be permitted to draw down any portion
or the entire amount of the Letter of Credit and apply the proceeds or any part
thereof in accordance with Article 34 of this lease and retain the balance for
the Security Deposit. Landlord shall also have the right to draw down any
portion or the entire amount of the Letter of Credit in the event that Landlord
receives notice that the date of expiry of the Letter of Credit will not be
extended by the issuing bank and retain the proceeds for the Security Deposit.
If Landlord shall have drawn against the Letter of Credit and applied all or any
portion thereof, then Tenant shall deposit with Landlord, upon demand, a
sufficient amount of cash to bring the balance of the monies held by Landlord to
the amount of the Security Deposit.
(B) Landlord shall deposit the Security Deposit, if in cash, in
whichever day-of-deposit to day-of-withdrawal account, in one of the banks then
being used by the managing agent of the Building for tenant security deposits,
that is, on the Commencement Date, then paying the highest interest rate. On
April 1, 1997 and on each April 1 thereafter Landlord will move the Security
Deposit to the then highest interest-bearing day-of-deposit to day-of-withdrawal
account in such banks. Provided that Tenant is not then in default hereunder
after expiration of any applicable notice and/or grace period, Landlord will pay
the accrued interest on the Security Deposit, less a one (1%) percent per annum
administrative fee, to Tenant on or about April 1 of each year commencing with
1997.
61. Definitions of "Landlord" and "Owner"
The terms "Owner" and "Landlord," whenever used in this lease
(including, without limitation, in Article 31), shall have the same meaning.
62. Landmark Designation
Tenant acknowledges that the Building has been designated by the New
York City Landmarks Commission (the "Commission") as an historical landmark and,
in connection therewith, Tenant agrees that it shall comply with any rules,
regulations, building and/or construction restrictions of the Commission or
other entity having jurisdiction over the demised premises in connection
therewith.
63. Hazardous Materials
(A) Tenant shall not cause nor permit "Hazardous Materials" (as defined
below) to be used, transported, stored, released, handled, produced or installed
in, or from, the demised premises, except that inflammable or combustible (but
not explosive) items may be brought into and used within the demised premises as
may be needed for the operation of normal office equipment, so long as both in
compliance with all Laws. The term "Hazardous Materials" shall, for the purposes
hereof, mean any flammable, explosives, radio-active materials, hazardous
wastes, hazardous and toxic substances or related materials, asbestos or any
material containing asbestos, or any other substances or material, as defined by
any present or future Law, including, without limitation, the Comprehensive
Environmental
<PAGE> 33
Response Compensation and Liability Act of 1980, as amended, the Hazardous
Materials Transportation Act, as amended, the Resources Conservation and
Recovery Act, as amended, Superfund Amendment and Reauthorization Act of 1986
and in the regulations adopted and publications promulgated pursuant to each of
the foregoing. In the event of a breach of the provisions of this Article 63,
Landlord, in addition to all of its rights and remedies under this lease and
pursuant to Law, require Tenant to remove any such Hazardous Materials from the
demised premises or the Building in the manner prescribed for such removal by
all requirements of Law. The provisions of this Article 63 shall survive the
expiration or sooner termination of this lease.
(B) If any friable asbestos (not including asbestos floor tile, as to
which Landlord shall have no responsibility) is discovered in the premises that
is not the responsibility of Tenant as above provided and is required by
applicable Law to be removed or encapsulated, then, as Tenant's sole remedy,
Landlord will at Landlord's expense and with reasonable promptness remove or
encapsulate such asbestos in accordance with Law. Landlord will deliver to
Tenant with reasonable promptness after the Commencement Date a Form ACP-5 for
the premises.
64. Interconnections
(A) Subject to Landlord's prior approval, which will not be
unreasonably withheld, Tenant shall have the right to install and run both
vertical and horizontal communication interconnections, via conduit, wave guide
and ceramic duct, provided that such installation is performed in accordance
with all applicable Laws and the relevant provisions of this lease including,
without limitation, Articles 3, 6 and 54 and in accordance with plans and
specifications previously approved by Landlord. Prior to any cable pulls being
installed through any conduits running through other tenant spaces, Tenant shall
present a copy of an agreement between Tenant and such other tenant (reasonably
satisfactory to Landlord) whereby such other tenant consents to Tenant making
the proposed connection or other installation.
(B) If Tenant makes use of an existing means of interconnection owned
by Landlord, Tenant shall pay:
(1) a Base Charge (one time charge) of $30.00 per foot; and
(2) a Monthly Charge, payable along with monthly installments
of Fixed Rent, as follows: 4" - $.80 per linear foot; 3" - $.60 per linear foot;
2" - $.40 per linear foot; and 1" or less - $.30 per linear foot.
(C) If Tenant installs a new means of interconnection, Tenant shall pay
a Monthly Charge, payable along with monthly installments of Fixed Rent, as
follows: 4" - $.50 per linear foot; 3" - $.40 per linear foot; 2" - $.30 per
linear foot; and 1" or less - $.20 per linear foot.
(D) Tenant agrees that the charges set forth in subsections (B) and (C)
shall be effective as of the date of Landlord's approval of the applicable
installation and shall be increased by four (4%) percent each year commencing on
the first anniversary of the date of Landlord's approval of the applicable
installation and on each anniversary thereafter throughout the Term. If the Term
is extended
<PAGE> 34
or this lease is renewed, such charges during the renewal term may, at
Landlord's option, be increased to those then generally prevailing in the
Building.
(E) All interconnections shall conform to the following
specifications:
(1) The conduit shall be supported a minimum of every 10
linear feet.
(2) The conduit shall be tagged each 15 linear feet, with
letters a minimum of 2-1/2 inches in height, as required by
Landlord in its approval letter.
(3) All penetrations of fire-rated partitions or slabs shall
be fire-stopped with a UL approved material of equal or
greater rating.
(4) Tenant shall inform the building manager on completion of
the installation for final inspection and approval.
(5) Tenant's sub-contractor must coordinate all work with the
building manager and other tenants affected by the work.
(6) All conduit shall be rigid conduit or elastic metal
tubing.
(F) All conduit and other items installed pursuant to this Article
shall become the property of Landlord and shall be surrendered with the premises
upon the expiration or earlier termination of the Term unless Landlord, by
notice to Tenant given no later than twenty (20) days after the expiration or
earlier termination of the Term, notifies Tenant that it wishes Tenant to remove
all or any specified portion thereof, in which event Tenant shall remove the
specified items at its expense with reasonable expedition after receipt of such
notice (or by the end of the Term, if later).
65. Landlord's Access
Supplementing Article 13, upon reasonable prior notice to Tenant (which
need not be in writing), except in an emergency when no notice shall be
required, Landlord and other tenants, licensees and occupants of the Building
shall have access to the Building shafts and conduits located within the demised
premises.
66. Landlord's Option to Relocate Tenant
At any time prior to the execution and delivery of this lease, Landlord
shall have the right to relocate Tenant to other space located in the Building
(the "Substitution Space") of substantially comparable size and condition as the
demised premises, in which event this lease shall be modified by (i) deleting
all reference to the demised premises and the insertion of the Substitution
Space in place thereof, (ii) adjusting the Fixed Rent to an amount equal to the
rent per square foot payable by Tenant under this lease multiplied by the number
of square feet in the Substitution Space and (iii) a modification of the
definition of Tenant's Proportionate Share (as currently defined in Article 37
hereof) to accurately represent the percentage by which the rentable area of the
Substitution Space bears to the total rentable area of the Building. In all
other respects, the terms and conditions contained in this lease (including
escalations and base years) shall remain unmodified.
<PAGE> 35
67. Tenant's Option to Extend
(A) Provided that this lease is then in full force and effect and
Tenant is not in default hereunder after notice and expiration of any applicable
grace period, Tenant shall have the option to extend the Term for two (2)
additional periods of five (5) years each (each, an "Extension Term" and
collectively the "Extension Terms"). Tenant may not exercise its option for the
second Extension Term unless it has also exercised its option for the first
Extension Term. The first Extension Term shall commence on the day after the
initial Expiration Date (i.e., on May 1, 2006) and shall expire on the fifth
(5th) anniversary of the initial Expiration Date (i.e., on April 30, 2011), and
the second Extension Term shall commence on the day after the extended
Expiration Date (i.e., on May 1, 2011) and shall expire on the fifth (5th)
anniversary of the extended Expiration Date (i.e., on April 30, 2016), unless in
each case such Extension Term shall sooner end pursuant to any of the terms,
covenants or conditions of this lease or pursuant to any of the terms, covenants
or conditions of this lease or pursuant to law. Tenant shall give Landlord
written notice of Tenant's exercise of the first option on or before the date
that is one (1) year prior to the initial Expiration Date (i.e., on or before
April 30, 2005) and of the second option on or before the date that is one (1)
year prior to the extended Expiration Date (i.e., on or before April 30, 2010)
(the time of exercise being of the essence), and upon Tenant timely giving such
notice, the Term shall be extended without execution or delivery of any other or
further documents, with the same force and effect as if the applicable Extension
Term had originally been included in the Term; the word "Term," whenever used
herein, shall include the applicable Extension Term; and the Expiration Date
shall thereupon be deemed to be the last day of the applicable Extension Term.
All of the terms, covenants and conditions of this lease shall continue in full
force and effect during the Extension Term(s), including items of additional
rent and escalation, which shall remain payable on the terms (including the base
years) herein set forth, except that: (i) the Fixed Rent shall be as determined
in accordance with Section (B) of this Article 67, (ii) there shall be no rent
concession, work or work allowance to be furnished by Landlord, and (iii) (x) in
the case of the first Extension Term, Tenant shall have no further right to
extend the Term except for the second Extension Term, and (y) in the case of the
second Extension Term, Tenant shall have no further right to extend the Term.
(B) The Fixed Rent payable by Tenant for the premises during the
applicable Extension Term shall be the fair market rental value of the premises
based upon the criteria set forth in subsection (3) of this Section (B) (the
"FMRV"), determined as follows:
(1) Beginning on the date that is one (1) year prior to the
commencement of the applicable Extension Term, Landlord and Tenant shall
negotiate in good faith to agree upon the FMRV. If Landlord and Tenant cannot
reach agreement by the date that is nine (9) months prior to the commencement of
the applicable Extension Term, Landlord and Tenant shall each select a
reputable, qualified, licensed real estate broker having an office in New York
County and familiar with the rentals then being charged in the Building and in
comparable buildings in lower Manhattan for the type of space represented by the
premises (such brokers are referred to herein, respectively, as "Landlord's
Broker" and "Tenant's Broker"), who shall confer promptly after their selection
by Landlord and Tenant and shall negotiate in good faith to agree upon the FMRV.
If Landlord's Broker and Tenant's Broker cannot reach agreement by the date that
is seven (7) months prior to the commencement of the applicable Extension Term,
then, no later than the date that is six (6) months prior to the commencement of
the applicable Extension Term, they shall designate a third reputable,
qualified,
<PAGE> 36
licensed real estate broker having an office in New York County and familiar
with the rentals then being charged in the Building and in comparable buildings
in lower Manhattan for the type of space represented by the premises (the
"Independent Broker"). Upon the failure of Landlord's Broker and Tenant's Broker
timely to agree upon the designation of the Independent Broker, then the
Independent Broker shall be appointed by a Justice of the Supreme Court of the
State of New York upon ten (10) days notice, or by any other court in New York
County having jurisdiction and exercising functions similar to those exercised
by the Supreme Court of the State of New York. Concurrently with such
appointment, Landlord's Broker and Tenant's Broker shall each submit a letter to
the Independent Broker, with a copy to Landlord and Tenant, setting forth such
broker's estimate of the FMRV, taking into consideration the factors referenced
in subsection (iii) of this Section (B) (respectively "Landlord's Broker's
Letter" and "Tenant's Broker's Letter").
(2) If the FMRV's set forth in Landlord's Broker's Letter and
Tenant's Broker's Letter differ by $18,000 per annum or less for each year
during the Extension Term, the FMRV shall be deemed the average of the FMRV's
set forth in Landlord's Broker's Letter and Tenant's Broker's Letter. If such
differential is more than $18,000 per annum, the Independent Broker shall
conduct such investigations and hearings as he or she may deem appropriate and
shall, within sixty (60) days after the date of his or her designation, choose
either the FMRV set forth in Landlord's Broker's Letter or that set forth in
Tenant's Broker's Letter to be the FMRV and such notice shall be binding upon
Landlord and Tenant. Landlord and Tenant shall each pay the fees and expenses of
its respective broker. The fees and expenses of the Independent Broker shall be
shared equally by Landlord and Tenant.
(3) The FMRV shall be the fair market rental value, as of the
first day of the applicable Extension Term, of space comparable to the premises
in lower Manhattan, taking into account the special character of the Building,
the then existing condition of the premises, the nature of the escalation
provisions and the base years as set forth in this lease, which shall not be
changed, as well as the benefit to Tenant of being able to remain in its
existing space and thus being spared the cost, inconvenience and interruption of
business operations of relocating, the absence of any rent concession or work
contribution from Landlord, and all other relevant terms and conditions of this
lease.
(C) If the Fixed Rent for the applicable Extension Term has not been
determined by the first day thereof, then the Fixed Rent to be paid by Tenant to
Landlord until such determination has been made shall be the FMRV set forth in
Landlord's Broker's Letter. After such determination has been made, any excess
rental theretofore paid by Tenant to Landlord shall be credited by Landlord
against the next ensuing Fixed Rent payable by Tenant to Landlord.
(D) Promptly after the Fixed Rent has been determined, Landlord and
Tenant shall execute, acknowledge and deliver an agreement setting forth the
Fixed Rent for the applicable Extension Term, as finally determined, provided
that the failure of the parties to do so shall not affect their respective
rights and obligations under this lease.
<PAGE> 37
68. Non-Disturbance Agreement
Landlord will use its best efforts, but without the obligation to
expend any money or to execute any documents, to obtain for Tenant's benefit an
agreement from the holder of any mortgage or ground lease presently or hereafter
superior to this lease (a "Holder"), in the Holder's then standard form, to the
effect that, in the event of any foreclosure of such mortgage or the termination
of such ground lease, as the case may be, the Holder will not make Tenant a
party defendant to such foreclosure or termination (unless required by
applicable law, in which event Tenant would receive equivalent protection) nor
disturb its possession under this lease, provided Tenant shall not be in default
hereunder beyond any applicable grace period under this lease for the curing of
such default.
69. Access
Subject to the Rules and Regulations and the provisions of Article 27,
(a) Tenant shall have access to the Building 24 hours a day, seven days a week;
and (b) Landlord shall make available, upon prior appointment, overtime freight
elevator service at Landlord's standard charge (including any required minimum
number of hours).
70. Intentionally Omitted
71. Tenant's Proposed Alterations
(A) Subject to Tenant's compliance with all of the applicable
provisions of this lease, Landlord approves, in principle, the following
proposed Alterations to be performed by Tenant at Tenant's expense:
(1) Core drilling from the premises to the lowest level of the
Building as may be necessary to install new conduit. Scheduling of all core
drilling shall be coordinated with Landlord and any Building occupant thereby
affected and shall be conducted so as to cause no interference whatsoever with
the operations of Landlord or of any other Building occupant.
(2) Installation of up to forty (40) tons of HVAC equipment in
the premises, venting through the windows. The location, size and types of the
vents shall be subject to prior approval by Landlord and the Commission.
(3) At Tenant's option, removal or capping of any heating
system exclusively serving the premises. If Tenant does so, it will thereby be
waiving its right to receive heat and acknowledges that it will not be entitled
to any reduction in Fixed Rent or any additional rent as a result thereof.
Notwithstanding anything to the contrary contained herein, Tenant shall restore
the heating system to its working condition prior to the expiration or earlier
termination of the Term without the necessity of any notice or other action by
Landlord.
(4) Installation of a generator plug on the outside of the
Building adjacent to the loading dock area for the purpose of connecting the
premises to a portable generator in the event of a power failure.
<PAGE> 38
(5) Installation of a 200 kilowatt diesel generator in the
premises with the fuel storage tanks to be located in the basement in a location
designated by Landlord, at a charge, payable as additional rent in equal monthly
installments in advance along with Fixed Rent, of $10.00 per rentable square
foot of floor space per annum.
(6) Installation of a ground wire connecting to the Building's
water main or other suitable Building ground acceptable to Landlord.
(7) Reinforcement of the floor. Attached hereto is a copy of
the Building's certificate of occupancy indicating the floor load.
(8) Installation of an independent fire suppression system, to
be connected by Tenant to the Building's Class E system at a charge to Tenant of
$3,000 per point of connection.
(B) All such Alterations shall be performed in strict compliance with
Article 54 and only after Landlord shall have approved the plans therefor as
provided in Article 54. No Alteration that affects any other tenant or occupant
may be performed until Tenant shall have received written approval thereof from
the affected tenants, in form and substance reasonably acceptable to Landlord.
(C) Tenant shall comply with all Laws in any manner affecting or
relating to Tenant's installation, repair, maintenance and operation of the
Alterations and any equipment or other installations related thereto
(collectively, the "Installations"). Tenant shall secure all permits and
licenses required for the installation and operation of the Installations as
well as all permits and licenses required for the use and operation of the
Installations.
(D) Tenant shall pay for all electrical service required for Tenant's
use of the Installations (if any) pursuant to the applicable provisions of
Article 42. Such electrical service shall be measured by submeter(s) acceptable
to Landlord and installed and maintained by Tenant at Tenant's expense.
(E) Tenant shall (i) take all necessary preventative action to avoid
damage to the structure or any other part of the Building, and (ii) promptly
repair all damage to the Building caused by or resulting from the installation,
maintenance and repair, operation or removal of the Installations.
(F) All Installations made by Tenant pursuant to the provisions of this
Article shall be at the sole risk of Tenant and neither Landlord nor Landlord's
agents or employees shall be liable for any damage or injury thereto caused in
any manner. The Installations shall be erected, installed, repaired, maintained
and operated by Tenant at the sole cost and expense of Tenant and without
charge, cost or expense to Landlord.
(G) Tenant shall indemnify and save harmless Landlord from and against
all loss, damage, liability, cost and expense of any nature (including, without
limitation, reasonable attorneys' fees and expenses) resulting from or arising
in connection with the performance, installation, removal, maintenance,
operation and repair of the installations, including, without limitation, (i) by
reason of any liens, orders, claims or charges resulting from any work done, or
materials or supplies furnished, in connection with the fabrication,
performance, installation, maintenance and operation of the Installations, and
(ii) all loss, damage, liability, cost and expense of any nature (including,
without
<PAGE> 39
limitation, attorneys' fees and expenses), arising out of (x) injury to the
structural integrity of the Building, (y) any claims by other tenants or
occupants of the Building, or (z) any accidents, damage, injury or loss to
persons and property, or either.
(H) All Installations to be done and made by Tenant pursuant to the
provisions of this Article shall be performed in accordance with the terms,
covenants, conditions and provisions of this lease. All plans and specifications
of Tenant's Installations shall be subject to the approval of Landlord, which
shall not be unreasonably withheld, and such Installations shall be further
subject to inspection and reasonable supervision by Landlord.
(I) The Installations shall be maintained and kept in repair by Tenant.
Upon the expiration of the Term or upon the earlier termination of this lease in
any manner, if Landlord so directs by written notice to Tenant, any specified
Installation(s) shall be removed by Tenant and Tenant shall repair any damage to
the Building caused by or resulting from said removal and restore the affected
areas of the Building to their condition prior to the performance of the
Installation(s) in question.
(J) All Installations made by Tenant shall not interfere with or
adversely affect any existing equipment, installations, lines or machinery of
the Building or any other tenant of the Building premises.
<PAGE> 40
EXHIBIT A
(GRAPHIC)
<PAGE> 41
EXHIBIT B
[Name and Address
of Landlord]
Re: Irrevocable Clean Letter of Credit
Gentlemen:
By order of our client, ____________________________________________,
we hereby open our clean irrevocable Letter of Credit No. ______________ in your
favor for an amount not to exceed in the aggregate $_________ US Dollars
effective immediately.
Funds under this credit are available to you against your sight draft
drawn on us mentioning thereon our Credit No. ____.
This Letter of Credit shall expire sixteen (16) months from the date
hereof; provided, however, that it is a condition of this Letter of Credit that
it shall be deemed automatically extended, from time to time, without amendment,
for one year from the expiry date hereof and from each and every future expiry
date, unless at least sixty (60) days prior to any expiry date we shall notify
you by registered mail that we elect not to consider this Letter of Credit
renewed for any such additional period.
This Letter of Credit is transferable and may be transferred one or
more times. However, no transfer shall be effective unless advice of such
transfer is received by us in the form attached signed by you.
We hereby agree with you that all drafts drawn or negotiated in
compliance with the terms of this Letter of Credit will be duly and promptly
honored upon presentment and delivery of your draft to our office at
____________________________ if negotiated on or prior to the expiry date as the
same may from time to time be extended.
Except as otherwise specified herein, this Letter of Credit is subject
to the Uniform Customs and Practice for Documentary Credits (1983 Revision),
International Chamber of Commerce Publication No. 400.
Very truly yours,
(Name of Bank)
By:________________________________
<PAGE> 42
EXHIBIT B-1
Re: Credit Issued by
Gentlemen:
For value received, the undersigned beneficiary irrevocably transfers
to:
- --------------------------------------------------------------------------------
(Name and Second Beneficiary)
- --------------------------------------------------------------------------------
(Address)
all rights of the undersigned beneficiary to draw under the above Letter of
Credit in its entirety.
By this transfer, all rights of the undersigned beneficiary in such
letter of Credit are transferred to the second beneficiary and the second
beneficiary shall have the sole rights as beneficiary thereof, including sole
rights relating to any amendments whether increases or extensions or other
amendments and whether now existing or hereafter made. All amendments are to be
advised direct to the second beneficiary without necessity of any consent of or
notice of the undersigned beneficiary.
The advice of such Letter of Credit is returned herewith, and we ask
you to endorse the assignment on the reverse thereof and forward it directly to
the second beneficiary with your customary notice of transfer.
Enclosed is remittance of $100.00 in payment of your transfer
commission and in addition thereto we agree to pay you on demand any expenses
which may be incurred by you in connection with this transfer.
Yours very truly,
SIGNATURE AUTHENTICATED
(Bank) Signature of Beneficiary
(Authorized Signature)
<PAGE> 43
EXHIBIT C
PERMITTED ELECTRICAL CONTRACTORS
This list of approved contractors is subject to change and reflects
only those contractors who are approved on the date of the lease.
Hatzell & Buehler, Inc.
132 Nassau Street, Suite 1300
New York, NY 10038
J.W.P. Forrest Electric
2 Pennsylvania Plaza
New York, NY 10001
Jacoby Electric Corp.
10-40 Border Avenue
Long Island City, NY 11101
Kleinknecht Electric Company, Inc.
2 Ninth Avenue
New York, NY 10014-1386
Robert B. Samuels Inc.
352 Park Avenue South
New York, NY 10010-1709
<PAGE> 1
Exhibit 10.15
DATED 16th July 1996
TELEHOUSE INTERNATIONAL
CORPORATION OF EUROPE LIMITED
- and -
STAR TELECOMMUNICATIONS INC
----------------------------------
AGREEMENT FOR LEASE
- of -
Computer and telecommunications
Space in Telehouse Coriander Avenue
East India Dock London E14
---------------------------------
EVERSHEDS
SOLICITORS
Senator House, 85 Queen Victoria Street
London EC4V 4JL
Tel: 0171 919 4500 Fax: 0171 919 4919
<PAGE> 2
THIS AGREEMENT is made the 16th day of July One thousand nine hundred
and ninety-six
BETWEEN
TELEHOUSE INTERNATIONAL CORPORATION OF EUROPE LIMITED whose registered office is
at Coriander Avenue London E14 2AA (hereinafter called "the Lessor" which
expression shall where the context so admits include the estate owner for the
time being of the reversion immediately expectant on the term hereby agreed to
be granted) of the one part and
STAR TELECOMMUNICATIONS INC (hereinafter called "the Lessee" which expression
shall where the context so admits include its successors in title) of the other
part
WHEREAS the parties hereto have agreed to enter into this Agreement for the
grant by the Lessor to the Lessee of a lease of part of the building
(hereinafter called "the Building") erected on the Lessor's land situate at and
known as Telehouse Coriander Avenue East India Dock in the London Borough of
Tower Hamlets
NOW IT IS HEREBY AGREED AND DECLARED as follows:-
1. IN consideration of the agreement on the part of the Lessee hereinafter
contained the Lessor hereby agrees to grant to the Lessee and Lessee
hereby agrees to take at the time and in the manner hereinafter
mentioned a sub-subunderlease (hereinafter called "the Lease") in the
form annexed hereto of the Property as defined in Clause 3 hereof
(hereinafter called "the Property")
2.1 EXPRESSIONS defined in the Lease shall have the meanings therein given
to them
2.2 "The Occupation Date" means the date on which the Property shall be
handled over by the Lessor as ready for the Lessee to carry out the
Lessee's Works
2.3 "The Lessee's Works" are the works described in the First Schedule
hereto
2.4 "The Division Works" means the works of partitioning necessary to
create a physical division between the Property and the remainder of
the floor space on the third floor of the building
2.5 "the Headlease" is the Headlease granted by the London Docklands
Development Corporation to the Lessor dated 28th March 1990
2.6 "The Underlease" is the Underlease granted by the Lessor to Lombard
Leasing Industries Limited ("Lombard") dated 28th March 1990
2.7 "The Sub-underlease" is the sub-underlease granted by Lombard to the
Lessor dated 28th
<PAGE> 3
Ground Floor
(diagram follows)
<PAGE> 4
First Floor
(diagram follows)
<PAGE> 5
3RD FLOOR TELEHOUSE INTERNATIONAL CORPORATION OF EUROPE LTD
(diagram follows)
<PAGE> 6
measured in accordance with clause 5 hereof) multiplied by
(pound)16 per square foot
12. The Service Charge commencement date is the Occupational Date
13. The day for first payment of Service Charge is the same as the
Service Charge commencement date
15. The decorating intervals date is the 1st January 1996
4.1 THE parties shall immediately after the Measurement Date make to the
Mayor's and City of London Court an application for the Court Order in
the form of the draft application annexed and shall diligently pursue
such application
4.2 If for any reason within the period of six weeks immediately following
the Measurement Date the Court Order has not been made either party may
at the end of such period or at any time subsequently before the Court
Order has been made serve on the other a notice invoking the provisions
of clause 4.3
4.3 Upon service of notice pursuant to clause 4.2 (and notwithstanding
anything to the contrary contained or implied elsewhere in this
Agreement) this Agreement shall (save for clause 4.4 and without
prejudice to any pre-existing right of action of any party in respect
of any breach by any other party of its obligations under this
Agreement) immediately determine and cease to have effect and the
parties shall be released from any further liability under this
Agreement
4.4 If this Agreement determines in accordance with clause 4.3 the Lessee
shall:-
4.4.1 Forthwith vacate the Property and
4.4.2 Procure the cancellation of any entry registered against the Lessor's
title at HM Land Registry in respect of this Agreement
5.1 IMMEDIATELY following (or if so agreed between the Lessor and the
Lessee before) the completion of the Division Works the Lessor and
Lessee shall procure that their respective agents or representatives
shall jointly measure and endeavour to agree the net internal floor
area of the Property (so that the net internal floor area shall be
measured to the face of the walls including the internal face of the
Division Works) in accordance with the Code of Measuring Practice
prepared by the Royal Institution of Chartered Surveyors and the
Incorporated Association of Valuers and Engineers (dated January 1990)
("the Measurement") the date of agreement as to the Measurement being
the "Measurement Date"
3
<PAGE> 7
enter upon the Property and to carry out and/or complete the Lessee's
Works and the Lessee shall on demand repay to the Lessor the cost
thereof with interest
8. AS soon as practicable after the Relevant Date and after the Lessee's
Works shall have been completed to the satisfaction of the Lessor
(unless the Lessor waives this requirement) the Lessor will grant and
the Lessee will accept the Lease for the term and at the rents and
subject to the covenants and conditions therein and hereinbefore
expressed and the Lessee shall execute a counterpart of the Lease
9. IF the Lessee shall not execute a counterpart of the Lease within
fourteen days from the date of being requested so to do by the Lessor
or if any rent or any part thereof shall remain unpaid for fourteen
days after becoming due (whether formally demanded or not) or if the
Lessee shall be in breach of any other of its obligations herein
contained or if any event happens whereby if the Lease had actually
been granted the Lessor would have been entitled to re-enter on the
Property under the powers therein contained then and in any such case
unless the breach non- performance or non-observance of any agreement
or condition shall be remedied within a reasonable time after notice
thereof in writing shall have been given to the Lessee by the Lessor
this Agreement may at the expiration of such period at the option of
the Lessor be determined and on service of notice by the Lessor to the
Lessee to that effect this Agreement shall determine but without
prejudice to all such rights and remedies which the Lessor may have
against the Lessee for breach of any such agreement or condition and in
that case the Lessor may resume possession of the Property
10. THE Lessee shall not assign underlet or part with the Lessee's interest
in the Agreement
11.1 FROM the Occupation Date until the grant of the Lease the Lessee shall
be deemed to be tenant-at-will of the Lessor
11.2 In any case until the Lease has been granted the Lessee shall pay a
licence fee or rent (as the case may be) equal to the rents agreed to
be reserved by the Lease (the first payments whereof to become due as
therein and herein provided) and all covenants and provisions on their
part agreed to be contained in the Lease shall so far as the same may
be applicable be observed and performed by the Lessee as if the Lease
had been actually granted and the Lessor may distrain for rent in
arrear and exercise all such powers and remedies in respect of any
breach non-performance or non-observance of the said
5
<PAGE> 8
11. Raised floors with 60cm. x 60cm. tiles with carpet attached
12. Suspended ceilings
13. Fluorescent lighting (average illumination: 500 lux)
14. Installation of electric cable trays in the corridor
15. Installation of telecommunication cable trays and trunking above the
suspended ceilings and below the raised floors to the Property
SIGNED for and on behalf of
TELEHOUSE INTERNATIONAL CORPORATION
OF EUROPE LIMITED
SIGNED for and on behalf of
the LESSEE
7
<PAGE> 9
DATED________19___
TELEHOUSE INTERNATIONAL CORPORATION
OF EUROPE LIMITED
- and -
STAR TELECOMMUNICATIONS INC
----------------------------------
LEASE
- of -
Computer and telecommunications
space in Telehouse Coriander Avenue
East India Dock London E.14
---------------------------------
EVERSHEDS
SOLICITORS
Senator House, 85 Queen Victoria Street
London EC4V 4JL
Tel: 0171 919 4500 Fax: 0171 919 4919
<PAGE> 10
THE PARTICULARS
1 The date of this Lease is: the day of One thousand nine hundred and
2 The parties hereto are:
2.1 The lessors: TELEHOUSE INTERNATIONAL CORPORATION OF EUROPE LIMITED
whose registered office is at Coriander Avenue London E14 2AA
2.2 The Lessee: STAR TELECOMMUNICATIONS INC whose registered office is at
2.3 The Surety: none
3 The property is: all that part of the third floor of the Building which
part is shown on the plan annexed hereto and thereon edged red
including as mentioned in Part I of the First Schedule
4 The net internal floor area of the Property is:
5 The Building is: the Lessors' building situate and known as Telehouse
Coriander Avenue East India Dock in the London Borough of Tower Hamlets
including the boundary walls drains forecourts parking areas and open
areas thereof
6 The Term is: from the day of One thousand nine hundred and to
the day of
7 (a) The Initial Base Rent is: pounds ((pound) ) per annum
(b) The Initial Supplementary Rent is: pounds ((pound) ) per annum
8 The Review Date is the day of
9 The rent commencement date is: the day of One thousand nine
hundred and
10 The day for first payment of rent is: the day of One thousand
nine hundred and
11 The first Service Charge Year is: The period from the First day of
April One thousand nine hundred and ninety-six to the Thirty- first day
of March One thousand nine hundred and ninety-seven
12 The Estimated Service Charge for the first Service Charge Year is:
13 The Service Charge commencement date is: the day of One
thousand nine hundred and
14 The day for first payment of Service Charge is: the day of
One thousand nine hundred and
15 The decorating intervals date is: the First day of January One thousand
nine hundred and ninety-six
16 The permitted use is as a computer and telecommunications centre
17 The Common Parts of the Building in respect of which the right of use
is granted in accordance with the provisions of the First Schedule Part
II paragraph 3 and the purposes for which such right is granted are the
ground floor entrance hall and reception area the common toilet and
lavatory accommodation in the Building and such of the lobbies
staircases passages and lifts in the Building as are necessary for the
purpose of access to and egress from the Property and the said toilet
and lavatory accommodation which Common Parts are for the purposes of
identification only shown on the plans annexed hereto and thereon
coloured blue and the forecourts and open areas of the Building for the
purpose of access to and egress from the Building and the loading dock
for the purpose of loading and unloading goods and the parking area for
the parking of not more than two motors cars
18 The Order of the Mayor's and City of London Court authorising the
agreement excluding in relation to the tenancy hereby granted the
provisions of Sections 24 to 28 of the Landlord and Tenant Act 1954
(number ) was made on the day of 19
19 Underletting of a permitted part is not permitted
20 The Lessee's solicitors are: Milbank Tweed Hadley and McCloy, Dashwood
House 69 Old Broad Street London EC2M 1QS
<PAGE> 11
THIS LEASE is made on the date stated in the Particulars BETWEEN the
parties hereto stated in the Particulars
WITNESSETH as follows:-
1 Interpretation
1.1 The Particulars are the foregoing Particulars which form part of this Lease
and in this Lease where the context admits the expressions set out in the
Particulars and in the Second Schedule have the meanings therein respectively
given to them
1.2 The expression "the Lessors" where the context admits includes the person
from time to time entitled to the reversion immediately expectant on the
termination of the Term
1.3 The expression "the Lessee" where the context admits includes the successors
in title and assigns of the Lessee and the person in whom for the time being the
Property is vested for the residue of the Term and any Subtenant
1.4 The expression "the Surety" where the context admits includes the personal
representatives of the Surety (if any) and where the context admits any person
who shall have covenanted with the Lessors as Surety or in substitution for or
in addition to the Surety but the covenants by and references to the Surety are
inapplicable if there is no such Surety
1.5 Where "the Lessors" "the Lessee" or "the Surety" at any time includes more
than one person or body of persons their respective covenants and obligations
shall be deemed to be joint and several
1.6 Where the context so required or admits the masculine feminine or neuter
genders shall include the other genders and singular or plural number shall
include the other number
1.7 Any reference herein to any statute or to statutes generally refers where
the context admits to the statute as amended at the date of this Lease and
includes any subsequent
<PAGE> 12
amendment or re-enactment thereof and any regulations orders bye-laws or other
subordinate legislation made or notices served thereunder and any reference to
any part of or section in any statute includes a reference to the part or
section as amended or re-enacted
1.8 Any covenant by or obligation of the Lessee not to do or to do any act or
thing includes a covenant or obligation not to suffer or permit that act or
thing to be done or not to be done as the case may be and references to the
covenants or obligations of the Lessee or of the Surety include those implied as
well as those expressed herein
1.9 Any reference to the doing or permitting to be done by the Lessors (or any
other person) of any act or thing includes the doing or permitting of that act
or thing by the Lessors' (or such other person's) Surveyors or other agents and
by workmen or contractors employed or engaged by or on behalf of the Lessors or
such other person or their Surveyors or other agents or by any other appropriate
person authorised by the Lessors or by such other person
1.10 Except where the context otherwise requires the expression "the Term"
includes the period of any extension or continuation of the Term whether
contractual or statutory and any longer period during which the Lessee remains
in occupation of the Property or any part thereof references to the rent (or
rents) hereby reserved include not only the rent (or rents) expressly hereby
reserved but also any other moneys which become or are deemed to be payable by
the Lessee as rent for the Property during or in respect of any part of the Term
(including for the avoidance of doubt any such extension or continuation or
longer period as aforesaid) whether pursuant to a provision of this Lease or by
agreement or otherwise howsoever and the obligations of the Lessee and of the
Surety shall be construed accordingly and any reference to the duration of the
term granted by a Permitted Underletting shall be construed accordingly
1.11 Where under the terms of the Superior Leases the consent of the Superior
Landlords
2
<PAGE> 13
is required for any act or matter that consent shall also be deemed to be
required under this Lease and the Lessors shall not be required to give any
consent hereunder to any act or matter which required the consent of the
Superior Landlords unless and until that consent has been given
1.12 Any reference to the expiry of the Term is a reference to the expiry of the
Term howsoever the same is determined
1.13 The clause headings and marginal notes are for guidance or reference only
and do not affect the construction meaning or effect of this Lease
1.14 References herein to clauses and to Schedules are unless the context
otherwise requires references to clauses and Schedules in this Lease
1.15 Any plan annexed hereto and anything shown thereon is for the purpose of
identification only
1.16 This Lease takes effect as a sub-subunderlease
2 Demise
The Lessors in consideration of the rent and covenants hereinafter reserved and
contained hereby demise unto the Lessee ALL THAT the Property described in the
Particulars TOGETHER WITH the easements rights and privileges mentioned in Part
II of the First Schedule and TOGETHER ALSO WITH (in common with the Lessors and
others) the rights granted by the Superior Leases in so far as they relate to
the Property and are capable of being enjoyed with the Property but EXCEPT AND
RESERVED unto the Lessors as mentioned in Part III of the First Schedule and
SUBJECT TO the exceptions reservations rights covenants conditions stipulations
and other matters mentioned or referred to in the Superior Leases TO HOLD the
same unto the Lessee for the Term stated in the Particulars YIELDING AND PAYING
therefor unto the Lessors during the Term FIRST yearly from the rent
commencement date stated in the
3
<PAGE> 14
Particulars until the first Review Date stated in the Particulars a rent equal
to the aggregate of the Initial Base Rent and the Initial Supplementary Rent
stated in the Particulars and thereafter yearly during each successive Review
Period a rent equal to the rent previously payable hereunder or such revised
rent as may be ascertained as provided in the Third Schedule whichever shall be
the higher all such rents to be payable by equal quarterly payments in advance
on the Quarter Days in every year the first quarterly payment or a due
proportion thereof calculated from the rent commencement date stated in the
Particulars to the quarter day next following the rent commencement date or next
following the date of this Lease whichever is the later to be paid on the day
for first payment of rent stated in the Particulars and secondly ALSO PAYING to
the Lessors by way of additional rent the sums hereinafter made payable in
respect of insurance premiums Service Charge Estimated Service Charge and
interest AND THIRDLY ALSO PAYING to the Lessors by way of additional rent any
value added tax charged on the rents first and secondly hereby reserved
3 Lessee's covenants
The Lessee hereby covenants with the Lessors in manner following that is to
say:-
To pay rent
3.1 To pay unto the Lessors the rents hereby reserved on the days and in manner
herein provided without any deduction set-off or counterclaim
Insurance
3.2 To pay to the Lessors on demand the Insurance Premium proportion of any
premiums which the Lessors may from time to time during the Term pay (or a due
proportion calculated from the Service Charge commencement date of premiums
already paid) for insuring the Structure of the Building in accordance with the
covenant herein contained and the whole of any
4
<PAGE> 15
premiums which the Lessors may from time to time pay for insuring the loss
during any Rent Abatement Period (which for the avoidance of doubt may for this
purpose include a period after the expiry of the Term) of the rent first made
payable hereunder (or in the opinion of the Lessors' Surveyors likely to be
payable hereunder following a revision of the rent in accordance with the
provisions hereof) or of the Service Charge or the Estimated Service Charge
Service Charge and Estimated Service Charge
3.3 To pay to the Lessors during the Term the Service Charge on the days and in
the manner provided in the Fifth Schedule and to comply with the obligations of
the Lessee contained therein
3.4 To pay the Estimated Service Charge by equal quarterly instalments in
advance on the Quarter Days during the Term (or by such other instalment or
instalments as may be appropriate in the case of any revision of the Building
Service Charge pursuant to the provisions of the Fifth Schedule) the first
quarterly payment of the Estimated Service Charge for the first Service Charge
Year stated in the Particulars or a due proportion thereof calculated from the
Service Charge commencement date or next following the date of this Lease
whichever is the later to be paid on the day for first payment of Service Charge
stated in the Particulars
Other Outgoings
3.5.1 From time to time and at all times during the Term to pay to the
appropriate authority responsible for collecting the same all taxes
rates duties charges assessments outgoings and impositions whatsoever
whether parliamentary municipal parochial or otherwise which now are or
at any time during the Term shall be charged assessed or imposed upon
or in respect of the Property or upon the owner occupier landlord or
5
<PAGE> 16
tenant thereof or other person having an interest therein in respect of
the same including a fair proportion to be determined by the Lessors of
all such payments as may be charged assessed or imposed upon or in
respect of any premises of which the Property forms part (except to the
extent that any such is included in the Building Service Charge) and
including any charged assessed or imposed or becoming payable after the
date hereof whether newly or by way of increase and whether or not of a
wholly novel nature but excluding any charged assessed or imposed on or
in respect of the income or profits or the value of the assets of the
Lessors or the grant of this Lease or any dealing by the Lessors with
the reversion expectant on the Term and to indemnify and keep I
indemnified the Lessors against any such taxes rates duties charges
assessments outgoings or impositions which shall be charged assessed or
imposed upon the Property or upon the owner occupier landlord or tenant
thereof or other person having an interest therein in respect of any
period after the expiry of the Term and which would not have been so
charged assessed or imposed but for some act or default of the Lessee
or but for the fact that the Property was unoccupied for any period
during the Term
Rateable value
3.5.2 Not to agree or by default allow to be fixed the rateable value of the
Property or any part thereof without the prior written consent of the
Lessors such consent not to be unreasonable withheld and to co-operate
with the Lessors in any negotiations with the District Valuer or in any
appeal to the Court or to the Lands Tribunal in respect of the rateable
value of the Property
6
<PAGE> 17
V.A.T.
3.6.1 To pay in addition to the principal amount any value added tax charged
on the rents hereby reserved or on any other amount payable by the
Lessee hereunder being tax on a supply of goods or services directly to
the Lessee to the intent that in every case where the Lessee covenants
to pay any such amount under this Lease such amount shall be deemed to
be exclusive of value added tax
3.6.2 To pay in addition to the principal amount any value added tax charged
on any sum expended or incurred by the Lessors and recoverable from the
Lessee hereunder not being tax on a supply of goods or services
directly to the Lessee except insofar as such tax is repaid or allowed
to the Lessors by the Commissioners of Customs & Excise
Charges for Public Utilities
3.7 To pay to the relevant authority undertaker or supplier all charges for
electricity telephone telecommunication or other services used or consumed in
the Property during the Term and the cost of the periodic rental of any meters
and other equipment supplied to or for the Property during the Term PROVIDED
THAT if and so long as the Lessors shall take a bulk supply of electricity for
the Building from the London Electricity PLC or its successors in business or
shall provide a supply from the Lessors' own generator or generators the Lessors
shall apportion for the use of the Lessee in the Property so much of the said
supply as the Lessee shall reasonably require and the Lessee shall pay to the
Lessors in respect of the electricity so apportioned such charge or charges for
the amount consumed on a monthly basis (which shall either be recorded in such
manner as the Lessors shall from time to time reasonably decide or shall be
calculated by the Lessors according to such formula as the Lessors shall
consider from time to time to be fair and reasonable) and in respect of any
meter such quarterly charge as the
7
<PAGE> 18
Lessors shall from time to time determine but such charge or charges shall not
in any case exceed the charge or charges which may from time to time lawfully be
made together with any lawful handling charge
Repair etc.
3.8.1 From time to time and at all times during the Term to repair and to
keep the Property (including all additions and improvements from time
to time thereto and all landlord's fixtures and fittings plant
machinery apparatus and appurtenances thereto belonging) in good and
substantial repair and condition to the reasonable satisfaction of the
Lessors or their Surveyors (damage by any of the Insured Risks to the
Structure of the Property excepted subject to any exclusion condition
or provision for excess in the relevant policy unless and except to the
extent that any act or omission of the Lessee renders the insurance
money irrecoverable)
To renew landlord's fixtures & fittings
3.8.2 From time to time and at all times during the Term to renew the
landlord's fixtures fittings plant machinery and apparatus as often as
the same shall be beyond reasonable repair with articles of a kind and
quality approved by the Lessors in accordance with the best practice at
the time To yield up
3.8.3 To deliver up the Property to the Lessors with vacant possession in
such good and substantial repair and condition as aforesaid and in
accordance with the other covenants and obligations of the Lessee at
the expiry of the Term
8
<PAGE> 19
To remove the Lessee's works tenant's and trade fixtures and fixtures
and alterations and to restore the Property and make good
3.8.4 Before the expiry of the Term unless relieved of the alterations
obligation by notice in writing from the Lessors to remove from the
Property the Lessee's Works and all tenant's or trade fixtures and
fittings in or on and all alterations made to the Property by the
Lessee or by any predecessor in title of the Lessee and to restore the
Property to its condition before the making of such alterations and to
reinstate and make good to the reasonable satisfaction of the Lessors
or their Surveyors all damage thereby caused to the Property
Defects
3.9 Regularly during the Term to inspect the Property for defects damage and
wants of repair the rectification of which is the responsibility of the Lessors
and forthwith to notify the Lessors in writing of particulars of any such defect
damage or want of repair
Internal decoration
3.10 In every fourth year of the Term calculated from the decorating intervals
date and in the last six months before the expiry of the Term to clean prepare
and paint with two coats at least of good quality paint and to strip and re-
cover with good quality paper or other wallcovering and to polish and otherwise
treat all the internal parts of the Property usually or hitherto so painted
covered polished or otherwise treated and from time to time when reasonably
necessary and in any event on the expiry of the Term to re- place the floor
coverings of the Property Provided that all such works shall be carried out to
the reasonable satisfaction of the Lessors using only materials of good quality
and with workmanship of a high standard and that on the last occasion on or
before the expiry of the Term the finishing tints or colours and
9
<PAGE> 20
materials shall be such as shall have been approved by the Lessors or their
Surveyors
To clean
3.11 To clean the interior surfaces of all glass in the glass windows of the
Property at least once in every month of the Term
To permit Lessors to enter on premises and give notice of disrepair
etc.
3.12 To permit the Lessors at all reasonable times during the Term upon giving
to the Lessee prior notice thereof (except in the case of emergency) to enter
(and in emergency to break and enter) upon the Property for the purpose of
examining the state and condition thereof and of the equipment plant machinery
and systems installed by the Lessee therein and if there shall be any defect or
want of repair decoration or cleanliness for which the Lessee is liable or it
the said equipment plant machinery or systems shall not be such as shall have
been approved by the Lessors or if in any other respect the state or condition
of the Property shall not be fully in accordance with the covenants and
obligations on the part of the Lessee herein contained the Lessee will upon
notice thereof in writing being given to it or left upon the Property cause the
want of repair decoration or cleanliness to be made good repaired decorated or
cleaned in compliance with the Lessee's obligations or the said equipment plant
machinery or systems to be removed replaced or modified or such other works to
be carried out to comply with the Lessee's obligations as appropriate with such
reasonable time as shall be specified in such notice or if no time is specified
within a reasonable time after service thereof and also that if the Lessee shall
not within such reasonable time after the service of such notice as shall be
specified therein or if no such time is specified as soon as practicable
commence and thereafter proceed diligently with the making good of such defects
or the execution of such repairs decoration or cleaning or the removal
replacement or modification of such equipment plant machinery or
10
<PAGE> 21
systems or the carrying out of such works then (but without prejudice to the
Lessors' right of re-entry hereinafter contained and to any other right or
remedy of the Lessors) to permit the Lessors to enter into and upon the Property
and to make good such defects or to execute such repairs decoration or cleaning
or remove replace or modify such equipment plant machinery or systems or to
carry out such works and so that the cost thereof With Interest shall be a debt
due from the Lessee to the Lessors and recoverable as rent in arrear
To permit Lessors to enter and do works
3.13.1 To permit the Lessors upon prior notice except in case of emergency to
enter (and in emergency to break and enter) and remain upon the
Property so far as may be necessary or useful in order to perform the
Lessors' obligations herein contained or to exercise the rights herein
excepted and reserved to the Lessors
3.13.2 To permit the Superior Landlords and others to enter the Property at
the times and for the purposes provided in the Superior Leases Lessors
to determine disputes between Lessee and the tenants of their
neighbouring property
3.14 That in case any dispute or controversy shall at any time or times during
the Term arise between the Lessee and the tenants or occupiers of the Lessors'
neighbouring property or any part thereof relating to any easements rights or
privileges whatsoever affecting or relating to the Property or the Lessors'
Neighbouring Property the same shall from time to time be settled and determined
by the Lessors or their Surveyors in such manner as they by any writing direct
in that behalf to which determination the Lessee shall from time to time submit
To permit Lessors to take inventory of landlord's fixtures
3.15 To permit the Lessors during the last year before the expiry of the Term so
often as may be reasonably necessary and at reasonable times to enter the
Property for the purpose of
11
<PAGE> 22
taking inventories of the landlord's fixtures and fittings to be yielded up at
the expiry of the Term
To permit Lessors and others to view
3.16 To permit the Lessors and all persons having authority from the Lessors or
their agents to enter upon the Property to view the Property at reasonable times
by prior appointment in connection with any sale or letting or proposed sale or
letting of the Building or the Property
To comply with statutes etc.
3.17.1 At the Lessee's own cost to do or refrain from doing (as the case may
be) all such acts and things and execute all such works as may from
time to time during the Term be necessary for the purpose of complying
with any statute for the time being in force (including any such which
may be necessary at the date hereof) or the lawful requirements of any
government local or other competent authority in respect of the
Property or the use or occupation thereof or any landlord's or tenant's
fixtures and fittings plant machinery apparatus or appurtenances
therein and whether affecting the owner occupier landlord or tenant
thereof
3.17.2 If and when called upon so to do to produce to the Lessors or to the
Lessors' Surveyors at the Lessee's expense all such plans documents and
other evidence as the Lessors may reasonably require in order to
satisfy themselves that the provisions of any such statute or
requirement have been complied with in all respects
To produce notices to the Lessors and to comply with same
3.18 Forthwith after receipt by the Lessee to produce to the Lessors any notice
or proposal for notice or order or proposal for an order or an assessment of
rateable value given issued or made under or by virtue of any statute or by any
local or other competent authority in respect of the Property And at the request
of the Lessors to make or join with the Lessors in making such
12
<PAGE> 23
appeal or objection or objections or representation or representations against
or in respect of any such notice or order or proposal as the Lessors shall
require
As to use
3.19.1 Not to use the Property or any part thereof for any illegal or immoral
purpose nor for any of the following:
(a) for the cooking of food
(b) as premises to which the public have access
(c) for residential purposes
3.19.2 Not to do on or about the Property or the Building or any part thereof
any act or thing which may be or become a nuisance annoyance grievance
injury danger trouble or disturbance or may be objectionable to the
Lessors or the owners or occupiers of the Lessors' Neighbouring
Property or to the neighbourhood
3.19.3 Without prejudice to anything herein contained not at any time during
the Term to use the Property or any part thereof otherwise than for the
permitted use stated in the Particulars
Not to alter premises or make improvements
3.20.1 Not at any time during the term except in so far as necessary to comply
with the Lessee's obligations hereunder (but then not without the
Lessors' prior written consent provided that such consent shall not
unreasonably by withheld) to make any structural or non-structural
alterations or additions either externally or I internally in or upon
or in respect of the Property or to erect make or maintain on the
Property or any part thereof any building erection structure hoarding
or improvement but so that this shall not prevent the erection removal
or alteration of internal non- structural partitioning
13
<PAGE> 24
(with or without internal doors) not affecting the external appearance
of the Building or the installation of computer and telecommunication
equipment and cooling and emergency warning systems provided that the
Lessors' prior written consent shall have been obtained for the
erection removal or alteration of any such partitioning or the
installation of such equipment or systems
3.20.2 Not to make any permitted alterations or additions to the Property or
to install any equipment plant machinery or system otherwise than
strictly in accordance with the terms of all necessary consents from
public authorities (which shall be obtained in advance) in materials of
good quality to a high standard of workmanship and in all respects to
the reasonable satisfaction of the Lessors or their Surveyors
3.20.3 Before installing altering or removing any permitted partitioning
equipment or system the Lessee shall give notice in writing to the
Lessors of the work to be carried out and provide such further
information in respect thereof as the Lessors shall reasonably require
3.20.4 Not to employ to carry out any permitted work in the Property any
contractor or employee except such as shall previously have been
approved in writing by the Lessors for the particular purpose provided
that such consent shall not be unreasonably withheld
Not to place signs etc.
3.21 Not without the prior written consent of the Lessors to place erect attach
or exhibit in upon or to any part of the Property any sign notice placard or
advertisement of any kind or nature whatsoever visible from outside the Property
Provided that the Lessors shall not unreasonably withhold their consent to a
sign of such size in such form and in such position on the exterior of
14
<PAGE> 25
the door into the Property as the Lessors reasonably require stating the name
and business of the Lessee and lawful occupants of the Property or any part
thereof
Development
3.22 Without prejudice to anything herein contained
3.22.1 At all times to comply with the requirements of the Planning Act in so
far as they affect the Property
3.22.2 Not without the prior written consent of the Lessors (provided that
such consent shall not be unreasonably withheld or delayed in respect
of any matter for which the Lessors' written consent has been obtained
hereunder) to apply for permission to carry out on or in respect of the
Property any development requiring permission under the Planning Act
3.22.3 Not to carry out or begin or in respect of the Property any development
for the purposes of the Planning Act without the prior written consent
of the Lessors (provided that such consent shall not be unreasonably
withheld or delayed in respect of any matter for which the Lessors'
written consent has been obtained hereunder) nor before the Lessors
shall have acknowledged in writing that the relevant planning
permission is satisfactory to the Lessors which acknowledgement may be
withheld if in the opinion of the Lessors any provision thereof is
prejudicial to the Lessors' interest in the Property or in the Lessors'
Neighbouring Property
3.22.4 To comply with any conditions attached to any planning permission that
the Lessee may implement including any such attached to any temporary
planning permission which are intended to be complied with when the
Property ceases to be used in accordance with that planning permission
even though the period for which the
15
<PAGE> 26
permission is granted may extend beyond the expiry of the Term
3.22.5 Whenever required to permit the Lessors to enter upon the
Property to comply with any requirements lawfully made on them
under the Planning Act by any competent authority
notwithstanding that any action reasonably necessary for
compliance interferes with the lessee's enjoyment of the
Property
Dealing with the Property
3.23.1 Not to Deal With the Property except by a Permitted Assignment
or by a Permitted Charge or by a Permitted Underletting
3.23.2 Not to Deal With the Property by a Permitted Assignment or by
a Permitted Charge or by a Permitted Underletting without the
previous written consent of the Lessors Provided that such
consent shall not be unreasonably withheld or delayed and
Provided also that without prejudice to the foregoing or to
the definition of a Permitted Assignment and for the purposes
of Subsection (1A) of Section 19 of the Landlord and Tenant
Act 1927 (as amended by the 1995 Act) it is hereby agreed that
(a) for the avoidance of doubt the Lessors may withhold
consent to an assignment while the proposed assignee is not an
Acceptable Tenant and-or while any rent or other moneys due
hereunder are unpaid (b) any such consent may be subject to a
condition that the assignor is to enter into an Authorised
Guarantee Agreement and/or to a condition that any Surety
(here meaning any person who shall have covenanted with the
Lessors whether in this Lease or in any other document as
surety or guarantor for the obligations of the assignor) is to
join in the Authorised Guarantee Agreement to guarantee the
obligations of the assignor to the Lessors thereunder and/or
to a condition that the proposed assignee will be an
Acceptable Tenant on the date of the
16
<PAGE> 27
assignment
3.23.4 Not to reduce the rent payable under any Permitted
Underletting nor to vary any of the provisions thereof nor to
give any consent thereunder or pursuant thereto without the
previous written consent of the Lessors provided that such
consent shall not be unreasonably withheld in the case of an
application consistent with the provisions of the Lease
3.23.4 To procure that in any case where any Permitted Underletting
is subject to any provision for the review of the rents or
other sums payable in respect thereof or of the intervals at
which such rents or other sums are to be reviewed or of any
other matter such reviews are carried out in a timely and
proper manner according to the provisions thereof
3.23.5 On substantial breach of any covenant or condition by any
Subtenant not to waive the same expressly or impliedly but to
use its best endeavours to re-enter on the premises comprised
in the relevant subtenancy and otherwise to enforce such
covenant and condition provided that if an overriding lease
shall be granted pursuant to Section 19 of the 1995 Act so
that this Lease becomes an underlease the overriding lease
shall provide that the tenant thereunder shall not forfeit or
accept a surrender of the underlease without the previous
written consent of the Lessors (provided that such consent
shall not be unreasonably withheld or delayed)
3.23.6 Within twenty-one days of any request by the Lessors from time
to time in that behalf to provide the Lessors with the names
and addresses of all Subtenants together with such details of
their respective rights titles or interests as the Lessors may
reasonably require including the rents or other sums payable
in respect thereof and the terms on
17
<PAGE> 28
which such rights titles or interest were granted or acquired
3.23E.7 At the request of the Lessor to take such action as may be necessary to
determine any subtenancy which is not a Permitted Underletting
To register assignments etc.
3.24 Within one month after the date thereof to produce for registration with
the Lessors either the original or a certified copy of (a) every document or
instrument evidencing or effecting a dealing with the Property or any part
thereof and (b) every probate or grant of administration assent or discharge of
mortgage or Order of and Court or other disposition or devolution of title
affecting the Property or any part thereof and in each case to supply for
retention by the Lessors a true permanent copy of the relevant document or
instrument and to pay or cause to be paid a resonable fee for every such
registration and the Superior Landlords' registration fee.
Lessee not to give acknowledgements of right of light etc.
3.25 Not to give any third party any acknowledgement that the access of light or
air to any of the windows or openings in the Property is enjoyed by the consent
of such third party nor to pay any third party any sum of money nor to enter
into any agreement with any third party for the purpose of including such third
party not obstruct the access of light or air to any windows or openings in the
Property Not to install noisy machinery etc.
3.26 Not to install or use in or on the Property any equipment plant or
machinery that causes or makes noise vibration or fumes which may be heard or
experienced or inhaled outside the Property or which may cause injury to the
Property or to the Lessors' Neighbouring Property or to any persons occupying or
visiting the same
18
<PAGE> 29
Loading
3.27 Not to bring leave or deposit on any of the floors of the Property or of
the Lessors' Neighbouring Property or upon any other part or parts thereof nor
suspend from the walls or ceilings thereof anything whatsoever which may
overload or cause strain damage or interference to the columns beams or
structure thereof or the fixtures and fittings plant machinery or apparatus
therein or thereon
Rights of support
3.28 Not to do or omit in upon or about the Property any matter act or thing
which might impair or prejudicially affect the support or shelter of the
Lessors' neighbouring property or any other adjoining or neighboring property
Effluent
3.29 Not to discharge any dangerous or deleterious substance into any service
conduit serving the Property or the Lessors' Neighbouring Property
Refuse
3.30 To remove all refuse and trade waste from the Property at regular and
frequent intervals and pending collection by the local authority to the store
the same in containers or receptacles to the satisfaction of the Lessors in such
place as the Lessors shall designate for the purpose and not otherwise to
obstruct or to accumulate any wast rubbish or refuse in or on the curtilage of
the Building
Security
3.31 At any time that the Property or any part thereof is unoccupied to take
reasonable precautions to prevent vandalism theft and unlawful occupation
19
<PAGE> 30
Cost and charges
3.32 To pay on an indemnity basis all costs charges and expenses whatsoever
(including architects' surveyors' solicitors' and other professional fees and
disbursements) properly incurred by the Lessors in relation or incidental to:-
3.32.1 The recovery of arrears of rent or other payment due hereunder
3.32.2 The effecting of any forfeiture or the levying of any distress for
non-payment of rent
3.32.3 Any notice served under Section 146 or Section 147 of the Law of
Property Act 1925 or under the Leasehold Property (Repairs) Act 1938 or
in or in comtemplation of proceedings thereunder nothwithstanding that
forfeiture shall be avoided otherwise than by relief granted by the
Court
3.32.4 The preparation and service of any schedule of dilapidations which may
be served before or after the expiry of the Term
3.32.5 The preparation and service of any other notice or schedule (whether
statutory or otherwise) relating to wants of repair to the Property or
to other breaches of any of the covenants or obligations on the part of
the Lessee and all inspections in resonable contemplation of or
consequent upon the service of any such notice or schedule
3.32.6 Any forfeiture or other proceedings or steps subsequent to and
consequent upon the service of any such notice or schedule as aforesaid
3.32.7 Any application made by the Lessee or any Subtenant for any consent
licence or approval hereunder whether the same is granted or not
granted subject to any qualification or condition
3.32.8 Approving any plans and/or specifications for the monitoring or
inspecting any works carried out the Property or the installation of
any equipment or systems therein
20
<PAGE> 31
3.32.9 The abating of any nuisance at or about the Property or the execution
of any works which may be required for abating such nuisance pursuant
to any notice served by a local authority
3.32.10 The assessment of the rateable value of the Property or any part
thereof including any negotiations with the District Valuer and any
appeal to the Court or to the Lands Tribunal To comply with estate
regulations
3.33.1 To perform and observe the regulations set out in the Telehouse
Tenants' Handbook and in the Seventh Schedule and any other resonable
regulations from time to time of the Lessors for the good management of
the Building
3.33.2 To comply with regulations contained in the Superior Leases and with
any other regulations required thereby to be complied with
Not to insure
3.34.1 Not to effect any policy of insurance in respect of the Structure of
the Property or the Structure of the Building or any part thereof
(other than loss of rent after the expiry of any Rent Abatement Period)
PROVIDED that if any such policy is effected in breach of this clause
the Lessee shall hold the proceeds of any such policy in trust or
procure that the same are held in trust at the option of the Lessors
either to apply the said proceeds in the reinstatement or rebuilding of
the Structure of the Property or the Structure of the Building (as the
case may be) or to pay such proceeds to the Lessors
3.34.2 To permit the Lessors to enter onto the Property at any reasonable time
during the Term on resonable notice to inspect and value the same for
the purpose of assessing the sum for which the Structure of the
Building or the Lessee's Works should be
21
<PAGE> 32
insured
3.34.3 If the Property or any part thereof shall be destroyed or damaged to
notify the Lessors in writing as soon as reasonably practicable after
such damage or destruction shall come to the notice of the Lessee
3.34.4 To comply with the reasonable requirements and recommendations of the
Lessors' insurers in relation to the Property of which the Lessee has
notice
Not to avoid Lessors' insurance
3.34.5 Notwithstanding anything else contained in this Lease not to do or omit
or fail to do during the Term in or upon the Property or any part
thereof anything which or the omission of which or the failure to do
which (as the case may be) may render the Lessors' policy or policies
of insurance in respect of Building void or voidable or increase the
premiums payable thereon or prejudice the ability of the Lessors to
make or pursue a claim thereunder or limit curtail or otherwise
prejudice the rights or entitlement of the insurers under the relevant
policy
Indemnity
3.35 Indemnify and keep indemnified the Lessors fully and effectually from and
against all liabilities actions proceedings claims costs charges demands and
expenses (including any increase of insurance premium) caused by or arising from
3.35.1 The use or occupation of the Property during the Term
3.35.2 The carrying out of any works (otehr than works carried out by or on
behalf of the Lessors) on or to or the installation of any equipment or
system in the Property during the Term
3.35.3 The state or condition of the Property during the Term
22
<PAGE> 33
3.35.4 Any act or default during the Term of the Lessee
3.35.5 The infringement disturbance or destruction during the Term by the
Lessee of any right or easement
3.35.6 The breach of any covenant or obligation of the Lessee
3.35.7 Any other cause in relation to the Property except only if or in so far
as the same is caused by the act or default of the Lessors or any
person having authority from the Lessors or their agents
Notice of change of address or death of Surety
3.36 To notify the Lessors in writing from time to time of any change of its or
the Surety's place of abode or business or registered office or of the death of
the Surety forthwith after any such change or death Superior Lease
3.37 Not to do or omit in relation to the Property any act or thing which would
or might cause the Lessors to be in breach of the Superior Leases or which if
done or omitted would or might be a breach of the covenants by the Lessors or
the conditions in the Superior Leases
Landlord and Tenant (Covenants) Act 1995
3.38 Not unreasonably to object to any application by the Lessors under Sections
6 7 or 8 of the 1995 Act to be released from any landlord covenant of the
tenancy hereby created
4 Lessors' covenant
The Lessors hereby covenant with the Lessee paying the rents hereby reserved and
performing and observing the convenants and conditons herein contained and on
the part of the Lessee to be performed and observed
23
<PAGE> 34
For quiet enjoyment
4.1 The Lessee shall and may peaceably and quietly possess and enjoy the
Property during the Term without any interruptions from or by the Lessors or any
person rightfully claiming from or under the Lessors
To insure
4.2 Subject to availability of cover and to any exclusions conditions or
provisions for excess from time to time agreed between the Lessors and their
insurers the Lessors shall keep the Structure of the Building insured in not
less than such amount as shall in the opinion of the Lessors' Surveyors from
time to time be the cost of rebuilding or replacing the same against loss damage
or destruction by the Insured Risks including professional fees in connection
with rebuilding and reinstatement of the Structure of the Building cost of
demolition and site clearance and additional costs incurred in alteration or
rebuilding to meet local or planning authority requirements and subject as
hereinafter provided shall as soon as it is possible and lawful to to so apply
the proceeds of every such insurance (or so much thereof as necessary) in the
rebuilding or reinstatement of the Structure of the Building with such
variations as the Lessors may reasonably require or as may be necessary to
comply with any statues
To provide services
4.3 To perform the obligations set out in the Sixth Schedule
Superior Lease
4.4 To pay the rents reserved by the payable by the Lessors under and to perform
and observe the covenants on the part of the Lessors and the conditons contained
in the Superior Leases except in so far as such performance and observance is
the obligation of the Lessee under this Lease
24
<PAGE> 35
Provisos
5 PROVIDED ALWAYS AND IT IS EXPRESSLY AGREED as follows:-
Forfeiture
5.1 If the rents hereby reserved or any part thereof shall remain unpaid for
fourteen days after becoming payable (whether formally demanded or not) or if
the Lessee or the Surety being a company unregistered company or corporation
shall be or shall be deemed to be or shall be likely to become unable to pay its
debts within the meaning of Section 123 of the Insolvency Act 1986 or make
voluntary arrangement as referred to in Part I of the Insolvency Act 1986 or
shall have an administration order made in respect of it or shall commence to be
wound up either voluntarily (save for the purpose of amalgamation or
reconstruction) or compulsorily or shall have a receiver or administrative
receiver appointed of all or any part of its assets or undertaking or if the
Lessee or the Surety if more than one any of them being an individual shall make
a voluntary arrangement as referred to in Part VIII of the said Act or make any
other assignment for the benefit of or enter into any other arrangement with his
creditors or shall have an interm order or bankruptcy order made in respect of
him or if the Lessee or the Surety or if more than one any of them shall suffer
any distress or excecution to be levied on its goods or if any covenant or
condition on the part of the Lessee or the Surety herein contained shall not be
performed or observed or if the Surety or if more than one any of them being an
individual shall die and if in that event (if the Lessors shall so require) some
other person reasonable acceptable to the Lessors shall not within three months
after his deathconvenant with the Lessors in the same terms mutatis mutandis as
the Surety's covenant hereinafter contained in substitution for him and at the
cost of the Lessee than and in any of the said events it shall be lawful for the
Lessors at any time thereafter to re-enter upon the Property or any part thereof
in the name of the whole and
25
<PAGE> 36
thereupon this demise shall absolutely determine but without prejudice to any
right of action or remedy of the Lessors against the Lessee or the Surety in
respect of any arrears of rent or any breach of covenant or condition
No waiver by acceptance of rent
5.2 If any of the said events referred to in the foregoing Clause shall occur
the subsequent demand for or acceptance of rent by the Lessors shall not be
treated as a waiver of the Lessors' right to forfeit this Lease or to re-enter
on the Property and neither the Lessee nor any Subtenant shall in any
proceedings for forfeiture plead or otherwise put forward any such demand or
acceptance as a waiver or as a defence
Interest on late payment
5.3 If any of or on account of the rent first hereby reserved or of the
Estimated Service Charge (including in eitehr case any value added tax charged
thereon) shall not be made on the due date (whether formally demanded or not) or
if any other payment due hereunder from the Lessee to the Lessors shall not be
made within seven days of becoming due or if following the occurence of any of
the events referred to in Clause 5.1 acceptance of any instalment of rent or
other payment shall be refused but it shall subsequently be accepted such rent
or other payment shall without prejudice to any right or remedy of the Lessors
be payable With Interest
Notice
5.4 Section 196 of the Law of Property Act 1925 and Section 23 of the Landlord
and Tenant Act 1927 as amended by the Recorded Delivery Service Act 1962 shall
apply to notices required to be served hereunder and such provisions shall be
extended as follows:-
5.4.1 Where the expression "the Lessee" or "the Surety" including more than
one body or person service on any one of them shall be deemed to be
service on them all
26
<PAGE> 37
5.4.2 Any notice required or authorised by the said Acts or any other Act or
this Lease to be served shall be correctly served if it is sent by post
in a stamped envelope addressed to the Lessee or to the Surety (or any
one of them as aforesaid as the case may be) at the last known place of
abode or business or registered office in the United Kingdom of such
Lessee or Surety or at the address of the Property AND proof of posting
shall be proof of service
Rent abatement
5.5 During any Rent Abatement Period (but excluding any period during which
rebuilding or reinstatement shall be delayed by the act or default of the
Lessee) and provided that the insurance moneys payable under any policy effected
by the Lessors shall not be irrecoverable wholly or partly by reason soley or in
part of any act or default of the Lessee and provided that if the Rent Abatement
Period begins or continues on account of destruction of or damage to the
Lessee's Works a claim in respect of such destruction or damage the Service
Charge and the insurance premiums made payable by Clause 3.2 or such fair and
just proportion thereof according to the nature and extent thereof as shall be
Agreed or Determined shall cease to be payable and any rent or Estimated Service
Charge paid in advance for any such period or such fair and just proportion
thereof as aforesaid shall be repaid
Termination if reinstatement frustrated
5.6.1 If at any time during the Term the Structure of the Building or any
part thereof shall be destroyed or damaged by any of the Insured Risks
so that the Property is rendered unfit for the use hereby authorised
the Lessors may terminate this Lease by serving notice in writing on
the Lessee to that effect provided that in the reasonable opinion
27
<PAGE> 38
of the Lessors at the time of serving the said notice it is unlawful or
impossible for the Lessors to rebuild or reinstate the Structure of the
Building and if such notice is served before the expiry of three years
from the occurrence of the said destruction or damage that such
rebuilding or reinstatement will not have become lawful and possible
before the expiry of such period
5.6.2 If the Structure of the Building or any part thereof shall be destroyed
or damaged as aforesaid and if three years after the occurrence of such
destruction or damage the Lessors shall not have started to rebuild or
reinstate as aforesaid the Lessee may serve notice in writing (a
"notice of request") on the Lessors requesting the Lessors to state
whether in their opinion such rebuilding or reinstatement is lawful and
possible provided that a notice of request shall not be served within
three years after the occurrence of such destruction or damage and if
the Lessors shall not within three months of service of a notice of
request have stated in writing to the Lessee that in their opinion such
rebuilding or reinstatement is lawful and possible the Lessee may
terminate this Lease by notice in writing (a "notice of termination")
to the Lessors to that effect provided that no notice of termination
shall be served earlier than three months after service of a notice of
request nor after the Lessors shall have stated in writing to the
Lessee that in their opinion rebuilding or reinstatement is lawful and
possible nor after the Lessors shall have started to rebuild or
reinstate
5.6.3 On service of a notice under Clause 5.6.1 or of a notice of termination
under Clause 5.6.2
(a) the Term shall thereupon determine but without prejudice to the rights
of any party against the others in respect of any antecedent breach of
the terms
28
<PAGE> 39
hereof and
(b) the insurance moneys payable under any policy effected by the Lessors
and all interest thereon shall belong absolutely to the Lessors free
from any obligation to apply the same in rebuilding or reinstatement
Landlord and Tenant Act 1954
5.7 The provisions of Sections 24 to 28 of the Landlord and Tenant Act 1954 are
excluded in relation to the tenancy granted by this Lease as the parties hereto
hereby agree having been authorised to do so by the Order of the Court made on
the day stated in the Particulars
Section 62 L.P.A. 1925
5.8.1 Section 62 of the Law of Property Act 1925 shall not apply to this
Lease Section 3 Prescription Act 1832
5.8.2 The access of light to the Property shall unless and until interrupted
be enjoyed by consent of the Lessors and this provision shall be deemed
to be a consent or agreement in writing made for that purpose within
the meaning of Section 3 of the Prescription Act 1832
Rent restriction
5.9 If at any time on or after the Review Date the provisions for revision of
rent herein contained shall be restricted modified or curtailed or the rent
which may be demanded paid or received for the Property shall be limited by law
or by public policy:-
5.9.1 The Lessors may at any time after any such law or policy ceases to be
in force or after the effect thereof is modified relaxed or amended
(and after each such occasion if more than one) by notice in writing to
the Lessee require the rent first hereby reserved to be revised
29
<PAGE> 40
5.9.2 On service of any such notice as aforesaid the day of service thereof
shall be deemed to be a new Review Date in addition to the Review Date
stated in the Particulars a new Review Period shall accordingly be
deemed to have started and a revised rent for that Review Period shall
accordingly be ascertained as provided in the Third Schedule
Exclusion of liability on parting with reversion
5.10 The Lessors (here meaning the original contracting party or any other
person from time to time entitled to the reversion immediately expectant on the
termination of the Term as the case may be) shall not be liable for any breach
of the covenants on the part of the Lessors herein expressed or implied
occurring after they shall have parted with their interest in reversion
expectant on the determination of the Term
Lessee's property
5.11 Without prejudice to any other right or remedy of the Lessee if after the
expiry of the Term any property of the Lessee shall remain in the Property and
the Lessee shall fail to remove the same within Twenty-eight days after being
requested in writing by the Lessors so to do the Lessors may as agent of the
Lessee (and the Lessors are hereby appointed by the Lessee to act as such) sell
such property and shall then hold the proceeds of sale after deducting the costs
and expenses of removal storage and sale reasonably and properly incurred by the
Lessors to the order of the Lessee provided that the Lessee shall indemnify the
Lessors against any liability incurred by the Lessors to any third party whose
property shall have been sold by the Lessors in the bona fide mistaken belief
(which shall be presumed unless the contrary be proved) that such property
belonged to the Lessee and was liable to be dealt with as such pursuant to this
Clause
Limitation of liabilty
5.12.1 The Lessors shall not be liable (except to the extent (if any) to which
the Unfair
30
<PAGE> 41
Contract Terms Act 1977 otherwise provides) to the Lessee for any loss damage
costs or expenses suffered or incurred by the Lessee or by any other person
directly or indirectly as a result of any of the following:-
(a) any breach of any obligation or duty of the Lessors whether contractual
or statutory express or implied or any negligent or otherwise tortious
failure of the Lessors to maintain repair decorate clean service or
carry out any other work to or in respect of the Property or the
Lessors' Neighbouring Property or any part thereof or any plant or
machinery or other thing therein or thereon unless the Lessors shall
have notice of the said breach or failure and shall have failed to make
good the same within a reasonable time
(b) any breach of any such obligation or duty of the Lessors to provide any
service in or for the Property or the Lessors= Neighbouring Property
due to any cause outside the reasonable control of the Lessors
(c) any failure stoppage or defect of or in any plant or machinery in the
Property or the Lessors' Neighbouring Property or interruption or
diminution in the supply of light power heating water coolant or other
services therein or thereto during inspection testing or maintenance or
due to accident or other cause outside the control of the Lessors
(d) any loss of or delay in delivering or failure to deliver any property
of or communication to or from the Lessee or any other person
(e) any unauthorised act or default of any agent of the Lessors
5.12.2 The Lessors shall not be liable to the Lessee for any failure to warn
the Lessee of the occurrence of any emergency or the failure of any
system in the Property
31
<PAGE> 42
notwithstanding that the Lessors may give such warnings from time to time
5.12.3 The Lessors shall not in any circumstances be liable to the Lessee for
any loss of profit or of goodwill or for any special indirect or
consequential loss (including loss or damage incurred by or suffered by
the Lessee as a result of a claim made or an action brought by a third
party) notwithstanding that such loss may have been foreseeable or that
the Lessors may have had notice that such loss might be incurred or
suffered
No warranty or representation as to permitted use
5.13 Nothing in this Lease contained shall imply or be deemed to imply any
warranty or representation by the Lessors that the use of the Property for the
permitted use stated in the Particulars or for any other purpose is or will be
or will continue to be a permitted use under the Planning Act and it is hereby
agreed that in entering into this Lease the Lessee does not rely on any such
warranty or representation given by the Lessors or by any person on their behalf
Entire contract
5.14 Neither the Lessee nor the Surety has relied on or been induced to
enter into this Lease by any representation or collateral warranty made or given
by or on behalf of the Lessors except those made or given in writing by their
solicitors on or before the execution hereof
Termination of electricity supply
5.15 If the consumption or use in the Property of electricity shall at any
time exceed the rate from time to time permitted by the Lessors and if in the
opinion of the Lessors or their agents or servants there is in consequence a
risk of personal injury or of damage to the Building or to any of the equipment
plant or machinery or systems in any part of the Building other than the
Property then it shall be lawful for the Lessors without notice to the Lessee to
terminate the supply of electricity to the Property but without prejudice to any
other right or remedy of the
32
<PAGE> 43
Lessors against the Lessee
6 Surety's covenant
The Surety in consideration of the demise herein contained having been made at
its request hereby covenants with the Lessors as follows:-
6.1 That the Lessee will pay the rents hereby reserved on the days and in
manner aforesaid and will duly perform observe and comply with all the covenants
and obligations of the Lessee from time to time hereunder and that in the case
of default in any such payment of rent or performance or observance of such
covenants or obligations the Surety will pay and make good to the Lessors on
demand all loss damages costs and expenses thereby arising or incurred by the
Lessors With Interest
6.2 In the event of the Lease being determined by re- entry under the
provisions of Clause 5.1 or being disclaimed by a liquidator or trustee in
bankruptcy of the Lessee that the Surety will if the Lessors so require accept
from the Lessors a lease of the Property for a term equal in duration to the
residue remaining unexpired of the Term at the time of the grant of such lease
to the Surety such lease to be at the same rents and to contain the like
lessee's and lessors' covenants respectively and the like provisos and
conditions in all respects (including the proviso for reentry and including the
same Review Dates and the same decorating intervals date) as are herein
contained the Surety paying the Lessors' solicitors' proper charges and
disbursements for the preparation and completion thereof and in any event but
without prejudice to any other liability of the Surety to the Lessors that the
Surety will indemnify the Lessors in respect of all loss damages costs and
expenses suffered or incurred by the Lessors by reason of such determination or
disclaimer
6.3 That if the Lessors consent to an assignment of this Lease subject to a
condition that
33
<PAGE> 44
the assignor is to enter into an Authorised Guarantee Agreement the Surety shall
if so required by the Lessors join in the Authorised Guarantee Agreement to
guarantee the obligations of the assignor thereunder
6.4 That any neglect or forbearance of the Lessors in endeavouring to obtain
payment of the rents hereby reserved when the same become payable or in
enforcing the performance or observance of the said covenants or obligations of
the Lessee or any time which may be given by the Lessors to the Lessee or any
variation of the terms of this Lease which may be agreed between the Lessors and
the Lessee or any consent licence or approval which may be given by the Lessors
to the Lessee shall not release or exonerate or in any way affect the liability
of the Surety under the foregoing covenants
6.5 Forthwith to notify the Lessors in writing from time to time of any change
of its place of abode or business or registered office
6.6 The covenants on the part of the Surety herein contained take effect subject
as provided in Section 24 of the 1995 Act
7 Declaration by a Lessee which is not resident or which does not have
its registered office within the jurisdiction of the English Courts
7.1 The Lessee acknowledges and declares that this Lease and the rights and
obligations of the Lessee hereunder are governed by English law
7.2 The Lessee irrevocably and unconditionally agrees that any proceedings in
relation to this Lease may and shall be brought in the English Courts and
submits to the jurisdiction of the English Courts in respect of any such
proceedings
7.3 The Lessee hereby authorises and appoints [ ] to accept service on behalf of
the Lessee of any notices served hereunder (but without prejudice to the
provisions herein contained as to the service of notices) and of any proceedings
in respect
34
<PAGE> 45
hereof
7.4 If at any time during the Term the said Lessee's solicitors or any other
solicitor or firm of solicitors authorised or appointed in their place or any
other person or persons authorised or appointed to accept service on behalf of
the Lessee shall be or become unable or unwilling to accept service of any such
notice or proceedings on behalf of the Lessee the Lessee shall forthwith
authorise and appoint another solicitor or firm of solicitors practising in
England to accept service of such notices and proceedings on behalf of the
Lessee in their place and shall forthwith notify the Lessors thereof
8. The parties hereto declare that this Lease is a new tenancy within the
meaning of Section I of the 1995 Act
I N W I T N E S S whereof this Lease has been duly executed as a deed by the
parties hereto the day and year first above written
THE FIRST SCHEDULE
PART I
(The Property)
The Property includes
(a) such of the walls laying within the Property as are not structural or
load bearing
(b) all the internal plastered coverings and plaster work of the walls
bounding and laying within the Property
(c) the doors and door frames and windows and window frames fitted in the
said walls
(d) all the coverings of the ceilings of the Property and all suspended
ceilings and hangers
(e) the raised floors and the floor coverings
35
<PAGE> 46
(f) all fixtures and fittings plant machinery apparatus and appurtenances
and all additions thereto (other than tenant's and trade fixtures and
fittings) not hereinafter expressly excluded
(g) any Service Conduits laid in and serving exclusively the Property but
excludes the columns and beams of the Building and all structural and
load bearing walls the glass in the windows and the roof slab and
everything above the roof slab and the floor slab and every thing below
the floor slab of the Property and any Service Conduits in the Property
which serve other parts of the Building
PART II
(Easements rights and priveleges granted by this demise)
1. The right for the Lessee its servants agents and visitors in common with the
Lessors the Superior Landlords and those authorised by them and all others
having the same right respectively to pass and repass at all times and for all
purposes with or without vehicles over the road or roads leading from the public
highway to the Building until the same shall be adopted by the highway authority
and shall become maintainable at public expense for the purpose of access to or
egress from the Building provided that the Lessors or the Superior Landlords
shall be entitled from time to time to stop up or to re-locate the situation of
such road or roads on condition that there shall remain or the Lessors or the
Superior Landlords shall have provided by deed similar rights over an
alternative means of access to the Building whereupon the right granted above
shall cease and be substituted by a right over such alternative means of access
2. The free passage of water soil gas electricity electronic signals and other
services to and from the Property by and through the Service Conduits which now
are or at any time during the perpetuity period may be in the Lessors'
Neighbouring Property and serve the Property
36
<PAGE> 47
3. The right to shelter protection and vertical and lateral support from the
Lessors' Neighbouring Property
4. The right (in common with the Lessors and all others having the like right)
to use such of the Common Parts of the Building and for such purposes as are
stated in the Particulars
PART III
(Exceptions and Reservations)
1. Full right and liberty at any time and from time to time during the Term to
erect buildings erections or structures upon or alter or rebuild any such
buildings erections or structures from time to time erected on the Lessors=
Neighbouring Property and to authorise and consent to the rebuilding of or the
making of any addition to or alteration in any other adjoining or neighbouring
property to any extent and in any manner notwithstanding that the access of
light and air to the Property or any part thereof (whether as now or at the
relevant time enjoyed) may thereby be obstructed diminished or interfered with
or that the carrying out of such works may cause temporary obstruction annoyance
or inconvenience to the Lessee Provided that the Lessee's use and enjoyment of
the Property is not thereby unreasonably prejudiced
2. The right for the Lessors and the tenants and occupiers of the Lessors'
Neighbouring Property to the free passage of water coolant soil gas air
electricity electronic signals and other services through the Service Conduits
now or at any time during the perpetuity period in through under or upon the
Property
3. The right for the Lessors at all reasonable times during the Term upon giving
prior notice (except in the case of emergency) to enter (and in emergency to
break and enter) the Property for the purpose of inspecting repairing renewing
decorating cleansing or carrying out maintenance works thereto or to the
Lessors' Neighbouring Property or for the purpose of taking
37
<PAGE> 48
such measures as the Lessors shall think to Deal With any emergency in the
Property or in the Lessors= Neighbouring Property or for the purpose of removing
altering replacing or improving the Service Conduits serving the Property or the
Lessors' Neighbouring Property or installing such Service Conduits or plant or
for any purpose that in the opinion of the Lessors is necessary to enable the
Lessors to comply with their obligations under the Superior Leases but so that
the persons carrying out the work shall cause as little damage or inconvenience
as possible and shall make good all damage thereby caused to the Property or to
the Lessee's Works but shall not be liable to the Lessee for any consequential
loss of profit or other economic loss
4. The right to shelter protection and vertical and lateral support from the
Property for the Lessors' Neighbouring Property
THE SECOND SCHEDULE
(DEFINITIONS)
1. "the 1995 Act" means the Landlord and Tenant (Covenants) Act 1995
2. an "Acceptable Tenant" means a proposed assignee or undertenant (as the case
may be) either which has an address for service and assets which are in the
reasonable opinion of the Lessors of an appropriate nature and value within the
jurisdiction of the English Courts or in respect of which a surety having an
address for service and assets which are in the reasonable opinion of the
Lessors of an appropriate nature and value within the jurisdiction of the
English Courts shall before the relevant assignment or underletting takes place
have covenanted with the Lessors in the terms of the Surety's covenant herein
contained (mutatis mutandis) or in such other terms as the Lessors shall
reasonably require
3. "Authorised Guarantee Agreement" means an authorised guarantee agreement for
the purposes of the 1995 Act in the form (mutatis mutandis) set out in the
Eighth Schedule hereto
38
<PAGE> 49
or in such other form as the Lessors shall reasonably require
4. "Agreed or Determined" means agreed between the Lessors and the Lessee or in
the event of disagreement determined or awarded by an Independent Surveyor
5. "the Building Service Charge" is the amount of the expenses and outgoings
incurred or deemed to be incurred by the Lessors in respect of the heads of
expenditure set out in the Fourth Schedule (including interest charged on any
money reasonably borrowed for that purpose) and is subject to the terms and
provisions of the Fifth Schedule and "the Estimated Building Service Charge" is
the estimated amount thereof pursuant to the provisions of the Fifth Schedule
6. "the Common Parts of the Building" are the parts of the Building that are not
included in the Lettable Parts of the Building
7. to "Deal With" the Property means to assign transfer mortgage charge underlet
declare trusts over or otherwise dispose of or alienate or share occupation or
possession of the whole or any part of the Property but does not include
permitting a company which is a member of the same group as the Lessee for the
purposes of the Landlord and Tenant Act 1954 to occupy and carry on business in
the Property during such time only as such company remains a member of such
group provided that no tenancy is thereby created and "dealing with" has a
corresponding meaning
8. "Independent Surveyor" means a single Chartered Surveyor agreed upon between
the Lessors and the Lessee or in the event of the Lessors and the Lessee being
unable to agree appointed on the application of either the Lessors or the Lessee
by or on behalf of the President for the time being or next senior available
officer of The Royal Institution of Chartered Surveyors who shall act as an
arbitrator under the provisions of the law for the time being in force relating
to arbitration or if the Lessors and the Lessee so agree as an expert (in which
case he shall afford
39
<PAGE> 50
the Lessors and the Lessee a reasonable opportunity to make representations to
him whether in respect of matters of fact law or valuation and he shall be
entitled to require such other representations evidence or expert advice as he
thinks fit whose fees and expenses shall be borne by the Lessors and/or the
Lessee as he shall award who shall have power to make an award of costs and
whose decision shall be final and binding on the parties hereto)
9. "the Insurance Premium proportion" is such proportion as shall from time to
time fairly and reasonably be apportioned to the Property by the Lessors'
insurers (or in the absence of such apportionment as shall fairly be apportioned
by the Lessors' Surveyors) to the intent that the whole of the relevant premium
shall be apportioned between the Property and the other Lettable Parts of the
Building taking into account their respective net internal floor areas and any
other relevant factors
10. "the Insured Risks" are destruction or damage by fire lightning explosion
storm tempest flooding earthquake (fire and shock) bursting or overflowing of
water tanks apparatus and pipes aircraft and articles dropped there from impact
riot civil commotion and malicious damage and such other causes as in the
reasonable opinion of the Lessors or the Superior Landlords should from time to
time be insured
11. "the Lessee's Works" are the partitioning equipment systems and other works
installed in or on the Property by the Lessee or by any predecessor in title of
the Lessee
12. "the Lessors' Neighbouring Property" means the Building and any adjacent or
neighbouring land or property in which from time to time the Lessors have an
interest whether in possession or reversion and whether the same is held by the
Lessors or by some person in trust for them and whether the Lessors have such
interest at the date hereof or acquire such interest after the date hereof (but
during the perpetuity period)
40
<PAGE> 51
13. "the Lettable Parts of the Building" are the Property and the other parts of
the Building constructed or designed for separate occupation by the tenants
thereof and defined in the same manner as the Property
14. A "Permitted Assignment" is either
(a) (in the case of an assignment of this Lease) an assignment of
the whole of the Property to an Acceptable Tenant
or (b) (in the case of an assignment of a Permitted Underletting)
an assignment of the whole of the Property on or before the
execution of which the assignee shall have entered into a
direct covenant with the Lessors for the duration of the term
of that Permitted Underletting to observe and perform the
covenants (other than for the payment of rent insurance
premiums Service Charge and Estimated Service Charge) on the
part of the underlessee therein contained save if and to the
extent that the assignee shall earlier be released from the
tenant covenants of the relevant Permitted Underletting
pursuant to the 1995 Act
15. "a Permitted Charge" is a mortgage or charge of the whole of the Property
16. A "Permitted Underletting" is an underletting of the whole of the Property
to an Acceptable Tenant which effectively prohibits any further dealing with the
Property or any part thereof howsoever remote or inferior except by a Permitted
Assignment or by a Permitted Charge but then not without the prior written
consent of the Lessors (provided that such consent is not to be unreasonably
withheld) and provided that the Lessors may withhold consent to an assignment
while the proposed assignee is not an Acceptable Tenant and that any such
consent may be subject to a condition that the proposed assignee will be an
Acceptable
41
<PAGE> 52
Tenant on the date of the assignment)
Provided that an underletting is not a Permitted Underletting
(i) unless on or before the execution thereof the underlessee
shall have entered into a direct covenant with the Lessors for the
duration of the term thereby granted including the period of any
extension or continuation thereof whether contractual or statutory and
any period after the expiry of the said term during which the
underlessee or any Subtenant remains in occupation of the relevant
premises or any part thereof (save if and to the extent that the
underlessee shall earlier be released from the tenant covenants in that
Permitted Underletting pursuant to the 1995 Act) to observe and perform
the covenants (other than for the payment of rent insurance premiums
Service Charge and Estimated Service Charge) on the part of the
underlessee and the conditions therein contained and in respect of
which either
(a) the underlessee has an address for service of proceedings and
assets which are of an appropriate nature and value within the
jurisdiction of the English Courts or
(b) a surety having an address for service and assets which are of
an appropriate nature and value within the jurisdiction of the
English Courts shall before the execution thereof have
covenanted with the Lessors in such terms as the Lessors shall
reasonably require that the underlessee shall for the duration
of the term thereby granted observe and perform the said
covenants and conditions
(ii) if a fine or premium is paid on the grant thereof
(iii) if (unless otherwise required by an Order of the Court or by
42
<PAGE> 53
statute) the rent thereby reserved (exclusive of any payment in respect of
insurance premiums or the provision of services) is less than the best yearly
rent obtainable without taking a fine or premium in the open market by a willing
landlord from a willing tenant
(iv) unless the yearly rent reserved is payable by equal quarterly instalments
in advance on the Quarter Days
(v) unless (in the case of an underletting for a term which will or may extend
beyond any Review Date) it contains provisions for review of the rent reserved
on the same dates and in the same manner (mutatis mutandis) as the rent hereby
reserved
(vi) unless it is in writing and contains covenants on the part of the Subtenant
and conditions in the same terms (mutatis mutandis) as are herein contained with
such variations only thereto as shall have been approved in writing by or on
behalf of the Lessors (provided that such approval shall not be unreasonably
withheld)
(vii) unless the provisions of Sections 24-28 (inclusive) of the Landlord and
Tenant Act 1954 as amended by the Law of Property Act 1969 are effectively
excluded in relation thereto such exclusion having first been authorised if
necessary by an Order of the appropriate Court under Section 38 of the said Act
as amended
17. "the Perpetuity Period" means the period of eighty years from the date
hereof or the duration of the Term (whichever is the shorter) and is the
perpetuity period applicable hereto
18. "the Planning Act" means the following:-The Town and Country Planning Act
1990 The Planning (Listed Buildings and Conservation Areas) Act 1990 The
Planning (Consequential Provisions) Act 1990 The Planning (Hazardous Substances)
Act 1990 and the Planning and Compensation Act 1991
43
<PAGE> 54
19. The "Quarter Days" are 1st January 1st April 1st July and 1st October in
each year
20. "a Rent Abatement Period" means any period during which the Property or any
part thereof is rendered unfit for the use hereby authorised by reason of
destruction of or damage to the Property or the Building or any part thereof the
means of access thereto or any essential services therefor by any of the Insured
Risks but subject to a maximum period of four years from the date of such
destruction or damage
21. "Review Period" means a period starting on the Review Date and ending at the
end of the Term as the context requires
22. "the Service Charge" is the Service Charge proportion of the Building
Service Charge and "the Estimated Service Charge" is the Service Charge
proportion of the Estimated Building Service Charge
23. "the Service Charge proportion" is such proportion as shall from time to
time fairly and reasonably be apportioned to the Property by the Lessors or
their Surveyors
24. "Service Conduits" means the cables wires gutters drains sewers pipes ducts
watercourses and other channels conduits and conducting media through along or
by means of which services are provided to or from the Property or other
property as the context requires
25. "the Structure of the Building" is the whole of the Building including all
landlord's fixtures and fittings but excluding the Lessee's Works and works of a
similar kind installed by existing tenants or their respective predecessors in
title in the other Lettable Parts of the Building and tenant's fixtures and
fittings
26. "the Structure of the Property" is the whole of the Property excluding the
Lessee's Works
27. "Subtenant" means any person (other than the Lessee or a person whose right
title or
44
<PAGE> 55
interest is in reversion to this Lease) in possession or occupation or having
any right title or interest in the Property or any part thereof whether as
lessee tenant licensee or otherwise and howsoever remote or inferior and
"subtenancy" has a corresponding meaning
28. "the Superior Landlords" are the persons from time to time entitled to the
reversions immediately expectant on the terms respectively granted by the
Superior Leases and references to the Superior Landlords are references to all
or any of them as the context requires
29. "the Superior Leases" are the following leases superior to this Lease by
which the Building was demised for the terms thereby respectively granted or
such of them as shall be subsisting at any relevant time:
(a) a lease dated the Twenty-eighth day of March 1990 and made
between The London Docklands Development Corporation (1) and
the Lessors (2)
(b) a lease dated the Twenty-eighth day of March 1990 and made
between the Lessors (1) and Lombard Leasing Industries Limited
(2)
(c) a lease dated the Twenty-eighth day of March 1990 and made
between Lombard Leasing Industries Limited (1) and the Lessors
(2)
(d) a Lease dated the Thirtieth day of June 1994 and made between
Natwest Leasing Industries (1) and Telehouse Holdings Limited
(2)
and references to the Superior Leases shall include references to all or any of
them as the context requires
30. "the Telehouse, Tenants' Handbook" is the Lessors' handbook so titled for
the guidance of tenants of the Building as the same may from time to time
reasonably be amended by the Lessors
31. "With Interest" means together with interest on the payment to which it
relates from
45
<PAGE> 56
the day that payment became due until the day of actual payment at a rate equal
to Four per cent per annum above National Westminster Bank PLC base rate for the
time being in force or if there shall be no such base rate or if it shall not be
ascertainable such other rate as nearly equivalent thereto as possible as the
Lessors shall reasonably stipulate which interest shall be calculated from day
to day as well after as before judgment and shall be compounded on each quarter
day
THE THIRD SCHEDULE
(Provisions for revision of rent)
1. The revised rent for the Review Period shall subject to paragraphs 2 and 3 of
this Schedule be such as may be Agreed or Determined to be the best yearly rent
which would be agreed for a letting of the Property at the relevant Review Date
without a fine or premium in the open market by a willing landlord to a willing
tenant ("the hypothetical tenant") after the expiry of a rent free period of
such length as would be so agreed
(A) on the following assumptions at that date:
(i) that the net internal floor area of the Property is that stated in the
Particulars (ii) that the Property is fully constructed fit ready and
available for and capable of immediate occupation and use for the
permitted use and that the hypothetical tenant requires no time to fit
out the same and to install its equipment and systems for that use
(iii) that the Property may be used for the permitted use and for any other
use permitted by any consent licence or approval given by the Lessors
before the relevant Review Date disregarding any condition restriction
or limitation as to who may occupy or use the Property or as to the
period of such occupation or use however imposed or arising (whether or
not under
46
<PAGE> 57
such consent licence or approval)
(iv) that in case the Property the means of access thereto or any essential
services therefor or the Lessors= Neighbouring Property or any part
thereof have been destroyed or damaged they have been fully restored
(v) that the Property is to be let with vacant possession subject to a
lease on terms similar to the provisions of this Lease mutatis mutandis
(other than the amount of the rent first hereby reserved and excluding
the provision for payment of and references to the Supplementary Rent
but including the provisions for revision of the Base Rent) for a term
equal to the Term as originally granted by this Lease but on the
assumption that the provisions of Sections 24 to 28 of the Landlord and
Tenant Act 1954 are not to be excluded in relation to the tenancy
thereby granted and on the assumption that the said lease contains no
covenants by the hypothetical tenant to carry out any works to or to
install any systems in the Property nor any covenant to remove the
Lessee's works tenant's and trade fixtures and fittings or alterations
or to restore the Property and make good and subject to and with the
benefit of any deed of variation consent licence or approval or other
instrument relating to this Lease notwithstanding that it may be
personal to a particular Lessee
(vi) that the covenants herein contained on the part of the Lessors and the
Lessee have been fully performed and observed
(vii) that without prejudice to anything herein contained the Lessors will
not unreasonably withhold their consent licence or approval to any
proposal
47
<PAGE> 58
which requires such consent licence or approval subject to the
qualification whether express or implied that it may not
unreasonably be withheld
(viii) that the hypothetical tenant is able to recover whether by way
of repayment or credit any value added tax charged or
chargeable on the rent and any other amount paid or payable by
the Lessee hereunder
(B) but disregarding:-
(i) any effect on rent of the fact that the Lessee or any
predecessor in title has been in occupation of the Property
(ii) any goodwill attached to the Property by reason of the
carrying on thereat of the business of the Lessee or any
predecessor in title in business
(iii) any increase in rental value of the Property attributable to
the existence at the relevant Review Date of any improvement
to the Property or any part thereof carried out otherwise than
in pursuance of an obligation to the Lessors or their
predecessors in title with written consent where required by
and at the expense of the Lessee or any predecessor in title
during the Term or during any period of occupation prior
thereto arising out of an agreement to grant such term
(iv) any alterations or additions to the Property or any part
thereof carried out by the Lessee or by any predecessor in
title at any time the effect of which at the relevant Review
Date is to diminish the rental value of the Property
(v) any effect on rent of the fact that any payment or allowance
that in the open market a landlord of the Property might for
any reason have been willing to make to an incoming tenant has
not been paid or made to the
48
<PAGE> 59
hypothetical tenant
2. If it shall be Agreed or Determined that there is no relevant comparable
evidence from dealings with or rent reviews concerning any of the Lettable Parts
of the Building of the said rent for which at the Review Date the Property might
be let as aforesaid the revised rent for the relevant Review Period shall be a
rent equal to the aggregate of (I) the Initial Base Rent or the Hypothetical
Office Rent for the relevant Review Period ascertained as provided in paragraph
3 of this Schedule or the Hypothetical Office Rent for any earlier Review Period
ascertained as provided in paragraph 3 of this Schedule whichever is the
greatest and (ii) the Initial Supplementary Rent or the reviewed Supplementary
Rent for the relevant Review Period ascertained as provided in paragraph 5 of
this Schedule or the reviewed Supplementary Rent for any earlier Review Period
ascertained as provided in paragraph 5 of this Schedule whichever is the
greatest
3. The Hypothetical Office Rent for any Review Period shall be such as may be
Agreed or Determined to be the best yearly rent for which at the relevant Review
Date the Hypothetical Office Space might reasonably be let without a fine or
premium in the open market by a willing landlord to a willing tenant ("the
hypothetical tenant") after the expiry of a rent free period of such length as
would be so agreed
(A) on the following assumptions at that date:
(i) that the Hypothetical Office Space is fully constructed fit
ready and available for and capable of immediate occupation
and use as office space and that the hypothetical tenant
requires no time to fit out and equip the same for that use
(ii) that the Hypothetical Office Space is to be let with vacant
possession
49
<PAGE> 60
subject to a lease on terms similar to the provisions of this
Lease mutatis mutandis and so far as applicable to a lease of
office space (other than the amount of the rent first hereby
reserved and excluding the provision for payment of and all
references to the Supplementary Rent but including the
provisions for revision of the Base Rent contained in the
Lease as if the Hypothetical Lease was the Property except for
paragraphs 2 3 4 and 5 of this Schedule and except that the
Review Dates shall be assumed to be at five-yearly intervals)
for a term equal to the Term as originally granted by this
Lease but on the assumption that the permitted use is as
offices and on the assumption that the provisions of Sections
24 to 28 of the Landlord and Tenant Act 1954 are not to be
excluded in relation to the tenancy thereby granted and on the
assumption that the said lease contains no covenants by the
hypothetical tenant to carry out any works to or install any
systems in the Property nor any covenant to remove the
Lessee's works tenant's and trade fixtures and fittings or
alterations or to restore the Property and make good
(iii) that the covenants herein contained on the part of the Lessors
and the Lessee shall have been fully performed and observed so
far as applicable to the Hypothetical Office Space
(iv) that the landlords of the Hypothetical Office Space will not
unreasonably withhold their consent licence or approval to any
proposal which requires such consent licence or approval
subject to the qualification that it may not unreasonably be
withheld
50
<PAGE> 61
(v) that the hypothetical tenant is able to recover whether by way
of repayment or credit any value added tax charged or
chargeable on the rent and any other amount paid or payable by
the Lessee hereunder
(vi) that the rates payable in respect of the Hypothetical Office
Space are such rates as shall be Agreed or Determined to be
likely to be payable in respect of the Hypothetical Office
Space at the relevant Review Date and not the rates actually
payable in respect of the Property
(vii) that the Service Charge payable in respect of the Hypothetical
Office Space is such service charge as shall be Agreed or
Determined to be likely to be payable in respect of the
Hypothetical Office Space at the relevant Review Date and not
the service charge actually payable in respect of the Property
under the provisions of this Lease
(B) but disregarding any effect on rent of the fact that any payment or
allowance that in the open market a landlord of the Hypothetical Office
Space might for any reason have been willing to make to an incoming
tenant has not been paid or made to the hypothetical tenant
4. In paragraph 3 above the Hypothetical Office Space is hypothetical office
space having approximately the same net internal floor area as the Property in
an office building constructed in accordance with a specification comparable
with that of the office building of the highest standard constructed or under
construction in the Isle of Dogs Enterprise Zone (as designated by the Isle of
Dogs Enterprise Zone Designation Order 1982) at the date of this lease but with
any variations thereto that accord with the actual specification of the Building
in so far as such variations would increase the rental value of the Property
with appropriate amenities and services
51
<PAGE> 62
including without prejudice to the generality of the foregoing air-conditioning
and adequate car-parking
5. (A) In this paragraph of this Schedule
"Index" means the all Items' index figure of Index Retail Prices
published by the Department of Employment or any successor
Ministry or Department
"the Base Figure" is the Index for the month preceding the Base
Date "the Base Date" is
"Increase" means the amount (if any) by which the Index for the month
preceding the relevant Review Date exceeds the Base Figure
(B) The reviewed Supplementary Rent for any Review Period shall subject to
subparagraphs (C) and (D) be the aggregate of (i) the Initial Supplementary Rent
and (ii) the amount which shall be Agreed or Determined to be the amount which
bears the same proportion to the Initial Supplementary Rent as the Increase
bears to the Base Figure
(C) If the reference base used to compile the Index shall change after the Base
Date the figure taken to be shown in the Index after the change shall be the
figure which would have been shown in the Index if the reference base current
before the Base Date had been retained
(D) If on any Review Date it is impossible by reason of any change after the
Base Date in the methods used to compile the Index or for any other reason
whatever to calculate the revised Supplementary Rent for the relevant Review
Period by reference to the Index the revised Supplementary Rent for that Review
Period shall be such amount as shall be calculated by reference to such
alternative basis as shall be Agreed or Determined to be appropriate to ensure
as nearly as possible that the Supplementary Rent increases with increases in
the general level
52
<PAGE> 63
of retail prices
6. IT IS HEREBY FURTHER PROVIDED in relation to the said revised rents as
follows:-
(A) When the amount of any rent to be Agreed or Determined as
hereinbefore provided shall have been so Agreed or Determined
memorandums thereof shall thereupon be signed by or on behalf
of the Lessors and the Lessee and annexed to this Lease and
the counterpart thereof and the parties shall bear their own
costs in respect of such memorandums
(B) (i) If the revised rent payable on and from any Review Date
has not been Agreed or Determined by that Review Date rent
shall continue to be payable at the rate previously payable
and forthwith upon the revised rent being Agreed or Determined
the Lessee shall pay to the Lessors any shortfall between the
rent previously payable and the revised amount for the period
up to and including that due on the preceding Quarter Day With
Interest (but at a rate Four per cent per annum below the rate
defined in paragraph 28 of the Second Schedule) on the
shortfall as if the revised rent became due on and from the
Review Date
(ii) for the purposes of this proviso the revised rent shall
be deemed to have been Agreed or Determined on the day when
the same has been agreed between the parties or as the case
may be at the date of the award or determination by the
Independent Surveyor
7. Time shall not be of the essence as to any provision of this Schedule
53
<PAGE> 64
THE FOURTH SCHEDULE
(Lessors' expenses and outgoings for the purpose of
the Building Service Charge)
1. The cost of inspecting repairing maintaining rebuilding or renewing (so far
as necessary to keep the same in good tenantable repair and condition) the
Structure of the Building (other than the Lettable Parts of the Building)
2. The cost of cleaning treating preserving decorating and lighting the exterior
and interior of the Building (other than the Lettable Parts of the Building)
3. The cost of cleaning the exterior of and from time to time when necessary
renewing and replacing the glass in the windows of the Building
4. The cost of operating inspecting testing servicing maintaining (including the
cost of maintenance contracts where applicable) modernising and renewing or
replacing as need be the boilers lifts air-conditioning plant cooling plant
security systems and other plant machinery and systems serving the Building
5. The cost of providing heating and hot water to the Building
6. The cost of water electricity gas oil and other fuel supplied to the Building
but excluding the cost of any water electricity gas oil and other fuel supplied
to the Lettable Parts of the Building
7. The cost of employing a Building Manager (if any) and engineering staff or
consultants for the operation and maintenance of the plant machinery and systems
serving the Building and staff for the general supervision cleanliness
maintenance and management of the Building and for reception security and other
services in the Building and of all incidental expenditure in relation to such
employment (including but without limiting the generality of such provision the
payment of the statutory and such other insurance health pension welfare and
other
54
<PAGE> 65
payments contributions and premiums that the Lessors may in their discretion
deem desirable or necessary and the cost of vehicles uniforms clothes tools
materials and other equipment for the proper performance of their duties)
8. The cost of providing office storage or other accommodation within the
Building for the use of such staff employed or contractors or consultants or
agents engaged by the Lessors in connection with the operation or management of
the Building or the provision of services in or for the Building or storage of
plant machinery or materials including without prejudice to the generality of
the foregoing all existing and future rates taxes charges duties impositions
assessments and outgoings for the time being payable in respect thereof and the
cost of electricity gas fuel oil water telephone and other services used in
connection therewith and the cost of maintenance repairs and decoration thereof
and the cost of furniture machinery and equipment therefor and the cost of
incidental office expenditure
9. All existing and future rates taxes charges duties impositions assessments
and outgoings for the time being payable by the Lessors in respect of the
Building except such as are hereinbefore covenanted to be paid by the Lessee or
such as being of a similar nature to those hereinbefore covenanted to be paid by
the Lessee relate solely to the Lettable Parts of the Building
10. The proper and reasonable fees and expenses of the Lessors' agents (if any)
for the general management of the Building and for the collection of rent and
service charge (and where no such agents are employed and the management of the
Building is undertaken by the Lessors a proper and reasonable fee therefor) and
of the Lessors' Surveyors and such solicitors engineers surveyors auditors
accountants architects or other professional persons as the Lessors may from
time to time reasonably instruct in connection with any matter to be determined
under this Lease
55
<PAGE> 66
or with the administration and management of the Building and the Building
Service Charge
11. Any amount which the Lessors shall pay or shall property be called upon to
pay as a contribution towards the expense of making supporting repairing
maintaining rebuilding renewing cleansing or lighting party and other walls
fences roads paths gutters sewers drains or other structures services or
facilities belonging to or used or enjoyed for the Building in common with other
property (including Surveyors and other professional fees in connection
therewith)
12. The cost of complying with making representations against or otherwise
contesting all statutes and instruments orders rules regulations and bye- laws
made or served thereunder in respect of the Building (other than the Lettable
Parts of the Building or the use or occupation thereof) or any landlord's or
tenant's fixtures and fittings plant machinery apparatus or appurtenances
therein
13. The cost of enforcing and making good for the benefit of the Building
breaches of covenants (other than covenants for payment of rent or other
liquidated sums) similar to the Lessee's covenants set out in this Lease entered
into now or hereafter by lessees of the Lettable Parts of the Building and
regulations made in relation thereto less amounts recovered from such lessees in
respect of such breaches
14. The cost of insuring the contents of the Building in the ownership or
custody of the Lessors the fixed glass in the Common Parts and the windows of
the Building the plant and machinery in or serving the Building employer's and
occupier's and owner's liability in respect of the Building and such other
insurances in respect of such risks and in such sums as the Lessors in their
discretion deem desirable or necessary (except in so far as such cost is
included in the premiums for insuring the Structure of the Building charged
under Clause 3.2) and the cost of
56
<PAGE> 67
obtaining any valuation for the purpose of assessing the values for insurance of
the Structure of the Building
15. The cost of preparing making and recovering any insurance claim in respect
of the Building including the fees of any loss adjuster or assessor
16. The cost of doing or causing to be done all such works installations acts
matters and things as the Lessors may from time to time reasonably deem
necessary or advisable for the proper maintenance safety and administration of
the Building
17. Any standing charges or other charges relating to the electrical circuits
and installations in or for the Building but excluding charges for the
consumption of electricity in the Lettable Parts of the Building
18. The cost of tending and keeping tidy and planting and replacing such trees
shrubs plants and flowers as the Lessors shall reasonably deem to be appropriate
in the Common Parts of the Building or the open areas thereof
19. The cost of repairing renewing or replacing any carpets or other floor
coverings in the Common Parts of the Building
20. The cost of supplying (but not the cost of original installation) such
air-conditioning ventilation and other air handling in the Building as the
Lessors shall in their discretion from time to time deem desirable or necessary
21. The cost of supplying coolant to the Lettable Parts of the Building
22. The cost of operating inspecting testing servicing maintaining (including
the cost of maintenance contracts where applicable) repairing modernising and
renewing or replacing as need be such fire fighting and warning and other safety
equipment in the Building as the Lessors may reasonably from time to time deem
desirable or necessary or as may be required to be
57
<PAGE> 68
supplied and maintained by them by statute or by the fire or other appropriate
authority for the district including the cost of supplying and installing
equipment additional to or in substitution for the equipment originally
installed
23. The cost of distributing and collecting mail within the Building
24. The cost of maintaining renewing replacing repairing and keeping in good and
serviceable order and condition the fixtures and fittings carpets furniture and
furnishings and reading material in the Building (other than the Lettable Parts
of the Building) and all appurtenances appointments fixtures and fittings bins
receptacles tools appliances materials and other things which the Lessors may
from time to time reasonably deem desirable or necessary for the Building
25. The cost of refuse collection storage and disposal including charges for
supplying and maintaining equipment
26. The cost of keeping the common toilet and lavatory accommodation in the
Building clean and lit and supplied with requisites
27. The cost of providing such other services for the Building for the benefit
of the tenants thereof and others therein as the Lessors shall reasonably from
time to time consider desirable or necessary
28. The cost of making good any damage done to the Building or any neighbouring
premises in the course of fulfilling any obligation of the Lessors or providing
any services or carrying out any works in or in relation to the Building
29. The cost of any allowance in respect of rent or other compensation
reasonably made to any tenant or other occupant of the Building (including the
Lessee) in respect of disturbance caused by the Lessors carrying out works to
the Building
58
<PAGE> 69
30. The cost to the Lessors of complying with their obligations contained in the
Sixth Schedule and in the Superior Leases (except for the payment of rent) not
otherwise provided for in this Schedule
31. The proportion payable by the Lessors under the Superior Leases of the costs
expenses outgoings fees disbursements and taxes incurred or payable by the
Superior Landlords or any of them in respect of the Common Parts and the Estate
(as therein defined) 32. The cost of any irrecoverable value added tax charged
in respect of any of the foregoing
THE FIFTH SCHEDULE
(Terms and provisions relating to the
Building Service Charge)
1. The purpose of the Building Service Charge is to enable the Lessors to
recover all the moneys which the Lessors may spend in respect of outgoings of
the Building so that there shall be no residual cost to the Lessors
2. The expression "Service Charge Year" shall mean such period (which may be
longer or shorter than a calendar year and may include periods before the start
of and/or after the expiry of the Term) as the Lessors or their Surveyors may in
their discretion from time to time determine as being that for which the
accounts of the Lessors relating to the Building shall be made up
3. The amount of the Building Service Charge for each Service Charge Year shall
be ascertained and certified by a certificate (hereinafter called "the
Certificate") signed by the Lessors' Surveyors or Accountants so soon after the
end of the relevant Service Charge Year as may be practicable and shall relate
to such Service Charge Year in manner hereinafter mentioned (any apportionment
necessary at the beginning or end of the Term being made on the assumption
59
<PAGE> 70
that expenditure on services is incurred at a constant daily rate)
4. A copy of the Certificate for each Service Charge Year shall be supplied by
the Lessors to the Lessee on written request and without charge to the Lessee
5. The Certificate shall contain a fair summary of the Lessors' said expenses
and outgoings incurred or deemed to be incurred by the Lessors during the
Service Charge Year to which it relates and the Certificate (or a copy thereof
duly certified as such) shall in the absence of manifest error or omission be
conclusive evidence for the purposes hereof of the matters of fact which it
purports to certify Provided that any omission by the Lessors to include in the
expenditure for any Service Charge Year a sum expended or a liability incurred
during that period shall not preclude the Lessors from including such sum or the
amount of such liability (or a part thereof) in the Building Service Charge for
any subsequent Service Charge Year
6. The expression "the expenses and outgoings incurred by the Lessors" as
hereinbefore used shall be deemed to include not only those expenses outgoings
and other expenditure hereinbefore described which have been actually disbursed
incurred or made by the Lessors during the relevant Service Charge Year but also
such provisions as the Lessors or their Surveyors shall in their discretion
consider prudent to make in any Service Charge Year towards expenditure which
the Lessors or their Surveyors reasonably expect will be incurred by them in
respect of expenses outgoings or expenditure recurring at intervals greater than
a Service Charge Year whenever disbursed incurred or made or to be disbursed
incurred or made PROVIDED that when such expenditure is incurred the Lessors
shall allow in the Building Service Charge such proportion of the unexpended
part of such provision as the Lessors shall fairly attribute to the relevant
item in respect of which such expenditure was incurred and such interest thereon
at such deposit rate as the Lessors shall in their discretion consider fair and
reasonable
60
<PAGE> 71
7. The Lessors shall in respect of each Service Charge Year estimate the amount
of the Building Service Charge for that period and may revise such estimate at
any time and from time to time before the Certificate shall have been signed as
herein provided
8. As soon as practicable after the end of each Service Charge Year the Lessors
shall furnish to the Lessee an account of the Service Charge payable by the
Lessee for that period due credit being given therein for the Estimated Service
Charge paid by the Lessee in respect of the said period and upon the furnishing
of such account there shall be paid on demand by the Lessee to the Lessors the
Service Charge or any balance found payable or there shall be allowed by the
Lessors to the Lessee any amount which may have been overpaid by the Lessee by
way of Estimated Service Charge as the case may require Provided that the
provisions of this Schedule shall continue to apply notwithstanding the expiry
of the Term for the purposes of calculating and recovering the Service Charge or
the proper proportion thereof payable in respect of the Term
THE SIXTH SCHEDULE
(Lessors' obligations)
1. To keep the Structure of the Building (including all plant machinery
apparatus and appurtenances from time to time thereto belonging) in good and
substantial repair and condition (except in respect of the Lettable Parts of the
Building) and in whole or in part to rebuild or renew the same in so far as
necessary to keep the same in good and substantial repair and condition
2. To arrange for the regular inspection servicing and maintenance by specialist
contractors of the boilers lifts air-conditioning plant cooling plant and other
specialized plant machinery and systems in the Building and to modernise or
replace the same whenever the
61
<PAGE> 72
Lessors shall reasonably consider desirable or necessary
3. From time to time as often and in such manner as the Lessors shall reasonably
consider desirable or necessary to redecorate treat clean and preserve the
exterior and interior of the Building (except the Lettable Parts of the
Building) and to clean the exterior of the glass in the windows of the Building
4. To comply with all statutes and instruments orders rules regulations and
bye-laws made or served thereunder for the time being in force in respect of the
Building or any plant machinery apparatus or appurtenances therein (except where
the premises affected are the Lettable Parts of the Building) which in the
reasonable opinion of the Lessors ought to be complied with
5. To use their reasonable endeavours
(i) to provide (a) adequate central heating to such parts of the
Building as need to be heated between the First day of October and the
Thirtieth day of April or during such longer period as the Lessors
shall decide and (b) air conditioning to such of the parts of the
Building as need air conditioning at such times as the Lessors shall
reasonably decide
(ii) to provide an adequate lift service
(iii) to keep adequately lighted and cleaned the Common Parts of the
Building
(iv) to provide hot and cold water to the common toilet and lavatory
accommodation in the Building
(v) to provide one or more security guards and such other staff as the
Lessors shall reasonably decide
6. At all times (but subject to the provisions of Clause [S. 16]) to provide
adequate air-
62
<PAGE> 73
conditioning electrical power and coolant to the Property to enable consumption
thereof in the Property at the rates from time to time approved by the Lessors
7. To use their reasonable endeavours to manage the Building efficiently in
respect of the matters the cost of which is included in the Building Service
Charge
THE SEVENTH SCHEDULE
(Regulations)
1. Before occupying the Property the Lessee shall lay (unless laid before the
date of this Lease) additional waterproof covering to the reasonable
satisfaction of the Lessors on the floors of all parts of the Property in which
there are water sprinklers or pipes for the supply of water or coolant or other
liquid
2. Before occupying the Property the Lessee shall install (unless installed
before the date of this Lease) in the Property a cooling system for its computer
and/or telecommunication equipment together with sensors and other monitoring
and warning equipment to the satisfaction of the Lessors which equipment shall
at all times be connected to and compatible with the Lessors' central systems
for the Building and kept properly maintained to the satisfaction of the Lessors
and shall be tested from time to time at such times and in such circumstances as
the Lessors shall reasonably require
3. No computer or telecommunication or other equipment plant or machinery shall
be installed in the Property unless its technical specification and lay-out
shall first have been approved by the Lessors and thereafter no changes shall be
made to the technical specification or lay-out of any such equipment plant or
machinery installed in the Property which have not first been approved by the
Lessors provided that such approval shall not be unreasonably withheld
4. The Lessee shall maintain in proper working order and to the reasonable
satisfaction
63
<PAGE> 74
of the Lessors all equipment plant machinery installed in the Property
5. The Lessee shall not make any alteration or connection (except as approved by
the Lessors) to any of the Service Conduits
6. The electric power consumed in the Property shall not exceed the rates from
time to time permitted by the Lessors provided that the rates permitted shall
not be reduced below the rates agreed between the Lessors and the Lessee on or
before the grant of this Lease without the consent of the Lessee
7. The amount of electricity consumed from any one intake in the Property shall
not exceed the rates from time to time permitted by the Lessors provided that
the rates permitted shall not be reduced below the rates agreed between the
Lessors and the Lessee on or before the grant of this Lease without the consent
of the Lessee
8. The Lessee shall provide the Lessors with the facility to open all locks in
the doors of the Property and shall not thereafter without the consent of the
Lessors change the locks or fix locks or additional locks to the doors of the
Property or otherwise prevent or hinder the Lessors from having access to the
Property in an emergency
9. The drivers of all vehicles using the loading dock and parking areas shall
obey the directions of the Lessors' Building Manager
THE EIGHTH SCHEDULE
(Provisions to be contained in an Authorised Guarantee Agreement)
1. The Assignor hereby covenants with the Lessors as sole or principal debtor as
follows:-
1.1 That the Assignee will pay the rents reserved by the Lease on
the days and in manner aforesaid and will duly perform observe
and comply with all the
64
<PAGE> 75
covenants and obligations of the Lessee from time to time under the
Lease and that in the case of default in any such payment of rent or
performance or observance of such covenants or obligations the Assignor
will pay and make good to the Lessors on demand all loss damages costs
and expenses thereby arising or incurred by the Lessors with Interest
(as defined in the Lease) Provided that nothing in this Clause shall
impose on the Assignor any liability restriction or other requirement
in relation to any time after the Assignee is released from its
covenants by virtue of the Landlord and Tenant (Covenants) Act 1995
1.2 In the event of the Lease being disclaimed by a liquidator or trustee
in bankruptcy of the Assignee that the Assignor will if the Lessors so
require accept from the Lessors a new lease of the Property for a term
equal in duration to the residue remaining unexpired of the term of the
Lease at the time of the grant of such new lease to the Assignor such
lease to be at the same rents and to contain the like lessee's and
lessors' and Surety's covenants respectively and the like provisos and
conditions in all respects (including the proviso for re-entry and
including the same Review Dates) as are contained in the Lease the
Assignor paying the Lessors' solicitors' proper charges and
disbursements for the preparation thereof
1.3 That any neglect or forbearance of the Lessors in endeavouring to
obtain payment of the rents reserved by the Lease when the same become
payable or in enforcing the performance or observance of the said
covenants or
65
<PAGE> 76
obligations of the Assignee or any time which may be given by the
Lessors to the Assignee or any consent licence or approval which may be
given by the Lessors to the Assignee shall not release or exonerate or
in any way affect the liability of the Assignor under the foregoing
covenants
1.4 Forthwith to notify the Lessors in writing from time to time of any
change of its place of abode or business or registered office
2. The Surety hereby covenants with the Lessors as sole or principal
debtor as follows:-
2.1 That the Assignor will duly perform observe and comply with
all the covenants and obligations of the Assignor from time to
time hereunder and that in the case of default in the
performance or observance of such covenants the Surety will
pay and make good to the Lessor on demand all loss damages
costs and expenses thereby arising or incurred by the Lessors
with Interest (as defined in the Lease)
2.2 That if the Assignor shall take such a new lease of the
Property as is provided for in Clause 1.2 ("a New Lease") the
Surety will join therein as Surety to give the covenants
therein provided for
2.3 That if the Assignor shall have been wound up or shall for any
other reason be unable or fail to take a New Lease the Surety
will itself if so required by the Lessors accept a New Lease
from the Lessors paying the Lessors' solicitors' proper
charges and disbursements for the preparation and completion
thereof
2.4 That any neglect or forebearance of the Lessors in enforcing
the performance or observance of the said covenants or
obligations of the
66
<PAGE> 77
Assignor or of the Assignee or any time which may be given by
the Lessors to the Assignor or to the Assignee shall not
release or exonerate or in any way affect the liability of the
Surety under the foregoing covenants
THE COMMON SEAL of TELEHOUSE )
INTERNATIONAL CORPORATION OF )
EUROPE LIMITED was hereunto )
affixed in the presence of.-
Director
Director/Secretary
THE COMMON SEAL of the LESSEE )
was hereunto affixed in the )
presence of.-- )
Director
Director/Secretary
67
<PAGE> 78
DATED 1996
STAR TELECOMMUNICATIONS INC.
- AND -
TELEHOUSE INTERNATIONAL CORPORATION
OF EUROPE LIMITED
BUILDING AGREEMENT
1
<PAGE> 79
THIS AGREEMENT is made the day of 1996
BETWEEN STAR TELECOMMUNICATIONS INC. of 740 State Street, Suite 202, Santa
Barbara, California 93101 U.S.A. (hereinafter called "the Employer") of the one
part and TELEHOUSE INTERNATIONAL CORPORATION OF EUROPE LIMITED whose registered
office is situate at Coriander Avenue, London E14 2AA (hereinafter called "the
Contractor") of the other part.
WHEREAS:
A. The Employer wishes to have carried out the building works
(hereinafter called "the Works") set out in the specification
annexed hereto and initialled by the parties for the purposes
of identification and/or drawing numbers (hereinafter called
"the Particulars of the Works") describing and/or detailing
the works to be carried out on the Third Floor, Telehouse,
Coriander Avenue, London, E14 2AA as shown on the plan annexed
hereto and edged in red (hereinafter called "the Premises").
B. The Employer wishes to have the Works carried out by the
Contractor
NOW IT IS HEREBY AGREED as follows:-
The Contractor will upon and subject to the Conditions annexed hereto carry out
the Works described in the Particulars of the Works within the period of one
year from the date of commencement and the Employer will pay the Contractor the
sum of (Pound Sterling)658,750 together with all VAT properly payable thereon or
such other sum as shall become payable hereunder at the time and in the manner
specified in the said Conditions.
AS WITNESS the hands of the parties hereto
SIGNED by )
) /s/ [ILLEGIBLE]
on behalf of the Employer )
in the presence of )
SIGNED by )
)
on behalf of the Contractor ) /s/ [ILLEGIBLE]
in the presence of :- )
Adrian Butcher,
Telehouse, Coriander Avenue, /s/ Adrian R. Butcher
London, E14 2AA
2
<PAGE> 80
CONDITIONS HEREINBEFORE REFERRED TO
1. CONTRACTOR'S OBLIGATIONS
(a) The Contractor shall with due diligence and in a good and
workmanlike manner carry out and complete the Works.
(b) The Contractor shall commence the works on 26 July 1996 or
such other date as may be agreed in writing between the
parties and the Works completed by 1 November 1996 or such
other date as may be agreed in writing between the parties.
2. EMPLOYMENT
(a) The Employer shall pay to the Contractor the sum of (Pound
Sterling)658,750 together with all VAT payable thereon in
accordance with this Agreement.
(b) The total sum shall be paid by instalments together with all
VAT payable thereon as follows :-
(i) (Pound Sterling)329,375 on 26 July 1996
(ii) (Pound Sterling)329,375 upon completion of the Works
(c) The Employer shall pay to the Contractor the total amount of
Value Added Tax properly chargeable by the Contractor on the
supply to the Employer of any goods or services under this
Agreement.
3. COMPLETION - DEFECTS LIABILITY
(a) The Contractor shall forthwith notify the Employer in writing
of the date when the Works have been completed. Such
notification shall be sufficient for the purposes of
triggering the payment obligation on the part of the Employer
under Clause 2 above.
(b) Any defects or other faults which appear within the six months
of the date of completion of the Works and are due to
materials and workmanship not being in accordance with the
Contract shall made good by the Contractor.
(c) The Contractor shall notify the Employer in writing of the
date when in his opinion the Contractor's obligations under
this clause have been discharged.
4. VARIATIONS OR EXTRA WORK
(a) The Employer may not require the Contractor to carry out any
work other than that shown and/or described in the Particulars
of the Works
(b) The Contractor may agree to carry out work additional to that
shown and/or described in the Particulars of the Works on such
terms as may be further agreed in writing.
3
<PAGE> 81
5. INSURANCE OF THE WORKS
(a) Contractor will insure the Works but the Contractor will not
be responsible for any equipment or other items brought on to
the premises by the Employer, its servants, agents or
subcontractors.
(b) The Contractor shall be liable for and shall indemnify the
Employer against and liability, loss, claim or proceedings
whatsoever arising under and statute or at Common Law in
respect of personal injury to or death of any person
whatsoever arising out of or caused by the carrying out of the
Works unless due to any act or neglect of the Employer or any
person for whom the Employer is responsible.
(c) Except for such loss or damage as is at the risk of the
Contractor under Sub-Clauses (a) and (b) of this Clause the
Contractor shall not be liable for, neither shall it indemnify
the Employer nor shall it insure against any expense,
liability, loss, claim or proceedings in respect of any loss
or damage whatsoever arising out of or in the course of or by
reason of the carrying out of the Works.
6. EXTENSION OF PERIOD FOR COMPLETION
The agreed period for completion of the Works shall be extended by such
further period or periods as may be fair and reasonable if the
Contractor is prevented by any cause outside its control from
completing the Works within the agreed period.
7. DETERMINATION BY THE CONTRACTOR
The Contractor may but not unreasonably or vexatiously by notice by
registered post or recorded delivery to the Employer forthwith
determine the employment of the Contractor under this Contract if the
Employer shall make default in any one or more of the following
respects that is to say :-
(a) If the Employer fails to make payments in accordance with
Clause 2 (b) of the Conditions within 14 days of such payment
being due and continue such default within seven days after
receipt by registered post or recorded delivery of a notice by
the Contractor stating that the employment of the Contractor
under this Contract may be determined if payment is not made
within the said period of seven days;
(b) If the Employer or any person for whom he is responsible
interferes with or obstructs the carrying out of the Works;
(c) If the Employer becomes bankrupt or makes a composition or
arrangements with its creditors or has a winding up order made
or (except for purposes of amalgamation or reconstruction) a
resolution for voluntary winding up passed or having a
provisional liquidator, receiver or manager of its business or
undertaking duly appointed, or having possession taken, by or
on behalf of the holders of any debenture secured by a
floating charge;
Provided always that the right of determination shall be without
prejudice to any other rights or remedies which the Contractor may
possess.
4
<PAGE> 82
8. DETERMINATION BY THE EMPLOYER
The Employer may but not unreasonably or vexatiously by notice by
registered post or recorded delivery to the Contractor forthwith
determine employment of the Contractor under this Agreement if the
Contractor shall make default in any one or more of the following
respects, that is to say :-
(a) If the Contractor without reasonable cause fails to proceed
diligently with the Works or wholly suspends carrying out of
the Works before completion;
(b) If the Contractor becomes bankrupt before completion or makes
a composition or arrangements with its creditors or has a
winding up order make or (except for purposes of amalgamation
or reconstruction) a resolution liquidator, receiver or
manager of its business or undertaking duly appointed, or
having possession taken, by or on behalf of the holders of any
debenture secured by a floating charge;
Provided always that the right of determination shall be without
prejudice to any other rights or remedies which the Employer may
possess.
9. ARBITRATION
(a) If any dispute or difference concerning this Agreement shall
arise between the Employer and the Contractor it shall be
referred to arbitration in accordance with the provisions of
the Arbitration Acts 1950 and 1975 or any statutory
modification or re-enactment thereof by an Arbitrator to be
agreed between the parties or, failing agreement on the
appointment of an arbitrator within 14 days of receipt by the
other of a written request to concur in the appointment of an
Arbitrator, by a person to be appointed on the request of
either party by the President or Vice President for the time
being of the Institute of Arbitrators.
(b) If the dispute or difference to be referred to arbitration
under this Agreement raises issues which are substantially the
same as or connected with issues raised in a related dispute
under the Contract under which the Premises are being
constructed and if the related dispute has already been
referred for determination to an Arbitrator, the Employer and
the Contractor hereby agree that the despite or difference
under this Agreement shall be referred to the Arbitrator
appointed to determine the related dispute; and such
Arbitrator shall have power to make such directions and all
necessary awards in the same way as if the procedure of the
High Court as to joining one or more defendants or joining co-
defendants or third parties was available to the parties and
to him.
10. This Agreement shall be governed by and construed in accordance with
English Law.
5
<PAGE> 83
TELEHOUSE INTERNATIONAL
CORPORATION
OF
EUROPE
LTD
SPECIFICATION
FOR
FIT OUT
STAR
TELECOMMUNICATIONS
INC
8000 SQ FT NOMINAL
UNIT
AUGUST 1996
<PAGE> 84
SECTION 1: MECHANICAL SERVICES
1.1.1 AIR-CONDITIONING
The tenancy communications area has its own close control
air-conditioning system comprising of 6 units comprising of 5 run and 1
standby units.
1.1.2 SYSTEM DESIGN CONDITIONS
External conditions Summer 35 degrees C. dB
External conditions Winter -2 degrees C. dB saturated
Internal conditions 22 degrees C. +/- 1 degrees C. dB
50% RH +/- 5%
Water supply temperature 40.5 degrees C. Td 5 degrees C.
Water/ glycol mix 70/30 %
Soft water for humidifcation
Drainage for condense from de humidifcation
1.1.3 AIR CONDITIONING UNIT SPECIFICATION
a) Downflow air distribution
b) Top air return
c) Filtration - standard, disposable, 95% at 5 micron
d) Electric heating
e) Internal DX circuit with water cooled condenser plus "free
cooling" coil
f) Electrode boiler humidification
g) Fully hermetic compressors 2 circuit
h) 1 centrifugal fan with belt/pulley adjustment
I) Microprocessor control with common output alarm and
visual/audible alarms for temperature, humidity, equipment
fault and airflow variations
j) Adjustable time control of component start-up
k) Internal 3-way valve and isolating valves on glycol pipes
1) Noise level 65dB at 3 metres
m) Nett sensible cooling capacity of 47 KW EACH UNIT
2
<PAGE> 85
1.2 FRESH AIR ROOM PRESSURIATION
The existing fresh air spigot is connected to ductwork which is to be
run down run to low level into the communications room
Ductwork is insulated to half an hour rated be smoke sealed, foil faced
and of fibre glass construction.
3
<PAGE> 86
SECTION 2: RAISED MODULAR FLOORING
2.1.1 GENERAL Fully accessible modular floor system supplied and installed.
2.1.2 SYSTEM SPECIFICATION
a) Panels are 600 x 600mm fully interchangeable.
b) Panels are high density clipboard with galvanised tray and top
sheet.
c) Ventilated panels with nylon coated adjustable blade dampers
d) Pedestals have galvanised mild steel with welded bases and
25mm height adjustment.
e) System meets MOB/PF2/PS "Medium" grade specification.
f) Floor level to +/- 2.0mm per 12m.
g) Maximum gap between adjacent tiles 0.5mm.
h) Floor finish to be antistatic carpet "Marlin Delta Corded"
j) 4 in no floor tile lifters
SECTION 3: TELEHOUSE FIRE SYSTEM MONITORING
3.1 ALARM WORKS
To be fitted to the house alarm system.
a) Switch monitoring units to allow monitoring at the main house
panel pre alarm, 1st stage, 2nd stage alarms and common fault
conditions for the room.
b) The switch monitoring units are linked between the customer
alarm panel and connected to the house monitoring system.
c) House sounder installation to provide 65 dB or 5 dB above
background noise.
4
<PAGE> 87
SECTION 4: SECURITY SYSTEM
4.1 Passive infrared detector security system fitted to the main
entrance door.
4.2 Card and pin access system and alarm micro switch to the main
entrance door.
4.3 Cabling from card reader and new micro switch to security
riser for monitoring and control.
4.4 Remote door monitoring of the emergency escape doors.
5
<PAGE> 88
SECTION 5 B.M.S ALARM MONITORING SYSTEM
5.1 Installation of 2 combined temperature and humidity sensor.
5.2 Final connection to the B.M.S. outstation of the following
signals:
1 off air-conditioning shut down signal
2 off temperature sensor/ humidity sensor
1 off water detection zone
1 off air-conditioning common alarms
1 off critical P.D.U. shut down
1 off fire alarm signal
1 off fire damper control signal
6
<PAGE> 89
SECTION 6 FIRE PROTECTION
6.1 GENERAL
The fire detection/ suppression system shall be installed to all
relevant British Standards, including BS 5839, 6266, 5306, 3115 and
5445 and F.O.C. requirements.
6.2 SPRINKLER SERVICES (PRE ACTION DRY)
a) Installation of sprinkler system utilising existing supplies
to cover the complete area all pipework is to surface mounted
and be on view.
b) Installation of an addressable detection system covering all
floor, ceiling and room void to BS 6266 on a "double knock"
principle.
c) Installation of all ancillary equipment, i.e., additional
alarm bells, break glass units, etc.
d) Installation of 1st stage 24V DC signal for the
air-conditioning units to enable shut down in a fire
condition.
e) Installation of a 2nd stage 24V DC signal for the critical
P.D.U. to enable shut down in a fire condition.
f) Installation of an alarm/test panel to provide fault, 1st and
2nd stage alarm interfacing to the house fire alarm system.
g) Installation of a house alarm pair of contacts for linking
into B.M.S.
h) Provision of zone charts.
7
<PAGE> 90
SECTION 7 ELECTRICAL SERVICES
7.0 GENERAL
This section concerns the installed electrical services to the
communications room area.
Power distribution from the 3rd floor riser shall comprise 2 NO.
CRITICAL (200KVA) and 2 NO. ESSENTIAL (200KVA) power supplies. These
shall be connected to new critical power distribution board in the
communications room and plant area respectively from the existing
switchgear cubicles.
Including the power distribution from the existing floor riser, new
switchgear and distribution boards to service the communications room
P.D.U. air-conditioning, lighting, small power and fire protection,
metering of the new services and interlocks to the Building Management
System. All high level facilities are to surface mounted and suspended
were necessary.
7.1 DISTRIBUTION BOARDS
a) CRITICAL Board - DB1
The critical power distribution board comprises an input mccb,
isolation transformer, distribution board and CLEAN earth
terminal bar. The rating of the P.D.U is to be 200kVA, with a
TP & N distribution pan assembly to accommodate 63 amp triple
and single phase mcb's. The P.D.U. is to be connected to the
FIRE ALARM SYSTEM and will automatically switch off, on
receipt of a second stage fire alarm, within the
communications room. The P.D.U. is also connected an EMERGENCY
POWER OFF system within the communications room and will
automatically switch off, when the E.P.O. glass break unit is
operated manually.
b) ESSENTIAL Sub-Distribution Board DB2
The 200 kVa incoming board with triple pole ways is provided
with an M.C.B pan assembly to feed the air-conditioning,
general services and feed the fire protection system in the
room. The essential distribution board shall be divided to
provide an essential and non essential section.
8
<PAGE> 91
7.2 GENERAL INSTALLATION WORKS
7.2.1 Cable to 2 no. ceiling mounted PA system 100V AC line tapping
1, 2, 3, 4 and 5 watt speaker.
7.2.2 Site 3 off Emergency Power Off (E.P.O). buttons.
7.2.3 A 5A non-switch spur in the entrance lobby for the fire alarm
panel.
7.2.4 A 5A switched spur at the water detection panel.
7.2.5 A 5A switched spur at the fire damper control panel.
7.2.6 From DB2 install PVC/SWA/LSF cables to the isolator of the 6
in no air-conditioning units.
7.2.7 From DB2 cable to 12 wall mounted flush mounted white MK twin
13A switched sockets in the communications room for general
use.
7.2.8 Water detection cable to the plant designated areas. The cable
laid in a zigzag pattern to cover the full area and be clipped
at 500mm centres.
7.2.9 Install security conduits within partitioning or behind
drylining to the entrance door micro switches then into the
main corridor security trunking.
7.2.10 From each of the following points run a Beldon cable to the
B.M.S. outstation in the EPC riser. Protect these cables in
trunking in the main corridor and conduit in the tenancy.
2 off wall mounted T/H sensor
1 off 4 zone water detection panel
1 off air-conditioning unit common alarms
2 off critical P.D.U shut down
1 off 1st stage fire alarm
1 off glycol failure to shut down dual AC unit
1 off damper panel signal
7.2.11a) 1200mm x 150mm surface modular lights with low brightness
diffusers provide 500 lux at 1m working height throughout the
area controlled by a bank of switches outside the entrance
with power from the essential panel(DB2).
9
<PAGE> 92
7.2.12a) The room lighting to have 3 hr non-maintained battery
support of 1 tube to 10% of the light fittings.
b) Exit doorways to have a wall mounted 3 hr, non-maintained
battery supported exit lights.
7.2.13 All necessary earth bonding to the IEE 16th Edition Wiring
Regulations including all pipework, floor and ceiling grids.
7.2.14 Mount an insulated earth bar linked to the main earth bar in
the electrical riser to provide a clean earth reference point.
7.2.14 Mount an insulated earth bar linked to the main earth bar in
the telecoms riser to provide a signal earth reference point.
7.2.15 MICC shut down cabling from fire alarm relay box to the
critical P.D.U.s.
7.2.16 Install 3 trunking connections to the main corridor for the
provision of telecommunication services (by others).
7.2.17 Connect the secondary star points of the 2 critical PDU's and
provide the facility to disconnect at each end in order to
allow testing to be carried out.
10
<PAGE> 93
SECTION 8 BUILDERS WORK
8.1 Tenancy dividing 2 hr fire breakwall including fire protective
material at high level and low level.
8.2 Form a new entrance doorway (maternity)from the main corridor.
From this doorway construct an interior fire lobby/air lock to
1 hour fire construction, from floor slab to ceiling slab.
Provide a further set of doors (maternity) to enter into the
communications room. From this form a new area to be use as a
store room.
8.3 Supply and install 3 additional maternity door sets to provide
emergency escape door ways.
8.4 Interior exposed wall internal faces from raised floor to
suspended ceiling are to be drylined using 12.7mm feather
edged plasterboard with tapped and slurry filled joints.
8.5 Construct a bund wall within the air-conditioning area treated
with 2 coats of RIW "Toughseal" water proofing. Along the
internal walls and doorline of the communications room, two
courses of engineering bricks are laid to form a water
containment (bund) wall.
8.6 The perimeter bund wall and high level perimeter edges are to
be edge trimmed with Superlux and then 4 coats of RIW
'Toughseal" water proofing applied to provide a gastight
joint.
8.7 All perimeter partitions/dryline walls are decorated vinyl
wallpaper (MURECK Twist Wool).
8.8 External perimeter columns are to be 2 hour fire rated and
decorated with vinyl wallpaper.
8.9 To all partitioned and external walls, a 75mm high, bull nosed
softwood timber skirting to be prepared and finished with a 3
coat grey paint finish.
8.10 To all areas of the entrance lobby and emergency exits install
a 600 x 600mm white lay in grid suspended ceiling system with
angle trims at all edges and mineral fibre lay in type panels.
8.11 "Turnbill" blinds with tilt and lift control are installed to
the 18 windows.
8.12 Hardwood thresholds are to be installed at the fire rated
doorways with plasterboard, to provide 1 hr fire rating.
11
<PAGE> 94
8.13 Four thousandths of an inch bomb blast film on the interior
surface of the exterior windows.
8.14 Box out at high level the steel transverse, perimeter beams
with plaster board, taped edges and prepared to accept 2 coats
of emulsion paint. Paint out the ceiling boxed out ceiling
(colour to be confirmed).
8.15 Clean off over mineral fibre spray on the roof slab surfaces
<PAGE> 95
3rd Floor Telehouse
(drawing attached)
<PAGE> 1
EXHIBIT 10.16
FIRST AMENDMENT TO LEASE
This First Amendment to Sublease is dated as of this 6th day of April
1995, by and between Borton, Petrini and Conron ("Sublandlord") and Star
Vending, Inc., a California Corporation, ("Subtenant") with reference to the
following recitals of fact:
RECITALS
A. Sublandlord and Subtenant entered into that certain One Wilshire
Building Sublease dated March 20, 1994 for a portion of the Eleventh (11th)
floor, located in the One Wilshire Building, situated at 624 South Grand Avenue,
Los Angeles, California for a term ending April 10, 2001 (the "Sublease");
B. Sublandlord and Subtenant desire to amend the terms of the Sublease
as more particularly set forth herein:
1. Subtenant desires to increase the area of the Premises to
incorporate a portion of the Eleventh (11th) floor as more
particularly outlined on the attached Exhibit "A", measuring
approximately one thousand eight hundred and forty-seven
(1,847) rentable square feet and hereinafter referred to as
the "Expansion Premises".
2. TERM: The Term shall expire on April 10, 2001.
3. COMMENCEMENT DATE FOR EXPANSION PREMISES: The earlier of
immediately upon occupancy or April 1, 1995.
4. BASE RENT: The Base Rent shall be increased effective
September 1, 1995 from its current level $3,803.00 to Six
Thousand Two Hundred Fifty-nine Dollars ($6,259.00) per month
until April 1, 1999 and then increase to Six Thousand Eight
Hundred Eighty-one and Thirty-three cents ($6,881.33) for the
balance of the Term.
5. TENANT IMPROVEMENTS: The Premises shall be delivered in its
"As-Is" condition and Master Landlord shall be solely
responsible for any and all aspects of the removal of
asbestos-containing materials from the Premises should they be
desired by Subtenant. It is understood and agreed that
Subtenant shall be solely responsible for the cost of any and
all construction to the Premises and the cost of any removal
of asbestos-containing materials and any tenant improvements
desired.
6. GUARANTEE OF LEASE: The Lease Guarantee from Chris Edgecomb
made in favor of Borton, Petrini and Conron and dated March
27, 1995 and notarized by Jean Garlandshall also shall be
deemed a guarantee of the Expansion Space.
All other terms of the Sublease dated March 20, 1995 shall remain
unchanged.
AGREED AND ACCEPTED THIS ______ DAY OF APRIL 1995
STAR VENDING, INC. CHRIS EDGECOMB
Per: /s/ CHRIS EDGECOMB /s/ CHRIS EDGECOMB
AGREED AND ACCEPTED THIS 6 DAY OF APRIL 1995
BORTON PETRINI & CONRON
Per: ___________________________
<PAGE> 2
EXHIBIT "A"
(drawing attached)
<PAGE> 3
[floor plan]
<PAGE> 4
EXHIBIT "A"
SECOND AMENDMENT TO LEASE
The Second Amendment to Lease is dated as of this 7th of June 1995, by and
between Borton Petrini & Conron ("Sublandlord") and Star Vending Inc., a
California Corporation ("Subtenant") with reference to the following recitals of
facts:
a. Sublandlord and Subtenant entered into that certain One Wilshire
Building Sublease dated March 20, 1994 for a portion of the 11th Floor
which Sublease was modified by a First Amendment to Lease dated April
6, 1995 for premises located in One Wilshire Building situated at 624
South Grand Avenue, Los Angeles, California for term ending April 10,
2001;
b. Sublandlord and Subtenant desire to amend the terms of the Sublease and
the First Amendment to Lease as more particularly set forth herein:
1. The commencement date of the Sublease shall be May 22,1995.
2. Corridor work rent credit: Subtenant agrees to perform the
work specified in the attached exhibit "A" in compliance with
the notes prepared by Murray Alcorn & Associates dated April
6, 1995. It is understood and agreed that Subtenant shall
employ Intern to prepare working drawings that essentially
correspond to the attached drawings. Subtenant shall receive a
rent credit on the first rent due under the Sublease of ten
thousand dollars ($10,000) representing the actual cost of
construction to modify the corridor to comply with the drawing
attached hereto. In the event the cost of construction exceeds
ten thousand dollars ($10,000) the rent credit will be
increased on a dollar per dollar basis up to an amount not to
exceed fifteen thousand dollars ($15,000). Subtenant agrees to
use its best efforts to minimize the cost of construction.
Subtenant shall be responsible for all cost of design, and
handicap compliance resulting from such corridor
modifications.
All other terms of the sublease dated March 20, 1995 and the First Amendment to
Lease dated April 6, 1995 shall remain unchanged.
AGREED AND ACCEPTED THIS 12 DAY OF JUNE 1995
STAR VENDING INC.
/S/ UNKNOWN
- --------------------------------------
AGREED AND ACCEPTED THIS 9 DAY OF JUNE 1995
BORTON PETRINI & CONRON
/S/ UNKNOWN
- ---------------------------------------
<PAGE> 5
THIRD AMENDMENT TO SUBLEASE
The Third Amendment to Sublease is dated as of this eighth (8th) day of July
1996, by and between Borton, Pertini & Conron ("Sublandlord") and Star Vending
Inc., a Nevada corporation, ("Subtenant") with reference to the following
recitals of fact:
Sublandlord and Subtenant entered into that certain One Wilshire Sublease dated
March 20, 1995 for a portion of the 11th floor which Sublease was modified by a
First Amendment to Lease dated April 6, 1995 for Premises located in One
Wilshire Building situated at 624 South Grand Avenue, Los Angeles, California
for a term ending April 10, 2001. Subtenant and Sublandlord subsequently entered
into a Second Amendment to Sublease which was date June 7, 1995.
Sublandlord and Subtenant desire to amend the terms of the Sublease, the First
Amendment to Lease, the Second Amendment to Lease as more particularly set forth
herein:
Premises: Subtenant shall increase the Premises under Sublease by an
additional 10,945 rentable square feet contiguous to the
Premises as outlined in red on the attached Exhibit "A" and
hereinafter referred to as the ("Second Expansion Space").
Term: The term for the Second Expansion Space shall commence upon
the earlier of occupancy or September 1, 1996 and shall
continue through April 10, 2001.
Rental Rate: In addition to the Base Rent as defined in the First
Amendment to Lease between Sublandlord and Subtenant,
Subtenant shall pay the following Monthly Base Rent for the
Second Expansion Space:
September 1996-October 1998: $24,407.35
October 1998: $24,981.96
November 1998-March 2001 : $25,538.33
April 2001: $8,512.77
In addition, Subtenant will assume 34.32% of Sublandlord's
share or operating costs and tax increases over the
Sublandlord's Base Year under the Master Lease.
Right to Cure: Sublandlord shall provide Subtenant promptly with
copies of all notices that Sublandlord receives from the
Master Landlord alleging any default by Sublandlord under the
Master Lease, or a termination of the Master Lease. Subtenant
shall have the right, but not the obligation (a) to cure any
defaults by Sublandlord under the Master Lease, and (b) to set
off the cost of any such cure against the rent and other sums
that are payable by the Subtenant hereunder.
All other terms of the Sublease dated March 20, 1995, the First Amendment to
Lease dated April 6, 1995 and the Second Amendment to Lease dated June 7,1995
shall remain unchanged.
AGREE AND ACCEPTED THIS 12 DAY OF JULY, 1996.
/S/ UNKNOWN
- -----------------------------------
STAR VENDING, INC.
AGREE AND ACCEPTED THIS __________ DAY OF JULY, 1996.
- -----------------------------------
BORTON, PETRINI & CONRON
<PAGE> 6
SUBLEASE FOR PORTION OF
SUITE 1100, 624 S. GRAND AVENUE, LOS ANGELES
THIS SUBLEASE is made effective this 20th day of March 1995
between Borton, Petrini & Conron a California partnership ("Sublandlord"), whose
address is 1600 Truxton Avenue, Bakersfield, California 93301 and STAR VENDING,
INC., a California corporation ("Subtenant"), whose principal executive office
is 740 State Street, Santa Barbara, California 93010, who agree as follows:
RECITALS
A. One Wilshire Arcade Imperial, Ltd. ("Master Landlord") and
Sublandlord, as tenant, entered into a written lease dated March 26, 1990 (the
"Master Lease"), a copy of which is attached hereto as Exhibit "A", regarding
certain designated floor space ("Sublandlord's Space") in the One Wilshire
Building, located at 624 South Grand Avenue, Los Angeles, California (the
"Building").
B. Subtenant desires to sublet a portion of Sublandlord's
Space in the Building ("Premises"), from Sublandlord, pursuant to the provisions
contained in this sublease.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Premises. The Premises shall consist of approximately
3,803 rentable square feet on the 11th floor of the Building in the Southeast
corner of Sublandlord's Space, as highlighted on the attached Exhibit "B".
Subtenant shall have the right to occupy the Premises after
completion of asbestos abatement for purpose of installing Subtenant's switching
equipment and other trade fixtures.
2. Possession. Sublandlord shall surrender possession of the
Premises to Master Landlord on the receipt of executed subleases and Master
Landlord's written consent to sublease. Master Landlord will be solely
responsible for any and all aspects of the abatement of asbestos-containing
materials and the removal of all walls and other presently existing tenant
improvements.
3. Term. The term of this Sublease shall commence on the
latter of April 1, 1995 or the receipt of Landlord's written Consent To Sublease
and shall terminate on April 10, 2001.
4. Rent. Subtenant agrees to pay a Base Rent (the "Base Rent")
of $3,803.00 per month, in advance, on the first day of each and every month.
Such rent shall be payable, without offset or deduction of any kind to
Sublandlord at the address designated in this Sublease. Said Base Rent shall
rise at the rate of two percent (2%) per annum.
1
<PAGE> 7
4.1 Asbestos Offset. Sublandlord shall provide a rental credit
of $30,000.00 which amount shall offset Subtenant's actual cost of abatement of
asbestos from the Premises. The Rental Credit shall be applied against the rent
first becoming due under the Sublease. In the event that the cost of abating
asbestos from a portion of the Premises is less than $30,000.00, then the Rental
Credit shall be reduced on a dollar for dollar basis.
5. Late Payments. In the event Subtenant fails to pay any rent
or other monetary amount due hereunder when and as due, and the delinquency
continues for a period of five days after the date the amount was due, Subtenant
shall pay to Sublandlord with such delinquent amount, late charge in an amount
equal to five percent of the delinquent amount. Said late charge is acknowledged
as being made to Sublandlord for the purpose of deferring administrative costs
and expenses of Sublandlord incident to handling the delinquency. The late
charge shall be deemed additional rent and the right to require it shall be in
addition to all of Sublandlord's other rights and remedies hereunder or at law,
and shall not be construed as liquidated damages or as limiting Sublandlord's
remedies in any manner.
6. Tenant Improvements. Master Landlord shall be solely
responsible for any and all aspects of the removal of asbestos-containing
materials from the Premises designated and the removal of walls and other
existing tenant improvements. It is understood and agreed that Subtenant shall
be responsible for demising the Premises and shall bear all costs, if necessary,
of removing the asbestos from of the Premises. Subtenant shall be solely
responsible for the construction of and payment for any and all improvements to
the Premises necessary for Subtenant to operate its telecommunication switching
operations. Sublandlord hereby agrees that Subtenant may construct improvements
and install switching equipment in accordance with the terms of the Master
Lease. Sublandlord further agrees that the switching equipment shall be removed
by Subtenant and any restoration of Premises required by Master Landlord be
performed at Subtenant's cost upon expiration or earlier termination of this
Sublease, unless otherwise agreed to in writing by Sublandlord.
7. Incorporation by Reference. All provisions in the Master
Lease which impose restrictions upon Sublandlords's use of the Premises or
impose obligations upon Sublandlord as to use of the Premises, as well as any
and all rules and regulations attached as Exhibit "B" to the Master Lease are
incorporated by reference into, and made a part of this Sublease. Subtenant
shall assume and perform all of the obligations under the Master Lease to the
extent that the provisions are applicable to the Premises being subleased under
this Sublease. Sublandlord does not assume the obligation of the Master Landlord
under provisions of the Master Lease, but shall exercise due diligence in
attempting to cause the Master Landlord to perform its obligations under the
Master Lease for the benefit of Subtenant.
8. Subtenant's Performance Under Master Lease. At any time
after prior notice to Subtenant, Sublandlord can elect to require Subtenant to
perform Subtenant's obligations under this Sublease directly to Master Landlord,
and Subtenant shall do so on Sublandlord's election, in which event Subtenant
shall send to Sublandlord form time to time copies of all notices and other
communications it shall send to or receive from Master Landlord.
2
<PAGE> 8
9. Covenant of Quiet Enjoyment. Sublandlord represents that
the Master Lease is in full force and effect and that there are no known
defaults on Sublandlord's or Master Landlord's part under it as of the
commencement of the term of this Sublease. Subject to this Sublease terminating
as provided in the Master Lease or as set forth in this Sublease, Sublandlord
represents that if Subtenant performs all the provisions in this sublease,
performed by Subtenant, Subtenant shall have and enjoy throughout the term of
this sublease the quiet and undisturbed possession of the premises.
10. Default and Remedies Upon Default. Subtenant shall be
deemed to be in default under the terms of this Sublease if any of the events
specified in Paragraph 13 of the Master lease shall occur. For purpose of this
Sublease, Paragraph 13 of the Master Lease shall be interpreted by substituting
the term "Subtenant" for the term "Tenant" and the term "Sublandlord" for the
term "Landlord". Upon the event any of such default, Sublandlord shall be deemed
to have all rights and remedies provided in Paragraph 14 of the Master Lease.
For purpose of this Sublease, Paragraph 14 of the Master Lease shall be
interpreted by substituting the term "Subtenant" for the term "Tenant" and term
"Sublandlord" for the term "Landlord".
11. Master Lease. This Sublease is subject to all the
provisions of the Master Lease except the following sections of the Master Lease
which are excluded therefrom: Sections 1, 2, 3, 4, 5.2, 6, 7, 8, 10, 19, 20,
22.2, 32.12, 33, 34, 35, Exhibit "A", Exhibit "C", and all Riders and Subtenant
shall not permit any act or omission to act that will violate any of the
provisions of the Master Lease. If the Master Lease terminates, this Sublease
shall terminate and the parties shall be relieved from all liabilities and
obligations under this Sublease; except that if this Sublease terminates as a
result of a default of one of the parties under this Sublease or the Master
Lease, or both, the defaulting party shall be liable to the non-defaulting party
for all damage suffered by the non-defaulting party as a result of termination.
Sublandlord agrees to maintain the Master Lease during the entire term of this
Sublease. Sublandlord agrees to pay all charges due under the Master Lease as
provided in the Master Lease and in accordance with its terms, and to comply
with or perform all obligations of lessee under the Master Lease.
12. Use. The Premises shall be used and occupied only for
general office purpose and/or telecommunications switching operations.
13. Assignment and Subletting. Subtenant shall have the right
to assign this Sublease to any successor in interest to substantially all of the
assets and business of Subtenant, and said assignee shall be deemed a
"controlled" entity for purpose of Section 17.1 and 17.2 of the Master Lease,
subject to the approval of the Master Landlord.
14. Security Deposit. Subtenant shall deposit with Sublandlord
upon execution hereof $7,606.00 as security for Subtenant's faithful performance
of Subtenant's obligation hereunder. If Subtenant fails to pay Rent or other
charges due hereunder, or otherwise defaults with respect to any provision of
this Sublease, Sublandlord may use, apply or retain all or any portion of said
deposit for the payment of any Rent or other charge in default or for the
payment of any other sum to which Sublandlord may become obligated by reason of
Subtenant's default, or to compensate Sublandlord for any loss or damage which
Sublandlord may suffer thereby. If Sublandlord so uses or applies all or any
portion of said deposit. Subtenant shall within then (10) days after written
demand therefore deposit cash with Sublandlord in amount sufficient
3
<PAGE> 9
to restore said deposit to the full amount herein above stated and Subtenant's
failure to do so shall be a breach of this Sublease. Sublandlord shall not be
required to keep said deposit separate from its general accounts. Provided
Subtenant is not in default under this Sublease, within thirty(30) days
(i)termination of this Sublease for any reason other than a default by
Subtenant, and (ii)the vacation of the Subleased Premises by Subtenant,
Sublandlord shall return said deposit, or much thereof as has not theretofore
been applied by Sublandlord to any costs, losses, or damages suffered or
incurred by Sublandlord as a result of Subtenant's failure to perform its
obligations under this Sublease, without payment of interest or other increment
for its use to Subtenant (or at Sublandlord's option, to the last assignee, if
any, of Subtenant's interest hereunder). No trust relationship is created herein
between Sublandlord and Subtenant with respect to said Security Deposit.
Provided that Subtenant is not in default or its obligations hereunder, it is
understood and agreed that the Security Deposit shall be applied against the
Base Rent in the 12th and 24th months of the Term.
Subtenant shall not thereafter be required to replenish the Security Deposit.
15. Consent to Sublease. The Sublease shall be contingent upon
the receipt of Master Landlord consent within 90 days following execution of the
Sublease by Subtenant. In the event that Subtenant does not receive this consent
with 90 days following execution of the Sublease by Subtenant, then subtenant
shall have the right to cancel this sublease.
16. Subtenant and Sublandlord shall have the right to cancel
this Sublease on or before April 15, 1995 in the event that Subtenant has not
obtained the required conduit space in the Building by providing written notice
to Borton Petrini & Conron, c/o Mr. Bill Cantrell, Borton Petrini & Conron, 4695
MacArthur Court, Newport Beach, CA 92660.
Subtenant:
STAR VENDING, INC., a
California Corporation
/s/ CHRIS EDGECOMB
------------------
By: Chris Edgecomb
Its: CEO
Date: 3/23/95
Sublandlord:
BORTON, PETRINI & CONRON, a
California
Partnership
By:_____________________
Its:____________________
Date:___________________
4
<PAGE> 10
EXHIBIT "A"
MASTER LEASE
<PAGE> 11
[logo]
PARAMOUNT
GROUP, INC.
LEASE
(California)
THIS LEASE is made as of the 26th day of MARCH 1990 between ONE
WILSHIRE ARCADE IMPERIAL, LTD. by Paramount Group Inc., a Delaware corporation,
its agent (hereinafter called "Landlord"), and BORTON, PETRINI & CONRON, A
CALIFORNIA PARTNERSHIP (hereinafter called "Tenant").
1. Premises. Landlord hereby leases to Tenant and Tenant hereby hires
and takes from Landlord the premises (the "Premises") consisting of Suite 1100
comprising approximately 22,500 rentable square feet located in the building
(the "Building") commonly known as 624 South Grand Avenue, Los Angeles,
California 90017. The Premises are more particularly shown on Exhibit "A"
attached hereto and incorporated herein by this reference. See Section 1.1 at
Page 14
2. Term.
2.1 The term of this Lease shall be 10 years and 0 months
commencing November 15 1990 (the "Commencement Date"). In the event
that Landlord, for any reason, cannot tender possession of the Premises
to Tenant on or before the Commencement Date, this Lease shall not be
void or voidable, nor shall Landlord be liable to Tenant in any way as
a result of such failure to tender possession. In the event that
Landlord cannot tender possession of the Premises to Tenant for any
reason other than the acts or omissions of Tenant. Tenant shall not be
obligated to pay rent hereunder until such time as Landlord tenders
possession of the Premises to Tenant, and if such inability to tender
possession of the Premises for reasons other than the acts or omissions
of Tenant continues for a period in excess of 10 days after the
Commencement Date as such period may be extended pursuant to Section
2.1(a) at page 15, Tenant shall have the right, exercisable by notice
to Landlord, to terminate this Lease, but the suspension of rent
obligations and the right of termination pursuant to this Paragraph 2.1
shall be Tenant's sole remedies in the circumstances herein described.
See Section 2.1 (a) at page 15. 2.2 In the event that Tenant is allowed
to enter into possession of the Premises prior to the Commencement
Date, such possession shall be deemed to be pursuant to, and shall be
governed by, the terms, covenants and conditions of this Lease,
including without limitation the covenant to pay rent, as though the
Commencement date occurred upon the date of taking of possession by
Tenant.
2.3 In the event that the Commencement Date falls on other
than the first day of a month, rent for any initial partial month of
the term hereof shall be appropriately prorated: and if the date of
commencement of Tenant's rent obligations, pursuant to Paragraph 2.1
above, is other than the Commencement Date, the end of the term hereof
shall be adjusted to the end of the month in which the date 10 years
and 0 months after the date of commencement of Tenant's rent
obligations falls. At the request of either party hereto, both parties
shall execute a memorandum confirming the date of commencement of
Tenant's rent obligations.
3. RENT. Beginning on the Commencement Date (subject to adjustment
pursuant to Paragraph 2.1 above), the base rent ("Base Rent") for the Premises
shall be an initial annual sum of $590,625 payable in monthly installments of
$49,218.75 in advance on the first day of each and every month throughout the
term of this Lease. Tenant agrees to pay all rent, without offset or deduction
of any kind, to Landlord by mail to the following address: One Wilshire Arcade
Imperial, Ltd. Department #1364 SCF Pasadena, CA 91050 or in such manner, to
such other person or at such other place as Landlord may from time to time
designate. Tenant acknowledges that the mode of collection of rent specified
above is by deposit in a so-called "lock box" from which payments received are
<PAGE> 12
automatically processed by Landlord's bank without any review by Landlord of the
items processed. Under those circumstances, and so long as this mode of
collection is used by Landlord. Tenant agrees that no payment made to Landlord
by check or other instrument deposited in the lock box shall contain a
restrictive endorsement of any kind: and if any such instrument should contain a
restrictive endorsement in violation of the foregoing, that endorsement shall
have no legal effect whatever, notwithstanding that such item is processed for
payment. See Paragraph 3.1 on page 15.
4. RENT ESCALATION. Tenant shall pay, as monthly rent hereunder, in
addition to the Base Rent, the sums provided in the "Rent Escalation Rider(s)"
attached hereto and incorporated herein by this reference. Tenant shall be
advised of any change, from time to time, in rent escalation payments required
hereunder by written notice from Landlord, which shall include information in
such detail as Landlord may reasonably determine to be necessary in support of
such change. Tenant shall have 30 days after the receipt of any such notice to
protest the change indicated therein: but notwithstanding any such protest all
rent escalation payments falling due after service of such notice shall be made
in accordance with such notice until the protest has been resolved, whereupon
any necessary adjustment shall be made between Landlord and Tenant.
5. TAX ON TENANT'S PROPERTY: OTHER TAXES.
5.1 Tenant shall be liable for, and shall pay at least 10 days
before delinquency, and Tenant hereby indemnities and holds Landlord
harmless from and against any liability in connection with, all taxes
levied directly or indirectly against any personal property, fixtures,
machinery, equipment, apparatus, systems and appurtenances placed by
Tenant in or about, or utilized by Tenant in, upon or in connection
with, the Premises (Equipment Taxes"). If any Equipment Taxes are
levied against Landlord or Landlord's property or if the assessed value
of Landlord's property is increased by the inclusion therein of a value
placed upon such personal property, fixtures, machinery, equipment,
apparatus, systems or appurtenances of Tenant and if Landlord, after
written notice to Tenant, pays the Equipment Taxes or taxes based upon
such an increased assessment (which Landlord shall have the right to do
regardless of the validity of such levy, but only under proper protest
if requested by Tenant prior to such payment and if payment under
protest is permissible). Tenant shall pay to Landlord upon demand, as
additional rent hereunder, the taxes so levied against Landlord or the
proportion of such taxes resulting from such increase in the
assessment: provided, however, that in any such event Tenant shall have
the right, in the name of Landlord and with Landlord's full
cooperation, but at no cost to Landlord, to bring suit in any court of
competent jurisdiction to recover the amount of any such tax so paid
under protest, and any amount so recovered shall belong to Tenant.
5.2 If the tenant improvements in the Premises, whether
installed and/or paid for by Landlord or Tenant and whether or not
affixed to the real property so as to become a part thereof, are
assessed for real property tax purposes at a valuation higher than the
valuation at which tenant improvements conforming to Landlord's
building standards in other space in the Building are assessed, then
the real property taxes and assessments levied against Landlord or
Landlord's property by reason of such excess assessed valuation shall
be deemed to be Equipment Taxes and shall be governed by the provisions
of Paragraph 5.1 above. Any such amounts, and any similar amounts
attributable to excess improvements by other tenants in the Building
and recovered by Landlord from such other tenants under comparable
lease provisions, shall not be included in Real Property Taxes for
purposes of rent escalation under Section 4 of this Lease.
5.3 Tenant shall pay, as additional rent hereunder, upon
demand and in such manner and at such times as Landlord shall direct
from time to time by written notice to Tenant, any excise, sales,
privilege or other tax, assessment or other charge (other than income
or franchise taxes) imposed, assessed or levied by any governmental or
quasi-governmental authority or agency upon Landlord on account of this
Lease, the rent or other payments by Tenant hereunder, any other
benefit received by Landlord hereunder. Landlord's business as a lessor
hereunder, or otherwise in respect of or as a result of the agreement
or relationship of Landlord and Tenant hereunder.
6. SECURITY DEPOSIT. A deposit (the "Security Deposit") in the amount
of $49,218.75 shall be paid by Tenant upon execution of this Lease and shall be
held by Landlord without liability for interest and as security for the
performance by Tenant of Tenant's covenants and obligations under this Lease, it
being expressly understood that the Security Deposit shall not be considered an
advance payment of rent or a measure of Landlord's damages in case of default by
Tenant. Upon the occurrence of any breach or default under this Lease by Tenant,
Landlord may, from time to time, without prejudice to any other remedy, use the
Security Deposit or any portion thereof to the extent necessary to make good any
arrearages of rents or any other damage, injury, expense, or liability caused to
Landlord by such breach or default. Following any application of the Security
Deposit, Tenant shall pay to Landlord on demand an amount to restore the
Security Deposit to its original amount. In the event of bankruptcy or other
debtor relief proceedings by or against Tenant, the Security Deposit shall be
deemed to be approved first to the payment of rent and other charges due
Landlord, in the order that such rent or charges became due and owing, for all
periods prior to filing of such proceedings. Upon termination of this Lease any
remaining balance of the Security Deposit shall be returned by Landlord to
Tenant within 14 days after termination of Tenant's tenancy.
7. LATE PAYMENTS. In the event Tenant fails to pay any rent or other
monetary amount due hereunder when and as due, and the delinquency continues for
a period of 10 days after the date the amount was due (but without additional
notice or demand). Tenant shall also pay to Landlord with such delinquent amount
a late charge in an amount equal to 5% of the delinquent amount for the purpose
of defraying administrative costs and expenses incident to handling the
delinquency. The late charge shall be deemed additional rent and the right to
require it shall be in addition to all of Landlord's other rights and remedies
hereunder or at law and shall not be construed as liquidated damages or as
limiting Landlord's remedies in any manner.
8. USE OF PREMISES. Tenant shall use the Premises only for general
office purposes, except as may be specified below. Tenant is specifically
authorized to use the Premises to conduct the following business, subject to
compliance with all applicable
<PAGE> 13
laws, ordinances, rules and regulations: law offices in any event, unless
specifically authorized herein. Tenant shall not prepare or serve, or authorize
the preparation or service of, food or beverages in the Premises, except only
the occasional preparation of coffee, tea, hot chocolate and other such common
refreshments for Tenant and its employees.
9. BUILDING SERVICES.
9.1 Throughout the term of this Lease, Subject to shortages
and accidents beyond Landlord's reasonable control, Landlord shall keep
in repair all structural elements of the Building (including, without
limitation, the structural walls, doors, floors, ceilings, roof,
elevators, stairwells, lobby, heating system, air conditioning system,
plumbing and electrical wiring) and maintain the exterior of the
Premises, including grounds, walks, drives and loading area, if any;
provided that Tenant shall reimburse Landlord upon demand, as
additional rent hereunder, for the cost of any repairs or extraordinary
maintenance necessitated by acts of Tenant or Tenant's employees
contractors, agents licenses or invitees.
9.2 Subject to shortages and accidents beyond Landlord's
reasonable control, Landlord shall furnish building standard heating
and air conditioning service Monday through Friday from 8:00 a.m. to
6:00 p.m. and Saturday from 8:00 a.m. to 1:00 p.m., except for
holidays. No heating or air conditioning will be furnished by Landlord
on Sundays or holidays except upon prior arrangement with Tenant and at
an extra charge as may be agreed to between Landlord and Tenant. For
purposes of this Paragraph 9.2, "holidays" shall mean and refer to the
holidays of Christmas, New Year's Day, President's Day, Labor Day,
fourth of July, Memorial day, Thanksgiving and the day after
Thanksgiving, as those holidays are defined, recognized or established
by governmental authorities or agencies from time to time. Tenant shall
install, at its expense, such additional air conditioning equipment as
may be reasonably determined by Landlord to be necessary in order to
maintain building air conditioning standards resulting form Tenant's
installation and operation of computer equipment or other special
equipment or facilities placing a greater burden on the air
conditioning system that would general office use. Landlord shall
furnish electric current to the Premises in amounts reasonably
sufficient for normal business use, including operation of building
electric current to the Premises in amounts reasonably sufficient for
normal business use, including operation of building standard lighting
and operation of typewriters and standard fractional horsepower office
machinery. Tenant agrees that, at all times during the term of this
Lease, Tenant's use of electric current shall never exceed that
capacity of the feeders to the Building or the risers or wiring
installation in the Building. Tenant shall not install or use or permit
the installation or use upon or about the Premises of any computer or
electronic data processing or other equipment using current in excess
of 110 volts or requiring power in excess or 500 watts, without the
express prior written consent of Landlord. Tenant shall pay monthly
upon billing as additional rent under this Lease such sums as
landlord's building engineer may reasonably determine to be necessary
in order to reimburse Landlord of the additional cost of utilities
(including, without limitation, electricity, gas and other fuels or
power sources, and water) attributable to the operation of additional
air conditioning equipment and any other requirements in excess of
those for normal office use by reason of the operation of computer
equipment or other special equipment of facilities.
9.3 Landlord shall furnish unheated water from mains for
drinking, lavatory and toilet purposes drawn through fixtures installed
by Landlord, or by Tenant with Landlord's express prior written
consent, and heated water for lavatory purposes from regular building
supply. Tenant shall pay Landlord for additional water which is
furnished for any other purpose. The amount that Tenant shall pay
Landlord for such additional water shall be the average price per
gallon charged to the Landlord for the Building by the entity providing
water.
9.4 Landlord shall furnish janitor service in and about the
Premises, to the extent necessitated by normal office use of the
Premises. Monday through Friday, holidays excepted. Landlord shall have
no obligation of furnish janitor service for any portion of the
premises which may be used (to the extent permitted under this Lease)
for the preparation , dispensing to consumption of food or beverages or
for any purpose other than general office use, and Tenant shall keep
all such portions of the Premises in a clean and orderly condition at
Tenant's sole cost and expense. In the event that Tenant shall fail to
keep such portions of the Premises in a clean and orderly condition,
Landlord may do so and any costs incurred by Landlord in connection
therewith shall be payable by Tenant to Landlord upon demand, as
additional rent hereunder. Tenant shall also pay to Landlord, as
additional rent hereunder, amounts equal to any increase in cost of
janitor service in and about the Premises if such increase in cost is
due to (a) use of the Premises by Tenant during hours other than normal
business hours, or (b) location in or about the Premises of any
fixtures, improvements, materials or finish items (including without
limitation wall coverings and floor coverings) other than those which
are of the standard type adopted by Landlord for the Building.
9.5 Landlord shall furnish passenger and freight elevator
service in common with Landlord and other tenants Monday through Friday
form 8:00 a.m. to 6:00 p.m. and Saturday from 8:00 a.m. to 1:00 p.m.
Landlord shall proved limited passenger elevator service daily at all
times such normal passenger service is not furnished.
9.6 Landlord does not warrant that any service will be free
form interruptions caused by repairs, renewals, improvements, changes
of service, alternations, strikes, lockouts, labor controversies,
accidents, inability to obtain fuel, steam water or supplies or other
case, provided the cause is beyond the reasonable control of Landlord,
and Landlord agrees to give Tenant notice of any extended interruptions
of which Landlord has prior knowledge. No interruption of service shall
be deemed an eviction disturbance of Tenant's use and possession of the
Premises or any part thereof, nor relieve Tenant from performance of
Tenant's obligations under this Lease. Landlord shall not be liable for
any failure to make such repairs or furnish such service unless the
failure shall be reasonably curable by Landlord and nonetheless shall
persist for an unreasonable time after written notice from Tenant of
the need for such repairs or the failure to furnish such service. There
shall be no abatement of rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising form the
making of any repairs, alternations or improvements, or provision of
any service in or to any portion of the Building, including the
Premises, or in or to the fixtures, appurtenances and equipment
therein; provided that in making such
3
<PAGE> 14
repairs, alterations or improvements or providing such service Landlord
shall interfere as little as reasonably practicable with the conduct of
Tenant's business in the Premises, without, however, being obligated to
incur liability for overtime or other premium payment to its agents,
employees or contractors in connection therewith. If Tenant's
beneficial use of all or a substantial portion of the Premises is
prevented for a period in excess of 3 consecutive days, the Base Rent
shall be equitably abated commencing with the fourth day and continuing
until such use is no longer prevented. Such abatement, to the extent
provided above, shall be Tenant's sole remedy. As a material inducement
to Landlord's entry into this Lease. Tenant waives and releases its
right to make repairs at Landlord's expense under Sections 1941 and
1942 of the California Civil code.
10. CONDITION OF PREMISES. By occupying the Premise. Tenant shall be
deemed to accept the same and acknowledge that they comply fully with Landlord's
covenants and obligations hereunder, subject to completion of any items which it
is Landlord's responsibility hereunder to furnish and which are listed by
Landlord and Tenant upon inspection of the Premises. Tenant acknowledges that
neither Landlord nor any agent, employee or representative of Landlord has made
any representation or warranty with respect to the Building or Premises or with
respect to the suitability or fitness of the Building or Premises for the
conduct of Tenant's business or any other purpose. During the term of this
Lease, Tenant shall maintain the Premises in as good condition as when Tenant
took possession, ordinary wear and tear and repairs which are specifically made
the responsibility of Landlord hereunder excepted, and shall repair all damage
or injury to the Building or to fixtures, appurtenances and equipment of the
Building caused by Tenant's installation or removal of its property or resulting
form the negligence or tortuous conduct of Tenant, its employees, contractors,
agents, licensees and invitees. In the event of failure by Tenant to perform its
covenants of maintenance and repair hereunder. Landlord may perform such
maintenance and repair, and any amounts expended by Landlord in connection
therewith shall be payable by Tenant to Landlord upon demand, as additional rent
hereunder.
11. DAMAGE TO PREMISES OR BUILDING.
11.1 In the event that the Building should be totally
destroyed by fire or other casualty, this Lease shall terminate. In the
event the Premises or a substantial portion of the Building should be
so damaged or destroyed that rebuilding or repairs cannot, in
Landlord's opinion, be completed within 75 days after the day of such
damage, Landlord may at its option terminate this Lease upon notice to
Tenant, or Landlord may proceed to restore the Building. In the event
that such rebuilding or repairs can, in Landlord's opinion be completed
within 75 days after the date of such damage landlord shall restore the
Building. In the event that Landlord is obligated or elects to restore
the Building , Landlord shall commence to rebuild or repair the
Building reasonably promptly after such damage or destruction and shall
proceed with reasonable diligence to restore it to substantially the
condition in which it was immediately prior to the casualty, except
that the Landlord shall not be required to rebuild, repair or replace
any part of the partitions, fixtures, alterations, decorations or other
improvements which may have been constructed by or specifically for
Tenants, or by or for other tenants within the Building; provided,
however, that Landlord shall rebuild any such times which were part of
the Premises as delivered by Landlord to Tenant prior to the start of
the Lease term. In such event this Lease shall remain in full force and
effect, provided that if Tenant is dispossessed by reason of such
casualty form all or a substantial portion of the Premises for more
that 3 consecutive days Tenant shall be entitled to a ratable abatement
of the Base Rent during the time and to the extent the Premises are
unfit for occupancy; and provided further that Tenants shall have the
right to terminate this Lease upon notice service upon Landlord prior
to actual completion of any necessary restoration of the Premises if
such restoration is not substantially completed within 150 days after
the casualty. Such abatement or termination, to the extent provided
above, shall be Tenant's sole remedy.
11.2 In the event any holder of a mortgage or deed of trust on
the Building should require that the insurance proceeds payable upon
damage or destruction to the Building by fire or other casualty be used
to retire the debt secured by such mortgage or deed or trust, or in the
event any lessor under any underlying or ground lease should require
that such proceeds be paid to such lessor. Landlord shall in no event
have any obligation to rebuild and at Landlord's election this Lease
shall terminate.
11.3 With the exception of insurance required to be carried by
Tenant under Section 28 of this Lease, any insurance which may be
carried by Landlord or Tenant against loss or damage to the Building or
to the Premises shall be for the sole benefit of the party carrying
such insurance and under its sole control. Landlord shall not be
required to carry insurance of any kind on Tenant's property and,
except by reason of the breach by Landlord of any of its obligations
hereunder, shall not be obligated to repair any damage thereto or to
replace the same.
11.4 Tenant, as a material inducement to Landlord's entering
into this Lease, irrevocable waives and releases its rights under the
provisions of Sections 1932(2) and 1933(4) of the California civil
code. It being the intention of the parties hereto that the express
terms of this Lease shall control under any circumstances in which
those provisions might otherwise apply.
12. Eminent Domain.
12.1 In the event that the whole of the Premise, or so much
thereof as to render the balance unusable to tenant for the purposes
leased hereunder, shall be lawfully condemned or taken in any manner
for any public or quasi-public use, conveyed by Landlord in lieu
thereof (a "Taking"), this Lease ad the term hereby granted shall
forthwith cease and terminate on the date of the taking of possession
by the condemning authority (the Date of Taking").
12.2 In the event of a Taking of a portion of the Premises
which does not result in the termination of this Lease pursuant to
Section 12.1, above. The Base Rent shall be abated in proportion to the
part of the Premise so taken.
12.3 In the event that there is a taking of a portion of the
Building other than the Premises, and if in the opinion of landlord,
the Taking is so substantial as to render the remainder of the Building
uneconomic to maintain despite reasonable
4
<PAGE> 15
reconstruction or remodeling, or if it would be necessary to alter the
Building or Premises materially, Landlord may terminate this Lease by
notifying Tenant of such termination within 60 days following the Date
of Taking, and this Lease shall end on the date specified in the notice
of termination, which shall not be less that 60 days after the giving
of such notice.
12.4 No temporary Taking of the Building or Premises and /or
Tenant's rights therein or under this Lease shall terminate this Lease
or give Tenant any right to abatement of rent hereunder. Any award made
to Tenant by reason of any such temporary Taking shall belong entirely
to Tenant and Landlord shall not be entitled to share therein.
12.5 Except for the award in the event of a temporary Taking
as contemplated in paragraph 12.4, above. Tenant hereby releases and
shall have no interest in, or right to participate with respect to the
determination of, any compensation for any Taking, except only that
Tenant shall be entitled to the portion of any award specifically
designated by the condemning authority to be for any personal property
of Tenant included in any such Taken for any relocation expenses or
business interruption loss incurred by Tenant.
13. DEFAULT.
13.1 The following events shall be deemed to be events of default by
Tenant under this Lease:
(a) If Tenant shall fail to pay any installment of rent or any
other sum required to be paid by Tenant under this Lease as due.
(b) If Tenant shall fail to comply with any term, provision or
covenant of this Lease, other than provisions pertaining to the payment
of money.
(c) If Tenant shall make an assignment for the benefit of
creditors.
(d) If Tenant shall file a petition under any section or
chapter of the federal Bankruptcy code, as amended from time to time.
or under any similar law or statute of the United States or any State
thereof pertaining to bankruptcy, insolvency or debtor relief, or
Tenant shall have a petition or other proceedings filed against Tenant
under any such law or chapter thereof and such petition or proceeding
shall not be vacated or set aside within 60 days after such filing.
(e) If a receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant and such receivership shall
not be terminated and possession of such assets restored to Tenant
within 30 days after such appointment.
(f) If Tenant shall desert or vacate any substantial portion o
the premises and the same shall remain unoccupied for more than 14 days
thereafter.
(g) If Tenant shall assign this Lease or sublet the Premises
in violation of the terms hereof.
13.2 Any shorter period for cure provided by law notwithstanding, and
in lieu thereof, Tenant may cure any default under Subparagraph 13.1(a), above,
at any time within 5 days after written notice of default is received by Tenant
from Landlord; and Tenant may cure any default under Subparagraph 13.1(b),
above, within 15 days after written notice of default is received by Tenant from
Landlord, provided that if such non-monetary default is curable but is of such a
nature that the cure cannot be completed within 15 days. Tenant shall be allowed
to cure the default if Tenant promptly commences the cure upon receipt of the
notice and diligently prosecutes the same to completion as promptly as
reasonably possible thereafter.
13.3 Landlord shall in no event be deemed to be in default of any
obligation thereunder unless and until 15 days have expired after service of
notice of such deficiency upon Landlord and such deficiency remains uncured;
provided that if such matter is of a nature that the cure thereof cannot be
completed within such period, Landlord shall not be deemed to be in default
hereunder if Landlord commenced the cure within such period and diligently
prosecutes the same to completion.
14. REMEDIES UPON DEFAULT.
14.1 Upon the occurrence of any event of default by Tenant, Landlord
shall have in addition to any other remedies available to Landlord at law or in
equity, the option to pursue any one or more of the following remedies (each and
all of which shall be cumulative and non-exclusive) without any notice or demand
whatsoever.
(a) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to
do so, Landlord may, without prejudice to any other remedy which it may
have for possession or arranges in rent, enter upon and take possession
of the Premises an expel or remove Tenant and any other person who may
be occupying the Premises or any part thereof, without being liable of
prosecution or any claim or damages therefor; and Landlord may recover
from Tenant the following:
(1) The worth at the time of award of any unpaid rent which
has been earned at the time of such termination; plus
(2) 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 Tenant proves
could have been reasonably avoided; plus
(3) 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 Tenant proves could have been
reasonably avoided; plus
5
<PAGE> 16
(4) Any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under this lease or which in the ordinary course of things
would be likely to result therefrom, specifically including but not
limited to brokerage commissions and advertising expenses incurred,
expenses of remodeling the Premises or any portion thereof for a new
tenant, whether for the same or a different use, and any special
concessions made to obtain a new tenant; and
(5) At Landlord's election, such other amounts in addition to
or in lieu of the foregoing as may be permitted from time to time by
applicable law.
The term "rent" as used in this Subparagraph 14.1(a) shall be deemed to be and
to mean all sums of every nature required to be paid by Tenant pursuant to the
terms of this Lease, whether to Landlord or to others. Any such sums which are
based on percentages of income, increased costs or other historical data shall
be reasonable estimates or projections computed by Landlord on the basis of the
amounts thereof accruing during the 24-month period immediately prior to
default, except that if it becomes necessary to compute such sums before a 24-
month period has expired, then the computation shall be made on the basis of the
amounts accruing during such shorter period. As use in Subparagraphs 14.1(a)(1)
and (2), above, the "worth at the time of award" shall be computed by
discounting such amount at the discount rate of the federal Reserve Bank of San
Francisco at the time of award plus 1%.
(b) If Landlord does not elect to terminate this Lease on
account of any default by Tenant, Landlord may from time to time,
without terminating this Lease, enforce all of its rights and remedies
under this Lease, including the right to recover all rent as it becomes
due.
(c) Whether or not Landlord elects to terminate this Lease on
account of any default by Tenant, Landlord shall have the right to
terminate any and all subleases, licenses, concessions or other
consensual arrangements for possession entered into by Tenant and
affecting the Premises or may, in Landlord's sole discretion, succeed
to Tenant's interest in such subleases, licenses, concessions or
arrangements, in the event of Landlord's election to succeed to
Tenant's interest in any such subleases, licenses, concessions or
arrangements, Tenant shall, as of the date of notice by Landlord of
such election, have no further right to or interest in the rent or
other consideration receivable thereunder.
14.2 Following the occurrence of an event of default by Tenant,
Landlord shall have the right to require that any or all subsequent amounts paid
b Tenant to Landlord hereunder, whether in cure of this default in question or
otherwise, be paid in the form of cash, money order, cashier's or certified
check drawn on an institution acceptable to Landlord, or by other means approved
by Landlord, notwithstanding any prior practice of accepting payments in any
different form.
14.3 In the event of default by Landlord hereunder Tenant shall be
entitled to recover form Landlord all damages shown by Tenant to have been
proximately caused thereby; but Tenant shall in no event have the right to
terminate this Lease by reason thereof.
14.4 No waiver by Landlord or Tenant of any violation or breach of any
of the terms, provisions and covenants herein contained shall be deemed or
construed to constitute a waiver of any other or later violation or breach of
the same or any of the terms, provisions and covenants herein contained.
Forbearance by Landlord in enforcement of one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to constitute
a waiver of such default. The acceptance of any rent hereunder by Landlord
following the occurrence of any default,. whether or not known to default. The
acceptance of any rent hereunder by Landlord following the occurrence of any
default, whether or not known to Landlord, shall not be deemed a waiver of any
such default, except only a default in the payment of the rent so accepted.
15. SURRENDER
15.1 No act or thing done by Landlord or any agent or employee of
Landlord during the term hereof shall be deemed to constitute an acceptance by
Landlord of a surrender of the Premises unless such intent is specifically
acknowledged in a writing signed by Landlord. The delivery of keys to the
Premises to Landlord or any agent or employee of Landlord shall not constitute a
surrender of the Premises or affect a termination of this lease, whether or not
the keys are thereafter retained by Landlord, and notwithstanding such delivery
Tenant shall be entitled to the return of such keys at any reasonable time upon
request until this Lease shall have been properly terminated. The voluntary or
other surrender of this Lease by Tenant, whether accepted by Landlord or not, or
a mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises.
15.2 Upon the expiration of the term of this Lease, or upon any earlier
termination of this Lease, Tenant shall, subject to the provisions of this
section 15, quit and surrender possession of the Premises to landlord in as good
order and condition as when Tenant shall, without expense to Landlord, remove or
cause to be removed form the premises all debris and rubbish, and such items of
furniture, equipment, free-standing cabinet work, movable partitions and other
articles of personal property owned by Tenant or installed or placed by Tenant
at its expense in the Premises, and such similar articles of any other persons
claiming under Tenant, as Landlord may, in its sole discretion, require to be
removed, and Tenant shall repair at its own expense all damage to the Premises
and Building resulting form such removal.
15.3 Whenever Landlord shall re-enter the premises as provided in this
lease, any personal property of Tenant not removed by Tenant upon the expiration
of the term of this Lease or within 48 hours after a termination by reason of
Tenant's
6
<PAGE> 17
default as provided in this Lease, shall be deemed abandoned by Tenant
an may be disposed of by landlord in accordance with Sections 1980 through 1991
of the California civil code and Section 1174 of the California Code or Civil
Procedure, or in accordance with an laws or judicial decisions which may
supplement or supplant those provisions form time to time.
15.4 All fixtures, alterations , additions, repairs, improvements
and/or appurtenances attached to or built into or on or about the Premises prior
to or during the term hereof, whether by Landlord at its expense or at the
expense of Tenant, or by Tenant at its expense, or by previous occupants of the
Premises, shall be and remain part of the Premises and shall not be removed by
Tenant at the end of the term of this Lease. Such fixtures, alterations,
additions, repairs, improvements and/or appurtenances shall include, without
limitation, floor coverings, drapes, paneling, molding, doors, kitchens and
dishwashing fixtures and equipment, plumbing systems, electrical systems,
lighting systems, silencing equipment, communication systems, all fixtures and
outlets for the systems mentioned above and for all telephone, radio, telegraph
and television purposes, and any special flooring or ceiling installations.
Notwithstanding the foregoing, Landlord may in its sole discretion, require
Tenant, at Tenant's sole cost and expense, to remove any fixtures, alterations,
additions, repairs improvements and/or appurtenances attached or built into
and/or on or about the Premises, and to repair any damage to the Building and
Premises occasioned by the installation, construction, operation and/or removal
of such fixtures, equipment, alterations, additions, repairs, improvements
and/or appurtenances. If Tenant shall fail to complete such removal and repair
such damage, Landlord may do so and may change the reasonable cost thereof to
Tenant.
15.5 Tenant hereby waives all claims for damages or other liability in
connection with Landlord's re-entering and taking possession of the Premises or
removing, retaining, storing or selling the Property of Tenant as herein
provided, and Tenant hereby indemnifies and holds Landlord harmless from an such
damages or other liability, and no such re-entry shall be considered or
construed to be a forcible entry.
16. COSTS OF SUIT; ATTORNEYS' FEES
16.1 If Tenant or Landlord shall bring any action for any relief,
declamatory or otherwise, against the other arising out of or under this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party its costs of suit,
including, without limitation, a reasonable sum for attorneys' fees in such
suit, and such attorneys fees shall be deemed to have accrued on the
commencement of such action and shall be paid whether or not such action is
contested or persecuted to judgment.
16.2 In the event that Landlord shall, without fault of Landlord's part
be made party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any person holding under or using the Premises
by license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or any such other person or otherwise arising out of
or resulting form any action or transaction of Tenant or of any such other
person, Tenant hereby indemnifies and holds Landlord harmless from and against
all costs and expenses, including reasonable attorneys' fees, incurred by
landlord in or in connection with such litigation.
17. ASSIGNMENT AND SUBLETTING.
17.1 Except as hereinafter provided. Tenant shall not sublet all or any
part of the Premises nor assign this Lease without Landlord's express prior
written consent, which consent shall not unreasonably be withheld. Tenant may,
subject to the rest of the terms hereof but without Landlord's consent, sublet
all of the Premises or assign this Lease to any entity controlling, controlled
by or under common control with Tenant, provided the assignee expressly assumes
the obligations of Tenant hereunder by execution and delivery to Landlord of a
document approved by Landlord. Neither this Lease nor the term hereby demised
shall be mortgaged by Tenant, nor shall Tenant mortgage, assign, pledge or
otherwise transfer the interest of Tenant in and to any sublease or the rentals
payable thereunder or in the Security Deposit. Any such mortgage and any
sublease, assignment, pledge or transfer made in violation of this paragraph
17.1 shall be void and at Landlord's election shall terminate this Lease. Each
subleases, assignee or transferee of Tenant, other than Landlord, shall assume
all obligations of Tenant under this Lease and shall be and remain liable
jointly and severally with Tenant for the payment of the rent, and for the due
performance of all the terms, covenants, conditions and agreements herein
contained on Tenant's part to be performed for the term of this Lease. No
assignment shall be binding upon Landlord unless such assignee or Tenant shall
deliver to Landlord a counterpart of such assignment and an instrument in
recordable form which contains a covenant of assumption by the assignee
satisfactory in substance and form to Landlord, consistent with the requirements
of this Paragraph 17.1, but the failure or refusal of the assignee to execute
such instrument of assumption shall not release or discharge the assignee from
its liability as set forth above. No subtenant or assignee not complying with
the foregoing requirements shall have any interest in the Security Deposit. Any
assignee that does comply with the foregoing requirements shall automatically
succeed to Tenant's position with respect to the Security Deposit, and Landlord
shall have the right to refund all or any portion of the Security Deposit to the
assignee at any time or under any circumstances with no liability to the
assignor. If tenant is a corporation which, under California law, is not deemed
a publicly held corporation or is an unincorporated association or partnership,
the transfer, assignment or hypothecation of any stock or interest controlling
such corporation, association or partnership shall be deemed an assignment
within the meaning and provisions of this Section 17. For purposes hereof,
"control" shall be deemed to refer to any amount, in the aggregate, exceeding
50% of the voting power of such corporation association or partnership.
17.2 In the event that Tenant desires to assign this Lease, or to enter into a
sublease, as to all or any portion of the Premises, except where the subtenant
or assignee is an entity controlling, controlled by or under common control with
Tenant. Tenant shall, prior to solicitation of offers therefor, give landlord
notice of Tenant's desire to assign or sublet and of the portion of the Premises
to be affected by the proposed assignment or sublease. Landlord shall have the
right,
7
<PAGE> 18
exercisable by notice to Tenant within 60 days after Landlord's receipt
of Tenant's notice of desire to assign or sublet, to terminate this Lease as to
the portion of the Premises affected by the proposed assignment or sublease,
such termination to be effective as of the date 60 days after notice by Landlord
to Tenant of such termination. In the event of a termination of the Lease as to
a portion of the Premises pursuant to this Paragraph 17.2, effective as of such
termination, the Premises shall be deemed to no longer include the portion of
the Premises subject to such termination. Tenant shall surrender possession of
that portion of the Premises in accordance with the provisions of this lease,
and the rent payable hereunder an d tenant's Percentage Share shall be
appropriately adjusted based upon the rentable area remaining within the
Premises. If Landlord does not elect to terminate pursuant to this Paragraph
17.2, and if Tenant does not enter into an assignment or sublease as specified
in Tenant's notice of desire to assign or sublet within 6 months after the
expiration of landlord's 60-day period for election to terminate, then Tenant
shall again comply with the provisions of this Paragraph 17.2 before assigning
this Lease or entering into a sublease, as to all or any portion of the
premises. See Paragraphs 17.2 (a) and 17.3 at page 16.
18. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Building or Premises, other than a transfer for
security purposes only, the transferor shall be automatically relieved of any
and all obligation and liabilities on the part of Landlord accruing from and
after the date of such transfer, including, without limitation, the obligation
of Landlord to return the Security Deposit as provided in the Lease; provided
that the transferor shall, within a reasonable time transfer any Security
Deposit then held by Landlord, or any portion thereof remaining after proper
deductions therefrom, to the transferee and shall thereafter notify Tenant of
such transfer, of any claims made against the Security Deposit, and of the
transferee's name and address, by written notice delivered personally (in which
case Tenant shall acknowledge receipt of such notice by signing landlord's copy
of such notice) or by registered or certified mail.
19. HOLDING OVER. If Tenant hold over after the term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for an further term, and in such case, Base Rent shall be payable at a monthly
rate equal to one and one-half times the Base Rent applicable during the last
rental period of the term under this Lease. Such month-to-month tenancy shall be
subject to every other term, covenant and agreement contained herein. Nothing
contained in this Section 19 shall be construed as consent by Landlord to any
holding over by Tenant and Landlord expressly reserves the right to require
Tenant to surrender possession of the Premise to Landlord as provided in this
Lease upon the expiration or other termination of this Lease.
20. NOTICES. In every case when, under the provisions of this Lease, it
shall be necessary or desirable for one part hereto to serve any notice, request
or demand on the other, such notice or demand shall be in writing and shall be
serve personally or by deposit in the United States mail, postage and fees fully
prepaid, registered or certified mail, with return receipt requested, addressed
as follows:
Copy to: Paramount Group, Inc.
Paramount Plaza
Suite 2000
1633 Broadway
New York, NY 10019
If to Landlord: One Wilshire Arcade Imperial, Ltd.
c/o Paramount Group, Inc.
624 S. Grand Avenue, Suite 1207
Los Angeles, CA 90017
If to Tenant: Borton, Petrini & Conron
624 S. Grand Avenue, Suite 1100
Los Angeles, CA 90017
Landlord or Tenant may, from time to time, by notice in writing served upon the
other as aforesaid, designate a different mailing address or a different person
to whom all such notices or demands are thereafter to be addressed. Service of
any such notice demand if given personally shall be deemed complete upon
delivery, and if made by mail shall be deemed complete on the day actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of 2 business days after the day of mailing, whichever is earlier.
21. QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying the
rent and performing the convenants of the Lease on Tenant's part to be
performed, shall and may peaceably and quietly have, hold and enjoy the Premises
for the term this Lease.
22. TENANT'S FURTHER OBLIGATIONS.
22.1 Except for ordinary wear and as otherwise provided in
this Lease, Tenant shall, at Tenant's expense keep good order condition
and repair the interior of the Premises and shall promptly and
adequately repair all damage to the interior of the Premises and
replace or repair all glass, fixtures, equipment and appurtenances
therein damaged or broke under the supervision and with the approval of
Landlord and, if Tenant does not do so, Landlord may, but need not,
make such repairs and replacements and if Landlord does so Tenant shall
pay Landlord the cost thereof promptly upon demand, additional rent
hereunder.
8
<PAGE> 19
22.2 Tenant shall comply with all laws, ordinances, rules,
regulations, orders and directives of governmental and
quasi-governmental bodies and authorities having jurisdiction over
Tenant or the Premises from time to time and shall obtain and keep in
effect all licenses, permits and other authorizations required with
respect to the business or businesses conducted by Tenant within or
from the Premises. Tenant and its employees, agents, licensees and
invitees shall also comply with all reasonable rules and regulations
which Landlord may adopt from time to time for the protection and
welfare of the Building and its tenants and occupants: provided that
Tenant shall not be responsible for compliance with any rule or
regulation adopted by Landlord unless or until Tenant is furnished with
a copy thereof. The present rules and regulations for the Building are
attached hereto as Exhibit "B". Landlord shall have no liability to
Tenant for the failure of any other tenant in the Building to observe
the rules and regulations.
23. ESTOPPEL CERTIFICATE BY LESSEE. At any time and from time to time,
within 15 days after written request by Landlord, Tenant shall execute,
acknowledge and deliver to Landlord a statement in writing certifying that 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
stating the modifications), that Tenant knows of no default hereunder by
Landlord and has no right of offset or deduction against the rent or any other
charge payable to Landlord (or specifying any claimed), the amount of any
security posted by Tenant, the dates to which the rent and other charges have
been paid in advance, and any increases or decreases of rent that are
anticipated. It is intended that any statement delivered pursuant to this
Section 23 may be relied upon by any purchaser of the fee or mortgagee or
beneficiary or assignee of any mortgage or trust deed upon the fee of the
Building or Premises. Tenant's failure to deliver the statement within the
period specified above shall be conclusive and binding upon Tenant that the
Lease is in full force and effect without modification except as may be
represented by Landlord, that there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counterclaim or deduction
against rental, and that no more than one month's rental has been paid in
advance.
24. SUBORDINATION AND ATTORNMENT. This Lease is and at all times shall
be subject and subordinate to any ground or underlying leases, mortgages, trust
deeds or like encumbrances, which may now affect the Building or Premises, and
to all renewals, modifications, consolidations, replacements and extensions of
any such lease, mortgage, trust deed or like encumbrance. In addition, as to any
future ground or underlying lease, mortgage, trust deed or like encumbrance, or
any renewal, modification, consolidation, replacement or extension of any of the
same. Tenant agrees that, at the request of Landlord or any party to a ground or
underlying lease or any holder of a note secured by a mortgage or like
encumbrance. Tenant will execute any certificate or document reflecting the
subordination of this Lease to such ground or underlying lease or to the lien of
any mortgage or like encumbrance now or hereafter placed upon the Building or
Premises, subject to Tenant's possession of the Premises under the terms of this
Lease not being disturbed so long as Tenant faithfully discharges all of its
obligations hereunder. In the event of the sale of the Building upon foreclosure
or upon the exercise of a power of sale, or by transfer in lieu of foreclosure.
Tenant agrees, upon the written request of the purchaser or transferee, to
attorn to the purchaser or transferee and recognize the purchaser or transferee
as the Landlord under this Lease and to continue to be bound by the terms of
this Lease.
25. RIGHTS RESERVED TO LANDLORD.
25.1 All portions of the Building are reserved to Landlord,
including exterior building walls, core corridor walls and doors and
any core corridor entrance, but excluding the Premises and the inside
surfaces of all walls, windows and doors bounding the Premises.
Landlord also reserves any space in or adjacent to the Premises used
for shafts, stacks, pipes, conduits, fan rooms, ducts, electric or
other utilities, sinks or other building facilities, and the use
thereof, as well as the right to access thereto through the Premises
for the purposes of operation, maintenance, decoration and repair.
25.2 Landlord shall have the following rights exercisable
without notice and without liability to Tenant for damage or injury to
property, person or business (all claims for damage being hereby
released), and without effecting an eviction or disturbance of Tenant's
use or possession or giving rise to any claim for setoffs or abatement
of rent:
(a) To enter the Premises at all reasonable times
during the term of this Lease for the purpose of inspecting
the same, exhibiting the Premises to prospective tenants,
purchasers or others, or making such repairs or replacements
therein as may be required by this Lease or as Landlord may
deem appropriate: provided that Landlord shall use all
reasonable efforts not to disturb Tenant's use and occupancy
and shall, when practical, give Tenant prior notice of such
repairs.
(b) To change the name or street address of the
Premises or Building.
(c) To install and maintain signs on the exterior and
interior of the Building, except within the Premises.
(d) To have pass keys to the Premises.
(e) To decorate, remodel, repair, alter or otherwise
prepare the Premises for reoccupancy during the last 6 months
of the term hereof if, during or prior to such time, Tenant
has vacated the Premises, or at any time after Tenant abandons
the Premises.
(f) To have access to all mail chutes according to
the rules of the United States Postal Service.
9
<PAGE> 20
(g) To do or permit to be done any work in or about
the exterior of the Building or any adjacent or nearby
building, land street or alley.
(h) To grant to anyone the exclusive right to conduct
any business or render any service in the Building, provided
such exclusive right shall not operate to exclude Tenant from
the use expressly permitted by this Lease.
26. FORCE MAJEURE. Whenever there is provided in this Lease a time
limitation for performance by Landlord or Tenant of any construction, repair
maintenance or service, the time provided for shall be extended for as long as
and to the extent that delay in compliance with such limitation is due to an act
of God, governmental control or other factors beyond the reasonable control of
Landlord or Tenant, respectively.
27. WAIVER OF CLAIMS: INDEMNITY.
27.1 Tenant, as a material part of the consideration to Landlord,
hereby assumes all risk of, and waives all claims it may have against Landlord,
its agents, employees, affiliates and successors in interest for damage to or
loss of property or personal injury or loss of life resulting from the Building
or Premises or any part thereof becoming out of repair, by reason of any repair
or alteration thereof, or resulting from any accident within the Building or
Premises or on or about any space adjoining the Building or Premises, or
resulting directly or indirectly from any act or omission of any person, or due
to any condition, design or defect of the Building or Premises, or any space
adjoining the Building or Premises, or the mechanical systems of the Building or
Premises, which may exist or occur whether such damage, loss or injury results
from conditions arising upon the premises or upon other portions of the
Building, or from other sources or places, and regardless of whether the cause
of such damage, loss or injury or the means of repairing the same is accessible
to Tenant: provided such assumption and waiver shall not apply to claims caused
by the negligence or willful act of Landlord or its agents.
27.2 Tenant hereby indemnifies and holds Landlord and Landlord's
agents, employees, affiliates and successors in interest harmless from and
against any and all claims, demands, suits, fines, losses and other liabilities
for or relating to injury or loss of life to persons or damage to or loss of
property arising from Tenant's use of the Building or the Premises or from the
conduct of Tenant's business or from any work done, permitted or suffered by
Tenant in or about the Premises or elsewhere, and further indemnifies and holds
Landlord and Landlord's agents, employees, affiliates and successors in interest
harmless from and against any and all claims arising from any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any negligence or intentional conduct of
Tenant or Tenant's agents, employees, contractors, licensees, invitees,
representatives or successors in interest, and from and against all costs,
attorneys' fees, expenses and liabilities incurred by Landlord or Landlord's
agents, employees, affiliates and successors in interest in or in connection
with any such claim, demand, suit, fine or proceeding. In the event that any
action or proceeding be brought against Landlord or Landlord's agents,
employees, affiliates or successors in interest by reason of any such claim.
Tenant upon notice from Landlord shall defend such action or proceeding at
Tenant's cost and expense by counsel approved by Landlord, such approval not to
be unreasonably withheld.
28. INSURANCE
28.1 Tenant shall procure and shall maintain in effect, at Tenant's
sole cost and expense throughout the term of this Lease, including any
extensions and renewals thereof, public liability and properly damage insurance
against claims for bodily injury, death or property damage occurring upon or
about the Premises or Building, in each case naming Landlord as additional
insured and upon request by Landlord, naming the holder of any mortgage, deed of
trust or like encumbrance or the lessor under any underlying lease covering the
Building, as additional insured, with a limit of liability of not less than
$2,000,000 single limit. Without hereby implying any authorization therefor
unless otherwise specifically contemplate herein, if at any time during the term
hereof any alcoholic beverages of any nature are served in the Premises, Tenant
shall also maintain a liquor liability insurance policy with a limit of
liability of not less than $500,000.00, If from time to time, the limits of
liability set forth above are, in the reasonable opinion of Landlord,
inadequate, Tenant shall increase such insurance coverage to an amount as shall
be designated by Landlord's notice to Tenant. Such policies of insurance shall
be with insurance companies acceptable to Landlord, and shall be evidenced by
certificates of insurance delivered to Landlord from time to time showing such
insurance to be at all times prepaid and in full force and effect and providing
that such insurance cannot be canceled or modified upon less than 30 days prior
written notice to Landlord. If at any time Tenant has not provided Landlord with
a then currently effective certificate of insurance acceptable to Landlord as to
any insurance required in force, obtain such a policy and Tenant shall
reimburse Landlord for the cost thereof upon demand as additional rent
hereunder.
28.2 Landlord and Tenant, each on behalf of itself, its agents,
employees, contractors, representatives, affiliates, successors in interest,
licensees or invitees may have against the other or its agents, employees,
contractors, representatives, affiliates, successors in interest, licensees or
invitees for any losses or claimed losses that are caused by or result from
risks insured against under any ;policy or policies of insurance in force at
the time of such loss or claimed loss: provided that such waiver of subrogation
does not impose any additional premium upon the party so giving it. If any
additional premium would be incurred by reason of such waiver of subrogation,
the party upon whom such additional premium would be imposed shall promptly
notify the other and the other party shall have the right at its option to pay
such additional amount, in which event the waiver of subrogation shall remain in
effect. If the other party does not
10
<PAGE> 21
notify the party which would incur such additional premium with reasonable
promptness following receipt of the notice informing it of the additional
premium, the party that would incur such additional premium shall be free to
terminate such waiver of subrogation if it so elects.
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS.
29.1 Except as otherwise provided in any Landlord's
Improvement Construction Rider, Tenant Improvement Credit Rider or
Tenant Improvement Credit Rider or Tenant Improvement Allowance Rider
attached hereto, all improvements, fixtures and / or equipment which
tenant may install or place in ,on or about the Premises, from time to
time, shall be at the sole cost of Tenant. Landlord shall be without
any obligation in connection therewith. Tenant hereby indemnifies and
holds Landlord harmless from any liability, cost, obligation, expense
or claim of lien in any manner relating to the installation, placement,
removal or financing of any such alterations, repairs, changes,
improvements, fixtures, and / or equipment in, on or about the
Premises.
29.2 Tenant shall not alter, repair or change the Premises,
nor erect any signs in, on or about the Premises, nor make
installations of a permanent nature or in any manner affixed to the
building, including the initial improvements contemplated in any
Landlord's improvement Construction Rider. Tenant Improvement Credit
Rider or Tenant Improvement Allowance rider attached hereto, without
first obtaining the express written consent of Landlord. With regard to
alterations, repairs or changes to, or installations in, the interior
of the premises which do not affect the structural members, exterior
walls, windows and doors of the Building. Landlord's consent shall not
unreasonably be withheld. With regard to any such matters which may
affect the structural members, exterior walls, windows and doors of the
Building, and with regard to the installation of any signs outside the
Premises, Landlord may grant or withhold its consent in its unlimited
discretion.
29.3 Landlord may impose, as a condition of its consent to
alterations, repairs or changes of the Premises or the erection of
signs on or about the Premises, such requirements as Landlord in its
sole discretion may deem desirable, including, but not limited to, the
requirement that Tenant utilize for such purposes only contractors,
materials, mechanics and materialmen approved by Landlord and the
requirement that Tenant shall furnish Landlord with a completion and
lien indemnity bond prior to the commencement of any work. Tenant shall
construct such improvements, alterations or repairs in any event, a
contractor of Landlord's selection shall perform all mechanical,
electrical l, plumbing, air conditioning, permanent partition and
ceiling tile work under contracts let by Landlord, and such work shall
be performed at Tenant's cost except as otherwise provided in any
Landlord's Improvement Construction Rider, Tenant Improvement Credit
Rider or Tenant Improvement Allowance Rider attached hereto. In the
event Tenant orders any construction, alteration, decorating or repair
work rent under this Lease, payable upon billing therefor, either
periodically during construction or upon the substantial completion of
such work, at Landlord's option.
30. MECHANIC'S LIENS. Tenant agrees to give Landlord written notice of
the commencement date of any alterations, improvements or repairs to be made in,
to or upon the Premises not later than 15 days prior to the commencement of any
such work, in order to give Landlord time to post notices of nonresponsibility.
Tenant will not permit any mechanic's materialman's or other lien to be placed
upon the Premises or Building or improvements therein during the term thereof:
and in the event that any mechanic's materialman's or other lien is filed
against the Premises or Building or improvements therein in connection with any
alteration, repair, improvement or change of, or installation of fixtures or
equipment in, the Premises. Tenant shall cause such lien foregoing, Landlord
shall have the right and privilege at Landlord's option of paying the amount of
any such lien or claim, or any portion thereof, without inquiry as to the
validity thereof, and any amounts so paid, including expenses and interest,
shall be deemed additional rent hereunder due from Tenant to Landlord upon
demand.
32. MISCELLANEOUS.
32.1 No receipt of money by Landlord from Tenant after the
termination of this Lease, the service of any notice, the commencement
of any suit or final judgment for possession shall reinstate, continue
or extend the term of this Lease or affect any such notice, demand,
suit or judgment.
32.2 If any provision of this Lease or its application to any
party or circumstances shall be determined by any court of competent
jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Lease or the application of such provision to such
person or circumstances, other than those as to which it is so
determined invalid or unenforceable to any extent, shall not be
affected thereby, and each provision hereof shall be valid and shall be
enforced to the fullest extent,
11
<PAGE> 22
permitted by law: and it is the intention of the parties to this Lease that in
lieu of each clause or provision of this Lease that is
illegal, invalid or unenforceable, there be added as a part of this Lease a
clause or provision as similar in terms to such illegal, invalid or
unenforceable cause or provision as may be possible and be legal, valid and
enforceable.
32.3 The covenants and obligations of Tenant pursuant to this Lease
shall be independent of performance by Landlord of the convenants and
obligations of Landlord pursuant to this Lease, and performance by Tenant of
each covenant and obligation of Tenant pursuant to this Lease shall be a
condition precedent to the duty of Landlord to perform the covenants and
obligations of Landlord pursuant to this Lease.
32.4 The headings of Sections of this Lease are for convenience only
and do not define, limit or construe the contents thereof. References made in
this Lease to numbered Sections . Paragraphs and Subparagraphs shall refer to
numbered Sections . Paragraphs or Subparagraphs of this Lease unless otherwise
indicated.
32.5 Where appropriate, words in the singular, including without
limitation the words "Landlord" and "Tenant", include the plural, and vice
versa. Words in the neuter gender include the masculine and feminine genders,
and vice versa, and words in the masculine gender include the feminine gender,
and vice versa.
32.6 If there be more than one Tenant, at any time or from time to
time, the obligations hereunder imposed upon Tenant shall be joint and several.
33.7 Time is of the essence of this Lease. Failure of either party to
perform any act strictly within the applicable period specified herein shall
entitle the other to exercise all remedies herein contemplated.
32.8 This Lease shall be governed by and interpreted in accordance with
the laws of the State of California.
32.9 All monetary obligations of either party hereunder to the other
remaining past due 10 days or more after the date specified herein for payment
shall bear interest at 10% per annum from the due date so specified until paid.
32.10 This instrument, along with any riders, exhibits and attachments
or other documents affixed to or referred to in this instrument (all of which
riders, exhibits, attachments and other documents are hereby incorporated into
this instrument by this reference), constitutes the entire and exclusive
agreement between Landlord and Tenant relating to the Premises, and this
agreement and said riders, exhibits and attachments and other documents may be
altered, amended or revoked only by an instrument in writing signed by the party
to be charged thereby. All prior or contemporaneous oral agreements,
understandings and / or practices relative to the leasing of the Premises are
merged herein or revoked hereby. References in this instrument to this "Lease"
shall mean, refer to and include this instrument as well as any riders,
exhibits, attachments or other documents affixed to or referred to in this
instrument, and references to any covenant, condition, obligation and / or
undertaking "herein", "hereunder" or "pursuant hereto" (or language of like
import) shall mean, refer to and include the covenants, conditions, obligations
and undertakings existing pursuant to this instrument and any riders, exhibits,
attachments or other documents affixed to or referred to in this instrument. All
terms defined in this instrument shall be deemed to have the same meanings in
all riders, exhibits, attachments or other documents affixed to or referred to
in this instrument unless the context thereof clearly requires the contrary.
32.11 Tenant hereby consents to amendment of this Lease as and to the
extent required by any lender which makes a loan to Landlord secured in whole
or in part by the Building, provided that no such change shall increase the rent
payable hereunder or impair Tenant's use of the Premises.
32.12 Unless otherwise agreed in writing, if Tenant has dealt with any
real estate broker or other person or firm with respect to leasing or renting
space in the Building, Tenant shall be solely responsible for type payment of
any fee due said broker, person or firm and Tenant hereby indemnifies and holds
Landlord harmless from and against any liability with respect thereto.;
provided, however, that Landlord shall pay, and hold Tenant harmless from, the
commission owed by Landlord to Golden Empire Realty ("Brokers") pursuant to a
separate agreement between Landlord and the Brokers. The parties acknowledge
that George F. Martin, a partner in Tenant, has a financial interest in Golden
Empire Realty.
12
<PAGE> 23
33. EXECUTION BY PARTNERS; INITIALING OF PAGES. The undersigned, George
F. Martin, represents that he is the Managing General PARTNER of Borton, Petrini
& Conron, a general partnership formed under the laws of the State of
California, and duly qualified to do business in the State California, and that
the Lease is being executed on behalf of that Partnership. The undersigned
hereby represents that he is authorized to execute this Lease and is thereby
binding Tenant and all the partners in Tenant. The undersigned, as Managing
General Partner of Tenant, agrees and represents that he and Tenant, and all of
the partners in Tenant, shall be irrevocably bound by the signature or
initialing of any amendment to this Lease by George F. Martin or any successor
of George F. Martin as the Managing General Partner of Tenant.
34. CHANGES IN PARTNERS OF TENANT. Tenant agrees that each new Partner
to Tenant shall be obligated under this Lease, in the same fashion as the
existing Partners. Each newly admitted Partner in Tenant shall be jointly and
severally liable with the remaining Partners for the performance and
satisfaction of all obligations of the Tenant under this Lease accruing from and
after the effective date of the admission of the new partner to the Partnership.
-13-
<PAGE> 24
35. ASBESTOS WORK. Tenant acknowledges that the Premises presently contain
asbestos-containing materials as fireproofing on the structural steel and
possibly as insulation on piping. Tenant agrees that in connection with any
tenant improvements undertaken by Tenant that might disturb such
asbestos-containing materials, Tenant shall comply with all applicable laws at
Tenant's expense and shall utilize only duly licensed contractors approved by
Landlord in writing in advance.
1. PREMISES (CONTINUED).
1.1 Effective July 1, 1994, the Premises shall be expanded to include
an additional area of approximately 6,631 rentable square feet on the 12th floor
of the Building, as more specifically shown on Exhibit C (the "First Expansion
Space"). Landlord shall, at Landlord's expense, remove all asbestos-containing
fireproofing from the First Expansion Space prior to delivering possession to
Tenant. In the event of any delay by Landlord in delivering possession of the
First Expansion Space to Tenant for any reason (including but not limited to the
failure of the current tenant of such space to timely vacate upon the expiration
of such tenant's lease on February 28, 1994), all Base Rent and other charges
attributable to the First Expansion Space shall abate until Landlord does
deliver possession, but such abatement shall be Tenant's sole remedy for
Landlord's delay in delivering possession.
-14-
<PAGE> 25
Effective January 1, 1996, the Premises shall be further expanded to
include an additional area of approximately 2,762 rentable square feet on the
12th floor of the Building, as more specifically shown on Exhibit C (the "Second
Expansion Space"). Landlord shall, at Landlord's expense, remove all
asbestos-containing fireproofing from the Second Expansion Space prior to
delivering possession to Tenant. In the event of any delay by Landlord in
delivering possession of the Second Expansion Space to Tenant for any reason,
all Base Rent and other charges attributable to the Second Expansion Space shall
abate until Landlord does deliver possession, but such abatement shall be
Tenant's sole remedy for Landlord's delay in delivering possession.
2. TERM (CONTINUED)
2.1 (a) Tenant acknowledges that the initial Premises are currently
leased to another tenant whose lease term extends through the year 2004.
Landlord - is currently negotiating with such tenant regarding the termination
of such tenant on terms acceptable to Landlord. However, Landlord can make no
guarantee to Landlord is unable to obtain the termination of the current
tenant's lease and the vacation of the Premises by the current tenant on or
before April 1, 1991, on terms acceptable to Landlord in Landlord's sole
discretion, Landlord shall have the right to cancel this Lease by giving written
notice of such cancellation to Tenant at any time thereafter until the current
tenant does vacate.
In addition to the rights of termination set forth above, if Landlord
fails for any reason (other than delays caused by Tenant) to deliver possession
of the initial Premises under this Lease to Tenant by April 1, 1991 ( the
"Outside Date"), then Tenant shall be entitled to cancel this Lease by
delivering written notice possession. The Outside Date and Tenant's cancellation
right shall, at Landlord's written election, be deferred by the duration of any
delays beyond April 1, 1991, in obtaining the current tenant's vacation of the
Premises if such delay is due to delays in the completion of construction of
such current tenant's new premises in a different building.
3. RENT (CONTINUED).
3.1 Rental Adjustments. The following schedule of monthly Base Rents
and monthly credits shall apply during the term of the Lease:
<TABLE>
<CAPTION>
Monthly Monthly
Period Base Rent Rent Credit
------ --------- -----------
<S> <C> <C>
Nov. 15, 1990 to Nov. 14, 1992 $49,218.75 $49,218.75
</TABLE>
Tenant's rent obligation will commence November 15, 1992.
-15-
<PAGE> 26
for a term not to exceed five (5) years each
<TABLE>
<CAPTION>
Monthly Monthly
Period Base Rent Rent Credit
------ --------- -----------
<S> <C> <C>
Nov. 15, 1992 to June 30, 1994 $49,218.75 None
July 1, 1994 to Dec. 31, 1995 64,691.08 None
Jan. 1, 1996 to Nov. 14, 1998 71,135.75 None
Nov. 15, 1998 to Nov. 14, 2000 74,417,00 None
</TABLE>
If Landlord for any reason other than delays caused by Tenant is unable
to deliver the initial Premises to Tenant by November 15, 1990, then the
November 15, 1990, November 15, 1992, and November 15, 1998 rental adjustments
described above shall be correspondingly delayed.
If Landlord for any reason other then delays caused by Tenant is unable
to deliver the First Expansion Space to Tenant by July 1, 1994, then the July 1,
1994 rental adjustment shall be correspondingly delayed.
If Landlord for any reason other then delays caused by Tenant is unable
to deliver the Second Expansion Space to Tenant by January 1, 1996, then the
January 1, 1996 rental adjustment shall be correspondingly delayed.
In the event of a default by Tenant under this Lease which is not cured
within the applicable cure period set forth in Section 13.2, Tenant shall be
obligated to ;pay to Landlord, without any further notice from Landlord, a sum
equal to all rent credits previously credited to Tenant under this Lease, and no
further rent credits described in the above schedule shall be applicable for the
balance of the Lease term.
17. ASSIGNMENT AND SUBLETTING (CONTINUED).
17.2 (a) The provisions of Section 17.2 shall not apply to (a)
any subleases for a term not to exceed five (5) years each of up to a cumulative
total of 12,000 rentable square feet which are entered during the first three
years of the Lease term, nor (b) any other subleases for a term not to exceed
five (5) years each pursuant to which a subtenant is to pay to Tenant a monthly
rental per square foot which is at least 85% of the monthly rental then offered
by Landlord for comparable space in the Building for a comparable term as the
-16-
<PAGE> 27
.
sublease term. Landlord's determination of such rentals then being offered by
Landlord shall be conclusive. Landlord agrees to provide to Tenant its current
monthly rental for comparable space for a comparable term at any time during the
Lease term upon 15 day's prior written request by Tenant.
17.3 ADDITIONAL RENT. In the event that Tenant has sought and
received Landlord's consent to assign this Lease, or to monthly base rent by
Tenant to Landlord, pursuant to Paragraph 3, shall be increased by an amount
equal to one-half of the amount to be received by Tenant during each month
pursuant to the terms of the assignment or sublease, in excess of Tenant's
monthly base rent for the space subject to the assignment or sublease. The
amounts referred to in the previous sentence include rent, rent credit
additional rent, or any other payment in respect of use of occupancy, or in
reimbursement of costs of leasehold improvements installed by Tenant, and
whether paid in a lump sum or periodic payments. In no event shall the total
sums payable to the Landlord be less than the monthly rental Landlord would have
received but for such assignment or sublease.
The additional rent shall be due and payable to Landlord in
accordance with the schedule specified in the sublease or assignment instrument,
and the failure of any subtenant or assignee to make any payments in accordance
with that schedule shall not affect the obligation of Tenant to pay the
additional rent to Landlord.
The calculation of the amount of rentable space being sublet
shall be made by Landlord in accordance with its usual standards, Landlord may
require acknowledgment by Tenant of Tenant's concurrence on the Landlord's
calculation of the amount of rentable space being sublet as a condition to
Landlord's consent to any sublease.
The provisions of a sublease or assignment instrument
consented to by Landlord cannot be modified, not the sublease or assignment
terminated, other than in accordance with its terms, without the prior written
consent of the Landlord, which consent shall not be unreasonably withheld. The
terms of this Paragraph 17.2 shall apply to any subleasing or assignment by any
subtenant or assignee.
The following exhibits and riders are attached to and are part
of this Lease:
Exhibit A -- Building Floor Plan
Exhibit B -- Rules and Regulations
Exhibit C -- Building Floor Plan for First and Second
Expansion Spaces
-17-
<PAGE> 28
Rent Escalation Rider
Parking Space Rider
Tenant Improvement Allowance Rider For Initial premises
Tenant Improvement Allowance Rider No. 2 For First
Expansion Space
Tenant Improvement Allowance Rider No. 3 For Second
Expansion Space
Tenant Improvement Allowance Rider No. 4 For Entire Premise
IN WITNESS WHEREOF, this instrument has been duly executed by
the parties, as of the date first above written.
TENANT BORTON, PETRINI & CONRON
a California partnership
By:/s/ George F. Martin
----------------------------------
Managing General Partner
LANDLORD: ONE WILSHIRE ARCADE IMPERIAL,
LTD.
By Paramount Group, Inc.,
Agent
By: /s/
--------------------------
Its /s/
-----------------------
By: /s/
--------------------------
Its /s/
-----------------------
-18-
<PAGE> 29
FLOOR PLAN
11 TH FLOOR
ONE WILSHIRE BUILDING
624 SOUTH GRAND AVE., LOS ANGELES, CA 90017
EXHIBIT " A "
BORTON, PETRINI & CONRON
SUITE 1100
Approximately 22,500 rentable square feet
<PAGE> 30
FLOOR PLAN
12 TH FLOOR
ONE WILSHIRE BUILDING
624 SOUTH GRAND AVE., LOS ANGELES, CA 90017
BORTON, PETRINI, & CONRON
EXHIBIT " C "
First Expansion Space (Suite 1210)
Approximately 6,631 rentable square feet
SCALE
0' 25" 50" 75'
<PAGE> 31
FLOOR PLAN
12TH FLOOR
ONE WILSHIRE BUILDING
624 SOUTH GRAND AVE, LOS ANGELES, CA 90017
BORTON, PETRINI, & CONRON
EXHIBIT ' '
Second Expansion Space (Suite 1220)
Approximately 2,762 rentable square feet
SCALE
0' 25' 50' 75'
<PAGE> 32
[logo]
EXHIBIT "B"
RULES AND REGULATIONS
1. Tenant shall not obstruct or interfere with the rights of other
tenants of the Building, or of persons having business in the Building, or in
any way injure or annoy such tenants or persons.
2. Tenant shall not commit any act or permit any thing in or about the
Building which shall or might subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business or
operation being carried on in or about the Building or for any other reason.
3. Tenant shall not use the Building for lodging, sleeping, cooking, or
for any immoral or illegal purpose or for any purpose that will damage the
Building, or the reputation thereof, or for any purposes other than those
specified in the Lease.
4. Canvassing, soliciting and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent such activities.
5. Tenant shall not bring or keep within the Building any animal,
bicycle or motorcycle.
6. Tenant shall not conduct mechanical or manufacturing operations,
cook or prepare food, or place or use any inflammable, combustible, explosive or
hazardous fluid, chemical, device, substance or material in or about the
Building without the prior written consent of Landlord. Tenant shall comply with
all statutes, ordinances, rules, orders, regulations and requirements imposed by
governmental or quasi-governmental authorities in connection with fire and panic
safety and fire prevention and shall not commit any act, or permit any object to
be brought or kept in the Building, which shall result in a change of the rating
of the Building by the insurance Services Office or any similar person or
entity. Tenant shall not commit any act or permit any object to be brought or
kept in the Building which shall increase the rate of fire insurance on the
Building or on property located therein.
7. Tenant shall not use the Building for manufacturing or for the
storage of goods, wares or merchandise, except as such storage may be incidental
to the use of the premises for general office purposes and except in such
portions of the Premises as may be specifically designated by Landlord for such
storage. Tenant shall not occupy the Building or permit any portion of the
Building to be occupied for the manufacture or direct sale of liquor, narcotics,
or tobacco in any form, or as a medical office, barber shop, manicure shop,
music or dance studio or employment agency. Tenant shall not conduct in or about
the Building any auction, public or private, without the prior written approval
of Landlord.
8. Tenant shall not install or use in the Building any air conditioning
unit, engine, boiler, generator, machinery, heating unit, stove, water cooler,
ventilator, radiator or any other similar apparatus without the express prior
written consent of Landlord, and then only as Landlord may direct.
9. Tenant shall not use in the Building any machines, other than
standard office machines such as typewriters, calculators, copying machines and
similar machines, without the express prior written consent of Landlord. All
office equipment and any other device of any electrical or mechanical nature
shall be placed by Tenant in the Premises in settings approved by Landlord, so
as to absorb or prevent any vibration, noise, or annoyance. Tenant shall not
cause improper noises, vibrations or odors within the Building.
10. Tenant shall move all freight, supplies, furniture, fixtures and
other personal property into, within and out of the Building only at such times
and through such entrances as may be designated by Landlord, and such movement
of such items shall be under the supervision of Landlord. Landlord reserves the
right to inspect all such freight, supplies, furniture, fixtures and other
personal property to be brought into the Building and to exclude from the
Building all such objects which violate any of these rules and regulations or
the provisions of the Lease. Tenant shall not move or install such objects in or
about the Building in such a fashion as to unreasonably obstruct the activities
of other tenants, and all such moving shall be at the sole expense, risk and
responsibility of Tenant. Tenant shall not use in the delivery, receipt or other
movement of freight, supplies, furniture, fixtures and other personal property
to, from or within the Building, and hand trucks other than those equipped with
rubber tires and side guards.
11. Tenant shall not place within the Building any safes, copying
machines, computer equipment or other objects of unusual size or weight, nor
shall Tenant place within the Building any objects which exceed the floor weight
specifications of the Building, without the express prior written consent of
Landlord. The placement and positioning of all such objects within the Building
shall be prescribed by Landlord and such objects shall , in all cases, be placed
upon plates or footings of such size as shall be prescribed by Landlord.
12. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind within or out of the Building, except in the refuse
containers provided therefor. Tenant shall not introduce into the Building any
substance which might add an
1
<PAGE> 33
undue burden to the cleaning or maintenance of the Premises or the Building.
Tenant shall exercise its best efforts to keep the sidewalks, entrances,
passages, courts, lobby areas, garages or parking areas, elevators, escalators,
stairways, vestibules, public corridors and halls in and about the Building
(hereinafter "Common Areas") clean and free from rubbish.
13. Tenant shall use the Common Areas only as a means of ingress and
egress, and Tenant shall permit no loitering by any persons upon Common Areas or
elsewhere within the Building. The Common Areas and roof of the Building are not
for the use of the general public, and Landlord shall in all cases retain the
right to control or prevent access thereto by all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character, reputation
or interests of the Building and its tenants. Tenant shall not enter the
mechanical rooms, air conditioning rooms, electrical closets, janitorial
closets, or similar areas or go upon the roof of the Building without the
express prior written consent of Landlord.
14. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs or who shall in any manner act in violation of the
rules and regulations of the Building.
15. Landlord shall have the right to designate the area or areas, if
any, in which Tenant and Tenant's servants, employees, contractors, jobbers,
agents, licensees, invitees, guests and visitors may park vehicles, and Tenant
and its servants, employees, contractors, jobbers, agents, licensees, invitees,
guests and visitors shall observe and comply with all driving and parking signs
and markers within and about the Building. All parking ramps and areas and any
pedestrian walkways, plazas or other public areas forming a part of the Building
or the land upon which the Building is situated shall be under the sole and
absolute control of Landlord, who shall have the exclusive right to regulate and
control these areas.
16. Tenant shall not use the washrooms, restrooms and plumbing fixtures
of the Building, and appurtenances thereto, for any other purpose than the
purposes for which they were constructed, and Tenant shall not deposit any
sweepings, rubbish, rags or other improper substances therein. Tenant shall not
waste water by interfering or tampering with the faucets or otherwise. If Tenant
or Tenant's servants, employees, contractors, jobbers, agents, licensees,
invitees, guests or visitors cause any damage to such washrooms, restrooms,
plumbing fixtures or appurtenances, such damage shall be repaired at Tenant's
expense, and Landlord shall not be responsible therefor.
17. Tenant shall not mark, paint, drill into, cut, string wires within,
or in any way deface any part of the Building, without the express prior written
consent of Landlord, and as Landlord may direct. Upon removal of any wall
decorations or installations or floor coverings by Tenant, any damage to the
walls or floors shall be repaired by Tenant at Tenant's sole cost and expense,
without limitation upon any of the provisions of the Lease. Tenant shall refer
all contractors' representatives, installation maintenance or improvement of the
Premises to Landlord for Landlord's supervision, approval and control before
performance of any such services. This Paragraph 17 shall apply to all work
performed in the Building, including without limitation installation of
telephones, telegraph equipment, electrical devices and attachments and
installations of any nature affecting floors, walls, woodwork, trim, windows,
ceilings, equipment or any other portion of the Building. Plans and
specifications for such work, prepared at Tenant's sole expense, shall be
submitted to Landlord and shall be subject to Landlord's express prior written
approval in each instance before the commencement of work. All installations,
alterations and additions shall be constructed by Tenant in a good and
workmanlike manner and only good grades of material shall be used in connection
therewith. The means by which telephone, telegraph and similar wires are to be
introduced to the Premises and the location of telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the express prior
written approval of Landlord. Tenant shall not lay linoleum or similar floor
coverings so that the same shall come into direct contact with the floor of the
Premises and, if linoleum or other similar floor covering is to be used, an
interlining of builder's deadening felt shall be first affixed to the floor, by
a paste or other material soluble in water. The use of cement or other similar
adhesive material is expressly prohibited.
18. No signs, awnings, showcases, advertising devices of other
projections or obstructions shall be attached to the outside walls of the
Building or attached or placed upon any Common Areas without the express prior
written consent of Landlord. No window shades, blinds, drapes or other window
coverings shall be installed in the Building without the express prior written
consent of Landlord. No sign, picture, advertisement, window display or public
display or notice shall be inscribed, exhibited, painted or affixed by Tenant
upon or within any part of the Premises in such a fashion as to be seen from the
outside of the Premises of the Building without the express prior written
consent of Landlord. In the event of the violation of any of the foregoing by
Tenant. Landlord may remove the articles constituting the violation without any
liability and Tenant shall reimburse Landlord for the expense incurred in such
removal upon demand as additional rent under the Lease. Interior signs on doors
and upon the Building directory shall be subject to the express prior written
approval of Landlord and shall be inscribed, painted, or affixed by Landlord at
the expense of Tenant.
19. Tenant shall not use the word "Paramount" or the name of the
Building or of Landlord in its business name, trademarks, signs, advertisements,
descriptive material, letterhead, insignia or any other similar item without
Landlord's express prior written consent.
20. Tenant shall be entitled to have its name entered upon the
directory of the Building. In the event that Tenant wishes to have additional
entries made upon the Building directory for the names of employees of Tenant
who occupy office space within the Premises, such entries may be allowed by
Landlord in its reasonable discretion, and Landlord may require that Tenant pay
a reasonable fee for each such additional entry. All entries upon the Building
directory shall be in uniform print of a size, style and format selected by
Landlord.
2
<PAGE> 34
21. The sashes, sash doors, skylights, windows and doors that reflect
or admit light or air into the Common Areas shall not be covered or obstructed
by Tenant, through placement of objects upon windowsills or otherwise. Tenant
shall cooperate with Landlord in obtaining maximum effectiveness of the cooling
system of the Building by closing drapes and other window coverings when the
sun's rays fall upon windows of the Premises. Tenant shall not obstruct, alter
or in any way impair the efficient operation of Landlord's heating, ventilating,
air conditioning, electrical, fire, safety or lighting systems, not shall Tenant
tamper with or change the setting of any thermostat or temperature control
valves in the Building.
22. Subject to applicable fire or other safety regulations, all doors
opening onto Common Areas and all doors upon the parameter of the Premises shall
be kept closed and, during non-business hours, locked, except when in use for
ingress or egress if Tenant uses the Premises after regular business hours or on
non-business days Tenant shall lock any entrance doors to the Building or to the
Premises used by Tenant immediately after using such doors.
23. Employees of Landlord shall not receive or carry messages for or to
Tenant or any other person, nor contact with nor render free or paid services to
Tenant or Tenant's servants, employees, contractors, jobbers, agents, invitees,
licensees, guests or visitors. In the event that any of Landlord's employees
perform any such services, such employees shall be deemed to be the agents of
Tenant regardless of whether or how payment is arranged for such services, and
Tenant hereby indemnifies and holds Landlord harmless from any and all liability
in connection with any such services and any associated injury or damage to
property or injury or death to persons resulting therefrom.
24. All keys to the exterior doors of the Premises shall be obtained by
Tenant from Landlord, and Tenant shall pay to Landlord a reasonable deposit
determined by Landlord from time to time for such keys. Tenant shall not make
duplicate copies of such keys. Tenant shall not install additional locks or
bolts of any kind upon any of the doors or windows of, or within, the Building,
nor shall Tenant make any changes in existing locks or the mechanisms thereof.
Tenant shall, upon the termination of its tenancy, provide Landlord with the
combinations to all combinations locks on safes, safe cabinets and vaults and
deliver to Landlord all keys to the Building, the Premises and all interior
doors, cabinets, and other key-controlled mechanisms therein, whether or not
such keys were furnished to Tenant by Landlord. In the event of the loss of any
key furnished to Tenant by Landlord, Tenant shall pay to Landlord the cost of
replacing the same or of changing the lock or locks opened by such lost key if
Landlord shall deem it necessary to make such change.
25. Access may be had by Tenant to the Common Areas and to the Premises
at any time between the hours of 7:00 A.M. and 6:00 P.M., Monday through Friday,
legal holidays excepted. At other times access to the Building may be refused
unless the person seeking admission is known to the watchman in charge, if any,
and/or has a pass or is properly identified. Tenant shall be responsible for all
persons for whom Tenant requests passes, and shall be liable to Landlord for all
acts of such persons. In the event the Building has, or there is subsequently
installed, a card access system for using the elevators at other than normal
operating hours for the Building, Landlord may deny access to any area served by
the elevators by anyone not having the necessary elevator access card. Landlord
shall in no case be liable for damages for the admission or exclusion of any
person from the Building. In case of invasion, mob, riot, public excitement, or
other commotion, Landlord reserves the right to prevent access to the Building
for the safety of tenants and protection of property in the Building.
26. Landlord shall not be responsible for, and Tenant hereby
indemnifies and holds Landlord harmless from any liability in connection with,
the loss, theft, misappropriation or other disappearance of furniture,
furnishings, fixtures, machinery, equipment, money, jewelry or other items of
personal property from the Premises or other parts of the Building, regardless
of whether the Premises or Building are locked at the time of such loss.
27. For purposes hereof, the terms "Landlord," "Tenant," "Building" and
"Premises" are defined as those terms are defined in the Lease to which these
Rules and Regulations are attached. Wherever Tenant is obligated under these
Rules and Regulations to do or refrain from doing an act or thing, such
obligation shall include the exercise by Tenant of its best efforts to secure
compliance with such obligation by the servants, employees, contractors,
jobbers, agents, invitees, licensees, guests and visitors of Tenant. The term
"building" shall include the Premises, and any obligations of Tenant hereunder
with regard to the Building shall apply with equal force to the Premises and to
other parts of the Building.
3
<PAGE> 35
[logo]
RENT ESCALATION RIDER
In order to adjust the rent payable under the Lease in accordance with
changes in the Real Estate Taxes, Operation Costs, and Utility Costs (as
hereinafter defined) applicable to the Building, Tenant agrees to pay to
Landlord, in addition to the installments of Base Rent, and as additional
monthly rent under the Lease, the following sums:
(a) 3.9512% ("Tenant's Percentage Share") of the amount (if any) by
which Real Estate Taxes (as hereinafter defined) for any tax fiscal year exceed
Real Estate Taxes for the tax fiscal year 1990-1991 The amount of Tenant's
Percentage Share of such excess (if any) shall be due from Tenant upon the later
of the first day of the January falling within the tax fiscal year of such
increase in Real Estate Taxes or upon billing by Landlord, and shall be payable
in one lump sum for the entire amount of Tenant's Percentage Share of such
excess.
(b) Following the expiration of the first full calendar year of the
term of the Lease, in a single lump sum upon billing therefor, Tenant's
Percentage Share of the amount (if any) by which Operating Costs (as hereinafter
defined) for such first full calendar year exceed the Operating Costs for the
calendar year 1990. At the same time Tenant shall also pay to Landlord
one-twelfth of Tenant's Percentage Share of such excess for each month that has
commenced in the then current calendar year as an estimate of Tenant's share of
the Operating Costs attributable to such month(s). Thereafter, with each month's
Base Rent until the next adjustment hereunder, Tenant shall pay one-twelfth of
Tenant's Percentage Share of such excess as an estimate of Tenant's share of the
Operating Costs for the then current calendar year attributable to each such
month. Upon expiration of each such calendar year, Landlord shall determine the
increase or decrease (if any) in Operating Costs for such calendar year over or
under those for the previous calendar year, and if there is an increase Tenant
shall pay to Landlord in a single lump sum upon billing Tenant's Percentage
Share of the increase plus one-twelfth of Tenant's Percentage Share of such
increase for each month that has then commenced in the new calendar year, or if
there is a decrease Landlord shall refund to Tenant or, at Landlord's options,
credit against the next rent falling due under the Lease the amount of the
overpayment made by Tenant during the preceding calendar year, provided that the
amount of such refund or credit shall in no event exceed the total of payments
made by Tenant toward Tenant's Percentage Share of increases in Operating Costs
for such calendar year. Thereafter, with each month's Base Rent until the next
adjustment hereunder, Tenant shall pay one-twelfth of Tenant's Percentage Share
of the cumulative increase (if any) in Operating Costs over the Operating Costs
for the calendar year 1990.
(c) Following the expiration of the first full calendar year of the
term of the Lease, in a single lump sum upon billing therefor. Tenant's
Percentage Share of the amount (if any) by which Utility Costs (as hereafter
defined) for such first full calendar year exceed the Utility Costs for the
calendar year 1990. At the same time Tenant shall also pay to Landlord
one-twelfth of Tenant's Percentage Share of such excess for each month that has
commenced in the then current calendar year as an estimate of Tenant's share of
the Utility Costs attributable to such month(s). Thereafter, with each month's
Base Rent until the next adjustment hereunder, Tenant shall pay one-twelfth of
Tenant's Percentage Share of such excess as an estimate of Tenant's share of
the Utility Costs for the then current calendar year attributable to each such
month. Upon expiration of each such calendar year, Landlord shall determine the
increase or decrease (if any) in Utility Costs for such calendar year over or
under those for the previous calendar year, and if there is an increase Tenant
shall pay to Landlord in a single lump sum upon billing Tenant's Percentage
Share of the increase plus one-twelfth of Tenant's Percentage Share of such
increase for each month that has then commenced in the new calendar year, or if
there is a decrease Landlord shall refund to Tenant or, at Landlord's option,
credit against the next rent falling due under the Lease the amount of the
overpayment made by Tenant during the preceding calendar year, provided that
the amount of such refund or credit shall in no event exceed the total of
payments made by Tenant toward Tenant's Percentage Share of increases in
Utility Costs for such calendar year. Thereafter, with each month's Base Rent
until the next adjustment hereunder, Tenant shall pay one-twelfth of Tenant's
Percentage Share of the cumulative increase (if any) in Utility Costs over the
Utility Costs for the calendar year 1990.
For purposes hereof, "Real Estate Taxes" shall include any form of
assessment, license fee, commercial rental tax, levy, penalty, charge or tax
(other than net income, inheritance or estate taxes) imposed by any authority
having the direct or indirect power to tax, including any city, county, state or
federal government, or any school, agricultural, lighting, drainage, flood
control or other special district thereof, as against any legal or equitable
interest of Landlord in the Premises or in the real property of which the
Premises and the Building are a part, as against Landlord's right to rent or
other income therefrom, or as against Landlord's business of leasing the
Premises, or any tax imposed in substitution, partially or totally, for any tax
previously included in the
1
<PAGE> 36
definition of "Real Estate Taxes." or any additional tax the nature of which was
previously included within the definition of Real Estate Taxes. " and shall
include any increases in such taxes, levies, charges or assessments occasioned
by increases [ILLEGIBLE] rates or increases in assessed valuations, whether
occurring by sale or otherwise.
For purposes hereof, "Operating Costs" shall mean the sum of the
following:
(i) Wage and labor costs paid for by Landlord and applicable
to persons engaged in the management, operation maintenance, overhaul,
improvement or repair of the Premises and/or Building, whether such
persons be employed by Landlord or by an independent contractor with
whom Landlord shall have contracted or may contract for such services,
including without limitation, social security taxes, unemployment
insurance taxes and the costs, if any, of providing disability,
hospitalization, medical welfare, pension, retirement or other employee
benefits imposed by law or by any collective bargaining agreement, or
any voluntary employee benefit plans, applicable with respect to such
employees:
(ii) Costs of all supplies, all insurance, and all service
contracts paid for by Landlord and pertaining to the Premises and/or
Building, and costs of all improvements to the Premises and/or
Building, if and to the extent such improvements are mandated by any
present or future laws, ordinances or governmental or
quasi-governmental rules or regulations, or if the same are made to
conserve energy or otherwise reduce other Operating Costs or Utility
Costs for the Building, with the cost of such improvements being
amortized over the useful life thereof in accordance with generally
accepted accounting principles:
(iii) Such other items as are customarily included in the cost
of managing (including but not limited to management fees), operating
(including but not limited to any ground rent), maintaining (including
but not limited to cleaning and janitorial services and elevator
services), overhauling, improving and repairing the Premises and/or
Building and the fixtures and equipment of the Building in accordance
with accepted accounting or management principles or practices.
The following shall be excluded from Operating Costs: federal and state
income taxes imposed on Landlord's net income: any and all costs or expenses to
procure tenants for the Building, including but not limited to brokerage
commissions, legal fees, and costs of remodeling suites: mortgage or debt
service: and depreciation, except that amortization of improvements of the type
specified in subparagraph (ii), above, shall in no event be considered
"depreciation."
For purposes hereof, "Utility Costs" shall include the costs of all
utilities paid for by Landlord in connection with the Premises and/or Building,
including without limitation costs of heating, ventilation and air conditioning
for the Premises and/or Building, costs of furnishing gas, electricity and other
fuels or power sources to the Premises and/or Building, and costs of furnishing
water and sewer-services to the Premises and/or Building.
Notwithstanding anything in the foregoing definition of Operating
Costs, Operating Costs shall not include any costs of asbestos removal by
Landlord in the Building, nor any costs incurred by Landlord in remodeling the
main lobby of the Building.
In the event of a change of ownership of the Building, as defined in
Revenue and Taxation Code Sections 60-68, resulting in a reassessment of the
Building for property tax purposes, the sum due Landlord under subparagraph (a)
above for the tax fiscal year in which the change of ownership occurs shall not
exceed $50,000. Such limitations shall not apply to any subsequent fiscal years
except subsequent fiscal years in which another change of ownership of the
building occurs. If another such change of ownership occurs during the lease
term, such $50,000 limitation shall again apply only for the fiscal year in
which the change of ownership occurs.
Upon the addition of the First Expansion Space to the Premises pursuant
to Section 1.1, the Tenant's "Percentage Share" shall be increased by 1.1645% to
a total of 5.1157%. Upon the addition of the Second Expansion Space to the
Premises pursuant to Section 1.1, the Tenant's "Percentage Share" shall be
increased by an additional 0.4850% to a total of 5.6007%.
2
<PAGE> 37
[logo]
PARKING SPACE RIDER
Upon payment of the applicable prevailing monthly rate in effect from
time to time, and subject to such rules and regulations as may be adopted from
time to time by the operator of the parking facility serving the Building.
Landlord shall secure to Tenant up to 22 automobile parking spaces on an
unreserved monthly basis in such parking facility throughout the term of the
Lease: provided that if at any time during the term of the Lease Tenant does not
choose to pay for the full number of such parking spaces, Tenant shall not
thereafter have the right to recommence the use of the spaces not paid for if
other commitments have been made for those spaces in the intern.
<PAGE> 38
[logo]
TENANT IMPROVEMENT ALLOWANCE RIDER FOR INITIAL PREMISES
Landlord and Tenant hereby agree that Tenant shall be entitled to an
allowance, in the amount of up to $50,000 (the "Maximum Allowance"), for the
construction by Tenant of cosmetic changes only to the existing improvements in
the Premises, including space planning and the preparation of necessary plans
and specifications. The allowance provided for herein shall be available only to
the extent that, within 180 days after the execution of the Lease, Tenant incurs
costs for the construction, in accordance with the provisions of the Lease, of
improvements in the Premises, Landlord shall make disbursements of the allowance
provided for herein to Tenant upon receipt by Landlord of invoices marked as
having been paid or other evidence in form and content satisfactory to Landlord
in support of such costs and the payment thereof, including appropriate lien
releases if requested by Landlord. In no event shall Landlord be obligated to
make disbursements pursuant hereto in a total amount which exceeds the Maximum
Allowance, and in no event shall Landlord be obligated to disburse any portion
of the allowance provided for herein for any purpose other than reimbursement of
Tenant for costs of construction, in accordance with the provisions of the
Lease, of improvements in the Premises. In no event shall the allowance provided
for herein be available to Tenant as a credit against rent or other amounts
owning to Landlord pursuant to the Lease or in any manner other than as
expressly provided herein.
1
<PAGE> 39
[logo]
TENANT IMPROVEMENT ALLOWANCE RIDER NO. 2
FOR FIRST EXPANSION SPACE
Landlord and Tenant hereby agree that Tenant shall be entitled to an
allowance, in the amount of up to $3.00 per rentable square foot in the First
Expansion Space per year remaining in the 10-year Lease term when the First
Expansion Space is added to the Premises (the allowance for any partial year
remaining shall be appropriately prorated) (the "Maximum Allowance"), for the
construction by Tenant of improvements in the Premises, including space planning
and the preparation of necessary plans and specifications. The allowance
provided for herein shall be available only to the extent that, within 180 days
after the First Expansion Space is added to the Premises pursuant to Section
1.1, Tenant incurs costs for the construction, in accordance with the provisions
of the Lease, of improvements in the Premises. Landlord shall make disbursements
of the allowance provided for herein to Tenant upon receipt by Landlord of
invoices marked as having been paid or other evidence in form and content
satisfactory to Landlord in support of such costs and the payment thereof,
including appropriate lien releases if requested by Landlord. In no event shall
Landlord be obligated to make disbursements pursuant hereto in a total amount
which exceeds the Maximum Allowance, and in no event shall Landlord be obligated
to disburse any portion of the allowance provided for herein for any purpose
other than reimbursement of Tenant for costs of construction, in accordance with
the provisions of the Lease, of improvements in the Premises. In no event shall
the allowance provided for herein be available to Tenant as a credit against
rent or other amounts owing to Landlord pursuant to the Lease or in any manner
other than as expressly provided herein.
1
<PAGE> 40
[logo]
TENANT IMPROVEMENT ALLOWANCE RIDER NO. 3
FOR SECOND EXPANSION SPACE
Landlord and Tenant hereby agree that Tenant shall be entitled to an
allowance, in the amount of up to $3.00 per rentable square foot in the second
Expansion Space per year remaining in the 10-year Lease term when the Second
Expansion Space is added to the Premises (the allowance for any partial year
remaining shall be appropriately prorated) (the "Maximum Allowance"), for the
construction by Tenant of improvements in the Premises, including space planning
and the preparation of necessary plans and specification. The allowance provided
for herein shall be available only to the extent that, within 180 days after the
Second Expansion Space is added to the Premises pursuant to Section 1.1, Tenant
incurs costs for the construction, in accordance with the provisions of the
Lease, of improvements in the Premises. Landlord shall make disbursements of the
allowance provided for herein to Tenant upon receipt by Landlord of invoices
marked as having been paid or other evidence in form and content satisfactory to
Landlord in support of such costs and the payment thereof, including appropriate
lien releases if requested by Landlord. In no event shall Landlord be obligated
to make disbursements pursuant hereto in a total amount which exceeds the
Maximum Allowance, and in no event shall Landlord be obligated to disburse any
portion of the allowance provided for herein for any purpose other than
reimbursement of Tenant for costs of construction, in accordance with the
provisions of the Lease, of improvement in the Premises. In no event shall the
allowance provided for herein be available to Tenant as a credit against rent or
other amounts owing to Landlord pursuant to the Lease or in any manner other
than as expressly provided herein.
1
<PAGE> 41
[logo]
TENANT IMPROVEMENT ALLOWANCE RIDER NO. 4
FOR ENTIRE PREMISES
Landlord and Tenant hereby agree that following the first 60 months of
the Lease term Tenant shall be entitled to an allowance, in the amount of up to
$50,000 (the "Maximum Allowance"), for the construction by Tenant of
improvements in the Premises, including space planning and the preparation of
necessary plans and specifications. The allowance provided for herein shall be
available only to the extent that, within 180 days after the start of the 61st
month of the Lease term, Tenant incurs costs for the construction, in accordance
with the provisions of the Lease, of improvements in the Premises. Landlord
shall make disbursements of the allowance provided for herein to Tenant upon
receipt by Landlord of invoices marked as having been paid or other evidence in
form and content satisfactory to Landlord in support of such costs and the
payment thereof, including appropriate lien releases if requested by Landlord.
In no event shall Landlord be obligated to make disbursements pursuant hereto in
a total amount which exceeds the Maximum Allowance, and in no event shall
Landlord be obligated to disburse any portion of the allowance provided for
herein for any purpose other than reimbursement of Tenant for costs of
construction, in accordance with the provisions of the Lease, of improvements in
the Premises. In no event shall the allowance provided for herein be available
to Tenant as a credit against rent or other amounts owing to Landlord pursuant
to the Lease or in any manner other than as expressly provided herein.
1
<PAGE> 42
EXHIBIT "B"
PREMISES
<PAGE> 43
[floor plan]
<PAGE> 1
EXHIBIT 10.17
[logo]
LEASE
(California)
TENANT: STAR VENDING, INC.
DATE: JUNE 28, 1996
PARAMOUNT GROUP, INC.
OFFICE LEASE
(CALIFORNIA)
<PAGE> 2
TABLE OF CONTENTS
SUMMARY OF LEASE TERMS ................................................. 1
AGREEMENT .............................................................. 3
1. PREMISES .......................................................... 3
2. TERM .............................................................. 3
3. RENT .............................................................. 3
4. RENT ESCALATION ................................................... 3
5. TAX ON TENANT'S PROPERTY; OTHER TAXES ............................. 6
6. SECURITY DEPOSIT .................................................. 7
7. LATE PAYMENTS ..................................................... 7
8. USE OF PREMISES ................................................... 7
9. BUILDING SERVICES ................................................. 8
10. CONDITION OF PREMISES ............................................. 9
11. DAMAGE TO PREMISES OR BUILDING .................................... 10
12. EMINENT DOMAIN .................................................... 11
13. DEFAULT ........................................................... 11
14. REMEDIES UPON DEFAULT ............................................. 12
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY ........................ 14
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL .............. 15
17. ASSIGNMENT AND SUBLETTING ......................................... 15
18. TRANSFER OF LANDLORD'S INTEREST ................................... 18
19. HOLDING OVER ...................................................... 18
20. NOTICES ........................................................... 18
21. QUIET ENJOYMENT ................................................... 19
22. TENANT'S FURTHER OBLIGATIONS ...................................... 19
23. ESTOPPEL CERTIFICATE BY LESSEE .................................... 19
24. SUBORDINATION AND ATTORNMENT ...................................... 19
25. RIGHTS RESERVED TO LANDLORD ....................................... 20
26. FORCE MAJEURE ..................................................... 20
27. WAIVER OF CLAIMS; INDEMNITY ....................................... 20
28. INSURANCE ......................................................... 21
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS ..................... 22
30. MECHANIC'S LIENS .................................................. 23
31. ALTERNATE SPACE ................................................... 23
32. HAZARDOUS MATERIALS ............................................... 23
33. MISCELLANEOUS ..................................................... 24
34. EXISTING SUBLEASE; "AS IS" CONDITION; ASBESTOS REMOVAL ............ 27
35. TENANT'S SUPPLEMENTAL AIR-CONDITIONING ............................ 27
EXHIBITS AND RIDERS
<PAGE> 3
PARAMOUNT GROUP, INC.
OFFICE LEASE
(California)
THIS LEASE is made as of the 28th day of June, 1996, between One
Wilshire Arcade Imperial, Ltd., a California Limited Partnership, by Paramount
Group, Inc., a Delaware corporation, its agent (hereinafter called "Landlord"),
and Star Vending, Inc., a Nevada corporation (hereinafter called "Tenant").
SUMMARY OF LEASE TERMS
A. Addresses:
1. Tenant's Premises and Notice Address: 624 South Grand Avenue, Suite 1100,
Los Angeles, CA 90017
2. Landlord's Notice Address: 624 South Grand Avenue, Suite 1207,
Los Angeles, CA 90017
With copy to: Paramount Group, Inc., 1633
Broadway, Suite 1801, New York, NY
10019
3. Landlord's Address for Rent Payments: One Wilshire Arcade Imperial, Ltd.,
File #53077, Los Angeles, CA
90074-3077
B. Approximate Rentable Area of the Premises:
16,595 rentable square feet. The parties agree that such figure is only a
reasonable estimate of the area of the Premises. The figures in Items E, G, H
and J below and the other provisions of this Lease shall not be adjusted due to
any difference between the actual area of the Premises and the estimated area
shown above.
C. Lease Term: 5 years, 0 months.
D. 1. Estimated Commencement Date: April 12, 2001.
2. Commencement Date: The later of the following 2 dates:
(a) April 12, 2001; or
(b) The date upon which Landlord tenders possession of the Premises to
Tenant. (Because Tenant is subleasing the Premises from another tenant through
April 11, 2001, the parties anticipate that Tenant will already be in possession
of the Premises on April 12, 2001.)
The Telecommunications Conduit Rider to this Lease contains special provisions
regarding Tenant's use of the Conduit Space described in such Rider prior to the
Commencement Date.
1
<PAGE> 4
E. Schedule of Monthly Base Rents:
The following schedule of monthly Base Rents shall apply during the
term of the Lease, subject to adjustments pursuant to the Rent Escalation Rider
to the Lease regarding increases in the Consumer Price Index:
PERIOD MONTHLY BASE RENT
From April 12, 2001 to April 11, 2006 $44,253.33
If the actual Commencement Date is before or after the Estimated
Commencement Date, then all dates set forth above shall be correspondingly
accelerated or delayed, as the case may be. Base Rent for any partial calendar
month shall be equitably prorated as calculated by Landlord in its reasonable
discretion.
F. Base Years for Expenses: Real Estate Taxes--2000-2001; Operating and Utility
Costs--2000.
G. Tenant's "Percentage Share" of Real Estate Taxes, Operating and Utility
Costs: 2.9143%.
H. Security Deposit: $88,506.66. If Tenant is not in default on July 1,
2001, then such $88,506.66 Security Deposit shall be
applied to the Base Rent for July and August, 2001,
and no Security Deposit shall thereafter be required
of Tenant. If Tenant is in default at that time, then
the requirement of the Security Deposit shall
continue in effect throughout the Lease term, as
described in Section 6.1. If the Commencement Date is
deferred until after April 12, 2001, then the July 1,
2001 date in this paragraph shall be correspondingly
deferred, and the Security Deposit shall be applied
(if Tenant is not in default on such adjusted date)
to the Base Rent for the first two calendar months
commencing on or after such adjusted date.
I. Permitted Use: Telecommunications business and general office use.
J. Maximum Tenant
Improvement Allowance: None. Tenant to take space "as is" as described in
Section 34.
K. Tenant's Parking
Allotment: 17 parking spaces.
L. Landlord's Brokers: Cushman & Wakefield of California, Inc.
M. Riders:
The following exhibits, riders and addenda are attached to and are part
of this Lease:
Exhibit A--Floor Plan of Premises
Exhibit B--Rules and Regulations
Parking Space Rider
Rent Escalation Rider
Telecommunications Conduit Rider
N. Guaranty: Not applicable.
2
<PAGE> 5
AGREEMENT
1. PREMISES. Landlord hereby leases the Premises to Tenant and Tenant
hereby hires and takes the Premises from Landlord. The Premises are located at
the address set forth in Section A(1) on page 1 and are more particularly shown
on Exhibit "A" attached hereto and incorporated herein by this reference. The
office building in which the Premises are located is referred to herein as the
"Building."
2. TERM.
2.1 The term of this Lease shall commence on the "Commencement Date"
indicated in Section D on Page 1 and shall extend for the period set forth in
Section C on Page 1. In the event that Landlord, for any reason, cannot tender
possession of the Premises to Tenant on or before the "Estimated Commencement
Date" indicated in Section D on Page 1, this lease shall not be void or
avoidable, nor shall Landlord be liable to Tenant in any way as a result of such
failure to tender possession. In the event that Landlord cannot tender
possession of the Premises to Tenant for any reason other than the acts or
omissions of Tenant, Tenant's obligation to pay rent hereunder shall be deferred
by a period of time equal to the delay in Landlord's delivery of possession not
caused by Tenant. If such inability to tender possession of the Premises for
reasons other than the acts or omissions of Tenant continues for a period in
excess of 90 days after the Estimated Commencement Date, Tenant shall have the
right, exercisable by notice to Landlord, to terminate this Lease, but the
suspension of rent obligations and the right of termination pursuant to this
Section 2.1 shall be Tenant's sole remedies in the circumstances herein
described.
2.2 In the event that Tenant is allowed to enter into possession of the
Premises prior to the Commencement Date, such possession shall be deemed to be
pursuant to, and shall be governed by, the terms, covenants and conditions of
this Lease, including without limitation the covenant to pay rent, as though the
Commencement Date occurred upon the date of taking of possession by Tenant.
2.3 In the event that the Commencement Date falls on other than the
first day of a month, rent for any initial partial month of the term hereof
shall be appropriately prorated; and if the date of commencement of Tenant's
rent obligations is delayed, pursuant to Section 2.1, the end of the term hereof
shall be correspondingly delayed. At the request of either party hereto, both
parties shall execute a memorandum confirming the date of commencement of
Tenant's rent obligations.
3. RENT. Beginning on the Commencement Date (subject to adjustment
pursuant to Section 2.1 above), the base rent ("Base Rent") for the Premises
shall be in accordance with the Schedule of Monthly Base Rents set forth in
Section E on Page 2. Each installment of Base Rent shall be payable in advance
on the first day of each and every month throughout the term of this Lease.
Tenant agrees to pay all rent, without offset, demand or deduction of any kind,
to Landlord by mail to the address set forth in Section A(3) on page 1 or in
such manner, to such other person at such other place as Landlord may from time
to time designate. Tenant agrees that no payment made to Landlord by check or
other instrument shall contain a restrictive endorsement of any kind; and if any
such instrument shall contain a restrictive endorsement in violation of the
foregoing, that endorsement shall have no legal effect whatever, notwithstanding
that such item is processed for payment.
4. RENT ESCALATION.
4.1 Tenant shall pay, as monthly rent hereunder, in addition to the
Base Rent, the sums provided in this Section 4. Tenant shall be advised of any
change, from time to time, in rent escalation payments required hereunder by
written notice from Landlord, which shall include information in such detail as
Landlord may reasonably determine to be necessary in support of such change.
Tenant shall have 90 days after the receipt of any such notice to protest the
change indicated therein, and Tenant's failure to make such protest in a written
notice to Landlord within such 90-day period shall be conclusively deemed to be
Tenant's agreement to such charges. Notwithstanding any such protest all rent
escalation payments falling due after service of such notice shall be made in
accordance with such notice until the protest has been resolved, whereupon any
necessary adjustment shall be made between Landlord and Tenant. Any audit
arising out of such a protest by Tenant shall be done, at Tenant's expense, in
accordance with generally accepted auditing and management standards by a major
public accounting firm selected by Tenant and approved by Landlord in its
reasonable discretion. Such audit shall be performed at the offices of Paramount
Group, Inc. in New York City or at such other location in the United States as
Landlord may select from time to time for the maintenance of its accounting
records for the Building.
4.2 Following the first December 31 during the term of the Lease,
Tenant shall pay Landlord in a single lump sum upon billing therefor, Tenant's
Percentage Share (as defined in Section G on Page 2 of the Lease) of each of the
following amounts: (1) the amount (if any) by which Real Estate Taxes for the
then current tax fiscal year exceed the Real
3
<PAGE> 6
Estate Taxes for the Base Year for Real Estate Taxes set forth in Section F on
Page 2; (2) the amount (if any) by which Operating Costs for the just completed
calendar year exceed the Operating Costs for the Base Year for Operating Costs
set forth in Section F on Page 2; and (3) the amount (if any) by which Utility
Costs for the just completed calendar year exceed the Utility Costs for the Base
Year for Utility Costs set forth in Section F on Page 2. At the same time Tenant
shall also pay to Landlord one-twelfth of Tenant's Percentage Share of such
amounts for each month that has commenced since December 31, as estimated
payments towards Tenant's share of the Real Estate Taxes, Operating Costs, and
Utility Costs for the following year. Following each succeeding December 31,
Landlord again shall determine in the same fashion the increase or decrease (if
any) in annual Real Estate Taxes, Operating Costs, and Utility costs over or
under those for the previous year. If there is an increase in one or more of the
three categories, Tenant shall pay to Landlord in a single lump sum upon billing
Tenant's Percentage Share of the increase plus one-twelfth of Tenant's
Percentage Share of such increase for each month that has then commenced in the
new calendar year. If there is a decrease in one or more of the three
categories, Landlord shall refund to Tenant or, at Landlord's option, credit
against the next rent falling due under the Lease the amount of the overpayment
made by Tenant during the preceding calendar year, provided that the amount of
such refund or credit shall in no event exceed the total payments previously
made by Tenant for such calendar year toward Tenant's Percentage Share of excess
charges for the category in question. Thereafter, with each month's Base Rent
until the next adjustment hereunder, Tenant shall pay one-twelfth of Tenant's
Percentage Share of each of the following amounts: (I) the excess (if any) of
annual Real Estate Taxes (based on the then-current fiscal year) over the Base
Year Real Estate Taxes; (II) the excess (if any) of annual Operating Costs
(based on the proceeding calendar year) over the Base Year Operating Costs; and
(III) the excess (if any) of annual Operating Costs (based on the preceding
calendar year) over Base year Operating Costs. The Real Estate Taxes for any
partial fiscal year at the end of the Lease term and the Operating Costs and
Utility Costs for any partial calendar year at the end of the Lease term shall
be appropriately prorated.
For purposed hereof, "Real Estate Taxes" shall include any form of
assessment, license fee, license tax, business license fee, commercial rental
tax, levy, penalty, charge, tax or similar imposition (other than net income,
inheritance or estate taxes), imposed by any authority having the direct or
indirect power to tax, including any city, county, state or federal government,
or any school, agricultural, lighting, drainage, flood control or other special
district thereof, as against any legal or equitable interest of Landlord in the
Premises or in the real property of which the Premises and the Building are a
part, including, but not limited to, the following:
(i) Any tax on Landlord's "right" to rent or "right" to other income
from the Premises or as against Landlord's business of leasing the Premises;
(ii) Any assessment, tax, fee, levy or charge in substitution,
partially or totally, of any assessment, tax, fee, levy or charge previously
included within the definition of Real Estate Taxes, it being acknowledged by
Tenant and Landlord that Proposition 13 was adopted by the voters of the State
of California in the June, 1978 Election and that assessments, taxes, fees,
levies and charges may be imposed by governmental agencies for such services as
fire protection, street, sidewalk and road maintenance, refuse removal and for
other governmental services formerly provided without charge to property owners
or occupants. It is the intention of Tenant and Landlord that all such new and
increased assessments, taxes, fees, levies and charges be included within the
definition of "Real Property Taxes" for the purpose of this Lease;
(iii) Any assessment, tax, fee, levy or charge allocable to or measured
by the area of the Premises or the rent payable hereunder, including, without
limitation, any gross income tax or excise tax levied by the State, City or
Federal government, or any political subdivision thereof, with respect to the
receipt of such rent, or upon or with respect to the possession, leasing,
operating, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises, or any portion thereof;
(iv) Any assessment, tax, fee, levy or charge upon this transaction or
any document to which Tenant is a party, creating or transferring an interest or
an estate in the Premises;
(v) Any assessment tax, fee, levy or charge by any governmental agency
related to any transportation plan, fund or system instituted within the
geographic area of which the Building is a part; or
(vi) Reasonable legal and other professional fees, costs and
disbursements incurred in connection with proceedings to contest, determine or
reduce real property taxes.
The definition of "Real Estate Taxes," including any additional tax the
nature of which was previously included within the definition of "Real Estate
Taxes," shall include any increases in such taxes, levies, charges or
assessments occasioned by increases in tax rates or increases in assessed
valuations, whether occurring by sale or otherwise.
4
<PAGE> 7
In the event of a "change of ownership" of the Building during the
Lease term, as defined in Revenue and Taxation Code Sections 60-68, resulting in
a reassessment of the Building for property tax purposes, then following the
reassessment and for the balance of the term, Real Estate Taxes for purposes of
this Section 4.2 shall be deemed not to exceed for any year what they would have
been if they had increased during the Lease term at a rate of 6% per fiscal
year, compounded annually, from and after the 2000-2001 base year.
Real Estate Taxes shall not be deemed to include any special
assessments against the Building or the site which are due to Landlord's
voluntary election to participate in a special assessment district created for
the purpose of providing property owners with an optional alternative to
nongovernmental financing for required private improvements, such as
sprinklering or seismic safety improvements. (However, the cost of any such
improvements or of financing them may be included in Operating Costs to the
extent permitted by the other provisions of this Section 4.2.)
If a special assessment against the Building or the site during the
Lease term may, at Landlord's election, be paid either in a lump sum or in
annual installments, then such assessment shall be included in Real Estate Taxes
for each year, for purposes of this Section 4.2, as though Landlord had elected
to pay the minimum permitted installment each year, rather than paying the
assessment in a lump sum. Tenant shall not be obligated for any portion of such
installments attributable to the period of time after both the Lease term has
expired and Tenant has vacated the Building.
As used in this Lease, the term "Operating Costs" shall mean all costs
and expenses of management, operation, maintenance, overhaul, improvement or
repair of the Building, the common areas and the site, as determined by standard
accounting practices, including the following costs by way of illustration but
not limitation:
(a) Any and all assessments imposed with respect to the Building,
common areas, and/or the site on which the Building is located, pursuant to any
covenants, conditions and restrictions affecting the site, common areas or
Building;
(b) Any costs, levies or assessments resulting from statutes or
regulations promulgated by any governmental authority in connection with the use
or occupancy of the Building or the Premises;
(c) Costs of all insurance obtained by Landlord (excluding premiums for
earthquake insurance unless premiums for such insurance are included in the 2000
base year);
(d) Wages salaries and other labor costs (including but not limited to
social security taxes, unemployment taxes, other payroll taxes and governmental
charges and the costs, if any, of providing disability, hospitalization, medical
welfare, pension, retirement or other employee benefits, whether or not imposed
by law) of employees, independent contractors and other persons engaged in the
management, operation, maintenance, overhaul, improvement or repair of the
Building;
(e) Building management office and storage rental;
(f) Management and administrative fees (which Tenant acknowledges are
presently 6% of accrued gross revenues of the Building and which may be adjusted
from time to time);
(g) Supplies, materials, equipment and tools;
(h) Costs of, and appropriate and reasonable reserves for, repair,
painting, resurfacing, and maintenance of the Building, the common areas, the
site and the parking facilities, and their respective fixtures and equipment
systems, including but not limited to the elevators, the structural portions of
the Building, and the plumbing, heating, ventilation, air-conditioning,
telephone cable riser, and electrical systems installed or furnished by
Landlord. Any reserves shall be set by Landlord in amounts that are reasonable
and non-duplicative in view of actual and anticipated expenses and the expected
useful life of the items in question, all as determined by Landlord in its
reasonable discretion;
(i) Depreciation on a straight-line basis and rental of personal
property used in maintenance;
(j) Amortization on a straight-line basis over the useful life
(together with interest at the interest rate defined in Subsection 33.9 of this
Lease on the unauthorized balance) of all costs of a capital nature (including,
without limitation, capital improvements, capital replacements, capital repairs,
capital equipment and capital tools):
(1) reasonably intended to produce a reduction in Operating
Costs, Utility Costs or energy consumption; or
5
<PAGE> 8
(2) required under any governmental or quasi-governmental law,
rule, order, ordinance or regulation that was not applicable to the Building at
the time it was originally constructed; or
(3) for repair or replacement of any Building equipment needed
to operate the Building at the same quality levels prior to the replacement;
(k) Costs and expenses of gardening and landscaping;
(l) Maintenance of signs (other than signs of tenants of the Building);
(m) Personal property taxes levied on or attributable to personal
property used in connection with the Building, the common areas, or the site;
(n) Costs of all service contracts pertaining to the Premises, the
Building or the site;
(o) Reasonable accounting, audit, verification, legal and other
consulting fees;
(p) Costs and expenses of lighting, janitorial service, cleaning,
refuse removal, security and similar items, including appropriate reserves;
(q) Any costs incurred with respect to a transportation systems
manager, rider share coordinator or any private transportation system
established for the benefit of tenants in the Building, whether or not imposed
by any governmental authority;
(r) If the Building has a helipad, its costs to the extent not covered
by user fees; and
(s) Fees imposed by any federal, state or local government for fire and
police protection, trash removal or other similar services which do not
constitute Real Estate Taxes.
The following shall be excluded from Operating Costs: federal and state
income taxes imposed on Landlord's net income; any and all costs or expenses to
procure tenants for the Building, including but not limited to brokerage
commissions, legal fees, and costs of remodeling suites; mortgage or debt
service; and depreciation, except that amortization of improvements of the type
specified in Subsection (j) above shall in no event be considered
"depreciation."
For purposes hereof, "Utility Costs" shall include all charges,
surcharges and other costs of all utilities paid for by Landlord in connection
with the Premises and/or Building, including without limitation costs of
heating, ventilation and air conditioning for the Premises and/or Building,
costs of furnishing gas, electricity and other fuels or power sources to the
Premises and/or Building, and costs of furnishing water and sewer services to
the Premises and/or Building.
The term "Building" as used in this Section 4.2 shall be deemed to
include not only the Building but also any parking facility owned, leased or
operated by Landlord in order to meet the parking requirements of the Building.
If the average occupancy of the rentable area of the Building during
the Tenant's Base Year for Operating and Utility Costs as set forth in Section F
on page 2 or during any other calendar year of the Lease term is less than 90%
of the total rentable area of the Building, the Operating Costs and Utility
Costs shall be adjusted by Landlord for such calendar year, prior to the
pass-through of Operating Costs and Utility Costs to Tenant pursuant to this
Section 4.2, to reflect what they would have been had 90% of the rentable area
been occupied during that year. In making such calculation, the Landlord's
reasonable opinion of what portion, if any, of each cost was affected by changes
in occupancy shall be binding upon the parties.
5. TAX ON TENANT'S PROPERTY; OTHER TAXES.
5.1 Tenant shall be liable for, and shall pay at least 10 days before
delinquency, and Tenant hereby indemnifies and holds Landlord harmless from and
against any liability in connection with, all taxes levied directly or
indirectly against any personal property, fixtures, machinery, equipment,
apparatus, systems and appurtenances placed by Tenant in or about, or utilized
by Tenant in, upon or in connection with, the Premises ("Equipment Taxes"). If
any Equipment Taxes are levied against Landlord or Landlord's property or if the
assessed value of Landlord's property is increased by the inclusion therein of a
value placed upon such personal property, fixtures, machinery, equipment,
apparatus, systems or appurtenances of Tenant, and if Landlord, after written
notice to Tenant, pays the Equipment Taxes or taxes based upon such an increased
assessment (which Landlord shall have the right to do regardless of the validity
of such levy, but only under proper protest
6
<PAGE> 9
if requested by Tenant prior to such payment and if payment under protest is
permissible), Tenant shall pay to Landlord upon demand, as additional rent
hereunder, the taxes so levied against Landlord or the proportion of such taxes
resulting from such increase in the assessment; provided, however, that in any
such event Tenant shall have the right, in the name of Landlord and with
Landlord's full cooperation, but at no cost to Landlord, to bring suit in any
court of competent jurisdiction to recover the amount of any such tax so paid
under protest, and any amount so recovered shall belong to Tenant.
5.2 If the tenant improvements in the Premises, whether installed
and/or paid for by Landlord or Tenant and whether or not affixed to the real
property so as to become a part thereof, are assessed for real property tax
purposes at a valuation higher than the valuation at which tenant improvements
conforming to Landlord's building standards in other space in the Building are
assessed, then the real property taxes and assessments levied against Landlord
or Landlord's property by reason of such excess assessed valuation shall be
deemed to be Equipment Taxes and shall be governed by the provisions of Section
5.1. Any such amounts, and any similar amounts attributable to excess
improvements by other tenants of the Building and recovered by Landlord from
such other tenants under comparable lease provisions, shall not be included in
Real Estate Taxes for purposes of rent escalation under Section 4 of this Lease.
5.3 Tenant shall pay, as additional rent hereunder, upon demand and in
such manner and at such times as Landlord shall direct from time to time by
written notice to Tenant, any excise, sales, privilege or other tax, assessment
or other charge (other than income or franchise taxes) imposed, assessed or
levied by any governmental or quasi-governmental authority or agency upon
Landlord on account of this Lease, the rent or other payments made by Tenant
hereunder, any benefit received by Landlord hereunder, Landlord's business as a
lessor hereunder, or otherwise in respect of or as a result of the agreement or
relationship of Landlord and Tenant hereunder.
6. SECURITY DEPOSIT. A deposit (the "Security Deposit") in the amount
set forth in Section H on page 2 shall be paid by Tenant upon execution of this
Lease and shall be held by Landlord without liability for interest and as
security for the performance by Tenant of Tenant's covenants and obligations
under this Lease, it being expressly understood that the Security Deposit shall
not be considered an advance payment of rent (except as otherwise provided in
such Section H) or a measure of Landlord's damages in case of default by Tenant.
Upon the occurrence of any breach or default under this Lease by Tenant,
Landlord may, from time to time, without prejudice to any other remedy, use the
Security Deposit or any portion thereof to the extent necessary to make good any
arrearages of rent or any other damage, injury, expense, or liability caused to
Landlord by such breach or default. Following any application of the Security
Deposit, Tenant shall pay to Landlord on demand an amount to restore the
Security Deposit to its original amount, subject to the provisions of Section H
regarding the elimination under certain circumstances of Tenant's obligation to
provide the Security Deposit. In the event of bankruptcy or other debtor relief
proceedings by or against Tenant, the Security Deposit shall be deemed to be
applied first to the payment of rent and other charges due Landlord, in the
order that such rent or charges became due and owing, for all periods prior to
filing of such proceedings. Landlord shall not be required to keep the Security
Deposit separate from its general funds. Upon termination of this Lease any
remaining balance of the Security Deposit shall be returned by Landlord to
Tenant within 14 days after termination of Tenant's tenancy.
7. LATE PAYMENTS. All covenants and agreements to be performed by
Tenant under any of the terms of this Lease shall be performed by Tenant at
Tenant's sole cost and expense and without any abatement of rent. Tenant
acknowledges that the late payment by Tenant to Landlord of any sums due under
this Lease will cause Landlord to incur costs not contemplated by this Lease,
the exact amount of such cost being extremely difficult and impractical to fix.
Such costs include, without limitation, processing and accounting charges, and
late charges that may be imposed on Landlord by the terms of any note or other
obligation secured by any encumbrance covering the Premises or the Building of
which the Premises are a part. Therefore, if any monthly installment of rent is
not received by Landlord by the date when due, or if Tenant fails to pay any
other sum of money due hereunder, Tenant shall pay to Landlord, as additional
rent, the sum of six percent (6%) of the overdue amount as a late charge.
Landlord's acceptance of any late charge, or interest pursuant to Section 33.9,
shall not be deemed to be liquidated damages, nor constitute a waiver of
Tenant's default with respect to the overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies available to Landlord under this
Lease or any law now or hereafter in effect. Further, in the event such late
charge is imposed by Landlord for 2 consecutive months for whatever reason,
Landlord shall have the option to require that, beginning with the first payment
of rent due following the imposition of the second consecutive late charge, rent
shall no longer be paid in monthly installments but shall be payable 3 months in
advance.
8. USE OF PREMISES. Tenant, and any permitted subtenant or assignee,
shall use the Premises only for the use described in Section I on page 2. Any
other use of the Premises is absolutely prohibited. Tenant shall not use or
occupy the Premises in violation of any recorded covenants, conditions and
restrictions affecting the land on which the Building is located nor of any law,
ordinance, rule and regulation. Tenant shall not do or permit to be done
anything which will invalidate or increase the cost of any fire, extended
coverage or any other insurance policy covering the Building or
7
<PAGE> 10
property located therein and shall comply with all rules, orders, regulations
and requirements of any applicable fire rating bureau or other organization
performing a similar function. Tenant shall promptly upon demand reimburse
Landlord as additional rent for any additional premium charged for any insurance
policy by reason of Tenant's failure to comply with the provisions of this
Section 8. Tenant shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the rights of other
tenants of occupants of the Building, or injure or annoy them, or use or allow
the premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about
the Premises. Tenant shall not commit or suffer to be committed any waste in or
upon the Premises and shall keep the Premises in first class repair and
appearance. Tenant shall not place a load upon the Premises exceeding the
average pounds of live load per square foot of floor area specified for the
Building by Landlord's architect, with any partitions to be considered a part of
the live load. Landlord reserves the right to prescribe the weight and position
of all safes, files and heavy equipment which Tenant desires to place in the
Premises so as to distribute properly the weight thereof. Tenant's business
machines and mechanical equipment which cause vibration or noise that may be
transmitted to the Building structure or to any other space in the Building
shall be so installed, maintained and used by Tenant as to eliminate such
vibration or noise. Tenant shall be responsible for the cost of all structural
engineering required to determine structural load. In any event, unless
specifically authorized herein, Tenant shall not prepare or serve, or authorize
the preparation or service of, food or beverages in the Premises, except only
the occasional preparation of coffee, tea, hot chocolate and other such common
refreshments for Tenant and its employees. Tenant shall not conduct any auction
in or about the Premises or the Building without Landlord's prior written
consent.
9. BUILDING SERVICES.
9.1 Throughout the term of this Lease, subject to shortage and
accidents beyond Landlord's reasonable control, and subject to reimbursement
pursuant to Section 4.2, Landlord shall repair and maintain all structural
elements of the Building and common areas (including, without limitation, the
structural walls, doors, floors, ceilings, roof, elevators, stairwells, lobby,
heating system, air conditioning system, telephone cable riser for
Building-standard service from the Building's main terminal to the terminal box
on the same floor as the Premises [but excluding Tenant's telephone equipment
and the cable and wiring from such equipment to the terminal box], plumbing and
electrical wiring) and maintain the exterior of the Premises, including grounds,
walks, drives and loading area, if any. Tenant shall reimburse Landlord upon
demand, as additional rent hereunder, for the cost of any repairs or
extraordinary maintenance necessitated by acts of Tenant or Tenant's employees,
contractors, agents, licensees or invitees.
9.2 Subject to shortages and accidents beyond Landlord's reasonable
control, Landlord shall furnish building standard heating and air conditioning
service Monday through Friday from 8:00 A.M. to 6:00 P.M., and Saturday from
8:00 A.M. to 1:00 P.M., except for holidays. No heating or air conditioning will
be furnished by Landlord on Sundays, holidays or during hours other than as set
forth above, except upon prior arrangement with Tenant and at an extra charge as
may be agreed to between Landlord and Tenant. For purposes of this Section 9.2,
"holidays" shall mean and refer to the holidays of Christmans, New Year's Day,
President's Day, Memorial Day, the Fourth of July, Labor Day, Thanksgiving and
the day after Thanksgiving, as those holidays are defined, recognized or
established by governmental authorities or agencies from time to time and such
other days the New York Stock Exchange is closed. Tenant shall install, at its
expense, such additional air conditioning equipment as may be reasonably
determined by Landlord to be necessary in order to maintain building air
conditioning standards resulting from Tenant's installation and operation of
computer equipment or other special equipment or facilities placing a greater
burden on the air conditioning system than would general office use. Landlord
shall furnish electric current to the Premises in amounts reasonably sufficient
for normal business use, including operation of building standard lighting and
operation of typewriters and standard fractional horsepower office machinery.
Tenant agrees that, at all times during the life of this lease, Tenant's use of
electric current shall never exceed the capacity of the feeders to the Building
or the risers or wiring installation in the Building. Tenant shall not install
or use or permit the installation or use upon or about the Premises of any
computer or electronic data processing or other equipment using current in
excess of 110 volts or requiring power in excess of 500 watts, without the
express prior written consent of Landlord. Tenant shall pay monthly upon billing
as additional rent under this Lease such sums as Landlord's building engineer
may reasonably determine to be necessary in order to reimburse Landlord for the
additional cost of utilities (including, without limitation, electricity, gas
and other fuels or power sources, and water, and Landlord's reasonable costs of
administration) attributable to the operation of additional air conditioning
equipment and any other requirements in excess of those for normal office use by
reason of the operation of computer equipment or other special equipment or
facilities, or attributable to Tenant's conducting business beyond the business
hours described in the first sentence of this Section 9.2. Moreover, at
Landlord's election, Landlord may separately meter at Tenant's expense the
electrical usage of some or all of Tenant's equipment, facilities or Premises.
In such event, Tenant shall pay the charges for all such separately metered
electrical usage within 10 days after receipt of a billing therefor. Any such
amounts billed directly to Tenant shall not be included in the Building's
"Utility Costs" for purposes of Section 4 above. Any extra maintenance charges
or service calls attributable to the actions of Tenant (e.g., continual
adjustments of the thermostats or the failure to keep window coverings closed as
necessary) shall be payable by Tenant to Landlord upon demand as additional rent
hereunder.
8
<PAGE> 11
9.3 Landlord shall furnish unheated water from mains for drinking,
lavatory and toilet purposes drawn through fixtures installed by Landlord, or by
Tenant with Landlord's express prior written consent, and heated water for
lavatory purposes from regular building supply in such quantities as required in
Landlord's judgment for the comfortable and normal use of the Premises. Tenant
shall pay Landlord for additional water which is furnished for any other
purpose. The amount that Tenant shall pay Landlord for such additional water
shall be the average price per gallon charged to the Landlord for the Building
by the entity providing water, increased by 25% to cover Landlord's
administrative expense.
9.4 Landlord shall furnish janitor service (including washing of
windows with reasonable frequency as determined by Landlord) in and about the
Premises, to the extent necessitated by normal office use of the Premises,
Monday through Friday, holidays excepted. Landlord shall have no obligation to
furnish janitor service for any portion of the Premises which is occupied after
7:00 p.m., is locked or may be used (to the extent permitted under this Lease)
for the preparation, dispensing or consumption of food or beverages or for any
purpose other than general office use, and Tenant shall keep all such portions
of the Premises in a clean and orderly condition at Tenant's sole cost and
expense. In the event that Tenant shall fail to keep portions of the Premises in
a clean an orderly condition, Landlord may do so and any costs incurred by
Landlord in connection therewith shall be payable by Tenant to Landlord upon
demand, as additional rent hereunder. Tenant shall also pay to Landlord, as
additional rent hereunder, amounts equal to any increase in cost of janitor
service in and about the Premises if such increase in costs is due to (a) use of
the Premises by Tenant during hours other than normal business hours, or (b)
location in or about the Premises of any fixtures, improvements, materials or
finish items (including without limitation wall coverings and floor coverings)
other than those which are of the standard type adopted by Landlord for the
Building. Only those persons who have been approved by Landlord may perform
janitorial services.
9.5 Landlord shall furnish passenger and freight elevator service in
common with Landlord and other tenants Monday through Friday from 8:00 A.M. to
6:00 P.M. and Saturday from 8:00 A.M. to 1:00 P.M. Landlord shall provide
limited passenger elevator service daily at all times such normal passenger
service is not furnished.
9.6 Landlord does not warrant that any service will be free from
interruptions caused by repairs, renewals, improvements, changes of service,
alterations, strikes, lockouts, labor controversies, accidents, inability to
obtain fuel, steam, water or supplies or other cause, provided the cause is
beyond the reasonable control of Landlord. Landlord agrees to give Tenant notice
of any extended interruptions of which Landlord has prior knowledge. No
interruption of service shall be deemed an eviction or disturbance of Tenant's
use and possession of the Premises or any part thereof, nor relieve Tenant from
performance of Tenant's obligations under this Lease. Landlord shall not be
liable for any failure to make such repairs or furnish such services unless the
failure shall be reasonably curable by Landlord and nonetheless shall persist
for an unreasonable time after written notice from Tenant of the need for such
repairs or the failure to furnish such service. There shall be no abatement of
rent and no liability of Landlord by reason of any injury to or interference
with Tenant's business arising from the making of any repairs, alterations or
improvements, or provision of any service in or to any portion of the Building,
including the Premises, or in or to the fixtures, appurtenances and equipment
therein; provided that in making such repairs, alterations or improvements or
providing such service Landlord shall interfere as little as reasonably
practicable with conduct of Tenant's business in the Premises, without, however,
being obligated to incur liability for overtime or other premium payment to its
agents, employees or contractors in connection therewith. If Tenant's beneficial
use of all or a substantial portion of the Premises is prevented for a period in
excess of 3 consecutive business days (excluding Saturdays, Sundays, and
holidays), the Base Rent shall be equitably abated commencing with the fourth
business day and continuing until such use is no longer prevented. Such
abatement, to the extent provided above, shall be Tenant's sole remedy. Except
as provided above, Tenant shall not be entitled to any abatement or reduction of
rent or any other remedy by reason of Landlord's failure to furnish any of the
services or Building systems called for by this Lease when such failure is
caused by accident, breakage, repairs, strikes, lockouts or other labor
disturbances or labor disputes of any character, or any other cause. As a
material inducement to Landlord's entry into this Lease, Tenant waives and
releases any rights it may have to make repairs at Landlord's expense under
Sections 1941 and 1942 of the California Civil Code.
10. CONDITION OF PREMISES. By occupying the Premises, Tenant shall be
deemed to accept the same and acknowledge that they comply fully with Landlord's
covenants and obligations hereunder, subject to completion of any items which it
is Landlord's responsibility hereunder to furnish and which are listed by
Landlord and Tenant upon inspection of the Premises. Tenant acknowledges that
neither Landlord nor any agent, employee or representative of Landlord has made
any representation or warranty with respect to any matter, including but not
limited to any matter regarding the Building or Premises, the applicable zoning
or the effect of other applicable laws, or the suitability or fitness of the
Building or Premises for the conduct of Tenant's business or any other purpose.
Tenant is relying solely on its own investigations with respect to all such
matters. During the term of this Lease, Tenant shall maintain the Premises in as
good condition as when Tenant took possession, ordinary wear and tear and
repairs which are specifically made the responsibility of Landlord hereunder
excepted, and shall repair all damage or injury to the Building or to fixtures,
appurtenances and equipment the Building caused by Tenant's installation or
removal of its property or resulting from the negligence or tortious conduct of
Tenant, its employees, contractors, agents, licensees and invitees. In the event
of failure by Tenant
9
<PAGE> 12
to perform its convenience of maintenance and repair hereunder,, Landlord may
perform such maintenance and repair, and any amounts expended by landlord in
connection therewith shall be payable by Tenant to Landlord upon demand as
additional rent hereunder.
11. DAMAGE TO PREMISES OR BUILDING.
11.1 In the event that the Building should be totally destroyed by fire
or other casualty, this Lease shall terminate. In the event the Premises or a
substantial portion of the Building should be so damaged or destroyed that
rebuilding or repairs cannot, in Landlord's opinion, be completed within 120
days after he date of such damage or Landlord will not receive insurance
proceeds sufficient to cover the costs of such repairs, reconstruction and
restoration (including proceeds from Tenant and/or Tenant's insurance which
Tenant is required to deliver to Landlord pursuant to Subsection 11.2 below),
Landlord may at its option terminate this Lease upon notice to Tenant, or
Landlord may proceed to restore the Building. Landlord may at its option
terminate this Lease upon notice to Tenant, to Landlord may proceed to restore
the Building. In the event that such rebuilding or repairs can, in Landlord's
opinion, be completed within 120 days after the date of such damage and Landlord
will receive insurance proceeds sufficient to cover the costs of such repairs,
reconstruction and restoration (including proceeds from Tenant and/or Tenant's
insurance which Tenant is required to deliver to Landlord pursuant to Subsection
11.2 below), Landlord shall restore the Building. In the event that Landlord is
obligated or elects to restore the Building, Landlord shall commence to rebuild
or repair the Building reasonably promptly after such damage or destruction and
shall proceed with reasonable diligence to restore it to substantially the
condition in which it was immediately prior to the casualty, except that
Landlord shall not be required to rebuild, repair or replace any part of the
partitions, fixtures, alterations, decorations or other improvements which may
have been constructed by or specifically for Tenant (except the Improvements
built by Landlord pursuant to the Landlord's improvement Construction Rider,
which Landlord shall restore), or by or for other tenants within the Building.
In such event this Lease shall remain in full force and effect, provided that if
Tenant is dispossessed by reason of such casualty from all or a substantial
portion of the Premises for more than 3 consecutive business day, Tenant shall
be entitled to a ratable abatement of the Base Rent during the time and to the
extent the Premises are unfit for occupancy, commencing with the fourth business
day; and provided further that Tenant shall have the right to terminate this
Lease upon notice served upon Landlord prior to actual completion of any
necessary restoration of the Premises if such restoration is not substantially
completed within 240 days after the casualty. Such abatement or termination, to
the extent provided above, shall be Tenant's sole remedy. Notwithstanding the
foregoing to the contrary, if the damage is due to the negligence or willful
misconduct of Tenant or any of Tenant's agents, employees or invitees, there
shall be no abatement of rent. Except for abatement o rent as provided
hereinabove, Tenant shall not be entitled to any compensation or damages for
loss of, or interference with, Tenants, business or use or access of all or any
part of the Premises resulting from any such damage, repair, reconstruction or
restoration.
11.2 In the event of any damage or destruction of all or any part of
the Premises, Tenant shall immediately: (a) notify Landlord thereof; and (b)
deliver to Landlord all insurance proceeds received by Tenant with respect to
the Leasehold improvements and Tenant changes in the Premises to the extent such
items are not covered by Landlord's casualty insurance (excluding proceeds for
Tenant's furniture and other personal property), whether or not this Lease is
terminated as permitted in this Section 11, and Tenant hereby assigns to
Landlord all rights to receive such insurance proceeds. If, for any reason
(including Tenant's failure to obtain insurance for the full replacement cost of
any Tenant changes which Tenant is required to insure pursuant to this Lease),
Tenant fails to receive insurance proceeds covering the full replacement cost of
such Tenant changes which are damaged, Tenant shall be deemed to have
self-insured the replacement cost of such tenant changes, and upon any damage or
destruction thereof, Tenant shall immediately pay to Landlord the full
replacement cost of such items, less any insurance proceeds actually received by
Landlord from Landlord's or Tenants insurance with respect to such items.
11.3 In the event any holder of a mortgage or deed of trust on the
Building should require that the insurance proceeds payable upon damage or
destruction to the Building by fire or other casualty be used to retire the
debit secured by such mortgage or deed of trust, or in the event any lessor
under any underlying or ground lease should require that such proceeds be paid
to such lessor, Landlord shall in no event have any obligation to rebuild, and
at Landlord's election this Lease shall terminate.
11.4 With the exception of insurance required to be carried by Tenant
under Section 28 of this Lease, and except as provided in Section 11.2, any
insurance which may be carried by Landlord or Tenant against loss or damage to
the building or to the Premises shall be for the sole benefit of the party
carrying such insurance and under its sole control. Landlord shall not be
required to carry insurance of any kind on Tenant's property and, except by
reason of the breach by Landlord of any of its obligations hereunder, shall not
be obligated to repair any damage thereto or to replace the same.
11.5 In addition to its termination rights in Subsection 11.1 above,
Landlord shall have the right to terminate this Lease if any damage to the
Building or Premises occurs during the last 12 months of the Term of this Lease
and
10
<PAGE> 13
Landlord estimates that the repair, reconstruction of restoration of such damage
cannot be completed within the earlier of (a) the scheduled expiration date of
the Lease Term, or (b) 60 days after the date of such casualty.
11.6 Tenant, as a material inducement to Landlord's entering into this
Lease, irrevocably waiver and releases its rights under the provisions of
Section 1932(2) and 1933(4) of the California Civil Code (and any successor
statutes permitting Tenant to terminate this Lease as a result of any damage or
destruction), it being the intention of the parties hereto that the express
terms of this Lease shall control under any circumstances in which those
provisions might otherwise apply.
12. EMINENT DOMAIN.
12.1 In the event that the whole of the Premises, or so much thereof as
to render the balance unusable to Tenant for the purposes leased hereunder, as
reasonably determined by Landlord, shall be lawfully condemned or taken in any
manner for any public or quasi-public use, or conveyed by Landlord in lieu
thereof (a "Taking"), this Lease and the term hereby granted shall forthwith
cease and terminate on the date of the taking of procession by the condemning
authority (the "Date of Taking").
12.2 In the event of a Taking of a portion of the Premises which does
not result in the termination of this Lease pursuant to Section 12.1, above, the
Base Rent shall be abated in proportion to the part of the Premises so taken.
12.3 In the event of a Taking of a portion of the Premises which does
not result in the Premises, and if, in the opinion of Landlord, the Taking is so
substantial as to render the remainder of the Building uneconomic to maintain
despite reasonable reconstruction or remodeling, or if it would be necessary to
alter the Building or Premises materially, Landlord may terminate this Lease by
notifying Tenant of such termination within 60 days following the Date of
taking, and this Lease shall end on the date specified in the notice of
termination, which shall not be less than 60 days after the giving of such
notice.
12. 4 No temporary Taking of the Building or Premises and/or of
Tenant's rights therein or under this Lease shall terminate this Lease or give
Tenant any right to abatement of rent hereunder. Tenant shall be entitled to
receive such portion or portions of any award made for the temporary use with
respect to the period of the taking which is within then Tenant shall pay to
Landlord a sum equal to the reasonable costs of performing Tenant's obligations
under Section 15 with respect to Tenant's surrender of the Premises and, upon
such payment, shall be excused from such obligations. For purposes of this
Section 12.4, a temporary taking shall be defined as a taking for a period of
270 days or less.
12.5 Except for the award in the event of a temporary Taking as
contemplated in Section 12.4, above, Tenant hereby releases and shall have no
interest in, or right to participate with respect to the determination of, any
compensation for any Taking, except only that Tenant shall be entitled to the
portion of any award specifically designated by the condemning authority to be
for any personal property of Tenant included in any such taking or for any
relocation expenses or business interruption loss incurred by Tenant.
13. DEFAULT.
13.1 The following events shall be deemed to be events o default by
Tenant under this Lease:
(a) If Tenant shall fail to pay any installment of rent or any
other sum required to be paid by Tenant under this Lease as due.
(b) If Tenant shall fail to comply with any term provision or
covenant of this Lease, other than provisions pertaining to the payment of
money.
(c) If Tenant shall make an assignment for the benefit of
creditors.
(d) If Tenant shall file a petition under any section or
chapter of the federal Bankruptcy Code, as amended from time to time, or under
any similar law or statute of the United States or any State thereof pertaining
to bankruptcy, insolvency or debtor relief, or Tenant shall have a petition or
other proceedings filed against Tenant under any such law or chapter thereof and
such petition or proceeding shall not be vacated or set aside within 60 days
after such filing.
11
<PAGE> 14
(e) If a receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant and such receivership shall not be
terminated and possession of such assets restored to Tenant within 30 days after
such appointment.
(f) If Tenant shall desert or vacate any substantial portion
of the Premises and the same shall remain unoccupied for more than 14 days
thereafter.
(g) If Tenant shall assign this Lease or sublet the Premises
in violation of the terms hereof.
13.2 Any shorter period for cure provided by law notwithstanding, and
in lieu thereof, including without limitation California Code of Civil Procedure
Section 1161, Tenant may cure any monetary default under Subsection 13.1(a),
above, at any time within 10 days after written notice of default is received by
Tenant from Landlord; and (except as specifically provided otherwise in Section
24) Tenant may cure any non-monetary default within 30 days after written notice
of default is received by Tenant from Landlord, provided that if such
non-monetary default is curable but is of such a nature that the cure cannot be
completed within 30 days, Tenant shall be allowed to cure the default if Tenant
promptly commences the cure upon receipt of the notice and diligently prosecutes
the same to completion shall occur not later than 60 days from the date of such
notice from Landlord.
14. REMEDIES UPON DEFAULT.
14.1 Upon the occurrence of any event of default by Tenant, Landlord
shall have, in addition to any other remedies available to Landlord at law or in
equity, the option to pursue any one or more of the following remedies (each and
all of which shall be cumulative and non-exclusive) without any notice or demand
whatsoever:
(a) Terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if tenant fails to do so,
Landlord may, without prejudice to any other remedy which it may have for
possession of arrearages in rent, enter upon and take possession of the Premises
and expel or remove Tenant and any other person who may be occupying the
Premises or any part thereof, without being liable for prosecution or any claim
or damages therefor; and Landlord may recover from Tenant the following:
(1) The worth at the time of award of any unpaid
rent which has been earned at the time of such termination; plus
(2) The worth at the time of award 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 hat
Tenant proves could have been reasonably avoided; plus
(3) 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 Tenant proves could have been
reasonably avoided; plus
(4) Any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to perform
its obligations under this Lease or which in the ordinary course of things would
be likely to result therefrom, specifically including but not limited to
reasonable attorney' fees, removal and storage (or disposal) of Tenant's
personal property, unreimbursed leasehold improvement costs (e.g. the amounts
Landlord has expended for leasehold improvements which have not been recovered
as o the termination of the Lease when amortized on a straight-line basis over
the originally scheduled lease term), brokerage commissions and advertising
expenses incurred, expenses of remodeling the Premises or any portion thereof
for a new tenant , whether for the same or a different use, and any special
concessions made to obtain a new tenant; and
(5) At Landlord's election, such other amounts
in addition to or in lieu of the foregoing as may be permitted from time to time
by applicable law.
The term "rent" as used in this Subsection 14.1(a) shall be deemed to be and to
mean al sums of every nature required to be paid by Tenant pursuant to the terms
of this Lease, whether to Landlord or to others. Any such sums which are based
on percentages of income, increased costs or other historical data shall be
reasonable estimates or projections computed by Landlord on the basis of the
amounts thereof accruing during the 24-month period immediately prior to
default, except that if it becomes necessary to compute such sums before a
24-month period has expired, then the computation shall be made on the basis of
the amounts accruing during such shorter period. As used in Subsections
14.1(a)(1) and (2), above, the "worth at the time of award" shall be computed by
allowing interest from the data the sums became due at the
12
<PAGE> 15
lesser of (I) the Bank of America prime rate on the due date plus 4% , or (ii)
the maximum rate permitted by law. As used in Subsection 14.1(a)(3), above, the
"worth at the time of award" shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus 1%.
(b) In the event of any such default by Tenant, in addition to
any other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed, stored and/or disposed of pursuant to any
procedures permitted by applicable law, including but not limited to those
described in Section 15.3. No re-entry or taking possession of the premises by
Landlord pursuant to this Section 14.1(b), and no acceptance of surrender of the
Premises or other action on Landlord part, shall be construed as an election to
terminate this Lease unless a written notice of such intention be given to
Tenant or unless the termination thereof be decreed by a court of competent
jurisdiction.
(c) In the event of any such default by Tenant, in addition to
any other remedies available to Landlord under this Lease, at law or in equity,
Landlord shall have the right to continue this Lease in full force and effect,
whether or not Tenant shall have abandoned the Premises. The foregoing remedy
shall also be available to Landlord pursuant to California Civil Code Section
1951.4 and any successor statute in the event Tenant has abandoned the Premises.
In the event Landlord elects to continue this Lease in full force and effect
pursuant to this Subsection 14.1(c), then Landlord shall be entitled to enforce
all of its rights and remedies under this Lease, including the right to recover
rent as it becomes due Landlord's allocation not to terminate this Lease
pursuant to this Subsection 14.1(c) or pursuant to any other provision of this
Lease, at law or in equity, shall not preclude Landlord from subsequently
electing to terminate this Lease or pursuing any of its other remedies.
(d) Whether or not Landlord elects to terminate this Lease on
account of any default by Tenant Landlord shall have the right to terminate any
and all subleases, licenses, concessions of other consensual arrangements for
possession entered into by Tenant and affecting the Premises or may, in
Landlord's sole discretion, succeed to Tenant's interest, Tenant shall, as of
the date of notice by Landlord of such election, have no further right to or
interest in the rent or other consideration receivable therunder.
14.2 Following the occurrence of an event of default by Tenant,
Landlord shall have the right to require that any or all subsequent amounts paid
by Tenant to Landlord hereunder, whether in cure of the default in question or
otherwise, be paid in the form of cash, money order, cashier's or certified
check drawn on an institution acceptable to Landlord, or by other means approved
by Landlord, norwithstanding any prior practice of accepting payments in any
different form.
14.3 All rights, options and remedies of Landlord contained in this
Section 14 and elsewhere in this Lease shall have the right to pursue any one or
more of such remedies or any other remedy or relief which may be provided by law
or in equity, whether or not stated in this Lease. Nothing in Section 14 shall
be deemed to limit or otherwise affect Tenant's indemnification of Landlord
pursuant to any provision of this Lease.
14.4 Landlord shall not be deemed in default in the performance of any
obligation required to be performed by Landlord under this Lease unless Landlord
has failed to perform such obligation within 30 days after the receipt of
written notice from Tenant specifying in detail Landlord's failure to perform;
provided however, that if the nature of Landlord's obligation is such that more
than 30 days are required for its performance, then Landlord shall not be deemed
in default if it commences such performance within such 30-day period and
thereafter diligently pursues the same to completion. Upon any such uncurled
default by Landlord, Tenant shall be entitled, as tenant's sole and exclusive
remedy, to recover from Landlord tenant's actual damages (but not lost profits
or other incidental or consequential damages) shown by Tenant to have been
directly caused thereby; provided, however:(a) Tenant shall have no right to
offset or abate rent in the event of any default by Landlord under this Lease,
except to the extent offset rights are specifically provided to Tenant in this
Lease:(b) Tenant shall in no event be entitled to terminate this Lease by reason
of Landlord's default: and (c) Tenant's rights and remedies hereunder shall be
limited to the extent Tenant has expressly waived in this Lease any of such
rights or remedies, including the limitation on Landlord's liability contained
in Section 33.17 hereof.
14.5 No waiver by Landlord or Tenant of any violation or breach of any
of the terms, provisions and covenants herein contained shall e deemed or
construed to constitute a waiver of any other or later violation or breach of
the same or any other of the terms, provisions and covenants herein contained.
Forbearance by Landlord in enforcement of one or more of the remedies herein
provided upon an event of default shall not be deemed or construed to constitute
a waiver of any other or later violation or breach of the same or any other of
the terms, provision and convenience herein contained. Forebearance by Landlord
in enforcement of one or more of the remedies herein provided upon an event of
default shall not be deemed or construed to constitute a waiver of such default.
The acceptance of any rent hereunder by Landlord following the occurrence of any
default, whether or not
13
<PAGE> 16
known to Landlord, shall not be deemed a waiver of any such default, except
only a default in the payment of the rent so accepted, subject to the
provisions of Section 33.1.
15. SURRENDER OF PREMISES; REMOVAL OF PROPERTY.
15.1 No act or thing done by Landlord or any agent or employee of
Landlord during the term hereof shall be deemed to constitute an acceptance by
Landlord of a surrender of the Premises unless such intent is specifically
acknowledged in a writing signed by Landlord. The delivery of keys to the
Premises to Landlord or any agent or employee of Landlord shall not constitute a
surrender of the Premises or affect a termination of this Lease, whether or not
the keys are thereafter retained by Landlord, and notwithstanding such delivery
Tenant shall be entitled to the return of such keys at any reasonable time upon
request until this Lease shall have been properly terminated. The voluntary or
other surrender of this Lease by Tenant, whether accepted by Landlord or not, or
a mutual termination hereof, shall not work a merger, and at the option of
Landlord shall operate as an assignment to Landlord of all subleases or
subtenancies affecting the Premises.
15.2 Upon the expiration of the term of this Lease, or upon any
earlier termination of this Lease, Tenant shall, subject to the provisions of
this Section 15, quit and surrender possession of the Premises to Landlord in as
good order and condition as when Tenant took possession and as thereafter
improved by Landlord and/or Tenant, reasonable wear and tear and repairs which
are specifically made the responsibility of Landlord hereunder excepted. Upon
such expiration or termination, Tenant shall, without expense to Landlord,
remove or cause to be removed from the Premises all debris and rubbish, and such
items of furniture, equipment, free-standing cabinet work, movable partitions
and other articles of personal property owned by Tenant or installed or placed
by Tenant at its expense in the Premises, and such similar articles of any other
persons claiming under Tenant, as Landlord may, in its sole discretion, require
to be removed, and Tenant shall repair at its own expense all damage to the
Premises and Building resulting from such removal. Without limiting the
foregoing, upon the expiration or termination of the Lease, Tenant shall remove
from the Premises any removable equipment (including but not limited to
telecommunications switching equipment), furniture and trade fixtures owned by
Tenant, and shall repair at Tenant's expense any damage to the Premises or
Building resulting from such removal, and Landlord shall not assert any claim of
ownership to such items merely on account of their having been placed in or
affixed to the Premises or the Building.
15.3 Whenever Landlord shall re-enter the Premises as provided in
this Lease, any personal property of Tenant not removed by Tenant upon the
expiration of the term of this Lease, or within 48 hours after a termination by
reason of Tenant's default as provided in this Lease, shall be deemed abandoned
by Tenant and may be disposed of by Landlord (without liability to Tenant) in
accordance with Sections 1980 through 1991 of the California Civil Code and
Section 1174 of the California Code of Civil Procedure, or in accordance with
any laws or judicial decisions which may supplement or supplant those provisions
from time to time, or in accordance with any other legally permissible
procedure, whether by public or private sale or otherwise. Landlord shall be
entitled to apply any proceeds of the sale of such items to any sums due to
Landlord by Tenant and to Landlord's costs of removal, storage and sale of such
items. Alternatively, Landlord shall be entitled to treat Tenant's failure to
remove such items from the Premises as either a permitted or unpermitted
holdover pursuant to Section 19 of this Lease.
15.4 Subject to the last sentence of Section 15.2, all fixtures,
alterations, additions, repairs, improvements and/or appurtenances attached to
or built into or on or about the Premises prior to or during the term hereof,
whether by Landlord at its expense or at the expense of Tenant, or by Tenant at
its expense, or by previous occupants of the Premises, shall be and remain part
of the Premises and shall not be removed by Tenant at the end of the term of
this Lease. Such fixtures, alterations, additions, repairs, improvements and/or
appurtenances shall include, without limitation, floor coverings, drapes,
paneling, molding, doors, kitchen and dishwashing fixtures and equipment,
plumbing systems, electrical systems, lighting systems, silencing equipment,
communication systems, all fixtures and outlets for the systems mentioned above
and for all telephone, radio, telegraph and television purposes, and any special
flooring or ceiling installations. Notwithstanding the foregoing, Landlord may,
in its sole discretion, require Tenant, at Tenant's sole cost and expense, to
remove any fixtures, alterations, additions, repairs, improvements and/or
appurtenances attached or built into or on or about the Premises, and to repair
any damage to the Building and Premises occasioned by the installation,
construction, operation and/or removal of such fixtures, equipment, alterations,
additions, repairs, improvements and/or appurtenances. If Tenant shall fail to
complete such removal and repair such damage, Landlord may do so and may charge
the reasonable cost thereof to Tenant.
15.5 Tenant hereby waives all claims for damages or other liability
in connection with Landlord's re-entering and taking possession of the Premises
or removing, retaining, storing or selling the property of Tenant as herein
provided, and Tenant hereby indemnifies and holds Landlord harmless from any
such damages or other liability, and no such re-entry shall be considered or
construed to be a forcible entry.
14
<PAGE> 17
16. COSTS OF SUIT; ATTORNEYS' FEES; WAIVER OF JURY TRIAL.
16.1 If Tenant or Landlord shall bring any action for any relief,
declaratory or otherwise, against the other arising out of or under this Lease,
including any suit by Landlord for the recovery of rent or possession of the
Premises, the losing party shall pay the successful party its costs of suit,
including, without limitation, a reasonable sum for attorneys' and other
professional fees relating to such suit, and such fees shall be deemed to have
accrued on the commencement of such action and shall be paid whether or not such
action is contested or prosecuted to judgment.
16.2 In the event that Landlord shall, without fault of Landlord's
part, be made party to any litigation instituted by Tenant or by any third party
against Tenant, or by or against any person holding under or using the Premises
by license of Tenant, or for the foreclosure of any lien for labor or material
furnished to or for Tenant or of any such other person, Tenant hereby
indemnifies and holds Landlord harmless from and against all costs and expenses,
including reasonable attorneys' fees, incurred by Landlord in or in connection
with such litigation.
16.3 In order to limit the cost of resolving any disputes between the
parties, and as a material inducement to each party to enter into this Lease,
each party hereby waives the right to a jury trial with respect toany litigation
between the parties arising out of this Lease, Tenant's occupancy of the
Premises, or Landlord's ownership, operation or managementof the Building,
irrespective of any rights to a jury trial which either party otherwise then
would have under applicable statutes, constitutions, judicial decisions or other
laws.
17. ASSIGNMENT AND SUBLETTING.
17.1 Except as hereinafter provided, Tenant shall not sublet all or any
part of the Premises, nor assign this Lease, nor enter any license, "co-location
agreement" or other agreement permitting a third party (other than Tenant's
employees and occasional guests) to use or occupy any portion of the Premises,
without Landlord's express prior written consent, which consent shall not
unreasonably be withheld. (For purposes of the balance of this Section 17.1 and
Sections 17.2 through 17.4, the term "sublease" shall be deemed to include
licenses, co-location agreements, and other agreements for use or occupancy of
the Premises as described in the preceding sentence. The terms "subtenant" and
"sublet" shall be construed accordingly.)
In order to assist Landlord in evaluating any proposed assignment or
sublease, Tenant agrees to provide Landlord with the proposed subtenant or
assignee's current financial statement and financial statements for the
preceding 2 years and such other information concerning the business background
and financial condition of the proposed subtenant or assignee and of Tenant as
Landlord may reasonably request.
Landlord and Tenant hereby agree that Landlord's disapproval of any
proposed sublease or assignment hereunder shall be deemed reasonable if based
upon any reasonable factor, including, without limitation, any or all of the
following factors:
(a) The proposed transfer would result in more than two
subleases of portions of the Premises being in effect at any time during the
term;
(b) The rent payable by the proposed transferee would be less
than the fair market rental value for the space as determined pursuant to the
last paragraph of this Section 17.1;
(c) The proposed transferee is an existing tenant or occupant
of the Building or has negotiated with Landlord within the last twelve months
for space in the Building or is another transferee prohibited by the next to
last paragraph of this Section 17.1;
(d) The proposed transferee is a governmental entity;
(e) The transaction calls for new demising walls to be built,
and the portion of the Premises proposed to be sublet or assigned is irregular
in shape and/or has inadequate means of ingress and egress;
(f) The use of the Premises by the proposed transferee (i) is
not permitted by the use provisions of this Lease, or (ii) might, in Landlord's
reasonable opinion, violate any right for an exclusive use granted by Landlord
to another Tenant in the Building;
15
<PAGE> 18
Landlord may require that the assignee or subtenant remit directly to
Landlord on a monthly basis, all monies due to Tenant by said assignee or
subtenant. In such event Landlord shall apply the sums received to the
obligations of Tenant and its successors under this Lease.
In the event of default by any assignee or subtenant or any successor
of Tenant in the performance of any of the terms hereof, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee, subtenant or successor.
Landlord may consent to subsequent assignments of the Lease or
sublettings or amendments or modifications to the Lease with the assignee or
other successor of Tenant, and without obtaining Tenant's consent thereto, and
any such actions shall not relieve Tenant of liability under this Lease.
Consent by Landlord to one assignment or subletting shall not be deemed
consent to any subsequent assignment or subletting.
If Tenant is a corporation which, under California law, is not deemed a
publicly-held corporation, or is an unincorporated association or partnership,
the transfer, assignment or hypothecation of any stock or interest controlling
such corporation, association or partnership shall be deemed an assignment
within the meaning and provisions of this Section 17. For purposes hereof,
"control" shall be deemed to refer to any amount, in the aggregate, exceeding
25% of the voting power of such corporation, association or partnership.
Notwithstanding the foregoing, the immediately preceding sentence shall not
apply to any transfer of stock of Tenant if Tenant is a publicly-held
corporation and such stock is transferred publicly over a recognized security
exchange or over-the-counter market.
Tenant agrees that all advertising by Tenant to market the space in the
Premises to be sublet or assigned shall require Landlord's prior written
approval, which shall not be unreasonably withheld. Tenant further agrees that
it shall not, without Landlord's prior written consent, which may be granted or
withheld in Landlord's sole discretion, market any space in the Premises, assign
the lease or sublet any space in the Premises to existing tenants or occupants
of the Building, or to any entity controlling, controlled by, or under common
control with any existing tenant or occupant of the Building, except for any
entity controlling, controlled by or under common control with Tenant.
Tenant agrees that it shall not sublet, nor assign, nor advertise as
available for subletting or assignment, nor list with brokers for subletting or
assignment, all or any portion of the Premises for a consideration which is
equal to less than the fair market rental value, as determined by Landlord in
its reasonable discretion, for comparable space in the Building for a comparable
term commencing concurrently with the assignment or sublease term, with
comparable rent credits and tenant improvement allowances. Within 10 days after
Landlord receives any written request from Tenant for Landlord's estimate of the
fair market rental value for specified space (which request shall identify the
space in question, the proposed term and the proposed rent credits and
improvement allowances), Landlord shall notify Tenant in writing of the fair
market rental value for such space for a comparable rent credits and tenant
improvement allowances.
17.2 In the event that Tenant desires to assign this Lease, or to enter
into a sublease, as to all or any portion of the Premises, except where the
subtenant or assignee is an entity controlling, controlled by or under common
control with Tenant. Tenant shall, prior to solicitation of offers therefor,
give Landlord notice of Tenant's desire to assign or sublet and of the portion
of the Premises to be affected by the proposed assignment or sublease. Landlord
shall have the right, exercisable by notice to Tenant within 60 days after
Landlord's receipt of Tenant's notice of desire to assign or sublet, to
terminate this Lease as to the portion of the Premises affected by the proposed
assignment or sublease, such termination to be effective as of the date 60 days
after notice by Landlord to Tenant of such termination.
In the event of a termination of this Lease as to a portion of the
Premises pursuant to this Section 17.2, effective as of such termination, the
Premises shall be deemed to no longer include the portion of the Premises
subject to such termination. Tenant shall surrender possession of that portion
of the Premises in accordance with the provisions of this Lease, and the rent
payable hereunder and Tenant's Percentage Share shall be appropriately adjusted
based upon the rentable area remaining within the Premises.
If Landlord does not elect to terminate pursuant to this Section 17.2,
and if Tenant does not enter into an assignment or sublease as specified in
Tenant's notice of desire to assign or sublet within 6 months after the
expiration of Landlord's 60-day period for election to terminate, then Tenant
shall again comply with the provisions of this Section 17.2 before assigning
this Lease, or entering into a sublease, as to all or any portion of the
Premises.
17.3 In the event that Tenant has sought and received Landlord's
consent to assign this Lease, or to enter into a sublease as to all or any
portion of the Premises, the monthly rent payable by Tenant to Landlord,
pursuant to Section
17
<PAGE> 19
3, shall be increased by one-half of the amount to be received by Tenant during
each month pursuant to the terms of the assignment or sublease, in excess of
Tenant's monthly rental payable to Landlord for the space subject to the
assignment or sublease. The amounts referred to in the previous sentence include
rent, additional rent, or any other payment in respect of use or occupancy, or
in reimbursement of costs of leasehold improvements installed by Tenant, and
whether paid in a lump sum or periodic payments. In no event shall the total
sums payable to the Landlord be less than the monthly rental Landlord would have
received but for such assignment or sublease.
The additional rent shall be due and payable to Landlord in accordance
with the schedule specified in the sublease or assignment instrument, and the
failure of any subtenant or assignee to make any payments in accordance with
that schedule shall not affect the obligation of Tenant to pay the additional
rent to Landlord.
The calculation of the amount of rentable space being sublet shall be
made by Landlord in accordance with its usual standards. Landlord may require
acknowledgment by Tenant of Tenant's concurrence on the Landlord's calculation
of the amount of rentable space being sublet as a condition to Landlord's
consent to any sublease.
The Provisions of a sublease or assignment instrument consented to by
Landlord cannot be modified, nor the sublease or assignment terminated, other
than in accordance with its terms, without the prior written consent of the
Landlord, which consent shall not be unreasonably withheld. The terms of this
Section 17.3 shall apply to any subleasing or assignment by any subtenant or
assignee.
17.4 Tenant shall pay to Landlord, promptly upon receipt of a billing
from Landlord, the amount of Landlord's reasonable attorney fees incurred in
connection with Landlord's review or approval of any sublease or assignment
transaction requiring Landlord's consent hereunder.
18. TRANSFER OF LANDLORD'S INTEREST. In the event of any transfer of
Landlord's interest in the Building or Premises, other than a transfer for
security purposes only, the transferor shall be automatically relieved of any
and all obligations and liabilities on the part of Landlord accruing from and
after the date of such transfer, including, without limitation, the obligation
of Landlord to return the Security Deposit as provided in this Lease; provided
that the transferor shall, within a reasonable time, transfer any Security
Deposit then held by Landlord, or any portion thereof remaining after proper
deductions therefrom, to the transferee and shall thereafter notify Tenant of
such transfer, of any claims made against the Security Deposit, and of the
transferee's name and address, by written notice delivered personally (in which
case Tenant shall acknowledge receipt of such notice by signing Landlord's copy
of such notice) or by registered or certified mail.
19. HOLDING OVER. If tenant holds over after the term hereof, with or
without the express or implied consent of Landlord, such tenancy shall be from
month-to-month only, and shall not constitute a renewal hereof or an extension
for any further term, and in such case, Base Rent shall be payable at a monthly
rate equal to 125% of the Base Rent applicable to the Premises immediately prior
to the date of such expiration or earlier termination. Such month-to-month
tenancy shall be subject to every other term, covenant and agreement contained
herein. Nothing contained in this Section 19 shall be construed as consent by
Landlord to any holding over by Tenant, and Landlord expressly reserves the
right to require Tenant to surrender possession of the Premises to Landlord as
provided in this Lease upon the expiration or other termination of this Lease.
20. NOTICES. In every case when, under the provisions of this Lease, it
shall be necessary or desirable for one party hereto to serve any notice,
request or demand on the other, such notice or demand shall be in writing and
shall be served personally or by deposit in the United States mail, postage and
fees fully prepaid, registered or certified mail, with return receipt requested,
addressed to the applicable address for notice set forth in Section A on page 1.
Landlord or Tenant may, from time to time, by notice in writing served upon the
other as aforesaid, designate a different mailing address or a different person
to whom all such notices or demands are thereafter to be addressed. Service of
any such notice or demand if given personally shall be deemed complete upon
delivery, and if made by mail shall be deemed complete on the day of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of 2 business days after the date of mailing, whichever is earlier.
Notwithstanding the provisions of this Section 20, any notice of
default as described in Section 13.2 and any pleadings or notices given by
either party to the other with respect to any judicial proceeding between the
parties shall be served in the manner prescribed by applicable California law
without reference to this paragraph, and shall be deemed served at such time as
is provided by such applicable law without reference to this paragraph.
18
<PAGE> 20
21. QUIET ENJOYMENT. Landlord covenants that Tenant, upon paying the
rent and performing the covenants of this Lease on Tenant's part to be
performed, shall and may peaceably and quietly have, hold and enjoy the Premises
for the term of this Lease.
22. TENANT'S FURTHER OBLIGATIONS.
22.1 Except for ordinary wear and as otherwise provided in this Lease,
Tenant shall, at Tenant's expense, keep in good order, condition and repair the
interior of the Premises and shall promptly and adequately repair all damage to
the interior of the Premises and replace or repair all glass, fixtures,
equipment and appurtenances therein damaged or broken, under the supervision and
with the approval of Landlord and, if tenant does not do so, Landlord may, but
need not, make such repairs and replacements. If Landlord does so, Tenant shall
pay Landlord the cost thereof promptly upon demand, as additional rent
hereunder.
22.2 Tenant shall comply with all laws, ordinances, rules, regulations,
orders and directives of governmental and quasi-governmental bodies and
authorities having jurisdiction over Tenant or the Premises from time to time
and shall obtain and keep in effect all licenses, permits (including but not
limited to conditional use permits) and other authorizations required with
respect to the business or businesses conducted by Tenant within or from the
Premises or with respect to any special equipment or facilities of Tenant
permitted under the other provisions of this Lease. Tenant and its employees,
agents, licensees and invitees shall also comply with all reasonable rules and
regulations which Landlord may adopt from time to time for the protection and
welfare of the Building and its tenants and occupants; provided that Tenant
shall not be responsible for compliance with any rule or regulation adopted by
Landlord unless or until Tenant is furnished with a copy thereof. The present
rules and regulations for the Building are attached hereto as Exhibit "B".
Landlord shall have no liability to Tenant for the failure of any other tenant
in the Building to observe the rules and regulations.
23. ESTOPPEL CERTIFICATE BY TENANT. At any time and from time to time,
within 15 days after written request by Landlord, Tenant shall execute,
acknowledge and deliver to Landlord a statement in writing certifying that 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
stating the modifications), that Tenant knows of no default hereunder by
Landlord and has no right of offset or deduction against the rent or any other
charge payable to Landlord (or specifying any claimed), the amount of any
security posted by Tenant, the dates to which the rent and other charges have
been paid in advance, any increases or decreases of rent that are anticipated,
the commencement date of the Lease and such other matters as may be reasonably
requested by Landlord. It is intended that any statement delivered pursuant to
this Section 23 may be relied upon by any purchaser of the fee or mortgagee or
beneficiary or assignee of any mortgage or trust deed upon the fee of the
Building or Premises. Tenant's failure to deliver the statement within the
period specified above shall be conclusive and binding upon Tenant that the
Lease is in full force and effect without modification except as may be
represented by Landlord, that there are no uncured defaults in Landlord's
performance and that Tenant has no right of offset, counterclaim or deduction
against rental, and that no more than one month's rental has been paid in
advance.
24. SUBORDINATION AND ATTORNMENT. This Lease is and at all times shall
be subject and subordinate to any ground or underlying leases, mortgages, trust
deeds or like encumbrances, which may now or hereafter affect the Building or
Premises, and to all renewals, modifications, consolidations, replacements and
extensions of any such lease, mortgage, trust deed or like encumbrance. As a
condition precedent to the effectiveness of any such subordination of this Lease
to any future ground or underlying leases or the lien of any future mortgages,
deeds of trust, or like encumbrances, Landlord shall provide to Tenant a
commercially reasonable non-disturbance and attornment agreement in favor of
Tenant executed by such future ground lessor, master lessor, mortgagee or deed
of trust beneficiary, as the case may be, which shall provide that Tenant's
quiet possession of the Premises shall not be disturbed on account of such
subordination to such future lease or lien so long as Tenant is not in default
under any provisions of this Lease. Notwithstanding the foregoing, Landlord
shall have the right to subordinate or cause to be subordinated any or all
ground or underlying leases or the lien of any or all mortgages, deeds of trust
or like encumbrances to the Lease. In the event that any ground or underlying
lease terminates for any reason or any mortgage, deed of trust or like
encumbrance is foreclosed or a conveyance in lieu of foreclosure is made for any
reason, then at the election of Landlord's successor-in-interest, Tenant shall
attorn to and become the tenant of such successor. Tenant hereby waives its
rights under any current or future law which gives or purports to give Tenant
any right to terminate or otherwise adversely affect this Lease and the
obligations of Tenant hereunder in the event of any such foreclosure proceeding
or sale. Tenant covenants and agrees to execute and deliver to Landlord in the
form reasonably required by Landlord, within 10 days after receipt of written
demand by Landlord, any additional documents evidencing the priority or
subordination of this Lease with respect to any ground or underlying lease or
the lien of any mortgage, deed of trust, or like encumbrance. Should Tenant fail
to sign and return any such documents within said 10-day period, Tenant shall be
in default hereunder without the benefit of any additional notice or cure
periods, except as may be required by statute.
19
<PAGE> 21
25. RIGHTS RESERVED TO LANDLORD.
25.1 All portions of the Building are reserved to Landlord, including
exterior building walls, core corridor walls and doors and any core corridor
entrance, but excluding the Premises and the inside surfaces of all walls,
windows and doors bounding the Premises. Landlord also reserves any space in or
adjacent to the Premises used for shafts, stacks, pipes, conduits, fan rooms,
ducts, electric or other utilities, sinks or other building facilities, and the
use thereof, as well as the right to access thereto through the Premises for the
purposes of operation, maintenance, decoration and repair.
25.2 Landlord shall have the following rights exercisable without
notice and without liability to Tenant for damage or injury to property, person
or business (all claims for damage being hereby released), and without effecting
an eviction or disturbance of Tenant's use or possession or giving rise to any
claim for setoffs or abatement of rent:
(a) To enter the Premises at all reasonable times during the
term of this Lease for the purpose of inspecting the same, supplying janitorial
service, posting notices of non-responsibility, exhibiting the Premises to
prospective tenants, purchasers or others, or making such repairs or
replacements therein as may be required by this Lease or as Landlord may deem
appropriate; provided that Landlord shall use all reasonable efforts not to
disturb Tenant's use and occupancy and shall, when practical, give Tenant at
least 48 hours' prior notice of such repairs (except in case of emergencies,
when no notice shall be required). For each of the foregoing purposes, Tenant
shall provide to Landlord a key with which to unlock at any time all of the
doors in, upon and about the Premises, excluding Tenant's vaults and safes.
Landlord may use any other means which Landlord may deem proper to open such
doors in an emergency in order to obtain entry to the Premises. Any entry to the
Premises obtained by Landlord by any means shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into, or a detainer of,
the Premises, or an eviction of Tenant from the Premises or any portion thereof,
or grounds for any abatement or reduction of rent. Any damages or losses on
account of any such entry by Landlord shall be Tenant's sole responsibility
except as otherwise expressly provided herein. Nothing in this Section 25 shall
be construed as obligating Landlord to perform any repairs, alterations or
decorations, except as otherwise expressly required in this Lease.
(b) To change the name or street address of the Premises or
Building.
(c) To install and maintain signs on the exterior and interior
of the Building, except within the Premises.
(d) To have pass keys to the Premises.
(e) To decorate, remodel, repair, alter or otherwise prepare
the Premises for reoccupancy during the last 6 months of the term hereof if,
during or prior to such time, Tenant has vacated the Premises, or at any time
after Tenant abandons the Premises.
(f) To have access to all mail chutes according to the rules
of the United States Postal Service.
(g) To do or permit to be done any work in or about the
exterior of the Building or any adjacent or nearby building, land, street or
alley.
(h) To grant to anyone the exclusive right to conduct any
business or render any service in the Building, provided such exclusive right
shall not operate to exclude Tenant from the use expressly permitted by this
Lease.
26. FORCE MAJEURE. Whenever there is provided in this Lease a time
limitation for performance by Landlord or Tenant of any construction, repair,
maintenance or service, the time provided for shall be extended for as long as
and to the extent that delay in compliance with such limitation is due to an act
of God, governmental control or other factors beyond the reasonable control of
Landlord or Tenant, respectively.
27. WAIVER OF CLAIMS; INDEMNITY.
27.1 Tenant, as a material part of the consideration to Landlord,
hereby assumes all risk of, and waives all claims it may have against Landlord,
its agents, employees, affiliates and successors in interest for damage to or
loss of property or personal injury or loss of life resulting from the Building
or Premises or any part thereof becoming out of repair, by reason of any repair
or alteration thereof, or resulting from any accident within the Building or
Premises or on or about any space adjoining the Building or Premises, or
resulting directly or indirectly from any act or omission of any person, or due
to any condition, design or defect of the Building or Premises, or any space
adjoining the Building or Premises, or the mechanical systems of the Building or
Premises, which may exist or occur, whether such damage, loss or injury results
from
20
<PAGE> 22
conditions arising upon the Premises or upon other portions of the Building, or
from other sources or places, and regardless of whether the cause of such
damage, loss or injury or the means of repairing the same is accessible to
Tenant; provided such assumption and waiver shall not apply to claims to the
extent caused by the negligence or willful misconduct of Landlord or its agents.
27.2 Tenant hereby indemnifies and holds Landlord and Landlord's
agents, employees, affiliates and successors in interest harmless from and
against any and all claims, demands, suits, fines, losses and other liabilities
for or relating to injury or loss of life to persons or damage to or loss of
property arising from Tenant's use of the Building or the Premises or from the
conduct of Tenant's business or from any work done, permitted or suffered by
Tenant in or about the Premises or elsewhere, and further indemnifies and holds
Landlord and Landlord's agents, employees, affiliates and successors in interest
harmless from and against any and all claims arising from any breach or default
in the performance of any obligation on Tenant's part to be performed under the
terms of this Lease, or arising from any negligence or intentional conduct of
Tenant or Tenant's agents, employees, contractors, licensees, invitees,
representatives or successors in interest, and from and against all costs,
attorneys' and other professional fees, expenses and liabilities incurred by
Landlord or Landlord's agents, employees, affiliates and successors in interest
in or in connection with any such claim, demand, suit, fine or proceeding. In
the event that any action or proceeding be brought against Landlord or
Landlord's agents, employees, affiliates or successors in interest by reason of
any such claim, Tenant upon notice from Landlord shall defend such action or
proceeding at Tenant's cost and expense by counsel approved by Landlord, such
approval not to be unreasonably withheld.
28. INSURANCE.
28.1 Tenant shall procure and shall maintain in effect, at Tenant's
sole cost and expense throughout the term of this Lease, including any
extensions and renewals thereof, public liability and property damage insurance
against claims for bodily injury, death or property damage occurring upon or
about the Premises or Building, in each case naming Landlord as additional
insured and, upon request by Landlord, naming the holder of any mortgage, deed
of trust or like encumbrance or the lessor under any underlying lease covering
the Building as additional insured, with a limit of liability of not less than
$3,000,000.00 single limit. If from time to time, the limits of liability set
forth above are, in the reasonable opinion of Landlord, inadequate, Tenant shall
increase such insurance coverage to an amount as shall be designated by
Landlord's notice to Tenant.
Tenant shall also procure and maintain, at Tenant's sole cost and
expense throughout the term of this Lease, casualty insurance on Tenant's
personal property in the Premises and any leasehold improvements which the
Tenant installed at its own cost in an amount at least equal to the full
replacement cost of such property, providing coverage against all perils insured
against by a "fire and extended coverage" policy, as well as sprinkler damage,
vandalism and malicious mischief.
Tenant shall also obtain the following insurance:
(a) Worker's compensation and employer's liability insurance
in form and amount satisfactory to Landlord.
(b) Loss of income and extra expense insurance in such amounts
as will reimburse Tenant for direct or indirect loss of earnings attributable to
all perils commonly insured against by prudent tenants or attributable to
prevention of access to or use of the Premises or the Building as a result of
such perils.
(c) Liquor liability insurance coverage in limits of not less
than Five Hundred Thousand Dollars ($500,000) if at any time during the term
hereof any alcoholic beverages of any nature are served on the Premises.
(d) Any other form or forms of insurance as Landlord or
Landlord's lender or ground or primary lessors may reasonably require from time
to time in form, in amounts, and for insurance risks against which a prudent
tenant of a comparable size and in a comparable business would protect itself.
Such policies of insurance shall be with insurance companies acceptable
to Landlord, shall not have a deductible amount exceeding $5,000.00 in the
aggregate, and shall specifically provide that the insurance afforded by such
policies for the benefit of Landlord and Landlord's mortgagees and ground
lessors shall be primary, and that any insurance carried by Landlord or
Landlord's mortgagees and ground lessors shall be excess and non-contributing.
Such policies shall be evidenced by certificates of insurance delivered to
Landlord from time to time showing such insurance to be at all times prepaid and
in full force and effect and providing that such insurance cannot be cancelled
or modified upon less than 30 days' prior written notice to Landlord. If at any
time Tenant has not provided Landlord with a then currently effective
21
<PAGE> 23
certificate of insurance acceptable to Landlord as to any insurance required to
be maintained by Tenant, Landlord may, without further inquiry as to whether
such insurance is actually in force, obtain such a policy and Tenant shall
reimburse Landlord, upon demand as additional rent hereunder, for the cost
thereof, together with Landlord's administrative fee equal to 25% of the
premium.
28.2 Tenant hereby waives its rights against Landlord and its managing
agent and their respective partners, officers, directors, shareholders,
employees, agents, representatives, contractors, affiliates, successors,
licensees, and invitees with respect to any claims or damages or losses
(including any claims for bodily injury to persons and/or damage to property)
which are caused by or result from (a) risks insured against under any insurance
policy carried by Tenant at the time of such claim, damage, loss or injury, or
(b) risks which would have been covered under any insurance required to be
obtained and maintained by Tenant under this Lease had such insurance been
obtained and maintained as required. The foregoing waivers shall be in addition
to, and not a limitation of, any other waivers or releases contained in this
Lease.
28.3 Tenant shall cause each insurance policy required to be obtained
by it pursuant to this Section 28 to provide that the insurer waives all rights
of recovery by way of subrogation against Landlord and its managing agent and
their respective partners, officers, directors, shareholders, employees, agents,
representatives, contractors, affiliates, successors, licensees, and invitees in
connection with any claims, losses and damages covered by such policy. If Tenant
fails to maintain insurance required hereunder, Tenant shall be deemed to be
self-insured with a deemed full waiver of subrogation as set forth in the
immediately preceding sentence.
29. FIXTURES, TENANT IMPROVEMENTS AND ALTERATIONS.
29.1 Except as otherwise provided in any rider to this Lease, all
improvements, fixtures and/or equipment which Tenant may install or place in or
about the Premises, and all alterations, repairs or changes to the Premises, and
all signs installed in, on or about the Premises, from time to time, shall be at
the sole cost of Tenant. Landlord shall be without any obligation in connection
therewith. Tenant hereby indemnifies and holds Landlord harmless from any
liability, cost, obligation, expense or claim of lien in any manner relating to
the installation, placement, removal or financing of any such alterations,
repairs, changes, improvements, fixtures, and/or equipment in, on or about the
Premises. Tenant shall have the right to remove its removable equipment,
furniture, and trade fixtures as more specifically provided in Section 15 above.
29.2 Notwithstanding any provision in this Section 29 to the contrary,
Tenant is absolutely prohibited from making any alterations, additions,
improvements or decorations which: (i) affect any area outside the Premises;
(ii) affect the Building's structure, equipment, services or systems, or the
proper functioning thereof, or Landlord's access thereto; (iii) affect the
outside appearance, character or use of the Building or the common areas; (iv)
weaken or impair the structural strength of the Building; (v) in the opinion of
Landlord, lessen the value of the Building; (vi) will violate or require a
change in any occupancy certificate applicable to the Premises; or (vii) in the
opinion of Landlord, will increase the Building's Operating Costs or Utility
Costs.
29.3 Before proceeding with any alteration, repair or change which is
not otherwise prohibited in Subsection 29.2 above, Tenant must first obtain
Landlord's written approval of (i) the plans and specifications for all such
work; (ii) with respect to any connecting lines that will be outside the
Premises (if such lines are permitted by Landlord in its sole discretion), a
description of the areas of the Building to which Tenant will require access
both for the initial work and for ongoing maintenance of the improvements or
installations; (iii) the names of all contractors and subcontractors who will
perform such work, all of whom shall be selected from Landlord's then-current
list of approved contractors, which Landlord may compile in Landlord's
reasonable discretion and will provide to Tenant within ten days following
Landlord's receipt of Tenant's written request; (iv) copies of all liability,
casualty and worker's compensation insurance applicable to the construction,
maintenance and ongoing operation of the improvements and installations; and (v)
copies of all governmental permits required for the work. Landlord's consent to
such matters shall not unreasonably be withheld; provided, however, that with
regard to any such matters which may affect the structural members, the heating,
ventilation, air conditioning or other building systems, exterior walls, windows
and doors of the Building, and with regard to the installation of any signs
outside the Premises, Landlord may grant or withhold its consent in its
unlimited discretion. Landlord may impose, as a condition of its consent to any
alterations, repairs or changes of the Premises, such requirements as Landlord
in its sole discretion may deem desirable, including, but not limited to, the
requirement that Tenant utilize for such purposes only contractors, materials,
mechanics and materialmen previously used and currently approved by Landlord for
work in the Building.
29.4 After Landlord has approved the change, repair or alteration and
the other items listed in Section 29.3, Tenant shall enter into an agreement for
the performance of such change, repair or alteration with the contractors and
subcontractors approved by Landlord, as provided in Section 29.3. Before
proceeding with any change, repair or alteration Tenant shall (i) provide
Landlord with 10 days' prior written notice thereof; and (ii) pay to Landlord,
within 10 days after
22
<PAGE> 24
written demand, the costs of any increased insurance premiums incurred by
Landlord as a result of such changes, repairs or alterations. In addition,
before proceeding with any change, repair or alteration, Tenant's contractors
shall obtain, on behalf of Tenant and at Tenant's sole cost and expense: (A) all
necessary governmental permits and approvals for the commencement and completion
of such change, repair or alteration; and (B) a completion and lien indemnity
bond, or other surety, satisfactory to Landlord for such change, repair or
alteration. Landlord's approval of permits pursuant to Section 29.3 shall not
relieve Tenant of the obligation to obtain any other or supplemental permits
required by the preceding sentence.
29.5 Tenant shall pay to Landlord, as additional rent, the reasonable
costs of Landlord's engineers and other consultants (but not Landlord's on-site
management personnel) for review of all plans, specifications and working
drawings for the change, repair or alteration within 10 business days after
Tenant's receipt of invoices either from Landlord or such consultants. In
addition to such costs, Tenant shall pay to Landlord, within 10 business days
after completion of any change, repair or alteration, the actual, reasonable
costs incurred by Landlord for services rendered by Landlord's management
personnel and engineers to coordinate and/or supervise any of the change, repair
or alteration to the extent such services are provided in excess of or after the
normal on-site hours of such engineers and management personnel.
29.6 All changes, repairs and alterations shall be performed: (i) in
accordance with the approved plans, specifications and working drawings; (ii)
lien-free and in a first-class and workmanlike manner; (iii) in compliance with
all laws, rules, and regulations of all governmental agencies and authorities;
(iv) in such a manner so as to not to interfere with the occupancy of any other
tenant in the Building, nor impose any additional expense or delay upon Landlord
in the maintenance and operation of the Building; and (v) at such times, in such
manner and subject to rules and regulations as Landlord may from time to time
reasonably designate.
29.7 Throughout the performance of any such change, repair or
alteration Tenant shall obtain, or cause its contractors to obtain, worker's
compensation insurance and general liability insurance covering the work in
compliance with provision of Section 28 of this Lease, and builder's risk
insurance for the work reasonably acceptable to Landlord.
29.8 In the event Tenant orders any construction, alteration, decorating or
repair work directly from Landlord, or from the contractor selected by Landlord,
the charges for such work, together with Landlord's administration fee equal to
15% of the contract price, shall be deemed additional rent under this Lease,
payable upon billing therefor, either in advance of the start of work, or
periodically during construction, or upon the substantial completion of such
work, at Landlord's option.
30. MECHANIC'S LIENS. Tenant agrees to give Landlord written notice of
the commencement date of any alterations, improvements or repairs to be made in,
to or upon the Premises not later than 15 days prior to the commencement of any
such work, in order to give Landlord time to post notices of nonresponsibility.
Tenant will not permit any mechanic's, materialman's or other lien to be placed
upon the Premises or Building or improvements therein during the term hereof;
and in the event that any mechanic's, materialman's or other lien is filed
against the Premises or Building or improvements therein in connection with any
alteration, repair, improvement or change of, or installation of fixtures or
equipment in, the Premises, Tenant shall cause such lien to be released within
10 days after such filing, either by satisfaction of such claim or by posting of
a bond. Notwithstanding the foregoing, Landlord shall have the right and
privilege at Landlord's option of paying the amount of any such lien or claim,
or any portion thereof, without inquiry as to the validity thereof, and any
amounts so paid, including expenses and interest, shall be deemed additional
rent hereunder due from Tenant to Landlord upon demand.
31. ALTERNATE SPACE. If the Premises comprise less than a full floor in
the Building, Landlord shall have the privilege of moving Tenant to other space
in the Building comparable to the Premises, and all terms hereof shall apply to
the new space with equal force. In such event Landlord shall give Tenant at
least 60 days' prior notice in writing and shall move Tenant's effects to the
new space at Landlord's sole cost and expense at such time and in such manner as
to inconvenience Tenant as little as practicable.
32. HAZARDOUS MATERIALS.
32.1 In addition to its other obligations under this Lease, Tenant
covenants to comply with all laws relating to Hazardous Materials, as defined
below, with respect to the Premises and the Building. Except for general office
supplies typically used in an office area in the ordinary course of business
(such as copier toner, liquid paper, glue, ink and cleaning solvents), for use
in the manner for which they were designed and only in accordance with all
Hazardous Materials laws and the highest standards prevailing in the industry
for such use, and then only in such amounts as may be normal for the office
business operations conducted by Tenant on the Premises, neither Tenant nor any
of Tenant's agents, employees, contractors, subtenants, assignees, licensees or
invitees ("Tenant's Parties") shall use, handle store or dispose of any
23
<PAGE> 25
Hazardous Materials in, on, under or about the Premises, the Building or the
site on which the Building is located. Tenant shall promptly take all actions,
at its sole cost and expense, as are necessary to return the Premises, Building
and site to the condition existing prior to the introduction of any such
Hazardous Materials by Tenant or any Tenant Parties, provided Landlord's
approval of such actions shall first be obtained. Furthermore, Tenant shall
immediately notify Landlord of any inquiry, test, investigation or enforcement
proceeding by or against Tenant or the Premises concerning the presence of any
Hazardous Material.
32.2 Tenant shall be solely responsible for and shall indemnify, defend
(with counsel reasonably approved by Landlord) and hold Landlord harmless from
and against any and all claims, demands, judgments, suits, causes of action,
damages, penalties, fines, liabilities, losses and expenses (including, without
limitation, investigation and clean-up costs, attorneys' fees, consultant fees
and court costs) which arise during or after the term of this Lease as a result
of the breach of any of the obligations and covenants set forth in this Section
33, and/or any contamination of the Premises, Building or site directly or
indirectly arising from the activities of Tenant or any Tenant Parties.
32.3 For purposes of this Lease, the term "Hazardous Materials" shall
mean, collectively, asbestos, any petroleum fuel, and any hazardous or toxic
substance, material or waste which is or becomes regulated or defined as
hazardous or toxic by any local governmental authority, the State of California
or the United States Government, including, but not limited to, any material or
substance defined as hazardous or toxic under the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. sections 9601, et seq.; the
Hazardous Materials Transportation Act, 49 U.S.C. Sections 1801, et seq.; the
Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901, et seq.; the
Toxic Substances Control Act, 15 U.S.C. Sections 2601, et seq.; the Clean Water
Act, 33 U.S.C. Sections 466, et seq.; the Safe Drinking Water Act, 14 U.S.C.
Sections 1401, et seq.; the California Hazardous Substance Account Act,
California Health and Safety Code Sections 25330, et seq.; the California
Hazardous Waste Control Act, California Health and Safety Code Sections 25100,
et seq.; the California Safe Drinking Water and Toxic Health Enforcement Act,
California Health and Safety Code Sections 25249.5, et seq.; California Health
and Safety Code Sections 25280, et seq. (Underground Storage of Hazardous
Substances); the California Hazardous Waste Management Act, California Health
and Safety Code Sections 25179.1, et seq.; California Health and Safety Code
Sections 25501, et seq. (Hazardous Materials Release Response Plans and
Inventory); Petroleum Underground Storage Tank Cleanup, Health and Safety Code
Sections 25299.10, et seq.; and the Porter-Cologne Water Quality Control Act,
California Water Code Sections 13000, et seq., as such laws may be amended from
time to time.
32.4 The foregoing covenants and indemnities of Tenant shall survive
the expiration or earlier termination of the Lease.
33. MISCELLANEOUS.
33.1 No receipt of money by Landlord from Tenant after the termination
of this Lease, the service of any notice, the commencement of any suit or final
judgment for possession shall reinstate, continue or extend the term of this
Lease or affect any such notice, demand, suit or judgment. No payment by Tenant
or receipt by Landlord of a lesser amount than the rent payment herein
stipulated shall be deemed to be other than on account of the rent, nor shall
any endorsement or statement on any check or any letter accompanying any check
or payment as rent be deemed an accord and satisfaction, and Landlord may accept
such check or payment without prejudice to Landlord's right to recover the
balance of such rent or pursue any other remedy provided in this Lease. Tenant
agrees that each of the foregoing covenants and agreements shall be applicable
to all obligations of Tenant to Landlord, whether expressly contained in this
Lease or imposed by any statute or at common law.
33.2 If any provision of this Lease or its application to any party or
circumstances shall be determined by any court of competent jurisdiction to be
invalid or unenforceable to any extent, the remainder of this Lease or the
application of such provision to such person or circumstances, other than those
as to which it is so determined invalid or unenforceable to any extent, shall
not be affected thereby, and each provision hereof shall be valid and shall be
enforced to the fullest extent permitted by law; and it is the intention of the
parties to this Lease that in lieu of each clause or provision of this Lease
that is illegal, invalid or unenforceable, there be added as a part of this
Lease a clause or provision as similar in terms to such illegal, invalid or
unenforceable clause or provision as may be possible and be legal, valid and
enforceable.
33.3 The covenants and obligations of Tenant pursuant to this Lease
shall be independent of performance by Landlord of the covenants and obligations
of Landlord pursuant to this Lease, and performance by Tenant of each covenant
and obligation of Tenant pursuant to this Lease shall be a condition precedent
to the duty of Landlord to perform the covenants and obligations of Landlord
pursuant to this Lease.
24
<PAGE> 26
33.4 The headings of Sections of this Lease are for convenience only
and do not define, limit or construe the contents thereof. References made in
this Lease to numbered Sections, Paragraphs and Subparagraphs shall refer to
numbered Sections, Paragraphs or Subparagraphs of this Lease unless otherwise
indicated.
33.5 Where appropriate, words in the singular, including without
limitation the words "Landlord" and "Tenant", include the plural, and vice
versa. Words in the neuter gender include the masculine and feminine genders,
and vice versa, and words in the masculine gender include the feminine gender,
and vice versa.
33.6 If more than one person or entity executes this Lease as Tenant:
(a) each of them is and shall be jointly and severally liable for the covenants,
conditions, provisions and agreements of this Lease to be kept, observed and
performed by Tenant; and (b) the act or signature of, or notice from or to, any
one or more of them with respect to this Lease shall be binding upon each and
all of the persons and entities executing this Lease as Tenant with the same
force and effect as if each and all of them had so acted or signed, or given or
received such notice.
33.7 Time is of the essence of this Lease. Failure of either party to
perform any act strictly within the applicable period specified herein shall
entitle the other to exercise all remedies herein contemplated. All references
in this Lease to "days" shall mean calendar days unless specifically stated
herein to be "business" days.
33.8 This Lease shall be governed by and interpreted in accordance with
the laws of the State of California.
33.9 All monetary obligations of either party hereunder to the other
remaining past due 10 days or more after the date specified herein for payment
shall bear interest until paid at the lesser of (i) the Bank of America prime
rate as of the due date plus 4%, or (ii) the maximum rate permitted by law.
33.10 This instrument, along with any riders, exhibits and attachments
or other documents referred to in Section M on page 2 (all of which riders,
exhibits, attachments and other documents are hereby incorporated into this
instrument by this reference), constitutes the entire and exclusive agreement
between Landlord and Tenant relating to the Premises, and this agreement and
said riders, exhibits and attachments and other documents may be altered,
amended or revoked only by an instrument in writing signed by the party to be
charged thereby. All prior or contemporaneous oral agreements, understandings
and/or practices relative to the leasing of the Premises are merged herein or
revoked hereby. References in this instrument to this "Lease" shall mean, refer
to and include this instrument as well as any riders, exhibits, attachments or
other documents referred to in Section M, and references to any covenant,
condition, obligation and/or undertaking "herein", "hereunder" or "pursuant
hereto" (or language of like import) shall mean, refer to and include the
covenants, conditions, obligations and undertakings existing pursuant to this
instrument and such riders, exhibits, attachments or other documents. All terms
defined in this instrument shall be deemed to have the same meanings in all
riders, exhibits, attachments or other documents referred to in Section M unless
the context thereof clearly requires the contrary.
33.11 Tenant hereby consents to amendment of this Lease as and to the
extent required by any lender which makes a loan to Landlord secured in whole or
in part by the Building, provided that no such change shall increase the rent
payable hereunder or impair Tenant's use of the Premises.
33.12 Unless otherwise agreed in writing, if Tenant has dealt with any
real estate broker or other person or firm with respect to leasing or renting
space in the Building, Tenant shall be solely responsible for the payment of any
fee due said broker, person or firm and Tenant hereby indemnifies and holds
Landlord harmless from and against any liability with respect thereto.
Notwithstanding the foregoing, Landlord agrees to pay, and to hold Tenant
harmless from, the commission owing to the brokers identified in Section L on
page 2, as provided in a separate agreement between Landlord and such brokers.
33.13 Tenant agrees to pay to Landlord as additional rent hereunder any
taxes required by law to be paid by Tenant and collected from Tenant by
Landlord.
33.14 Submission of this Lease for examination, even though executed by
Tenant, shall not bind Landlord in any manner, and no lease or other obligation
on the part of Landlord shall arise until this Lease is executed and delivered
by Landlord to Tenant. This Lease shall not be binding and in effect until a
counterpart hereof has been executed and delivered by the parties, each to the
other.
33.15 Tenant shall not cause the recordation of this Lease, a short
form memorandum of this Lease or any reference to this Lease.
25
<PAGE> 27
33.16 Upon 10 days' prior written request from Landlord (which Landlord
may make at any time during the term but no more often than two times in any
calendar year), Tenant shall deliver to Landlord (a) a current financial
statement of Tenant and any guarantor of this Lease, and (b) financial
statements of Tenant and such guarantor for the two years prior to the current
financial statement year. Such statements shall be prepared in accordance with
generally acceptable accounting principles, and certified as true in all
material respects by Tenant (if Tenant is an individual) or by an authorized
officer or general partner of Tenant (if Tenant is a corporation or partnership,
respectively).
33.17 Notwithstanding anything contained in this Lease to the contrary,
the obligations of Landlord under this Lease (including any actual or alleged
breach or default of Landlord) do not constitute personal obligations of the
individual partners, directors, officers, shareholders, agents or employees of
Landlord or of Landlord's partners or agents, and Tenant shall not seek recourse
against any such persons or entities or any of their personal assets for
satisfaction of any liability with respect to this Lease. In addition, in
consideration of the benefits accruing hereunder to Tenant and notwithstanding
anything contained in this Lease to the contrary, Tenant hereby covenants and
agrees for itself and all of its successors and assigns that the liability of
Landlord for its obligations under this Lease (including any liability as a
result of any actual or alleged failure, breach or default hereunder by
Landlord) shall be limited solely to, and Tenant's and its successors' and
assigns' sole and exclusive remedy shall be against, Landlord's interest in the
Building and proceeds therefrom, and no other assets of Landlord.
33.18 If Tenant is identified herein as a corporation, then the persons
executing this Lease on behalf of Tenant hereby represent that they are duly
authorized to execute and deliver this Lease on behalf of Tenant pursuant to
Tenant's by-laws or a resolution of its board of directors.
If Tenant is identified herein as a partnership, the undersigned
represent that they are all of the general partners of Tenant, that Tenant has
been formed under the laws of the State of California, and is duly qualified to
do business in the State of California, and that this Lease is being executed on
behalf of Tenant. Each of the partners of Tenant executing this Lease agrees
that he or she and Tenant are irrevocably bound by execution of any amendment to
or modification of this Lease by one or more of the partners of Tenant. Tenant
agrees that each new partner in Tenant shall be obligated under this Lease, in
the same fashion as the existing partners, and that each new partner shall
execute a copy of this Lease and deliver it to Landlord within 60 days after
that partner's admission to the partnership. In the event that such newly
admitted partner is a corporation, the principal or principals for whose benefit
the corporation has been organized shall execute and deliver to Landlord a lease
guaranty in form acceptable to Landlord. Each newly admitted partner in Tenant
shall be jointly and severally liable with the remaining partners for the
performance and satisfaction of all obligations of the Tenant under this Lease
accruing from and after the effective date of the admission of the new partner
to the Partnership. If the provisions of this paragraph are satisfied, the
admission of a new partner shall not be considered an assignment of the lease
for the purposes of Section 17 hereof.
33.19 Subject to the provisions of Section 17 above, and except as
otherwise provided in this Lease, all of the covenants, conditions and
provisions of this Lease shall be binding upon, and shall inure to the benefit
of the parties hereto and their respective heirs, personal representatives and
permitted successors and assigns; provided, however, that no rights shall inure
to the benefit of any transferee of Tenant unless the transfer to such
transferee is made in compliance with the provisions of Section 17, and no
options or other rights which are expressly made personal to the original Tenant
hereunder or in any rider attached hereto shall be assignable to or exercisable
by anyone other than the original Tenant under this Lease.
33.20 The voluntary or other surrender of this Lease by Tenant or a
mutual termination thereof shall not work as a merger and shall, at the option
of Landlord, either (a) terminate all and any existing subleases, or (b) operate
as an assignment to Landlord of Tenant's interest under any or all such
subleases.
33.21 Except for Tenant's identity sign on the entry doors of the
Premises and Tenant's elevator lobby identity sign on any full floor of the
Building leased by Tenant (which signs shall be consistent with the Building's
signage program and otherwise subject to Landlord's prior written approval),
Tenant shall have no right to place any sign upon the Premises, the Building or
the site on which the Building is located or which can be seen from outside the
Premises.
33.22 The effectiveness of this Lease and Landlord's obligations
hereunder are subject to and conditional upon Tenant's delivery to Landlord of a
lease guaranty in the form prescribed by Landlord in its sole discretion, fully
executed by the guarantor or guarantors specified in Section N on page 2 of this
Lease.
26
<PAGE> 28
34. EXISTING SUBLEASE; "AS IS" CONDITION; ASBESTOS REMOVAL. As of
execution of the Lease, Tenant is occupying a portion of the Premises, as a
subtenant of Landlord's tenant, Borton, Petrini & Conron ("Borton"). Currently
with the execution of this Lease, Tenant is entering a new sublease of the
balance of the Premises from Borton. The parties hereto and Borton are entering
a Consent to Sublease of even date herewith, in order to provide, among other
things, for Landlord's demolition of existing tenant improvements and removal
and replacement of certain asbestos-containing construction materials in the
portion of the Premises covered by that new sublease. These matters are covered
in more detail in such Consent to Sublease. The effectiveness of this Lease is
conditioned upon the full execution and delivery by Landlord, Tenant and Borton
of such Consent to Sublease.
In light of the subleases, the parties anticipate that Tenant will
already be in possession of the Premises on the Commencement Date of this Lease.
Tenant is taking the Premises under this Lease in their "as is" condition
existing as of the Commencement Date.
Landlord shall have no obligation for the construction or modification
of tenant improvements for Tenant. In constructing its own tenant improvements
to the Premises, Tenant shall comply with the other applicable provisions of
this Lease (including but not limited to Section 29) and shall utilize only
contractors, materials, mechanics, materialmen, architects and engineers used
and currently approved in writing by Landlord for work in the Building.
35. TENANT'S SUPPLEMENTAL AIR-CONDITIONING. Tenant shall have the right
to install in the Premises its own self-contained 24 hour heating, ventilating
and air-conditioning unit, subject to compliance with the other provisions of
this Lease, including but not limited to obtaining Landlord's prior written
consent to the plans and specifications for the work and electrical requirements
of the unit. Tenant shall in no event be permitted to exhaust such system out of
the west side of the Building. Tenant shall pay all costs of electricity for
such unit, and at Landlord's election, the electrical requirements for such unit
shall be separately metered to Tenant at Tenant's expense.
IN WITNESS WHEREOF, this instrument has been duly executed by the
parties hereto, as of the date first above written.
STAR VENDING INC.,
a Nevada corporation
By: /s/ [Mary Casey]
Its: PRESIDENT 7-17-96
ONE WILSHIRE ARCADE IMPERIAL, LTD.,
a California limited partnership
By Paramount Group, Inc., Agent
By:_____________________
Its:_____________________
By:_____________________
Its:______________________
27
<PAGE> 29
[Exhibit "A" Star Vending Suite 1100 Approximately 16,995 rentable sq. ft. 11TH
FLOOR ONE WILSHIRE BUILDING 624 SOUTH GRAND AVE., LOS ANGELES, CA 90017]
<PAGE> 30
[PARAMOUNT GROUP, INC. LOGO]
EXHIBIT B
RULES AND REGULATIONS
1. Tenant shall not obstruct or interfere with the rights of other
tenants of the Building, or in any way injure or annoy such tenants or persons.
Tenant shall not obstruct any sidewalks, halls, passages, corridors, exits,
entrances, courts, lobby areas, vestibules, garages, parking areas, elevators,
escalators, or stairways in and about the Building (collectively, the "Common
Areas"). Such Common Areas are not for the general public, and Landlord shall in
all cases retain the right to control and prevent access thereto of all persons
whose presence in the judgment of Landlord would be prejudicial to the safety,
character, reputation and interests of the Building and its tenants; provided
that nothing herein contained shall be construed to prevent such access to
persons with whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal activities.
2. Tenant shall not commit any act or permit any thing in or about the
Building which shall or might subject Landlord to any liability or
responsibility for injury to any person or property by reason of any business or
operation being carried on in or about the Building or for any other reason.
3. Tenant shall not use the Building for lodging, sleeping, cooking, or
for any immoral or illegal purpose or for any purpose that will damage the
Building or the reputation thereof, or for any purposes other than those
specified in the Lease.
4. Canvassing, soliciting and peddling in the Building are prohibited,
and Tenant shall cooperate to prevent such activities.
5. Tenant shall not bring or keep within the Building any bicycle or
motorcycle.
6. Tenant shall not conduct mechanical or manufacturing operations,
cook or prepare food, or place or use any inflammable, combustible, explosive or
hazardous fluid, chemical, device, substance or material in or about the
Building without the prior written consent of Landlord. Tenant shall comply with
all statutes, ordinances, rules, orders, regulations and requirements imposed by
governmental or quasi-governmental authorities or by Landlord from time to time
in connection with security, fire and panic safety and fire prevention and shall
not commit any act, or permit any object to be brought or kept in the Building,
which shall result in a change of the rating of the Building by the Insurance
Services Office or any similar person or entity. Tenant shall not commit any act
or permit any object to be brought or kept in the Office which shall increase
the rate of fire insurance on the Building or on property located therein.
Talent shall provide Landlord with a name of a designated responsible employee
to represent Tenant on all matters pertaining to fire or security regulations.
Tenant shall cooperate fully in all matters concerning fire and other emergency
procedures.
7. Tenant shall not use the Building for manufacturing or for the
storage of goods, wares or merchandise, except as such storage may be incidental
to the use of the Premises for general office purposes and except in such
portions of the Premises as may be specifically designated by Landlord for such
storage. Tenant shall not occupy the Building or permit any portion of the
Building to be occupied for the manufacture or direct sale of liquor, narcotics,
or tobacco in any form, or as a medical office, barber shop, manicure shop,
music or dance studio, or employment agency. Tenant shall not conduct in or
about the Building any auction, public or private, without the prior written
approval of Landlord.
8. Tenant shall not install or use in the Building any air conditioning
unit, engine, boiler, generator, machinery, heating unit, stove, water cooler,
ventilator, radiator or any other similar apparatus without the express prior
written approval of Landlord, and then only as Landlord may direct.
9. Tenant shall not use in the Building any machines, other than
standard office machines, such as typewriters, calculators, copying machines and
similar machines, without the express prior written consent of Landlord. If
Tenant requires telegraphic, telephonic, burglar alarm or similar services, it
shall first obtain, and comply with, Landlord's
B-1
<PAGE> 31
instructions in their installation. Tenant shall not install, maintain or
operate upon the Premises any vending machine without the consent of Landlord.
10. Tenant shall move all freight, supplies, furniture, fixtures and
other personal property into, within and out of the Building only at such times
and through such entrances as may be designated by Landlord, and such movement
of such items shall be under the supervision of Landlord. Landlord reserves the
right to inspect all such freight, supplies, furniture, fixtures and other
personal property to be brought into the Building and to exclude from the
Building all such objects which violate any of these rules and regulations or
the provisions of the Lease. Tenant shall not move or install such objects in or
about the Building in such a fashion as to unreasonably obstruct the activities
of other tenants, and all such moving shall be at the sole expense, risk and
responsibility of Tenant. Prior to permitting access into the Building of the
moving company or other persons performing such moving activities, Landlord may
require from such moving company or other persons evidence of insurance
reasonably acceptable to Landlord, from an insurer and with coverage and amounts
reasonably acceptable to Landlord, covering the moving activities and naming
Landlord and its managing agent as additional insureds. Tenant shall not use in
the delivery, receipt or other movement of freight, supplies, furniture,
fixtures and other personal property to, from or within the Building, any hand
trucks other than those equipped with rubber tires and side guards. Any freight
elevator shall be available for use by Tenant in common with other tenants in
the Building, subject to such reasonable scheduling as Landlord in its
discretion shall deem appropriate. No equipment, materials, furniture, packages,
supplies, merchandise or other property will be received in the Building or
carried in the elevators except between such hours and in such elevators as may
be designated by Landlord.
11. Tenant shall not place a load upon any floor of the Premises which
exceeds the load per square foot which such floor was designed to carry and
which is allowed by law. Landlord shall have the right to prescribe the weight,
size and position of all equipment, materials, furniture or other property
brought into the Building. Heavy objects, if such objects are considered
necessary by Tenant, and are permitted by Landlord, shall stand on such
platforms as determined by Landlord to be necessary to properly distribute the
weight. Business machines and mechanical equipment belonging to Tenant, which
cause noise or vibration that may be transmitted to the structure of the
Building or to any space therein to such a degree as to be objectionable to
Landlord or to any tenants in the Building, shall be placed and maintained by
Tenant, at Tenant's expense, on vibration eliminators or other devices
sufficient to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be acceptable to Landlord. Landlord
will not be responsible for loss of, or damage to, any such equipment or other
property from any cause, and all damage done to the Building by maintaining or
moving such equipment or property shall be repaired at the expense of Tenant.
12. Tenant shall not deposit any trash, refuse, cigarettes, or other
substances of any kind within or out of the Building, except in the refuse
containers provided therefor. Tenant shall not introduce into the Building any
substance which might add an undue burden to the cleaning or maintenance of the
Premises or the Building, and Tenant shall not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary and
customary manner of trash and garbage disposal. All garbage and refuse disposal
shall be made in accordance with directions reasonably issued from time to time
by Landlord. Tenant shall exercise its best efforts to keep the Common Areas
clean and free from rubbish.
13. Tenant shall use the Common Areas only as a means of ingress and
egress, and Tenant shall permit no loitering by any persons upon Common Areas or
elsewhere within the Building. The Common Areas and roof of the Building are not
for the use of the general public, and Landlord shall in all cases retain the
right to control or prevent access thereto by all persons whose presence, in the
judgment of Landlord, shall be prejudicial to the safety, character, reputation
or interests of the Building and its tenants. Neither Tenant nor any employee or
invitee of Tenant shall enter the mechanical rooms, air conditioning rooms,
electrical closets, janitorial closets, or similar areas or go upon the roof of
the Building without the express prior written consent of Landlord.
14. Landlord reserves the right to exclude or expel from the Building
any person who, in the judgment of Landlord, is intoxicated or under the
influence of liquor or drugs or who shall in any manner act in violation of the
rules and regulations of the Building.
15. Landlord shall have the right to designate the area or areas, if
any, in which Tenant and Tenant's servants, employees, contractors, jobbers,
agents, licensees, invitees, guests and visitors may park vehicles, and Tenant
and its servants, employees, contractors, jobbers, agents, licenses, invitees,
guests, and visitors shall observe and comply with all driving and parking signs
and markers within and about the Building. All parking ramps and areas and any
pedestrian walkways, plazas or other public areas forming a part of the Building
or the land upon which the Building is situated shall be under the sole and
absolute control of Landlord, who shall have the exclusive right to regulate and
control those areas.
B-2
<PAGE> 32
16. Tenant shall not use the washrooms, restrooms and plumbing fixtures
of the Building, and appurtenances thereto, for any other purpose than the
purpose for which they were constructed, and Tenant shall not deposit any
sweepings, rubbish, rags or other improper substances therein. Tenant shall not
waste water by interfering or tampering with the faucets or otherwise. If Tenant
or Tenant's servants, employees, contractors, jobbers, agents, licensees,
invitees, guests or visitors cause any damage to such washrooms, restrooms,
plumbing fixtures or appurtenances, such damage shall be repaired at Tenant's
expense, and Landlord shall not be responsible therefor.
17. Tenant shall not mark, paint, drill into, cut, string wires within,
or in any way deface any part of the Building, without the express prior written
consent of Landlord, and as Landlord may direct. Upon removal of any wall
decorations or installations of floor coverings by Tenant, any damage to the
walls or floors shall be repaired by Tenant at Tenant's sole cost and expense.
All cleaning and janitorial services for the Building and the Premises shall be
provided exclusively through Landlord, and except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall be
employed by Tenant or permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by carelessness
or indifference to the good order and cleanliness of the Premises. Landlord
shall not in any way be responsible to Tenant for any loss of property on the
Premises, however occurring, or for any damage to any Tenant's property by the
janitor or any other employee or any other person. Without limitation upon any
of the provisions of the Lease, Tenant shall refer all contractors'
representatives, installation technicians, janitorial workers and other
mechanics, artisans and laborers rendering any service in connection with the
repair, maintenance or improvement of the Premises to Landlord for Landlord's
supervision, approval and control before performance of any such service. This
Paragraph 17 shall apply to all work performed in the Building, including
without limitation installation of telephones, telegraph equipment, electrical
devices and attachments and installations of any nature affecting floors, walls,
woodwork, trim, windows, ceilings, equipment or any other portion of the
Building, Plans and specifications for such work prepared at Tenant's sole
expense, shall be submitted to Landlord and shall be subject to Landlord's
express prior written approval in each instance before the commencement of work.
All installations, alterations and additions shall be constructed by Tenant in a
good and workmanlike manner and only good grades of material shall be used in
connection therewith. The means by which telephone, telegraph and similar wires
are to be introduced to the Premises and the location of telephones, call boxes
and other office equipment affixed to the Premises shall be subject to the
express prior written approval of Landlord. Tenant shall not lay linoleum or
similar floor coverings so that the same shall come into direct contact with the
floor of the Premises and, if linoleum or other similar floor covering is to be
used, such use shall be subject to the prior written approval of Landlord, and
Landlord may require, among other things, that an interlining of builder's
deadening felt shall be first affixed to the floor, by a paste or other material
soluble in water. The use of cement or other similar adhesive material is
expressly prohibited.
18. No signs, awnings, showcases, advertising devices or other
projections or obstructions shall be attached to the outside walls of the
Building or attached or placed upon any Common Areas. No window shades, blinds,
drapes or other window coverings shall be installed in the Building without the
express prior written consent of Landlord. No sign, picture, advertisement,
window display or other public display or notice shall be inscribed, exhibited,
painted or affixed by Tenant upon or within any part of the Premises in such a
fashion as to be seen from the outside of the Premises or the Building without
the express prior written consent of Landlord. In the event of the violation of
any of the foregoing by Tenant, Landlord may remove the articles constituting
the violation without liability and Tenant shall reimburse Landlord for the
expense incurred in such removal upon demand as additional rent under the Lease.
Interior signs on doors and upon the Building directory shall be subject to the
express prior written approval of Landlord and shall be inscribed, painted, or
affixed by Landlord at the expense of Tenant. Tenant shall not install any radio
or television antenna, loudspeaker, or other device on the roof or exterior
walls of the Building, unless explicitly permitted elsewhere in this Lease, and
Tenant shall not interfere with radio or television broadcasting or reception
from or in the Building or elsewhere.
19. Tenant shall not use the word "Paramount" or the name of the
Building or the Landlord in its business name, trademarks, signs,
advertisements, descriptive material, letterhead, insignia or any other similar
item without Landlord's express prior written consent, except for the purpose of
identifying Tenant's address.
20. Tenant shall be entitled to have its name entered upon the
directory of the Building. In the event that Tenant wishes to have additional
entries made upon the Building directory for the names of employees of Tenant
who occupy office space within the Premises, such entries may be allowed by
Landlord in its reasonable discretion, and Landlord may require that Tenant pay
a reasonable fee for each such additional entry. However, the directory of the
Building is provided primarily for the display of the name and location of
tenants only, and Landlord reserves the right to exclude any other names
therefrom at any time. All entries upon the Building directory shall be uniform
print of a size, style and format selected by Landlord.
B-3
<PAGE> 33
21. The sashes, sash doors, skylights, windows and doors that reflect
or admit light or air into the Common Areas shall not be covered or obstructed
by Tenant, through placement of objects upon window sills or otherwise. Tenant
shall cooperate with Landlord in obtaining maximum effectiveness of the cooling
and heating systems of the Building by keeping corridor doors closed by closing
drapes and other window coverings when the sun's rays fall upon windows of the
Premises and at the end of the business day. Tenant shall not obstruct, alter or
in any way impair the efficient operation of Landlord's heating, ventilating,
air conditioning, electrical, fire, safety or lighting systems, nor shall Tenant
tamper with or change the setting of any thermostat or temperature control
valves in the Building. Tenant shall not waste electricity, water or air
conditioning and agrees to cooperate fully with Landlord to assure the most
effective operation of the Building's heating and air conditioning and to comply
with any governmental energy-saving rules, laws or regulations of which Tenant
has actual notice.
22. Subject to applicable fire or other safety regulations, all doors
opening onto Common Areas and all doors upon the perimeter of the Premises shall
be kept closed and, during non-business hours, locked, except when in use for
ingress or egress. If Tenant uses Premises after regular business hours of on
non-business days Tenant shall lock any entrance doors to the Building or the
Premises used by Tenant immediately after using such doors.
23. The requirements of Tenant will be attended to only upon
appropriate application to the office of the Building by an authorized
individual. Tenant shall not request employees of Landlord to perform any work
or do anything outside of their regular duties unless under special instructions
from Landlord or the project manager for the Building. Tenant shall not request
any employee of Landlord to admit any person (Tenant or otherwise) to any office
without specific instructions from Landlord or the project manager for the
Building. Employees of Landlord shall not receive or carry messages for or to
Tenant or any other person, nor contract with nor render free or paid services
to Tenant or Tenant's servants, employees, contractors, jobbers, agents,
invitees, licensees, guests or visitors. In the event that any of Landlord's
employees perform any such services, such employees shall be deemed to be the
agents of Tenant regardless of whether or how payment is arranged for such
services, and Tenant hereby indemnifies and holds Landlord harmless from any and
all liability in connection with any such services and any associated injury or
damage to property or injury or death to persons resulting therefrom.
24. All keys to the exterior doors of the Premises shall be obtained by
Tenant from Landlord, and Tenant shall pay to Landlord a reasonable deposit
determined by Landlord from time to time for such keys. Landlord will furnish
Tenant, free of charge except for the deposit, with two keys to each door lock
in the Premises. Landlord may make a reasonable charge for any additional keys.
Tenant shall not make or have made duplicate copies of such keys. Tenant shall
not install additional locks or bolts of any kind upon any of the doors or
windows of, or within the Building, nor shall Tenant make any changes in
existing locks or the mechanisms thereof. Tenant shall, upon the termination of
its tenancy, provide Landlord with the combination locks on safes, safe cabinets
and vaults and deliver to Landlord all keys to the Building, the Premises and
all interior doors, cabinets, and other key-controlled mechanisms therein,
whether or not such keys were furnished to Tenant by Landlord. In the event of
the loss of any key furnished to Tenant by Landlord, Tenant shall pay to
Landlord the cost of replacing the same or of changing the lock or locks opened
by such lost key if Landlord shall deem it necessary to make such a change.
25. Access may be had by Tenant to the Common Areas and to the Premises
at any time between the hours of 8:00 A.M. and 6:00 P.M., Monday through Friday,
legal holidays excepted. At other times access to the Building may be refused
unless the person seeking admission is known to the watchman in charge, if any,
and/or has a pass or is properly identified. Tenant shall be responsible for all
persons for whom Tenant requests passes, and shall be liable to Landlord for all
acts of such persons. In the event Building has, or there is subsequently, a
card access system for using the elevators at other than normal operating hours
for the Building, Landlord may deny access to any area served by the elevators
by anyone not having the necessary elevator access card. Landlord shall in no
case be liable for damages for the admission or exclusion of any person from the
Building. In case of invasion, mob, riot, public excitement, or other commotion,
Landlord reserves the right to prevent access to the Building for the safety of
tenants and protection of property in the Building.
26. Landlord shall not be responsible for, and Tenant hereby
indemnifies and holds Landlord harmless form any liability in connection with,
the loss, theft, misappropriation or other disappearance of furniture,
furnishings, fixtures, machinery, equipment, money, jewelry or other items of
personal property from the Premises or other parts of the Building, regardless
of whether the Premises or Building are locked at the time of such loss.
27. Tenant shall not use or permit to be used in the Premises any foul
or noxious gas or substance, or permit or allow the Premises to be occupied or
used in a manner offensive or objectionable to Landlord or other occupants of
the
B-4
<PAGE> 34
Building by reason of noise, odors or vibrations, nor shall Tenant bring into or
keep in or about the Premises any birds or animals, except for seeing-eye dogs
when accompanied by their masters.
28. Tenant shall provide to Landlord upon the execution of the Lease
such identifying information as the Landlord shall request, including but not
limited to residence addresses, residence addresses, residence telephone
numbers, social security numbers and driver's license or comparable
identification numbers, regarding Tenant (if Tenant is an individual or
individuals), all general partners of Tenant (if Tenant is a partnership), and
all officers of Tenant (if Tenant is a corporation). Tenant shall promptly
advise Landlord of any change or addition to the information provided and shall
confirm the accuracy of the information previously provided as may be requested
by Landlord from time to time. Tenant shall designate in writing to Landlord one
or more of such persons as Tenant's representatives for Landlord to contact if
Landlord wishes to reach Tenant outside normal business hours due to an
emergency at the Premises or any other reason. However, the decisions as to
whether and when to contact such persons shall remain in Landlord's sole
discretion, and Landlord shall have no liability for any failure or delay in
contacting such persons or Tenant in case of an emergency.
29. Tenant shall close and lock the doors of its Premises and entirely
shut off all water faucets or other water apparatus, and, except with regard to
Tenant's computers and other equipment which require utilities on a twenty-four
hour basis, all electricity, gas or air outlets before Tenant and its employees
leave the Premises. Tenant shall be responsible for any damage or injuries
sustained by other tenants or occupants of the Building or by Landlord for
noncompliance with this rule.
30. Tenant shall not obtain for use on the Premises, ice, food,
beverage, towel or other similar services, or barbering or bootblacking
services, except at such hours and under such regulations as may be reasonably
fixed by Landlord.
31. Tenant agrees that Landlord shall have the right to provide to TRW
and to any other credit-checking or credit-evaluation service, and to any other
landlord, any information regarding Tenant's history of payments on Tenant's
monetary obligations under this Lease and such other information as such
services or landlords shall collect or request from time to time. Landlord, its
agents and the employees of Landlord and its agents shall have no liability for
the completeness or accuracy of such information, nor for the uses to which such
information is put by any persons or entities receiving such information.
32. Landlord may waive any one or more of these Rules and Regulations
for the benefit of Tenant of any other tenant, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of anyone
other than the tenant for whose benefit such waiver was expressly intended, nor
prevent Landlord from thereafter enforcing any such Rules and Regulations
against any or all of the tenants of the Building, including Tenant.
33. These Rules and Regulations (including the Parking Rules and
Regulations in any Parking Space Rider to this Lease) are in addition to the
terms, covenants, agreements and conditions of any lease of premises in the
Building. In the event these Rules and Regulations conflict with any provision
of the Lease, the Lease shall control.
34. Landlord reserves the right to make such other and reasonable Rules
and Regulations (including Parking Rules and Regulations) as, in its judgment,
may from time to time be needed for safety and security, for care and
cleanliness of the Building and for the preservation of good order therein.
Tenant agrees to abide by all such Rules and Regulations hereinabove stated and
any additional rules and regulations which are adopted.
35. For purposes hereof, the terms "Landlord," "Tenant," "Building" and
"Premises" are defined as those terms are defined in the Lease to which these
Rules and Regulations are attached. Whenever Tenant is obligated under these
Rules and Regulations to do or refrain from doing an act or thing, such
obligation shall include the exercise by Tenant of its best efforts to secure
compliance with such obligation by the servants, employees, contractors,
jobbers, agents, invitees, licensees, guests and visitors of Tenant. The term
"Building" shall include the Premises, and any obligations of Tenant hereunder
with regard to the Building shall apply with equal force to the Premises and to
other parts of the Building.
B-5
<PAGE> 35
[LOGO]
PARAMOUNT GROUP, INC.
PARKING SPACE RIDER
Provided Tenant is not in default under this Lease and pays the
applicable prevailing monthly parking rate in effect from time to time, and
subject to such rules and regulations as may be adopted from time to time by
Landlord or the operator of the parking facility serving the Building, Tenant
and Tenant's authorized employees designated by Tenant ("Authorized Users")
shall have the right to use in such parking facility up to the full Tenant's
Parking Allotment described in Paragraph K on page 2 of this Lease, on an
unreserved monthly basis until the expiration or termination of this Lease.
However, if at any time during the term of this Lease, Tenant does not choose to
pay for the full number of such parking spaces, Tenant shall not thereafter have
the right to recommence the use of the spaces not paid for if other commitments
have been made for those spaces in the interim.
Landlord reserves the right at any time to relocate any parking spaces
and to substitute an equivalent number of parking spaces in another parking
structure or subterranean parking facility or in a surface parking area within a
reasonable distance of the Premises.
Tenant agrees that it will use its best efforts to cooperate in
programs which may be undertaken by Landlord independently, or in cooperation
with local municipalities or governmental agencies or other property owners in
the vicinity of the Building, to reduce peak levels of commuter traffic. Such
programs may include, but shall not be limited to, car pools, van pools and
other ride sharing programs, public and private transit, and flexible work
hours.
Tenant and Tenant's Authorized Users shall comply with the Parking
Rules and Regulations set forth in this Rider. Landlord reserves the right to
modify, add, or delete from time to time such Parking Rules and Regulations as
it deems reasonably necessary for the operation of such parking. Landlord may
refuse to permit any person who violates the Parking Rules and Regulations to
park in the Building parking facility, and any violation of the rules shall
subject to the car to removal, at the vehicle owner's expense. Tenant agrees to
use its best efforts to acquaint Tenant's Authorized Users and visitors with the
Parking Rules and Regulations set forth in this Rider.
PARKING RULES AND REGULATIONS
1. Neither Tenant nor Tenant's Authorized Users shall park vehicles in any
parking areas designated by Landlord, the parking operator or
governmental entities with jurisdiction for other uses, including use
by visitors or other tenants. Tenant and such Authorized Users shall
not leave vehicles in the Building parking areas overnight nor park any
vehicles in the Building parking areas other than automobiles,
motorcycles, motor driven or non-motor driven bicycles or four-wheeled
trucks. Landlord may, in its sole discretion, designate separate areas
for bicycles and motorcycles.
2. Tenant shall not permit or allow any vehicles that belong to or are
controlled by Tenant or Tenant's employees or Authorized Users,
suppliers, shippers, customers, or invitees to be loaded, unloaded, or
parked in areas other than those designated by Landlord for such
activities. If Tenant permits or allows any of the prohibited
activities described in this Parking Rider, then Landlord shall have
the right, without notice, in addition to such other rights and
remedies that it may have, to remove or tow away the vehicle involved
and charge the cost to Tenant, which cost shall be immediately payable
upon demand by Landlord.
3. Tenant shall submit a written notice in a form reasonably specified by
Landlord or the parking operator, containing the names, home and office
addresses and telephone numbers of those persons who are designated as
Authorized Users by Tenant to use the parking privileges on a monthly
basis and shall use its best efforts to identify each vehicle by make,
model and license number. Such notice, as amended from time to time, is
hereafter referred to as the "Parking Notice." No person whose name and
address is not contained in the Parking Notice shall have any right to
park a vehicle in the area of the Building parking facilities
designated for monthly parking, and no person whether or not his name
is included in the Parking Notice shall have any right to park in such
facilities a
PR-1
<PAGE> 36
vehicle not identified in the Parking Notice without paying the parking charge
then applicable for daily parking and parking in the area designated for daily
parking.
4. Cars must be parked entirely within the stall lines painted on the
floor.
5. All directional signs and arrows must be observed.
6. The speed limit within all parking areas shall be 5 miles per hour.
7. Parking is prohibited, unless a floor parking attendant approved by
Landlord directs otherwise: a. In areas not striped for parking;
b. In aisles;
c. Where "No Parking" or "Handicap" signs are posted
(except that handicapped persons displaying on their
vehicles the legally prescribed identification may
park in such "Handicap" areas);
d. On ramps;
e. In crosshatched areas; or
f. In reserved spaces and in such other areas as may be
designated by Landlord or the parking operator.
8. Parking stickers or any other device or form of identification supplied
by Landlord or the parking operator shall remain the property of
Landlord or the parking operator, as the case may be. Such parking
identification device must be displayed as requested and may not be
mutilated in any manner. The serial number of the parking
identification may not be obliterated. Devices are not transferrable,
and any device not in the possession of an Authorized User will be
void. There will be a replacement charge to the Tenant or Authorized
User for loss of any magnetic parking card or other parking
identification device.
9. Every Authorized User is requested to park and lock his own car. All
responsibility for damage to or loss of cars is assumed by Authorized
Users, and Landlord shall not be responsible for any such damage or
loss by water, fire, defective brakes, the act or omission by others,
theft, or by any other cause. Tenant shall repair or cause to be
repaired at its sole cost and expense any and all damage to the
Building parking facility or any part thereof caused by Tenant or its
Authorized Users or vehicles of Tenant or such Authorized Users.
10. Loss of theft of parking identification devices from automobiles must
be reported to the garage manager immediately, and a lost or stolen
report must be filed by the Tenant or user of such parking
identification device at that time. Any parking identification devices
found on any unauthorized vehicle will be confiscated and the illegal
holder will be subject to prosecution. Lost or stolen devices
previously reported and then found must be reported found to the office
of the garage immediately. Landlord has the right to exclude any
vehicle from the parking facilities that does not have a parking
identification device.
11. Spaces are for the express purpose of one automobile per space unless a
floor parking attendant approved by Landlord directs otherwise.
Washing, waxing, cleaning or servicing of any vehicle in the parking
facility by Tenant or by the Authorized User and/or his agents is
prohibited.
PR-2
<PAGE> 37
[LOGO]
PARAMOUNT GROUP, INC.
RENT ESCALATION RIDER
In order to adjust the rent payable under the Lease in accordance with
changes in the cost of living from time to time, Tenant agrees to pay Landlord,
with the installments of Base Rent, and as additional monthly rent under the
Lease, an amount representing rent escalation. For purposes of calculating the
rent escalation payable hereunder, the Consumer Price Index for All Urban
Consumers, U.S. City Average, All Items (1967 = 100), unadjusted (herein the
"Index") published by the Bureau of Labor Statistics of the United States
Department of Labor for the month of April, 2001, shall be the base index figure
(the "Base Index"). The Base Index shall be compared to the Index figure for
December of each year during the term of the Lease, including the initial
partial calendar year if the Lease term commences other than during December. In
the event that the Index figure for December of any year during the term of the
Lease shall be greater than the Base Index, in addition to the Base Rent Tenant
shall pay rent escalation to Landlord in an amount equal to the same percentage
increase in the Base Rent as the percentage increase in the Index for such
December over the Base Index. Such amount shall be payable monthly commencing
with the payment of Base Rent for the month following such December.
In the event that the Index for any December during the term of the Lease
is not yet available upon the date that any installment(s) of Base Rent is due,
Tenant shall continue paying the monthly installments of Base Rent and rent
escalation in the amount applicable for such December until the Index for that
month is published, whereupon Tenant shall immediately pay Landlord the rent
escalation which would have been due in the months following such December had
the Index for such December been available. In the event that publication of the
Index is discontinued, Landlord and Tenant agree that the index of consumer
prices which is most closely analogous to the Index shall be used in place of
the Index for calculation of the rent escalation payable hereunder. In the event
that the referents or techniques employed in the calculation of the Index shall
be modified and such modification would have resulted in a different figure for
the Base Index, Landlord and Tenant agree that the Base Index shall be
appropriately adjusted and that the Index, as modified, shall be used as
provided hereunder.
The term "Base Rent" as used in this Rider shall be deemed to include the
additional monthly rent for Conduit Space pursuant to Section 2 of the
Telecommunications Conduit Rider (excluding the initial one-time payment of
$5,000) as well as the Base Rent described in Section E on page 2 and Section 3
on page 3 of the body of this Lease. Thus, the additional rent for the Conduit
Space shall be adjusted from time to time in the same fashion as the Base Rent.
However, the calculation of such adjustments for the Conduit Space rent shall be
done separately from the calculation of such adjustments for the base rent, and
in making such calculations for the Conduit Space rent, the Base Index shall be
the Index for June, 1996, rather than the Index for April, 2001.
RER-1
<PAGE> 38
[LOGO]
PARAMOUNT GROUP, INC.
TELECOMMUNICATIONS CONDUIT RIDER
1. LEASE AND USE OF CONDUIT. Landlord hereby leases to Tenant, as part
of the Premises for the Lease Term, the conduit space described below (the
"Conduit Space").
Tenant also shall be entitled to use the Conduit Space during the
period from the full execution and delivery by both parties of this Lease up
through the target Commencement Date of April 12, 2001. Such use shall be
subject to all applicable provisions of the Lease, including this Rider, and
Tenant agrees to pay to Landlord the monthly conduit rent prescribed in Section
2 below during such period.
Tenant shall use the Conduit Space solely for telecommunications cable
to connect the Premises to the premises of other telecommunications companies
that lease space on the floors of the Building through which the Conduit Space
passes. Any such connection shall require the mutual written agreement of Tenant
and other affected telecommunications companies.
The Conduit Space is contained within one 1-inch interduct running from
floor 3 through floor 17.
The interduct from floor 3 through floor 17 runs through conduit
closets in the northwest corner of the corridor on each floor. Access to the
conduit closet on each such floor shall, at Landlord's election, be restricted
so that no entry to the closet will be permitted unless Landlord's designated
contractor or other representative is present. Landlord may require any
installation of cable in the Conduit Space or any connection of Tenant's cable
to the Premises or cable of other tenants in the Building to be performed by
Landlord's approved contractor. All costs of such installations and connections
(including but not limited to Landlord's administrative fee) and the ongoing use
and maintenance of such items shall be at Tenant's sole expense. Tenant shall
pay Landlord any costs incurred by Landlord, together with Landlord's
administrative fee, within ten days after Tenant's receipt of a bill for such
items. Tenant's use of the Conduit Space and such cable and connecting lines
shall comply with all applicable laws, the other provisions of the Lease, and
such Building Rules as are adopted by Landlord from time to time, and shall not
interfere in any way with the operation of the Building or with the use by any
other tenant of the Building of such tenant's premises or the common areas of
the Building. All required cabling and connecting lines shall be installed out
of sight.
Prior to any installation of cable in the Conduit Space or connecting
lines to the Premises or the premises of other tenants, Tenant shall obtain
Landlord's written approval as set forth in Section 29.3 of the Lease, and in
the case of connecting lines to the Premises or cable systems of another tenant,
obtain the written consent of such other tenants to the work.
2. CONDUIT RENT. Tenant agrees to pay Landlord additional rent for the
Conduit Space, which initially shall be a one-time payment of $5,000. Such
$5,000 shall be due and payable upon execution of this Lease. (No portion of
such payment shall be refundable if the Lease is terminated for any reason.)
Thereafter, the additional rent for the Conduit Space shall be $100 per month,
both during the period up through the Commencement Date, and then during the
Lease Term. Such monthly rent shall be subject to adjustment as provided below.
Such additional rent shall be due and payable to Landlord on the first day of
each applicable month or portion of a calendar month in the same manner as is
prescribed in Section 3 of the Lease for payments of Tenant's Base Rent. The
amount of such monthly conduit rent shall be adjusted from time to time in
accordance with the Rent Escalation Rider to this Lease to reflect increases in
the Consumer Price Index as described in that Rider. The conduit rent for any
partial calendar month shall be appropriately prorated as calculated by Landlord
in its reasonable discretion.
TCR-1
<PAGE> 39
3. INDEMNITY AND WAIVER. Tenant hereby agrees to indemnify and hold
harmless Landlord and its partners, its agent Paramount Group, Inc. and their
respective officers, directors, shareholders, agents and employees
(collectively, the "Landlord Group") from and against any and all claims
(including but not limited to claims for bodily injury or property damage),
actions, mechanic's liens, losses, liabilities, and expenses (including
reasonable attorney fees and costs of defense by Landlord's legal counsel)
(collectively, "Claims"), which may arise from the installation, operation, use,
maintenance or removal of the cable and connecting lines pursuant to this Rider
and the Lease. Similarly, Tenant shall pay upon demand by Landlord the costs to
repair any damage to the Building caused by such installation, operation, use,
maintenance or removal. Tenant hereby waives and releases the Landlord Group
from any Claims Tenant may have at any time (including but not limited to Claims
relating to interruptions in services) arising out of or relating in any way to
the installation, operation, use, maintenance, or removal of the cable and
connecting lines described in this Rider and the Lease, whether or not caused by
the negligence of any member of the Landlord Group or Landlord's contractors. In
no event shall Landlord or any member of the Landlord Group be liable to Tenant
for lost profits or consequential, incidental, or punitive damages of any kind.
4. REMOVAL OF CABLE AND CONNECTING LINES. Tenant agrees that, upon the
expiration or termination of the Lease, Tenant (or, at Landlord's election, the
contractor designated by Landlord) shall promptly remove, at Tenant's sole cost
and expense, all cable, connecting lines, and other installations installed
under this Rider and the Lease (excepting the interduct and conduit themselves,
which shall remain the property of Landlord), and restore those portions of the
Building damaged by such removal to their condition immediately prior to the
installation of such items. If Tenant fails to promptly remove all such items
pursuant to this Section 4, or if Landlord elects to have such work performed by
Landlord's contractor, Landlord may remove such items installed hereunder, and
restore those portions of the Building damaged by such removal to their
condition immediately prior to the installation, in which case Tenant agrees
promptly to pay Landlord's reasonable costs of removal and restoration,
including Landlord's administrative fee.
5. APPLICABILITY OF OTHER PROVISIONS. Except as explicitly provided
otherwise herein, Tenant's obligations under the Lease for the protection of the
Building, Landlord, the Landlord Group, and third parties, including but not
limited to Tenant's obligations regarding maintenance, repairs, mechanic's
liens, insurance, attorney's fees and costs of suit, shall apply in the same
fashion with respect to Tenant's use of the Conduit Space and the cable and
connecting lines described in this Rider as they do with respect to Tenant's use
of the rest of the Premises.
6. ADDITIONAL CONDUIT SPACE. In the event that Landlord elects in the
future to install in the Building a special conduit room to facilitate
interconnections between the various telecommunications companies who are
tenants in the Building, and who elect such service, Landlord shall make
available to Tenant up to two 4-inch conduits connecting such room to the
Premises for the then-remaining term of the Lease. Landlord shall offer such
additional conduit space to Tenant for the same rents and on the same terms and
conditions upon which Landlord is then prepared to offer such space to other
tenants of the Building for a comparable period. If Tenant fails to accept in
writing Landlord's written offer for such space within 15 days after Tenant's
receipt of Landlord's written notice of the rents and other terms, or if Tenant
fails to execute and deliver to Landlord within 15 days after Tenant's receipt
any documentation reasonably requested by Landlord to document the parties'
agreement to such rents and other terms, then Tenant's rights under this Section
6 shall terminate, and this Section 6 shall be deemed deleted from the Lease.
In the event that such a conduit room is not installed in the Building
by December 31, 1996, then Tenant may elect, by giving at least 30 days' written
notice to Landlord at any time thereafter until such a conduit room is
installed, to have Landlord provide Tenant with up to two 4-inch conduits
running from floor 3 to floor 18 of the Building in place of the two conduits to
the conduit room. Landlord shall make such conduit space available to Tenant for
the same rents and on the same terms and conditions upon which Landlord is then
prepared to offer such space to other tenants of the Building for a comparable
period.
7. MISCELLANEOUS. This Rider supersedes all prior or contemporaneous
understandings, negotiations, or agreements between the parties, whether written
or oral, with respect to its subject matter.
TCR-2
<PAGE> 1
EXHIBIT 10.18
LEASE AGREEMENT
This LEASE AGREEMENT, is effective on April 6, 1995 between
TELECOMMUNICATIONS FINANCE GROUP (hereinafter "Lessor"), and STAR VENDING, INC.,
a Nevada corporation with its principal office located at 740 State Street,
Suite 202, Santa Barbara, CA 93101, (hereinafter "Lessee").
1. Lease.
Lessor, subject to the conditions set forth in Section 25
hereof, agrees to lease to Lessee and Lessee agrees to lease from Lessor
hereunder, those items of personal property (the "Equipment") which are
described on Schedule 1 of Exhibit A hereto. Lessee agrees to execute and
deliver to Lessor a certificate of delivery and acceptance in substantively the
form of Exhibit A hereto (a "Delivery Certificate") immediately after Turnover
of the Equipment, and such execution shall constitute Lessee's irrevocable
acceptance of such items of Equipment for all purposes of this Lease. The
Delivery Certificate shall constitute a part of this Lease to the same extent as
if the provisions thereof were set forth herein.
2. Definitions.
"Amortization Deductions" as defined in Section
11(b)(i) hereof.
"Appraisal Procedure" shall mean the following procedure for
determining the Fair Market Sale Value of any item of
Equipment. If either Lessor or Lessee shall request by notice
(the "Appraisal Request") to the other that such value be
determined by the Appraisal Procedure, (i) Lessor and Lessee
shall, within 15 days after the Appraisal Request, appoint an
independent appraiser mutually satisfactory to them, or (ii)
if the parties are unable to agree on a mutually acceptable
appraiser within such time, Lessor and Lessee shall each
appoint one independent appraiser (provided that if either
party hereto fails to notify the other party hereto of the
identity of the independent appraiser chosen by it within 30
days after the Appraisal Request, the determination of such
value shall be made by the independent appraiser chosen by
such other party), and (iii) if such appraisers cannot agree
on such value within 20 days after their appointment and if
one appraisal is not within 5% of the other appraisal, Lessor
and Lessee shall choose a third independent appraiser mutually
satisfactory to them (or, if they fail to agree upon a third
appraiser within 25 days after the appointment of the first
two appraisers, such third independent appraiser shall within
20 days thereafter be appointed by the American Arbitration
Association), and such value shall be determined by such third
independent appraiser within 20 days after his appointment,
after consultation with the other two independent appraisers.
If the first two appraisals are within 5% of each other, then
the average of the two appraisals shall be the Fair Market
Sale Value. The fees and expenses of all appraisers shall be
paid by Lessee.
"Business Day" shall mean a day other than a Saturday, Sunday
or legal holiday under the laws of the State of Florida.
"Code" shall mean the Internal Revenue Code of 1954, as
amended, or any comparable successor law.
"Commencement Date" as defined in Section 3 hereof.
"Default" shall mean any event or condition which after the
giving of notice or lapse of time or both would become an
Event of Default.
"Delivery Certificate" as defined in Section 1 hereof.
1
<PAGE> 2
"Equipment" as defined in Section 1 hereof.
"Event of Default" as defined in Section 18 hereof.
"Event of Loss" shall mean, with respect to any item of
Equipment, the actual or constructive total loss of such item
of Equipment or the use thereof, due to theft, destruction,
damage beyond repair or rendition thereof permanently unfit
for normal use from any reason whatsoever, or the
condemnation, confiscation or seizure of, or requisition of
title to or use of, such item of Equipment.
"Fair Market Sale Value" shall, at any time with respect to
any item of Equipment, be equal to the sale value of such item
of Equipment which would be obtained in an arm's-length
transaction between an informed and willing seller under no
compulsion to sell and an informed and willing buyer-user
(other than a lessee currently in possession or a used
equipment or scrap dealer). For purposes of Section 7(b)
hereof, Fair Market Sale Value shall be determined by (i) an
independent appraiser (at Lessee's expense) selected by Lessor
or (ii) by the Appraiser Procedure if the Appraisal Request is
made at least 90 days (but not more than 360 days) prior to
the termination or expiration of the Lease Term, as the case
may be, which determination shall be made (a) without
deduction for any costs or expenses of dismantling or removal;
and (b) on the assumption that such item of Equipment is free
and clear of all Liens and is in the condition and repair in
which it is required to be returned pursuant to Section 7(a)
hereof. For purposes of Section 19(c) hereof, Fair Market Sale
Value shall be determined (at Lessee's expense) by an
independent appraiser selected by Lessor, on an "as-is,
where-is" basis, without regard to the provisions of clauses
(a) and (b) above; provided that if Lessor shall have sold any
item of Equipment pursuant to Section 19(b) hereof prior to
giving the notice referred to in Section 19(c) hereof, Fair
Market Sale Value of such item of Equipment shall be the net
proceeds of such sale after deduction of all costs and
expenses incurred by Lessor in connection therewith; provided
further, that if for any reason Lessor is not able to obtain
possession of any item of Equipment pursuant to Section 19(a)
hereof, the Fair Market Sale Value of such item of Equipment
shall be zero.
"Imposition" as defined in Section 11(a) hereof.
"Indemnitee" as defined in Section 17 hereof.
"Late Charge Rate" shall mean an interest rate per annum equal
to the higher of two percent (2%) over the Reference Rate or
eighteen percent (18%), but not to exceed the highest rate
permitted by applicable law.
"Lease" and the terms "hereof," "herein," "hereto" and
"hereunder," when used in this Lease Agreement, shall mean and
include this Lease Agreement, Exhibits and the Delivery
Certificate hereto as the same may from time to time be
amended, modified or supplemented.
"Lease Term" shall mean, with respect to any item of
Equipment, the term of the lease of such item of Equipment
hereunder specified in Section 3 hereof.
"Lessee" as defined in the introductory paragraph to
this Lease.
"Lessor" as defined in the introductory paragraph of
this Lease.
"Lessor's Value" shall mean, with respect to any item of
Equipment and installation if applicable, the total amount set
forth in Schedule 1 of Exhibit A hereto.
2
<PAGE> 3
"Lessor's Liens" shall mean (i) any mortgage, pledge, lien,
security interest, charge, encumbrance, financing statement,
title retention or any other right or claim of any person
claiming through or under Lessor, not based upon or relating
to ownership of the Equipment or the lease thereof hereunder
and (ii) any mortgage, pledge, lien, security interest,
charge, encumbrance, financing statement, title retention or
any other right or claim of Owner (other than Lessor) claiming
through or under Lessor in connection with the transactions
described in Section 21(b) hereof.
"Liens" shall mean any mortgage, pledge, lien, security
interest, charge, encumbrance, financing statement, title
retention or any other right or claim of any person, other
than any Lessor's Lien.
"Loss Payment Date" shall mean with respect to any item of
Equipment the date on which payment, as described in Section
16(b) hereof, is made to the Lessor by the Lessee as the
result of an Event of Loss with respect to such item. The Loss
Payment Date shall be within ninety (90) days of the said
Event of Loss.
"Owner" shall mean the entity or person having ownership
interest to the Equipment as contemplated by the provisions of
Section 21(b) hereof and may be a person other than Lessor.
"Owner's Economics" shall mean the after-tax yield and
periodic after-tax cash flow anticipated by Owner as of the
date of this Lease, in connection with the transactions
contemplated by this Lease as determined by Owner unless
Lessor shall have transferred its interest in the Equipment to
another person as contemplated by the provisions of Section
21(b) hereof in which case "Owner's Economics" shall mean the
after-tax yield and periodic after-tax cash flow anticipated
by such person as of the date of the lease between such person
and Lessor contemplated by said provisions, in connection with
the transactions contemplated by such lease as determined by
such person.
"Recovery Deductions" as defined in Section 11(b)(i)
hereof.
"Reference Rate" shall mean the rate of interest
publicly announced by Citibank, N.A. in New York, New
York from time to time as its prime rate.
The reference rate is not intended to be the lowest rate of
interest charged by Citibank, N.A. in connection with
extensions of credit to debtors. The Reference Rate shall be
determined at the close of business on the 15th day of each
calendar month (if the 15th day is not a Business Day, then on
the first preceding Business Day) and shall become effective
as of the first day of the calendar month succeeding such
determination and shall continue in effect to, and including,
the last day of said calendar month.
"Rent Payment Date" shall mean each date on which an
installment of rent is due and payable pursuant to Section
5(a) hereof.
"Stipulated Loss Value" shall mean, with respect to any item
of Equipment, the amount determined by multiplying the Lessors
Value of such item of Equipment by the percentage set forth in
Schedule A hereto opposite the applicable Rent Payment Date;
provided, that for purposes of Sections 16(b) and 19(c)
hereof, any determination of Stipulated Loss Value as of a
date occurring after the final Rent Payment Date with respect
to such item of Equipment, shall be made as of such final Rent
Payment Date.
"Tax Benefits" shall mean the right to claim such deductions,
credits, and other benefits as are provided by the Code to an
owner of property, including the Recovery Deductions and
Amortization Deductions.
3
<PAGE> 4
"Turnover" shall mean that point in time when the equipment
installation personnel complete testing of the equipment, or
when the equipment is placed into service, whichever first
occurs.
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting
principles.
3. Lease Term.
The term of the lease of the Equipment hereunder shall
commence on the Commencement Date specified in the Delivery Certificate
("Commencement Date") and, unless earlier terminated pursuant to the provisions
hereof or at law or equity, shall continue for a term of sixty (60) months from
such Commencement Date. The Commencement Date specified in the Delivery
Certificate shall be the date on which Turnover occurs at a site provided by
Lessee in accordance with the provisions of Section 4 hereof.
4. Installation.
Lessor shall arrange for installation of the Equipment, the
cost of which installation shall be deemed to be part of Lessor's Value. Exhibit
A hereto shall indicate whether such cost is included or excluded from the
monthly rent payments due in accordance with Section 5(a) hereof. If excluded
from such monthly rent payments, Lessor shall separately invoice Lessee for such
installation upon completion thereof and Lessee shall pay such invoice within
thirty (30) days from the date thereof. Lessee shall be obligated to timely
provide a suitable site for the installation of the Equipment in accordance with
the Equipment manufacturer's practices attached hereto as Exhibit C. Lessee
shall be responsible for compliance with environmental requirements and central
office grounding procedures specified in Exhibit C hereto and for providing
adequate space, lighting, heating, air-conditioning and A/C power at the
installation site. Unavailability of Lessee furnished facilities shall be cause
for adjustments to the installation price set forth in Schedule 1 of Exhibit A
hereto.
5. Rent; Unconditional Obligations.
(a) Lessee agrees to pay to Lessor, at the address specified
in Section 24 hereof or at such other address as Lessor may specify, rent for
the Equipment at a rate not to exceed $22.498 per $1,000 of the total Lessor's
Value of such items of Equipment, as set forth in Schedule 1 of Exhibit A dated
April 6, 1995, or as Schedule 1 of Exhibit A to the Certificate of Delivery and
Acceptance is from time to time amended, (plus applicable sales or use taxes)
per month, in sixty (60) consecutive monthly installments, with the first
installment of rent being due on the Commencement date unless the Commencement
Date is other than the first day of a calendar month, in which event the first
installment of rent shall be due on the first day of the month following the
Commencement Date, and succeeding installments being due on the same date of
each month thereafter.
(b) Lessee shall also pay to Lessor, on demand, interest at
the Late Charge Rate on any installment of rent and on any other amount owing
hereunder which is not paid on its due date, for any period for which the same
shall be overdue. Each payment made under this Lease shall be applied first to
the payment of interest then owing and then to rent or other amounts owing
hereunder. Interest shall be computed on the basis of a 360-day year and actual
days elapsed.
(c) This Lease is a net lease, and Lessee's obligation to pay
all rent and all other amounts payable hereunder is ABSOLUTE AND UNCONDITIONAL
under any and all circumstances and shall not be affected by any circumstances
of any character whatsoever, including, without limitation, (i) any set-off,
counterclaim, recoupment, defense, abatement or reduction or any right which
Lessee may have against Lessor, the manufacturer or supplier of any of the
Equipment or anyone else for any reason whatsoever; (ii) any defect in the
title, condition, design, or operation of, or lack of fitness for use of, or any
damage to, or loss of, all or any part of the Equipment from any cause
whatsoever; (iii) the existence of any Liens with respect to the Equipment; (iv)
the invalidity, unenforceability or disaffirmance of this Lease or any other
document related hereto; or (v) the prohibition of or interference with the use
or possession by Lessee of all or any part of the Equipment, for any reason
whatsoever, including without limitation, by reason of (1) claims for patent,
trademark or copyright
4
<PAGE> 5
infringement; (2) present or future governmental laws, rules or orders; (3) the
insolvency, bankruptcy or reorganization of any person; and (4) any other cause
whether similar or dissimilar to the foregoing, any present or future law to the
contrary notwithstanding. Lessee hereby waives, to the extent permitted by
applicable law, any and all rights which it may now have or which may at any
time hereafter be conferred upon it, by statute or otherwise, to terminate,
cancel, quit or surrender the lease of any Equipment. If for any reason
whatsoever this Lease or any Supplement, other than pursuant to Section 16(b)
hereof, shall be terminated in whole or in part by operation of law or
otherwise, Lessee will nonetheless pay to Lessor an amount equal to each
installment of rent at the time such installment would have become due and
payable in accordance with the terms hereof. Each payment of rent or other
amount paid by Lessee hereunder shall be final and Lessee will not seek to
recover all or any part of such payment for Lessor for any reason whatsoever.
6. WARRANTY DISCLAIMER; ASSIGNMENT OF WARRANTIES.
(a) LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE AND
LESSEE HEREBY EXPRESSLY WAIVES ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS OR
IMPLIED, AS TO THE EQUIPMENT, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR PURPOSE, FREEDOM
FROM INTERFERENCE OR INFRINGEMENT OR THE LIKE, OR AS TO THE TITLE TO OR LESSOR'S
OR LESSEE'S INTEREST IN THE EQUIPMENT OR AS TO ANY OTHER MATTER RELATING TO THE
EQUIPMENT OR ANY PART THEREOF.
LESSEE CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT AND EACH
PART THEREOF ON THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS RELIANCE
UPON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY LESSOR.
LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE ANY
REPRESENTATION OR WARRANTY AS TO THE ACCOUNTING TREATMENT TO BE ACCORDED TO THE
TRANSACTIONS CONTEMPLATED BY THIS LEASE OR AS TO ANY TAX CONSEQUENCES AND/OR TAX
TREATMENT THEREOF.
(b) LESSOR HEREBY ASSIGNS TO LESSEE SUCH RIGHTS AS LESSOR MAY
HAVE (TO EXTENT LESSOR MAY VALIDLY ASSIGN SUCH RIGHTS) UNDER ALL MANUFACTURERS'
AND SUPPLIERS' WARRANTIES WITH RESPECT TO THE EQUIPMENT; PROVIDED, HOWEVER, THAT
THE FOREGOING RIGHTS SHALL AUTOMATICALLY REVERT TO LESSOR UPON THE OCCURRENCE
AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT HEREUNDER, OR UPON THE RETURN
OF THE EQUIPMENT TO LESSOR. LESSEE AGREES TO SETTLE ALL CLAIMS WITH RESPECT TO
THE EQUIPMENT DIRECTLY WITH THE MANUFACTURERS OR SUPPLIERS THEREOF, AND TO GIVE
LESSOR PROMPT NOTICE OF ANY SUCH SETTLEMENT AND THE DETAILS OF SUCH SETTLEMENT.
HOWEVER, IN THE EVENT ANY WARRANTIES ARE NOT ASSIGNABLE, THE LESSOR AGREES TO
ACT ON BEHALF OF THE LESSEE IN SETTLING CLAIMS ARISING UNDER THE WARRANTY WITH
THE MANUFACTURER OR SUPPLIER.
(c) IN NO EVENT SHALL LESSOR BE LIABLE FOR LOSS OF REVENUE OR
PROFITS, SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE OR
FROM ANY CAUSE EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
7. Disposition of Equipment.
(a) Return.
Lessee shall, upon the expiration of the Lease Term of each
item of Equipment, subject to paragraph (b) below, return such item of Equipment
to Lessor at such place within the continental United States of America as
Lessor shall designate in writing to Lessee. Until such item of Equipment is
returned to Lessor pursuant to the provisions of this Section , all of the
provisions of this Lease with respect thereto shall continue in full force
5
<PAGE> 6
and effect. Lessee shall pay all the costs and expenses in connection with or
incidental to the return of the Equipment, including, without limitation, the
cost of removing, assembling, packing, insuring and transporting the Equipment.
At the time of such return, the Equipment shall be in the condition and repair
required to be maintained by Section 12 hereof and free and clear of all Liens.
(b) Purchase Option.
So long as no Default or Event of Default shall have occurred
and be continuing, Lessee may, by written notice given to Lessor at least 120
days (but not more than 360 days) prior to the expiration date of the Lease Term
of any item of Equipment (which notice shall be irrevocable), elect to purchase
such item of Equipment on such expiration date for a cash purchase price equal
to the Fair Market Sale Value of such item of Equipment determined as of such
expiration date, plus an amount equal to all taxes (other than income taxes on
any gain on such sale), costs and expenses (including legal fees and expenses)
incurred or paid by Lessor in connection with such sale. Upon payment by Lessee
of such purchase price, and of all other amounts then due and payable by Lessee
hereunder, Lessor shall transfer title to such items of Equipment to Lessee on
an "as-is, where-is" basis, without recourse and without representation or
warranty of any kind, express or implied, other than a representation and
warranty that such item of Equipment is free and clear of any Lessor's Liens.
8. Representation and Warranties.
In order to induce Lessor to enter into this Lease and to
lease the Equipment to Lessee hereunder, Lessee represents and warrants that:
(a) Organization.
Lessee is duly organized, validly existing and in good
standing under the laws of the State of Nevada and is duly qualified to do
business and is in good standing in the State in which the Equipment will be
located.
(b) Power and Authority.
Lessee has full power, authority and legal right to execute,
deliver and perform this Lease, and the execution, delivery and performance
hereof has been duly authorized by Lessee's governing body or officer(s).
(c) Enforceability.
This Lease has been duly executed and delivered by Lessee and
constitutes a legal, valid and binding obligation of Lessee enforceable in
accordance with its terms.
(d) Consents and Permits.
The execution, delivery and performance of this Lease does not
require any approval or consent of any trustee, shareholder, partner, sole
proprietor, or holders of any indebtedness or obligations of Lessee, and will
not contravene any law, regulation, judgment or decree applicable to Lessee, or
the certificate of partnership or incorporation or by-laws of Lessee, or
contravene the provisions of, or constitute a default under, or result in the
creation of any Lien upon any property of Lessee under any mortgage, instrument
or other agreement to which Lessee is a party or by which Lessee or its assets
may be bound or affected; and no authorization, approval, license, filing or
registration with any court or governmental agency or instrumentality is
necessary in connection with the execution, delivery, performance, validity and
enforceability of this Lease.
(e) Financial Condition of the Lessee.
The financial statements of Lessee heretofore furnished to
Lessor are complete and correct and fairly present the financial condition of
Lessee and the results of its operations for the respective periods covered
6
<PAGE> 7
thereby, there are no known contingent liabilities or liabilities for taxes of
Lessee which are not reflected in said financial statements and since the date
thereof, there has been no material adverse change in such financial condition
or operations.
(f) No Litigation.
There is no action, suit, investigation or proceeding by or
before any court, arbitrator, administrative agency or other governmental
authority pending or threatened against or affecting Lessee (A) which involves
the transactions contemplated by this Lease or the Equipment; or (B) which, if
adversely determined, could have a material adverse effect on the financial
condition, business or operations of Lessee.
(g) United States Source Income.
No items of Equipment shall be used in a way that results in
the creation of an item of income to Lessor, the source of which for Federal
Income Tax purposes is without the United States.
9. Liens.
Lessee will not directly or indirectly create, incur, assume,
suffer, or permit to exist any Lien on or with respect to the Equipment.
10. Insurance.
Lessee shall maintain at all times on the Equipment, at its
expense, property damage, direct damage and liability insurance in such amounts,
against such risks, in such form and with such insurers as shall be reasonably
satisfactory to Lessor and any other Owner; provided, that the amount of direct
damage insurance shall not on any date be less than the greater of the full
replacement value or the Stipulated Loss Value of the Equipment as of such date.
Each insurance policy will, among other things, name Lessor and any other Owner
as an additional insured or as loss payee (as the case may be) as their
interests may appear, require that the insurer give Lessor and any such Owner at
least thirty (30) days prior written notice of any alteration in or cancellation
of the terms of such policy, and require that the interest of Lessor and any
such Owner be continued insured regardless of any breach of or violation by
Lessee of any warranties, declarations or conditions contained in such insurance
policy. Lessee shall furnish to Lessor and such Owner a certificate or other
evidence satisfactory to Lessor that such insurance coverage is in effect
provided, however, that Lessor and such Owner shall be under no duty to
ascertain the existence or adequacy of such insurance.
11. Taxes.
(a) General Tax Provisions.
Lessee shall pay, and shall indemnify and hold Lessor harmless
from and against, all fees, taxes (whether sales, use, excise, personal property
or other taxes), imposts, duties, withholdings, assessments and other
governmental charges of whatever kind or character, however designated (together
with any penalties, fines or interest thereon), all of the foregoing being
herein collectively called "Impositions," which are at any time levied or
imposed against Lessor, Lessee, this Lease, the Equipment or any part thereof by
any Federal, State, or Local Government or taxing authority in the United States
or by any foreign government or any subdivision or taxing authority thereof
upon, with respect to, as a result of or measured by (i) the Equipment (or any
part thereof), or this Lease or the interests of the Lessor therein; or (ii) the
purchase, ownership, delivery, leasing, possession, maintenance, use, operation,
return, sale or other disposition of the Equipment or any part thereof; or (iii)
the rentals, receipts or earnings payable under this Lease or otherwise arising
from the Equipment or any part thereof; excluding, however, taxes based on or
measured by the net income of Lessor that are imposed by (1) the United States
of America, or (2) the State of Florida or any political subdivision of the
State of Florida, or (3) any other State of the United States of America or any
political subdivision of any such State in which Lessor is subject to
Impositions as the result (whether solely or in part) of business or
transactions unrelated to this Lease. In case any
7
<PAGE> 8
report or return is required to be filed with respect to any obligation of
Lessee under this Section or arising out of this Section , Lessee will notify
Lessor of such requirement and make such report or return in such manner as
shall be satisfactory to Lessor; provided, that the payment of any use taxes
shall be made in such manner as specified by Lessor in writing to Lessee; or
(iv) The provisions of this Section shall survive the expiration or earlier
termination of this Lease.
(b) Special Tax Provisions.
(i) The Owner of the items of Equipment, shall be
entitled to take into account in computing its Federal income tax liability,
Current Tax Rate and such deductions, credits, and other benefits as are
provided by the Code to an owner of property, including, without limitation:
(A) Recovery deductions ("Recovery
Deductions") under Section 168(a) of the Code for each item of Equipment in an
amount determined, commencing with the 1995 taxable year, by multiplying the
Owner's Cost of such item of Equipment by the percentages applicable under
Section 168(b) of the Code with respect to "(5)-year property" within the
meaning of Section 168(c)(2) of the Code;
(B) Amortization of expenses ("Amortization
Deductions") paid or to be paid by Owner in connection with this Lease at a rate
no less rapid than straight line over the Lease Term.
(ii) For the purposes of this Subsection 11 (b)
only, the term "Owner" shall include the "common parent" and all other
corporations included in the affiliated group, within the meaning of Section
1504 of the Code (or any other successor section thereto), of which Owner is or
becomes a member.
12. Compliance with Laws; Operation and Maintenance.
(a) Lessee will use the Equipment in a careful and proper
manner, will comply with and conform to all governmental laws, rules and
regulations relating thereto, and will cause the Equipment to be operated in
accordance with the manufacturer's or supplier's instructions or manuals.
(b) Lessee will, at its own expense, keep and maintain the
Equipment in good repair, condition and working order and furnish all parts,
replacements, mechanisms, devices and servicing required therefor so that the
value, condition and operating efficiency therefor will at all times be
maintained and preserved, reasonable wear and tear excepted. All such repairs,
parts, mechanisms, devices and replacements shall immediately, without further
act, become the property of Lessor and part of the Equipment.
(c) Lessee will not make or authorize any improvement, change,
addition or alteration to the Equipment (i) if such improvement, change,
addition or alteration will impair the originally intended function or use of
the Equipment or impair the value of the Equipment as it existed immediately
prior to such improvement, change, addition or alteration; or (ii) if any parts
installed in or attached to or otherwise becoming a part of the Equipment as a
result of any such improvement, change, addition or alteration shall not be
readily removable without damage to the Equipment. Any part which is added to
the Equipment without violating the provisions of the immediately preceding
sentence and which is not a replacement or substitution for any property which
was a part of the Equipment, shall remain the property of Lessee and may be
removed by Lessee at any time prior to the expiration or earlier termination of
the Lease Term. All such parts shall be and remain free and clear of any Liens.
Any such part which is not so removed prior to the expiration or earlier
termination of the Lease Term shall, without further act, become the property of
Lessor.
13. Inspection.
Upon prior notice, Lessor or its authorized representatives
may at any reasonable time or times inspect the Equipment when it deems it
necessary to protect its interest therein.
8
<PAGE> 9
14. Identification.
Lessee shall, at its expense, attach to each item of Equipment
a notice satisfactory to Lessor disclosing Owner's ownership of such item of
Equipment.
15. Personal Property.
Lessee represents that the Equipment shall be and at all times
remain separately identifiable personal property. Lessee shall, at its expense,
take such action (including the obtaining and recording of waivers) as may be
necessary to prevent any third party from acquiring any right to or interest in
the Equipment by virtue of the Equipment being deemed to be real property or a
part of real property or a part of other personal property, and if at any time
any person shall claim any such right or interest, Lessee shall, at its expense,
cause such claim to be waived in writing or otherwise eliminated to Lessor's
satisfaction within 30 days after such claim shall have first become known to
Lessee.
16. Loss or Damage.
(a) All risk of loss, theft, damage or destruction to the
Equipment or any part thereof, however incurred or occasioned, shall be borne by
Lessee and, unless such occurrence constitutes an Event of Loss pursuant to
paragraph (b) of this Section , Lessee shall promptly give Lessor written notice
hereof and shall promptly cause the affected part or parts of the Equipment to
be replaced or restored to the condition and repair required to be maintained by
Section 12 hereof.
(b) If an Event of Loss with respect to any item of Equipment
shall occur, Lessee shall promptly give Lessor written notice thereof, and
Lessee shall pay to Lessor as soon as it receives insurance proceeds with
respect to said Event of Loss but in any event no later than 90 days after the
occurrence of said Event of Loss an amount equal to the sum of (i) the
Stipulated Loss Value of such item of Equipment computed as of the Rent Payment
Date with respect to such item of Equipment on or immediately preceding the date
of the occurrence of such Event of Loss, and (ii) all rent and other amounts due
and owing hereunder for such item of Equipment on or prior to the Loss Payment
Date. Upon payment of such amount to Lessor, the lease of such item of Equipment
hereunder shall terminate, and Lessor will transfer within forty days to Lessee,
Lessor's right, title and interest in and to such item of Equipment, on an
"as-is, where-is" basis, without recourse and without representation or
warranty, express or implied, other than a representation and warranty that such
item of Equipment is free and clear of any Lessor's Liens.
(c) Any payments received at any time by Lessor or Lessee from
any insurer with respect to loss or damage to the Equipment shall be applied as
follows: (i) if such payments are received with respect to an Event of Loss they
shall be paid to Lessor, but to the extent received by Lessor, they shall reduce
or discharge, as the case may be, Lessee's obligation to pay the amounts due to
Lessor under Section 16 (b) hereof with respect to such Event of Loss: or (ii)
if such payments are received with respect to any loss of or damage to the
Equipment other than an Event of Loss, such payments shall, unless a Default or
Event of Default shall have occurred and be continuing, be paid over to Lessee
to reimburse Lessee for its payment of the costs and expenses incurred by Lessee
in replacing or restoring pursuant to Section 16(a) hereof the part or parts of
the Equipment which suffered such loss or damage.
17. General Indemnity.
Lessee assumes liability for, and shall indemnify, protect
save and keep harmless Lessor and its agents, servants, successors and assigns
(an "Indemnitee") from and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, suits, costs and expenses, including
reasonable legal expenses, of whatsoever kind and nature, imposed on, incurred
by or asserted against any Indemnitee, in any way relating to or arising out of
this Lease or the enforcement hereof, or the manufacture, purchase, acceptance,
rejection, ownership, possession, use, selection, delivery, lease, operation,
condition, sale, return or other disposition of the Equipment or any part
thereof (including, without limitation, latent or other defects, whether or not
discoverable by Lessee or any
9
<PAGE> 10
other person, any claim in tort for strict liability and any claim for patent,
trademark or copyright infringement); provided, however, that Lessee shall not
be required to indemnify any Indemnitee for loss or liability arising from acts
or events which occur after the Equipment has been returned to Lessor in
accordance with the Lease, or for loss or liability resulting solely from the
willful misconduct or gross negligence of such Indemnitee. The provisions of
this Section shall survive the expiration or earlier termination of this Lease.
18. Events of Default.
The following events shall each constitute an event of default
(herein called "Event of Default") under this Lease:
(i) Lessee shall fail to execute and deliver to
Lessor (or Lessor's agent) the "Delivery Certificate" within twenty-four (24)
hours of Turnover of the Equipment to Lessee.
(ii) Lessee shall fail to commence lease payments on
the first day of the month following the Commencement Date, or such other
initiation of lease payments as specified in Section 5 of this Lease.
(iii) Lessee shall fail to make any payment of rent
or other amount owing hereunder after notice has been given that payment is past
due; or
(iv) Lessee shall fail to maintain the insurance
required by Section 10 hereof or to perform or observe any of the covenants
contained in Sections 21 or 22 hereof; or
(v) Lessee shall fail to perform or observe any other
covenant, condition or agreement to be performed or observed by it with respect
to this Lease and such failure shall continue unremedied for 30 days after the
earlier of (a) the date on which Lessee obtains, or should have obtained
knowledge of such failure; or (b) the date on which notice thereof shall be
given by Lessor to Lessee; or
(vi) Any representation or warranty made by Lessee
herein or in any document, certificate or financial or other statement now or
hereafter furnished Lessor in connection with this Lease shall prove at any time
to have been untrue, incomplete or misleading in any material respect as of the
time when made; or
(vii) The entry of a decree or order for relief by a
court having jurisdiction in respect of Lessee, adjudging Lessee a bankrupt or
insolvent, or approving as properly filed a petition seeking a reorganization,
arrangement, adjustment or composition of or in respect of Lessee in an
involuntary proceeding or case under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or State bankruptcy,
insolvency or other similar law, or appointing a receiver, liquidator, assignee,
custodian, trustee or sequestrator (or similar official) of Lessee or of any
substantial part of its property, or ordering the winding-up or liquidation of
its affairs, and the continuance of any such decree or order unstayed and in
effect for a period of 30 days; or
(viii) The institution by Lessee of proceedings to be
adjudicated a bankrupt or insolvent, or the consent by it to the institution of
bankruptcy or insolvency proceedings against it, or the commencement by Lessee
of a voluntary proceeding or case under the Federal bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal or state bankruptcy,
insolvency or other similar law, or the consent by it to the filing of any such
petition or to the appointment of or taking possession by a receiver,
liquidator, assignee, trustee, custodian or sequestrator (or other similar
official) of Lessee or of any substantial part of its property, or the making by
it of any assignment for the benefit of creditors or the admission by it of its
inability to pay its debts generally as they become due or its willingness to be
adjudicated a bankrupt or the failure of Lessee generally to pay its debts as
they become due or the taking of corporate action by Lessee in furtherance of
any of the foregoing.
10
<PAGE> 11
19. Remedies. If an Event of Default specified in Subsection 18(vii) or
(viii) above shall occur, then, and in any such event, Lessor shall not be
obligated to purchase or lease any of the Equipment and this Lease shall,
without any declaration or other action by Lessor, be in default. If an Event of
Default, other than an Event of Default specified in Subsection 18(vii) or
(viii) above, shall occur, Lessor may, at its option, declare this Lease to be
in default. At any time after this Lease is in default under the first sentence
of this Section 19, Lessor has declared this Lease to be in default under the
second sentence of this Section 19, Lessor and/or its representative may do any
one or more of the following with respect to all of the Equipment or any part
thereof as Lessor in its sole discretion shall elect, to the extent permitted by
applicable law then in effect:
(a) demand that Lessee, and Lessee shall at its expense upon
such demand, return the Equipment promptly to Lessor at such place in the
continental United States of America as Lessor shall specify, or Lessor and/or
its agents, at its option, may with or without entry upon the premises where the
Equipment is located and disable the Equipment, or make the Equipment inoperable
permanently or temporarily in Lessor's sole discretion, and/or take immediate
possession of the Equipment and remove the same by summary proceedings or
otherwise, all without liability for or by reason of such entry or taking of
possession, whether for the restoration of damage to property caused by such
taking or for disabling or otherwise;
(b) sell the Equipment at public or private sale, with or
without notice, advertisement or publication, as Lessor may determine, or
otherwise dispose of, hold, use, operate, lease to others or keep idle the
Equipment as Lessor in its sole discretion may determine, all free and clear of
any rights of Lessee and without any duty to account to Lessee with respect to
such action or inaction or for any proceeds with respect thereto;
(c) by written notice to Lessee specifying a payment date
which shall be not earlier than 20 days after the date of such notice, demand
that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment date
specified in such notice, as liquidated damages for loss of a bargain and not as
a penalty, all accrued and unpaid rent for the Equipment due on all Rent Payment
Dates up to and including the payment date specified in such notice plus an
amount (together with interest on such amount at the Late Charge Rate, from the
payment date specified in such notice to the date of actual payment) equal to
the excess, if any, of the Stipulated Loss Value of the Equipment as of the
payment date specified in such notice over the Fair Market Sale Value of the
Equipment as of such date;
(d) Lessor may exercise any other right or remedy which may be
available to it under applicable law or proceed by appropriate court action to
enforce the terms hereof or to recover damages for the breach hereof or to
rescind this Lease. Lessor is entitled to recover any amount that fully
compensates the Lessor for any damage to or loss of the Lessor's residual
interest in the leased property caused by the Lessee's default.
In the event any present value discounting is applied, the
discount rate used shall be the Federal Reserve Board Discount Rate.
In addition, Lessee shall be liable for any and all unpaid
rent and other amounts due hereunder before or during the exercise of any of the
foregoing remedies and for all reasonable legal fees and other costs and
expenses incurred by reason of the occurrence of any Event of Default or the
exercise of Lessor's remedies with respect thereto, including all reasonable
costs and expenses incurred in connection with the placing of the Equipment in
the condition required by Section 12 hereof.
No remedy referred to in this Section 19 is intended to be
exclusive, but each shall be cumulative and in addition to any other remedy
referred to herein or otherwise available to Lessor at law or in equity; and the
exercise or beginning of exercise by Lessor of any one or more of such remedies
shall not preclude the simultaneous or later exercise by Lessor of any or all
such other remedies. No express or implied waiver by Lessor of an Event of
Default shall in any way be, or be construed to be, a waiver of any future or
subsequent Event of Default. To the extent permitted by applicable law, Lessee
hereby waives any rights now or hereafter conferred by statute or otherwise
which may require Lessor to sell or lease or otherwise use the Equipment in
mitigation of Lessor's damages or losses or which may otherwise limit or modify
any of Lessor's rights or remedies under this Lease.
11
<PAGE> 12
20. Lessor's Right to Perform. If Lessee fails to make any payment
required to be made by it hereunder or fails to perform or comply with any of
its other agreements contained herein, Lessor may itself make such payment or
perform or comply with such agreement, and the amount of such payment and the
amount of the reasonable expenses of Lessor incurred in connection with such
payment or the performance of or compliance with such agreement, as the case may
be, together with interest thereon at the Late Charge Rate, shall be deemed to
be additional rent, payable by Lessee within 30 days of notice.
21. LOCATION; ASSIGNMENT OR SUBLEASE; TITLE TRANSFER.
(a) LESSEE WILL NOT REMOVE THE EQUIPMENT FROM THE LOCATION
SPECIFIED IN SCHEDULE 1 OF EXHIBIT A WITHOUT THE PRIOR WRITTEN CONSENT OF
LESSOR, SUCH CONSENT NOT TO BE UNREASONABLY WITHHELD, EXCEPT REMOVAL OUTSIDE THE
CONTINENTAL U.S. IS NOT PERMITTED. THE EQUIPMENT SHALL AT ALL TIMES BE IN THE
SOLE POSSESSION AND CONTROL OF LESSEE AND LESSEE WILL NOT, WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR, SUCH CONSENT NOT TO BE UNREASOANBLY WITHHELD, ASSIGN
THIS LEASE OR ANY INTEREST HEREIN OR SUB LEASE OR OTHERWISE TRANSFER ITS
INTEREST IN ANY OF THE EQUIPMENT, AND ANY ATTEMPTED ASSIGNMENT, SUBLEASE OR
OTHER TRANSFER BY LESSEE IN VIOLATION OF THESE PROVISIONS SHALL BE VOID.
(b) LESSOR AND LESSEE ACKNOWLEDGE THAT LESSOR (i) MAY TRANSFER
ITS INTEREST IN THE EQUIPMENT TO AN OWNER OTHER THAN LESSOR. LESSOR MAY
CONTEMPORANEOUSLY THEREWITH LEASE THE EQUIPMENT BACK FROM SUCH OWNER, AND (ii)
MAY ASSIGN THIS LEASE. LESSEE HEREBY CONSENTS TO EACH OF THE ABOVE-DESCRIBED
TRANSACTIONS. FURTHER LESSEE DOES HEREBY ACKNOWLEDGE (i) THAT ANY SUCH
ASSIGNMENT BY LESSOR DOES NOT MATERIALLY CHANGE LESSEE'S DUTIES AND OBLIGATION
HEREUNDER, (ii) THAT SUCH ASSIGNMENT DOES NOT MATERIALLY INCREASE THE BURDEN OR
RIGHT IMPOSED ON THE LESSEE, AND (iii) THAT THE ASSIGNMENT IS PERMITTTED EVEN IF
THE ASSIGNMENT COULD BE DEEMED TO MATERIALLY AFFECT THE INTEREST OF THE LESSEE.
22. Status Changes in Lessee. Lessee will not without thirty (30) days
prior written notice to Lessor, (a) enter into any transaction of merger or
consolidation unless it is the surviving corporation or after giving effect to
such merger or consolidation its net worth equals or exceeds that which existed
prior to such merger or consolidation; or (b) change the form of organization of
its business; or (c) change its name or its chief place of business. Lessee must
obtain Lessor's prior written concurrence, such concurrence not to be
unreasonably withheld, before Lessee may undertake any actions to (a) liquidate
or dissolve or similar action of the Lessee's organization, or (b) sell,
transfer or otherwise dispose of all or any substantial part of Lessee's assets.
23. Further Assurances; Financial Information.
(a) Lessee will, at its expense, promptly and duly execute and
deliver to Lessor such further documents and assurances and take such further
action as Lessor may from time to time reasonably request in order to establish
and protect the rights, interests and remedies created or intended to be created
in favor of Lessor hereunder, including, without limitation, the execution and
filing of Uniform Commercial Code financing statements covering the Equipment
and proceeds therefrom in the jurisdictions in which the Equipment is located
from time to time. To the extent permitted by applicable law, Lessee hereby
authorizes Lessor to file any such financing statements without the signature of
Lessee.
(b) Lessee will qualify to do business and remain qualified in good
standing, in each jurisdiction in which the Equipment is from time to time
located.
(c) Lessee will furnish to Lessor as soon as available, but in any
event not later than 90 days after the end of each fiscal year of Lessee, a
consolidated balance sheet of Lessee as at the end of such fiscal year, and
consolidated statements of income and changes in financial position of Lessee
for such fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles applied on a basis
12
<PAGE> 13
consistently maintained throughout the period involved. These reports will not
be disclosed to anyone other than the Lessor and/or the Owner as provided in
Section 21(b).
24. Notices. All notices, demands and other communications hereunder
shall be in writing, and shall be deemed to have been given or made when
deposited in the United States mail, first class postage prepaid, addressed as
follows or to such other address as any of the authorized representatives of the
following entities may from time to time designate in writing to the other
listed below:
Lessor: Telecommunications Finance Group
400 Rinehart Road
Lake Mary, Florida 32746
Lessee: STAR VENDING, INC.
740 State Street, Suite 202
Santa Barbara, CA 93101
25. Conditions Precedent:
(a) Lessor shall not be obligated to lease the items of Equipment
described herein to Lessee hereunder unless:
(i) Such Uniform Commercial Code financing statements
covering Equipment and proceeds therefrom and landlord and/or mortgagee waivers
or disclaimers and/or severance agreements with respect to the items of
Equipment covered by this Lease as Lessor shall deem necessary or desirable in
order to perfect and protect its interests therein shall have been duly executed
and filed, at Lessee's expense, in such public offices as Lessor shall direct;
(ii) All representations and warranties of Lessee
contained herein or in any document or certificate furnished Lessor in
connection herewith shall be true and correct on and as of the date of this
Lease with the same force and effect as if made on and as of such date; no Event
of Default or Default shall be in existence on such date or shall occur as a
result of the lease by Lessee of the Equipment specified in Schedule 1 of
Exhibit A;
(iii) In the sole judgment of Lessor, there shall
have been no material adverse change in the financial condition or business of
Lessee;
(iv) All proceedings to be taken in connection with
the transactions contemplated by this Lease, and all documents incidental
thereto, shall be satisfactory in form and substance to Lessor and its counsel;
(v) Lessor shall have received from Lessee, in form
and substance satisfactory to it, such other documents and information as Lessor
shall reasonably request;
(vi) All legal matters in connection with the
transactions contemplated by this Lease shall be satisfactory to Lessor's
counsel; and
(vii) No Change in Tax Law, which in the sole
judgment of Lessor would adversely affect Lessor's Economics, shall have
occurred or shall appear, in Lessor's good faith judgment, to be imminent.
26. Software License. Reference is made to the form of DCO Software
Product License Agreement attached hereto as Exhibit B (the "License Document").
Lessor has arranged for the Equipment manufacturer to grant Lessee a license to
use the Software as defined in the License Document in conjunction with the
equipment leased hereunder in accordance with the terms of the License Document.
The original license fee is contained in the
13
<PAGE> 14
lease rate. To avail itself of the license grant, Lessee must execute the
License Document, upon Commencement of the Lease. The option to obtain a fully
paid up license as provided in Article 2 of the License Document shall be
exercised by the Lessee and the payment made directly to the equipment
manufacturer named in the License Document and must be exercised in conjunction
with the option provided in Section 7(b) of the Lease, to purchase the
Equipment. "Buyer" and "Licensee" as used in the License Document are synonymous
with Lessee.
27. LIMITATION OF LIABILITY.
LESSOR SHALL NOT BE LIABLE FOR LOST PROFITS OR REVENUE, SPECIAL,
INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY NATURE OR FROM
ANY CAUSE WHETHER BASED IN CONTRACT OR TORT, INCLUDING NEGLIGENCE, OR OTHER
LEGAL THEORY EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
LESSEE HEREBY AGREES THAT LESSOR WILL NOT BE LIABLE FOR ANY LOST PROFITS OR
REVENUE OR FOR ANY CLAIM OR DEMAND AGAINST LESSEE BY ANY OTHER PARTY.
28. Miscellaneous.
(a) Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provisions in any
other jurisdiction. To the extent permitted by applicable law, Lessee hereby
waives any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
(b) No terms or provisions of this Lease may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the party against which the enforcement of the change, waiver, discharge or
termination is sought. No delay or failure on the part of Lessor to exercise any
power or right hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof, or the exercise
of any other power or right. After the occurrence of any Default or Event of
Default, the acceptance by Lessor of any payment of rent or other sum owed by
Lessee pursuant hereto shall not constitute a waiver by Lessor of such Default
or Event of Default, regardless of Lessor's knowledge or lack of knowledge
thereof at the time of acceptance of any such payment, and shall not constitute
a reinstatement of this Lease, if this Lease shall have been declared in default
by Lessor pursuant to Section 18 hereof or otherwise, unless Lessor shall have
agreed in writing to reinstate the Lease and to waive the Default or Event of
Default.
In the event Lessee tenders payment to Lessor by check or draft
containing a qualified endorsement purporting to limit or modify Lessee's
liability or obligations under this Lease, such qualified endorsement shall be
of no force and effect even if Lessor processes the check or draft for payment.
(c) This Lease with exhibits contains the full, final and exclusive
statement of the agreement between Lessor and Lessee relating to the lease of
the Equipment.
(d) This Lease shall constitute an agreement of an operating lease,
and nothing herein shall be construed as conveying to Lessee any right, title or
interest in the Equipment except as Lessee only.
(e) This Lease and the covenants and agreements contained herein
shall be binding upon, and inure to the benefit of, Lessor and its successors
and assigns and Lessee and, to the extent permitted by Section 21 hereof, its
successors and assigns.
(f) The headings of the Sections are for convenience of reference
only, are not a part of this Lease and shall not be deemed to affect the meaning
or construction of any of the provisions hereof.
14
<PAGE> 15
(g) This Lease may be executed by the parties hereto on any number
of separate counterparts, each of which when so executed and delivered shall be
an original, but all such counterparts shall together constitute but one and the
same instrument.
(h) This Lease is deemed made and entered into in the State of
Florida and shall be governed by and construed under and in accordance with the
laws of the State of Florida as if both parties were residents of Florida.
(i) Lessee hereby irrevocably consents and agrees that any legal
action, suit, or proceeding arising out of or in any way in connection with this
Lease shall be instituted or brought in the courts of the State of Florida, or
the United States Court for the District of Florida, and by execution and
delivery of this Lease, Lessee hereby irrevocably accepts and submits to, for
itself and in respect of its property, generally and unconditionally, the
nonexclusive jurisdiction of any such court, and to all proceedings in such
courts. Lessee irrevocably consents to service of any summons and/or legal
process by registered or certified United States mail, postage prepaid, to
Lessee at the address set forth in Section 24 hereof, such method of service to
constitute, in every respect, sufficient and effective service of process in any
legal action or proceeding. Nothing in this Lease shall affect the right to
service of process in any other manner permitted by law or limit the right of
Lessor to bring actions, suits or proceedings in the court of any other
jurisdiction. Lessee further agrees that final judgment against it in any such
legal action, suit or proceeding shall be conclusive and may be enforced in any
other jurisdiction, within or outside the United States of America, by suit on
the judgment, a certified or exemplified copy of which shall be conclusive
evidence of the fact and the amount of the liability.
15
<PAGE> 16
IN WITNESS WHEREOF, Lessor and Lessee have each caused this
Lease to be duly executed as of the day and year first above written and by its
signature below Lessee expressly acknowledges that this Lease may not be
modified unless done so in a writing signed by each of the parties hereto or
their successors in interest.
STAR VENDING, INC. (Lessee)
By:____________________________
_______________________________
(Name & Title)
Date Signed:___________________
TELECOMMUNICATIONS FINANCE GROUP
By:____________________________
_______________________________
Authorized
Representative of
Telecommunications Finance Group
Date Signed:___________________
16
<PAGE> 17
STAR VENDING, INC.
SITE: LOS ANGELES, CALIFORNIA
0.010416 SCHEDULE A - ORIGINAL LEASE VALUE
STIPULATED LOSS VALUE
The Stipulated Loss Value of any item of Equipment as of any Rent Payment Date
with respect of such item of Equipment shall be determined by multiplying the
Lessor's Value of such item of Equipment by the percentage set forth below for
such Rent Payment Date; provided that, any determination of Stipulated Loss
Value as of a date occurring after the final Rent Payment Date with respect to
such item of equipment, shall be made as of such final Rent Payment Date.
<TABLE>
<CAPTION>
After Rent
Payment Number Percentage
<S> <C> <C>
0 105.0000
1 104.1252
2 103.2378
3 102.3378
4 101.4248
5 100.4989
6 99.5598
7 98.6075
8 97.6418
9 96.6626
10 95.6697
11 94.6630
12 93.6423
13 92.6076
14 91.5586
15 90.4952
16 89.4173
17 88.3247
18 87.2173
19 86.0948
20 84.9571
21 83.8041
22 82.6355
23 81.4514
24 80.2514
25 79.0354
26 77.8032
27 76.5548
28 75.2899
29 74.0085
30 72.7102
31 71.3949
32 70.0622
33 68.7124
34 67.3449
35 65.9599
36 64.5568
37 63.1357
38 61.6964
39 60.2383
</TABLE>
<PAGE> 18
Continue........
STAR VENDING, INC.
SITE: LOS ANGELES, CALIFORNIA
0.010416 SCHEDULE A - ORIGINAL LEASE VALUE
STIPULATED LOSS VALUE
<TABLE>
<S> <C>
40 58.7618
41 57.2665
42 55.7523
43 54.2187
44 52.6655
45 51.0926
46 49.4999
47 47.8873
48 46.2547
49 44.1846
50 42.0939
51 39.9824
52 37.8495
53 35.6952
54 33.5196
55 31.3223
56 29.1030
57 26.8613
58 24.5972
59 22.3105
60 20.0000
</TABLE>
<PAGE> 19
SCHEDULE B
AMENDMENT TO LEASE AGREEMENT DATED April 6, 1995 BETWEEN
TELECOMMUNICATIONS FINANCE GROUP (LESSOR) AND
STAR VENDING, INC. (LESSEE) FOR A DCO-CS
TO BE LOCATED IN LOS ANGELES, CALIFORNIA
A DEPOSIT EQUAL TO 5% OF LESSOR'S VALUE IS REQUIRED BY LESSOR PRIOR TO SHIPMENT,
WHICH WILL BE APPLIED FIRST TO THE FIRST INSTALLMENT OF LEASE RENT AND THEN TO
SUCCEEDING INSTALLMENTS OF LEASE RENT UNTIL FULLY UTILIZED.
IN THE EVENT OF EARLY TERMINATION OF THE LEASE DUE TO DEFAULT BY LESSEE, ANY
UNAPPLIED PORTION OF THE 5% DEPOSIT IS NON-REFUNDABLE AND WILL BE RETAINED BY
LESSOR.
IN THE EVENT LESSEE HAS MORE THAN ONE LEASE WITH LESSOR, AN EVENT OF DEFAULT FOR
ONE LEASE WILL, IN ITSELF, BE AN EVENT OF DEFAULT ON ALL OTHER LEASES IN THE
NAME OF THE LESSEE.
TELECOMMUNICATIONS FINANCE GROUP STAR VENDING, INC.
By:_____________________________ By:__________________________
________________________________ _____________________________
AUTHORIZED REPRESENTATIVE OF (Name & Title)
TELECOMMUNICATIONS FINANCE GROUP
Date Signed:____________________ Date Signed:_________________
19
<PAGE> 20
SCHEDULE C
AMENDMENT TO LEASE AGREEMENT DATED April 6, 1995 BETWEEN
TELECOMMUNICATIONS FINANCE GROUP (LESSOR) AND
STAR VENDING, INC. (LESSEE) FOR A DCO-CS
TO BE LOCATED IN LOS ANGELES, CALIFORNIA
LESSEE AFFIRMS TO THE FOLLOWING:
ALL THIRD PARTY VENDOR EQUIPMENT TO BE ADDED TO THE LEASE MUST BE PURCHASED OR
APPROVED BY THE SIEMENS STROMBERG-CARLSON PURCHASING DEPARTMENT. THE CUMULATIVE
TOTAL OF THIRD PARTY VENDOR EQUIPMENT WHICH MAY BE ADDED TO THE LEASE CANNOT
EXCEED 20% OF THE VALUE OF THE EQUIPMENT PROVIDED BY SIEMENS STROMBERG-CARLSON.
SUBJECT TO THE 20% CAP, THE ONLY THIRD PARTY VENDOR EQUIPMENT WHICH MAY BE ADDED
TO A LEASE ARE APPROVED BILLING EQUIPMENT AND SYSTEMS AND OAS (OPERATOR ASSISTED
SYSTEM) EQUIPMENT AND SYSTEMS. OTHER ITEMS MAY BE ADDED IF THE SIEMENS
STROMBERG-CARLSON OCC SENIOR PROGRAM MANAGER CONFIRMS THAT IT IS NECESSARY AS AN
ADDITION TO ONE OF THE APPROVED SYSTEMS.
A DEPOSIT EQUAL TO 5% OF THE THIRD PARTY VENDOR EQUIPMENT (WHICH IS SUBJECT TO
THE 20% CAP ABOVE) IS REQUIRED BY LESSOR PRIOR TO ISSUING A PURCHASE ORDER TO
THE THIRD PARTY VENDOR. THIS DEPOSIT WILL BE APPLIED FIRST TO THE FIRST
INSTALLMENT OF LEASE RENT IN WHICH THE VENDOR EQUIPMENT IS INCLUDED, AND THEN TO
SUCCEEDING INSTALLMENTS OF LEASE RENT UNTIL FULLY UTILIZED.
IN THE EVENT OF EARLY TERMINATION OF THE LEASE DUE TO DEFAULT BY LESSEE, ANY
UNAPPLIED PORTION OF THE 5% DEPOSIT IS NON-REFUNDABLE AND WILL BE RETAINED BY
LESSOR.
TELECOMMUNICATIONS FINANCE GROUP STAR VENDING, INC.
By:_____________________________ By:__________________________
________________________________ _____________________________
AUTHORIZED REPRESENTATIVE OF (Name & Title)
TELECOMMUNICATIONS FINANCE GROUP
Date Signed:____________________ Date Signed:_________________
20
<PAGE> 21
EXHIBIT A
CERTIFICATE OF DELIVERY AND ACCEPTANCE
Commencement Date:__________
THIS CERTIFICATE OF DELIVERY AND ACCEPTANCE is executed and delivered to
Telecommunications Finance Group ("Lessor") by STAR VENDING, INC. ("Lessee")
pursuant to and in accordance with the Lease Agreement dated: April 6, 1995
between Lessor and Lessee (the "Lease", the defined terms therein being used
herein with their defined meanings).
1. The Equipment covered by this Certificate consists of the items
described in Schedule 1 of Exhibit A of the Lease.
2. Lessee confirms that the items of Equipment covered hereby have been
delivered to it in good working order and condition, and have been
inspected and accepted by Lessee as of the Commencement Date set forth
above. Lessee hereby waives any right it may have under Section 2A-517
of the Uniform Commercial Code or otherwise to revoke this acceptance
for any reason whatsoever, including but not limited to, (i) any
assumption by Lessee that a nonconformity would be cured, (ii) any
inducement of acceptance by the Lessor's assurances or any difficulty
to discover a nonconformity before acceptance, or (iii) any Lessor
default under the Lease. Lessee further hereby waives its rights under
Sections 2A-401 and 2A-402 of the Uniform Commercial Code to suspend
performance of any of its obligations under the Lease with respect to
the Equipment hereby accepted.
3. Lessee confirms that such items of Equipment have been installed at:
Los Angeles, California
4. The Lessor's value of the items of Equipment covered hereby is set
forth in the Schedule 1 of Exhibit A. Lessee confirms that each
installment of rent payable is as defined by the rental rate factor per
thousand dollars as specified in Section 5 of the Lease.
5. Lessee hereby: (a) confirms that the items of Equipment covered
hereby have been inspected by Lessee, have been delivered in good
working order and condition and are of the size, design, capacity and
manufacture selected by it and meet the provisions of the purchase
order(s) with respect thereto; and (b) irrevocably accepts said items
of Equipment "as-is, where-is" for all purposes of the Lease as of the
Commencement Date set forth above and shall pursue remedies to correct
deficiencies, if any, in said items of equipment under the
manufacturer's warranty provisions only.
6. Lessee hereby confirms: (i) that no Default or Event of default is in
existence as of the Commencement Date set forth above, nor shall any
Default or Event of Default occur as a result of the lease by Lessee of
the Equipment specified here-in; and (ii) that all representations and
warranties of Lessee contained in the Lease or in any document or
certificate furnished Lessor in connection herewith, are true and
correct as of the Commencement Date set forth above with the same force
and effect as if made on such date.
7. Lessee assumes sole responsibility for ensuring that the billing center
can correctly read call records. Lessee's responsibility includes
reading daily the automatic message/ticketing accounting system and/or
polling systems tape(s) by the billing system to ensure all ticket
information is present. Risk of loss for any revenue or profit
associated therewith passes to Lessee upon cutover of any hardware or
software.
8. All of the terms, provisions and conditions of the Lease are hereby
incorporated herein and made a part hereof as if such terms, provisions
and conditions were set forth in full in this Certificate. By their
execution and delivery of this Certificate, the parties hereto reaffirm
all of the terms, provisions and conditions of the Lease.
21
<PAGE> 22
IN WITNESS WHEREOF, Lessee has caused this Certificate to be executed
by its duly authorized officer as of the Commencement Date set forth above.
Refer S.O.#066739 STAR VENDING, INC.
________________________________ By:______________________________
_________________________________
(Name & Title)
Date Signed:_____________________
ACCEPTED BY:
TELECOMMUNICATIONS FINANCE GROUP AS OF
THE _____ DAY OF _______________ 19___.
By:_____________________________
________________________________
Authorized Representative of
Telecommunications Finance Group
22
<PAGE> 23
SIEMENS Proposal No.: DCO-581065
STROMBERG-CARLSON Issue No. 1
Date: February 10, 1995
Installation Site: Garden Grove, California
ITEM 01
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
IN-PLACE
Switching Equipment
-1-
Line Trunk Frame (LTF)
----------------------
OCCSLTFFRM Line Trunk Frame 2
814742-566 Diagnostic Test Gen/Monitor 1
LTFDOORS LTF Doors, Front & Rear 2
LINGRPCUA Line Group CUA (LTF) 1
SLTFUTSCUA Trk/Svc Ckt CUA Grp 1
SLTFUSCUA Svc Ckt CUA Grp 10
814571-706 Digital TMF Rcv. (2/PWBA) 59
*814572-576 Digital Sender (TMF/SATT) 16
814695-556 Digital DTMF Sender 12
814643-596 Digital DTMF Receiver 41
814742-576 (FOC) Digital DTMF Receiver 12
814574-936 2-Wire E&M Trunk PWBA 2
814574-932 Loop Trunk, Reverse Batt PWBA 0
Digital Trunk Frame (DTF)
OCCSDTFFRM Digital Trunk Frame 4
DTFDOORS DTF Doors, Front & Rear 4
SDS1HSTCUA DS1 Host Ckt CUA 24
817560-626A T1 Interface PWBA 192
817577-917A Blower Assembly w/fan Alarm 4
-1-
<PAGE> 24
SIEMENS Proposal No.: DCO-581065
STROMBERG-CARLSON Issue No. 1
Date: February 10, 1995
Installation Site: Garden Grove, California
ITEM 01
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
IN-PLACE
Switching Equipment
Control & Maintenance Frame (CMF)
---------------------------------
SCMFOCC12.1 Control & Maint Frame OCC 12.1 1
CMFDOORS CMF Doors, Front & Rear 1
822068-819 DLI Transfer 1
814635-086 PWBA Ring (N+1) 1
814721-666 Serial Line Unit PWBA 1
822010-676 Disk Drive Assy 2
822010-656 Tape Drive 1
817702-556 Traffic Measurement/Rec 1
817620-556 MSA PWBA 1
814727-626 J2 Maintenance Processor 1
822010-606 Power & Alarm PWBA 1
817680-606A BMUX PWBA 1
822222-606A DLI-II 1
TSIPWB17 TSI PWBA 16
822702-536A PXAM II - 4MB 2
822727-696A J8 Call Processor 2
814770-656 PXA Memory PWBA 1/Mbyte 1
TPP0PWB17 TPP PWBA (Sectors 0,1,2,3) 1
OCCS7BASIC CCS7 Basics 1
OCCSNCS Sync Network Clock (Slave) 1
822718-596 Feature Processor (PWBA) 2
814095-626 Service Group Diag PWBA 3
-2-
<PAGE> 25
SIEMENS Proposal No.: DCO-581065
STROMBERG-CARLSON Issue No. 1
Date: February 10, 1995
Installation Site: Garden Grove, California
ITEM 01
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
IN-PLACE
Switching Equipment
OCCTAPE Tape Control PWBAs 1
814722-216A RS232 Interface Module 6
Power & Test Frame (PRT)
------------------------
SPRTFOCC12.1 Power Ringing & Tst Fr OCC12.1 1
PRTDOORS PRT Doors, Front & Rear 1
817576-938 Circuit Breaker 100 Amp 4
814475-036 Alarm Sender PWBA 1
817576-912 Basic Cabinets & MTG for N+1) 1
814629-904 Ringing Generator (20 Hz) 1
817576-934 200VA DC/AC Non-Redund. Invtr 1
814215-820 Cook 4 Chan Announcer (NT5M) 1
203352-681 4 Channel Announcer 1
Automatic Message Accounting
----------------------------
SAMAFRM AMA Frame 1
AMADOORS AMA Doors Rear 1
814421-908 Cook 1600 BPI Tape Drives (2) 2
814421-909 Cook 1600 BPI Strapping 2
Miscellaneous
-------------
4-24419-0290 DSX Pnl-ADC DSX-DR 19 w/cord 7
-3-
<PAGE> 26
SIEMENS Proposal No.: DCO-581065
STROMBERG-CARLSON Issue No. 1
Date: February 10, 1995
Installation Site: Garden Grove, California
ITEM 01
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
IN-PLACE
Switching Equipment
PJ716 Bantam Patch Cord 28
2200B Channel Access Unit 1
203352-645 9600 Full Duplex Modems 1
202975-592 7' x 19" Relay Rack 1
207800-284 Installation Material 1
200110-119 Fuse 1 1/3 amp 20
200110-129 Fuse 3 amp 10
200110-429 Fuse 10 amp 5
200110-139 Fuse 5 amp 10
SD0000 Std System Documentation 1
D0001 Specifications, Paper 3
D0002 Site Drawings, Paper 3
203352-600 Hendry Filtered Fuse Panel 1
207630-911 Modem Elimiator OCC 2
207630-901 PKG Assy/Modem Elimator 4
Superstructure & Cabling 1
Battery Distribution Frame
--------------------------
814053-043A 7 ft Battery Discharge Frame 1
207521-733 Shield 1
Power Equipment
---------------
202975-593 7' x 23" Relay Rack 1
BATRACKW/BRC Battery Rack - with Bracing 1
-4-
<PAGE> 27
SIEMENS Proposal No.: DCO-581065
STROMBERG-CARLSON Issue No. 1
Date: February 10, 1995
Installation Site: Garden Grove, California
ITEM 01
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
IN-PLACE
Switching Equipment
4DD-85-29 Exide DD Battery 1215 AH 1
203352-588 Charger/Lorain/200A RHM200D50 3
Distribution Frame Equipment
----------------------------
5065-8 Term Blocks Newton 8 x 26 4
5054 Newton Bracks (1 per 2 blks) 2
Maintenance & Administration Equipment
--------------------------------------
202958-464 Tape Cartridge 1
203352-608 Arrow Tape Drive Cleaning Kit 1
203352-283 Genicom 2120 Keyboard/Printer 1
7271-964 Box, Teleprinter Paper 1
Spare Circuit Packs
-------------------
200110-099 Fuse -1/2 Amp 1
207630-042 Shield Assembly 1
555020-125 Fuse, 3AG, 3A 1
555366-001 Switch, SPST 1
814288-526 Tape Diagnostic PWBA 1
Spare Circuit Packs (Cont.)
-------------------
814291-546 Tape Motion Cont. PWBA 1
814298-526 Tape Buffer PWBA 1
814439-056 PGC-1 PWBA 1
-5-
<PAGE> 28
SIEMENS Proposal No.: DCO-581065
STROMBERG-CARLSON Issue No. 1
Date: February 10, 1995
Installation Site: Garden Grove, California
ITEM 01
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
IN-PLACE
Switching Equipment
814440-076 PGC-2 PWBA 1
814441-056 MUX/DEMUX PWBA 1
814462-036A Power Supply PWBA 1
814463-026A Power Supply PWBA 1
814539-026 CMOS Codec Comm. PWBA 1
814727-626 J2 Maintenance Processor 1
817113-086 Power Supply PWBA 1
817524-066A LTC Interconnect PWBA 1
817560-626A T1 Interface PWBA 1
817561-526 T1 I/F Control 1 PWBA 1
817562-566 T1 I/F Control 2 PWBA 1
817564-026A Power Supply PWBA 1
817581-026 DS1 Terminator PWBA 1
817702-556A TMRS Processor 1
822010-656 Tape Drive PWBA 1
822010-666 Tape Drive PWBA 1
822015-536 Synchronous Clock PWBA 1
822024-036A Power Monitor PWBA 1
822033-596A MCG - II PWBA 1
822034-536A Master Clock Dist. PWBA 1
822289-566A TBI II PWBA 1
822723-556A Data Link III PWBA 1
822726-526A HD MSA/SL PWBA 1
-6-
<PAGE> 29
SIEMENS Proposal No.: DCO-581065
STROMBERG-CARLSON Issue No. 1
Date: February 10, 1995
Installation Site: Garden Grove, California
ITEM 01
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
IN-PLACE
Switching Equipment
822010-606A MSDA Pwr & Alarm 1
822010-636 Disk Drive Assy 1
822222-606A DLI-II 1
-7-
<PAGE> 30
SIEMENS Proposal No.: DCO-581065
STROMBERG-CARLSON Issue No. 1
Date: February 10, 1995
Installation Site: Garden Grove, California
DESCRIPTION QTY
==========================================================================
ITEM 02 DUPLEX MP'S
- --------------------------------------------------------------------------
814727-626 J Processor MP 2/MB PWBA 1
814770-656 PXA 1/Mbyte Memory PWBA 1
814621-804 Power Supply Duplex Mode 1
814721-666 Serial Line Unit PWBA 1
817680-606 BMUX PWBA 1
817620-556 MSA PWBA 1
822621-807 Mass Storage CUA Subsystem 1
822621-808 Mass Storage PWBAs 1
020089 Maintenance Processor, Duplex 1
ITEM 03A DEBIT CARD FEATURE
- ---------------------------------------------------------------------------
824420 Debit Card COS 1
ITEM 03B INTERNATIONAL OPERATOR FEATURE
- ---------------------------------------------------------------------------
824550 International Operator Service 1
-22-
<PAGE> 31
SCHEDULE 1 OF EXHIBIT A
(CERTIFICATE OF DELIVERY AND ACCEPTANCE)
EQUIPMENT DESCRIPTION
The items of personal property to be leased pursuant to this Lease Agreement,
dated as of April 6, 1996 between Telecommunications Finance Group, as Lessor,
and STAR VENDING, INC., as Lessee, are described below and in the attached
equipment list(s):
<TABLE>
<CAPTION>
Equipment List
- --------------
Number Description Amount
- ------ ----------- ------
<S> <C> <C>
DCO-581065 A Used Siemens Stromberg-Carlson DCO-CS Equipped and Wired for 4608 $664,000.00
Digital Ports Per DCO-581065, Issue 1, Dated 02/10/95 With Basic
Release 14, CMF Spares, AMA Frame, SS7 w/ 3 Access Links (With
Billing System) Including Installation
</TABLE>
The above described equipment installed at:
Los Angeles, California
BY:_______________________
DATE:_____________________
<PAGE> 32
SECRETARY'S CERTIFICATE
I, Mary Casey, do hereby certify that I am the Secretary of STAR
VENDING, INC., a corporation duly organized and existing under the laws of the
State of Nevada ("Corporation"); that I am the keeper of the seal of the
corporation and corporate records, including, without limitation, the Charter,
By-Laws and the minutes of the meeting of the Board of Directors of the
Corporation; that the following is an accurate and compared transcript of the
resolutions contained in the minute book of the Corporation, which resolutions
were duly adopted and ratified at a meeting of the Board of Directors of the
Corporation duly convened and held in accordance with the By-Laws and Charter of
the Corporation on the 30th day of Sept, 1996, at which time a quorum was
present and acted throughout; and that said resolutions have not in any way been
modified, repealed or rescinded, but are in full force and effect:
"RESOLVED, that any officer of the Corporation be and is
hereby authorized and empowered in the name and on behalf of this
Corporation to enter into one or more lease agreements with
Telecommunications Finance Group ("hereinafter called "LESSOR")
concerning personal property leased to the Corporation; from time to
time to modify, supplement or amend any such agreements; and to do and
perform all other acts and things deemed by such officer to be
necessary, convenient or proper to carry out any of the foregoing; and
be it
FURTHER RESOLVED, that all that any officer shall have done or
may do in the premises is hereby ratified and approved; and be it
FURTHER RESOLVED, that the foregoing resolutions shall remain
in full force and effect until written notice of their amendment or
recission shall have been received by LESSOR and that receipt of such
notice shall not effect any action taken or loans or advances made by
LESSOR prior thereto and LESSOR is authorized to rely upon said
resolutions until receipt by it of written notice of any change; and be
it
FURTHER RESOLVED, that the Secretary be and is hereby
authorized and directed to certify to LESSOR that the foregoing
resolutions and provisions thereof are in conformity with the Charter
and By-Laws of this Corporation."
I do further certify that the Lease Agreement entered into by the
Corporation and LESSOR concerning the following items of personal property:
Siemens Stromberg-Carlson Digital Central Office Carrier Switch plus Peripheral
Equipment
is one of the agreements referred to in said resolutions and was duly executed
pursuant thereto and there are no restrictions imposed by the Charter or By-Laws
of the Corporation restricting the power or authority of the Board of Directors
of the Corporation to adopt the foregoing resolutions or upon the Corporation or
its officers to act in accordance therewith.
I do further certify that the following are names and specimen signatures of
officers of the Corporation empowered and authorized by the above resolutions,
each of which has been duly elected to hold and currently holds the office of
the Corporation set opposite his name:
NAME OFFICE SIGNATURE
- ---- ------ ---------
Christopher Edgecomb President
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the
Corporation this 12th day of _________, 1995.
_______________________________
Secretary of STAR VENDING, INC.
(SEAL)
<PAGE> 33
SIEMENS SOFTWARE
STROMBERG-CARLSON LICENSE
AGREEMENT
400 Rinehart Road EXHIBIT B
Lake Mary, Florida 32746
(407) 333-5000
To:
THIS LICENSE AGREEMENT IS EFFECTIVE ON THE 6th day of April, 1995; by and
between Siemens Stromberg-Carlson with offices at 400 Rinehart Road, Lake Mary,
Florida ("SSC" or "Licensor") and STAR VENDING, INC. , WITH OFFICES AT 740 STATE
STREET, SUITE 202, SANTA BARBARA, CALIFORNIA 93101
("Buyer" or "Licensee")
SOFTWARE LICENSEE AGREEMENT
Under this Agreement, Buyer (hereinafter referred to as "Licensee") will acquire
from Siemens Stromberg-Carlson (hereinafter referred to as "Licensor") the
"Designated DCO" (defined below), which includes being furnished the "Software
Product" (defined below) and rights to use it in the operation of the Designated
DCO under the following terms and conditions.
1. In addition to definitions contained elsewhere herein, certain terms
shall have meanings as follows:
a. "Affiliated Corporation" means a subsidiary, parent, or sister
subsidiary either directly or indirectly controlling or
controlled by the party hereto or directly or indirectly
controlled by a common parent of the affiliate and the party.
b. "Derivative Work" means computer program instructions which
incorporate all or portions of a Software Product directly or
through linking and locating.
c. "Designated DCO" means the Digital Central Office system
equipment supplied to the Licensee by the Licensor for which the
site dependent data base questionnaire submitted by Licensee to
the Licensor is applicable.
d. "Generic Computer Program" means a software computer program in
which there subsides a set of computer instruction steps which
are generic to more than the specific version of the computer
program which is furnished under this license. (For the Software
Products furnished under a given license, only the applicable
computer program steps necessary to provide the licensed feature
are enabled.)
e. "Improvement/Enhancement" means any improvements or enhancements
to the Software Product, or to the composite hardware and
software design of the Designated DCO which includes an
improvement or enhancement to the Software Product.
f. "Improvements/Enhancements Grant-Back Rights" means royalty-free
worldwide, nonexclusive rights to make, have made, sell
(including disposition to an end-user) and use under copyrights
to software patents, copyrights to firmware and semiconductor
mask registration rights in and to Improvements/Enhancements,
with the right to sublicense to Affiliated Corporations (such
sublicense to survive any subsequent termination of the
affiliation).
g. "Software Product" means the software computer program, which is
tailored for use in the operation of the Designated DCO (in
accordance with the site dependent data base questionnaire
submitted by the Licensee to the Licensor) and which includes the
following materials:
(1.0) a set of machine readable computer program instructions recorded
on magnetic disks or other storage media; and;
(2.0) a source code listing of the data base portion of the computer
program instructions, augmented by the programmer's annotations;
and
(3.0) all releases, issues or short sequences of computer program
instruction modifications ("patches") furnished by the Licensor
to the Licensee as a replacement for or for the modification of
previously furnished materials; and
(4.0) all Derivative Works or modifications, by whomever made, of any
of the foregoing; and
(5.0) all copies of any of the foregoing, in whole or in part, by
whomever made.
2. In consideration of the right-to-use fee, stated in the Licensor's
invoice for the Designated DCO equipment, the Licensor grants under its
proprietary rights (including copyrights) and the Licensee accepts, in
accordance with the law of New York, an indivisible, nonexclusive and
nontransferable (except as provided in Section 2.m.) license in each
Software Product furnished hereunder to use the Software Product on the
Designated DCO subject to the following terms:
a. The Licensee Agrees:
(1.0) It shall limit its use of each Software Product solely to the
operation of the applicable Designated DCO and no other purpose;
and
(2.0) It shall limit its making of copies of the Software Product, in
whole or in part, to copies reasonably necessary for the
operation of the Designated DCO and shall make none other; and
(3.0) It shall reproduce all proprietary notices, including the
copyright notices of the Licensor, which appear on or are encoded
within the Software Product in the form or forms in which the
Software Product is received from the Licensor, upon all copies,
Derivative Works or other modifications which the Licensee shall
make; and
(4.0) The Software Product (physical materials, including all copies by
whomever made) shall be the property of the Licensor.
(5.0) The Licensee recognizes that the Software Product is a Generic
Computer Program, and shall not do, or cause to be done, anything
to activate any of the subsisting non-enabled computer
instruction steps therein. Further, the Licensor reserves to
itself the exclusive right to cause the subsiding non-enabled
program instruction steps to be activated (by the issuance under
this license of a version of Software Product having the
applicable additional computer instruction steps enabled)
pursuant to standard right-to-use software license upgrade Fees
or, in the absence of a standard upgrade _______________ to be
negotiated.
b. As an additional fee required hereunder for the Software Product,
the Licensee shall further pay to the Licensor any state or local
taxes, however designated, levied against and paid by the
Licensor, based upon this transaction, or based upon Licensor's,
or the Licensee's interests in the Software
<PAGE> 34
Product, including sales, privilege, use, personal property or
intangible property taxes, exclusive, however, of taxes based
upon net income.
c. Notwithstanding any other provision hereof, in the event Licensor
develops improvements or enhancements to the Software Product
which represent significant "value added" to the Designated DCO
or which represent a significant improvement of performance of
the Designated DCO, the Licensor reserves the right to market the
improvement or enhancement as a separate offering (requiring
payment of an additional right-to-use fee, and which at the
Licensor's option may require the Licensee to execute a new
Software Product License).
d. The License hereby grants and agrees to grant to the Licensor, to
the extent it lawfully may, the Improvements/Enhancements
Grant-Back Rights related to any development whether made by the
Licensor, Licensee, or agents of the Licensee, of all or any
portion of any Software Product furnished hereunder pursuant to
any request or specifications by the Licensee for a design
different from Licensor's design, and regardless of whether or
not the Licensee has compensated the Licensor for its performance
of such development. Title to patents, copyrights, trade secrets
and mask registrations developed by Licensor pursuant to any
request or specifications by the Licensee and regardless of
whether the Licensee has compensated the Licensor for its
performance of such development shall vest in Licensor; Licensee,
however, is to get Improvements/Enhancements Grant-Back Rights.
e. The Licensee shall not merge any Software Product with other
software computer program materials to form a Derivative Work or
otherwise modify or alter a Software Product in any manner
whatsoever, unless prior thereto the Licensee shall execute a
written grant-back, in a form satisfactory to the Licensor,
granting to the Licensor the Improvements/Enhancements Grant-Back
Rights in and to the merged, modified or altered Software
Product. However, nothing in this subsection 2.e. shall be
interpreted or construed as entitling the Licensee to access to
the source code version of the Software Product, or to receive
any manner of support of the Licensee's efforts to merge, modify
or alter Software Product from Licensor.
f. The Licensee agrees that any communication or other disclosure of
information it makes to the Licensor related to a
request/specification for an improvement, enhancement, or
modification to Licensor's design of the Software Product shall
be made upon a nonconfidential basis without any manner of
restriction of the Licensor in its use or dissemination of
received information.
g. Five (5) year initial term; option for fifty (50) year extension
term; and requirement for notice:
(1.0) The term of this License shall be five (5) years from and after
the date of turnover to the Licensee of the Designated DCO; and
the Licensee's rights-to-use the Software Product and this
License shall terminate upon the expiration of such term, unless
the Licensee has exercised its option to acquire a license
extension term, pursuant to Subsection 2.g.(2.0), following.
(2.0) The Licensor hereby grants Licensee an option whereby in return
for the payment of the then current right-to-use renewal fee, the
Licensee shall acquire a paid-up license extension for a term of
fifty (50) years starting immediately upon expiration of the
initial five (5)-year term.
(3.0) The foregoing notwithstanding, the Licensee's failure to exercise
the foregoing option by the date of expiration of the initial
five (5) year term shall not bring about the termination of the
Licensee's rights-to-use the Software Product and termination of
this License, unless the Licensor has provided the Licensee with
six (6) months advanced written notice advising the Licensee of
such impending termination (See also Subsection 2.1, hereinafter,
pertaining to notices.)
h. Default Termination:
(1.0) The Licensor and the Licensee shall have the right to terminate
this License in the event of any default by the other party which
the defaulting party fails to correct within a period of sixty
(60) days after the receipt of notice thereof from the
non-defaulting party, or immediately and without notice in the
event that any bankruptcy, arrangement for the benefit of
creditors or insolvency proceedings are commenced by or against
the Licensee, or in the event of the appointment of an assignee
for the benefit of creditors or a receiver of the Licensee or its
properties.
(2.0) However in the event at the time the Licensor shall be entitled
to exercise the foregoing right, to immediately and without
notice terminate this License, such termination would cause
interruption of service to governmentally franchised telephone
common carrier subscribers, the Licensor agrees in good faith
(but with due regard to the protection of licenses interests), to
provide its best efforts to cooperate with the enfranchising
authority to avoid disruption of common carrier.
(3.0) No termination hereunder shall prejudice any of the
non-defaulting party's rights arising prior thereto, or shall
limit in any way the other remedies available to the
non-defaulting party.
i. Upon any expiration or other termination of this License, whether
within the initial five (5)-year term or within any fifty
(50)-year extension term, the Licensee shall, as instructed by
the Licensor, either return to the Licensor or destroy the
Software Product. The Licensee may, in its discretion, destroy
replaced releases, issues, or "patches" of the Software Product.
Upon expiration of the fifty year term of the license extension,
all title and rights of ownership in tangible materials in the
Software Product shall vest in the Licensee; and all use,
proprietary treatment or other types of restrictions which this
license imposes upon the Licensee in relation to such materials
shall terminate.
j. Should any obligation of either party under this License be found
illegal or unenforceable in any respect, such illegality or
unenforceability shall not affect any other provision of this
License, all of which shall remain enforceable in accordance with
their terms. Should any obligations of either party under this
License be found illegal or unenforceable by reason of being
excessive in extent or breadth with respect to duration, scope or
subject matter, such obligations shall be deemed and construed to
be reduced to the maximum duration, to the end that such
obligations shall be and remain enforceable to the maximum extent
allowable.
k. This License constitutes the entire understanding of the parties
hereto and supersedes all previous communications,
representations and understandings between the parties with
respect to the subject matter of this License.
l. Any notice or other communication required or permitted to be
made or given hereunder to either party hereto shall be
sufficiently made or given on the date of mailing if sent to such
party by certified mail, postage prepaid, addressed to it at its
address set forth in this Agreement.
m. Assignment:
(1.0) The Licensee's rights hereunder are assignable, but only as part
of a transaction in which ownership of the Designated DCO is also
transferred.
(2.0) It is agreed that as a condition to the exercise of the
Licensee's right to assign this License: the Licensee shall
obtain for the Licensor a written assignment by which the
assignee agrees to undertake all of the obligations of assignor
which identifies and incorporates by reference this License, and
intermediate assignments, prior to any physical
<PAGE> 35
transfer or turnover of the Software Product to such assignee.
3. Patent of Copyright or Trademark Infringement
Licensor agrees, at its expense, to defend and indemnify Licensee in
any suit, claim or proceeding brought against Licensee alleging that
any Software Product licensed hereunder directly infringes any U.S.
Letters Patent, U.S. Copyright, or U.S. Trademark provided Licensor is
promptly notified, given assistance required, and permitted to direct
the defense. Further, Licensor agrees to pay any judgment based on
infringement rendered in such suit by final judgment of a court of last
resort, but Licensor shall have no liability for settlements or costs
incurred without its consent. Should the use of the Software Product by
Licensee be enjoined, or in the event that Licensor desires to minimize
its liability, hereunder, Licensor may fulfill its obligations
hereunder by either substituting noninfringing equivalent software, or
modifying the infringing Software Product or portion thereof so that it
no longer infringes but remains functionally equivalent, or obtain for
Licensee, at the expense of Licensor the right to continue use of such
Software Product, or if none of the foregoing is feasible, Licensor may
take back the Software Product and refund to Licensee the undepreciated
amount of any paid-up fee that has been paid to Licensor. The foregoing
states the entire liability of Licensor for patent, copyright or
trademark infringement or for any breach of warranty of
noninfringement, express or implied. The foregoing indemnity shall not
apply to any suit, claim or proceedings based upon allegations that a
process or method claim of a patient is infringed, nor to infringements
arising from modification of the Software Product by anyone other than
Licensor, nor to allegations of infringement based on the combination
of the Software Product with software or products supplied by Licensee
or others, nor to infringements arising from Software Products made to
the specification or design of Licensee; and Licensee agrees to
indemnify Licensor to an extent equivalent to that provided to the
Licensee hereinabove in the event any suit, claim, or proceedings is
brought against Licensor based upon any of the foregoing infringement
circumstances which are excluded from the Licensor's indemnification to
the Licensee.
4. Warranty and Disclaimer of Warranty
a. Licensor warrants that the Software Products other than the data
base portion of the Software Product covered by this Agreement
will, at the time of turnover, substantially conform to its
functional description in Licensor's technical proposal.
Licensor's sole obligation shall be to deliver any amendments or
alterations required to correct any such nonconforming Software
which is found to be defective within a period of one (1) year
after turnover and which significantly affects its performance.
b. Licensor warrants that the data base portion of the Software
Product covered by this license shall substantially conform to
the Licensee's executed data base questionnaire.
Licensor's sole obligation shall be to correct any nonconforming
data base which is found to be defective within a period of
ninety (90) days after turnover.
c. The foregoing warranties do not extend to:
(1.0) defects or nonconformities from any cause including but not
limited to abuse, acts of God, improper installation,
modifications, or maintenance (if performed by other than
Licensor), and other defects traceable to Licensee's acts or
omissions; or
(2.0) defects or nonconformities in software, firmware or data base
traceable to Licensee's errors, modifications or system changes.
d. THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER WARRANTIES,
EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE. BUYER FURTHER AGREES THAT LICENSOR WILL NOT BE LIABLE
FOR ANY LOSS OF DATA OR USE, LOST PROFITS OR REVENUE, OR FOR ANY
CLAIM OR DEMAND AGAINST BUYER BY ANY OTHER PARTY. IN NO EVENT
WILL LICENSOR BE LIABLE FOR CONSEQUENTIAL DAMAGES EVEN IF
LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
5. Limitation of Liability
a. LICENSOR SHALL NOT BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR
CONSEQUENTIAL DAMAGES OF ANY NATURE AND FROM ANY CAUSE WHETHER
BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE), INFRINGEMENT OF
STATUTORY PROPRIETARY RIGHTS INCLUDING PATENT, COPYRIGHT OR
TRADEMARK (EXCEPT AS EXPRESSLY PROVIDED IN SECTION 3. ABOVE), OR
ANY OTHER LEGAL THEORY, EVEN IF LICENSOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. LICENSEE FURTHER AGREES THAT
LICENSOR WILL NOT BE LIABLE FOR ANY LOSS OF DATA OR USE, LOST
PROFITS OR REVENUE, OR FOR ANY CLAIM OR DEMAND AGAINST LICENSEE
BY ANY OTHER PARTY.
b. LICENSEE ASSUMES SOLE RESPONSIBILITY FOR ENSURING THAT THE
BILLING CENTER CAN CORRECTLY READ CALL RECORDS. LICENSEE'S
RESPONSIBILITY INCLUDES READING DAILY THE AMA FRAME AND/OR
POLLING SYSTEM TAPE(S) BY THE BILLING SYSTEM COMPUTER TO ENSURE
ALL TICKET INFORMATION IS PRESENT. RISK OF LOSS FOR ANY DATA,
USE, REVENUE OR PROFIT ASSOCIATED THEREWITH PASSES TO LICENSEE
UPON CUTOVER OF ANY HARDWARE OR SOFTWARE.
WHEREFORE the parties hereto manifest their agreement to the terms and
conditions hereinabove, effective on the date first above written, by affixing
hereto the signatures of their respective authorized representatives
hereinbelow.
SIEMENS STROMBERG-CARLSON STAR VENDING, INC.
Licensor _______________________
Licensee
By:_______________________________ By:_______________________________
(signature) (signature)
__________________________________ __________________________________
(name & title) (name & title)
Date:_____________________________ Date:_____________________________
SIEMENS
<PAGE> 36
ASSIGNMENT OF PURCHASE ORDER
This Assignment between STAR VENDING, INC. ("Company") and
Telecommunications Finance Group ("Lessor")
WHEREAS, the Company and Lessor have, or will shortly, execute a Lease
Agreement ("Lease"); and
WHEREAS, the Company has executed and delivered a certain purchase
contract covering the property described therein (the "Equipment"), a copy of
which purchase contract is attached hereto as Attachment A ("Purchase Order");
and
WHEREAS, the Company desires to assign to Lessor all of its rights and
interests under the Purchase Order for that equipment listed on Schedule 1, as
amended from time to time, of Exhibit A of the Lease so that Lessor might
purchase and take title to such equipment in the Company's stead.
NOW, THEREFORE, for valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. This Assignment shall be effective as of the date the Company executes
Exhibit A entitled "Certificate of Delivery and Acceptance" of the Lease.
2. The Company (a) represents and warrants that the Purchase Order constitutes
the entire understanding of the parties thereto with respect to the purchase and
sale of the Equipment covered thereby; (b) hereby assigns to Lessor all of its
rights under the Purchase Order as to the equipment listed on Schedule 1, as
amended from time to time, of Exhibit A of the Lease; (c) hereby assigns to
Lessor and Lessor hereby assumes and agrees, so long as a Company complies with
the provisions of the Lease and otherwise performs its obligations under the
Purchase Order, to perform Company's obligation under the Purchase Order to pay
the price of the equipment listed on Schedule 1, as amended from time to time,
of Exhibit A of the Lease; and (d) represents and warrants that neither notice
to nor consent from the respective vendor is required in connection with the
execution, delivery and performance of this Assignment or for the validity or
enforceability of this Assignment.
3. Pursuant to this Assignment, the Company hereby agrees with Lessor that the
Company shall continue to be responsible for the performance of all obligations
under the Purchase Order, except for, subject to the condition provided in
Paragraph 1 above, the obligation to pay the price as provided in Paragraph 2
above, and the Company agrees to hold harmless and indemnify Lessor from all
liability, loss, damage, and expense arising from or directly or indirectly
attributable to such obligations.
IN WITNESS WHEREOF, the parties have duly executed this Assignment
under seal by their authorized representatives as of the date opposite their
respective signatures.
TELECOMMUNICATIONS FINANCE GROUP STAR VENDING, INC.
By: ____________________________ By:__________________________
________________________________ _____________________________
AUTHORIZED REPRESENTATIVE OF (Name & Title)
TELECOMMUNICATIONS FINANCE GROUP
Date signed:____________________ Date Signed:_________________
<PAGE> 37
STAR VENDING, INC.
SITE: LOS ANGELES, CALIFORNIA #1
LEASE PAYMENTS
ADDENDUM TO LEASE AGREEMENT DATED April 6, 1995 BETWEEN
TELECOMMUNICAITONS FINANCE GROUP AND
STAR VENDING, INC.
<TABLE>
<CAPTION>
EFFECTIVE OCTOBER 1, 1996 (60 MONTHLY LEASE PAYMENTS)
<S> <C> <C> <C>
ORIGINAL VALUE OF EQUIPMENT $ 664,000.00
RATE FACTOR PER $1,000 $ 22.498
ORIGINAL MONTHLY LEASE PAYMENT $ 14,938.67
EFFECTIVE JANUARY 1, 1996 (57 MONTHLY LEASE PAYMENTS REMAINING)
ADDITION I $ 224,050.69
RATE FACTOR PER $1,000 $ 23.353
ADDITION I MONTHLY LEASE PAYMENT $ 5,232.26
TOTAL MONTHLY LEASE PAYMENT $ 20,170.93
============
TOTAL VALUE OF EQUIPMENT $ 888,050.69
------------
</TABLE>
SUMMARY OF TOTAL LEASE PAYMENTS:
3 @ $14,938.67 = $ 44,816.01
57 @ $20,170.93 = $1,149,743.01
-- -------------
60 $1,194,559.02
ACCEPTED BY:_______________________
DATE:______________________________
<PAGE> 38
(CERTIFICATE OF DELIVERY AND ACCEPTANCE)
EQUIPMENT DESCRIPTION
The items of personal property to be leased pursuant to this Lease Agreement,
dated as of April 6, 1995 between TELECOMMUNICATIONS FINANCE GROUP, as Lessor,
and STAR VENDING, INC., as Lessee, are described below and in the attached
equipment list(s):
<TABLE>
<CAPTION>
Equipment List
- --------------
Number Description Amount
- ------ ----------- ------
<S> <C> <C>
DCO-581065 A USED SIEMENS STROMBERG-CARLSON DCO-CS EQUIPPED AND WIRED FOR 4608 $664,000.00
DIGITAL PORTS PER DCO-581065, ISSUE 1, DATED 02/10/95 WITH BASIC
RELEASE 14, CMF SPARES, AMA FRAME, SS7 W/ 3 ACCESS LINKS (WITH
BILLING SYSTEM) INCLUDING INSTALLATION
TFG-95073 ADDITION I 224,050.69
----- ----------
TOTAL $888,050.69
===========
</TABLE>
The above described equipment installed at:
One Wilshire Building, 624 S. Grand Avenue, Suite 1111, Los Angeles, California
90017
BY:_______________________
DATE:_____________________
Dated: April 6, 1995
Revised: November 9, 1995
<PAGE> 39
Alta Computer Corporation
140 Natoma, Suite 140 Date Invoice
Santa Barbara, CA 93101
805 962-7721 FAX 962-742 26 Jun 95 6689
Bill To: Telecom Finance Group Ship To: TFG
400 Rinehart Road c/o STAR Vending, Inc.
Lake Mary, FL 32746 740 State Street, Suite 202
Attn: Mail Zone A-5 Santa Barbara, CA 93101
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
PO Number Terms Rep Ship Date Ship Via F.O.B. Project
- ------------------------------------------------------------------------------------------------------------------------
TFG618 Due on receipt CRM 26 Jun 95 Best Way Santa Barbara Software
- ------------------------------------------------------------------------------------------------------------------------
Quantity Item Code Description Price Each Amount
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SOFTWARE
----------------
2 EICONOSIGN EICON OSI/PC Gateway for DOS & Windows P/N: 185.00 370.00
315-397
S/N: 0416972-2, 0417085-1
1 EICONDEVKT EICON x .25 Network Level Development Kit for 920.00 920.00
OS/2 P/N: 315603-7 S/N: GEIB528090696
1 CLOSEUP 60 Norton-Lamber Close-Up Remote Dial-Up Software 145.00 145.00
Dual Pack v6.0 P/N: 272790
1 MCAFEENETS McAfee NetShield NLM Virus Monitor v2.0 25-user 375.00 375.00
P/N: 297464
Subtotal 1,810.00
- -----------------------------------------------------------------------------------------------------------------------
Please remit to above address. TOTAL: 1,810.00
- ------------------------------------------------------------------------------------------------------------------------
BALANCE DUE: 1,810.00
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.19
LEASE AGREEMENT
This LEASE AGREEMENT, is effective on January 3, 1996 between TELECOMMUNICATIONS
FINANCE GROUP (hereinafter "Lessor"), and STAR VENDING, INC., a Nevada
corporation with its principal office located at 740 State Street, Suite 202,
Santa Barbara, CA 93101, (hereinafter "Lessee").
1. Lease.
Lessor, subject to the conditions set forth in Section
25 hereof, agrees to lease to Lessee and Lessee agrees to lease from Lessor
hereunder, those items of personal property (the "equipment") which are
described on Schedule 1 of Exhibit A hereto. Lessee agrees to execute and
deliver to Lessor a certificate of delivery and acceptance in substantively the
form of Exhibit A hereto (a "Delivery Certificate") immediately after Turnover
of the equipment, and such execution shall constitute Lessee's irrevocable
acceptance of such items of equipment for all purposes of this Lease. The
Delivery Certificate shall constitute a part of this Lease to the same extent as
if the provisions thereof were set forth herein.
2. Definitions.
"Amortization Deductions" as defined in Section
11(b)(i) hereof.
"Appraisal Procedure" shall mean the following procedure
for determining the Fair Market Sale Value of any item
of equipment. If either Lessor or Lessee shall request
by notice (the "Appraisal Request") to the other that
such value be determined by the Appraisal Procedure, (i)
Lessor and Lessee shall, within 15 days after the
Appraisal Request, appoint an independent appraiser
mutually satisfactory to them, or, (ii) if the parties
are unable to agree on a mutually acceptable appraiser
within such time, Lessor and Lessee shall each appoint
one independent appraiser (provided that if either party
hereto fails to notify the other party hereto of the
identity of the independent appraiser chosen by it
within 30 days after the Appraisal Request, the
determination of such value shall be made by the
independent appraiser chosen by such other party), and
(iii) if such appraisers cannot agree on such value
within 20 days after their appointment and if one
appraisal is not within 5% of the other appraisal,
Lessor and Lessee shall choose a third independent
appraiser mutually satisfactory to them (or, if they
fail to agree upon a third appraiser within 25 days
after the appointment of the first two appraisers, such
third independent appraiser shall within 20 days
thereafter be appointed by the American Arbitration
Association), and such value shall be determined by such
third independent appraiser within 20 days after his
appointment, after consultation with the other two
independent appraisers. If the first two appraisals are
within 5% of each other, then the average of the two
appraisals shall be the Fair Market Sale Value. The fees
and expenses of all appraisers shall be paid by Lessee.
"Business Day" shall mean a day other than a
Saturday, Sunday or legal holiday under the laws of
the State of Florida.
"Code" shall mean the Internal Revenue Code of 1954,
as amended, or any comparable successor law.
"Commencement Date" as defined in Section 3 hereof.
"Default" shall mean any event or condition which after
the giving of notice or lapse of time or both would
become an Event of Default.
"Delivery Certificate" as defined in Section 1 hereof.
<PAGE> 2
"Equipment" as defined in Section 1 hereof.
"Event of Default" as defined in Section 18 hereof.
"Event of Loss" shall mean, with respect to any item of
equipment, the actual or constructive total loss of such
item of equipment or the use thereof, due to theft,
destruction, damage beyond repair or rendition thereof
permanently unfit for normal use from any reason
whatsoever, or the condemnation, confiscation or seizure
of, or requisition of title to or use of, such item of
equipment.
"Fair Market Sale Value" shall, at any time with respect
to any item of equipment, be equal to the sale value of
such item of equipment which would be obtained in an
arm's-length transaction between an informed and willing
seller under no compulsion to sell and an informed and
willing buyer-user (other than a lessee currently in
possession or a used equipment or scrap dealer). For
purposes of Section 7(b) hereof, Fair Market Sale Value
shall be determined by (i) an independent appraiser (at
Lessee's expense) selected by Lessor or (ii) by the
Appraiser Procedure if the Appraisal Request is made at
least 90 days (but not more than 360 days prior to the
termination or expiration of the Lease Term, as the case
may be, which determination shall be made (a) without
deduction for any costs or expenses of dismantling or
removal; and (b) on the assumption that such item of
equipment if free and clear of all Liens and is in the
condition and repair in which it is required to be
returned pursuant to Section 7 (a) hereof. For purposes
of Section 19(c) hereof, Fair Market Sale Value shall be
determined (at Lessee's expense) by an independent
appraiser selected by Lessor, on an "as-is, where-is"
basis, without regard to the provisions of clauses (a)
and (b) above; provided that if Lessor shall have sold
any item of equipment pursuant to Section 19(b) hereof
prior to giving the notice referred to in Section 19(c)
hereof. Fair Market Sale Value of such item of equipment
shall be the net proceeds of such sale after deduction
of all costs and expenses incurred by Lessor in
connection therewith; provided further, that if for any
reason Lessor is not able to obtain possession of any
item of equipment pursuant to Section 19(a) hereof, the
Fair Market Sale Value of such item of equipment shall
be zero.
"Imposition" as defined in Section 11 (a) hereof.
"Indemnitee" as defined in Section 17 hereof.
"Late Charge Rate" shall mean an interest rate per annum
equal to the higher of two percent (2%) over the
Reference Rate or eighteen percent (18%), but not to
exceed the highest rate permitted by applicable law.
"Lease" and the terms "hereof," "herein," and
"hereunder," when used in this Lease Agreement, shall
mean and include this Lease Agreement, Exhibits and the
Delivery Certificate hereto as the same may from time to
time be amended, modified or supplemented.
"Lease Term" shall mean, with respect to any item of
equipment, the term of the lease of such item of
equipment hereunder specified in Section 3 hereof.
"Lessee" as defined in the introductory paragraph to
this Lease.
"Lessor" as defined in the introductory paragraph of
this Lease.
"Lessor's Value" shall mean, with respect to any item of
equipment and installation if applicable, the total
amount set forth in Schedule 1 of Exhibit A hereto.
"Lessor's Liens" shall mean (i) any mortgage, pledge,
lien, security interest, charge, encumbrance, financing
statement, title retention or any other right or claim
of any person claiming through or
2
<PAGE> 3
under Lessor, not based upon or relating to ownership
of the equipment or the lease thereof hereunder and
(ii) any mortgage, pledge, lien, security interest,
charge, encumbrance, financing statement, title
retention or any other right or claim of Owner (other
than Lessor) claiming through or under Lessor in
connection with the transactions described in Section
21(b) hereof.
"Liens" shall mean any mortgage, pledge, lien, security
interest, charge, encumbrance, financing statement,
title retention or any other right or claim of any
person, other than any Lessor's Lien.
"Loss Payment Date" shall mean with respect to any
item of equipment the date on which payment, as
described in Section 16(b) hereof, is made to the
Lessor by the Lessee as the result of an Event of
Loss with respect to such item. The Loss Payment Date
shall be within ninety (90) days of the said Event of
Loss.
"Owner" shall mean the entity or person having ownership
interest to the equipment as contemplated by the
provisions of Section 21(b) hereof and may be a person
other than Lessor.
"Owner's Economics" shall mean the after-tax yield and
periodic after-tax cash flow anticipated by Owner as of
the date of this Lease, in connection with the
transactions contemplated by this Lease as determined by
Owner unless Lessor shall have transferred its interest
in the equipment to another person as contemplated by
the provisions of Section 21(b) hereof in which case
"Owner's Economics" shall mean the after-tax yield and
periodic after-tax cash flow anticipated by such person
as of the date of the lease between such person and
Lessor contemplated by said provisions, in connection
with the transactions contemplated by such lease as
determined by such person.
"Recovery Deductions" as defined in Section 11 (b)
(i) hereof.
"Reference Rate" shall mean the rate of interest
publicly announced by Citibank, N.A. in New York, New
York from time to time as its prime rate.
The reference rate is not intended to be the lowest rate
of interest charged by Citibank, N.A. in connection with
the extensions of credit to debtors. The Reference Rate
shall be determined at the close of business on the 15th
day of each calendar month (if the 15th day is not a
Business Day, then on the first preceding Business Day)
and shall become effective as of the first day of the
calendar month succeeding such determination and shall
continue in effect to, and including, the last day of
said calendar month.
"Rent Payment Date" shall mean each date on which an
installment of rent is due and payable pursuant to
Section 5(a) hereof.
"Stipulated Loss Value" shall mean, with respect to any
item of equipment, the amount determined by multiplying
the Lessors Value of such item of equipment by the
percentage set forth in Schedule A hereto opposite the
applicable Rent Payment Date; provided, that for
purposes of Sections 16(b) and 19(c) hereof, any
determination of Stipulated Loss Value as of a date
occurring after the final Rent Payment Date with respect
to such item of equipment, shall be made as of such
final Rent Payment Date.
"Tax Benefits" shall mean the right to claim such
deductions, credits, and other benefits as are provided
by the Code to an owner of property, including the
Recovery Deductions and Amortization Deductions.
"Turnover" shall mean the point in time when the
equipment installation personnel complete testing of the
equipment, or when the equipment is placed into service,
whichever first occurs.
3
<PAGE> 4
All accounting terms not specifically defined herein
shall be construed in accordance with generally
accepted accounting principles.
3. Lease Term.
The term of the lease of the equipment hereunder shall
commence on the Commencement Date specified in the Delivery Certificate
("Commencement Date") and, unless earlier terminated pursuant to the provisions
hereof or at law or equity, shall continue for a term of sixty (60) months from
such Commencement Date. The Commencement Date specified in the Delivery
Certificate shall be the date on which Turnover occurs at a site provided by
Lessee in accordance with the provisions of Section 4 hereof.
4. Installation.
Lessor shall arrange for installation of the equipment,
the cost of which installation shall be deemed to be part of Lessor's
Value. Exhibit A hereto shall indicate whether such cost is included or excluded
from the monthly rent payments due in accordance with Section 5(a) hereof. If
excluded from such monthly rent payments, Lessor shall separately invoice Lessee
for such installation upon completion thereof and Lessee shall pay such invoice
within thirty (30) days from the date thereof. Lessee shall be obligated to
timely provide a suitable site for the installation of the equipment in
accordance with the equipment manufacturer's practices attached hereto as
Exhibit C. Lessee shall be responsible for compliance with environmental
requirements and central office grounding procedures specified in Exhibit C
hereto and for providing adequate space, lighting, heating, air-conditioning and
A/C power at the installation site. Unavailability of Lessee furnished
facilities shall be cause for adjustments to the installation price set forth in
Schedule 1 of Exhibit A hereto.
5. Rent; Unconditional Obligations.
(a) Lessee agrees to pay to Lessor, at the address
specified in Section 24 hereof or at such other address as Lessor may specify,
rent for the initial equipment at a rate not to exceed $22.244 per $1,000 of the
total Lessor's Value of such items of equipment, as set forth in Schedule 1 of
Exhibit A dated January 3, 1996, (plus applicable sales or use taxes) per month,
in sixty (60) consecutive monthly installments, with the first installment of
rent being due on the Commencement Date unless the Commencement Date is other
than the first day of a calendar month, in which event the first installment of
rent shall be due on the first day of the month following the Commencement Date,
and succeeding installments being due on the same date of each month thereafter.
In the event of any additions to the initially leased equipment, the rental rate
on any additional equipment will be the rate as shown on the Amendment to
Schedule 1 of Exhibit A adding the equipment to the lease.
(b) Lessee shall also pay to Lessor, on demand, interest
at the Late Charge Rate on any installment of rent and on any other amount owing
hereunder which is not paid on its due date, for any period for which the same
shall be overdue. Each payment made under this Lease shall be applied first to
the payment of interest then owning and then to rent or other amounts owing
hereunder. Interest shall be computed on the basis of a 360-day year and actual
days elapsed.
(c) This Lease is a net lease, and Lessee's obligation
to pay all rent and all other amounts payable hereunder is ABSOLUTE AND
UNCONDITIONAL under any and all circumstances and shall not be affected by any
circumstances of any character whatsoever, including, without limitation, (i)
any set-off, counterclaim, recoupment, defense, abatement or reduction or any
right which Lessee may have against Lessor, the manufacturer or supplier of any
of the equipment or anyone else for any reason whatsoever; (ii) any defect in
the title, condition, design, or operation of, or lack of fitness for use of, or
any damage to, or loss of, all or any part of the equipment from any cause
whatsoever; (iii) the existence of any Liens with respect to the equipment; (iv)
the invalidity, unenforceability or disaffirmance of this Lease or any other
document related hereto; or (v) the prohibition of or interference with the use
or possession by Lessee of all or any part of the equipment, for any reason
whatsoever, including without limitation, by reason of (1) claims for patent,
trademark or copyright infringement; (2) present or future governmental laws,
rules or orders; (3) the insolvency, bankruptcy or reorganization of any person;
and (4) any other cause whether similar or dissimilar to the foregoing, any
present or
4
<PAGE> 5
future law to the contrary notwithstanding. Lessee hereby waives, to the extent
permitted by applicable law, any and all rights which it may now have or which
may at any time hereafter be conferred upon it, by statute or otherwise, to
terminate, cancel, quit or surrender the lease of any equipment. If for any
reason whatsoever this Lease or any Supplement, other than pursuant to Section
16(b) hereof, shall be terminated in whole or in part by operation of law or
otherwise, Lessee will nonetheless pay to Lessor an amount equal to each
installment of rent at the time such installment would have become due and
payable in accordance with the terms hereof. Each payment of rent or other
amount paid by Lessee hereunder shall be final and Lessee will not seek to
recover all or any part of such payment for Lessor for any reason whatsoever.
6. WARRANTY DISCLAIMER; ASSIGNMENT OF WARRANTIES.
(a) LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE
MADE AND LESSEE HEREBY EXPRESSLY WAIVES ANY WARRANTY OR REPRESENTATION, EITHER
EXPRESS OR IMPLIED, AS TO THE EQUIPMENT, INCLUDING WITHOUT LIMITATION, ANY
WARRANTY OF MERCHANTABILITY OR FITNESS OF THE EQUIPMENT FOR ANY PARTICULAR
PURPOSE. FREEDOM FROM INTERFERENCE OR INFRINGEMENT OR THE LIKE, OR AS TO THE
TITLE TO OR LESSOR'S OR LESSEE'S INTEREST IN THE EQUIPMENT OR AS TO ANY OTHER
MATTER RELATING TO THE EQUIPMENT OR ANY PART THEREOF.
LESSEE CONFIRMS THAT IT HAS SELECTED THE EQUIPMENT AND
EACH PART THEREOF ON THE BASIS OF ITS OWN JUDGMENT AND EXPRESSLY DISCLAIMS
RELIANCE UPON ANY STATEMENTS, REPRESENTATIONS OR WARRANTIES MADE BY LESSOR.
LESSOR NEITHER MAKES NOR SHALL BE DEEMED TO HAVE MADE
ANY REPRESENTATION OR WARRANTY AS TO THE ACCOUNTING TREATMENT TO BE ACCORDED TO
THE TRANSACTIONS CONTEMPLATED BY THIS LEASE OR AS TO ANY TAX CONSEQUENCES AND/OR
TAX TREATMENT THEREOF.
(b) LESSOR HEREBY ASSIGNS TO LESSEE SUCH RIGHTS AS
LESSOR MAY HAVE (TO EXTENT LESSOR MAY VALIDLY ASSIGN SUCH RIGHTS) UNDER ALL
MANUFACTURERS' AND SUPPLIERS' WARRANTIES WITH RESPECT TO THE EQUIPMENT;
PROVIDED, HOWEVER, THAT THE FOREGOING RIGHTS SHALL AUTOMATICALLY REVERT TO
LESSOR UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF ANY EVENT OF DEFAULT
HEREUNDER, OR UPON THE RETURN OF THE EQUIPMENT TO LESSOR. LESSEE AGREES TO
SETTLE ALL CLAIMS WITH RESPECT TO THE EQUIPMENT DIRECTLY WITH THE MANUFACTURERS
OR SUPPLIERS THEREOF, AND TO GIVE LESSOR PROMPT NOTICE OF ANY SUCH SETTLEMENT
AND THE DETAILS OF SUCH SETTLEMENT. HOWEVER, IN THE EVENT ANY WARRANTIES ARE NOT
ASSIGNABLE, THE LESSOR AGREES TO ACT ON BEHALF OF THE LESSEE IN SETTLING CLAIMS
ARISING UNDER THE WARRANTY WITH THE MANUFACTURER OR SUPPLIER.
(c) IN NO EVENT SHALL LESSOR BE LIABLE FOR LOSS OF
REVENUE OR PROFITS, SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES OF
ANY NATURE OR FROM ANY CAUSE EVEN IF LESSOR HAS BEEN ADVISED OF THE POSSIBILITY
OF SUCH DAMAGES.
7. Disposition of Equipment.
(a) Return.
Lessee shall, upon the expiration of the Lease Term of
each item of equipment, subject to paragraph (b) below, return such item of
equipment to Lessor at such place within the continental United States of
America as Lessor shall designate in writing to Lessee. Until such item of
equipment is returned to Lessor pursuant to the provisions of this Section , all
of the provisions of this Lease with respect thereto shall continue in full
force and effect. Lease shall pay all the costs and expenses in connection with
or incidental to the return of the equipment, including, without limitation, the
cost of removing, assembling, packing, insuring and transporting the
5
<PAGE> 6
equipment. All the time of such return, the equipment shall be in the condition
and repair required to be maintained by Section 12 hereof and free and clear of
all Liens.
(b) Purchase Option.
So long as no Default or Event of Default shall have
occurred and be continuing, Lessee may, by written notice given to Lessor at
least 120 days (but not more than 360 days) prior to the expiration date of the
Lease Term of any item of equipment (which notice shall be irrevocable), elect
to purchase such item of equipment on such expiration date for a cash purchase
price equal to the Fair Market Sale Value of such item of equipment determined
as of such expiration date, plus an amount equal to all taxes (other than income
taxes on any gain on such sale), costs and expenses (including legal fees and
expenses) incurred or paid by Lessor in connection with such sale. Upon payment
by Lessee of such purchase price, and of all other amounts then due and payable
by Lessee hereunder, Lessor shall transfer title to such items of equipment
except computer software to Lessee on an "as-is, where-is" basis, without
recourse and without representation or warranty of any kind, express or implied,
other than a representation and warranty that such item of equipment is free and
clear of any Lessor's Liens.
8. Representation and Warranties.
In order to induce Lessor to enter into this Lease and
to lease the equipment to Lessee hereunder, Lessee represents and warrants
that:
(a) Organization.
Lessee is duly organized, validly existing and in good
standing under the laws of the State of Nevada and is duly qualified to do
business and is in good standing in the State in which the equipment will be
located.
(b) Power and Authority.
Lessee has full power, authority and legal right to
execute, deliver and perform this Lease, and the execution, delivery and
performance hereof has been duly authorized by Lessee's governing body or
officer(s).
(c) Enforceability.
This Lease has been duly executed and delivered by
Lessee and constitutes a legal, valid and binding obligation of Lessee
enforceable in accordance with its terms.
(d) Consents and Permits.
The execution, delivery and performance of this Lease
does not require any approval or consent of any trustee, shareholder,
partner, sole proprietor, or holders of any indebtedness or obligations of
Lessee, and will not contravene any law, regulation, judgment or decree
applicable to Lessee, or the certificate of partnership or incorporation or
by-laws of Lessee, or contravene the provisions of, or constitute a default
under, or result in the creation of any Lien upon any property of Lessee under
any mortgage, instrument or other agreement to which Lessee is a party or by
which Lessee or its assets may be bound or affected, and no authorization,
approval, license, filing or registration with any court or governmental agency
or instrumentality is necessary in connection with the execution, delivery,
performance, validity and enforceability of this Lease.
(e) Financial Condition of the Lessee.
The financial statements of Lessee heretofore furnished
to Lessor are complete and correct and fairly present the financial
condition of Lessee and the results of its operations for the respective periods
covered thereby, there are no known contingent liabilities or liabilities for
taxes of Lessee which are not reflected in said
6
<PAGE> 7
financial statements and since the date thereof, there has been no material
adverse change in such financial condition or operations.
(f) No Litigation.
There is no action, suit, investigation or proceeding by
or before any court, arbitrator, administrative agency or other governmental
authority pending or threatened against or affecting Lessee (A) which involves
the transactions contemplated by this Lease or the equipment; or (B) which, if
adversely determined, could have a material adverse effect on the financial
condition, business or operations of Lessee.
(g) United States Source Income.
No items of equipment shall be used in a way that
results in the creation of an item of income to Lessor, the source of which for
Federal Income Tax purposes is without the United States.
9. Liens.
Lessee will not directly or indirectly create, incur,
assume, suffer, or permit to exist any Lien on or with respect to the
equipment.
10. Insurance.
Lessee shall maintain at all times on the equipment, at
its expense, property damage, direct damage and liability insurance in such
amounts, against such risks, in such form and with such insurers as shall be
reasonably satisfactory to Lessor and any other Owner; provided, that the amount
of direct damage insurance shall not on any date be less than the greater of the
full replacement value or the Stipulated Loss Value of the equipment as of such
date. Each insurance policy will, among other things, name Lessor and any other
Owner as an additional insured or as loss payee (as the case may be) as their
interests may appear, require that the insurer give Lessor and any such Owner at
least thirty (30) days prior written notice of any alteration in or cancellation
of the terms of such policy, and require that the interest of Lessor and any
such Owner be continued insured regardless of any breach of or violation by
Lessee of any warranties, declarations or conditions contained in such insurance
policy. Lessee shall furnish to Lessor and such Owner a certificate or other
evidence satisfactory to Lessor that such insurance coverage is in effect
provided, however, that Lessor and such Owner shall be under no duty to
ascertain the existence or adequacy of such insurance.
11. Taxes.
(a) General Tax Provisions.
Lessee shall pay, and shall indemnify and hold Lessor
harmless from and against, all fees, taxes (whether sales, use, excise,
personal property or other taxes), imposts, duties, withholdings, assessments
and other governmental charges of whatever kind or character, however designated
(together with any penalties, fines or interest thereon), all of the foregoing
being herein collectively called "Impositions," which are at any time levied or
imposed against Lessor, Lessee, this Lease, the equipment or any part thereof by
any Federal, State, or Local Government or taxing authority in the United States
or by any foreign government or any subdivision or taxing authority thereof
upon, with respect to, as a result of or measured by (i) the equipment (or any
part thereof), or this Lease or the interests of the Lessor therein; or (ii) the
purchase, ownership, delivery, leasing, possession, maintenance, use, operation,
return, sale or other disposition of the equipment or any part thereof; or (iii)
the rentals, receipts or earnings payable under this Lease or otherwise arising
from the equipment or any part thereof; excluding, however, taxes based on or
measured by the net income of Lessor that are imposed by (1) the United States
of America, or (2) the State of Florida or any political subdivision of the
State of Florida, or (3) any other State of the United States of America or any
political subdivision of any such State in which Lessor is subject to
Impositions as the result (whether solely or in part) of business or
transactions unrelated to this Lease. In case any report or return is required
to be filed with respect to any obligation of Lessee under this Section or
arising out of
7
<PAGE> 8
this Section , Lessee will notify Lessor of such requirement and
make such report or return in such manner as shall be satisfactory to Lessor;
provided, that the payment of any use taxes shall be made in such manner as
specified by Lessor in writing to Lessee; or (iv) The provisions of this Section
shall survive the expiration or earlier termination of this Lease.
(b) Special Tax Provisions.
(i) The Owner of the items of equipment,
shall be entitled to take into account in computing its Federal income tax
liability, Current Tax Rate and such deductions, credits, and other benefits as
are provided by the Code to an owner of property, including, without limitation:
(A) Recovery deductions ("Recovery
Deductions") under Section 168 (a) of the Code for each item of equipment in an
amount determined, commencing with the 1996 taxable year, by multiplying the
Owner's Cost of such item of equipment by the percentage applicable under
Section 168(b) of the Code with respect to "(5)-year property" within the
meaning of Section 168 (c) (2) of the Code;
(B) Amortization of expenses
("Amortization Deductions") paid or to be paid by Owner in connection with this
Lease at a rate no less rapid than straight line over the Lease Term.
(ii) For the purposes of this Subsection 11
(b) only, the term "Owner" shall include the "common parent" and all other
corporations included in the affiliated group, within the meaning of Section
1504 of the Code (or any other successor section thereto), of which Owner is or
becomes a member.
12. Compliance with Laws; Operation and Maintenance.
(a) Lessee will use the equipment in a careful and
proper manner, will comply with and conform to all governmental laws, rules and
regulations relating thereto, and will cause the equipment to be operated in
accordance with the manufacturer's or supplier's instructions or manuals.
(b) Lessee will, at its own expense, keep and maintain
the equipment in good repair, condition and working order and furnish all parts,
replacements, mechanisms, devices and servicing required therefor so that the
value, condition and operating efficiency therefor will at all times be
maintained and preserved, reasonable wear and tear excepted. All such repairs,
parts, mechanisms, devices and replacements shall immediately, without further
act, become the property of Lessor and part of the equipment.
(c) Lessee will not make or authorize any improvement,
change, addition or alteration to the equipment (i) if such improvement, change,
addition or alteration will impair the originally intended function or use of
the equipment or impair the value of the equipment as it existed immediately
prior to such improvement, change, addition or alteration; or (ii) if any parts
installed in or attached to or otherwise becoming a part of the equipment as a
result of any such improvement, change, addition or alteration shall not be
readily removable without damage to the equipment. Any part which is added to
the equipment without violating the provisions of the immediately preceding
sentence and which is not a replacement or substitution for any property which
was a part of the equipment, shall remain the property of Lessee and may be
removed by Lessee at any time prior to the expiration or earlier termination of
the Lease Term. All such parts shall be and remain free and clear of any Liens.
Any such part which is not so removed prior to the expiration or earlier
termination of the Lease Term shall, without further act, become the property of
Lessor.
13. Inspection.
Upon prior notice, Lessor or its authorized
representatives may at any reasonable time or times inspect the equipment when
it deems it necessary to protect its interest therein.
8
<PAGE> 9
14. Identification.
Lessee shall, at its expense, attach to each item of
equipment a notice satisfactory to Lessor disclosing Owner's ownership of such
item of equipment.
15. Personal Property.
Lessee represents that the equipment shall be and at
all times remain separately identifiable personal property. Lessee shall, at its
expense, take such action (including the obtaining and recording of waivers) as
may be necessary to prevent any third party from acquiring any right to or
interest in the equipment by virtue of the equipment being deemed to be real
property or a part of real property or a part of other personal property, and if
at any time any person shall claim any such right or interest, Lessee shall, at
its expense, cause such claim to be waived in writing or otherwise eliminated to
Lessor's satisfaction within 30 days after such claim shall have first become
known to Lessee.
16. Loss or Damage.
(a) All risk of loss, theft, damage or destruction to
the equipment or any part thereof, however incurred or occasioned, shall be
borne by Lessee and, unless such occurrence constitutes an Event of Loss
pursuant to paragraph (b) of this Section , Lessee shall promptly give Lessor
written notice hereof and shall promptly cause the affected part or parts of the
equipment to be replaced or restored to the condition and repair required to be
maintained by Section 12 hereof.
(b) If an Event of Loss with respect to any item of
equipment shall occur, Lessee shall promptly give Lessor written notice thereof,
and Lessee shall pay to Lessor as soon as it receives insurance proceeds with
respect to said Event of Loss but in any event no later than 90 days after the
occurrence of said Event of Loss an amount equal to the sum of (i) the
Stipulated Loss Value of such item of equipment computed as of the Rent Payment
Date with respect to such item of equipment on or immediately preceding the date
of the occurrence of such Event of Loss; and (ii) all rent and other amounts due
and owing hereunder for such item of equipment on or prior to the Loss Payment
Date. Upon payment of such amount to Lessor, the lease of such item of equipment
hereunder shall terminate, and Lessor will transfer within forty days to Lessee,
Lessor's right, title and interest in and to such item of equipment, on an
"as-is, where-is" basis, without recourse and without representation or
warranty, express or implied, other than a representation and warranty that such
item of equipment is free and clear of any Lessor's Liens.
(c) Any payments received at any time by Lessor or
Lessee from any insurer with respect to loss or damage to the equipment shall be
applied as follows: (i) if such payments are received with respect to an Event
of Loss they shall be paid to Lessor, but to the extent received by Lessor, they
shall reduce or discharge, as the case may be, Lessee's obligation to pay the
amounts due to Lessor under Section 16(b) hereof with respect to such Event of
Loss; or (ii) if such payments are received with respect to any loss of or
damage to the equipment other than an Event of Loss, such payments shall, unless
a Default or Event of Default shall have occurred and be continuing, be paid
over to Lessee to reimburse Lessee for its payment of the costs and expenses
incurred by Lessee in replacing or restoring pursuant to Section 16 (a) hereof
the part or parts of the equipment which suffered such loss or damage.
17. General Indemnity.
Lessee assumes liability for, and shall indemnify,
protect save and keep harmless Lessor and its agents, servants, successors and
assigns (an "Indemnitee") from and against any and all liabilities, obligations,
losses, damages, penalties, claims, actions, suits, costs and expenses,
including reasonable legal expenses, of whatsoever kind and nature, imposed on,
incurred by or asserted against any Indemnitee, in any way relating to or
arising out of this Lease or the enforcement hereof, or the manufacture,
purchase, acceptance, rejection, ownership, possession, use, selection,
delivery, lease, operation, condition, sale, return or other disposition of the
equipment or any part thereof (including, without limitation, latent or other
defects, whether or not discoverable by Lessee or any
9
<PAGE> 10
other person, any claim in tort for strict liability and any claim for patent,
trademark or copyright infringement); provided, however, that Lessee shall not
be required to indemnify any Indemnitee for loss or liability arising from acts
or events which occur after the equipment has been returned to Lessor in
accordance with the Lease, or for loss or liability resulting solely from the
willful misconduct or gross negligence of such Indemnitee. The provisions of
this Section shall survive the expiration or earlier termination of this Lease.
18. Events of Default.
The following events shall each constitute an event of
default (herein called "Event of Default") under this Lease:
(i) Lessee shall fail to execute and deliver
to Lessor (or Lessor's agent) the "Delivery Certificate" within twenty-four (24)
hours of Turnover of the equipment to Lessee.
(ii) Lessee shall fail to commence lease
payments on the first day of the month following the Commencement Date, or such
other initiation of lease payments as specified in Section 5 of this Lease.
(iii) Lessee shall fail to make any payment
of rent or other amount owing hereunder after notice has been given that payment
is past due; or
(iv) Lessee shall fail to maintain the
insurance required by Section 10 hereof or to perform or observe any of the
covenants contained in Sections 21 or 22 hereof; or
(v) Lessee shall fail to perform or observe
any other covenant, condition or agreement to be performed or observed by it
with respect to this Lease and such failure shall continue unremedied for 30
days after the earlier of (a) the date on which Lessee obtains, or should have
obtained knowledge of such failure; or (b) the date on which notice thereof
shall be given by Lessor to Lessee; or
(vi) Any representation or warranty made by
Lessee herein or in any document, certificate or financial or other statement
now or hereafter furnished Lessor in connection with this Lease shall prove at
any time to have been untrue, incomplete or misleading in any material respect
as of the time when made; or
(vii) The entry of a decree or order for
relief by a court having jurisdiction in respect of Lessee, adjudging Lessee a
bankrupt or insolvent, or approving as properly filed a petition seeking a
reorganization, arrangement, adjustment or composition of or in respect of
Lessee in an involuntary proceeding or case under the Federal bankruptcy laws,
as now or hereafter constituted, or any other applicable Federal or State
bankruptcy, insolvency or other similar law, or appointing a receiver,
liquidator, assignee, custodian, trustee or sequestrator (or similar official)
of Lessee of any substantial part of its property, or ordering the winding-up or
liquidation of its affairs, and the continuance of any such decree or order
unstayed and in effect for a period of 30 days; or
(viii) The institution by Lessee of
proceedings to be adjudicated a bankrupt or insolvent, or the consent by it to
the institution of bankruptcy or insolvency proceedings against it, or the
commencement by Lessee of a voluntary proceeding or case under the Federal
bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal or state bankruptcy, insolvency or other similar law, or the consent by
it to the filing of any such petition or to the appointment of or taking
possession by a receiver, liquidator, assignee, trustee, custodian or
sequestrator (or other similar official) of Lessee or of any substantial part of
its property, or the making by it of any assignment for the benefit of creditors
or the admission by it of its inability to pay its debts generally as they
become due or its willingness to be adjudicated a bankrupt or the failure of
Lessee generally to pay its debts as they become due or the taking of corporate
action by Lessee in furtherance of any of the foregoing.
10
<PAGE> 11
19. Remedies.
If an Event of Default specified in Subsection 18(vii)
or (viii) above shall occur, then, and in any such event, Lessor shall not
be obligated to purchase or lease any of the equipment and this Lease shall,
without any declaration or other action by Lessor, be in default. If an Event of
Default, other than an Event of Default specified in Subsection 18(vii) or
(viii) above, shall occur, Lessor may, at its option, declare this Lease to be
in default. At any time after this Lease is in default under the first sentence
of this Section 19, Lessor has declared this Lease to be in default under the
second sentence of this Section 19, Lessor and/or its representative may do any
one or more of the following with respect to all of the equipment or any part
thereof as Lessor in its sole discretion shall elect, to the extent permitted by
applicable law then in effect:
(a) demand that Lessee, and Lessee shall at its expense
upon such demand, return the equipment promptly to Lessor at such place in the
continental United States of America as Lessor shall specify, or Lessor and/or
its agents, at its option, may with or without entry upon the premises where the
equipment is located and disable the equipment, or make the equipment inoperable
permanently or temporarily in Lessor's sole discretion, and/or take immediate
possession of the equipment and remove the same by summary proceedings or
otherwise, all without liability for or by reason of such entry or taking of
possession, whether for the restoration of damage to property caused by such
taking or for disabling or otherwise;
(b) sell the equipment at public or private sale, with
or without notice, advertisement or publication, as Lessor may determine, or
otherwise dispose of, hold, use, operate, lease to others or keep idle the
equipment as Lessor in its sole discretion may determine, all free and clear of
any rights of Lessee and without any duty to account to Lessee with respect to
such action or inaction or for any proceeds with respect thereto;
(c) by written notice to Lessee specifying a payment
date which shall be not earlier than 20 days after the date of such notice,
demand that Lessee pay to Lessor, and Lessee shall pay to Lessor, on the payment
date specified in such notice, as liquidated damages for loss of a bargain and
not as a penalty, all accrued and unpaid rent for the equipment due on all Rent
Payment Dates up to and including the payment date specified in such notice plus
an amount (together with interest on such amount at the Late Charge Rate, from
the payment date specified in such notice to the date of actual payment) equal
to the excess, if any, of the Stipulated Loss Value of the equipment as of the
payment date specified in such notice over the Fair Market Sale Value of the
equipment as of such date;
(d) Lessor may exercise any other right or remedy which
may be available to it under applicable law or proceed by appropriate court
action to enforce the terms hereof or to recover damages for the breach hereof
or to rescind this Lease. Lessor is entitled to recover any amount that fully
compensates the Lessor for any damage to or loss of the Lessor's residual
interest in the leased property caused by the Lessee's default.
In the event any present value discounting is applied,
the discount rate used shall be the Federal Reserve Board Discount Rate.
In addition, Lessee shall be liable for any and all
unpaid rent and other amounts due hereunder before or during the exercise of
any of the foregoing remedies and for all reasonable legal fees and other costs
and expenses incurred by reason of the occurrence of any Event of Default or the
exercise of Lessor's remedies with respect thereto, including all reasonable
costs and expenses incurred in connection with the placing of the equipment in
the condition required by Section 12 hereof.
No remedy referred to in this Section 19 is intended to
be exclusive, but each shall be cumulative and in addition to any other
remedy referred to herein or otherwise available to Lessor at law or in equity;
and the exercise or beginning of exercise by Lessor of any one or more of such
remedies shall not preclude the simultaneous or later exercise by Lessor of any
or all such other remedies. No express or implied waiver by Lessor of an Event
of Default shall in any way be, or be construed to be, a waiver of any future or
subsequent Event of Default. To the extent permitted by applicable law, Lessee
hereby waives any rights now or hereafter conferred by statute or
11
<PAGE> 12
otherwise which may require Lessor to sell or lease or otherwise use the
equipment in mitigation of Lessor's damages or losses or which may otherwise
limit or modify any of Lessor's rights or remedies under this Lease.
20. Lessor's Right to Perform.
If Lessee fails to make any payment required to be made
by it hereunder or fails to perform or comply with any of its other agreements
contained herein, Lessor may itself make such payment or perform or comply with
such agreement, and the amount of such payment and the amount of the reasonable
expenses of Lessor incurred in connection with such payment or the performance
of or compliance with such agreement, as the case may be, together with interest
thereon at the Late Charge Rate, shall be deemed to be additional rent, payable
by Lessee within 30 days of notice.
21. LOCATION; ASSIGNMENT OR SUBLEASE; TITLE TRANSFER.
(a) LESSEE WILL NOT REMOVE THE EQUIPMENT FROM THE
LOCATION SPECIFIED IN SCHEDULE 1 OF EXHIBIT A WITHOUT THE PRIOR WRITTEN CONSENT
OF LESSOR, SUCH CONSENT NOT TO BE UNREASONABLY WITHHELD, EXCEPT REMOVAL OUTSIDE
THE CONTINENTAL U.S. IS NOT PERMITTED. THE EQUIPMENT SHALL AT ALL TIMES BE IN
THE SOLE POSSESSION AND CONTROL OF LESSEE AND LESSEE WILL NOT, WITHOUT THE PRIOR
WRITTEN CONSENT OF LESSOR, ASSIGN THIS LEASE OR ANY INTEREST HEREIN OR SUBLEASE
OR OTHERWISE TRANSFER ITS INTEREST IN ANY OF THE EQUIPMENT, AND ANY ATTEMPTED
ASSIGNMENT, SUBLEASE OR OTHER TRANSFER BY LESSEE IN VIOLATION OF THESE
PROVISIONS SHALL BE VOID.
(b) LESSOR AND LESSEE ACKNOWLEDGE THAT LESSOR (i) MAY
TRANSFER ITS INTEREST IN THE EQUIPMENT TO AN OWNER OTHER THAN LESSOR. LESSOR MAY
CONTEMPORANEOUSLY THEREWITH LEASE THE EQUIPMENT BACK FROM SUCH OWNER, AND (ii)
MAY ASSIGN THIS LEASE. LESSEE HEREBY CONSENTS TO EACH OF THE ABOVE-DESCRIBED
TRANSACTIONS. FURTHER LESSEE DOES HEREBY ACKNOWLEDGE (i) THAT ANY SUCH
ASSIGNMENT BY LESSOR DOES NOT MATERIALLY CHANGE LESSEE'S DUTIES AND OBLIGATION
HEREUNDER, (ii) THAT SUCH ASSIGNMENT DOES NOT MATERIALLY INCREASE THE BURDEN OR
RIGHT IMPOSED ON THE LESSEE, AND (iii) THAT THE ASSIGNMENT IS PERMITTED EVEN IF
THE ASSIGNMENT COULD BE DEEMED TO MATERIALLY AFFECT THE INTEREST OF THE LESSEE.
22. Status Changes in Lessee.
Lessee will not without thirty (30) days prior written
notice to Lessor, (a) enter into any transaction of merger or consolidation
unless it is the surviving corporation or after giving effect to such merger or
consolidation its net worth equals or exceeds that which existed prior to such
merger or consolidation; or (b) change the form of organization of its business;
or (c) change its name or its chief place of business. Lessee must obtain
Lessor's prior written concurrence before Lessee may undertake any actions to
(a) liquidate or dissolve or similar action of the Lessee's organization, or (b)
sell, transfer or otherwise dispose of all or any substantial part of Lessee's
assets.
23. Further Assurances; Financial Information.
(a) Lessee will, at its expense, promptly and duly
execute and deliver to Lessor such further documents and assurances and take
such further action as Lessor may from time to time reasonably request in order
to establish and protect the rights, interests and remedies created or intended
to be created in favor of Lessor hereunder, including, without limitation, the
execution and filing of Uniform Commercial Code financing statements covering
the equipment and proceeds therefrom in the jurisdictions in which the equipment
is located from time to time. To the extent permitted by applicable law, Lessee
hereby authorizes Lessor to file any such financing statements without the
signature of Lessee.
12
<PAGE> 13
(b) Lessee will qualify to do business and remain
qualified in good standing, in each jurisdiction in which the equipment is from
time to time located.
(c) Lessee will furnish to Lessor as soon as available,
but in any event not later than 90 days after the end of each fiscal year of
Lessee, a consolidated balance sheet of Lessee as at the end of such fiscal
year, and consolidated statements of income and changes in financial position of
Lessee for such fiscal year, all in reasonable detail, prepared in accordance
with generally accepted accounting principles applied on a basis consistently
maintained throughout the period involved. These reports will not be disclosed
to anyone other than the Lessor and/or the Owner as provided in Section 21(b).
24. Notices.
All notices, demands and other communications hereunder
shall be in writing, and shall be deemed to have been given or made when
deposited in the United States mail, first class postage prepaid, addressed as
follows or to such other address as any of the authorized representatives of the
following entities may from time to time designate in writing to the other
listed below:
Lessor: TELECOMMUNICATIONS FINANCE GROUP
400 Rinehart Road
Lake Mary, Florida 32746
Lessee: STAR VENDING, INC.
740 State Street, Suite 202
Santa Barbara, CA 93101
25. Conditions Precedent:
(a) Lessor shall not be obligated to lease the items of
equipment described herein to Lessee hereunder unless:
(i) Such Uniform Commercial Code financing
statements covering equipment and proceeds therefrom and landlord and/or
mortgagee waivers or disclaimers and/or severance agreements with respect to the
items of equipment covered by this Lease as Lessor shall deem necessary or
desirable in order to perfect and protect its interests therein shall have been
duly executed and filed, at Lessee's expense, in such public offices as Lessor
shall direct;
(ii) All representations and warranties of
Lessee contained herein or in any document or certificate furnished Lessor in
connection herewith shall be true and correct on and as of the date of this
Lease with the same force and effect as if made on and as of such date; no Event
of Default or Default shall be in existence on such date or shall occur as a
result of the lease by Lessee of the equipment specified in Schedule 1 of
Exhibit A;
(iii) In the sole judgment of Lessor, there
shall have been no material adverse change in the financial condition or
business of Lessee;
(iv) All proceedings to be taken in
connection with the transactions contemplated by this Lease, and all documents
incidental thereto, shall be satisfactory in form and substance to Lessor and
its counsel;
(v) Lessor shall have received from Lessee,
in form and substance satisfactory to it, such other documents and information
as Lessor shall reasonably request;
13
<PAGE> 14
(vi) All legal matters in connection with
the transactions contemplated by this Lease shall be satisfactory to Lessor's
counsel; and
(vii) No Change in Tax Law, which in the
sole judgment of Lessor would adversely affect Lessor's Economics, shall have
occurred or shall appear, in Lessor's good faith judgment, to be imminent.
26. Software License.
Reference is made to the form of Software Product
License Agreement attached hereto as Exhibit B (the "License Document"). Lessor
has arranged for the equipment manufacturer to grant Lessee a license to use the
Software as defined in the License Document in conjunction with the equipment
leased hereunder in accordance with the terms of the License Document. The
original license fee is contained in the lease rate. To avail itself of the
license grant, Lessee must execute the License Document, upon Commencement of
the Lease. "Buyer" and "Licensee" as used in the License Document are synonymous
with lessee.
27. LIMITATION OF LIABILITY.
LESSOR SHALL NOT BE LIABLE FOR LOST PROFITS OR
REVENUE, SPECIAL, INDIRECT, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY
NATURE OR FROM ANY CAUSE WHETHER BASED IN CONTRACT OR TORT, INCLUDING
NEGLIGENCE, OR OTHER LEGAL THEORY EVEN IF LESSOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. LESSEE HEREBY AGREES THAT LESSOR WILL NOT BE LIABLE
FOR ANY LOST PROFITS OR REVENUE OR FOR ANY CLAIM OR DEMAND AGAINST LESSEE BY ANY
OTHER PARTY.
28. Miscellaneous.
(a) Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provisions in any
other jurisdiction. To the extent permitted by applicable law, Lessee hereby
waives any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
(b) No terms or provisions of this Lease may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which the enforcement of the change, waiver,
discharge or termination is sought. No delay or failure on the part of Lessor to
exercise any power or right hereunder shall operate as a waiver thereof, nor as
an acquiescence in any default, nor shall any single or partial exercise of any
power or right preclude any other or further exercise thereof, or the exercise
of any other power or right. After the occurrence of any Default or Event of
Default, the acceptance by Lessor of any payment of rent or other sum owed by
Lessee pursuant hereto shall not constitute a waiver by Lessor of such Default
or Event of Default, regardless of Lessor's knowledge or lack of knowledge
thereof at the time of acceptance of any such payment, and shall not constitute
a reinstatement of this Lease, if this Lease shall have been declared in default
by Lessor pursuant to Section 18 hereof or otherwise, unless Lessor shall have
agreed in writing to reinstate the Lease and to waive the Default or Event of
Default.
In the event Lessee tenders payment to Lessor by check or draft
containing a qualified endorsement purporting to limit or modify Lessee's
liability or obligations under this Lease, such qualified endorsement shall be
of no force and effect even if Lessor processes the check or draft for payment.
(c) This Lease with exhibits contains the full, final
and exclusive statement of the agreement between Lessor and Lessee relating to
the lease of the equipment.
(d) This Lease shall constitute an agreement of an
operating lease, and nothing herein shall be construed as conveying to Lessee
any right, title or interest in the equipment except as Lessee only.
14
<PAGE> 15
(e) This Lease and the covenants and agreements
contained herein shall be binding upon, and inure to the benefit of, Lessor and
its successors and assigns and Lessee and, to the extent permitted by Section 21
hereof, its successors and assigns.
(f) The headings of the Sections are for convenience of
reference only, are not a part of this Lease and shall not be deemed to affect
the meaning or construction of any of the provisions hereof.
(g) This Lease may be executed by the parties hereto on
any number of separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute but one and the same instrument.
(h) This Lease is deemed made and entered into in the
State of Florida and shall be governed by and construed under and in accordance
with the laws of the State of Florida as if both parties were residents of
Florida.
(i) Lessee hereby irrevocably consents and agrees that
any legal action, suit, or proceeding arising out of or in any way in connection
with this Lease shall be instituted or brought in the courts of the State of
Florida, or the United States Courts for the District of Florida, and by
execution and delivery of this Lease, Lessee hereby irrevocably accepts and
submits to, for itself and in respect of its property, generally and
unconditionally, the non-exclusive jurisdiction of any such court, and to all
proceedings in such courts. Lessee irrevocably consents to service of any
summons and/or legal process by registered or certified United States mail,
postage prepaid, to Lessee at the address set forth in Section 24 hereof, such
method of service to constitute, in every respect, sufficient and effective
service of process in any legal action or proceeding. Nothing in this Lease
shall affect the right to service of process in any other manner permitted by
law or limit the right of Lessor to bring actions, suits or proceedings in the
court of any other jurisdiction. Lessee further agrees that final judgment
against it in any such legal action, suit or proceeding shall be conclusive and
may be enforced in any other jurisdiction, within or outside the United States
of America, by suit on the judgment, a certified or exemplified copy of which
shall be conclusive evidence of the fact and the amount of the liability.
IN WITNESS WHEREOF, Lessor and Lessee have each cause this Lease to
be duly executed as of the day and year first above written and by its signature
below Lessee expressly acknowledges that this Lease may not be modified unless
done so in a writing signed by each of the parties hereto or their successors in
interest.
STAR VENDING, INC. (Lessee)
By:
---------------------------
---------------------------
(Name & Title)
Date Signed:
-------------------
TELECOMMUNICATIONS FINANCE GROUP
By:
---------------------------
---------------------------
Authorized Representative
15
<PAGE> 16
Date Signed:
------------------
16
<PAGE> 17
STAR VENDING, INC.
SITE: NEW YORK, NEW YORK
0.01 SCHEDULE A - ORIGINAL LEASE VALUE
STIPULATED LOSS VALUE
The Stipulated Loss Value of any item of Equipment as of any Rent Payment Date
with respect of such item of Equipment shall be determined by multiplying the
Lessor's Value of such item of Equipment by the percentage set forth below for
such Rent Payment Date; provided that, any determination of Stipulated Loss
Value as of a date occurring after the final Rent Payment Date with respect to
such item of equipment, shall be made as of such final Rent Payment Date.
<TABLE>
<CAPTION>
After Rent
Payment Number Percentage
<S> <C>
0 105.0000
1 104.1089
2 103.2055
3 102.2898
4 101.3616
5 100.4208
6 99.4672
7 98.5008
8 97.5214
9 96.5288
10 95.5230
11 94.5038
12 93.4710
13 92.4247
14 91.3644
15 90.2903
16 89.2021
17 88.0997
18 86.9829
19 85.8517
20 84.7057
21 83.5450
22 82.3694
23 81.1786
24 79.9726
25 78.7512
26 77.5143
27 76.2617
28 74.9932
29 73.7087
30 72.4080
31 71.0910
32 69.7574
33 68.4073
34 67.0402
35 65.6562
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
36 64.2550
37 62.8364
38 61.4003
39 59.9466
40 58.4749
41 56.9852
42 55.4773
43 53.9510
44 52.4061
45 50.8424
46 49.2597
47 47.6578
48 46.0366
49 43.9792
50 41.9021
51 39.8050
52 37.6878
53 35.5502
54 33.3921
55 31.2133
56 29.0134
57 26.7925
58 24.5501
59 22.2862
60 20.0000
</TABLE>
18
<PAGE> 19
SCHEDULE B
AMENDMENT TO LEASE AGREEMENT DATED January 3, 1996 BETWEEN
TELECOMMUNICATIONS FINANCE GROUP (LESSOR) AND
STAR VENDING, INC. (LESSEE)
FOR EQUIPMENT TO BE INSTALLED IN NEW YORK, NEW YORK
A DEPOSIT EQUAL TO 5% OF LESSOR'S VALUE IS REQUIRED BY LESSOR PRIOR TO SHIPMENT,
WHICH WILL BE APPLIED FIRST TO THE FIRST INSTALLMENT OF LEASE RENT AND THEN TO
SUCCEEDING INSTALLMENTS OF LEASE RENT UNTIL FULLY UTILIZED.
IN THE EVENT OF EARLY TERMINATION OF THE LEASE DUE TO DEFAULT BY LESSEE, ANY
UNAPPLIED PORTION OF THE 5% DEPOSIT IS NON-REFUNDABLE AND WILL BE RETAINED BY
LESSOR.
IN THE EVENT LESSEE HAS MORE THAN ONE LEASE WITH LESSOR, AN EVENT OF DEFAULT FOR
ONE LEASE WILL, IN ITSELF, BE AN EVENT OF DEFAULT ON ALL OTHER LEASES IN THE
NAME OF THE LESSEE.
TELECOMMUNICATIONS FINANCE GROUP STAR VENDING, INC.
By: By:
--------------------------- ------------------------
--------------------------- ------------------------
Authorized Representative (Name & Title)
Date Signed: Date Signed:
------------------ ---------------
19
<PAGE> 20
SCHEDULE C
AMENDMENT TO LEASE AGREEMENT DATED January 3, 1996 BETWEEN
TELECOMMUNICATIONS FINANCE GROUP (LESSOR) AND
STAR VENDING, INC. (LESSEE)
FOR EQUIPMENT TO BE INSTALLED IN NEW YORK, NEW YORK
LESSEE AFFIRMS TO THE FOLLOWING:
ALL THIRD PARTY VENDOR EQUIPMENT TO BE ADDED TO THE LEASE MUST BE PURCHASED OR
APPROVED BY THE SIEMENS STROMBERG-CARLSON PURCHASING DEPARTMENT.
THE CUMULATIVE TOTAL OF THIRD PARTY VENDOR EQUIPMENT WHICH MAY BE ADDED TO THE
LEASE CANNOT EXCEED 20% OF THE VALUE OF THE EQUIPMENT PROVIDED BY SIEMENS
STROMBERG-CARLSON. THE ONLY THIRD PARTY VENDOR EQUIPMENT WHICH MAY BE ADDED TO A
LEASE ARE APPROVED BILLING EQUIPMENT AND SYSTEMS AND OAS (OPERATOR ASSISTED
SYSTEM) EQUIPMENT. OTHER ITEMS MAY BE ADDED IF THE SIEMENS STROMBERG-CARLSON OCC
SENIOR PROGRAM MANAGER CONFIRMS THAT IT IS NECESSARY AS AN ADDITION TO ONE OF
THE APPROVED SYSTEMS.
AN ADDITIONAL 30% MAY BE AUTHORIZED SUBJECT TO THE FURTHER LIMITATION THAT THE
DOLLAR AMOUNT OF THE ADDITIONAL 30% MAY NOT EXCEED $125,000.00.
A DEPOSIT EQUAL TO 10% OF THE THIRD PARTY VENDOR EQUIPMENT IS REQUIRED BY LESSOR
PRIOR TO ISSUING A PURCHASE ORDER TO THE THIRD PARTY VENDOR. THIS DEPOSIT WILL
BE APPLIED FIRST TO THE FIRST INSTALLMENT OF LEASE RENT IN WHICH THE VENDOR
EQUIPMENT IS INCLUDED, AND THEN TO SUCCEEDING INSTALLMENTS OF LEASE RENT UNTIL
FULLY UTILIZED.
IN THE EVENT OF EARLY TERMINATION OF THE LEASE DUE TO DEFAULT BY LESSEE, ANY
UNAPPLIED PORTION OF THE DEPOSIT IS NON-REFUNDABLE AND WILL BE RETAINED BY
LESSOR.
A 10% FEE WILL BE ADDED TO THE PRICE OF ALL THIRD PARTY VENDOR EQUIPMENT.
THIS EQUIPMENT WILL BE ADDED TO THE LEASE AT THE THEN CURRENT LEASE RATE AS
DETERMINED BY LESSOR.
TELECOMMUNICATIONS FINANCE GROUP STAR VENDING, INC.
By: By:
--------------------------- ------------------------
--------------------------- ------------------------
Authorized Representative (Name & Title)
Date Signed: Date Signed:
----------------- --------------
20
<PAGE> 21
EXHIBIT A
CERTIFICATE OF DELIVERY AND ACCEPTANCE
Commencement Date:______________
THIS CERTIFICATE OF DELIVERY AND ACCEPTANCE is executed and delivered to
TELECOMMUNICATIONS FINANCE GROUP ("Lessor") by STAR VENDING, INC. ("Lessee")
pursuant to and in accordance with the Lease Agreement dated January 3, 1996
between Lessor and Lessee (the "Lease," the defined terms therein being used
herein with their defined meanings).
1. The equipment covered by this Certificate consists of the items
described in Schedule 1 of Exhibit A of the Lease.
2. Lease confirms that the items of equipment covered hereby have been
delivered to it in good working order and condition, and have been
inspected and accepted by Lessee as of the Commencement Date set forth
above. Lessee hereby waives any right it may have under Section 2A-517
of the Uniform Commercial Code or otherwise to revoke this acceptance
for any reason whatsoever, including but not limited to, (i) any
assumption by Lessee that a nonconformity would be cured, (ii) any
inducement of acceptance by the Lessor's assurances or any difficulty
to discover a nonconformity before acceptance, or (iii) any Lessor
default under the Lease. Lessee further hereby waives its rights under
Sections 2A-401 and 2A-402 of the Uniform Commercial Code to suspend
performance of any of its obligations under the Lease with respect to
the equipment hereby accepted.
3. Lessee confirms that such items of equipment have been installed at:
New York, New York.
4. The Lessor's value of the items of equipment covered hereby is set
forth in the Schedule 1 of Exhibit A. Lessee confirms that each
installment of rent payable is as defined by the rental rate factor per
thousand dollars as specified in Section 5 of the Lease.
5. Lessee hereby: (a) confirms that the items of equipment covered hereby
have been inspected by Lessee, have been delivered in good working
order and condition and are of the size, design, capacity and
manufacture selected by it and meet the provisions of the purchase
order(s) with respect thereto: and (b) irrevocably accepts said items
of equipment "as-is, where-is" for all purposes of the Lease as of the
Commencement Date set forth above and shall pursue remedies to correct
deficiencies, if any, in said items of equipment under the
manufacturer's warranty provisions only.
6. Lessee hereby confirms: (i) that no Default or Event of Default is in
existence as of the Commencement Date set forth above, nor shall any
Default or Event of Default occur as a result of the lease by Lessee of
the equipment specified here-in; and (ii) that all representations and
warranties of Lessee contained in the Lease or in any document or
certificate furnished Lessor in connection herewith, are true and
correct as of the Commencement Date set forth above with the same force
and effect as if made on such date.
7. Lessee assumes sole responsibility for ensuring that the billing center
can correctly read call records. Lessee's responsibility includes
reading daily the automatic message/ticketing accounting system and/or
polling systems tape(s) by the billing system to ensure all ticket
information is present. Risk of loss for any revenue or profit
associated therewith passes to Lessee upon cutover of any hardware or
software.
8. All of the terms, provisions and conditions of the Lease are hereby
incorporated herein and made a part hereof as if such terms, provisions
and conditions were set forth in full in this Certificate. By their
execution and delivery of this Certificate, the parties hereto reaffirm
all of the terms, provisions and conditions of the Lease.
21
<PAGE> 22
IN WITNESS WHEREOF, Lessee has caused this Certificate to be executed by its
duly authorized officer as of the Commencement Date set forth above.
Refer S.O.# 067370 STAR VENDING, INC.
By:
--------------------------- ------------------------
--------------------------- ------------------------
(Name & Title)
Date Signed:
ACCEPTED BY:
TELECOMMUNICATIONS FINANCE GROUP
AS OF THE ___ DAY OF _____ 19___
By:
--------------------------
--------------------------
Authorized Representative
22
<PAGE> 23
SCHEDULE 1 OF EXHIBIT A
(CERTIFICATE OF DELIVERY AND ACCEPTANCE)
EQUIPMENT DESCRIPTION
The items of personal property to be leased pursuant to this Lease Agreement,
dated as of January 3, 1996 between TELECOMMUNICATIONS FINANCE GROUP, as Lessor,
and STAR VENDING, INC., as Lessee, are described below and in the attached
equipment list(s):
<TABLE>
<CAPTION>
Equipment List
- --------------
Number Description Amount
- ------ ----------- ------
<S> <C> <C>
DCO-581103 A Used Siemens Stromberg-Carlson DCO-CS Equipped and Wired $348,500.00
for 1152 Ports, Release 12.1 CMF and a Release 14 upgrade
per DCO-581103, Issue 1, Dated 04/18/95 Including
Installation
</TABLE>
The above described equipment to be installed at:
New York, New York
BY:
----------------------------
DATE:
---------------------------
23
<PAGE> 24
SIEMENS Proposal No.: DCO-581103
Stromberg-Carlson Issue No.: 1
Date: April 18, 1995
Installation Site: New York, New York
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
Rel. 14 Upgrade
<S> <C> <C>
822068-800 CMF-II 1
207600-758 Frame Weldment 1
207600-861A Pkg Assy, Frt Pwr Sup Door 1
207800-089 Trim Pkg Assy Rear 1
207600-833 Pkg Assy, Front Trim 1
207800-090 Pkg Assy, Rear Door Mtg Hdr 1
207600-775A Door Assy, Front Rt (CMF) 1
207600-776A Door Assy, Left Front (CMF) 1
207630-922 Door Assy, Right Rear 1
207630-921 Door Assy, Left Rear 1
304505-385 Door Assy, Power Supply 1
822003-566A PWBA, Timeslot Interchange 4
822002-526 PWBA, TSI PGH I/F 4
822068-805 PWBA 1
822033-596A PWBA (2W) Master Clk Genr 2
822727-696A PWBA (2W) J-Proc. JH8MB 2
814722-216 PWBA, SLU Panel RS232 4
817647-902 PWBA 1
817702-546 PWBA, TMP 1
817680-546 PWBA, Bus Multiplexer II 1
814727-626 PWBA, (2W) J-Processor 1
814770-656 PWBA (2W) PXAM II 1
814721-586 PWBA, 2W 16 Chan. SLU 1
822010-616 PWBA Tape Drive 1
</TABLE>
24
<PAGE> 25
<TABLE>
<S> <C> <C>
822010-626 PWBA Disk Drive Assembly 2
822010-606 PWBA Power and Alarm 1
822001-566A PWBA, (2W) DBI 2
</TABLE>
25
<PAGE> 26
SIEMENS Proposal No.: DCO-581103
Stromberg-Carlson Issue No.: 1
Date: April 18, 1995
Installation Site: New York, New York
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
Rel. 14 Upgrade
<S> <C> <C>
822005-546A PWBA, (2W) TPPO HDI 4
822006-556A PWBA, (2W) TPP1 4
822017-556A PWBA, (2W) TPP2 4
822020-536 PWBA 2
822021-546 PWBA, TSI/XOH Termin. 2
822021-536 PWBA, TSI/XOH Termin. 2
822024-036A PWBA, (2W) Power Monitor 2
817646-901 NONE 1
817505-686 PWBA 2W Main/Intr Rep By 1
822511-546A PWBA, (2W) CBC 2
814767-026 PWBA, Diag Grading Pnl II 1
822726-526A PWBA, (2W) MSA HDI 2
202958-464 Tape Cartridge DC6150 1
822702-526A PWBA, PXAM 2 Meg 2
822015-536 PWBA, Master Clk OSC. 1
822718-596A PWBA, (2W) Feature Processor 2
822717-716 PWBA, MIC II 2
825982 Rel 14 Start-Up 1
827060 Admin Enhancements 1
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
DTF
---
<S> <C> <C>
817577-901 MG, DS1 Host CUA 2
817577-902 MG, Basics PWBAs DS1 CUA 2
207600-721 PWBA Guide 2
817560-606 PWBA, T1 Interface 16
</TABLE>
27
<PAGE> 28
SIEMENS Proposal No.: DCO-581103
Stromberg-Carlson Issue No.: 1
Date: April 18, 1995
Installation Site: New York, New York
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
SS7 HARDWARE/SOFTWARE
---------------------
<S> <C> <C>
822057-526 PWBA, Sig Subsystem Control 2
822055-536 PWBA, Comm Link Controller 2
814742-586 PWBA, (1W) USC 3
822723-556 PWBA, Data Link III 2
003009 Common Channel Signaling System 1
003019 Service Switching Point-800 Svc 1
003069 CCS7 Link Pair Software 4
</TABLE>
28
<PAGE> 29
SIEMENS Proposal No.: DCO-581103
Stromberg-Carlson Issue No.: 1
Date: April 18, 1995
Installation Site: New York, New York
ITEM 01
IN-PLACE, ON-SITE
<TABLE>
<CAPTION>
DESCRIPTION QTY
- ----------- ---
<S> <C>
DIGITAL TRUNK FRAME
Digital Trunk Frame 1
CUA-Digital Trunk 3
T-1 Interface 18
DTF CUA-Basic PWBA 3
Rear Panels 1
Frame and Joining Hardware 1
FCC Compliant Hardware 1
LINE/TRUNK FRAME
Line Trunk Frame (Analog) 1
Supervisory Panel 1
Term Assy PWBA 1
Loop Trunk, Reverse Battery 2
2-Way E&M Trunk 2
Tone Dial Receiver PWBA 10
TMF/VACT Receiver PWBA 14
Digital DTMF Sender 9
Optional Rear Panel 1
CUA-Trunk Ser Grp *819001909 1
CUA-Service Grp *819001908 3
Basic PWBA for Svc Ckt CUA 2
Basic PWBA for Analog CUA 1
CUA-Line 1
</TABLE>
29
<PAGE> 30
SIEMENS Proposal No.: DCO-581103
Stromberg-Carlson Issue No.: 1
Date: April 18, 1995
Installation Site: New York, New York
ITEM 01
IN-PLACE, ON-SITE
<TABLE>
<CAPTION>
DESCRIPTION QTY
- ----------- ---
<S> <C>
POWER, RINGING & TEST FRAME
PRT 00 Frame & Power Dist. 1
100A Circuit Breaker Pkg 7
5A Circuit Breaker-AC 1
7A Circuit Breaker-AC 1
EIA Conversin Adapters 2
RM&M Optional Wiring 1
Optional Rear Panels 1
RM&M CUA 1
Cable Assy 1
Basic PWBAs - RM&M 1
PWBA Guide 1
117V AC Outlet 1
COMMON EQUIPMENT FRAME/DOCUMENTATION
Operator Position Equipment 1
Tellabs RD Adpater w/ Case 1
I-Omega Disk Drives & Cabinet 1
I-Omega Disk Cartridge 1
Batt. Dischg Frm-Top 7' 1
Wall Mounted Newton Term Bk/BR 2
Installation Material 1
SCAT Package 1
</TABLE>
30
<PAGE> 31
<TABLE>
<S> <C>
Sup'str/Pwr & Intercon Cab. 1
Office Related Drawings 3
Standard Documentation 3
S/C Practices (SCPs) 1
</TABLE>
31
<PAGE> 32
SIEMENS Proposal No.: DCO-581103
Stromberg-Carlson Issue No.: 1
Date: April 18, 1995
Installation Site: New York, New York
ITEM 01
IN-PLACE, ON-SITE
<TABLE>
<CAPTION>
DESCRIPTION QTY
- ----------- ---
<S> <C>
SOFTWARE FEATURES
Qty of Trunk Groups 256
No. Members per Group 10
Qty PBX Hunt Groups 256
No. Members per Group 10
ANI Codes Validated 128
Speed Calling - Private 1
Speed Calling - Public 1
Authorization Codes - Qty 27000
Traffic Meas. Enhanced 1
Alarm Send/Check to 7/10D 1
MISCELLANEOUS
300/1200 Baud Modem 1
ETC Digicept Announcer 4 Channel 1
DEC LA 120 120 Keyboard Printer 1
TRANSMISSION TEST EQUIPMENT
DSX Panel - ADC DSX-BEST-56 1
POWER EQUIPMENT
Exide EMF Battery 175AH 1
Battery Charger 100 Amp/50V 2
Charger Rack Mtg Assy 7' 1
</TABLE>
32
<PAGE> 33
EXHIBIT B
SOFTWARE LICENSE AGREEMENT
Lessee (hereinafter referred to as "Licensee") will acquire under lease certain
Siemens Stromberg-Carlson (hereinafter referred to as "Licensor") products the
"Designated Product" (defined below), which utilizes the "Software Product" in
the operation of the Designated Product. The Software Product is furnished
pursuant to the following terms and conditions.
1. DEFINITIONS
In addition to definitions contained elsewhere herein, certain terms
shall have meanings as follows:
1.1 "Affiliate" means any other entity directly or
indirectly controlling or controlled by a party hereto
or directly or indirectly controlled by a parent entity
in common with such party. Control means the ownership
of at least fifty (50) percent of the voting rights in
such entity. And, as to Licensor, includes the partners
comprising it and their parents, subsidiaries and
subsidiaries of such parents.
1.2 "Designated Product" means the Siemens Stromberg-Carlson
equipment supplied to the Licensee under a lease of
which this Software License Agreement forms a part.
1.3 "Modification" means any change to the Software Product.
1.4 "Modification Grant-Back Rights" means royalty-free,
worldwide non-exclusive rights to make, have made,
license (including disposition to an end-user) and use
under copyrights to software, patents, copyrights to
firmware and semiconductor mask registration rights in
and to Modifications and to make derivative works with
the right to sub-license to Affiliates (such sublicense
to survive any subsequent termination of the
affiliation).
1.5 "Software Product" means the software computer program,
including activated and non-activated features, which is
provided for use in the operation of the Designated
Product and which includes the following materials: (i)
a set of machine readable computer program instructions
recorded on magnetic tape or other storage media; (ii) a
source code listing of the data base portion (if any) of
the computer program instructions augmented by the
programmer's annotations; (iii) all releases, issues or
short sequences of computer program instruction
modifications ("patches") furnished by Licensor to the
Licensee as a replacement for, or for the modification
of, previously furnished materials; (iv) all derivative
works or Modifications, by whomever made, of any of the
foregoing and (v) all copies of any of the foregoing, in
whole or in part, by whomever made.
2. LICENSE GRANT
In consideration of the right-to-use fee stated in the Licensor's invoice for
the Designated Product, the Licensor grants for as long as Licensee or its
authorized assignee uses the Designated Product in the manner provided below,
and the Licensee accepts, an indivisible, non-exclusive and non-transferable
(except as provided in Section 2.1) license in each Software Product furnished
hereunder to use the Software Product, less the non-activated features, only on
the Designated Product for the sole purpose of operating the Designated Product
as a public telecommunications switching system subject to the following
conditions.
2.1 The Licensee Agrees: (i) to limit its use of each
Software Product solely to the operation of the
Designated Product on which it was originally installed
and no other purpose; (ii) to limit its making of copies
of the Software Product, in whole or in part, to copies
reasonably necessary for the operation of the Designated
Product and for archival purposes and shall make none
other, (iii) to reproduce all proprietary notices,
including the copyright notices of the Licensor, which
appear on or are encoded within the Software Product in
the form or forms in which the Software Product is
received from the Licensor, upon all copies, derivative
works or other modifications
33
<PAGE> 34
which the Licensee shall make; (iv) that the Software
Product (physical materials, including all copies by
whomever made) shall be the property of the Licensor;
(v) not to do, cause or permit to be done, anything to
activate any of the subsisting non-activated computer
instruction steps therein; (vi) not to, nor attempt to,
decompile or reverse assemble all or any portion of the
Software Product, nor shall it authorize or permit any
others to do so; and (vii) that the Software Product is
the proprietary material of Licensor and Licensee shall
keep the Software Product confidential, treat it as it
does its own proprietary materials and disclose it only
to its employees that have a need to know and third
parties who are needed to maintain the Designated
Product provided such third parties have agreed in
writing to keep the Software Product confidential.
2.2 Licensor reserves to itself the exclusive right to cause
the subsisting non-enabled program instruction steps to
be activated (by the issuance under this License of a
version of Software Product having the applicable
additional computer instruction steps enabled) pursuant
to standard right-to-use software license upgrade fees
or, in the absence of a standard upgrade fee, for an
upgrade fee to be negotiated.
2.3 As an additional fee required hereunder for the Software
Product, the Licensee shall further pay to the Licensor
any state or local taxes, however designated, levied
against and paid by the Licensor, based upon this
transaction or based upon Licensor's or the Licensee's
interests in the Software Product, including sales,
privilege, use, personal, property or intangible
property taxes, exclusive, however, of taxes based upon
net income.
2.4 Notwithstanding any other provision hereof, in the event
Licensor develops or makes, or has developed or made,
Modification(s) to the Software Product which represent,
in Licensor's sole judgment, value added to the
Designated Product or which represent an improvement of
performance of the Designated Product, the Licensor
reserves the right to market the Modification(s) as a
separate offering requiring payment of an additional
right-to-use fee and which, at the Licensor's option,
may require the Licensee to execute a new Software
License Agreement.
2.5 The Licensee hereby grants and agrees to grant to the
Licensor, to the extent it lawfully may, Modification
Grant-Back Rights related to any development, whether
made by Licensor, Licensee or agents of the Licensee, of
all or any portion of any Software Product furnished
hereunder pursuant to any request or specifications by
the Licensee for a design different from Licensor's
design, and regardless of whether or not the Licensee
has compensated the Licensor for its performance of such
development. Title to patents, copyrights, trade secrets
and mask registrations developed by Licensor pursuant to
any request or specification by the Licensee, and
regardless of whether the Licensee has compensated the
Licensor for its performance of such development, shall
vest in Licensor. Licensee, however, shall receive a
royalty free license of the same scope as this Software
License Agreement to the results of such development.
2.6 The Licensee shall not merge any Software Product with
other software computer program materials to form a
derivative work or otherwise make Modifications or alter
a Software Product in any manner whatsoever.
2.7 The Licensee agrees that any communication or other
disclosure of information it makes to the Licensor
related to a request/specification for any Modification
to Licensor's design of the Software Product shall be
made upon a non-confidential basis without any manner of
restriction of the Licensor in its use or dissemination
of received information.
2.8 The Licensor or the Licensee shall have the right to
terminate this License in the event of any default by
the other party which the defaulting party fails to
correct within a period of sixty (60) days after the
receipt of notice thereof from the non-defaulting party,
or immediately and without notice in the event that any
bankruptcy arrangement for the benefit of creditors or
insolvency
34
<PAGE> 35
proceedings are commenced by or against the Licensee, or
in the event of the appointment of an assignee for the
benefit of creditors or a receiver of the Licensee or
its properties. However, in the event at the time the
Licensor shall be entitled to exercise the foregoing
right to immediately and without notice terminate this
License, and such termination would cause interruption
of service to governmentally franchised telephone common
carrier subscribers, the Licensor agrees in good faith
(but with due regard to the protection of licensed
interests) to provide its best efforts to cooperate with
the enfranchising authority to avoid disruption of such
services. No termination hereunder shall prejudice any
of the non-defaulting party's rights arising prior
thereto or shall limit in any way the other remedies
available to the non-defaulting party.
2.9 Upon cessation of use of the Designated Product, the
Licensee shall, as instructed by the Licensor, either
return the Software Product to the Licensor or destroy
the Software Product.
2.10 Should any obligation of either party under this License
be found illegal or unenforceable in any respect, such
illegality or unenforceability shall not affect any
other provision of this License, all of which shall
remain enforceable in accordance with their terms.
Should any obligations of either party under this
License be found illegal or unenforceable by reason of
being excessive in extent or breadth with respect to
duration, scope or subject matter, such obligations
shall be deemed and construed to be reduced to the
maximum duration, to the end that such obligations shall
be and remain enforceable to the maximum extent
allowable.
2.11 Any notice or other communication required or permitted
to be made or given hereunder to either party hereto
shall be sufficiently made or given on the date of
mailing, if sent to such party by certified mail, return
receipt requested, postage prepaid, addressed to it as
its address set forth in this Agreement.
2.12 The Licensee's rights hereunder are assignable, but only
as part of a transaction in which ownership of the
Designated Product is transferred to an Affiliate of
Licensee or as part of a sale or transfer of
substantially all of the assets of Licensee. It is
agreed that as a condition to the exercise of the
Licensee's right to assign this License, the Licensee
shall have previously obtained and provided to Licensor
a written assignment in which the assignor identifies
and incorporates by reference this License and
intermediate assignments prior to any physical transfer
or Turnover of the Software Product to such assignee.
3. PATENT OR COPYRIGHT OR TRADEMARK INFRINGEMENT
Licensor agrees, at its expense, to defend and indemnify Licensee in
any suit, claim or proceeding brought against Licensee alleging that
any Software Product licensed hereunder directly infringes any U.S.
Letters Patent, U.S. Copyright or U.S. Trademark, provided Licensor
is promptly notified, given assistance required and permitted to
direct the defense. Further, Licensor agrees to pay any judgment
based on infringement rendered in such suit by final judgment of a
court of last resort, but Licensor shall have no liability for
settlements or costs incurred without its consent. Should the use of
the Software Product by Licensee be enjoined, or in the event that
Licensor desires to minimize its liability hereunder, Licensor may
fulfill its obligations hereunder by either substituting
non-infringing equivalent software or modifying the infringing
Software Product or portion thereof so that it no longer infringes,
but remains functionally equivalent, or to obtain for Licensee, at
the expense of Licensor, the right to continue use of such Software
Product, or if in the sole judgment of Licensor none of the
foregoing is feasible, Licensor may take back the Software Product
and refund to Licensee the undepreciated amount of any paid-up fee
that has been paid to Licensor. The foregoing states the entire
liability of Licensor for patent, copyright or trademark
infringement or for any breach of warranty of non-infringement,
express or implied. The foregoing indemnity shall not apply to any
suit, claim or proceedings based upon allegations that a process or
method claim of a patent is infringed, nor to Infringements arising
from modification of the Software Product by anyone other than
Licensor, or to allegations of infringement based on the combination
of the Software Product with software or products supplied by
Licensee or others, nor to infringements arising from
35
<PAGE> 36
Software Products made to the specification or design of Licensee,
and Licensee agrees to indemnify Licensor to an extent equivalent to
that provided to the Licensee hereinabove in the event that any
suit, claim or proceeding is brought against Licensor based upon any
of the foregoing infringement circumstances which are excluded from
the Licensor's indemnification to the Licensee.
4. WARRANTY AND DISCLAIMER OF WARRANTY
4.1 Licensor warrants that the Software Products, other than
the data base portion of the Software Product covered by
this Agreement, will, at the time of the Turnover,
substantially conform to its functional description in
Licensor's technical proposal. Licensee's sole remedy
and Licensor's sole obligation shall be to deliver any
amendments or alterations required to correct any such
non-conforming Software which is found to be defective
within a period of one (1) year after Turnover and which
significantly affects its performance.
4.2 Licensor warrants that the data base portion of the
Software Product covered by this License shall
substantially conform to the site dependent data
submitted by Licensee. Licensee's sole remedy and
Licensor's sole obligation shall be to correct any
nonconforming data base which is found to be defective
within a period of ninety (90) days after Turnover.
4.3 The foregoing warranties do not extent to defects or
non-conformities from any cause, including but not
limited to, abuse, acts of God, improper installation,
modifications or maintenance (if performed by other than
Licensor) and other defects traceable to Licensee's acts
of omissions; or defects or nonconformities in software,
firmware or data base traceable to Licensee's errors,
modifications or system changes.
4.4 THE FOREGOING WARRANTIES ARE IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE. BUYER FURTHER
AGREES THAT LICENSOR WILL NOT BE LIABLE FOR ANY LOSS OF
DATA OR USE, LOST PROFITS OR REVENUE, OR FOR ANY CLAIM
OR DEMAND AGAINST BUYER BY ANY OTHER PARTY. IN NO EVENT
WILL LICENSOR BE LIABLE FOR CONSEQUENTIAL DAMAGES, EVEN
IF LICENSOR HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
5. LIMITATION OF LIABILITY
5.1 LICENSOR SHALL NOT BE LIABLE FOR SPECIAL, INDIRECT,
INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE AND
FROM ANY CAUSE, WHETHER BASED ON CONTRACT, TORT
(INCLUDING NEGLIGENCE), INFRINGEMENT OF STATUTORY
PROPRIETARY RIGHTS, INCLUDING PATENT, COPYRIGHT OR
TRADEMARK (EXCEPT AS EXPRESSLY PROVIDED IN SECTION 3
ABOVE), OR ANY OTHER LEGAL THEORY, EVEN IF LICENSOR HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
LICENSEE FURTHER AGREES THAT LICENSOR WILL NOT BE LIABLE
FOR ANY LOSS OF DATA OR USE, LOST PROFITS OR REVENUE, OR
FOR ANY CLAIM OR DEMAND AGAINST LICENSEE BY ANY OTHER
PARTY.
5.2 LICENSEE ASSUMES SOLE RESPONSIBILITY FOR ENSURING THAT
THE BILLING CENTER CAN CORRECTLY READ CALL RECORDS.
LICENSEE'S RESPONSIBILITY INCLUDES READING DAILY THE AMA
FRAME AND/OR POLLING SYSTEM TAPE(S) BY THE BILLING
SYSTEM COMPUTER TO ENSURE ALL TICKET INFORMATION IS
PRESENT. RISK OF LOSS FOR ANY DATA, USE, REVENUE OR
PROFIT ASSOCIATED THEREWITH IS ON LICENSEE.
36
<PAGE> 37
6. CHOICE OF LAW AND JURISDICTION
The validity, performance and construction of these terms and
conditions shall be governed by the laws of the State of Florida
without regard to its Choice of Law provisions. Licensee hereby
irrevocably consents and agrees that any legal action, suit or
proceeding arising out of or in any way in connection with this
Software License Agreement shall be brought in the courts of the
State of Florida or in the United States court sitting in the State
of Florida and hereby irrevocably accepts and submits to, for itself
and in respect of its property, generally and unconditionally, the
jurisdiction of any such court and to all proceedings in such court.
7. INTEGRATION
This Software License Agreement constitutes the entire understanding
of the parties hereto and supersedes all previous communications,
representations and understandings between the parties with respect
to the subject matter of this Software License Agreement.
WHEREFORE, the parties hereto manifest their agreement to the terms and
conditions hereinabove, effective on the date first above written, by affixing
hereto the signatures of their respective authorized representatives
hereinbelow.
SIEMENS STROMBERG-CARLSON STAR VENDING, INC.
(LICENSOR) (LICENSEE)
By:___________________________________ By:___________________________________
______________________________________ ______________________________________
(Name & Title) (Name & Title)
Date Signed:__________________________ Date Signed:__________________________
37
<PAGE> 38
ASSIGNMENT OF PURCHASE ORDER
This Assignment between STAR VENDING, INC. ("Company") and
TELECOMMUNICATIONS FINANCE GROUP ("Lessor"),
WHEREAS, the Company and Lessor have, or will shortly, execute a
Lease Agreement ("Lease"); and
WHEREAS, the Company has executed and delivered a certain purchase
contract covering the property described therein (the "equipment"), a copy of
which purchase contract is attached hereto as Attachment A ("Purchase Order");
and
WHEREAS, the Company desires to assign to Lessor all of its rights
and interests under the Purchase Order for that equipment listed on Schedule 1,
as amended from time to time, of Exhibit A of the Lease so that Lessor might
purchase and take title to such equipment in the Company's stead.
NOW, THEREFORE, for valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. This Assignment shall be effective as of the date the Company executes
Exhibit A entitled "Certificate of Delivery and Acceptance" of the Lease.
2. The Company (a) represents and warrants that the Purchase Order constitutes
the entire understanding of the parties thereto with respect to the purchase and
sale of the equipment covered thereby; (b) hereby assigns to Lessor all of its
rights under the Purchase Order as to the equipment listed on Schedule 1, as
amended from time to time, of Exhibit A of the Lease; (c) hereby assigns to
Lessor and Lessor hereby assumes and agrees, so long as a Company complies with
the provisions of the Lease and otherwise performs its obligations under the
Purchase Order, to perform Company's obligation under the Purchase Order to pay
the price of the equipment listed on Schedule 1, as amended from time to time,
of Exhibit A of the Lease; and (d) represents and warrants that neither notice
to nor consent from the respective vendor is required in connection with the
execution, delivery and performance of this Assignment or for the validity or
enforceability of this Assignment.
3. Pursuant to this Assignment, the Company hereby agrees with Lessor that the
Company shall continue to be responsible for the performance of all obligations
under the Purchase Order, except for, subject to the condition provided in
Paragraph 1 above, the obligation to pay the price as provided in Paragraph 2
above, and the Company agrees to hold harmless and indemnify Lessor from all
liability, loss, damage, and expense arising from or directly or indirectly
attributable to such obligations.
IN WITNESS WHEREOF, the parties have duly executed this Assignment
under seal by their authorized representatives as of the date opposite their
respective signatures.
TELECOMMUNICATIONS FINANCE GROUP STAR VENDING, INC.
By:___________________________________ By:___________________________________
______________________________________ ______________________________________
Authorized Representative (Name & Title)
Date Signed:__________________________ Date Signed:__________________________
38
<PAGE> 39
ATTACHMENT A
SIEMENS
Stromberg-Carlson OCC CONTRACT
400 Rinehart Road
Lake Mary, Florida 32746
(407) 942-5000
Buyer: Star Vending, Inc. DATE: 04/18/95
_________________________________ INSTALLATION SITE: New York, NY
_______________________________________ ____________________
_______________________________________ ______________________________________
This Contract is subject to the terms and conditions set forth herein, and
includes the following:
1. Continuation pages 2, 3 and 4 which include a Disclaimer of Warranties and
a Software Product License.
2. Technical Proposal No. DCO-581103 , Issue 1 , dated 04/18/95 .
_____________ _____ __________
3. Payment Terms:
* 100% of equipment price upon delivery, F.O.B. Lake Mary, Florida
* 100% of installation price upon installation turnover.
<TABLE>
<CAPTION>
- ------- ------------------------------------ ---------- ---------- -------------- ---------------
Item Description Quantity Unit Price Total Delivery
(Month ARO)
Schedule
- ------- ------------------------------------ ---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
01 Proposal for an in-place DCO-CS
equipped and wired for 1152 ports,
Release 12.1 CMF and a Release 14
upgrade per DCO-581103, Issue 01,
dated 04/18/95.
Material $320,000
Installation 28,500
--------
TOTAL $348,500
(continued on page 1a)
- ------- ------------------------------------ ---------- ---------- -------------- ---------------
</TABLE>
NOTE: This form must be signed and returned by Buyer within 30 days of the first
date above written.
<TABLE>
<S> <C>
- --------------------------------------------- -----------------------------------------
This Contract is agreed to for item(s): Siemens Stromberg-Carlson Home Office
Acceptance
_____________________________________________ By:______________________________________
Date
By:__________________________________________ Receipt of $ from
Authorized Representative & Title Date Buyer is Hereby Acknowledged
For: By:______________________________________
(Buyer/Licensee) Date
- --------------------------------------------- -----------------------------------------
</TABLE>
39
<PAGE> 40
SIEMENS CONTRACT
Stromberg-Carlson CONTINUATION
SHEET
Star Vending, Inc. DCO-581103
Issue: 01
Date: 04/18/95
Page 1a
Item Description Qty. Unit Pr. Total
- --------------------------------------------------------------------------------
NOTES:
AVAILABILITY OF THE ABOVE IN-PLACE SWITCH CONTINENT NEGOTIATIONS WITH THE
CURRENT LESSEE.
ITEM 01 PRICE IS BASED O THE RETURN OF THE EXISTING CMF UPON COMPLETION OF THE
UPGRADE TO RELEASE 12.1.
A 10% DEPOSIT IS REQUIRED ON ORDER ENTRY. IF LEASED, A 5% DEPOSIT IS REQUIRED ON
ORDER ENTRY. IF APPLIED AGAINST A LEASE, IT WILL APPLY TO THE FIRST AND
THIRTEENTH PAYMENTS AND CONTRIBUTE TO THE LAST PAYMENT.
Siemens Stromberg-Carlson reserves the right to change the hardware elements in
accordance with our ongoing development program. The hardware necessary to
support the functionality specified will be provided at time of shipment in
accordance with our then current hardware configuration policy.
PRICES DO NOT INCLUDE TAXES AND FREIGHT.
40
<PAGE> 41
CERTIFICATE OF DELIVERY AND ACCEPTANCE
Commencement Date: August 2, 1996
THIS CERTIFICATE OF DELIVERY AND ACCEPTANCE is executed and delivered to
TELECOMMUNICATIONS FINANCE GROUP ("Lessor") by STAR VENDING, INC. ("Lessee")
pursuant to and in accordance with the Lease Agreement dated January 3, 1996
between Lessor and Lessee (the "Lease", the defined terms therein being used
herein with their defined meanings).
1. The Equipment covered by this Certificate consists of the items
described in Schedule 1 of Exhibit A of the Lease.
2. Lessee confirms that the items of Equipment covered hereby have been
delivered to it in good working order and condition, and have been
inspected and accepted by Lessee as of the Commencement Date set
forth above. Lessee hereby waives any right it may have under
Section 2A-517 of the Uniform Commercial Code or otherwise to revoke
this acceptance for any reason whatsoever, including but not limited
to, (i) any assumption by Lessee that a nonconformity would be
cured, (ii) any inducement of acceptance by the Lessor's assurances
or any difficulty to discover a nonconformity before acceptance, or
(iii) any Lessor default under the Lease. Lessee further hereby
waives its rights under Sections 2A-401 and 2A-402 of the Uniform
Commercial Code to suspend performances of any of its obligations
under the Lease with respect to the Equipment hereby accepted.
3. Lessee confirms that such items of Equipment have been installed at:
60 Hudson Street, Suite 1215, New York, New York 10013.
4. The Lessor's Value of the items of Equipment covered hereby is set
forth in the Schedule 1 of Exhibit A. Lessee confirms that each
installment of rent payable is as defined by the rental rate factor
per thousand dollars as specified in Section 5 of the Lease.
5. Lessee hereby: (a) confirms that the items of Equipment covered
hereby have been inspected by Lessee, have been delivered in good
working order and condition and are of the size, design, capacity
and manufacture selected by it and meet the provisions of the
purchase order(s) with respect thereto; and (b) irrevocably accepts
said items of Equipment "as-is, where-is" for all purposes of the
Lease as of the Commencement Date set forth above and shall pursue
remedies to correct deficiencies, if any, in said items of equipment
under the manufacturer's warranty provisions only.
6. Lessee hereby confirms: (i) that no Default or Event of Default is
in existence as of the Commencement Date set forth above, nor shall
any Default or Event of Default occur as a result of the lease by
Lessee of the Equipment here-in; and (ii) that all representations
and warranties of Lessee contained in the Lease or in any document
or certificate furnished Lessor in connection herewith, are true and
correct as of the Commencement Date set forth above with the same
force and effect as if made on such date.
7. Lessee assumes sole responsibility for ensuring that the billing
center can correctly read call records. Lessee's responsibility
includes reading daily the automatic message/ticketing accounting
system and/or polling systems tape(s) by the billing system to
ensure all ticket information is present. Risk of loss for any
revenue or profit associated therewith passes to Lessee upon cutover
of any hardware or software.
8. All of the terms, provisions and conditions of the Lease are hereby
incorporated herein and made a part hereof as if such terms,
provisions and conditions were set forth in full in this
Certificate. By their execution and delivery of this Certificate,
the parties hereto reaffirm all of the terms, provisions and
conditions of the Lease.
IN WITNESS WHEREOF, Lessee has caused this Certificate to be
executed by its duly authorized officer as of the Commencement Date set forth
above.
Refer S.O. #ADDITION I/EQUIPMENT LIST STAR VENDING, INC.
$ TFG-96150 By:____________________________________
_______________________________________
(Name & Title)
Date Signed:___________________________
ACCEPTED BY:
TELECOMMUNICATIONS FINANCE GROUP
AS OF THE ____ DAY OF __________, 19__.
By:____________________________________
_______________________________________
Authorized Representative
<PAGE> 42
SCHEDULE 1 OF EXHIBIT A
(CERTIFICATE OF DELIVERY AND ACCEPTANCE)
EQUIPMENT DESCRIPTION
The items of personal property to be leased pursuant to this Lease Agreement,
dated as of January 3, 1996 between TELECOMMUNICATIONS FINANCE GROUP, as Lessor,
and STAR VENDING, INC., as Lessee, are described below and in the attached
equipment list(s):
<TABLE>
<CAPTION>
Equipment List
- --------------
Number Description Amount
- ------ ----------- ------
<S> <C> <C>
DCO-581103 A USED SIEMENS STROMBERG-CARLSON DCO-CS $348,500.00
EQUIPPED AND WIRED FOR 1152 PORTS, RELEASE 12.1
CMF AND A RELEASE 14 UPGRADE PER DCO-581103,
ISSUE 1, DATED 04/18/95 INCLUDING INSTALLATION
FREIGHT 3,535.65
TFG-96150 ADDITION I 362,181.53
TOTAL $714,217.18
===== ===========
</TABLE>
The above described equipment installed at:
60 Hudson Street, Suite 1215, New York, New York 10013
ACCEPTED BY:________________________
DATE:_______________________________
Dated: January 3, 1996
Revised: July 17, 1996
<PAGE> 43
EQUIPMENT LIST # TFG-96150 DATED: July 17, 1996
COMPANY: STAR VENDING, INC.
SITE LOCATION: NEW YORK, NEW YORK
ADDITION: I
<TABLE>
<CAPTION>
PART NO./DESCRIPTION QUANTITY AMOUNT
- -------------------- -------- ------
<S> <C> <C>
SS-C
----
USED 2304 PORT ADDITION PER DCO-681030, ISSUE 2,
DATED 01/31/96 (S.O. #069558) AS FOLLOWS:
MATERIAL 1 LOT $168,570.00
INSTALLATION 14,300.00
FREIGHT 1,473.58
THIRD PARTY VENDOR - ALTA COMPUTER CORP.
----------------------------------------
EQUIPMENT AS FOLLOWS: 1 LOT 17,274.40
P/N: 261614, MAG INNOVISION 21" MONITOR 1
P/N: 485945, OMNIVIEW VIDEO/KEYBOARD SHARING
DEVICE PS/2 VERSION 1
P/N: 485948, OMNIVIEW PS/2 CABLE KIT 4
P/N: 123561, BELKIN MONITOR EXTENSION CABLE 4
P/N: 263218, KINGSTON NETWORK INTERFACE CARDS 1
6-PACK
P/N: 275883, 3COM LINKBUILDER FMS II 24-PORT HUB 1
P/N: 257804, EPSON FX-870 9-PIN DOT MATRIX PRINTER 1
P/N: 257835, EPSON SERIAL INTERFACE FOR FX-870 PRINTER 1
P/N: 901214, 3COM NETBUILDER REMOTE OFFICE 221 1
ROUTER
P/N: 371451, INTEL ETHEREXPRESS PRO 10/100 FAST
ETHERNET CARD 1
P/N: 436704, WYSE 14" TERMINAL 2
P/N: 436734, WYSE 102-KEY KEYBOARD FOR TERMINAL 2
P/N: 123516, BELKIN SERIAL CABLE 10
P/N: 239802, BELKIN F/F DB-25 GENDER CHANGER 10
P/N: 123589, BELKIN DB-25 NULL MODEM ADAPTER 10
P/N: 336827, DATA PRODUCTS 8500 PRINTER 1
P/N: 262513, MICROCOMPUTER ACCESSORIES PRINTER 1
STAND
P/N: 1641, HELLO DIRECT 100' PHONE HEADSET 1
DOVE DATA CALL COLLECT SOFTWARE 2
DOVE DATA X.25 CARD FOR PC 2
P/N: 303431, DIGI PC/8EM RJ-45 SERIAL SYSTEM 2
P/N: 303475, DIGI RJ45 TO DB25 MALE 4-FOOT CABLE 16
PCC V.35 TO V.35 CABLE (MALE) 1
P/N: 239860, OMNIVIEW VIDEO/KEYBOARD SHARING 1
DEVICE
THIRD PARTY VENDOR - CENTURY TELECOM
------------------------------------
SAGE 930A COMMUNICATIONS TEST SET, S/N 4193 1 10,835.00
TTC 209A T-CARRIER TEST SET W/BATTERY OPTION,
S/N 3818 1 3,294.50
SHIPPING & HANDLING 100.00
</TABLE>
<PAGE> 44
EQUIPMENT LIST # TFG-96150 DATED: July 17, 1996
(PAGE 2)
<TABLE>
<CAPTION>
PART NO./DESCRIPTION QUANTITY AMOUNT
- -------------------- -------- ------
<S> <C> <C>
THIRD PARTY VENDOR - DITECH
---------------------------
ECHO CANCELLER 46 63,756.00
FREIGHT 254.75
SHELF, 18 DIGROUP 6 4,620.00
AIR BAFFLE, 2 RACK UNIT 5 385.00
FREIGHT 147.00
THIRD PARTY VENDOR -MICRON
--------------------------
P133 HOME MPC B (ATX) COMPUTERS NOW 4 10,555.60
SHIPPING AND HANDLING 396.00
P133 HOME MPC B (ATX) COMPUTERS NOW 2 5,277.80
SHIPPING AND HANDLING 198.00
THIRD PARTY VENDOR - WALKER GROUP
---------------------------------
TLC PL 5 84.70
FREIGHT 14.00
TLC HORIZ RING PNL 5 114.95
TLC PL 5 126.78
FREIGHT 14.00
TLC CONV PLUG 5 51.70
TLC ADAPTER 5 99.00
FREIGHT 14.00
TLC PATCH CORD HOLDER 3 108.90
TLC 18 MOD CHASSIS 7X23 2 762.30
FREIGHT 122.00
PCI 4PRT K5530/V35 S/RATE DATA 1 1,787.50
FREIGHT 12.75
ADC 23" HRXNL RG14-24815-0010 22 2,388.54
FREIGHT 313.50
PCI 10-P RS-232C SYN/ASYN SRU 1 1,716.00
FREIGHT 13.50
TLC DSX1 RX-CNT, PANEL 22 23,964.05
TLC BLUE NICKEL P/C 10 FOOT 10 254.65
TLC 3 COND. LOOPING PLUG 30 227.04
FREIGHT 443.25
PCI DC POWER SUPPLY 2 1,430.00
PCI RING GENERATOR 1 286.00
PCI UNIV ENCLOSURE + INSTALL KIT 1 1,072.50
PCI INTERFACE CARD + MODEM 1 1,287.00
PCI CPU + X-CONN W/8801 V3.43 2 6,435.00
</TABLE>
<PAGE> 45
EQUIPMENT LIST # TFG-96150 DATED: July 17, 1996
(PAGE 2)
<TABLE>
<CAPTION>
PART NO./DESCRIPTION QUANTITY AMOUNT
- -------------------- -------- ------
<S> <C> <C>
PCI DUAL T1/E1 CARD 2 2,431.00
PCI DSX/CEPT MODULE 4 1,430.00
FREIGHT 65.75
PCI CARD 1 604.18
TLC + CONN WIRE 20 1,524.60
TLC PL 30 1,833.81
TLC PL 10 467.50
TLC PL 10 165.00
TLC TERM PLUG 10 64.90
TLC MODULE 20 8,602.00
TLC ADAPTER 5 126.50
TLC TOOL 1 36.30
FREIGHT 248.75
-----------
TOTAL $362,181.53
===== ===========
</TABLE>
<PAGE> 46
SIEMENS Proposal No.: DCO-681030
STROMBERG-CARLSON Issue No.: 2
Date: January 31, 1996
INSTALLATION SITE: NEW YORK, NY
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
ITEM 01
DTF-01/02
---------
817577-900 DTF Frame Assembly 2
817577-901 DS-1 Host CUA 12
817577-902 DS-1 Basic PWBAs 12
817560-626 T-1 Interface PWBA 96
207600-225 DTF Frame Package 2
207600-721 Card Guide 12
207800-079 Front Door Mounting 2
207800-080 Rear Door Mounting 2
207600-158 Right Door 4
207600-159 Left Door 4
817577-924 Base Mount Blower Assembly 2
LTF-00/01
---------
814574-900 LTF Frame Assembly 1
814574-901 Supervisory Panel 1
814574-904 Ejector Bar 2
814574-903 Terminator Assembly 1
207600-720 Card Guide 5
207600-210 LTF Frame Package 1
207600-014 Terminal Block Assembly 1
814574-992 Universal Service CUA 5
814574-995 Basic PWBAs 5
814742-576 Digital DTMF Receiver PWBA (FOC) 3
814571-686 Digital TMF Receiver PWBA 27
814572-576 Digital TMF Sender PWBA 6
814695-556 Digital DTMF Sender PWBA 6
814643-596 Digital DTMF Receiver PWBA 30
207600-160 Front Door Mounting 1
207600-471 Rear Door Mounting 1
207600-158 Right Door 2
207600-159 Left Door 2
</TABLE>
<PAGE> 47
SIEMENS Proposal No.: DCO-681030
STROMBERG-CARLSON Issue No.: 2
Date: January 31, 1996
INSTALLATION SITE: NEW YORK, NY
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
ITEM 01 (CONT.)
CMF
---
814095-616 Service Group Diag. PWBA 2
822003-596 1024 Port TSI PWBA 8
822002-526 TSI/PGH Interface PWBA 8
207800-482 TSI/PGHGP Cable 8
822005-546 TPP 0 PWBA 4
822006-576 TPP 1 PWBA 4
822017-566 TPP 2 PWBA 4
822068-810 Diag. Grading Panel CCS-01 1
822068-811 Diag. Grading Panel CCS-02 1
PRT
---
817576-938 Circuit Breaker 4
Miscellaneous
-------------
4-24419-0290 DSX Panel, ADC DSX-DR 19 4
PJ716 Bantem Patch Cord 16
DOC-ADD Additions Documentation 1
202975-592 7' x 19" Relay Rack 1
</TABLE>
<PAGE> 48
ASSIGNMENT OF PURCHASE ORDER
This Assignment between STAR VENDING, INC. ("Company") and
TELECOMMUNICATIONS FINANCE GROUP ("Lessor').
WHEREAS, the Company and Lessor have, or will shortly, execute a
Lease Agreement ("Lease"); and
WHEREAS, the Company has executed and delivered a certain purchase
contract covering the property described therein (the "Equipment"), a copy of
which purchase contract is attached hereto as Attachment A ("Purchase Order");
and
WHEREAS, the Company desires to assign to Lessor all of its rights
and interests under the Purchase Order for that equipment listed on Schedule 1,
as amended from time to time, of Exhibit A of the Lease so that Lessor might
purchase and take title to such equipment in the Company's stead.
NOW, THEREFORE, for valuable consideration, receipt of which is
hereby acknowledged, the parties hereto agree as follows:
1. This Assignment shall be effective as of the date the Company
executes Exhibit A entitled "Certificate of Delivery and Acceptance" of the
Lease.
2. The Company (a) represents and warrants that the Purchase Order
constitutes the entire understanding of the parties thereto with respect to the
purchase and sale of the Equipment covered thereby; (b) hereby assigns to Lessor
all of its rights under the Purchase Order as to the equipment listed on
Schedule 1, as amended from time to time, of Exhibit A of the Lease; (c) hereby
assigns to Lessor and Lessor hereby assumes and agrees, so long as a Company
complies with the provisions of the Lease and otherwise performs its obligations
under the Purchase Order, to perform Company's obligations under the Purchase
Order to pay the price of the equipment listed on Schedule 1, as amended from
time to time, of Exhibit A of the Lease; and (d) represents and warrants that
neither notice to nor consent from the respective vendor is required in
connection with the execution, delivery and performance of this Assignment or
for the validity or enforceability of this Assignment.
3. Pursuant to this Assignment, the Company hereby agrees with
Lessor that the Company shall continue to be responsible for the performance of
all obligations under the Purchase Order, except for, subject to the condition
provided in Paragraph 1 above, the obligation to pay the price as provided in
Paragraph 2 above, and the Company agrees to hold harmless and indemnify Lessor
from all liability, loss, damage, and expense arising from or directly or
indirectly attributable to such obligations.
IN WITNESS WHEREOF, the parties have duly executed this Assignment
under seal by their authorized representatives as of the date opposite their
respective signatures.
TELECOMMUNICATIONS FINANCE GROUP STAR VENDING, INC.
By:____________________________________ By:__________________________________
_______________________________________ _____________________________________
Authorized Representative (Name & Title)
Date Signed:___________________________ Date Signed:_________________________
<PAGE> 49
ATTACHMENT A
EQUIPMENT LIST #TFG-96150 DATED: July 17, 1996
COMPANY: STAR VENDING, INC.
SITE LOCATION: NEW YORK, NEW YORK
ADDITION: I
<TABLE>
<CAPTION>
PART NO./DESCRIPTION QUANTITY AMOUNT
- -------------------- -------- ------
<S> <C> <C>
SS-C
----
USED 2304 PORT ADDITION PER DCO-681030, ISSUE 2, DATED
01/31/96 (S.O. #069558) AS FOLLOWS:
MATERIAL 1 LOT $168,570.00
INSTALLATION 14,300.00
FREIGHT 1,473.58
THIRD PARTY VENDOR - ALTA COMPUTER CORP.
----------------------------------------
EQUIPMENT AS FOLLOWS: 1 LOT 17,274.40
P/N: 261614, MAG INNOVISION 21" MONITOR 1
P/N: 485945, OMNIVIEW VIDEO/KEYBOARD SHARING
DEVICE PS/2 VERSION 1
P/N: 485948, OMNIVIEW PS/2 CABLE KIT 4
P/N: 123561, BELKIN MONITOR EXTENSION CABLE 4
P/N: 263218, KINGSTON NETWORK INTERFACE CARDS
6-PACK 1
P/N: 275883, 3COM LINKBUILDER FMS II 24-PORT HUB 1
P/N: 257804, EPSON FX-870 9-PIN DOT MATRIX PRINTER 1
P/N: 257835, EPSON SERIAL INTERFACE FOR FX-870
PRINTER 1
P/N: 901214, 3COM NETBUILDER REMOTE OFFICE 221
ROUTER 1
P/N: 371451, INTEL ETHEREXPRESS PRO 10/100 FAST
ETHERNET CARD 1
P/N: 436704, WYSE 14" TERMINAL 2
P/N: 436734, WYSE 102-KEY KEYBOARD FOR TERMINAL 2
P/N: 123516, BELKIN SERIAL CABLE 10
P/N: 239802, BELKIN F/F DB-25 GENDER CHANGER 10
P/N: 123589, BELKIN DB-25 NULL MODEM ADAPTER 10
P/N: 336827, DATA PRODUCTS 8500 PRINTER 1
P/N: 262513, MICROCOMPUTER ACCESSORIES PRINTER
STAND 1
P/N: 1641, HELLO DIRECT 100' PHONE HEADSET 1
DOVE DATA CALL COLLECT SOFTWARE 2
DOVE DATA X.25 CARD FOR PC 2
P/N: 303431, DIGI PC/8EM RJ-45 SERIAL SYSTEM 2
P/N: 303475, DIGI RJ45 TO DB25 MALE 4-FOOT CABLE 16
PCC V.35 TO V.35 CABLE (MALE) 1
P/N: 239860, OMNIVIEW VIDEO/KEYBOARD SHARING
DEVICE 1
</TABLE>
<PAGE> 50
EQUIPMENT LIST #TFG-96150 DATED: July 17, 1996
(PAGE 2)
<TABLE>
<CAPTION>
PART NO./DESCRIPTION QUANTITY AMOUNT
- -------------------- -------- ------
<S> <C> <C>
THIRD PARTY VENDOR - CENTURY TELECOM
------------------------------------
SAGE 930A COMMUNICATIONS TEST SET, S/N 4193 1 10,835.00
TTC 209A T-CARRIER TEST SET W/BATTERY OPTION,
S/N 3818 1 3,294.50
SHIPPING & HANDLING 100.00
THIRD PARTY VENDOR - DITECH
---------------------------
ECHO CANCELLER 46 63,756.00
FREIGHT 254.75
SHELF, 18 DIGROUP 6 4,620.00
AIR BAFFLE, 2 RACK UNIT 5 385.00
FREIGHT 147.00
THIRD PARTY VENDOR - MICRON
---------------------------
P133 HOME MPC B (ATX) COMPUTERS NOW 4 10,555.60
SHIPPING AND HANDLING 396.00
P133 HOME MPC B (ATX) COMPUTERS NOW 2 5,277.80
SHIPPING AND HANDLING 198.00
THIRD PARTY VENDOR - WALKER GROUP
---------------------------------
TLC PL 5 84.70
FREIGHT 14.00
TLC HORIZ RING PNL 5 114.95
TLC PL 5 126.78
FREIGHT 14.00
TLC CONV PLUG 5 51.70
TLC ADAPTER 5 99.00
FREIGHT 14.00
TLC PATCH CORD HOLDER 3 108.90
TLC 18 MOD CHASSIS 7X23 2 762.30
FREIGHT 122.00
PCI 4PRT K5530/V35 S/RATE DATA 1 1,787.50
FREIGHT 12.75
ADC 23" HRXNL RG 14-24815-0010 22 2,388.54
FREIGHT 313.50
PCI 10-P RS-232C SYN/ASYN SRU 1 1,716.00
FREIGHT 13.50
TLC DSX1 RX-CNT, PANEL 22 23,964.05
TLC BLUE NICKEL P/C 10 FOOT 10 254.65
TLC 3 COND. LOOPING PLUG 30 227.04
FREIGHT 443.25
</TABLE>
<PAGE> 51
EQUIPMENT LIST #TFG-96150 DATED: July 17, 1996
(PAGE 3)
<TABLE>
<CAPTION>
PART NO./DESCRIPTION QUANTITY AMOUNT
- -------------------- -------- ------
<S> <C> <C>
PCI DC POWER SUPPLY 2 1,430.00
PCI RING GENERATOR 1 286.00
PCI UNIV ENCLOSURE + INSTALL KIT 1 1,072.50
PCI INTERFACE CARD + MODEM 1 1,287.00
PCI CPU + X-CONN W/8801 V3.43 2 6,435.00
PCI DUAL T1/E1 CARD 2 2,431.00
PCI DSX/CEPT MODULE 4 1,430.00
FREIGHT 65.75
PCI CARD 1 604.18
TLC + CONN WIRE 20 1,524.60
TLC PL 30 1,833.81
TLC PL 10 467.50
TLC PL 10 165.00
TLC TERM PLUG 10 64.90
TLC MODULE 20 8,602.00
TLC ADAPTER 5 126.50
TLC TOOL 1 36.30
FREIGHT 248.75
-----------
TOTAL $362,181.53
===== ===========
</TABLE>
<PAGE> 52
CERTIFICATE OF DELIVERY AND ACCEPTANCE
Commencement Date: April 2, 1996
THIS CERTIFICATE OF DELIVERY AND ACCEPTANCE is executed and delivered to
TELECOMMUNICATIONS FINANCE GROUP ("Lessor") by STAR VENDING, INC. ("Lessee")
pursuant to and in accordance with the Lease Agreement dated January 3, 1996
between Lessor and Lessee (the "Lease", the defined terms therein being used
herein with their defined meanings).
1. The Equipment covered by this Certificate consists of the items
described in Schedule 1 of Exhibit A of the Lease.
2. Lessee confirms that the items of Equipment covered hereby have been
delivered to it in good working order and condition, and have been
inspected and accepted by Lessee as of the Commencement Date set
forth above. Lessee hereby waives any right it may have under
Section 2A-517 of the Uniform Commercial Code or otherwise to revoke
this acceptance for any reason whatsoever, including but not limited
to, (i) any assumption by Lessee that a nonconformity would be
cured, (ii) any inducement of acceptance by the Lessor's assurances
or any difficulty to discover a nonconformity before acceptance, or
(iii) any Lessor default under the Lease. Lessee further hereby
waives its rights under Sections 2A-401 and 2A-402 of the Uniform
Commercial Code to suspend performance of any of its obligations
under the Lease with respect to the Equipment hereby accepted.
3. Lessee confirms that such items of Equipment have been installed at:
624 S. Grand, Suite 111, Los Angeles, California 90017
4. The Lessor's value of the items of Equipment covered hereby is set
forth in the Schedule 1 of Exhibit A. Lessee confirms that each
installment of rent payable is as defined by the rental rate factor
per thousand dollars as specified in Section 5 of the Lease.
5. Lessee hereby: (a) confirms that the items of Equipment covered
hereby have been inspected by Lessee, have been delivered in good
working order and condition and are of the size, design, capacity
and manufacture selected by it and meet the provisions of the
purchase order(s) with respect thereto: and (b) irrevocably accepts
said items of Equipment "as-is, where-is" for all purposes of the
Lease as of the Commencement Date set forth above and shall pursue
remedies to correct deficiencies, if any, in said items of equipment
under the manufacturer's warranty provisions only.
6. Lessee hereby confirms: (i) that no Default or Event of Default is
in existence as of the Commencement Date set forth above, nor shall
any Default or Event of Default occur as a result of the lease by
Lessee of the Equipment specified here-in; and (ii) that all
representations and warranties of Lessee contained in the Lease or
in any document or certificate furnished Lessor in connection
herewith, are true and correct as of the Commencement Date set forth
above with the same force and effect as if made on such date.
7. Lessee assumes sole responsibility for ensuring that the billing
center can correctly read call records. Lessee's responsibility
includes reading daily the automatic message/ticketing accounting
system and/or polling systems tape(s) by the billing system to
ensure all ticket information is present. Risk of loss for any
revenue or profit associated therewith passes to Lessee upon cutover
of any hardware or software.
8. All of the terms, provisions and conditions of the Lease are hereby
incorporated herein and made a part hereof as if such terms,
provisions and conditions were set forth in full in this
Certificate. By their execution and delivery of this Certificate,
the parties hereto reaffirm all of the terms, provisions and
conditions of the Lease.
IN WITNESS WHEREOF, Lessee has caused this Certificate to be
executed by its duly authorized officers as of the Commencement Date set forth
above.
Refer S.O. #069079/069163 STAR VENDING, INC.
By:__________________________________
_____________________________________
(Name & Title)
Date Signed:_________________________
ACCEPTED BY:_________________________
TELECOMMUNICATIONS FINANCE GROUP
AS OF THE _____ DAY OF _______ 19___.
By:__________________________________
_____________________________________
Authorized Representative
<PAGE> 53
SCHEDULE 1 OF EXHIBIT A
(CERTIFICATE OF DELIVERY AND ACCEPTANCE)
EQUIPMENT DESCRIPTION
The items of personal property to be leased pursuant to this Lease Agreement,
dated as of January 3, 1996 between TELECOMMUNICATIONS FINANCE GROUP, as Lessor,
and STAR VENDING, INC., as Lessee, are described below and in the attached
equipment list(s):
<TABLE>
<CAPTION>
Equipment List
- --------------
Number Description Amount
- ------ ----------- ------
<S> <C> <C>
DCO-581143 A USED RELEASE 14 DCO-CS EQUIPPED AND $590,000.00
WIRED FOR 4608 PORTS PER DCO-581143,
ISSUE 2, DATED 11/14/95 INCLUDING
INSTALLATION
FREIGHT 5,451.51
-----------
TOTAL $595,451.51
----- -----------
</TABLE>
The above described equipment installed at:
624 S. Grand, Suite 111, Los Angeles, California 90017
BY:______________________________
DATE:____________________________
<PAGE> 54
Proposal No.: DCO-581143
Issue No.: 2
Dated: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
Used Switching Equipment
Line Trunk Frame (LTF)
----------------------
OCCSLTFFRM Line Trunk Frame 2
814742-566 Diagnostic Test Gen/Monitor 1
LTFDOORS LTF Doors, Front & Rear 2
LINGRPCUA Line Group CUA (LTF) 1
SLTFUTSCUA Trk/Svc Ckt CUA Grp 1
SLTFUSCUA Svc Ckt CUA Grp 10
814571-706 Digital TMF Rcv. (2/PWBA) 59
814572-576 Digital Sender (TMF/SATT) 16
814695-556 Digital DTMF Sender 12
814643-596 Digital DTMF Receiver 41
814742-576 (FOC) Digital DTMF Receiver 12
814574-936 2-Wire E&M Trunk PWBA 2
814574-932 Loop Trunk, Reverse Batt PWBA 0
Digital Trunk Frame (DTF)
OCCSDTFFRM Digital Trunk Frame 4
DTFDOORS DTF Doors, Front & Rear 4
SDS1HSTCUA DS1 Host Ckt CUA 24
817560-626A T1 Interface PWBA 192
817577-917A Blower Assembly w/fan Alarm 4
</TABLE>
<PAGE> 55
Proposal No.: DCO-581143
Issue No.: 2
Dated: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
Used Switching Equipment
Control & Maintenance Frame (CMF)
---------------------------------
SCMFOCC12.1 Control & Maint Frame OCC 12.1 1
CMFDOORS CMF Doors, Front & Rear 1
822068-819 DLI Transfer 1
814635-086 PWBA Ring (N+1) 1
814721-666 Serial Line Unit PWBA 1
822010-676 Disk Drive Assy 2
822010-656 Tape Drive 1
817702-556 Traffic Measurement/Rec 1
817620-556 MSA PWBA 1
814727-626 J2 Maintenance Processor 1
822010-606 Power & Alarm PWBA 1
817680-606A BMUX PWBA 1
822222-606A DLI-II 1
TSIPWB17 TSI PWBA 16
822702-536A PXAM II-4MB 2
822727-696A J8 Call Processor 2
814770-656 PXA Memory PWBA 1/Mbyte 1
TPP0PWB17 TPP PWBA (Sectors 0,1,2,3) 1
OCCS7BASIC CCS7 Basics 1
OCCSNCS Sync Network Clock (Slave) 1
822718-596 Feature Processor (PWBA) 2
814095-626 Service Group Diag PWBA 3
OCCTAPE Tape Control PWBAs 1
814722-216A RS232 Interface Module 6
</TABLE>
<PAGE> 56
Proposal No.: DCO-581143
Issue No.: 2
Dated: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
Used Switching Equipment
Power & Test Frame (PRT)
------------------------
SPRTFOCC12.1 Power Ringing & Tst Fr OCC12.1 1
PRTDOORS PRT Doors, Front & Rear 1
817576-938 Circuit Breaker 100 Amp 14
814475-036 Alarm Sender PWBA 1
817576-912 Basis Cabinets & MTG for N+1) 1
814629-904 Ringing Generator (20 Hz) 1
817576-934 200VA DC/AC Non-Redund. Invtr 1
814215-820 Cook 4 Chan Announcer (NT5M) 1
203352-681 4 Channel Announcer 1
Automatic Message Accounting
----------------------------
SAMAFRM AMA Frame 1
AMADOORS AMA Doors Rear 1
814421-908 Cook 1600 BPI Tape Drives (2) 2
814421-909 Cook 1600 BPI Strapping 2
Miscellaneous
-------------
4-24419-0290 DSX Pnl-ADC DSX-DR 19 w/cord 7
PJ716 Bantam Patch Cord 28
2200B Channel Access Unit 1
203352-645 9600 Full Duplex Modems 1
202975-592 7' x 19" Relay Rack 1
207800-284 Installation Material 1
200110-119 Fuse 1 1/3 amp 20
200110-129 Fuse 3 amp 10
</TABLE>
<PAGE> 57
Proposal No.: DCO-581143
Issue No.: 2
Dated: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
Used Switching Equipment
Miscellaneous (Cont.)
---------------------
200110-429 Fuse 10 amp 5
0 Fuse 5 amp 10
SD000 Std System Documentation 1
D0001 Specifications, Paper 3
D0002 Site Drawings, Paper 3
203352-600 Hendry Filtered Fuse Panel 1
207630-911 Modem Elimiator OCC 2
207630-901 PKG Assy/Modem Elimator 4
Superstructure & Cabling 1
Battery Distribution Frame
--------------------------
814053-043A 7ft Battery Discharge Frame 1
207521-733 Shield 1
Power Equipment
---------------
202975-593 7' x 23" Relay Rack 1
BATRACKW/BRC Battery Rack - with Bracing 1
4DD-85-29 Exide DD Battery 1215 AH 1
203352-588 Charger/Lorain/200A RHM200D50 3
Distribution Frame Equipment
----------------------------
5065-8 Term Blocks Newton 8 x 26 4
5054 Newton Bracks (1 per 2 blks) 2
</TABLE>
<PAGE> 58
Proposal No.: DCO-581143
Issue No.: 2
Dated: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
Used Switching Equipment
Maintenance & Administration Equipment
--------------------------------------
202958-464 Tape Cartridge 1
203352-608 Arrow Tape Drive Cleaning Kit 1
203352-283 Genicom 2120 Keyboard/Printer 1
7271-964 Box, Teleprinter Paper 1
Spare Circuit Packs
-------------------
200110-099 Fuse 1/2 Amp 1
207630-042 Shield Assembly 1
555020-125 Fuse, 3AG, 3A 1
555366-001 Switch, SPST 1
814288-526 Tape Diagnostic PWBA 1
814291-546 Tape Motion Cont. PWBA 1
814298-526 Tape Buffer PWBA 1
814439-056 PGC-1 PWBA 1
814440-076 PGC-2 PWBA 1
814441-056 MUX/DEMUX PBA 1
814462-036A Power Supply PWBA 1
814463-026A Power Supply PWBA 1
814539-026 CMOS Codec Comm. PWBA 1
814727-626 J2 Maintenance Processor 1
817113-086 Power Supply PWBA 1
817524-066A LTC Interconnect PWBA 1
817560-626A T1 Interface PWBA 1
817561-526 T1 I/F Control 1 PWBA 1
817562-566 T1 I/F Control 2 PWBA 1
</TABLE>
<PAGE> 59
Proposal No.: DCO-581143
Issue No.: 2
Dated: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
Used Switching Equipment
Spare Circuit Packs (Cont.)
------------------- -------
817564-026A Power Supply PWBA 1
817581-026 DS1 Terminator PWBA 1
817702-556A TMRS Processor 1
822010-656 Tape Drive PWBA 1
822010-666 Tape Drive PWBA 1
822015-536 Synchronous Clock PWBA 1
822024-036A Power Monitor PWBA 1
822033-596A MCG - II PWBA 1
822034-536A Master Clock Dist. PWBA 1
822289-566A TBI II PWBA 1
822723-556A Data Link III PWBA 1
822726-526A HD MSA/SL PWBA 1
822010-606A MSDA Pwr &Alarm 1
822010-636 Disk Drive Assy 1
822222-606A DLI-II 1
</TABLE>
<PAGE> 60
STAR VENDING, INC.
SITE: LOS ANGELES, CALIFORNIA #2
LEASE PAYMENTS
ADDENDUM TO LEASE AGREEMENT DATED January 3, 1996 BETWEEN
TELECOMMUNICATIONS FINANCE GROUP AND
STAR VENDING, INC.
<TABLE>
<S> <C>
EFFECTIVE May 1, 1996 (60 MONTHLY LEASE PAYMENTS)
ORIGINAL VALUE OF EQUIPMENT $595,451.51
RATE FACTOR PER $1,000 $ 22.244
ORIGINAL MONTHLY LEASE PAYMENT $ 13,245.22
EFFECTIVE June 1, 1996 (59 MONTHLY LEASE PAYMENTS REMAINING)
ADDITION I $183,549.00
RATE FCTOR PER $1,000 $ 22.269
ADDITION I MONTHLY LEASE PAYMENT $ 4,087.45
TOTAL MONTHLY LEASE PAYMENT $ 17,332.67
===========
TOTAL VALUE OF EQUIPMENT $779,000.51
</TABLE>
SUMMARY OF TOTAL LEASE PAYMENTS:
<TABLE>
<S> <C> <C>
1 @ $13,245.22 = $ 13,245.22
59 @ $17,332.67 = $1,022,627.53
-- -------------
60 $1,035,872.75
</TABLE>
ACCEPTED BY:________________________
DATE:_______________________________
<PAGE> 61
CERTIFICATE OF DELIVERY AND ACCEPTANCE
Commencement Date: May 2, 1996
THIS CERTIFICATE OF DELIVERY AND ACCEPTANCE is executed and delivered to
TELECOMMUNICATIONS FINANCE GROUP ("Lessor") by STAR VENDING, INC. ("Lessee")
pursuant to and in accordance with the Lease Agreement dated January 3, 1996
between Lessor and Lessee (the "Lease", the defined terms therein being used
herein with their defined meanings).
1. The Equipment covered by this Certificate consists of the items
described in Schedule 1 of Exhibit A of the Lease.
2. Lessee confirms that the items of Equipment covered hereby have been
delivered to it in good working order and condition, and have been
inspected and accepted by Lessee as of the Commencement Date set
forth above. Lessee hereby waives any right it may have under
Section 2A-517 of the Uniform Commercial Code or otherwise to revoke
this acceptance for any reason whatsoever, including but not limited
to, (i) any assumption by Lessee that a nonconformity would be
cured, (ii) any inducement of acceptance by the Lessor's assurances
or any difficulty to discover a nonconformity before acceptance, or
(iii) any Lessor default under the Lease. Lessee further hereby
waives its rights under Sections 2A-401 and 2A-402 of the Uniform
Commercial Code to suspend performances of any of its obligations
under the Lease with respect to the Equipment hereby accepted.
3. Lessee confirms that such items of Equipment have been installed at:
624 S. Grand, Suite 111, Los Angeles, California 90017.
4. The Lessor's Value of the items of Equipment covered hereby is set
forth in the Schedule 1 of Exhibit A. Lessee confirms that each
installment of rent payable is as defined by the rental rate factor
per thousand dollars as specified in Section 5 of the Lease.
5. Lessee hereby: (a) confirms that the items of Equipment covered
hereby have been inspected by Lessee, have been delivered in good
working order and condition and are of the size, design, capacity
and manufacture selected by it and meet the provisions of the
purchase order(s) with respect thereto: and (b) irrevocably accepts
said items of Equipment "as-is, where-is" for all purposes of the
Lease as of the Commencement Date set forth above and shall pursue
remedies to correct deficiencies, if any, in said items of equipment
under the manufacturer's warranty provisions only.
6. Lessee hereby confirms: (i) that no Default or Event of Default is
in existence as of the Commencement Date set forth above, nor shall
any Default or Event of Default occur as a result of the lease by
Lessee of the Equipment here-in; and (ii) that all representations
and warranties of Lessee contained in the Lease or in any document
or certificate furnished Lessor in connection herewith, are true and
correct as of the Commencement Date set forth above with the same
force and effect as if made on such date.
7. Lessee assumes sole responsibility for ensuring that the billing
center can correctly read call records. Lessee's responsibility
includes reading daily the automatic message/ticketing accounting
system and/or polling systems tape(s) by the billing system to
ensure all ticket information is present. Risk of loss for any
revenue or profit associated therewith passes to Lessee upon cutover
of any hardware or software.
8. All of the terms, provisions and conditions of the Lease are hereby
incorporated herein and made a part hereof as if such terms,
provisions and conditions were set forth in full in this
Certificate. By their execution and delivery of this Certificate,
the parties hereto reaffirm all of the terms, provisions and
conditions of the Lease.
IN WITNESS WHEREOF, Lessee has caused this Certificate to be
executed by its duly authorized officer as of the Commencement Date set forth
above.
Refer S.O. #ADDITION I/EQUIPMENT LIST STAR VENDING, INC.
$TFG-96150
By:_________________________________
____________________________________
(Name & Title)
Date Signed:________________________
ACCEPTED BY:
TELECOMMUNICATIONS FINANCE GROUP
AS OF THE ___ DAY OF _________, 19__
By:_________________________________
____________________________________
Authorized Representative
<PAGE> 62
SCHEDULE 1 OF EXHIBIT A
(CERTIFICATE OF DELIVERY AND ACCEPTANCE)
EQUIPMENT DESCRIPTION
The items of personal property to be leased pursuant to this Lease Agreement,
dated as of January 3, 1996 between TELECOMMUNICATIONS FINANCE GROUP, as Lessor,
and STAR VENDING, INC., as Lessee, are described below and in the attached
equipment list(s):
<TABLE>
<CAPTION>
Equipment List
- --------------
Number Description Amount
- ------ ----------- ------
<S> <C> <C>
DCO-581143 A USED RELEASE 14 DCO-CS EQUIPPED AND $590,000.00
WIRED FOR 4608 PORTS PER DCO-581143,
ISSUE 2, DATED 11/14/95 INCLUDING
INSTALLATION
FREIGHT 5,451.51
TFG-96132 ADDITION I 183,549.00
-----------
TOTAL $779,000.51
===== ===========
</TABLE>
The above described equipment installed at:
624 S. Grand, Suite 111, Los Angeles, California 90017
ACCEPTED BY:_______________________
DATE:______________________________
Dated: January 3, 1996
Revised: May 1, 1996
<PAGE> 63
EQUIPMENT LIST #TFG-96132 DATED: May 1, 1996
COMPANY: STAR VENDING, INC.
ADDITION: I
SITE LOCATION: LOS ANGELES, CALIFORNIA #2
<TABLE>
<CAPTION>
PART NO./DESCRIPTION QUANTITY AMOUNT
- -------------------- -------- ------
<S> <C> <C>
SS-C
----
A USED 1152 PORT ADDITION W/ CONTROL SECTOR PER
DCO-681040, ISSUE I, DATED 01/31/96 (S.O.#069433) AS
FOLLOWS:
MATERIAL 1 LOT $76,200.00
INSTALLATION 7,800.00
FREIGHT 674.85
THIRD PARTY VENDOR - ALTA COMPUTER CORP.
----------------------------------------
HARDWARE/SOFTWARE AS FOLLOWS: 1 LOT 22,140.80
KINGSTON 2100 ENET 10BASET CARD 10BT 10MBS
BUS MASTER JUMPER CONF P/N 263218 1
OMNIVIEW MONITOR/KEYBOARD SWITCHBOX P/N 239860 1
KEYBOARD EXTENSION CABLE P/N 123562 4
VGA MONITOR EXTENSION CABLE P/N 123561 4
MAG INNOVISION 21" MONITOR P/N 261614 2
DOVE DATA SYSTEMS X.25 ISA CARD P/N DOVX25 2
100' CORDLESS TELEPHONE HEADSET P/N 1641 2
HEWLETT-PACKARD LASERJET 4 PLUS PRINTER P/N C2037A 1
EPSON FX-870 9-PIN DOT MATRIX PRINTER P/N 257804 1
EPSON SERIAL INTERFACE FOR FX-870 PRINTER P/N 257835 1
10' PARALLEL PRINTER CABLE P/N 123510 1
BELKIN 6/1 AUTOSWITCH SWITCHBOX P/N 123519 1
BELKIN SERIAL CABLE DB25 MALE TO MALE P/N 123536 1
BELKIN SERIAL CABLE DB25 FEMALE TO MALE P/N 123518 6
ON TECHNOLOGY NOTEWORK 4.0 10-7SER LICENSE PACK
(E-MAIL) 1
DOVE DATA SYSTEMS DLI CALL-COLLECT SOFTWARE
LICENSE P/N DOVDLI 2
RMS CALLTRAKKER SOFTWARE P/N R1539 1
NOVELL NETWARE V4.1 25-USER UPGRD P/N 466390 1
REPLICA BACK-UP SOFTWARE - SERVER P/N 343323 2
REPLICA MULTI-SERVER AGENT SOFTWARE P/N 343325 1
REPLICA HIGH-PERFORMANCE OPTION P/N 343324 1
SHIPPING CHARGES 90.00
THIRD PARTY VENDOR - CENTURY TELECOM
- ------------------------------------
HARDWARE AS FOLLOWS: 1 LOT 13,750.00
SHIPPING & HANDLING 100.00
</TABLE>
<PAGE> 64
EQUIPMENT LIST #TFG-96132 - PAGE 2 DATED: May 1, 1996
<TABLE>
<CAPTION>
PART NO./DESCRIPTION QUANTITY AMOUNT
- -------------------- -------- ------
<S> <C> <C>
THIRD PARTY VENDOR -MICRON
- --------------------------
HARDWARE AS FOLLOWS: 1 LOT 12,859.00
MICRON COMPUTER ATO MODEL BOM 5
MICRON COMPUTER ATO MODEL BOM 1
MMP. ADVENT. AV370LSPEAKER BLACK 4
MNN.15" .15FGX.28DP.1280X1024 1
MMP.ADVENT.AV007 SPEAKER SYSTEM 1
MNN.15".15FGX.28DP.1280X1024 5
MMP.ADVENT.AV007 SPEAKER SYSTEM 5
FREIGHT CHARGE 414.00
THIRD PARTY VENDOR - TTC
- ------------------------
HARDWARE AS FOLLOWS: 1 LOT 24,156.00
TBERD-224 MAINFRAME, S/N 8673 1
T1/FT1/DDS BERT BUNDLE 1
G.821 PERFORMANCE OPTION 1
ADVANCED STRESS PATTERN OPTION 1
DSP BOARD OPTION 1
VF TESTING OPTION 1
SS7/ISDN PROTOCOL MONITOR OPT 1
DS3 COMMUNICATIONS ANALYZER, S/N 8794 1
FREIGHT 34.00
THIRD PARTY VENDOR - WALKER
- ---------------------------
HARDWARE AS FOLLOWS: 1 LOT 18,444.25
PCI CPU + X-CONNECT, S/N 004626 1
PCI AC POWER SUPPLY, S/N 007899 1
TLC DSX1 RX-CNT, PANEL 1
FREIGHT 119.91
HARDWARE AS FOLLOWS: 1 LOT 6,750.70
TLC 18 MODCHASSIS 7X23 1
TLC MODULES 17
FREIGHT 15.49
----------
183,549.00
==========
</TABLE>
<PAGE> 65
SIEMENS Proposal No.: DCO-681034
Stromberg - Carlson Issue No.: 1
Date: January 30, 1996
INSTALLATION SITE: LOS ANGELES #2, CALIFORNIA
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
Switching Equipment
ITEM 01
DTF-04
------
817577-900 MG Basic DTF Assembly 1
817577-901 MG, DS1 Host CUA 6
817577-902 MG, Basics PWBA's DS1 CUA 6
207600-225 Frame Weldment 1
207800-079 Pkg Assy Front Door Mtg Hdw 1
207800-080 Pkg Assy Rear Door Mtg Hdw 1
207600-158 Door Assy, Right I/O 2
207600-159 Door Assy, Left I/O 2
207600-721 PWBA Guide 6
817560-606 PWBA, T1 Interface 48
817577-917 MG Blower w/fan Alarm Base 1
PRT - 00
--------
817576-938 Mod Group, Circuit Breaker 2
Miscellaneous
-------------
DSX-DR19 DSX Pnl-ADC DSX-DR 19 w/cord 2
202975-592 Relay Rack (Lorain) 1
DOC-ADD Additions Documentation 1
<PAGE> 66
CERTIFICATE OF DELIVERY AND ACCEPTANCE
Commencement Date: April 2, 1996
THIS CERTIFICATE OF DELIVERY AND ACCEPTANCE is executed and delivered to
TELECOMMUNICATIONS FINANCE GROUP ("Lessor") by STAR VENDING, INC. ("Lessee")
pursuant to and in accordance with the Lease Agreement dated January 3, 1996
between Lessor and Lessee (the "Lease", the defined terms therein being used
herein with their defined meanings).
1. The Equipment covered by this Certificate consists of the items
described in Schedule 1 of Exhibit A of the Lease.
2. Lessee confirms that the items of Equipment covered hereby have been
delivered to it in good working order and condition, and have been
inspected and accepted by Lessee as of the Commencement Date set
forth above. Lessee hereby waives any right it may have under
Section 2A-517 of the Uniform Commercial Code or otherwise to revoke
this acceptance for any reason whatsoever, including but not limited
to, (i) any assumption by Lessee that a nonconformity would be
cured, (ii) any inducement of acceptance by the Lessor's assurances
or any difficulty to discover a nonconformity before acceptance, or
(iii) any Lessor default under the Lease. Lessee further hereby
waives its rights under Sections 2A-401 and 2A-402 of the Uniform
Commercial Code to suspend performances of any of its obligations
under the Lease with respect to the Equipment hereby accepted.
3. Lessee confirms that such items of Equipment have been installed at:
624 S. Grand, Suite 111, Los Angeles, California 90017.
4. The Lessor's value of the items of Equipment covered hereby is set
forth in the Schedule 1 of Exhibit A. Lessee confirms that each
installment of rent payable is as defined by the rental rate factor
per thousand dollars as specified in Section 5 of the Lease.
5. Lessee hereby: (a) confirms that the items of Equipment covered
hereby have been inspected by Lessee, have been delivered in good
working order and condition and are of the size, design, capacity
and manufacture selected by it and meet the provisions of the
purchase order(s) with respect thereto: and (b) irrevocably accepts
said items of Equipment "as-is, where-is" for all purposes of the
Lease as of the Commencement Date set forth above and shall pursue
remedies to correct deficiencies, if any, in said items of equipment
under the manufacturer's warranty provisions only.
6. Lessee hereby confirms: (i) that no Default or Event of Default is
in existence as of the Commencement Date set forth above, nor shall
any Default or Event of Default occur as a result of the lease by
Lessee of the Equipment specified here-in; and (ii) that all
representations and warranties of Lessee contained in the Lease or
in any document or certificate furnished Lessor in connection
herewith, are true and correct as of the Commencement Date set forth
above with the same force and effect as if made on such date.
7. Lessee assumes sole responsibility for ensuring that the billing
center can correctly read call records. Lessee's responsibility
includes reading daily the automatic message/ticketing accounting
system and/or polling systems tape(s) by the billing system to
ensure all ticket information is present. Risk of loss for any
revenue or profit associated therewith passes to Lessee upon cutover
of any hardware or software.
8. All of the terms, provisions and conditions of the Lease are hereby
incorporated herein and made a part hereof as if such terms,
provisions and conditions were set forth in full in this
Certificate. By their execution and delivery of this Certificate,
the parties hereto reaffirm all of the terms, provisions and
conditions of the Lease.
IN WITNESS WHEREOF, Lessee has caused this Certificate to be
executed by its duly authorized officer as of the Commencement Date set forth
above.
Refer S.O. #069079/069163 STAR VENDING, INC.
By:______________________________________
_________________________________________
(Name & Title)
Date Signed:_____________________________
ACCEPTED BY:
TELECOMMUNICATIONS FINANCE GROUP
AS OF THE ____ DAY OF _____________, 19__
By:______________________________________
_________________________________________
Authorized Representative
<PAGE> 67
SCHEDULE 1 OF EXHIBIT A
(CERTIFICATE OF DELIVERY AND ACCEPTANCE)
EQUIPMENT DESCRIPTION
The items of personal property to be leased pursuant to this Lease Agreement,
dated as of January 3, 1996 between TELECOMMUNICATIONS FINANCE GROUP, as Lessor,
and STAR VENDING, INC., as Lessee, are described below and in the attached
equipment list(s):
<TABLE>
<CAPTION>
Equipment List
- --------------
Number Description Amount
- ------ ----------- ------
<S> <C> <C>
DCO-581143 A USED RELEASE 14 DCO-CS EQUIPPED AND $590,000.00
WIRED FOR 4608 PORTS PER DCO-581143,
ISSUE 2, DATED 11/14/95 INCLUDING
INSTALLATION
FREIGHT 5,451.51
-----------
TOTAL $595,451.51
===== ===========
</TABLE>
The above described equipment installed at:
624 S. Grand, Suite 111, Los Angeles, California 90017
BY:___________________________
DATE:_________________________
<PAGE> 68
SIEMENS Proposal No.: DCO-581143
Stromberg - Carlson Issue No.: 2
Date: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
Used Switching Equipment
Line Trunk Frame (LTF)
----------------------
OCCSLTFFRM Line Trunk Frame 2
814742-566 Diagnostic Test Gen/Monitor 1
LTFDOORS LTF Doors, Front & Rear 2
LINGRPCUA Line Group CUA (LTF) 1
SLTFUTSCUA Trk/Svc Ckt CUA Grp 1
SLTFUSCUA Svc Ckt CUA Grp 10
814571-706 Digital TMF Rcv. (2/PWBA) 59
814572-576 Digital Sender (TMF/SATT) 16
814695-556 Digital DTMF Sender 12
814643-596 Digital DTMF Receiver 41
814742-576 (FOC) Digital DTMF Receiver 12
814574-936 2-Wire E&M Trunk PWBA 2
814574-932 Loop Trunk, Reverse Batt PWBA 0
Digital Trunk Frame (DTF)
-------------------------
OCCSDTFFRM Digital Trunk Frame 4
DTFDOORS DTF Doors, Front & Rear 4
SDS1HSTCUA DS1 Host Ckt CUA 24
817560-626A T1 Interface PWBA 192
817577-917A Blower Assembly w/fan Alarm 4
Control & Maintenance Frame (CMF)
---------------------------------
SCMFOCC12.1 Control & Maint Frame OCC 12.1 1
CMFDOORS CMF Doors, Front & Rear 1
822068-819 DLI Transfer 1
814635-086 PWBA Ring (N+1) 1
814721-666 Serial Line Unit PWBA 1
822010-676 Disk Drive Assy 2
</TABLE>
<PAGE> 69
SIEMENS Proposal No.: DCO-581143
Stromberg - Carlson Issue No.: 2
Date: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
822010-656 Tape Drive 1
Used Switching Equipment
Control and Maintenance Frame (CMF)
-----------------------------------
817702-556 Traffic Measurement/Rec 1
817620-556 MSA PWBA 1
814727-626 J2 Maintenance Processor 1
822010-606 Power & Alarm PWBA 1
817680-606A BMUX RWBA 1
822222-606A DLI-II 1
TSIPWB17 TSDI PWBA 16
822702-536A PXAM II - 4MB 2
822727-696A J8 Call Processor 2
814770-656 PXA Memory PWBA 1/Mbyte 1
TPP0PWB17 TPP PWBA (Sectors 0, 1, 2, 3) 1
OCCS7 BASIC CCS7 Basics 1
OCCSNCS Sync Network Clock (Slave) 1
822718-596 Feature Processor (PWBA) 2
814095-626 Service Group Diag PWBA 3
OCCTAPE Tape Control PWBAs 1
814722-216A RS232 Interface Module 6
Power & Test Frame (PRT)
------------------------
SPRTFOCC12.1 Power Ringing & Tst Fr OCC12.1 1
PRTDOORS PRT Doors, Front & Rear 1
817576-938 Circuit Breaker 100 Amp 14
814475-036 Alarm Sender PWBA 1
817576-912 Basic Cabinets & MTG for N+1) 1
814629-904 Ringing Generator (20 Hz) 1
817576-934 200VA DC/AC Non-Redund. Invtr 1
814215-820 Cook 4 Chan Announcer (NT5M) 1
203352-681 4 Channel Announcer 1
</TABLE>
<PAGE> 70
SIEMENS Proposal No.: DCO-581143
Stromberg - Carlson Issue No.: 2
Date: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
Automatic Message Accounting
----------------------------
SAMAFRM AMA Frame 1
AMADOORS AMA Doors Rear 1
814421-908 Cook 1600 BPI Tape Drives (2) 2
814421-909 Cook 1600 BPI Strapping 2
Used Switching Equipment
Miscellaneous
-------------
4-24419-0290 DSX Pnl-ADC DSX-DR 19 w/cord 7
PJ716 Bantam Patch Cord 28
2200B Channel Access Unit 1
203352-645 9600 Full Duplex Modems 1
202975-592 7' x 19" Relay Rack 1
207800-284 Installation Material 1
200110-119 Fuse 1 1/3 amp 20
200110-129 Fuse 3 amp 10
200110-429 Fuse 10 amp 5
200110-139 Fuse 5 amp 10
SD0000 Std System Documentation 1
D0001 Specifications, Paper 3
D0002 Site Drawings, Paper 3
203352-600 Hendry Filtered Fuse Panel 1
207630-911 Modem Elimiator OCC 2
207630-901 PKG Assy/Modem Elimator 4
Superstructure & Cabling 1
Battery Distribution Frame
--------------------------
814053-043A 7 ft Battery Discharge Frame 1
207521-733 Shield 1
Power Equipment
---------------
202975-593 7' x 23" Relay Rack 1
</TABLE>
<PAGE> 71
SIEMENS Proposal No.: DCO-581143
Stromberg - Carlson Issue No.: 2
Date: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
BATRACKW/BRC Battery Rack - with Bracing 1
4DD-85-29 Exide DD Battery 1215 AH 1
203352-588 Charger/Lorain/200A RHM200D50 3
Distribution Frame Equipment
----------------------------
5065-8 Term Blocks Newton 8 x 26 4
5054 Newton Bracks (1 per 2 blks) 2
Used Switching Equipment
Maintenance & Administration Equipment
--------------------------------------
202958-464 Tape Cartridge 1
203352-608 Arrow Tape Drive Cleaning Kit 1
203352-283 Genicom 2120 Keyboard/Printer 1
7271-964 Box, Teleprinter Paper 1
Spare Circuit Packs
-------------------
200110-099 Fuse -1/2 Amp 1
207630-042 Shield Assembly 1
555020-125 Fuse, 3AG, 3A 1
555366-001 Switch, SPST 1
814288-526 Tape Diagnostic PWBA 1
814291-546 Tape Motion Cont. PWBA 1
814298-526 Tape Buffer PWBA 1
814439-056 PGC-1 PWBA 1
814440-076 PGC-2 PWBA 1
814441-056 MUX/DEMUX PWBA 1
814462-036A Power Supply PWBA 1
814463-026A Power Supply PWBA 1
814539-026 CMOS Codec Comm. PWBA 1
814727-626 J2 Maintenance Processor 1
817113-086 Power Supply PWBA 1
817524-066A LTC Interconnect PWBA 1
817560-626A T1 Interface PWBA 1
</TABLE>
<PAGE> 72
SIEMENS Proposal No.: DCO-581143
Stromberg - Carlson Issue No.: 2
Date: November 14, 1995
INSTALLATION SITE: LOS ANGELES, CALIFORNIA
ITEM 01
<TABLE>
<CAPTION>
PART NUMBER DESCRIPTION QTY
- ----------- ----------- ---
<S> <C> <C>
817561-526 T1 I/F Control 1 PWBA 1
817562-566 T1 I/F Control 2 PWBA 1
817564-026A Power Supply PWBA 1
817581-026 DS1 Terminator PWBA 1
817702-556A TMRS Processor 1
822010-656 Tape Drive PWBA 1
822010-666 Tape Drive PWBA 1
822015-536 Synchronous Clock PWBA 1
822024-036A Power Monitor PWBA 1
822033-596A MCG - II PWBA 1
822034-536A Master Clock Dist. PWBA 1
Used Switching Equipment
------------------------
822289-566A TBI II PWBA 1
822723-556A Data Link III PWBA 1
822726-526A HD MSA/SL PWBA 1
822010-606A MSDA Pwr & Alarm 1
822010-636 Disk Drive Assy 1
822222-606A DLI-II 1
</TABLE>
<PAGE> 73
LOAN AMORTIZATION TABLE
Amount $595,451.51
Total Paid ($794,729.40)
Interest Pa ($199,277.89)
DATE LENDER NAME
7/15/96 LA #2 - STROMBERG
<TABLE>
<CAPTION>
Annual
Pmnt Start of Interest Scheduled Actual Scheduled Interest Principal Additional
# Period Rate Balance Balance Payment Portion Portion Principal
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 05/96 12.00% 595,451.51 595,451.51 (13,245.49) (5,954.52) (7,290.97)
- -------------------------------------------------------------------------------------------------------------------------
2 06/96 12.00% 588,160.54 588,160.54 (13,245.49) (5,881.61) (7,363.88)
- -------------------------------------------------------------------------------------------------------------------------
3 07/96 12.00% 580,796.65 580,796.65 (13,245.49) (5,807.97) (7,437.52)
- -------------------------------------------------------------------------------------------------------------------------
4 08/96 12.00% 573,359.13 573,359.13 (13,245.49) (5,733.59) (7,511.90)
- -------------------------------------------------------------------------------------------------------------------------
5 09/96 12.00% 565,847.23 565,847.23 (13,245.49) (5,658.47) (7,587.02)
- -------------------------------------------------------------------------------------------------------------------------
6 10/96 12.00% 558,260.21 558,260.21 (13,245.49) (5,582.60) (7,662.89)
- -------------------------------------------------------------------------------------------------------------------------
7 11/96 12.00% 550,597.32 550,597.32 (13,245.49) (5,505.97) (7,739.52)
- -------------------------------------------------------------------------------------------------------------------------
8 12/96 12.00% 542,857.81 542,857.81 (13,245.49) (5,428.58) (7,816.91)
- -------------------------------------------------------------------------------------------------------------------------
9 01/97 12.00% 535,040.89 535,040.89 (13,245.49) (5,350.41) (7,895.08)
- -------------------------------------------------------------------------------------------------------------------------
10 02/97 12.00% 527,145.81 527,145.81 (13,245.49) (5,271.46) (7,974.03)
- -------------------------------------------------------------------------------------------------------------------------
11 03/97 12.00% 519,171.78 519,171.78 (13,245.49) (5,191.72) (8,053.77)
- -------------------------------------------------------------------------------------------------------------------------
12 04/97 12.00% 511,118.01 511,118.01 (13,245.49) (5,111.18) (8,134.31)
- -------------------------------------------------------------------------------------------------------------------------
13 05/97 12.00% 502,983.70 502,983.70 (13,245.49) (5,029.84) (8,215.65)
- -------------------------------------------------------------------------------------------------------------------------
14 06/97 12.00% 494,768.05 494,768.05 (13,245.49) (4,947.68) (8,297.81)
- -------------------------------------------------------------------------------------------------------------------------
15 07/97 12.00% 486,470.24 486,470.24 (13,245.49) (4,864.70) (8,380.79)
- -------------------------------------------------------------------------------------------------------------------------
16 08/97 12.00% 478,089.45 478,089.45 (13,245.49) (4,780.89) (8,464.60)
- -------------------------------------------------------------------------------------------------------------------------
17 09/97 12.00% 469,624.85 469,624.85 (13,245.49) (4,696.25) (8,549.24)
- -------------------------------------------------------------------------------------------------------------------------
18 10/97 12.00% 461,075.61 461,075.61 (13,245.49) (4,610.76) (8,634.73)
- -------------------------------------------------------------------------------------------------------------------------
19 11/97 12.00% 452,440.88 452,440.88 (13,245.49) (4,524.41) (8,721.08)
- -------------------------------------------------------------------------------------------------------------------------
20 12/97 12.00% 443,719.80 443,719.80 (13,245.49) (4,437.20) (8,808.29)
- -------------------------------------------------------------------------------------------------------------------------
21 01/98 12.00% 434,911.51 434,911.50 (13,245.49) (4,349.12) (8,896.38)
- -------------------------------------------------------------------------------------------------------------------------
22 02/98 12.00% 426,015.13 426,015.13 (13,245.49) (4,260.15) (8,985.34)
- -------------------------------------------------------------------------------------------------------------------------
23 03/98 12.00% 417,029.79 417,029.79 (13,245.49) (4,170.30) (9,075.19)
- -------------------------------------------------------------------------------------------------------------------------
24 04/98 12.00% 407,954.60 407,954.60 (13,245.49) (4,079.55) (9,165.94)
- -------------------------------------------------------------------------------------------------------------------------
25 05/98 12.00% 398,788.66 398,788.65 (13,245.49) (3,987.89) (9,257.60)
- -------------------------------------------------------------------------------------------------------------------------
26 06/98 12.00% 389,531.05 389,531.05 (13,245.49) (3,895.31) (9,350.18)
- -------------------------------------------------------------------------------------------------------------------------
27 07/98 12.00% 380,180.87 380,180.87 (13,245.49) (3,801.81) (9,443.68)
- -------------------------------------------------------------------------------------------------------------------------
28 08/98 12.00% 370,737.19 370,737.19 (13,245.49) (3,707.37) (9,538.12)
- -------------------------------------------------------------------------------------------------------------------------
29 09/98 12.00% 361,199.07 361,199.07 (13,245.49) (3,611.99) (9,633.50)
- -------------------------------------------------------------------------------------------------------------------------
30 10/98 12.00% 351,565.57 351,565.57 (13,245.49) (3,515.66) (9,729.83)
- -------------------------------------------------------------------------------------------------------------------------
31 11/98 12.00% 341,835.74 341,835.74 (13,245.49) (3,418.36) (9,827.13)
- -------------------------------------------------------------------------------------------------------------------------
32 12/98 12.00% 332,008.61 332,008.61 (13,245.49) (3,320.09) (9,925.40)
- -------------------------------------------------------------------------------------------------------------------------
33 01/99 12.00% 322,083.20 322,083.20 (13,245.49) (3,220.83) (10,024.66)
- -------------------------------------------------------------------------------------------------------------------------
34 02/99 12.00% 312,058.55 312,058.54 (13,245.49) (3,120.59) (10,124.90)
- -------------------------------------------------------------------------------------------------------------------------
35 03/99 12.00% 301,933.64 301,933.64 (13,245.49) (3,019.34) (10,226.15)
- -------------------------------------------------------------------------------------------------------------------------
36 04/99 12.00% 291,707.49 291,707.49 (13,245.49) (2,917.07) (10,328.42)
- -------------------------------------------------------------------------------------------------------------------------
37 05/99 12.00% 281,379.07 281,379.07 (13,245.49) (2,813.79) (10,431.70)
- -------------------------------------------------------------------------------------------------------------------------
38 06/99 12.00% 270,947.37 270,947.37 (13,245.49) (2,709.47) (10,536.02)
- -------------------------------------------------------------------------------------------------------------------------
39 07/99 12.00% 260,411.36 260,411.36 (13,245.49) (2,604.11) (10,641.38)
- -------------------------------------------------------------------------------------------------------------------------
40 08/99 12.00% 249,769.98 249,769.98 (13,245.49) (2,497.70) (10,747.79)
- -------------------------------------------------------------------------------------------------------------------------
41 09/99 12.00% 239,022.19 239,022.19 (13,245.49) (2,390.22) (10,855.27)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 74
LOAN AMORTIZATION TABLE
Amount $595,451.51
Total Paid ($794,729.40)
Interest Pa ($199,277.89)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
42 10/99 12.00% 228,166.92 228,166.92 (13,245.49) (2,281.67) (10,963.82)
- -------------------------------------------------------------------------------------------------------------------------
43 11/99 12.00% 217,203.10 217,203.10 (13,245.49) (2,172.03) (11,073.46)
- -------------------------------------------------------------------------------------------------------------------------
44 12/99 12.00% 206,129.64 206,129.64 (13,245.49) (2,061.30) (11,184.19)
- -------------------------------------------------------------------------------------------------------------------------
45 01/00 12.00% 194,945.45 194,945.45 (13,245.49) (1,949.45) (11,296.04)
- -------------------------------------------------------------------------------------------------------------------------
46 02/00 12.00% 183,649.41 183,649.41 (13,245.49) (1,836.49) (11,409.00)
- -------------------------------------------------------------------------------------------------------------------------
47 03/00 12.00% 172,240.42 172,240.42 (13,245.49) (1,722.40) (11,523.09)
- -------------------------------------------------------------------------------------------------------------------------
48 04/00 12.00% 160,717.33 160,717.33 (13,245.49) (1,607.17) (11,638.32)
- -------------------------------------------------------------------------------------------------------------------------
49 05/00 12.00% 149,079.02 149,079.01 (13,245.49) (1,490.79) (11,754.70)
- -------------------------------------------------------------------------------------------------------------------------
50 06/00 12.00% 137,324.32 137,324.31 (13,245.49) (1,373.24) (11,872.25)
- -------------------------------------------------------------------------------------------------------------------------
51 07/00 12.00% 125,452.07 125,452.07 (13,245.49) (1,254.52) (11,990.97)
- -------------------------------------------------------------------------------------------------------------------------
52 08/00 12.00% 113,461.10 113,461.10 (13,245.49) (1,134.61) (12,110.88)
- -------------------------------------------------------------------------------------------------------------------------
53 09/00 12.00% 101,350.22 101,350.22 (13,245.49) (1,013.50) (12,231.99)
- -------------------------------------------------------------------------------------------------------------------------
54 10/00 12.00% 89,118.23 89,118.23 (13,245.49) (891.18) (12,354.31)
- -------------------------------------------------------------------------------------------------------------------------
55 11/00 12.00% 76,763.93 76,763.92 (13,245.49) (767.64) (12,477.85)
- -------------------------------------------------------------------------------------------------------------------------
56 12/00 12.00% 64,286.07 64,286.07 (13,245.49) (642.86) (12,602.63)
- -------------------------------------------------------------------------------------------------------------------------
57 01/01 12.00% 51,683.45 51,683.44 (13,245.49) (516.83) (12,728.66)
- -------------------------------------------------------------------------------------------------------------------------
58 02/01 12.00% 38,954.79 38,954.79 (13,245.49) (389.55) (12,855.94)
- -------------------------------------------------------------------------------------------------------------------------
59 03/01 12.00% 26,098.85 26,098.85 (13,245.49) (260.99) (12,984.50)
- -------------------------------------------------------------------------------------------------------------------------
60 04/01 12.00% 13,114.35 13,114.34 (13,245.49) (131.14) (13,114.34)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 75
LOAN AMORTIZATION TABLE
Amount $183,549.00
Total Paid ($241,159.15)
Interest Pa ($57,610.15)
DATE LENDER NAME
7/15/96 LA #2 ADDITION 1 - STROMBERG
<TABLE>
<CAPTION>
Annual
Start of Interest Scheduled Actual Scheduled Interest Principal Additional
# Pmnt Period Rate Balance Balance Payment Portion Portion Principal
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1 06/96 11.50% 183,549.00 183,549.00 (4,087.44) (1,759.01) (2,328.43)
- -----------------------------------------------------------------------------------------------------------------------------
2 07/96 11.50% 181,220.57 181,220.57 (4,087.44) (1,736.70) (2,350.75)
- -----------------------------------------------------------------------------------------------------------------------------
3 08/96 11.50% 178,869.82 178,869.82 (4,087.44) (1,714.17) (2,373.27)
- -----------------------------------------------------------------------------------------------------------------------------
4 09/96 11.50% 176,496.55 176,496.55 (4,087.44) (1,691.43) (2,396.02)
- -----------------------------------------------------------------------------------------------------------------------------
5 10/96 11.50% 174,100.53 174,100.53 (4,087.44) (1,668.46) (2,418.98)
- -----------------------------------------------------------------------------------------------------------------------------
6 11/96 11.50% 171,681.55 171,681.55 (4,087.44) (1,645.28) (2,442.16)
- -----------------------------------------------------------------------------------------------------------------------------
7 12/96 11.50% 169,239.39 169,239.39 (4,087.44) (1,621.88) (2,465.57)
- -----------------------------------------------------------------------------------------------------------------------------
8 01/97 11.50% 166,773.82 166,773.82 (4,087.44) (1,598.25) (2,489.19)
- -----------------------------------------------------------------------------------------------------------------------------
9 02/97 11.50% 164,284.63 164,284.63 (4,087.44) (1,574.39) (2,513.05)
- -----------------------------------------------------------------------------------------------------------------------------
10 03/97 11.50% 161,771.58 161,771.58 (4,087.44) (1,550.31) (2,537.13)
- -----------------------------------------------------------------------------------------------------------------------------
11 04/97 11.50% 159,234.45 159,234.45 (4,087.44) (1,526.00) (2,561.45)
- -----------------------------------------------------------------------------------------------------------------------------
12 05/97 11.50% 156,673.00 156,673.00 (4,087.44) (1,501.45) (2,585.99)
- -----------------------------------------------------------------------------------------------------------------------------
13 06/97 11.50% 154,087.01 154,087.01 (4,087.44) (1,476.67) (2,610.78)
- -----------------------------------------------------------------------------------------------------------------------------
14 07/97 11.50% 151,476.23 151,476.23 (4,087.44) (1,451.65) (2,635.80)
- -----------------------------------------------------------------------------------------------------------------------------
15 08/97 11.50% 148,840.43 148,840.43 (4,087.44) (1,426.39) (2,661.06)
- -----------------------------------------------------------------------------------------------------------------------------
16 09/97 11.50% 146,179.38 146,179.38 (4,087.44) (1,400.89) (2,686.56)
- -----------------------------------------------------------------------------------------------------------------------------
17 10/97 11.50% 143,492.82 143,492.82 (4,087.44) (1,375.14) (2,712.30)
- -----------------------------------------------------------------------------------------------------------------------------
18 11/97 11.50% 140,780.52 140,780.52 (4,087.44) (1,349.15) (2,738.30)
- -----------------------------------------------------------------------------------------------------------------------------
19 12/97 11.50% 138,042.22 138,042.22 (4,087.44) (1,322.90) (2,764.54)
- -----------------------------------------------------------------------------------------------------------------------------
20 01/98 11.50% 135,277.68 135,277.68 (4,087.44) (1,296.41) (2,791.03)
- -----------------------------------------------------------------------------------------------------------------------------
21 02/98 11.50% 132,486.65 132,486.65 (4,087.44) (1,269.66) (2,817.78)
- -----------------------------------------------------------------------------------------------------------------------------
22 03/98 11.50% 129,668.87 129,668.87 (4,087.44) (1,242.66) (2,844.78)
- -----------------------------------------------------------------------------------------------------------------------------
23 04/98 11.50% 126,824.09 126,824.09 (4,087.44) (1,215.40) (2,872.05)
- -----------------------------------------------------------------------------------------------------------------------------
24 05/98 11.50% 123,952.04 123,952.04 (4,087.44) (1,187.87) (2,899.57)
- -----------------------------------------------------------------------------------------------------------------------------
25 06/98 11.50% 121,052.47 121,052.47 (4,087.44) (1,160.09) (2,927.36)
- -----------------------------------------------------------------------------------------------------------------------------
26 07/98 11.50% 118,125.11 118,125.11 (4,087.44) (1,132.03) (2,955.41)
- -----------------------------------------------------------------------------------------------------------------------------
27 08/98 11.50% 115,169.70 115,169.70 (4,087.44) (1,103.71) (2,983.73)
- -----------------------------------------------------------------------------------------------------------------------------
28 09/98 11.50% 112,185.97 112,185.97 (4,087.44) (1,075.12) (3,012.33)
- -----------------------------------------------------------------------------------------------------------------------------
29 10/98 11.50% 109,173.64 109,173.64 (4,087.44) (1,046.25) (3,041.20)
- -----------------------------------------------------------------------------------------------------------------------------
30 11/98 11.50% 106,132.45 106,132.45 (4,087.44) (1,017.10) (3,070.34)
- -----------------------------------------------------------------------------------------------------------------------------
31 12/98 11.50% 103,062.11 103,062.11 (4,087.44) (987.68) (3,099.76)
- -----------------------------------------------------------------------------------------------------------------------------
32 01/99 11.50% 99,962.34 99,962.34 (4,087.44) (957.97) (3,129.47)
- -----------------------------------------------------------------------------------------------------------------------------
33 02/99 11.50% 96,832.87 96,832.87 (4,087.44) (927.98) (3,159.46)
- -----------------------------------------------------------------------------------------------------------------------------
34 03/99 11.50% 93,673.41 93,673.41 (4,087.44) (897.70) (3,189.74)
- -----------------------------------------------------------------------------------------------------------------------------
35 04/99 11.50% 90,483.67 90,483.67 (4,087.44) (867.14) (3,220.31)
- -----------------------------------------------------------------------------------------------------------------------------
36 05/99 11.50% 87,263.36 87,263.36 (4,087.44) (836.27) (3,251.17)
- -----------------------------------------------------------------------------------------------------------------------------
37 06/99 11.50% 84,012.19 84,012.19 (4,087.44) (805.12) (3,282.33)
- -----------------------------------------------------------------------------------------------------------------------------
38 07/99 11.50% 80,729.86 80,729.86 (4,087.44) (773.66) (3,313.78)
- -----------------------------------------------------------------------------------------------------------------------------
39 08/99 11.50% 77,416.08 77,416.08 (4,087.44) (741.90) (3,345.54)
- -----------------------------------------------------------------------------------------------------------------------------
40 09/99 11.50% 74,070.54 74,070.54 (4,087.44) (709.84) (3,377.60)
- -----------------------------------------------------------------------------------------------------------------------------
41 10/99 11.50% 70,692.94 70,692.94 (4,087.44) (677.47) (3,409.97)
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 76
LOAN AMORTIZATION TABLE
Amount $ 183,549.00
Total Paid $(241,159.15)
Interest Pa ($57,610.15)
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
42 11/99 11.50% 67,282.97 67,282.97 (4,087.44) (644.80) (3,442.65)
- -----------------------------------------------------------------------------------------------------------------------------
43 12/99 11.50% 63,840.32 63,840.32 (4,087.44) (611.80) (3,475.64)
- -----------------------------------------------------------------------------------------------------------------------------
44 01/00 11.50% 60,364.68 60,364.68 (4,087.44) (578.49) (3,508.95)
- -----------------------------------------------------------------------------------------------------------------------------
45 02/00 11.50% 56,855.74 56,855.74 (4,087.44) (544.87) (3,542.58)
- -----------------------------------------------------------------------------------------------------------------------------
46 03/00 11.50% 53,313.16 53,313.16 (4,087.44) (510.92) (3,576.53)
- -----------------------------------------------------------------------------------------------------------------------------
47 04/00 11.50% 49,736.63 49,736.63 (4,087.44) (476.64) (3,610.80)
- -----------------------------------------------------------------------------------------------------------------------------
48 05/00 11.50% 46,125.83 46,125.83 (4,087.44) (442.04) (3,645.40)
- -----------------------------------------------------------------------------------------------------------------------------
49 06/00 11.50% 42,480.43 42,480.43 (4,087.44) (407.10) (3,680.34)
- -----------------------------------------------------------------------------------------------------------------------------
50 07/00 11.50% 38,800.09 38,800.09 (4,087.44) (371.83) (3,715.61)
- -----------------------------------------------------------------------------------------------------------------------------
51 08/00 11.50% 35,084.48 35,084.48 (4,087.44) (336.23) (3,751.22)
- -----------------------------------------------------------------------------------------------------------------------------
52 09/00 11.50% 31,333.27 31,333.26 (4,087.44) (300.28) (3,787.17)
- -----------------------------------------------------------------------------------------------------------------------------
53 10/00 11.50% 27,546.10 27,546.10 (4,087.44) (263.98) (3,823.46)
- -----------------------------------------------------------------------------------------------------------------------------
54 11/00 11.50% 23,722.64 23,722.64 (4,087.44) (227.34) (3,860.10)
- -----------------------------------------------------------------------------------------------------------------------------
55 12/00 11.50% 19,862.54 19,862.54 (4,087.44) (190.35) (3,897.09)
- -----------------------------------------------------------------------------------------------------------------------------
56 01/01 11.50% 15,965.44 15,965.44 (4,087.44) (153.00) (3,934.44)
- -----------------------------------------------------------------------------------------------------------------------------
57 02/01 11.50% 12,031.00 12,031.00 (4,087.44) (115.30) (3,972.15)
- -----------------------------------------------------------------------------------------------------------------------------
58 03/01 11.50% 8,058.86 8,058.86 (4,087.44) (77.23) (4,010.21)
- -----------------------------------------------------------------------------------------------------------------------------
59 04/01 11.50% 4,048.64 4,048.64 (4,087.44) (38.80) (4,048.64)
- -----------------------------------------------------------------------------------------------------------------------------
60 11.50% -- -- -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 1
EXHIBIT 10.21
Metrobank
VARIABLE RATE INSTALLMENT NOTE
AMOUNT NOTE DATE MATURITY DATE TAX IDENTIFICATION #
$800,000.00 OCTOBER 4, 1996 OCTOBER 1, 1999 77-0362681
For Value Received, the undersigned promise(s) to pay to the order of METROBANK
("Bank"), at any office of the Bank in the State of California, EIGHT HUNDRED
THOUSAND AND NO/100 Dollars (U.S.) in installments of $22,222.00 each / /
INCLUSIVE OF /X/ PLUS interest on the unpaid balance from the date of this Note
at a per annum rate equal to the Bank's base rate from time to time in effect
PLUS 1.500 % per annum until maturity, whether by acceleration or otherwise, or
until Default, as later defined, and after that at a default rate equal to the
rate of interest otherwise prevailing under this Note plus 3% per annum (but in
no event in excess of the maximum rate permitted by law). Interest shall be
calculated for the actual number of days the principal is outstanding on the
basis of a 360 day year if this Note evidences a business or commercial loan or
a 365 day year if a consumer loan. The Bank's "base rate" is that annual rate of
interest so designated by the Bank and which is changed by the Bank from time to
time. Interest rate changes will be effective for interest computation purposes
as and when the Bank's base rate changes. Installments of principal and accrued
interest due under this Note shall be payable on the 1ST day of each MONTH,
commencing NOVEMBER 1, 1996, and the entire remaining unpaid balance of
principal and accrued interest shall be payable on the Maturity Date set forth
above. If the frequency of principal and interest installments is not otherwise
specified, installments of principal and interest due under this Note shall be
payable monthly on the first day of each month.
In the event the periodic installments set forth above are inclusive of
interest, these installments are calculated at an assumed fixed interest rate
and an assumed amortization term. The amortization term ends on
____________________________ (if left blank, the amortization terms ends on the
Maturity Date). In the event this Note evidences a business or commercial loan
and the Bank's base rate changes, the Bank, at its sole option, may from time to
time recalculate the periodic installment amount so that the remaining periodic
installments will fully amortize the remaining loan balance within the remaining
amortization term in equal installments at the interest rate then being charged
under this Note. THE UNDERSIGNED AGREE(S) TO PAY THE PERIODIC INSTALLMENTS AS
THEY MAY BE RECALCULATED BY THE BANK, AT THE BANK'S SOLE OPTION, FROM TIME TO
TIME AND ACKNOWLEDGE(S) THAT A RECALCULATION SHALL NOT AFFECT THE MATURITY DATE
OR THE OTHER TERMS AND PROVISIONS OF THIS NOTE. If this Note or any installment
under this Note shall become payable on a day other than a day on which the
Bank is open for business, this payment may be extended to the next succeeding
business day and interest shall be payable at the rate specified in this Note
during this extension. Any payments of principal in excess of the installment
payments required under this Note need not be accepted by Bank (except as
required under applicable law), but if accepted shall apply to the installments
last falling due. A late installment charge equal to 5% of each late installment
may be charged on any installment payment not received by the Bank within 10
calendar days after the installment due date, but acceptance of payment of this
charge shall not waive any default under this Note.
This Note and any other indebtedness and liabilities of any kind of the
undersigned (or any of them) to the Bank, and any and all modifications,
renewals or extensions of it, whether joint or several, contingent or absolute,
now existing or later arising, and however evidenced (collectively
"indebtedness") are secured by and the Bank is granted a security interest in
all items deposited in any account of any of the undersigned with the Bank and
by all proceeds of these items (cash or otherwise), all account balances of any
of the undersigned from time to time with the Bank, by all property of any of
the undersigned from time to time in the possession of the Bank and by any other
collateral, rights and properties described in each and every deed of trust,
mortgage, security agreement, pledge, assignment and other agreement which has
been, or will at any time(s) later be, executed by any (or all) of the
undersigned to or for the benefit of the Bank (collectively "Collateral").
Notwithstanding the above, (i) to the extent that any portion of the
indebtedness is a consumer loan, that portion shall not be secured by any deed
of trust or mortgage on or other security interest in any of the undersigned's
principal dwelling or in any of the undersigned's real property which is not a
purchase money security interest as to that portion, unless expressly provided
to the contrary in another place or (ii) if the undersigned (or any of them) has
(have) given or give(s) Bank a deed of trust or mortgage covering real property,
that deed of trust or mortgage shall not secure this Note or any other
indebtedness of the undersigned (or any of them), unless expressly provided to
the contrary in another place.
If the undersigned (or any of them) or any guarantor under a guaranty of all or
part of the indebtedness ("guarantor") (a) fail(s) to pay this Note or any of
the indebtedness when due, by maturity, acceleration or otherwise, or fail(s) to
pay any indebtedness owing on a demand basis upon demand; or (b) fail(s) to
comply with any of the terms or provisions of any agreement between the
undersigned (or any of them) or any guarantor and the Bank; or (c) become(s)
insolvent or the subject of a voluntary or involuntary proceeding in bankruptcy,
or a reorganization, arrangement or creditor composition proceeding, (if a
business entity) cease(s) doing business as a going concern, (if a natural
person) die(s) or become(s) incompetent, (if a partnership) dissolve(s) or any
general partner of it dies, becomes incompetent or becomes the subject of a
bankruptcy proceeding or (if a corporation or a limited liability company) is
the subject of a dissolution, merger or consolidation: or (d) if any warranty or
representation made by any of the undersigned or any guarantor in connection
with this Note or any of the indebtednesss shall be discovered to be untrue or
incomplete; or (e) if there is any termination, notice of termination, or breach
of any guaranty, pledge, collateral assignment or subordination agreement
relating to all or any part of the indebtedness; or (f) if there is any failure
by any of the undersigned or any guarantor to pay when due any of its
indebtedness (other than to the Bank) or in the observance or performance of any
term, covenant or condition in any document evidencing, securing or relating to
such indebtedness; or (g) if the Bank deems itself insecure, believing that the
prospect of payment of this Note or any of the indebtedness is impaired or shall
fear deterioration, removal or waste of any of the Collateral; or (h) if there
is filed or issued a levy or writ of attachment or garnishment or other like
judicial process upon the undersigned (or any of them) or any guarantor or any
of the Collateral, including without limit, any accounts of the undersigned (or
any of them) or any guarantor with the Bank, then the Bank, upon the occurrence
of any of these events (each a "Default"), may at its option and without prior
notice to the undersigned (or any of them), declare any or all of the
indebtedness to be immediately due and payable (notwithstanding any provisions
contained in the evidence thereof to the contrary), sell or liquidate all or any
portion of the Collateral, set off against the indebtedness any amounts owing by
the Bank to the undersigned (or any of them), charge interest at the default
rate provided in the document evidencing the relevant indebtedness and exercise
any one or more of the right and remedies granted to the Bank by any agreement
with the undersigned (or any of them) or given to it under applicable law. In
addition, if this Note is secured by a deed of trust or mortgage covering real
property, then the trustor or mortgagor shall not mortgage or pledge the
mortgaged premises as security for any other indebtedness or obligations. This
Note, together with all other indebtedness secured by said deed of trust or
mortgage, shall become due and payable immediately, without notice, at the
option of the Bank, (a) if said trustor or mortgagor shall mortgage or pledge
the mortgaged premises for any other indebtedness or obligations or shall
convey, assign or transfer the mortgaged premises by deed, installment sale
contract or other instrument, or (b) if the title to the mortgaged premises
shall become vested in any other person or party in any manner whatsoever, or
(c) if there is any disposition (through one or more transactions) of legal or
beneficial title to a controlling interest of said trustor or mortgagor. All
payments under this Note shall be in immediately available United States funds,
without setoff or counterclaim.
If this Note is signed by two or more parties (whether by all as makers or by
one or more as an accommodation party or otherwise), the obligations and
undertakings under this Note shall be that of all and any two or more jointly
and also of each severally. This Note shall bind the undersigned, and the
undersigned's respective heirs, personal representatives, successors and
assigns.
The undersigned waive(s) presentment, demand, protest, notice of dishonor,
notice of demand or intent to demand, notice of acceleration or intent to
accelerate, and all other notices and agree(s) that no extension or indulgence
to the undersigned (or any of them) or release, substitution or nonenforcement
of any security, or release or substitution of any of the undersigned, any
guarantor or any other party, whether with or without notice, shall affect the
obligations of any of the undersigned. The undersigned waive(s) all defenses or
right to discharge available under Section 3-605 of the California Uniform
Commercial Code and waive(s) all other suretyship defenses or right to
discharge. The undersigned agree(s) that the Bank has the right to sell, assign,
or grant participations, or any interest, in any or all of the indebtedness, and
undersigned agree(s) that the Bank has the right to sell, assign, or grant
participations, or any interest, in any or all of the indebtedness, and that, in
connection with this right, but without limiting its ability to make other
disclosures to the full extent allowable, the Bank may disclose all documents
and information which the Bank now or later has relating to the undersigned or
the indebtedness. The undersigned agree(s) that the Bank may provide information
relating to this Note or to the undersigned to the Bank's parent, affiliates,
subsidiaries and service providers.
<PAGE> 2
The undersigned agree(s) to reimburse the holder or owner of this Note for any
and all costs and expenses (including without limit, court costs, legal expenses
and reasonable attorney fees, whether inside or outside counsel is used, whether
or not suit is instituted and, if suit is instituted, whether at the trial court
level, appellate level, in a bankruptcy, probate or administrative proceeding or
otherwise) incurred in collecting or attempting to collect this Note or incurred
in any other matter or proceeding relating to this Note.
The undersigned acknowledge(s) and agree(s) that there are no contrary
agreements, oral or written, establishing a term of this Note and agree(s) that
the terms and conditions of this Note may not be amended, waived or modified
except in a writing signed by an officer of the Bank expressly stating that the
writing constitutes an amendment, waiver or modification of the terms of this
Note. As used in this Note, the word "undersigned" means, individually and
collectively, each maker, accommodation party, indorser and other party signing
this Note in a similar capacity. If any provision of this Note is unenforceable
in whole or part for any reason, the remaining provisions shall continue to be
effective. THIS NOTE IS MADE IN THE STATE OF CALIFORNIA AND SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF CALIFORNIA,
WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
THE MAXIMUM INTEREST RATE SHALL NOT EXCEED THE HIGHEST APPLICABLE USURY CEILING.
THE UNDERSIGNED AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMACE OR ENFORCEMENT OF, OR IN ANY
WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
THIS NOTE IS SUBJECT TO THE TERMS AND CONDITION OF A REVOLVING LOAN AND SECURITY
AGREEMENT DATED 10/04/96 AND ANY AND ALL MODIFICATION THEREOF.
<TABLE>
<S> <C> <C>
For Corporations, Partnerships, Trust, or Estates
STAR VENDING, INC. By: /s/ MARY CASEY Its: PRESIDENT
- ----------------------------------- ----------------------------------- -----------------------------------
OBLIGOR NAME TYPED/PRINTED SIGNATURE OF TITLE
740 STATE STREET, SUITE 202 By: /s/ Its: CEO
- ----------------------------------- ----------------------------------- -----------------------------------
STREET ADDRESS SIGNATURE OF TITLE
SANTA BARBARA By: Its:
- ----------------------------------- ----------------------------------- -----------------------------------
CITY SIGNATURE OF TITLE
CA 93101 By: Its:
- ----------------------------------- ----------------------------------- -----------------------------------
STATE ZIP CODE SIGNATURE OF TITLE
For individuals or Sole Proprietorships
Name(s) of Obligor(s) (Type or Print): Signature(s) of Obligor(s)
-------------------------------------- --------------------------------------
- ----------------------------------- -------------------------------------- --------------------------------------
STREET ADDRESS
- ----------------------------------- -------------------------------------- --------------------------------------
CITY
- ----------------------------------- -------------------------------------- --------------------------------------
STATE ZIP CODE
</TABLE>
- --------------------------------------------------------------------------------
For Bank Use Only CCAR#
- --------------------------------------------------------------------------------
Loan Officer Initials Loan Group Name Obligor(s) Name
JASON BROWN WOODLAND HILLS STAR VENDING, INC.
- --------------------------------------------------------------------------------
Loan Officer I.D. No. Loan Group No. Obligor # Note # Amount
48226 97106 $800,000.00
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT 10.22
ASSIGNMENT OF PURCHASE ORDER
AND SECURITY INTEREST
This ASSIGNMENT AGREEMENT is made and entered into as of the 1st day of
January, 1996, between STAR VENDING, INC. d.b.a. Star Telecommunications Inc.
("Customer") and DSC Finance Corporation ("Assignee").
WITNESSETH:
WHEREAS, Customer has entered into a Supply Agreement dated the 14th day of
September, 1995 (hereafter referred to as the "Supply Agreement"), with DSC
Marketing Services, Inc. (hereafter referred to as the "Vendor"), whereby the
Customer and Vendor have agreed to, among other things, the terms and conditions
upon which the Customer is allowed to place orders to purchase certain
telecommunications hardware and/or license certain telecommunications software
from Vendor; and,
WHEREAS, pursuant to the terms and conditions of the Supply Agreement, the
Customer has placed with Vendor those orders which may be attached to this
Agreement as Exhibits, which are hereby incorporated by reference. (The order or
orders attached as Exhibits will hereinafter be collectively referred to as the
"Order". The hardware and software so described in the Order shall hereinafter
be collectively referred to as the "Equipment";) and,
WHEREAS, assignee and Customer have entered into or propose to enter into
an Equipment Lease (the "Lease"), pursuant to which Assignee proposes, subject
to the terms and conditions of the Lease, to acquire the Equipment and lease
and/or license it to Customer; and as a condition to entering into the Lease and
in order to enable Assignee to acquire the equipment, it is necessary that this
Assignment be executed;
NOW THEREFORE, in consideration of the foregoing, Customer hereby sells,
assigns and transfers to Assignee all of Customer's right, title, and interest
in and to the Order including, without limitation, the right to take title to
the Equipment and to be named as purchaser in any bills of sale or invoices to
be delivered by Vendor, this Assignment being subject, however, to the following
conditions;
1. This Assignment shall not become effective with respect to the Equipment
prior to the date upon which Customer executes and delivers to Assignee and
Assignee accepts a Certificate of Acceptance of Equipment relating to any such
item of Equipment in form satisfactory to Assignee.
2. By accepting delivery of a signed copy of this Assignment, Assignee
agrees that, notwithstanding this Assignment, at all times prior to the
acceptance by Assignee of a Certificate of Acceptance of Equipment relating to
the Equipment, Customer may continue to exercise, with respect to such item, all
rights of the buyer under the Supply Agreement, and Vendor may continue to deal,
with respect to such item of Equipment, solely with Customer for all of the
purposes of the Supply Agreement in all respects as if this Assignment had not
been executed.
<PAGE> 2
STI Assignment of Purchase Order
Page 2 of 4
3. The rights and obligations of Vendor and Customer under the Supply
Agreement, except for the obligation of Customer to pay the purchase price of
the Equipment to Vendor, shall remain in effect. Without limiting the generality
of the foregoing, Vendor's warranty and support obligations under the Supply
Agreement shall continue in full force and effect and Customer, as Lessee of the
Equipment, shall be entitled to enforce such obligations directly against Vendor
all in accordance with the provisions of the Supply Agreement. Customer agrees
that Assignee has not and does not by virtue of this Assignment assume any of
Customer's obligations or liabilities (other than to pay the purchase price of
the Equipment to Vendor), and that Assignee shall not have any obligation or
liability under the Supply Agreement (or to the Equipment) or be obligated to
perform any of the obligations or duties of Customer thereunder or thereto,
whether arising prior to or on or after the date of this Assignment, and
Customer shall at all times remain obligated and liable to Vendor under the
Supply Agreement as if this Assignment had not been executed.
4. Customer agrees that at any time and from time to time, upon the written
request of Assignee, Customer shall promptly and duly execute and deliver any
and all such further instruments and documents, and take such further action as
Assignee may request in order to obtain the full benefits of this Assignment.
5. Customer represents and warrants that the Supply Agreement is in full
force and effect and is enforceable in accordance with its terms, and that
Customer is not in default thereunder. Customer further represents and warrants
that it will not assign or pledge, so long as this Assignment remains in effect,
the whole or any part of the rights hereby assigned, to anyone other than
Assignee.
6. Notwithstanding the foregoing, it is understood and agreed, that until a
default shall have occurred under the Lease, all rights and claims under any
guaranty or warranty, express or implied, with respect to the Equipment or any
item of Equipment, shall be enforced by Customer, subject to the terms of the
Lease, for its account and benefit and at its sole cost and expense either in
its own name or in the name of Assignee provided, however, that no action shall
be brought in Assignee's name without Assignee's written consent, and in any
event Customer agrees to indemnify Assignee against and save it harmless from
all costs and expenses arising out of any action or proceedings which Customer
may bring against Vendor. Customer agrees to preserve and protect the Assignee's
rights under any warranty, covenant or representation made by the Vendor with
respect to the Equipment, and Customer warrants that Customer will not take any
action which will impair such rights of the Assignee, and covenants to act
solely in compliance with any restrictions and requirements prerequisite to the
continued existence, enforcement, validity and maintenance of any warranty,
covenant or representation.
7. Customer agrees that it will not modify or amend the Supply Agreement
without the prior written consent of Assignee.
8. The execution of this Assignment by Customer and the acceptance thereof
by Assignee shall not constitute a commitment by Assignee to enter into the
Lease or to lease the Equipment or any item of Equipment to Customer unless and
until a duly authorized officer of Assignee shall have executed and accepted the
Lease and returned an executed copy thereof to Customer. Assignee's obligation
to lease the Equipment or any item of Equipment to Customer is subject to the
further conditions that Customer
<PAGE> 3
STI Assignment of Purchase Order
Page 3 of 4
shall not be in default under any of the terms of conditions of the Lease; that
there shall have been no material adverse change in the business or financial
condition of Customer; and that all matters incident to the transactions
contemplated by the Lease are satisfactory to Assignee's counsel.
Notwithstanding any execution and acceptance of the Lease by Assignee, Assignee
shall not be responsible for Vendor's failure to honor this Assignment or to
accept the Supply Agreement or to deliver the Equipment or any item of Equipment
in accordance with the terms thereof.
9. Nothing contained herein shall: (a) subject the Vendor to any liability
to which it would not otherwise be subject under the Supply Agreement; (b)
modify in any respect the contract rights of the Vendor under the Supply
Agreement, except as provided in the Consent Agreement hereto; or (c) require
the Vendor to divest itself of title to or possession of the Equipment until
delivery thereof and payment therefor as provided therein.
10. Assignee hereby accepts the assignment herein contained. Assignee
agrees, solely for the benefit of Customer, to purchase the Equipment from the
Vendor and to take that title to the Equipment and this Assignment, provided,
however, that Assignee shall not be obligated to pay for any item of Equipment
until Assignee accepts a Certificate of Acceptance of Equipment from Customer,
as provided for herein.
11. Vendor hereby assigns, transfers, and conveys to Assignee the security
interest in the Equipment granted to Vendor pursuant to the Supply Agreement.
Vendor, Assignee, and Customer agree to take all reasonable actions necessary
to memorialize such assignment, transfer, or conveyance. All fees, charges, or
taxes required to be paid by Assignee to record the security interest assigned
herein shall be paid by Customer upon invoice.
12. THIS ASSIGNMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF TEXAS,
and may be modified only by a written amendment signed by all parties. Any
action or claim to enforce the provisions of this Assignment may be brought in
the appropriate state or federal district court in the State of Texas. The
Lessee irrevocably consents to service of process in accordance with the
provisions of the laws of the State of Texas.
ASSIGNEE: CUSTOMER:
DSC FINANCE CORPORATION STAR VENDING INC. d.b.a.
STAR TELECOMMUNICATIONS INC.
X X /s/ MARY CASEY
-------------------------------- --------------------------------
By: By: Mary Casey 4-29-96
------------------------------- -------------------------------
Title: Title: President
---------------------------- ---------------------------
<PAGE> 4
STI Assignment of Purchase Order
Page 4 of 4
Attachment--Consent and Agreement of DSC Marketing Services, Inc.
<PAGE> 5
CONSENT AND AGREEMENT ATTACHED TO
ASSIGNMENT OF PURCHASE ORDER AND SECURITY INTEREST
The undersigned, DSC Marketing Services, Inc. (the "Vendor"), hereby
acknowledged notice of and consents to all of the terms of the attached
Assignment of Purchase Order and Security Interest (the "Assignment") and hereby
confirms to the Assignee that:
(1) the Assignee shall not be liable for any of the obligations or duties
of the Customer to Vendor under the Supply Agreement or Order, nor shall the
Assignment give rise to any duties or obligations whatsoever on the part of the
Assignee owing to Vendor except for the obligations of the Assignee to pay for
the Items of Equipment in accordance with the terms of the Supply Agreement, the
Order and the Assignment in the event that the undersigned acknowledges that
payment for any such item of Equipment shall be due on the date set forth in the
Assignment;
(2) Vendor hereby represents and warrants that the Supply Agreement, the
Order and this Consent and Agreement, constitute binding obligations of Vendor,
in each case enforceable against Vendor in accordance with its terms; and
(3) by consenting to the terms of the Assignment, Vendor does not intend to
modify its rights and obligations under the Supply Agreement or Order.
DSC MARKETING SERVICES, INC.
X
-------------------------------
By:
-------------------------------
Title:
----------------------------
<PAGE> 6
EQUIPMENT LEASE
EQUIPMENT LEASE (this "Lease"), made as of the 1st day of January, 1996 by
and between DSC FINANCE CORPORATION, a Delaware corporation, with offices at
1000 Coit Road, Plano, Collin County, Texas, 75075 (the "Lessor") and STAR
VENDING INC. d.b.a. STAR TELECOMMUNICATIONS INC., a Nevada corporation with a
principal place of business at 740 State Street, Suite 202, Santa Barbara, CA
93101 (the "Lessee"). In consideration of the mutual promises herein contained,
the parties hereto agree as follows:
ARTICLE 1 - LEASE
1.01 The Lessor hereby leases and lets to the Lessee and the Lessee hereby
leases and hires from the Lessor, property (collectively, the "Equipment" and,
individually, an "Item of Equipment") described in the schedules now or
hereafter executed and delivered by the parties and made a part hereof
(collectively, the "Schedules" and, individually, a "Schedule"). The Items of
Equipment now subject to this Lease are described in Schedules A and A-1
attached hereto and made a part hereof and shall be further described in
Schedules B and B-1 or further consecutive alphabetic identification.
ARTICLE 2 - TERM
2.01 The lease term for each Item of Equipment ("Lease Term") is defined
and shall commence upon the First Periodic Rent Payment Date as set forth in the
applicable Schedule and shall expire on the Lease Expiration Date as set forth
in the applicable Schedule unless earlier terminated, renewed, or extended and
such Items of Equipment returned, all according to the terms of this Lease and
the applicable Schedule. The Lessee will signify its receipt of the applicable
Item of Equipment by the execution and delivery to the Lessor of a Certificate
of Acceptance in the form of Schedule A-1 attached to Schedule A made a part
hereof. The Lessee's execution and delivery to the Lessor of the Certificate of
Acceptance with respect to each Item of Equipment shall conclusively establish
as between the Lessor and the Lessee that such Item of Equipment has been
shipped to and received by the Lessee under the Lease, notwithstanding any
defect with respect to design, manufacture, condition or in any other respect.
Lessee shall not unreasonably delay acceptance of the Equipment.
ARTICLE 3 - RENT
3.01 AMOUNT. The rent of any and every Item of Equipment shall be the
amount designated in the applicable Schedule. The Lessee shall pay said rent
monthly, in the amounts and at the time set forth in the applicable Schedule, to
the Lessor at the address indicated above, or to such other person or at such
other place as the Lessor may from time to time designate.
3.02 DEFAULT. If the Lessee with regard to any Item or Items of Equipment
fails to pay any rent or other amount herein provided within five (5) days after
the same is due and payable, or if any
<PAGE> 7
STI Equipment Lease
Page 2 of 11
execution or any other writ of process shall be issued in any action or
proceeding against the Lessee whereby any Item of Equipment may be seized,
taken, or distrained or if a proceeding in bankruptcy, receivership, or
insolvency shall be instituted by or against the Lessee, any guarantor of
Lessee's obligations hereunder ("Guarantor") or their respective property, or if
the Lessee or any Guarantor shall enter into any arrangement or composition with
their respective creditors, or if Lessee, with regard to any Item or Items of
Equipment, fails to observe, keep, or perform any other provisions of this Lease
required to be observed, kept, or performed by the Lessee, or if any Guarantor
fails to observe, keep, or perform any provision of its Guaranty required to be
observed, kept, or performed by said Guarantor, the Lessor shall, if such
default shall continue for five (5) days after written notice thereof, have the
right to exercise any one or more of the following remedies:
(1) To declare the entire amount of rent hereunder immediately due and
payable as to any or all Items of Equipment shipped to and received by
Lessee, without notice or demand to the Lessee;
(2) To sue for and recover all rents and other payments then accrued or
thereafter accruing, with respect to any or all Items of Equipment;
(3) To take possession of any or all Items of Equipment, after notice to
Lessee, wherever the same may be located, without any court order or
other process of law. After having taken possession of any such Item
of Equipment, the Lessor, at its option, shall have the right to, and
may retain, sell, lease, or otherwise dispose of any such Item of
Equipment. The Lessee hereby waives any and all damages occasioned by
such taking of possession or other actions which the Lessor is allowed
hereunder. Any said taking of possession shall not constitute a
termination of this Lease as to any or all Items of Equipment unless
the Lessor expressly so notifies the Lessee in writing;
(4) To terminate this Lease as to any or all items of Equipment; or
(5) To pursue any other remedy at law or in equity.
Notwithstanding any said repossession, or any other action which the Lessor
may take, the Lessee shall be and remain liable for the full performance of all
obligations to be performed by the Lessee under this Lease.
All such remedies are cumulative, and may be exercised concurrently or
separately.
3.03 INTEREST. If the Lessee fails to pay any part of the rent herein
reserved or any other sum required by the Lessee to be paid to the Lessor within
five (5) days after the due date thereof, the Lessee shall pay to the Lessor
interest on such delinquent payment from the due date thereof until paid at the
rate of eighteen percent (18%) per annum or the highest rate allowed by
applicable law, whichever is less.
<PAGE> 8
STI Equipment Lease
Page 3 of 11
3.04 OFFSET. This Lease is a net lease. The Lessee's obligations to pay
rent and all other amounts payable by it hereunder, as well as its obligations
to perform or observe, as the case may be, its other agreements hereunder are
absolute and unconditional and are not and shall not be subject to any
abatement, reduction, offset, setoff, counterclaim, recoupment, defense,
deferment, or interruption for any reason whatsoever. Except as expressly
provided herein, this Lease shall not terminate, nor shall the Lessee's
obligations hereunder be affected, by reason of any defect in, damage to, or
loss of any Item of Equipment, the failure of the manufacturer of any Item of
Equipment to perform on its warranties or any one of them, the prohibition of or
interference with the Lessee's use thereof by any person, corporation, or
governmental authority, the invalidity or unenforceability or lack of due
authorization of this Lease, or for any other cause whether similar or
dissimilar to the foregoing, it being the express intention of the Lessor and
the Lessee that all rent payable by the Lessee hereunder shall be, and continue
to be payable in all events unless the obligation to pay the same shall be
terminated pursuant to the express provisions of this Lease.
ARTICLE 4 - USE
4.01 MANNER OF USE. The Lessee shall at all times use the Equipment in a
careful and proper manner in conformity with the manufacturer's specifications
thereof and shall comply with all laws, ordinances, and regulations and all
conditions of insurance required hereby which relate in any way to the
possession, use, or maintenance of the Equipment. Nothing herein contained shall
be construed to deny the fact that the Equipment is, and shall at all times be
and remain the sole and exclusive property of the Lessor as agreed in Article
11.01 hereof.
4.02 MARKINGS. If at any time during the term of this Lease, the Lessor
supplies the Lessee with labels, plates, or other markings stating that the
Equipment is owned by the Lessor, the Lessee shall affix and keep the same in a
prominent place on the Equipment.
ARTICLE 5 - INSPECTION
5.01 The Lessor shall, at any and all times during business hours, have the
right to enter into and on the premises where the Item of Equipment may be
located for the purpose of inspecting the same; observing its use or for any
other purpose including the enforcement of Lessor's rights hereunder in the
event of a default by Lessee or any Guarantor. The Lessee shall give the Lessor
immediate notice of any attachment or other judicial process affecting any Item
of Equipment and shall, whenever requested by the Lessor, advise the Lessor of
the exact location of each Item of Equipment. Notwithstanding the foregoing,
Lessee shall not remove any Item of Equipment from its original installation
site without the prior written approval of Lessor, which may be withheld or
granted by Lessor in its sole discretion.
ARTICLE 6 - ALTERATIONS AND REPAIRS
<PAGE> 9
STI Equipment Lease
Page 3 of 11
6.01 ALTERATIONS. Without the prior written consent of the Lessor, the
Lessee shall not make any alterations, additions, or improvements to the
Equipment. All additions and improvements of whatsoever kind of nature made to
the Equipment shall belong to and become the property of the Lessor on the
termination of the Lease.
6.02 REPAIRS. Lessee, at its own cost and expense, shall keep the Item of
Equipment in good repair, condition, and working order and shall furnish any and
all parts, mechanisms and devices and services required to keep the Item of
Equipment in good repair, condition, and working order.
ARTICLE 7 - LOSS AND DAMAGE
7.01 RISK OF LOSS AND DAMAGE. The Lessee hereby assumes and shall bear the
entire risk of loss and damage, and destruction to each Item of Equipment from
any and every cause from and after date of shipment of the Equipment to its
final location and thereafter until such Item of Equipment has been returned to
Lessor, as herein provided. No loss, damage, or destruction to any Item of
Equipment or any part thereof shall impair any obligation of the Lessee under
this lease which shall continue in full force and effect, including, but not
limited to, the obligation to pay the monthly rental hereunder.
7.02 DUTIES OF LESSEE. In the event of loss or damage of any kind (but not
beyond economical repair) to any Item of Equipment during the Lease Term and
thereafter until such Item of Equipment has been returned to Lessor, as herein
provided, the Lessee, at the option of the Lessor but at the sole cost and
expense of Lessee, shall:
(1) Place the same in good repair, condition, and working order; or,
(2) Replace the same with like Item of Equipment in good repair,
condition, and working order.
7.03 STIPULATED LOSS VALUE. If any Item of Equipment is lost, stolen,
destroyed, requisitioned by any governmental authority, or damaged beyond
repair, the Lessee shall pay the Lessor therefor in cash the Stipulated Loss
Value for such Item of Equipment as set forth in the applicable Schedule hereto.
On such payment, this Lease shall terminate with respect to such Item of
Equipment so paid for and the Lessee thereupon shall receive title to such Item
of Equipment "as-is", "where-is", and "with all faults" without warranty,
express or implied, with respect to any matter whatsoever.
ARTICLE 8 - INSURANCE AND TAXES
<PAGE> 10
STI Equipment Lease
Page 5 of 11
8.01 INSURANCE. The Lessee shall keep each Item of Equipment insured
against all risk of loss or damage from every cause whatsoever by public
liability and property damage insurance policies covering each Item of Equipment
in form and amount and with companies approved by the Lessor and shall name
Lessor, Lessee, and Lessor's assignees as loss payees, as their interests may
appear. The Lessee shall pay the premiums therefor, at its sole cost and
expense, and shall deliver to the Lessor evidence of such policies satisfactory
to the Lessor. Each insurer shall agree, by endorsement on the policy issued by
it or by independent instrument furnished to the Lessor, that it will give the
Lessor thirty (30) days notice before the policy in question shall be altered or
canceled. The proceeds of such insurance, at the option of the Lessor, shall be
applied:
(1) Toward the replacement, restoration, or repair of such Item of
Equipment; or
(2) Toward payment of the Lessee's obligations hereunder.
The Lessee hereby appoints the Lessor as the Lessee's attorney in fact to
make claim for, receive payment of, and execute and endorse all documents,
checks, or drafts for loss or damage under any said insurance policy. At the
Lessor's request, the Lessee shall furnish the Lessor with evidence reasonably
satisfactory to the Lessor that the insurance coverage required hereby is in
effect.
8.02 TAXES. The Lessee shall keep the Equipment free and clear of all
levies, liens, and encumbrances and shall pay all license fees, registration
fees, assessments, charges, and taxes which may now or hereafter be imposed on
the ownership, leasing, renting, sale, possession, or use of the Equipment,
excluding, however, all taxes on or measured by the Lessor's income. When
requested by Lessor, Lessee shall provide to Lessor evidence of any payment
required to be made by Lessee hereunder.
8.03 LESSOR'S PAYMENT. In case of failure of the Lessee to procure or
maintain said insurance or to pay said fees, assessments, charges and taxes, as
herein before specified, the Lessor shall have the right, but shall not be
obligated, to effect such insurance, or pay said fees, assessments, charges, and
taxes, as the case may be. In that event, the cost thereof shall be repayable to
the Lessor with the next installation of rent, and failure to repay the same
shall carry with it the same consequences, including interest at eighteen
percent (18%) per annum (or the highest rate allowed by applicable law,
whichever is less) as failure to pay any installment of rent.
ARTICLE 9 - WARRANTIES
9.01 LESSOR SHALL HAVE NO LIABILITY TO LESSEE FOR ANY CLAIM, LOSS, OR
DAMAGE (INCLUDING, BUT NOT LIMITED TO, LOST REVENUES OR LOST PROFITS) CAUSED OR
ALLEGED TO BE CAUSED DIRECTLY, INDIRECTLY, INCIDENTALLY, OR CONSEQUENTLY BY THE
EQUIPMENT OR ANY ITEM OF EQUIPMENT, BY ANY INADEQUACY THEREOF OR DEFICIENCY OR
DEFECT THEREIN, OR BY ANY INCIDENT, WHATSOEVER IN CONNECTION THEREWITH, ARISING
IN STRICT LIABILITY,
<PAGE> 11
STI Equipment Lease
Page 6 of 11
NEGLIGENCE OR OTHERWISE, OR IN ANY WAY RELATED TO OR ARISING OUT OF THIS LEASE.
THE LESSOR MAKES NO EXPRESS OR IMPLIED WARRANTIES OF ANY KIND, INCLUDING THOSE
OF MERCHANTABILITY, DURABILITY, CONDITION, AND FITNESS FOR A PARTICULAR PURPOSE
OR USE WITH RESPECT TO THE EQUIPMENT AND EXPRESSLY DISCLAIMS THE SAME. FURTHER,
THE LESSEE CONFIRMS THAT IT DECIDED TO LEASE THE EQUIPMENT ON THE BASIS OF ITS
OWN JUDGMENT AND EXPRESSLY DISCLAIMS RELIANCE UPON ANY STATEMENTS,
REPRESENTATIVES, OR WARRANTIES MADE BY THE LESSOR, AND THE LESSEE ACKNOWLEDGES
THAT THE LESSOR IS NOT A MANUFACTURER OR VENDOR OF ANY PART OF THE EQUIPMENT. As
to each Item of Equipment, Lessor hereby assigns to Lessee, without recourse,
during the term hereof all applicable manufacturer's warranties which by their
terms are so assignable. The Lessee shall take all reasonable action to enforce
such warranties to the extent so assigned. All claims or actions on any warranty
so assigned shall be made and prosecuted by the Lessee at its sole expense, and
the Lessor shall have no obligation to claim any warranty. The Lessee shall keep
the Lessor informed of any such claim or action by the Lessee, and any recovery
under such warranty shall be payable jointly to the Lessor and the Lessee, as
their interests may appear. All proceeds of such recovery shall be used to
repair or replace the Equipment.
ARTICLE 10 - PERSONAL PROPERTY
10.01 The Equipment is, and shall at all times be and remain, personal
property, notwithstanding that the Equipment or any part thereof may be, or
hereafter become, in any manner affixed or attached to, or embedded in, or
permanently resting on, real property or any building thereon, or attached in
any manner to that which is permanent as by means of cement, plaster, nails,
screws, or otherwise. If requested by the Lessor, the Lessee shall obtain, prior
to delivery of any Item of Equipment, a certificate in form satisfactory to the
Lessor from each party having an interest in the real property where any Item of
Equipment may be located, waiving any claim with respect to such Item of
Equipment. Lessee agrees to execute and file Uniform Commercial Code financing
statements and any and all other instruments necessary to perfect the Lessor's
or such other person's interest in any or all of this Lease, any Schedule, the
payments due hereunder and the Equipment. Lessor may file a copy of this Lease,
as well as any Schedule, as a financing statement.
ARTICLE 11 - OWNERSHIP AND ASSIGNMENT
11.01 OWNERSHIP. The Equipment is, and shall at all times be and remain,
the sole and exclusive property of the Lessor. The Lessee shall have no right,
title, or interest therein, except as expressly set forth in this Lease. Lessee
will execute and deliver to Lessor documentation reasonably requested by Lessor
confirming Lessor's ownership interest in the Equipment
11.02 ASSIGNMENT. Without the prior written consent of the Lessor, the
Lessee shall not:
<PAGE> 12
STI Equipment Lease
Page 7 of 11
(1) Assign, transfer, pledge, or hypothecate this Lease, the Equipment or
any Item of Equipment, or any interest in it; or,
(2) Sublet or lend the Equipment or any Item of Equipment, or permit the
Equipment or any item of Equipment to be used by anyone other than the
Lessee or the Lessee's employees.
11.03 LESSOR'S ASSIGNMENT. It is understood that the Lessor contemplates
assigning this Lease or mortgaging the Equipment or any Item of Equipment, and
that any assignee of Lessor may assign it. All rights of the Lessor under this
Lease may be assigned, pledged, mortgaged, transferred, or otherwise disposed
of, either in whole or in part, with written notice to the Lessee. If the Lessor
assigns this Lease or the rentals due or to become due hereunder or any other
interest herein, whether as security for any of its indebtedness or otherwise,
no breach or default by the Lessor hereunder or pursuant to any other agreement
between the Lessor or Lessee, should there be one, shall excuse performance by
the Lessee of any provision hereunder. No such assignee shall be obligated to
perform any duty, covenant, or condition required to be performed by the Lessor
under the terms of this Lease; provided, however, that no such assignment shall
impair or diminish Lessor's obligations hereunder. The Lessee hereby consents to
any such documentation as the Lessor or any such assignee may require and to
furnish to any such assignee copies of any notices given by the Lessee under
this Lease or any Schedule.
ARTICLE 12 - INDEMNITY
12.01 The Lessee shall indemnify the Lessor against, and shall hold the
Lessor harmless from, any and all claims, actions, suits, proceeding, costs,
expenses, damages, and liabilities, including attorney's fees, arising out of,
connected with, or resulting from the Equipment, any Item of Equipment, or this
Lease, including without limitation, the selection, delivery, possession, use,
operation, or return of the Equipment and any Item of Equipment. The indemnities
and assumptions of liability provided in this Lease, including this Article 12,
shall continue in full force and effect notwithstanding the termination of this
Lease or any Schedule, whether by expiration of time, by operation of law, or
otherwise. If Lessor advised Lessee in good faith that an important general
interest of Lessor is involved in any claim, Lessor may control any defense or
settlement without diminution of Lessee's obligations hereunder.
ARTICLE 13 - PURCHASE OPTION
13.01 On the Lease Expiration Date as to each and every Item of Equipment,
all rents theretofore due and payable having been paid in full and Lessee having
performed all of its other obligations hereunder, the Lessee shall have the
option to purchase such Item of the Equipment on "AS-IS", "WHERE-IS" and "WITH
ALL FAULTS" basis without warranty by Lessor, for ONE DOLLAR ($1.00). In
connection with any sale of any such Item of Equipment and the bill of sale
corresponding thereto shall expressly state, that such Item of Equipment is sold
"as-is", "where-is" and "with all faults", and Lessor shall make no express or
implied warranties of any kind, including those
<PAGE> 13
STI Equipment Lease
Page 8 of 11
of merchantability, durability, condition, and fitness for a particular purpose
or use and the bill of sale shall expressly disclaim the same. Upon this
purchase, the Lessor will duly execute and deliver to the Lessee all documents
necessary and proper to effect transfer of ownership of such Item of Equipment
to the Lessee, free and clear of all encumbrances, security interest, and liens
(other than encumbrances, security interests, or liens suffered or permitted by
the Lessee to become effective thereon), upon payment by the Lessee of the
purchase price and thereupon this Lease shall terminate as to such Equipment and
no further rents shall become due in respect to such Item of Equipment so
purchased by Lessee.
ARTICLE 14 - RETURN OF EQUIPMENT
14.01 Upon termination of this Lease with respect to any Item of Equipment,
the Lessee shall return such Item of Equipment to such location in the
continental United States as the Lessor shall specify, unless the Lessee shall
have purchased such Item of Equipment and shall have paid all amounts due in
connection therewith as provided herein. Upon such return, such Item of
Equipment shall be in good order and condition, ordinary wear and tear expected,
shall be certified for manufacturer's maintenance and shall be free and clear of
all liens and encumbrances. Notwithstanding any other provision contained
herein, until such Item of Equipment is placed on board the carrier destined for
the location specified by the Lessor all of the provisions of this Lease with
respect thereto shall continue in full force and effect. The Lessee shall pay
all costs and expenses in connection with or incidental to the return of each
Item of Equipment, including, without limitation, the cost of removing,
assembling, packing, insuring, and transporting the same.
ARTICLE 15 - LESSEE'S REPRESENTATIONS AND WARRANTIES
15.01 The Lessee represents and warrants to and agrees with Lessor that:
(1) the Lessee is and (except as expressly permitted here in below) shall
continue to be a corporation duly organized and validly existing in good
standing under the laws of the state of its incorporation, is duly organized and
validly existing in good standing under the laws of the state of its
incorporation, is duly qualified and in good standing in all other jurisdictions
in which Equipment may be located, and is not exempt from United States income
taxation; (2) the Lessee's execution, delivery, and performance of this Lease,
each Schedule, and the other documents herein contemplated have been (or if the
same should be not yet executed and delivered, at the time of such execution and
delivery, will have been) duly authorized by all necessary corporation action,
will not result in any breach, default or violation of or under the Lessee's
certificate of incorporation or bylaws or any agreement, order, or law by which
the Lessee is or may be bound or its property is or may be affected; (3) this
Lease as well as each Schedule and the other documents contemplated herein
constitute or if the same should be not yet executed and delivered, at the time
of such execution and delivery, will constitute) the legal valid, and binding
obligations of the Lessee enforceable against the Lessee in accordance with
their respective terms; (4) all financial statements and other information
heretofore furnished by the Lessee to the Lessor were when so furnished (or if
the same shall be furnished hereafter, when so furnished shall be) true and
complete; and (5) upon any consolidation or merger of the Lessee with or into
any other corporation(s) or upon any sale or conveyance of substantially all of
the property of the Lessee to any other person or
<PAGE> 14
STI Equipment Lease
Page 9 of 11
entity, the Lessee will cause the due and punctual performance and observance of
all covenants and obligations of the Lessee hereunder to be assumed by the
surviving corporation or by the person or entity which shall have acquired such
property . The foregoing representations, warranties, and agreements shall
remain in effect throughout the term of this Lease.
ARTICLE 16 - GENERAL PROVISIONS
16.01 LESSOR'S EXPENSES. In the event of litigation by either party against
the other to enforce its rights hereunder, the prevailing party shall be
entitled to all reasonable costs and expenses including reasonable attorney's
fees.
16.02 INFORMATION. Lessee agrees to furnish to the Lessor: (i) copies of
annual financial statements, including a copy of the balance sheet and profit
and loss statement of the Lessee certified to by an authorized financial officer
of the Lessee; and (ii) such additional information as the Lessor or any
assignee may reasonably request concerning the Lease in order to enable the
Lessor or assignee to determine whether the covenants, terms, and provisions of
the Lease have been complied with by the Lessee.
16.03 CONCURRENT REMEDIES. No right or remedy herein conferred on or
reserved to the Lessor is exclusive of any right or remedy herein or by law or
equity provided or permitted; but each shall be cumulative of every other right
or remedy given hereunder or now or hereafter existing at law or in equity or by
statue or otherwise, any may be enforced concurrently therewith or from time to
time.
16.04 NONWAIVER. No covenant or condition of this Lease may be waived
except by the written consent of the Lessor. Forbearance or indulgence by the
Lessor in any regard whatsoever shall not constitute a waiver of the covenant or
condition to be performed by the Lessee to which the same may apply, and, until
complete performance by the Lessee of any covenant or condition , the Lessor
shall be entitled to invoke any remedy available to the Lessor under this Lease
or by law or in equity despite any forbearance or indulgence.
16.05 ENTIRE AGREEMENT. This Lease constitutes the entire agreement between
the Lessor and the Lessee and supersedes any prior understanding or written or
oral agreements between the parties respecting the within subject matter. It
shall not be amended, altered, or changed except by a written agreement signed
by the parties hereto.
16.06 NOTICES. Service of all notices under this Lease shall be sufficient
if given personally or mailed to the party involved at its respective address
hereinabove set forth, or at such address as such party may provide in writing
from time to time. Any such notice mailed to such address shall be effective
when deposited in the United States mail, duly addressed, and with postage
prepaid.
16.07 TIME. Time is of the essence with reference to payment in this Lease,
and in each and all of its provisions.
<PAGE> 15
STI Equipment Lease
Page 10 of 11
16.08 PARTIES BOUND. This Lease shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, executors,
administrators, legal representatives, successors, and assigns where permitted
by this Lease. As used herein, the term "Lessor" shall include all assignees of
the Lessor.
16.09 LEGAL CONSTRUCTION. If any one or more of the provisions contained in
this Lease shall, for any reason, be held to be invalid, illegal, or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions hereof and this Lease shall be construed
as if such invalid, illegal, or unenforceable provision had never been contained
herein. THIS LEASE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF TEXAS. Lessee hereby expressly and irrevocably agrees that
Lessor may bring any action or claim to enforce the provisions of this Lease in
the State of Texas, and the Lessee hereby irrevocably consents to personal
jurisdiction in the appropriate State of Texas or Federal District Court
therein. Lease hereby further irrevocably consents to service of process in
accordance with the provisions of the laws of the State of Texas.
16.10 POWER OF ATTORNEY. The Lease hereby irrevocably constitutes and
appoints Lessor and any officer or agent thereof, with full power of
substitution and resubstitution, as its true and lawful attorney-in-fact with
full irrevocable power and authority in the place and stead of the Lessee and in
the name of Lessee or in its own name, from time to time in the Lessor's
discretion, for the purpose of carrying out the terms of this Lease, to take any
and all appropriate action and to execute any and all documents and instruments
which may be necessary or desirable to accomplish the purposes of this Lease.
The powers conferred on the Lessor under this paragraph are solely to protect
its interest in the Equipment or any Item of Equipment and shall not impose any
duty upon Lessor to exercise any such powers. The Lessor shall be accountable
only for its acts and for amounts that it actually receives as a result of the
exercise of such powers and neither it nor any of its officers, directors,
employees, or agents shall be responsible to the Lease for any act or failure to
act.
16.11 FURTHER ASSURANCES. The Lessee will, at its own expense, promptly and
duly execute and deliver to the Lessor such further documents and assurances and
take such further action as the Lessor may from time to time request in order to
more effectively carry out the intent and purpose of this Lease and to establish
and protect the rights, interests, and remedies created or intended to be
created in favor of the Lessor hereunder.
IN WITNESS WHEREOF, the parties hereto have executed this Lease the day and
year first above written.
LESSEE: LESSOR:
STAR VENDING INC. d.b.a.
STAR TELECOMMUNICATIONS INC. DSC FINANCE CORPORATION
<PAGE> 16
STI Equipment Lease
Page 11 of 11
x /s/ Mary Casey x
--------------------------------------- ------------------------------
By: Mary Casey By:
--------------------------------------- ------------------------------
Its: President Its:
-------------------------------------- ----------------------------
<PAGE> 17
SCHEDULE B
This Schedule B is attached to and made a part of the Equipment Lease (the
"Lease") dated the 1st day of January, 1996, between DSC FINANCE CORPORATION, as
Lessor, and STAR TELECOMMUNICATIONS INC., as Lessee.
1. Equipment. The Lessor hereby leases and lets to the Lessee, and Lessee
hereby leases and hires from Lessor, the Items of Equipment described below:
Items of Equipment
ACS 4/3/1 equipment plus peripheral equipment and software licenses as
listed on Lessee's Purchase Order Number 0341 dated March 1, 1996.
2. Lease Payments. The Lessee agrees to pay the Lessor monthly rent, in
advance and otherwise in accordance with the Lease and this schedule, for the
Items of Equipment described above, an amount equal to the Periodic Lease Rate
Factor, as set forth below, multiplied by the Net Manufacturer's Invoice Cost of
such equipment, as set forth below, the first of which monthly rent payments
shall be due and payable on the First Periodic Rent Payment Date, as set forth
below, and continuously thereafter such monthly rent payments shall be due and
payable on each Periodic Rent Payment Date, as set forth below, until the Last
Periodic Rent Payment Date, as set forth below. The Lease Expiration Date shall
be as set forth below.
Lease Rate Factor and Related Information
<TABLE>
<S> <C>
Periodic Lease Rate Factor: 0.02202421
Implicit Interest Rate: 12.0%
Manufacturer's Invoice Cost: $ 228,164.00
Less: 10% Down Payment: 22,816.40
-------------
Net Manufacturer's Invoice Cost: $ 205,347.60
Periodic Lease Payment (Monthly Rent): $ 4,522.62
</TABLE>
Relevant Dates
First Periodic Rent Payment Date: September 1, 1996, in advance.
Periodic Rent Payment Date: The first day of each month consecutively
following the First Periodic Rent Payment
Date.
Last Periodic Rent Payment Date: August 1, 2001.
<PAGE> 18
Lease Expiration Date: The Lease Expiration Date shall be August 31, 2001.
3. Stipulated Loss Value. At any date, the Stipulated Loss Value of each
Item of Equipment shall be defined as one hundred percent (100%) of the present
value (as the term is used in financial calculations) of the remaining monthly
lease rental payments as to such Item of Equipment on the last Periodic Lease
Payment Date on which rent was paid, calculated at a rate of twelve percent
(12.0%) per annum. Any dispute over mechanics of calculation of present value
shall be resolved by use of the present value functions of a Hewlett Packard
17BII business calculator.
4. Acceptance. The Lessee will signify its acceptance of the Equipment by
the execution and delivery to the Lessor of a Certificate of Acceptance in the
form of Schedule B-1 hereto.
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this instrument
to be duly executed, on this ____ day of _____________, 199 ______.
LESSEE: LESSOR:
STAR TELECOMMUNICATIONS INC. DSC FINANCE CORPORATION
X X
-------------------------------- ----------------------------------
By: By:
-------------------------------- ----------------------------------
Its: Its:
-------------------------------- ----------------------------------
<PAGE> 19
PV = $203,347,60 PMT = $4,922.62 9 1 1996 START DATE
DNT = 12.0%
N = 40
<TABLE>
<CAPTION>
DATE DATE
PMT ---------------- PMT ----------------
NO MO DA YR INTEREST PRINCIPAL BALANCE NO MO DA YR INTEREST PRINCIPAL BALANCE
- --- -- -- ---- ---------- ---------- ----------- -- -- -- ---- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1 9 1 1996 $8.00 $4,322.02 $700,824.01 37 9 1 1999 $960.74 $3,541.86 $92,213.84
2 10 1 1996 $2,008.25 $2,514.37 $193,000.61 38 18 1 1999 $925.14 $3,597.48 $88,816.41
3 11 1 1996 $7,983.11 $2,339.51 $193,771.10 37 11 1 1999 $889.17 $5,635.45 $85,282.95
4 12 1 1996 $1,957.71 $2,864.93 $193,206.20 40 12 1 1999 $852.83 $3,449.79 $81,613.16
5 1 1 1997 $1,982.07 $9,590.55 $190,615.64 41 1 1 2000 $814.13 $3,706.49 $77,906.48
6 2 1 1997 $1,906.16 $2,616.66 $187,999.18 42 2 1 2000 $779.07 $3,743.33 $74,863.13
7 3 1 1997 $1,880.00 $2,842.62 $185,554.54 43 3 1 2000 $741.63 $3,780.99 $70,862.14
8 4 1 1997 $1,855.57 $2,669.05 $182,687.51 44 4 1 2000 $701.47 $3,818.80 $60,345.34
9 5 1 1997 $1,826.88 $2,095.74 $139,901.77 45 5 1 2000 $665.63 $3,854.99 $47,700.30
10 6 1 1997 $1,789.82 $2,722.70 $137,289.97 46 6 1 2000 $627.06 $3,947.54 $58,810.34
11 7 1 1997 $1,772.69 $2,749.93 $174,519.14 47 7 1 2000 $588.11 $3,934.31 $54,876.29
12 8 1 1997 $1,745.19 $2,737.43 $171,741.72 48 8 1 2000 $548.74 $9,973.80 $50,902.48
---------- ---------- ---------- -----------
$20,605.30 $19,619.88 $9,098.13 $45,173.31
13 9 1 1997 $1,717.43 $2,895.20 $165,536.52 49 9 1 2000 $309.03 $4,013.59 $46,888.84
14 10 1 1997 $1,689.37 $2,823.24 $144,103.27 50 10 1 2000 $468.89 $4,053.75 $47,835.11
15 11 1 1997 $1,601.06 $2,863.54 $163,241.68 51 11 1 2000 $428.35 $4,094.27 $38,740.84
16 12 1 1997 $1,632.42 $2,390.70 $160,351.48 52 12 1 2000 $387.41 $4,135.21 $34,605.63
17 1 1 1998 $1,603.52 $2,919.10 $157,432.38 53 1 1 2001 $344.85 $4,176.54 $30,429.07
18 2 1 1998 $1,574.33 $2,948.29 $154,484.00 54 2 1 2001 $304.29 $4,218.33 $26,210.94
19 3 1 1998 $1,564.83 $2,977.78 $151,506.51 55 3 1 2001 $242.11 $4,260.11 $21,950.22
20 4 1 1998 $1,515.07 $3,007.55 $148,498.74 56 4 1 2001 $219.50 $4,303.12 $17,647.11
21 5 1 1998 $1,484.99 $3,037.43 $145,461.13 57 5 1 2001 $176.47 $4,346.15 $15,300.95
22 6 1 1998 $1,450.01 $3,068.01 $142,273.12 58 6 1 2001 $133.01 $4,389.01 $8,911.35
23 7 1 1998 $1,423.93 $3,004.49 $139,284.43 59 7 1 2001 $59.17 $4,478.81 $4,477.84
24 8 1 1998 $1,392.93 $3,129.07 $114,164.76 60 8 1 2001 $44.78 $4,477.84 $0.00
---------- ---------- ---------- -----------
$18,494.48 $35,370.90 $3,309.01 $50,902.43
25 9 1 1998 $1,363.85 $3,160.97 $235,003.79 0 0 0 0 $0.00 $0.00 $0.00
26 10 1 1998 $1,339.04 $4,192.58 $129,811.21 0 0 0 0 $0.00 $0.00 $0.00
27 11 1 1998 $1,298.11 $3,324.51 $124,586.71 0 0 0 0 $0.00 $0.00 $0.00
28 12 1 1998 $1,265.87 $3,234.73 $133,379.04 0 0 0 0 $0.00 $0.00 $0.00
29 1 1 1999 $1,233.30 $3,289.12 $120,040.64 0 0 0 0 $0.00 $0.00 $0.00
30 2 1 1999 $1,200.41 $3,322.21 $116,718.01 0 0 0 0 $0.00 $0.00 $0.00
31 3 1 1999 $1,187.10 $3,355.43 $113,302.99 0 0 0 0 $0.00 $0.00 $0.00
32 4 1 1999 $1,179.65 $3,300.99 $109,974.00 0 0 0 0 $0.00 $0.00 $0.00
33 5 1 1999 $1,079.74 $3,423.88 $106,551.13 0 0 0 0 $0.00 $0.00 $0.00
34 6 1 1999 $1,045.51 $3,491.66 $99,102.34 0 0 0 0 $0.00 $0.00 $0.00
35 7 1 1999 $1,030.94 $3,491.68 $90,479.73 0 0 0 0 $0.00 $0.00 $0.00
---------- ---------- ---------- -----------
$14,182.43 $40,089.01 $0.00 $0.00
GRAND TOTALS $66,009.60 $205,347.60
========== ===========
</TABLE>
<PAGE> 20
SCHEDULE C
This Schedule C is attached to and made a part of the Equipment Lease
(the "Lease") dated the 1st day of January, 1996, between DSC FINANCE
CORPORATION, as Lessor, and STAR TELECOMMUNICATIONS INC., as Lessee.
1. Equipment. The Lessor hereby leases and lets to the Lessee, and
Lessee hereby leases and hires from Lessor, the Items of Equipment
described below:
Items of Equipment
One (1) DS-3 PAMX Shelf, Four (4) DS-3 Plugs, One (1) Interface Bay,
One DS-1 Shelf, One hundred twelve (112) DS-1 Plugs, plus peripheral
equipment and software rights as detailed in Lessee's Purchase Order Number
563 dated June 6, 1996; One (1) DSC DEX CSIS system wired for 84 DS-1s and
equipped with 30 DS-1s, plus peripheral equipment and software rights as
detailed in Lessee's Purchase Order Number 612 dated June 28, 1996; One (1)
DS-3 HAMX Shelf, Two (2) DS-3 Plugs, Eight (8) E-1 Plugs, plus peripheral
equipment and software rights as detailed in Lessee's Purchase Order Number
615 dated July 8, 1996.
2. Lease Payments. The Lessee agrees to pay the Lessor monthly
rent, in advance and otherwise in accordance with the Lease and this
schedule, for the Items of Equipment described above, an amount equal to
the Periodic Lease Rate Factor, as set forth below, multiplied by the Net
Manufacturer's Invoice Cost of such equipment, as set forth below; the
first of which monthly rent payments shall be due and payable on the First
Periodic Rent Payment Date, as set forth below, and continuously thereafter
such monthly rent payments shall be due and payable on each Periodic Rent
Payment Date, as set forth below, until the Last Periodic Rent Payment
Date, as set forth below. The Lease Expiration Date shall be as set forth
below.
Lease Rate Factor and Related Information
<TABLE>
<S> <C>
Periodic Lease Rate Factor: 0.02202421
Implicit Interest Rate: 12.0%
Manufacturer's Invoice Cost: $ 143,436.25
Less: 10% Down Payment 14,343.63
------------
Net Manufacturer's Invoice Cost: $ 129,092.62
Periodic Lease Payment (Monthly Rent): $ 2,843.16
</TABLE>
Relevant Dates
First Periodic Rent Payment Date: November 1, 1996, in advance
<PAGE> 21
Periodic Rent Payment Date: The first day of each month consecutively
following the First Periodic
Rent Payment Date.
Last Periodic Rent Payment Date: October 1, 2001.
Lease Expiration Date: The Lease Expiration Date shall be October 31,
2001.
3. Stipulated Loss Value. At any date, the Stipulated Loss Value of
each Item of Equipment shall be defined as one hundred percent (100%) of
the present value (as the term is used in financial calculations) of the
remaining monthly lease rental payments as to such Item of Equipment on the
last Periodic Lease Payment Date on which rent was paid, calculated at a
rate of twelve percent (12.0%) per annum. Any dispute over mechanics of
calculation of present value shall be resolved by use of the present value
functions of a Hewlett Packard 17BII business calculator.
4. Acceptance. The Lessee will signify its acceptance of the Equipment
by the execution and delivery to the Lessor of a Certificate of Acceptance
in the form of Schedule C-1 hereto.
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
instrument to be duly executed, on this 11 day of September, 1996
LESSEE: LESSOR:
STAR TELECOMMUNICATIONS INC. DSC FINANCE CORPORATION
X /s/ Mary Casey X /s/ Lieschen C. Bibby
--------------------------------- ---------------------------------
By: Mary Casey By: Lieschen C. Bibby
--------------------------------- ---------------------------------
Its: President Its: Director - Finance
--------------------------------- ---------------------------------
<PAGE> 22
SCHEDULE C-1
CERTIFICATE OF ACCEPTANCE OF EQUIPMENT UNDER SCHEDULE C
To: DSC Finance Corporation (the "Lessor")
1000 Coit Road
Plano, Texas 75075
I,____________________________a duly authorized inspector and authorized
representative of Star Telecommunications Inc. (the "Lessee"), do hereby certify
that I have accepted delivery on behalf of the Lessee pursuant to the Equipment
Lease dated as of January 1, 1996, between Lessor and Lessee, the Equipment
described in Schedule C attached to such Equipment Lease. Such Equipment is
described as follows:
Items of Equipment
One (1) DS-3 PAMX Shelf, Four (4) DS-3 Plugs, One (1) Interface Bay, One DS-1
Shelf, One hundred twelve (112) DS-1 Plugs, plus peripheral equipment and
software rights as detailed in Lessee's Purchase Order Number 563 dated June 6,
1996; One (1) DSC DEX CS1S system wired for 84 DS-1s and equipped with 30 DS-1s,
plus peripheral equipment and software rights as detailed in Lessee's Purchase
Order Number 612 dated June 28, 1996; One (1) DS-3 HAMX Shelf, Two (2) DS-3
Plugs, Eight (8) E-1 Plugs, plus peripheral equipment and software rights as
detailed in Lessee's Purchase Order Number 615 dated July 8, 1996.
- INSTALLATION SITE (Address): Suite 1111
624 S. Grant
Los Angeles, CA 90017
- PLACE ACCEPTED (Address) Same
- DATE ACCEPTED: 9 - 11 - 96
The execution of this Certificate will in no way relieve or decrease the
responsibility of the manufacturer of the Equipment for any warranties it has
made with respect to the Equipment. The undersigned understands that you are
relying on the foregoing certification in your purchase of such Equipment, and
to induce you to purchase such Equipment, the undersigned agrees to settle all
claims, defenses, setoffs, and counterclaims it may have with the manufacturer,
distributor, or seller of such Equipment directly therewith and will not set up
any thereof against you, that its obligation to you is absolute, and that you
are neither the manufacturer, distributor, nor seller of such Equipment and have
no knowledge or familiarity with it.
9 - 11 - 96 /s/
- ---------------------- ----------------------------------
Date Inspector and Authorized
Representative of Lessee
<PAGE> 23
SCHEDULE D
This Schedule D is attached to and made a part of the Equipment Lease
(the "Lease") dated the 1st day of January, 1996, between DSC FINANCE
CORPORATION, as Lessor, and STAR TELECOMMUNICATIONS INC., as Lessee.
1. Equipment. The Lessor hereby leases and lets to the Lessee, and
Lessee hereby leases and hires from Lessor, the Items of Equipment
described below:
Items of Equipment
One hundred twelve (112) DS-1 Plugs and Four (4) DS-3 Plugs, plus
peripheral equipment and software rights as detailed in Lessee's Purchase
Order Number 584 dated June 12, 1996; One (1) DS-3 HAMX Shelf, One (1) DS-3
Plug, Four (4) E-1 Plugs, plus peripheral equipment and software rights as
detailed in Lessee's Purchase Order Number 615 dated July 8, 1996.
2. Lease Payments. The Lessee agrees to pay the Lessor monthly rent, in
advance and otherwise in accordance with the Lease and this schedule, for
the Items of Equipment described above, an amount equal to the Periodic
Lease Rate Factor, as set forth below, multiplied by the Net Manufacturer's
Invoice Cost of such equipment, as set forth below; the first of which
monthly rent payments shall be due and payable on the First Periodic Rent
Payment Date, as set forth below, and continuously thereafter such monthly
rent payments shall be due and payable on each Periodic Rent Payment Date,
as set forth below, until the Last Periodic Rent Payment Date, as set forth
below. The Lease Expiration Date shall be as set forth below.
Lease Rate Factor and Related Information
<TABLE>
<S> <C>
Periodic Lease Rate Factor: 0.02202421
Implicit Interest Rate: 12.0%
Manufacturer's Invoice Cost: $ 54,920.00
Less: 10% Down Payment 5,492.00
------------
Net Manufacturer's Invoice Cost: $ 49,428.00
Periodic Lease Payment (Monthly Rent): $ 1,088.61
</TABLE>
Relevant Dates
First Periodic Rent Payment Date: November 1, 1996, in advance.
Periodic Rent Payment Date: The first day of each month consecutively
following the First Periodic Rent Payment Date.
<PAGE> 24
Last Periodic Rent Payment Date: October 1, 2001.
Lease Expiration Date: The Lease Expiration Date shall be October 31,
2001.
3. Stipulated Loss Value. At any date, the Stipulated Loss Value of
each Item of Equipment shall be defined as one hundred percent (100%) of
the present value (as the term is used in financial calculations) of the
remaining monthly lease rental payments as to such Item of Equipment on the
last Periodic Lease Payment Date on which rent was paid, calculated at a
rate of twelve percent (12.0%) per annum. Any dispute over mechanics of
calculation of present value shall be resolved by use of the present value
functions of a Hewlett Packard 17BII business calculator.
4. Acceptance. The Lessee will signify its acceptance of the Equipment
by the execution and delivery to the Lessor of a Certificate of Acceptance
in the form of Schedule C-1 hereto.
IN WITNESS WHEREOF, the Lessor and the Lessee have caused this
instrument to be duly executed, on this 11 day of September, 1996
LESSEE: LESSOR:
STAR TELECOMMUNICATIONS INC. DSC FINANCE CORPORATION
X /s/ Mary Casey X /s/ Lieschen C. Bibby
---------------------------- -------------------------------
By: Mary Casey By: /s/ Lieschen C. Bibby
---------------------------- -------------------------------
Its: President Its: Director - Finance
---------------------------- -------------------------------
<PAGE> 25
SCHEDULE D-1
CERTIFICATE OF ACCEPTANCE OF EQUIPMENT UNDER SCHEDULE D
To: DSC Finance Corporation (the "Lessor")
1000 Coit Road
Plano, Texas 75075
I,____________________________a duly authorized inspector and authorized
representative of Star Telecommunications Inc. (the "Lessee"), do hereby certify
that I have accepted delivery on behalf of the Lessee pursuant to the Equipment
Lease dated as of January 1, 1996, between Lessor and Lessee, the Equipment
described in Schedule D attached to such Equipment Lease. Such Equipment is
described as follows:
Items of Equipment
One hundred twelve (112) DS-1 Plugs and Four (4) DS-3 Plugs, plus peripheral
equipment and software rights as detailed in Lessee's Purchase Order Number 584
dated June 12, 1996; One (1) DS-3 HAMX Shelf, One (1) DS-3 Plugs, Four (4) E-1
Plugs, plus peripheral equipment and software rights as detailed in Lessee's
Purchase Order Numer 615 dated July 8, 1996.
- INSTALLATION SITE (Address): 12th Floor
60 Hudson Street
New York, NY 10013
- PLACE ACCEPTED (Address) Same
- DATE ACCEPTED: 9 - 11 - 96
The execution of this Certificate will in no way relieve or decrease the
responsibility of the manufacturer of the Equipment for any warranties it has
made with respect to the Equipment. The undersigned understands that you are
relying on the foregoing certification in your purchase of such Equipment, and
to induce you to purchase such Equipment, the undersigned agrees to settle all
claims, defenses, setoffs, and counterclaims it may have with the manufacturer,
distributor, or seller of such Equipment directly therewith and will not set up
any thereof against you, that its obligation to you is absolute, and that you
are neither the manufacturer, distributor, nor seller of such Equipment and have
no knowledge or familiarity with it.
9 - 11 - 96 /s/
--------------- --------------------------------
Date Inspector and Authorized
Representative of Lessee
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1994 1995 1996
-------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Net income (loss)........................................... $ (122) $ (568) $ 868
======== ======== ========
Weighted average common shares outstanding.................. 14,005 15,088 16,110
Dilutive effect of stock options pursuant to SEC rules...... 1,786 1,786 1,786
-------- -------- --------
Weighted average common shares used to compute earnings per
share -- Historical....................................... 15,791 16,874 17,896
======== ========
Conversion of preferred stock weighted average shares -- Pro
Forma..................................................... 899
--------
Weighted average shares used to compute earnings per
share -- Pro Forma........................................ 18,795
========
Net income (loss) per share -- Historical................... $ (0.01) $ (0.03) $ 0.05
======== ======== ========
Net income per share -- Pro Forma........................... $ 0.05
========
</TABLE>
<PAGE> 1
Exhibit 21.1
STAR TELECOMMUNICATIONS, INC.
LIST OF SUBSIDARIES
STAR Europe LTD, a wholly owned subsidiary of the Registrant, organized
under the laws of the United Kingdom.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and to all references to our Firm) included in or made a part of this
Registration Statement on Form S-1 (File No. 333- ).
ARTHUR ANDERSEN LLP
Los Angeles, California
[Date]
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,719
<SECURITIES> 1,630
<RECEIVABLES> 33,936
<ALLOWANCES> 6,182
<INVENTORY> 0
<CURRENT-ASSETS> 35,968
<PP&E> 14,906
<DEPRECIATION> 13,705
<TOTAL-ASSETS> 58,704
<CURRENT-LIABILITIES> 38,311
<BONDS> 0
0
1
<COMMON> 16
<OTHER-SE> 14,332
<TOTAL-LIABILITY-AND-EQUITY> 58,704
<SALES> 208,086
<TOTAL-REVENUES> 208,086
<CGS> 188,430
<TOTAL-COSTS> 188,430
<OTHER-EXPENSES> 11,453
<LOSS-PROVISION> 5,974
<INTEREST-EXPENSE> 589
<INCOME-PRETAX> 1,623
<INCOME-TAX> 755
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 868
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
