<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 16, 1998
REGISTRATION NO. 333-
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
INTELLISYS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
5099
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
77-0376647
(I.R.S. EMPLOYER IDENTIFICATION NUMBER)
140 EAST DANA STREET
MOUNTAIN VIEW, CALIFORNIA 94041
(800) 828-6464
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL
EXECUTIVE OFFICES)
--------------
DONALD J. ESTERS
CHAIRMAN AND PRESIDENT
INTELLISYS GROUP, INC.
140 EAST DANA STREET
MOUNTAIN VIEW, CALIFORNIA 94041
(800) 828-6464
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
--------------
COPIES TO:
JEFFREY T. PERO, ESQ. KAREN E. BERTERO, ESQ.
KAREN E. EBERLE, ESQ. HILARY J. HATCH, ESQ.
LATHAM & WATKINS GIBSON, DUNN & CRUTCHER LLP
505 MONTGOMERY STREET, 19TH FLOOR 333 SOUTH GRAND AVE.
SAN FRANCISCO, CALIFORNIA 94111 LOS ANGELES, CA 90071
(415) 391-0600 (213) 229-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
--------------
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, check the following box. [_]
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item 11(a)(1)
of the Form, 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 of 1933, 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 of 1933, 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. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
TITLE OF SHARES TO BE PRICE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
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<S> <C> <C> <C> <C>
Common Stock, $.01 par 2,300,000
value.................. shares $10 $23,000,000 $6,785
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</TABLE>
(1) Includes 300,000 shares subject to an over-allotment option granted to the
Underwriters.
(2) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933.
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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE +
+AMENDED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE RELATED REGISTRATION +
+STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY APPLICABLE +
+STATE SECURITIES COMMISSION BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN +
+OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE +
+WHERE THE OFFER OR SALE IS NOT PERMITTED. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 16, 1998
PROSPECTUS
- --------
LOGO
Intellisys Group, Inc.
2,000,000 SHARES OF COMMON STOCK
Intellisys Group, Inc. designs, installs and services custom integrated audio,
video and data display, conferencing and networking systems. These systems
include state-of-the-art technology that enhances our clients' ability to
present and exchange information. We also sell a wide range of portable
multimedia presentation, conferencing and networking equipment.
This is an initial public offering of our common stock. No public market
currently exists for our shares. The offering price may not reflect the market
price of our shares after the offering.
We will list the common stock on the Nasdaq National Market under the symbol
"ISGP."
Investing in the common stock involves certain risks.
See "Risk Factors" beginning on page 9.
<TABLE>
<S> <C> <C>
PER SHARE TOTAL
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Public Offering Price........................................... $ $
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Underwriting Discounts and Commissions.......................... $ $
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Proceeds, Before Expenses, to Intellisys Group, Inc............. $ $
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</TABLE>
The underwriters have a 45-day option to purchase up to 300,000 additional
shares of common stock from us to cover over-allotments, if any.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
WEDBUSH MORGAN SECURITIES INC.
The date of this prospectus is , 1998.
<PAGE>
[INSIDE FRONT COVER]
ARTWORK:
[Photograph of Pacific Bell Network Operations Center, including work stations
and rear-projection screens.]
CAPTIONS:
Pacific Bell Network Operations Center
For Pacific Bell's Northern California call center, Intellisys designed and
installed 18 rear-projection computer screens that allow Pacific Bell's entire
Northern California communication system to be monitored. The 110" diagonal
screens and 12 supplemental television monitors create a visual display wall
that provides operations personnel with easy access to relevant information.
ARTWORK:
[Photograph of Pacific Bell Mobile Services Operation Center, showing work
stations and large screen display monitors.]
CAPTIONS:
Pacific Bell Mobile Services Operation Center
To monitor Pacific Bell's cellular telephone network throughout Northern
California, Intellisys designed and installed three 120" diagonal rear-
projection screens and four supporting television displays interconnected to a
matrix of computer stations. When alarm conditions occur anywhere in the
network, the relevant information is displayed on a large screen to enable
Pacific Bell's personnel to take appropriate action.
ARTWORK:
[Photograph showing Apple Computer corporate boardroom.]
CAPTIONS:
Apple Computer Corporate Boardroom
Intellisys designed and installed the multimedia systems in Apple Computer's
boardroom. The system allows the room to change quickly and easily from a
conference room to a presentation environment by lowering the projector and
screen and automatically activating the window shades. The audiovisual system
also includes high-fidelity stereo playback and an audio conference system
built into the conference table.
ARTWORK:
[Photograph showing Apple Computer's Presentation Auditorium.]
CAPTIONS:
Apple Computer Presentation Auditorium
For use in Apple Computer's annual televised stockholders' meeting,
Intellisys designed and installed a large image, rear-projected visual display
system and a broadcast-quality television recording system. The auditorium's
lectern contains a sophisticated remote control system providing each presenter
with simple, easy-to-use access to multimedia presentation materials.
<PAGE>
ARTWORK:
[Photograph showing Silicon Graphics Visionarium wraparound screen (with
"Visionarium" artwork) and computer stations.]
CAPTIONS:
Silicon Graphics Visionarium
For Silicon Graphics' showcase total-immersion theater, Intellisys designed
and installed the complete video, sound and control systems. Three overlapping
images are projected on a 120(degrees) wraparound screen giving viewers a true
virtual reality experience.
ARTWORK:
[Photograph showing Sun Microsystems corporate demonstration room, including
work stations, large format display screen and work stations.]
CAPTIONS:
Sun Microsystems Corporate Demonstration Center
Intellisys provided the presentation systems for Sun Microsystems' corporate
demonstration center. These systems feature high resolution large screen
displays designed to replicate the look of Sun's computer monitors. The rooms
allow Sun to demonstrate a variety of computing solutions to potential
customers.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained in this prospectus. This
summary is not complete and may not contain all of the information you should
consider before investing in the common stock. You should read the entire
prospectus carefully.
THE COMPANY
We design, install and service custom integrated audio, video and data
display, conferencing and networking systems. These systems include state-of-
the-art technology that enhances our clients' ability to present and exchange
information. We also sell a wide range of portable multimedia presentation,
conferencing and networking equipment.
We believe that, based on revenue, we are one of the largest companies in the
highly fragmented multimedia presentation and communication services industry.
Our strategy is to establish a national presence by growing internally
(including opening offices in new geographic markets) and acquiring
complementary businesses. We generated revenue of $41.5 million for the year
ended December 31, 1997, a 36% increase over 1996 revenue of $30.6 million, and
revenue of $26.7 million in the first six months of 1998, a 47% increase over
revenue of $18.2 million in the first six months of 1997. We generated
operating income of $1.7 million for the year ended December 31, 1997, a 197%
increase over 1996 operating income of $562,000, and operating income of
$925,000 in the first six months of 1998, a 135% increase over operating income
of $394,000 in the first six months of 1997. Since June 1, 1998, we have
completed three acquisitions, and we recently entered into non-binding letters
of intent to acquire two additional businesses. See "Business--Recent and
Potential Acquisitions" and "Pro Forma Consolidated Financial Data."
We provide our clients one source for their multimedia presentation and
communication needs by:
. offering sophisticated, "start to finish" design, procurement and
installation services;
. creating innovative integrated systems through a wide range of technical
expertise;
. providing high quality post-installation service and support; and
. maintaining strong relationships with suppliers of market-leading
products.
We provide the extensive expertise necessary to design and integrate
presentation, performance, production, conferencing, networking and portable
systems. A presentation system typically includes video/data projection,
soundtrack and speech audio systems, audio and video source equipment and
remote control systems. A performance system may include public address
systems, stadium-size video displays, special audio and video effects, wide-
screen motion picture film systems, animated displays, automated theatrical
operations, and broadcast and closed-circuit television systems. A production
system may include equipment used for analog and digital video origination,
graphics design and post-production and distribution activities. A conferencing
system typically includes cameras, microphones, codec processing equipment,
television monitors, speakers and remote control equipment. A networking system
typically includes cabling that connects multiple rooms or buildings and the
switching, bridging and routing equipment that allows audio and video signals
to be directed to the proper location.
3
<PAGE>
The technologies that drive presentation, conferencing and networking
equipment are converging. As a result, businesses, government agencies and
educational institutions are requesting more sophisticated integrated solutions
for their communication needs. We believe that these needs are currently being
met primarily by:
. small, regional firms that provide basic system integration services;
. regional "box houses" (companies that focus on catalog sales of
presentation and communication equipment); and
. ""staging and rental" businesses (companies that primarily provide
staging services for trade shows and other corporate events).
We believe that we offer our clients more sophisticated design services
(including feasibility analysis, architectural coordination and technical
engineering) and a larger technically trained workforce than our small,
regional competitors. In addition, unlike most "box houses" and "staging and
rental" companies, we offer our clients a full range of services from initial
consultation to the design, engineering, procurement, fabrication and
installation of custom integrated multimedia communication systems. We also
provide post-installation support, repair, maintenance and on-site staffing and
operations. We believe that our ability to offer a comprehensive range of
services for state-of-the-art multimedia presentation and communication systems
distinguishes us from our competitors. We have completed approximately 1,000
integrated systems projects since January 1996 for clients such as Netscape,
Apple Computer, University of California, Stanford University, NASA-Ames
Research Labs and the U.S. Department of Energy.
STRATEGY
Our goal is to enhance our market position in the multimedia presentation and
communication services industry by continuing to grow internally and through
strategic acquisitions. Our strategy to achieve this goal contains the
following key elements:
Serve as a Single Source Provider of Multimedia Communication Solutions. We
seek to become the provider of choice for all of our clients' multimedia
presentation and communication needs. We believe that offering a full spectrum
of state-of-the-art multimedia presentation and communication systems,
equipment and support services gives us a competitive advantage and enables us
to attract new clients and expand our business with existing clients. Although
our equipment maintenance, repair and rental services have not contributed
substantially to our revenue to date, we plan to enhance our efforts to market
those services in the future. We also seek to capitalize on opportunities to
offer new or expanded services tied to advances in the computer, data
communication and telecommunication industries.
Stimulate Internal Growth. We plan to continue to expand domestically by
opening new offices in targeted geographic markets. Our decisions to open
offices in new markets are based on our review of demographic information,
existing client needs, business growth projections and the level of competition
in the area. We recently opened two additional offices in Southern California
and expect to open two offices in the metropolitan New York City area in 1999.
4
<PAGE>
Make Strategic Acquisitions. We believe that the multimedia presentation and
communication services industry is highly fragmented and consists primarily of
small companies that operate within limited geographical areas. We believe that
our industry offers substantial consolidation opportunities. We have acquired
three businesses since June 1, 1998 and recently entered into non-binding
letters of intent to acquire two additional businesses. We seek to acquire
selected businesses in targeted geographic markets and to expand the operations
of acquired companies through internal growth. We believe that our acquisitions
to date have allowed us to:
. add new clients;
. further develop our relationships with existing clients;
. offer new services and capabilities; and
. acquire experienced personnel.
See "Business--Recent and Potential Acquisitions."
Develop and Maintain Strong Supplier Relationships. We currently have
distribution relationships with over 300 suppliers, including leading
communications technology, digital media hardware and software manufacturers
such as InFocus, NEC, Sony and PictureTel. We believe that our strong
relationships with suppliers have enabled us to attract and retain clients by
allowing us to offer a large selection of cutting-edge communications
equipment. We believe that we are able to negotiate attractive pricing and
volume discounts from suppliers because of our size and position in the
industry. We intend to continue to develop relationships and obtain exclusive
distribution agreements with companies that are developing new technologies in
order to ensure that our clients have access to the latest technology at
favorable prices.
Focus on Staff Professional Development. We seek to employ highly qualified
and trained sales and technical personnel in order to provide superior service
to our clients. Our sales staff regularly attends manufacturer and industry
sponsored training to obtain manufacturer certification and expertise in the
features and benefits of the components and systems we sell and install. Our
engineering, project management and installation technicians participate (both
as instructors and students) in manufacturer and industry certification
programs for high-level technical training in system design, installation
procedures, and component applications, service and maintenance. Our personnel
also attend internally developed training programs for design and engineering,
sales skills and presentation and proposal writing.
Our predecessor, Educational Industrial Sales, Inc. ("Educational"), was
incorporated in California in 1976. In October 1998, we changed our name from
Electronic Integrated Solutions ("EIS") to Intellisys Group, Inc. The
"Company," "we," "us" and "our" refer to Intellisys Group, Inc. and our wholly
owned subsidiary, B. Higginbotham Enterprises, Inc., unless we indicate
otherwise. Our executive offices are located at 140 East Dana Street, Mountain
View, California 94041. Our telephone number is (800) 828-6464.
5
<PAGE>
Unless we indicate otherwise, we have adjusted all information in this
prospectus to reflect our reincorporation in Delaware in October 1998 (the
"Reincorporation") and the mergers of our former wholly owned subsidiaries,
Educational and Alford Media Sales, Inc., into Intellisys Group, Inc. In the
Reincorporation, we converted our issued and outstanding common stock into
3,997,162 shares of Delaware common stock on a 4.047-for-one basis. Also,
unless we indicate otherwise, the information in this prospectus assumes that
the underwriters will not exercise their over-allotment option.
6
<PAGE>
THE OFFERING
<TABLE>
<C> <S>
Common stock offered............................... 2,000,000 shares
Common stock to be outstanding after the offering.. 6,162,859 shares (1)
Use of proceeds.................................... We will use the net
proceeds from the offering
to reduce outstanding
borrowings under our
credit facility, to repay
a note issued in
connection with an
acquisition, to fund
possible future
acquisitions and for
working capital. See "Use
of Proceeds."
Dividend Policy.................................... We intend to retain all
future earnings to fund
the development and growth
of our business.
Therefore, at this time we
do not anticipate paying
cash dividends. See
"Dividend Policy."
Proposed Nasdaq National Market symbol............. ISGP
</TABLE>
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(1) Includes:
. 43,078 shares of common stock that we expect to issue in connection
with our proposed acquisition of Proline Industries, Inc.;
. 72,619 shares of common stock that we expect to issue immediately
following this offering upon automatic conversion of subordinated
convertible promissory notes issued in connection with our acquisition
of Digital Networks Corporation; and
. 50,000 shares of common stock that we expect to issue immediately
following this offering upon automatic conversion of a convertible
promissory note to be issued in connection with our proposed
acquisition of Aurora Visual Systems.
Excludes:
. 409,916 shares of common stock subject to stock options that we granted
under stock option agreements;
. 1,058,489 shares of common stock issuable upon conversion, under
certain circumstances, of preferred stock that we expect to issue prior
to the closing of this offering;
. 100,000 shares of common stock issuable upon exercise of warrants we
will issue to the representatives of the underwriters in connection
with this offering; and
. 47,142 shares of common stock issuable upon exercise of additional
outstanding warrants.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
--------------------------------- -------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997(1) 1997 1998 1998(1)
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<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Sales and installation
revenue................ $25,481 $30,557 $41,535 $97,590 $18,162 $26,675 $53,869
Gross profit............ 7,621 7,521 11,339 23,794 4,556 7,288 14,517
Operating income........ 1,431 562 1,667 2,473 394 925 2,084
Net income.............. 701 195 793 763 127 503 882
Earnings per share:
Basic.................. 0.19 0.05 0.21 0.20 0.03 0.13 0.23
Diluted................ 0.18 0.05 0.20 0.15 0.03 0.12 0.17
Weighted average shares:
Basic.................. 3,720 3,833 3,833 3,833 3,833 3,840 3,840
Diluted................ 3,916 3,970 3,988 5,089 3,969 4,036 5,138
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1998
---------------------- -------------------------------------
PRO FORMA
1995 1996 1997 ACTUAL PRO FORMA (1) AS ADJUSTED (2)
------ ------- ------- ------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $1,688 $ 1,414 $ 2,095 $ 1,755 $ 1,282 $19,032
Total assets............ 8,007 11,888 15,257 25,573 46,118 59,868
Lines of credit and
short-term notes pay-
able................... 2,362 4,399 4,845 8,133 14,685 10,685
Long-term debt.......... 273 434 346 795 1,365 1,365
Preferred stock......... -- -- -- -- 7,970 7,970
Stockholders' equity.... 2,315 2,510 3,303 5,001 4,838 22,588
</TABLE>
- --------
(1) Gives effect to our acquisitions of Digital Networks Corporation, B.
Higginbotham Enterprises, Inc. and Alford Media Sales, Inc. and our
potential acquisitions of Aurora Visual Systems and Proline Industries,
Inc. (including the anticipated issuance of 1,058,489 shares of preferred
stock to finance portions of the Proline and Aurora acquisitions and to
repay approximately $1.0 million of outstanding notes) in the case of the
statement of income as if the acquisitions had been completed at the
beginning of each of the periods presented and in the case of the balance
sheet as if the acquisitions had occurred on June 30, 1998.
(2) As further adjusted to reflect the sale of 2,000,000 shares of common stock
at an estimated price of $10 per share and the application of the estimated
net proceeds from this offering as if these events had occurred on
June 30, 1998. See "Use of Proceeds" and "Capitalization."
8
<PAGE>
RISK FACTORS
You should consider the following factors carefully before deciding to
purchase common stock. This prospectus contains forward-looking statements.
These statements include words such as "may," "will," "expect," "believe,"
"intend," "anticipate," "estimate" or similar words. These statements are based
on our current beliefs, expectations and assumptions and are subject to a
number of risks and uncertainties. Actual results and events may vary
materially from those discussed in the forward-looking statements. We discuss
risks and uncertainties that might cause such a difference below and elsewhere
in this prospectus.
ABILITY TO MANAGE AND SUSTAIN GROWTH
We have experienced rapid growth recently, in part due to our acquisition of
three businesses since June 1, 1998. This rapid growth may place a significant
strain on our resources. In order to continue to grow, we must, among other
things:
. increase the amount of business we obtain from existing clients;
. develop new clients;
. continue to open offices in new geographic markets;
. expand the range of integrated systems, equipment and support services we
offer to our clients;
. acquire complementary businesses in new and existing markets; and
. retain key employees and recruit and train new employees.
Until recently, most of our clients and operations have been located in the
San Francisco bay area. Through our recent acquisitions and by opening new
offices, we have expanded into other areas of the Western and Southwestern
United States. We plan to expand into additional geographic regions and
markets. We may not be able to translate our experience into success in new
geographic regions or markets. In addition, we cannot guarantee that:
. we will be able to expand our business with current clients;
. we will be able to develop new clients;
. we will have adequate financial and other resources to open new offices
or enter new markets;
. any new offices will perform in a satisfactory manner;
. we will be able to develop and offer new integrated systems, equipment
and support services, or that any new integrated systems, equipment and
support systems will be successful;
. we will be able to identify and finance appropriate future acquisitions
on favorable terms, or at all;
. we will be able to retain key employees or hire new employees; or
. any future business we may develop or acquire will perform in a
satisfactory manner.
As a result, we cannot assure you that we will be able to expand our business
or manage any future growth effectively and profitably.
9
<PAGE>
INTEGRATION OF ACQUISITIONS
Since June 1, 1998, we have acquired three businesses. We are currently
pursuing additional acquisitions and recently entered into non-binding letters
of intent to acquire two additional businesses. We may not be able to integrate
our recent or any future acquisitions successfully with existing operations
without substantial costs, delays or other problems. As we integrate acquired
businesses, key employees of the acquired companies could resign and
management's attention could be diverted from our ongoing business concerns. We
may not be able to implement operational improvements in, or exploit potential
synergies with, acquired businesses. Any of these factors could materially
adversely affect our operating results and financial condition. In addition,
any businesses we acquire may not perform as well as we may expect and could be
adversely affected by unforeseen liabilities.
ABILITY TO MAKE ADDITIONAL ACQUISITIONS
We intend to pursue opportunities to expand our business through the
acquisition of selected companies in targeted geographic markets. We expect to
finance future acquisitions with proceeds from this offering, cash proceeds of
borrowings from third parties or the issuance of our common stock, promissory
notes or other securities. We cannot guarantee, however, that:
. we will be able to identify appropriate acquisition candidates or
negotiate acquisitions on favorable terms;
. we will be able to obtain the financing necessary to complete future
acquisitions; or
. the issuance of our common stock or other securities in connection with
any future acquisition will not result in a substantial dilution in the
ownership interests of holders of our common stock.
CLIENT CONCENTRATION
Each year a substantial portion of our revenue is derived from sales to a
relatively small number of clients. During 1997 and the first six months of
1998, approximately 19% of our revenue for each period resulted from sales to
our top 10 clients. The identities of our top 10 clients change from period to
period as we complete our contracts with them. If we fail to replace the
completed contracts with new contracts of similar size, our revenue and profits
may be adversely affected.
DEPENDENCE ON KEY PERSONNEL
Our future success will depend in part upon the continued service of our key
technical, marketing and management personnel, particularly our Chairman,
President and Chief Financial Officer, Donald J. Esters. We will need to
attract and retain qualified employees, particularly technical personnel such
as design and systems integration engineers and service technicians. The
competition for qualified personnel is intense. We may not be able to retain
key employees or attract additional qualified personnel.
The Company is the beneficiary of a key man insurance policy on the life of
Mr. Esters in the amount of $1,000,000.
10
<PAGE>
COMPETITION
No firm data exists on the size of the multimedia presentation and
communication services industry and the number and size of competitors within
the industry. However, we believe, based on our experience in the industry,
that the multimedia presentation and communication services industry is highly
competitive and highly fragmented. We compete primarily with small, regional
firms that offer more limited services than ours. However, some participants in
the industry have national, full service businesses and greater capabilities
and financial resources than ours. In addition, non-traditional competitors who
offer more mature and sophisticated products and services (such as
telecommunications, computing and energy management companies) have begun to
add multimedia presentation and communication services and products to their
existing technology products and services. Our primary competitors are:
. audiovisual equipment dealers;
. companies that rent and sell audiovisual equipment, primarily in
connection with staging services for trade shows and other corporate
events;
. independent design consulting firms;
. electrical contractors;
. manufacturers' sales and service divisions;
. office superstores and consumer electronics chains; and
. the in-house communications staffs of many clients and potential clients.
We believe that the multimedia presentation and communication services
industry will become more consolidated in the future and, as a result, may
become more competitive. We could be adversely affected if existing competitors
expand their integrated systems businesses, if new competitors with greater
resources than ours enter the industry or if our clients or potential clients
choose to service their multimedia presentation and communication needs
internally.
DEPENDENCE ON KEY SUPPLIERS
We rely on outside vendors to supply the components we sell to our clients.
Our future success will depend, in part, on our ability to maintain favorable
pricing, product availability and other supply terms with our current suppliers
and to develop relationships with new suppliers. We cannot assure you that we
will be able to maintain our favorable relationships with current suppliers or
develop new supplier relationships. We do not maintain an inventory large
enough to protect us against an interruption of supply, particularly if we were
required to obtain new products or products from alternative sources. In 1997,
52.6% of our revenue was derived from our sale of products supplied by our 10
largest suppliers, with products supplied by InFocus accounting for
approximately 15.6% of revenue in 1997 and approximately 13.3% of revenue in
the six months ended June 30, 1998.
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
We may experience quarter-to-quarter fluctuations in our results of
operations as a result of a variety of factors, including:
. our success in replacing completed contracts with new contracts of
similar size;
. changes in the mix of revenue between integrated systems and portable
equipment that result in changes in profit margins;
11
<PAGE>
. the size and timing of acquisitions, expenses incurred in connection with
those acquisitions and the integration of acquisitions into our business;
. client demand for our systems and equipment;
. the timing and cost of adding new personnel;
. competitive conditions; and
. general economic conditions.
In reviewing our results of operations, you should not place undue emphasis
on quarter-to-quarter comparisons. Our results in any quarter may not be
indicative of the results we may achieve in any subsequent quarter or for the
full year. Quarterly fluctuations in operating results may result in
volatility in the market price of our common stock. If our results of
operations for any quarter are less favorable than the results expected by the
market, the market price of the common stock held by our stockholders would be
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Selected Quarterly Results of
Operations."
EFFECT OF ECONOMIC CONDITIONS
We generate our revenue in large part from clients in the computer hardware
and software industry and other businesses that are cyclical in nature and
subject to changes in national, regional and industry economic conditions. We
could be adversely affected by any national, regional or industry economic
downturn, particularly by a recession in the computer hardware and software
industry, that results in decreased spending on multimedia presentation and
communication systems, equipment and support services.
RAPID TECHNOLOGICAL CHANGE
Rapid technological change, including frequent new products, product
obsolescence and changing client needs, characterizes our industry. This rapid
change has contributed to our past growth. In order to succeed in the future,
we will need to continue to:
. track industry developments and trends;
. identify new products in a variety of communication media;
. offer state-of-the-art products to clients;
. integrate new technologies; and
. respond to changing client requirements.
We cannot assure you that rapid technological changes will continue to occur
or that, if they do, we will respond to them successfully.
CONTROL BY SINGLE STOCKHOLDER
Immediately following the offering, Donald J. Esters will beneficially own
approximately 39.1% of the outstanding common stock, assuming that we complete
our acquisition of Proline Industries, Inc. and that promissory notes issued
or to be issued in connection with the Aurora Visual Systems and Digital
Networks Corporation acquisitions convert automatically into common stock upon
the closing of this offering. Accordingly, Mr. Esters will be able to
influence significantly any stockholder vote, including any vote on the
election of directors. Mr. Esters' interests could conflict with the interests
of our other stockholders.
12
<PAGE>
MANAGEMENT INFORMATION SYSTEMS; YEAR 2000
Our success depends in part on the accuracy and reliability of the computer
software programs and operating systems we use in our business and the
information generated by these systems. Recently, we have begun to replace and
upgrade our management information systems. We expect to complete this process
in the first quarter of 1999. We cannot assure you that we will be able to
accomplish this transition to new software without disrupting our business,
delaying the integration of newly acquired businesses or incurring higher costs
than expected.
Our new software is designed to be year 2000 compliant, but we cannot assure
you that it contains all necessary data code changes. We have evaluated our
other software programs (such as engineering and design programs), and we
believe that these programs are year 2000 compliant. We expect all of our
critical systems to be year 2000 compliant by December 31, 1999.
Certain products we sell may be affected by year 2000 issues. We plan to
obtain information from our suppliers regarding their products' compliance with
year 2000 issues. We do not have any information that makes us believe that
year 2000 issues relating to our internal systems or to products or systems we
sell to our clients will adversely affect us. At this time, however, we cannot
assure you that:
. all of our systems will be year 2000 compliant by 2000;
. the products or systems we have sold to clients are year 2000 compliant;
. we will not encounter year 2000 compliance issues in any business that we
acquire; or
. any failure on our part or on the part of our clients or suppliers to
achieve full year 2000 systems compliance will not adversely affect us.
Although we have not yet formulated a contingency plan for year 2000
compliance, we plan to continue to assess year 2000 risks to determine whether
we need to do so. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Year 2000 Issues."
NO PRIOR MARKET FOR COMMON STOCK; DETERMINATION OF PUBLIC OFFERING PRICE
There has been no public market for our common stock. We are applying to list
the common stock for trading on the Nasdaq National Market System. We do not
know whether investor interest in the Company will lead to the development of a
trading market or, if a trading market develops, how liquid that market will
be. We will determine the initial public offering price for the shares of
common stock through our negotiations with the underwriters. You may not be
able to sell your shares at or above the initial public offering price. See
"Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a large number of shares of common stock in the market after the
offering or the perception that sales may occur could cause the market price of
our common stock to drop. 6,162,859 shares of common stock will be outstanding
immediately after the offering, including 43,078 shares of common stock that we
expect to issue in connection with our acquisition of Proline Industries, Inc.
and 122,619 shares of common stock that we expect to issue upon the automatic
conversion of convertible promissory notes issued or to be issued in connection
with the Aurora Visual Systems and Digital Networks Corporation acquisitions.
The 2,000,000 shares sold in this
13
<PAGE>
offering (plus any shares issued upon exercise of the underwriters' over-
allotment option) will be freely tradable, except for shares held by
"affiliates" of the Company, as that term is defined under Rule 144 under the
Securities Act. Of the remaining shares, are subject to lock-up agreements
in which the holders of the shares have agreed not to sell any shares for a
period of 180 days after the date of this prospectus without the prior written
consent of the representatives of the underwriters. The shares not subject to
lock-up agreements are "restricted securities" as defined in Rule 144 under the
Securities Act. These shares may be sold in the future without registration
under the Securities Act to the extent permitted by Rule 144 or an exemption
under the Securities Act. See "Shares Eligible for Future Sale."
After this offering, we intend to file a registration statement on Form S-8
under the Securities Act to register the 750,000 shares of common stock that
are available for grant under our 1998 Equity Participation Plan and the
409,916 shares issuable upon exercise of options otherwise outstanding. We
expect the registration statement on Form S-8 to become effective immediately
upon filing. Options to purchase 238,746 shares of Common Stock are either
vested or vest within 60 days of October 1, 1998. Before the offering closes,
we plan to grant stock options to purchase shares of common stock under our
1998 Equity Participation Plan. After the offering is effective, shares covered
by the registration statement on Form S-8 will be eligible for sale in the
public markets, subject to Rule 144 limitations applicable to affiliates as
well as to the limitations on sale and vesting described above. See
"Management."
DILUTION
We expect the initial public offering price to be substantially higher than
the net tangible book value per share of the common stock. Therefore, you will
incur immediate and substantial net tangible book value dilution. You may incur
additional dilution if holders of stock options exercise their options or if
holders of warrants exercise their warrants to purchase common stock. See
"Dilution."
CERTAIN ANTI-TAKEOVER PROVISIONS
Certain provisions of our Certificate of Incorporation and Bylaws could make
it more difficult for a third party to acquire control of the Company, even if
a change in control would be beneficial to stockholders. These provisions
include a staggered Board of Directors, supermajority voting requirements for
business combinations, a requirement that stockholders act at meetings rather
than by written consent and the authority of our Board of Directors to issue,
without stockholder approval, preferred stock with terms set by the Board of
Directors. See "Description of Capital Stock."
PAYMENT OF DIVIDENDS ON COMMON STOCK
We have agreements that limit our ability to pay dividends on our common
stock. We intend to retain any future earnings to fund the operation and
expansion of our business. We do not anticipate paying cash dividends on our
shares in the foreseeable future. See "Description of Capital Stock" and
"Dividend Policy."
14
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
common stock in this offering are estimated to be approximately $17.8 million
based upon an assumed offering price per share of $10, after deducting the
underwriting discount and commissions and estimated offering expenses. The
Company expects to use approximately $4.0 million of the estimated net proceeds
to:
. reduce by approximately $3.5 million outstanding indebtedness under the
Company's $15 million secured credit facility with Sanwa Business Credit
Corporation, which bears interest at rates of 0.50% over the prime rate
or 3.25% over the Euro-Rate, depending on the type and amount of the
loans; and
. repay outstanding indebtedness in the amount of $500,000 under a
subordinated promissory note of the Company that is due and payable
immediately following this offering.
The Company expects to use the remainder of the net proceeds to fund possible
future acquisitions and for working capital. Pending application of the net
proceeds as described above, the net proceeds of the offering will be invested
in interest-bearing or dividend-bearing investment grade securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company continues to evaluate potential acquisitions and engage in
discussions with several potential acquisition candidates. The Company entered
into a non-binding letter of intent on August 23, 1998 with Aurora Visual
Systems, a portable systems business, with respect to the Company's acquisition
of substantially all of Aurora's assets in exchange for an aggregate purchase
price of $1.4 million and the Company's assumption of certain liabilities. On
October 5, 1998, the Company entered into a non-binding letter of intent to
acquire all of the outstanding capital stock of Proline Industries, Inc. for an
aggregate purchase price of $6.4 million. Proline is an integrated systems
business with offices in Washington, Oregon and Northern California. A portion
of the purchase prices for the Company's potential acquisitions of Aurora and
Proline will be financed with the proceeds of a private placement of the
Company's preferred stock, which the Company expects to complete prior to the
closing of the offering. The Company is not currently a party to any binding
agreements or commitments with respect to any future acquisitions. There can be
no assurance that any future acquisitions, including the Aurora and Proline
acquisitions, will be consummated on terms favorable to the Company, if at all.
DIVIDEND POLICY
The Company presently anticipates that it will retain all of its future
earnings to finance the expansion of its business and provide working capital.
Therefore, the Company does not anticipate paying any cash dividends on the
common stock in the foreseeable future. In addition, certain of the Company's
debt instruments contain covenants that restrict the Company's ability to
declare dividends. The Company has not paid any dividends on its common stock
in the past. The Company's Board of Directors has the discretion to determine
whether to declare or pay dividends in the future, and any determination will
be based upon the Company's results of operations, financial condition, capital
requirements, contractual restrictions and other factors the Board of Directors
deems relevant.
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) on an
actual basis as of June 30, 1998; (ii) on a pro forma basis to reflect the
Recent Acquisitions and Potential Acquisitions (as defined in "Selected
Consolidated Financial Data") and the issuance of preferred stock in connection
with the Potential Acquisitions and (iii) on a pro forma as adjusted basis to
give effect to the sale by the Company of the 2,000,000 shares of common stock
at an assumed offering price of $10 per share and the application of the
estimated net proceeds therefrom as if the offering had occurred as of June 30,
1998. This table should be read in conjunction with "Use of Proceeds,"
"Selected Consolidated Financial Data," "Pro Forma Consolidated Financial Data"
and the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1998
----------------------------------
PRO FORMA
ACTUAL PRO FORMA(1) AS ADJUSTED(1)
------ ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt.............................. $ 795 $ 1,365 $ 1,365
Redeemable preferred stock, Series A; no
shares outstanding actual; 1,058,489 shares
outstanding pro forma and pro forma as
adjusted................................... -- 7,970 7,970
Stockholders' equity:
Preferred Stock; 10,000,000 shares
authorized; no shares outstanding actual;
1,058,489 redeemable Series A outstanding
pro forma and pro forma as adjusted....... -- -- --
Common stock, $.01 par value; 30,000,000
shares authorized; 3,997,162 shares
outstanding actual; 4,040,240 shares
outstanding pro forma; and 6,040,240
shares outstanding pro forma as adjusted.. 40 40 60
Additional paid-in capital................. 2,410 2,760 20,490
Retained earnings.......................... 2,551 2,038 2,038
------ ------- -------
Total stockholders' equity.................. 5,001 4,838 22,588
------ ------- -------
Total capitalization........................ $5,796 $14,173 $31,923
====== ======= =======
</TABLE>
- --------
(1) Excludes (i) 72,619 shares of common stock to be issued immediately
following this offering upon automatic conversion of subordinated
convertible promissory notes; (ii) 409,916 shares of common stock subject
to stock options granted under stock option agreements; (iii) 50,000 shares
of common stock expected to be issued immediately following this offering
upon automatic conversion of a convertible promissory note to be issued in
connection with the proposed acquisition of Aurora Visual Systems;
(iv) 100,000 shares of common stock issuable upon exercise of warrants to
be issued to the representatives of the underwriters in connection with the
offering; and (v) 47,142 shares of common stock issuable upon exercise of
additional outstanding warrants.
16
<PAGE>
DILUTION
As of June 30, 1998, the net tangible book value of the Company on a pro
forma basis, after giving effect to the Recent Acquisitions and the Potential
Acquisitions (as defined in "Selected Consolidated Financial Data") and the
issuance of preferred stock in connection with the Potential Acquisitions was
approximately $3.1 million, or $.61 per share of common stock outstanding. See
"Pro Forma Consolidated Financial Data." Net tangible book value per share
represents the amount of total tangible assets less total liabilities divided
by the number of shares of common stock outstanding. After giving effect to the
transactions described above and the sale by the Company of 2,000,000 shares of
common stock in this offering, the application of the net proceeds from this
offering as described in "Use of Proceeds" and the automatic conversion of
convertible promissory notes into 122,619 shares of common stock immediately
following this offering, the pro forma net tangible book value of the Company
at June 30, 1998 would have been $20.8 million, or $2.89 per share. This
represents an immediate increase in net tangible book value of $2.28 per share
to existing shareholders and an immediate dilution of $7.11 per share to new
shareholders purchasing shares at the assumed initial public offering price of
$10.00 per share. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $10.00
Net tangible book value per share before the offering......... $ .61
Increase in net tangible book value per share attributable to
new investors................................................ 2.28
-----
Pro forma net tangible book value per share after the offer-
ing.......................................................... 2.89
------
Dilution per share to new investors........................... $ 7.11
======
</TABLE>
The following table summarizes, as of June 30, 1998, the relative investments
of all existing stockholders and new investors, after giving effect to the
Recent Acquisitions and Potential Acquisitions, the issuance of preferred stock
in connection with the Potential Acquisitions, the sale of 2,000,000 shares of
common stock offered hereby and the automatic conversion of convertible
promissory notes into 122,619 shares of common stock immediately following this
offering:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- -------------------
AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1):
Shares sold prior to June
30, 1998................. 3,997,162 55.3% $ 2,261,000 7.1% $ 0.57
Shares issued in acquisi-
tions.................... 43,078 0.6 350,000 1.1 8.12
Shares of preferred
stock.................... 1,058,489 14.7 7,970,000 25.2 7.53
Shares issued upon conver-
sion of notes............ 122,619 1.7 1,037,000 3.3 8.46
New investors.............. 2,000,000 27.7 20,000,000 63.3 10.00
--------- ----- ----------- -----
Total.................... 7,221,348 100.0% $31,618,000 100.0%
========= ===== =========== =====
</TABLE>
- --------
(1) Excludes (i) 409,916 shares of common stock subject to stock options
granted under stock option agreements; (ii) 100,000 shares of common stock
issuable upon exercise of warrants to be issued to representatives of the
underwriters in connection with the offering; and (iii) 47,142 shares of
common stock issuable upon exercise of additional outstanding warrants. To
the extent the foregoing options and warrants are exercised in the future,
there will be further dilution to new investors.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under "Statement of Income Data" and
"Balance Sheet Data" for, and as of the end of, each of the years in the three-
year period ended December 31, 1997 are derived from the consolidated financial
statements of the Company, which financial statements have been audited by KPMG
Peat Marwick LLP, independent certified public accountants. The consolidated
financial statements as of December 31, 1997 and December 31, 1996 and for each
of the years in the three-year period ended December 31, 1997, and the report
thereon, are included elsewhere in this Prospectus. The selected data presented
below under the captions "Statement of Income Data" and "Balance Sheet Data" as
of June 30, 1998 and June 30, 1997, and for each of the six month periods then
ended, and as of December 31, 1994, are derived from the unaudited consolidated
financial statements of the Company. The financial data shown for the six
months ended June 30, 1998 are not necessarily indicative of the results to be
expected for the entire year ending December 31, 1998. The selected data
presented below under the caption "Statement of Income Data" for the year ended
December 31, 1994 are derived from the consolidated financial statements of the
Company for the period from February 16 to December 31, 1994 and the combined
financial statements of Intellisys Group, Inc. and Educational, a wholly-owned
subsidiary of Intellisys Group, Inc. since February 16, 1994 and the
predecessor business, for the period from January 1, 1994 through February 15,
1994. The selected data presented below under the captions "Statement of Income
Data" and "Balance Sheet Data" as of and for the year ended December 31, 1993
are derived from the unaudited financial statements of Educational. The data
derived from unaudited financial statements include, in the opinion of
management, all adjustments (consisting only of normal recurring adjustments)
necessary to present fairly the financial position and results of operations
for such periods. The financial data shown below should be read in conjunction
with the Consolidated Financial Statements and Notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
The pro forma data are unaudited and intended to present the effect of (i)
the Company's acquisitions of Digital Networks Corporation, B. Higginbotham
Enterprises, Inc. and Alford Media Sales, Inc. (collectively, the "Recent
Acquisitions"); (ii) the Company's potential acquisitions of Aurora Visual
Systems and Proline Industries, Inc. (collectively, the "Potential
Acquisitions"); and (iii) the anticipated issuance of 1,058,489 shares of
preferred stock to finance portions of the Proline and Aurora acquisitions and
to repay of approximately $1.0 million of outstanding notes. The pro forma data
should be read in conjunction with "Pro Forma Consolidated Financial Data" and
the "Notes to Pro Forma Consolidated Financial Data" contained elsewhere in
this prospectus.
18
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------------------------------- --------------------------
PRO FORMA PRO FORMA
1993 1994 1995 1996 1997 1997(1) 1997 1998 1998(1)
------- ------- ------- ------- ------- --------- ------- ------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Sales and installation
revenue............... $14,009 $16,412 $25,481 $30,557 $41,535 $97,590 $18,162 $26,675 $53,869
Cost of sales.......... 10,102 11,916 17,860 23,036 30,196 73,796 13,606 19,387 39,352
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.......... 3,907 4,496 7,621 7,521 11,339 23,794 4,556 7,288 14,517
Selling, general and
administrative
expenses.............. 3,345 3,829 6,190 6,959 9,672 21,321 4,162 6,363 12,433
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income..... 562 667 1,431 562 1,667 2,473 394 925 2,084
Interest expense, net.. -- 135 247 269 351 1,099 185 242 614
Other expense, net..... (12) -- -- -- -- 103 -- (165) --
------- ------- ------- ------- ------- ------- ------- ------- -------
Income before income
taxes............... 574 532 1,184 293 1,316 1,271 209 848 1,470
Income taxes........... 16 92 483 98 523 508 82 345 588
------- ------- ------- ------- ------- ------- ------- ------- -------
Net income........... $ 558 $ 440 $ 701 $ 195 $ 793 $ 763 $ 127 $ 503 $ 882
======= ======= ======= ======= ======= ======= ======= ======= =======
Earnings per share:
Basic................ $0.15 $0.12 $0.19 $0.05 $0.21 $0.20 $0.03 $0.13 $0.23
Diluted.............. $0.15 $0.11 $0.18 $0.05 $0.20 $0.15 $0.03 $0.12 $0.17
Weighted average
shares:
Basic................ 3,690 3,690 3,720 3,833 3,833 3,833 3,833 3,840 3,840
Diluted.............. 3,690 3,867 3,916 3,970 3,988 5,089 3,969 4,036 5,138
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1998
------------------------------------ -------------------------------
PRO PRO FORMA,
1993 1994 1995 1996 1997 ACTUAL FORMA(1) AS ADJUSTED(2)
------ ------ ------ ------- ------- ------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $1,228 $1,234 $1,688 $ 1,414 $ 2,095 $ 1,755 $ 1,282 $19,032
Total assets............ 3,739 6,145 8,007 11,888 15,257 25,573 46,118 59,868
Lines of credit and
short-term notes pay-
able................... 850 2,692 2,362 4,399 4,845 8,133 14,685 10,685
Long-term debt.......... 179 299 273 434 346 795 1,365 1,365
Preferred stock......... -- -- -- -- -- -- 7,970 7,970
Stockholders' equity.... 1,674 1,614 2,315 2,510 3,303 5,001 4,838 22,588
</TABLE>
- --------
(1) Gives effect to the Recent Acquisitions and Potential Acquisitions
(including the anticipated issuance of preferred stock in connection with
the Potential Acquisitions) in the case of the statement of income data as
if the acquisitions had been completed at the beginning of each of the
periods presented and in the case of the balance sheet as if the
acquisitions had occurred on June 30, 1998.
(2) As further adjusted to reflect the sale of 2,000,000 shares of common stock
at an estimated price of $10 per share and the application of the estimated
net proceeds from this offering as if these events had occurred as of June
30, 1998. See "Use of Proceeds" and "Capitalization."
19
<PAGE>
PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated financial data for the year
ended December 31, 1997 and as of and for the six months ended June 30, 1998
have been derived by the application of pro forma adjustments related to the
Recent and Potential Acquisitions to the historical financial statements of the
Company. The following unaudited pro forma consolidated statements of income
for the year ended December 31, 1997 and the six months ended June 30, 1998
give effect to the Recent and Potential Acquisitions as if they occurred at the
beginning of the period presented. The following unaudited pro forma
consolidated balance sheet as of June 30, 1998 gives effect to the Recent and
Potential Acquisitions as if they had occurred on June 30, 1998. The following
unaudited pro forma as adjusted consolidated statements of income and balance
sheet give effect to this offering and the application of the net proceeds
therefrom as if these transactions had occurred at the beginning of the period
or as of the date presented.
The following unaudited pro forma consolidated financial data do not purport
to represent what the Company's results of operations or financial condition
would have been had such transactions in fact occurred at the beginning of the
periods presented or to project the Company's results of operations or
financial position in or for any future period. The unaudited pro forma
consolidated financial data should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto contained elsewhere in this
prospectus.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PRO FORMA OFFERING
RECENT POTENTIAL ADJUSTMENTS PRO ADJUSTMENTS PRO FORMA
ACTUAL ACQUISITIONS ACQUISITIONS (NOTE 1) FORMA (NOTE 2) AS ADJUSTED
------- ------------ ------------ ----------- ------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Sales and installation
revenue................ $41,535 $20,362 $35,693 $ -- $97,590 $ -- $97,590
Cost of sales........... 30,196 15,545 28,055 -- 73,796 -- 73,796
------- ------- ------- ----- ------- ------ -------
Gross profit.......... 11,339 4,817 7,638 -- 23,794 -- 23,794
Selling, general and
administrative
expenses............... 9,672 5,037 6,838 (226)(a) 21,321 -- 21,321
------- ------- ------- ----- ------- ------ -------
Operating income ..... 1,667 (220) 800 226 2,473 -- 2,473
Interest expense, net... 351 308 355 85 (b) 1,099 (340)(a) 759
Other expense, net...... -- 103 -- -- 103 -- 103
------- ------- ------- ----- ------- ------ -------
Income (loss) before
income taxes......... 1,316 (631) 445 141 1,271 340 1,611
Income taxes............ 523 (146) 78 53 (c) 508 136 (b) 644
------- ------- ------- ----- ------- ------ -------
Net income (loss) .... $ 793 $ (485) $ 367 $ 88 $ 763 $ 204 $ 967
======= ======= ======= ===== ======= ====== =======
Earnings per share:
Basic................. $0.21 $0.20 $0.17
Diluted............... $0.20 $0.15 $0.14
Weighted average shares:
Basic................. 3,833 3,833 5,833
Diluted............... 3,988 5,089 7,089
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Data.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA OFFERING
RECENT POTENTIAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
ACTUAL ACQUISITIONS* ACQUISITIONS (NOTE 1) PRO FORMA (NOTE 2) AS ADJUSTED
------- ------------- ------------ ----------- --------- ----------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Sales and installation
revenue................ $26,675 $10,390 $16,804 $ -- $53,869 $ -- $53,869
Cost of sales........... 19,387 7,038 12,927 -- 39,352 -- 39,352
------- ------- ------- ----- ------- ----- -------
Gross profit.......... 7,288 3,352 3,877 -- 14,517 -- 14,517
Selling, general and
administrative
expenses............... 6,363 2,531 3,500 39 (a) 12,433 -- 12,433
------- ------- ------- ----- ------- ----- -------
Operating income ..... 925 821 377 (39) 2,084 -- 2,084
Interest expense, net... 242 139 191 42 (b) 614 (170)(a) 444
Other expense, net...... (165) -- -- 165 (d) -- -- --
------- ------- ------- ----- ------- ----- -------
Income before income
taxes................ 848 682 186 (246) 1,470 170 1,640
Income taxes............ 345 118 41 84 (c) 588 68 (b) 656
------- ------- ------- ----- ------- ----- -------
Net income ........... $ 503 $ 564 $ 145 $(330) $ 882 $ 102 $ 984
======= ======= ======= ===== ======= ===== =======
Earnings per share:
Basic................. $0.13 $0.23 $0.17
Diluted............... $0.12 $0.17 $0.14
Weighted average shares:
Basic................. 3,840 3,840 5,840
Diluted............... 4,036 5,138 7,138
</TABLE>
- --------
* Reflects the results of operations of B. Higginbotham Enterprises, Inc. and
Alford Media Sales, Inc. for the period from January 1, 1998 through May 31,
1998 and Digital Networks Corporation for the period from January 1, 1998
through June 30, 1998. The results of operations of Higginbotham and Alford
for June 1998 are included in the Company's actual Consolidated Statement of
Income.
See Accompanying Notes to Pro Forma Consolidated Financial Data.
21
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1998
<TABLE>
<CAPTION>
PRO FORMA OFFERING
DIGITAL POTENTIAL ADJUSTMENTS ADJUSTMENTS PRO FORMA
ACTUAL* ACQUISITION+ ACQUISITIONS (NOTE 3) PRO FORMA (NOTE 4) AS ADJUSTED
------- ------------ ------------ ----------- --------- ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Current assets:
Cash.................. $ 119 $ 20 $ 73 $ -- $ 212 $13,750 (a) $13,962
Receivables, net...... 13,776 2,527 5,140 -- 21,443 -- 21,443
Inventories........... 6,929 1,357 2,453 -- 10,739 -- 10,739
Prepaid expenses and
other current
assets............... 685 2 142 -- 829 -- 829
------- ------ ------ ------ ------- ------- -------
Total current
assets.............. 21,509 3,906 7,808 -- 33,223 13,750 46,973
Property and equipment,
net................... 2,064 257 686 -- 3,007 -- 3,007
Intangible and other
assets................ 2,000 95 21 7,772 (a) 9,888 -- 9,888
------- ------ ------ ------ ------- ------- -------
Total assets......... $25,573 $4,258 $8,515 $7,772 $46,118 $13,750 $59,868
======= ====== ====== ====== ======= ======= =======
LIABILITIES AND
STOCKHOLDERS' EQUITY:
Current liabilities:
Bank lines of credit.. $ 6,802 $ -- $3,219 $1,000 (b) $11,021 $(3,500)(b) $ 7,521
Current portion of
long-term debt....... 127 -- 19 -- 146 -- 146
Notes payable......... 1,331 1,339 388 606 (d) 3,664 (500)(c) 3,164
Accounts payable and
accrued expenses .... 10,416 2,021 3,518 -- 15,955 -- 15,955
Income taxes payable.. 305 -- -- -- 305 -- 305
Deferred revenue...... 773 77 -- -- 850 -- 850
------- ------ ------ ------ ------- ------- -------
Total current
liabilities......... 19,754 3,437 7,144 1,606 31,941 (4,000) 27,941
Long-term debt......... 668 463 88 -- 1,219 -- 1,219
Deferred income taxes.. 150 -- -- -- 150 -- 150
------- ------ ------ ------ ------- ------- -------
Total liabilities.... 20,572 3,900 7,232 1,606 33,310 (4,000) 29,310
------- ------ ------ ------ ------- ------- -------
Redeemable preferred
stock................. -- -- -- 7,970 (c) 7,970 -- 7,970
Stockholders' equity:
Preferred stock....... -- -- -- -- -- -- --
Common stock.......... 40 30 -- (30)(e) 40 20 (d) 60
Additional paid-in
capital.............. 2,410 80 45 225 (e) 2,760 17,730 (d) 20,490
Retained earnings..... 2,551 248 1,238 (1,999)(e) 2,038 -- 2,038
------- ------ ------ ------ ------- ------- -------
Total stockholders'
equity.............. 5,001 358 1,283 (1,804) 4,838 17,750 22,588
------- ------ ------ ------ ------- ------- -------
Total liabilities
and stockholders'
equity............ $25,573 $4,258 $8,515 $7,772 $46,118 $13,750 $59,868
======= ====== ====== ====== ======= ======= =======
</TABLE>
- --------
*Reflects the acquisitions of B. Higginbotham Enterprises, Inc. and Alford
Media Sales, Inc. prior to June 30, 1998.
+The Company acquired Digital Networks Corporations after June 30, 1998.
See accompanying Notes to Pro Forma Consolidated Financial Data
22
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA
GENERAL
Following is a description of the Recent and Potential Acquisitions, which
are reflected in the accompanying "Pro Forma Consolidated Financial Data":
Recent Acquisitions. Effective June 1, 1998, the Company acquired all of the
outstanding stock of B. Higginbotham Enterprises, Inc. This acquisition was
accounted for as a purchase, with the excess of the purchase price over fair
value of the net assets acquired allocated to goodwill. A summary of the
purchase price and related preliminary purchase allocation follows:
<TABLE>
<S> <C>
AGGREGATE PURCHASE PRICE
Cash paid to the holders of Higginbotham common stock............... $1,600
Notes payable to the holders of Higginbotham common stock........... 500
Deferred amounts payable for contingent payouts..................... 900
Legal and other direct acquisition costs............................ 12
------
Aggregate purchase price.......................................... $3,012
======
PRELIMINARY ALLOCATION OF PURCHASE PRICE
Aggregate purchase price............................................ $3,012
Less book value of assets acquired................................ 399
------
Excess of cost over net book value of assets acquired............... 2,613
Less adjustments for non-compete covenant and other contingent
payouts............................................................ 950
------
Goodwill............................................................ $1,663
======
</TABLE>
Effective June 1, 1998, the Company acquired all of the outstanding stock of
Alford Media Sales, Inc. for $565 in cash, which approximated the fair value of
the net assets acquired.
23
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA--(CONTINUED)
Effective August 24, 1998, the Company acquired the net assets of Digital
Networks Corporation. This acquisition was accounted for as a purchase, with
the excess of the purchase price over the fair value of the net assets acquired
allocated to goodwill. A summary of the purchase price and related preliminary
purchase allocation follows:
<TABLE>
<S> <C>
AGGREGATE PURCHASE PRICE
Cash paid to Digital................................................ $1,000
Notes payable to Digital............................................ 400
Convertible notes payable to Digital................................ 537
Deferred amounts payable for contingent payouts..................... 500
Legal and other direct acquisition costs............................ 42
------
Aggregate purchase price.......................................... $2,479
======
PRELIMINARY ALLOCATION OF PURCHASE PRICE
Aggregate purchase price............................................ $2,479
Less book value of assets acquired................................ 565
------
Excess of cost over net book value of assets acquired............... 1,914
Less adjustments for non-compete covenant and other contingent
payouts............................................................ 550
------
Goodwill............................................................ $1,364
======
</TABLE>
Potential Acquisitions. On August 23, 1998, the Company entered into a non-
binding letter of intent to acquire the net assets of Aurora Visual Systems.
This acquisition, if consummated, will be accounted for as a purchase, with the
excess of the purchase price over the fair value of the net assets acquired to
be allocated to goodwill. A summary of the purchase price and related
preliminary purchase allocation follows:
<TABLE>
<S> <C>
AGGREGATE PURCHASE PRICE
Cash to be paid to Aurora............................................ $ 900
Convertible note payable to Aurora................................... 500
------
Aggregate purchase price........................................... $1,400
======
PRELIMINARY ALLOCATION OF PURCHASE PRICE
Aggregate purchase price............................................. $1,400
Less book value of assets to be acquired........................... 112
------
Excess of cost over net book value of assets to be acquired.......... 1,288
Less adjustments for non-compete covenant............................ 35
------
Goodwill............................................................. $1,253
======
</TABLE>
24
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA--(CONTINUED)
On October 5, 1998, the Company entered into a non-binding letter of intent
to acquire the outstanding stock of Proline Industries, Inc. This acquisition,
if consummated, will be accounted for as a purchase, with the excess of the
purchase price over the fair value of the net assets to be acquired to be
allocated to goodwill. A summary of the purchase price and related preliminary
purchase allocation follows:
<TABLE>
<S> <C>
AGGREGATE PURCHASE PRICE
Cash to be paid to the holders of Proline common stock............... $6,050
Common stock to be issued to a holder of Proline common stock........ 350
------
Aggregate purchase price ............................................ $6,400
======
PRELIMINARY ALLOCATION OF PURCHASE PRICE
Aggregate purchase price............................................. $6,400
Less book value of assets to be acquired........................... 1,288
------
Excess of cost over net book value of assets to be acquired.......... 5,112
Less adjustments for non-compete covenants........................... 150
------
Goodwill............................................................. $4,962
======
</TABLE>
NOTE 1: PRO FORMA ADJUSTMENTS--CONSOLIDATED STATEMENTS OF INCOME
The following pro forma adjustments have been applied to the accompanying
consolidated historical statements of income to reflect the Recent and
Potential Acquisitions as if they had all occurred as of the beginning of the
period.
(a) Selling, general and administrative expenses--to reflect adjustments to
record the following:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DEC. 31, 1997 JUNE 30, 1998
------------- -------------
<S> <C> <C>
Reduction for non-recurring salaries paid to
previous owners of Proline, net of Aurora
partnership draws taken in lieu of salary...... $(649) $(172)
Amortization of goodwill and non-compete
covenants for Recent Acquisitions.............. 172 86 (i)
Amortization of goodwill and non-compete
covenants for Potential Acquisitions........... 251 125 (i)
----- -----
Total......................................... $(226) $ 39
===== =====
</TABLE>
--------
(i) Goodwill is being amortized over 30 years. The non-compete
covenants are being amortized over the terms of the related
agreements.
(b) Interest expense--to reflect adjustments to record interest expense on
debt incurred for Recent Acquisitions.
(c) Income taxes--to reflect the income tax provision at an assumed 40% rate.
(d) Other expense--to reflect elimination of management fees related to
Digital.
25
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA--(CONTINUED)
NOTE 2: OFFERING ADJUSTMENTS--CONSOLIDATED STATEMENTS OF INCOME
The following offering adjustments have been applied to the pro forma
consolidated statements of income to reflect the offering as if it had occurred
at the beginning of the periods presented.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DEC. 31, 1997 JUNE 30, 1998
------------- -------------
<S> <C> <C>
(a) Interest Expense--to reflect reduction in
interest expense for repayment of credit
facility and note payable.................. $(340) $(170)
===== =====
(b) Income Taxes--to reflect income tax
adjustment associated with interest expense
reduction at an assumed 40% rate........... $ 136 $ 68
===== =====
</TABLE>
NOTE 3: PRO FORMA ADJUSTMENTS--CONSOLIDATED BALANCE SHEET
The following pro forma adjustments have been applied to the accompanying
consolidated balance sheet to reflect the Recent and Potential Acquisitions as
if they had all occurred on June 30, 1998:
(a) Intangible and other assets--to reflect adjustments to record goodwill
and non-compete covenants for the following:
<TABLE>
<S> <C>
Recent Acquisitions................................................... $1,372
Potential Acquisitions................................................ 6,400
------
Total............................................................... $7,772
======
</TABLE>
(b) Bank lines of credit--to reflect a $1,000 adjustment to record borrowings
to finance the Digital acquisition.
(c) Preferred stock financing--to reflect a $7,970 adjustment to record the
anticipated issuance of 1,058,489 shares of preferred stock to finance $6,050
of the purchase price for the Proline acquisition, $900 of the purchase price
for the Aurora acquisition and the repayment of $1,020 of an outstanding note.
(d) Notes payable--to reflect the issuance of notes payable in connection
with the following acquisitions and payments of outstanding notes as described
in (c) above:
<TABLE>
<S> <C> <C>
To record notes payable issued in connection with the Digital
acquisition................................................. $ 400
To record convertible notes payable issued in connection with
the Digital acquisition..................................... 537
To record notes payable issued in connection with the Aurora
acquisition................................................. 500
To record repayment of note with proceeds from preferred
stock financing:
Principal balance of note................................... $1,020
Less fair value of warrants issued to holder of note........ 189
------
Liability as reflected on balance sheet..................... (831)
-----
Total...................................................... $ 606
=====
</TABLE>
26
<PAGE>
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL DATA--(CONTINUED)
(e) Stockholders' equity--to reflect adjustments to record the following:
<TABLE>
<S> <C>
To eliminate Digital common stock.................................. $ (30)
To eliminate Digital and Proline additional paid-in capital........ (125)
To eliminate Digital historical retained earnings.................. (455)
To eliminate Aurora historical retained earnings................... (112)
To eliminate Proline historical retained earnings.................. (1,243)
To eliminate recorded value of warrants issued to the holder of a
note repaid with
proceeds from the preferred stock financing (See Note 3(c)
above)............................................................ (189)
To record the issuance of common stock in connection with the Pro-
line acquisition.................................................. 350
-------
Total............................................................ $(1,804)
=======
</TABLE>
NOTE 4: OFFERING ADJUSTMENTS--CONSOLIDATED BALANCE SHEET AT JUNE 30, 1998
The following offering adjustments have been applied to the pro forma
consolidated balance sheet to reflect the offering as if it had occurred on
January 1, 1998:
(a) Cash--to reflect adjustments to the following:
<TABLE>
<S> <C>
Proceeds from the offering........................................ $20,000
Underwriting discounts relating to the offering................... (1,450)
Estimated expenses relating to the offering....................... (800)
-------
Net proceeds from the offering.................................. 17,750
Repayment of credit facility...................................... (3,500)
Payment of promissory note issued in connection with the
Higginbotham acquisition......................................... (500)
-------
Total........................................................... $13,750
=======
</TABLE>
(b) Bank lines of credit--to reflect repayment of credit line using proceeds
from the offering.
(c) Note payable--to reflect payment of promissory note issued in connection
with the Higginbotham acquisition.
(d) Stockholders' equity--to reflect adjustments to the following:
<TABLE>
<S> <C>
Issuance of common stock in the offering........................... $ 20
Additional paid-in capital from issuance of common stock in
connection with the offering...................................... 17,730
-------
Net proceeds from the offering..................................... $17,750
=======
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company's consolidated financial
condition and results of operations should be read in conjunction with
"Selected Consolidated Financial Data," "Pro Forma Consolidated Financial Data"
and the Company's Consolidated Financial Statements and Notes thereto included
elsewhere in this prospectus.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the statements of operations of the Company expressed as a
percentage of sales and installation revenue:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------- ------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Sales and installation revenue............. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.............................. 70.1 75.4 72.7 74.9 72.7
----- ----- ----- ----- -----
Gross profit............................. 29.9 24.6 27.3 25.1 27.3
Selling, general and administrative
expenses.................................. 24.3 22.8 23.3 22.9 23.9
----- ----- ----- ----- -----
Operating income......................... 5.6 1.8 4.0 2.2 3.4
Interest expense, net...................... 1.0 0.9 0.8 1.0 0.9
Other income............................... -- -- -- -- (0.6)
----- ----- ----- ----- -----
Income before income taxes............... 4.6 0.9 3.2 1.2 3.1
Income taxes............................... 1.9 0.3 1.3 0.5 1.3
----- ----- ----- ----- -----
Net income............................... 2.7% 0.6% 1.9% 0.7% 1.8%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1998 AND 1997
Sales and installation revenue. Sales and installation revenue was $26.7
million in the first six months of 1998 compared to $18.2 million for the same
period in 1997, an increase of 47%. Of the increase, approximately $6.9 million
was primarily attributable to increases in the number of integrated systems
sold and the average integrated system contract size as well as the number of
portable equipment sold. The remaining $1.6 million increase in revenues in the
first six months of 1998 compared to the first six months of 1997 resulted from
revenues attributable to the acquisitions of Higginbotham and Alford on June 1,
1998.
Cost of sales and gross profit. Cost of sales increased to $19.4 million, or
73% of revenue, in the first six months of 1998 compared to $13.6 million, or
75% of revenue, in the same period in 1997. The increase in cost of sales
corresponded to the increase in revenue. The Company's gross margins are
generally higher on sales of integrated systems than on portable equipment
sales. Cost of sales decreased as a percentage of revenue due primarily to an
increase in sales of higher margin integrated systems as a percentage of
revenue and to improved margins on portable equipment sales.
28
<PAGE>
Selling, general and administrative expenses. Selling, general and
administrative expenses were $6.4 million, or 24% of revenues, in the first six
months of 1998 compared to $4.2 million, or 23% of revenue, for the same period
in 1997. The increase reflected the Company's decision to continue to invest in
its sales and administrative functions, including opening and staffing a new
sales office in Englewood, Colorado in the summer of 1997.
Interest and other income. For the first six months of 1998, interest expense
was $242,000 compared to $185,000 for the same period in 1997. The increase in
interest expense reflected the increase in the Company's aggregate borrowings
for working capital purposes. In the first half of 1998, the Company also
recorded $165,000 of other income to reflect the management fees resulting from
the management of Digital's operations prior to the consummation of the Digital
acquisition.
Income taxes. The Company used an effective income tax rate of 40% for the
six months ended June 30, 1998 and June 30, 1997. Management believes that the
40% tax rate used for the six months ended June 30, 1998 was consistent with
the Company's historical tax provision.
YEARS ENDED DECEMBER 31, 1997 AND 1996
Sales and installation revenue. Sales and installation revenue increased 36%
to $41.5 million in 1997 from $30.6 million in 1996, primarily as a result of
increases in the number of integrated systems sold and the average integrated
system contract size as well as the number of portable equipment sold.
Cost of sales and gross profit. Cost of sales was $30.2 million, or 73% of
revenue, in 1997 compared to $23.0 million, or 75% of revenue, in 1996. The
Company's gross margins are generally higher on sales of integrated systems
than on portable equipment sales. The lower cost of sales in 1997 as a
percentage of revenue reflected an increase in sales of higher margin
integrated systems as a percentage of revenue.
Selling, general and administrative expenses. Selling, general and
administrative expenses increased to $9.7 million in 1997 from $7.0 million in
1996. These expenses represented 23% of revenue in each of 1996 and 1997. The
increase in expenses in 1997 was attributable to the addition of employees to
support increased sales, the opening of the Englewood, Colorado office in the
summer of 1997 and expansion of other Company facilities.
Interest expense. In 1997, interest expense was $351,000 compared to $269,000
in 1996. The increase in interest expense reflected the increase in the
Company's aggregate borrowings for working capital and equipment loans.
Income taxes. In 1997, the Company's income tax provision was $523,000
compared to $98,000 in 1996. The increase in tax provision from 1996 to 1997
was proportionate to the increased pre-tax income.
29
<PAGE>
YEARS ENDED DECEMBER 31, 1996 AND 1995
Sales and installation revenue. Sales and installation revenue increased 20%
to $30.6 million in 1996 from $25.5 million in 1995, principally as a result of
an increase in the number of integrated systems and portable equipment sold.
Revenue for 1995 included revenue from a large single integrated system
contract (the "1995 Contract"), which was substantially completed during 1995.
Cost of sales and gross profit. In 1996, cost of sales was $23.0 million, or
75% of revenue, compared to $17.9 million, or 70% of revenue, in 1995. The
Company's gross margins are generally higher on sales of integrated systems
than on portable equipment sales. The increase in cost of sales as a percentage
of revenue in 1996 primarily reflected a decrease in higher margin integrated
systems sales as a percentage of revenue, primarily as a result of the
completion of the 1995 Contract in early 1996.
Selling, general and administrative expenses. In 1996, selling, general and
administrative expenses were $7.0 million compared to $6.2 million in 1995.
These expenses represented 23% of revenue in 1996 and 24% of revenue in 1995.
The increase in expenses reflected the full-year cost of maintaining new
Company sales offices. The Company opened new sales offices in Irvine,
California and Tempe, Arizona in the first quarter of 1995 and in San Francisco
in the fourth quarter of 1995. The increase was also attributable to the
addition of personnel to support increased sales.
Interest expense. In 1996, interest expense was $269,000 compared to $247,000
in 1995. The increase in interest expense reflected the increase in the
Company's aggregate borrowings for working capital purposes.
Income taxes. In 1996, the Company's income tax provision was $98,000
compared to $483,000 in 1995. The lower tax provision in 1996 was in proportion
to a decrease in pre-tax income.
30
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statement of income data for
the six quarters ended June 30, 1998, as well as such data expressed as a
percentage of the Company's revenue for the periods indicated. The results of
operations for the quarter ended June 30, 1998 include the results of
operations of Higginbotham and Alford during June 1998. This information has
been derived from unaudited financial statements that, in the opinion of
management, include all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of such information when read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
SEP. DEC. MAR. JUNE
MARCH 31, JUNE 30, 30, 31, 31, 30,
1997 1997 1997 1997 1998 1998
--------- -------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Sales and installation
revenue................ $8,184 $9,978 $11,549 $11,824 $12,804 $13,871
Cost of sales........... 6,060 7,546 8,396 8,194 9,484 9,903
------ ------ ------- ------- ------- -------
Gross profit.......... 2,124 2,432 3,153 3,630 3,320 3,968
Selling, general and
administrative
expenses............... 2,034 2,128 2,669 2,841 3,005 3,358
------ ------ ------- ------- ------- -------
Operating income...... 90 304 484 789 315 610
Interest expense, net... 103 81 73 94 106 136
Other expense, net...... -- -- -- -- -- (165)
------ ------ ------- ------- ------- -------
Income (loss) before
income taxes......... (13) 223 411 695 209 639
Income taxes............ (5) 88 165 275 84 261
------ ------ ------- ------- ------- -------
Net income (loss)..... $ (8) $ 135 $ 246 $ 420 $ 125 $ 378
====== ====== ======= ======= ======= =======
Earnings (loss) per
share:
Basic................. $(0.00) $0.04 $0.06 $0.11 $0.03 $0.10
Diluted............... $(0.00) $0.03 $0.06 $0.11 $0.03 $0.09
Weighted average shares:
Basic................. 3,833 3,833 3,833 3,833 3,833 3,846
Diluted............... 3,981 3,987 3,995 3,997 4,027 4,046
<CAPTION>
QUARTER ENDED
------------------------------------------------------
SEP. DEC. MAR. JUNE
MARCH 31, JUNE 30, 30, 31, 31, 30,
1997 1997 1997 1997 1998 1998
--------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Sales and installation
revenue................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales........... 74.0 75.6 72.7 69.3 74.1 71.4
------ ------ ------- ------- ------- -------
Gross profit.......... 26.0 24.4 27.3 30.7 25.9 28.6
Selling, general and
administrative
expenses............... 24.9 21.3 23.1 24.0 23.5 24.2
------ ------ ------- ------- ------- -------
Operating income...... 1.1 3.1 4.2 6.7 2.4 4.4
Interest expense, net... 1.3 0.8 0.6 0.8 0.8 1.0
Other expense, net...... -- -- -- -- -- (1.2)
------ ------ ------- ------- ------- -------
Income (loss) before
income taxes......... (0.2) 2.3 3.6 5.9 1.6 4.6
Income taxes............ (0.1) 0.9 1.4 2.3 0.6 1.9
------ ------ ------- ------- ------- -------
Net income (loss)..... (0.1)% 1.4% 2.2% 3.6% 1.0% 2.7%
====== ====== ======= ======= ======= =======
</TABLE>
31
<PAGE>
The Company may experience quarter-to-quarter fluctuations in its results of
operations as a result of a variety of factors, including the Company's success
in replacing completed contracts with new contracts of similar size, changes in
the mix of integrated systems and portable equipment revenue that result in
changes in profit margins, the size and timing of acquisitions, expenses
incurred in connection with those acquisitions and the integration of
acquisitions into the Company's business, client demand for the Company's
systems and equipment, the timing and cost of adding new personnel, competitive
conditions and general economic conditions. The Company sells its systems on a
project-by-project basis, and quarterly results of operations may also be
affected by the timing of the completion of projects and the commencement of
work on new projects. The Company's gross margins are generally higher on sales
of integrated systems than on portable equipment sales. The Company has
experienced and expects to continue to experience variations in gross profit as
a result of quarter-to-quarter changes in the amount of higher margin
integrated systems sales as a percentage of revenue and changes in profit
margins on integrated systems sales and portable equipment sales. The Company
believes that quarter-to-quarter comparisons of its results of operations are
not necessarily meaningful or indicative of the results the Company may achieve
in any subsequent quarter or full year. See "Risk Factors--Fluctuations in
Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through internal cash flow
and bank borrowings. Net cash used in operations for the first six months of
1998 was $752,000. The negative cash flow from operations was primarily
attributable to increases in accounts receivable, inventory and accounts
payable. For the first half of 1998, net cash used in investing activities was
$2.7 million, principally for the Recent Acquisitions. For the first six months
of 1998, net cash provided by financing activities was $3.4 million, consisting
of loan proceeds from a lender, equity capital contributed by new investors,
and net borrowings under the Company's credit agreement with Wells Fargo Bank,
N.A. (the "Prior Credit Facility.")
For the year ended December 31, 1997, net cash provided by operating
activities was $238,000. This was primarily due to cash generated by net income
before non-cash expenses for depreciation and amortization. Cash used in
investing activities for 1997 of $507,000 primarily consisted of additions of
equipment. Cash provided by financing activities in 1997 consisted of $349,000,
principally from borrowings under the Company's Prior Credit Facility.
The Company entered into the Prior Credit Facility in June 1997. The Prior
Credit Facility was subsequently amended August 1997 to increase the line of
credit to $7.0 million. The Prior Credit Facility consisted of a $7.0 million
revolving credit line and a term credit facility of $740,000, secured by
substantially all of the Company's assets. The limit on aggregate borrowings
depended on the balance of the Company's eligible accounts receivable and
inventories. Loans from the credit line bore interest at the prime rate or at
2.25% over LIBOR. At June 30, 1998, the Company had aggregate borrowings of
approximately $6.8 million outstanding under the Prior Credit Facility.
In September 1998, the Company entered into a $15.0 million line of credit
(the "Credit Facility") with Sanwa Business Credit Corporation and terminated
and paid all outstanding indebtedness under the Prior Credit Facility. The
Credit Facility is secured by substantially all of the Company's assets. The
Credit Facility includes revolving advances that vary according to the
Company's eligible accounts
32
<PAGE>
receivable and inventories and bears interest at rates of 0.50% over the prime
rate or 3.25% over the Euro-Rate, depending on the type and amount of the
loans. The Company is required either to maintain a daily average loan amount
of $7.5 million or pay a fee equal to the shortfall multiplied by the
applicable interest rate charged for prime rate-based loans. Amounts borrowed
under the Credit Facility were used to repay borrowings under the Prior Credit
Facility and other bank debt of acquired companies and will be used to finance
the ongoing working capital requirements of the Company as well as potential
acquisitions. At October 1, 1998, the Company had total borrowings of
$12.2 million outstanding under the Credit Facility. The Company intends to
reduce this debt to $7.5 million with a portion of the net proceeds from the
offering. See "Use of Proceeds."
The Company believes that the Credit Facility, together with proceeds from
the offering and funds generated by the Company's operations, will provide the
Company with sufficient liquidity and capital resources to finance the
Company's operations and planned expenditures through 1999.
YEAR 2000 ISSUES
The year 2000 issue is the result of computer-controlled systems using two
digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date ending in "00"
as the year 1900 rather than the year 2000. This could result in system failure
or miscalculations causing disruptions of operations including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
In anticipation of potential year 2000 problems, the Company has begun to
replace and upgrade its management information systems with a platform designed
to be year 2000 compliant. The Company expects to complete this process in the
first quarter of 1999. The Company has retained a consulting firm to coordinate
successful system implementation, including testing of year 2000-related
problems. Testing for year 2000 compliance will commence upon system
implementation and will continue throughout 1999. The Company presently
believes that with successful system conversions, the year 2000 issue will not
pose significant operational problems for its systems. However, although the
Company's new software is designed to be year 2000 compliant, there can be no
assurance that it contains all necessary data code changes. If the Company does
not complete its planned conversions in a timely fashion, year 2000 could have
a material impact on the operations of the Company.
The Company expects that assessment, remediation and contingency planning
activities for its internal systems will be ongoing through 1999. The Company
currently expects the total cost for these activities to be approximately
$450,000. This total cost estimate does not include replacement of internal
software and hardware in the normal course of business. The costs of the
project and the date established for completion of year 2000 modifications are
based on management's best estimates, which were derived using numerous
assumptions of future events, including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no guarantee that these estimates will be achieved, and actual results could
differ materially from those anticipated. Specific factors that might cause
such material differences include, but are not limited to, the availability and
cost of personnel trained in this area, the ability to locate and correct all
relevant computer codes, potential acquisitions and similar uncertainties.
Certain products that the Company sells may be affected by year 2000 issues.
The Company intends to obtain information from its suppliers regarding their
products' year 2000 compliance. The
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Company does not currently have any information that would lead it to believe
that year 2000 issues relating to its internal systems or to products or
systems sold to customers will have a material adverse impact on the Company's
financial condition or overall trends in results of operations. Since third
party year 2000 compliance is not within the Company's control, and since the
Company has not yet obtained compliance information from its suppliers, there
can be no assurance that the failure by a supplier to achieve year 2000
compliance would not adversely affect the Company. Furthermore, the purchasing
patterns of the Company's clients may be affected by year 2000 issues if these
companies spend significant resources on year 2000 compliance or are adversely
affected by failure to address year 2000 issues in a timely manner. These
expenditures could result in reduced funds available for the Company's
services, which could adversely affect the Company. Although the Company has
not formulated a contingency plan to date, it plans to continue to assess year
2000 risks to determine whether it needs to do so. See "Risk Factors--Year 2000
Issues."
RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive
Income, which establishes standards for reporting and displaying comprehensive
income and its components. The statement is effective for fiscal years
beginning after December 15, 1997 and will be adopted by the Company in 1998.
This statement is not expected to have a material impact on the Company's
disclosures within the consolidated financial statements.
In 1997, the FASB issued SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information, which establishes standards for the way
that public business enterprises are to report information about operating
segments in the annual financial statements and requires those enterprises to
report selected information about operating segments in interim financial
reports issued to shareholders. The statement is effective for periods
beginning after December 15, 1997, and will be adopted by the Company in 1998.
The Company is currently evaluating what impact this pronouncement will have on
the disclosures within the consolidated financial statements.
In 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." The SFAS establishes accounting and reporting
standards requiring that every derivative instrument be recorded in the balance
sheet as either an asset or liability measured at its fair value. The SFAS
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met. Accounting for
qualifying hedges allows a derivative's gains and losses to offset related
results on the hedged item in the income statement, and requires a company to
formally document, designate, and assess the effectiveness of transactions that
receive hedge accounting. The statement is effective for fiscal years beginning
after June 15, 1999 and early adoption is permitted. This statement is not
expected to have a material impact on the Company's results of operations.
In 1998, the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position ("SOP") No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use." The SOP is effective
for fiscal years beginning after December 15, 1998 and earlier adoption is
permitted. The adoption of SOP No. 98-1 is not expected to have a material
impact on the Company's results of operations.
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<PAGE>
BUSINESS
OVERVIEW
Intellisys Group, Inc. designs, installs and services custom integrated
audio, video and data display, conferencing and networking systems. These
systems include state-of-the-art technology that enhances the Company's
clients' ability to present and exchange information. The Company also sells a
wide range of portable multimedia presentation, conferencing and networking
equipment.
The Company believes that, based on revenue, it is one of the largest
companies in the highly fragmented multimedia presentation and communication
services industry. The Company's strategy is to establish a national presence
by growing internally (including opening offices in new geographic markets) and
acquiring complementary businesses. We generated revenue of $41.5 million for
the year ended December 31, 1997, a 36% increase over 1996 revenue of $30.6
million, and revenue of $26.7 million in the first six months of 1998, a 47%
increase over revenue of $18.2 million in the first six months of 1997. We
generated operating income of $1.7 million for the year ended December 31,
1997, a 197% increase over 1996 operating income of $562,000, and operating
income of $925,000 in the first six months of 1998, a 135% increase over
operating income of $394,000 in the first six months of 1997. Since June 1,
1998, we have completed three acquisitions, and we recently entered into non-
binding letters of intent to acquire two additional businesses. See "--Recent
and Potential Acquisitions" and "Pro Forma Consolidated Financial Data."
The Company provides its clients one source for their multimedia presentation
and communication needs by:
. offering sophisticated, "start to finish" design, procurement and
installation services;
. creating innovative integrated systems through a wide range of technical
expertise;
. providing high quality post-installation service and support; and
. maintaining strong relationships with suppliers of market-leading
products.
The Company provides the extensive expertise necessary to design and
integrate presentation, performance, production, conferencing, networking and
portable systems. A presentation system typically includes video/data
projection, soundtrack and speech audio systems, audio and video source
equipment and remote control systems. A performance system may include public
address systems, stadium-size video displays, special audio and video effects,
wide-screen motion picture film systems, animated displays, automated
theatrical operations, and broadcast and closed-circuit television systems. A
production system may include equipment used for analog and digital video
origination, graphics design and post-production and distribution activities. A
conferencing system typically includes cameras, microphones, codec processing
equipment, television monitors, speakers and remote control equipment. A
networking system typically includes cabling that interconnects multiple rooms
or buildings and the switching, bridging and routing equipment that allows
audio and video signals to be directed to the proper location.
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The technologies that drive presentation, conferencing and networking
equipment are converging. As a result, businesses, government agencies and
educational institutions are requesting more sophisticated integrated solutions
for their communication needs. The Company believes that these needs are
currently being met primarily by:
. small, regional firms that provide basic system integration services;
. regional "box houses" (companies that focus on catalog sales of
presentation and communication equipment); and
. ""staging and rental" businesses (companies that primarily provide
staging services for trade shows and other corporate events).
The Company believes that it offers more sophisticated design services
(including feasibility analysis, architectural coordination and technical
engineering) and a larger technically trained workforce than its small,
regional competitors. Additionally, unlike most "box houses" and "staging and
rental" companies, the Company offers its clients a full range of services from
initial consultation to the design, engineering, procurement, fabrication and
installation of custom integrated multimedia communication systems. The Company
also provides post-installation support, repair, maintenance and on-site
staffing and operations. The Company believes that its ability to offer a
comprehensive range of services for state-of-the-art multimedia presentation
and communication systems distinguishes it from its competitors. The Company
has completed approximately 1,000 integrated systems projects since January
1996 for clients such as Netscape, Apple Computer, University of California,
Stanford University, NASA-Ames Research Labs and the U.S. Department of Energy.
INDUSTRY OVERVIEW
Historically, customers of sound systems installation businesses, which
specialized primarily in music and paging systems, also engaged these
businesses to provide multimedia presentation and communication systems. For
the most part, these businesses served a limited geographical area. In the mid-
1980's, as digital imaging, sound processing and control technologies
developed, companies began to offer display devices and videoconferencing and
integrated remote control equipment, in addition to sound systems. Around the
same time, clients began to request more comprehensive services that included
strategic planning, consistent buying power and increased out-sourced services.
To meet these client needs, firms similar to the Company began to employ sales
professionals, engineers and technicians trained in a wide range of multimedia
technologies.
The multimedia presentation and communication services industry includes
firms engaged in the design, installation and maintenance of electronic
systems, which can be combined through networked control devices. Systems
combine optical and video display systems, audio reproduction systems, video
origination, recording and distribution systems, and single and multi-point
remote control systems. Multimedia presentation and communication services
firms provide services and systems to business and industry, education,
government, health services, religious and community agency customers. The
Company believes that the multimedia presentation and communication services
industry is currently highly fragmented, with no clear market leader.
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The Company believes that there is a trend toward consolidation in the
industry as firms move to establish a national presence through the acquisition
of local or regional firms. In addition, non-traditional competitors, offering
more mature and sophisticated products and services (such as
telecommunications, computing and energy management companies), have begun to
add multimedia presentation and communication services and products to their
existing technology products and services.
The convergence of traditional audiovisual presentation media and computer-
based delivery has generated demand for high-technology presentation,
production and performance products and services. The need for faster access to
people and information and the goal of reduced travel have led to increased
demand for high-quality audio and video conferencing systems. Due to increasing
LAN/WAN network capacity, distribution of real-time audio and video media
content through a network to remote sites (e.g., for distance learning and
network-based conferencing) has become more cost-effective and commonplace.
STRATEGY
The Company's goal is to enhance its market position in the multimedia
presentation and communication services industry by continuing to grow
internally and through strategic acquisitions. The Company's strategy to
achieve this goal contains the following key elements:
Serve as a Single Source Provider of Multimedia Communication Solutions. The
Company seeks to become the provider of choice for all of its clients'
multimedia presentation and communication needs. The Company believes that
offering a full spectrum of state-of-the-art multimedia presentation and
communication integrated systems, equipment and support services gives it a
competitive advantage and enables it to attract new clients and expand its
business with existing clients. Although the Company's equipment maintenance,
repair and rental services have not contributed substantially to its revenue to
date, the Company plans to enhance its efforts to market those services in the
future. The Company seeks to capitalize on opportunities to offer new or
expanded services tied to advances in the computer, data communication and
telecommunication industries.
Stimulate Internal Growth. The Company also plans to continue to expand
domestically by opening new offices in targeted geographic markets. The
Company's decisions to open offices in new markets are based on management's
review of demographic information, existing client needs, business growth
projections and the level of competition in the area. The Company recently
opened two additional offices in Southern California and expects to open two
offices in the metropolitan New York City area in 1999.
Make Strategic Acquisitions. The Company believes that the multimedia
presentation and communication services industry is highly fragmented and
consists primarily of small companies that operate within limited geographical
areas. The Company believes that its industry offers substantial consolidation
opportunities. The Company has acquired three businesses since June 1, 1998 and
recently entered into non-binding letters of intent to acquire two additional
businesses. The Company seeks to acquire selected businesses in targeted
geographic markets and to expand the operations of acquired companies through
internal growth. The Company believes that its acquisitions to date have
allowed it to:
. add new clients;
. further develop its relationships with existing clients;
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. offer new services and capabilities; and
. acquire experienced personnel.
See "--Recent and Potential Acquisitions."
Develop and Maintain Strong Supplier Relationships. The Company currently has
distribution relationships with over 300 suppliers, including leading
communications technology, digital media hardware and software manufacturers
such as InFocus, NEC, Sony and PictureTel. The Company believes that its strong
relationships with suppliers have enabled the Company to attract and retain
clients by allowing it to offer a large selection of cutting-edge
communications equipment. The Company believes that it is able to negotiate
attractive pricing and volume discounts from suppliers because of its size and
position in the industry. The Company intends to continue to develop
relationships and obtain exclusive distribution agreements with companies that
are developing new technologies in order to ensure that its clients have access
to the latest technology at favorable prices.
Focus on Staff Professional Development. The Company seeks to employ highly
qualified and trained sales and technical personnel in order to provide
superior service to its clients. The Company's sales staff regularly attends
manufacturer and industry sponsored training to obtain manufacturer
certification and expertise in the features and benefits of the components and
systems the Company sells and installs. The Company's engineering, project
management and installation technicians participate (both as instructors and
students) in manufacturer and industry certification programs for high-level
technical training in system design, installation procedures, and component
applications, service and maintenance. The Company's personnel also attend
internally developed training programs for design and engineering, sales skills
and presentation and proposal writing.
RECENT AND POTENTIAL ACQUISITIONS
The Company has acquired three businesses since June 1998 and recently
entered into non-binding letters of intent to acquire two additional
businesses. The Company intends to continue to participate in the consolidation
of the multimedia presentation and communication industry as opportunities
arise.
Recent Acquisitions. In June 1998, the Company acquired all of the
outstanding capital stock of B. Higginbotham Enterprises, Inc. Higginbotham is
an integrated systems business with five offices located in Houston, Dallas,
Irving, El Paso and Fort Worth, Texas. The Higginbotham acquisition enabled the
Company to expand its business into the Texas integrated systems market.
The Company also acquired Alford Media Sales, Inc., an integrated audiovisual
systems business located in Dallas, Texas, in June 1998. The Alford acquisition
has enabled the Company to enhance its technical and service capabilities.
In August 1998, the Company acquired substantially all of the assets of
Digital Networks Corporation, a computer networking equipment and systems
business. Pursuant to the acquisition agreement, the Company assumed management
of Digital's operations effective June 1, 1998. The Digital acquisition has
enabled the Company to expand its services to include computer networking
systems and sales.
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Potential Acquisitions. On August 23, 1998, the Company entered into a non-
binding letter of intent with Aurora Visual Systems with respect to the
Company's acquisition of substantially all of Aurora's assets. Aurora is a
portable systems business with locations in Seattle, Washington and Boise,
Idaho.
On October 5, 1998, the Company entered into a non-binding letter of intent
to acquire all of the outstanding capital stock of Proline Industries, Inc.
Proline is a leading systems integration business with five locations in
Washington, Oregon and Northern California.
Each of the Potential Acquisitions is subject to a number of contingencies,
including the execution of definitive purchase agreements, approval of the
Company's Board of Directors and completion of the sale of preferred stock to
finance the Potential Acquisitions. There can be no assurance that the Company
will be able to consummate these acquisitions on terms favorable to the
Company, or at all.
INTEGRATED SYSTEMS, PORTABLE EQUIPMENT AND SUPPORT SERVICES
The Company provides its clients a single source for their multimedia
presentation and communication needs, from consultation through design,
engineering, procurement, installation, service and operations. The Company has
organized its design, engineering, sales, service and support professionals
into project teams to provide targeted expertise, application-specific
solutions and interdisciplinary experience in the key areas of integrated
systems, portable equipment and support services.
Integrated Systems. The Company creates state-of-the-art presentation,
performance, production, conferencing and networked media systems integrated
into architectural environments, as well as portable systems, for business,
education and government clients. The Company works with developers,
contractors, facilities managers, architects, engineers and interior designers
as strategic partners in its clients' project teams.
A typical integrated systems project begins with a consultation with the
Company's sales department. The Company assigns an account manager to the
client, who then meets with the client to determine the client's presentation
and communications needs, analyzes the physical space in which the system is to
be installed, and develops the initial system recommendations. The Company's
account manager works with the integrated systems group's designers, engineers
and project managers to produce a detailed set of plans and schematic layout of
the system. The account manager reviews the layout with the client and works
with the Company's procurement specialists to identify and purchase from major
manufacturers state-of-the-art audio, video, presentation or remote control
technology. The Company's engineering staff works directly with manufacturers
when the system requires a custom product or application. Finally, the
Company's project manager oversees the installation of the integrated system at
the client's site and trains the client to use the system. In most cases, the
client and the Company enter into a post-installation service and support
contract that covers system maintenance and repair.
Presentation. The Company designs, engineers and integrates systems for
small or large group presentation of graphics, video and other data that allow
participants to access and exchange information in an interactive setting.
These systems include large screen display, speech reinforcement,
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soundtrack/stereo playback and remote control operations of room environment
and audiovisual equipment. The Company's clients use these systems for
meetings, training and education, and sales and marketing presentations in
single or multiple locations. The Company designs systems for board rooms,
auditoriums, conference centers, customer briefing and demonstration centers,
classrooms, council chambers, public assembly areas and command and control
centers. For example, in an advanced distance learning application the Company
may create a classroom "studio" that includes audio equipment and cameras that
follow instructors and students, as well as videoconferencing equipment that
enables students in remote locations to participate in classroom activities.
Performance. The Company designs, engineers and integrates audio and video
systems for theatrical, performing arts, sports and entertainment venues. These
systems include public address systems, stadium-size video displays, special
audio and video effects, wide-screen motion picture film systems, animated
displays, automated theatrical operations, and broadcast and closed-circuit
television systems. The Company's performance projects have included museums,
themed urban entertainment centers, virtual reality experiences, children's
interactive playspaces, 3-D theaters and high-end retail display for clients
such as Sony and Disney.
Production. The Company supplies and integrates analog and digital video
origination, graphics design, post-production and distribution equipment and
systems for independent video producers, post-production companies and internal
corporate, government and educational communications departments. Novice or
professional video producers can take their projects from start to finish on a
single integrated system designed and implemented by the Company, whether these
projects involve videotape, CD-ROM, digital video disk (DVD), intranet or
internet applications. The Company believes that the gradual replacement of
conventional analog components with digital on-line broadcast-quality equipment
and non-linear editing systems will continue to create opportunities to
integrate systems with sequencing flexibility for efficient media delivery.
Conferencing Systems. The Company develops conferencing systems that allow
multi-site, real-time interactive exchange of audio, video, document and
computer information. These systems range from simple desktop systems to
integrated conference room systems for meetings to complex business television
and distance learning applications. The Company's conferencing systems include
telephone, audio/graphic, H.320 video, computer data, integrated switched
digital network, H.323 local area network/wide area network or
internet/intranet capabilities. The Company develops conferencing technology
solutions for document and data sharing, business negotiations, planning and
design collaborations, strategic planning meetings, and marketing and sales
presentations.
Networked Media Systems. The Company develops integrated media access and
retrieval systems for electronic delivery of audio and video information across
multi-site television and data networks. The Company's account managers and
engineers work with the client's information technology staff to develop
appropriate fiberoptic or traditional cabling plans for the transmission of
audio, video and digital information. The Company designs, engineers and
installs integrated local area and wide area networks with accompanying
bridging, routing, multiplexing and switching hardware. Media access and
retrieval systems include a media library in which all of the client's
equipment and educational content (whether in video or electronic format) is
located at a central "hub." Instructors or presenters at various sites can
review a catalog of programs in the media library and select programs to
present at their locations at a particular day and time.
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Portable Systems. The Company's portable systems team provides consulting
and procurement services with respect to small-format computer and video
presentation technology, including flat screen plasma displays, digital
projection systems, liquid crystal display monitors, panels and projectors,
videocassette recorders, speakerphones, carts and cables. The most common
portable systems sold by the Company are compact projecting systems that enable
presenters to make PowerPoint(TM) or other presentations in the office or on
the road directly from a laptop computer.
In addition to custom integrated systems, the Company offers several
predesigned, prepackaged systems that can be delivered and installed quickly,
more efficiently and at favorable prices. These systems include display, audio
and control technologies, as well as audio and video conferencing capabilities.
Portable Equipment. The Company distributes a full-line catalog from which
clients may purchase individual components. The Company's telemarketing staff
helps clients select the equipment that meets their pricing and performance
requirements.
Support Services. The Company provides on-site and off-site maintenance,
repair and support services for integrated and portable display, audio, video,
control and network systems installed by the Company or others. Services
include full system diagnosis, system adjustment, component level electronic
repair and the provision of interim replacement equipment. All of the Company's
systems include a one-year warranty that covers basic system design. A number
of the Company's clients also elect to enter into extended service contracts
with terms from one to three years under which the Company's Service Center
staff provides manufacturer trained and certified maintenance and service. The
Company also provides full-time on-site support personnel who provide training
and orientation and presentation assistance including set-up and operation for
clients such as 3Com, Netscape and Cisco. The Company's support services group
also provides planning, trained technicians and state-of-the-art rental
equipment for short-term presentation needs. Although the Company's equipment
maintenance, repair and rental services have not contributed substantially to
its revenues to date, the Company plans to enhance its efforts to market those
services in the future.
RELATIONSHIPS WITH SUPPLIERS
The Company believes that its strong relationships with suppliers have
enabled it to attract and retain clients by allowing it to offer a large
selection of cutting-edge and unique communications equipment. The Company has
distribution relationships with leading communications technology, digital
media hardware and software manufacturers, including:
AMX Electrohome PictureTel
Barco Extron Proxima
Bose InFocus Sony
Crestron NEC 3M
The Company maintains regional exclusive distribution agreements with certain
original equipment manufacturers. The Company is authorized to provide federal
government discounted pricing for Sony, Canon, Kodak, NEC, Panasonic and
PictureTel products, among others, for federal agency clients. Similarly, the
Company provides California, Arizona, Colorado and Texas
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government discounted pricing for state agencies and educational institutions.
The Company's strategy is to continue to develop relationships with firms
developing new technologies to ensure that its clients have access to the
latest in communication technology at favorable prices. Approximately 15.6% of
the Company's revenue in 1997 and approximately 13.3% of the Company's revenue
in the six months ended June 30, 1998 were derived from the sale of products
supplied by InFocus, a leading manufacturer of portable presentation equipment.
However, the Company currently purchases and sells products from over 300
suppliers, including a number of other portable presentation equipment
suppliers.
CLIENTS
The Company's business clients include technology, financial services,
telecommunications, consumer goods, manufacturing, energy, utilities, media and
publishing companies. The Company's educational clients include public and
private primary and secondary schools, colleges and universities. The Company
also develops and implements communications solutions for city, state and
federal government agencies, including public assembly, council chambers,
museum and operations control applications.
The Company targets clients that are building new or renovating existing
facilities that will include production, presentation or performance spaces in
business, education and government. Management estimates that the Company
currently has approximately 2,000 clients, ranging from Fortune 500 companies
to sole proprietorships. Each year, a substantial portion of the Company's
revenue is derived from sales to a relatively small number of clients. During
1997 and the first six months of 1998, approximately 19% of the Company's
revenue for each period resulted from sales to our top 10 clients. The
identities of the Company's top clients change from period to period as we
complete our contracts with them. If the Company fails to replace the completed
contracts with new contracts of similar size, the Company's revenue and profits
may be adversely affected.
The Company has completed approximately 1,000 integrated systems projects
since January 1996 for clients such as Netscape, Apple Computer, Cisco Systems,
3Com, Sun Microsystems, Silicon Graphics, Hewlett Packard, Compaq, Oracle,
Andersen Consulting, Fluor Daniel, Nike, Chevron, Franklin Resources, Pacific
Bell, Stanford University, University of California, University of Texas, NASA-
Ames Research Labs and the U.S. Department of Energy.
The Company believes that its clients decide to purchase products and
services from the Company based on a variety of factors, the most important of
which is the Company's ability to provide a full range of consulting, design,
engineering, procurement, installation and support services. The Company's
clients also engage the Company because of its ability to offer a wide array of
state-of-the-art, market-leading products in all communications media.
MARKETING AND SALES
Marketing. The Company uses a combination of direct mail, catalog, web
presence, in-house product seminars and demonstrations and participation in
industry trade show events (such as INFOCOMM SM) to raise client awareness of
the Company's products and services. The Company also advertises in the
regional business newspapers and publishes articles in industry publications
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such as Systems Contractor News, Sound & Video Contractor, Sound &
Communication and the Communications Industries Report. The Company has
provided presentations and training for professional associations such as the
American Institute of Architects, the International Interior Design
Association, the Society for Marketing Professional Services, the International
Communications Industries Association and the National Systems Contractors
Association.
Sales Force. The Company's sales force consists of an Executive Vice
President supported by Regional Sales Vice Presidents, Regional Sales Managers,
territory-based Account Managers and local Telemarketers. The Company's sales
force cultivates relationships with client staff in operations, facilities
planning, purchasing and information technology. The sales force also builds
relationships with developers, contractors, facilities managers, purchasing
agents, MIS managers, architects, engineers and interior designers. The
Company's sales force works with clients which have multiple locations to
develop communication standards for multimedia communication facilities and
systems.
Training. The Company encourages and pays for its employees to participate in
self-paced, on-line industry training programs in the areas of sales, design
and installation. The Company is committed to having its entire sales,
operations and technical staff certified by the International Communications
Industries Association certification program. In addition, the Company works
with its suppliers to provide product-specific training and certification for
Company employees, both in the Company's offices and at the manufacturer's
locations. The Company has formulated a standard implementation program to
guide its employees through each integrated systems project. This program
includes needs assessment, conceptual design, infrastructure planning,
system/network design and implementation management. The Company believes that
this program enables its account managers and engineering staff to develop
comprehensive, cost-effective integrated systems for its clients.
COMPETITION
No firm data exists on the size of the multimedia presentation and
communication services industry and the number and size of competitors within
the industry. However, the Company's management believes, based on its
experience in the industry, that the multimedia presentation and communication
services industry is highly competitive and highly fragmented. Although the
Company competes primarily with small, regional firms that offer more limited
services, some participants in the industry have national, full service
businesses and greater capabilities and financial resources. In addition, non-
traditional competitors who offer more mature and sophisticated products and
services (such as telecommunications, computing and energy management
companies) have begun to add multimedia presentation and communication services
and products to their existing technology products and services. The Company's
primary competitors are:
. audiovisual equipment dealers;
. companies that rent and sell audiovisual equipment, primarily in
connection with staging services for trade shows and other corporate
events;
. independent design consulting firms;
. electrical contractors;
. manufacturers' sales and service divisions;
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. office superstores and consumer electronics chains; and
. the in-house communications staffs of many clients and potential clients.
Although the Company believes that most participants in the multimedia
presentation and communication services industry compete generally on the basis
of bid pricing, the Company promotes its ability to provide value-added
engineering and design services.
The Company believes that the multimedia presentation and communication
services industry will become more consolidated in the future and, as a result,
may become more competitive. The Company could be materially adversely affected
if its competitors expand their integrated systems businesses, if new
competitors with greater resources enter the industry or if the Company's
clients or potential clients choose to service their multimedia presentation
and communication needs internally.
EMPLOYEES
As of October 1, 1998, the Company had 325 full-time and 45 part-time and
temporary employees, including 71 in sales and marketing, 174 in engineering
and technical services, and 80 in corporate administration. The Company
believes that its employee relations are satisfactory and has never experienced
a work stoppage.
PROPERTIES
The Company's sales and operations, administration and executive offices and
warehouse facilities are located in 15 leased facilities with an aggregate of
approximately 89,800 square feet in the following locations:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE
LOCATION TYPE OF FACILITY FOOTAGE
----------- ------------------------------------------------------ -----------
<S> <C> <C>
Dallas, Texas Service Center 6,100
El Paso, Texas Sales and Operations Office 2,000
El Segundo, California Sales and Operations Office 4,100
Englewood, Colorado Sales and Operations Office 6,000
Fort Worth, Texas Sales and Operations Office 5,000
Houston, Texas Sales and Operations Office 4,200
Irvine, California Sales and Operations Office and Service Center 6,200
Irvine, California Sales and Operations,
Administration and Warehouse 7,700
Irving, Texas Sales and Operations, Administration and Warehouse 11,000
Mountain View, California Executive Offices, Sales and
Operations, and Warehouse 15,500
Mountain View, California Service Center 2,700
Sacramento, California Sales and Operations Office and
Service Center 12,600
San Diego, California Sales and Operations Office 200
San Francisco, California Sales and Operations Office 2,600
Arizona Tempe, Sales and Operations Office 3,900
</TABLE>
The Company leases its office and warehouse facilities under operating leases
that expire on various dates through 2003. Certain of these leases include
renewal options. The Company's aggregate rental expense for the year ended
December 31, 1997 was approximately $352,000. If the Company completes the
Aurora and Proline acquisitions, the Company will add seven facilities in
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<PAGE>
California, Oregon, Idaho and Washington; the Company anticipates that certain
of these facilities will be consolidated with the Company's existing offices
following the acquisitions. The Company believes that it will need to expand
its corporate headquarters facility to accommodate reasonably expected growth
and that its other facilities are adequate to meet its current needs. The
Company believes that it will be able to obtain suitable additional or
alternative space, as needed, on commercially reasonable terms.
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings other than various claims
and lawsuits arising in the ordinary course of its business. Although the
ultimate legal and financial liability of the Company with respect to these
pending legal proceedings cannot be estimated with certainty, the Company
believes that such ultimate liability will not have a material adverse effect
on its business or financial condition.
45
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Executive officers and directors of the Company, and their ages as of October
1, 1998, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITIONS
---- --- ---------
<S> <C> <C>
Donald J. Esters......... 59 Chairman, President and Chief Financial Officer
Michael Dennis........... 39 Executive Vice President, Sales & Marketing
Dennis Kushner........... 53 Vice President, Operations and Secretary
Mark Madison............. 41 Vice President, Engineering
Craig Park............... 49 Vice President, Integrated Systems
Daniel M. Caserza........ 46 Corporate Controller
Frank Perna.............. 60 Director
John Bohle............... 55 Director
</TABLE>
Donald J. Esters has been the Chairman, President and Chief Financial Officer
of EIS since 1994 and of the Company since inception. Mr. Esters was Chief
Operating Officer of Harman International from 1983 to 1993. Mr. Esters
received a B.B.A. from St. Francis College and is a certified public
accountant. Mr. Esters is Chairman of the Board of Directors of Durand
Communications, Inc., a developer and marketer of services and products for
creation of online corporate headquarters, shopping malls and other "virtual
organizations." Durand Communications is a privately held company. In addition,
Mr. Esters is Chairman and sole shareholder of The Dupuis Group, L.L.C., a
graphic design firm.
Michael Dennis has been Executive Vice President of Educational since March
1998 and of the Company since inception, Vice President of Sales of Educational
from 1994 to March 1998, and Sales Manager for Educational from 1987 to 1994.
Mr. Dennis received a B.S. in Visual Communication and Instructional Media from
California State University, Chico.
Dennis Kushner has been Vice President, Operations of Educational since
January 1998 and of the Company since inception, Mr. Kushner has also been
Secretary of the Company since October 1998. From February 1997 through January
1998, Mr. Kushner provided management consulting services for small, medium and
large companies, specializing in finance and operations. Mr. Kushner was Vice
President-General Manager, Vice President of Sales & Marketing and Vice
President of Operations for Harvey Universal, a manufacturer of industrial and
consumer cleaners and biotechnology products, from November 1993 through 1997.
Mr. Kushner received a B.S. in Accounting and Finance and an M.P.A. in
Management and Systems from the University of Southern California.
Mark Madison has been Vice President, Engineering of Educational since 1986
and of the Company since inception. Mr. Madison managed Chevron Corporation's
nationwide audiovisual communication groups for seven years before joining the
Company. Mr. Madison has been involved in the audiovisual communication
industry for over 21 years and has completed numerous training courses,
including Syn-Aud-Con, TEF and ICIA.
Craig Park has been Vice President, Integrated Systems of Educational since
August 1996 and of the Company since inception. From 1986 to 1996, Mr. Park was
a Principal and Director of
46
<PAGE>
Audiovisual Services at Paoletti Associates, an acoustical and audiovisual
consulting firm. Mr. Park received a B.S. in Architecture from California State
Polytechnic University. Mr. Park has served in design, marketing and management
roles in the multimedia presentation and communication industry since 1971.
Daniel M. Caserza has been Corporate Controller of Educational since March
1998 and of the Company since inception. From June 1997 to February 1998, Mr.
Caserza was Corporate Controller for Swan Magnetics, Inc., a developer of disk
drive equipment. From June 1995 to June 1997, Mr. Caserza was Corporate
Controller for Edify Corporation, an internet software company. From January
1992 to May 1995, Mr. Caserza served as Controller and Chief Financial Officer
for Gas Tech, Inc., a manufacturer of gas detection instruments. Previously,
Mr. Caserza spent eleven years with Hewlett Packard Company in a variety of
financial positions. Mr. Caserza received a B.S. in Mathematics and an M.B.A.
from Santa Clara University. Mr. Caserza is a certified public accountant.
Frank Perna has been a Director of EIS since October 1994 and of the Company
since inception. Mr. Perna has been the Chairman and Chief Executive Officer of
EOS Corporation, a privately held manufacturer of uninterruptible power
supplies, since 1994. Mr. Perna served as the Chief Executive Officer of
MagneTek from 1990 to 1994 and as President and Director of MagneTek from 1985
to 1990. Mr. Perna is an executive officer of National Financial Associates,
which will hold 4.6% of the Company's common stock after the closing of the
offering. Mr. Perna received a B.S. in Mechanical Engineering from General
Motors Institute, a masters degree in management from the Massachusetts
Institute of Technology and a masters degree in electrical engineering from
Wayne State University.
John Bohle has been a Director of EIS since 1994 and the Company since
inception. Mr. Bohle has been a partner of Ray & Berndston, an executive search
firm, since 1976. Mr. Bohle received a B.S. in Mechanical Engineering from the
University of California, Berkeley.
BOARD OF DIRECTORS
The Company's Board of Directors is divided into three classes with terms
expiring at the Company's annual meetings of stockholders in 1999, 2000 and
2001. The Class I Director, Mr. Bohle, holds office currently for a term
expiring at the annual meeting of stockholders in 1999. The Class II Director,
Mr. Perna, holds office currently for a term expiring at the annual meeting of
stockholders in 2000. The Class III Director, Mr. Esters, holds office
currently for a term expiring at the annual meeting of stockholders in 2001.
The members of each class hold office until their successors are duly elected
and qualified. At each annual meeting of the stockholders of the Company, the
successors to the class of Directors whose term expires at the meeting will be
elected to hold office for a term expiring at the annual meeting of
stockholders held in the third year following the year of their election.
Before completion of this offering, the Company intends to increase its
authorized number of directors from three to five and appoint two additional
Directors, one of whom, upon completion of the expected private placement of
preferred stock, will be appointed by the holder of the preferred stock.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors intends to establish an Audit Committee and a
Compensation Committee before the closing of this offering.
47
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Historically, the Company has not had a compensation committee or other
committee of the Board of Directors performing a similar function. Accordingly,
decisions concerning compensation of executive officers have been made by the
entire Board. The Board of Directors intends to establish a Compensation
Committee before the closing of this offering.
DIRECTOR COMPENSATION
The Company has not historically compensated members of its Board of
Directors for serving as directors. The Company expects that, after this
offering, it will pay its non-employee directors in a manner and at a level
consistent with industry practice.
In particular, the Company will grant non-employee directors non-qualified
stock options under the Company's 1998 Equity Participation Plan. Pursuant to
the terms of the 1998 Equity Participation Plan, the Company will grant to each
person who is a non-employee director as of the date of this offering a non-
qualified stock option to purchase 3,000 shares of common stock. After this
offering is completed, the Company will grant to each non-employee director a
non-qualified stock option to purchase 1,000 shares of common stock on the date
of each annual meeting of stockholders. The Company will grant to each non-
employee director, upon his or her initial appointment to the Board of
Directors, a stock option to purchase 3,000 shares of common stock pursuant to
the 1998 Equity Participation Plan. The price per share for shares subject to
these options will be equal to the fair market value per share of common stock
on the date the option is granted. Each option will have a 10-year term.
Options granted to non-employee directors will become exercisable in cumulative
annual installments of 25% over a four-year period, except that any option
granted to a non-employee director may by its terms become immediately
exercisable in full upon the retirement of the non-employee director in
accordance with Company policy.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation of the
Chairman, President and Chief Financial Officer of the Company and the other
highly compensated executive officers of the Company whose salary and incentive
compensation exceeded $100,000 for the year ended December 31, 1997 (the "Named
Executive Officers"). Dennis Kushner replaced Frank DiGirolamo as Vice
President, Operations in January 1998.
<TABLE>
<CAPTION>
ANNUAL LONG-TERM
COMPENSATION COMPENSATION
---------------- ------------
SHARES
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION SALARY BONUS OPTIONS COMPENSATION(1)
------------------ -------- ------- ------------ ---------------
<S> <C> <C> <C> <C>
Donald J. Esters, Chairman,
President and Chief Financial
Officer........................ $150,000 $55,000 -- $3,393
Michael Dennis, Executive Vice
President...................... 215,000 55,000 20,233 5,500
Frank DiGirolamo, Vice
President, Operations.......... 156,650 30,000 -- --
Mark Madison, Vice President,
Engineering.................... 95,000 25,840 -- 500
Craig Park, Vice President,
Integrated Systems............. 158,535 13,500 -- 2,905
</TABLE>
- --------
(1) All Other Compensation includes 401(k) plan matching contributions made by
the Company, life insurance premiums paid by the Company and parking
allowance.
48
<PAGE>
OPTION GRANTS AND EXERCISES
The following table provides specific information concerning grants of
options to purchase the Company's common stock made during the year ended
December 31, 1997 to the Named Executive Officers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES
% OF TOTAL OF STOCK PRICE
OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OR OPTION TERM(2)
GRANTED EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME (1)(#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
---- ------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael Dennis.......... 20,233 45.5% $1.48 5/18/07 $ 18,867 $ 47,812
</TABLE>
- --------
(1) The options granted to Mr. Dennis vest one-fifth on the first anniversary
of the date of grant and one-fifth per year thereafter. The options are
exercisable only to the extent vested.
(2) Potential gains are net of exercise price, but before taxes associated with
exercise. These amounts represent certain assumed rates of appreciation
only, based on the Securities and Exchange Commission rules. Actual gains,
if any, on stock option exercises are dependent on the future performance
of the common stock, overall market conditions and the option-holder's
continued employment through the vesting period. The amounts reflected in
this table may not necessarily be achieved.
The following table provides information concerning exercises of options to
purchase the Company's common stock in the year ended December 31, 1997 and
unexercised options held as of December 31, 1997 by the Named Executive
Officers. No Named Executive Officer exercised options during the year ended
December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED OPTIONS HELD AT VALUE OF UNEXERCISED IN-THE-MONEY
DECEMBER 31, 1997 OPTIONS AT DECEMBER 31, 1997(2)
------------------------------------- ----------------------------------
NAME EXERCISABLE(#)(1) UNEXERCISABLE(#)(1) EXERCISABLE($) UNEXERCISABLE($)(1)
- ---- ----------------- ------------------- -------------- -------------------
<S> <C> <C> <C> <C>
Michael Dennis.......... 146,485 36,419 $358,965 $28,000
Mark Madison............ 71,219 -- 175,982 --
Craig Park.............. 4,047 16,186 7,000 28,000
</TABLE>
- --------
(1) 60,698 of the options set forth above vest one-fifth on the first
anniversary of the date of grant and one-fifth per year thereafter. 142,439
of Mr. Dennis' options and all of Mr. Madison's options set forth above
were granted in connection with the 1994 acquisition of the Company's
predecessor and vested immediately upon grant. Options are exercisable only
to the extent vested.
(2) The value of the unexercised in-the-money options is based on fair market
value at December 31, 1997 as determined by the Company's Board of
Directors and is net of the exercise price of such options.
401(K) PROFIT SHARING PLAN
The Company maintains a savings plan (the "401(k) Plan") qualified under
Section 401(a) and 401(k) of the Internal Revenue Code. Generally, all
employees of the Company who are at least 21 years of age and who have
completed 90 days of service are eligible to participate in the 401(k) Plan.
The Company makes matching contributions equal to 30% of a participant's salary
reductions, provided that the matching contributions made on behalf of
participant shall not exceed $500 for any plan year. The Company does not make
any discretionary profit sharing contributions under the 401(k) Plan.
49
<PAGE>
In connection with the Digital Networks Corporation acquisition, the Company
assumed a savings plan (the "Digital 401(k) Plan") qualified under Section
401(a) and 401(k) of the Internal Revenue Code. The Digital 401(k) Plan
generally provides that employees who are at least 19 years of age and who have
completed 90 days of services are eligible to participate in the plan. Matching
contributions are made at a percentage of a participant's salary reductions up
to 100% for any plan year. The Digital 401(k) Plan allows discretionary profit
sharing contributions on behalf of a participant based upon a pay formula that
equals the total amount of discretionary contributions multiplied by the ratio
of a participant's annual pay to the total annual pay to all participants.
1998 EQUITY PARTICIPATION PLAN
The 1998 Equity Participation Plan of Intellisys Group, Inc. provides for the
grant to executive officers, other key employees, consultants and non-employee
directors of the Company of stock options, restricted stock, stock appreciation
rights, deferred stock, dividend equivalents, performance awards, stock
payments and other stock related benefits (collectively, the "Awards"). An
aggregate of 750,000 shares of common stock (or the equivalent in other equity
securities) may be issued under the 1998 Equity Participation Plan. The maximum
number of shares which may be subject to Awards granted under the 1998 Equity
Participation Plan to any individual in any year cannot exceed 200,000. Before
the closing of this offering, the Company plans to grant non-qualified stock
options to purchase an aggregate of shares of common stock to certain
employees of the Company.
Administration. Following the offering, the Compensation Committee of the
Board (the "Committee") will administer the 1998 Equity Participation Plan with
respect to grants to employees or consultants of the Company, and the full
Board will administer the 1998 Equity Participation Plan with respect to non-
qualified stock options granted to non-employee directors. Subject to the terms
and conditions of the 1998 Equity Participation Plan, the Board or Committee
has the authority to select the persons to whom Awards are to be made, to
determine the number of shares to be subject thereto and the terms and
conditions thereof, and to make all other determinations and to take all other
actions necessary or advisable for the administration of the 1998 Equity
Participation Plan.
Nonqualified Stock Options ("NQSOs") provide for the right to purchase common
stock at a specified price which, except with respect to NQSOs intended to
qualify as performance-based compensation under Section 162(m) of the Code, may
be less than fair market value on the date of grant (but not less than par
value), and usually will become exercisable in installments after the grant
date. NQSOs may be granted for any term specified by the Committee.
Incentive Stock Options ("ISOs"), are designed to comply with the provisions
of the Code and are subject to certain requirements contained in the Code,
including exercise prices equal to or exceeding the fair market value of the
common stock on the grant date and expiration ten years after the grant date.
ISOs may be subsequently modified to disqualify them from treatment as ISOs.
Restricted Stock may be sold to participants at various prices (but not below
par value) and made subject to such restrictions as may be determined by the
Committee. Typically, restricted stock may be repurchased by the Company at the
original purchase price if the conditions or restrictions
50
<PAGE>
are not met. In general, restricted stock may not be sold, or otherwise
transferred or hypothecated, until restrictions are removed or expire.
Purchasers of restricted stock, unlike recipients of options, will have voting
rights and will receive dividends before the time when the restrictions lapse.
Deferred Stock may be awarded to participants, typically without payment of
consideration, but subject to vesting conditions based on continued employment
or on performance criteria established by the Committee. Like restricted stock,
deferred stock may not be sold, or otherwise transferred or hypothecated, until
vesting conditions are removed or expire. Unlike restricted stock, deferred
stock will not be issued until the deferred stock award has vested, and
recipients of deferred stock generally will have no voting or dividend rights
before the time when vesting conditions are satisfied.
Stock Appreciation Rights ("SARs") may be granted in connection with stock
options or other Awards, or separately. SARs granted by the Committee in
connection with stock options or other Awards typically will provide for
payments to the holder based upon increases in the price of the Company's
common stock over the exercise price of the related option or other Awards, but
alternatively may be based upon criteria such as book value. Except as required
by Section 162(m) of the Code with respect to an SAR which is intended to
qualify as performance-based compensation, the Equity Plan does not place any
restrictions on the exercise of SARs or the amount of gain realizable
therefrom, although restrictions may be imposed by the Committee. The Committee
may elect to pay SARs in cash or in common stock or in a combination of both.
Dividend Equivalents represent the value of the dividends per share paid by
the Company, calculated with reference to the number of shares covered by the
stock options, SARs or other Awards held by the participant.
Performance Awards may be granted by the Committee on an individual or group
basis. Generally, these Awards will be based upon specific performance targets
and may be paid in cash or in common stock or in a combination of both.
Performance Awards may include "phantom" stock awards that provide for payments
based upon increases in the price of the Company's common stock over a
predetermined period. Performance Awards may also include bonuses which may be
granted by the Committee on an individual or group basis and which may be
payable in cash or in common stock or in a combination of both.
Stock Payments may be authorized by the Committee in the form of shares of
common stock or an option or other right to purchase common stock as part of a
deferred compensation arrangement in lieu of all or any part of compensation,
including bonuses, that would otherwise be payable in cash to the key employee
or consultant.
STOCK OPTION AGREEMENTS
Pursuant to written stock option agreements, the Company has issued options
to purchase an aggregate of 409,916 shares of Common Stock to certain executive
officers of the Company, at exercise prices equal to fair market value at the
date of the grant, as determined by the Board of Directors. Options to purchase
213,658 shares granted to certain executive officers of the Company in
connection with the 1994 acquisition of the Company's predecessor vested
immediately upon grant. The remaining options have 10-year terms and vest in
equal annual installments over the five-year period following the date of the
grant. None of these options has been exercised.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of October 1, 1998
regarding the beneficial ownership of the Company's common stock by (i) each
person known to the Board of Directors to own beneficially 5% or more of the
Company's common stock; (ii) each director of the Company; (iii) the Named
Executive Officers; and (iv) all directors and executive officers of the
Company as a group. Information with respect to beneficial ownership has been
furnished by each director, officer or 5% or more stockholder, as the case may
be. The address for all executive officers and directors is c/o Intellisys
Group, Inc., 140 East Dana Street, Mountain View, California 94041.
<TABLE>
<CAPTION>
PERCENT OWNERSHIP
SHARES ----------------------
BENEFICIALLY BEFORE THE AFTER THE
NAME OWNED(1) OFFERING OFFERING(2)
- ---- ------------ ---------- -----------
<S> <C> <C> <C>
Esters Family Partnership................. 1,618,620 40.5% 26.3%
National Financial Associates(3).......... 284,877 7.1 4.6
Continental Far East(4)................... 284,877 7.1 4.6
Advanced Communications Equipment(5)...... 284,877 7.1 4.6
Donald J. Esters(6)....................... 2,408,507 60.3 39.1
John Bohle................................ 142,439 3.6 2.3
Frank Perna(3)............................ 284,877 7.1 4.6
Michael Dennis(7)......................... 154,578 3.7 2.4
Frank DiGirolamo(8)....................... 8,093 * *
Mark Madison(7)........................... 71,219 1.8 1.1
Craig Park(7)............................. 8,093 * *
All directors and executive officers as a
group (8 persons)(9)..................... 3,069,713 72.6 48.0
</TABLE>
- --------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, which generally attribute beneficial
ownership of securities to persons who possess sole or shared voting power
or investment power with respect to those securities and includes shares of
common stock issuable pursuant to the exercise of stock options or warrants
that are immediately exercisable or exercisable within 60 days. Unless
otherwise indicated, the persons or entities identified in this table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Gives effect to the issuance of a total of 2,000,000 shares sold in the
offering. Also includes 43,078 shares of common stock expected to be issued
in connection with the Company's proposed acquisition of Proline
Industries, Inc.; 72,619 shares of common stock to be issued immediately
following the offering upon automatic conversion of subordinated
convertible promissory notes in connection with the Digital Networks
Corporation acquisition and 50,000 shares of common stock to be issued
immediately following this offering upon automatic conversion of a
convertible promissory note expected to be issued in connection with the
proposed acquisition of Aurora Visual Systems.
(3) The 284,877 shares owned by National Financial Associates may be deemed to
be beneficially owned by Mr. Perna, who is an executive officer of National
Financial Associates. The address for National Financial Associates is
28802 Malibu Cove Colony Dr., Malibu, CA 90265.
(4) The address for Continental Far East is Henoki Bldg. 3F, 1-5 Azabudai 3
Chome, Minato-Ku, Tokyo 106, Japan.
(5) The address for Advanced Communications Equipment is 5/F Prosperity Center,
Kwai Chung N.T., Hong Kong.
(6) Includes the 1,618,620 shares designated as beneficially owned by Esters
Family Partnership that may also be deemed to be beneficially owned by Mr.
Esters as a partner of the Esters Family Partnership. The address for the
Esters Family Partnership is 1420 Kingsboro Court, Westlake Village, CA
91362.
(7) All of the listed shares are subject to options which are currently
exercisable or will become exercisable within 60 days of the date of this
prospectus.
(8) The address for Mr. DiGirolamo is 550 Battery Street, #1904, San Francisco,
CA 94111.
(9) Includes an aggregate of 238,746 shares subject to options held by certain
executive officers which are currently exercisable or will become
exercisable within 60 days of the date of this prospectus.
52
<PAGE>
CERTAIN TRANSACTIONS
In 1996, the Company loaned $100,000 to Dupuis Group, L.L.C. pursuant to a
promissory note guaranteed by Donald J. Esters, the Company's Chairman,
President and Chief Financial Officer. Dupuis Group is a graphic design firm
that is wholly owned by Mr. Esters. The note is due on demand, and interest
accrues quarterly at the prime rate plus 0.75%. The Company paid Dupuis Group
$74,000 in 1997 and $18,000 for the six months ended June 30, 1998 for graphic
design services.
The Company loaned $60,000 to Durand Communications, Inc. in 1997. Mr. Esters
is a member of the Board of Directors of Durand Communications. The loan has an
interest rate of 10% and is due and payable in December 1998.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have 6,162,859 shares of
common stock outstanding, including 43,078 shares of common stock expected to
be issued in connection with our acquisition of Proline Industries, Inc. and
122,619 shares of common stock to be issued by the Company upon automatic
conversion of subordinated convertible promissory notes issued or to be issued
in connection with the Aurora Visual Systems and Digital Networks Corporation
acquisitions. The shares sold in the offering (2,000,000 shares assuming no
exercise of the underwriters' over-allotment option) will be freely tradable
without restriction under the Securities Act, except for any such shares held
at any time by an "affiliate" of the Company, as such term is defined under
Rule 144 under the Securities Act.
All shares other than the 2,000,000 shares sold in this offering were or will
be issued and sold by the Company in private transactions and may be publicly
sold only if registered under the Securities Act or sold in accordance with an
applicable exemption from registration, such as Rule 144. In general, under
Rule 144, as currently in effect, a person who has beneficially owned shares
for at least one year, including an "affiliate," as that term is defined in
Rule 144, is entitled to sell, within any three-month period, a number of
"restricted" shares that does not exceed the greater of one percent of the then
outstanding shares of Common Stock or the average weekly trading volume during
the four calendar weeks preceding such sale. Sales under Rule 144 are subject
to certain manner of sale limitations, notice requirements and the availability
of current public information about the Company. Rule 144(k) provides that a
person who is not deemed an "affiliate" and who has beneficially owned shares
for at least two years is entitled to sell such shares at any time under Rule
144 without regard to the limitations described above. Of the 4,069,781
remaining shares outstanding, affiliates hold 2,835,823 shares. Of the shares
owned by non-affiliates, 997,070 shares have been held by such non-affiliates
in excess of two years. See "Risk Factors--Shares Eligible for Future Sale."
Any employee, officer, director, advisor 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 non-
affiliates 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 Rule 144's holding period restrictions, in each case commencing 90
days after the Company becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934.
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<PAGE>
As of October 1, 1998, there were outstanding stock options to purchase an
aggregate of 409,916 shares of common stock, of which 238,746 were presently
exercisable or exercisable within 60 days. All outstanding stock options are
held by executive officers or employees of the Company. Following the offering,
the Company intends to file a registration statement on Form S-8 covering an
aggregate of 750,000 shares of common stock that have been reserved for
issuance under the Company's 1998 Equity Participation Plan and the 409,916
shares issuable upon exercise of options otherwise outstanding, thus permitting
the resale of such shares in the public market without restriction under the
Securities Act. Currently, no options have been granted under the 1998 Equity
Participation Plan. The Company intends to issue non-qualified stock
options to purchase shares of common stock under the 1998 Equity Participation
Plan before the closing of this offering.
The Company and certain executive officers and directors of the Company have
agreed with the underwriters, subject to certain exceptions, not to sell or
otherwise dispose of any shares of common stock of the Company for a period of
180 days from the consummation of this offering without the prior written
consent of the representatives of the underwriters.
Before this offering, there has been no public market for the common stock.
The Company is unable to estimate the number of shares that may be sold in the
future by its existing stockholders or the effect, if any, that sales of shares
by such stockholders will have on the market price of the common stock
prevailing from time to time. Sales of substantial amounts of common stock by
existing stockholders could adversely affect prevailing market prices.
DESCRIPTION OF CAPITAL STOCK
The following descriptions are qualified in their entirety by reference to
the Company's Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws, copies of which have been filed with the Securities and
Exchange Commission. The authorized capital stock of the Company consists of 30
million shares of common stock, $.01 par value per share, and 10 million shares
of preferred stock, $.01 par value per share.
COMMON STOCK
Each holder of common stock is entitled to one vote per share in the election
of Directors and for all other purposes. There are no cumulative voting or
preemptive rights applicable to any shares of common stock. All shares of
common stock are entitled to participate pro rata in distributions and in such
dividends as may be declared by the Board of Directors out of funds legally
available therefor, subject to any preferential dividend rights of outstanding
shares of preferred stock. Subject to the prior rights of creditors, all shares
of common stock are entitled in the event of liquidation to participate ratably
in the distribution of all the remaining assets of the Company after
distribution in full of preferential amounts, if any, to be distributed to
holders of preferred stock. The rights, preferences and privileges of holders
of common stock are subject to, and may be adversely affected by, the rights of
any series of preferred stock which the Company may designate and issue in the
future. Each outstanding share of common stock is fully paid and non-
assessable.
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<PAGE>
PREFERRED STOCK
The Company's preferred stock is divisible into and issuable in one or more
series. The rights and preferences of the different series may be established
by the Board of Directors without further action by the stockholders. The Board
of Directors is authorized with respect to each series to fix and determine,
among other things, (i) its dividend rate; (ii) its liquidation preference;
(iii) whether or not such shares will be convertible into, or exchangeable for,
any other securities; and (iv) whether or not such shares will have voting
rights, and, if so, the conditions under which such shares will vote as a
separate class.
The Company believes that the Board of Directors' ability to issue preferred
stock on such a wide variety of terms will enable the preferred stock to be
used for important corporate purposes, such as financing acquisitions or
raising additional capital. However, were it inclined to do so, the Board of
Directors could issue all or part of the preferred stock with (among other
things) substantial voting power or advantageous conversion rights. Such stock
could be issued to persons deemed by the Board of Directors likely to support
current management in a contest for control of the Company, either as a
precautionary measure or in response to a specific takeover threat. The Company
expects to issue 1,058,489 shares of preferred stock in a private placement
prior to the closing of the offering.
REGISTRATION AND OTHER RIGHTS
The Company entered into a Registration Rights Agreement, dated as of June
24, 1998 (the "Registration Rights Agreement"), with certain investors (each
individually, a "Holder," and collectively, the "Holders"). Pursuant to the
Registration Rights Agreement, if the Company proposes to register any of its
common stock under the Securities Act, the Holders have the right to register
such amount of their shares of common stock as they may request (a "piggyback
registration"), subject to certain limitations, and the Company will pay all
registration expenses in connection with such piggyback registration. Any
Holder's right to a piggyback registration will expire upon an effective
registration of such Holder's shares under the Securities Act or when the
shares of a Holder may be sold and transferred pursuant to Rule 144 or Rule 145
under the Securities Act. In addition, a Holder will lose the right to a
piggyback registration when such Holder ceases to own at least 0.5% of the then
outstanding shares of common stock of the Company. In connection with a Warrant
to Purchase Stock, dated as of June 29, 1998, between the Company and Sand Hill
Capital LLC ("Sand Hill"), the Company granted Sand Hill the same piggyback
registration rights which are subject to the terms of the Registration Rights
Agreement.
Pursuant to an Investor Agreement, dated as of June 24, 1998 (the "Investor
Agreement"), among the Company, Donald Esters (the "Primary Investor") and
certain other investors (collectively, the "Minority Investors," and together
with the "Primary Investor," the "Investors"), the Investors have a preemptive
right to purchase any shares of common stock and securities convertible into
common stock that the Company proposes to sell, other than in connection with
an initial public offering or any subsequent registered public offering. In
addition, the Minority Investors have a right to participate, on the same terms
and conditions, in certain transfers of shares by the Primary Investor. If the
Primary Investor proposes to sell more than 80% of shares of common stock held
by him, then the Primary Investor has the right to require the Minority
Investors to participate in such transfer. The Investor Agreement will
terminate upon the consummation of this offering.
55
<PAGE>
The Company and certain of its stockholders are parties to stockholders'
agreements which (i) impose certain restrictions on transfer of shares of the
Company, (ii) require stockholders to offer to sell any shares first to the
Company and then to the other stockholders before offering such shares to a
third party, and (iii) require stockholders to take certain actions upon the
approval of a majority of the stockholders. These stockholders' agreements will
terminate upon completion of the offering.
CERTAIN CERTIFICATE OF INCORPORATION, BYLAW AND STATUTORY PROVISIONS AFFECTING
STOCKHOLDERS
The Company's Board of Directors is divided into three classes with terms
expiring at the Company's annual meetings of stockholders in 1999, 2000 and
2001. Before completion of this offering, the Company intends to increase its
authorized number of directors from three to five and appoint two additional
Directors. Under the Delaware General Corporation Law ("DGCL"), directors
serving on a classified board can be removed only for cause.
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws provide that stockholder action can be taken only at an
annual or special meeting of stockholders and cannot be taken by written
consent in lieu of a meeting. The Certificate of Incorporation and Bylaws also
(i) provide that special meetings of the stockholders may be called only by a
resolution adopted by a majority of the Board of Directors of the Company or by
a committee of the Board of Directors which has been duly designated by the
Board of Directors and whose powers and authority include the power to call
such meetings; (ii) establish an advance notice procedure for stockholder
proposals; (iii) require that certain business combinations be approved by
supermajority vote; and (iv) reserve to the Board the exclusive right to change
the number of directors or to fill vacancies on the Board.
The Company is a Delaware corporation and is subject to Section 203 of the
DGCL, which generally prohibits a publicly held Delaware corporation from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the time that the person became an interested
stockholder, unless (i) before such time the Board of Directors of the
corporation approved either the business combination or the transaction in
which the person became an interested stockholder; (ii) upon consummation of
the transaction that resulted in the stockholder becoming an interested
stockholder, the interested person owns at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced, excluding shares
owned by persons who are directors and also officers of the corporation and by
certain employee stock plans; or (iii) at or after such time the business
combination is approved by the Board of Directors of the corporation 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 of the corporation that is not owned by the interested stockholder. A
"business combination" generally includes mergers, asset sales and similar
transactions between the corporation and the interested stockholder, and other
transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns 15% or more of the corporation's outstanding voting stock or
who is an affiliate or associate of the corporation and, together with his or
her affiliates and associates, has owned 15% or more of the corporation's
outstanding voting stock within three years.
56
<PAGE>
The provisions of the Certificate of Incorporation, Bylaws and DGCL described
above could make more difficult or discourage a proxy contest or acquisition of
control by a holder of a substantial block of the Company's stock or the
removal of the incumbent Board of Directors. Such provisions could also have
the effect of discouraging an outsider from making a tender offer or otherwise
attempting to obtain control of the Company, even though such an attempt might
be beneficial to the Company and its stockholders.
The Company's Certificate of Incorporation and Bylaws also contain provisions
that (i) eliminate the personal liability of directors for monetary damages
resulting from breaches of fiduciary duty to the extent permitted by the DGCL
and (ii) indemnify directors and officers to the fullest extent permitted by
Section 145 of the DGCL, including in circumstances in which indemnification is
otherwise discretionary. The Company believes that these provisions are
necessary to attract and retain qualified directors and officers. The Company
has entered into indemnification agreements with its executive officers and
directors.
OTHER ATTRIBUTES OF THE COMPANY'S SECURITIES
The Company is a corporation organized under the laws of Delaware. Generally,
the laws of the state of incorporation govern the corporate operations of a
corporation and the rights of its stockholders. Certain provisions of the
California Corporations Code become applicable to a corporation incorporated
outside of California, however, if (i) the corporation transacts business in
California and the average of its California property, payroll and sales
factors (as defined in the California Revenue and Taxation Code) with respect
to it is more than 50% during its latest fiscal year, (ii) more than one-half
of its outstanding voting securities are held of record by persons having
addresses in California and (iii) the corporation is not otherwise exempt. An
exemption is provided if the corporation has outstanding securities qualified
for trading as a national market security on the National Association of
Securities Dealers Automated Quotation System ("Nasdaq") if the corporation has
at least 800 record and nominee holders of its equity securities as of the
record date of its most recent annual meeting of stockholders.
The Company has filed an application with the Nasdaq National Market for
quotation of its common stock. At present, most of the Company's activities
occur in California. The Company's existing stockholders with addresses in
California will own approximately 52.0% of the outstanding common stock
following the offering. Certain provisions of California corporate law may
apply to the Company, as described below, unless as a result of the offering
there are more than 800 holders of its equity securities as of the applicable
date.
Except as discussed herein, provisions of California law which could be
applicable to the Company if the Company meets these tests and is not exempt
include, without limitation, those provisions relating to the stockholders'
right to cumulate votes in elections of directors (cumulative voting is
mandatory under California law), the stockholders' right to remove directors
without cause (which under California law is subject to the stockholders' right
to cumulate votes), the right of stockholders to call a special meeting (such
right is mandatory under California law if the requesting stockholder owns at
least 10% of the voting stock) and the Company's ability to indemnify its
officers, directors and employees (which is more limited in California than in
Delaware). Notwithstanding the foregoing, a corporation may provide for a
classified board of directors, or
57
<PAGE>
eliminate cumulative voting, or both if it is a "listed corporation." A
"listed corporation" means a corporation with outstanding shares listed on the
New York Stock Exchange or the American Stock Exchange, or a corporation with
outstanding securities qualified for trading as a national market security on
Nasdaq if such corporation has at least 800 holders of its equity securities
as of the record date of its most recent annual meeting of stockholders.
TRANSFER AGENT AND REGISTRAR
is the transfer agent and registrar for the common stock.
UNDERWRITING
The underwriters named below (the "Underwriters"), acting through Wedbush
Morgan Securities Inc. and (the "Representatives"), have severally agreed
with the Company, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company the number of shares of common stock
set forth opposite their respective names below. The Underwriters are
committed to purchase and pay for all shares if any shares are purchased.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Wedbush Morgan Securities Inc. ....................................
---------
Total............................................................ 2,000,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters propose
to offer the shares of common stock to the public at the public offering price
set forth on the cover page of this prospectus and to certain dealers at such
price less a concession not in excess of $ per share, of which $ may be
reallowed to other dealers. After the public offering, the public offering
price, concession and reallowance to dealers may be reduced by the
Representatives. No such reduction shall change the amount of proceeds to be
received by the Company as set forth on the cover page of this prospectus.
The Company has granted the Underwriters an option, exercisable during the
45-day period after the date of this prospectus, to purchase up to 300,000
additional shares of common stock at the public offering price, less the
underwriting discounts and commissions set forth on the cover page of this
prospectus. To the extent the Underwriters exercise the option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares that the number of shares of common stock
to be purchased by it shown in the above table represents as a percentage of
the common stock offered hereby. If purchased, such additional shares will be
sold by the Underwriters on the same terms as those on which the common stock
offered hereby are being sold.
The Underwriting Agreement contains certain covenants of indemnity among the
Underwriters and the Company against certain civil liabilities, including
liabilities under the Securities Act.
58
<PAGE>
Pursuant to the terms of the Lock-up Agreements, the executive officers and
directors and certain stockholders of the Company have agreed with the
Representatives that, until 180 days after the consummation of this offering,
they will not, directly or indirectly, sell, contract to sell, make any short
sale, pledge or otherwise dispose of any shares of common stock or securities
exchangeable for or convertible into shares of common stock, exclusive of
securities purchased in connection with this offering or in the public trading
market, without the prior written consent of the Representatives. Subject to
certain exceptions, the Company has also agreed until 180 days after the
closing date of this offering not to issue, offer, sell, purchase or otherwise
dispose of any shares of the Company's common stock or any other securities
convertible into or exchangeable for common stock or any other equity
security, except with the prior written consent of the Representatives. See
"Shares Eligible for Future Sale."
The Representatives have advised the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
At the closing of this offering, the Company will sell to the
Representatives, at a price of $.01 each, warrants to purchase up to 100,000
shares of common stock. Each warrant will be exercisable for a four-year
period, commencing one year from the date of this prospectus, at an exercise
price equal to $ per share (120% of the public offering price of the
shares). The warrants will contain anti-dilution provisions providing for
appropriate adjustments in any recapitalization, reclassification, stock
dividend, stock split or similar transaction by the Company. The warrants do
not entitle the Representatives to any rights as a stockholder of the Company
until the Representatives exercise the warrants.
The Company has granted certain demand and piggyback registration rights for
the Common Stock underlying the warrants. On one occasion, at the
Representatives' request, at any time during the four-year period commencing
one year after the date of this prospectus, the Company will prepare and file
a new registration statement permitting the sale of the warrants and/or
underlying securities and use its best efforts to keep the registration
statement effective under the Securities Act for a nine month period following
the effective date. The Company will bear the cost of such registration
statement. If the Company files an equity offering registration statement
under the Securities Act at any time during the six-year period following the
date of this prospectus, the Company will, subject to certain exceptions,
include in such registration statement all or part of the underlying
securities at the request of the warrant holder. The warrants are not
transferable by the Representatives other than to employees and affiliates of
the Representatives.
During and after the offering, the Underwriters may purchase and sell the
common stock in the open market. These transactions may include overallotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the offering. The Underwriters also may impose a
penalty bid, whereby selling concessions allowed to syndicate members of other
broker-dealers in respect of the shares of common stock sold in the offering
for their account may be reclaimed by the syndicate if such shares are
repurchased by the syndicate in stabilizing or covering transactions. These
activities may stabilize, maintain or otherwise affect the market price of the
common stock which may be higher than the price that might otherwise prevail
in the open market.
59
<PAGE>
There has been no public market for the common stock. The Public Offering
Price was determined by negotiations between the Company and the
Representatives. Among the factors considered in determining the Public
Offering Price were prevailing market conditions, the market values of publicly
traded companies that the Underwriters believed to be somewhat comparable to
the Company, the demand for the shares and for similar securities of publicly
traded companies that the Underwriters believed to be somewhat comparable to
the Company, the future prospects of the Company and its industry in general,
certain other financial and operating information of the Company in recent
periods, and other factors deemed relevant. There can be no assurance that the
prices at which the shares will sell in the public market after the offering
will not be lower than the Price to Public.
E*Capital Corporation owns 59,496 shares of the Company's common stock and
warrants to acquire an additional 623 shares of common stock. Edward W.
Wedbush, President and Chief Executive Officer of Wedbush Morgan Securities
Inc., is a significant stockholder of E*Capital Corporation and individually
owns 37,184 shares of the Company's common stock and warrants to acquire an
additional 388 shares of common stock.
The Company paid Wedbush Morgan Securities Inc. $50,000 for placement agent
services in connection with a private placement of the Company's securities in
June 1998. Upon completion of the sale of up to $10 million of preferred stock
in connection with the financing of the Potential Acquisitions, the Company
will pay Wedbush Morgan Securities Inc. a fee for advisory services equal to
5.5% of the gross proceeds from the sale.
The Company has filed an application with the Nasdaq National Market for
quotation of its common stock under the symbol "ISGP."
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon for
the Company by Latham & Watkins, San Francisco, California. Certain legal
matters will be passed upon for the Underwriters by Gibson, Dunn & Crutcher
LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1996
and 1997, and for each of the years in the three year period ended December 31,
1997, have been included herein and in the registration statement in reliance
upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in auditing and accounting.
The financial statements of B. Higginbotham Enterprises, Inc. as of June 30,
1997, and for the year then ended, have been included herein and in the
registration statement in reliance upon the report of KPMG Peat Marwick LLP,
independent certified public accountants, appearing elsewhere herein, and upon
the authority of said firm as experts in auditing and accounting.
60
<PAGE>
The financial statements of Proline Industries, Inc. as of December 31, 1996
and 1997, and for the years then ended, have been included herein and in the
registration statement in reliance upon the report of Peterson Sullivan
P.L.L.C., independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") in Washington, D.C., a Registration Statement on Form S-1 under
the Securities Act with respect to the shares of common stock offered by this
prospectus. This prospectus does not contain all the information set forth in
the Registration Statement, certain portions of which are omitted as permitted
by the rules and regulations of the Commission. For further information with
respect to the Company and the shares offered by this prospectus, reference is
made to the Registration Statement, including the exhibits and schedules filed
therewith. Statements contained in this prospectus regarding the contents of
any contract or any other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of
such contract or document filed as an exhibit to the registration statement or
such other document, each such statement being qualified in all respects by
such reference. Copies of the Registration Statement (of which this prospectus
is a part), together with such exhibits and schedules, may be obtained upon
payment of the fee prescribed by the Commission or may be examined without
charge at the office of the Commission.
After consummation of the offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith, will be required to file annual and quarterly
reports, proxy statements and other information with the Commission. The
Registration Statement, including the exhibits thereto, as well as such reports
and other information filed by the Company with the Commission, can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549; 7
World Trade Center, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material may also be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. The Commission also maintains a
site on the World Wide Web at http://www.sec.gov that contains reports and
other information regarding registrants that file electronically with the
Commission.
61
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTELLISYS GROUP, INC. AND SUBSIDIARY--CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and 1997 and June 30,
1998 (unaudited)........................................................ F-3
Consolidated Statements of Income for each of the years in the three-year
period ended December 31, 1997 and for the six-month periods ended June
30, 1997 and 1998 (unaudited)........................................... F-4
Consolidated Statements of Stockholders' Equity for each of the years in
the three-year period ended December 31, 1997 and for the six-month
period ended June 30, 1998 (unaudited).................................. F-5
Consolidated Statements of Cash Flows for each of the years in the three-
year period ended December 31, 1997 and for the six-month periods ended
June 30, 1997 and 1998 (unaudited)...................................... F-6
Notes to Consolidated Financial Statements............................... F-7
B. HIGGINBOTHAM ENTERPRISES, INC.--FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-17
Balance Sheets as of June 30, 1997 and March 31, 1998 (unaudited)........ F-18
Statements of Operations for the year ended June 30, 1997 and for the
nine-month periods ended March 31, 1997 and 1998 (unaudited)............ F-19
Statements of Stockholders' Equity for the year ended June 30, 1997 and
for the nine-month period ended March 31, 1998 (unaudited).............. F-20
Statements of Cash flows for the year ended June 30, 1997 and for the
nine-month periods ended March 31, 1997 and 1998 (unaudited)............ F-21
Notes to Financial Statements............................................ F-22
PROLINE INDUSTRIES, INC.--FINANCIAL STATEMENTS
Independent Auditors' Report............................................. F-27
Balance Sheets of December 31, 1996 and 1997 and June 30, 1998
(unaudited)............................................................. F-28
Statements of Operations for the years ended December 31, 1996 and 1997
and for the six-month periods ended June 30, 1997 and 1998 (unaudited).. F-29
Statements of Stockholders' Equity for the years ended December 31, 1996
and 1997 and for the six month period ended June 30, 1998 (unaudited)... F-30
Statements of Cash Flows for the years ended December 31, 1996 and 1997
and for the six-month periods ended June 30, 1997 and 1998 (unaudited).. F-31
Notes to Financial Statements............................................ F-32
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders Intellisys Group, Inc.:
We have audited the accompanying consolidated balance sheets of Intellisys
Group, Inc. and subsidiary (the Company) as of December 31, 1996 and 1997, and
the related consolidated statements of income, stockholders' equity, and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Intellisys
Group, Inc. and subsidiary as of December 31, 1996 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Mountain View, California
June 1, 1998, except as to Note 13,
which is as of October 15, 1998
F-2
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1996 1997 1998
ASSETS ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash............................................. $ 42 $ 122 $ 119
Accounts receivable, less allowance for doubtful
accounts of $71, $101, and $134, respectively... 6,715 9,426 13,616
Notes receivable................................. 100 160 160
Inventories...................................... 3,327 3,653 6,929
Prepaid expenses................................. 146 90 333
Deferred income taxes............................ 183 352 352
------- ------- -------
Total current assets........................... 10,513 13,803 21,509
Property and equipment, net........................ 1,139 1,222 2,064
Intangible and other assets........................ 236 232 2,000
------- ------- -------
Total assets................................... $11,888 $15,257 $25,573
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank line of credit.............................. $ 4,399 $ 4,845 $ 6,802
Short-term notes payable......................... -- -- 1,331
Current portion of long-term debt................ 169 85 120
Current portion of obligations under capital
leases.......................................... 16 15 7
Accounts payable................................. 3,956 4,694 8,641
Accrued expenses................................. 478 1,044 1,775
Income taxes payable............................. -- 584 305
Deferred revenue................................. 81 441 773
------- ------- -------
Total current liabilities...................... 9,099 11,708 19,754
Long-term debt, excluding current portion.......... 224 235 658
Obligations under capital leases, excluding current
portion........................................... 25 11 10
Deferred income taxes.............................. 30 -- 150
------- ------- -------
Total liabilities.............................. 9,378 11,954 20,572
------- ------- -------
Commitments
Stockholders' equity:
Preferred stock; 10,000,000 shares authorized;
none issued and outstanding..................... -- -- --
Common stock; $.01 par value; 30,000,000 shares
authorized; 3,832,892, 3,832,892, and 3,997,162
shares issued and outstanding, respectively..... 38 38 40
Additional paid-in capital ...................... 1,217 1,217 2,410
Retained earnings................................ 1,255 2,048 2,551
------- ------- -------
Total stockholders' equity..................... 2,510 3,303 5,001
------- ------- -------
Total liabilities and stockholders' equity..... $11,888 $15,257 $25,573
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------- -----------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales and installation revenue.. $ 25,481 $ 30,557 $ 41,535 $ 18,162 $ 26,675
Cost of sales................... 17,860 23,036 30,196 13,606 19,387
-------- -------- -------- -------- --------
Gross profit.................. 7,621 7,521 11,339 4,556 7,288
Selling, general, and
administrative expenses........ 6,190 6,959 9,672 4,162 6,363
-------- -------- -------- -------- --------
Operating income.............. 1,431 562 1,667 394 925
Interest expense, net........... 247 269 351 185 242
Other income.................... -- -- -- -- (165)
-------- -------- -------- -------- --------
Income before income taxes.... 1,184 293 1,316 209 848
Income taxes.................... 483 98 523 82 345
-------- -------- -------- -------- --------
Net income.................... $ 701 $ 195 $ 793 $ 127 $ 503
======== ======== ======== ======== ========
Earnings per share:
Basic......................... $ 0.19 $ 0.05 $ 0.21 $ 0.03 $ 0.13
======== ======== ======== ======== ========
Diluted....................... $ 0.18 $ 0.05 $ 0.20 $ 0.03 $ 0.12
======== ======== ======== ======== ========
Weighted average shares:
Basic......................... 3,720 3,833 3,833 3,833 3,840
======== ======== ======== ======== ========
Diluted....................... 3,916 3,970 3,988 3,969 4,036
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997 AND
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
---------------- PAID-IN RETAINED STOCKHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balances as of December 31,
1994...................... 3,690,454 $37 $1,218 $ 359 $1,614
Net income................. -- -- -- 701 701
Exercise of stock options.. 142,438 1 (1) -- --
--------- --- ------ ------ ------
Balances as of December 31,
1995...................... 3,832,892 38 1,217 1,060 2,315
Net income................. -- -- -- 195 195
--------- --- ------ ------ ------
Balances as of December 31,
1996...................... 3,832,892 38 1,217 1,255 2,510
Net income................. -- -- -- 793 793
--------- --- ------ ------ ------
Balances as of December 31,
1997...................... 3,832,892 38 1,217 2,048 3,303
Issuance of common stock,
net....................... 156,177 2 998 -- 1,000
Exercise of stock options.. 8,093 -- 6 -- 6
Warrants issued in connec-
tion with debt financing.. -- -- 189 -- 189
Net income................. -- -- -- 503 503
--------- --- ------ ------ ------
Balances as of June 30,
1998...................... 3,997,162 $40 $2,410 $2,551 $5,001
========= === ====== ====== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------- ------------------
1995 1996 1997 1997 1998
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income.................. $ 701 $ 195 $ 793 $ 127 $ 503
Adjustments to reconcile net
income to net cash provided
by (used in) operating
activities:
Allowance for doubtful
accounts................... 67 (15) 30 12 48
Depreciation and
amortization............... 182 263 378 226 283
Deferred income taxes....... (102) (43) (199) -- 38
Changes in operating assets
and liabilities:
Accounts receivable........ (105) (2,816) (2,741) 714 (2,054)
Inventories................ (1,513) (301) (326) 639 (1,225)
Prepaid expenses........... 130 (99) 56 (49) (115)
Other assets............... (85) (4) (1) 3 (17)
Accounts payable and
accrued expenses.......... 1,388 1,672 1,304 (192) 2,138
Income taxes payable....... 82 (82) 584 14 (577)
Deferred revenue........... 13 (82) 360 294 226
-------- -------- -------- -------- --------
Net cash provided by (used
in) operating
activities............... 758 (1,312) 238 1,788 (752)
-------- -------- -------- -------- --------
Cash flows from investing
activities:
Purchase of intangible
assets in connection with
acquisitions............... -- -- -- -- (1,713)
Purchase of property and
equipment in connection
with acquisitions.......... -- -- -- -- (656)
Purchase of net current
liabilities in connection
with acquisitions.......... -- -- -- -- 181
Purchases of property and
equipment.................. (362) (766) (447) (138) (463)
Proceeds from sale of
equipment.................. 21 -- -- -- --
Issuance of notes
receivable................. -- (100) (60) -- --
-------- -------- -------- -------- --------
Net cash used in investing
activities............... (341) (866) (507) (138) (2,651)
-------- -------- -------- -------- --------
Cash flows from financing
activities:
Exercise of stock options... -- -- -- -- 6
Issuance of common stock,
net........................ -- -- -- -- 1,000
Net borrowings under bank
line of credit............. (330) 2,037 446 (1,551) 1,457
Proceeds from short-term
debt....................... -- -- -- -- 1,020
Proceeds from long-term
debt....................... 57 269 97 -- --
Payments of long-term debt
and capital leases......... (114) (132) (194) (65) (83)
-------- -------- -------- -------- --------
Net cash provided by (used
in) financing
activities............... (387) 2,174 349 (1,616) 3,400
-------- -------- -------- -------- --------
Net increase (decrease) in
cash........................ 30 (4) 80 34 (3)
Cash at beginning of year.... 16 46 42 42 122
-------- -------- -------- -------- --------
Cash at end of year.......... $ 46 $ 42 $ 122 $ 76 $ 119
======== ======== ======== ======== ========
Supplemental disclosures of
cash flow information:
Cash paid during the year:
Interest.................... $ 247 $ 269 $ 365 $ 188 $ 234
======== ======== ======== ======== ========
Income taxes................ $ 437 $ 230 $ 119 $ 52 $ 741
======== ======== ======== ======== ========
Noncash investing and
financing activities:
Acquisition of equipment
under capital leases....... $ 31 $ 24 $ 9 $ 9 $ --
======== ======== ======== ======== ========
Warrants issued in
connection with debt
financing.................. $ -- $ -- $ -- $ -- $ 189
======== ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996, AND 1997
(ALL AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
1997 AND 1998, IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
The accompanying consolidated financial statements include the accounts of
Intellisys Group, Inc., formerly EISI, and its wholly owned subsidiary,
Educational Industrial Sales, Inc. (the Subsidiary), collectively "the
Company." The Company sells, designs, installs, and services multimedia
presentation and communication technology systems to corporations, government
agencies, and educational institutions.
All significant intercompany balances and transactions have been eliminated
in consolidation.
(b) Revenue Recognition
The Company recognizes revenue on installation sales using the percentage-of-
completion method. Revenue is recognized based on the percentage that costs to
date bear to total estimated costs. Losses expected to be incurred are recorded
when such losses are known. Product sales are recognized as revenue upon
shipment.
The Company bills customers for services at intervals that coincide with the
completion of certain project phases. As of December 31, 1996 and 1997 and June
30, 1998, accounts receivable included unbilled amounts of $1,824, $2,911, and
$3,820, respectively.
The Company sells maintenance contracts for new and existing multimedia
equipment installations. These contracts cover labor, parts, and materials and
are recognized as revenue using the straight-line method over the life of the
contract. The cost of the maintenance contract depends on the level of service
required by the customer. Revenue from these contracts has not been material.
(c) Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated using
the straight-line method over the estimated useful lives of the assets, which
range from three to seven years. Leasehold improvements are amortized over the
shorter of the lease term or estimated useful life of the asset.
(d) Inventories
Inventories consist primarily of finished goods and are valued at the lower
of cost (first in, first out) or market.
(e) Intangible Assets
Intangible assets consist primarily of goodwill and covenants not to compete
arising from the application of purchase accounting. Goodwill is amortized on a
straight-line basis over its estimated
F-7
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
useful life of 30 to 40 years. Covenants not to compete are amortized on a
straight-line basis over the life of the agreement.
(f) Impairment of Long-Lived Assets
The Company periodically reviews its long-lived assets and certain
identifiable intangible assets for impairment. If events or changes indicate
that the carrying amount of an asset is not recoverable from expected
undiscounted cash flows, the Company will reduce the asset to its fair value.
(g) Fair Value of Financial Instruments
The fair value of cash, accounts receivable, accounts payable and accrued
expenses approximates carrying value because of the short-term maturity of
those instruments. Although no quoted market prices are available and a portion
is due from a related party, the Company believes the fair value of the notes
receivable approximates the carrying value. The fair value of the Company's
long-term indebtedness is estimated based on the current rates offered to the
Company for debt of the same remaining maturities and approximates carrying
value.
(h) Stock-Based Compensation
The Company has elected to follow Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations
in accounting for its employee stock options. Under APB Opinion No. 25, no
compensation expense is recognized when the exercise price of options equals
the fair value market price of the underlying stock on the date of grant. The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation.
(i) Income Taxes
The Company accounts for income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
(j) Use of Estimates
The Company's management has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
F-8
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(k) Concentration of Credit Risk
The Company grants credit to its customers located in the western United
States, primarily in California. The Company's ability to collect the amounts
due from its customers is affected by economic conditions in its industry and
the geographical area in which it conducts business. Accounts receivable from
the Company's customers are generally due within 30 days and are subject to
credit risk. The Company monitors extensions of credit and records an allowance
for doubtful accounts based on its historical experience and management's
assessment of collectibility of specific accounts.
(l) Per Share Data
The Company presents basic and diluted earnings per share (EPS) in the
consolidated statements of income. Basic EPS excludes dilution and is computed
by dividing net income available to common stockholders by the weighted-average
number of shares outstanding for the period. Diluted EPS includes dilution and
is computed using the weighted-average number of common and dilutive potential
common shares outstanding during the period. The dilutive effect of stock
options is calculated using the treasury stock method.
(m) Unaudited Balances
The accompanying unaudited financial statements include all adjustments
(consisting of only normal recurring adjustments) that management considers
necessary for a fair presentation of the financial position and results of
operations as of the date and for the periods indicated.
(2) EARNINGS PER SHARE
For both basic and diluted earnings per share, net income as reported was
used in the computation. A reconciliation of shares used in the computation for
basic and diluted earnings per share is as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
----------------- -----------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Weighted-average common shares outstanding used
for basic earnings per share................... 3,720 3,833 3,833 3,833 3,840
Effect of dilutive securities--stock options and
stock purchase warrants........................ 196 137 155 136 196
----- ----- ----- ----- -----
Weighted-average common and potential common
shares outstanding used for diluted earnings
per share...................................... 3,916 3,970 3,988 3,969 4,036
===== ===== ===== ===== =====
</TABLE>
(3) NOTES RECEIVABLE
During 1996, the Company loaned $100 to one of its vendors, Dupuis Group,
L.L.C. The Company's Chairman, President and Chief Financial Officer owns 100%
of Dupuis Group, L.L.C. and has guaranteed payment of this note. The note is
due on demand, and interest is accrued quarterly at the prime rate plus 0.75%.
During 1996, 1997 and for the six-months ended June 30, 1998, the Company paid
Dupuis Group, L.L.C. $53, $74 and $18, respectively, for design and graphic
services.
F-9
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
During 1997, the Company loaned $60 to Durand Communications, Inc., Mr.
Esters is a member of the Board of Directors of Durand Communications. The loan
bears interest at 10% and is due in December 1998.
(4) PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
USEFUL LIFE 1996 1997 1998
----------- ------ ------ --------
<S> <C> <C> <C> <C>
Vehicles................................... 5 years $ 191 $ 263 $ 479
Furniture and equipment.................... 7 years 1,450 1,799 3,086
Leasehold improvements..................... 3-7 years 295 312 430
------ ------ ------
1,936 2,374 3,995
Less accumulated depreciation and
amortization.............................. 797 1,152 1,931
------ ------ ------
Property and equipment, net................ $1,139 $1,222 $2,064
====== ====== ======
</TABLE>
As of December 31, 1996 and 1997 and June 30, 1998, the gross amount of
equipment recorded under capital leases was $55, $64, and $64, respectively,
and related accumulated amortization was $6, $17, and $21, respectively.
Amortization of assets held under capital leases is included with depreciation
expense.
(5) INTANGIBLE AND OTHER ASSETS
Intangible and other assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Goodwill................................................. $ 207 $ 207 $1,870
Covenants not to compete................................. -- -- 75
Other.................................................... 44 45 84
------ ------ ------
251 252 2,029
Less accumulated amortization............................ 15 20 29
------ ------ ------
Intangible and other assets.............................. $ 236 $ 232 $2,000
====== ====== ======
</TABLE>
(6) LEASES
The Company leases its offices and warehouse facilities under various
operating leases that expire on various dates through 2001. Rent expense for
these facilities was $212, $287, $352, and $251 for the years ended December
31, 1995, 1996 and 1997, and for the six-month period ended June 30, 1998,
respectively.
F-10
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under noncancelable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of December 31, 1997, are:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
DECEMBER 31, LEASES LEASES
- ------------ ------- ---------
<S> <C> <C>
1998........................................... $ 18 $ 440
1999........................................... 6 345
2000........................................... 6 224
2001........................................... -- 123
----- ------
Total future minimum
lease payments................................ 30 $1,132
======
Less amount representing
interest...................................... 4
-----
Present value of minimum
lease payments................................ 26
Less current portion of
obligations under
capital leases................................ 15
-----
Obligations under
capital leases,
excluding current
portion....................................... $ 11
=====
</TABLE>
(7) BANK LINE OF CREDIT
The Company has pledged substantially all accounts receivable and inventory
as security for a bank line of credit with available borrowings of up to
$5,500. The Company's Chairman, President and Chief Financial Officer has
personally guaranteed $1,000 of this line of credit. The Company may borrow at
the LIBOR rate plus 2.25% or at the bank's prime rate of interest. The line of
credit has certain restrictive financial covenants and expires on October 30,
1998. The Company was in compliance with all such covenants as of December 31,
1997.
(8) ACCRUED EXPENSES
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1996 1997 1998
------------- --------
<S> <C> <C> <C>
Commissions.............................................. $ 307 $482 $ 539
Wages and bonuses........................................ 30 296 1,173
Other.................................................... 141 266 63
----- ------- ------
$ 478 $ 1,044 $1,775
===== ======= ======
</TABLE>
F-11
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) LONG-TERM DEBT
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1996 1997 1998
------ ------ --------
<S> <C> <C> <C>
Note payable to bank; unsecured; interest at the
bank's prime rate; monthly payments of $5 plus
interest through October 2001....................... $ 240 $210 $182
Debt incurred in connection with acquisition of the
Subsidiary at prime rate plus 2%; paid in 1997...... 76 -- --
Note payable to bank; secured; interest at the bank's
prime rate plus 1% payable monthly; outstanding
principal due April 1, 1999......................... -- -- 268
Note payable to bank; secured; interest at the bank's
prime rate plus 1.0%; monthly payments of $5,233
including interest through August 2000.............. -- -- 121
Vehicle loans........................................ 56 110 207
Other................................................ 21 -- --
------ ------ ----
Total long-term debt................................. 393 320 778
Less current portion................................. 169 85 120
------ ------ ----
Long-term debt, excluding current portion............ $ 224 $235 $658
====== ====== ====
</TABLE>
The aggregate maturities of long-term debt subsequent to December 31, 1997,
are as follows: 1998, $85; 1999, $84; 2000, $79; 2001, $69; and 2002, $3.
(10) INCOME TAXES
Income tax expense (benefit) for the years ended December 31, 1995, 1996, and
1997, consisted of the following:
<TABLE>
<CAPTION>
1995 1996 1997
----- ---- -----
<S> <C> <C> <C>
Current:
Federal................................................... $ 448 $110 $ 572
State and local........................................... 137 31 150
----- ---- -----
585 141 722
----- ---- -----
Deferred:
Federal................................................... (81) (35) (156)
State and local........................................... (21) (8) (43)
----- ---- -----
(102) (43) (199)
----- ---- -----
Total................................................... $ 483 $ 98 $ 523
===== ==== =====
</TABLE>
F-12
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Income tax expense differed from the amounts computed by applying the
statutory federal income tax rate of 34% to pretax income as a result of the
following:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Computed expected tax expense.................................. $403 $100 $447
State and local taxes, net of federal tax benefit.............. 74 15 80
Other.......................................................... 6 (17) (4)
---- ---- ----
Total........................................................ $483 $ 98 $523
==== ==== ====
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1996 and
1997, are presented below.
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Deferred tax assets:
State income taxes................................................. $ 10 $ 14
Accounts receivable, principally due to allowance for doubtful
accounts.......................................................... 31 44
Inventory reserve and additional costs inventoried for tax
purposes.......................................................... 93 108
Accrued expenses................................................... 35 172
Stock option compensation.......................................... 14 14
---- ----
Total deferred tax assets........................................ $183 $352
==== ====
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation: $ 30 $--
---- ----
Total deferred tax liabilities................................... $ 30 $--
==== ====
</TABLE>
Based on the Company's historical operating earnings, management believes it
is more likely than not that the Company will realize the benefit of the
deferred income tax assets recorded and, accordingly, has established no
valuation allowance. Certain factors beyond management's control can affect
future levels of taxable income and, therefore, no assurances can be given that
sufficient taxable income will be generated to fully realize recorded tax
benefits.
(11) PENSION BENEFITS
The Company sponsors a 401(k) savings plan. All full-time employees over the
age of 21 are eligible after 90 days of employment. The Company matches 30% of
an employee's annual contribution up to a maximum of five hundred dollars.
During 1995, 1996 and 1997, the Company contributed $13, $24 and $26,
respectively, to the 401(k) plan.
(12) STOCK OPTIONS
During 1996 and 1997, the Board of Directors agreed to issue nonqualified
stock options to certain employees. The exercise price of options granted must
be at least equal to the market value of such shares on the date of grant, as
determined by the Board of Directors. The options vest over 5 years and expire
10 years from the grant date.
F-13
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
A summary of stock option activity during 1995, 1996, and 1997, follows:
<TABLE>
<CAPTION>
WEIGHTED- OPTIONS
AVERAGE EXERCISABLE
EXERCISE AT PERIOD
OPTIONS PRICE END
-------- --------- -----------
<S> <C> <C> <C>
Balances as of December 31, 1994................ 356,097 $0.00025 356,097
=======
Exercised....................................... (142,439) 0.00025
--------
Balance as of December 31, 1995................. 213,658 0.00025 213,658
=======
Granted......................................... 60,698 0.74137
--------
Balance as of December 31, 1996................. 274,356 0.16409 213,658
=======
Granted......................................... 44,512 1.48274
--------
Balance as of December 31, 1997................. 318,868 0.34820 225,798
=======
Granted (unaudited)............................. 111,280 1.48274
Exercised....................................... (8,093) 0.74137
Forfeited....................................... (12,139) 0.74137
--------
Balance as of June 30, 1998..................... 409,916 0.63684 233,891
======== =======
</TABLE>
The weighted-average per share fair value of options granted during 1996 and
1997 was $0.53 and $1.06, respectively.
The following table summarizes information about the Company's stock options
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- ----------------------------
WEIGHTED-AVERAGE
EXERCISE NUMBER REMAINING CONTRACTUAL NUMBER WEIGHTED-AVERAGE
PRICE OUTSTANDING LIFE (YEARS) EXERCISABLE EXERCISE PRICE
-------- ----------- --------------------- ----------- ----------------
<S> <C> <C> <C> <C>
$ 0.00025 213,658 5.67 213,658 $ 0.00025
0.74137 60,698 7.86 12,140 0.74137
1.48274 44,512 9.39 -- --
------- -------
318,868 225,798
======= =======
</TABLE>
F-14
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies APB Opinion No. 25 in accounting for its stock options.
The exercise price for stock options granted to employees in 1996 and 1997
equaled the fair value of the Company's stock at the date of grant.
Accordingly, no compensation cost has been recognized for these stock options.
There were no stock options granted during 1995. Had compensation cost been
determined pursuant to SFAS No. 123, the Company's 1996 and 1997, net income
and earnings per share would have been reduced to the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Net income:
As reported..................................................... $195 $793
Pro forma....................................................... 192 787
Basic earnings per share:
As reported..................................................... .05 .21
Pro forma....................................................... .05 .21
Diluted earnings per share:
As reported..................................................... .05 .20
Pro forma....................................................... .05 .20
</TABLE>
The fair value of the stock options was calculated using the minimum value
method with the following assumptions:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Weighted-average risk free rate.................................. 5.60% 6.30%
Average expected life (years).................................... 3.64 3.17
Dividend yield................................................... 0.00% 0.00%
</TABLE>
(13) REINCORPORATION
On October 15, 1998, the Company was reincorporated in the State of Delaware.
In connection with the reincorporation, the Company increased its authorized
shares of Common Stock to 30,000,000 shares, authorized the issuance of
10,000,000 shares of Preferred Stock and declared a common stock split on an
approximately 4.047-for-one basis. The accompanying financial statements have
been retroactively restated to reflect these changes.
(14) EVENTS SUBSEQUENT TO DATE OF AUDITORS' REPORT (UNAUDITED)
(a) Acquisition of B. Higginbotham Enterprises, Inc.
Effective June 1, 1998, the Company acquired all of the outstanding stock of
B. Higginbotham Enterprises, Inc. ("Higginbotham") for $1,600 in cash and a
$500 note to the seller. The purchase price may be increased by up to $900,
payable in common stock, if Higginbotham achieves certain income levels for the
12 months ended June 30, 1999 as provided in the stock purchase agreement. The
acquisition was accounted for using the purchase method of accounting. The
excess of the costs over the fair value of the acquired assets was recorded as
goodwill and is being amortized over 30 years.
F-15
<PAGE>
INTELLISYS GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(b) Acquisition of Alford Media Sales, Inc.
Effective June 1, 1998, the Company acquired the net assets of Alford Media
Sales, Inc. for $565 in cash. The acquisition was accounted for using the
purchase method of accounting.
(c) Acquisition of Digital Networks Corporation
In August 1998, the Company acquired the net assets of Digital Networks
Corporation ("Digital") for $1,000 in cash, $400 in a promissory note and an
aggregate of $537 in convertible promissory notes. The purchase price may be
increased by a maximum $500 if Digital achieves certain income levels as
provided in the purchase agreement. The acquisition was accounted for using the
purchase method of accounting. The excess of the costs over the fair value of
the acquired assets was recorded as goodwill and is being amortized over 30
years.
(d) Acquisition of Aurora Visual Systems
In August 1998, the Company entered into a non-binding letter of intent to
acquire the net assets of Aurora Visual Systems for $900 in cash and $500 in a
convertible note.
(e) Acquisition of Proline Industries, Inc.
In October 1998, the Company entered into a non-binding letter of intent to
acquire all of the outstanding stock of Proline Industries, Inc. for $6,400.
(f) Private Placement
On June 24, 1998, the Company sold 156,177 shares of common stock for $1,000,
net of $50 in related expenses, in a private placement offering.
(g) Short-Term Credit Facility
On June 29, 1998, the Company entered into a loan agreement with a lender
that provided a secured credit facility of $1,020. All advances under the
credit facility accrue interest at 12% and mature on January 15, 1999. As part
of the loan agreement, the lender was granted warrants to purchase 45,507
shares of the Company's common stock with an exercise price of $6.72 per share.
The warrants expire on June 28, 2003. The fair value of these warrants of $189
was recorded as a reduction to the principal amount of the loan and will be
recognized as additional interest cost over the term of the loan.
(h) Lines of Credit
In September 1998, the Company entered into a $15,000 bank line of credit and
terminated and paid all outstanding indebtedness under its existing lines of
credit. The new line of credit is secured by substantially all of the Company's
assets. The outstanding borrowings bear interest at the bank's prime rate plus
0.5% or the Euro-rate plus 3.25%.
(i) Preferred Stock Financing
The Company expects to issue 1,058,489 shares of preferred stock to finance
portions of the proposed acquisitions of Aurora Visual Systems and Proline
Industries, Inc. and the repayment of approximately $1.0 million of an
outstanding note.
F-16
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
B. Higginbotham Enterprises, Inc.
We have audited the accompanying balance sheet of B. Higginbotham
Enterprises, Inc. as of June 30, 1997, and the related statements of
operations, stockholder's equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of B. Higginbotham Enterprises,
Inc. as of June 30, 1997 and the results of its operations and its cash flows
for the year then ended in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
Dallas, Texas
September 22, 1998
F-17
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
---------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Receivables:
Trade, less allowance for doubtful accounts of
$2,455 at June 30, 1997, and $9,302 at March 31,
1998 (unaudited)................................... $2,268,787 $1,883,615
Due from stockholder, net........................... 10,280 --
Due from employees.................................. 18,631 30,227
Other............................................... 74,230 94,003
Inventories........................................... 277,662 301,774
Prepaid expenses...................................... 6,674 53,977
---------- ----------
Total current assets.............................. 2,656,264 2,363,596
---------- ----------
Property and equipment, less accumulated depreciation
and amortization....................................... 534,615 562,006
Other assets............................................ 19,601 18,632
---------- ----------
$3,210,480 $ 44,234
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Cash overdraft........................................ $ 166,218 $ 50,972
Notes payable under line of credit.................... 500,000 500,000
Current portion of long-term debt..................... 14,480 35,357
Accounts payable...................................... 915,806 1,027,030
Sales and payroll taxes payable....................... 155,509 164,899
Accrued expenses...................................... 663,000 374,918
Deferred income taxes................................. 37,399 37,399
Due to stockholder, net............................... -- 48,787
---------- ----------
Total current liabilities......................... 2,452,412 2,239,362
Long-term debt, excluding current portion............... 60,212 86,427
Deferred income taxes................................... 111,957 111,957
---------- ----------
Total liabilities................................. 2,624,581 2,437,746
---------- ----------
Commitments
Stockholder's equity:
Common stock, $1 par value; authorized 100,000 shares;
issued and outstanding 1,000 shares.................. 1,000 1,000
Additional paid-in capital............................ 44,463 44,463
Retained earnings..................................... 540,436 461,025
---------- ----------
Total stockholder's equity........................ 585,899 506,488
---------- ----------
$3,210,480 $2,944,234
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS NINE MONTHS
JUNE 30, ENDED ENDED
1997 MARCH 31, 1997 MARCH 31, 1998
---------- -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Sales and installation services..... $6,037,802 $3,583,353 $5,175,541
Service and maintenance contract
services........................... 1,065,625 782,899 888,438
---------- ---------- ----------
7,103,427 4,366,252 6,063,979
Cost of sales....................... 6,017,593 3,709,455 5,113,720
---------- ---------- ----------
Gross profit.................... 1,085,834 656,797 950,259
Selling, general and administrative
expenses........................... 1,050,098 538,706 1,021,983
---------- ---------- ----------
Operating income (loss)......... 35,736 118,091 (71,724)
---------- ---------- ----------
Other income (expense):
Gain on investment activity....... 10,791 7,527 --
Gain (loss) on sale of equipment.. (38,172) 1,719 --
Interest expense.................. (33,602) (20,905) (44,661)
Other expense..................... (30,805) (5,801) (3,934)
---------- ---------- ----------
(91,788) (17,460) (48,595)
---------- ---------- ----------
Income (loss) before income
taxes.......................... (56,052) 100,631 (120,319)
Income tax expense (benefit)........ (26,844) 34,214 (40,908)
---------- ---------- ----------
Net income (loss)............... $ (29,208) $ 66,417 $ (79,411)
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
YEAR ENDED JUNE 30, 1997 AND
NINE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
<TABLE>
<CAPTION>
ADDITIONAL TOTAL
COMMON PAID-IN RETAINED STOCKHOLDER'S
STOCK CAPITAL EARNINGS EQUITY
------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Balances as of June 30, 1996........ $1,000 $44,463 $569,644 $615,107
Net loss.......................... -- -- (29,208) (29,208)
------ ------- -------- --------
Balances as of June 30, 1997........ 1,000 44,463 540,436 585,899
Net loss (unaudited).............. -- -- (79,411) (79,411)
------ ------- -------- --------
Balances as of March 31, 1998
(unaudited)........................ $1,000 $44,463 $461,025 $506,488
====== ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-20
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31,
JUNE 30, -----------------------
1997 1997 1998
----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income........................ $ (29,208) $ 66,417 $(79,411)
Adjustments to reconcile net (loss)
income to net cash (used in) provided by
operating activities:
Depreciation and amortization............ 149,680 70,000 127,628
Loss on sale of property and equipment... 38,172 -- 2,209
Gain on sales of investments............. (5,855) (466) --
Changes in assets and liabilities:
Receivables............................. (1,284,980) (604,049) 369,959
Inventories............................. (237,061) (189,144) (24,112)
Prepaid expenses........................ (6,068) 606 (47,303)
Other assets............................ (13,495) (37) 269
Accounts payable........................ 518,871 766,596 111,224
Sales and payroll taxes payable......... 98,895 29,345 9,390
Accrued expenses........................ 658,993 95,946 (288,082)
Deferred income taxes................... (26,844) -- --
----------- --------- --------
Net cash (used in) provided by
operating activities.................. (138,900) 235,214 181,771
----------- --------- --------
Cash flows from investing activities:
Proceeds from sale of investments........ 72,759 25,513 --
Purchases of property and equipment...... (375,270) (234,800) (156,528)
Proceeds from sale of property and
equipment............................... 36,332 -- --
----------- --------- --------
Net cash used in investing activities.. (266,179) (209,287) (156,528)
----------- --------- --------
Cash flows from financing activities:
Change in bank overdraft................. 166,218 -- (115,246)
Payment on debt to stockholder........... (8,600) (8,600) (8,600)
Proceeds from advance from stockholder... 8,600 8,600 51,511
Net proceeds (payments) on promissory
notes payable under line of credit...... 149,258 (100,742) --
Proceeds from issuance of long-term
debt.................................... 80,465 61,492 47,092
Payments on long-term debt............... (9,609) -- --
----------- --------- --------
Net cash provided by (used in)
financing activities.................. 386,332 (39,250) (25,243)
----------- --------- --------
Net (decrease) increase in cash........... (18,747) (13,323) --
Cash at beginning of period............... 18,747 18,747 --
----------- --------- --------
Cash at end of period..................... $ -- $ 5,424 $ --
=========== ========= ========
Supplemental cash flow information:
Interest paid............................ $ 33,600 $ 20,905 $ 44,661
=========== ========= ========
</TABLE>
See accompanying notes to financial statements.
F-21
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF MARCH 31, 1998, AND FOR THE NINE-MONTH PERIODS ENDED MARCH
31, 1997 AND 1998, IS UNAUDITED)
(1) GENERAL INFORMATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
B. Higginbotham Enterprises, Inc. (the Company) operates in all phases of the
audio/visual business, including audio/visual sales, rental, service and
installation. The Company's clients are dispersed among various Fortune 500
corporations, schools, churches and government agencies throughout Texas.
(b) Inventories
Inventories generally consist of audio/visual equipment, which are stated at
the lower of average cost or market. As the majority of equipment is ordered
for a specific job, the Company carries very little inventory stock held for
sale.
(c) Revenue Recognition
Revenue from product sales is recognized upon delivery of product. Revenue
from audio/visual installation and service is recognized using the percentage
of completion method based on the amount of labor incurred. Rental income is
recognized when earned. Revenue from the sale and installation of products
accounted for approximately 85% of total revenue during the year ended June 30,
1997 and the period ended March 31, 1998 (unaudited), with audio/visual service
and rental revenues accounting for the remainder.
(d) Property and Equipment
Property and equipment are stated at cost and are depreciated and amortized
using an accelerated method, which corresponds to the higher use of the assets
in the earlier part of their useful lives, over the following estimated useful
lives of the respective assets:
<TABLE>
<S> <C>
Furniture and fixtures...................................... 7 years
Automobile and trucks....................................... 5 years
Leasehold improvements...................................... 31-39 years
Equipment................................................... 5-7 years
Rental equipment............................................ 7 years
</TABLE>
(e) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
Long-lived assets and certain identifiable intangibles are reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
F-22
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(f) Other Assets
Other assets consist primarily of goodwill and deposits. Amortization of
goodwill is calculated using the straight-line method over an estimated useful
life of 15 years. Amortization expense for the year ended June 30, 1997 and the
nine months ended March 31, 1998 was $744 and $700 (unaudited), respectively.
(g) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
basis. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(h) Use of Estimates
The preparation of the 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.
(i) Marketing and Advertising Costs
Costs related to marketing and advertising have been expensed as incurred.
(j) Unaudited Balances
The accompanying unaudited financial statements include all adjustments
(consisting of only normal recurring adjustments) that management considers
necessary for a fair presentation of the financial position and results of
operations as of the date and for the periods indicated.
(2) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30, MARCH 31,
1997 1998
-------- -----------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures.................................. $ 8,557 $ 17,386
Automobile and trucks................................... 145,179 215,678
Leasehold improvements.................................. 70,910 90,740
Equipment............................................... 101,851 87,547
Rental equipment........................................ 457,441 522,999
-------- --------
783,938 934,350
Less accumulated depreciation and amortization.......... 249,323 372,344
-------- --------
$534,615 $562,006
======== ========
</TABLE>
F-23
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Depreciation charged to income was $148,936 and $126,928 (unaudited) for the
year ended June 30, 1997 and the nine months ended March 31, 1998,
respectively.
(3) NOTES PAYABLE AND LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE
30, MARCH 31,
1997 1998
------- -----------
(UNAUDITED)
<S> <C> <C>
Note payable to a bank, due in monthly installments of
$1,417, interest rate of 9%; final payment due Decem-
ber 2001.............................................. $62,557 $ --
Note payable to a bank, due in monthly installments of
$3,228, interest rate of 9.25%; final payment due De-
cember 2001........................................... -- 93,267
Note payable to a bank, due in monthly installments of
$356, interest rate of 9.25%; final payment due July
2001.................................................. -- 12,184
Note payable to a bank, due in monthly installments of
$406, interest rate of 9.00%; final payment due Decem-
ber 2001.............................................. -- 16,333
Note payable to a bank, due in monthly installments of
$264, interest rate of 10.25%; final payment due May
2002.................................................. 12,135 --
------- --------
Total................................................ 74,692 121,784
Less current installments.............................. 14,480 35,357
------- --------
$60,212 $ 86,427
======= ========
</TABLE>
The aggregate maturities of long-term debt subsequent to June 30, 1997, are
as follows: 1998, $14,480; 1999, $15,500; 2000, $16,500; 2001, $17,500; and
2002, $10,712.
The Company has a line of credit agreement with a bank (maximum borrowing
base of $500,000) that expires on June 30, 1998. Borrowings under the agreement
bear interest at the bank's prime rate plus 1.5% and are secured by
substantially all of the Company's assets.
The Company is subject to a number of restrictive financial and other
covenants under the line of credit agreement. As of June 30, 1997 and March 31,
1998 (unaudited), the Company was in compliance with these covenants.
(4) LEASES
The Company leases certain of its facilities under an operating lease on a
month-to-month basis.
(5) INCOME TAXES
The following are the components of the provision for income taxes for the
year ended June 30, 1997:
<TABLE>
<CAPTION>
1997
-------
<S> <C>
Deferred:
Federal......................................................... $22,414
Current......................................................... 4,430
-------
$26,844
=======
</TABLE>
F-24
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1997 are presented below:
<TABLE>
<CAPTION>
JUNE 30,
1997
---------
<S> <C>
Deferred tax assets:
Net operating loss carry forwards.................................. $ 28,621
Expenses not currently deductible due to cash-basis tax accounting
.................................................................. 392,139
Other.............................................................. 14,096
---------
Total gross deferred tax assets.................................. 434,856
---------
Deferred tax liabilities:
Income not currently taxable due to cash-basis tax accounting...... $ 584,212
Net deferred tax liability....................................... $ 149,356
=========
</TABLE>
The following is a reconciliation between income tax expense (benefit) and
the amount computed by applying the statutory federal income tax rate to loss
before taxes:
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Statutory rate of 34% applied to pre-tax net loss............... $(19,058)
Other........................................................... (7,786)
--------
Income tax expense (benefit).................................... $(26,844)
========
</TABLE>
(6) RELATED PARTY TRANSACTIONS
The Company rents office space from the stockholder of the Company. There is
no formal lease agreement related to these arrangements. Rental expense was
$103,200 for the year ended June 30, 1997 and $94,846 (unaudited) for the nine
months ended March 31, 1998, respectively.
The Company has made non-interest bearing advances to its sole stockholder.
It is expected that the remaining balance of these advances, $2,724 (unaudited)
at March 31, 1998, will be received in fiscal 1998.
Due from (to) the sole stockholder represents non-interest bearing balances
resulting from advances made or received monthly.
(7) FAIR MARKET VALUE OF FINANCIAL INSTRUMENTS
For certain of the Company's financial instruments, including receivables,
bank overdraft, accounts payable, and sales and payroll taxes payable, the
carrying values approximates fair values because of their short maturity. The
carrying value of borrowing under the revolving line of credit approximates
fair value because of the variable interest rate. The fair values of borrowings
under notes payable and long-term debt approximate carrying values due to
current interest rates.
F-25
<PAGE>
B. HIGGINBOTHAM ENTERPRISES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(8) EMPLOYEE STOCK OWNERSHIP PLAN
On July 1, 1996, the Company established an Employee Stock Ownership Plan
(ESOP) to enable eligible employees to acquire a proprietary interest in the
stock of the Company. Any employee who has completed six months of service and
is at least 20 and one-half years old is eligible to participate in the ESOP.
The Company accrued a contribution of $152,499 at June 30, 1997 based on a
percentage of eligible wages. The common stock was issued in April 1998.
(9) COMMITMENTS
The Company was guarantor of a loan to the sole stockholder of approximately
$100,000 which was used to fund construction of a building which houses the
Company's office facilities. The sole stockholder refinanced the loan in July
1997, and the Company was released from its guarantee.
(10) SUBSEQUENT EVENTS
In April 1998, Higginbotham filed a form 3115 with the IRS for an
"Application for Change in Accounting Method" to convert from the cash basis to
the accrual method for income tax purposes.
In June 1998, Higginbotham was acquired by Intellisys Group, Inc. and the
Company filed a resolution to terminate the ESOP plan.
F-26
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Proline Industries, Inc.
Seattle, Washington
We have audited the accompanying balance sheets of Proline Industries, Inc.
as of December 31, 1997 and 1996, and the related statements of operations,
stockholders' equity, and cash flows for the years then ended. 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 Proline Industries, Inc. as of
December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.
PETERSON SULLIVAN P.L.L.C.
Seattle, Washington
September 22, 1998
F-27
<PAGE>
PROLINE INDUSTRIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------- JUNE 30,
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS (UNAUDITED)
Current Assets
Accounts receivable, net of allowance for
doubtful accounts; 1996--$35,000, 1997--
$30,000, 1998--$31,500 ................... $4,245,043 $3,852,592 $ 4,676,372
Inventory.................................. 1,484,290 1,670,531 2,047,203
Prepaid expenses and other current assets.. 99,176 253,818 126,766
---------- ---------- -----------
Total current assets..................... 5,828,509 5,776,941 6,850,341
Fixed Assets, at cost, net................... 1,455,427 549,938 590,007
Other Assets................................. 74,648 12,502 12,502
---------- ---------- -----------
$7,358,584 $6,339,381 $ 7,452,850
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and other accrued
expenses.................................. $2,118,660 $1,654,520 $ 2,944,266
Line of credit............................. 2,877,740 3,234,342 2,935,679
Loans from stockholders.................... 649,170 312,593 387,593
Current portion of long-term debt.......... 100,580 8,665 8,665
---------- ---------- -----------
Total current liabilities................ 5,746,150 5,210,120 6,276,203
Long-term debt, less current portion......... 321,763 4,927 4,927
Stockholders' Equity
Common stock, $1 par value, 50,000 shares
authorized; 45,000 shares issued and
outstanding............................... 45,000 45,000 45,000
Retained earnings.......................... 1,245,671 1,079,334 1,126,720
---------- ---------- -----------
1,290,671 1,124,334 1,171,720
---------- ---------- -----------
$7,358,584 $6,339,381 $ 7,452,850
========== ========== ===========
</TABLE>
See Notes to Financial Statements
F-28
<PAGE>
PROLINE INDUSTRIES, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
-------------------------- -------------------------
1996 1997 1997 1998
------------ ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Sales.................... $ 37,042,747 $ 32,224,366 $ 15,216,270 $ 14,558,567
Cost of sales............ 28,973,877 25,574,446 12,041,278 11,266,543
------------ ------------ ------------ ------------
Gross profit............. 8,068,870 6,649,920 3,174,992 3,292,024
Selling and administra-
tive expenses, including
interest; December 31,
1996--$335,129, December
31, 1997--$335,129, June
30, 1997--$165,824, June
30, 1998--$180,442...... 7,791,483 6,397,617 2,961,752 3,204,088
------------ ------------ ------------ ------------
Income before provision
for income taxes........ 277,387 252,303 213,240 87,936
Income taxes
Current tax............ 122,719 87,596 52,400 40,550
Deferred tax........... (11,255) (9,840) -- --
------------ ------------ ------------ ------------
111,464 77,756 52,400 40,550
------------ ------------ ------------ ------------
Net income........... $ 165,923 $ 174,547 $ 160,840 $ 47,386
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements
F-29
<PAGE>
PROLINE INDUSTRIES, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK
----------------- RETAINED
SHARES PAR VALUE EARNINGS TOTAL
------ --------- ---------- ----------
<S> <C> <C> <C> <C>
Balances, December 31, 1995......... 46,500 $46,500 $1,114,353 $1,160,853
Net Income.......................... -- -- 165,923 165,923
Repurchase of Stock................. (1,500) (1,500) (34,605) (36,105)
------ ------- ---------- ----------
Balances, December 31, 1996......... 45,000 45,000 1,245,671 1,290,671
Transfer to shareholders in
corporate reorganization........... -- -- (340,884) (340,884)
Net Income.......................... -- -- 174,547 174,547
------ ------- ---------- ----------
Balances, December 31, 1997......... 45,000 45,000 1,079,334 1,124,334
Net Income (unaudited).............. -- -- 47,386 47,386
------ ------- ---------- ----------
Balances, June 30, 1998
(unaudited)........................ 45,000 $45,000 $1,126,720 $1,171,720
====== ======= ========== ==========
</TABLE>
See Notes to Financial Statements
F-30
<PAGE>
PROLINE INDUSTRIES, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------- ---------------------
1996 1997 1997 1998
----------- --------- --------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash Flows from Operating
Activities
Net income..................... $ 165,923 $ 174,547 $ 160,840 $ 47,386
Adjustments to reconcile net
income to net cash flows from
operating activities
Depreciation................... 358,361 111,032 60,000 78,000
Deferred income taxes.......... (11,255) (9,840) -- --
Changes in operating assets
and liabilities
Accounts receivable........... 160,463 392,451 114,079 (823,780)
Inventory..................... 1,042,057 (186,241) (619,003) (376,672)
Other assets.................. (89,007) (82,656) (200,811) 127,052
Accounts payable and other
accrued expenses............. 235,667 (475,379) 424,028 1,289,746
----------- --------- --------- ----------
Net cash flows from operating
activities.................. 1,862,209 (76,086) (60,867) 341,732
Cash Flows from Investing
Activities
Purchase of fixed assets....... (997,452) (412,257) (234,750) (118,069)
Loan repayments from
affiliate..................... -- 475,750 375,750 --
----------- --------- --------- ----------
Net cash flows from investing
activities.................. (997,452) 63,493 141,000 (118,069)
Cash Flows from Financing
Activities
Repurchase of stock............ (36,105) -- -- --
Stockholder loans, net......... 128,748 (336,577) (318,002) --
Principal repayments on long-
term debt..................... (98,222) (7,432) -- 75,000
Proceeds from long-term debt... 500,000 -- 581 --
Increase (decrease) in line of
credit borrowing, net......... (1,359,178) 356,602 237,288 (298,663)
----------- --------- --------- ----------
Net cash flows from financing
activities.................. (864,757) 12,593 (80,133) (223,663)
----------- --------- --------- ----------
Change in cash and cash
balance, end of year........ $ -- $ -- $ -- $ --
=========== ========= ========= ==========
</TABLE>
See Notes to Financial Statements
F-31
<PAGE>
PROLINE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION AS OF JUNE 30, 1998, AND FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
1997 AND 1998, IS UNAUDITED)
NOTE 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization
Proline Industries, Inc. ("Proline") sells audio-visual, video and computer
projection equipment. The majority of the Company's accounts are businesses
located in the State of Washington. The Company also has offices in Oregon and
California.
Revenue Recognition
Product sales are recognized as revenue upon shipment.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that effect 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.
Cash
For purposes of the statements of cash flows, Proline considers all highly
liquid debt instruments purchased with a maturity of three months or less to be
cash equivalents.
Proline had issued checks in excess of bank deposits of $286,521, $465,527,
and $459,644 at December 31, 1996 and 1997, and June 30, 1998, respectively.
These amounts are included with accounts payable.
Cash paid for interest was approximately $455,000 and $335,000 for the years
ended December 31, 1996 and 1997, respectively, and $156,000 and $180,000 for
the six months ended June 30, 1997 and 1998, respectively. Cash paid for income
taxes was approximately $94,000 and $92,000 for the years ended December 31,
1996 and 1997, respectively, and $41,000 and $52,000 for the six months ended
June 30, 1997 and 1998, respectively.
The Company occasionally has cash balances on deposit in excess of FDIC
insurance limits throughout the year.
Inventory
Inventories are carried at the lower of cost (first-in, first-out) or market.
Certain vendor accounts payable are secured by inventory.
F-32
<PAGE>
PROLINE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Fixed Assets
Fixed assets are depreciated using straight-line and accelerated methods over
the estimated useful lives of the assets.
Fixed assets consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------- JUNE 30,
1996 1997 1998
----------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Rental equipment.......................... $ 1,408,483 $ -- $ --
Furniture and equipment................... 878,325 1,055,318 1,126,926
Vehicles and aircraft..................... 449,856 354,703 401,165
----------- ---------- ----------
2,736,664 1,410,021 1,528,091
Less accumulated depreciation............. (1,281,237) (860,083) (938,084)
----------- ---------- ----------
$ 1,455,427 $ 549,938 $ 590,007
=========== ========== ==========
</TABLE>
Income Taxes
Proline accounts for income taxes under the asset and liability approach that
requires the recognition of deferred tax assets and liabilities for expected
future tax consequences of events that have been recognized in the financial
statements or tax returns. In estimating future tax consequences, Proline
generally considers all expected future events other than enactments of changes
in tax laws or rates.
Advertising
Advertising costs are charged to operations when the advertising first takes
place. Advertising expense amounted to $117,816 and $77,437 in the years ended
December 31, 1996 and 1997, and $22,506 and $48,383 in the six months ended
June 30, 1997 and 1998, respectively.
Unaudited Balances
The accompanying unaudited financial statements include all adjustments
(consisting of only normal recurring adjustments) that management considers
necessary for a fair presentation of the financial position and results of
operations as of the date and for the periods indicated.
NOTE 2. CORPORATE REORGANIZATION
On January 1, 1997, the Company reorganized into two corporations: Proline
Industries, Inc. and Proline Audio Visual Rentals, Inc. ("Proline Audio"). The
Board of Directors effected this split by forming Proline Audio and
simultaneously declaring a dividend to Proline shareholders in the form of 500
shares of common stock in the newly formed corporation. This represented all of
the Proline Audio issued stock. Stockholders of record of Proline received one
share of Proline Audio common stock for every 90 shares of Proline stock held.
No gain or loss was recognized on this disposal of a portion of the Company's
business. This transaction has been accounted for as a spin-
F-33
<PAGE>
PROLINE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
off and, accordingly, retained earnings has been decreased $340,884 as of
January 1, 1997, representing the carrying value of the assets and liabilities
transferred at the spin-off date. Proline Audio consists principally of the
assets and related liabilities that had been used by Proline in its rental
operations. The cost of the rental fixed assets transferred at the time of the
transfer was $1,773,512 with a net book value of $1,227,254. The liabilities
transferred to Proline Audio consisted of a note payable to a bank in the
amount of $410,620 and a loan payable to Proline for $475,750.
NOTE 3. LEASE COMMITMENTS
Proline leases office and warehouse space in various locations under
noncancelable leases. Proline's office lease for its headquarters is
cancelable each January 31, but the Company expects to maintain the lease
through its entire five-year term, so it is included in the lease commitment
table below.
Proline Audio reimburses the Company for its allocable share of rental
costs.
Future minimum noncancelable rental payments at December 31, 1997 (and
rental payments associated with Proline's headquarters) are:
<TABLE>
<CAPTION>
RENT EXPENSE REIMBURSEMENTS NET
------------ -------------- ----------
<S> <C> <C> <C>
1998..................................... $ 401,832 $ 86,053 $ 315,779
1999..................................... 417,187 88,692 328,495
2000..................................... 409,079 76,665 332,414
2001..................................... 272,125 64,194 207,931
2002..................................... 283,010 66,762 216,248
Thereafter............................... 23,660 5,581 18,079
---------- -------- ----------
Total.................................. $1,806,893 $387,947 $1,418,946
========== ======== ==========
</TABLE>
Total rent expense was $454,164 and $378,617 in the years ended December 31,
1996 and 1997, respectively, and $180,738 and $215,556 in the six months ended
June 30, 1997 and 1998, respectively.
The Company's leased office in Portland, Oregon, is owned by the majority
stockholders of Proline. Rent paid on this facility in the year ended December
31, 1996, was $120,700. Rent paid for the year ended December 31, 1997, was
$117,180, net of $17,034 of reimbursements from Proline Audio. Rent paid in
the six months ended June 30, 1997, was $53,381, net of $12,477 of
reimbursements from Proline Audio. Rent on this facility for the six months
ended June 30, 1998, was $71,774.
F-34
<PAGE>
PROLINE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1996 1997 1998
-------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Note payable to a bank, due in monthly
installments of $10,490, including interest at
8.3%, secured by rental equipment................ $410,619 $ -- $ --
Other notes payable............................... 11,724 13,592 13,592
-------- ------- -------
422,343 13,592 13,592
Less current portion.............................. 100,580 8,665 8,665
-------- ------- -------
$321,763 $ 4,927 $ 4,927
======== ======= =======
</TABLE>
NOTE 5. LOANS FROM STOCKHOLDERS
The loans from stockholders are unsecured and are due on demand. Interest on
the loans is payable quarterly at 12.0%. Total interest expense on these loans
was $66,446 and $46,862 in the years ended December 31, 1996 and 1997,
respectively. Interest expense on these loans was $27,972 and $20,139 in the
six months ended June 30, 1997 and 1998, respectively.
NOTE 6. LINE OF CREDIT
The Company has established a line of credit with a bank for $4,500,000. The
loan bears interest at the bank's prime rate plus .25% (resulting in a rate of
8.75% at December 31, 1997). The line is secured by accounts receivable and
inventory. The line is subject to renewal annually on July 31.
NOTE 7. TRANSACTIONS WITH AFFILIATE
Proline Audio had the following transactions with Proline:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------- ---------------
1996 1997 1997 1998
----- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C>
Reimbursement to Proline for Proline Audio's
proportionate rent for shared space at various
locations...................................... $ -- $192,689 $54,660 $48,990
Reimbursement to Proline for office
expenditures................................... $ -- $ 95,702 $57,545 $62,638
Purchase of equipment from Proline.............. $ -- $135,431 $84,093 $10,647
</TABLE>
NOTE 8. EMPLOYEE PROFIT SHARING
Proline sponsors an employee savings and profit sharing plan. The Plan covers
all eligible employees. Proline matches a portion of employees' elective
contributions. In addition, Proline may make annual profit sharing
contributions at the discretion of the Board of Directors. In the year ended
December 31, 1996, there were $22,719 in matching contributions and $50,000 in
discretionary contributions. In the year ended December 31, 1997, there were
$23,518 in matching contributions and no discretionary contributions. For the
six months ended June 30, 1997 and 1998, there were $10,165 and $13,036,
respectively, in matching contributions.
F-35
<PAGE>
PROLINE INDUSTRIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9. SUBSEQUENT EVENT
Subsequent to June 30, 1998, Proline's stockholders signed a non-binding
letter of intent to sell all of Proline's common stock. The value of Proline's
assets and liabilities has not been adjusted for this transaction.
F-36
<PAGE>
[INSIDE BACK COVER]
ARTWORK:
[Photograph showing Tandem Computers Advanced Technology Laboratory.]
CAPTIONS:
Tandem Computers Inc. Advanced Technology Laboratory
The multimedia demonstration system in Tandem's advanced technology
laboratory theater uses text, graphics and sound systems designed and installed
by Intellisys. The system allows Tandem's researchers to demonstrate their
latest developments in computing hardware and software to groups of potential
customers.
ARTWORK:
[Photograph showing Santa Clara University lecture hall.]
CAPTIONS:
Santa Clara University Distance Learning Classrooms
Intellisys created the television and presentation systems for Santa Clara
University's new classrooms. These systems allow teachers to share educational
media with students at numerous off-site locations. Working through a process
of planning, budgeting and installation, Intellisys provided the university
with state-of-the-art teaching facilities.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE ANY
INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO
SELL OR BUY ANY SHARES IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL. THE
INFORMATION IN THIS PROSPECTUS IS CURRENT AS OF , 1998.
-----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Consolidated Financial Data..................................... 18
Pro Forma Consolidated Financial Data.................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 28
Business................................................................. 35
Management............................................................... 46
Principal Stockholders................................................... 52
Certain Transactions..................................................... 53
Shares Eligible for Future Sale.......................................... 53
Description of Capital Stock............................................. 54
Underwriting............................................................. 58
Legal Matters............................................................ 60
Experts.................................................................. 60
Available Information.................................................... 61
Index to Financial Statements............................................ F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
THAT BUY, SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THESE DEALERS ARE ALSO
OBLIGATED TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
LOGO
COMMON STOCK
-----------------
PROSPECTUS
-----------------
WEDBUSH MORGAN SECURITIES INC.
, 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be paid by the Company in connection with the distribution of
the securities being registered are as set forth in the following table:
<TABLE>
<S> <C>
Securities and Exchange Commission Fee................................ $ 6,785
NASD Filing Fee....................................................... 2,500
Nasdaq National Market Listing Fee.................................... 63,725
*Legal Fees and Expenses.............................................. 250,000
*Accounting Fees and Expenses......................................... 300,000
*Printing Expenses.................................................... 120,000
*Blue Sky Fees and Expenses........................................... 5,000
*Registrar and Transfer Agent Fees and Expenses....................... 10,000
*Miscellaneous........................................................ 41,990
--------
*Total.............................................................. $800,000
========
</TABLE>
- --------
* Estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law (the
"DGCL"), the Company's Amended and Restated Certificate of Incorporation
includes a provision that eliminates the personal liability of its directors
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 Company
or its stockholders; (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of the law; (iii)
pursuant to Section 174 of the DGCL; or (iv) for any transaction from which the
director derived an improper personal benefit.
In addition, the Amended and Restated Bylaws of the Company provide that (i)
the Company shall indemnify any person who was or is a party or is threatened
to be made a party to any action, suit or proceeding by reason of the fact that
he or she is or was a director or officer of the Company, or is or was serving
in certain capacities of other enterprises (including, for example,
subsidiaries of the Company) at the Company's request, including those
circumstances in which indemnification would otherwise be discretionary; (ii)
the Company may, in its discretion, indemnify employees and agents in those
circumstances where indemnification is not required by law; (iii) expenses
incurred by a director or officer arising from a threatened or pending action,
suit or proceeding shall be paid by the Company in advance of final disposition
of the action upon receipt of an undertaking by or on behalf of such director
or officer to repay such amount if ultimately he is not entitled to
indemnification; and (iv) the rights conferred in the Bylaws are not exclusive
and the Company is authorized to enter into indemnification agreements with its
directors, officers and employees. The Bylaws permit the Company to maintain
director and officer liability insurance for its directors and officers whether
or not the Company would have the power or the obligation to indemnify them
against such liability under the indemnification provisions of the Bylaws.
II-1
<PAGE>
The Company has obtained a policy of directors' and officers' liability
insurance for its directors and officers to insure directors and officers
against the costs of defense, settlement or payment of a judgment under certain
circumstances. The Company has entered into indemnification agreements with its
executive officers and directors pursuant to which the Company has agreed to
indemnify these officers and directors to the fullest extent permitted by the
DGCL.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since October 1995, the Registrant has issued and sold unregistered securities
(after giving effect to the Reincorporation) as follows:
(1) An aggregate of 156,177 shares of the Company's common stock were
issued in a private placement in June 1998. The consideration received for
such shares was $1,050,000.
(2) Warrants for the purchase of an aggregate of 47,142 shares of common
stock with an exercise price of $27.21 per share were issued in June 1998
in connection with a bridge loan facility.
(3) In connection with the Company's acquisition of Digital, in August 1998
the Registrant issued three subordinated convertible promissory notes to
Digital that are convertible into an aggregate of 72,619 shares of the
Company's common stock immediately following this offering.
(4) In May 1998, Frank DiGirolamo, then an executive officer of the
Company, exercised a stock option to purchase 8,093 shares of the Company's
common stock at an exercise price of $3.00 per share.
(5) In October 1995, Douglas Adams, a former executive officer of the
Company, exercised options to purchase 142,439 shares of the Company's
common stock at an exercise price of $.001 per share.
No underwriters were used in connection with these sales and issuances. The
sales and issuances of these securities were exempt from registration under the
Securities Act pursuant to (i) Rule 701 promulgated thereunder, on the basis
that the stock options were offered and sold pursuant to written contracts
relating to consideration, as provided by Rule 701, or (ii) Section 4(2)
thereof, on the basis that the transactions did not involve a public offering.
ITEM 16. EXHIBITS
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
1.2 Form of Warrant Agreement.*
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws.
4.1 Form of Specimen Common Stock Certificate.*
5.1 Opinion of Latham & Watkins.*
10.1 1998 Equity Participation Plan.
10.2 Investor Agreement among the Company, E*Capital Corporation, Feighner
Family Trust, Den-Mat Corp., Edward Wedbush and Donald Esters, dated
June 24, 1998.
10.3 Registration Rights Agreement among the Company, E*Capital Corporation,
Feighner Family Trust, Den-Mat Corp. and Edward Wedbush, dated June 24,
1998.
</TABLE>
II-2
<PAGE>
<TABLE>
<C> <S>
10.4 Original Stockholders Agreement among the Company, National Financial
Associates, Continental Far East, Thomas L. Ringer and Juanita B.
Ringer, as co-trustees, Advanced Communications Equipment Co. Ltd.,
John Bohle, Donald Esters, and Walter Goodman, dated March 4, 1994.
10.5 Stockholders Agreement between the Company and Douglas Adams, dated
October 17, 1995.
10.6 Stockholders Agreement between the Company and the Esters Family
Partnership, dated February 5, 1998.
10.7 Stockholders Agreement between the Company and Frank S. DiGirolamo,
dated May 1, 1998.
10.8 Option Agreement between the Company and Michael Dennis, dated March
4, 1994.
10.9 Option Agreement between the Company and Mark Madison, dated March 4,
1994.
10.10 Option Agreement between the Company and Douglas Adams, dated March 4,
1994.
10.11 Non-Qualified Stock Option Agreement between the Company and Michael
Dennis, dated January 1, 1996.
10.12 Non-Qualified Stock Option Agreement between the Company and Frank
DiGirolamo, dated January 1, 1996.
10.13 Non-Qualified Stock Option Agreement between the Company and Craig
Park, dated September 20, 1996.
10.14 Non-Qualified Stock Option Agreement between the Company and Michael
Dennis, dated May 19, 1997.
10.15 Non-Qualified Stock Option Agreement between the Company and Michael
Dennis, dated February 1, 1998.
10.16 Non-Qualified Stock Option Agreement between the Company and Dennis
Kushner, dated February 1, 1998.
10.17 Non-Qualified Stock Option Agreement between the Company and Mark
Madison, dated February 1, 1998.
10.18 Asset Purchase Agreement between the Company and Digital Networks
Corporation, dated June 12, 1998.
10.19 Stock Purchase Agreement among the Company, Alford Media Sales, Inc.
and the shareholders thereof, dated June 24, 1998.
10.20 Stock Purchase Agreement among the Company, B. Higginbotham
Enterprises, Inc. and the shareholders thereof, dated June 10, 1998.
10.21 Letter of Intent between the Company and Aurora Visual Systems, dated
August 17, 1998.
10.22 Letter of Intent between the Company and Proline Industries, Inc.,
dated October 5, 1998.
10.23 Stock Purchase Agreement by and among the Company, E*Capital
Corporation, Feighner Family Trust, Den-Mat Corp. and Edward Wedbush,
dated June 24, 1998.
10.24 Warrant to Purchase Stock issued by the Company for the benefit of
Sand Hill Capital LLC.
10.25 Agreement with Seller Stockholders among the Company, Michael
Stammire, Richard Bart Moran and Chris H. Ursetta, dated June 12,
1998.
10.26 Lease Agreement between the Company and Jack Dymond Lathing Company,
dated February 7, 1992.
10.27 Amendment to Lease Agreement between the Company and Jack Dymond
Lathing Company, dated October 5, 1995.
10.28 Lease Agreement between the Company and Robert Geisler, dated April
13, 1998.
10.29 Lease Agreement between the Company and Pyramid Investment
Corporation, dated September 22, 1995.
10.30 Lease Agreement between the Company and Olen Properties Corp., dated
August 14, 1996.
10.31 Lease Agreement between the Company and Fortune Fifty Associates,
dated February 23, 1998.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S>
10.32 First Amendment to Lease Agreement between the Company and Fortune
Fifty Associates, dated April 3, 1998.
10.33 Lease Agreement among the Company, Wells Fargo Bank, N.A., as
corporate co-trustee for the Automotive Industries Pension Trust Fund,
and other corporate co-trustees, dated May 14, 1998.
10.34 Lease Agreement between the Company and John and Vesna Meehan, dated
August 10, 1995.
10.35 Lease Agreement between the Company and Norris Investments Limited,
dated August 12, 1996.
10.36 Lease Agreement between the Company and Inverness Associates--373,
dated July 29, 1997.
10.37 Lease Agreement between the Company and Robert Higginbotham, dated
June 15, 1998.
10.38 Lease Agreement between the Company and Richard Ranger, dated June 1,
1998.
10.39 Lease Agreement between the Company and Robert Higginbotham, dated
June 15, 1998.
10.40 Lease Agreement between the Company and IVEST, Inc., dated February 9,
1998.
10.41 First Amendment to Lease Agreement between the Company and IVEST,
Inc., dated July 13, 1998.
10.42 Lease Agreement between the Company and The Raymond Malooly Trust,
dated December 31, 1997.
10.43 Lease Agreement between the Company and Your Office USA, Inc., dated
June 1, 1998.
10.44 Loan and Security Agreement among the Company, Educational Industrial
Sales, Incorporated, Alford Media Sales, Inc., B. Higginbotham
Enterprises, Inc. and Sanwa Business Credit Corporation, dated
September 3, 1998.
10.45 Loan Agreement by and among Sand Hill Capital LLC and the Company,
dated June 29, 1998.
10.46 Subordinated Convertible Promissory Notes made by the Company in favor
of Digital Networks Corporation, dated August 24, 1998.
10.47 Subordinated Promissory Buyer Notes made by the Company in favor of
Digital Networks Corporation, dated August 24, 1998.
10.48 Demand Note made by The Dupuis Group, L.L.C. for the benefit of the
Company, dated April 2, 1996.
10.49 Subordinated Promissory Note made by the Company for the benefit of
Robert V. Higginbotham, dated June 29, 1998.
10.50 Promissory Note made by Durand Communications, Inc. for the benefit of
the Company dated November 19, 1997.
10.51 Software Consulting Agreement between Frank Rimmerman Consulting LLC
and the Company, dated June 1, 1998.
10.52 Form of Indemnification Agreement.*
21 List of Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Peterson Sullivan P.L.L.C.
23.3 Consent of Latham & Watkins (included in Exhibit 5.1).
24.1 Powers of Attorney (contained on the signature page of this
Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, 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 of 1933 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, 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 whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, 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
of 1933, 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.
(3) It will provide to the Representatives, at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the Representatives to permit prompt delivery
to each purchaser.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Mountain View, State of
California, on October 16, 1998.
Intellisys Group, inc.
/s/ Donald J. Esters
By: _________________________________
Donald J. Esters
Chairman, President and Chief
Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below does hereby constitute and appoint Donald J. Esters and Daniel M.
Caserza, and each of them, with full power of substitution and full power to
act without the other, his true and lawful attorney-in-fact and agent to act
for him in his name, place and stead, in any and all capacities, to sign any
and all amendments (including post-effective amendments) to this Registration
Statement and any subsequent registration statement the Company may hereafter
file with the Securities and Exchange Commission pursuant to Rule 462(b) under
the Securities Act to register additional shares of common stock, and to file
this Registration Statement, with all exhibits thereto, and other 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 order to effectuate the same as fully, to all intents
and purposes, as they or he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by each of the following persons in the capacities
and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Donald J. Esters Chairman, President and October 16, 1998
______________________________________ Chief Financial Officer
DONALD J. ESTERS (Principal Executive
Officer and
Principal Financial
Officer)
/s/ Daniel M. Caserza Corporate Controller October 16, 1998
______________________________________ (Principal Accounting
DANIEL M. CASERZA Officer)
/s/ Frank Perna Director October 16, 1998
______________________________________
FRANK PERNA
/s/ John Bohle Director October 16, 1998
______________________________________
JOHN BOHLE
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.*
1.2 Form of Warrant Agreement.*
3.1 Amended and Restated Certificate of Incorporation.
3.2 Amended and Restated Bylaws.
4.1 Form of Specimen Common Stock Certificate.*
5.1 Opinion of Latham & Watkins.*
10.1 1998 Equity Participation Plan.
10.2 Investor Agreement among the Company, E*Capital Corporation, Feighner
Family Trust, Den-Mat Corp., Edward Wedbush and Donald Esters, dated
June 24, 1998.
10.3 Registration Rights Agreement among the Company, E*Capital Corporation,
Feighner Family Trust, Den-Mat Corp. and Edward Wedbush, dated June 24,
1998.
10.4 Original Stockholders Agreement among the Company, National Financial
Associates, Continental Far East, Thomas L. Ringer and Juanita B.
Ringer, as co-trustees, Advanced Communications Equipment Co. Ltd., John
Bohle, Donald Esters, and Walter Goodman, dated March 4, 1994.
10.5 Stockholders Agreement between the Company and Douglas Adams, dated
October 17, 1995.
10.6 Stockholders Agreement between the Company and the Esters Family
Partnership, dated February 5, 1998.
10.7 Stockholders Agreement between the Company and Frank S. DiGirolamo,
dated May 1, 1998.
10.8 Option Agreement between the Company and Michael Dennis, dated March 4,
1994.
10.9 Option Agreement between the Company and Mark Madison, dated March 4,
1994.
10.10 Option Agreement between the Company and Douglas Adams, dated March 4,
1994.
10.11 Non-Qualified Stock Option Agreement between the Company and Michael
Dennis, dated January 1, 1996.
10.12 Non-Qualified Stock Option Agreement between the Company and Frank
DiGirolamo, dated January 1, 1996.
10.13 Non-Qualified Stock Option Agreement between the Company and Craig Park,
dated September 20, 1996.
10.14 Non-Qualified Stock Option Agreement between the Company and Michael
Dennis, dated May 19, 1997.
10.15 Non-Qualified Stock Option Agreement between the Company and Michael
Dennis, dated February 1, 1998.
10.16 Non-Qualified Stock Option Agreement between the Company and Dennis
Kushner, dated February 1, 1998.
10.17 Non-Qualified Stock Option Agreement between the Company and Mark
Madison, dated February 1, 1998.
10.18 Asset Purchase Agreement between the Company and Digital Networks
Corporation, dated June 12, 1998.
10.19 Stock Purchase Agreement among the Company, Alford Media Sales, Inc. and
the shareholders thereof, dated June 24, 1998.
10.20 Stock Purchase Agreement among the Company, B. Higginbotham Enterprises,
Inc. and the shareholders thereof, dated June 10, 1998.
10.21 Letter of Intent between the Company and Aurora Visual Systems, dated
August 17, 1998.
</TABLE>
<PAGE>
<TABLE>
<C> <S>
10.22 Letter of Intent between the Company and Proline Industries, Inc., dated
October 5, 1998.
10.23 Stock Purchase Agreement by and among the Company, E*Capital
Corporation, Feighner Family Trust, Den-Mat Corp. and Edward Wedbush,
dated June 24, 1998.
10.24 Warrant to Purchase Stock issued by the Company for the benefit of Sand
Hill Capital LLC.
10.25 Agreement with Seller Stockholders among the Company, Michael Stammire,
Richard Bart Moran and Chris H. Ursetta, dated June 12, 1998.
10.26 Lease Agreement between the Company and Jack Dymond Lathing Company,
dated
February 7, 1992.
10.27 Amendment to Lease Agreement between the Company and Jack Dymond Lathing
Company, dated October 5, 1995.
10.28 Lease Agreement between the Company and Robert Geisler, dated April 13,
1998.
10.29 Lease Agreement between the Company and Pyramid Investment Corporation,
dated
September 22, 1995.
10.30 Lease Agreement between the Company and Olen Properties Corp., dated
August 14, 1996.
10.31 Lease Agreement between the Company and Fortune Fifty Associates, dated
February 23, 1998.
10.32 First Amendment to Lease Agreement between the Company and Fortune Fifty
Associates, dated April 3, 1998.
10.33 Lease Agreement among the Company, Wells Fargo Bank, N.A., as corporate
co-trustee for the Automotive Industries Pension Trust Fund, and other
corporate co-trustees, dated May 14, 1998.
10.34 Lease Agreement between the Company and John and Vesna Meehan, dated
August 10, 1995.
10.35 Lease Agreement between the Company and Norris Investments Limited,
dated August 12, 1996.
10.36 Lease Agreement between the Company and Inverness Associates--373, dated
July 29, 1997.
10.37 Lease Agreement between the Company and Robert Higginbotham, dated June
15, 1998.
10.38 Lease Agreement between the Company and Richard Ranger, dated June 1,
1998.
10.39 Lease Agreement between the Company and Robert Higginbotham, dated June
15, 1998.
10.40 Lease Agreement between the Company and IVEST, Inc., dated February 9,
1998.
10.41 First Amendment to Lease Agreement between the Company and IVEST, Inc.,
dated
July 13, 1998.
10.42 Lease Agreement between the Company and The Raymond Malooly Trust, dated
December 31, 1997.
10.43 Lease Agreement between the Company and Your Office USA, Inc., dated
June 1, 1998.
10.44 Loan and Security Agreement among the Company, Educational Industrial
Sales, Incorporated, Alford Media Sales, Inc., B. Higginbotham
Enterprises, Inc. and Sanwa Business Credit Corporation, dated September
3, 1998.
10.45 Loan Agreement by and among Sand Hill Capital LLC and the Company, dated
June 29, 1998.
10.46 Subordinated Convertible Promissory Notes made by the Company in favor
of Digital Networks Corporation, dated August 24, 1998.
10.47 Subordinated Promissory Buyer Notes made by the Company in favor of
Digital Networks Corporation, dated August 24, 1998.
10.48 Demand Note made by The Dupuis Group, L.L.C. for the benefit of the
Company, dated April 2, 1996.
10.49 Subordinated Promissory Note made by the Company for the benefit of
Robert V. Higginbotham, dated June 29, 1998.
10.50 Promissory Note made by Durand Communications, Inc. for the benefit of
the Company dated November 19, 1997.
</TABLE>
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<TABLE>
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10.51 Software Consulting Agreement between Frank Rimmerman Consulting LLC and
the Company, dated June 1, 1998.
10.52 Form of Indemnification Agreement.*
21 List of Subsidiaries.
23.1 Consent of KPMG Peat Marwick LLP.
23.2 Consent of Peterson Sullivan P.L.L.C.
23.3 Consent of Latham & Watkins (included in Exhibit 5.1).*
24.1 Powers of Attorney (contained on the signature page of this Registration
Statement).
27.1 Financial Data Schedule.
</TABLE>
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* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
EIS MERGER SUBSIDIARY, INC.
ARTICLE I
---------
NAME
The name of this corporation (hereinafter referred to as this
"Corporation") is Intellisys Group, Inc.
ARTICLE II
----------
REGISTERED OFFICE
The address of its registered office in Delaware is 9 East Loockerman
Street, in the City of Dover, County of Kent, State of Delaware 19901. The name
if its registered agent at such address is National Registered Agents, Inc.
ARTICLE III
-----------
PURPOSE
The nature of the business or purpose 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
----------
AUTHORIZED STOCK
The total number of shares of all classes of stock which this Corporation
shall have authority to issue is Forty Million (40,000,000), consisting of
Thirty Million (30,000,000) shares of common stock, par value $.01 per share
(the "Common Stock"), and Ten Million (10,000,000) shares of preferred stock,
par value $.01 per share (the "Preferred Stock").
The Board of Directors is authorized, subject to limitations prescribed by
law and the provisions of this Article IV, to provide for the issuance of the
shares of Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions thereof.
<PAGE>
The authority of the Board with respect to each series shall include, but
not be limited to, determination of the following:
(a) The number of shares constituting that series and the distinctive
designation of that series;
(b) The dividend rate on the shares of that series, whether dividends shall
be cumulative, and, if so, from which date or dates, and the relative rights of
priority, if any, of payment of dividends on shares of that series;
(c) Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so, the
terms and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall determine;
(e) Whether or not the shares of that series shall be redeemable, and, if
so, the terms and conditions of such redemption, including the date or dates
upon or after which they shall be redeemable, and the amount per share payable
in case of redemption, which amount may vary under different conditions and at
different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of this Corporation, and the
relative rights of priority, if any, of payment of shares of that series; and
(h) Any other relative rights, preferences and limitations of that series.
Dividends on outstanding shares of Preferred Stock shall be paid or
declared and set apart for payment before any dividends shall be paid or
declared and set apart for payment on the common shares with respect to the same
dividend period.
If upon any voluntary or involuntary liquidation, dissolution or winding up
of this Corporation, the assets available for distribution to holders of shares
of Preferred Stock of all series shall be insufficient to pay such holders the
full preferential amount to which they are entitled, then such assets shall be
distributed ratably among the shares of all series of Preferred Stock in
accordance with the respective preferential amounts (including unpaid cumulative
dividends, if any) payable with respect thereto.
2
<PAGE>
ARTICLE V
---------
DIRECTORS
SECTION A
NUMBER OF DIRECTORS
The business and affairs of this Corporation shall be managed by or under
the direction of the Board of Directors. The number of directors shall not be
less than three (3) and the exact number of directors shall be fixed by the
Board of Directors by resolution. Election of directors need not be by written
ballot.
SECTION B
CLASSIFICATION OF THE BOARD
The Board of Directors shall be and is divided into three classes,
designated Class I, Class II and Class III. The number of directors in each
class shall be the whole number contained in the quotient arrived at by dividing
the authorized number of directors by three, and if a fraction is also contained
in such quotient then if such fraction is one-third (1/3), the extra directors
shall be a member of Class III and if the fraction is two-thirds (2/3), one of
the extra directors shall be a member of Class III and the other shall be a
member of Class II. Each director shall serve for a term ending on the date of
the third annual meeting following the annual meeting at which such director was
elected; provided, however, that the initial directors of this Corporation shall
each be assigned to a class at the time of their election, and the directors
assigned to Class I shall serve for a term ending on the 1999 annual meeting of
stockholders, directors appointed in Class II shall serve a term ending on the
date of the 2000 annual meeting of stockholders and the directors appointed to
Class III shall serve for a term ending on the date of the 2001 annual meeting
of stockholders.
In the event of any increase or decrease in the number of directors (a)
each director then serving 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, retirement, resignation or removal, and (b) the newly created
or eliminated directorships resulting from such increase or decrease shall be
appointed by the Board of Directors to such class or classes as shall, so far as
possible, bring the number of directors in the respective classes into
conformity with the formula in this Article V, as applied to the new authorized
number of directors.
Notwithstanding any of the foregoing provisions of this Article V, a
director shall hold office until the annual meeting of stockholders for the year
in which his term expires and until his successor is elected and qualified or
until his death, retirement, resignation or removal. Should a vacancy occur or
be created, the remaining directors (even though less than a quorum) may fill
the vacancy for the full term of the class in which the vacancy occurs or is
created.
3
<PAGE>
SECTION C
NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Any vacancy on the Board of Directors resulting from death, resignation,
removal, disqualification or other cause, and newly created directorships
resulting from any increase in the number of directors on the Board of
Directors, shall be filled by the affirmative vote of a majority of the
remaining directors then in office (even though less than a quorum) or by the
sole remaining director. Any director elected in accordance with the preceding
sentence shall hold office for the remainder of the full term of the class of
directors in which the vacancy occurred or to which the new directorship is
apportioned, and until such director's successor shall have been elected and
qualified. No decrease in the number of directors constituting the Board of
Directors shall shorten the term of any incumbent director.
SECTION D
LIMITATION ON LIABILITY
1. Limitation On Liability.
A director shall not be personally liable to this Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
provided that this Section shall not eliminate or limit the liability of a
director (i) for any breach of his 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 the law, (iii) under Section
174 of the General Corporation Law of Delaware, or (iv) for any transaction from
which the director derives an improper personal benefit.
If the General Corporation Law of Delaware is hereafter amended to
authorize corporate action further limiting or eliminating the personal
liability of directors, then the liability of the director to this Corporation
shall be limited or eliminated to the fullest extent permitted by the General
Corporation Law of Delaware, as so amended from time to time. Any repeal or
modification of this Section by stockholders of this Corporation shall be
prospective only, and shall not adversely affect any limitation on the personal
liability of a director of this Corporation existing at the time of such repeal
or modification.
2. Amendment or Repeal.
Any repeal or modification of the foregoing provisions of this Section D
shall not adversely affect any right or protection hereunder of any person in
respect of any act or omission occurring prior to the time of such repeal or
modification.
4
<PAGE>
SECTION E
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to adopt, repeal, alter, amend or
rescind the Bylaws of this Corporation.
ARTICLE VI
----------
TERM
The term of existence of this Corporation shall be perpetual.
ARTICLE VII
-----------
STOCK NOT ASSESSABLE
The capital stock of this Corporation shall not be assessable. It shall be
issued as fully paid, and the private property of the stockholders shall not be
liable for the debts, obligations or liabilities of this Corporation. This
Amended and Restated Certificate of Incorporation shall not be subject to
amendment in this respect.
ARTICLE VIII
------------
MEETINGS OF STOCKHOLDERS
SECTION A
Special meetings of stockholders of the Corporation for any purpose or
purposes may be called at any time by the Board of Directors, or by a majority
of the members of the Board of Directors, or by a committee of the Board of
Directors which has been duly designated by the Board of Directors and whose
powers and authority, as provided in a resolution of the Board of Directors or
in the Bylaws of the Corporation, include the power to call such meetings, but
such special meetings may not be called by any other person or persons;
provided, however, that if and to the extent that any special meeting of
stockholders may be called by any other person or persons specified in any
provisions of the Certificate of Incorporation or any amendment thereto or any
certificate filed under Section 151(g) of the General Corporation Law of
Delaware, then such special meeting may also be called by the person or persons,
in the manner, at the times and for the purposes so specified.
SECTION B
ANNUAL AND SPECIAL MEETINGS
No action required to be taken or which may be taken at any annual meeting
or special meeting of stockholders may be taken without a meeting, and the power
of stockholders to consent in writing, without a meeting, is specifically
denied.
5
<PAGE>
ARTICLE IX
----------
ACTIONS REQUIRING SUPERMAJORITY STOCKHOLDER VOTE
The affirmative vote of the holder of at least 66-2/3% of the voting power
of all of the shares of capital stock of this Corporation entitled to vote
generally, voting together as a single class at a meeting specifically called
for such purpose, shall be required in order for this Corporation to take any
action to authorize:
(a) the amendment, alteration or repeal of any provision of this Amended
and Restated Certificate of Incorporation or the addition or insertion of other
provisions therein;
(b) the adoption, amendment or repeal of any provision of the Bylaws of
this Corporation; provided, however, that this clause (b) shall not apply to,
and no vote of the stockholders of this Corporation shall be required to
authorize, the adoption, amendment or repeal of any provisions of the Bylaws of
this Corporation by the Board of Directors in accordance with the power
conferred upon it pursuant to Section E of Article V of this Amended
and Restated Certificate of Incorporation;
(c) the merger or consolidation of this Corporation with or into any other
corporation; provided, however, that this clause (c) shall not apply to any
merger or consolidation (i) as to which the laws of the State of Delaware, as
then in effect, do not require the consent of this Corporation's stockholders,
or (ii) which at least 75% of the members of the Board of Directors then in
office have approved;
(d) the sale, lease, exchange or other disposition of all, or substantially
all, of this Corporation's property and assets, with or without goodwill, if not
made in the usual and regular course of this Corporation's business; and
(c) the voluntary dissolution of this Corporation.
All rights at this time conferred upon the stockholders of this Corporation
pursuant to this Amended and Restated Certificate of Incorporation are granted
subject to the provisions of this Article IX.
ARTICLE X
---------
APPOINTMENT AND REMOVAL OF OFFICERS
The officers of this Corporation shall be chosen in such a manner, shall
hold their offices for such terms and shall carry out such duties as are
prescribed by the Bylaws or determined by the Board of Directors, subject to the
right of the Board of Directors to remove any officer or officers at any time
with or without cause.
6
<PAGE>
ARTICLE XI
----------
Each reference in this Amended and Restated Certificate of Incorporation to
any provision of the General Corporation Law of Delaware refers to the specified
provision of the General Corporation Law of the State of Delaware, as the same
now exists or as it may hereafter be amended or superseded.
7
<PAGE>
EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
INTELLISYS GROUP, INC.
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I. OFFICES.................................................. 1
-------
Section 1. REGISTERED OFFICES.................................. 1
Section 2. OTHER OFFICES....................................... 1
ARTICLE II. MEETINGS OF STOCKHOLDERS................................ 1
------------------------
Section 1. PLACE OF MEETINGS................................... 1
Section 2. ANNUAL MEETING OF STOCKHOLDERS...................... 1
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF....... 2
Section 4. VOTING.............................................. 2
Section 5. PROXIES............................................. 2
Section 6. SPECIAL MEETINGS.................................... 2
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS.................... 3
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST...... 3
Section 9. STOCKHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING.................................. 3
ARTICLE III. DIRECTORS.............................................. 3
---------
Section 1. THE NUMBER OF DIRECTORS............................. 3
Section 2. VACANCIES........................................... 3
Section 3. NOTIFICATION OF NOMINATION.......................... 4
Section 4. POWERS.............................................. 5
Section 5. PLACE OF DIRECTORS' MEETINGS........................ 5
Section 6. REGULAR MEETINGS.................................... 5
Section 7. SPECIAL MEETINGS.................................... 5
Section 8. QUORUM.............................................. 5
Section 9. ACTION WITHOUT MEETING.............................. 5
Section 10. TELEPHONIC MEETINGS................................. 5
Section 11. COMMITTEES OF DIRECTORS............................. 5
Section 12. MINUTES OF COMMITTEE MEETINGS....................... 6
Section 13. COMPENSATION OF DIRECTORS........................... 6
Section 14. INDEMNIFICATION..................................... 6
ARTICLE IV. OFFICERS................................................ 8
--------
Section 1. OFFICERS............................................ 8
Section 2. ELECTION OF OFFICERS................................ 8
Section 3. SUBORDINATE OFFICERS................................ 8
Section 4. COMPENSATION OF OFFICERS............................ 9
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES............... 9
Section 6. CHAIRMAN OF THE BOARD............................... 9
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Section 7. PRESIDENT........................................... 9
Section 8. VICE PRESIDENTS..................................... 9
Section 9. SECRETARY........................................... 9
Section 10. ASSISTANT SECRETARY................................. 9
Section 11. CHIEF FINANCIAL OFFICER............................. 10
ARTICLE V. CERTIFICATES OF STOCK.................................... 10
---------------------
Section 1. CERTIFICATES........................................ 10
Section 2. SIGNATURES ON CERTIFICATES.......................... 10
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES.. 10
Section 4. LOST CERTIFICATES................................... 10
Section 5. TRANSFERS OF STOCK.................................. 11
Section 6. FIXED RECORD DATE................................... 11
Section 7. REGISTERED STOCKHOLDERS............................. 11
ARTICLE VI. GENERAL PROVISIONS...................................... 11
------------------
Section 1. DIVIDENDS........................................... 11
Section 2. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES............. 11
Section 3. CHECKS.............................................. 12
Section 4. FISCAL YEAR......................................... 12
Section 5. CORPORATE SEAL...................................... 12
Section 6. MANNER OF GIVING NOTICE............................. 12
Section 7. WAIVER OF NOTICE.................................... 12
Section 8. ANNUAL STATEMENT.................................... 12
ARTICLE VII. AMENDMENTS............................................. 12
----------
Section 1. AMENDMENT BY DIRECTORS.............................. 12
Section 2. AMENDMENT BY STOCKHOLDERS........................... 13
</TABLE>
ii
<PAGE>
AMENDED AND RESTATED BY-LAWS
OF
INTELLISYS GROUP, INC.
ARTICLE I.
OFFICES
-------
Section 1. REGISTERED OFFICES. The registered office shall be in the City
of Dover, County of Kent, State of Delaware.
Section 2. OTHER OFFICES. 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. PLACE OF MEETINGS. Meetings of stockholders shall be held at
any place within or outside the State of Delaware designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING OF STOCKHOLDERS.
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the Board of Directors. At each annual meeting, (i)
directors shall be elected from the persons who are nominated in accordance with
the procedures set forth in Section 3.3 below and (ii) any proper business shall
be conducted which has been submitted in accordance with the procedures set
forth in paragraph (c) below.
(b) Only proper business which has been submitted in accordance with the
following procedures shall be conducted at the annual meeting. Submissions of
proper business to be conducted at the annual meeting may be made at such
meeting by or at the direction of the Board of Directors, by any committee or
persons appointed by the Board of Directors or by any stockholder of the
corporation who complies with the notice procedures set forth in this paragraph.
Such submissions of proper business by any stockholder shall be made pursuant to
timely notice in writing to the Secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the corporation not less than 60 days prior to
the annual meeting; provided, however, that in the event that less than 75 days
notice or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the fifteenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever first occurs. Such stockholder's notice to the Secretary shall
set forth (i) a description of the proper business submitted for consideration
at the annual meeting and the reasons for conducting such business at the
meeting, and if such business includes a
1
<PAGE>
proposal to amend the bylaws of the bylaws of the corporation, the language of
the proposed amendment, (ii) the name and record address of the stockholder
giving the notice, (iii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the stockholder, and (iv) any
material interest of the stockholder in the business. No proper business shall
be conducted at the annual meeting unless submitted in accordance with the
procedures set forth herein. The Chairman of the Board shall, if the facts
warrant, determine and declare to the meeting that a submission of proper
business was not made in accordance with the foregoing procedure, and if he
should so determine, he shall so declare to the meeting and the defective
submission shall be disregarded.
Section 3. QUORUM; ADJOURNED MEETINGS AND NOTICE THEREOF. A majority of
the stock issued and outstanding and entitled to vote at any meeting of
stockholders, the holders of which are present in person or represented by
proxy, shall constitute a quorum for the transaction of business except as
otherwise provided by law, by the Certificate of Incorporation, or by these
Bylaws. A quorum, once established, shall not be broken by the withdrawal of
enough votes to leave less than a quorum and the votes present may continue to
transact business until adjournment. If, however, such quorum shall not be
present or represented at any meeting of the stockholders, a majority of the
voting stock represented in person or by proxy may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented. The Chairman of the Board (or the President in
the absence of the Chairman of the Board) may adjourn the meeting from time to
time, whether or not there is such a quorum. At such adjourned meeting at which
a quorum shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified. If the
adjournment is for more than thirty 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 thereat.
Section 4. VOTING. 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
the Certificate of Incorporation, or these Bylaws, a different vote is required
in which case such express provision shall govern and control the decision of
such question.
Section 5. PROXIES. At each meeting of the stockholders, each stockholder
having the right to vote may vote in person or may authorize another person or
persons to act for him by proxy appointed by an instrument in writing subscribed
by such stockholder and bearing a date not more than three years prior to said
meeting, unless said instrument provides for a longer period. All proxies must
be filed with the Secretary of the corporation at the beginning of each meeting
in order to be counted in any vote at the meeting. Each stockholder shall have
one vote for each share of stock having voting power, registered in his name on
the books of the corporation on the record date set by the Board of Directors as
provided in Article VII, Section 6 hereof.
Section 6. SPECIAL MEETINGS. Special meetings of the stockholders, for any
purpose, or purposes, unless otherwise prescribed by statute or by the
Certificate of Incorporation, may be called at any time by the Board of
Directors, or by a majority of the members of the Board of Directors, or by a
committee of the Board of Directors which has been duly designated by the Board
of Directors and whose powers and authority, as provided in a resolution of the
Board of Directors or in the Bylaws of the corporation, include the power to
call such meetings, but such special meetings may not be called by any other
person or persons; provided, however, that if and to the extent that any special
meeting of stockholders may be called by any other person or persons specified
in any provisions of the Certificate of Incorporation or any amendment thereto
or any certificate filed under Section 151(g) of the
2
<PAGE>
General Corporation Law of Delaware, then such special meeting may also be
called by the person or persons, in the manner, at the times and for the
purposes so specified.
Section 7. NOTICE OF STOCKHOLDERS' MEETINGS. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of the
meeting shall be given which notice shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. The written notice of any meeting shall be given to
each stockholder entitled to vote at such meeting not less than ten nor more
than sixty days before the date of the meeting. If mailed, notice is given when
deposited in the United States mail, postage prepaid, directed to the
stockholder at his address as it appears on the records of the corporation.
Section 8. MAINTENANCE AND INSPECTION OF STOCKHOLDER LIST. The officer who
has charge of the stock ledger of the corporation shall prepare and make, at
least ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
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 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 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 9. STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. No
action required to be taken or which may be taken at any annual meeting or
special meeting of the stockholders may be taken without a meeting, and the
power of stockholders to consent in writing, without a meeting, is specifically
denied.
ARTICLE III.
DIRECTORS
---------
Section 1. THE NUMBER OF DIRECTORS. The authorized number of directors
which shall constitute the whole Board shall be not less than three (3) nor more
than seven (7) directors. The exact number shall be determined from time to time
by resolution of the Board. Until otherwise determined by such resolution, the
Board shall consist of five (5) persons. Directors shall be elected at the
annual meeting of stockholders and each director shall serve until such person's
successor is elected and qualified or until such person's death, retirement,
resignation or removal. The directors need not be stockholders. Subject to the
rights, if any, of the holders of shares of Preferred Stock then outstanding, if
any, any director or the entire Board of Directors may be removed, with or
without cause, by the holders of a majority of the shares then entitled to vote
at an election of directors except that (i) unless the certificate of
incorporation provides otherwise, if the corporation shall have a classified
board of directors, shareholders may effect such removal only for cause, and
(ii) so long as the corporation shall have cumulative voting in respect of the
election of directors, if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against the removal of
the director would be sufficient to elect that person if then cumulatively voted
at an election of the entire Board of Directors or, if the corporation shall
have classes of directors, at an election of the class of directors of which
that person is a part.
Section 2. VACANCIES. Vacancies on the Board of Directors by reason of
death, resignation, retirement, disqualification, removal from office, or
otherwise, and newly created
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directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office, although less than
a quorum, or by a sole remaining director. The directors so chosen shall hold
office until the next annual election of directors 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. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office. No decrease
in the number of directors constituting the Board of Directors shall shorten the
term of any incumbent director.
Section 3. NOTIFICATION OF NOMINATION. Subject to the rights, if any, of
the holders of shares of Preferred Stock then outstanding, if any, only persons
who are nominated in accordance with the following procedures shall be eligible
for election as directors. Nominations of persons for election to the Board of
Directors of the corporation may be made at a meeting of stockholders by or at
the direction of the Board of Directors, by any nominating or other committee or
person appointed by the Board, or by any stockholder of the corporation entitled
to vote for the election of directors at the meeting who complies with the
notice procedures set forth in this Section 3.3. Such nominations, other than
those made by or at the direction of the Board or by any nominating or other
committee or person appointed by the Board, shall be made pursuant to timely
notice in writing to the Secretary of the corporation. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the corporation not less than 60 days prior to
the meeting; provided, however, that in the event that less than 75 days notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the fifteenth day following the day on which
such notice of the date of the meeting was mailed or such public disclosure was
made, whichever first occurs. Such stockholder's notice to the Secretary shall
set forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a director, (i) the name, age, business address and
residence address of the person, (ii) the principal occupation or employment of
the person and his or her employment history for the most recent five years,
(iii) the class and number of shares of capital stock of the corporation which
are beneficially owned by the person, (iv) the consent of the person to serve as
a Director if so elected and (v) any other information relating to the person
that is required to be disclosed in solicitations for proxies for election of
directors pursuant to the rules and regulations under the Securities Exchange
Act of 1934, as amended; and (b) as to the stockholder giving the notice (i) the
name and record address of the stockholder and (ii) the class and number of
shares of capital stock of the corporation which are beneficially owned by the
stockholder; (iii) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons pursuant to
which the nomination or nominations are to be made by the stockholder, (iv) a
representation that the stockholder is a holder of record of stock of the
corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notices. The corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the corporation to determine the
eligibility of such proposed nominee to serve as director of the corporation or
for use in the preparation of materials used for the solicitation of proxies for
the election of directors. The Chairman of the Board shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the foregoing procedure, and if he should so determine, he shall
so declare to the meeting and the defective nomination shall be disregarded.
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Section 4. POWERS. The property and business of the corporation shall be
managed by or under the direction of its Board of Directors. In addition to the
powers and authorities by these Bylaws expressly conferred upon them, the Board
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.
Section 5. PLACE OF DIRECTORS' MEETINGS. The directors may hold their
meetings and have one or more offices, and keep the books of the corporation
outside of the State of Delaware.
Section 6. REGULAR MEETINGS. Regular meetings of the Board of Directors
may be held without notice at such time and place as shall from time to time be
determined by the Board.
Section 7. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by the President on forty-eight hours' notice to each director,
either personally or by mail or by telegram; special meetings shall be called by
the President or the Secretary in like manner and on like notice on the written
request of two 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 or on like notice on the written request of the sole director.
Section 8. QUORUM. At all meetings of the Board of Directors a majority of
the authorized number of directors shall be necessary and sufficient to
constitute a quorum for the transaction of business, and the vote 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, by the Certificate of Incorporation or by these Bylaws. 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. If only one
director is authorized, such sole director shall constitute a quorum.
Section 9. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or 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. TELEPHONIC MEETINGS. 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 such meeting.
Section 11. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each such committee to consist of one or more of the directors of
the corporation. The Board may designate one or more directors as alternate
members of any committee, who may replace any absent or disqualified member at
any meeting of the committee. In the absence or 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 they constitute a quorum, may
unanimously appoint another member of the Board
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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 which 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.
Section 12. MINUTES OF COMMITTEE MEETINGS. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 13. COMPENSATION OF DIRECTORS. 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.
Section 14. INDEMNIFICATION.
(a) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines, ERISA excise taxes and amounts paid or to be paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or 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
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(b) The corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses (including attorneys' fees)
actually and reasonably incurred by him in connection with the defense or
settlement of such action or suit 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
corporation and except that no such
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indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only to
the extent that the Court of Chancery of Delaware or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
such Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
corporation shall be successful on the merits or otherwise in defense, of any
action, suit or proceeding referred to in paragraphs (a) and (b), or in defense
of any claim, issue or matter therein, he shall be indemnified against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection therewith.
(d) Any indemnification under paragraphs (a) and (b) (unless ordered by a
court) shall be made by the corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in paragraphs (a) and (b). Such determination shall be
made (1) by the Board of Directors by a majority vote of the directors who are
not parties to such action, suit or proceeding, or (2) if there are no such
directors, or if such directors so direct, by independent legal counsel in a
written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred in defending a civil,
criminal, administrative or investigative action, suit or proceeding may be paid
by the corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board of Directors in the manner provided in
paragraph (d) upon receipt of an undertaking by or on behalf of the director or
officer, employee or agent to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the corporation as
authorized in this Section 3.14.
(f) The indemnification provided by this Section 3.14 shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any statute, provision in the Certificate of Incorporation or these Bylaws,
agreement, vote of stockholders or disinterested directors or otherwise, both as
to action in his official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
(g) The Board of Directors may authorize, by a vote of a majority of a
quorum of the Board of Directors, the corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the corporation, or is or was serving at the request of the corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity, or arising out of his status as
such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Section 3.14.
(h) The corporation shall, to the fullest extent permitted by the General
Corporation Law of the State of Delaware, indemnify its directors, officers,
employees and agents against liabilities incurred in their capacities as such.
(i) For the purposes of this Section 3.14, references to "the corporation"
shall include, in addition to the resulting corporation, any constituent
corporation (including any constituent of a constituent) absorbed in a
consolidation or merger which, if its separate existence had continued, would
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have had power and authority to indemnify its directors, officers, and employees
or agents, so that any person who is or was a director, officer, employee or
agent of such constituent corporation, or is or was serving at the request of
such constituent corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, limited liability company,
trust or other enterprise, shall stand in the same position under the provisions
of this Section with respect to the resulting or surviving corporation as he
would have with respect to such constituent corporation if its separate
existence had continued.
(j) For purposes of this Section, references to "fines" shall include any
excise taxes assessed on a person with respect to an employee benefit plan; and
references to "serving at the request of the corporation" shall include service
as a director, officer, employee or agent of the corporation which imposes
duties on, or involves services by, such director, officer, employee or agent
with respect to an employee benefit plan, its participants or beneficiaries; and
a person who acted in good faith and in a manner he reasonably believed to be in
the interest of the participants and beneficiaries of an employee benefit plan
shall be deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Section.
ARTICLE IV.
OFFICERS
--------
Section 1. OFFICERS. The officers of this corporation shall be chosen by
the Board of Directors and shall include a Chairman of the Board of Directors or
a President, or both, and a Secretary. The corporation may also have at the
discretion of the Board of Directors such other officers as are desired,
including a Vice-Chairman of the Board of Directors, a Chief Executive Officer,
a Treasurer, one or more Vice Presidents, one or more Assistant Secretaries and
Assistant Treasurers, and such other officers as may be appointed in accordance
with the provisions of Section 3 hereof. In the event there are two or more Vice
Presidents, then one or more may be designated as Executive Vice President,
Senior Vice President, or other similar or dissimilar title. At the time of the
election of officers, the directors may by resolution determine the order of
their rank. Any number of offices may be held by the same person, unless the
Certificate of Incorporation or these Bylaws otherwise provide.
Section 2. ELECTION OF OFFICERS. The Board of Directors, at its first
meeting after each annual meeting of stockholders, shall choose the officers of
the corporation.
Section 3. SUBORDINATE OFFICERS. 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.
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Section 4. COMPENSATION OF OFFICERS. The salaries of all officers and
agents of the corporation shall be fixed by the Board of Directors.
Section 5. TERM OF OFFICE; REMOVAL AND VACANCIES. The officers of the
corporation shall hold office until their successors are chosen and qualify in
their stead. 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. If the office of any officer or officers becomes vacant for any
reason, the vacancy shall be filled by the Board of Directors.
Section 6. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by these
Bylaws. If there is no President, the Chairman of the Board shall in addition be
the Chief Executive Officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article IV.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as may
be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President shall be the Chief Executive Officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. He shall preside at all meetings of the stockholders and, in the
absence of the Chairman of the Board, or if there be none, at all meetings of
the Board of Directors. He shall be an ex-officio member of all committees and
shall have the general powers and duties of management usually vested in the
office of President and Chief Executive Officer of corporations, and shall have
such other powers and duties as may be prescribed by the Board of Directors or
these Bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the President,
the Vice Presidents in order of their rank as fixed by the Board of Directors,
or if not ranked, the Vice President designated by the Board of Directors, shall
perform all 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 have such other duties as from time to time may be prescribed
for them, respectively, by the Board of Directors.
Section 9. SECRETARY. The Secretary shall attend all sessions of the Board
of Directors and all meetings of the stockholders and record all votes and the
minutes of all proceedings in a book to be kept for that purpose; and shall
perform like duties for the standing committees when required by the Board of
Directors. He shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these Bylaws. He shall keep in
safe custody the seal of the corporation, and when authorized by the Board,
affix the same to any instrument requiring it, and when so affixed it shall be
attested by his signature or by the signature of an 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 10. ASSISTANT SECRETARY. 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, the Assistant Secretary
designated by the Board of Directors, shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the Secretary and shall
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perform such other duties and have such other powers as the Board of Directors
may from time to time prescribe.
Section 11. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
have the custody of the corporate funds and securities and shall keep full and
accurate accounts of receipts and disbursements in books 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. He 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 Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as Treasurer and of the financial condition of the corporation. If
required by the Board of Directors, he shall give the corporation a bond, 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 his office and for
the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation.
ARTICLE V.
CERTIFICATES OF STOCK
---------------------
Section 1. CERTIFICATES. Every holder of stock of 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 by the Secretary or an Assistant Secretary, or the Treasurer
or an Assistant Treasurer of the corporation, certifying the number of shares
represented by the certificate owned by such stockholder in the corporation.
Section 2. SIGNATURES ON CERTIFICATES. Any or all of the signatures on the
certificate may be a 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 were such officer, transfer agent, or registrar at the date
of issue.
Section 3. STATEMENT OF STOCK RIGHTS, PREFERENCES, PRIVILEGES. 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 which 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 forth on the face or back of the certificate
which 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 4. LOST CERTIFICATES. 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
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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.
Section 5. TRANSFERS OF STOCK. 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.
Section 6. FIXED RECORD DATE. In order that the corporation may determine
the stockholders entitled to notice of or to vote at any meeting of the
stockholders, or any adjournment thereof, 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 a
record date which shall not be more than sixty nor less than ten days before the
date of such meeting, nor more than sixty 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.
Section 7. REGISTERED STOCKHOLDERS. The corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and accordingly shall not be bound to recognize any equitable or other
claim or interest in such share on the part of any other person, whether or not
it shall have express or other notice thereof, save as expressly provided by the
laws of the State of Delaware.
ARTICLE VI.
GENERAL PROVISIONS
------------------
Section 1. DIVIDENDS. 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. PAYMENT OF DIVIDENDS; DIRECTORS' DUTIES. 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 fund to meet contingencies, or
for equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the directors shall think conducive to
the interests of the corporation, and the directors may abolish any such
reserve.
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Section 3. CHECKS. All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 4. FISCAL YEAR. The fiscal year of the corporation shall be fixed
by resolution of the Board of Directors.
Section 5. CORPORATE SEAL. The corporate seal shall have inscribed thereon
the name of the corporation, the year of its organization and the words
"Corporate Seal, Delaware." Said seal may be used by causing it or a facsimile
thereof to be impressed or affixed or reproduced or otherwise.
Section 6. MANNER OF GIVING NOTICE. 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 time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
Section 7. WAIVER OF NOTICE. 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.
Section 8. ANNUAL STATEMENT. The Board of Directors shall present at each
annual meeting, and at any special meeting of the stockholders when called for
by vote of the stockholders, a full and clear statement of the business and
condition of the corporation.
ARTICLE VII.
AMENDMENTS
----------
Section 1. AMENDMENT BY DIRECTORS. In furtherance and not in limitation of
the powers conferred by statute, The Board of Directors is expressly authorized
to adopt, repeal, alter, amend or rescind the Bylaws of this corporation.
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Section 2. AMENDMENT BY STOCKHOLDERS. The affirmative vote of the holder
of at least 66-2/3% of the voting power of all of the shares of capital stock of
this corporation entitled to vote generally, voting together as a single class
at a meeting specifically called for such purpose, shall be required in order
for this corporation to adopt, amend or repeal any provision of the Bylaws of
this corporation; provided, however, that this Section 2 shall not apply to, and
no vote of the stockholders of this corporation shall be required to authorize,
the adoption, amendment or repeal of any provisions of the Bylaws of this
corporation by the Board of Directors in accordance with the power conferred
upon it pursuant to Section 1 of this Article VII.
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CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) That I am the duly elected and acting Secretary of Intellisys Group,
Inc., a Delaware corporation; and
(2) That the foregoing bylaws constitute the bylaws of said corporation as
duly adopted by the written consent of the Incorporator of said corporation as
of October 16, 1998.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 16th day of
October, 1998.
/s/ DENNIS KUSHNER
_______________________________
Dennis Kushner,
Secretary
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EXHIBIT 10.1
1998 EQUITY PARTICIPATION PLAN
OF
INTELLISYS GROUP, INC.
Intellisys Group, Inc., a Delaware corporation, has adopted the 1998
Equity Participation Plan of Intellisys Group, Inc. (the "Plan"), effective
October 15, 1998, for the benefit of its eligible employees, consultants and
directors.
The purposes of the Plan are as follows:
(1) To provide an additional incentive for directors, key Employees
and Consultants (as such terms are defined below) to further the growth,
development and financial success of the Company by personally benefiting
through the ownership of Company stock and/or rights which recognize such
growth, development and financial success.
(2) To enable the Company to obtain and retain the services of
directors, key Employees and Consultants considered essential to the long range
success of the Company by offering them an opportunity to own stock in the
Company and/or rights which will reflect the growth, development and financial
success of the Company.
ARTICLE I.
DEFINITIONS
1.1. General. Wherever the following terms are used in the Plan they
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shall have the meanings specified below, unless the context clearly indicates
otherwise.
1.2. Administrator. "Administrator" shall mean the entity that
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conducts the general administration of the Plan as provided herein. With
reference to the administration of the Plan with respect to Options granted to
Independent Directors, the term "Administrator" shall refer to the Board. With
reference to the administration of the Plan with respect to any other Award, the
term "Administrator" shall refer to the Committee unless the Board has assumed
the authority for administration of the Plan generally as provided in Section
10.1.
1.3. Award. "Award" shall mean an Option, a Restricted Stock award, a
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Performance Award, a Dividend Equivalents award, a Deferred Stock award, a Stock
Payment award or a Stock Appreciation Right which may be awarded or granted
under the Plan (collectively, "Awards").
1.4. Award Agreement. "Award Agreement" shall mean a written
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agreement executed by an authorized officer of the Company and the Holder which
shall contain such terms and conditions with respect to an Award as the
Administrator shall determine, consistent with the Plan.
1.5. Award Limit. "Award Limit" shall mean 200,000 shares of Common
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Stock, as adjusted pursuant to Section 11.3 of the Plan.
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1.6. Board. "Board" shall mean the Board of Directors of the Company.
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1.7. Change in Control. "Change in Control" shall mean a change in
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ownership or control of the Company effected through any of the following
transactions:
(a) any person or related group of persons (other than the
Company or a person that, prior to such transaction, directly or indirectly
controls, is controlled by, or is under common control with, the Company)
directly or indirectly acquires beneficial ownership (within the meaning of
Rule 13d-3 under the Exchange Act) of securities possessing more than
twenty five percent (25%) of the total combined voting power of the
Company's outstanding securities pursuant to a tender or exchange offer
made directly to the Company's stockholders which the Board does not
recommend such stockholders to accept; or
(b) there is a change in the composition of the Board over a
period of thirty-six (36) consecutive months (or less) such that a majority
of the Board members (rounded up to the nearest whole number) ceases, by
reason of one or more proxy contests for the election of Board members, to
be comprised of individuals who either (i) have been Board members
continuously since the beginning of such period or (ii) have been elected
or nominated for election as Board members during such period by at least a
majority of the Board members described in clause (i) who were still in
office at the time such election or nomination was approved by the Board;
or
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation (or other entity),
other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing
to represent (either by remaining outstanding or by being converted into
voting securities of the surviving entity) more than 66-2/3% of the
combined voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation; provided, however, that a merger or consolidation effected
to implement a recapitalization of the Company (or similar transaction) in
which no person acquires more than 25% of the combined voting power of the
Company's then outstanding securities shall not constitute a Change in
Control; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition by
the Company of all or substantially all of the Company's assets; or
(e) any person is or becomes the beneficial owner of securities
of the Company representing ten percent (10%) or more of the combined
voting power of the Company's then outstanding securities and (A) the
identity of the Chief Executive Officer of the Company is changed during
the period beginning sixty (60) days before the attainment of the ten
percent (10%) beneficial ownership and ending two (2) years thereafter, or
(B) individuals constituting at least one-third (1/3) of the members of the
Board at the beginning of such period shall leave the Board during the
period beginning
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sixty (60) days before the attainment of the ten percent (10%) beneficial
ownership and ending two (2) years thereafter.
1.8. Code. "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
1.9. Committee. "Committee" shall mean the Compensation Committee of
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the Board, or another committee or subcommittee of the Board, appointed as
provided in Section 10.1.
1.10. Common Stock. "Common Stock" shall mean the common stock of the
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Company, par value $.01 per share, and any equity security of the Company issued
or authorized to be issued in the future, but excluding any preferred stock and
any warrants, options or other rights to purchase Common Stock.
1.11. Company. "Company" shall mean Intellisys Group, Inc., a
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Delaware corporation.
1.12. Consultant "Consultant" shall mean any consultant or adviser
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if:
(a) the consultant or adviser renders bona fide services to the
Company;
(b) the services rendered by the consultant or adviser are not
in connection with the offer or sale of securities in a capital-raising
transaction and do not directly or indirectly promote or maintain a market
for the Company's securities; and
(c) the consultant or adviser is a natural person who has
contracted directly with the Company to render such services.
1.13. Deferred Stock. "Deferred Stock" shall mean Common Stock
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awarded under Article VIII of the Plan.
1.14. Director. "Director" shall mean a member of the Board.
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1.15. Dividend Equivalent. "Dividend Equivalent" shall mean a right
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to receive the equivalent value (in cash or Common Stock) of dividends paid on
Common Stock, awarded under Article VIII of the Plan.
1.16. DRO. "DRO" shall mean a domestic relations order as defined by
---
the Code or Title I of the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
1.17. Employee. "Employee" shall mean any officer or other employee
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(as defined in accordance with Section 3401(c) of the Code) of the Company, or
of any corporation which is a Subsidiary.
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1.18. Exchange Act. "Exchange Act" shall mean the Securities Exchange
------------
Act of 1934, as amended.
1.19. Fair Market Value. "Fair Market Value" of a share of Common
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Stock as of a given date shall be (a) the closing price of a share of Common
Stock on the principal exchange on which shares of Common Stock are then
trading, if any (or as reported on any composite index which includes such
principal exchange), on the trading day previous to such date, or if shares were
not traded on the trading day previous to such date, then on the next preceding
date on which a trade occurred, or (b) if Common Stock is not traded on an
exchange but is quoted on NASDAQ or a successor quotation system, the mean
between the closing representative bid and asked prices for the Common Stock on
the trading day previous to such date as reported by NASDAQ or such successor
quotation system; or (c) if Common Stock is not publicly traded on an exchange
and not quoted on NASDAQ or a successor quotation system, the Fair Market Value
of a share of Common Stock as established by the Administrator acting in good
faith.
1.20. Holder. "Holder" shall mean a person who has been granted or
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awarded an Award.
1.21. Incentive Stock Option. "Incentive Stock Option" shall mean an
----------------------
option which conforms to the applicable provisions of Section 422 of the Code
and which is designated as an Incentive Stock Option by the Administrator.
1.22. Independent Director. "Independent Director" shall mean a
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member of the Board who is not an Employee of the Company.
1.23. Non-Qualified Stock Option. "Non-Qualified Stock Option" shall
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mean an Option which is not designated as an Incentive Stock Option by the
Administrator.
1.24. Option. "Option" shall mean a stock option granted under
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Article IV of the Plan. An Option granted under the Plan shall, as determined by
the Administrator, be either a Non-Qualified Stock Option or an Incentive Stock
Option; provided, however, that Options granted to Independent Directors and
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Consultants shall be Non-Qualified Stock Options.
1.25. Performance Award. "Performance Award" shall mean a cash bonus,
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stock bonus or other performance or incentive award that is paid in cash, Common
Stock or a combination of both, awarded under Article VIII of the Plan.
1.26. Performance Criteria. "Performance Criteria" shall mean the
--------------------
following business criteria with respect to the Company, any Subsidiary or any
division or operating unit: (a) net income, (b) pre-tax income, (c) operating
income, (d) cash flow, (e) earnings per share, (f) return on equity, (g) return
on invested capital or assets, (h) cost reductions or savings, (i) funds from
operations, (j) appreciation in the fair market value of Common Stock and (k)
earnings before any one or more of the following items: interest, taxes,
depreciation or amortization.
1.27. Plan. "Plan" shall mean the 1998 Equity Participation Plan of
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Intellisys
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Group, Inc.
1.28. Restricted Stock. "Restricted Stock" shall mean Common Stock
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awarded under Article VII of the Plan.
1.29. Rule 16b-3. "Rule 16b-3" shall mean that certain Rule 16b-3
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under the Exchange Act, as such Rule may be amended from time to time.
1.30. Section 162(m) Participant. "Section 162(m) Participant" shall
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mean any key Employee designated by the Administrator as a key Employee whose
compensation for the fiscal year in which the key Employee is so designated or a
future fiscal year may be subject to the limit on deductible compensation
imposed by Section 162(m) of the Code.
1.31. Securities Act. "Securities Act" shall mean the Securities Act
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of 1933, as amended.
1.32. Stock Appreciation Right. "Stock Appreciation Right" shall mean
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a stock appreciation right granted under Article IX of the Plan.
1.33. Stock Payment. "Stock Payment" shall mean (a) a payment in the
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form of shares of Common Stock, or (b) an option or other right to purchase
shares of Common Stock, as part of a deferred compensation arrangement, made in
lieu of all or any portion of the compensation, including without limitation,
salary, bonuses and commissions, that would otherwise become payable to a key
Employee or Consultant in cash, awarded under Article VIII of the Plan.
1.34. Subsidiary. "Subsidiary" shall mean any corporation in an
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unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain then owns
stock possessing fifty percent (50%) or more of the total combined voting power
of all classes of stock in one of the other corporations in such chain.
1.35. Substitute Award. "Substitute Award" shall mean an Option
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granted under this Plan upon the assumption of, or in substitution for,
outstanding equity awards previously granted by a company or other entity in
connection with a corporate transaction, such as a merger, combination,
consolidation or acquisition of property or stock; provided, however, that in no
event shall the term "Substitute Award" be construed to refer to an award made
in connection with the cancellation and repricing of an Option.
1.36. Termination of Consultancy. "Termination of Consultancy" shall
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mean the time when the engagement of a Holder as a Consultant to the Company or
a Subsidiary is terminated for any reason, with or without cause, including, but
not by way of limitation, by resignation, discharge, death or retirement; but
excluding terminations where there is a simultaneous commencement of employment
with the Company or any Subsidiary. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Consultancy, including, but not by way of limitation, the
question of whether a Termination of Consultancy resulted from a discharge for
good cause, and all
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questions of whether a particular leave of absence constitutes a Termination of
Consultancy. Notwithstanding any other provision of the Plan, the Company or any
Subsidiary has an absolute and unrestricted right to terminate a Consultant's
service at any time for any reason whatsoever, with or without cause, except to
the extent expressly provided otherwise in writing.
1.37. Termination of Directorship. "Termination of Directorship"
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shall mean the time when a Holder who is an Independent Director ceases to be a
Director for any reason, including, but not by way of limitation, a termination
by resignation, failure to be elected, death or retirement. The Board, in its
sole and absolute discretion, shall determine the effect of all matters and
questions relating to Termination of Directorship with respect to Independent
Directors.
1.38. Termination of Employment. "Termination of Employment" shall
-------------------------
mean the time when the employee-employer relationship between a Holder and the
Company or any Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death, disability or retirement; but excluding (a) terminations where
there is a simultaneous reemployment or continuing employment of a Holder by the
Company or any Subsidiary, (b) at the discretion of the Administrator,
terminations which result in a temporary severance of the employee-employer
relationship, and (c) at the discretion of the Administrator, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company or a Subsidiary with the former employee. The Administrator, in its
absolute discretion, shall determine the effect of all matters and questions
relating to Termination of Employment, including, but not by way of limitation,
the question of whether a Termination of Employment resulted from a discharge
for good cause, and all questions of whether a particular leave of absence
constitutes a Termination of Employment; provided, however, that, with respect
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to Incentive Stock Options, unless otherwise determined by the Administrator in
its discretion, a leave of absence, change in status from an employee to an
independent contractor or other change in the employee-employer relationship
shall constitute a Termination of Employment if, and to the extent that, such
leave of absence, change in status or other change interrupts employment for the
purposes of Section 422(a)(2) of the Code and the then applicable regulations
and revenue rulings under said Section.
ARTICLE II.
SHARES SUBJECT TO PLAN
2.1. Shares Subject to Plan.
----------------------
(a) The shares of stock subject to Awards shall be Common Stock,
initially shares of the Company's Common Stock, par value $.01 per share.
The aggregate number of such shares which may be issued upon exercise of
such Options or rights or upon any such awards under the Plan shall not
exceed 750,000 shares. The shares of Common Stock issuable upon exercise
of such Options or rights or upon any such awards may be either previously
authorized but unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Awards,
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granted under the Plan to any individual in any calendar year shall not
exceed the Award Limit. To the extent required by Section 162(m) of the
Code, shares subject to Options which are canceled continue to be counted
against the Award Limit.
2.2. Add-back of Options and Other Rights. If any Option, or other
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right to acquire shares of Common Stock under any other Award under the Plan,
expires or is canceled without having been fully exercised, or is exercised in
whole or in part for cash as permitted by the Plan, the number of shares subject
to such Option or other right but as to which such Option or other right was not
exercised prior to its expiration, cancellation or exercise may again be
optioned, granted or awarded hereunder, subject to the limitations of Section
2.1. Furthermore, any shares subject to Awards which are adjusted pursuant to
Section 11.3 and become exercisable with respect to shares of stock of another
corporation shall be considered cancelled and may again be optioned, granted or
awarded hereunder, subject to the limitations of Section 2.1. Shares of Common
Stock which are delivered by the Holder or withheld by the Company upon the
exercise of any Award under the Plan, in payment of the exercise price thereof
or tax withholding thereon, may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. If any shares of Restricted Stock are
surrendered by the Holder or repurchased by the Company pursuant to Section 7.4
or 7.5 hereof, such shares may again be optioned, granted or awarded hereunder,
subject to the limitations of Section 2.1. Notwithstanding the provisions of
this Section 2.2, no shares of Common Stock may again be optioned, granted or
awarded if such action would cause an Incentive Stock Option to fail to qualify
as an incentive stock option under Section 422 of the Code.
ARTICLE III.
GRANTING OF AWARDS
3.1. Award Agreement. Each Award shall be evidenced by an Award
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Agreement. Award Agreements evidencing Awards intended to qualify as
performance-based compensation as described in Section 162(m)(4)(C) of the Code
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 162(m) of the Code. Award Agreements evidencing
Incentive Stock Options shall contain such terms and conditions as may be
necessary to meet the applicable provisions of Section 422 of the Code.
3.2. Provisions Applicable to Section 162(m) Participants.
----------------------------------------------------
(a) The Committee, in its discretion, may determine whether an
Award is to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code.
(b) Notwithstanding anything in the Plan to the contrary, the
Committee may grant any Award to a Section 162(m) Participant, including
Restricted Stock, the restrictions with respect to which lapse upon the
attainment of performance goals which are related to one or more of the
Performance Criteria and any performance or incentive award described in
Article VIII that vests or becomes exercisable or payable upon the
attainment of performance goals which are related to one or more of the
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Performance Criteria.
(c) To the extent necessary to comply with the performance-based
compensation requirements of Section 162(m)(4)(C) of the Code, with respect
to any Award granted under Articles VII and VIII which may be granted to
one or more Section 162(m) Participants, no later than ninety (90) days
following the commencement of any fiscal year in question or any other
designated fiscal period or period of service (or such other time as may be
required or permitted by Section 162(m) of the Code), the Committee shall,
in writing, (i) designate one or more Section 162(m) Participants, (ii)
select the Performance Criteria applicable to the fiscal year or other
designated fiscal period or period of service, (iii) establish the various
performance targets, in terms of an objective formula or standard, and
amounts of such Awards, as applicable, which may be earned for such fiscal
year or other designated fiscal period or period of service and (iv)
specify the relationship between Performance Criteria and the performance
targets and the amounts of such Awards, as applicable, to be earned by each
Section 162(m) Participant for such fiscal year or other designated fiscal
period or period of service. Following the completion of each fiscal year
or other designated fiscal period or period of service, the Committee shall
certify in writing whether the applicable performance targets have been
achieved for such fiscal year or other designated fiscal period or period
of service. In determining the amount earned by a Section 162(m)
Participant, the Committee shall have the right to reduce (but not to
increase) the amount payable at a given level of performance to take into
account additional factors that the Committee may deem relevant to the
assessment of individual or corporate performance for the fiscal year or
other designated fiscal period or period of service.
(d) Furthermore, notwithstanding any other provision of the
Plan, any Award which is granted to a Section 162(m) Participant and is
intended to qualify as performance-based compensation as described in
Section 162(m)(4)(C) of the Code shall be subject to any additional
limitations set forth in Section 162(m) of the Code (including any
amendment to Section 162(m) of the Code) or any regulations or rulings
issued thereunder that are requirements for qualification as performance-
based compensation as described in Section 162(m)(4)(C) of the Code, and
the Plan shall be deemed amended to the extent necessary to conform to such
requirements.
3.3. Limitations Applicable to Section 16 Persons. Notwithstanding
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any other provision of the Plan, the Plan, and any Award granted or awarded to
any individual who is then subject to Section 16 of the Exchange Act, shall be
subject to any additional limitations set forth in any applicable exemptive rule
under Section 16 of the Exchange Act (including any amendment to Rule 16b-3 of
the Exchange Act) that are requirements for the application of such exemptive
rule. To the extent permitted by applicable law, the Plan and Awards granted or
awarded hereunder shall be deemed amended to the extent necessary to conform to
such applicable exemptive rule.
3.4. Consideration. In consideration of the granting of an Award
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under the Plan, the Holder shall agree, in the Award Agreement, to remain in the
employ of (or to consult
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for or to serve as an Independent Director of, as applicable) the Company or any
Subsidiary for a period of at least one year (or such shorter period as may be
fixed in the Award Agreement or by action of the Administrator following grant
of the Award) after the Award is granted (or, in the case of an Independent
Director, until the next annual meeting of stockholders of the Company).
3.5. At-Will Employment. Nothing in the Plan or in any Award
------------------
Agreement hereunder shall confer upon any Holder any right to continue in the
employ of, or as a Consultant for, the Company or any Subsidiary, or as a
director of the Company, or shall interfere with or restrict in any way the
rights of the Company and any Subsidiary, which are hereby expressly reserved,
to discharge any Holder at any time for any reason whatsoever, with or without
cause, except to the extent expressly provided otherwise in a written employment
agreement between the Holder and the Company and any Subsidiary.
ARTICLE IV.
GRANTING OF OPTIONS TO EMPLOYEES,
CONSULTANTS AND INDEPENDENT DIRECTORS
4.1. Eligibility. Any Employee or Consultant selected by the
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Committee pursuant to Section 4.4(a)(i) shall be eligible to be granted an
Option. Each Independent Director of the Company shall be eligible to be granted
Options at the times and in the manner set forth in Section 4.5.
4.2. Disqualification for Stock Ownership. No person may be granted
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an Incentive Stock Option under the Plan if such person, at the time the
Incentive Stock Option is granted, owns stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any then existing Subsidiary or parent corporation (within the meaning of
Section 422 of the Code) unless such Incentive Stock Option conforms to the
applicable provisions of Section 422 of the Code.
4.3. Qualification of Incentive Stock Options. No Incentive Stock
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Option shall be granted to any person who is not an Employee.
4.4. Granting of Options to Employees and Consultants.
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(a) The Committee shall from time to time, in its absolute
discretion, and subject to applicable limitations of the Plan:
(i) Determine which Employees are key Employees and select
from among the key Employees or Consultants (including Employees or
Consultants who have previously received Awards under the Plan) such
of them as in its opinion should be granted Options;
(ii) Subject to the Award Limit, determine the number of
shares to be subject to such Options granted to the selected key
Employees or Consultants;
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(iii) Subject to Section 4.3, determine whether such
Options are to be Incentive Stock Options or Non-Qualified Stock
Options and whether such Options are to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options,
consistent with the Plan; provided, however, that the terms and
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conditions of Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code shall
include, but not be limited to, such terms and conditions as may be
necessary to meet the applicable provisions of Section 162(m) of the
Code.
(b) Upon the selection of a key Employee or Consultant to be
granted an Option, the Committee shall instruct the Secretary of the
Company to issue the Option and may impose such conditions on the grant of
the Option as it deems appropriate.
(c) Any Incentive Stock Option granted under the Plan may be
modified by the Committee, with the consent of the Holder, to disqualify
such Option from treatment as an "incentive stock option" under Section 422
of the Code.
4.5. Granting of Options to Independent Directors.
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During the term of the Plan, each person who is an Independent
Director as of the date of the consummation of the initial public offering of
Common Stock automatically shall be granted (i) an Option to purchase three
thousand (3,000) shares of Common Stock (subject to adjustment as provided in
Section 11.3) on the date of such consummation and (ii) an Option to purchase
one thousand (1,000) shares of Common Stock (subject to adjustment as provided
in Section 11.3) on the date of each annual meeting of stockholders after the
consummation of such initial public offering at which the Independent Director
is reelected to the Board. During the term of the Plan, a person who is
initially elected to the Board after the consummation of the initial public
offering of Common Stock and who is an Independent Director at the time of such
initial election automatically shall be granted (i) an Option to purchase three
thousand (3,000) shares of Common Stock (subject to adjustment as provided in
Section 11.3) on the date of such initial election and (ii) an Option to
purchase one thousand (1,000) shares of Common Stock (subject to adjustment as
provided in Section 11.3) on the date of each annual meeting of stockholders
after such initial election at which the Independent Director is reelected to
the Board. Members of the Board who are employees of the Company who
subsequently retire from the Company and remain on the Board will not receive an
initial Option grant pursuant to clause (i) of the preceding sentence, but to
the extent that they are otherwise eligible, will receive, after retirement from
employment with the Company, Options as described in clause (ii) of the
preceding sentence. All of the foregoing Option grants authorized by this
Section 4.5 are subject to stockholder approval of the Plan.
4.6. Options in Lieu of Cash Compensation. Options may be granted
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under the Plan to Employees and Consultants in lieu of cash bonuses which would
otherwise be payable to
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such Employees and Consultants and to Independent Directors in lieu of
directors' fees which would otherwise be payable to such Independent Directors,
pursuant to such policies which may be adopted by the Administrator from time to
time.
ARTICLE V.
TERMS OF OPTIONS
5.1. Option Price. The price per share of the shares subject to each
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Option granted to Employees and Consultants shall be set by the Committee;
provided, however, that such price shall be no less than the par value of a
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share of Common Stock, unless otherwise permitted by applicable state law, and:
(a) in the case of Options intended to qualify as performance-
based compensation as described in Section 162(m)(4)(C) of the Code, such
price shall not be less than 100% of the Fair Market Value of a share of
Common Stock on the date the Option is granted;
(b) in the case of Incentive Stock Options such price shall not
be less than 100% of the Fair Market Value of a share of Common Stock on
the date the Option is granted (or the date the Option is modified,
extended or renewed for purposes of Section 424(h) of the Code);
(c) in the case of Incentive Stock Options granted to an
individual then owning (within the meaning of Section 424(d) of the Code)
more than 10% of the total combined voting power of all classes of stock of
the Company or any Subsidiary or parent corporation thereof (within the
meaning of Section 422 of the Code), such price shall not be less than 110%
of the Fair Market Value of a share of Common Stock on the date the Option
is granted (or the date the Option is modified, extended or renewed for
purposes of Section 424(h) of the Code).
5.2. Option Term. The term of an Option granted to an Employee or
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consultant shall be set by the Committee in its discretion; provided, however,
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that, in the case of Incentive Stock Options, the term shall not be more than
ten (10) years from the date the Incentive Stock Option is granted, or five (5)
years from the date the Incentive Stock Option is granted if the Incentive Stock
Option is granted to an individual then owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation thereof
(within the meaning of Section 422 of the Code). Except as limited by
requirements of Section 422 of the Code and regulations and rulings thereunder
applicable to Incentive Stock Options, the Committee may extend the term of any
outstanding Option in connection with any Termination of Employment or
Termination of Consultancy of the Holder, or amend any other term or condition
of such Option relating to such a termination.
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5.3. Option Vesting
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(a) The period during which the right to exercise, in whole or
in part, an Option granted to an Employee or a Consultant vests in the
Holder shall be set by the Committee and the Committee may determine that
an Option may not be exercised in whole or in part for a specified period
after it is granted; provided, however, that, unless the Committee
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otherwise provides in the terms of the Award Agreement or otherwise, no
Option shall be exercisable by any Holder who is then subject to Section 16
of the Exchange Act within the period ending six months and one day after
the date the Option is granted. At any time after grant of an Option, the
Committee may, in its sole and absolute discretion and subject to whatever
terms and conditions it selects, accelerate the period during which an
Option granted to an Employee or Consultant vests.
(b) No portion of an Option granted to an Employee or Consultant
which is unexercisable at Termination of Employment or Termination of
Consultancy, as applicable, shall thereafter become exercisable, except as
may be otherwise provided by the Committee either in the Award Agreement or
by action of the Committee following the grant of the Option.
(c) To the extent that the aggregate Fair Market Value of stock
with respect to which "incentive stock options" (within the meaning of
Section 422 of the Code, but without regard to Section 422(d) of the Code)
are exercisable for the first time by a Holder during any calendar year
(under the Plan and all other incentive stock option plans of the Company
and any parent or subsidiary corporation, within the meaning of Section 422
of the Code) of the Company, exceeds $100,000, such Options shall be
treated as Non-Qualified Options to the extent required by Section 422 of
the Code. The rule set forth in the preceding sentence shall be applied by
taking Options into account in the order in which they were granted. For
purposes of this Section 5.3(c), the Fair Market Value of stock shall be
determined as of the time the Option with respect to such stock is granted.
5.4. Terms of Options Granted to Independent Directors. The price
-------------------------------------------------
per share of the shares subject to each Option granted to an Independent
Director shall equal 100% of the Fair Market Value of a share of Common Stock on
the date the Option is granted; provided, however, that the price of each share
-------- -------
subject to each Option granted to Independent Directors on the date of the
initial public offering of Common Stock shall equal the initial public offering
price (net of underwriting discounts and commissions) per share of Common Stock.
Options granted to Independent Directors shall become exercisable in cumulative
annual installments of 25% on each of the first, second, third and fourth
anniversaries of the date of Option grant and, subject to Section 6.6, the term
of each Option granted to an Independent Director shall be ten (10) years from
the date the Option is granted, except that any Option granted to an Independent
Director may by its terms become immediately exercisable in full upon the
retirement of the Independent Director in accordance with the Company's
retirement policy applicable to directors. No portion of an Option which is
unexercisable at Termination of Directorship shall thereafter become
exercisable.
12
<PAGE>
5.5. Substitute Awards.
-----------------
Notwithstanding the foregoing provisions of this Article V to the
contrary, in the case of an Option that is a Substitute Award, the price per
share of the shares subject to such Option may be less than the Fair Market
Value per share on the date of grant, provided, that the excess of:
--------
(a) the aggregate Fair Market Value (as of the date such
Substitute Award is granted) of the shares subject to the Substitute Award;
over
(b) the aggregate exercise price thereof; does not exceed the
excess of;
(c) the aggregate fair market value (as of the time immediately
preceding the transaction giving rise to the Substitute Award, such fair
market value to be determined by the Committee) of the shares of the
predecessor entity that were subject to the grant assumed or substituted
for by the Company; over
(d) the aggregate exercise price of such shares.
ARTICLE VI.
EXERCISE OF OPTIONS
6.1. Partial Exercise. An exercisable Option may be exercised in
----------------
whole or in part. However, an Option shall not be exercisable with respect to
fractional shares and the Administrator may require that, by the terms of the
Option, a partial exercise be with respect to a minimum number of shares.
6.2. Manner of Exercise. All or a portion of an exercisable Option
------------------
shall be deemed exercised upon delivery of all of the following to the Secretary
of the Company or his or her office:
(a) A written notice complying with the applicable rules
established by the Administrator stating that the Option, or a portion
thereof, is exercised. The notice shall be signed by the Holder or other
person then entitled to exercise the Option or such portion of the Option;
(b) Such representations and documents as the Administrator, in
its absolute discretion, deems necessary or advisable to effect compliance
with all applicable provisions of the Securities Act and any other federal
or state securities laws or regulations. The Administrator may, in its
absolute discretion, also take whatever additional actions it deems
appropriate to effect such compliance including, without limitation,
placing legends on share certificates and issuing stop-transfer notices to
agents and registrars;
(c) In the event that the Option shall be exercised pursuant to
Section
13
<PAGE>
11.1 by any person or persons other than the Holder, appropriate proof of
the right of such person or persons to exercise the Option; and
(d) Full cash payment to the Secretary of the Company for the
shares with respect to which the Option, or portion thereof, is exercised.
However, the Administrator, may in its discretion (i) allow a delay in
payment up to thirty (30) days from the date the Option, or portion
thereof, is exercised; (ii) allow payment, in whole or in part, through the
delivery of shares of Common Stock which have been owned by the Holder for
at least six months, duly endorsed for transfer to the Company with a Fair
Market Value on the date of delivery equal to the aggregate exercise price
of the Option or exercised portion thereof; (iii) allow payment, in whole
or in part, through the surrender of shares of Common Stock then issuable
upon exercise of the Option having a Fair Market Value on the date of
Option exercise equal to the aggregate exercise price of the Option or
exercised portion thereof; (iv) allow payment, in whole or in part, through
the delivery of property of any kind which constitutes good and valuable
consideration; (v) allow payment, in whole or in part, through the delivery
of a full recourse promissory note bearing interest (at no less than such
rate as shall then preclude the imputation of interest under the Code) and
payable upon such terms as may be prescribed by the Administrator; (vi)
allow payment, in whole or in part, through the delivery of a notice that
the Holder has placed a market sell order with a broker with respect to
shares of Common Stock then issuable upon exercise of the Option, and that
the broker has been directed to pay a sufficient portion of the net
proceeds of the sale to the Company in satisfaction of the Option exercise
price, provided that payment of such proceeds is then made to the Company
--------
upon settlement of such sale; or (vii) allow payment through any
combination of the consideration provided in the foregoing subparagraphs
(ii), (iii), (iv), (v) and (vi). In the case of a promissory note, the
Administrator may also prescribe the form of such note and the security to
be given for such note. The Option may not be exercised, however, by
delivery of a promissory note or by a loan from the Company when or where
such loan or other extension of credit is prohibited by law.
6.3. Conditions to Issuance of Stock Certificates. The Company shall
--------------------------------------------
not be required to issue or deliver any certificate or certificates for shares
of stock purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock
exchanges on which such class of stock is then listed;
(b) The completion of any registration or other qualification of
such shares under any state or federal law, or under the rulings or
regulations of the Securities and Exchange Commission or any other
governmental regulatory body which the Administrator shall, in its absolute
discretion, deem necessary or advisable;
(c) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Administrator shall, in its
absolute discretion, determine to be necessary or advisable;
14
<PAGE>
(d) The lapse of such reasonable period of time following the
exercise of the Option as the Administrator may establish from time to time
for reasons of administrative convenience; and
(e) The receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax, which in the
discretion of the Administrator may be in the form of consideration used by
the Holder to pay for such shares under Section 6.2(d).
6.4. Rights as Stockholders. Holders shall not be, nor have any of
----------------------
the rights or privileges of, stockholders of the Company in respect of any
shares purchasable upon the exercise of any part of an Option unless and until
certificates representing such shares have been issued by the Company to such
Holders.
6.5. Ownership and Transfer Restrictions. The Administrator, in its
-----------------------------------
absolute discretion, may impose such restrictions on the ownership and
transferability of the shares purchasable upon the exercise of an Option as it
deems appropriate. Any such restriction shall be set forth in the respective
Award Agreement and may be referred to on the certificates evidencing such
shares. The Holder shall give the Company prompt notice of any disposition of
shares of Common Stock acquired by exercise of an Incentive Stock Option within
(a) two years from the date of granting (including the date the Option is
modified, extended or renewed for purposes of Section 424(h) of the Code) such
Option to such Holder or (b) one year after the transfer of such shares to such
Holder.
6.6. Limitations on Exercise of Options Granted to Independent
---------------------------------------------------------
Directors. No Option granted to an Independent Director may be exercised to any
- ---------
extent by anyone after the first to occur of the following events:
(a) The expiration of twelve (12) months from the date of the
Holder's death;
(b) the expiration of twelve (12) months from the date of the
Holder's Termination of Directorship by reason of his or her permanent and
total disability (within the meaning of Section 22(e)(3) of the Code);
(c) the expiration of three (3) months from the date of the
Holder's Termination of Directorship for any reason other than such
Holder's death or his or her permanent and total disability, unless the
Holder dies within said three-month period; or
(d) The expiration of ten (10) years from the date the Option
was granted.
6.7. Additional Limitations on Exercise of Options. Holders may be
---------------------------------------------
required to comply with any timing or other restrictions with respect to the
settlement or exercise of an Option, including a window-period limitation, as
may be imposed in the discretion of the Administrator.
15
<PAGE>
ARTICLE VII.
AWARD OF RESTRICTED STOCK
7.1. Eligibility. Subject to the Award Limit, Restricted Stock may be
-----------
awarded to any Employee who the Committee determines is a key Employee or any
Consultant who the Committee determines should receive such an Award.
7.2. Award of Restricted Stock
-------------------------
(a) The Committee may from time to time, in its absolute
discretion:
(i) Determine which Employees are key Employees and select
from among the key Employees or Consultants (including Employees or
Consultants who have previously received other awards under the Plan)
such of them as in its opinion should be awarded Restricted Stock; and
(ii) Determine the purchase price, if any, and other terms
and conditions applicable to such Restricted Stock, consistent with
the Plan.
(b) The Committee shall establish the purchase price, if any,
and form of payment for Restricted Stock; provided, however, that such
-------- -------
purchase price shall be no less than the par value of the Common Stock to
be purchased, unless otherwise permitted by applicable state law. In all
cases, legal consideration shall be required for each issuance of
Restricted Stock.
(c) Upon the selection of a key Employee or Consultant to be
awarded Restricted Stock, the Committee shall instruct the Secretary of the
Company to issue such Restricted Stock and may impose such conditions on
the issuance of such Restricted Stock as it deems appropriate.
7.3. Rights as Stockholders. Subject to Section 7.4, upon delivery of
----------------------
the shares of Restricted Stock to the escrow holder pursuant to Section 7.6, the
Holder shall have, unless otherwise provided by the Committee, all the rights of
a stockholder with respect to said shares, subject to the restrictions in his or
her Award Agreement, including the right to receive all dividends and other
distributions paid or made with respect to the shares; provided, however, that
in the discretion of the Committee, any extraordinary distributions with respect
to the Common Stock shall be subject to the restrictions set forth in Section
7.4.
7.4. Restriction. All shares of Restricted Stock issued under the
-----------
Plan (including any shares received by holders thereof with respect to shares of
Restricted Stock as a result of stock dividends, stock splits or any other form
of recapitalization) shall, in the terms of each individual Award Agreement, be
subject to such restrictions as the Committee shall provide, which restrictions
may include, without limitation, restrictions concerning voting rights
16
<PAGE>
and transferability and restrictions based on duration of employment with the
Company, Company performance and individual performance; provided, however,
-------- -------
that, unless the Committee otherwise provides in the terms of the Award
Agreement or otherwise, no share of Restricted Stock granted to a person subject
to Section 16 of the Exchange Act shall be sold, assigned or otherwise
transferred until at least six months and one day have elapsed from the date on
which the Restricted Stock was issued, and provided, further, that, except with
-------- -------
respect to shares of Restricted Stock granted to Section 162(m) Participants, by
action taken after the Restricted Stock is issued, the Committee may, on such
terms and conditions as it may determine to be appropriate, remove any or all of
the restrictions imposed by the terms of the Award Agreement. Restricted Stock
may not be sold or encumbered until all restrictions are terminated or expire.
If no consideration was paid by the Holder upon issuance, a Holder's rights in
unvested Restricted Stock shall lapse, and such Restricted Stock shall be
surrendered to the Company without consideration, upon Termination of Employment
or, if applicable, upon Termination of Consultancy with the Company; provided,
--------
however, that the Committee in its sole and absolute discretion may provide that
- -------
such rights shall not lapse in the event of a Termination of Employment
following a "change of ownership or control" (within the meaning of Treasury
Regulation Section 1.162-27(e)(2)(v) or any successor regulation thereto) of the
Company or because of the Holder's death or disability; provided, further,
-------- -------
except with respect to shares of Restricted Stock granted to Section 162(m)
Participants, the Committee in its sole and absolute discretion may provide that
no such lapse or surrender shall occur in the event of a Termination of
Employment, or a Termination of Consultancy, without cause or following any
Change in Control of the Company or because of the Holder's retirement, or
otherwise.
7.5. Repurchase of Restricted Stock. The Committee shall provide in
the terms of each individual Award Agreement that the Company shall have the
right to repurchase from the Holder the Restricted Stock then subject to
restrictions under the Award Agreement immediately upon a Termination of
Employment or, if applicable, upon a Termination of Consultancy between the
Holder and the Company, at a cash price per share equal to the price paid by the
Holder for such Restricted Stock; provided, however, that the Committee in its
-------- -------
sole and absolute discretion may provide that no such right of repurchase shall
exist in the event of a Termination of Employment following a "change of
ownership or control" (within the meaning of Treasury Regulation Section 1.162-
27(e)(2)(v) or any successor regulation thereto) of the Company or because of
the Holder's death or disability; provided, further, that, except with respect
-------- -------
to shares of Restricted Stock granted to Section 162(m) Participants, the
Committee in its sole and absolute discretion may provide that no such right of
repurchase shall exist in the event of a Termination of Employment or a
Termination of Consultancy without cause or following any Change in Control of
the Company or because of the Holder's retirement, or otherwise.
7.6. Escrow. The Secretary of the Company or such other escrow holder
------
as the Committee may appoint shall retain physical custody of each certificate
representing Restricted Stock until all of the restrictions imposed under the
Award Agreement with respect to the shares evidenced by such certificate expire
or shall have been removed.
17
<PAGE>
7.7. Legend. In order to enforce the restrictions imposed upon shares
------
of Restricted Stock hereunder, the Committee shall cause a legend or legends to
be placed on certificates representing all shares of Restricted Stock that are
still subject to restrictions under Award Agreements, which legend or legends
shall make appropriate reference to the conditions imposed thereby.
7.8. Section 83(b) Election. If a Holder makes an election under
----------------------
Section 83(b) of the Code, or any successor section thereto, to be taxed with
respect to the Restricted Stock as of the date of transfer of the Restricted
Stock rather than as of the date or dates upon which the Holder would otherwise
be taxable under Section 83(a) of the Code, the Holder shall deliver a copy of
such election to the Company immediately after filing such election with the
Internal Revenue Service.
ARTICLE VIII.
PERFORMANCE AWARDS, DIVIDEND EQUIVALENTS, DEFERRED STOCK, STOCK PAYMENTS
8.1. Eligibility. Subject to the Award Limit, one or more Performance
-----------
Awards, Dividend Equivalents, awards of Deferred Stock, and/or Stock Payments
may be granted to any Employee whom the Committee determines is a key Employee
or any Consultant whom the Committee determines should receive such an Award.
8.2. Performance Awards. Any key Employee or Consultant selected by
------------------
the Committee may be granted one or more Performance Awards. The value of such
Performance Awards may be linked to any one or more of the Performance Criteria
or other specific performance criteria determined appropriate by the Committee,
in each case on a specified date or dates or over any period or periods
determined by the Committee. In making such determinations, the Committee shall
consider (among such other factors as it deems relevant in light of the specific
type of award) the contributions, responsibilities and other compensation of the
particular key Employee or Consultant.
8.3. Dividend Equivalents.
--------------------
(a) Any key Employee or Consultant selected by the Committee may
be granted Dividend Equivalents based on the dividends declared on Common
Stock, to be credited as of dividend payment dates, during the period
between the date a Stock Appreciation Right, Deferred Stock or Performance
Award is granted, and the date such Stock Appreciation Right, Deferred
Stock or Performance Award is exercised, vests or expires, as determined by
the Committee. Such Dividend Equivalents shall be converted to cash or
additional shares of Common Stock by such formula and at such time and
subject to such limitations as may be determined by the Committee.
(b) Any Holder of an Option who is an Employee or Consultant
selected by the Committee may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment
dates, during the
18
<PAGE>
period between the date an Option is granted, and the date such Option is
exercised, vests or expires, as determined by the Committee. Such Dividend
Equivalents shall be converted to cash or additional shares of Common Stock
by such formula and at such time and subject to such limitations as may be
determined by the Committee.
(c) Any Holder of an Option who is an Independent Director
selected by the Board may be granted Dividend Equivalents based on the
dividends declared on Common Stock, to be credited as of dividend payment
dates, during the period between the date an Option is granted, and the
date such Option is exercised, vests or expires, as determined by the
Board. Such Dividend Equivalents shall be converted to cash or additional
shares of Common Stock by such formula and at such time and subject to such
limitations as may be determined by the Board.
(d) Dividend Equivalents granted with respect to Options
intended to be qualified performance-based compensation for purposes of
Section 162(m) of the Code shall be payable, with respect to pre-exercise
periods, regardless of whether such Option is subsequently exercised.
8.4. Stock Payments. Any key Employee or Consultant selected by the
--------------
Committee may receive Stock Payments in the manner determined from time to time
by the Committee. The number of shares shall be determined by the Committee and
may be based upon the Performance Criteria or other specific performance
criteria determined appropriate by the Committee, determined on the date such
Stock Payment is made or on any date thereafter.
8.5. Deferred Stock. Any key Employee or Consultant selected by the
--------------
Committee may be granted an award of Deferred Stock in the manner determined
from time to time by the Committee. The number of shares of Deferred Stock shall
be determined by the Committee and may be linked to the Performance Criteria or
other specific performance criteria determined to be appropriate by the
Committee, in each case on a specified date or dates or over any period or
periods determined by the Committee. Common Stock underlying a Deferred Stock
award will not be issued until the Deferred Stock award has vested, pursuant to
a vesting schedule or performance criteria set by the Committee. Unless
otherwise provided by the Committee, a Holder of Deferred Stock shall have no
rights as a Company stockholder with respect to such Deferred Stock until such
time as the Award has vested and the Common Stock underlying the Award has been
issued.
8.6. Term. The term of a Performance Award, Dividend Equivalent,
----
award of Deferred Stock and/or Stock Payment shall be set by the Committee in
its discretion.
8.7. Exercise or Purchase Price. The Committee may establish the
--------------------------
exercise or purchase price of a Performance Award, shares of Deferred Stock, or
shares received as a Stock Payment; provided, however, that such price shall not
-------- -------
be less than the par value for a share of Common Stock, unless otherwise
permitted by applicable state law.
8.8. Exercise Upon Termination of Employment, Termination of
-------------------------------------------------------
Consultancy or Termination of Directorship. A Performance Award, Dividend
- ------------------------------------------
Equivalent, award of Deferred
19
<PAGE>
Stock and/or Stock Payment is exercisable or payable only while the Holder is an
Employee, Consultant or Independent Director, as applicable; provided, however,
-------- -------
that the Administrator in its sole and absolute discretion may provide that the
Performance Award, Dividend Equivalent, award of Deferred Stock and/or Stock
Payment may be exercised or paid subsequent to a Termination of Employment
following a "change of control or ownership" (within the meaning of Section
1.162-27(e)(2)(v) or any successor regulation thereto) of the Company; provided,
--------
further, that except with respect to Performance Awards granted to Section
- -------
162(m) Participants, the Administrator in its sole and absolute discretion may
provide that Performance Awards may be exercised or paid following a Termination
of Employment or a Termination of Consultancy without cause, or following a
Change in Control of the Company, or because of the Holder's retirement, death
or disability, or otherwise.
8.9. Form of Payment. Payment of the amount determined under Section
---------------
8.2 or 8.3 above shall be in cash, in Common Stock or a combination of both, as
determined by the Committee. To the extent any payment under this Article VIII
is effected in Common Stock, it shall be made subject to satisfaction of all
provisions of Section 6.3.
ARTICLE IX.
STOCK APPRECIATION RIGHTS
9.1. Grant of Stock Appreciation Rights. A Stock Appreciation Right
----------------------------------
may be granted to any key Employee or Consultant selected by the Committee. A
Stock Appreciation Right may be granted (a) in connection and simultaneously
with the grant of an Option, (b) with respect to a previously granted Option, or
(c) independent of an Option. A Stock Appreciation Right shall be subject to
such terms and conditions not inconsistent with the Plan as the Committee shall
impose and shall be evidenced by an Award Agreement.
9.2. Coupled Stock Appreciation Rights.
---------------------------------
(a) A Coupled Stock Appreciation Right ("CSAR") shall be related
to a particular Option and shall be exercisable only when and to the extent
the related Option is exercisable.
(b) A CSAR may be granted to the Holder for no more than the
number of shares subject to the simultaneously or previously granted Option
to which it is coupled.
(c) A CSAR shall entitle the Holder (or other person entitled to
exercise the Option pursuant to the Plan) to surrender to the Company
unexercised a portion of the Option to which the CSAR relates (to the
extent then exercisable pursuant to its terms) and to receive from the
Company in exchange therefor an amount determined by multiplying the
difference obtained by subtracting the Option exercise price from the Fair
Market Value of a share of Common Stock on the date of exercise of the CSAR
by the number of shares of Common Stock with respect to which the CSAR
20
<PAGE>
shall have been exercised, subject to any limitations the Committee may
impose.
9.3. Independent Stock Appreciation Rights.
-------------------------------------
(a) An Independent Stock Appreciation Right ("ISAR") shall be
unrelated to any Option and shall have a term set by the Committee. An
ISAR shall be exercisable in such installments as the Committee may
determine. An ISAR shall cover such number of shares of Common Stock as
the Committee may determine; provided, however, that unless the Committee
-------- -------
otherwise provides in the terms of the ISAR or otherwise, no ISAR granted
to a person subject to Section 16 of the Exchange Act shall be exercisable
until at least six months have elapsed from (but excluding) the date on
which the Option was granted. The exercise price per share of Common Stock
subject to each ISAR shall be set by the Committee. An ISAR is exercisable
only while the Holder is an Employee or Consultant; provided that the
Committee may determine that the ISAR may be exercised subsequent to
Termination of Employment or Termination of Consultancy without cause, or
following a Change in Control of the Company, or because of the Holder's
retirement, death or disability, or otherwise.
(b) An ISAR shall entitle the Holder (or other person entitled
to exercise the ISAR pursuant to the Plan) to exercise all or a specified
portion of the ISAR (to the extent then exercisable pursuant to its terms)
and to receive from the Company an amount determined by multiplying the
difference obtained by subtracting the exercise price per share of the ISAR
from the Fair Market Value of a share of Common Stock on the date of
exercise of the ISAR by the number of shares of Common Stock with respect
to which the ISAR shall have been exercised, subject to any limitations the
Committee may impose.
9.4. Payment and Limitations on Exercise.
-----------------------------------
(a) Payment of the amounts determined under Section 9.2(c) and
9.3(b) above shall be in cash, in Common Stock (based on its Fair Market
Value as of the date the Stock Appreciation Right is exercised) or a
combination of both, as determined by the Committee. To the extent such
payment is effected in Common Stock it shall be made subject to
satisfaction of all provisions of Section 6.3 above pertaining to Options.
(b) Holders of Stock Appreciation Rights may be required to
comply with any timing or other restrictions with respect to the settlement
or exercise of a Stock Appreciation Right, including a window-period
limitation, as may be imposed in the discretion of the Committee.
ARTICLE X.
ADMINISTRATION
10.1. Compensation Committee. Prior to the Company's initial
----------------------
registration of Common Stock under Section 12 of the Exchange Act, the
Compensation Committee shall
21
<PAGE>
consist of the entire Board. Following such registration, the Compensation
Committee (or another committee or a subcommittee of the Board assuming the
functions of the Committee under the Plan) shall consist solely of two or more
Independent Directors appointed by and holding office at the pleasure of the
Board, each of whom is both a "non-employee director" as defined by Rule 16b-3
and an "outside director" for purposes of Section 162(m) of the Code.
Appointment of Committee members shall be effective upon acceptance of
appointment. Committee members may resign at any time by delivering written
notice to the Board. Vacancies in the Committee may be filled by the Board.
10.2. Duties and Powers of Committee. It shall be the duty of the
------------------------------
Committee to conduct the general administration of the Plan in accordance with
its provisions. The Committee shall have the power to interpret the Plan and the
Award Agreements, and to adopt such rules for the administration,
interpretation, and application of the Plan as are consistent therewith, to
interpret, amend or revoke any such rules and to amend any Award Agreement
provided that the rights or obligations of the Holder of the Award that is the
subject of any such Award Agreement are not affected adversely. Any such grant
or award under the Plan need not be the same with respect to each Holder. Any
such interpretations and rules with respect to Incentive Stock Options shall be
consistent with the provisions of Section 422 of the Code. In its absolute
discretion, the Board may at any time and from time to time exercise any and all
rights and duties of the Committee under the Plan except with respect to matters
which under Rule 16b-3 or Section 162(m) of the Code, or any regulations or
rules issued thereunder, are required to be determined in the sole discretion of
the Committee. Notwithstanding the foregoing, the full Board, acting by a
majority of its members in office, shall conduct the general administration of
the Plan with respect to Options and Dividend Equivalents granted to Independent
Directors.
10.3. Majority Rule; Unanimous Written Consent. The Committee shall
----------------------------------------
act by a majority of its members in attendance at a meeting at which a quorum is
present or by a memorandum or other written instrument signed by all members of
the Committee.
10.4. Compensation; Professional Assistance; Good Faith Actions.
---------------------------------------------------------
Members of the Committee shall receive such compensation,if any, for their
services as members as may be determined by the Board. All expenses and
liabilities which members of the Committee incur in connection with the
administration of the Plan shall be borne by the Company. The Committee may,
with the approval of the Board, employ attorneys, consultants, accountants,
appraisers, brokers, or other persons. The Committee, the Company and the
Company's officers and Directors shall be entitled to rely upon the advice,
opinions or valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee or the Board in good
faith shall be final and binding upon all Holders, the Company and all other
interested persons. No members of the Committee or Board shall be personally
liable for any action, determination or interpretation made in good faith with
respect to the Plan or Awards, and all members of the Committee and the Board
shall be fully protected by the Company in respect of any such action,
determination or interpretation.
22
<PAGE>
ARTICLE XI.
MISCELLANEOUS PROVISIONS
11.1. Not Transferable. No Award under the Plan may be sold, pledged,
----------------
assigned or transferred in any manner other than by will or the laws of descent
and distribution or, subject to the consent of the Administrator, pursuant to a
DRO, unless and until such Award has been exercised, or the shares underlying
such Award have been issued, and all restrictions applicable to such shares have
lapsed. No Award or interest or right therein shall be liable for the debts,
contracts or engagements of the Holder or his or her successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be voluntary
or involuntary or by operation of law by judgment, levy, attachment, garnishment
or any other legal or equitable proceedings (including bankruptcy), and any
attempted disposition thereof shall be null and void and of no effect, except to
the extent that such disposition is permitted by the preceding sentence.
During the lifetime of the Holder, only he or she may exercise an
Option or other Award (or any portion thereof) granted to him under the Plan,
unless it has been disposed of with the consent of the Administrator pursuant to
a DRO. After the death of the Holder, any exercisable portion of an Option or
other Award may, prior to the time when such portion becomes unexercisable under
the Plan or the applicable Award Agreement, be exercised by his or her personal
representative or by any person empowered to do so under the deceased Holder's
will or under the then applicable laws of descent and distribution.
11.2. Amendment, Suspension or Termination of the Plan. Except as
------------------------------------------------
otherwise provided in this Section 11.2, the Plan may be wholly or partially
amended or otherwise modified, suspended or terminated at any time or from time
to time by the Administrator. However, without approval of the Company's
stockholders given within twelve months before or after the action by the
Administrator, no action of the Administrator may, except as provided in Section
11.3, increase the limits imposed in Section 2.1 on the maximum number of shares
which may be issued under the Plan. No amendment, suspension or termination of
the Plan shall, without the consent of the Holder alter or impair any rights or
obligations under any Award theretofore granted or awarded, unless the Award
itself otherwise expressly so provides. No Awards may be granted or awarded
during any period of suspension or after termination of the Plan, and in no
event may any Incentive Stock Option be granted under the Plan after the first
to occur of the following events:
(a) The expiration of ten years from the date the Plan is
adopted by the Board; or
(b) The expiration of ten years from the date the Plan is
approved by the Company's stockholders under Section 11.4.
23
<PAGE>
11.3. Changes in Common Stock or Assets of the Company, Acquisition
-------------------------------------------------------------
or Liquidation of the Company and Other Corporate Events.
- --------------------------------------------------------
(a) Subject to Section 11.3(d), in the event that any dividend
or other distribution (whether in the form of cash, Common Stock, other
securities, or other property), recapitalization, reclassification, stock
split, reverse stock split, reorganization, merger, consolidation, split-
up, spin-off, combination, repurchase, liquidation, dissolution, or sale,
transfer, exchange or other disposition of all or substantially all of the
assets of the Company, or exchange of Common Stock or other securities of
the Company, issuance of warrants or other rights to purchase Common Stock
or other securities of the Company, or other similar corporate transaction
or event affects the Common Stock such that an adjustment is necessary in
order to prevent dilution or enlargement of the benefits or potential
benefits intended to be made available under the Plan or with respect to an
Award, then the Administrator shall, in such manner as it may deem
equitable, adjust any or all of:
(i) the number and kind of shares of Common Stock (or
other securities or property) with respect to which Awards may be
granted or awarded (including, but not limited to, adjustments of the
limitations in Section 2.1 on the maximum number and kind of shares
which may be issued and adjustments of the Award Limit),
(ii) the number and kind of shares of Common Stock (or
other securities or property) subject to outstanding Awards, and
(iii) the grant or exercise price with respect to any
Award.
(b) Subject to Sections 11.3(b)(vii) and 11.3(d), in the
event of any transaction or event described in Section 11.3(a) or any
unusual or nonrecurring transactions or events affecting the Company, any
affiliate of the Company, or the financial statements of the Company or any
affiliate, or of changes in applicable laws, regulations, or accounting
principles, the Administrator, in its sole and absolute discretion, and on
such terms and conditions as it deems appropriate, either by the terms of
the Award or by action taken prior to the occurrence of such transaction or
event and either automatically or upon the Holder's request, is hereby
authorized to take any one or more of the following actions whenever the
Administrator determines that such action is appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan or with respect to any Award
under the Plan, to facilitate such transactions or events or to give effect
to such changes in laws, regulations or principles:
(i) To provide for either the purchase of any such Award
for an amount of cash equal to the amount that could have been
attained upon the exercise of such Award or realization of the
Holder's rights had such Award been currently exercisable or payable
or fully
24
<PAGE>
vested or the replacement of such Award with other rights or property
selected by the Administrator in its sole discretion;
(ii) To provide that the Award cannot vest, be exercised
or become payable after such event;
(iii) To provide that such Award shall be exercisable as
to all shares covered thereby, notwithstanding anything to the
contrary in Section 5.3 or 5.4 or the provisions of such Award;
(iv) To provide that such Award be assumed by the
successor or survivor corporation, or a parent or subsidiary thereof,
or shall be substituted for by similar options, rights or awards
covering the stock of the successor or survivor corporation, or a
parent or subsidiary thereof, with appropriate adjustments as to the
number and kind of shares and prices;
(v) To make adjustments in the number and type of shares
of Common Stock (or other securities or property) subject to
outstanding Awards, and in the number and kind of outstanding
Restricted Stock or Deferred Stock and/or in the terms and conditions
of (including the grant or exercise price), and the criteria included
in, outstanding options, rights and awards and options, rights and
awards which may be granted in the future;
(vi) To provide that, for a specified period of time
prior to such event, the restrictions imposed under an Award Agreement
upon some or all shares of Restricted Stock or Deferred Stock may be
terminated, and, in the case of Restricted Stock, some or all shares
of such Restricted Stock may cease to be subject to repurchase under
Section 7.5 or forfeiture under Section 7.4 after such event; and
(vii) Notwithstanding any other provision of the Plan, in
the event of a Change in Control, each outstanding Award shall, twenty
(20) days prior to the effective date of the Change in Control,
automatically become fully exercisable for all of the shares of Common
Stock at the time subject to such rights and may be exercised for any
or all of those shares as fully vested shares of Common Stock.
(c) Subject to Sections 11.3(d), 3.2 and 3.3, the
Administrator may, in its discretion, include such further provisions and
limitations in any Award, agreement or certificate, as it may deem
equitable and in the best interests of the Company.
(d) With respect to Awards which are granted to Section 162(m)
Participants and are intended to qualify as performance-based compensation
under Section 162(m)(4)(C), no adjustment or action described in this
Section 11.3 or in any
25
<PAGE>
other provision of the Plan shall be authorized to the extent that such
adjustment or action would cause such Award to fail to so qualify under
Section 162(m)(4)(C), or any successor provisions thereto. No adjustment or
action described in this Section 11.3 or in any other provision of the Plan
shall be authorized to the extent that such adjustment or action would
cause the Plan to violate Section 422(b)(1) of the Code. Furthermore, no
such adjustment or action shall be authorized to the extent such adjustment
or action would result in short-swing profits liability under Section 16 or
violate the exemptive conditions of Rule 16b-3 unless the Administrator
determines that the Award is not to comply with such exemptive conditions.
The number of shares of Common Stock subject to any Award shall always be
rounded to the next whole number.
(e) Notwithstanding the foregoing, in the event that the
Company becomes a party to a transaction that is intended to qualify for
"pooling of interests" accounting treatment and, but for one or more of the
provisions of this Plan or any Award Agreement would so qualify, then this
Plan and any Award Agreement shall be interpreted so as to preserve such
accounting treatment, and to the extent that any provision of the Plan or
any Award Agreement would disqualify the transaction from pooling of
interests accounting treatment (including, if applicable, an entire Award
Agreement), then such provision shall be null and void. All determinations
to be made in connection with the preceding sentence shall be made by the
independent accounting firm whose opinion with respect to "pooling of
interests" treatment is required as a condition to the Company's
consummation of such transaction.
(f) The existence of the Plan, the Award Agreement and the
Awards granted hereunder shall not affect or restrict in any way the right
or power of the Company or the shareholders of the Company to make or
authorize any adjustment, recapitalization, reorganization or other change
in the Company's capital structure or its business, any merger or
consolidation of the Company, any issue of stock or of options, warrants or
rights to purchase stock or of bonds, debentures, preferred or prior
preference stocks whose rights are superior to or affect the Common Stock
or the rights thereof or which are convertible into or exchangeable for
Common Stock, or the dissolution or liquidation of the company, or any sale
or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
11.4. Approval of Plan by Stockholders. The Plan will be submitted
--------------------------------
for the approval of the Company's stockholders within twelve months after the
date of the Board's initial adoption of the Plan. Awards may be granted or
awarded prior to such stockholder approval, provided that such Awards shall not
be exercisable nor shall such Awards vest prior to the time when the Plan is
approved by the stockholders, and provided further that if such approval has not
been obtained at the end of said twelve-month period, all Awards previously
granted or awarded under the Plan shall thereupon be canceled and become null
and void. In addition, if the Board determines that Awards other than Options or
Stock Appreciation Rights which may be granted to Section 162(m) Participants
should continue to be eligible to qualify as performance-based compensation
under Section 162(m)(4)(C) of the Code, the Performance
26
<PAGE>
Criteria must be disclosed to and approved by the Company's stockholders no
later than the first stockholder meeting that occurs in the fifth year following
the year in which the Company's stockholders previously approved the Performance
Criteria.
11.5. Tax Withholding. The Company shall be entitled to require
---------------
payment in cash or deduction from other compensation payable to each Holder of
any sums required by federal, state or local tax law to be withheld with respect
to the issuance, vesting, exercise or payment of any Award. The Administrator
may in its discretion and in satisfaction of the foregoing requirement allow
such Holder to elect to have the Company withhold shares of Common Stock
otherwise issuable under such Award (or allow the return of shares of Common
Stock) having a Fair Market Value equal to the sums required to be withheld.
11.6. Loans. The Committee may, in its discretion, extend one or more
-----
loans to key Employees in connection with the exercise or receipt of an Award
granted or awarded under the Plan, or the issuance of Restricted Stock or
Deferred Stock awarded under the Plan. The terms and conditions of any such loan
shall be set by the Committee.
11.7. Forfeiture Provisions. Pursuant to its general authority to
---------------------
determine the terms and conditions applicable to Awards under the Plan, the
Administrator shall have the right to provide, in the terms of Awards made under
the Plan, or to require a Holder to agree by separate written instrument, that
(a) (i) any proceeds, gains or other economic benefit actually or constructively
received by the Holder upon any receipt or exercise of the Award, or upon the
receipt or resale of any Common Stock underlying the Award, must be paid to the
Company, and (ii) the Award shall terminate and any unexercised portion of the
Award (whether or not vested) shall be forfeited, if (b)(i) a Termination of
Employment, Termination of Consultancy or Termination of Directorship occurs
prior to a specified date, or within a specified time period following receipt
or exercise of the Award, or (ii) the Holder at any time, or during a specified
time period, engages in any activity in competition with the Company, or which
is inimical, contrary or harmful to the interests of the Company, as further
defined by the Administrator or (iii) the Holder incurs a Termination of
Employment, Termination of Consultancy or Termination of Directorship for cause.
11.8. Effect of Plan Upon Options and Compensation Plans. The
--------------------------------------------------
adoption of the Plan shall not affect any other compensation or incentive plans
in effect for the Company or any Subsidiary. Nothing in the Plan shall be
construed to limit the right of the Company (a) to establish any other forms of
incentives or compensation for Employees, Directors or Consultants of the
Company or any Subsidiary or (b) to grant or assume options or other rights or
awards otherwise than under the Plan in connection with any proper corporate
purpose including but not by way of limitation, the grant or assumption of
options in connection with the acquisition by purchase, lease, merger,
consolidation or otherwise, of the business, stock or assets of any corporation,
partnership, limited liability company, firm or association.
27
<PAGE>
11.9. Compliance with Laws. The Plan, the granting and vesting of
--------------------
Awards under the Plan and the issuance and delivery of shares of Common Stock
and the payment of money under the Plan or under Awards granted or awarded
hereunder are subject to compliance with all applicable federal and state laws,
rules and regulations (including but not limited to state and federal securities
law and federal margin requirements) and to such approvals by any listing,
regulatory or governmental authority as may, in the opinion of counsel for the
Company, be necessary or advisable in connection therewith. Any securities
delivered under the Plan shall be subject to such restrictions, and the person
acquiring such securities shall, if requested by the Company, provide such
assurances and representations to the Company as the Company may deem necessary
or desirable to assure compliance with all applicable legal requirements. To the
extent permitted by applicable law, the Plan and Awards granted or awarded
hereunder shall be deemed amended to the extent necessary to conform to such
laws, rules and regulations.
11.10. Titles. Titles are provided herein for convenience only and
------
are not to serve as a basis for interpretation or construction of the Plan.
11.11. Governing Law. The Plan and any agreements hereunder shall be
-------------
administered, interpreted and enforced under the internal laws of the State of
California without regard to conflicts of laws thereof.
* * *
I hereby certify that the foregoing Plan was duly adopted by the Board
of Directors of Intellisys Group, Inc. effective as of October 15, 1998.
Executed as of this 16th day of October, 1998.
/s/ DENNIS KUSHNER
__________________________________
Dennis Kushner
Secretary
28
<PAGE>
EXHIBIT 10.2
INVESTOR AGREEMENT
This INVESTOR AGREEMENT (this "Agreement") dated as of June 24, 1998,
---------
is by and among John P. Feighner and Anne C. Feighner as Trustees for the
Feighner Family Trust, Den-Mat Corp., a Delaware corporation, Edward W. Wedbush,
an individual, E*Capital Corporation, a California corporation (collectively,
the "Minority Investors"), EISI, a California corporation (the "Company"), and
------------------ -------
Donald J. Esters, an individual (the "Primary Investor"). Each of the parties
----------------
hereto (other than the Company) and any other person who shall hereafter become
a party to or agree to be bound by the terms of this Agreement is sometimes
hereinafter referred to as a "Stockholder" or "Investor" and all of such parties
----------- --------
are sometimes hereinafter referred to as the "Stockholders".
------------
Each Stockholder (as hereinafter defined) owns that number of shares
of Company Stock (as hereinafter defined) set forth opposite the name of such
Stockholder on Schedule I hereto, as such Schedule I may be amended from time to
time.
RECITALS
--------
WHEREAS, concurrently with the execution and delivery of this
Agreement, each of the Stockholders is purchasing, pursuant to the terms of
stock purchase agreement (the "Stock Purchase Agreement") dated of even date
------------------------
herewith by and among the Company and each of the Stockholders, newly issued
shares of Common Stock of the Company.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I.
DEFINITIONS; REPRESENTATIONS AND WARRANTIES
-------------------------------------------
1.1. Defined Terms. As used herein, the terms below shall have the
-------------
following meanings:
"Accredited Investor" shall have the meaning set forth for such term
-------------------
in Regulation D.
"Act" shall mean the Securities Act of 1933, as amended, and the rules
---
and regulations promulgated thereunder.
"Affiliate" shall mean with respect to any specified person means any
---------
other person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified person and, in the case of a
person who is an individual, shall include (i) members of such specified
person's immediate family (as defined in Instruction 2 of Item
<PAGE>
404(a) of Regulation S-K promulgated by the SEC) and (ii) trusts, the trustee
and all beneficiaries of which are such specified person or, members of such
person's immediate family as determined in accordance with the foregoing
clause (i). For the purposes of this definition, "control," when used with
respect to any person, means the power to direct the management and policies
of such person, directly or indirectly, whether through the ownership of
voting securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Board of Directors" shall mean the Board of Directors of the Company.
------------------
"Common Stock" shall mean the Common Stock, no par value, of the
------------
Company.
"Company Stock" shall mean, at any time, the then outstanding shares
-------------
of capital stock of the Company.
"Fully-Diluted Common Stock" shall mean, at any time, the then
--------------------------
outstanding Common Stock of the Company plus (without duplication) all shares of
Common Stock issuable, whether at such time or upon the passage of time or the
occurrence of future events, upon the exercise, conversion or exchange of all
then-outstanding securities of the Company which can be converted or exchanged
into Common Stock.
"IPO" shall mean the initial public offering of Common Stock pursuant
---
to the Act.
"Notice" shall have the meaning set forth for such term in Section
------
5.3.
"Notice Date" shall have the meaning set forth for such term in
-----------
Section 4.2.
"Permitted Transferee" shall mean (i) with respect to the Primary
--------------------
Investor, a trustee of a trust for the exclusive benefit of the Primary
Investor, the spouse of the Primary Investor or one or more of the issue of the
Primary Investor, (ii) with respect to any Non-Primary Investor, (A) the other
Non-Primary Investors or (B) any Affiliate of such Non-Primary Investor.
"Person" shall mean an individual, partnership, association, joint
------
venture, corporation, trust or unincorporated organization, a government or any
department, agency or political subdivision thereof or other entity.
"Regulation D" shall mean Regulation D as promulgated under the Act,
------------
as amended from time to time.
"Required Sale" shall have the meaning set forth for such term in
-------------
Section 4.1.
"Required Sale Date" shall have the meaning set forth for such term in
------------------
Section 4.2.
"Required Sale Notice" shall have the meaning set forth for such term
--------------------
in Section 4.1.
2
<PAGE>
"Sale Price" shall have the meaning set forth for such term in Section
----------
4.2.
"Sale Shares" shall have the meaning set forth for such term in
-----------
Section 4.1.
"SEC" shall mean the Securities and Exchange Commission.
---
"Stock Purchase Agreement" shall have the meaning set forth for such
------------------------
term in the Recitals.
"Tag-Along Formula" shall have the meaning set forth for such term in
-----------------
Section 3.1(b).
"Tag-Along Notice" shall have the meaning set forth for such term in
----------------
Section 3.1(d).
"Tag-Along Stockholders" shall have the meaning set forth for such
----------------------
term in Section 3.1(b).
"Third Party" shall have the meaning set forth for such term in
-----------
Section 4.1.
"Transferee Terms" shall have the meaning set forth for such term in
----------------
Section 3.1(c).
"Transfer" shall mean directly or indirectly to sell, assign, pledge,
--------
encumber, hypothecate, gift, bequest or otherwise transfer, whether for value or
no value and whether voluntarily or involuntarily (including, without
limitation, by operation or law or by judgment, levy, attachment, garnishment,
bankruptcy or other legal equitable proceedings).
"Transferee(s)" shall mean any Person acquiring shares of Common
-------------
Stock, regardless of the method of Transfer.
1.2. Representations and Warranties. Each party hereto, other than
------------------------------
the Company, as to itself only, represents and warrants that:
(a) such party beneficially owns the number of shares of
Company Stock set forth next to the name of such party on Schedule I , all
such Company Stock will be bound by and subject to this Agreement, and, except
as provided in this Agreement, it has no option or right to acquire any
additional shares of Company Stock pursuant to any agreement or understanding;
(b) such party has full power and authority to execute and
deliver this Agreement and the execution and delivery by it of this Agreement
has been duly authorized by all necessary action; and
(c) this Agreement has been duly and validly executed and
delivered by such party and constitutes the binding obligation of such party,
enforceable against such party in accordance with its terms.
3
<PAGE>
1.3. Representations and Warranties of the Company.
---------------------------------------------
(a) The Company has all requisite power and authority to
execute, deliver and perform this Agreement.
(b) This Agreement has been duly and validly exercised and
delivered by the Company and constitutes the binding obligation of the
Company, enforceable against the Company in accordance with its terms.
1.4. Covenants. Each party hereto covenants that:
---------
The shares of Company Stock set forth on Schedule 1, as such Schedule
1 may be amended from time to time, shall at all times be bound by and subject
to this Agreement.
ARTICLE II.
PREEMPTION
----------
2.1. Certain Purchase Rights. If the Company proposes directly or
-----------------------
indirectly to issue, sell, or grant (collectively, an "issuance") any equity
--------
securities or any securities convertible into or exchangeable for equity
securities, other than pursuant to the Company's IPO or any subsequent
registered public offering (collectively, the "New Securities"), then the
--------------
Company shall, no later than 45 calendar days prior to the consummation of such
issuance, give written notice to each of the Investors of such proposed issuance
(the "Notice of Issuance"). Such Notice of Issuance shall describe the proposed
issuance, and contain an offer to each such Investor (other than the proposed
purchasers) that in the reasonable judgment of the Company is an Accredited
Investor, or who can provide the Company with an opinion of counsel, reasonably
satisfactory in form and substance to the Company, that the New Securities may
be sold to such Investor without registration under the Act or any state
securities or "blue sky" laws (each an "Accredited Offeree") to sell to such
------------------
Accredited Offeree, at the same price and for the same consideration to be paid
by the proposed purchasers, such Accredited Offerees pro rata portion (which
shall be a percentage, determined immediately prior to such proposed issuance,
equal to the percentage of the Fully-Diluted Common Stock held by such
Accredited Offeree, provided, however, that if the use of proceeds of such New
-------- -------
Securities issuance shall include the repurchase of Common Stock, then such
percentage shall be calculated assuming the consummation of such repurchase of
the New Securities to be sold. Subject to the foregoing, if Common Stock is
being issued with other securities as a unit, each Accredited Offeree who
desires to accept such offer must purchase such unit in order for such
acceptance to be valid. If any such Accredited Offeree fails to accept such
offer by written notice within 30 calendar days after its receipt of the Notice
of Issuance, the Company may proceed with such proposed issuance, free of any
right on the part of such Accredited Offeree under this Section 2.1 in respect
thereof. This Section 2.1 shall not apply to: (a) issuances to employees or
pursuant to employee benefit or stock option plans, up to a maximum of 138,000
shares of Common Stock issued after the date hereof; or (b) New Securities
distributed or set aside to all holders of Common Stock on a per share
equivalent basis. Each of the parties hereto expressly waives any rights under
this Article II with respect to the transactions contemplated by the Stock
Purchase Agreement.
4
<PAGE>
ARTICLE III.
TAG-ALONG RIGHTS
----------------
3.1. Tag-Along Procedures.
--------------------
(a) Tag-Along Right. Subject to Section 3.3, the Primary
---------------
Investor shall not Transfer for value to any Person or group of Persons shares
of Common Stock representing in the aggregate more than 5% of the Common Stock
held by the Primary Investor unless the terms and conditions of such Transfer
shall include an offer to the Minority Investors at the same price and on the
same terms and conditions as the Primary Investor has agreed to sell its
Common Stock, to include in the Transfer to the third party Transferee an
amount of Common Stock, determined in accordance with this Section.
(b) Obligation of Transferee to Purchase. The Transferee of the
------------------------------------
Primary investor shall purchase from the Minority Investors which deliver a Tag-
Along Notice pursuant to Section 3.1(d) hereof (such securityholders are
referred to as "Tag-Along Stockholders") the number of shares of Common Stock
----------------------
owned by each Tag-Along Stockholder equaling the number of shares of Common
Stock derived by multiplying the total number of shares of Common Stock,
proposed to be purchased by the Transferee by a fraction, the numerator of which
is the total number of shares of Common Stock, owned by such Tag-Along
Stockholder that such Tag-Along Stockholder desires to require the Transferee to
purchase and the denominator of which is the total number of shares of Common
Stock, owned by all of the Stockholders before giving effect to the proposed
Transfer, provided that the Transferee shall not be required to purchase
fractional shares and any fractional share shall be rounded up or down pursuant
to conventional rounding practices (the "Tag-Along Formula").
-----------------
(c) Notice. In the event the Primary Investor proposes to Transfer
------
any shares of Common Stock in a transaction subject to this Section 3.1, it
shall notify, or cause to be notified, in writing, the Minority Investors in the
case of a Transfer of Common Stock of each such proposed Transfer. Such notice
shall be given not more than 60 nor less than 20 calendar days prior to the
proposed sale date and set forth: (i) the name of the Transferee and the number
of shares of Common Stock proposed to be transferred, (ii) the proposed amount
and form of consideration and terms and conditions of payment offered by the
Transferee (the "Transferee Terms"), (iii) that the Transferee has been informed
----------------
of the "tag-along right" provided for in this Section 3.1, and has agreed to
purchase shares of Common Stock from the Tag-Along Stockholders in accordance
with the terms hereof, and (iv) the proposed sale date.
(d) Exercise. The tag-along right may be exercised by the Tag-Along
--------
Stockholders by delivery of a written notice to the Primary Investor (the "Tag-
---
Along Notice") within 15 calendar days following receipt of the notice specified
- ------------
in the preceding subsection. The Tag-Along Notice shall state the number of
shares of Common Stock that such Tag-Along Stockholder wishes to include in such
Transfer to the Transferee, which number may exceed the total number of shares
proposed to be transferred but which may not exceed the total number of shares
beneficially owned (taking into account shares of Common Stock that may be
acquired
5
<PAGE>
upon conversion or exercise of other securities) by such Tag-Along
Stockholder. Upon the giving of a Tag-Along Notice, such Tag-Along Stockholder
shall be entitled and obligated to sell the number of shares of Common Stock set
forth in the Tag-Along Notice, subject to adjustment pursuant to the Tag-Along
Formula, to the Transferee on the Transferee Terms; provided, however such
-------- -------
Primary Investor shall not consummate the sale of any shares offered by it if
the Transferee does not purchase all shares which such Tag-Along Stockholders
are entitled and desire to sell pursuant hereto. After expiration of the 20-
calendar-day period referred to above, if the provisions of this Section have
been complied with in all respects, the Primary Investor shall have the right
for a 60-calendar-day period to Transfer the shares of Common Stock to the
Transferee on the Transferee Terms without further notice to any other party,
but after such 60-calendar-day period, no such Transfer may be made (i) for an
additional 60-calendar-day period and (ii) without again giving notice to the
appropriate Minority Investors of the proposed transfer and complying with the
requirements of this Article III.
(e) Anything to the contrary contained herein
notwithstanding, the Primary Investor agrees to use its reasonable good faith
efforts to seek to ensure that the applicable Transferee Terms contain (i)
representations, covenants or warranties as to ownership and authority to
sell, free of liens, claims and encumbrances the shares of Common Stock
proposed to be sold and (ii) for several, and not joint, liability, with
respect to the indemnification and comparable obligations contained within
such Transferee Terms.
3.2. Closing. At the closing of the purchase of the shares of Common
-------
Stock subject to this Article III, the holders of Company Stock who are making
the Transfer shall deliver certificates evidencing such shares, duly endorsed,
or accompanied by written instruments of transfer in form reasonably
satisfactory to the Transferee, free and clear of any adverse claim against
payment of the purchase price therefor.
3.3. Exception. The foregoing notwithstanding, this Article III
---------
shall not apply to any sale of shares of Common Stock pursuant to a registered
public offering under the Act.
ARTICLE IV.
DRAG-ALONG RIGHTS
-----------------
4.1. Drag-Along Rights. If the Primary Investor proposes to sell in
-----------------
the aggregate more than 80% of the Common Stock hold by the Primary Investor
(the "Sale Shares") to a third party or parties (a "Third Party"), then the
----------- -----------
Primary Investor shall have the right, subject to the provisions of this Article
IV, to require the Minority Stockholders to sell (a "Required Sale") in the case
-------------
of each Minority Investor, the same percentage of Common Stock (including Common
Stock that may be acquired upon exercise or conversion of outstanding
securities) held by it that is proposed to be sold by the Primary Investor. In
the event this Section 4.1 is invoked, the Primary investor shall deliver
written notice (the "Required Sale Notice") to the Minority investors; provided,
-------------------- --------
however, that no Minority Investor (a) shall be obligated to participate in any
- -------
Required Sale unless it is provided an opinion of counsel, which opinion of
counsel shall be reasonably satisfactory to it, to the effect that the Required
Sale is not in violation of applicable
6
<PAGE>
federal or state securities laws and does not require any consent or approval
of any governmental authority or agency that has not been obtained or waived
or will not be obtained or waived prior to the closing; (b) will be required
to make any representation, covenant or warranty in connection with a Required
Sale other than as to its ownership and authority to sell, free of liens,
claims and encumbrances, the shares of Common Stock proposed to be sold by it;
(c) will be required to participate in a Required Sale if the terms of the
Required Sale do not provide for several, and not joint, liability with
respect to the indemnification and comparable obligations made pursuant to
such Required Sale; or (d) shall be obligated to participate in any Required
Sale in which the consideration consists of anything other than cash.
4.2. Notice. The Required Sale Notice shall set forth: (i) the date
------
of such notice (the "Notice Date"), (ii) the name and address of the Third
-----------
Party, (iii) the proposed amount of consideration to be paid per share for the
Sale Shares (the "Sale Price"), and the terms and conditions of payment offered
----------
by the Third Party in reasonable detail, together with written proposals or
agreements, if any, with respect thereto, (iv) the aggregate number of Sale
Shares, (v) confirmation that the Primary Investor is selling more than 80% of
the aggregate number of shares of Common Stock then held by it to a Third Party,
and (vi) the proposed date of the Required Sale (the "Required Sale Date"),
------------------
which shall be not less than 30 nor more than 120 calendar days after the date
of the Notice Date.
4.3. Cooperation. The Minority Investors shall cooperate in good
-----------
faith with the relevant Primary Investor in connection with consummating the
Required Sale. On the Required Sale Date, each Minority Investor shall deliver
certificates for all of its Common Stock, duly endorsed for transfer, to such
Third Party in the manner and at the address indicated in the Required Sale
Notice and the Seller shall cause each of the Minority Investors' share of the
purchase price to be paid to the respective Minority Investor.
ARTICLE V.
MISCELLANEOUS
-------------
5.1. Term.
-----
(a) Unless earlier terminated as expressly provided herein,
this Agreement shall terminate five (5) years from the date of this Agreement.
(b) Notwithstanding the foregoing, this Agreement shall in
any event terminate with respect to any Stockholder upon the earlier of the
Company's IPO or when such Stockholder no longer owns any shares of the Company
Stock (except if such shares are transferred in violation of this Agreement).
5.2. Injunctive Relief. It is hereby agreed and acknowledged that
-----------------
it will be impossible to measure in money the damages that would be suffered
if the parties fail to comply with any of the obligations herein imposed on
them and that in the event of any such failure, an aggrieved Person will be
irreparably damaged and will not have an adequate remedy at law. Any such
Person shall, therefore, be entitled to injunctive relief, including specific
performance, to
7
<PAGE>
enforce such obligations, and if any action should be brought in equity to
enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
5.3. Notices. Any and all notices, designations, consents, offers,
-------
acceptances, or other communications provided for herein (each a "Notice") shall
be given in writing personally by hand-delivery, overnight courier, telegram, or
telecopy which shall be addressed, or sent, to the respective addresses or
telecopy numbers as follows (or such other address or telecopy number as the
Company, or any Stockholder may specify for itself to the Company and all other
Stockholders by Notice):
The Company: EISI
140 East Dana Street
Mountain View, California 94041
Attention: Donald J. Esters
Fax: (650) 969-5212
With a copy to: Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Attention: Russell F. Sauer, Jr., Esq.
Fax: (213) 891-8763
Each Stockholder: E*Capital Corporation
1000 Wilshire Boulevard, Suite 900
Los Angeles, California 90017
Fax: (213) 688-6642
Feighner Family Trust
c/o John P. Feighner and Anne C. Feighner,
as Trustees
5035 El Mirlo
Rancho Santa Fe, California 92067
Fax: (619) 756-9152
Den-Mat Corp.
P.O. Box 1729
Santa Maria, California 93456
Fax: (805) 928-5170
Edward W. Wedbush
17891 Via de Fortuna
Rancho Santa Fe. California 92067
Fax: (619) 759-9919
8
<PAGE>
All Notices shall be deemed effective, delivered and received (a) at the time
delivered by hand, if personally delivered, (b) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified above and receipt
thereof is confirmed; (c) if given by overnight courier, on the business day
immediately following the day on which such Notice is delivered to a reputable
overnight courier service; or (d) if given by telegram, when such Notice is
delivered at the address specified above.
Whenever pursuant to this Agreement any Notice is required to be given by any
Stockholder to any other Stockholder(s), such Stockholder may request from the
Company a list of addresses of all Stockholders of the Company, which list shall
be promptly furnished to such Stockholder.
5.4. Assignment. Except as set forth herein, neither this Agreement
----------
nor any of the rights or obligations hereunder may be assigned by any party
hereto without the prior written consent of the holders of 51% of the amount of
Common Stock beneficially owned in the aggregate by the Stockholders. Subject to
the foregoing (and to the provisions of Section 5.9 hereof), this Agreement
shall inure to the benefit of and be binding upon the parties, and permitted
successors and assigns of each of the parties. If any Stockholder shall acquire
or otherwise be issued any additional shares of Common Stock in any manner,
whether by operation of law or otherwise, such Common Stock shall be held
subject to all of the terms of this Agreement and the Company shall prepare and
deliver to each Stockholder a revised Schedule I reflecting such acquisition or
other issuance.
5.5. Governing Law. This Agreement shall be construed, interpreted
-------------
and the rights of the parties determined in accordance with the internal laws of
the State of California without regard to the conflict of law principles
thereof.
5.6. Headings. The headings in this Agreement are inserted herein
--------
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
5.7. 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.
5.8. Entire Agreement. This Agreement, together with the applicable
----------------
Stock Purchase Agreement and the other writings referred to herein and therein,
contain the entire agreement among the parties hereto with respect to the
subject matter contained herein, and supersede all prior agreements,
negotiations and understandings, whether written or oral, with respect to the
subject matter hereof. There are no restrictions, promises, warranties or
undertakings relating to such subject matter other than those set forth in this
Agreement, the Stock Purchase Agreement and such other writings.
5.9. Amendments and Waiver. Any provision of this Agreement may be
---------------------
amended and the observance thereof 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 51% of the amount of Common
Stock beneficially owned in the aggregate by the
9
<PAGE>
Stockholders or their Permitted Transferees. Any amendment or waiver effected
in accordance with this paragraph shall be binding upon each holder of any
Company Stock then outstanding, each future holder of all such Company Stock,
and the Company. In the event of the amendment or modification of this
Agreement in accordance with its terms, the Stockholders shall cause the Board
of Directors to meet within 30 calendar days following such amendment or
modification or as soon thereafter as is practicable for the purpose of
adopting any amendment to the Articles of Incorporation and By-Laws of the
Company that may be required as a result of such amendment or modification to
this Agreement, and, if required, proposing such amendments to the
stockholders of the Company entitled to vote thereon. No action taken pursuant
to this Agreement shall be deemed to constitute a waiver by the party taking
such action of compliance with any covenants or agreements contained herein.
No failure to exercise and no delay in exercising any right, power or
privilege of a party hereunder shall operate as a waiver or a consent to the
modification of the terms hereof unless given by that party in writing. The
waiver by any party hereto of a breach of any provision of this Agreement
shall not operate or be construed as a waiver of any preceding or succeeding
breach.
5.10. Inspection. So long as this Agreement shall be in effect, this
----------
Agreement shall be made available for inspection by any Stockholder of the
Company at the principal offices of the Company.
5.11. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts each of which
when so executed shall be deemed to be an original and all of which together
shall constitute one and the same Agreement.
5.12. Not for Benefit of Third Parties. This Agreement is not made
--------------------------------
for the benefit of any third party.
5.13. Recapitalizations, Exchanges, Etc., Affecting Common Stock.
----------------------------------------------------------
The provisions of this Agreement shall apply, to the full extent set forth
herein with respect to shares of the Common Stock, and to any and all shares of
capital stock of the Company or any successor or assigns of the Company (whether
by merger, consolidation, sale of assets, or otherwise) which may be issued in
respect of, or in substitution for, shares of the Common Stock, and shall be
approximately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
5.14. Service of Process: Consent to Jurisdiction.
--------------------------------------------
(a) Service of Process. Each party hereto irrevocably
------------------
consents to the service of any process, pleading, notices or other papers by
the mailing of copies thereof by registered, certified or first class mail,
postage prepaid, to such party at such party's address set forth herein, or by
any other method provided or permitted under California law.
(b) Consent and Jurisdiction. Each party hereto irrevocably
------------------------
and unconditionally (i) agrees that any suit, action or other legal proceeding
arising out of this Agreement may be brought in the United States District Court
for the Central District of
10
<PAGE>
California or, if such court does not have jurisdiction or will not accept
jurisdiction, in any court of general jurisdiction in the County of Los
Angeles, California; (ii) consents to the jurisdiction or any such court in
any such suit, action or proceeding; and (iii) waives any objection which such
party may have to the laying of venue of any such suit, action or proceeding
in any such court.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
EISI, INC.
a California corporation
By: /s/ DONALD J. ESTERS
-----------------------------------------
Donald J. Esters
Its: Chairman of the Board
/s/ DONALD J. ESTERS
--------------------------------------------
Donald J. Esters
E*CAPITAL CORPORATION,
a California corporation
By: /s/ EDWARD W. WEDBUSH
-----------------------------------------
Edward W. Wedbush
Its: President
FEIGHNER FAMILY TRUST
By: /s/ JOHN P. FEIGHNER
-----------------------------------------
John P. Feighner
Its: Trustee
By: /s/ ANNE C. FEIGHNER
-----------------------------------------
Anne C. Feighner
Its: Trustee
DEN-MAT CORP.,
a Delaware corporation
By: /s/ ROBERT L. IBSEN
-----------------------------------------
Robert L. Ibsen,
Its: President
/s/ EDWARD W. WEDBUSH
--------------------------------------------
Edward W. Wedbush
12
<PAGE>
SCHEDULE I
NAME NUMBER OF SHARES
---- ----------------
E*Capital Corporation 14,703
Feighner Family Trust 9,189
Den-Mat Corp. 5,514
Edward W. Wedbush 9,189
------
Total 38,595
<PAGE>
EXHIBIT A
JOINDER AGREEMENT
-----------------
The undersigned is executing and delivering this Joinder Agreement
pursuant to that certain Investor Agreement, dated June 24, 1998 (the "Investor
Agreement"), among the Parties named therein.
By executing and delivering this Joinder Agreement to EISI (the
"Company"), the undersigned hereby agrees to become a party to, to be bound by,
and to comply with the provisions of the Investor Agreement in the same manner
as if the undersigned were an original signatory to such Investor Agreement.
The undersigned agrees that he shall be a Minority Investor as such
term is defined in the Investor Agreement. If the undersigned is a natural
person and married, a spousal consent to this Joinder Agreement is attached.
Accordingly, the undersigned has executed and delivered this Joinder
Agreement as of the ______ day _______________, ____.
--------------------------------------------
Signature of Investor
--------------------------------------------
Print Name of Investor
<PAGE>
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement") by and between EISI,
a California corporation (the "Company"), and the persons listed on the
-------
signature page hereof (the "Investors").
--------
RECITALS
A. The Company and the Investors desire to enter into this Agreement
for the purpose of granting to the Investors certain rights with respect to
registering under the Securities Act of 1933, as amended, shares of Common Stock
of the Company.
B. The Common Stock is being acquired by the Investors pursuant
to the provisions of a Stock Purchase Agreement, dated as of June ___, 1998,
among the Company and the Investors (the "Stock Purchase Agreement").
------------------------
C. The Investors are also parties to an Investor Agreement of even
date (the "Investor Agreement").
------------------
AGREEMENT
In consideration of the Recitals and mutual promises contained herein,
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
1. Definitions. As used in this Agreement, the following terms
-----------
shall have the following meanings:
"Advice" shall have the meaning set forth in Section 4 hereof.
------
"Affiliate" means, with respect to any specified person, any other
---------
person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified person. For the purposes of this
definition, "control" when used with respect to any specified person, means the
power to direct the management and policies of such person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day that is not a Saturday, a Sunday or a
------------
legal holiday on which banking institutions in the State of California are not
required to be open.
<PAGE>
"Capital Stock" means, with respect to any person, any and all shares,
-------------
interests, participations or other equivalents (however designated) of corporate
stock issued by such person, including each class of common stock and preferred
stock of such person.
"Common Stock" means the Common Stock of the Company issued to any
------------
Holder named on the signature pages hereof or any other shares of capital stock
or other securities of the Company into which such shares of Common Stock shall
be reclassified or changed, including, by reason of a merger, consolidation,
reorganization or recapitalization. If the Common Stock has been so
reclassified or changed, or if the Company pays a dividend or makes a
distribution on the Common Stock in shares of capital stock or subdivides (or
combines) its outstanding shares of Common Stock into a greater (or smaller)
number of shares of Common Stock, a share of Common Stock shall be deemed to be
such number of shares of stock and amount of other securities to which a holder
of a share of Common Stock outstanding immediately prior to such change,
reclassification, exchange, dividend, distribution, subdivision or combination
would be entitled.
"Company" shall have the meaning set forth in the heading hereof.
-------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the SEC promulgated thereunder.
"Hold Back Period" shall have the meaning set forth in Section 4
----------------
hereof.
"Holder" means a person who owns Registrable Shares and is an Investor
------
or transferee.
"Interruption Period" shall have the meaning set forth in Section 4
-------------------
hereof.
"Investor Agreement" shall have the meaning set forth in Recital C.
------------------
"Permitted Transferees" shall have the meaning contained in the
---------------------
Investor Agreement.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Piggyback Registration" shall have the meaning set forth in Section 2
----------------------
hereof.
"Prospectus" means the prospectus included in any Registration
----------
Statement (including a prospectus that discloses information previously omitted
from a prospectus filed as part of an effective registration statement in
reliance upon Rule 430A), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion of the
Registrable Shares covered by such Registration Statement and all other
2
<PAGE>
amendments and supplements to such prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
"Registrable Shares" means shares of Common Stock unless (i) they have
------------------
been effectively registered under Section 5 of the Securities Act and disposed
of pursuant to an effective Registration Statement, or (ii) all of such Common
Stock of a Holder which can be freely sold and transferred without restriction
under Rule 144 or Rule 145 under the Securities Act or any successor rule such
that, after any such transfer referred to in this clause (ii), such securities
may be freely transferred without restriction under the Securities Act.
Notwithstanding the foregoing, any shares of Common Stock held by an Investor
shall be "Registrable Shares" until such Investor ceases to own at least 0.5% of
the then outstanding Common Stock of the Company. Further, no Holder who is not
an Investor shall be deemed to own Registrable Shares after three years from the
date hereof.
"Registration" means registration under the Securities Act of an
------------
offering of Registrable Shares pursuant to a Piggyback Registration.
"Registration Period" means, as to any Holder, the period beginning on
-------------------
the date hereof and ending on the date when such Holder no longer owns any
Registrable Shares.
"Registration Statement" means any registration statement under the
----------------------
Securities Act of the Company that covers any of the Registrable Shares pursuant
to the provisions of this Agreement, including the related Prospectus, all
amendments and supplements to such registration statement, including pre- and
post-effective amendments, all exhibits thereto and all material incorporated by
reference or deemed to be incorporated by reference in such registration
statement.
"SEC" means the Securities and Exchange Commission.
---
"Securities Act" means the Securities Act of 1933, as amended, and the
--------------
rules and regulations of the SEC promulgated thereunder.
"Underwritten Registration or Underwritten Offering" means a
------------------------- ---------------------
registration under the Securities Act in which securities of the Company are
sold to an underwriter for reoffering to the public.
2. Piggyback Registration.
----------------------
(a) Right to Piggyback. If at any time during the Registration
------------------
Period the Company proposes to file a registration statement under the
Securities Act with respect to a public offering of securities of the same type
as the Registrable Shares pursuant to a firm commitment underwritten offering
solely for cash for its own account (other than a registration statement (i) on
Form S-8 or any successor forms thereto, or (ii) filed solely in connection with
a dividend reinvestment plan or employee benefit plan of the Company or its
Affiliates) or for the
3
<PAGE>
account of any holder of securities of the same type as the Registrable Shares,
then the Company shall give written notice of such proposed filing to the
Holders at least 15 days before the anticipated filing date. Such notice shall
offer the Holders the opportunity to register such amount of Registrable Shares
as they may request (a "Piggyback Registration"). Subject to Section 2(b)
----------------------
hereof, the Company shall include in each such Piggyback Registration all
Registrable Shares with respect to which the Company has received written
requests for inclusion therein within 10 days after receipt of notice by the
Holders. Each Holder shall be permitted to withdraw all or any portion of the
Registrable Shares of such Holder from a Piggyback Registration at any time
prior to the effective date of such Piggyback Registration.
(b) Priority on Piggyback Registrations. The Company shall permit the
-----------------------------------
Holders to include all such Registrable Shares on-the-same terms and conditions
as any similar securities, if any, of the Company included therein.
Notwithstanding the foregoing, if the managing underwriter or underwriters
participating in such offering advises the Holders in writing that the total
amount of securities requested to be included in such Piggyback Registration
exceeds the amount which can be sold in (or during the time of) such offering
without delaying or jeopardizing the success of the offering (including the
price per share of the securities to be sold), then the amount of securities to
be offered for the account of the Holders with respect thereto shall be reduced
(to zero if necessary) pro rata on the basis of the number of common stock
equivalents requested to be registered by each such Holder participating in such
offering.
(c) Right to Abandon. Nothing in this Section 2 shall create any
----------------
liability on the part of the Company to the Holders if the Company in its sole
discretion should decide not to file a registration statement proposed to be
filed pursuant to Section 2(a) hereof or to withdraw such registration statement
subsequent to its filing and prior to the later of its effectiveness or the
release of the Registrable Shares for public offering by the managing
underwriter, in the case of an underwritten public offering, regardless of any
action whatsoever that a Holder may have taken, whether as a result of the
issuance by the Company of any notice hereunder or otherwise.
3. Holdback Agreement. If (i) the Company shall file a registration
------------------
statement with respect to the Common Stock or similar securities or securities
convertible into, or exchangeable or exercisable for, such securities and (ii)
the Company (in the case of a nonunderwritten public offering by the Company
pursuant to such registration statement) advises the Holders in writing that a
public sale or distribution of Registrable Shares would materially adversely
affect such offering or the managing underwriter or underwriters (in the case of
an underwritten public offering by the Company pursuant to such registration
statement) advises the Company in writing (in which case the Company shall
notify the Holders) that a public sale or distribution of Registrable Shares
would have material adverse impact on such offering, then each Holder shall, to
the extent not inconsistent with applicable law, refrain from effecting any
public sale or distribution of Registrable Shares during the 10 days prior to
the effective date of such registration statement and until the earliest of (A)
the abandonment of such offering, (B) 90 days from the effective date of such
registration statement and (C) if such offering is an underwritten offering, the
termination of any "hold back" period obtained by the underwriter or
underwriters
4
<PAGE>
in such offering from the Company in connection therewith (each such period, a
"Hold Back Period"); provided that the Hold Back Period shall not be more than
- ---------------- -------------
180 days in the case of an "Initial Public Offering" of the Company's Common
Stock and not more than 90 days in the case of any other public offering.
4. Registration Procedures. In connection with the registration
-----------------------
obligations of the Company pursuant to and in accordance with and subject to
Section 2 hereof, the Company shall use commercially reasonable efforts to
effect such registration to permit the sale of such Registrable Shares in
accordance with the intended method or methods of disposition thereof, and
pursuant thereto the Company shall as expeditiously as possible:
(a) At least ten (10) business days before filing a Registration
Statement or prospectus or any amendments or supplements thereto, furnish to the
Holders who are participating in such Registration Statement and the
underwriters, if any, copies of all such documents proposed to be filed, which
documents will be subject to the review of such Holders and such underwriters
(and their respective counsel);
(b) prepare and file with the SEC a Registration Statement for the
sale of the Registrable Shares on any form for which the Company then qualifies
or which counsel for the Company shall deem appropriate in accordance with such
Holders' intended method or methods of distribution thereof, subject to Section
2(b) hereof, and, subject to the Company's right to terminate or abandon a
registration pursuant to Section 3(c) hereof, use commercially reasonable
efforts to cause such Registration Statement to become effective and remain
effective as provided herein;
(c) prepare and file with the SEC such amendments (including post-
effective amendments) to such Registration Statement, and such supplements to
the related Prospectus, as may be required by the rules, regulations or
instructions applicable to the Securities Act during the applicable period in
accordance with the intended methods of disposition specified by the Holders of
the Registrable Shares covered by such Registration Statement, make generally
available earnings statements satisfying the provisions of Section 11(a) of the
Securities Act (provided that the Company shall be deemed to have complied with
this clause if it has complied with Rule 158 under the Securities Act), and
cause the related Prospectus as so supplemented to be filed pursuant to Rule 424
under the Securities Act; provided, however, that before filing a Registration
Statement or Prospectus, or any amendments or supplements thereto (other than
reports required to be filed by it under the Exchange Act), the Company shall
furnish to the Holders of Registrable Shares covered by such Registration
Statement and their counsel for review and comment, copies of all documents
required to be filed at least 3 business days prior to filing such documents
with the SEC;
(d) notify the Holders of any Registrable Shares covered by such
Registration Statement promptly and (if requested) confirm such notice in
writing, (i) when a Prospectus or any Prospectus supplement or post-effective
amendment has been filed, and, with respect to such Registration Statement or
any post-effective amendment, when the same has
5
<PAGE>
become effective, (ii) of any request by the SEC for amendments or supplements
to such Registration Statement or the related Prospectus or for additional
information regarding such Holders, (iii) of the issuance by the SEC of any stop
order suspending the effectiveness of such Registration Statement or the
initiation of any proceedings for that purpose, (iv) of the receipt by the
Company of any notification with respect to the suspension of the qualification
or exemption from qualification of any of the Registrable Shares for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, and (v) of the happening of any event that requires the making of any
changes in such Registration Statement, Prospectus or documents incorporated or
deemed to be incorporated therein by reference so that they will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading;
(e) use commercially reasonable efforts to obtain the withdrawal of
any order suspending the effectiveness of such Registration Statement, or the
lifting of any suspension of the qualification or exemption from qualification
of any Registrable Shares for sale in any jurisdiction in the United States;
(f) furnish to the Holder of any Registrable Shares covered by such
Registration Statement, each counsel for such Holders and each managing
underwriter, if any, without charge, one conformed copy each of such
Registration Statement, as declared effective by the SEC, and of each post-
effective amendment thereto, in each case including financial statements and
schedules and all exhibits and reports incorporated or deemed to be incorporated
therein by reference; and deliver, without charge, such number of copies of the
preliminary prospectus, any amended preliminary prospectus, each final
Prospectus and any post-effective amendment or supplement thereto, as such
Holder may reasonably request in order to facilitate the disposition of the
Registrable Shares of such Holder covered by such Registration Statement in
conformity with the requirements of the Securities Act;
(g) prior to any public offering of Registrable Shares covered by such
Registration Statement, use commercially reasonable efforts to register or
qualify such Registrable Shares for offer and sale under the securities or Blue
Sky laws of such jurisdictions as the Holders of such Registrable Shares shall
reasonably request in writing; provided, however, that the Company shall in no
event be required to qualify generally to do business as a foreign corporation
or as a dealer in any jurisdiction where it is not at the time so qualified or
to execute or file a general consent to service of process in any such
jurisdiction where it has not theretofore done so or to take any action that
would subject it to general service of process or taxation in any such
jurisdiction where it is not then subject;
(h) upon the occurrence of any event contemplated by paragraph 4(d)(v)
above or as reasonably requested by the Holders, prepare a supplement or post-
effective amendment to such Registration Statement or the related Prospectus or
any document incorporated or deemed to be incorporated therein by reference and
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Shares being sold thereunder (including upon the
termination of any Delay Period), such Prospectus will not
6
<PAGE>
contain an untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
(i) use commercially reasonable efforts to cause all Registrable
Shares covered by such Registration Statement to be listed on each securities
exchange or automated interdealer quotation system, if any, on which similar
securities issued by the Company are then listed or quoted;
(j) use commercially reasonable efforts to comply with all applicable
rules and regulations of the SEC and any securities exchange or regulatory body;
(k) on or before the effective date of such Registration Statement,
provide the transfer agent of the Company for the Registrable Shares with
printed certificates for the Registrable Shares covered by such Registration
Statement which are in a form eligible for deposit with the selected trust
company;
(l) make available for inspection by any Holder of Registrable Shares
included in such Registration Statement, any underwriter participating in any
offering pursuant to such Registration Statement, and any attorney, accountant
or other agent retained by any such Holder or underwriter (collectively, the
"Inspectors"), such financial and other records and other information, pertinent
- -----------
corporate documents and properties of any of the Company and its subsidiaries
and affiliates (collectively, the "Records"), as shall be reasonably necessary
-------
to enable them to exercise their due diligence responsibilities; provided,
however, that the Records that the Company determines, in good faith, to be
confidential and which it notifies the Inspectors in writing are confidential
shall not be disclosed to any Inspector unless such Inspector signs a
confidentiality agreement reasonably satisfactory to the Company, which
agreement shall permit the disclosure of such Records in such Registration
Statement or the related Prospectus if either (i) the disclosure of such Records
is necessary to avoid or correct a misstatement or omission in such Registration
Statement or (ii) the release of such Records is ordered pursuant to a subpoena
or other order from a court of competent jurisdiction; provided however, that
(A) any decision regarding the disclosure of information pursuant to subclause
(i) shall be made only after consultation with counsel for the applicable
Inspectors and the Company and (B) with respect to any release of Records
pursuant to subclause (ii), each Holder of Registrable Shares agrees that it
shall, promptly after learning that disclosure of such Records is sought in a
court having jurisdiction, give notice to the Company so that the Company, at
the Company's expense, may undertake appropriate action to prevent disclosure of
such Records; and
(m) if such offering is an underwritten offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in underwritten offerings) and take all such other appropriate and
reasonable actions requested by the Holders of a majority of the Registrable
Shares being sold in connection therewith (including those reasonably requested
by the managing underwriters) in order to expedite or facilitate the disposition
of such Registrable Shares, and in such connection, (i) use commercially
reasonable
7
<PAGE>
efforts to obtain opinions of counsel to the Company and updates thereof (which
counsel and opinions (in form, scope and substance) shall be reasonably
satisfactory to the managing underwriters and counsel to the Holders of the
Registrable Shares being sold), addressed to each selling Holder of Registrable
Shares covered by such Registration Statement and each of the underwriters as to
the matters customarily covered in opinions requested in underwritten offerings
and such other matters may be reasonably requested by such counsel and
underwriters, (ii) use commercially reasonable efforts to obtain "cold comfort"
letters and updates thereof from the independent certified public accountants of
the Company (and, if necessary, any other independent certified public
accountants of any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data are, or are required
to be, included in the Registration Statement), addressed to each selling holder
of Registrable Shares covered by the Registration Statement (unless such
accountants shall be prohibited from so addressing such letters by applicable
standards of the accounting profession) and each of the underwriters, such
letters to be in customary form and covering matters of the type customarily
covered in "cold comfort" letters in connection with underwritten offerings
(iii) if requested and if an underwriting agreement is entered into, provide
indemnification provisions and procedures substantially to the effect set forth
in Section 7 hereof with respect to all parties to be Indemnified pursuant to
said Section. The above shall be done at each closing under such underwriting or
similar agreement, or as and to the extent required thereunder. In addition, the
Company agrees (i) not to effect any public sale or distribution of its Common
Stock or any securities convertible into or exchangeable or exercisable for such
securities, during the 10 days prior to the effective date of any underwritten
Piggyback Registration and until the earliest of (A) the abandonment of such
offering, or (B) the termination of any "hold back" period reasonably requested
by the underwriters (with exceptions for issuances pursuant to outstanding
options, warrants, and convertible or exchangeable securities, pursuant to
employee and dividend reinvestment plans, and such other exceptions as are
customary or agreed with the managing underwriter).
The Company may require each Holder of Registrable Shares covered by a
Registration Statement to furnish such information regarding such Holder and
such Holder's intended method of disposition of such Registrable Shares as it
may from time to time reasonably request in writing. If any such information is
not furnished within a reasonable period of time after receipt of such request,
the Company may exclude such Holder's Registrable Shares from such Registration
Statement.
Each Holder of Registrable Shares covered by a Registration Statement
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 4(d)(ii), 4(d)(iii), 4(d)(iv) or 4(d)(v)
hereof, such Holder shall forthwith discontinue disposition of any Registrable
Shares covered by such Registration Statement or the related Prospectus in any
jurisiction in which such an event has occurred until receipt of the copies of
the supplemented or amended Prospectus contemplated by Section 4(h) hereof, or
until such Holder is advised in writing (the "Advice") by the Company that the
------
use of the applicable Prospectus may be resumed, and has received copies of any
amended or supplemented Prospectus or any additional or supplemental filings
which are incorporated, or deemed to be incorporated, by reference in such
Prospectus (such period during which disposition is discontinued being an
8
<PAGE>
"Interruption Period") and, if requested by the Company, the Holder shall
- --------------------
deliver to the Company (at the expense of the Company) all copies then in its
possession, other than permanent file copies then in such holder's possession,
of the Prospectus covering such Registrable Shares at the time of receipt of
such request.
Each Holder of Registrable Shares covered by a Registration Statement
further agrees not to utilize any material other than the applicable current
preliminary prospectus or Prospectus in connection with the offering such
Registrable Shares.
5. Registration Expenses. Whether or not any Registration Statement is
---------------------
filed or becomes effective, the Company shall pay all costs, fees and expenses
incident to the Company's performance of or compliance with this Agreement,
including (i) all registration and filing fees, including NASD filing fees, (ii)
all fees and expenses of compliance with securities or Blue Sky laws, including
reasonable fees and disbursements of counsel in connection therewith, (iii)
printing expenses (including expenses of printing certificates for Registrable
Shares and of printing preliminary and final prospectuses if the printing of
prospectuses is requested by the Holders or the managing underwriter, if any),
(iv) messenger, telephone and delivery expenses, (v) fees and disbursements of
counsel for the Company, (vi) fees and disbursements of all independent
certified public accountants of the Company (including expense of any "cold
comfort" letters required in connection with this Agreement) and all other
persons retained by the Company in connection with this Agreement) and all other
persons retained by the Company in connection with such Registration Statement,
and (vii) all other costs, fees and expenses incident to the Company's
performance or compliance with this Agreement. Notwithstanding the foregoing,
any discounts, commissions or brokers' fees or fees of similar securities
industry professionals and any transfer taxes relating to the disposition of the
Registrable Shares by a Holder, will be payable by such Holder and the Company
will have no obligation to pay any such amounts.
6. Underwriting Requirements.
-------------------------
(a) The Company shall have the right to determine whether any public
offering of securities and any accompanying Piggyback Registration shall be an
underwritten offering.
(b) In the case of any underwritten offering pursuant to a Piggyback
Registration, the Company shall select the institution or institutions that
shall manage or lead such offering.
7. Indemnification.
---------------
(a) Indemnification by the Company. The Company shall, without
------------------------------
limitation as to time, indemnify and hold harmless, to the full extent permitted
by law, each Holder of Registrable Shares whose Registrable Shares are covered
by a Registration Statement or Prospectus, the officers, directors and agents
and employees of each of them, each Person who
9
<PAGE>
controls each such Holder (within the meaning of Section 15 of the Securities
Act or Section 20 of the Exchange Act) and the officers, directors, agents and
employees of each such controlling person, to the fullest extent lawful, from
and against any and all losses, claims, damages, liabilities, judgment, costs
(including, without limitation, costs of preparation and reasonable attorneys'
fees) and expenses (collectively, "Losses"), as incurred, arising out of or
------
based upon any untrue or alleged untrue statement of a material fact contained
in such Registration Statement or Prospectus or in any amendment or supplement
thereto or in any preliminary prospectus, or arising out of or based upon any
omission or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as the
same are based upon information furnished in writing to the Company by or on
behalf of such Holder expressly for use therein; provided, however, that the
Company shall not be liable to any such Holder to the extent that any such
Losses arise out of or are based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any preliminary prospectus if
(i) having previously been furnished by or on behalf of the Company with copies
of the Prospectus, such Holder failed to send or deliver a copy of the
Prospectus with or prior to the delivery of written confirmation of the sale of
Registrable Shares by such Holder to the person asserting the claim from which
such Losses arise and (ii) the Prospectus would have corrected in all material
respects such untrue statement or alleged untrue statement or such omission or
alleged omission; and provided further, however, that the Company shall not be
liable in any such case to the extent that any such Losses arise out of or are
based upon an untrue statement or alleged untrue statement or omission or
alleged omission in the Prospectus, if (x) such untrue statement or alleged
untrue statement, omission or alleged omission is corrected in all material
respects in an amendment or supplement to the Prospectus and (y) having
previously been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, such Holder thereafter fails to
deliver such Prospectus as so amended or supplemented, prior to or currently
with the sale of Registrable Shares. In connection with any Underwritten
Offering, the Company will also indemnify underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls such
Persons (within the meaning of Section 15 of the Securities Act) to the same
extent as provided above with respect to Indemnification of Holders of
Registrable Shares, or on such other terms as are reasonable and customary and
requested by the managing underwriter.
(b) Indemnification by Holder of Registrable Shares. In connection
-----------------------------------------------
with any Registration Statement in which a Holder is participating, such Holder
shall furnish to the Company in writing such information as the Company
reasonably requests for use in connection with such Registration Statement or
the related Prospectus and agrees to indemnify, to the full extent permitted by
law, the Company, its directors, officers, agents or employees, each Person who
controls the Company (within the meaning of Section 15 of the Securities Act and
Section 20 of the Exchange Act) and the directors, officers, agents or employees
of such controlling Persons, from and against all Losses arising out of or based
upon any untrue or alleged untrue statement of a material fact contained in such
Registration Statement or the related Prospectus or any amendment or supplement
thereto, or any preliminary prospectus, or arising out of or based upon any
omission or alleged omission of a material fact required to be stated
10
<PAGE>
therein or necessary to make the statements therein not misleading, to the
extent, but only to the extent, that such untrue or alleged untrue statement or
omission or alleged omission is based upon any information so furnished in
writing by or on behalf of such Holder to the Company expressly for use in such
Registration Statement or Prospectus.
(c) If any Person shall be entitled to indemnity hereunder (an
"Indemnified Party"), the Indemnified Party shall give prompt notice to the
- ------------------
party from which such indemnity is sought (the "Indemnifying Party") of any
------------------
claim or of the commencement of any proceeding with respect to which the
Indemnified Party seeks indemnification or contribution pursuant hereto;
provided, however, that the delay or failure to so notify the Indemnifying Party
shall not relieve the Indemnifying Party from any obligation or liability except
to the extent that the Indemnifying Party has been materially prejudiced by such
delay or failure. The Indemnifying Party shall have the right, exercisable by
giving written notice to an Indemnified Party promptly after the receipt of
written notice from such Indemnified Party of such claim or proceeding, to
assume, at the Indemnifying Party's expense, the defense of any such claim or
proceeding, with counsel reasonably satisfactory to such Indemnified Party;
provided, however, that (i) an Indemnified Party shall have the right to employ
separate counsel in any such claim or proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall be at the
expense of such Indemnified Party unless: (1) the Indemnifying Party agrees to
pay such fees and expenses; (2) the Indemnifying Party fails promptly to assume
the defense of such claim or proceeding or fails to employ counsel reasonably
satisfactory to such Indemnified Party; or (3) the named parties to any
proceeding (including impleaded parties) include both such Indemnified Party and
the Indemnifying Party, and such Indemnified Party shall have been advised by
counsel that there may be one or more legal defenses available to it that are
inconsistent with those available to the Indemnifying Party or that a conflict
of interest is likely to exist among such Indemnified Party and any other
Indemnified Parties (in which case the Indemnifying Party shall not have the
right to assume the defense of such action on behalf of such Indemnified Party);
and (ii) subject to clause (3) above, the Indemnifying Party shall not, in
connection with any one such claim or proceeding or separate but substantially
similar or related claims or proceedings in the same jurisdiction, arising out
of the same general allegations or circumstances, be liable for the fees and
expenses of more than one firm of attorneys (together with appropriate local
counsel) at any time for all of the Indemnified Parties, or for fees and
expenses that are not reasonable. Whether or not such defense is assumed by the
Indemnifying Party, such Indemnified Party shall not be subject to any liability
for any settlement made without its consent. The Indemnifying Party shall not
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or plaintiff
to such Indemnified Party of a release, in form and substance reasonably
satisfactory to the Indemnified Party, from all liability in respect of such
claim or litigation for which such Indemnified Party would be entitled to
indemnification hereunder.
(d) Contribution. If the indemnification provided for in this Section
------------
7 is unavailable to an Indemnified Party in respect of any Losses (other than in
accordance with its terms), then each applicable Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnifying Party as a result of such
11
<PAGE>
Losses, in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party, on the one hand, and such Indemnifying Party, on the
other hand, in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party, on the one hand, and Indemnified
Party, on the other hand, shall be determined by reference to, among other
things, whether any action in question, including any untrue statement of a
material fact or omission or alleged omission to state a material fact, has been
taken by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent any such action, statement or
omission. The amount paid or payable by a party as a result of any Losses shall
be deemed to include any legal or other fees or expenses incurred by such party
in connection with any investigation or proceeding. The parties hereto agree
that it would not be just and equitable if contribution pursuant to this Section
7(d) were determined by pro rata allocation or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provision of this Section
7(d), an Indemnifying Party that is a Holder shall not be required to contribute
any amount which is in excess of the amount by which the total proceeds received
by such Holder from the sale of the Registrable Shares sold by such Holder (net
of all underwriting discounts and commissions) exceeds the amount of any damages
that such Indemnifying Party has otherwise been required to pay by reason of
such untrue or alleged untrue statement or omission or alleged omission. 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.
8. Rule 144. If the Company shall have filed a registration
--------
statement pursuant to the requirements of Section 12 of the Securities Exchange
Act or a registration statement pursuant to the requirements of the Securities
Act, the Company covenants that it will timely file the reports required to be
filed by it under the Securities Act or the Exchange Act (including but not
limited to the reports under Sections 13 and 15(d) of the Exchange Act referred
to in subparagraph (c)(1) of Rule 144 adopted by the SEC under the Securities
Act) and the rules and regulations adopted by the SEC thereunder (or if the
Company is not required to file such reports, the Company will, upon the request
of any Holder of Registrable Shares, make publicly available other information),
and will take such further action as any Holder of Registrable Shares may
reasonably request, all to the extent required from time to time to enable such
Holder of Registrable Shares to sell Registrable Shares within the exemption
provided by (i) Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or (ii) any similar rule or regulation hereafter adopted by
the SEC. Upon the request of any Holder of Registrable Shares, the Company will
deliver to such Holder, a written statement as to whether it has complied with
such requirements.
9. Miscellaneous.
-------------
(a) Termination. This Agreement and the obligations of the
-----------
Company and the Holders hereunder (other than Section 7 hereof) shall terminate
on the first date on which no Registrable Shares remain outstanding.
12
<PAGE>
(b) Notices. All notices, requests, demands and other communications
-------
which are required or may be given under this Agreement shall be in writing and
shall be deemed to have been duly given when received if personally delivered;
when transmitted if transmitted by telecopy, electronic or digital transmission
method and such transmission is confirmed; the day after it is sent, if sent for
next day delivery to a domestic address by recognized overnight delivery service
(e.g., Federal Express); and upon receipt, if sent by certified or registered
mail, return receipt requested. In each case notice shall be sent to the
address nest to partys name on the signature page hereto.
(c) Interpretation. When a reference is made in this Agreement to
--------------
Sections, such reference shall be to a Section of this Agreement unless
otherwise indicated. Headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Whenever the word "include", "includes" or "including" are used
in this Agreement, they shall be deemed to be followed by the words "without
limitation". This Agreement shall not be construed for or against either party
by reason of the authorship or alleged authorship of any provision hereof or by
reason of the status of the respective parties. All terms defined in this
Agreement in the singular shall have the same comparable meanings when used in
the plural and vice versa, unless otherwise specified.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement
----------------------------------------------
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof and is not intended to confer upon any person other than
the parties hereto any rights or remedies hereunder.
(e) Governing Law. This Agreement shall be construed, interpreted and
-------------
the rights of the parties determined in accordance with the laws of the State of
California (without reference to the choice of law provisions
(f) Severability. Each party agrees that, should any court or other
------------
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not to take an action consistent herewith or required hereby, the
validity, legality and enforceability of the remaining provisions and
obligations contained or set forth herein shall not in any way be affected or
impaired thereby. Upon any such holding that any provision of this Agreement is
null, void or unenforceable, the parties will negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions contemplated
by this Agreement are consummated to the extent possible. Except as otherwise
contemplated by this Agreement, to the extent that a party hereto took an action
inconsistent herewith or failed to take action consistent herewith or required
hereby pursuant to an order or judgment of a court or other competent authority,
such party shall incur no liability or obligation unless such party did not in
good faith seek to resist or object to the imposition or entering of such order
or judgment.
13
<PAGE>
(g) Injunctive Relief. The parties acknowledge that it will be
-----------------
impossible to measure in money the damages that would be suffered if the parties
fail to comply with any of the obligations herein imposed on them and that in
the event of any such failure, an aggrieved person or entity will be irreparably
damaged and will not have an adequate remedy at law. Any such person or entity
shall, therefore, be entitled to injunctive relief, including specific
performance, to enforce such obligations, and if any action should be brought in
equity to enforce any of the provisions of this Agreement, none of the parties
shall raise the defense that there is an adequate remedy at law.
(h) Attorneys' Fees. If any party to this Agreement brings an action
---------------
to enforce its rights under this Agreement, the prevailing party shall be
entitled to recover its costs and expenses, including without limitation
reasonable attorneys' fees, incurred in connection with such action, including
any appeal of such action.
(i) Cumulative Remedies. All rights and remedies of either party
-------------------
hereto are cumulative of each other and of every other right or remedy such
party may otherwise have at law or in equity, and the exercise of one or more
rights or remedies shall not prejudice or impair the concurrent or subsequent
exercise of other rights or remedies.
(j) Counterparts. This Agreement may be executed in two or more
------------
counterparts, all of which shall be considered one and the same instrument and
shall become effective when executed and delivered by each of the parties.
(k) Amendments and Waivers. Except as otherwise provided herein, the
----------------------
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the Company has obtained the written consent of Holders of at least a
majority in number of the Registrable Shares then outstanding.
(l) Publicity. No public release or announcement concerning the
---------
transactions contemplated hereby shall be issued by any party without the prior
consent of the other parties, except to the extent that such party is advised by
counsel that such release or announcement is necessary or advisable under
applicable law or the rules or regulations of any securities exchange, in which
case the party required to make the release or announcement shall to the extent
practicable provide the other party with an opportunity to review and comment on
such release or announcement in advance of its issuance.
14
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
EISI, INC.
By: /s/ DONALD J. ESTERS
----------------------
Donald J. Esters
Chairman of the Board
INVESTORS
/s/ E*CAPITAL CORPORATION
- ------------------------------
/s/ FEIGHNER FAMILY TRUST
- ------------------------------
/s/ DEN-MAT CORP.
- ------------------------------
/s/ EDWARD WEDBUSH
- ------------------------------
________________________________________________________________________________
15
<PAGE>
EXHIBIT 10.4
ORIGINAL STOCKHOLDERS AGREEMENT
-------------------------------
This AGREEMENT is dated as of March 4, 1994 among EISI ACQUISITION
CO., INC., a California corporation (the "Company"), and the STOCKHOLDERS named
on the signature pages hereof.
RECITALS
--------
A. The Company, as of the date hereof, is authorized by its Articles
of Incorporation (the "Articles of Incorporation") to issue 100,000 shares of
its Common Stock ("the Company Common Stock").
B. The parties hereto, being the holders of all of the outstanding
Company Common Stock (the "Stockholders"), deem it in their best interests and
in the best interests of the Company to restrict the sale, assignment, transfer,
encumbrance or other disposition of the shares of the Company Common Stock,
including issued and outstanding shares of the Company Common Stock as well as
shares of the Company Common Stock that may be issued hereafter, and to provide
for certain rights and obligations in respect thereto as hereinafter provided.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
ARTICLE I.
Certain Definitions
-------------------
As used in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" with respect to a Person, shall mean any other Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, such Person.
"Permitted Transferee shall mean (i) any original party to, or any
other Person who, upon a previous permitted transfer of shares of the Company
Common Stock, becomes a signatory to this Agreement; (ii) immediate family
members (including spouses, children and grandchildren) of a Stockholder; (iii)
the executors, administrators, testamentary trustees, legatees, beneficiaries or
successors by testamentary of intestate succession of a Stockholder; (iv) a
trust or custodianship the beneficiaries of which include only Stockholders or
their Permitted Transferees as herein defined and (v) any Permitted Transferee
of a Permitted Transferee as defined herein.
<PAGE>
"Person" shall mean a corporation, association, partnership, joint
venture, organization, business, individual, trust or any other entity or
organization, including a government or any subdivision or agency thereof.
"Public Distribution" shall mean a Public Offering of the Company
Common Stock, after which the Company Common Stock is listed on the NASDAQ
National Market System or a national securities exchange.
"Public Offering" shall mean a public offering of common stock (or
securities convertible into common stock) of the Company pursuant to an
effective registration statement under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations thereunder.
"Stockholder" shall mean any one of (i) the signatories to this
agreement, and (ii) any Permitted Transferee of any such Person.
"Third Party" shall mean, as to any Stockholder, any person other than
Permitted Transferee of such Stockholder.
ARTICLE II.
Transfers of the Company Common Stock
-------------------------------------
2.1. Restrictions on Transfer.
------------------------
Each Stockholder agrees that it will not, directly or indirectly,
offer, sell, transfer, assign or otherwise dispose of (or make any exchange,
gift, assignment or pledge of) any of his shares of the Company's Common Stock,
or agree to do any of the foregoing (collectively, a "transfer"), except as
permitted by Section 2.2 and Articles III and IV of this Agreement.
2.2. Exceptions to Restrictions.
--------------------------
The provisions of Section 2.1 shall not apply to any of the following
transfers:
(i) Transfers to a Permitted Transferee as defined herein;
(ii) Transfers to the Company; and
(iii) Transfers made pursuant to a Public Offering.
In the event of such a transfer, the transferee shall be subject to
Section 2. 1.
2
<PAGE>
2.3. Legend.
------
(a) All certificates representing shares of the Company Common Stock
hereafter issued to or acquired by any of the Stockholders or their successors
hereto shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY APPLICABLE STATE
SECURITIES LAWS (THE STATE "ACTS"), HAVE BEEN ACQUIRED FOR
INVESTMENT AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH
IN A SHAREHOLDERS AGREEMENT AMONG THE STOCKHOLDERS OF THE
COMPANY.
(b) No Transfer of any share of the Company Common Stock, other than
a Transfer to the Company, shall be effective unless such Transfer is made (i)
pursuant to an effective registration statement under the Securities Act and a
valid qualification under applicable state securities or blue sky laws or (ii)
without registration under the Securities Act and qualification under applicable
state securities or blue sky laws, as a result of the availability of an
exemption from registration and qualification under such laws, and, unless
waived by the Company in writing, the transferring Stockholder shall have
furnished the Company an opinion of counsel, such counsel and such opinion being
satisfactory in form and substance to the Company and its counsel, to that
effect.
2.4. Restrictions Binding on Transferees.
-----------------------------------
The obligations of each party hereto shall be binding upon each
transferee to whom shares of the Company Common Stock is transferred by any
party hereto except for transfers pursuant to a Public Offering or pursuant to
Article IV of this Agreement. Prior to consummation of any transfer except for
transfers pursuant to a Public Offering or pursuant to Article IV of this
Agreement, such party shall cause the transferee to execute an agreement in form
and substance reasonably satisfactory to the other parties hereto, providing
that such transferee shall fully comply with the terms of this Agreement.
2.5. Improper Transfer.
-----------------
Any attempt to transfer or encumber any shares of the Company Common
Stock not in accordance with this Agreement shall be null and void and neither
the issuer of such securities nor any transfer agent of such securities shall
give any effect to such attempted transfer or encumbrance in its stock records.
3
<PAGE>
ARTICLE III.
Rights of First Offer
---------------------
3.1. Transfers by a Stockholder.
--------------------------
(a) Except for the sale of securities contemplated by Article IV and
transfers permitted by Section 2.2, if any Stockholder shall desire to transfer
any shares of the Company Common Stock owned by it (such Stockholder desiring to
transfer shares of the Company Common Stock being referred to herein as a
"Selling Stockholder"), then such Selling Stockholder shall deliver written
notice of its desire to transfer shares other than to a Permitted Transferee (a
"Notice of Intention"), accompanied by a copy of a proposal relating to such
transfer (the "Sale Proposal"), to the Company and to each of the other
Stockholders setting forth such Selling Stockholder's desire to make such
transfer (which shall be for cash only), the number of shares of the Company
Common Stock proposed to be transferred (the "Offered Shares"), and the cash
price at which such Selling Stockholder proposes to transfer the Offered Shares
(the "Offer Price").
(b) Upon receipt of the Notice of Intention, the Company shall have
the right to purchase at the Offer Price all but not less than all of the
Offered Shares, exercisable by the delivery of notice to the Selling Stockholder
(the "Notice of Exercise"), within 30 calendar days from the date of receipt of
the Notice of Intention. The right to purchase pursuant to this Section 3.1(b)
shall terminate if not exercised within 30 calendar days after receipt of the
Notice of Intention.
In the event that, if applicable, the option of the Company referred
to in the previous paragraph terminates and there are remaining Offered Shares
for which Notices of Exercise have not been received, the Selling Stockholder
shall give notice thereof to the other Stockholders, setting forth the number of
Offered Shares remaining to be sold pursuant to this Section 3.1(b). Such
Stockholders shall then have the right to purchase all but not less than all the
remaining Offered Shares pro rata based on the number of shares of the Company
Common Stock owned by each, by delivery of a Notice of Exercise. The right of
the Stockholders pursuant to Section 3.1(b) shall terminate if not exercised
within 30 calendar days after receipt from the Selling Stockholder of such
notice.
(c) In the event that the Company and/or the Stockholders exercise
their rights to purchase all, but not less than all, of the Offered Shares in
accordance with Section 3.1(b), then the Selling Stockholder must sell the
Offered Shares to the Company and/or to such Stockholders after not less than 30
days and not more than 60 calendar days from the date of the delivery of last
Notice of Exercise received by the Selling Stockholder. The Selling Stockholder
shall notify the Company and each such Stockholder of the number of Offered
Shares to be sold to the Company and such Stockholders. Upon the consummation of
such purchase and sale, the Selling Stockholder shall deliver certificates
evidencing the Offered Shares sold duly endorsed, or accompanied by written
instruments of transfer in form satisfactory to the purchaser duly executed, by
the Selling Stockholder, free and clear of any liens (other than those under
this
4
<PAGE>
Agreement), against delivery of the Offer Price payable in accordance with the
notice specified in Section 3.1(a).
3.2. Transfer of Offered Shares to Third Parties.
-------------------------------------------
If all notices required to be given pursuant to Section 3.1 have been
duly given and the Company and/or the Stockholders determine not to exercise
their respective options to purchase the Offered Shares at the Offer Price or
determine to exercise their respective options to purchase less than all of the
Offered Shares then the Selling Stockholder shall have the right, for a period
of 120 calendar days from the earlier of (i) the expiration of the last
applicable option period pursuant to Section 3.1 with respect to such Sale
Proposal or (ii) the date on which such Selling Stockholder receives notice from
all other Stockholders that they will not exercise in whole or in part the
options granted pursuant to Section 3.1, to sell to any Third Party the Offered
Shares remaining unsold at a price not less favorable than the Offer Price and
on terms and conditions as favorable as offered to the Company and the
Stockholders.
3.3. Waiting Period with Respect to Subsequent Transfers.
---------------------------------------------------
In the event that the Company and/or the Stockholders do not exercise
their options to purchase any or all of the Offered Shares, and the Selling
Stockholder shall not have sold the remaining Offered Shares to a Third Party
for any reason before the expiration, as applicable, of the 120-day period
described in Section 3.2, then such Selling Stockholder shall not give another
Notice of Intention pursuant to Section 3.1 for a period of 90 calendar days
from the last day of such 120-day period.
3.4. Lapse of Certain Rights of First Offer.
--------------------------------------
After a Public Distribution, transfers of shares of the Company Common
Stock by a Stockholder shall not be subject to the requirements of this Article
III; provided that such transfers are made in accordance with the exemption
provided by Rule 144 under the Securities Act.
ARTICLE IV.
Drag-Along Requirements; Public Offering
----------------------------------------
4.1. Drag-Along Right.
----------------
If a Third Party makes a bona fide offer for substantially all of the
Company Common Stock, which offer a majority of the Company's Stockholders vote
to accept, then the Stockholders voting in favor of such offer shall have the
right (the "Drag-Along Right") to compel the other Stockholders to sell and all
Stockholders hereby agree to sell all, but not less than all, shares of the
Company Common Stock owned, directly or indirectly, by them to such Third Party;
provided, however, that all Stockholders shall receive identical consideration
- -------- -------
per share pursuant to such transfer. This Drag-Along Right may be exercised by
the majority Stockholders by providing the other Stockholders with notice (the
"Drag-Along Notice") setting
5
<PAGE>
forth (i) the time and place of the closing of the Drag-Along Right, which
time and place shall not be less than 5 business days after the date of the
Drag-Along Notice and (ii) the expected consideration to be paid at such
closing.
4.2. Payment of Drag-Along Purchase Price.
------------------------------------
At the closing of the Drag-Along Right, the third party shall remit to
all Stockholders identical consideration (the cash portion of which, if any,
will be in the form of a certified check or similarly available funds) for each
share of the Company Common Stock sold pursuant to the Drag-Along Right, against
delivery by each Stockholder subject to the Drag-Along Right of certificates for
all shares of the Company Common Stock owned by each such Stockholder, duly
endorsed or with duly executed stock powers, warranting as to good and
marketable title, free and clear of any liens, encumbrances and adverse claims,
and the compliance with any other conditions of closing applicable to the other
Stockholders.
ARTICLE V.
Termination
-----------
5.1. Certain Terminations.
--------------------
(a) The provisions of this Agreement shall terminate on the date on
which any of the following events first occurs: (i) a Public Distribution, (ii)
the sale of all or substantially all the assets of the Company to a Person that
is not an Affiliate of the Company, (iii) the sale of all or substantially all
the Company Common Stock pursuant to Article IV hereof, or (iv) ten years from
the date of this Agreement.
(b) Notwithstanding the foregoing, this Agreement shall in any event
terminate with respect to any Stockholder when such Stockholder no longer owns
any shares of the Company Common Stock (except if such shares are transferred in
violation of this Agreement).
ARTICLE VI.
Miscellaneous
-------------
6.1. Successors and Assigns.
----------------------
Except as otherwise provided herein, all of the terms and provisions
of this Agreement shall be binding upon, shall inure to the benefit of and shall
be enforceable by the respective successors and assigns of the parties hereto.
No Stockholder may assign any of its rights hereunder to any Person other than a
transferee that has complied with the requirements of Section 2.4 (if
applicable) as provided therein in all respects. If any transferee of any
Stockholder shall acquire any shares of the Company Common Stock in any manner,
whether by operation of law or otherwise, such shares shall be held subject to
all of the terms of this Agreement, and by taking and holding such shares such
Person shall be entitled to receive the benefits of and be
6
<PAGE>
conclusively deemed to have agreed to be bound by and to comply with all of
the terms and provisions of this Agreement.
6.2. Notices.
-------
Any notice, request, claim, demand, document and other communication
hereunder to any party shall be effective upon receipt (or refusal of receipt)
and shall be in writing and delivered personally or sent by telex, telecopy, or
certified or registered mail, postage prepaid, or other similar means of
communication, as follows:
(i) If to the Company, addressed to its principal executive offices
to the attention of its Chairman; and
(ii) If to a Stockholder, to the address of such Stockholder set
forth in the stock records of the Company, or to such other address as such
Stockholder shall have specified by notice given to the other parties in the
manner specified above.
6.3. Recapitalizations, Exchanges, Etc., Affecting the Company Common
----------------------------------------------------------------
Stock.
- -----
The provisions of this Agreement shall apply to the full extent set
forth herein with respect to the Company Common Stock, to any and all shares of
capital stock of the Company or any successor or assign of the Company (whether
by merger, consolidation, sale of assets, or otherwise) which may be issued in
respect Company Common Stock and shall be appropriately adjusted for any stock
dividends, splits, reverse splits, combinations, recapitalizations and the like
occurring after the date hereof.
6.4. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD J. ESTERS
-----------------------------------------
Name: Donald J. Esters
Title: Chairman
/s/ JOHN BOHLE
-----------------------------------------
John Bohle
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD J. ESTERS
-----------------------------------------
Name: Donald J. Esters
Title: Chairman
NATIONAL FINANCIAL ASSOCIATES
By /s/ FRANK PERNA
-----------------------------------------
Name: Frank Perna
Title:
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD J. ESTERS
-----------------------------------------
Name: Donald J. Esters
Title: Chairman
CONTINENTAL FAR EAST
By /s/ ATSUSHI SUZUKI
-----------------------------------------
Name: Atsushi Suzuki
Title:
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD J. ESTERS
-----------------------------------------
Name: Donald J. Esters
Title: Chairman
/s/ THOMAS L. RINGER
-----------------------------------------
Thomas L. Ringer and Juanita B. Ringer,
as co-trustees
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD J. ESTERS
-----------------------------------------
Name: Donald J. Esters
Title: Chairman
ADVANCED COMMUNICATIONS EQUIPMENT CO., LTD.
By /s/ MICHAEL PANG
-----------------------------------------
Name: Michael Pang
Title:
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD J. ESTERS
-----------------------------------------
Name: Donald J. Esters
Title: Chairman
/s/ DONALD J. ESTERS
-----------------------------------------
Donald J. Esters
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD J. ESTERS
-----------------------------------------
Name: Donald J. Esters
Title: Chairman
/s/ WALTER GOODMAN
-----------------------------------------
Walter Goodman
8
<PAGE>
EXHIBIT 10.5
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of October 17, 1995 among EISI ACQUISITION CO.,
INC., a California corporation (the "Company"), and Douglas E. Adams.
RECITALS
A. The Company, as of the date hereof, is authorized by its Articles
of Incorporation (the "Articles of Incorporation") to issue 5,000,000 shares of
its Common Stock ("the Company Common Stock").
B. It was determined upon the formation of the Company by the holders
of all of the outstanding Company Common Stock (the "Stockholders"), that it was
and is in their best interests and in the best interests of the Company to
restrict the sale, assignment, transfer, encumbrance or other disposition of the
shares of the Company Common Stock, including issued and outstanding shares of
the Company Common Stock as well as shares of the Company Common Stock that may
be issued hereafter, and to provide for certain rights and obligations in
respect thereto as hereinafter provided.
C. As a condition precedent to becoming a Stockholder in the Company
by the purchase or transfer of Company Common Stock, the exercise of stock
options or otherwise, each prospective Stockholder is required to execute this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" with respect to a Person, shall mean any other Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, such Person.
"Permitted Transferee" shall mean (i) any original party to, or any
other Person who, upon a previous permitted transfer of shares of the Company
Common Stock, becomes a signatory to this Agreement; (ii) immediate family
members (including spouses, children and grandchildren) of a Stockholder; (iii)
the executors, administrators, testamentary trustees, legatees, beneficiaries or
successors by testamentary of intestate succession of a Stockholder; (iv) a
trust or custodianship the beneficiaries of which include only Stockholders or
their Permitted Transferees as herein defined and (v) any Permitted Transferee
of a Permitted Transferee as defined herein.
<PAGE>
"Person" shall mean a corporation, association, partnership, joint
venture, organization, business, individual, trust or any other entity or
organization, including a government or any subdivision or agency thereof.
"Public Distribution" shall mean a Public Offering of the Company
Common Stock, after which the Company Common Stock is listed on the NASDAQ
National Market System or a national securities exchange.
"Public Offering" shall mean a public offering of common stock (or
securities convertible into common stock) of the Company pursuant to an
effective registration statement under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, a amended, and
the rules and regulations thereunder.
"Stockholder" shall mean any one of (i) the signatories to the
Original Stockholders Agreement, (ii) the signatories to this agreement, and
(iii) any Permitted Transferee of any such Person./1/
"Third Party" shall mean, as to any Stockholder, any person other than
a Permitted Transferee of such Stockholder.
ARTICLE II
TRANSFERS OF THE COMPANY COMMON STOCK
2.1. Restrictions on Transfer.
------------------------
Each Stockholder agrees that it will not, directly or indirectly,
offer, sell, transfer, assign or otherwise dispose of (or make any exchange,
gift, assignment or pledge of) any of his shares of the Company's Common Stock,
or agree to do any of the foregoing (collectively, a "transfer"), except as
permitted by Section 2.2 and Articles III and IV of this Agreement.
2.2. Exceptions to Restrictions.
--------------------------
The provisions of Section 2.1 shall not apply to any of the following
transfers:
(i) Transfers to a permitted Transferee as defined herein;
(ii) Transfers to the Company; and
(iii) Transfers made pursuant to a Public Offering.
In the event of such a transfer, the transferee shall be subject to
Section 2.1.
___________________________
/1/ It is understood that the only difference between stockholder agreements
(i) and (ii) is the date of the agreement and the quantity of shares ([ii]
reflecting the 100 to 1 stock split).
2
<PAGE>
2.3. Legend.
------
(a) All certificates representing shares of the Company Common Stock
hereafter issued to or acquired by any of the Stockholders or their successors
hereto shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY APPLICABLE STATE
SECURITIES LAWS (THE STATE "ACTS"), HAVE BEEN ACQUIRED FOR
INVESTMENT AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET
FORTH IN A SHAREHOLDERS AGREEMENT AMONG THE STOCKHOLDERS OF
THE COMPANY.
(b) No Transfer of any share of the Company Common Stock, other than
a Transfer to the Company, shall be effective unless such Transfer is made (i)
pursuant to an effective registration statement under the Securities Act and a
valid qualification under applicable state securities or blue sky laws or (ii)
without registration under the Securities Act and qualification under applicable
state securities or blue sky laws, as a result of the availability of an
exemption from registration and qualification under such laws, and, unless
waived by the Company in writing, the transferring Stockholder shall have
furnished the Company an opinion of counsel, such counsel and such opinion being
satisfactory in form and substance to the Company and its counsel, to that
effect.
2.4. Restrictions Binding on Transferees.
-----------------------------------
The obligations of each party hereto shall be binding upon each
transferee to whom shares of the Company Common Stock is transferred by any
party hereto except for transfers pursuant to a Public Offering or pursuant to
Article IV of this Agreement. Prior to consummation of any transfer except for
transfers pursuant to a Public Offering or pursuant to Article IV of this
Agreement, such party shall cause the transferee to execute an agreement in form
and substance reasonably satisfactory to the other parties hereto, providing
that such transferee shall fully comply with the terms of this Agreement.
2.5. Improper Transfer.
-----------------
Any attempt to transfer or encumber any shares of the Company Common
Stock not in accordance with this Agreement shall be null and void and neither
the issuer of such securities nor any transfer agent of such securities shall
give any effect to such attempted transfer or encumbrance in its stock records.
3
<PAGE>
ARTICLE III
RIGHTS OF FIRST OFFER
3.1. Transfers by a Stockholder.
--------------------------
(a) Except for the sale of securities contemplated by Article IV and
transfers permitted by Section 2.2, if any Stockholder shall desire to transfer
any shares of the Company Common Stock owned by it (such Stockholder desiring to
transfer shares of the Company Common Stock being referred to herein as a
"Selling Stockholder"), then such Selling Stockholder shall deliver written
notice of its desire to transfer shares other than to a Permitted Transferee (a
"Notice of Intention"), accompanied by a copy of a proposal relating to such
transfer (the "Sale Proposal"), to the Company and to each of the other
Stockholders setting forth such Selling Stockholder's desire to make such
transfer (which shall be for cash only), the number of shares of the Company
Common Stock proposed to be transferred (the "Offered Shares"), and the cash
price at which such Selling Stockholder proposes to transfer the Offered Shares
(the "Offer Price").
(b) Upon receipt of the Notice of Intention, the Company shall have
the right to purchase at the Offer Price all but not less than all of the
Offered Shares, exercisable by the delivery of notice to the Selling Stockholder
(the "Notice of Exercise"), within 30 calendar days from the date of receipt of
the Notice of Intention. The right to purchase pursuant to this Section 3.1(b)
shall terminate if not exercised within 30 calendar days after receipt of the
Notice of Intention.
In the event that, if applicable, the option of the Company referred
to in the previous paragraph terminates and there are remaining Offered Shares
for which Notices of Exercise have not been received, the Selling Stockholder
shall give notice thereof to the other Stockholders, setting forth the number of
Offered Shares remaining to be sold pursuant to this Section 3.1(b). Such
Stockholders shall then have the right to purchase all but not less than all the
remaining Offered Shares pro rata based on the number of shares of the Company
Common Stock owned by each, by delivery of a Notice of Exercise. The right of
the Stockholders pursuant to Section 3.1(b) shall terminate if not exercised
within 30 calendar days after receipt from the Selling Stockholder of such
notice.
(c) In the event that the Company and/or the Stockholders exercise
their rights to purchase all, but not less than all, of the Offered Shares in
accordance with Section 3.1(b), then the Selling Stockholder must sell the
Offered Shares to the Company and/or to such Stockholders after not less than 30
days and not more than 60 calendar days from the date of the delivery of last
Notice of Exercise received by the Selling Stockholder. The Selling Stockholder
shall notify the Company and each such Stockholder of the number of Offered
Shares to be sold to the Company and such Stockholders. Upon the consummation of
such purchase and sale, the Selling Stockholder shall deliver certificates
evidencing the Offered Shares sold duly endorsed, or accompanied by written
instruments of transfer in form satisfactory to the purchaser duly executed, by
the Selling Stockholder, free and clear of any liens (other than those under
this
4
<PAGE>
Agreement), against delivery of the Offer Price payable in accordance with the
notice specified in Section 3.1(a).
3.2. Transfer of Offered Shares to Third Parties.
-------------------------------------------
If all notices required to be given pursuant to Section 3.1 have been
duly given and the Company and/or the Stockholders determine not to exercise
their respective options to purchase the Offered Shares at the Offer Price or
determine to exercise their respective options to purchase less than all of the
Offered Shares then the Selling Stockholder shall have the right, for a period
of 120 calendar days from the earlier of (i) the expiration of the last
applicable option period pursuant to Section 3.1 with respect to such Sale
Proposal or (ii) the date on which such Selling Stockholder receives notice from
all other Stockholders that they will not exercise in whole or in part the
options granted pursuant to Section 3.1, to sell to any Third Party the Offered
Shares remaining unsold at a price not less favorable than the Offer Price and
on terms and conditions as favorable as offered to the Company and the
Stockholders.
3.3. Waiting Period with Respect to Subsequent Transfers.
---------------------------------------------------
In the event that the Company and/or the Stockholders do not exercise
their options to purchase any or all of the Offered Shares, and the Selling
Stockholder shall not have sold the remaining Offered Shares to a Third Party
for any reason before the expiration, as applicable, of the 120-day period
described in Section 3.2, then such Selling Stockholder shall not give another
Notice of Intention pursuant to Section 3.1 for a period of 90 calendar days
from the last day of such 120-day period.
3.4. Lapse of Certain Rights of First Offer.
--------------------------------------
After a Public Distribution, transfers of shares of the Company Common
Stock by a Stockholder shall not be subject to the requirements of this Article
III; provided that such transfers are made in accordance with the exemption
--------
provided by Rule 144 under the Securities Act.
ARTICLE IV
DRAG-ALONG REQUIREMENTS; PUBLIC OFFERING
4.1. Drag-Along Right.
----------------
If a Third Party makes a bona fide offer for substantially all of the
Company Common Stock, which offer a majority of the Company's Stockholders vote
to accept, then the Stockholders voting in favor of such offer shall have the
right (the "Drag-Along Right") to compel the other Stockholders to sell and all
Stockholders hereby agree to sell all, but not less than all, shares of the
Company Common Stock owned, directly or indirectly, by them to such Third Party;
provided, however, that all Stockholders shall receive identical consideration
- -------- -------
per share pursuant to such transfer. This Drag-Along Right may be exercised by
the majority Stockholders by providing the other Stockholders with notice (the
"Drag-Along Notice") setting forth (i) the time and place of the closing of the
Drag-Along Right, which time and place shall
5
<PAGE>
not be less than 5 business days after the date of the Drag-Along Notice and
(ii) the expected consideration to be paid at such closing.
4.2. Payment of Drag-Along Purchase Price.
------------------------------------
At the closing of the Drag-Along Right, the third party shall remit to
all Stockholders identical consideration (the cash portion of which, if any,
will be in the form of a certified check or similarly available funds) for each
share of the Company Common Stock sold pursuant to the Drag-Along Right, against
delivery by each Stockholder subject to the Drag-Along Right of certificates for
all shares of the Company Common Stock owned by each such Stockholder, duly
endorsed or with duly executed stock powers, warranting as to good and
marketable title, free and clear of any liens, encumbrances and adverse claims,
and the compliance with any other conditions of closing applicable to the other
Stockholders.
ARTICLE V
TERMINATION
5.1. Certain Terminations.
--------------------
(a) The provisions of this Agreement shall terminate on the date on
which any of the following events first occurs: (i) a Public Distribution, (ii)
the sale of all or substantially all the assets of the Company to a Person that
is not an Affiliate of the Company, (iii) the sale of all or substantially all
the Company Common Stock pursuant to Article IV hereof, or (iv) ten years from
the date of this Agreement.
(b) Notwithstanding the foregoing, this Agreement shall in any event
terminate with respect to any Stockholder when such Stockholder no longer owns
any shares of the Company Common Stock (except if such shares are transferred in
violation of this Agreement).
ARTICLE VI
MISCELLANEOUS
6.1. Successors and Assigns.
----------------------
Except as otherwise provided herein, all of the terms and provisions
of this Agreement shall be binding upon, shall inure to the benefit of and shall
be enforceable by the respective successors and assigns of the parties hereto.
No Stockholder may assign any of its rights hereunder to any Person other than a
transferee that has complied with the requirements of Section 2.4 (if
applicable) as provided therein in all respects. If any transferee of any
Stockholder shall acquire any shares of the Company Common Stock in any manner,
whether by operation of law or otherwise, such shares shall be held subject to
all of the terms of this Agreement, and by taking and holding such shares such
Person shall be entitled to receive the benefits of and be conclusively deemed
to have agreed to be bound by and to comply with all of the terms and provisions
of this Agreement.
6
<PAGE>
6.2. Notices.
-------
Any notice, request, claim, demand, document and other communication
hereunder to any party shall be effective upon receipt (or refusal of receipt)
and shall be in writing and delivered personally or sent by telex, telecopy, or
certified or registered mail, postage prepaid, or other similar means of
communication, as follows:
(i) If to the Company, addressed to its principal executive offices
to the attention of its Chairman; and
(ii) If to a Stockholder, to the address of such Stockholder set
forth in the stock records of the Company, or to such other address as such
Stockholder shall have specified by notice given to the other parties in the
manner specified above.
6.3. Recapitalizations, Exchanges, Etc. Affecting the Company Common Stock.
---------------------------------------------------------------------
The provisions of this Agreement shall apply to the full extent set
forth herein with respect to the Company Common Stock, to any and all shares of
capital stock of the Company or any successor or assign of the Company (whether
by merger, consolidation, sale of assets, or otherwise) which may be issued in
respect of, in exchange for, or in substitution of, the Company Common Stock and
shall be appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
6.4. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD ESTERS
---------------------------------
Name: DONALD ESTERS
------------------------------
Title: Chairman
-----------------------------
STOCKHOLDER
/s/ DOUGLAS E. ADAMS
-----------------------------------
Name: DOUGLAS E. ADAMS
------------------------------
7
<PAGE>
EXHIBIT 10.6
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of February 5, 1998 among EISI ACQUISITION CO.,
INC., a California corporation (the "Company"), and the Esters Family
Partnership.
RECITALS
A. The Company, as of the date hereof, is authorized by its Articles
of Incorporation (the "Articles of Incorporation") to issue 5,000,000 shares of
its Common Stock ("the Company Common Stock").
B. It was determined upon the formation of the Company by the holders
of all of the outstanding Company Common Stock (the "Stockholders"), that it was
and is in their best interests and in the best interests of the Company to
restrict the sale, assignment, transfer, encumbrance or other disposition of the
shares of the Company Common Stock, including issued and outstanding shares of
the Company Common Stock as well as shares of the Company Common Stock that may
be issued hereafter, and to provide for certain rights and obligations in
respect thereto as hereinafter provided.
C. As a condition precedent to becoming a Stockholder in the Company
by the purchase or transfer of Company Common Stock, the exercise of stock
options or otherwise, each prospective Stockholder is required to execute this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" with respect to a Person, shall mean any other Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, such Person.
"Permitted Transferee" shall mean (i) any original party to, or any
other Person who, upon a previous permitted transfer of shares of the Company
Common Stock, becomes a signatory to this Agreement; (ii) immediate family
members (including spouses, children and grandchildren) of a Stockholder; (iii)
the executors, administrators, testamentary trustees, legatees, beneficiaries or
successors by testamentary of intestate succession of a Stockholder; (iv) a
trust or custodianship the beneficiaries of which include only Stockholders or
their Permitted Transferees as herein defined and (v) any Permitted Transferee
of a Permitted Transferee as defined herein.
<PAGE>
"Person" shall mean a corporation, association, partnership, joint
venture, organization, business, individual, trust or any other entity or
organization, including a government or any subdivision or agency thereof.
"Public Distribution" shall mean a Public Offering of the Company
Common Stock, after which the Company Common Stock is listed on the NASDAQ
National Market System or a national securities exchange.
"Public Offering" shall mean a public offering of common stock (or
securities convertible into common stock) of the Company pursuant to an
effective registration statement under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, a amended, and
the rules and regulations thereunder.
"Stockholder" shall mean any one of (i) the signatories to the
Original Stockholders Agreement, (ii) the signatories to this agreement, and
(iii) any Permitted Transferee of any such Person./1/
"Third Party" shall mean, as to any Stockholder, any person other than
a Permitted Transferee of such Stockholder.
ARTICLE II.
TRANSFERS OF THE COMPANY COMMON STOCK
2.1. Restrictions on Transfer.
------------------------
Each Stockholder agrees that it will not, directly or indirectly,
offer, sell, transfer, assign or otherwise dispose of (or make any exchange,
gift, assignment or pledge of) any of his shares of the Company's Common Stock,
or agree to do any of the foregoing (collectively, a "transfer"), except as
permitted by Section 2.2 and Articles III and IV of this Agreement.
2.2. Exceptions to Restrictions.
--------------------------
The provisions of Section 2.1 shall not apply to any of the following
transfers:
(i) Transfers to a permitted Transferee as defined herein;
(ii) Transfers to the Company; and
(iii) Transfers made pursuant to a Public Offering.
In the event of such a transfer, the transferee shall be subject to
Section 2.1.
___________________
/1/ It is understood that the only difference between stockholder agreements
(i) and (ii) is the date of the agreement and the quantity of shares ([ii]
reflecting the 100 to 1 stock split).
2
<PAGE>
2.3. Legend.
------
(a) All certificates representing shares of the Company Common Stock
hereafter issued to or acquired by any of the Stockholders or their successors
hereto shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY APPLICABLE STATE
SECURITIES LAWS (THE STATE "ACTS"), HAVE BEEN ACQUIRED FOR
INVESTMENT AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET
FORTH IN A SHAREHOLDERS AGREEMENT AMONG THE STOCKHOLDERS OF
THE COMPANY.
(b) No Transfer of any share of the Company Common Stock, other than
a Transfer to the Company, shall be effective unless such Transfer is made (i)
pursuant to an effective registration statement under the Securities Act and a
valid qualification under applicable state securities or blue sky laws or (ii)
without registration under the Securities Act and qualification under applicable
state securities or blue sky laws, as a result of the availability of an
exemption from registration and qualification under such laws, and, unless
waived by the Company in writing, the transferring Stockholder shall have
furnished the Company an opinion of counsel, such counsel and such opinion being
satisfactory in form and substance to the Company and its counsel, to that
effect.
2.4. Restrictions Binding on Transferees.
-----------------------------------
The obligations of each party hereto shall be binding upon each
transferee to whom shares of the Company Common Stock is transferred by any
party hereto except for transfers pursuant to a Public Offering or pursuant to
Article IV of this Agreement. Prior to consummation of any transfer except for
transfers pursuant to a Public Offering or pursuant to Article IV of this
Agreement, such party shall cause the transferee to execute an agreement in form
and substance reasonably satisfactory to the other parties hereto, providing
that such transferee shall fully comply with the terms of this Agreement.
2.5. Improper Transfer.
-----------------
Any attempt to transfer or encumber any shares of the Company Common
Stock not in accordance with this Agreement shall be null and void and neither
the issuer of such securities nor any transfer agent of such securities shall
give any effect to such attempted transfer or encumbrance in its stock records.
3
<PAGE>
ARTICLE III.
RIGHTS OF FIRST OFFER
3.1. Transfers by a Stockholder.
--------------------------
(a) Except for the sale of securities contemplated by Article IV and
transfers permitted by Section 2.2, if any Stockholder shall desire to transfer
any shares of the Company Common Stock owned by it (such Stockholder desiring to
transfer shares of the Company Common Stock being referred to herein as a
"Selling Stockholder"), then such Selling Stockholder shall deliver written
notice of its desire to transfer shares other than to a Permitted Transferee (a
"Notice of Intention"), accompanied by a copy of a proposal relating to such
transfer (the "Sale Proposal"), to the Company and to each of the other
Stockholders setting forth such Selling Stockholder's desire to make such
transfer (which shall be for cash only), the number of shares of the Company
Common Stock proposed to be transferred (the "Offered Shares"), and the cash
price at which such Selling Stockholder proposes to transfer the Offered Shares
(the "Offer Price").
(b) Upon receipt of the Notice of Intention, the Company shall have
the right to purchase at the Offer Price all but not less than all of the
Offered Shares, exercisable by the delivery of notice to the Selling Stockholder
(the "Notice of Exercise"), within 30 calendar days from the date of receipt of
the Notice of Intention. The right to purchase pursuant to this Section 3.1(b)
shall terminate if not exercised within 30 calendar days after receipt of the
Notice of Intention.
In the event that, if applicable, the option of the Company referred
to in the previous paragraph terminates and there are remaining Offered Shares
for which Notices of Exercise have not been received, the Selling Stockholder
shall give notice thereof to the other Stockholders, setting forth the number of
Offered Shares remaining to be sold pursuant to this Section 3.1(b). Such
Stockholders shall then have the right to purchase all but not less than all the
remaining Offered Shares pro rata based on the number of shares of the Company
Common Stock owned by each, by delivery of a Notice of Exercise. The right of
the Stockholders pursuant to Section 3.1(b) shall terminate if not exercised
within 30 calendar days after receipt from the Selling Stockholder of such
notice.
(c) In the event that the Company and/or the Stockholders exercise
their rights to purchase all, but not less than all, of the Offered Shares in
accordance with Section 3.1(b), then the Selling Stockholder must sell the
Offered Shares to the Company and/or to such Stockholders after not less than 30
days and not more than 60 calendar days from the date of the delivery of last
Notice of Exercise received by the Selling Stockholder. The Selling Stockholder
shall notify the Company and each such Stockholder of the number of Offered
Shares to be sold to the Company and such Stockholders. Upon the consummation of
such purchase and sale, the Selling Stockholder shall deliver certificates
evidencing the Offered Shares sold duly endorsed, or accompanied by written
instruments of transfer in form satisfactory to the purchaser duly executed, by
the Selling Stockholder, free and clear of any liens (other than those under
this
4
<PAGE>
Agreement), against delivery of the Offer Price payable in accordance with the
notice specified in Section 3.1(a).
3.2. Transfer of Offered Shares to Third Parties.
-------------------------------------------
If all notices required to be given pursuant to Section 3.1 have been
duly given and the Company and/or the Stockholders determine not to exercise
their respective options to purchase the Offered Shares at the Offer Price or
determine to exercise their respective options to purchase less than all of the
Offered Shares then the Selling Stockholder shall have the right, for a period
of 120 calendar days from the earlier of (i) the expiration of the last
applicable option period pursuant to Section 3.1 with respect to such Sale
Proposal or (ii) the date on which such Selling Stockholder receives notice from
all other Stockholders that they will not exercise in whole or in part the
options granted pursuant to Section 3.1, to sell to any Third Party the Offered
Shares remaining unsold at a price not less favorable than the Offer Price and
on terms and conditions as favorable as offered to the Company and the
Stockholders.
3.3. Waiting Period with Respect to Subsequent Transfers.
---------------------------------------------------
In the event that the Company and/or the Stockholders do not exercise
their options to purchase any or all of the Offered Shares, and the Selling
Stockholder shall not have sold the remaining Offered Shares to a Third Party
for any reason before the expiration, as applicable, of the 120-day period
described in Section 3.2, then such Selling Stockholder shall not give another
Notice of Intention pursuant to Section 3.1 for a period of 90 calendar days
from the last day of such 120-day period.
3.4. Lapse of Certain Rights of First Offer.
--------------------------------------
After a Public Distribution, transfers of shares of the Company Common
Stock by a Stockholder shall not be subject to the requirements of this Article
III; provided that such transfers are made in accordance with the exemption
--------
provided by Rule 144 under the Securities Act.
ARTICLE IV
DRAG-ALONG REQUIREMENTS; PUBLIC OFFERING
4.1. Drag-Along Right.
----------------
If a Third Party makes a bona fide offer for substantially all of the
Company Common Stock, which offer a majority of the Company's Stockholders vote
to accept, then the Stockholders voting in favor of such offer shall have the
right (the "Drag-Along Right") to compel the other Stockholders to sell and all
Stockholders hereby agree to sell all, but not less than all, shares of the
Company Common Stock owned, directly or indirectly, by them to such Third Party;
provided, however, that all Stockholders shall receive identical consideration
- -------- -------
per share pursuant to such transfer. This Drag-Along Right may be exercised by
the majority Stockholders by providing the other Stockholders with notice (the
"Drag-Along Notice") setting forth (i) the time and place of the closing of the
Drag-Along Right, which time and place shall
5
<PAGE>
not be less than 5 business days after the date of the Drag-Along Notice and
(ii) the expected consideration to be paid at such closing.
4.2. Payment of Drag-Along Purchase Price.
------------------------------------
At the closing of the Drag-Along Right, the third party shall remit to
all Stockholders identical consideration (the cash portion of which, if any,
will be in the form of a certified check or similarly available funds) for each
share of the Company Common Stock sold pursuant to the Drag-Along Right, against
delivery by each Stockholder subject to the Drag-Along Right of certificates for
all shares of the Company Common Stock owned by each such Stockholder, duly
endorsed or with duly executed stock powers, warranting as to good and
marketable title, free and clear of any liens, encumbrances and adverse claims,
and the compliance with any other conditions of closing applicable to the other
Stockholders.
ARTICLE V.
TERMINATION
5.1 Certain Terminations.
--------------------
(a) The provisions of this Agreement shall terminate on the date on
which any of the following events first occurs: (i) a Public Distribution, (ii)
the sale of all or substantially all the assets of the Company to a Person that
is not an Affiliate of the Company, (iii) the sale of all or substantially all
the Company Common Stock pursuant to Article IV hereof, or (iv) ten years from
the date of this Agreement.
(b) Notwithstanding the foregoing, this Agreement shall in any event
terminate with respect to any Stockholder when such Stockholder no longer owns
any shares of the Company Common Stock (except if such shares are transferred in
violation of this Agreement).
ARTICLE VI.
MISCELLANEOUS
6.1. Successors and Assigns.
----------------------
Except as otherwise provided herein, all of the terms and provisions
of this Agreement shall be binding upon, shall inure to the benefit of and shall
be enforceable by the respective successors and assigns of the parties hereto.
No Stockholder may assign any of its rights hereunder to any Person other than a
transferee that has complied with the requirements of Section 2.4 (if
applicable) as provided therein in all respects. If any transferee of any
Stockholder shall acquire any shares of the Company Common Stock in any manner,
whether by operation of law or otherwise, such shares shall be held subject to
all of the terms of this Agreement, and by taking and holding such shares such
Person shall be entitled to receive the benefits of and be conclusively deemed
to have agreed to be bound by and to comply with all of the terms and provisions
of this Agreement.
6
<PAGE>
6.2 Notices.
-------
Any notice, request, claim, demand, document and other communication
hereunder to any party shall be effective upon receipt (or refusal of receipt)
and shall be in writing and delivered personally or sent by telex, telecopy, or
certified or registered mail, postage prepaid, or other similar means of
communication, as follows:
(i) If to the Company, addressed to its principal executive offices
to the attention of its Chairman; and
(ii) If to a Stockholder, to the address of such Stockholder set forth
in the stock records of the Company, or to such other address as such
Stockholder shall have specified by notice given to the other parties in the
manner specified above.
6.3. Recapitalizations, Exchanges, Etc. Affecting the Company Common Stock.
---------------------------------------------------------------------
The provisions of this Agreement shall apply to the full extent set
forth herein with respect to the Company Common Stock, to any and all shares of
capital stock of the Company or any successor or assign of the Company (whether
by merger, consolidation, sale of assets, or otherwise) which may be issued in
respect of, in exchange for, or in substitution of, the Company Common Stock and
shall be appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
6.4. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD J. ESTERS
---------------------------------
Name: Donald J. Esters
------------------------------
Title: Chairman
-----------------------------
STOCKHOLDER
/s/ DONALD J. ESTERS
-----------------------------------
Name: The Esters Family Partnership
------------------------------
7
<PAGE>
EXHIBIT 10.7
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of May 1, 1998 among EISI ACQUISITION CO., INC., a
California corporation (the "Company"), and Frank S. DiGirolamo.
RECITALS
A. The Company, as of the date hereof, is authorized by its Articles
of Incorporation (the "Articles of Incorporation") to issue 5,000,000 shares of
its Common Stock ("the Company Common Stock").
B. It was determined upon the formation of the Company by the holders
of all of the outstanding Company Common Stock (the "Stockholders"), that it was
and is in their best interests and in the best interests of the Company to
restrict the sale, assignment, transfer, encumbrance or other disposition of the
shares of the Company Common Stock, including issued and outstanding shares of
the Company Common Stock as well as shares of the Company Common Stock that may
be issued hereafter, and to provide for certain rights and obligations in
respect thereto as hereinafter provided.
C. As a condition precedent to becoming a Stockholder in the Company
by the purchase or transfer of Company Common Stock, the exercise of stock
options or otherwise, each prospective Stockholder is required to execute this
Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements and
understandings set forth herein, the parties hereto hereby agree as follows:
ARTICLE I.
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following respective meanings:
"Affiliate" with respect to a Person, shall mean any other Person that
directly, or indirectly through one or more intermediaries, controls, or is
controlled by, such Person.
"Permitted Transferee" shall mean (i) any original party to, or any
other Person who, upon a previous permitted transfer of shares of the Company
Common Stock, becomes a signatory to this Agreement; (ii) immediate family
members (including spouses, children and grandchildren) of a Stockholder; (iii)
the executors, administrators, testamentary trustees, legatees, beneficiaries or
successors by testamentary of intestate succession of a Stockholder; (iv) a
trust or custodianship the beneficiaries of which include only Stockholders or
their Permitted Transferees as herein defined and (v) any Permitted Transferee
of a Permitted Transferee as defined herein.
<PAGE>
"Person" shall mean a corporation, association, partnership, joint
venture, organization, business, individual, trust or any other entity or
organization, including a government or any subdivision or agency thereof.
"Public Distribution" shall mean a Public Offering of the Company
Common Stock, after which the Company Common Stock is listed on the NASDAQ
National Market System or a national securities exchange.
"Public Offering" shall mean a public offering of common stock (or
securities convertible into common stock) of the Company pursuant to an
effective registration statement under the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, a amended, and
the rules and regulations thereunder.
"Stockholder" shall mean any one of (i) the signatories to the
Original Stockholders Agreement, (ii) the signatories to this agreement, and
(iii) any Permitted Transferee of any such Person./1/
"Third Party" shall mean, as to any Stockholder, any person other than
a Permitted Transferee of such Stockholder.
ARTICLE II.
TRANSFERS OF THE COMPANY COMMON STOCK
2.1. Restrictions on Transfer.
------------------------
Each Stockholder agrees that it will not, directly or indirectly,
offer, sell, transfer, assign or otherwise dispose of (or make any exchange,
gift, assignment or pledge of) any of his shares of the Company's Common Stock,
or agree to do any of the foregoing (collectively, a "transfer"), except as
permitted by Section 2.2 and Articles III and IV of this Agreement.
2.2. Exceptions to Restrictions.
--------------------------
The provisions of Section 2.1 shall not apply to any of the following
transfers:
(i) Transfers to a permitted Transferee as defined herein;
(ii) Transfers to the Company; and
(iii) Transfers made pursuant to a Public Offering.
In the event of such a transfer, the transferee shall be subject to
Section 2.1.
__________________
/1/ It is understood that the only difference between stockholder agreements
(i) and (ii) is the date of the agreement and the quantity of shares ([ii]
reflecting the 100 to 1 stock split).
2
<PAGE>
2.3. Legend.
------
(a) All certificates representing shares of the Company Common Stock
hereafter issued to or acquired by any of the Stockholders or their successors
hereto shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY APPLICABLE STATE
SECURITIES LAWS (THE STATE "ACTS"), HAVE BEEN ACQUIRED FOR
INVESTMENT AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET
FORTH IN A SHAREHOLDERS AGREEMENT AMONG THE STOCKHOLDERS OF
THE COMPANY.
(b) No Transfer of any share of the Company Common Stock, other than a
Transfer to the Company, shall be effective unless such Transfer is made (i)
pursuant to an effective registration statement under the Securities Act and a
valid qualification under applicable state securities or blue sky laws or (ii)
without registration under the Securities Act and qualification under applicable
state securities or blue sky laws, as a result of the availability of an
exemption from registration and qualification under such laws, and, unless
waived by the Company in writing, the transferring Stockholder shall have
furnished the Company an opinion of counsel, such counsel and such opinion being
satisfactory in form and substance to the Company and its counsel, to that
effect.
2.4. Restrictions Binding on Transferees.
-----------------------------------
The obligations of each party hereto shall be binding upon each
transferee to whom shares of the Company Common Stock is transferred by any
party hereto except for transfers pursuant to a Public Offering or pursuant to
Article IV of this Agreement. Prior to consummation of any transfer except for
transfers pursuant to a Public Offering or pursuant to Article IV of this
Agreement, such party shall cause the transferee to execute an agreement in form
and substance reasonably satisfactory to the other parties hereto, providing
that such transferee shall fully comply with the terms of this Agreement.
2.5. Improper Transfer.
-----------------
Any attempt to transfer or encumber any shares of the Company Common
Stock not in accordance with this Agreement shall be null and void and neither
the issuer of such securities nor any transfer agent of such securities shall
give any effect to such attempted transfer or encumbrance in its stock records.
3
<PAGE>
ARTICLE III.
RIGHTS OF FIRST OFFER
3.1. Transfers by a Stockholder.
--------------------------
(a) Except for the sale of securities contemplated by Article IV and
transfers permitted by Section 2.2, if any Stockholder shall desire to transfer
any shares of the Company Common Stock owned by it (such Stockholder desiring to
transfer shares of the Company Common Stock being referred to herein as a
"Selling Stockholder"), then such Selling Stockholder shall deliver written
notice of its desire to transfer shares other than to a Permitted Transferee (a
"Notice of Intention"), accompanied by a copy of a proposal relating to such
transfer (the "Sale Proposal"), to the Company and to each of the other
Stockholders setting forth such Selling Stockholder's desire to make such
transfer (which shall be for cash only), the number of shares of the Company
Common Stock proposed to be transferred (the "Offered Shares"), and the cash
price at which such Selling Stockholder proposes to transfer the Offered Shares
(the "Offer Price").
(b) Upon receipt of the Notice of Intention, the Company shall have
the right to purchase at the Offer Price all but not less than all of the
Offered Shares, exercisable by the delivery of notice to the Selling Stockholder
(the "Notice of Exercise"), within 30 calendar days from the date of receipt of
the Notice of Intention. The right to purchase pursuant to this Section 3.1(b)
shall terminate if not exercised within 30 calendar days after receipt of the
Notice of Intention.
In the event that, if applicable, the option of the Company
referred to in the previous paragraph terminates and there are remaining Offered
Shares for which Notices of Exercise have not been received, the Selling
Stockholder shall give notice thereof to the other Stockholders, setting forth
the number of Offered Shares remaining to be sold pursuant to this Section
3.1(b). Such Stockholders shall then have the right to purchase all but not less
than all the remaining Offered Shares pro rata based on the number of shares of
the Company Common Stock owned by each, by delivery of a Notice of Exercise. The
right of the Stockholders pursuant to Section 3.1(b) shall terminate if not
exercised within 30 calendar days after receipt from the Selling Stockholder of
such notice.
(c) In the event that the Company and/or the Stockholders exercise
their rights to purchase all, but not less than all, of the Offered Shares in
accordance with Section 3.1(b), then the Selling Stockholder must sell the
Offered Shares to the Company and/or to such Stockholders after not less than 30
days and not more than 60 calendar days from the date of the delivery of last
Notice of Exercise received by the Selling Stockholder. The Selling Stockholder
shall notify the Company and each such Stockholder of the number of Offered
Shares to be sold to the Company and such Stockholders. Upon the consummation of
such purchase and sale, the Selling Stockholder shall deliver certificates
evidencing the Offered Shares sold duly endorsed, or accompanied by written
instruments of transfer in form satisfactory to the purchaser duly executed, by
the Selling Stockholder, free and clear of any liens (other than those under
this
4
<PAGE>
Agreement), against delivery of the Offer Price payable in accordance with the
notice specified in Section 3.1(a).
3.2. Transfer of Offered Shares to Third Parties.
-------------------------------------------
If all notices required to be given pursuant to Section 3.1 have been
duly given and the Company and/or the Stockholders determine not to exercise
their respective options to purchase the Offered Shares at the Offer Price or
determine to exercise their respective options to purchase less than all of the
Offered Shares then the Selling Stockholder shall have the right, for a period
of 120 calendar days from the earlier of (i) the expiration of the last
applicable option period pursuant to Section 3.1 with respect to such Sale
Proposal or (ii) the date on which such Selling Stockholder receives notice from
all other Stockholders that they will not exercise in whole or in part the
options granted pursuant to Section 3.1, to sell to any Third Party the Offered
Shares remaining unsold at a price not less favorable than the Offer Price and
on terms and conditions as favorable as offered to the Company and the
Stockholders.
3.3. Waiting Period with Respect to Subsequent Transfers.
---------------------------------------------------
In the event that the Company and/or the Stockholders do not exercise
their options to purchase any or all of the Offered Shares, and the Selling
Stockholder shall not have sold the remaining Offered Shares to a Third Party
for any reason before the expiration, as applicable, of the 120-day period
described in Section 3.2, then such Selling Stockholder shall not give another
Notice of Intention pursuant to Section 3.1 for a period of 90 calendar days
from the last day of such 120-day period.
3.4. Lapse of Certain Rights of First Offer.
--------------------------------------
After a Public Distribution, transfers of shares of the Company Common
Stock by a Stockholder shall not be subject to the requirements of this Article
III; provided that such transfers are made in accordance with the exemption
--------
provided by Rule 144 under the Securities Act.
ARTICLE IV.
DRAG-ALONG REQUIREMENTS; PUBLIC OFFERING
4.1. Drag-Along Right.
----------------
If a Third Party makes a bona fide offer for substantially all of the
Company Common Stock, which offer a majority of the Company's Stockholders vote
to accept, then the Stockholders voting in favor of such offer shall have the
right (the "Drag-Along Right") to compel the other Stockholders to sell and all
Stockholders hereby agree to sell all, but not less than all, shares of the
Company Common Stock owned, directly or indirectly, by them to such Third Party;
provided, however, that all Stockholders shall receive identical consideration
- -------- -------
per share pursuant to such transfer. This Drag-Along Right may be exercised by
the majority Stockholders by providing the other Stockholders with notice (the
"Drag-Along Notice") setting forth (i) the time and place of the closing of the
Drag-Along Right, which time and place shall
5
<PAGE>
not be less than 5 business days after the date of the Drag-Along Notice and
(ii) the expected consideration to be paid at such closing.
4.2. Payment of Drag-Along Purchase Price.
------------------------------------
At the closing of the Drag-Along Right, the third party shall remit to
all Stockholders identical consideration (the cash portion of which, if any,
will be in the form of a certified check or similarly available funds) for each
share of the Company Common Stock sold pursuant to the Drag-Along Right, against
delivery by each Stockholder subject to the Drag-Along Right of certificates for
all shares of the Company Common Stock owned by each such Stockholder, duly
endorsed or with duly executed stock powers, warranting as to good and
marketable title, free and clear of any liens, encumbrances and adverse claims,
and the compliance with any other conditions of closing applicable to the other
Stockholders.
ARTICLE V.
TERMINATION
5.1. Certain Terminations.
--------------------
(a) The provisions of this Agreement shall terminate on the date on
which any of the following events first occurs: (i) a Public Distribution, (ii)
the sale of all or substantially all the assets of the Company to a Person that
is not an Affiliate of the Company, (iii) the sale of all or substantially all
the Company Common Stock pursuant to Article IV hereof, or (iv) ten years from
the date of this Agreement.
(b) Notwithstanding the foregoing, this Agreement shall in any event
terminate with respect to any Stockholder when such Stockholder no longer owns
any shares of the Company Common Stock (except if such shares are transferred in
violation of this Agreement).
ARTICLE VI.
MISCELLANEOUS
6.1. Successors and Assigns.
----------------------
Except as otherwise provided herein, all of the terms and provisions
of this Agreement shall be binding upon, shall inure to the benefit of and shall
be enforceable by the respective successors and assigns of the parties hereto.
No Stockholder may assign any of its rights hereunder to any Person other than a
transferee that has complied with the requirements of Section 2.4 (if
applicable) as provided therein in all respects. If any transferee of any
Stockholder shall acquire any shares of the Company Common Stock in any manner,
whether by operation of law or otherwise, such shares shall be held subject to
all of the terms of this Agreement, and by taking and holding such shares such
Person shall be entitled to receive the benefits of and be conclusively deemed
to have agreed to be bound by and to comply with all of the terms and provisions
of this Agreement.
6
<PAGE>
6.2. Notices.
-------
Any notice, request, claim, demand, document and other communication
hereunder to any party shall be effective upon receipt (or refusal of receipt)
and shall be in writing and delivered personally or sent by telex, telecopy, or
certified or registered mail, postage prepaid, or other similar means of
communication, as follows:
(i) If to the Company, addressed to its principal executive offices
to the attention of its Chairman; and
(ii) If to a Stockholder, to the address of such Stockholder set forth
in the stock records of the Company, or to such other address as such
Stockholder shall have specified by notice given to the other parties in the
manner specified above.
6.3. Recapitalizations, Exchanges, Etc. Affecting the Company Common Stock.
---------------------------------------------------------------------
The provisions of this Agreement shall apply to the full extent set
forth herein with respect to the Company Common Stock, to any and all shares of
capital stock of the Company or any successor or assign of the Company (whether
by merger, consolidation, sale of assets, or otherwise) which may be issued in
respect of, in exchange for, or in substitution of, the Company Common Stock and
shall be appropriately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
6.4. Counterparts.
------------
This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed on the date first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD J. ESTERS
---------------------------------
Name: Donald J. Esters
------------------------------
Title: Chairman
-----------------------------
STOCKHOLDER
/s/ FRANK S. DIGIROLAMO
-----------------------------------
Name: Frank S. DiGirolamo
------------------------------
7
<PAGE>
EXHIBIT 10.8
OPTION AGREEMENT
BETWEEN
EISI ACQUISITION CO., INC.
and
Michael Dennis
("Employee")
Dated as of March 4, 1994
THIS AGREEMENT MAY NOT BE ASSIGNED OR OTHERWISE TRANSFERRED
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY, AND ANY
PURPORTED TRANSFER WITHOUT SUCH CONSENT SHALL BE VOID.
NEITHER THE OPTION REPRESENTED BY THIS AGREEMENT NOR THE
SHARES OBTAINABLE ON ITS EXERCISE HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES
LAWS (THE "STATE ACTS"). THE OPTION AND THE OPTION SHARES
HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED EXCEPT
PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES
ACT AND QUALIFICATION UNDER THE STATE ACTS OR EXEMPTIONS
FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS
(INCLUDING, IN THE CASE OF THE SECURITIES ACT, THE EXEMPTION
AFFORDED BY RULE 144).
1
<PAGE>
OPTION AGREEMENT
Effective as of the 4th day of March 1994, EISI Acquisition Co., Inc.,
a California corporation (the "Company"), and Michael Dennis ("Employee") ,
agree as follows:
SECTION 1. Purchase and Sale of Option. The company hereby issues to
---------------------------
Employee the non-transferable right and option ("Option") to purchase up to 352
shares (subject to adjustment as set forth herein) of its Common Stock at a
purchase price of $.10 per share without commission or other charge pursuant to
the terms hereof. The shares of Common Stock issuable an the exercise of the
option are referred to herein as the "Option Shares."
SECTION 2. Restrictions on Transfer. This Option Agreement is not
------------------------
assignable or otherwise transferable except with the prior written consent of
the Company, and any purported transfer without such consent shall be void. The
Option Shares cannot be sold, pledged, hypothecated or otherwise transferred
except pursuant to the terms of the Shareholders Agreement among the
Shareholders of the Company. Employee agrees that prior to exercise-of the
Option, Employee must first execute the then current Shareholders Agreement
among the Shareholders of the Company. The certificate to be issued for the
Option Shares may bear substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY APPLICABLE STATE
SECURITIES LAWS (THE STATE "ACTS"), HAVE BEEN ACQUIRED FOR
INVESTMENT AND ARE SUBJECT TO RESTRICTIONS ON TRANSFER SET
FORTH IN A SHAREHOLDERS AGREEMENT AMONG THE SHAREHOLDERS OF
THE COMPANY.
SECTION 3. Representations and Warranties of Employee. Employee hereby
------------------------------------------
represents and warrants to the Company that it is entering into this Option
Agreement and acquiring the Option and, upon the exercise of the Option, will
acquire the Option Shares for investment purposes only and not with the view to
the resale or distribution thereof, and that it has no present intention of
selling, negotiating or otherwise disposing of the Option or the Option Shares.
Employee represents that it has consulted with its own legal, accounting, tax,
investment and other advisors, that it is not relying an representations made or
information provided by the Company or its Affiliates in deciding to enter into
this Option Agreement or to make the investments described herein, that it
understands that no governmental agency has made any determination as to the
fairness of any such investments, and it has made or will make its own
investigation of the advisability of such investments, and assumes the risk of a
total loss of its investment. Employee understands that the securities to be
issued will be offered and sold subject to restrictions on transfer, that they
will not be registered or qualified under the Securities
2
<PAGE>
Act or state "blue sky" laws and that they may bear legends restricting or
prohibiting their-transferability. Employee represents that it is an "accredited
investor" as such term is defined in Rule 501(a) of Regulation D under the
Securities Act.
Employee has obtained or effected all required consents, approvals or
authorizations of or designations, declarations or filings with any governmental
authority required on the part of Employee in connection with the valid
execution, delivery and performance of this Agreement by Employee, and the
consummation by Employee of any other transaction contemplated hereby.
SECTION 4. Exercise and Termination of Option.
----------------------------------
(a) Exercise. Employee may exercise this Option in whole or in
--------
part at anytime prior to 5:00 p.m. Pacific time, December 31, 2003. This Option
expires at 5:00 p.m. Pacific time, December 31, 2003 (the "Final Expiration
Date").
Upon any partial exercise of this Option, this Option shall thereafter
represent the right to purchase only such Option Shares as remain unexercised.
To exercise the Option, Employee shall deliver to the Company at the
address designated for such purpose in Section 8 hereof the form of Election to
Purchase attached hereto as Exhibit A along with payment of the Exercise Price
in current and immediately available funds for the number of Option Shares which
Employee wishes to purchase hereunder. The Company will not be obligated to
issue fractions of shares of Common Stock.
Upon such delivery of the Election to Purchase and payment of the
Exercise Price the Company shall issue and cause to be delivered with all
reasonable dispatch to Employee a certificate or certificates for the number of
Option Shares issuable upon the exercise of such Options. The Option Shares,
when issued and delivered in accordance with this Agreement, will be duly and
validly authorized and issued, fully paid and nonassessable, and, assuming the
accuracy of Employee's representations set forth in Section 3, issued in
accordance with all applicable state and federal securities laws. The Company
will pay any documentary stamp taxes attributable to the initial issuance of
Option Shares upon the exercise of Options.
(b) Termination. This Option may not be exercised to any extent
-----------
by anyone after the first to occur of the following events:
(i) The Final Expiration Date; or
(ii) The expiration of three months from the date of the
Optionee's termination of employment for any reason, unless the Optionee
dies within said three-month period; or
3
<PAGE>
(iii) The expiration of one year from the date of the
Optionee's death; or
(iv) The effective date of either the merger or
consolidation of the Company with or into another corporation, or the
acquisition by another corporation or person (excluding any employee
benefit plan of the Company or any trustee or other fiduciary holding
securities under an employee benefit plan of the Company) of all or
substantially all of the Company's assets or 51% or more of the Company's
then outstanding voting stock, or the liquidation or dissolution of the
Company, unless the Company waives this provision in connection with such
transaction. At least ten days prior to the effective date of such merger,
consolidation, acquisition, liquidation or dissolution, the Company shall
give the Optionee notice of such event if the Option has then neither been
fully exercised nor become unexercisable under this Section 4 (b).
SECTION 5. Optionee Put. The Company agrees that, in the event that
------------
the Optionee's employment with the Company is terminated by the Company for any
reason other than Good Cause or he resigns his employment for "Good Reason," the
Optionee shall have the right to require the Company to purchase, for $50,000:
(i) all, but not less than all, of Optionee's rights under this Option
Agreement, in the event Optionee has not exercised the Option; or (ii) all, but
not less than all, of Optionee's Option Shares, in the event Optionee has
exercised the Option. Optionee shall notify the date Company of his intent to
exercise his rights under this Section 5 not more than 60 days after the
effective of the termination of his employment with the Company. Optionee's
rights under this Section 5 shall be subject to and consummated in compliance
with the requirements of applicable laws and regulations, including without
limitation the requirements of the federal securities laws and state securities
or blue sky laws. The parties hereto agree to use all reasonable efforts to
take, or cause to be taken and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the provisions of this Section 5.
For the purposes of this Option Agreement, "Good Cause" shall mean (x)
the Employee's willful misconduct or habitual neglect of his duties as an
employee, (y) dishonest or illegal conduct by the Employee or (z) the Employee's
conviction of any felony or a misdemeanor involving moral turpitude. "Good
Reason" shall mean the occurrence of any of the following events without the
Employee's express written consent:(a) the assignment to the Employee of duties
inconsistent with the position and status held by the Employee on the date of
this Option Agreement, or a substantial alteration in, the nature, status or
prestige of the Employee's responsibilities (other than any such alteration
primarily attributable to a medical or physical infirmity of the Executive which
the Company has attempted to accommodate); or (b) a substantial reduction by the
Company in the Employee's compensation from that provided on the date of this
Option Agreement (unless other employees of the Company are subject to a similar
reduction due to the financial condition of the Company).
4
<PAGE>
SECTION 6. Reservation of Option Shares. The Company will, until the
----------------------------
Final Expiration Date, reserve and keep available, free from preemptive rights,
out of the aggregate of its authorized but unissued Common Stock or its
authorized and issued Common Stock held in its treasury, for the purpose of
enabling it to satisfy any obligation to issue Option Shares upon exercise of
this Option, the maximum number of shares of Common Stock which may then be
deliverable upon the exercise of this Option.
SECTION 7. Adjustment of Exercise Price and Number of Option Shares
--------------------------------------------------------
Issuable. The Exercise Price and the number of Option Shares issuable upon the
- --------
exercise of each Option are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 7.
(a) Adjustment for Change in Common Stock.
-------------------------------------
If the Company:
(i) pays a dividend or makes a distribution on its Common
Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock into
a greater number of shares;
(iii) combines its outstanding shares of Common Stock into a
smaller number of shares;
then the number of Option Shares and the Exercise Price in effect immediately
prior to such action shall be proportionately adjusted so that, if Employee
thereafter exercises this Option, it may receive the aggregate number and kind
of shares of capital stock of the Company which it would have owned immediately
following such action if this Option had been exercised immediately prior to
such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision or combination.
(b) Notice of Adjustment.
--------------------
The Company shall provide Employee with written notice of any of the
foregoing adjustments at least 15 days before the effective date of the
adjustment.
(c) Reorganization of Company.
-------------------------
If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon consummation of
such transaction the Option
5
<PAGE>
shall automatically become exercisable for the kind and amount of securities,
cash or other assets which the holder of a Option would have owned immediately
after the consolidation, merger, transfer or lease if the holder had exercised
the Option immediately before the effective data of the transaction.
Concurrently with the consummation of such transaction, the Corporation formed
by or surviving any such consolidation or merger if other than the Company, or
the person to which such sale or conveyance shall have been made, shall enter
into a supplemental Option Agreement so providing and further providing for
adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section. The successor Company shall mail to
Employee a notice describing the supplemental Option Agreement.
If the issuer of securities deliverable upon exercise of Options under
the supplemental Option Agreement is an affiliate of the formed, surviving,
transferee or lessee corporation, that issuer shall join in the supplemental
Option Agreement.
If this subsection (c) applies, subsections (a) and (b) of this
Section 7 do not apply.
SECTION 8. Notices to Company and Employee. Unless otherwise provided
-------------------------------
herein, all notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered by hand,
or sent by certified mail, return receipt requested, with proper postage
prepaid, in each case addressed as follows:
EISI Acquisition Co., Inc.
1420 Kingsboro Court
Westlake Village, California 91362
Attention: Donald J. Esters
Employee
Either party may designate a different address for notice purposes by
written notice to the other.
SECTION 9. Governing Law, Dispute Resolution. This Agreement shall be
---------------------------------
deemed to be a contract made under the laws of the State of California and for
all purposes shall be construed in accordance with the internal laws of said
State without reference to the choice of law provisions thereof. All disputes,
controversies or differences which may arise between-the parties out of or in
relation to or in connection with this Agreement shall be finally settled by
arbitration conducted before the American Arbitration Association in Santa Clara
County, California. Judgment upon the award rendered may be entered in any
court having jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement. Each party shall
bear its own expenses of the arbitration, but the arbitrator's fees and costs
shall be borne equally between the parties participating in the arbitration.
6
<PAGE>
SECTION 10. Benefits of This Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any person or corporation other than the Company
and Employee any legal or equitable right, remedy or claim under this Agreement.
This Agreement shall be for the sale and exclusive benefit of the Company and
Employee.
SECTION 11. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 12. No Employment Agreement. The Employee and the Company
-----------------------
agree that this Option Agreement shall not constitute an employment agreement
and that, subject to rights granted above, the Employee's employment with the
Company shall be terminable at the will of either party at any time, without
notice, for any or no reason, with or without Good Cause.
SECTION 13. Integration. This Agreement constitutes the complete,
-----------
final and exclusive statement of the terms of the agreement between the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions of the parties. No modification or
rescission of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
EISI ACQUISITION CO., INC.
By /s/ DONALD J. ESTERS
---------------------------------
Title: Chairman
-----------------------------
/s/ MICHAEL DENNIS
-----------------------------------
EMPLOYEE
7
<PAGE>
EXHIBIT A
(Form of Election to Purchase)
(To Be Executed Upon Exercise Of Option)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Election Certificate, to receive __________ shares of Common
Stock and herewith tenders payment for such shares to EISI Acquisition Co., Inc.
in the amount of $______ in accordance with the terms of the Option Agreement
between EISI Acquisition Co., Inc. and the undersigned dated as of March _,
1994.
______________________________
Employee
Date:
Signature Guaranteed:
8
<PAGE>
EXHIBIT 10.9
OPTION AGREEMENT
BETWEEN
EISI ACQUISITION CO., INC.
and
Mark Madison
("Employee")
Dated as of March 4, 1994
THIS AGREEMENT MAY NOT BE ASSIGNED OR OTHERWISE TRANSFERRED WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMPANY, AND ANY PURPORTED TRANSFER
WITHOUT SUCH CONSENT SHALL BE VOID. NEITHER THE OPTION REPRESENTED BY
THIS AGREEMENT NOR THE SHARES OBTAINABLE ON ITS EXERCISE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES
LAWS (THE "STATE ACTS"). THE OPTION AND THE OPTION SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND QUALIFICATION UNDER THE STATE ACTS OR
EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS
(INCLUDING, IN THE CASE OF THE SECURITIES ACT, THE EXEMPTION AFFORDED
BY RULE 144).
1
<PAGE>
OPTION AGREEMENT
Effective as of the 4th day of March 1994, EISI Acquisition Co., Inc.,
a California corporation (the "Company"), and Mark Madison ("Employee") , agree
as follows:
SECTION 1. Purchase and Sale of Option. The company hereby issues to
---------------------------
Employee the non-transferable right and option ("Option") to purchase up to 176
shares (subject to adjustment as set forth herein) of its Common Stock at a
purchase price of $.10 per share without commission or other charge pursuant to
the terms hereof. The shares of Common Stock issuable an the exercise of the
option are referred to herein as the "Option Shares."
SECTION 2. Restrictions on Transfer. This Option Agreement is not
------------------------
assignable or otherwise transferable except with the prior written consent of
the Company, and any purported transfer without such consent shall be void. The
Option Shares cannot be sold, pledged, hypothecated or otherwise transferred
except pursuant to the terms of the Shareholders Agreement among the
Shareholders of the Company. Employee agrees that prior to exercise of the
Option, Employee must first execute the then current Shareholders Agreement
among the Shareholders of the Company. The certificate to be issued for the
Option Shares may bear substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES
LAWS (THE "STATE ACTS"), HAVE BEEN ACQUIRED FOR INVESTMENT AND ARE
SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH IN A SHAREHOLDERS
AGREEMENT AMONG THE SHAREHOLDERS OF THE COMPANY.
SECTION 3. Representations and Warranties of Employee. Employee
------------------------------------------
hereby represents and warrants to the Company that it is entering into this
Option Agreement and acquiring the Option and, upon the exercise of the Option,
will acquire the Option Shares for investment purposes only and not with the
view to the resale or distribution thereof, and that it has no present intention
of selling, negotiating or otherwise disposing of the Option or the Option
Shares. Employee represents that it has consulted with its own legal,
accounting, tax, investment and other advisors, that it is not relying an
representations made or information provided by the Company or its Affiliates in
deciding to enter into this Option Agreement or to make the investments
described herein, that it understands that no governmental agency has made any
determination as to the fairness of any such investments, and it has made or
will make its own investigation of the advisability of such investments, and
assumes the risk of a total loss of its investment. Employee understands that
the securities to be issued will be offered and sold subject to restrictions on
transfer, that they will not be registered or qualified under the Securities
2
<PAGE>
Act or state "blue sky" laws and that they may bear legends restricting or
prohibiting their transferability. Employee represents that it is an
"accredited investor" as such term is defined in Rule 501(a) of Regulation D
under the Securities Act.
Employee has obtained or effected all required consents, approvals or
authorizations of or designations, declarations or filings with any governmental
authority required on the part of Employee in connection with the valid
execution, delivery and performance of this Agreement by Employee, and the
consummation by Employee of any other transaction contemplated hereby.
SECTION 4. Exercise and Termination of Option.
----------------------------------
(a) Exercise. Employee may exercise this Option in whole or in part
--------
at anytime prior to 5:00 p.m. Pacific time, December 31, 2003. This Option
expires at 5:00 p.m. Pacific time, December 31, 2003 (the "Final Expiration
Date").
Upon any partial exercise of this Option, this Option shall thereafter
represent the right to purchase only such Option Shares as remain unexercised.
To exercise the Option, Employee shall deliver to the Company at the
address designated for such purpose in Section 8 hereof the form of Election to
Purchase attached hereto as Exhibit A along with payment of the Exercise Price
in current and immediately available funds for the number of Option Shares which
Employee wishes to purchase hereunder. The Company will not be obligated to
issue fractions of shares of Common Stock.
Upon such delivery of the Election to Purchase and payment of the
Exercise Price the Company shall issue and cause to be delivered with all
reasonable dispatch to Employee a certificate or certificates for the number of
Option Shares issuable upon the exercise of such Options. The Option Shares,
when issued and delivered in accordance with this Agreement, will be duly and
validly authorized and issued, fully paid and nonassessable, and, assuming the
accuracy of Employee's representations set forth in Section 3, issued in
accordance with all applicable state and federal securities laws. The Company
will pay any documentary stamp taxes attributable to the initial issuance of
Option Shares upon the exercise of Options.
(b) Termination. This Option may not be exercised to any extent by
-----------
anyone after the first to occur of the following events:
(i) The Final Expiration Date; or
(ii) The expiration of three months from the date of the
Optionee's termination of employment for any reason, unless the Optionee
dies within said three-month period; or
3
<PAGE>
(iii) The expiration of one year from the date of the Optionee's
death; or
(iv) The effective date of either the merger or consolidation of
the Company with or into another corporation, or the acquisition by another
corporation or person (excluding any employee benefit plan of the Company
or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company) of all or substantially all of the Company's
assets or 51% or more of the Company's then outstanding voting stock, or
the liquidation or dissolution of the Company, unless the Company waives
this provision in connection with such transaction. At least ten days
prior to the effective date of such merger, consolidation, acquisition,
liquidation or dissolution, the Company shall give the Optionee notice of
such event if the Option has then neither been fully exercised nor become
unexercisable under this Section 4 (b).
SECTION 5. Optionee Put. The Company agrees that, in the event that
------------
the Optionee's employment with the Company is terminated by the Company for any
reason other than Good Cause or he resigns his employment for "Good Reason," the
Optionee shall have the right to require the Company to purchase, for $50,000:
(i) all, but not less than all, of Optionee's rights under this Option
Agreement, in the event Optionee has not exercised the Option; or (ii) all, but
not less than all, of Optionee's Option Shares, in the event Optionee has
exercised the Option. Optionee shall notify the Company of his intent to
exercise his rights under this Section 5 not more than 60 days after the
effective date of the termination of his employment with the Company. Optionee's
rights under this Section 5 shall be subject to and consummated in compliance
with the requirements of applicable laws and regulations, including without
limitation the requirements of the federal securities laws and state securities
or blue sky laws. The parties hereto agree to use all reasonable efforts to
take, or cause to be taken and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the provisions of this Section 5.
For the purposes of this Option Agreement, "Good Cause" shall mean (x)
the Employee's willful misconduct or habitual neglect of his duties as an
employee, (y) dishonest or illegal conduct by the Employee or (z) the Employee's
conviction of any felony or a misdemeanor involving moral turpitude. "Good
Reason" shall mean the occurrence of any of the following events without the
Employee's express written consent:(a) the assignment to the Employee of duties
inconsistent with the position and status held by the Employee on the date of
this Option Agreement, or a substantial alteration in, the nature, status or
prestige of the Employee's responsibilities (other than any such alteration
primarily attributable to a medical or physical infirmity of the Executive which
the Company has attempted to accommodate); or (b) a substantial reduction by the
Company in the Employee's compensation from that provided on the date of this
Option Agreement (unless other employees of the Company are subject to a similar
reduction due to the financial condition of the Company).
4
<PAGE>
SECTION 6. Reservation of Option Shares. The Company will, until the
----------------------------
Final Expiration Date, reserve and keep available, free from preemptive rights,
out of the aggregate of its authorized but unissued Common Stock or its
authorized and issued Common Stock held in its treasury, for the purpose of
enabling it to satisfy any obligation to issue Option Shares upon exercise of
this Option, the maximum number of shares of Common Stock which may then be
deliverable upon the exercise of this Option.
SECTION 7. Adjustment of Exercise Price and Number of Option Shares
--------------------------------------------------------
Issuable. The Exercise Price and the number of Option Shares issuable upon the
- --------
exercise of each Option are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 7.
(a) Adjustment for Change in Common Stock.
-------------------------------------
If the Company:
(i) pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock
into a greater number of shares;
(iii) combines its outstanding shares of Common Stock
into a smaller number of shares;
then the number of Option Shares and the Exercise Price in effect immediately
prior to such action shall be proportionately adjusted so that, if Employee
thereafter exercises this Option, it may receive the aggregate number and kind
of shares of capital stock of the Company which it would have owned immediately
following such action if this Option had been exercised immediately prior to
such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision or combination.
(b) Notice of Adjustment.
--------------------
The Company shall provide Employee with written notice of any of the
foregoing adjustments at least 15 days before the effective date of the
adjustment.
(c) Reorganization of Company.
-------------------------
If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon consummation of
such transaction the Option
5
<PAGE>
shall automatically become exercisable for the kind and amount of securities,
cash or other assets which the holder of a Option would have owned immediately
after the consolidation, merger, transfer or lease if the holder had exercised
the Option immediately before the effective date of the transaction.
Concurrently with the consummation of such transaction, the Corporation formed
by or surviving any such consolidation or merger if other than the Company, or
the person to which such sale or conveyance shall have been made, shall enter
into a supplemental Option Agreement so providing and further providing for
adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section. The successor Company shall mail to
Employee a notice describing the supplemental Option Agreement.
If the issuer of securities deliverable upon exercise of Options under
the supplemental Option Agreement is an affiliate of the formed, surviving,
transferee or lessee corporation, that issuer shall join in the supplemental
Option Agreement.
If this subsection (c) applies, subsections (a) and (b) of this
Section 7 do not apply.
SECTION 8. Notices to Company and Employee. Unless otherwise
-------------------------------
provided herein, all notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand, or sent by certified mail, return receipt requested, with
proper postage prepaid, in each case addressed as follows:
EISI Acquisition Co., Inc.
1420 Kingsboro Court
Westlake Village, California 91362
Attention: Donald J. Esters
Employee
P.O. Box 149
La Honda, CA 94020
Either party may designate a different address for notice purposes by
written notice to the other.
SECTION 9. Governing Law, Dispute Resolution. This Agreement shall
---------------------------------
be deemed to be a contract made under the laws of the State of California and
for all purposes shall be construed in accordance with the internal laws of said
State without reference to the choice of law provisions thereof. All disputes,
controversies or differences which may arise between-the parties out of or in
relation to or in connection with this Agreement shall be finally settled by
arbitration conducted before the American Arbitration Association in Santa Clara
County, California. Judgment upon the award rendered may be entered in any
court having jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement. Each party shall
bear its own expenses of the arbitration, but the arbitrator's fees and costs
shall be borne equally between the parties participating in the arbitration.
6
<PAGE>
SECTION 10. Benefits of This Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any person or corporation other than the Company
and Employee any legal or equitable right, remedy or claim under this Agreement.
This Agreement shall be for the sale and exclusive benefit of the Company and
Employee.
SECTION 11. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 12. No Employment Agreement. The Employee and the Company
-----------------------
agree that this Option Agreement shall not constitute an employment agreement
and that, subject to rights granted above, the Employee's employment with the
Company shall be terminable at the will of either party at any time, without
notice, for any or no reason, with or without Good Cause.
SECTION 13. Integration. This Agreement constitutes the complete,
-----------
final and exclusive statement of the terms of the agreement between the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions of the parties. No modification or
rescission of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
EISI Acquisition Co., Inc.
By /s/ DON ESTERS
------------------------------------------
Title Chairman
---------------------------------------
/s/ MARK MADISON
--------------------------------------------
EMPLOYEE
7
<PAGE>
EXHIBIT A
(Form of Election to Purchase)
(To Be Executed Upon Exercise Of Option)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Election Certificate, to receive __________ shares of Common
Stock and herewith tenders payment for such shares to EISI Acquisition Co., Inc.
in the amount of $______ in accordance with the terms of the Option Agreement
between EISI Acquisition Co., Inc. and the undersigned dated as of March __,
1994.
------------------------------------------
Employee
Date:
Signature Guaranteed:
8
<PAGE>
EXHIBIT 10.10
OPTION AGREEMENT
BETWEEN
EISI ACQUISITION CO., INC.
and
Douglas Adams
("Employee")
Dated as of March 4, 1994
THIS AGREEMENT MAY NOT BE ASSIGNED OR OTHERWISE TRANSFERRED WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMPANY, AND ANY PURPORTED TRANSFER
WITHOUT SUCH CONSENT SHALL BE VOID. NEITHER THE OPTION REPRESENTED BY
THIS AGREEMENT NOR THE SHARES OBTAINABLE ON ITS EXERCISE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES
LAWS (THE "STATE ACTS"). THE OPTION AND THE OPTION SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO A REGISTRATION STATEMENT
UNDER THE SECURITIES ACT AND QUALIFICATION UNDER THE STATE ACTS OR
EXEMPTIONS FROM SUCH REGISTRATION OR QUALIFICATION REQUIREMENTS
(INCLUDING, IN THE CASE OF THE SECURITIES ACT, THE EXEMPTION AFFORDED
BY RULE 144).
1
<PAGE>
OPTION AGREEMENT
Effective as of the 4th day of March 1994, EISI Acquisition Co., Inc.,
a California corporation (the "Company"), and Douglas Adams ("Employee") ,
agree as follows:
SECTION 1. Purchase and Sale of Option. The company hereby issues to
---------------------------
Employee the non-transferable right and option ("Option") to purchase up to 352
shares (subject to adjustment as set forth herein) of its Common Stock at a
purchase price of $.10 per share without commission or other charge pursuant to
the terms hereof. The shares of Common Stock issuable an the exercise of the
option are referred to herein as the "Option Shares."
SECTION 2. Restrictions on Transfer. This Option Agreement is not
------------------------
assignable or otherwise transferable except with the prior written consent of
the Company, and any purported transfer without such consent shall be void. The
Option Shares cannot be sold, pledged, hypothecated or otherwise transferred
except pursuant to the terms of the Shareholders Agreement among the
Shareholders of the Company. Employee agrees that prior to exercise of the
Option, Employee must first execute the then current Shareholders Agreement
among the Shareholders of the Company. The certificate to be issued for the
Option Shares may bear substantially the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR QUALIFIED UNDER ANY APPLICABLE STATE SECURITIES
LAWS (THE "STATE ACTS"), HAVE BEEN ACQUIRED FOR INVESTMENT AND ARE
SUBJECT TO RESTRICTIONS ON TRANSFER SET FORTH IN A SHAREHOLDERS
AGREEMENT AMONG THE SHAREHOLDERS OF THE COMPANY.
SECTION 3. Representations and Warranties of Employee. Employee
------------------------------------------
hereby represents and warrants to the Company that it is entering into this
Option Agreement and acquiring the Option and, upon the exercise of the Option,
will acquire the Option Shares for investment purposes only and not with the
view to the resale or distribution thereof, and that it has no present intention
of selling, negotiating or otherwise disposing of the Option or the Option
Shares. Employee represents that it has consulted with its own legal,
accounting, tax, investment and other advisors, that it is not relying an
representations made or information provided by the Company or its Affiliates in
deciding to enter into this Option Agreement or to make the investments
described herein, that it understands that no governmental agency has made any
determination as to the fairness of any such investments, and it has made or
will make its own investigation of the advisability of such investments, and
assumes the risk of a total loss of its investment. Employee understands that
the securities to be issued will be offered and sold subject to restrictions on
transfer, that they will not be registered or qualified under the Securities
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Act or state "blue sky" laws and that they may bear legends restricting or
prohibiting their transferability. Employee represents that it is an
"accredited investor" as such term is defined in Rule 501(a) of Regulation D
under the Securities Act.
Employee has obtained or effected all required consents, approvals or
authorizations of or designations, declarations or filings with any governmental
authority required on the part of Employee in connection with the valid
execution, delivery and performance of this Agreement by Employee, and the
consummation by Employee of any other transaction contemplated hereby.
SECTION 4. Exercise and Termination of Option.
----------------------------------
(a) Exercise. Employee may exercise this Option in whole or in part
--------
at anytime prior to 5:00 p.m. Pacific time, December 31, 2003. This Option
expires at 5:00 p.m. Pacific time, December 31, 2003 (the "Final Expiration
Date").
Upon any partial exercise of this Option, this Option shall thereafter
represent the right to purchase only such Option Shares as remain unexercised.
To exercise the Option, Employee shall deliver to the Company at the
address designated for such purpose in Section 8 hereof the form of Election to
Purchase attached hereto as Exhibit A along with payment of the Exercise Price
in current and immediately available funds for the number of Option Shares which
Employee wishes to purchase hereunder. The Company will not be obligated to
issue fractions of shares of Common Stock.
Upon such delivery of the Election to Purchase and payment of the
Exercise Price the Company shall issue and cause to be delivered with all
reasonable dispatch to Employee a certificate or certificates for the number of
Option Shares issuable upon the exercise of such Options. The Option Shares,
when issued and delivered in accordance with this Agreement, will be duly and
validly authorized and issued, fully paid and nonassessable, and, assuming the
accuracy of Employee's representations set forth in Section 3, issued in
accordance with all applicable state and federal securities laws. The Company
will pay any documentary stamp taxes attributable to the initial issuance of
Option Shares upon the exercise of Options.
(b) Termination. This Option may not be exercised to any extent by
-----------
anyone after the first to occur of the following events:
(i) The Final Expiration Date; or
(ii) The expiration of three months from the date of the
Optionee's termination of employment for any reason, unless the Optionee
dies within said three-month period; or
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(iii) The expiration of one year from the date of the Optionee's
death; or
(iv) The effective date of either the merger or consolidation of
the Company with or into another corporation, or the acquisition by another
corporation or person (excluding any employee benefit plan of the Company
or any trustee or other fiduciary holding securities under an employee
benefit plan of the Company) of all or substantially all of the Company's
assets or 51% or more of the Company's then outstanding voting stock, or
the liquidation or dissolution of the Company, unless the Company waives
this provision in connection with such transaction. At least ten days
prior to the effective date of such merger, consolidation, acquisition,
liquidation or dissolution, the Company shall give the Optionee notice of
such event if the Option has then neither been fully exercised nor become
unexercisable under this Section 4 (b).
SECTION 5. Optionee Put. The Company agrees that, in the event that
------------
the Optionee's employment with the Company is terminated by the Company for any
reason other than Good Cause or he resigns his employment for "Good Reason," the
Optionee shall have the right to require the Company to purchase, for $50,000:
(i) all, but not less than all, of Optionee's rights under this Option
Agreement, in the event Optionee has not exercised the Option; or (ii) all, but
not less than all, of Optionee's Option Shares, in the event Optionee has
exercised the Option. Optionee shall notify the Company of his intent to
exercise his rights under this Section 5 not more than 60 days after the
effective date of the termination of his employment with the Company. Optionee's
rights under this Section 5 shall be subject to and consummated in compliance
with the requirements of applicable laws and regulations, including without
limitation the requirements of the federal securities laws and state securities
or blue sky laws. The parties hereto agree to use all reasonable efforts to
take, or cause to be taken and to do, or cause to be done, all things necessary,
proper or advisable to consummate and make effective as promptly as practicable
the provisions of this Section 5.
For the purposes of this Option Agreement, "Good Cause" shall mean (x)
the Employee's willful misconduct or habitual neglect of his duties as an
employee, (y) dishonest or illegal conduct by the Employee or (z) the Employee's
conviction of any felony or a misdemeanor involving moral turpitude. "Good
Reason" shall mean the occurrence of any of the following events without the
Employee's express written consent:(a) the assignment to the Employee of duties
inconsistent with the position and status held by the Employee on the date of
this Option Agreement, or a substantial alteration in, the nature, status or
prestige of the Employee's responsibilities (other than any such alteration
primarily attributable to a medical or physical infirmity of the Executive which
the Company has attempted to accommodate); or (b) a substantial reduction by the
Company in the Employee's compensation from that provided on the date of this
Option Agreement (unless other employees of the Company are subject to a similar
reduction due to the financial condition of the Company).
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SECTION 6. Reservation of Option Shares. The Company will, until the
----------------------------
Final Expiration Date, reserve and keep available, free from preemptive rights,
out of the aggregate of its authorized but unissued Common Stock or its
authorized and issued Common Stock held in its treasury, for the purpose of
enabling it to satisfy any obligation to issue Option Shares upon exercise of
this Option, the maximum number of shares of Common Stock which may then be
deliverable upon the exercise of this Option.
SECTION 7. Adjustment of Exercise Price and Number of Option Shares
--------------------------------------------------------
Issuable. The Exercise Price and the number of Option Shares issuable upon the
- --------
exercise of each Option are subject to adjustment from time to time upon the
occurrence of the events enumerated in this Section 7.
(a) Adjustment for Change in Common Stock.
-------------------------------------
If the Company:
(i) pays a dividend or makes a distribution on its
Common Stock in shares of its Common Stock;
(ii) subdivides its outstanding shares of Common Stock
into a greater number of shares;
(iii) combines its outstanding shares of Common Stock into
a smaller number of shares;
then the number of Option Shares and the Exercise Price in effect immediately
prior to such action shall be proportionately adjusted so that, if Employee
thereafter exercises this Option, it may receive the aggregate number and kind
of shares of capital stock of the Company which it would have owned immediately
following such action if this Option had been exercised immediately prior to
such action.
The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision or combination.
(b) Notice of Adjustment.
--------------------
The Company shall provide Employee with written notice of any of the
foregoing adjustments at least 15 days before the effective date of the
adjustment.
(c) Reorganization of Company.
-------------------------
If the Company consolidates or merges with or into, or transfers or
leases all or substantially all its assets to, any person, upon consummation of
such transaction the Option
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shall automatically become exercisable for the kind and amount of securities,
cash or other assets which the holder of a Option would have owned immediately
after the consolidation, merger, transfer or lease if the holder had exercised
the Option immediately before the effective date of the transaction.
Concurrently with the consummation of such transaction, the Corporation formed
by or surviving any such consolidation or merger if other than the Company, or
the person to which such sale or conveyance shall have been made, shall enter
into a supplemental Option Agreement so providing and further providing for
adjustments which shall be as nearly equivalent as may be practical to the
adjustments provided for in this Section. The successor Company shall mail to
Employee a notice describing the supplemental Option Agreement.
If the issuer of securities deliverable upon exercise of Options under
the supplemental Option Agreement is an affiliate of the formed, surviving,
transferee or lessee corporation, that issuer shall join in the supplemental
Option Agreement.
If this subsection (c) applies, subsections (a) and (b) of this
Section 7 do not apply.
SECTION 8. Notices to Company and Employee. Unless otherwise
-------------------------------
provided herein, all notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered by hand, or sent by certified mail, return receipt requested, with
proper postage prepaid, in each case addressed as follows:
EISI Acquisition Co., Inc.
1420 Kingsboro Court
Westlake Village, California 91362
Attention: Donald J. Esters
Employee
45 Campbell Lane
Menlo Park, CA 94025
Either party may designate a different address for notice purposes by
written notice to the other.
SECTION 9. Governing Law, Dispute Resolution. This Agreement shall
---------------------------------
be deemed to be a contract made under the laws of the State of California and
for all purposes shall be construed in accordance with the internal laws of said
State without reference to the choice of law provisions thereof. All disputes,
controversies or differences which may arise between-the parties out of or in
relation to or in connection with this Agreement shall be finally settled by
arbitration conducted before the American Arbitration Association in Santa Clara
County, California. Judgment upon the award rendered may be entered in any
court having jurisdiction or application may be made to such court for a
judicial acceptance of the award and an order of enforcement. Each party shall
bear its own expenses of the arbitration, but the arbitrator's fees and costs
shall be borne equally between the parties participating in the arbitration.
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SECTION 10. Benefits of This Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any person or corporation other than the Company
and Employee any legal or equitable right, remedy or claim under this Agreement.
This Agreement shall be for the sale and exclusive benefit of the Company and
Employee.
SECTION 11. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
SECTION 12. No Employment Agreement. The Employee and the Company
-----------------------
agree that this Option Agreement shall not constitute an employment agreement
and that, subject to rights granted above, the Employee's employment with the
Company shall be terminable at the will of either party at any time, without
notice, for any or no reason, with or without Good Cause.
SECTION 13. Integration. This Agreement constitutes the complete,
-----------
final and exclusive statement of the terms of the agreement between the parties
pertaining to the subject matter hereof and supersedes all prior agreements,
understandings, negotiations and discussions of the parties. No modification or
rescission of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver
unless otherwise expressly provided.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
EISI Acquisition Co., Inc.
By /s/ DON ESTERS
-------------------------------------------
Title Chairman
----------------------------------------
/s/ DOUGLAS ADAMS
---------------------------------------------
EMPLOYEE
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EXHIBIT A
(Form of Election to Purchase)
(To Be Executed Upon Exercise Of Option)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Election Certificate, to receive __________ shares of Common
Stock and herewith tenders payment for such shares to EISI Acquisition Co., Inc.
in the amount of $______ in accordance with the terms of the Option Agreement
between EISI Acquisition Co., Inc. and the undersigned dated as of March __,
1994.
-------------------------------------
Employee
Date:
Signature Guaranteed:
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EXHIBIT 10.11
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated January 1, 1996, is made by and between
EISI, Inc., a California corporation hereinafter referred to as "Company," and
Michael Dennis, an employee of the Company or a Parent Corporation or Subsidiary
of the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the
opportunity to purchase shares of its Common Stock; and
WHEREAS, the Company has determined that it would be to the
advantage and best interest of the Company and its shareholders to grant the
Non-Qualified Option provided for herein to the Optionee as an inducement to
enter into or remain in the service of the Company, its Parent Corporations or
its Subsidiaries and as an incentive for increased efforts during such service,
and has advised and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they
shall have the meaning specified below unless the context clearly indicates to
the contrary. The masculine pronoun shall include the feminine and neuter, and
the singular the plural, where the context so indicates.
Section 1.1. Board
-----
"Board" shall mean the Board of Directors of the Company.
Section 1.2. Code
----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3. Company
-------
"Company" shall mean EISI, Inc.
Section 1.4. Director
--------
"Director" shall mean a member of the Board.
Section 1.5. Exchange Act
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
Section 1.6. Officer
-------
"Officer" shall mean an officer of the Company, as defined in
Rule 16a-l(f) under the Exchange Act, as such Rule may be amended in the future.
Section 1.7. Option
------
"Option" shall mean the non-qualified option to purchase Common
Stock of the Company granted under this Agreement.
Section 1.8. Parent Corporation
------------------
"Parent Corporation" shall mean any corporation in an unbroken
chain of corporations ending with the Company if each of the corporations other
than the Company then owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
Section 1.9. Rule 16b-3
----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the
Exchange Act, as such Rule may be amended in the future.
Section 1.10. Chairman
--------
"Chairman" shall mean the Chairman of the Board.
Section 1.11. Securities Act
--------------
"Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.12. Subsidiary
----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13. Termination of Employment
-------------------------
"Termination of Employment" shall mean the time when the
employee-employer relationship between the Optionee and the Company, a Parent
Corporation or a Subsidiary is terminated for any reason, with or without cause,
including, but not by way of limitation, a termination by resignation,
discharge, death or retirement, but excluding any termination where there is a
simultaneous reemployment by the Company, a Parent Corporation or a Subsidiary.
The Company, in its absolute discretion, shall determine the effect of all other
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the
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question of whether a Termination of Employment resulted from a discharge for
good cause, and all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II.
GRANT OF OPTION
Section 2.1. Grant of Option
---------------
In consideration of the Optionee's agreement to remain in the
employ of the Company, its Parent Corporations or its Subsidiaries and for other
good and valuable consideration, on the date hereof the Company irrevocably
grants to the Optionee the option to purchase any part or all of an aggregate of
5,000 shares of its Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2. Purchase Price
--------------
The purchase price of the shares of stock covered by the Option
shall be $3.00 per share without commission or other charge.
Section 2.3. Consideration to Company
------------------------
In consideration of the granting of this option by the Company,
the Optionee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one (1) year
from the date this Option is granted. Nothing in this Agreement, however, shall
confer upon the Optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporations and its Subsidiaries,
which are hereby expressly reserved, to discharge the Optionee at any time for
any reason whatsoever, with or without cause.
Section 2.4. Adjustments in Option
---------------------
In the event that the outstanding shares of the stock subject to
the Option are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Company shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the option price per share. Any such adjustment made by the Company shall be
final and binding upon the Optionee, the Company and all other interested
persons.
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ARTICLE III.
PERIOD OF EXERCISABILITY
Section 3.1. Commencement of Exercisability
------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable
in five (5) cumulative installments as follows:
(i) The first installment shall consist of twenty percent
(20%) of the shares covered by the option and shall become exercisable on
the first anniversary of the date the Option is granted.
(ii) The second installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the second anniversary of the date the Option is granted.
(iii) The third installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the third anniversary of the date the Option is granted.
(iv) The fourth installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the fourth anniversary of the date the Option is granted.
(v) The fifth installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the fifth anniversary of the date the Option is granted.
(b) No portion of the Option which is unexercisable at
Termination of Employment shall thereafter become exercisable.
Section 3.2. Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3. Expiration of Option
--------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option
was granted; or
(b) The time of the Optionee's Termination of Employment unless
such Termination of Employment results from his death, his retirement or his
disability; or
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(c) The expiration of three (3) months from the date of the
Optionee's Termination of Employment by reason of his disability; or
(d) The expiration of three (3) months from the date of the
Optionee's death.
Section 3.4. Acceleration of Exercisability
------------------------------
In the event of the merger or consolidation of the Company with
or into another corporation, or the acquisition by another corporation or person
of all or substantially all of the Company's assets or eighty percent (80%) or
more of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company, the Company may, in its absolute discretion and upon
such terms and conditions as it deems appropriate, provide prior to such event,
that at some time prior to the effective date of such event this Option shall be
exercisable as to all the shares covered hereby, notwithstanding that this
Option may not yet have become fully exercisable under Section 3.1(a); provided,
however, that this acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to
said effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation; or
(c) The contemplated corporate transaction is not consummated;
and provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 5.6.
ARTICLE IV.
EXERCISE OF OPTION
Section 4.1. Person Eligible to Exercise
---------------------------
During the lifetime of the Optionee, only he may exercise the
Option or any portion thereof. After the death of the Optionee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Optionee's will or under the then
applicable laws of descent and distribution.
Section 4.2. Partial Exercise
----------------
Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3; provided, however, that each partial exercise shall be for not less
than ten (10) shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
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Section 4.3. Manner of Exercise
------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Chairman or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion, stating that the Option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Company; and
(b) Full payment (in cash or by check) for the shares with
respect to which such Option or portion is exercised; and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Company may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Company may require an opinion of counsel acceptable to it to the effect that
any subsequent transfer of shares acquired on an Option exercise does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
shares; and
(d) Full payment to the Company (or other employer corporation)
of all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the option; and
(e) In the event the Option or portion shall be exercised
pursuant to Section 4.1 by any person or persons other than the Optionee,
appropriate proof of the right of such person or persons to exercise the Option.
Section 4.4. Conditions to Issuance of Stock Certificates
--------------------------------------------
The shares of stock deliverable upon the exercise of the Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have
6
<PAGE>
then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise of
the Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Company shall, in its absolute
discretion, determine to be necessary or advisable; and
(b) The payment to the Company (or other employer corporation)
of all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; and
(c) The lapse of such reasonable period of time following the
exercise of the Option as the Company may from time to time establish for
reasons of administrative convenience.
Section 4.5. Rights as Shareholder
---------------------
The holder of the Option shall not be, nor have any of the rights
or privileges of, a shareholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.
ARTICLE V.
OTHER PROVISIONS
Section 5.1. Administration
--------------
The Company shall have the power to interpret this Agreement. All
actions taken and all interpretations and determinations made by the Company in
good faith shall be final and binding upon the Optionee, the Company and all
other interested persons. No member of the Company shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Option.
Section 5.2. Option Not Transferable
-----------------------
Neither the Option nor any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the Optionee
or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
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Section 5.3. Shares to Be Reserved
---------------------
The Company shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
Section 5.4. Notices
-------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Chairman, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5. Titles
------
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
Section 5.6. Construction
------------
This Agreement shall be administered, interpreted and enforced
under the laws of the State of California.
Section 5.7. Conformity to Securities Laws
-----------------------------
The Optionee acknowledges that this Agreement is intended to
conform to the extent necessary with all provisions of the Securities Act and
the Exchange Act, the California Corporations Code and any and all regulations
and rules promulgated by the Securities and Exchange Commission and/or the
Corporations Commissioner thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, this Agreement shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
Section 5.8. Restrictions on Transfer of Shares
----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of
any shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such
8
<PAGE>
shares or interests unless such transfer is solely for cash consideration and is
made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to
as the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(2) For a period of thirty (30) calendar days after the notice
date, the Company shall have the option to purchase all (but not less than
all) of the Offered Shares at the purchase price and on the terms set forth
in subsection (a)(3) of this Section 5.8. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty (30) days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.8). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such payment by the Company, the
Company shall acquire full right, title and interest to all of the Offered
Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.8 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.8 may take
place; provided, however, that such transfer must, in all respects, be
exactly as proposed in said notice except that such transfer may not take
place either before the tenth (10th) calendar day after the expiration of
said thirty-day option exercise period or after the ninetieth (90th)
calendar day after the expiration of said thirty-day option exercise
period, and if such transfer has not taken place prior to said ninetieth
(90th) day, such transfer may not take place without once again complying
with subsection (a) of this Section 5.8.
(b) As used in this Section 5.8, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.8.
(c) None of the shares of the Company's stock purchased on exercise
of the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.8 have been complied with
in all respects. The certificates of stock evidencing shares
9
<PAGE>
of stock purchased on exercise of the Option shall bear an appropriate legend
referring to the transfer restrictions imposed by this Section 5.8 and to the
repurchase option provided for in Section 5.8.
Section 5.9. Complete Agreement
------------------
This Agreement represents the sole and entire agreement among the
Optionee and the Company relating to options granted hereunder and supersedes
all prior agreements, negotiations, and discussions between the parties. Any
amendment or modification to this Agreement must be in writing specifically
referring to this Agreement and signed by duly authorized representatives of all
of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed and
delivered by the parties hereto.
EISI, Inc.
By: /s/ DONALD ESTERS
-------------------------
Donald Esters
Chairman of the Board
/s/ MICHAEL DENNIS
- ------------------------
Optionee
15020 Sobey Road
- ------------------------
Saratoga, CA 95070
- ------------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
- ------------------------
10
<PAGE>
EXHIBIT 10.12
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated January 1, 1996, is made by and between EISI,
Inc., a California corporation hereinafter referred to as "Company," and Frank
DiGirolamo, an employee of the Company or a Parent Corporation or Subsidiary of
the Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company has determined that it would be to the advantage
and best interest of the Company and its shareholders to grant the Non-Qualified
Option provided for herein to the Optionee as an inducement to enter into or
remain in the service of the Company, its Parent Corporations or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1. Board
-----
"Board" shall mean the Board of Directors of the Company.
Section 1.2. Code
----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3. Company
-------
"Company" shall mean EISI, Inc.
Section 1.4. Director
--------
"Director" shall mean a member of the Board.
Section 1.5. Exchange Act
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
Section 1.6. Officer
-------
"Officer" shall mean an officer of the Company, as defined in Rule
16a-l(f) under the Exchange Act, as such Rule may be amended in the future.
Section 1.7. Option
------
"Option" shall mean the non-qualified option to purchase Common Stock
of the Company granted under this Agreement.
Section 1.8. Parent Corporation
------------------
"Parent Corporation" shall mean any corporation in an unbroken chain
of corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
Section 1.9. Rule 16b-3
----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended in the future.
Section 1.10. Chairman
--------
"Chairman" shall mean the Chairman of the Board.
Section 1.11. Securities Act
--------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.12. Subsidiary
----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13. Termination of Employment
-------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship between the Optionee and the Company, a Parent Corporation
or a Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding any termination where there is a simultaneous
reemployment by the Company, a Parent Corporation or a Subsidiary. The Company,
in its absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the
2
<PAGE>
question of whether a Termination of Employment resulted from a discharge for
good cause, and all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II.
GRANT OF OPTION
Section 2.1. Grant of Option
---------------
In consideration of the Optionee's agreement to remain in the employ
of the Company, its Parent Corporations or its Subsidiaries and for other good
and valuable consideration, on the date hereof the Company irrevocably grants to
the Optionee the option to purchase any part or all of an aggregate of 5,000
shares of its Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2. Purchase Price
--------------
The purchase price of the shares of stock covered by the Option shall
be $3.00 per share without commission or other charge.
Section 2.3. Consideration to Company
------------------------
In consideration of the granting of this option by the Company, the
Optionee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one (1) year
from the date this Option is granted. Nothing in this Agreement, however, shall
confer upon the Optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporations and its Subsidiaries,
which are hereby expressly reserved, to discharge the Optionee at any time for
any reason whatsoever, with or without cause.
Section 2.4. Adjustments in Option
---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Company shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the option price per share. Any such adjustment made by the Company shall be
final and binding upon the Optionee, the Company and all other interested
persons.
3
<PAGE>
ARTICLE III.
PERIOD OF EXERCISABILITY
Section 3.1. Commencement of Exercisability
------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in
five (5) cumulative installments as follows:
(i) The first installment shall consist of twenty percent (20%)
of the shares covered by the option and shall become exercisable on the
first anniversary of the date the Option is granted.
(ii) The second installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the second anniversary of the date the Option is granted.
(iii) The third installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the third anniversary of the date the Option is granted.
(iv) The fourth installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the fourth anniversary of the date the Option is granted.
(v) The fifth installment shall consist of twenty percent (20%)
of the shares covered by the Option and shall become exercisable on the
fifth anniversary of the date the Option is granted.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2. Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3. Expiration of Option
--------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment unless such
Termination of Employment results from his death, his retirement or his
disability; or
4
<PAGE>
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Employment by reason of his disability; or
(d) The expiration of three (3) months from the date of the Optionee's
death.
Section 3.4. Acceleration of Exercisability
------------------------------
In the event of the merger or consolidation of the Company with or
into another corporation, or the acquisition by another corporation or person of
all or substantially all of the Company's assets or eighty percent (80%) or more
of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company, the Company may, in its absolute discretion and upon
such terms and conditions as it deems appropriate, provide prior to such event,
that at some time prior to the effective date of such event this Option shall be
exercisable as to all the shares covered hereby, notwithstanding that this
Option may not yet have become fully exercisable under Section 3.1(a); provided,
however, that this acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation; or
(c) The contemplated corporate transaction is not consummated; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 5.6.
ARTICLE IV.
EXERCISE OF OPTION
Section 4.1. Person Eligible to Exercise
---------------------------
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable portion
of the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2. Partial Exercise
----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
ten (10) shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
5
<PAGE>
Section 4.3. Manner of Exercise
------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Chairman or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Company; and
(b) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is exercised; and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Company may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Company may require an opinion of counsel acceptable to it to the effect that
any subsequent transfer of shares acquired on an Option exercise does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4. Conditions to Issuance of Stock Certificates
--------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have
6
<PAGE>
then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise of
the Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Company shall, in its absolute discretion,
determine to be necessary or advisable; and
(b) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(c) The lapse of such reasonable period of time following the exercise
of the Option as the Company may from time to time establish for reasons of
administrative convenience.
Section 4.5. Rights as Shareholder
---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V.
OTHER PROVISIONS
Section 5.1. Administration
--------------
The Company shall have the power to interpret this Agreement. All
actions taken and all interpretations and determinations made by the Company in
good faith shall be final and binding upon the Optionee, the Company and all
other interested persons. No member of the Company shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Option.
Section 5.2. Option Not Transferable
-----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
7
<PAGE>
Section 5.3. Shares to Be Reserved
---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4. Notices
-------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Chairman, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5. Titles
------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6. Construction
------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of California.
Section 5.7. Conformity to Securities Laws
-----------------------------
The Optionee acknowledges that this Agreement is intended to conform
to the extent necessary with all provisions of the Securities Act and the
Exchange Act, the California Corporations Code and any and all regulations and
rules promulgated by the Securities and Exchange Commission and/or the
Corporations Commissioner thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, this Agreement shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
Section 5.8. Restrictions on Transfer of Shares
----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such
8
<PAGE>
shares or interests unless such transfer is solely for cash consideration and is
made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to
as the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(2) For a period of thirty (30) calendar days after the notice
date, the Company shall have the option to purchase all (but not less than
all) of the Offered Shares at the purchase price and on the terms set forth
in subsection (a)(3) of this Section 5.8. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty (30) days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.8). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such payment by the Company, the
Company shall acquire full right, title and interest to all of the Offered
Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.8 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.8 may take
place; provided, however, that such transfer must, in all respects, be
exactly as proposed in said notice except that such transfer may not take
place either before the tenth (10th) calendar day after the expiration of
said thirty-day option exercise period or after the ninetieth (90th)
calendar day after the expiration of said thirty-day option exercise
period, and if such transfer has not taken place prior to said ninetieth
(90th) day, such transfer may not take place without once again complying
with subsection (a) of this Section 5.8.
(b) As used in this Section 5.8, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.8.
(c) None of the shares of the Company's stock purchased on exercise of
the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.8 have been complied with
in all respects. The certificates of stock evidencing shares
9
<PAGE>
of stock purchased on exercise of the Option shall bear an appropriate legend
referring to the transfer restrictions imposed by this Section 5.8 and to the
repurchase option provided for in Section 5.8.
Section 5.9. Complete Agreement
------------------
This Agreement represents the sole and entire agreement among the
Optionee and the Company relating to options granted hereunder and supersedes
all prior agreements, negotiations, and discussions between the parties. Any
amendment or modification to this Agreement must be in writing specifically
referring to this Agreement and signed by duly authorized representatives of all
of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
EISI, Inc.
By: /s/ DONALD ESTERS
--------------------------
Donald Esters
Chairman of the Board
/s/ FRANK DIGIROLAMO
- ------------------------------
Optionee
550 Battery Street, #1904
- ------------------------------
San Francisco, CA 94111
- ------------------------------
Address
Optionee's Taxpayer
Identification Number:
- ------------------------------
10
<PAGE>
EXHIBIT 10.13
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated September 20, 1996, is made by and between EISI,
Inc., a California corporation hereinafter referred to as "Company," and Craig
Park, an employee of the Company or a Parent Corporation or Subsidiary of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company has determined that it would be to the advantage
and best interest of the Company and its shareholders to grant the Non-Qualified
Option provided for herein to the Optionee as an inducement to enter into or
remain in the service of the Company, its Parent Corporations or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1. Board
-----
"Board" shall mean the Board of Directors of the Company.
Section 1.2. Code
----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3. Company
-------
"Company" shall mean EISI, Inc.
Section 1.4. Director
--------
"Director" shall mean a member of the Board.
Section 1.5. Exchange Act
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
Section 1.6. Officer
-------
"Officer" shall mean an officer of the Company, as defined in Rule
16a-l(f) under the Exchange Act, as such Rule may be amended in the future.
Section 1.7. Option
------
"Option" shall mean the non-qualified option to purchase Common
Stock of the Company granted under this Agreement.
Section 1.8. Parent Corporation
------------------
"Parent Corporation" shall mean any corporation in an unbroken
chain of corporations ending with the Company if each of the corporations other
than the Company then owns stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
Section 1.9. Rule 16b-3
----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended in the future.
Section 1.10. Chairman
--------
"Chairman" shall mean the Chairman of the Board.
Section 1.11. Securities Act
--------------
"Securities Act" shall mean the Securities Act of 1933, as
amended.
Section 1.12. Subsidiary
----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13. Termination of Employment
-------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship between the Optionee and the Company, a Parent Corporation
or a Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding any termination where there is a simultaneous
reemployment by the Company, a Parent Corporation or a Subsidiary. The Company,
in its absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the
2
<PAGE>
question of whether a Termination of Employment resulted from a discharge for
good cause, and all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II.
GRANT OF OPTION
Section 2.1. Grant of Option
---------------
In consideration of the Optionee's agreement to remain in the
employ of the Company, its Parent Corporations or its Subsidiaries and for other
good and valuable consideration, on the date hereof the Company irrevocably
grants to the Optionee the option to purchase any part or all of an aggregate of
5,000 shares of its Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2. Purchase Price
--------------
The purchase price of the shares of stock covered by the Option
shall be $3.00 per share without commission or other charge.
Section 2.3. Consideration to Company
------------------------
In consideration of the granting of this option by the Company,
the Optionee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one (1) year
from the date this Option is granted. Nothing in this Agreement, however, shall
confer upon the Optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporations and its Subsidiaries,
which are hereby expressly reserved, to discharge the Optionee at any time for
any reason whatsoever, with or without cause.
Section 2.4. Adjustments in Option
---------------------
In the event that the outstanding shares of the stock subject to
the Option are changed into or exchanged for a different number or kind of
shares of the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Company shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the option price per share. Any such adjustment made by the Company shall be
final and binding upon the Optionee, the Company and all other interested
persons.
3
<PAGE>
ARTICLE III.
PERIOD OF EXERCISABILITY
Section 3.1. Commencement of Exercisability
------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in
five (5) cumulative installments as follows:
(i) The first installment shall consist of twenty percent
(20%) of the shares covered by the option and shall become exercisable on
the first anniversary of the date the Option is granted.
(ii) The second installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the second anniversary of the date the Option is granted.
(iii) The third installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the third anniversary of the date the Option is granted.
(iv) The fourth installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the fourth anniversary of the date the Option is granted.
(v) The fifth installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the fifth anniversary of the date the Option is granted.
(b) No portion of the Option which is unexercisable at Termination
of Employment shall thereafter become exercisable.
Section 3.2. Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. Each
such installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3. Expiration of Option
--------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment unless
such Termination of Employment results from his death, his retirement or his
disability; or
4
<PAGE>
(c) The expiration of three (3) months from the date of the
Optionee's Termination of Employment by reason of his disability; or
(d) The expiration of three (3) months from the date of the
Optionee's death.
Section 3.4. Acceleration of Exercisability
------------------------------
In the event of the merger or consolidation of the Company with or
into another corporation, or the acquisition by another corporation or person of
all or substantially all of the Company's assets or eighty percent (80%) or more
of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company, the Company may, in its absolute discretion and upon
such terms and conditions as it deems appropriate, provide prior to such event,
that at some time prior to the effective date of such event this Option shall be
exercisable as to all the shares covered hereby, notwithstanding that this
Option may not yet have become fully exercisable under Section 3.1(a); provided,
however, that this acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to
said effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation; or
(c) The contemplated corporate transaction is not consummated; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 5.6.
ARTICLE IV.
EXERCISE OF OPTION
Section 4.1. Person Eligible to Exercise
---------------------------
During the lifetime of the Optionee, only he may exercise the
Option or any portion thereof. After the death of the Optionee, any exercisable
portion of the Option may, prior to the time when the Option becomes
unexercisable under Section 3.3, be exercised by his personal representative or
by any person empowered to do so under the Optionee's will or under the then
applicable laws of descent and distribution.
Section 4.2. Partial Exercise
----------------
Any exercisable portion of the Option or the entire Option, if
then wholly exercisable, may be exercised in whole or in part at any time prior
to the time when the Option or portion thereof becomes unexercisable under
Section 3.3; provided, however, that each partial exercise shall be for not less
than ten (10) shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
5
<PAGE>
Section 4.3. Manner of Exercise
------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Chairman or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person
then entitled to exercise the Option or portion, stating that the Option or
portion is thereby exercised, such notice complying with all applicable rules
established by the Company; and
(b) Full payment (in cash or by check) for the shares with respect
to which such Option or portion is exercised; and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Company may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Company may require an opinion of counsel acceptable to it to the effect that
any subsequent transfer of shares acquired on an Option exercise does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
shares; and
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; and
(e) In the event the Option or portion shall be exercised pursuant
to Section 4.1 by any person or persons other than the Optionee, appropriate
proof of the right of such person or persons to exercise the Option.
Section 4.4. Conditions to Issuance of Stock Certificates
--------------------------------------------
The shares of stock deliverable upon the exercise of the Option,
or any portion thereof, may be either previously authorized but unissued shares
or issued shares which have
6
<PAGE>
then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise of
the Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The obtaining of any approval or other clearance from any
state or federal governmental agency which the Company shall, in its absolute
discretion, determine to be necessary or advisable; and
(b) The payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; and
(c) The lapse of such reasonable period of time following the
exercise of the Option as the Company may from time to time establish for
reasons of administrative convenience.
Section 4.5. Rights as Shareholder
---------------------
The holder of the Option shall not be, nor have any of the rights
or privileges of, a shareholder of the Company in respect of any shares
purchasable upon the exercise of any part of the Option unless and until
certificates representing such shares shall have been issued by the Company to
such holder.
ARTICLE V.
OTHER PROVISIONS
Section 5.1. Administration
--------------
The Company shall have the power to interpret this Agreement. All
actions taken and all interpretations and determinations made by the Company in
good faith shall be final and binding upon the Optionee, the Company and all
other interested persons. No member of the Company shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Option.
Section 5.2. Option Not Transferable
-----------------------
Neither the Option nor any interest or right therein or part
thereof shall be liable for the debts, contracts or engagements of the Optionee
or his successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
7
<PAGE>
Section 5.3. Shares to Be Reserved
---------------------
The Company shall at all times during the term of the Option
reserve and keep available such number of shares of stock as will be sufficient
to satisfy the requirements of this Agreement.
Section 5.4. Notices
-------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Chairman, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5. Titles
------
Titles are provided herein for convenience only and are not to
serve as a basis for interpretation or construction of this Agreement.
Section 5.6. Construction
------------
This Agreement shall be administered, interpreted and enforced
under the laws of the State of California.
Section 5.7. Conformity to Securities Laws
-----------------------------
The Optionee acknowledges that this Agreement is intended to
conform to the extent necessary with all provisions of the Securities Act and
the Exchange Act, the California Corporations Code and any and all regulations
and rules promulgated by the Securities and Exchange Commission and/or the
Corporations Commissioner thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, this Agreement shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
Section 5.8. Restrictions on Transfer of Shares
----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such
8
<PAGE>
shares or interests unless such transfer is solely for cash consideration and is
made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to
as the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(2) For a period of thirty (30) calendar days after the notice
date, the Company shall have the option to purchase all (but not less than
all) of the Offered Shares at the purchase price and on the terms set forth
in subsection (a)(3) of this Section 5.8. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty (30) days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.8). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such payment by the Company, the
Company shall acquire full right, title and interest to all of the Offered
Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.8 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.8 may take
place; provided, however, that such transfer must, in all respects, be
exactly as proposed in said notice except that such transfer may not take
place either before the tenth (10th) calendar day after the expiration of
said thirty-day option exercise period or after the ninetieth (90th)
calendar day after the expiration of said thirty-day option exercise
period, and if such transfer has not taken place prior to said ninetieth
(90th) day, such transfer may not take place without once again complying
with subsection (a) of this Section 5.8.
(b) As used in this Section 5.8, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.8.
(c) None of the shares of the Company's stock purchased on exercise
of the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.8 have been complied with
in all respects. The certificates of stock evidencing shares
9
<PAGE>
of stock purchased on exercise of the Option shall bear an appropriate legend
referring to the transfer restrictions imposed by this Section 5.8 and to the
repurchase option provided for in Section 5.8.
Section 5.9. Complete Agreement
------------------
This Agreement represents the sole and entire agreement among the
Optionee and the Company relating to options granted hereunder and supersedes
all prior agreements, negotiations, and discussions between the parties. Any
amendment or modification to this Agreement must be in writing specifically
referring to this Agreement and signed by duly authorized representatives of all
of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed and delivered
by the parties hereto.
EISI, Inc.
By: /s/ DONALD ESTERS
-------------------------------
Donald Esters
Chairman of the Board
/s/ CRAIG PARK
- ---------------------------------
Optionee
135 Blackstone Drive
- ---------------------------------
San Rafael, CA 94903
- ---------------------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
- ---------------------------------
10
<PAGE>
EXHIBIT 10.14
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated May 19, 1997, is made by and between EISI, Inc.,
a California corporation hereinafter referred to as "Company," and Michael
Dennis, an employee of the Company or a Parent Corporation or Subsidiary of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company has determined that it would be to the advantage
and best interest of the Company and its shareholders to grant the Non-Qualified
Option provided for herein to the Optionee as an inducement to enter into or
remain in the service of the Company, its Parent Corporations or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1. Board
-----
"Board" shall mean the Board of Directors of the Company.
Section 1.2. Code
----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3. Company
-------
"Company" shall mean EISI, Inc.
Section 1.4. Director
--------
"Director" shall mean a member of the Board.
Section 1.5. Exchange Act
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
Section 1.6. Officer
-------
"Officer" shall mean an officer of the Company, as defined in Rule
16a-l(f) under the Exchange Act, as such Rule may be amended in the future.
Section 1.7. Option
------
"Option" shall mean the non-qualified option to purchase Common Stock
of the Company granted under this Agreement.
Section 1.8. Parent Corporation
------------------
"Parent Corporation" shall mean any corporation in an unbroken chain
of corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
Section 1.9. Rule 16b-3
----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended in the future.
Section 1.10. Chairman
--------
"Chairman" shall mean the Chairman of the Board.
Section 1.11. Securities Act
--------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.12. Subsidiary
----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13. Termination of Employment
-------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship between the Optionee and the Company, a Parent Corporation
or a Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding any termination where there is a simultaneous
reemployment by the Company, a Parent Corporation or a Subsidiary. The Company,
in its absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the
2
<PAGE>
question of whether a Termination of Employment resulted from a discharge for
good cause, and all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II.
GRANT OF OPTION
Section 2.1. Grant of Option
---------------
In consideration of the Optionee's agreement to remain in the employ
of the Company, its Parent Corporations or its Subsidiaries and for other good
and valuable consideration, on the date hereof the Company irrevocably grants to
the Optionee the option to purchase any part or all of an aggregate of 5,000
shares of its Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2. Purchase Price
--------------
The purchase price of the shares of stock covered by the Option shall
be $6.00 per share without commission or other charge.
Section 2.3. Consideration to Company
------------------------
In consideration of the granting of this option by the Company, the
Optionee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one (1) year
from the date this Option is granted. Nothing in this Agreement, however, shall
confer upon the Optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporations and its Subsidiaries,
which are hereby expressly reserved, to discharge the Optionee at any time for
any reason whatsoever, with or without cause.
Section 2.4. Adjustments in Option
---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Company shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the option price per share. Any such adjustment made by the Company shall be
final and binding upon the Optionee, the Company and all other interested
persons.
3
<PAGE>
ARTICLE III.
PERIOD OF EXERCISABILITY
Section 3.1. Commencement of Exercisability
------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in
five (5) cumulative installments as follows:
(i) The first installment shall consist of twenty percent
(20%) of the shares covered by the option and shall become exercisable on
the first anniversary of the date the Option is granted.
(ii) The second installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the second anniversary of the date the Option is granted.
(iii) The third installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the third anniversary of the date the Option is granted.
(iv) The fourth installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the fourth anniversary of the date the Option is granted.
(v) The fifth installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the fifth anniversary of the date the Option is granted.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2. Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3. Expiration of Option
--------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment unless such
Termination of Employment results from his death, his retirement or his
disability; or
4
<PAGE>
(c) The expiration of three (3) months from the date of the
Optionee's Termination of Employment by reason of his disability; or
(d) The expiration of three (3) months from the date of the
Optionee's death.
Section 3.4. Acceleration of Exercisability
------------------------------
In the event of the merger or consolidation of the Company with or
into another corporation, or the acquisition by another corporation or person of
all or substantially all of the Company's assets or eighty percent (80%) or more
of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company, the Company may, in its absolute discretion and upon
such terms and conditions as it deems appropriate, provide prior to such event,
that at some time prior to the effective date of such event this Option shall be
exercisable as to all the shares covered hereby, notwithstanding that this
Option may not yet have become fully exercisable under Section 3.1(a); provided,
however, that this acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation; or
(c) The contemplated corporate transaction is not consummated; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 5.6.
ARTICLE IV.
EXERCISE OF OPTION
Section 4.1. Person Eligible to Exercise
---------------------------
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable portion
of the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2. Partial Exercise
----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
ten (10) shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
5
<PAGE>
Section 4.3. Manner of Exercise
------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Chairman or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Company; and
(b) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is exercised; and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Company may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Company may require an opinion of counsel acceptable to it to the effect that
any subsequent transfer of shares acquired on an Option exercise does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
shares; and
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4. Conditions to Issuance of Stock Certificates
--------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have
6
<PAGE>
then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise of
the Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Company shall, in its absolute
discretion, determine to be necessary or advisable; and
(b) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(c) The lapse of such reasonable period of time following the
exercise of the Option as the Company may from time to time establish for
reasons of administrative convenience.
Section 4.5. Rights as Shareholder
---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V.
OTHER PROVISIONS
Section 5.1. Administration
--------------
The Company shall have the power to interpret this Agreement. All
actions taken and all interpretations and determinations made by the Company in
good faith shall be final and binding upon the Optionee, the Company and all
other interested persons. No member of the Company shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Option.
Section 5.2. Option Not Transferable
-----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
7
<PAGE>
Section 5.3. Shares to Be Reserved
---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4. Notices
-------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Chairman, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5. Titles
------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6. Construction
------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of California.
Section 5.7. Conformity to Securities Laws
-----------------------------
The Optionee acknowledges that this Agreement is intended to conform
to the extent necessary with all provisions of the Securities Act and the
Exchange Act, the California Corporations Code and any and all regulations and
rules promulgated by the Securities and Exchange Commission and/or the
Corporations Commissioner thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, this Agreement shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
Section 5.8. Restrictions on Transfer of Shares
----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such
8
<PAGE>
shares or interests unless such transfer is solely for cash consideration and is
made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to
as the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(2) For a period of thirty (30) calendar days after the notice
date, the Company shall have the option to purchase all (but not less than
all) of the Offered Shares at the purchase price and on the terms set forth
in subsection (a)(3) of this Section 5.8. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty (30) days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.8). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such payment by the Company, the
Company shall acquire full right, title and interest to all of the Offered
Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.8 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.8 may take
place; provided, however, that such transfer must, in all respects, be
exactly as proposed in said notice except that such transfer may not take
place either before the tenth (10th) calendar day after the expiration of
said thirty-day option exercise period or after the ninetieth (90th)
calendar day after the expiration of said thirty-day option exercise
period, and if such transfer has not taken place prior to said ninetieth
(90th) day, such transfer may not take place without once again complying
with subsection (a) of this Section 5.8.
(b) As used in this Section 5.8, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.8.
(c) None of the shares of the Company's stock purchased on exercise
of the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.8 have been complied with
in all respects. The certificates of stock evidencing shares
9
<PAGE>
of stock purchased on exercise of the Option shall bear an appropriate legend
referring to the transfer restrictions imposed by this Section 5.8 and to the
repurchase option provided for in Section 5.8.
Section 5.9. Complete Agreement
------------------
This Agreement represents the sole and entire agreement among the
Optionee and the Company relating to options granted hereunder and supersedes
all prior agreements, negotiations, and discussions between the parties. Any
amendment or modification to this Agreement must be in writing specifically
referring to this Agreement and signed by duly authorized representatives of all
of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
EISI, Inc.
By: /s/ DONALD ESTERS
------------------------
Donald Esters
Chairman of the Board
/s/ MICHAEL DENNIS
- ----------------------------
Optionee
15020 Sobey Road
- ----------------------------
Saratoga, CA 95070
- ----------------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
- ----------------------------
10
<PAGE>
EXHIBIT 10.15
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated February 1, 1998, is made by and between EISI,
Inc., a California corporation hereinafter referred to as "Company," and Michael
Dennis, an employee of the Company or a Parent Corporation or Subsidiary of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company has determined that it would be to the advantage
and best interest of the Company and its shareholders to grant the Non-Qualified
Option provided for herein to the Optionee as an inducement to enter into or
remain in the service of the Company, its Parent Corporations or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1. Board
-----
"Board" shall mean the Board of Directors of the Company.
Section 1.2. Code
----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3. Company
-------
"Company" shall mean EISI, Inc.
Section 1.4. Director
--------
"Director" shall mean a member of the Board.
Section 1.5. Exchange Act
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
Section 1.6. Officer
-------
"Officer" shall mean an officer of the Company, as defined in Rule
16a-l(f) under the Exchange Act, as such Rule may be amended in the future.
Section 1.7. Option
------
"Option" shall mean the non-qualified option to purchase Common Stock
of the Company granted under this Agreement.
Section 1.8. Parent Corporation
------------------
"Parent Corporation" shall mean any corporation in an unbroken chain
of corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
Section 1.9. Rule 16b-3
----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended in the future.
Section 1.10. Chairman
--------
"Chairman" shall mean the Chairman of the Board.
Section 1.11. Securities Act
--------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.12. Subsidiary
----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13. Termination of Employment
-------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship between the Optionee and the Company, a Parent Corporation
or a Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding any termination where there is a simultaneous
reemployment by the Company, a Parent Corporation or a Subsidiary. The Company,
in its absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the
2
<PAGE>
question of whether a Termination of Employment resulted from a discharge for
good cause, and all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II.
GRANT OF OPTION
Section 2.1. Grant of Option
---------------
In consideration of the Optionee's agreement to remain in the employ
of the Company, its Parent Corporations or its Subsidiaries and for other good
and valuable consideration, on the date hereof the Company irrevocably grants to
the Optionee the option to purchase any part or all of an aggregate of 20,000
shares of its Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2. Purchase Price
--------------
The purchase price of the shares of stock covered by the Option shall
be $6.00 per share without commission or other charge.
Section 2.3. Consideration to Company
------------------------
In consideration of the granting of this option by the Company, the
Optionee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one (1) year
from the date this Option is granted. Nothing in this Agreement, however, shall
confer upon the Optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporations and its Subsidiaries,
which are hereby expressly reserved, to discharge the Optionee at any time for
any reason whatsoever, with or without cause.
Section 2.4. Adjustments in Option
---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Company shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the option price per share. Any such adjustment made by the Company shall be
final and binding upon the Optionee, the Company and all other interested
persons.
3
<PAGE>
ARTICLE III.
PERIOD OF EXERCISABILITY
Section 3.1. Commencement of Exercisability
------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in
five (5) cumulative installments as follows:
(i) The first installment shall consist of twenty percent (20%)
of the shares covered by the option and shall become exercisable on the
first anniversary of the date the Option is granted.
(ii) The second installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the second anniversary of the date the Option is granted.
(iii) The third installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the third anniversary of the date the Option is granted.
(iv) The fourth installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the fourth anniversary of the date the Option is granted.
(v) The fifth installment shall consist of twenty percent (20%)
of the shares covered by the Option and shall become exercisable on the
fifth anniversary of the date the Option is granted.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2. Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3. Expiration of Option
--------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment unless such
Termination of Employment results from his death, his retirement or his
disability; or
4
<PAGE>
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Employment by reason of his disability; or
(d) The expiration of three (3) months from the date of the Optionee's
death.
Section 3.4. Acceleration of Exercisability
------------------------------
In the event of the merger or consolidation of the Company with or
into another corporation, or the acquisition by another corporation or person of
all or substantially all of the Company's assets or eighty percent (80%) or more
of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company, the Company may, in its absolute discretion and upon
such terms and conditions as it deems appropriate, provide prior to such event,
that at some time prior to the effective date of such event this Option shall be
exercisable as to all the shares covered hereby, notwithstanding that this
Option may not yet have become fully exercisable under Section 3.1(a); provided,
however, that this acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation; or
(c) The contemplated corporate transaction is not consummated; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 5.6.
ARTICLE IV.
EXERCISE OF OPTION
Section 4.1. Person Eligible to Exercise
---------------------------
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable portion
of the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2. Partial Exercise
----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
ten (10) shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
5
<PAGE>
Section 4.3. Manner of Exercise
------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Chairman or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Company; and
(b) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is exercised; and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Company may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Company may require an opinion of counsel acceptable to it to the effect that
any subsequent transfer of shares acquired on an Option exercise does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4. Conditions to Issuance of Stock Certificates
--------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have
6
<PAGE>
then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise of
the Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Company shall, in its absolute discretion,
determine to be necessary or advisable; and
(b) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(c) The lapse of such reasonable period of time following the exercise
of the Option as the Company may from time to time establish for reasons of
administrative convenience.
Section 4.5. Rights as Shareholder
---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V.
OTHER PROVISIONS
Section 5.1. Administration
--------------
The Company shall have the power to interpret this Agreement. All
actions taken and all interpretations and determinations made by the Company in
good faith shall be final and binding upon the Optionee, the Company and all
other interested persons. No member of the Company shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Option.
Section 5.2. Option Not Transferable
-----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
7
<PAGE>
Section 5.3. Shares to Be Reserved
---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4. Notices
-------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Chairman, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5. Titles
------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6. Construction
------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of California.
Section 5.7. Conformity to Securities Laws
-----------------------------
The Optionee acknowledges that this Agreement is intended to conform
to the extent necessary with all provisions of the Securities Act and the
Exchange Act, the California Corporations Code and any and all regulations and
rules promulgated by the Securities and Exchange Commission and/or the
Corporations Commissioner thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, this Agreement shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
Section 5.8. Restrictions on Transfer of Shares
----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such
8
<PAGE>
shares or interests unless such transfer is solely for cash consideration and is
made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to
as the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(2) For a period of thirty (30) calendar days after the notice
date, the Company shall have the option to purchase all (but not less than
all) of the Offered Shares at the purchase price and on the terms set forth
in subsection (a)(3) of this Section 5.8. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty (30) days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.8). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such payment by the Company, the
Company shall acquire full right, title and interest to all of the Offered
Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.8 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.8 may take
place; provided, however, that such transfer must, in all respects, be
exactly as proposed in said notice except that such transfer may not take
place either before the tenth (10th) calendar day after the expiration of
said thirty-day option exercise period or after the ninetieth (90th)
calendar day after the expiration of said thirty-day option exercise
period, and if such transfer has not taken place prior to said ninetieth
(90th) day, such transfer may not take place without once again complying
with subsection (a) of this Section 5.8.
(b) As used in this Section 5.8, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.8.
(c) None of the shares of the Company's stock purchased on exercise of
the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.8 have been complied with
in all respects. The certificates of stock
9
<PAGE>
evidencing shares of stock purchased on exercise of the Option shall bear an
appropriate legend referring to the transfer restrictions imposed by this
Section 5.8 and to the repurchase option provided for in Section 5.8.
Section 5.9. Complete Agreement
------------------
This Agreement represents the sole and entire agreement among the
Optionee and the Company relating to options granted hereunder and supersedes
all prior agreements, negotiations, and discussions between the parties. Any
amendment or modification to this Agreement must be in writing specifically
referring to this Agreement and signed by duly authorized representatives of all
of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
EISI, Inc.
By: /s/ DONALD ESTERS
-------------------------
Donald Esters
Chairman of the Board
/s/ MICHAEL DENNIS
- -------------------------------
Optionee
15020 Sobey Road
- -------------------------------
Saratoga, CA 95070
- -------------------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
- -------------------------------
10
<PAGE>
EXHIBIT 10.16
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated February 1, 1998, is made by and between EISI,
Inc., a California corporation hereinafter referred to as "Company," and Dennis
Kushner, an employee of the Company or a Parent Corporation or Subsidiary of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company has determined that it would be to the advantage
and best interest of the Company and its shareholders to grant the Non-Qualified
Option provided for herein to the Optionee as an inducement to enter into or
remain in the service of the Company, its Parent Corporations or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1. Board
-----
"Board" shall mean the Board of Directors of the Company.
Section 1.2. Code
----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3. Company
-------
"Company" shall mean EISI, Inc.
Section 1.4. Director
--------
"Director" shall mean a member of the Board.
Section 1.5. Exchange Act
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
Section 1.6. Officer
-------
"Officer" shall mean an officer of the Company, as defined in Rule
16a-l(f) under the Exchange Act, as such Rule may be amended in the future.
Section 1.7. Option
------
"Option" shall mean the non-qualified option to purchase Common Stock
of the Company granted under this Agreement.
Section 1.8. Parent Corporation
------------------
"Parent Corporation" shall mean any corporation in an unbroken chain
of corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
Section 1.9. Rule 16b-3
----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended in the future.
Section 1.10. Chairman
--------
"Chairman" shall mean the Chairman of the Board.
Section 1.11. Securities Act
--------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.12. Subsidiary
----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13. Termination of Employment
-------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship between the Optionee and the Company, a Parent Corporation
or a Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding any termination where there is a simultaneous
reemployment by the Company, a Parent Corporation or a Subsidiary. The Company,
in its absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the
2
<PAGE>
question of whether a Termination of Employment resulted from a discharge for
good cause, and all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II.
GRANT OF OPTION
Section 2.1. Grant of Option
---------------
In consideration of the Optionee's agreement to remain in the employ
of the Company, its Parent Corporations or its Subsidiaries and for other good
and valuable consideration, on the date hereof the Company irrevocably grants to
the Optionee the option to purchase any part or all of an aggregate of 5,000
shares of its Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2. Purchase Price
--------------
The purchase price of the shares of stock covered by the Option shall
be $6.00 per share without commission or other charge.
Section 2.3. Consideration to Company
------------------------
In consideration of the granting of this option by the Company, the
Optionee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one (1) year
from the date this Option is granted. Nothing in this Agreement, however, shall
confer upon the Optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporations and its Subsidiaries,
which are hereby expressly reserved, to discharge the Optionee at any time for
any reason whatsoever, with or without cause.
Section 2.4. Adjustments in Option
---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Company shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the option price per share. Any such adjustment made by the Company shall be
final and binding upon the Optionee, the Company and all other interested
persons.
3
<PAGE>
ARTICLE III.
PERIOD OF EXERCISABILITY
Section 3.1. Commencement of Exercisability
------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in
five (5) cumulative installments as follows:
(i) The first installment shall consist of twenty percent (20%)
of the shares covered by the option and shall become exercisable on the
first anniversary of the date the Option is granted.
(ii) The second installment shall consist of twenty percent (20%)
of the shares covered by the Option and shall become exercisable on the
second anniversary of the date the Option is granted.
(iii) The third installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the third anniversary of the date the Option is granted.
(iv) The fourth installment shall consist of twenty percent (20%)
of the shares covered by the Option and shall become exercisable on the
fourth anniversary of the date the Option is granted.
(v) The fifth installment shall consist of twenty percent (20%)
of the shares covered by the Option and shall become exercisable on the
fifth anniversary of the date the Option is granted.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2. Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3. Expiration of Option
--------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment unless such
Termination of Employment results from his death, his retirement or his
disability; or
4
<PAGE>
(c) The expiration of three (3) months from the date of the Optionee's
Termination of Employment by reason of his disability; or
(d) The expiration of three (3) months from the date of the Optionee's
death.
Section 3.4. Acceleration of Exercisability
------------------------------
In the event of the merger or consolidation of the Company with or
into another corporation, or the acquisition by another corporation or person of
all or substantially all of the Company's assets or eighty percent (80%) or more
of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company, the Company may, in its absolute discretion and upon
such terms and conditions as it deems appropriate, provide prior to such event,
that at some time prior to the effective date of such event this Option shall be
exercisable as to all the shares covered hereby, notwithstanding that this
Option may not yet have become fully exercisable under Section 3.1(a); provided,
however, that this acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation; or
(c) The contemplated corporate transaction is not consummated; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 5.6.
ARTICLE IV.
EXERCISE OF OPTION
Section 4.1. Person Eligible to Exercise
---------------------------
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable portion
of the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2. Partial Exercise
----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
ten (10) shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
5
<PAGE>
Section 4.3. Manner of Exercise
------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Chairman or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Company; and
(b) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is exercised; and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Company may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Company may require an opinion of counsel acceptable to it to the effect that
any subsequent transfer of shares acquired on an Option exercise does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
shares; and
(d) Full payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4. Conditions to Issuance of Stock Certificates
--------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have
6
<PAGE>
then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise of
the Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Company shall, in its absolute discretion,
determine to be necessary or advisable; and
(b) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(c) The lapse of such reasonable period of time following the exercise
of the Option as the Company may from time to time establish for reasons of
administrative convenience.
Section 4.5. Rights as Shareholder
---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V.
OTHER PROVISIONS
Section 5.1. Administration
--------------
The Company shall have the power to interpret this Agreement. All
actions taken and all interpretations and determinations made by the Company in
good faith shall be final and binding upon the Optionee, the Company and all
other interested persons. No member of the Company shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Option.
Section 5.2. Option Not Transferable
-----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
7
<PAGE>
Section 5.3. Shares to Be Reserved
---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4. Notices
-------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Chairman, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5. Titles
------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6. Construction
------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of California.
Section 5.7. Conformity to Securities Laws
-----------------------------
The Optionee acknowledges that this Agreement is intended to conform
to the extent necessary with all provisions of the Securities Act and the
Exchange Act, the California Corporations Code and any and all regulations and
rules promulgated by the Securities and Exchange Commission and/or the
Corporations Commissioner thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, this Agreement shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
Section 5.8. Restrictions on Transfer of Shares
----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such
8
<PAGE>
shares or interests unless such transfer is solely for cash consideration and is
made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to
as the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(2) For a period of thirty (30) calendar days after the notice
date, the Company shall have the option to purchase all (but not less than
all) of the Offered Shares at the purchase price and on the terms set forth
in subsection (a)(3) of this Section 5.8. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty (30) days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.8). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such payment by the Company, the
Company shall acquire full right, title and interest to all of the Offered
Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.8 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.8 may take
place; provided, however, that such transfer must, in all respects, be
exactly as proposed in said notice except that such transfer may not take
place either before the tenth (10th) calendar day after the expiration of
said thirty-day option exercise period or after the ninetieth (90th)
calendar day after the expiration of said thirty-day option exercise
period, and if such transfer has not taken place prior to said ninetieth
(90th) day, such transfer may not take place without once again complying
with subsection (a) of this Section 5.8.
(b) As used in this Section 5.8, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.8.
(c) None of the shares of the Company's stock purchased on exercise of
the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.8 have been complied with
in all respects. The certificates of stock evidencing shares
9
<PAGE>
of stock purchased on exercise of the Option shall bear an appropriate legend
referring to the transfer restrictions imposed by this Section 5.8 and to the
repurchase option provided for in Section 5.8.
Section 5.9. Complete Agreement
------------------
This Agreement represents the sole and entire agreement among the
Optionee and the Company relating to options granted hereunder and supersedes
all prior agreements, negotiations, and discussions between the parties. Any
amendment or modification to this Agreement must be in writing specifically
referring to this Agreement and signed by duly authorized representatives of all
of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
EISI, Inc.
By: /s/ DONALD ESTERS
--------------------------
Donald Esters
Chairman of the Board
/s/ DENNIS KUSHNER
- --------------------------------
Optionee
- --------------------------------
- --------------------------------
Address
Optionee's Taxpayer
Identification Number:
- --------------------------------
10
<PAGE>
EXHIBIT 10.17
NON-QUALIFIED STOCK OPTION AGREEMENT
THIS AGREEMENT, dated February 1, 1998, is made by and between EISI,
Inc., a California corporation hereinafter referred to as "Company," and Mark
Madison, an employee of the Company or a Parent Corporation or Subsidiary of the
Company, hereinafter referred to as "Optionee":
WHEREAS, the Company wishes to afford the Optionee the opportunity to
purchase shares of its Common Stock; and
WHEREAS, the Company has determined that it would be to the advantage
and best interest of the Company and its shareholders to grant the Non-Qualified
Option provided for herein to the Optionee as an inducement to enter into or
remain in the service of the Company, its Parent Corporations or its
Subsidiaries and as an incentive for increased efforts during such service, and
has advised and instructed the undersigned officers to issue said Option;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, receipt of which is hereby
acknowledged, the parties hereto do hereby agree as follows:
ARTICLE I.
DEFINITIONS
Whenever the following terms are used in this Agreement, they shall
have the meaning specified below unless the context clearly indicates to the
contrary. The masculine pronoun shall include the feminine and neuter, and the
singular the plural, where the context so indicates.
Section 1.1. Board
-----
"Board" shall mean the Board of Directors of the Company.
Section 1.2. Code
----
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.3. Company
-------
"Company" shall mean EISI, Inc.
Section 1.4. Director
--------
"Director" shall mean a member of the Board.
Section 1.5. Exchange Act
------------
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
<PAGE>
Section 1.6. Officer
-------
"Officer" shall mean an officer of the Company, as defined in Rule
16a-l(f) under the Exchange Act, as such Rule may be amended in the future.
Section 1.7. Option
------
"Option" shall mean the non-qualified option to purchase Common Stock
of the Company granted under this Agreement.
Section 1.8. Parent Corporation
------------------
"Parent Corporation" shall mean any corporation in an unbroken chain
of corporations ending with the Company if each of the corporations other than
the Company then owns stock possessing fifty percent (50%) or more of the total
combined voting power of all classes of stock in one (1) of the other
corporations in such chain.
Section 1.9. Rule 16b-3
----------
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange
Act, as such Rule may be amended in the future.
Section 1.10. Chairman
--------
"Chairman" shall mean the Chairman of the Board.
Section 1.11. Securities Act
--------------
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.12. Subsidiary
----------
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of stock
in one (1) of the other corporations in such chain.
Section 1.13. Termination of Employment
-------------------------
"Termination of Employment" shall mean the time when the employee-
employer relationship between the Optionee and the Company, a Parent Corporation
or a Subsidiary is terminated for any reason, with or without cause, including,
but not by way of limitation, a termination by resignation, discharge, death or
retirement, but excluding any termination where there is a simultaneous
reemployment by the Company, a Parent Corporation or a Subsidiary. The Company,
in its absolute discretion, shall determine the effect of all other matters and
questions relating to Termination of Employment, including, but not by way of
limitation, the
2
<PAGE>
question of whether a Termination of Employment resulted from a discharge for
good cause, and all questions of whether particular leaves of absence constitute
Terminations of Employment.
ARTICLE II.
GRANT OF OPTION
Section 2.1. Grant of Option
---------------
In consideration of the Optionee's agreement to remain in the employ
of the Company, its Parent Corporations or its Subsidiaries and for other good
and valuable consideration, on the date hereof the Company irrevocably grants to
the Optionee the option to purchase any part or all of an aggregate of 2,500
shares of its Common Stock upon the terms and conditions set forth in this
Agreement.
Section 2.2. Purchase Price
--------------
The purchase price of the shares of stock covered by the Option shall
be $6.00 per share without commission or other charge.
Section 2.3. Consideration to Company
------------------------
In consideration of the granting of this option by the Company, the
Optionee agrees to render faithful and efficient services to the Company, a
Parent Corporation or a Subsidiary, with such duties and responsibilities as the
Company shall from time to time prescribe, for a period of at least one (1) year
from the date this Option is granted. Nothing in this Agreement, however, shall
confer upon the Optionee any right to continue in the employ of the Company, any
Parent Corporation or any Subsidiary or shall interfere with or restrict in any
way the rights of the Company, its Parent Corporations and its Subsidiaries,
which are hereby expressly reserved, to discharge the Optionee at any time for
any reason whatsoever, with or without cause.
Section 2.4. Adjustments in Option
---------------------
In the event that the outstanding shares of the stock subject to the
Option are changed into or exchanged for a different number or kind of shares of
the Company or other securities of the Company by reason of merger,
consolidation, recapitalization, reclassification, stock split up, stock
dividend or combination of shares, the Company shall make an appropriate and
equitable adjustment in the number and kind of shares as to which the Option, or
portions thereof then unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be maintained as before
the occurrence of such event. Such adjustment in the Option shall be made
without change in the total price applicable to the unexercised portion of the
option (except for any change in the aggregate price resulting from rounding-off
of share quantities or prices) and with any necessary corresponding adjustment
in the option price per share. Any such adjustment made by the Company shall be
final and binding upon the Optionee, the Company and all other interested
persons.
3
<PAGE>
ARTICLE III.
PERIOD OF EXERCISABILITY
Section 3.1. Commencement of Exercisability
------------------------------
(a) Subject to Section 5.6, the Option shall become exercisable in
five (5) cumulative installments as follows:
(i) The first installment shall consist of twenty percent
(20%) of the shares covered by the option and shall become exercisable on
the first anniversary of the date the Option is granted.
(ii) The second installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the second anniversary of the date the Option is granted.
(iii) The third installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the third anniversary of the date the Option is granted.
(iv) The fourth installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the fourth anniversary of the date the Option is granted.
(v) The fifth installment shall consist of twenty percent
(20%) of the shares covered by the Option and shall become exercisable on
the fifth anniversary of the date the Option is granted.
(b) No portion of the Option which is unexercisable at Termination of
Employment shall thereafter become exercisable.
Section 3.2. Duration of Exercisability
--------------------------
The installments provided for in Section 3.1 are cumulative. Each such
installment which becomes exercisable pursuant to Section 3.1 shall remain
exercisable until it becomes unexercisable under Section 3.3.
Section 3.3. Expiration of Option
--------------------
The Option may not be exercised to any extent by anyone after the
first to occur of the following events:
(a) The expiration of ten (10) years from the date the Option was
granted; or
(b) The time of the Optionee's Termination of Employment unless such
Termination of Employment results from his death, his retirement or his
disability; or
4
<PAGE>
(c) The expiration of three (3) months from the date of the
Optionee's Termination of Employment by reason of his disability; or
(d) The expiration of three (3) months from the date of the
Optionee's death.
Section 3.4. Acceleration of Exercisability
------------------------------
In the event of the merger or consolidation of the Company with or
into another corporation, or the acquisition by another corporation or person of
all or substantially all of the Company's assets or eighty percent (80%) or more
of the Company's then outstanding voting stock, or the liquidation or
dissolution of the Company, the Company may, in its absolute discretion and upon
such terms and conditions as it deems appropriate, provide prior to such event,
that at some time prior to the effective date of such event this Option shall be
exercisable as to all the shares covered hereby, notwithstanding that this
Option may not yet have become fully exercisable under Section 3.1(a); provided,
however, that this acceleration of exercisability shall not take place if:
(a) This Option becomes unexercisable under Section 3.3 prior to said
effective date; or
(b) In connection with such an event, provision is made for an
assumption of this Option or a substitution therefor of a new option by an
employer corporation or a parent or subsidiary of such corporation; or
(c) The contemplated corporate transaction is not consummated; and
provided, further, that nothing in this Section 3.4 shall make this Option
exercisable if it is otherwise unexercisable by reason of Section 5.6.
ARTICLE IV.
EXERCISE OF OPTION
Section 4.1. Person Eligible to Exercise
---------------------------
During the lifetime of the Optionee, only he may exercise the Option
or any portion thereof. After the death of the Optionee, any exercisable portion
of the Option may, prior to the time when the Option becomes unexercisable under
Section 3.3, be exercised by his personal representative or by any person
empowered to do so under the Optionee's will or under the then applicable laws
of descent and distribution.
Section 4.2. Partial Exercise
----------------
Any exercisable portion of the Option or the entire Option, if then
wholly exercisable, may be exercised in whole or in part at any time prior to
the time when the Option or portion thereof becomes unexercisable under Section
3.3; provided, however, that each partial exercise shall be for not less than
ten (10) shares (or the minimum installment set forth in Section 3.1, if a
smaller number of shares) and shall be for whole shares only.
5
<PAGE>
Section 4.3. Manner of Exercise
------------------
The Option, or any exercisable portion thereof, may be exercised
solely by delivery to the Chairman or his office of all of the following prior
to the time when the Option or such portion becomes unexercisable under Section
3.3:
(a) Notice in writing signed by the Optionee or the other person then
entitled to exercise the Option or portion, stating that the Option or portion
is thereby exercised, such notice complying with all applicable rules
established by the Company; and
(b) Full payment (in cash or by check) for the shares with respect to
which such Option or portion is exercised; and
(c) A bona fide written representation and agreement, in a form
satisfactory to the Company, signed by the Optionee or other person then
entitled to exercise such Option or portion, stating that the shares of stock
are being acquired for his own account, for investment and without any present
intention of distributing or reselling said shares or any of them except as may
be permitted under the Securities Act and then applicable rules and regulations
thereunder, and that the Optionee or other person then entitled to exercise such
Option or portion will indemnify the Company against and hold it free and
harmless from any loss, damage, expense or liability resulting to the Company if
any sale or distribution of the shares by such person is contrary to the
representation and agreement referred to above. The Company may, in its absolute
discretion, take whatever additional actions it deems appropriate to insure the
observance and performance of such representation and agreement and to effect
compliance with the Securities Act and any other federal or state securities
laws or regulations. Without limiting the generality of the foregoing, the
Company may require an opinion of counsel acceptable to it to the effect that
any subsequent transfer of shares acquired on an Option exercise does not
violate the Securities Act, and may issue stop-transfer orders covering such
shares. Share certificates evidencing stock issued on exercise of this Option
shall bear an appropriate legend referring to the provisions of this subsection
(c) and the agreements herein. The written representation and agreement referred
to in the first sentence of this subsection (c) shall, however, not be required
if the shares to be issued pursuant to such exercise have been registered under
the Securities Act, and such registration is then effective in respect of such
shares; and
(d) Full payment to the Company (or other employer corporation) of
all amounts which, under federal, state or local tax law, it is required to
withhold upon exercise of the Option; and
(e) In the event the Option or portion shall be exercised pursuant to
Section 4.1 by any person or persons other than the Optionee, appropriate proof
of the right of such person or persons to exercise the Option.
Section 4.4. Conditions to Issuance of Stock Certificates
--------------------------------------------
The shares of stock deliverable upon the exercise of the Option, or
any portion thereof, may be either previously authorized but unissued shares or
issued shares which have
6
<PAGE>
then been reacquired by the Company. Such shares shall be fully paid and
nonassessable. The Company shall not be required to issue or deliver any
certificate or certificates for shares of stock purchased upon the exercise of
the Option or portion thereof prior to fulfillment of all of the following
conditions:
(a) The obtaining of any approval or other clearance from any state
or federal governmental agency which the Company shall, in its absolute
discretion, determine to be necessary or advisable; and
(b) The payment to the Company (or other employer corporation) of all
amounts which, under federal, state or local tax law, it is required to withhold
upon exercise of the Option; and
(c) The lapse of such reasonable period of time following the
exercise of the Option as the Company may from time to time establish for
reasons of administrative convenience.
Section 4.5. Rights as Shareholder
---------------------
The holder of the Option shall not be, nor have any of the rights or
privileges of, a shareholder of the Company in respect of any shares purchasable
upon the exercise of any part of the Option unless and until certificates
representing such shares shall have been issued by the Company to such holder.
ARTICLE V.
OTHER PROVISIONS
Section 5.1. Administration
--------------
The Company shall have the power to interpret this Agreement. All
actions taken and all interpretations and determinations made by the Company in
good faith shall be final and binding upon the Optionee, the Company and all
other interested persons. No member of the Company shall be personally liable
for any action, determination or interpretation made in good faith with respect
to the Option.
Section 5.2. Option Not Transferable
-----------------------
Neither the Option nor any interest or right therein or part thereof
shall be liable for the debts, contracts or engagements of the Optionee or his
successors in interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any other means
whether such disposition be voluntary or involuntary or by operation of law by
judgment, levy, attachment, garnishment or any other legal or equitable
proceedings (including bankruptcy), and any attempted disposition thereof shall
be null and void and of no effect; provided, however, that this Section 5.2
shall not prevent transfers by will or by the applicable laws of descent and
distribution.
7
<PAGE>
Section 5.3. Shares to Be Reserved
---------------------
The Company shall at all times during the term of the Option reserve
and keep available such number of shares of stock as will be sufficient to
satisfy the requirements of this Agreement.
Section 5.4. Notices
-------
Any notice to be given under the terms of this Agreement to the
Company shall be addressed to the Company in care of its Chairman, and any
notice to be given to the Optionee shall be addressed to him at the address
given beneath his signature hereto. By a notice given pursuant to this Section
5.4, either party may hereafter designate a different address for notices to be
given to him. Any notice which is required to be given to the Optionee shall, if
the Optionee is then deceased, be given to the Optionee's personal
representative if such representative has previously informed the Company of his
status and address by written notice under this Section 5.4. Any notice shall be
deemed duly given when enclosed in a properly sealed envelope or wrapper
addressed as aforesaid, deposited (with postage prepaid) in a post office or
branch post office regularly maintained by the United States Postal Service.
Section 5.5. Titles
------
Titles are provided herein for convenience only and are not to serve
as a basis for interpretation or construction of this Agreement.
Section 5.6. Construction
------------
This Agreement shall be administered, interpreted and enforced under
the laws of the State of California.
Section 5.7. Conformity to Securities Laws
-----------------------------
The Optionee acknowledges that this Agreement is intended to conform
to the extent necessary with all provisions of the Securities Act and the
Exchange Act, the California Corporations Code and any and all regulations and
rules promulgated by the Securities and Exchange Commission and/or the
Corporations Commissioner thereunder, including without limitation Rule 16b-3.
Notwithstanding anything herein to the contrary, this Agreement shall be
administered, and the Option is granted and may be exercised, only in such a
manner as to conform to such laws, rules and regulations. To the extent
permitted by applicable law, this Agreement shall be deemed amended to the
extent necessary to conform to such laws, rules and regulations.
Section 5.8. Restrictions on Transfer of Shares
----------------------------------
(a) There can be no valid transfer (as hereinafter defined) of any
shares of stock purchased on exercise of the Option, or any interest in such
shares, by any holder of such
8
<PAGE>
shares or interests unless such transfer is solely for cash consideration and is
made in compliance with the following provisions:
(1) Before there can be a valid transfer of any shares or any
interest therein, the record holder of the shares to be transferred (the
"Offered Shares") shall give written notice (by registered or certified
mail) to the Company. Such notice shall specify the identity of the
proposed transferee, the cash price offered for the Offered Shares by the
proposed transferee and the other terms and conditions of the proposed
transfer. The date such notice is mailed shall be hereinafter referred to
as the "notice date" and the record holder of the Offered Shares shall be
hereinafter referred to as the "Offeror."
(2) For a period of thirty (30) calendar days after the notice
date, the Company shall have the option to purchase all (but not less than
all) of the Offered Shares at the purchase price and on the terms set forth
in subsection (a)(3) of this Section 5.8. This option shall be exercisable
by the Company by mailing (by registered or certified mail) written notice
of exercise to the Offeror prior to the end of said thirty (30) days.
(3) The price at which the Company may purchase the Offered
Shares pursuant to the exercise of such option shall be the cash price
offered for the Offered Shares by the proposed transferee (as set forth in
the notice required under subsection (a)(1) of this Section 5.8). The
Company's notice of exercise of such option shall be accompanied by full
payment for the Offered Shares and, upon such payment by the Company, the
Company shall acquire full right, title and interest to all of the Offered
Shares.
(4) If, and only if, the option given pursuant to subsection
(a)(2) of this Section 5.8 is not exercised, the transfer proposed in the
notice given pursuant to subsection (a)(1) of this Section 5.8 may take
place; provided, however, that such transfer must, in all respects, be
exactly as proposed in said notice except that such transfer may not take
place either before the tenth (10th) calendar day after the expiration of
said thirty-day option exercise period or after the ninetieth (90th)
calendar day after the expiration of said thirty-day option exercise
period, and if such transfer has not taken place prior to said ninetieth
(90th) day, such transfer may not take place without once again complying
with subsection (a) of this Section 5.8.
(b) As used in this Section 5.8, the term "transfer" means any sale,
encumbrance, pledge, gift or other form of disposition or transfer of shares of
the Company's stock or any legal or equitable interest therein; provided,
however, that the term "transfer" does not include a transfer of such shares or
interests by will or by the applicable laws of descent and distribution or a
gift of such shares if the donee agrees to be bound by the provisions of this
Section 5.8.
(c) None of the shares of the Company's stock purchased on exercise
of the Option shall be transferred on the Company's books nor shall the Company
recognize any such transfer of any such shares or any interest therein unless
and until all applicable provisions of this Section 5.8 have been complied with
in all respects. The certificates of stock evidencing shares
9
<PAGE>
of stock purchased on exercise of the Option shall bear an appropriate legend
referring to the transfer restrictions imposed by this Section 5.8 and to the
repurchase option provided for in Section 5.8.
Section 5.9. Complete Agreement
------------------
This Agreement represents the sole and entire agreement among the
Optionee and the Company relating to options granted hereunder and supersedes
all prior agreements, negotiations, and discussions between the parties. Any
amendment or modification to this Agreement must be in writing specifically
referring to this Agreement and signed by duly authorized representatives of all
of the parties hereto.
IN WITNESS WHEREOF, this Agreement has been executed and delivered by
the parties hereto.
EISI, Inc.
By: /s/ DONALD ESTERS
----------------------------
Donald Esters
Chairman of the Board
/s/ MARK MADISON
- ----------------------------
Optionee
P.O. Box 149
- ----------------------------
La Honda, CA 94020
- ----------------------------
Address
Optionee's Taxpayer
Identification Number:
###-##-####
- ----------------------------
10
<PAGE>
EXHIBIT 10.18
ASSET PURCHASE AGREEMENT
BETWEEN
EISI, INC.
as "Buyer,"
AND
DIGITAL NETWORKS CORPORATION
as "Seller"
Dated as of
June 12, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
RECITALS................................................................. 1
AGREEMENT................................................................ 1
1. Definitions...................................................... 1
Accredited Investor................................................. 1
Acquired Assets..................................................... 1
Adverse Consequences................................................ 2
Affiliate........................................................... 2
Affiliated Group.................................................... 2
Agreement with Seller Stockholders.................................. 2
Applicable Rate..................................................... 2
Assumed Liabilities................................................. 2
Basis............................................................... 3
Basis............................................................... 3
Buyer............................................................... 3
Buyer Note.......................................................... 3
Buyer Stock......................................................... 3
Closing............................................................. 3
Closing Date........................................................ 3
Code................................................................ 3
Confidential Information............................................ 3
Controlled Group of Corporations.................................... 3
Convertible Notes................................................... 3
Deferred InterSeller Transaction.................................... 3
Digital Networks Division........................................... 4
Disclosure Schedule................................................. 4
Effective Date...................................................... 4
Employee Benefit Plan............................................... 4
Employee Pension Benefit Plan....................................... 4
Employee Welfare Benefit Plan....................................... 4
Environmental, Health, and Safety Laws.............................. 4
ERISA............................................................... 4
Excess Loss Account................................................. 4
Extremely Hazardous Substance....................................... 4
Fiduciary........................................................... 4
Financial Statement................................................. 5
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
GAAP................................................................ 5
Initial Public Offering............................................. 5
Intellectual Property............................................... 5
Knowledge........................................................... 5
Liability........................................................... 5
Most Recent Balance Sheet........................................... 5
Most Recent Financial Statements.................................... 5
Most Recent Fiscal Month End........................................ 5
Most Recent Fiscal Year End......................................... 6
Multiemployer Plan.................................................. 6
Notes............................................................... 6
Ordinary Course of Business......................................... 6
Party............................................................... 6
PBGC................................................................ 6
Person.............................................................. 6
Prohibited Transaction.............................................. 6
Purchase Price...................................................... 6
Reportable Event.................................................... 6
Securities Act...................................................... 6
Securities Exchange Act............................................. 6
Security Interest................................................... 6
Seller.............................................................. 6
Seller Shares....................................................... 6
Seller Stockholder.................................................. 6
Subsidiary.......................................................... 7
Tax................................................................. 7
Tax Return.......................................................... 7
2. Purchase and Sale of Seller Assets............................... 7
(a) Basic Transaction.......................................... 7
(b) Purchase Price............................................. 7
(c) The Earn Out Formula....................................... 8
(d) Other Provisions With Respect to the Notes................. 8
(e) Allocation of Amounts Paid................................. 9
(f) Employment Agreements...................................... 9
(g) Agreement with Seller Stockholders......................... 10
(h) The Closing................................................ 10
(i) Deliveries at the Closing.................................. 10
3. Representations and Warranties of the Buyer...................... 11
(a) Organization of the Buyer.................................. 11
(b) Authorization of Transaction............................... 11
(c) Noncontravention........................................... 11
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
(d) Brokers' Fees.............................................. 11
(e) Financial Statements....................................... 12
4. Representations and Warranties Concerning the
Seller and the Transaction...................................... 12
(a) Organization, Qualification, and Corporate Power........... 12
(b) Authorization of Transaction............................... 12
(c) Noncontravention........................................... 12
(d) Brokers' Fees.............................................. 13
(e) Title to Assets............................................ 13
(f) Subsidiaries............................................... 13
(g) Financial Statements....................................... 13
(h) Events Subsequent to Most Recent Fiscal Year End........... 14
(i) Undisclosed Liabilities.................................... 16
(j) Legal Compliance........................................... 16
(k) Tax Matters................................................ 16
(l) Real Property.............................................. 18
(m) Intellectual Property...................................... 19
(n) Tangible Assets............................................ 22
(o) Inventory.................................................. 22
(p) Contracts.................................................. 22
(q) Notes and Accounts Receivable.............................. 23
(r) Powers of Attorney......................................... 24
(s) Insurance.................................................. 24
(t) Litigation................................................. 24
(u) Product Warranty........................................... 25
(v) Product Liability.......................................... 25
(w) Employees.................................................. 25
(x) Employee Benefits.......................................... 26
(y) Guaranties................................................. 28
(z) Environment, Health, and Safety............................ 28
(aa) Certain Business Relationships with the Seller............ 28
(bb) Disclosure................................................ 29
(cc) Investment................................................ 29
5. Post-Closing Covenants........................................... 29
(a) General.................................................... 29
(b) Litigation Support......................................... 29
(c) Transition................................................. 30
(d) Tax Clearance Certificate.................................. 30
(e) Formation and Operation of the Digital Networks Division... 31
6. Remedies for Breaches of this Agreement and the
Asset Purchase Agreement........................................ 31
(a) Survival of Representations and Warranties................. 31
(b) Indemnification Provisions for Benefit of the Buyer........ 31
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
(c) Indemnification Provisions for Benefit of the Seller....... 32
(d) Matters Involving Third Parties............................ 32
(e) Determination of Adverse Consequences...................... 34
(f) Recoupment Under The Notes................................. 34
(g) Other Indemnification Provisions........................... 34
7. Miscellaneous.................................................... 34
(a) Survival of Representations and Warranties................. 34
(b) Press Releases and Public Announcements.................... 34
(c) No Third-Party Beneficiaries............................... 35
(e) Succession and Assignment.................................. 35
(f) Counterparts............................................... 35
(g) Headings................................................... 35
(h) Notices.................................................... 35
(i) Governing Law.............................................. 37
(j) Amendments and Waivers..................................... 37
(k) Severability............................................... 38
(l) Expenses................................................... 38
(m) Construction............................................... 38
(n) Incorporation of Exhibits, Annexes, and Schedules.......... 38
(o) Specific Performance....................................... 38
(p) Submission to Jurisdiction................................. 39
(q) Bulk Transfer Laws......................................... 39
</TABLE>
iv
<PAGE>
ASSET PURCHASE AGREEMENT
This Asset Purchase Agreement (the "Agreement") is entered into as of June
12, 1998 (the "Effective Date"), by and among EISI, INC. a California
corporation (the "Buyer"), and DIGITAL NETWORKS CORPORATION, a California
Corporation (the "Seller"). The Buyer and the Seller are sometimes referred to
collectively herein as the "Parties" and individually as a "Party."
RECITALS
This Agreement contemplates a transaction in which the Buyer will purchase
from the Seller and the Seller will sell to the Buyer, all of the Acquired
Assets (and Buyer will assume certain specified Assumed Liabilities) of the
Seller subject to the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
------------
"Accredited Investor" has the meaning set forth in Regulation D promulgated
---------------------
under the Securities Act.
"Acquired Assets" means all right, title, and interest in and to all of the
-----------------
assets of the Seller, including all of its (a) real property, leaseholds and
---------
subleaseholds therein, improvements, fixtures, and fittings thereon, and
easements, rights-of-way, and other appurtenants thereto (such as appurtenant
rights in and to public streets), (b) tangible personal property (such as
machinery, equipment, inventories of raw materials and supplies, manufactured
and purchased parts, goods in process and finished goods, furniture,
automobiles, trucks, tractors, trailers, tools, jigs, and dies), (c)
Intellectual Property, goodwill associated therewith, licenses and sublicenses
granted and obtained with respect thereto, and rights thereunder, remedies
against infringements thereof, and rights to protection of interests therein
under the laws of all jurisdictions, (d) leases, subleases, and rights
thereunder, (e) agreements, contracts, indentures, mortgages, instruments,
Security Interests, guaranties, other similar arrangements, and rights
thereunder, (f) accounts, notes, and other receivables, (g) securities (such as
the capital stock in any Subsidiaries), (h) claims, deposits, prepayments,
refunds, causes of action, choses in action, rights of recovery, rights of set
off, and rights of recoupment (including any such item relating to the payment
of Taxes), (i) franchises,
1
<PAGE>
approvals, permits, licenses, orders, registrations, certificates, variances,
and similar rights obtained from governments and governmental agencies, (j)
books, records, ledgers, files, documents, correspondence, lists, plats,
architectural plans, drawings, and specifications, creative materials,
advertising and promotional materials, studies, reports, and other printed or
written materials, and (k) Cash; provided, however, that the Acquired Assets
-----------------
shall not include (i) the corporate charter, qualifications to conduct business
as a foreign corporation, arrangements with registered agents relating to
foreign qualifications, taxpayer and other identification numbers, seals, minute
books, stock transfer books, blank stock certificates, and other documents
relating to the organization, maintenance, and existence of the Seller as a
corporation or (ii) any of the rights of the Seller under this Agreement (or
under any side agreement between the Seller on the one hand and the Buyer on the
other hand entered into on or after the date of this Agreement).
"Adverse Consequences" means all actions, suits, proceedings, hearings,
----------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
-----------
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
------------------
(S)1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Agreement with Seller Stockholders" means the Agreement with Seller
------------------------------------
Stockholders entered into concurrently herewith and attached hereto as Exhibit
I.
"Applicable Rate" means the prime base rate of interest publicly announced
-----------------
from time to time by Wells Fargo Bank (or its successor).
"Assumed Liabilities" means (a) all Liabilities of the Seller set forth on
---------------------
the face of the Most Recent Balance Sheet (rather than in any notes thereto),
(b) all Liabilities of the Seller which have arisen after the Most Recent Fiscal
Month End in the Ordinary Course of Business (other than any Liability resulting
from, arising out of, relating to, in the nature of, or caused by any breach of
contract, tort, infringement, or violation of law), and (c) all obligations of
the Seller under the agreements, contracts, leases, licenses, and other
arrangements referred to in the definition of Acquired Assets either (i) to
furnish goods, services, and other non-Cash benefits to another party after the
Closing or (ii) to pay for goods, services, and other non-Cash benefits that
another party will furnish to it after the Closing; provided, however, that the
-----------------
Assumed Liabilities shall not include (i) any Liability of the Seller for Taxes,
(ii) any Liability of the Seller for the unpaid Taxes of any Person (other than
any of the Seller and its
2
<PAGE>
Subsidiaries) under Reg. (S)1.1502-6 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or otherwise, (iii)
any obligation of the Seller to indemnify any Person (including any of the
Seller Stockholders) by reason of the fact that such Person was a director,
officer, employee, or agent of any of the Seller and its Subsidiaries or was
serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such indemnification is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses, or otherwise and whether such indemnification is pursuant to
any statute, charter document, bylaw, agreement, or otherwise), (iv) any
Liability of the Seller for costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby, or (v) any Liability or
obligation of the Seller under this Agreement (or under any side agreement
between the Seller on the one hand and the Buyer on the other hand entered into
on or after the date of this Agreement).
"Basis" means any past or present fact, situation, circumstance, status,
-------
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
-------
"Buyer Note" has the meaning set forth in (S)2(b) below.
------------
"Buyer Stock" means common stock of the Buyer.
-------------
"Closing" has the meaning set forth in (S)2(f) below.
---------
"Closing Date" has the meaning set forth in (S)2(f) below.
--------------
"Code" means the Internal Revenue Code of 1986, as amended.
------
"Confidential Information" means any information concerning the businesses
--------------------------
and affairs of the Seller that is not already generally available to the public.
"Controlled Group of Corporations" has the meaning set forth in Code
----------------------------------
(S)1563.
"Convertible Notes" has the meaning set forth in (S)2(b) below.
-------------------
"Deferred InterSeller Transaction" has the meaning set forth in Reg.
----------------------------------
(S)1.1502-13.
"Digital Networks Division" has the meaning set forth in (S)5(e) below.
---------------------------
"Disclosure Schedule" has the meaning set forth in (S)4 below.
---------------------
3
<PAGE>
"Effective Date" has the meaning set forth in the preface above.
----------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
-----------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
-------------------------------
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(1).
-------------------------------
"Environmental, Health, and Safety Laws" means the Comprehensive
----------------------------------------
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the
Toxic Substances Control Act, the Clean Air Act, the California Health & Safety
Code and the California Water Code, each as amended, together with all other
laws (including rules, regulations, codes, plans, injunctions, judgments,
orders, decrees, rulings, and charges thereunder) of federal, state, local, and
foreign governments (and all agencies thereof) concerning pollution or
protection of the environment, public health and safety, or employee health and
safety, including laws relating to emissions, discharges, releases, or
threatened releases of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes into ambient air, surface water, ground
water, or lands or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport, or handling of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic materials
or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-------
amended.
"Excess Loss Account" has the meaning set forth in Reg. (S)1.1502-19.
---------------------
"Extremely Hazardous Substance" has the meaning set forth in (S)302 of the
-------------------------------
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA (S)3(21).
-----------
"Financial Statement" has the meaning set forth in (S)4(g) below.
---------------------
4
<PAGE>
"GAAP" means United States generally accepted accounting principles as in
------
effect from time to time.
"Initial Public Offering" shall mean the first public offering of common
-------------------------
stock (or securities convertible into common stock) of the Buyer pursuant to an
effective registration statement under the Securities Act.
"Intellectual Property" means (a) all inventions (whether patentable or
-----------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
-----------
"Liability" means any liability (whether known or unknown, whether asserted
-----------
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
---------------------------
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in (S)4(g)
----------------------------------
below.
"Most Recent Fiscal Month End" has the meaning set forth in (S)4(g) below.
------------------------------
"Most Recent Fiscal Year End" has the meaning set forth in (S)4(g) below.
-----------------------------
"Multiemployer Plan" has the meaning set forth in ERISA (S)3(37).
--------------------
5
<PAGE>
"Notes" shall mean the Buyer Notes and the Convertible Notes described in
-------
(S)2(b) below.
"Ordinary Course of Business" means the ordinary course of business
-----------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
-------
"PBGC" means the Pension Benefit Guaranty Corporation.
------
"Person" means an individual, a partnership, a corporation, an association,
--------
a joint stock Seller, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA (S)405 and Code
------------------------
(S)4975.
"Purchase Price" has the meaning set forth in (S)2(b) below.
----------------
"Reportable Event" has the meaning set forth in ERISA (S)4043.
------------------
"Securities Act" means the Securities Act of 1933, as amended.
----------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-------------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-------------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
--------
"Seller Shares" means any share of the Common Stock, no par value, of the
---------------
Seller.
"Seller Stockholder" means any person who or which holds any Seller Shares.
--------------------
"Subsidiary" means any corporation with respect to which a specified Person
------------
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
6
<PAGE>
"Tax" means any federal, state, local, or foreign income, gross receipts,
-----
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code (S)59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
------------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
2. Purchase and Sale of Seller Assets.
-----------------------------------
(a) Basic Transaction.
--------------------
(i) On and subject to the terms and conditions of this Agreement, the
Buyer agrees to purchase from the Seller, and the Seller agrees to sell,
transfer, convey and deliver to the Buyer, all of the Acquired Assets on
the Closing Date for the consideration specified in (S)2(b) below.
(ii) On and subject to the terms and conditions of this Agreement, the
Buyer agrees to assume and become responsible for all of the Assumed
Liabilities on the Closing Date. The Buyer will not assume or have any
responsibility, however, with respect to any other obligation or Liability
of the Seller not included within the definition of Assumed Liabilities.
(b) Purchase Price. On an subject to the terms and conditions of this
---------------
Agreement, as consideration for the sale of all of the Acquired Assets the Buyer
shall assume the Assumed Liabilities on the Closing Date and shall pay to Seller
the following additional consideration, in the aggregate amounts, at the
following times (the "Purchase Price"):
(i) ONE MILLION DOLLARS ($1,000,000.00) (the "Cash") by wire transfer
or delivery of other immediately available funds on the Closing Date;
(ii) subordinated promissory notes from the Buyer (the "Buyer Notes")
on the terms and conditions set forth in and in the form of Exhibits A, B
and C attached hereto in the aggregate principal amount of FOUR HUNDRED
THOUSAND DOLLARS ($400,000.00) on the Closing Date;
7
<PAGE>
(iii) subordinated promissory notes from the Buyer convertible into
shares of Buyer Stock (the "Convertible Notes") on the terms and conditions
set forth in and in the form of Exhibits D, E and F attached hereto in the
aggregate principal amount of FIVE HUNDRED THIRTY SEVEN THOUSAND TWO
HUNDRED FIFTY FIVE DOLLARS AND SEVENTY TWO CENTS ($537,255.72) on the
Closing Date; and
(iv) an additional sum based on the combined pre-tax income of the
Seller from January 1, 1998 through the Closing Date and the Digital
Networks Division from the Closing Date through December 31, 1998 based on
the formula set forth in (S)2(c) below (the "Earn Out").
(c) The Earn Out Formula. As part of the Purchase Price, the Buyer shall
---------------------
pay to Seller the Earn Out based on the following:
(i) If the pre-tax income of the Seller from January 1, 1998 through
the Closing Date when combined with the pre-tax income of the Digital
Networks Division from the Closing Date through December 31, 1998 is more
than THREE HUNDRED THOUSAND DOLLARS ($300,000.00) (the "Threshold Amount"),
the Buyer shall pay to the Seller an amount equal to TWO DOLLARS AND TEN
CENTS ($2.10) for each dollar by which the combined pre-tax income exceeds
the Threshold Amount up to a maximum Earn Out of FIVE HUNDRED THOUSAND
DOLLARS ($500,000.00). The Earn Out, if any, shall be payable to the Seller
in three (3) equal installments on May 31, 1999, June 30, 1999 and July 31,
1999. If the combined pre-tax income is not greater than the Threshold
Amount, no Earn Out shall be due or payable to the Seller.
(ii) In determining the pre-tax income of the Digital Networks
Division from the Closing Date through December 31, 1998, the Digital
Networks Division shall, for accounting purposes, be treated as a separate
entity and shall not be charged with any overhead or other allocations from
the Buyer except for those expenses which Seller would have incurred in the
ordinary course of its business (e.g., rent, payroll, benefits etc.) had
the transactions contemplated by this Agreement not occurred.
(d) Other Provisions With Respect to the Notes.
-------------------------------------------
(i) The Buyer Notes shall bear interest at the Applicable Rate and
be payable to the Seller on or before six (6) months from the Closing Date.
(ii) At any time after the Closing Date and prior to December 31,
1999 (the "Final Conversion Date"), if there has been no Initial Public
Offering of the Buyer's Stock the Seller shall have the right, on written
notice to the Buyer, to convert the Convertible Notes into Buyer Stock (the
"Conversion Option"). If there has been an
8
<PAGE>
Initial Public Offering of the Buyer's Stock prior to the Final Conversion
Date, the Convertible Notes shall automatically be cancelled and converted
into Buyer Stock on the date immediately following the Initial Public
Offering (the "Mandatory Conversion"). If the Seller timely elects the
Conversion Option or there is a Mandatory Conversion, each Convertible Note
shall be exchanged for FIVE THOUSAND NINE HUNDRED EIGHTY TWO (5,982) shares
of Buyer common stock (or 17,946 shares in the aggregate). Any Buyer Stock
issued pursuant to either conversion shall be subject to the same
limitations and restrictions as the common stock held by the other
principal shareholders of the Buyer. If there has been no Initial Public
Offering of the Buyer's Stock prior to the Final Conversion Date and the
Seller fails to timely exercise the Conversion Option, the Convertible
Notes shall be paid in six (6) equal monthly installments commencing on the
first business day of January 2000. The Convertible Notes shall bear
interest at the annual rate of seven percent (7%).
(iii) Buyer expressly reserves against the Seller (and the Seller
Stockholders to the extent any of the Notes are transferred to Seller
Stockholders) the right to offset against any and all sums payable under
any of the Notes an amount equal to any and all damages sustained by the
Buyer by reason of any default by the Seller or the breach of any
representations, warranties or covenants of the Seller under this
Agreement.
(e) Allocation of Amounts Paid. The Parties agree to allocate the Purchase
---------------------------
Price (and all other capitalizable costs) among the Acquired Assets for all
purposes (including financial accounting and tax purposes) based on the book
value of the Acquired Assets as of the Closing Date with the difference between
the book value of the Acquired Assets as of the Closing Date and the aggregate
of the consideration set forth in (S)2(b)(i)-(iv) and the value of the Assumed
Liabilities as of the Closing Date being characterized as "goodwill." The
parties shall agree on the book value of the Acquired Assets and the Assumed
Liabilities as of the Closing Date within thirty (30) days after the Closing
Date.
(f) Employment Agreements. As additional consideration for and as a
----------------------
condition to the Buyer's payment of the Purchase Price, each of the Seller
Stockholders shall enter into an Employment Agreement with the Buyer on terms
and conditions satisfactory to the Buyer in the form of Exhibits G-1, G-2 and G-
3 attached hereto.
(g) Agreement with Seller Stockholders. As further consideration for and as
-----------------------------------
a condition to the Buyer's payment of the Purchase Price, each of the Seller
Stockholders shall enter into the Agreement with Seller Stockholders with the
Buyer in the form of Exhibit H attached hereto.
9
<PAGE>
(h) The Closing. The closing of the transactions contemplated by this
------------
Agreement (the "Closing") shall take place at the offices of Latham & Watkins,
---------
633 West Fifth Street, Suite 4000, Los Angeles, California 90071 on the "Closing
Date." The Closing Date shall be the earlier of the date on which
(i) the Buyer is provided with the written consent of the landlord to
the assignment to Buyer of that certain real property lease listed in
(S)4(l)(ii) of the Disclosure Schedule and the written consent of Safari
Technologies, Inc. to the assignment to the Buyer of the Seller's rights
and obligations under that certain Dealer Agreement listed in (S)4(p)(ii)
of the Disclosure Schedule; and
(ii) either (x) the Buyer is provided with the written consent of the
financial institutions to the assignment and transfer of the rights and
obligations under those certain promissory notes and lines of credit listed
in (S)4(p)(iv) of the Disclosure Schedule from the Seller to the Buyer, or
(y) July 12, 1998.
The period of time between the Effective Date and the Closing Date shall be
called the "Interim Period." The foregoing notwithstanding, during the Interim
Period and following the Closing Date, the Seller shall make prompt and
reasonable efforts to obtain all consents and assignments necessary to transfer
the Seller's rights and obligations under the various contracts and agreements
listed in the Disclosure Schedule to the Buyer.
(i) Deliveries at the Closing. At the Closing, (x) the Seller will deliver
--------------------------
to the Buyer all of the various certificates, instruments, documents and
consents necessary to effect the transactions contemplated hereby; (y) the
Seller will execute, acknowledge and deliver to the Buyer assignments
(including, but not limited to, real property and Intellectual Property transfer
documents) and such other instruments of sale, transfer and conveyance as the
Buyer may request; and (z) the Buyer will deliver to the Seller the
consideration specified in (S)2(b) above.
(j) Buyer's Management of Seller During the Interim Period. During the
-------------------------------------------------------
Interim Period, Buyer, through its Digital Networks Division, shall be entitled
to manage the business affairs and operations of the Seller, with input from the
Seller Stockholders. As consideration for its management services, Buyer shall
be entitled to receive all of the net profits earned by the Seller during the
Interim Period (the "Management Fee") subject to the condition that the Buyer
fulfills its obligations under this Agreement. If Buyer fails to pay the Cash
consideration or issue the Notes, then Buyer shall not be entitled to the
Management Fee. All Management Fees paid to the Buyer shall be deemed to be
pre-tax income of the Seller for purposes of calculating the Earn Out under
(S)2(c)(i). Buyer's right to manage the business affairs and operations of the
Seller shall automatically terminate on the Closing Date or midnight on July 12,
1998, whichever is earlier.
10
<PAGE>
3. Representations and Warranties of the Buyer. The Buyer represents and
--------------------------------------------
warrants to the Seller that the statements contained in this (S)3 are correct
and complete as of the Effective Date and will be correct and complete as of the
Closing Date (as though made then and as though the Closing Date were
substituted for the Effective Date).
(a) Organization of the Buyer. The Buyer is a corporation duly
--------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(b) Authorization of Transaction. The Buyer has full power and authority
-----------------------------
(including full corporate power and authority) to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement constitutes
the valid and legally binding obligation of the Buyer, enforceable in accordance
with its terms and conditions. The Buyer need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by
this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(A) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Buyer is subject or any provision of
its charter or bylaws or (B) conflict with, result in a breach of, constitute a
default under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
the Buyer is a party or by which it is bound or to which any of its assets is
subject.
(d) Brokers' Fees. The Buyer shall pay a finder's fee of $20,000 to
--------------
David Berkus. Otherwise, the Buyer has no Liability or obligation to pay any
fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could become
liable or obligated.
(e) Financial Statements. Buyer has provided Seller with its financial
---------------------
statements for the fiscal year ending December 31, 1997. These financial
statements (including the notes thereto) were been prepared on a historically
consistent basis, contain and reflect in all material respects all necessary
adjustments and present fairly the financial condition of the Buyer as of
December 31, 1997 and the results of operations of the Buyer for such period,
are correct and complete, and are consistent with the books and records of the
Buyer.
4. Representations and Warranties Concerning the Seller and the
------------------------------------------------------------
Transaction. The Seller represents and warrants to the Buyer that the
- ------------
statements contained in this (S)4 are correct
11
<PAGE>
and complete as of the Effective Date except as set forth in the disclosure
schedule delivered by the Seller to the Buyer and initialed by the Parties (the
"Disclosure Schedule"). The Disclosure Schedule will be arranged in paragraphs
- ---------------------
corresponding to the lettered and numbered paragraphs contained in this (S)4.
(a) Organization, Qualification, and Corporate Power. The Seller is a
-------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Seller is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Seller has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it. (S)4(a) of the Disclosure Schedule lists the directors and
officers of the Seller. The Seller has delivered to the Buyer correct and
complete copies of the charter and bylaws of the Seller (as amended to date).
The minute books (containing the records of meetings of the stockholders, the
board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of the Seller are correct and
complete. The Seller is not in default under or in violation of any provision of
its charter or bylaws.
(b) Authorization of Transaction. The Seller has full power and authority
-----------------------------
to execute and deliver this Agreement and to perform his obligations hereunder.
Without limiting the generality of the foregoing, the board of directors of the
Seller and the Seller Stockholders have duly authorized the execution, delivery,
and performance of this Agreement by the Seller. This Agreement constitutes the
valid and legally binding obligation of the Seller, enforceable in accordance
with its terms and conditions. The Seller need not give any notice to, make any
filing with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated by
this Agreement.
(c) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Seller is subject or any provision of
the charter or bylaws of the Seller or (ii) conflict with, result in a breach
of, constitute a default under, result in the acceleration of, create in any
party the right to accelerate, terminate, modify, or cancel, or require any
notice or consent under any agreement, contract, lease, license, instrument, or
other arrangement to which the Seller is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Seller does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement; provided, however, that Seller has
not obtained consents to the assignment of
12
<PAGE>
those contracts and agreements listed in the Disclosure Schedule, and Buyer has
agreed to waive the Seller's obligation to obtain such consents except as
provided in (S)2(h)(i)-(ii).
(d) Brokers' Fees. The Seller shall pay a finder's fee of $20,000 to David
--------------
Berkus. Otherwise, the Seller does not have any Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(e) Title to Assets. The Seller has good and marketable title to, or a
----------------
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet.
(f) Subsidiaries. The Seller has no subsidiaries, either direct or
-------------
indirect, whatsoever.
(g) Financial Statements. Attached hereto to (S)4(g) of the Disclosure
---------------------
Schedule are the following financial statements (collectively the "Financial
----------
Statements"): (i) balance sheets and statements of income, changes in
- -----------
stockholders' equity, and cash flow as of and for the fiscal years ended
December 31, 1994, December 31, 1995, December 31, 1996 and December 31, 1997
(the "Most Recent Fiscal Year End") for the Seller ; and (ii) balance sheets and
-----------------------------
statements of income, changes in stockholders' equity, and cash flow (the "Most
-----
Recent Financial Statements") as of and for the four (4) months ended April 30,
- ----------------------------
1998 (the "Most Recent Fiscal Month End") for the Seller. The Financial
------------------------------
Statements (including the notes thereto) have been prepared on a consistent
basis throughout the periods covered thereby, contain and reflect in all
respects all necessary adjustments and present fairly the financial condition of
the Seller as of such dates and the results of operations of the Seller for such
periods, are correct and complete, and are consistent with the books and records
of the Seller (which books and records are correct and complete).
(h) Events Subsequent to Most Recent Fiscal Year End. Since the Most Recent
-------------------------------------------------
Fiscal Year End, there has not been any material adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Seller. Without limiting the generality of the foregoing, since that date:
(i) the Seller has not sold, leased, transferred, or assigned any of
its assets, tangible or intangible, other than for a fair consideration in
the Ordinary Course of Business;
13
<PAGE>
(ii) the Seller has not entered into any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and
licenses) outside the Ordinary Course of Business;
(iii) no party (including the Seller ) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series
of related agreements, contracts, leases, and licenses) involving more than
$5,000 to which the Seller is a party or by which any of them is bound;
(iv) the Seller has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Seller has not made any capital expenditure (or series of
related capital expenditures) outside the Ordinary Course of Business;
(vi) the Seller has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $5,000 or outside the Ordinary Course of Business;
(vii) the Seller has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation involving more than $10,000
in the aggregate;
(viii) the Seller has not failed to pay any of its obligations when
due or delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) the Seller has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either
involving more than $5,000 or outside the Ordinary Course of Business;
(x) the Seller has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Seller;
(xii) the Seller has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
14
<PAGE>
(xiii) the Seller has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Seller has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) the Seller has not made any loan to, or entered into any other
transaction with, any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xvi) the Seller has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xvii) the Seller has not granted any (a) increase in the
compensation or (b) bonuses, incentive compensation or other benefits,
contingent or otherwise, of or for the benefit of any of its directors,
officers, and employees outside the Ordinary Course of Business;
(xviii) the Seller has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xix) the Seller has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Seller has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) there has not been any other material occurrence, event,
incident, action, failure to act, or transaction outside the Ordinary
Course of Business involving the Seller; and
(xxii) the Seller has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Seller has no Liability (and there is no
------------------------
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth on
15
<PAGE>
the face of the Most Recent Balance Sheet (rather than in any notes thereto) and
(ii) Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(j) Legal Compliance. Each of the Seller and its predecessors and
-----------------
Affiliates has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
(k) Tax Matters.
------------
(i) The Seller has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Seller (whether or not shown on any Tax Return) have been
paid. The Seller currently is not the beneficiary of any extension of time
within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Seller does not file Tax Returns that
it is or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of the Seller that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) The Seller has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third party.
(iii) Neither the Seller nor any director or officer (or employee
responsible for Tax matters) of the Seller expects any authority to assess
any additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax Liability of the Seller
either (A) claimed or raised by any authority in writing or (B) as to which
any of the Sellers and the directors and officers (and employees
responsible for Tax matters) of the Seller has Knowledge based upon
personal contact with any agent of such authority. (S)4(k) of the
Disclosure Schedule lists all federal, state, local, and foreign income Tax
Returns filed with respect to the Seller for taxable periods ended on or
after December 31, 1994, indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit. The Sellers have delivered to the Buyer correct and complete copies
of all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Seller since December 31,
1995.
16
<PAGE>
(iv) The Seller has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Seller has not filed a consent under Code (S)341(f)
concerning collapsible corporations. The Seller has not made any payments,
is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible under Code (S)280G. The Seller has not been a United
States real property holding corporation within the meaning of Code
(S)897(c)(2) during the applicable period specified in Code
(S)897(c)(1)(A)(ii). The Seller has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code (S)6662.
The Seller is not a party to any Tax allocation or sharing agreement. The
Seller (A) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common
parent of which was the Seller) or (B) has no Liability for the Taxes of
any Person (other than the Seller ) under Reg. (S)1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(vi) (S)4(k) of the Disclosure Schedule sets forth the following
information with respect to the Seller as of the most recent practicable
date (as well as on an estimated pro forma basis as of the Closing giving
effect to the consummation of the transactions contemplated hereby): (A)
the basis of the Seller or Subsidiary in its assets; (B) the amount of any
net operating loss, net capital loss, unused investment or other credit,
unused foreign tax, or excess charitable contribution allocable to the
Seller; and (C) the amount of any deferred gain or loss allocable to the
Seller or Subsidiary arising out of any Deferred InterSeller Transaction.
(vii) The unpaid Taxes of the Seller (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Seller in filing its
Tax Returns.
(l) Real Property.
--------------
(i) The Seller does not own any real property whatsoever.
(ii) (S)4(l)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Seller and, with
respect to each lease or sublease, states the term, annual rent, renewal
options and square footage. The Sellers have
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delivered to the Buyer correct and complete copies of the leases and
subleases listed in (S)4(l)(ii) of the Disclosure Schedule (as amended to
date). With respect to each lease and sublease listed in (S)4(l)(ii) of the
Disclosure Schedule:
(A) the lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(B) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(C) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(D) no party to the lease or sublease has repudiated any
provision thereof;
(E) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(F) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(G) the Seller has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(H) all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws,
rules, and regulations;
(I) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities; and
(J) the owner of the facility leased or subleased has good and
marketable title to the parcel of real property, free and clear of any
Security Interest, easement, covenant, or other restriction, except
for installments of special easements not yet delinquent and recorded
easements, covenants, and other
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restrictions which do not impair the current use, occupancy, or value,
or the marketability of title, of the property subject thereto.
(m) Intellectual Property.
----------------------
(i) The Seller owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary or
desirable for the operation of the businesses of the Seller as presently
conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Seller immediately prior to the
Closing hereunder will be owned or available for use by the Seller on
identical terms and conditions immediately subsequent to the Closing
hereunder. The Seller has taken all necessary and desirable action to
maintain and protect each item of Intellectual Property that it owns or
uses.
(ii) The Seller has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Sellers and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Seller has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Seller must
license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Seller, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of the Seller .
(iii) (S)4(m)(iii) of the Disclosure Schedule identifies each patent
or registration which has been issued to the Seller with respect to any of
its Intellectual Property, identifies each pending patent application or
application for registration which the Seller has made with respect to any
of its Intellectual Property, and identifies each license, agreement, or
other permission which the Seller has granted to any third party with
respect to any of its Intellectual Property (together with any exceptions).
The Sellers have delivered to the Buyer correct and complete copies of all
such patents, registrations, applications, licenses, agreements, and
permissions (as amended to date) and have made available to the Buyer
correct and complete copies of all other written documentation evidencing
ownership and prosecution (if applicable) of each such item. (S)4(m)(iii)
of the Disclosure Schedule also identifies each trade name or unregistered
trademark used by the Seller in connection with any of its businesses. With
respect to each item of Intellectual Property required to be identified in
(S)4(m)(iii) of the Disclosure Schedule:
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(A) the Seller possesses all right, title, and interest in and to
the item, free and clear of any Security Interest, license, or other
restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, enforceability, use, or ownership
of the item; and
(D) the Seller has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) (S)4(m)(iv) of the Disclosure Schedule identifies each item of
Intellectual Property that any third party owns and that the Seller uses
pursuant to license, sublicense, agreement, or permission. The Sellers have
delivered to the Buyer correct and complete copies of all such licenses,
sublicenses, agreements, and permissions (as amended to date). With respect
to each item of Intellectual Property required to be identified in
(S)4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and
assumptions referred to in (S)2 above);
(C) no party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or permission
has repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
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<PAGE>
(F) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of any of
the Sellers and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Seller, is
threatened which challenges the legality, validity, or enforceability
of the underlying item of Intellectual Property; and
(H) the Seller has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) To the Knowledge of the Seller and the directors and officers
(and employees with responsibility for Intellectual Property matters) of
the Seller, the Seller will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation of
its businesses as presently conducted and as presently proposed to be
conducted.
(vi) None of the Seller or the directors and officers (and employees
with responsibility for Intellectual Property matters) of the Seller had
any Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties
have developed which reasonably could be expected to supersede or make
obsolete any product or process of the Seller.
(n) Tangible Assets. The Seller owns or leases all buildings, machinery,
----------------
equipment, and other tangible assets necessary for the conduct of their
businesses as presently conducted and as presently proposed to be conducted.
Each such tangible asset is free from defects, has been maintained in accordance
with normal industry practice, is in good operating condition and repair
(subject to normal wear and tear), is suitable for the purposes for which it
presently is used and presently is proposed to be used and is in conformity in
all material respects with all applicable laws, ordinances, orders, regulations
and other requirements (including applicable zoning, environmental, motor
vehicle safety or standards, occupational health and safety laws and
regulations) relating thereto currently in effect.
(o) Inventory. The inventory of the Seller consists of raw materials and
----------
supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth on
the face of the Most Recent Balance Sheet (rather than in any
21
<PAGE>
notes thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Seller.
(p) Contracts. (S)4(p) of the Disclosure Schedule lists all contracts and
----------
other agreements to which the Seller is a party including, but not limited to,
the following:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which will extend over a period of more than one year,
result in a loss to the Seller, or involve consideration in excess of
$1,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Sellers and their Affiliates
(other than the Seller);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis providing any form of
compensation or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
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<PAGE>
(xi) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Seller ; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $1,000.
The Seller has delivered to the Buyer a correct and complete copy of each
written agreement listed in (S)4(p) of the Disclosure Schedule (as amended to
date) and a written summary setting forth the terms and conditions of each oral
agreement referred to in (S)4(p) of the Disclosure Schedule. With respect to
each such agreement: (A) the agreement is legal, valid, binding, enforceable,
and in full force and effect; (B) the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby; (C) no party
is in breach or default, and no event has occurred which with notice or lapse of
time would constitute a breach or default, or permit termination, modification,
or acceleration, under the agreement; and (D) no party has repudiated any
provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of the
------------------------------
Seller are reflected properly on their books and records, are valid receivable
subject to no setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Seller.
(r) Powers of Attorney. There are no outstanding powers of attorney
-------------------
executed on behalf of the Seller.
(s) Insurance. (S)4(s) of the Disclosure Schedule sets forth the following
----------
information with respect to each insurance policy (including policies providing
property, casualty, liability, and workers' compensation coverage and bond and
surety arrangements) to which the Seller has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past 5 years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
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<PAGE>
(iv) the scope (including an indication of whether the coverage was on
a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Seller nor any other party to the policy is in breach or
default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Seller has been covered during the past 5 years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. (S)4(s) of the Disclosure
Schedule describes any self-insurance arrangements affecting the Seller.
(t) Litigation. (S)4(t) of the Disclosure Schedule sets forth each instance
-----------
in which the Seller (i) is subject to any outstanding injunction, judgment,
order, decree, ruling, or charge or (ii) is a party or is threatened to be made
a party to any action, suit, proceeding, hearing, or investigation of, in, or
before any court or quasi-judicial or administrative agency of any federal,
state, local, or foreign jurisdiction or before any arbitrator. None of the
actions, suits, proceedings, hearings, and investigations set forth in (S)4(t)
of the Disclosure Schedule could result in any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Seller. None of the Seller and the directors and officers (and employees
with responsibility for litigation matters)of the Seller has any reason to
believe that any such action, suit, proceeding, hearing, or investigation may be
brought or threatened against the Seller.
(u) Product Warranty. Each product manufactured, sold, leased, or delivered
-----------------
by the Seller has been in conformity with all applicable contractual commitments
and all express and implied warranties, and the Seller has no Liability (and
there is no Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) for replacement or repair thereof or other damages in
connection therewith, subject only to the reserve for product warranty claims
set forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Seller. No product
manufactured, sold, leased, or delivered by the Seller is subject to any
guaranty, warranty, or other indemnity beyond the applicable standard terms
24
<PAGE>
and conditions of sale or lease. (S)4(u) of the Disclosure Schedule includes
copies of the standard terms and conditions of sale or lease for the Seller
(containing applicable guaranty, warranty, and indemnity provisions).
(v) Product Liability. The Seller has no Liability (and there is no Basis
------------------
for any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against any of them giving rise to any
Liability) arising out of any injury to individuals or property as a result of
the ownership, possession, or use of any product manufactured, sold, leased, or
delivered by the Seller.
(w) Employees. To the Knowledge of any of the Seller and the directors and
----------
officers (and employees with responsibility for employment matters) of the
Seller, no executive, key employee, or group of employees has any plans to
terminate employment with the Seller. The Seller is not a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Seller has not committed any unfair labor practice.
None of the Seller and the directors and officers (and employees with
responsibility for employment matters) of the Seller has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Seller.
(x) Employee Benefits.
------------------
(i) (S)4(x) of the Disclosure Schedule lists each Employee Benefit
Plan that the Seller maintains or to which the Seller contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and
other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 6
of Subtitle B of Title I of ERISA and of Code (S)4980B have been met
with respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued
25
<PAGE>
in accordance with the past custom and practice of the Seller. All
premiums or other payments for all periods ending on or before the
Closing Date have been paid with respect to each such Employee Benefit
Plan which is an Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
(S)401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(E) The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested Liabilities thereunder determined in accordance with
PBGC methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for determination.
(F) The Seller has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue
Service, the most recent Form 5500 Annual Report, and all related
trust agreements, insurance contracts, and other funding agreements
which implement each such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Seller
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or
threatened.
(B) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of
the assets of any such Employee Benefit Plan (other than routine
26
<PAGE>
claims for benefits) is pending or threatened. None of the Sellers and
the directors and officers (and employees with responsibility for
employee benefits matters) of the Seller has any Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
(C) The Seller has not incurred, and none of the Sellers and the
directors and officers (and employees with responsibility for employee
benefits matters) of the Seller has any reason to expect that the
Seller will incur, any Liability to the PBGC (other than PBGC premium
payments) or otherwise under Title IV of ERISA (including any
withdrawal Liability) or under the Code with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit Plan.
(iii) The Seller does not contribute to, never has contributed to, and
never has been required to contribute to any Multiemployer Plan or has any
Liability (including withdrawal Liability) under any Multiemployer Plan.
(iv) The Seller does not maintain, never has maintained or
contributed and never has been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance
with Code (S)4980B).
(y) Guaranties. The Seller is not a guarantor or otherwise liable for any
-----------
Liability or obligation (including indebtedness) of any other Person.
(z) Environment, Health, and Safety.
--------------------------------
(i) The Seller and its predecessors and Affiliates have complied
with all Environmental, Health, and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any failure
so to comply. Without limiting the generality of the preceding sentence,
the Seller and its predecessors and Affiliates has obtained and been in
compliance with all of the terms and conditions of all permits, licenses,
and other authorizations which are required under, and has complied with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained
in, all Environmental, Health, and Safety Laws.
(ii) The Seller has no Liability (and none of the Seller and its
predecessors and Affiliates have handled or disposed of any substance,
arranged for the disposal of any substance, exposed any employee or other
individual to any substance or condition, or
27
<PAGE>
owned or operated any property or facility in any manner that could form
the Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against the Seller
giving rise to any Liability) for damage to any site, location, or body of
water (surface or subsurface), for any illness of or personal injury to any
employee or other individual, or for any reason under any Environmental,
Health, and Safety Law.
(iii) All properties and equipment used in the business of the Seller
and its predecessors and Affiliates have been free of asbestos, PCB's,
methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene, dioxins,
dibenzofurans, and Extremely Hazardous Substances.
(aa) Certain Business Relationships with the Seller. None of the Seller and
-----------------------------------------------
its Affiliates has been involved in any business arrangement or relationship
with the Seller within the past 12 months, and none of the Seller and its
Affiliates owns any asset, tangible or intangible, which is used in the business
of the Seller.
(bb) Disclosure. The representations and warranties contained in this (S)4
-----------
do not contain any untrue statement of a fact or omit to state any fact
necessary in order to make the statements and information contained in this (S)4
not misleading.
(cc) Investment. The Seller (i) understands that the Notes have not been,
-----------
and will not be, registered under the Securities Act, or under any state
securities laws, and are being offered and sold in reliance upon federal and
state exemptions for transactions not involving any public offering, (ii) is
acquiring the Notes solely for its own account for investment purposes, and not
with a view to the distribution thereof (except to the Seller Stockholders),
(iii) is a sophisticated investor with knowledge and experience in business and
financial matters, (iv) has received certain information concerning the Buyer
and has had the opportunity to obtain additional information as desired in order
to evaluate the merits and the risks inherent in holding the Notes, (v) is
relying solely on the basis of its own independent investigation of the Buyer
and upon the express representations, warranties and covenants in this
Agreement, (vi) is able to bear the economic risk and lack of liquidity inherent
in holding the Notes, and (vii) is an Accredited Investor.. Seller further
agrees not to transfer any of the Notes to any Seller Stockholder without first
obtaining from such Seller Stockholder an express written acknowledgement that
such Seller Stockholder is making the same representations and warranties as set
forth in this (S)4(cc) in favor of both the Seller and the Buyer. This written
acknowledgement shall be provided to Buyer before the transfer of any of the
Notes to a Seller Stockholder shall be deemed effective.
5. Post-Closing Covenants. The Parties agree as follows with respect to the
-----------------------
period following the Closing.
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(a) General. In case at any time after the Effective Date any further
--------
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting
Party. The Seller acknowledges and agrees that from and after the Effective
Date the Buyer will be entitled to possession of all documents, books, records
(including Tax records), agreements, and financial data of any sort relating to
the Seller.
(b) Litigation Support. In the event and for so long as any Party actively
-------------------
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Effective
Date involving the Seller, each of the other Parties will cooperate with him or
it and his counsel in the contest or defense, make available their personnel,
and provide such testimony and access to their books and records as shall be
necessary in connection with the contest or defense, all at the sole cost and
expense of the contesting or defending Party (unless the contesting or defending
Party is entitled to indemnification therefor under (S)6 below).
(c) Transition. The Seller will not take any action that is designed or
-----------
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Seller from maintaining the same
business relationships with the Seller after the Closing as it maintained with
the Seller prior to the Closing. Each of the Sellers will refer all customer
inquiries relating to the businesses of the Seller to the Buyer from and after
the Closing.
(d) Tax Clearance Certificate. No later than ninety (90) days after the
--------------------------
Effective Date, Seller shall provide Buyer with a tax clearance certificate from
the California State Board of Equalization stating that the Seller had paid all
applicable sales and use taxes as of the Effective Date.
29
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(e) Formation and Operation of the Digital Networks Division. From the
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Closing until December 31, 1998, Buyer shall utilize the Acquired Assets and
Assumed Liabilities and those employees of the Seller hired by Buyer (including,
but not limited to the Seller Stockholders) to operate a separate division to be
called the Digital Network Division. The Digital Networks Division shall
maintain books and records as if it were a separate, independent entity from
Buyer. The Digital Networks Division shall, for accounting purposes, be treated
as a separate entity and shall not be charged with any overhead or other
allocations from the Buyer except for those expenses which Seller would have
incurred in the ordinary course of its business (e.g., rent, payroll, benefits
etc.) had the transactions contemplated by this Agreement not occurred. On and
after January 1, 1999, the Buyer shall have the right to fully meld the Digital
Networks Division into the Buyer's operations.
6. Remedies for Breaches of this Agreement.
----------------------------------------
(a) Survival of Representations and Warranties. All of the representations
-------------------------------------------
and warranties of the Buyer and the Seller contained in this Agreement shall
survive the Closing (without regard to any investigation made by any of the
Parties and even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect forever thereafter (subject to any applicable statutes of
limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
----------------------------------------------------
(i) Subject to the provisions of (S)6 (b)(iii) below, in the event
the Seller breaches (or in the event any third party alleges facts that, if
true, would mean the Seller has breached) any of its representations,
warranties, and covenants contained in this Agreement, and, if there is an
applicable survival period pursuant to (S)6(a) above, provided that the
Buyer makes a written claim for indemnification against the Seller pursuant
to (S)7(h) below within such survival period, then the Seller agrees to
indemnify the Buyer from and against any Adverse Consequences the Buyer may
suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Buyer may suffer after the end of
any applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(ii) Subject to the provisions of (S)6(b)(iii) below and in addition
to the foregoing, the Seller agrees to indemnify the Buyer from and against
any Adverse Consequences the Buyer may suffer resulting from, arising out
of, relating to, in the nature of, or caused by:
30
<PAGE>
(x) any Liability of the Seller which is not an Assumed Liability
(including any Liability of the Seller that becomes a Liability of the
Buyer under any bulk transfer law of any jurisdiction, under any
common law doctrine of de facto merger or successor liability, or
otherwise by operation of law);
(y) any Liability of any of the Seller for any unpaid Taxes with
respect to any Tax year or portion thereof ending on or before the
Closing Date or any Liability of any of the Seller's Subsidiaries for
the unpaid Taxes of any Person (other than any of the Seller and its
Subsidiaries) under Reg. (S)1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by
contract, or otherwise.
(iii) The foregoing notwithstanding, the Seller shall not have any
obligation to indemnify the Buyer from and against any Adverse Consequences
resulting from, arising out of, relating to, in the nature of, or caused by
the breach (or alleged breach) of any representation or warranty of the
Seller contained in (S)4(g)-(j) and (S)4(l)-(cc) of this Agreement until
the Buyer has suffered Adverse Consequences by reason of all such breaches
(or alleged breaches) in excess of a $20,000 aggregate threshold (at which
point the Seller will be obligated to indemnify the Buyer from and against
such further Adverse Consequences) and there will be a $1,000,000 aggregate
ceiling on the obligation of the Seller to indemnify the Buyer from and
against Adverse Consequences.
(c) Indemnification Provisions for Benefit of the Seller. In the event the
-----------------------------------------------------
Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained in this Agreement, and, if there is an applicable survival
period pursuant to (S)6(a) above, provided that the Seller makes a written claim
for indemnification against the Buyer pursuant to (S)7(h) below within such
survival period, then the Buyer agrees to indemnify the Seller from and against
any Adverse Consequences the Seller may suffer through and after the date of the
claim for indemnification (including any Adverse Consequences the Seller may
suffer after the end of any applicable survival period) resulting from, arising
out of, relating to, in the nature of, or caused by the breach (or the alleged
breach).
The Buyer also agrees to indemnify the Seller from and against the entirety of
any Adverse Consequences the Seller may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Assumed Liability.
(d) Matters Involving Third Parties.
--------------------------------
31
<PAGE>
(i) If any third party shall notify any Party (the "Indemnified
------------
Party") with respect to any matter (a "Third Party Claim") which may give
------ -------------------
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this (S)6, then the Indemnified Party shall
--------------------
promptly notify each Indemnifying Party thereof in writing; provided,
---------
however, that no delay on the part of the Indemnified Party in notifying
-------
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice [materially] adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with (S)6 (d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party, and (C) the Indemnifying Party
will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of
the Indemnified Party (not to be withheld unreasonably). In the event any
of the conditions in (S)6(d)(ii) above is or becomes unsatisfied, however,
(A) the Indemnified Party may defend against, and consent to the entry of
any judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it reasonably may deem appropriate (and the Indemnified
Party need not consult with, or obtain any consent from, any Indemnifying
Party in connection therewith), (B) the Indemnifying Parties will reimburse
the Indemnified Party promptly and periodically for the costs of defending
against the
32
<PAGE>
Third Party Claim (including reasonable attorneys' fees and expenses), and
(C) the Indemnifying Parties will remain responsible for any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this (S)6.
(e) Determination of Adverse Consequences. The Parties shall take into
--------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this (S)4. All
indemnification payments under this (S)6 shall be deemed adjustments to the
Purchase Price.
(f) Recoupment Under The Notes. The Buyer shall have the option of
---------------------------
recouping all or any part of any Adverse Consequences it may suffer (in lieu of
or in addition to seeking any indemnification to which it is entitled under this
(S)6) by notifying the Seller that the Buyer is reducing the principal amount
outstanding under any of the Notes. This shall affect the timing and amount of
payments required under the Notes in the same manner as if the Buyer had made a
permitted prepayment (without premium or penalty) thereunder.
(g) Other Indemnification Provisions. The foregoing indemnification
---------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. The Seller hereby agrees that it will not make any claim
for indemnification against any of the Buyer and its Subsidiaries by reason of
the fact that it was an agent of the Seller or was serving at the request of any
such entity as a partner, trustee, director, officer, employee, or agent of
another entity (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses, or otherwise and whether
such claim is pursuant to any statute, charter document, bylaw, agreement, or
otherwise) with respect to any action, suit, proceeding, complaint, claim, or
demand brought by the Buyer against the Seller (whether such action, suit,
proceeding, complaint, claim, or demand is pursuant to this Agreement,
applicable law, or otherwise).
7. Miscellaneous.
--------------
(a) Survival of Representations and Warranties. All of the representations
-------------------------------------------
and warranties of the Parties contained in this Agreement shall survive the
Closing hereunder as and to the extent provided in the Agreement with Seller
Stockholders.
(b) Press Releases and Public Announcements. No Party shall issue any press
----------------------------------------
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of the Buyer
and the Requisite Sellers; provided, however, that any Party may make any public
-----------------
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in
33
<PAGE>
which case the disclosing Party will use its reasonable best efforts to advise
the other Parties prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
-----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
-----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, negotiations or representations by or among
the Parties or their representatives, whether written or oral, to the extent
they related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
rights, interests, or obligations hereunder without the prior written approval
of the Buyer and the Requisite Sellers; provided, however, that the Buyer may
-----------------
(i) assign any or all of its rights and interests hereunder to one or more of
its Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder), and
Seller may assign the Notes to the Seller Stockholders.
(f) Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
---------
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
--------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Digital Networks Corporation
-----------------
11 Musick
Irvine, California 92618
Attention: Michael Stammire
34
<PAGE>
with a copy to:
Brown & Streza LLP
7700 Irvine Center Drive, Suite 900
Irvine, California 92618
Attention: Richard E. Streza, Esq.
If to the Buyer: EISI, Inc.
----------------
140 East Dana Street
Mountain View, California 94041
Attention: Donald J. Esters
Chairman of the Board
with a copy to:
Latham & Watkins
633 West Fifth Street, 40th Floor
Los Angeles, California 90071
Attention: Russell F. Sauer, Jr.
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any other jurisdiction.
(j) Amendments and Waivers. No amendment of any provision of this Agreement
-----------------------
shall be valid unless the same shall be in writing and signed by the Buyer and
the Seller. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default,
35
<PAGE>
misrepresentation, or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such occurrence.
(k) Severability. Any term or provision of this Agreement that is invalid
-------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties will bear his own costs and expenses
---------
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby. The Seller also agrees that it has not
paid any amount to any third party, and will not pay any amount to any third
party until after the Closing, with respect to any of the costs and expenses of
the Seller and the Seller Stockholders (including any of their legal fees and
expenses) in connection with this Agreement or any of the transactions
contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
-------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
--------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees that
---------------------
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to
36
<PAGE>
the provisions set forth in (S)7(p) below), in addition to any other remedy to
which they may be entitled, at law or in equity.
(p) Submission to Jurisdiction. Each of the Parties submits to the
---------------------------
jurisdiction of any state or federal court sitting in Orange County, California,
in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto.
(q) Bulk Transfer Laws. The Buyer acknowledges that the Seller will not
-------------------
comply with the provisions of any bulk transfer laws of any jurisdiction in
connection with the transactions contemplated by this Agreement.
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [as
of] the date first above written.
EISI, INC.
By: /s/ DONALD J. ESTERS
----------------------------
Donald J. Esters
Chairman of the Board
DIGITAL NETWORKS CORPORATION
By: /s/ RICHARD BART MORAN
----------------------------
Richard Bart Moran
President
37
<PAGE>
EXHIBIT 10.19
STOCK PURCHASE AGREEMENT
AMONG
EISI, INC.
as "Buyer,"
ALFORD MEDIA SALES, INC.
as the "Company"
AND
THOMAS ALFORD, STEPHEN ALFORD,
AND DANIEL HARRIS
as "Sellers"
Dated as of
June 24, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of June
24, 1998 (the "Effective Date"), by and among EISI, INC. a California
corporation (the "Buyer"); ALFORD MEDIA SALES, INC. a Texas Corporation (the
"Company"); and THOMAS ALFORD, STEPHEN ALFORD and DANIEL HARRIS (collectively
the "Sellers" and each individually referred to herein as a "Seller") who each
reside in the State of Texas. The Buyer, the Company and the Sellers are
sometimes referred to collectively herein as the "Parties" and individually as a
"Party."
RECITALS
A. The Sellers own 15,000 shares of common stock of the Company which
constitutes all of the issued and outstanding capital stock of the Company (the
"Company Stock").
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
Company Stock subject to the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
------------
"Accredited Investor" has the meaning set forth in Regulation D promulgated
---------------------
under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
----------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
-----------
promulgated under the Securities Exchange Act.
1
<PAGE>
"Affiliated Group" means any affiliated group within the meaning of Code
------------------
(S)1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
"Applicable Rate" means the prime base rate of interest publicly announced
-----------------
from time to time by Wells Fargo Bank (or its successor).
"Basis" means any past or present fact, situation, circumstance, status,
-------
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
-------
"Closing" has the meaning set forth in (S)2(d) below.
---------
"Closing Date" has the meaning set forth in (S)2(d) below.
--------------
"Code" means the Internal Revenue Code of 1986, as amended.
------
"Company" has the meaning set forth in the preface above.
---------
"Company Stock" means any share of the common stock, par value $___ per
---------------
share, of the Company.
"Confidential Information" means any information concerning the businesses
--------------------------
and affairs of the Company that is not already generally available to the
public.
"Controlled Group of Corporations" has the meaning set forth in Code
----------------------------------
(S)1563.
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
-----------------------------------
(S)1.1502-13.
"Disclosure Schedule" has the meaning set forth in (S)4 below.
---------------------
"Effective Date" has the meaning set forth in the preface above.
----------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
-----------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA (S)3(2).
-------------------------------
2
<PAGE>
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA (S)3(1).
-------------------------------
"Environmental, Health, and Safety Laws" means the Comprehensive
----------------------------------------
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the
Toxic Substances Control Act, the Clean Air Act, [ADD APPLICABLE TEXAS
STATUTES], each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-------
amended.
"Extremely Hazardous Substance" has the meaning set forth in (S)302 of the
-------------------------------
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA (S)3(21).
-----------
"Financial Statement" has the meaning set forth in (S)4(g) below.
---------------------
"GAAP" means United States generally accepted accounting principles as in
------
effect from time to time.
"Indemnified Party" has the meaning set forth in (S)6(d) below.
-------------------
"Indemnifying Party" has the meaning set forth in (S)6(d) below.
--------------------
"Intellectual Property" means (a) all inventions (whether patentable or
-----------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in
3
<PAGE>
connection therewith, (e) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and techniques, technical
data, designs, drawings, specifications, customer and supplier lists, pricing
and cost information, and business and marketing plans and proposals), (f) all
computer software (including data and related documentation), (g) all other
proprietary rights, and (h) all copies and tangible embodiments thereof (in
whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
-----------
"Liability" means any liability (whether known or unknown, whether asserted
-----------
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
---------------------------
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in (S)4(g)
----------------------------------
below.
"Most Recent Fiscal Month End" has the meaning set forth in (S)4(g) below.
------------------------------
"Most Recent Fiscal Year End" has the meaning set forth in (S)4(g) below.
-----------------------------
"Multiemployer Plan" has the meaning set forth in ERISA (S)3(37).
--------------------
"Ordinary Course of Business" means the ordinary course of business
-----------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
-------
"PBGC" means the Pension Benefit Guaranty Corporation.
------
"Person" means an individual, a partnership, a corporation, an association,
--------
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Prohibited Transaction" has the meaning set forth in ERISA (S)405 and Code
------------------------
(S)4975.
"Purchase Price" has the meaning set forth in (S)2(b) below.
----------------
"Reportable Event" has the meaning set forth in ERISA (S)4043.
------------------
4
<PAGE>
"Requisite Sellers" means Sellers holding a majority in interest of the
-------------------
Company Shares as set forth in (S)4(b) of the Disclosure Schedule.
"Securities Act" means the Securities Act of 1933, as amended.
----------------
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-------------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-------------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
--------
"Subsidiary" means any corporation with respect to which a specified Person
------------
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
-----
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code (S)59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
------------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in (S)6(d) below.
-------------------
5
<PAGE>
2. Purchase and Sale of Company Shares.
------------------------------------
(a) Basic Transaction. On and subject to the terms and conditions of this
------------------
Agreement, the Buyer agrees to purchase from each of the Sellers, and each of
the Sellers agrees to sell to the Buyer, all of their shares of Company Stock
for the consideration specified below in this Section 2.
(b) Purchase Price. On and subject to the terms and conditions of this
---------------
Agreement, as consideration for the sale of all of their shares of Company
Stock, Buyer shall provide and Sellers shall be entitled to receive, in the
aggregate, the following consideration:
(i) a cash payment at Closing (the "Cash Payment") equal to the
difference between the book value of the Company's assets and the Company's
liabilities as of May 31, 1998 as determined by Donald C. Turnbow, C.P.A.
the ("Sellers' Net Book Value Determination"), and subject to the Buyer's
Right of Offset set forth in (S)2(c) below;
(ii) as soon as reasonably practicable but in no event later than
sixty (60) days after the Closing Date, the Buyer shall cause all
indebtedness of the Company to North Dallas Bank & Trust Company, in the
approximate outstanding principal amount of $385,000 to be paid in full and
all personal guaranties of the Sellers with respect to such indebtedness to
be released; and
(iii) within ninety (90) days after the Closing Date the Buyer shall
pay (or cause the Company to pay) in full all amounts due by the Company to
Alford Media Services, Inc. as reflected on the Most Recent Financial
Statements (the "Alford Media Services Debt").
(c) Buyer's Right of Offset. The Buyer shall have the right and expressly
------------------------
reserves against the Sellers the right to offset against its payment of the
Alford Media Services Debt (the "Buyer's Right of Offset") an amount equal to
the difference between the Buyer's calculation of the difference between the
book value of the Company's assets and the Company's liabilities as of May 31,
1998 (the "Buyer's Net Book Value Determination") and the Sellers' Net Book
Value Determination. Buyer shall have sixty (60) days after the Closing Date in
which to notify the Sellers of the Buyer's Net Book Value Determination and its
proposed exercise of the Buyer's Right of Offset (the "Offset Exercise Notice").
The Buyer's failure to timely provide a timely Offset Exercise Notice to the
Sellers shall constitute a waiver of the Buyer's Right of Offset. If the Buyer
provides a timely Offset Exercise Notice, the parties shall make reasonable
efforts to resolve their differences.
6
<PAGE>
(d) Release of Cross- Pledge. It is acknowledged and agreed that the
------------------------
assets of the Company are subject to a Security Interest in favor of North
Dallas Bank & Trust Company pursuant to a cross-pledge agreement with respect to
obligations of Alford Media Services, Inc. Sellers covenant and agree to cause
such Security Interest relating to the obligations of Alford Media Services,
Inc. to be released prior to or at the Closing.
(e) Allocation of Amounts Paid to Sellers. The Purchase Price shall be
--------------------------------------
allocated among the Sellers in proportion to their respective holdings of the
Company Stock as set forth in (S)4(b) of the Disclosure Schedule.
(f) The Closing. The closing of the transactions contemplated by this
------------
Agreement (the "Closing") shall take place at the offices of Arter & Hadden,
---------
1717 Main Street, Suite 4100, Dallas, Texas 75201-4605, commencing at 9:00 a.m.
local time on June ___, 1998 (the "Closing Date").
(g) Deliveries at the Closing. At the Closing, (i) each of the Sellers will
--------------------------
deliver to the Buyer stock certificates representing all of his Company Stock,
endorsed in blank or accompanied by duly executed assignment documents and (ii)
the Buyer will deliver to each of the Sellers the Cash Payment specified in
(S)2(b)(i) above by wire transfer or the delivery of other immediately available
funds.
3. Representations and Warranties Concerning the Transaction.
----------------------------------------------------------
(a) Representations and Warranties of the Sellers. Each of the Sellers
----------------------------------------------
represents and warrants, jointly and severally, to the Buyer that the statements
contained in this (S)3(a) are correct and complete as of the Closing Date.
(i) Authorization of Transaction. The Seller has full power and
-----------------------------
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Seller is subject or
(B) conflict with, result in a breach of, constitute a default under,
result in the acceleration of, create in any party the right to accelerate,
terminate, modify, or cancel, or require any notice under any agreement,
contract,
7
<PAGE>
lease, license, instrument, or other arrangement to which the Seller is a
party or by which he or it is bound or to which any of his or its assets is
subject.
(iii) Brokers' Fees. The Seller has no Liability or obligation to pay
--------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) Company Shares. The Seller holds of record and owns beneficially
---------------
the number of Shares of Company Stock set forth next to his name in
(S)4(b) of the Disclosure Schedule, free and clear of any restrictions on
transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes, Security Interests, options, warrants, purchase
rights, contracts, commitments, equities, claims, and demands. The Seller
is not a party to any option, warrant, purchase right, or other contract or
commitment that could require the Seller to sell, transfer, or otherwise
dispose of any capital stock of the Company (other than this Agreement).
The Seller is not a party to any voting trust, proxy, or other agreement or
understanding with respect to the voting of any capital stock of the
Company.
(b) Representations and Warranties of the Buyer. The Buyer represents and
--------------------------------------------
warrants to the Sellers that the statements contained in this (S)3(b) are
correct and complete as of the Closing Date.
(i) Organization of the Buyer. The Buyer is a corporation duly
--------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power and
-----------------------------
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement
8
<PAGE>
to which the Buyer is a party or by which it is bound or to which any of
its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation to pay
--------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) Investment. The Buyer (i) understands that the Company Stock has
-----------
not been registered under the Securities Act, or under any state securities
laws, and is being offered and sold in reliance upon federal and state
exemptions for transactions not involving any public offering; (ii) is
acquiring the Company Stock for its own account for investment purposes,
and not with a view to the distribution thereof; (iii) is a sophisticated
investor with knowledge and experience in business and financial matters;
(iv) has received certain information concerning the Company, has access to
the officers, employees, assets, operations, books, records and files of
the Company and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in acquiring
the Company Stock; (v) is relying solely on the basis of its own
independent investigation of the Company and upon the express
representations, warranties and covenants in this Agreement; (vi) is able
to bear the economic risk in holding the Company Stock; and (vii) is an
Accredited Investor.
4. Representations and Warranties Concerning the Company and Its
-------------------------------------------------------------
Subsidiaries. Each of the Sellers and the Company represent and warrant,
- -------------
jointly and severally, to the Buyer that the statements contained in this (S)4
are correct and complete as of the Effective Date except as set forth in the
disclosure schedule delivered by the Sellers to the Buyer and initialed by the
Parties (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in
---------------------
paragraphs corresponding to the lettered and numbered paragraphs contained in
this (S)4.
(a) Organization, Qualification, and Corporate Power. The Company is a
-------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Company has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it. (S)4(a) of the Disclosure Schedule lists the directors and
officers of the Company. The Sellers have delivered to the Buyer correct and
complete copies of the charter and bylaws of the Company (as amended to date).
The minute books (containing the records of meetings of the stockholders, the
board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of the Company are correct and
complete. The Company is not in default under or in violation of any provision
of its charter or bylaws.
9
<PAGE>
(b) Capitalization. The entire authorized capital stock of the Company
---------------
consists of 100,000 shares of Company Stock, of which 15,000 shares are issued
and outstanding and no shares are held in treasury. All of the issued and
outstanding shares of Company Stock have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the respective
Sellers as set forth in (S)4(b) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or otherwise cause to become
outstanding any of its capital stock. There are no outstanding or authorized
stock appreciation, phantom stock, profit participation, or similar rights with
respect to the Company. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the capital stock of the
Company.
(c) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the charter or bylaws of the Company or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice or consent under any agreement, contract, lease, license, instrument, or
other arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Brokers' Fees. The Company does not have any Liability or obligation to
--------------
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(e) Title to Assets. The Company has good and marketable title to, or a
----------------
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests other than in favor of
North Dallas Bank & Trust Company, except for properties and assets disposed of
in the Ordinary Course of Business since the date of the Most Recent Balance
Sheet.
(f) Subsidiaries. The Company has no subsidiaries, either direct or
-------------
indirect, whatsoever.
(g) Financial Statements. Buyer has received the following financial
---------------------
statements (collectively the "Financial Statements"): (i) balance sheets and
----------------------
statements of income and cash
10
<PAGE>
flow as of and for the fiscal years ended December 31, 1995, December 31, 1996
and December 31, (the "Most Recent Fiscal Year End") for the Company; and (ii)
-----------------------------
balance sheets and statements of income and cash flow (the "Most Recent
------------
Financial Statements") as of and for the five (5) months ended May 31, 1998 (the
- ---------------------
"Most Recent Fiscal Month End") for the Company. The Financial Statements
- ------------------------------
(including the notes thereto) have been prepared on a consistent basis
throughout the periods covered thereby, contain and reflect in all respects all
necessary adjustments and present fairly the financial condition of the Company
as of such dates and the results of operations of the Company for such periods,
are correct and complete, and are consistent with the books and records of the
Company (which books and records are correct and complete).
(h) Events Subsequent to Most Recent Financial Statements. Since the Most
------------------------------------------------------
Recent Financial Statements, there has not been any adverse change in the
business, financial condition, operations, results of operations, or future
prospects of the Company. Without limiting the generality of the foregoing,
since that date:
(i) the Company has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract, lease,
or license (or series of related agreements, contracts, leases, and
licenses outside the Ordinary Course of Business;
(iii) no party (including the Company ) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series
of related agreements, contracts, leases, and licenses) to which the
Company is a party or by which any of them is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) outside the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan to,
or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) outside the
Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease;
11
<PAGE>
(viii) the Company has not failed to pay any of its obligations when
due or delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) the Company has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) outside the
Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(xiii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xvii) the Company has not granted any (a) increase in the
compensation or (b) bonuses, incentive compensation or other benefits,
contingent or otherwise, of or for the benefit of any of its directors,
officers, and employees outside the Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for
12
<PAGE>
the benefit of any of its directors, officers, and employees (or taken any
such action with respect to any other Employee Benefit Plan);
(xix) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company ; and
(xxii) the Company has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Company has no Liability (and to the
------------------------
Sellers' Knowledge there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability), except for (i) Liabilities set forth
on the face of the Most Recent Balance Sheet and (ii) Liabilities which have
arisen after the Most Recent Fiscal Month End in the Ordinary Course of Business
(none of which results from, arises out of, relates to, is in the nature of, or
was caused by any breach of contract, breach of warranty, tort, infringement, or
violation of law).
(j) Legal Compliance. The Company has complied with all applicable laws
-----------------
(including rules, regulations, codes, plans, injunctions, judgments, orders,
decrees, rulings, and charges thereunder) of federal, state, local, and foreign
governments (and all agencies thereof), and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has been
filed or commenced against any of them alleging any failure so to comply.
(k) Tax Matters.
------------
(i) The Company has filed all Tax Returns that it was required to
file; provided, however, the Company has filed extensions of time for
filing its 1997 federal income tax return and its 1998 Texas franchise tax
return. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have
been paid. Except as expressly set forth above, the Company is not
currently the beneficiary of any extension of time within which to file any
Tax Return. No claim has ever been made by an authority in a jurisdiction
where the Company does not file Tax Returns that it is or may be subject
to taxation by that jurisdiction. There are no Security Interests on any of
the assets of the Company that arose in connection with any failure (or
alleged failure) to pay any Tax.
13
<PAGE>
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) No Seller or director or officer (or employee responsible for
Tax matters) of the Company expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the Company either (A)
claimed or raised by any authority in writing or (B) as to which any of the
Sellers and the directors and officers (and employees responsible for Tax
matters) of the Company has Knowledge based upon personal contact with any
agent of such authority. No Tax Returns filed with respect to the Company
have been audited or currently are the subject of audit. The Sellers have
delivered to the Buyer correct and complete copies of all federal income
Tax Returns, examination reports, and statements of deficiencies assessed
against or agreed to by the Company for 1995 and 1996.
(iv) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not filed a consent under Code (S)341(f)
concerning collapsible corporations. The Company has not made any payments,
is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible under Code (S)280G. The Company has not been a
United States real property holding corporation within the meaning of Code
(S)897(c)(2) during the applicable period specified in Code
(S)897(c)(1)(A)(ii). The Company has disclosed on its federal income Tax
Returns all positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code (S)6662.
The Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common
parent of which was the Company) or (B) has no Liability for the Taxes of
any Person (other than the Company ) under Reg. (S)1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or successor,
by contract, or otherwise.
(vi) The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its
Tax
14
<PAGE>
Returns.
(l) Real Property. The Company does not own or lease any real property
--------------
whatsoever. The Company shares certain space with an affiliated company, Alford
Media Services, Inc. for which the Company reimburses Alford Media Services,
Inc. for a proportionate share of the costs.
(m) Intellectual Property.
----------------------
(i) Other than goodwill and the Company's trade name and logo, the
Company does not own any Intellectual Property.
(ii) The Company has not received any notice that it has interfered
with, infringed upon, misappropriated, or otherwise come into conflict with
any Intellectual Property rights of third parties, and none of the Sellers
and the directors and officers (and employees with responsibility for
Intellectual Property matters) of the Company has ever received any
charge, complaint, claim, demand, or notice alleging any such interference,
infringement, misappropriation, or violation (including any claim that the
Company must license or refrain from using any Intellectual Property
rights of any third party). To the Knowledge of any of the Sellers and the
directors and officers (and employees with responsibility for Intellectual
Property matters) of the Company, no third party has interfered with,
infringed upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(iii) To the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company, the Company will not interfere with, infringe
upon, misappropriate, or otherwise come into conflict with, any
Intellectual Property rights of third parties as a result of the continued
operation of its businesses as presently conducted.
(n) Tangible Assets. Except for the telephone system, the Company owns
----------------
or leases all machinery, equipment, and other tangible assets necessary for
the conduct of their businesses as presently conducted. Each such tangible asset
is free from defects (patent and latent), has been maintained in accordance with
normal industry practice, is in good operating condition and repair (subject to
normal wear and tear), is suitable for the purposes for which it presently is
used and is in conformity in all material respects with all applicable laws,
ordinances, orders, regulations and other requirements (including applicable
zoning, environmental, motor vehicle safety or standards, occupational health
and safety laws and regulations) relating thereto currently in effect.
(o) Inventory. The inventory of the Company consists of raw materials and
----------
supplies, manufactured and purchased parts, jobs, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of
15
<PAGE>
which is slow-moving, obsolete, damaged, or defective, subject only to the
reserve for inventory writedown set forth on the face of the Most Recent Balance
Sheet as adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of the Company.
(p) Contracts. (S)4(p) of the Disclosure Schedule lists all contracts and
----------
other agreements to which the Company is a party. The Sellers have delivered to
the Buyer a correct and complete copy of each written agreement listed in
(S)4(p) of the Disclosure Schedule (as amended to date) and a written summary
setting forth the terms and conditions of each oral agreement referred to in
(S)4(p) of the Disclosure Schedule. With respect to each such agreement: (A) the
agreement is legal, valid, binding, enforceable, and in full force and effect;
(B) the agreement will continue to be legal, valid, binding, enforceable, and in
full force and effect on identical terms following the consummation of the
transactions contemplated hereby; (C) no party is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes and accounts receivable of the
------------------------------
Company are reflected properly on their books and records, are valid receivable
subject to no setoffs or counterclaims, are current and collectible, and will be
collected in accordance with their terms at their recorded amounts, subject only
to the reserve for bad debts set forth on the face of the Most Recent Balance
Sheet (rather than in any notes thereto) as adjusted for the passage of time
through the Closing Date in accordance with the past custom and practice of the
Company .
(r) Powers of Attorney. There are no outstanding powers of attorney
-------------------
executed on behalf of the Company other than the power of attorney for tax
matters in favor of Donald C. Turnbow, C.P.A.
(s) Insurance. (S)4(s) of the Disclosure Schedule sets forth the following
----------
information with respect to each insurance policy (including policies providing
property, casualty, liability, and workers' compensation coverage and bond and
surety arrangements) to which the Company has been a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past ___ years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
16
<PAGE>
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Company has been covered during the past 5 years by
insurance in scope and amount customary and reasonable for the businesses in
which it has engaged during the aforementioned period. (S)4(s) of the Disclosure
Schedule describes any self-insurance arrangements affecting the Company.
(t) Litigation. The Company is not (i) subject to any outstanding
-----------
injunction, judgment, order, decree, ruling, or charge nor (ii) a party or is
threatened to be made a party to any action, suit, proceeding, hearing, or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local, or foreign jurisdiction or before any
arbitrator. None of the Sellers and the directors and officers (and employees
with responsibility for litigation matters)of the Company has any reason to
believe that any such action, suit, proceeding, hearing, or investigation may be
brought or threatened against the Company.
(u) Product Warranty. Each product manufactured, sold, leased, or delivered
-----------------
by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
Liability (and to the Sellers' Knowledge there is no Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against any of them giving rise to any Liability) for
replacement or repair thereof beyond any applicable manufacturers' warranty or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Most Recent Balance Sheet as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company. No product manufactured, sold, leased,
or delivered by the Company is subject to any guaranty, warranty, or other
indemnity beyond the applicable standard terms and conditions of sale or lease.
Copies of the standard terms and conditions of sale or lease for the Company
(containing applicable guaranty, warranty, and indemnity provisions) have been
made available to the Buyer for review.
17
<PAGE>
(v) Product Liability. The Company has no Liability (and to the Sellers'
------------------
Knowledge there is no Basis for any present or future action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand against any of them
giving rise to any Liability) arising out of any injury to individuals or
property as a result of the ownership, possession, or use of any product
manufactured, sold, leased, or delivered by the Company.
(w) Employees. To the Knowledge of any of the Sellers and the directors and
----------
officers (and employees with responsibility for employment matters) of the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Company has not committed any unfair labor practice.
None of the Sellers and the directors and officers (and employees with
responsibility for employment matters) of the Company has any Knowledge of any
organizational effort presently being made or threatened by or on behalf of any
labor union with respect to employees of the Company.
(x) Employee Benefits. The Company does not maintain any Employee Benefit
------------------
Plans. (S)4(x) of the Disclosure Schedule lists each Employee Benefit Plan to
which the Company contributes.
(y) Guaranties. Except as set forth in (S)4(y) of the Disclosure Schedule,
-----------
the Company is not a guarantor or otherwise liable for any Liability or
obligation (including indebtedness) of any other Person.
(z) Environment, Health, and Safety.
--------------------------------
(i) To the Sellers' Knowledge, the Company has complied with all
Environmental, Health, and Safety Laws, and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, or notice has
been filed or commenced against it alleging any failure so to comply.
Without limiting the generality of the preceding sentence, to the Sellers'
Knowledge the Company has obtained and been in compliance with all of the
terms and conditions of all permits, licenses, and other authorizations
which are required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in, all
Environmental, Health, and Safety Laws.
(ii) The Company has no Liability (and to the Sellers' Knowledge the
Company has not handled or disposed of any substance, arranged for the
disposal of any substance, exposed any employee or other individual to any
substance or condition, or owned or operated any property or facility in
any manner that could form the Basis for
18
<PAGE>
any present or future action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand against the Company giving rise to any
Liability) for damage to any site, location, or body of water (surface or
subsurface), for any illness of or personal injury to any employee or other
individual, or for any reason under any Environmental, Health, and Safety
Law.
(iii) To the Sellers' Knowledge, all properties and equipment used in
the business of the Company and its predecessors and Affiliates have been
free of asbestos, PCB's, methylene chloride, trichloroethylene, 1,2-trans-
dichloroethylene, dioxins, dibenzofurans, and Extremely Hazardous
Substances.
(aa) Disclosure. The representations and warranties contained in this (S)4
-----------
do not contain any untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements and information
contained in this (S)4 not misleading.
5. Post-Closing Covenants. The Parties agree as follows with respect to the
-----------------------
period following the Closing.
(a) General. In case at any time after the Closing Date any further action
--------
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under (S)6 below). The
Sellers acknowledge and agree that from and after the Effective Date the Buyer
will be entitled to possession of all documents, books, records (including Tax
records), agreements, and financial data of any sort relating to the Company.
Buyer shall make such books and records available to Sellers for preparation of
the Company's 1997 federal income tax return and 1998 Texas franchise tax return
and otherwise as reasonably requested by Sellers.
(b) Litigation Support. In the event and for so long as any Party actively
-------------------
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Effective
Date involving the Company, each of the other Parties will cooperate with him or
it and his or its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under (S)6 below).
(c) Transition. None of the Sellers will take any action that is designed
-----------
or intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business
19
<PAGE>
associate of the Company from maintaining the same business relationships with
the Company after the Closing as it maintained with the Company prior to the
Closing. Each of the Sellers will refer all customer inquiries relating to the
businesses of the Company to the Buyer from and after the Closing.
(d) Covenant Not to Compete. Sellers each acknowledge and agree that they
------------------------
have technical expertise associated with the business of the Company and are
well known in the presentation/communication industry. In addition, the Sellers
have valuable business contacts with clients and potential clients of the
Company and with professionals in the presentation/communication industry. The
Company's reputation and good will are an integral part of business success
throughout the areas where it conducts its business. If Sellers deprive Buyer
of the Company's goodwill or in any manner use their reputation and goodwill in
competition with the Company, Buyer will be deprived of the benefits it has
bargained for pursuant to this Agreement. Since Sellers have the ability to
compete with the Company in the operation of the Company's business, Buyer,
therefore, desires that the Sellers enter into this covenant not to compete.
But for Sellers' entry into this covenant not to compete, Buyer would not enter
into this Agreement. It is, therefore, understood and agreed that by the sale
of their Company Stock, the Sellers have transferred to Buyer all of their
business goodwill in the Company. Sellers, therefore, agree that for a period of
three (3) years from the Closing (the "Term"), Sellers shall not, without
Buyer's prior written consent (which may be given or withheld in Buyer's sole
and absolute discretion), directly or indirectly,
(i) own, manage, join, operate or control, or participate in the
ownership, management, operation or control of, or be connected as a
director, officer, employee, partner, consultant or otherwise with, or
permit their names to be used by or in connection with, any profit or non-
profit business or organization which sells, distributes or markets
products, goods or equipment which, directly or indirectly compete with the
Company's business, as conducted by the Company immediately prior to the
Closing (audio-visual systems sales and installation) in the state of
Texas; provided, however, the following activities shall not be a violation
of the terms of this non-compete provision: (x) the sale by Alford Media
Services, Inc. of used rental equipment in customary distribution channels,
and (y) the sale, merger, consolidation or other business combination
between Alford Media Services, Inc. and a company which has a division
which is involved in audio-visual system sales and installation.
(ii) call on or solicit or divert or take away from the Company
and/or the Buyer (including without limitation by divulging to any
competitor or potential competitor of the Company and/or the Buyer) any
Person, firm or corporation or other entity who is or which at the Closing
was a customer of the Company and/or the Buyer or whose identity is known
to the Sellers at the Closing as one whom the Company and/or the Buyer
intends to solicit; provided, however, it is acknowledged that Alford Media
Services,
20
<PAGE>
Inc. and the Company have common customers and Alford Media Services,
Inc.'s continued providing of audio-visual equipment rental and staging
services to such common customers or the solicitation of other customers or
potential customers of the Company for such services shall not be a
violation of the terms of this non-compete provision; or
(iii) hire or offer employment to or seek to hire or offer employment
to any employee of the Company whose employment is continued by the Company
after the Closing or any employee of any successor or affiliate of the
Company, unless Buyer first terminates the employment of such employee or
gives its written consent to such employment or offer of employment.
Sellers acknowledge that the provisions of this (S)5(d) are reasonable and
necessary to protect legitimate interests of Buyer. Sellers further acknowledge
that any breach of this (S)5(d) by them will cause irreparable injury to Buyer
and the Company, for which the available remedies at law will not be adequate.
Accordingly, in the event of any such breach or threatened breach of any
provisions of this (S)5(d), in addition to any other remedy provided by law or
in equity, the Buyer and the Company shall be entitled to appropriate injunctive
relief and/or specific performance, in any court of competent jurisdiction,
restraining the Sellers from any such actual or threatened breach of this
section without posting bond or other security. Sellers stipulate to the entry
against them of any temporary, preliminary or permanent injunction and agree not
to resist the Buyer's and/or the Company's application for such equitable
relief, except on the grounds that the acts or omissions alleged do not violate
any of the provisions of this section. Sellers shall, in the event that any
injunctive relief or damages shall be granted to the Buyer and/or the Company,
pay all of the Buyer's and/or the Company's reasonable costs and expenses,
including attorneys' fees, incurred in obtaining such relief. If the final
judgment of a court of competent jurisdiction declares that any term or
provision of this (S)5(d) is invalid or unenforceable, the Parties agree that
the court making the determination of invalidity or unenforceability shall have
the power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
(e) Intellectual Property. Buyer acknowledges and agrees that following
---------------------
the Closing, the Company shall not be entitled to use certain Intellectual
Property previously used by the Company in the operation of its business, except
as herein provided. Following the Closing, the Company shall not use any
trademark, service mark, trade name or logo previously used by the Company which
includes the name "Alford" or otherwise operate under any name including the
name "Alford;" provided, however, Buyer shall have ninety (90) days following
the Closing to change the name of the Company. Following the Closing, the
Company shall
21
<PAGE>
have no rights to use the internal bid/processing system (computer software)
previously used by the Company (and licensed by Alford Media Services, Inc. from
a third party).
(f) Premises. It is acknowledged and agreed that the Company shares space
--------
with Alford Media Services, Inc. Buyer covenants and agrees to cause the company
to vacate such premises on or before July 1, 1998.
(g) Employee Benefit Plans. It is acknowledged and agreed that the
----------------------
Company's employees are covered under the group health insurance plan, and
participate in the 401(k) plan, maintained by Alford Media Services, Inc. If
requested by Buyer, Sellers agree to cause Alford Media Services, Inc. to
continue to provide coverage under its group health insurance plan for a period
of up to sixty (60) days following the Closing provided that the company
reimburses Alford Media Services, Inc. for such costs within ten (10) days of an
invoice therefor. Buyer covenants and agrees to put in place similar employee
benefit plans for the Company's employees within sixty (60) days following
Closing.
(h) Future Equipment Purchases. It is acknowledged and agreed that Alford
--------------------------
Media Services, Inc. may from time to time seek to purchase audio-visual
equipment from the Company and/or Buyer. Buyer hereby covenants and agrees to
make such equipment available to Alford Media Services, Inc. for purchase upon
the same price and payment terms as Buyer and/or the Company make available to
its best customers and not to sell any such equipment to another customer for a
price less than that offered to Alford Media Services, Inc.
6. Remedies for Breaches of This Agreement.
----------------------------------------
(a) Survival of Representations and Warranties.
-------------------------------------------
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder and continue in full force and
effect for a period of two (2) years from the Closing Date.
(b) Indemnification Provisions for Benefit of the Buyer.
----------------------------------------------------
(i) In the event any of the Sellers breaches (or in the event any
third party alleges facts that, if true, would mean any of the Sellers has
breached) any of their representations, warranties, and covenants contained
in this Agreement and, if there is an applicable survival period pursuant
to (S)6(a) above, provided that the Buyer makes a written claim for
indemnification against any of the Sellers pursuant to (S)8(h) below within
such survival period, then each of the Sellers agrees to indemnify the
Buyer from and against the entirety of any Adverse Consequences the Buyer
may suffer through and after the date of the claim for indemnification
(including any Adverse
22
<PAGE>
Consequences the Buyer may suffer after the end of any applicable survival
period) resulting from, arising out of, relating to, in the nature of, or
caused by the breach (or the alleged breach).
(ii) Each of the Sellers agrees to indemnify the Buyer from and
against the entirety of any Adverse Consequences the Buyer may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
any Liability of the Company (x) for any Taxes of the Company with respect
to any Tax year or portion thereof ending on or before the Closing Date (or
for any Tax year beginning before and ending after the Closing Date to the
extent allocable (determined in a manner consistent with (S)7(c)) to the
portion of such period beginning before and ending on the Closing Date), to
the extent such Taxes are not reflected in the reserve for Tax Liability
(rather than any reserve for deferred Taxes established to reflect timing
differences between book and Tax income) shown on the face of the Most
Recent Balance Sheet (rather than in any notes thereto), as such reserve is
adjusted for the passage of time through the Closing Date in accordance
with the past custom and practice of the Company in filing their Tax
Returns, and (y) for the unpaid Taxes of any Person (other than the
Company) under Reg. (S)1.1502-5 (or any similar provision of state, local,
or foreign law), as a transferee or successor, by contract, or otherwise.
(c) Indemnification Provisions for Benefit of the Sellers. In the event the
------------------------------------------------------
Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to (S)6(a) above, provided that any of the Sellers makes a written
claim for indemnification against the Buyer pursuant to (S)8(h) below within
such survival period, then the Buyer agrees to indemnify each of the Sellers
from and against the entirety of any Adverse Consequences the Seller may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Seller may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or the alleged breach).
(d) Matters Involving Third Parties.
--------------------------------
(i) If any third party shall notify any Party (the "Indemnified
------------
Party") with respect to any matter (a "Third Party Claim") which may give
-------------------
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this (S)6, then the Indemnified Party shall
--------------------
promptly notify each Indemnifying Party thereof in writing; provided,
---------
however, that no delay on the part of the Indemnified Party in notifying
-------
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
23
<PAGE>
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice materially adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with (S)6 (d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions in (S)6(d)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any judgment or enter into any settlement with
respect to, the Third Party Claim in any manner it reasonably may deem
appropriate (and the Indemnified Party need not consult with, or obtain any
consent from, any Indemnifying Party in connection therewith), (B) the
Indemnifying Parties will reimburse the Indemnified Party promptly and
periodically for the costs of defending against the Third Party Claim
(including reasonable attorneys' fees and expenses), and (C) the
Indemnifying Parties will remain responsible for any Adverse Consequences
the Indemnified Party may suffer resulting from, arising out of, relating
to, in the nature of, or caused by the Third Party Claim to the fullest
extent provided in this (S)6.
(e) Determination of Adverse Consequences. The Parties shall take into
--------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse
24
<PAGE>
Consequences for purposes of this (S)6. All indemnification payments under this
(S)6 shall be deemed adjustments to the Purchase Price. In determining the
amount of any loss, liability or expense for which any party is entitled to
indemnification under this Agreement, the gross amount thereof will be reduced
by any correlative insurance proceeds realized or to be realized by such party
(or, in the case of the Buyer by the Company) and such correlative insurance
benefit shall be net of any insurance premium which becomes due as a result of
such claim.
(f) Other Indemnification Provisions. The foregoing indemnification
---------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. Each of the Sellers hereby agrees that he or it will not
make any claim for indemnification against the Company by reason of the fact
that he or it was a director, officer, employee, or agent of any such entity or
was serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought by the Buyer against such
Seller (whether such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement, applicable law, or otherwise).
(g) Limitation of Liability. Notwithstanding any other provision of this
-----------------------
Agreement, the aggregate liability of the Sellers for all such breaches and
indemnification shall not exceed the Purchase Price.
7. Tax Matters. The following provisions shall govern the allocation of
------------
responsibility as between Buyer and Sellers for certain tax matters following
the Closing Date:
(a) Section 338(h)(10) Election. Each of Sellers agree, if so directed by
----------------------------
the Buyer, to join with Buyer in making an election under Section 338(h)(10) of
the Code (and any corresponding elections under state, local, or foreign tax
law) (collectively, a "Section 338(h)(10) Election") with respect to the
purchase and sale of the stock of the Company hereunder. Buyer will pay any Tax,
including any liability of Company for Tax resulting from the application to it
of Treasury Regulation (S) 1.338(h)(10)-1(f)(5), attributable to the making of
the Section 338(h)(10) Election and will indemnify the Sellers against any
Adverse Consequences arising out of any failure to pay such Tax. Buyer will also
pay any state, local, or foreign Tax (and indemnify the Sellers against any
Adverse Consequences arising out of any failure to pay such Tax) attributable to
an election under state, local or foreign law similar to the election available
under Section 338(g) of the Code (or which results from the making of an
election under Section 338(g) of the Code) with respect to the purchase and sale
of the stock of the Company hereunder.
25
<PAGE>
(b) Tax Periods Ending on or Before the Closing Date. Sellers shall, at
-------------------------------------------------
their sole cost and expense, prepare or cause to be prepared and file or cause
to be filed all Tax Returns for the Company for all periods ending on or prior
to the Closing Date which are filed after the Closing Date. Sellers shall permit
Company to review and comment on each such Tax Return described in the preceding
sentence prior to filing. Sellers shall reimburse Buyer for Taxes of the Company
with respect to such periods within fifteen (15) days after payment by Buyer or
the Company of such Taxes to the extent such Taxes are not reflected in the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet.
(c) Tax Periods Beginning Before and Ending After the Closing Date. Buyer
---------------------------------------------------------------
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of the Company for Tax periods which begin before the Closing Date and
end after the Closing Date. Sellers shall pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not reflected in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet. For purposes of this Section, in the case
of any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such Taxable period ending on the Closing
Date shall (x) in the case of any Taxes other than Taxes based upon or related
to income or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator of which is the number of
days in the Taxable period ending on the Closing Date and the denominator of
which is the number of days in the entire Taxable period, and (y) in the case of
any Tax based upon or related to income or receipts be deemed equal to the
amount which would be payable if the relevant Taxable period ended on the
Closing Date. Any credits relating to a Taxable period that begins before and
ends after the Closing Date shall be taken into account as though the relevant
Taxable period ended on the Closing Date. All determinations necessary to give
effect to the foregoing allocations shall be made in a manner consistent with
prior practice of the Company .
(d) Cooperation on Tax Matters.
---------------------------
(i) Buyer, the Company and Sellers shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder. The Company and Sellers agree (A) to retain all books
and
26
<PAGE>
records with respect to Tax matters pertinent to the Company relating to
any taxable period beginning before the Closing Date until the expiration
of the statute of limitations (and, to the extent notified by Buyer or
Sellers, any extensions thereof) of the respective taxable periods, and to
abide by all record retention agreements entered into with any taxing
authority, and (B) to give the other party reasonable written notice prior
to transferring, destroying or discarding any such books and records and,
if the other party so requests, the Company or Sellers, as the case may be,
shall allow the other party to take possession of such books and records.
(ii) Buyer and Sellers further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as may be necessary to mitigate, reduce or
eliminate any Tax that could be imposed (including, but not limited to,
with respect to the transactions contemplated hereby).
(iii) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(e) Tax Sharing Agreements. All tax sharing agreements or similar
-----------------------
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
(f) Certain Taxes. All transfer, documentary, sales, use, stamp,
--------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
State Gains Tax, New York City Transfer Tax and any similar tax imposed in other
states or subdivisions), shall be paid by Sellers when due, and Sellers will, at
their own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees, and, if required by applicable law, Buyer will, and will
cause its affiliates to, join in the execution of any such Tax Returns and other
documentation.
8. Miscellaneous.
--------------
(a) Nature of Certain Obligations.
------------------------------
(i) The covenants of each of the Sellers in (S)2(a) above concerning
the sale of his Company Shares to the Buyer and the representations and
warranties of each of the Sellers in (S)3(a) above concerning the
transaction are several obligations. This means that the particular Seller
making the representation, warranty, or covenant will be solely responsible
to the extent provided in (S)6 above for any Adverse Consequences the Buyer
may suffer as a result of any breach thereof.
27
<PAGE>
(ii) The remainder of the representations, warranties, and covenants
in this Agreement are joint and several obligations. This means that each
Seller will be responsible to the extent provided in (S)6 above for the
entirety of any Adverse Consequences the Buyer may suffer as a result of
any breach thereof.
(b) Press Releases and Public Announcements. No Party shall issue any press
----------------------------------------
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of the Buyer
and the Requisite Sellers; provided, however, that any Party may make any public
-----------------
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
(c) No Third-Party Beneficiaries. This Agreement shall not confer any
-----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(d) Entire Agreement. This Agreement (including the documents referred to
-----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, negotiations or representations by or among
the Parties or their representatives, whether written or oral, to the extent
they related in any way to the subject matter hereof.
(e) Succession and Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Requisite Sellers; provided, however, that the
-----------------
Buyer may (i) assign any or all of its rights and interests hereunder to one or
more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain responsible for the performance of all of its
obligations hereunder).
(f) Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(g) Headings. The section headings contained in this Agreement are inserted
---------
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(h) Notices. All notices, requests, demands, claims, and other
--------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication
28
<PAGE>
hereunder shall be deemed duly given if (and then two business days after) it is
sent by registered or certified mail, return receipt requested, postage prepaid,
and addressed to the intended recipient as set forth below:
If to the Sellers: Alford Media Services, Inc.
------------------
12901 Hutton Drive
Dallas, Texas 75234
Attention (as applicable):
Thomas Alford
Stephen Alford
Daniel Harris
If to the Buyer: EISI, Inc.
----------------
140 East Dana Street
Mountain View, California 94041
Attention: Donald J. Esters
Chairman of the Board
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(i) Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Texas without giving effect to
any choice or conflict of law provision or rule (whether of the State of Texas
or any other jurisdiction) that would cause the application of the laws of any
other jurisdiction.
(j) Amendments and Waivers. No amendment of any provision of this Agreement
-----------------------
shall be valid unless the same shall be in writing and signed by the Buyer and
the Requisite Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
29
<PAGE>
(k) Severability. Any term or provision of this Agreement that is invalid
-------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(l) Expenses. Each of the Parties, the Company, will bear his or its own
---------
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement and the transactions contemplated hereby. The Sellers agree
that the Company has not borne or will bear any of the Sellers' costs and
expenses (including any of their legal fees and expenses) in connection with
this Agreement or any of the transactions contemplated hereby.
(m) Construction. The Parties have participated jointly in the negotiation
-------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or covenant.
(n) Incorporation of Exhibits, Annexes, and Schedules. The Exhibits,
--------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(o) Specific Performance. Each of the Parties acknowledges and agrees that
---------------------
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter [(subject to the provisions set forth in (S)10(p)
below)], in addition to any other remedy to which they may be entitled, at law
or in equity.
(p) Submission to Jurisdiction. Each of the Parties submits to the
---------------------------
jurisdiction of any state or federal court sitting in Los Angeles County,
California, in any action or proceeding arising out of or relating to this
Agreement and agrees that all claims in respect of the action or
30
<PAGE>
proceeding may be heard and determined in any such court. Each Party also agrees
not to bring any action or proceeding arising out of or relating to this
Agreement in any other court. Each of the Parties waives any defense of
inconvenient forum to the maintenance of any action or proceeding so brought and
waives any bond, surety, or other security that might be required of any other
Party with respect thereto.
31
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [as
of] the date first above written.
EISI, INC.
By: /s/ DONALD J. ESTERS
-----------------------------
Donald J. Esters
Chairman of the Board
ALFORD MEDIA SALES, INC.
By: /s/ STEPHEN ALFORD
----------------------------
Title: President
--------------------------
SELLERS
/s/ THOMAS ALFORD
- --------------------------------
Thomas Alford
/s/ STEPHEN ALFORD
- --------------------------------
Stephen Alford
/s/ DANIEL HARRIS
- --------------------------------
Daniel Harris
32
<PAGE>
EXHIBIT 10.20
STOCK PURCHASE AGREEMENT
AMONG
EISI, INC.
as "Buyer,"
B. HIGGINBOTHAM ENTERPRISES, INC.
as the "Company"
AND
ROBERT V. HIGGINBOTHAM
AND
B. HIGGINBOTHAM ENTERPRISES, INC.
401(k) EMPLOYEE STOCK OWNERSHIP PLAN
as "Sellers"
Dated as of
June 10, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. DEFINITIONS...................................................................... 1
2. PURCHASE AND SALE OF COMPANY SHARES.............................................. 5
(a) Basic Transaction......................................................... 5
(b) Purchase Price............................................................ 5
(c) Other Provisions With Respect to the Buyer Notes.......................... 6
(d) Additional Consideration Based on Pre-Tax Income.......................... 6
(e) Employment Agreements..................................................... 7
(f) Agreement Not To Compete.................................................. 7
(g) Stock Pledge Agreement.................................................... 7
(h) Lease Agreement........................................................... 7
(i) Right of Offset........................................................... 7
(j) Allocation of Amounts Due Sellers......................................... 7
(k) The Closing, Conditions Precedent......................................... 7
(l) Deliveries at the Closing................................................. 8
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION........................ 8
(a) Representations and Warranties of the Sellers............................. 8
(b) Representations and Warranties of the Buyer............................... 10
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS SUBSIDIARIES....... 11
(a) Organization, Qualification, and Corporate Power.......................... 11
(b) Capitalization............................................................ 11
(c) Noncontravention.......................................................... 11
(d) Brokers' Fees............................................................. 12
(e) Title to Assets........................................................... 12
(f) Subsidiaries.............................................................. 12
(g) Financial Statements...................................................... 12
(h) Events Subsequent to Most Recent Fisacal Year End......................... 12
(i) Undisclosed Liabilities................................................... 14
(j) Legal Compliance.......................................................... 15
(k) Tax Matters............................................................... 15
(l) Real Property............................................................. 16
(m) Intellectual Property..................................................... 17
(n) Tangible Assets........................................................... 19
(o) Inventory................................................................. 20
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(p) Contracts................................................................. 20
(q) Notes and Accounts Receivable............................................. 21
(r) Powers of Attorney....................................................... 21
(s) Insurance................................................................ 21
(t) Litigation............................................................... 22
(u) Product Warranty......................................................... 22
(v) Product Liability........................................................ 23
(w) Employees................................................................ 23
(x) Employee Benefits........................................................ 23
(y) Guaranties............................................................... 25
(z) Environment, health, and Safety.......................................... 25
(aa) Certain Business Relationships with the Company.......................... 26
(bb) Disclosure............................................................... 26
5. POST-CLOSING COVENANTS........................................................... 26
(a) General.................................................................. 26
(b) Litigation Support....................................................... 26
(c) Transition............................................................... 26
(d) Certain Guarantees....................................................... 27
(e) Liabilities of the Company............................................... 27
6. REMEDIES FOR BREACHES OF THIS AGREEMENT.......................................... 27
(a) Survival of Representations and Warranties............................... 27
(b) Indemnification Provisions for Benefit of the Buyer...................... 27
(c) Indemnification Provisions for Benefit of the Sellers.................... 28
(d) Matters Involving Third Parties.......................................... 29
(e) Limitations.............................................................. 30
(f) Determination of Adverse Consequences.................................... 30
(g) Other Indemnification Provisions......................................... 30
7. TAX MATTERS...................................................................... 30
(a) Tax Periods ending on or Before the Closing Date........................ 30
(b) Tax Periods Beginning Before and Ending After the Closing Date.......... 31
(c) Cooperation on Tax Matters.............................................. 31
(d) Tax Sharing Agreements.................................................. 32
(e) Certain Taxes........................................................... 32
8. MISCELLANEOUS................................................................... 32
(a) Arbitration............................................................. 32
(b) Waiver of Jury Trial.................................................... 32
(c) Nature of Certain Obligations........................................... 32
(d) Press Releases and Public Announcements................................. 33
(e) No Third-Party Beneficiaries............................................ 33
(f) Entire Agreement........................................................ 33
(g) Succession and Assignment............................................... 33
(h) Counterparts............................................................ 33
(i) Headings................................................................ 33
(j) Notices................................................................. 33
(k) Governing Law........................................................... 34
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(l) Amendments and Waviers................................................... 34
(m) Severability............................................................. 34
(n) Expenses................................................................. 34
(o) Construction............................................................. 35
(p) Incorporation of Exhibits, Annexes, and Schedules........................ 35
(q) Specific Performance..................................................... 35
</TABLE>
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (the "Agreement") is entered into as of June
10, 1998 (the "Effective Date"), by and among EISI, INC., a California
corporation (the "Buyer"); B. HIGGINBOTHAM ENTERPRISES, INC., a Texas
Corporation (the "Company"); and ROBERT V. HIGGINBOTHAM who resides in the State
of Texas ("Higginbotham") and THE B. HIGGINBOTHAM ENTERPRISES, INC. EMPLOYEE
STOCK OWNERSHIP PLAN (the "ESOP") (Higginbotham and the ESOP being sometimes
referred to as the "Sellers"). The Buyer, the Company and the Sellers are
sometimes referred to collectively herein as the "Parties" and individually as a
"Party."
RECITALS
A. The Sellers own 1,060.027 shares of common stock of the Company which
constitutes all of the issued and outstanding capital stock of the Company (the
"Company Stock").
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Sellers, and the Sellers will sell to the Buyer, all of the
Company Stock subject to the terms and conditions set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. DEFINITIONS.
-----------
"Accredited Investor" has the meaning set forth in Regulation D promulgated
---------------------
under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
----------------------
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
-----------
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
------------------
Section 1504(a) or any similar group defined under a similar provision of state,
local or foreign law.
<PAGE>
"Applicable Rate" means the prime base rate of interest publicly announced
-----------------
from time to time by Wells Fargo Bank (or its successor).
"Basis" means any past or present fact, situation, circumstance, status,
-------
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
-------
"Buyer Stock" has the meaning set forth in Section 2(b) below.
-------------
"Buyer Stock Option" has the meaning set forth in Section 2(b) below.
--------------------
"Closing" has the meaning set forth in Section 2(g) below.
---------
"Closing Date" has the meaning set forth in Section 2(g) below.
--------------
"Code" means the Internal Revenue Code of 1986, as amended.
------
"Company" has the meaning set forth in the preface above.
---------
"Company Share" means any share of the Common Stock, par value $1.00 per
---------------
share, of the Company.
"Confidential Information" means any information concerning the businesses
--------------------------
and affairs of the Company that is not already generally available to the
public.
"Controlled Group of Corporations" has the meaning set forth in Code
----------------------------------
Section 1563.
"Deferred Intercompany Transaction" has the meaning set forth in Reg.
-----------------------------------
Section 1.1502-13.
"Disclosure Schedule" has the meaning set forth in Section 4 below.
---------------------
"Earn Out" has the meaning set forth in Section 2(d) below.
---------
"Effective Date" has the meaning set forth in the preface above.
----------------
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
-----------------------
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
qualified defined contribution retirement plan or arrangement which is an
Employee Pension Benefit Plan, (c) qualified defined benefit retirement plan or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan), or (d) Employee Welfare Benefit Plan or material fringe
benefit plan or program.
<PAGE>
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
-------------------------------
Section 3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
-------------------------------
Section 3(1).
"Environmental, Health, and Safety Laws" means the Comprehensive
----------------------------------------
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, the Occupational Safety and Health Act of
1970, the Federal Water Pollution Control Act, the Safe Drinking Water Act, the
Toxic Substances Control Act, the Clean Air Act, Title 2 of the Texas Water
Code, the Texas Solid Waste Disposal Act, and the Texas Clean Air Act, each as
amended, together with all other laws (including rules, regulations, codes,
plans, injunctions, judgments, orders, decrees, rulings, and charges thereunder)
of federal, state, local, and foreign governments (and all agencies thereof)
concerning pollution or protection of the environment, public health and safety,
or employee health and safety, including laws relating to emissions, discharges,
releases, or threatened releases of pollutants, contaminants, or chemical,
industrial, hazardous, or toxic materials or wastes into ambient air, surface
water, ground water, or lands or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, or
handling of pollutants, contaminants, or chemical, industrial, hazardous, or
toxic materials or wastes.
"ERISA" means the Employee Retirement Income Security Act of 1864, as
-------
amended.
"Excess Loss Account" has the meaning set forth in Reg. Section 1.1502-18.
---------------------
"Extremely Hazardous Substance" has the meaning set forth in Section 302
-------------------------------
of the Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA Section 3(21).
-----------
"Financial Statement" has the meaning set forth in Section 4(g) below.
---------------------
"GAAP" means United States generally accepted accounting principles as in
------
effect from time to time.
"Indemnified Party" has the meaning set forth in Section 6(d) below.
-------------------
"Indemnifying Party" has the meaning set forth in Section 6(d) below.
--------------------
"Initial Public Offering" means the first public offering of the common
-------------------------
stock (or securities convertible into common stock) of the Buyer pursuant to an
effective registration statement under the Securities Act.
<PAGE>
"Intellectual Property" means (a) all inventions (whether patentable or
-----------------------
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
-----------
"Liability" means any liability (whether known or unknown, whether asserted
-----------
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Most Recent Balance Sheet" means the balance sheet contained within the
---------------------------
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in
----------------------------------
Section 4(g) below.
"Most Recent Fiscal Month End" has the meaning set forth in Section 4(g)
------------------------------
below.
"Most Recent Fiscal Year End" has the meaning set forth in Section 4(g)
-----------------------------
below.
"Multiemployer Plan" has the meaning set forth in ERISA Section 3(36).
--------------------
"Ordinary Course of Business" means the ordinary course of business
-----------------------------
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
-------
"PBGC" means the Pension Benefit Guaranty Corporation.
------
"Person" means an individual, a partnership, a corporation, an association,
--------
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
<PAGE>
"Prohibited Transaction" has the meaning set forth in ERISA Section 405
------------------------
and Code Section 4865.
"Purchase Price" has the meaning set forth in Section 2(b) below.
----------------
"Reportable Event" has the meaning set forth in ERISA Section 4043.
------------------
"Securities Act" means the Securities Act of 1933, as amended.
----------------
"Securities Exchange Act" means the Securities Exchange Act of 1834, as
-------------------------
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
-------------------
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable, (c) purchase money
liens and liens securing rental payments under capital lease arrangements, and
(d) other liens arising in the Ordinary Course of Business and not incurred in
connection with the borrowing of money.
"Seller" has the meaning set forth in the preface above.
--------
"Subsidiary" means any corporation with respect to which a specified Person
------------
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Survey" has the meaning set forth in Section 5(i) below.
--------
"Tax" means any federal, state, local, or foreign income, gross receipts,
-----
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 59A),
customs duties, capital stock, franchise, profits, withholding, social security
(or similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not.
"Tax Return" means any return, declaration, report, claim for refund, or
------------
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in Section 6(d) below.
-------------------
"Threshold Amount" has the meaning set forth in Section 2(d) below.
------------------
2. PURCHASE AND SALE OF COMPANY SHARES.
-----------------------------------
<PAGE>
(a) BASIC TRANSACTION. On and subject to the terms and conditions of this
-----------------
Agreement, the Buyer agrees to purchase from the Sellers, and the Sellers agree
to sell to the Buyer, all of their Shares of Company Stock for the consideration
specified below in this Section 2.
(b) PURCHASE PRICE. On and subject to the terms and conditions of this
--------------
Agreement, as consideration for the sale of their Shares of Company Stock,
Sellers shall be entitled to receive, in the aggregate, the following:
(i) the payment by Buyer of ONE MILLION SIX HUNDRED THOUSAND DOLLARS
($1,600,000.00) (the "Cash") by wire transfer or delivery of other
immediately available funds on the Effective Date; and
(ii) subordinated promissory notes from the Buyer (the "Buyer Notes")
in the aggregate principal amount of FIVE HUNDRED THOUSAND DOLLARS
($500,000.00) on the terms and conditions set forth below and in the form
of Exhibit A attached hereto.
(iii) in the event that receipt by the ESOP of Buyer Notes shall
constitute a Prohibited Transaction, the Sellers will reallocate cash to
the ESOP and Buyer Notes to Higginbotham on a dollar for dollar basis, such
that payments to the ESOP at the Closing will consist of cash only.
(c) OTHER PROVISIONS WITH RESPECT TO THE BUYER NOTES.
------------------------------------------------
(i) Subject to Sections 2(c)(ii)-(iii) below, the Buyer Notes
shall be due and payable on January 2, 1999 or the day immediately
following the Initial Public Offering, whichever is earlier (the "Buyer
Note Due Date").
(ii) On or before the Buyer Note Due Date, the Buyer shall have the
right to completely pay off the Buyer Note or elect to pay the Buyer Notes
in up to six (6) equal monthly installments, with the first installment
being due thirty (30) days from the Buyer Note Due Date (the "Buyer Note
Installment Payment Option"). If the Buyer elects the Buyer Note
Installment Payment Option, (x) the Buyer shall notify the Sellers in
writing of its election and state the number of months over which the Buyer
Notes will be paid and (y) the Buyer Notes shall bear interest at the
Applicable Rate.
(d) ADDITIONAL CONSIDERATION BASED ON PRE-TAX INCOME. Subject to the
------------------------------------------------
provisions of Sections 2(d)(i) and (ii) below, as additional consideration for
the sale of the Company Stock by the Seller to Buyer (the "Earn Out"), if the
Company earns pre-tax income of more than THREE HUNDRED FIFTY THOUSAND DOLLARS
($350,000.00) (the "Threshold Amount") for the Company's fiscal year ending June
30, 1999, the Sellers shall be entitled to receive from Buyer either cash or
common stock in the Buyer with a value equal to THREE DOLLARS ($3.00) for
<PAGE>
each dollar by which the Company's pre-tax income exceeds the Threshold Amount
up to a maximum Earn Out of NINE HUNDRED THOUSAND DOLLARS ($900,000.00).
(i) If there is an Initial Public Offering on or before October 1,
1999, the Earn Out shall be payable to Sellers in shares of common stock in
the Buyer based on the price of the common stock on the date of the Initial
Public Offering. The share certificates shall be delivered to the Sellers
on October 1, 1999, and the Sellers shares shall be subject to the same
transfer and other restrictions as may be imposed on or applicable to the
shares held by the other principal stockholders of the Buyer's common
stock.
(ii) If there is no Initial Public Offering on or before October 1,
1999, the Earn Out shall be payable to the Sellers in cash on October 31,
1999 or, at the Buyer's written election in up to six (6) equal monthly
installments, with the first installment being due November 1, 1999. If the
Buyer elects to pay the cash Earn Out over time, (x) the Buyer shall notify
the Sellers in writing of its election and state the number of months over
which the Earn Out will be paid and (y) deliver an executed promissory note
to Higginbotham with respect to his entitlement only on the terms and
conditions set forth in and in the form of Exhibit B attached hereto.
In determining the Company's pre-tax income for the fiscal year ending June 30,
1999, the Company shall, for accounting purposes, be treated as a separate
entity and shall not be charged with any overhead or other allocations from the
Buyer. Buyer shall not take any action, other than in the ordinary course of
business, which is designed to purposefully interfere with the Sellers' ability
to earn the Earn Out. If the Sellers dispute the Buyer's calculation of the Earn
Out and the parties are unable to resolve their differences informally, the
Sellers shall be required to submit the dispute to arbitration pursuant to
Section 8(a) below no later than November 1, 1999.
(e) EMPLOYMENT AGREEMENTS. Higginbotham shall enter into an employment
----------------------
agreement with the Buyer on terms and conditions satisfactory to the Buyer in
form of Exhibit C attached hereto.
(f) AGREEMENT NOT TO COMPETE. Higginbotham shall enter into an Agreement
------------------------
Not To Compete with the Company and Buyer on terms and conditions satisfactory
to the Buyer in form of Exhibit D attached hereto.
(g) STOCK PLEDGE AGREEMENT. The obligations of Buyer under the Buyer Notes
----------------------
and any promissory note provided pursuant to Section 2(d)(ii) shall be secured
by the Company Stock pursuant to the terms of a Stock Pledge Agreement in the
form of Exhibit E attached hereto.
(h) LEASE AGREEMENT. Higginbotham shall enter into written lease
---------------
agreements with the Company on terms and conditions satisfactory to the Company
and the Buyer relating to the Company's lease of those facilities owned by
Higginbotham and located at 2126 Vanco, Irving, Texas in the form of Exhibits F
and G attached hereto.
<PAGE>
(i) RIGHT OF OFFSET. Subject to Section 6(e), the Buyer expressly reserves
---------------
against the Sellers the right to offset against any and all sums payable under
the Buyer Note and/or the Earn Out an amount equal to all damages sustained by
the Buyer or the Company by reason of any default by the Sellers or the breach
of any representation, warranty or covenant of the Sellers under this Agreement.
(j) ALLOCATION OF AMOUNTS DUE SELLERS. The Cash, Buyer Notes and the Earn
---------------------------------
Out shall be allocated among the Sellers in proportion to their respective
holdings of Company Stock as set forth in Schedule 4(b) of the Disclosure
Schedule.
(k) THE CLOSING, CONDITIONS PRECEDENT.
---------------------------------
(i) the closing of the transactions contemplated in this Agreement
(the "Closing") shall take place at the offices of Arter & Hadden LLP, 1717
Main Street, Suite 4100, Dallas, Texas 75201, commencing at 9:00 a.m. local
time on the first business day following the satisfaction of the conditions
precedent set forth in the following sentence, or at such other time, date
and place as shall be mutually satisfactory to the parties, but not later
than June 30, 1998 (the "Closing Date"). Notwithstanding any other
provision of this Agreement to the contrary, the Closing shall be subject
to the satisfaction of the following conditions precedent:
(a) each of the representations and warranties of the parties
hereto shall be true and complete as of the Closing, and each of the
parties hereto shall have performed their respective covenants;
(b) each third party lender to the Company having a security
interest in any of the property of the Company or whose indebtedness
from the Company would be in default as a result of the consummation
of any of the transactions contemplated herein, shall have consented
to the consummation of the transactions contemplated herein and agreed
(i) to waive any defaults occurring as a result of such consummation
for a period of not less than thirty days or (ii) agree to amend its
lending relationship with the Company in a manner satisfactory to the
Buyer;
(c) the ESOP shall have taken such steps as shall be reasonably
satisfactory to the Parties to assure that the transactions
contemplated herein, when consummated, will not constitute Prohibited
Transactions and that none of the Parties shall incur any liability
with respect to such transactions under ERISA following the Closing.
Without limiting the generality of the foregoing, the ESOP shall have
delivered, or caused to be delivered, notice of termination of ESOP
under applicable law and the Board of Directors of the Company shall
have taken such steps as are appropriate in connection with
terminating the ESOP and authorizing the transactions contemplated
hereby.
<PAGE>
(l) DELIVERIES AT THE CLOSING. At the Closing, (i) Sellers will deliver to
--------------------------
the Buyer stock certificates representing all of their Company Stock, endorsed
in blank or accompanied by duly executed assignment documents and (ii) the Buyer
will deliver to the Seller the consideration specified in Section 2(b) above .
3. REPRESENTATIONS AND WARRANTIES CONCERNING THE TRANSACTION.
---------------------------------------------------------
(a) REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the Sellers
----------------------------------------------
represents and warrants, jointly and severally, to the Buyer that the statements
contained in this Section 3(a) are correct and complete as of the Effective Date
except as set forth in Annex I attached hereto.
(i) AUTHORIZATION OF TRANSACTION. The Seller has full power and
-----------------------------
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. The Seller need not give any notice to, make any filing
with, or obtain any authorization, consent, or approval of any government
or governmental agency in order to consummate the transactions contemplated
by this Agreement.
(ii) NONCONTRAVENTION. Neither the execution and the delivery of
-----------------
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Seller is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which the Seller is a party or by which he or it is bound or to which any
of his or its assets is subject.
(iii) BROKERS' FEES. The Seller has no Liability or obligation to pay
--------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer could
become liable or obligated.
(iv) INVESTMENT. The Seller (A) understands that the Buyer Note and
-----------
the Buyer's common stock have not been, and will not be, registered under
the Securities Act, or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (B) is acquiring the Buyer
Note and the potential for Buyer common stock solely for his/its own
account for investment purposes, and not with a view to the distribution
thereof, (C) is a sophisticated investor with knowledge and experience in
business and financial matters, (D) has received certain information
concerning the Buyer and has had the opportunity to obtain any and all
additional information as desired in order to evaluate the merits and the
risks inherent in holding the Buyer Note and Buyer common stock, (E) is
able to bear the
<PAGE>
economic risk and lack of liquidity inherent in holding the Buyer Note or
Buyer common stock, and (F) Robert V. Higginbotham is an Accredited
Investor for the reasons set forth on Annex I.
(v) COMPANY SHARES. The Seller holds of record and owns beneficially
---------------
the number of Shares of Company Stock set forth next to his/its name in
Schedule 4(b) of the Disclosure Schedule, free and clear of any
restrictions on transfer (other than any restrictions under the Securities
Act and state securities laws), Taxes, Security Interests, options,
warrants, purchase rights, contracts, commitments, equities, claims, and
demands, and which constitute all of the issued and outstanding capital
stock of the Company. The Seller is not a party to any option, warrant,
purchase right, or other contract or commitment that could require the
Seller to sell, transfer, or otherwise dispose of any capital stock of the
Company (other than this Agreement). The Seller is not a party to any
voting trust, proxy, or other agreement or understanding with respect to
the voting of any capital stock of the Company.
(b) REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
--------------------------------------------
warrants to the Sellers that the statements contained in this Section 3(b) are
correct and complete as of the Effective Date except as set forth in Annex II
attached hereto.
(i) ORGANIZATION OF THE BUYER. The Buyer is a corporation duly
--------------------------
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) AUTHORIZATION OF TRANSACTION. The Buyer has full power and
-----------------------------
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. The Buyer
need not give any notice to, make any filing with, or obtain any
authorization, consent, or approval of any government or governmental
agency in order to consummate the transactions contemplated by this
Agreement.
(iii) NONCONTRAVENTION. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby,
will (A) violate any constitution, statute, regulation, rule, injunction,
judgment, order, decree, ruling, charge, or other restriction of any
government, governmental agency, or court to which the Buyer is subject or
any provision of its charter or bylaws or (B) conflict with, result in a
breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which
it is bound or to which any of its assets is subject.
<PAGE>
(iv) BROKERS' FEES. The Buyer has no Liability or obligation to pay
--------------
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which any Seller could
become liable or obligated.
(v) INVESTMENT. The Buyer is not acquiring the Company Shares with a
-----------
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
4. REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY AND ITS SUBSIDIARIES.
---------------------------------------------------------------------------
The Sellers and the Company represent and warrant, jointly and severally, to the
Buyer that the statements contained in this Section 4 are correct and complete
as of the Effective Date except as set forth in the disclosure schedule
delivered by the Sellers to the Buyer and attached hereto as Annex I (the
"Disclosure Schedule"). Nothing in the Disclosure Schedule shall be deemed
- --------------------
adequate to disclose an exception to a representation or warranty made herein,
however, unless the Disclosure Schedule identifies the exception with
particularity and describes the relevant facts in detail. Without limiting the
generality of the foregoing, the mere listing (or inclusion of a copy) of a
document or other item shall not be deemed adequate to disclose an exception to
a representation or warranty made herein (unless the representation or warranty
has to do with the existence of the document or other item itself). The
Disclosure Schedule will be arranged in paragraphs corresponding to the lettered
and numbered paragraphs contained in this Section 4.
(a) ORGANIZATION, QUALIFICATION, AND CORPORATE POWER. The Company is a
-------------------------------------------------
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required. The Company has full corporate power and
authority and all licenses, permits, and authorizations necessary to carry on
the businesses in which it is engaged and to own and use the properties owned
and used by it. Schedule 4(a) of the Disclosure Schedule lists the directors and
officers of the Company. The Sellers have delivered to the Buyer correct and
complete copies of the charter and bylaws of the Company (as amended to date).
The minute books (containing the records of meetings of the stockholders, the
board of directors, and any committees of the board of directors), the stock
certificate books, and the stock record books of the Company are correct and
complete. The Company is not in default under or in violation of any provision
of its charter or bylaws.
(b) CAPITALIZATION. The entire authorized capital stock of the Company
---------------
consists of 100,000 Company Shares, of which 1,060.027 Company Shares are issued
and outstanding and no Company Shares are held in treasury. All of the issued
and outstanding Company Shares have been duly authorized, are validly issued,
fully paid, and nonassessable, and are held of record by the respective Sellers
as set forth in Schedule 4(b) of the Disclosure Schedule. There are no
outstanding or authorized options, warrants, purchase rights, subscription
rights, conversion rights, exchange rights, or other contracts or commitments
that could require the Company to issue, sell, or
<PAGE>
otherwise cause to become outstanding any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock, profit
participation, or similar rights with respect to the Company. There are no
voting trusts, proxies, or other agreements or understandings with respect to
the voting of the capital stock of the Company.
(c) NONCONTRAVENTION. Neither the execution and the delivery of this
-----------------
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the charter or bylaws of the Company or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice or consent under any agreement, contract, lease, license, instrument, or
other arrangement to which the Company is a party or by which it is bound or to
which any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) BROKERS' FEES. The Company does not have any Liability or obligation
--------------
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
(e) TITLE TO ASSETS. The Company has good and marketable title to, or a
----------------
valid leasehold interest in, the properties and assets used by it, located on
its premises, or shown on the Most Recent Balance Sheet or acquired after the
date thereof, free and clear of all Security Interests, except for properties
and assets disposed of in the Ordinary Course of Business since the date of the
Most Recent Balance Sheet.
(f) SUBSIDIARIES. The Company has no subsidiaries, either direct or
-------------
indirect, whatsoever.
(g) FINANCIAL STATEMENTS. Attached hereto to Schedule 4(g) of the
---------------------
Disclosure Schedule are the following financial statements (collectively the
"Financial Statements"): (i) balance sheets and statements of income, changes in
- ---------------------
stockholders' equity, and cash flow as of and for the fiscal years ended June
30, 1994, 1995, 1996, and 1997 (the "Most Recent Fiscal Year End") for the
------------------------------
Company ; and (ii) balance sheets and statements of income, changes in
stockholders' equity, and cash flow (the "Most Recent Financial Statements") as
-----------------------------------
of and for the 3 months ended March 31, 1998 (the "Most Recent Fiscal Month
-------------------------
End") for the Company. The Financial Statements (including the notes thereto)
- -----
have been prepared on a consistent basis throughout the periods covered thereby,
contain and reflect in all respects all necessary adjustments and present fairly
the financial condition of the Company as of such dates and the results of
operations of the Company for such periods, are correct and complete, and are
consistent with the books and records of the Company (which books and records
are correct and complete).
<PAGE>
(h) EVENTS SUBSEQUENT TO MOST RECENT FISCAL YEAR END. Since the Most
-------------------------------------------------
Recent Fiscal Month End, there has not been any adverse change in the business,
financial condition, operations, results of operations, or future prospects of
the Company. Without limiting the generality of the foregoing, since that date:
(i) the Company has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) either involving more than $10,000 or outside the Ordinary Course
of Business;
(iii) no party (including the Company ) has accelerated, terminated,
modified, or canceled any agreement, contract, lease, or license (or series
of related agreements, contracts, leases, and licenses) involving more than
$10,000 to which the Company is a party or by which any of them is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $10,000 or outside
the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $10,000 or outside the Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$10,000 singly or $50,000 in the aggregate;
(viii) the Company has not failed to pay any of its obligations when
due or delayed or postponed the payment of accounts payable and other
Liabilities outside the Ordinary Course of Business;
(ix) the Company has not canceled, compromised, waived, or released
any right or claim (or series of related rights and claims) either
involving more than $10,000 or outside the Ordinary Course of Business;
<PAGE>
(x) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
(xiii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) the Company has not made any loan to, or entered into any
other transaction with, any of its directors, officers, and employees
outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xvii) the Company has not granted any (a) increase in the
compensation or (b) bonuses, incentive compensation or other benefits,
contingent or otherwise, of or for the benefit of any of its directors,
officers, and employees outside the Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xix) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
<PAGE>
(xxi) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company; and
(xxii) the Company has not committed to any of the foregoing.
(i) UNDISCLOSED LIABILITIES. The Company has no Liability (and there is no
------------------------
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability), except for (i) Liabilities set forth on the face of the
Most Recent Balance Sheet (rather than in any notes thereto) and (ii)
Liabilities which have arisen after the Most Recent Fiscal Month End in the
Ordinary Course of Business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
(j) LEGAL COMPLIANCE. Each of the Company and its predecessors and
-----------------
Affiliates has complied with all applicable laws (including rules, regulations,
codes, plans, injunctions, judgments, orders, decrees, rulings, and charges
thereunder) of federal, state, local, and foreign governments (and all agencies
thereof), and no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, demand, or notice has been filed or commenced against any of
them alleging any failure so to comply.
(k) TAX MATTERS.
(i) The Company has filed all Tax Returns that it was required to
file. All such Tax Returns were correct and complete in all respects. All
Taxes owed by the Company (whether or not shown on any Tax Return) have
been paid. None of the Company currently is the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever
been made by an authority in a jurisdiction where the Company does not file
Tax Returns that it is or may be subject to taxation by that jurisdiction.
There are no Security Interests on any of the assets of the Company that
arose in connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) No Seller or director or officer (or employee responsible for
Tax matters) of the Company expects any authority to assess any additional
Taxes for any period for which Tax Returns have been filed. There is no
dispute or claim concerning any Tax Liability of the Company either (A)
claimed or raised by any authority in writing or (B) as to which any of the
Seller and the directors and officers (and employees responsible for Tax
matters) of the Company has Knowledge based upon personal contact with any
agent of such authority. Schedule 4(k) of the Disclosure Schedule lists all
federal, state, local, and
<PAGE>
foreign income Tax Returns filed with respect to the Company for taxable
periods ended on or after December 31, 1991 indicates those Tax Returns
that have been audited, and indicates those Tax Returns that currently are
the subject of audit. The Seller have delivered to the Buyer correct and
complete copies of all federal income Tax Returns, examination reports, and
statements of deficiencies assessed against or agreed to by the Company
since December 31, 1991.
(iv) The Company has not waived any statute of limitations in respect
of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not filed a consent under Code Section 341(f)
concerning collapsible corporations. The Company has not made any payments,
is obligated to make any payments, or is a party to any agreement that
under certain circumstances could obligate it to make any payments that
will not be deductible under Code Section 270G. The Company has not been a
United States real property holding corporation within the meaning of Code
Section 797(c)(2) during the applicable period specified in Code
Section 797(c)(1)(A)(ii). The Company has disclosed on its federal income
Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of Code
Section 5552. The Company is not a party to any Tax allocation or sharing
agreement. The Company (A) has not been a member of an Affiliated Group
filing a consolidated federal income Tax Return (other than a group the
common parent of which was the Company) or (B) has no Liability for the
Taxes of any Person (other than the Company ) under Reg. Section 1.1502-5
(or any similar provision of state, local, or foreign law), as a transferee
or successor, by contract, or otherwise.
(vi) The Sellers will provide the following information before
Closing with respect to the Company as of the most recent practicable date
(as well as on an estimated pro forma basis as of the Closing giving effect
to the consummation of the transactions contemplated hereby): (A) the basis
of the Company or Subsidiary in its assets; (B) the amount of any net
operating loss, net capital loss, unused investment or other credit, unused
foreign tax, or excess charitable contribution allocable to the Company;
and (C) the amount of any deferred gain or loss allocable to the Company or
Subsidiary arising out of any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its
Tax Returns.
(l) REAL PROPERTY.
<PAGE>
(i) The Company does not own any real property whatsoever.
(ii) Schedule 4(l)(ii) of the Disclosure Schedule lists and describes
briefly all real property leased or subleased to the Company. The Sellers
have delivered to the Buyer correct and complete copies of the leases and
subleases listed in Schedule 4(l)(ii) of the Disclosure Schedule (as
amended to date). With respect to each lease and sublease listed in
Schedule 4(l)(ii) of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable,
and in full force and effect;
(b) the lease or sublease will continue to be legal, valid,
binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(c) no party to the lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(d) no party to the lease or sublease has repudiated any
provision thereof;
(e) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(f) with respect to each sublease, the representations and
warranties set forth in subsections (A) through (E) above are true and
correct with respect to the underlying lease;
(g) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(h) all facilities leased or subleased thereunder have received
all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have
been operated and maintained in accordance with applicable laws,
rules, and regulations;
(i) all facilities leased or subleased thereunder are supplied
with utilities and other services necessary for the operation of said
facilities; and
(m) INTELLECTUAL PROPERTY.
<PAGE>
(i) The Company owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary or
desirable for the operation of the businesses of the Company as presently
conducted and as presently proposed to be conducted. Each item of
Intellectual Property owned or used by the Company immediately prior to the
Closing hereunder will be owned or available for use by the Company on
identical terms and conditions immediately subsequent to the Closing
hereunder. The Company has taken all necessary and desirable action to
maintain and protect each item of Intellectual Property that it owns or
uses.
(ii) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Sellers and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Company has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company must
license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of any of the Sellers and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company, no third party has interfered with, infringed
upon, misappropriated, or otherwise come into conflict with any
Intellectual Property rights of the Company.
(iii) Schedule 4(m)(iii) of the Disclosure Schedule identifies each
patent or registration which has been issued to the Company with respect to
any of its Intellectual Property, identifies each pending patent
application or application for registration which the Company has made with
respect to any of its Intellectual Property, and identifies each license,
agreement, or other permission which the Company has granted to any third
party with respect to any of its Intellectual Property (together with any
exceptions). The Sellers have delivered to the Buyer correct and complete
copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) and have made available to
the Buyer correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such item.
Schedule 4(m)(iii) of the Disclosure Schedule also identifies each trade
name or unregistered trademark used by the Company in connection with any
of its businesses. With respect to each item of Intellectual Property
required to be identified in Schedule 4(m)(iii) of the Disclosure Schedule:
(A) the Company possesses all right, title, and interest in and
to the item, free and clear of any Security Interest, license, or
other restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
<PAGE>
(C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, enforceability, use, or ownership
of the item; and
(D) the Company has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) Schedule 4(m)(iv) of the Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that the Company
uses pursuant to license, sublicense, agreement, or permission. The Sellers
have delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date).
With respect to each item of Intellectual Property required to be
identified in Schedule 4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby (including the assignments and
assumptions referred to in Section 2 above);
(C) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or, to the Knowledge of any of
the Seller and the directors and officers (and employees with
responsibility for Intellectual Property matters) of the Company, is
threatened which challenges the legality, validity, or enforceability
of the underlying item of Intellectual Property; and
<PAGE>
(H) the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) To the Knowledge of the Sellers and the directors and officers
(and employees with responsibility for Intellectual Property matters) of
the Company, the Company will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation of
its businesses as presently conducted and as presently proposed to be
conducted.
(vi) None of the Sellers and the directors and officers (and employees
with responsibility for Intellectual Property matters) of the Company had
any Knowledge of any new products, inventions, procedures, or methods of
manufacturing or processing that any competitors or other third parties
have developed which reasonably could be expected to supersede or make
obsolete any product or process of the Company.
(n) TANGIBLE ASSETS. The Company owns or leases all buildings, machinery,
----------------
equipment, and other tangible assets necessary for the conduct of their
businesses as presently conducted. To the best knowledge of Sellers, each such
tangible asset is free from defects (patent and latent), has been maintained in
accordance with normal industry practice, is in good operating condition and
repair (subject to normal wear and tear), is suitable for the purposes for which
it presently is used and presently is proposed to be used and is in conformity
in all material respects with all applicable laws, ordinances, orders,
regulations and other requirements (including applicable zoning, environmental,
motor vehicle safety or standards, occupational health and safety laws and
regulations) relating thereto currently in effect.
(o) INVENTORY. The inventory of the Company consists of raw materials and
----------
supplies, manufactured and purchased parts, goods in process, and finished
goods, all of which is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is slow-moving, obsolete, damaged,
or defective, subject only to the reserve for inventory writedown set forth on
the face of the Most Recent Balance Sheet (rather than in any notes thereto) as
adjusted for the passage of time through the Closing Date in accordance with the
past custom and practice of the Company.
(p) CONTRACTS. Schedule 4(p) of the Disclosure Schedule lists all
----------
contracts and other agreements to which the Company is a party including, but
not limited to, the following:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments;
(ii) any agreement (or group of related agreements) for the purchase
or sale of raw materials, commodities, supplies, products, or other
personal property, or for the
<PAGE>
furnishing or receipt of services, the performance of which will extend
over a period of more than one year, result in a loss to the Company, or
involve consideration in excess of $1,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, or under which it has imposed a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any agreement with any of the Sellers and their Affiliates
(other than the Company);
(vii) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other plan or
arrangement for the benefit of its current or former directors, officers,
and employees;
(viii) any collective bargaining agreement;
(ix) any agreement for the employment of any individual on a full-
time, part-time, consulting, or other basis providing any form of
compensation or providing severance benefits;
(x) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xi) any agreement under which the consequences of a default or
termination could have an adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Company ; or
(xii) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $1,000.
The Sellers have delivered to the Buyer a correct and complete copy of each
written agreement listed in Schedule 4(p) of the Disclosure Schedule (as amended
to date) and a written summary setting forth the terms and conditions of each
oral agreement referred to in Schedule 4(p) of the Disclosure Schedule. With
respect to each such agreement: (A) the agreement is legal, valid, binding,
enforceable, and in full force and effect; (B) the agreement will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby; (C) no
party is in breach or default, and no event has
<PAGE>
occurred which with notice or lapse of time would constitute a breach or
default, or permit termination, modification, or acceleration, under the
agreement; and (D) no party has repudiated any provision of the agreement.
(q) NOTES AND ACCOUNTS RECEIVABLE. All notes and accounts receivable of
------------------------------
the Company are reflected properly on their books and records, are valid
receivable subject to no setoffs or counterclaims, are current and collectible,
and will be collected in accordance with their terms at their recorded amounts,
subject only to the reserve for bad debts set forth on the face of the Most
Recent Balance Sheet (rather than in any notes thereto) as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice of the Company .
(r) POWERS OF ATTORNEY. There are no outstanding powers of attorney
-------------------
executed on behalf of the Company.
(s) INSURANCE. Schedule 4(s) of the Disclosure Schedule sets forth the
----------
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past 5
years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Company has been covered during the past
<PAGE>
5 years by insurance in scope and amount customary and reasonable for the
businesses in which it has engaged during the aforementioned period. Schedule
4(s) of the Disclosure Schedule describes any self-insurance arrangements
affecting the Company.
(t) LITIGATION. Schedule 4(t) of the Disclosure Schedule sets forth each
-----------
instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or is threatened
to be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None of
the actions, suits, proceedings, hearings, and investigations set forth in
Schedule 4(t) of the Disclosure Schedule could result in any adverse change in
the business, financial condition, operations, results of operations, or future
prospects of the Company. None of the Sellers and the directors and officers
(and employees with responsibility for litigation matters)of the Company has any
reason to believe that any such action, suit, proceeding, hearing, or
investigation may be brought or threatened against the Company.
(u) PRODUCT WARRANTY. Each product manufactured, sold, leased, or
-----------------
delivered by the Company has been in conformity with all applicable contractual
commitments and all express and implied warranties, and the Company has no
Liability (and there is no Basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand against
any of them giving rise to any Liability) for replacement or repair thereof or
other damages in connection therewith, subject only to the reserve for product
warranty claims set forth on the face of the Most Recent Balance Sheet (rather
than in any notes thereto) as adjusted for the passage of time through the
Closing Date in accordance with the past custom and practice of the Company. No
product manufactured, sold, leased, or delivered by the Company is subject to
any guaranty, warranty, or other indemnity beyond the applicable standard terms
and conditions of sale or lease. Schedule 4(u) of the Disclosure Schedule
includes copies of the standard terms and conditions of sale or lease for the
Company (containing applicable guaranty, warranty, and indemnity provisions).
(v) PRODUCT LIABILITY. The Company has no Liability (and there is no
------------------
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability) arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by the Company.
(w) EMPLOYEES. To the Knowledge of any of the Sellers and the directors
----------
and officers (and employees with responsibility for employment matters) of the
Company, no executive, key employee, or group of employees has any plans to
terminate employment with the Company. The Company is not a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Company has not committed any unfair labor practice.
None of the Sellers and the directors and officers (and employees with
responsibility for employment
<PAGE>
matters) of the Company has any Knowledge of any organizational effort presently
being made or threatened by or on behalf of any labor union with respect to
employees of the Company.
(x) EMPLOYEE BENEFITS.
(i) Schedule 4(x) of the Disclosure Schedule lists each Employee
Benefit Plan that the Company maintains or to which the Company
contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
respects with the applicable requirements of ERISA, the Code, and
other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports, PBGC-1's, and Summary Plan
Descriptions) have been filed or distributed appropriately with
respect to each such Employee Benefit Plan. The requirements of Part 5
of Subtitle B of Title I of ERISA and of Code Section 4970B have been
met with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension
Benefit Plan and all contributions for any period ending on or before
the Closing Date which are not yet due have been paid to each such
Employee Pension Benefit Plan or accrued in accordance with the past
custom and practice of the Company. All premiums or other payments for
all periods ending on or before the Closing Date have been paid with
respect to each such Employee Benefit Plan which is an Employee
Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
(S)401(a) and has received, within the last two years, a favorable
determination letter from the Internal Revenue Service.
(E) The market value of assets under each such Employee Benefit
Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested
and nonvested Liabilities thereunder determined in accordance with
PBGC methods, factors, and assumptions applicable to an Employee
Pension Benefit Plan terminating on the date for determination.
(F) The Sellers have delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most
recent
<PAGE>
determination letter received from the Internal Revenue Service, the
most recent Form 5500 Annual Report, and all related trust agreements,
insurance contracts, and other funding agreements which implement each
such Employee Benefit Plan.
(ii) With respect to each Employee Benefit Plan that the Company
maintains or ever has maintained or to which it contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is an Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely
or partially terminated or been the subject of a Reportable Event as
to which notices would be required to be filed with the PBGC. No
proceeding by the PBGC to terminate any such Employee Pension Benefit
Plan (other than any Multiemployer Plan) has been instituted or
threatened.
(B) There have been no Prohibited Transactions with respect to
any such Employee Benefit Plan. No Fiduciary has any Liability for
breach of fiduciary duty or any other failure to act or comply in
connection with the administration or investment of the assets of any
such Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of
the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or threatened. None of the Seller and
the directors and officers (and employees with responsibility for
employee benefits matters) of the Company has any Knowledge of any
Basis for any such action, suit, proceeding, hearing, or
investigation.
(C) The Company has not incurred, and none of the Seller and
the directors and officers (and employees with responsibility for
employee benefits matters) of the Company has any reason to expect
that the Company will incur, any Liability to the PBGC (other than
PBGC premium payments) or otherwise under Title IV of ERISA (including
any withdrawal Liability) or under the Code with respect to any such
Employee Benefit Plan which is an Employee Pension Benefit Plan.
(iii) The Company does not contribute to, never has contributed to,
and never has been required to contribute to any Multiemployer Plan or has
any Liability (including withdrawal Liability) under any Multiemployer
Plan.
(iv) The Company does not maintain, never has maintained or
contributed and never has been required to contribute to any Employee
Welfare Benefit Plan providing medical, health, or life insurance or other
welfare-type benefits for current or future
<PAGE>
retired or terminated employees, their spouses, or their dependents (other
than in accordance with Code (S)4860B).
(y) GUARANTIES. The Company is not a guarantor or otherwise liable for any
-----------
Liability or obligation (including indebtedness) of any other Person.
(z) ENVIRONMENT, HEALTH, AND SAFETY.
(i) The Company and its predecessors and Affiliates have complied
with all Environmental, Health, and Safety Laws, and no action, suit,
proceeding, hearing, investigation, charge, complaint, claim, demand, or
notice has been filed or commenced against any of them alleging any failure
so to comply. Without limiting the generality of the preceding sentence,
the Company and its predecessors and Affiliates has obtained and been in
compliance with all of the terms and conditions of all permits, licenses,
and other authorizations which are required under, and has complied with
all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained
in, all Environmental, Health, and Safety Laws.
(ii) The Company has no Liability (and none of the Company and its
predecessors and Affiliates have handled or disposed of any substance,
arranged for the disposal of any substance, exposed any employee or other
individual to any substance or condition, or owned or operated any property
or facility in any manner that could form the Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against the Company giving rise to any Liability) for
damage to any site, location, or body of water (surface or subsurface), for
any illness of or personal injury to any employee or other individual, or
for any reason under any Environmental, Health, and Safety Law.
(iii) All properties and equipment used in the business of the
Company and its predecessors and Affiliates have been free of asbestos,
PCB's, methylene chloride, trichloroethylene, 1,2-trans-dichloroethylene,
dioxins, dibenzofurans, and Extremely Hazardous Substances.
(aa) CERTAIN BUSINESS RELATIONSHIPS WITH THE COMPANY. None of the Sellers
------------------------------------------------
and their Affiliates has been involved in any business arrangement or
relationship with the Company within the past 12 months, and none of the Sellers
and their Affiliates owns any asset, tangible or intangible, which is used in
the business of the Company.
(bb) DISCLOSURE. The representations and warranties contained in this
-----------
Section 4 do not contain any untrue statement of a fact or omit to state any
fact necessary in order to make the statements and information contained in this
Section 4 not misleading.
<PAGE>
5. POST-CLOSING COVENANTS. The Parties agree as follows with respect to the
-----------------------
period following the Closing.
(a) GENERAL. In case at any time after the Effective Date any further
-------
action is necessary or desirable to carry out the purposes of this Agreement,
each of the Parties will take such further action (including the execution and
delivery of such further instruments and documents) as any other Party
reasonably may request, all at the sole cost and expense of the requesting Party
(unless the requesting Party is entitled to indemnification therefor under
Section 6 below). The Sellers acknowledge and agree that from and after the
Effective Date the Buyer will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data of any sort
relating to the Company.
(b) LITIGATION SUPPORT. In the event and for so long as any Party
-------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Effective Date involving the Company, each of the other Parties will
cooperate with him or it and his or its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as shall be necessary in connection with the contest or defense, all
at the sole cost and expense of the contesting or defending Party (unless the
contesting or defending Party is entitled to indemnification therefor under
Section 6 below).
(c) TRANSITION. The Sellers will not take any action that is designed or
-----------
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing. The Sellers will refer all customer inquiries
relating to the businesses of the Company to the Buyer from and after the
Closing.
(d) Certain Guarantees. Buyer will use best reasonable efforts to cause
------------------
Higginbotham to be released from each Guaranty or similar arrangement pursuant
to which Higginbotham has agreed to provide security or be liable with respect
to any loan or advance of money by any third party or financial institution,
equipment lessor, landlord or the like providing goods or services or making
available real property for the benefit of the Company; provided, however, Buyer
shall not be obligated pursuant to this Section 5(d) with respect to any such
guaranty which relates to any debt or any obligation of any kind not reflected
on or reserved for in the Most Recent Balance Sheet.
(e) Liabilities of the Company. The Buyer shall cause the Company to
--------------------------
perform its obligations reflected on the Most Recent Balance Sheet to the extent
of the Company's ability to do so and shall not, until the satisfaction of such
obligations or the third anniversary of the Closing accept any dividend or other
distribution of money or property (excluding dividends payable solely in the
equity or debt securities of the Company) in respect of its ownership of the
<PAGE>
equity securities of the Company. Notwithstanding the foregoing sentence, Buyer
may accept dividends and distributions with respect to the equity securities of
the Company prior to the third anniversary of the Closing or the satisfaction of
the liabilities reflected on the Most Recent Balance Sheet if, at the time of
accepting such dividends or distribution, it covenants to make a contribution to
the capital of the Company in the amount of such dividend or distribution in the
event that prior to the third anniversary of the Closing or the satisfaction of
the last to be satisfied of the liabilities reflected on the Most Recent Balance
Sheet a claim is made by any third party against the Sellers with respect to the
liabilities reflected on the Most Recent Balance Sheet.
6. REMEDIES FOR BREACHES OF THIS AGREEMENT.
(a) SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the representations and warranties of the Parties contained in this
Agreement shall survive the Closing hereunder without regard to any
investigation made by any of the Parties (even if the damaged Party knew or had
reason to know of any misrepresentation or breach of warranty or covenant at the
time of Closing) and continue in full force and effect forever thereafter
(subject to any applicable statutes of limitations).
(b) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE BUYER.
(i) Subject to the limitations set forth in Section 6(e) below, in
the event the Sellers breach (or in the event any third party alleges facts
that, if true, would mean the Sellers have breached) any of their
representations, warranties, and covenants contained herein (other than the
covenants in Section 2(a) above and the representations and warranties in
Section 3(a) above), and, if there is an applicable survival period
pursuant to Section 6(a) above, provided that the Buyer makes a written
claim for indemnification against the Sellers pursuant to Section 8(h)
below within such survival period, then the Sellers agree to indemnify the
Buyer from and against the entirety of any Adverse Consequences the Buyer
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Buyer may suffer after the end of
any applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(ii) Subject to the limitations set forth in Section 6(e) below, in
the event the Sellers breach (or in the event any third party alleges facts
that, if true, would mean any of the Sellers has breached) any of his or
its covenants in Section 2(a) above or any of his or its representations
and warranties in Section 3(a) above, and, if there is an applicable
survival period pursuant to Section 6(a) above, provided that the Buyer
makes a written claim for indemnification against the Sellers pursuant to
Section 8(h) below within such survival period, then the Sellers agree to
indemnify the Buyer from and against the entirety of any Adverse
Consequences the Buyer may suffer through and after the date of the claim
for indemnification (including any Adverse Consequences the Buyer may
suffer after the end
<PAGE>
of any applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(iii) Subject to the limitations set forth in Section 6(e) below, the
Sellers agree to indemnify the Buyer from and against the entirety of any
Adverse Consequences the Buyer may suffer resulting from, arising out of,
relating to, in the nature of, or caused by any Liability of the Company
(A) for any Taxes of the Company with respect to any Tax year or portion
thereof ending on or before the Closing Date (or for any Tax year beginning
before and ending after the Closing Date to the extent allocable
(determined in a manner consistent with Section 8(c)) to the portion of
such period beginning before and ending on the Closing Date), to the extent
such Taxes are not reflected in the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Most Recent Balance
Sheet (rather than in any notes thereto)[, as such reserve is adjusted for
the passage of time through the Closing Date in accordance with the past
custom and practice of the Company in filing their Tax Returns, and (B) for
the unpaid Taxes of any Person (other than the Company) under Reg. Section
1.1502-5 (or any similar provision of state, local, or foreign law), as a
transferee or successor, by contract, or otherwise.
(c) INDEMNIFICATION PROVISIONS FOR BENEFIT OF THE SELLERS. Subject to the
------------------------------------------------------
limitations set forth in Section 6(e) below, in the event the Buyer breaches (or
in the event any third party alleges facts that, if true, would mean the Buyer
has breached) any of its representations, warranties, and covenants contained
herein, and, if there is an applicable survival period pursuant to Section 6(a)
above, provided that the Sellers make a written claim for indemnification
against the Buyer pursuant to Section 8(h) below within such survival period,
then the Buyer agrees to indemnify each of the Seller from and against the
entirety of any Adverse Consequences the Sellers may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Sellers may suffer after the end of any applicable survival period)
resulting from, arising out of, relating to, in the nature of, or caused by the
breach (or the alleged breach).
(d) MATTERS INVOLVING THIRD PARTIES.
(i) If any third party shall notify any Party (the "Indemnified
------------
Party") with respect to any matter (a "Third Party Claim") which may give
------ -------------------
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 6, then the Indemnified Party
--------------------
shall promptly notify each Indemnifying Party thereof in writing; provided,
--------
however, that no delay on the part of the Indemnified Party in notifying
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified
<PAGE>
Party in writing within 30 days after the Indemnified Party has given
notice of the Third Party Claim that the Indemnifying Party will indemnify
the Indemnified Party from and against the entirety of any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim, (B)
the Indemnifying Party provides the Indemnified Party with evidence
reasonably acceptable to the Indemnified Party that the Indemnifying Party
will have the financial resources to defend against the Third Party Claim
and fulfill its indemnification obligations hereunder, (C) the Third Party
Claim involves only money damages and does not seek an injunction or other
equitable relief, (D) settlement of, or an adverse judgment with respect
to, the Third Party Claim is not, in the good faith judgment of the
Indemnified Party, likely to establish a precedential custom or practice
materially adverse to the continuing business interests of the Indemnified
Party, and (E) the Indemnifying Party conducts the defense of the Third
Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 6(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party (not
to be withheld unreasonably).
(iv) In the event any of the conditions in Section 6(d)(ii) above is
or becomes unsatisfied, however, (A) the Indemnified Party may defend
against, and consent to the entry of any judgment or enter into any
settlement with respect to, the Third Party Claim in any manner it
reasonably may deem appropriate (and the Indemnified Party need not consult
with, or obtain any consent from, any Indemnifying Party in connection
therewith), (B) the Indemnifying Parties will reimburse the Indemnified
Party promptly and periodically for the costs of defending against the
Third Party Claim (including reasonable attorneys' fees and expenses), and
(C) the Indemnifying Parties will remain responsible for any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this Section 6.
(e) LIMITATIONS. The provisions of this Section 6 notwithstanding, neither
-----------
the Buyer nor the Sellers shall be liable to or required to indemnify the other
under Sections 6(b) or (c) until the aggregate amount otherwise due the party to
be indemnified exceeds an accumulated total of Thirty Thousand Dollars
($30,000.00).
(f) DETERMINATION OF ADVERSE CONSEQUENCES. The Parties shall take into
-------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse
<PAGE>
Consequences for purposes of this Section 6. All indemnification payments under
this Section 6 shall be deemed adjustments to the Purchase Price.
(g) OTHER INDEMNIFICATION PROVISIONS. The foregoing indemnification
--------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. The Sellers hereby agree that they will not make any
claim for indemnification against the Company by reason of the fact that he or
it was a director, officer, employee, or agent of any such entity or was serving
at the request of any such entity as a partner, trustee, director, officer,
employee, or agent of another entity (whether such claim is for judgments,
damages, penalties, fines, costs, amounts paid in settlement, losses, expenses,
or otherwise and whether such claim is pursuant to any statute, charter
document, bylaw, agreement, or otherwise) with respect to any action, suit,
proceeding, complaint, claim, or demand brought by the Buyer against such Seller
(whether such action, suit, proceeding, complaint, claim, or demand is pursuant
to this Agreement, applicable law, or otherwise).
7. TAX MATTERS. The following provisions shall govern the allocation of
responsibility as between Buyer and Sellers for certain tax matters following
the Closing Date:
(a) TAX PERIODS ENDING ON OR BEFORE THE CLOSING DATE. Buyer shall prepare
------------------------------------------------
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending on or prior to the Closing Date which are filed
after the Closing. Buyer shall permit Company to review and comment on each such
Tax Return described in the preceding sentence prior to filing. Sellers shall
reimburse Buyer for Taxes of the Company with respect to such periods within
fifteen (15) days after payment by Buyer or the Company of such Taxes to the
extent such Taxes are not reflected in the reserve for Tax Liability (rather
than any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) shown on the face of the Most Recent Balance Sheet
or incurred in the ordinary course of business since that date.
(b) TAX PERIODS BEGINNING BEFORE AND ENDING AFTER THE CLOSING DATE. Buyer
--------------------------------------------------------------
shall prepare or cause to be prepared and file or cause to be filed any Tax
Returns of the Company for Tax periods which begin before the Closing Date and
end after the Closing Date. Seller shall pay to Buyer within fifteen (15) days
after the date on which Taxes are paid with respect to such periods an amount
equal to the portion of such Taxes which relates to the portion of such Taxable
period ending on the Closing Date to the extent such Taxes are not reflected in
the reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) shown on
the face of the Closing Balance Sheet. For purposes of this Section, in the case
of any Taxes that are imposed on a periodic basis and are payable for a Taxable
period that includes (but does not end on) the Closing Date, the portion of such
Tax which relates to the portion of such Taxable period ending on the Closing
Date shall (i) in the case of any Taxes other than Taxes based upon or related
to income or receipts, be deemed to be the amount of such Tax for the entire
Taxable period multiplied by a fraction the numerator
<PAGE>
of which is the number of days in the Taxable period ending on the Closing Date
and the denominator of which is the number of days in the entire Taxable period,
and (ii) in the case of any Tax based upon or related to income or receipts be
deemed equal to the amount which would be payable if the relevant Taxable period
ended on the Closing Date. Any credits relating to a Taxable period that begins
before and ends after the Closing Date shall be taken into account as though the
relevant Taxable period ended on the Closing Date. All determinations necessary
to give effect to the foregoing allocations shall be made in a manner consistent
with prior practice of the Company .
(c) COOPERATION ON TAX MATTERS.
(i) Buyer, the Company and Sellers shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder. The Company and Sellers agree (A) to retain all books
and records with respect to Tax matters pertinent to the Company relating
to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by
Buyer or Sellers, any extensions thereof) of the respective taxable
periods, and to abide by all record retention agreements entered into with
any taxing authority, and (B) to give the other party reasonable written
notice prior to transferring, destroying or discarding any such books and
records and, if the other party so requests, the Company or Sellers, as the
case may be, shall allow the other party to take possession of such books
and records.
(ii) Buyer and Sellers further agree, upon request, to use their
best efforts to obtain any certificate or other document from any
governmental authority or any other Person as may be necessary to mitigate,
reduce or eliminate any Tax that could be imposed (including, but not
limited to, with respect to the transactions contemplated hereby).
(iii) Buyer and Sellers further agree, upon request, to provide the
other party with all information that either party may be required to
report pursuant to Section 6043 of the Code and all Treasury Department
Regulations promulgated thereunder.
(d) TAX SHARING AGREEMENTS. All tax sharing agreements or similar
----------------------
agreements with respect to or involving the Company shall be terminated as of
the Closing Date and, after the Closing Date, the Company shall not be bound
thereby or have any liability thereunder.
<PAGE>
(e) CERTAIN TAXES. All transfer, documentary, sales, use, stamp,
-------------
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any New York
State Gains Tax, New York City Transfer Tax and any similar tax imposed in other
states or subdivisions), shall be paid by Sellers when due, and Seller will, at
their own expense, file all necessary Tax Returns and other documentation with
respect to all such transfer, documentary, sales, use, stamp, registration and
other Taxes and fees, and, if required by applicable law, Buyer will, and will
cause its affiliates to, join in the execution of any such Tax Returns and other
documentation.
8. MISCELLANEOUS.
(a) ARBITRATION. The Parties agree that except with respect to any action
-----------
for an injunction pursuant to the provisions of the Agreement Not To Compete
(Exhibit D hereto), all disputes among the Parties after the Closing arising out
of or relating to this Agreement, including without limitation the indemnities
provided above or the breach thereof, shall be submitted to the American
Arbitration Association ("AAA") for arbitration before a single arbitrator for
final and binding arbitration in accordance with the rules of AAA then in effect
or such other procedures as the Parties may agree to as the sole and exclusive
remedy for resolving such disputes. The Parties agree that the decision of the
arbitrator shall be final and binding between the Parties thereto, and shall be
enforceable by any court having jurisdiction over the party against whom
enforcement is sought. The Parties agree that any such arbitration shall take
place in Dallas, Texas. The fees and expenses of such arbitration (including
reasonable attorneys' fees) or any action to enforce an arbitration award shall
be paid by the party that does not prevail in such arbitration.
(b) WAIVER OF JURY TRIAL. THE PARTIES EACH ACKNOWLEDGE AND AGREE THAT BY
--------------------
SELECTING ARBITRATION AS THE SOLE AND EXCLUSIVE REMEDY FOR RESOLVING ALL
DISPUTES AMONG THEM (OTHER THAN THOSE SET FORTH IN SECTION 5(d)), THEY ARE
WAIVING THEIR RIGHT TO A JURY TRIAL TO WHICH THEY MAY OTHERWISE BE ENTITLED.
(c) NATURE OF CERTAIN OBLIGATIONS. The representations, warranties, and
------------------------------
covenants in this Agreement are a material inducement to Buyer in entering into
this Agreement. Thus, Sellers ill be responsible to the extent provided in
Section 6 above for the entirety of any Adverse Consequences the Buyer may
suffer as a result of any breach thereof.
(d) PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No Party shall issue any
---------------------------------------
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of the
Buyer and Higginbotham; provided, however, that any Party may make any public
-------- -------
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
<PAGE>
(e) NO THIRD-PARTY BENEFICIARIES. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(f) ENTIRE AGREEMENT. This Agreement (including the documents referred to
-----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, negotiations or representations by or among
the Parties or their representatives, whether written or oral, to the extent
they related in any way to the subject matter hereof.
(g) SUCCESSION AND ASSIGNMENT. This Agreement shall be binding upon and
-------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
or its rights, interests, or obligations hereunder without the prior written
approval of the Buyer and the Seller; provided, however, that the Buyer may (i)
-------- -------
assign any or all of its rights and interests hereunder to one or more of its
Affiliates and (ii) designate one or more of its Affiliates to perform its
obligations hereunder (in any or all of which cases the Buyer nonetheless shall
remain responsible for the performance of all of its obligations hereunder).
(h) COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(i) HEADINGS. The section headings contained in this Agreement are
--------
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(j) NOTICES. All notices, requests, demands, claims, and other
-------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Sellers: B. Higginbotham Enterprises, Inc.
------------------
2126 Vanco Drive
Irving, Texas 75061
Attention: Mr. Robert V. Higginbotham
If to the Buyer: EISI, Inc.
----------------
140 East Dana Street
Mountain View, California 84041
Attention: Donald J. Esters
Chairman of the Board
<PAGE>
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(k) GOVERNING LAW. This Agreement shall be governed by and construed in
-------------
accordance with the domestic laws of the State of Texas without giving effect to
any choice or conflict of law provision or rule (whether of the State of Texas
or any other jurisdiction) that would cause the application of the laws of any
other jurisdiction.
(l) AMENDMENTS AND WAIVERS. No amendment of any provision of this
----------------------
Agreement shall be valid unless the same shall be in writing and signed by the
Buyer and the Sellers. No waiver by any Party of any default, misrepresentation,
or breach of warranty or covenant hereunder, whether intentional or not, shall
be deemed to extend to any prior or subsequent default, misrepresentation, or
breach of warranty or covenant hereunder or affect in any way any rights arising
by virtue of any prior or subsequent such occurrence.
(m) SEVERABILITY. Any term or provision of this Agreement that is invalid
------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(n) EXPENSES. Each of the Parties will bear his or its own costs and
--------
expenses (including legal fees and expenses) incurred in connection with this
Agreement and the transactions contemplated hereby. The Sellers agree that the
Company has not borne or will bear any of the Sellers' costs and expenses
(including any of their legal fees and expenses) in connection with this
Agreement or any of the transactions contemplated hereby.
(o) CONSTRUCTION. The Parties have participated jointly in the negotiation
------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or
<PAGE>
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the Party has not breached shall not detract from or
mitigate the fact that the Party is in breach of the first representation,
warranty, or covenant.
(p) INCORPORATION OF EXHIBITS, ANNEXES, AND SCHEDULES. The Exhibits,
-------------------------------------------------
Annexes, and Schedules identified in this Agreement are incorporated herein by
reference and made a part hereof.
(q) SPECIFIC PERFORMANCE. Each of the Parties acknowledges and agrees that
--------------------
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any arbitration proceeding.
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement on [AS OF]
the date first above written.
EISI, INC.
By: /s/ DONALD J. ESTERS
--------------------------------
Donald J. Esters
Chairman of the Board
B. HIGGINBOTHAM ENTERPRISES, INC.
By: /s/ ROBERT V. HIGGINBOTHAM
--------------------------------
Name:
------------------------------
Title:-----------------------------
SELLERS
/s/ ROBERT V. HIGGINBOTHAM
-----------------------------------
Robert V. Higginbotham
B. HIGGINBOTHAM ENTERPRISES, INC.
401(K) EMPLOYEE STOCK OWNERSHIP
PLAN
By: /s/ ROBERT V. HIGGINBOTHAM
--------------------------------
Its:
-------------------------------
<PAGE>
EXHIBIT 10.21
EIS
________________________________________________________________________________
140 EAST DANA ST. TEL 650-969-5212
MOUNTAIN VIEW FAX 650-969-4136
CALIFORNIA 94041 WWW.EISINET.COM
August 17, 1998
Mr. Jeff J. Elston
Aurora Visual Systems
1530 First Avenue S.
Seattle, WA 98134
Dear Jeff:
This letter will confirm our Agreement in Principle (the "Agreement in
Principle") with respect to the acquisition (the "transaction") by Electronic
Integrated Solutions, Inc. ("Buyer"), a California corporation, of the assets
subject to the liabilities of Aurora Visual Systems ("Aurora") on the
following basis:
1. It is contemplated that the transaction will be structured as a
purchase of the net assets and the business of Aurora.
2. (A) The aggregate purchase price (the "purchase price") for the entire
interest in Aurora will be $1,500,000, as described below, payable
beginning upon the closing date (the "Closing Date") of the
transaction.
(B) The purchase price will be payable as follows:
(1) in cash (the "Cash Payment"), an amount equal to $1,000,000;
(2) in common stock of Electronic Integrated Solutions an amount
of shares equivalent to $500,000 when Buyer has its public
offering. If no pubic offering for the shares of Buyer occurs
within 15 months from the closing, then the shares (or any
portion of them) may, at the sole option of the selling
shareholders of Aurora, be converted into a demand note
payable over six months from that date with interest at the
Wells Fargo Bank (or successor) prime rate, payable monthly
including principal and interest. All shares issued shall bear
legend restrictions upon their sale as is customary for such
shares. In addition, if no public offering has occurred within
7 months of the closing, the $500,000 will increase in value
applying the above prime rate for the period between the 7th
month and the 15th month.
3. You have previously delivered to Buyer certain financial statements and
projections of future operating results. Buyer is relying on the
accuracy of the information contained therein in proceeding with the
transaction. In addition, you have advised Buyer that Aurora has, and
at the closing will have, no material liabilities, contingent or
otherwise, except for liabilities disclosed in the financial
information submitted or incurred subsequent to the date thereof in the
ordinary course of business, consistent with past practice.
<PAGE>
Mr. Jeff J. Elston
Aurora Visual Systems
August 17, 1998
Page 2
4. The transaction is subject to negotiation and execution of a definitive
Purchase Agreement and related agreements acceptable in form and
substance to Buyer and Seller containing, among other things, terms,
representations, warranties, covenants, agreements and conditions
customary for transactions of this type; and further due diligence by
Buyer.
5. This offer represents a substantial commitment by Buyer of its time,
effort and financial resources to the transaction rather than to
alternative acquisition opportunities available to it. Accordingly, you
have committed to Buyer that, until the earliest to occur of (i)
consummation of the transaction, (ii) the termination of our
negotiations, or (iii) October 31, 1998, you will not, and will cause
Aurora not to solicit, encourage, or initiate any discussions with, or
provide any information to any person, entity or group, other than
Buyer and its employees or agents, concerning any merger,
consolidation, sale of significant or substantial assets or similar
transaction involving Aurora or any sale of shares of capital stock
involving Aurora. You will immediately advise Buyer if you receive any
acquisition proposal from any other person, entity or group.
6. It is understood and agreed that this Agreement in Principle
constitutes only a statement of our mutual intentions with respect to
the transaction, does not contain all matters upon which agreement must
be reached in order for the transaction to be consummated and,
therefore, does not constitute a binding commitment with respect to the
transaction itself. A binding commitment with respect to the
transaction itself can result only from execution of definitive
agreements, subject to the conditions expressed therein.
Notwithstanding the two preceding sentences of this paragraph 6, it is
expressly agreed by the parties hereto that the provisions of paragraph
6 are fully binding upon the execution of this Agreement in Principle.
7. Buyer and Seller will pay their own expenses incurred in connection
with the preparation, negotiations, execution and delivery of this
Agreement in Principle, the definitive Purchase Agreement and all
related agreements and the consummation of this transaction.
If the foregoing accurately summarizes our understanding, we request that you
execute the enclosed copy of this letter and return it to the undersigned.
Sincerely,
/s/ DONALD J. ESTERS
Donald J. Esters
Chairman and CEO
EIS
<PAGE>
Mr. Jeff J. Elston
Aurora Visual Systems
August 17, 1998
Page 2
Accepted and agreed to this 23rd day of August, 1998.
By: /s/ JEFF J. ELSTON
----------------------------
Jeff J. Elston
By: /s/ ROLF HOGGER
----------------------------
Rolf Hogger
<PAGE>
EXHIBIT 10.22
EIS
- --------------------------------------------------------------------------------
140 EAST DANA ST. TEL 650-969-5212
MOUNTAIN VIEW FAX 650-969-4136
CALIFORNIA 94041 WWW\EISINET.COM
September 16, 1998
Paul Peck
Proline Systems
1233 120th Avenue N.E.
Bellevue, WA 98005
Dear Paul:
This communication will serve as our Letter of Intent with respect to the
acquisition (the "transaction") by Electronic Integrated Solutions, Inc.
("Buyer"), a California corporation, of the entire equity interest in Proline
Industries, Inc. ("Proline") on the following basis:
1. It is contemplated that the transaction will be structured as a purchase of
the outstanding capital stock of Proline Industries, Inc.
2. The aggregate purchase price (the "purchase price") for the entire equity
interest in Proline will be $6,400,000, with the entire amount payable at
the closing date (the "Closing Date") of the transaction.
3. As part of the transaction, the Buyer and Paul Peck will negotiate and enter
into a one year employment contract, which can be extended by mutual
agreement.
4. You have previously delivered to Buyer certain financial statements and
projections of future operating results. Buyer is relying on the accuracy of
the historical information contained therein in proceeding with the
transaction. In addition, you have advised Buyer that Proline has, and at
the closing will have, no material liabilities, contingent or otherwise,
except for liabilities disclosed in the financial information submitted or
incurred subsequent to the date thereof in the ordinary course of business,
consistent with past practice.
5. The transaction is subject to negotiation and execution of a definitive
Purchase Agreement and related agreements acceptable in form and substance
to Buyer and Seller containing, among other things, terms, representations,
warranties, covenants, agreements and conditions customary for transactions
of this type; and further due diligence by Buyer.
6. This offer represents a substantial commitment by Buyer of its time, effort
and financial resources to the transaction rather than to alternative
acquisition opportunities available to it. Accordingly, you have committed
to Buyer that, until the earliest to occur of (i) consummation of the
transaction, (ii) the termination of our negotiations, or (iii) October 31,
1998, you will not, and will cause Proline not to solicit, encourage, or
initiate any discussions with, or provide any information to any person,
entity or group, other than Buyer and its employees or agents, concerning
any merger, consolidation, sale of significant or substantial assets or
similar transaction involving Proline or any sale of shares of capital stock
involving Proline. You will immediately advise Buyer if you receive any
acquisition proposal from any other person, entity or group.
<PAGE>
7. It is understood and agreed that this Letter of Intent constitutes only a
statement of our mutual intentions with respect to the transaction, does not
contain all matters upon which agreement must be reached in order for the
transaction to be consummated and, therefore, does not constitute a binding
commitment with respect to the transaction itself. A binding commitment with
respect to the transaction itself can result only from execution of
definitive agreements, subject to the conditions expressed therein.
Notwithstanding the two preceding sentences of this paragraph 7, it is
expressly agreed by the parties hereto that the provisions of paragraph 6
are fully binding upon the execution of this Agreement in Principle.
8. Buyer and Seller will pay their own expenses incurred in connection with the
preparation, negotiations, execution and delivery of this Agreement in
Principle, the definitive Purchase Agreement and all related agreements and
the consummation of this transaction.
If the foregoing accurately summarizes our understanding, we request that you
execute the enclosed copy of this letter and return it to the undersigned.
Sincerely,
/s/ DONALD J. ESTERS
- -----------------------
Donald J. Esters
Chairman and CEO
EIS
Accepted and agreed to this 5th day of October, 1998.
By: /s/ PAUL PECK
----------------------------
Paul Peck
By: /s/ CECIL GRAY
----------------------------
Cecil Gray
<PAGE>
EXHIBIT 10.23
STOCK PURCHASE AGREEMENT
by and among
EISI,
A CALIFORNIA CORPORATION
and
THE PURCHASERS LISTED ON SCHEDULE 1
June 24, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement, dated as of June 24, 1998 (the
"Agreement"), is entered into by and among EISI, a California corporation
("EISI"), and each of the Purchasers whose names appear on the signature page of
this Agreement (collectively, the "Purchasers").
RECITALS
--------
In order to provide a portion of the funds required by EISI to
consummate certain strategic acquisitions (the "Acquisitions"), each Purchaser
desires to purchase with cash the number of shares of common stock, no par
value, of EISI (the "Shares"), set forth opposite the Purchaser's name in
Schedule I hereto and EISI desires to sell such Shares to the Purchasers.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1.
PURCHASE OF STOCK
-----------------
1.1. Purchase of Shares for Cash. Upon the terms and subject to the
---------------------------
conditions contained herein, EISI shall issue and deliver to each Purchaser the
number of Shares set forth opposite each Purchaser's name in Schedule I hereto
in exchange for the purchase price therefor set forth opposite each Purchaser's
name in Schedule I hereto, in an aggregate amount of $1,050,000.
ARTICLE 2.
CLOSING
-------
2.1. Closing. The closing of the purchase of Shares (the "Closing")
-------
shall take place at 10: 00 am. on June 25, 1998 at the offices of Gibson, Dunn &
Crutcher LLP, 333 South Grand Avenue, 47th Floor, Los Angeles, California 90071
and after the satisfaction or waiver of all the conditions to Closing contained
in Articles 5 and 6 herein. At the Closing, each Purchaser will pay to the
Company in cash, by wire transfer of immediately available funds, the amount set
forth as the purchase price opposite such Purchaser's name in Schedule I hereto
and the Company will issue to each Purchaser the respective number of Shares set
forth opposite such Purchaser's name in Schedule I hereto.
<PAGE>
ARTICLE 3.
REPRESENTATIONS OF EISI
-----------------------
3.1. EISI hereby represents and warrants to each Purchaser that:
(a) Capitalization; Title to Shares. The authorized capital
-------------------------------
stock of EISI consists solely of 5,000,000 shares of common stock, no par
value per share. There are 949,200 shares issued and outstanding, all of which
have been duly authorized and are validly issued, fully paid and non-
assessable. Schedule 3(a) lists all shareholders of EISI and the number of
shares owned by each shareholder. Except for options to acquire 88,800 shares
and shares to be issued to consummate the Acquisitions, there are outstanding
no securities convertible into, exchangeable for, or carrying the right to
acquire, equity securities of EISI, or subscriptions, warrants, options,
rights, calls, agreements, demands or other arrangements or commitments of any
character obligating EISI to issue or dispose of any of its equity securities
or any ownership interest therein or otherwise relating to the capital stock
of EISI. The Shares will be duly authorized, upon receipt of purchase price
therefor in accordance with terms of agreement, the Shares will be validly
issued, fully paid, nonassessable, will be valid and binding agreement of
EISI, enforceable in accordance with this Agreement. The sale and delivery of
the Shares to the Purchasers pursuant to Article I hereof will vest in the
Purchasers legal and valid title to the Shares, free and clear of any and all
liens, security interests, pledges, mortgages, charges, limitation, claims,
restrictions, rights of first refusal, rights of first offer, rights of first
negotiation or other encumbrances of any kind or nature whatsoever
(collectively, "Encumbrances"), other than Encumbrances created by any such
Purchaser.
(b) Subsidiaries. Except for Educational Industrial Sales,
------------
Inc., a California corporation (the "Subsidiary"), and the contemplated
Acquisitions, EISI does not hold a direct, indirect or beneficial interest in
any entity (corporation, partnership, joint venture, association or other
business enterprise).
(c) Organization. Each of EISI and the Subsidiary is a
------------
corporation duly organized, validly existing and in good standing under the
laws of the State of California and has all requisite corporate power and
authority to own its properties and carry on its business as it is now being
conducted. Each of EISI and the Subsidiary is duly qualified to do business
and is in good standing as a foreign corporation in all jurisdictions where
the nature of the business conducted by it makes such qualification necessary
and the absence of such qualification could, individually or in the aggregate,
have a material adverse effect on the condition (financial or otherwise),
business, net worth, results of operations, earnings, properties or prospects,
whether or not arising in the ordinary course of business, of EISI and the
Subsidiary considered as a whole.
(d) Power and Authority; Effect of Agreement. EISI has all
----------------------------------------
requisite power and authority to execute, deliver and perform this Agreement
and the agreements, certificates, instruments or other documents to be
executed and delivered in connection herewith, including, but not limited to,
the Registration Rights Agreement and the Investor Agreement
2
<PAGE>
contemplated hereby, each of even date herewith (collectively, the "Ancillary
Documents"), and to consummate the transactions contemplated hereby and
thereby. This Agreement has been duly and validly executed and delivered by
EISI and constitutes the valid and binding obligation of EISI, and the
Ancillary Documents, assuming the due execution and delivery hereof by each
Purchaser, upon execution and delivery by EISI, will constitute valid and
binding obligations of EISI, in each case enforceable against EISI in
accordance with its terms, except to the extent that such enforceability may
be limited by (A) bankruptcy, insolvency, reorganization, moratorium (whether
general or specific) or similar laws now or hereafter in effect relating to
creditors' rights generally, and (B) general principles of equity (regardless
of whether such enforcement is sought in a proceeding in equity or at law).
The execution, delivery and performance by EISI of this Agreement and the
Ancillary Documents and the consummation by EISI of the transactions
contemplated hereby and thereby will not, with or without the giving of notice
or the lapse of time, or both, (i) violate or conflict with any provision of
law, rule or regulation to which EISI or the Subsidiary is subject or by which
any of the property of EISI or the Subsidiary is bound, (ii) violate or
conflict with any order, judgment or decree applicable to EISI or the
Subsidiary, (iii) violate or conflict with any provision of the Articles of
Incorporation or the Bylaws of EISI or the Subsidiary or (iv) result in a
violation or breach of, or permit any third party to modify, terminate or
rescind any term or provision of, or constitute a default under, any
Commitment (as defined in Section 3(o)), including, without limitation, any
indenture, mortgage, deed of trust, promissory note or industrial revenue
bond, if any, to which EISI or the Subsidiary is a party or by which any of
the property of EISI or the Subsidiary is bound, or result in the creation of
an Encumbrance on any of the assets of EISI or the Subsidiary.
ARTICLE 4.
REPRESENTATIONS OF THE PURCHASERS
---------------------------------
4.1. Each Purchaser severally hereby represents and warrants that:
(a) Each Purchaser is either (i) an individual and has all requisite
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby or (ii) a corporation duly organized, validly
existing and in good standing under the laws of the state of its applicable
jurisdiction of organization and has all requisite corporate power and authority
to conduct its respective business as it is now conducted and to enter into this
Agreement and to consummate the transactions contemplated hereby.
(b) This Agreement has been duly and validly authorized, executed and
delivered by such Purchaser and, assuming the due execution and delivery hereof
by EISI, constitutes a valid and binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms, except as such
enforcement may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium (whether general or specific) or similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) general principles of
equity (regardless of whether such enforcement is sought in a proceeding in
equity or at law).
3
<PAGE>
(c) Such Purchaser is acquiring the Shares for its own account and
not as a nominee or agent for any other person and it has no present intention
to transfer, sell, convey, or dispose of any of the Shares.
(d) Such Purchaser has had an opportunity to ask questions of and to
receive answers from the officers of EISI, or a person or persons acting on
EISI's behalf, concerning the terms and conditions of the purchase of the Shares
pursuant thereto.
(e) Such Purchaser is able to bear the economic risk of its
investment in the Shares pursuant to this Agreement and such Purchaser has given
consideration as to whether it can afford to hold its Shares for an indefinite
period and whether, at this time, such Purchaser could afford a complete loss of
its investment in the Shares.
(f) Such Purchaser understands that there is no public market for the
Shares and that the Shares have not been registered under the Securities Act of
1933 as amended (the "1933 Act"), or under any state securities ("Blue Sky")
laws, and therefore the Shares cannot be resold unless registered under the 1933
Act and Blue Sky laws or unless an exemption from registration is available.
ARTICLE 5.
CONDITIONS TO EISI'S OBLIGATIONS
--------------------------------
The obligations of EISI contained herein with respect to the issuance
of the Shares to a Purchaser are subject to the satisfaction, on or prior to the
Closing, of the following conditions:
5.1. Additional Documents. Such Purchaser shall execute and deliver
--------------------
such additional documents reasonably requested by EISI that are necessary or
advisable to carry out the provisions of this Agreement
5.2. Representations and Warranties True. Such Purchaser's
-----------------------------------
representations and warranties contained in Article 4 hereof shall be true at
and as of the Closing, as if made on and as of such date (except to the extent
such representations and warranties speak as to a particular date).
ARTICLE 6.
CONDITIONS TO EACH PURCHASER'S OBLIGATIONS
------------------------------------------
The obligations of each Purchaser contained herein to purchase the
Shares from EISI are subject to the satisfaction, on or prior to the Closing, of
the following conditions:
6.1. Additional Documents. EISI shall execute and deliver such
--------------------
additional documents reasonably requested by any Purchaser that are necessary or
advisable to carry out the provisions of this Agreement.
4
<PAGE>
6.2. Representations and Warranties True. EISI's representations and
-----------------------------------
warranties contained in Article 3 hereof shall be true at and as of the Closing,
as if made on and as of such date (except to the extent such representations and
warranties speak as to a particular date).
6.3. Ancillary Documents. Simultaneously with the sale to the
-------------------
Purchasers of the Shares at the Closing, EISI shall have entered into the
Registration Rights Agreement, substantially in the form attached as Exhibit A,
and the Investor Agreement, substantially in the form attached as Exhibit B, and
the Purchasers shall have received an original, duly executed by EISI, of the
Registration Rights Agreement and the Investor Agreement.
6.4. Closing by All Purchasers. Each of the Purchasers collectively
-------------------------
shall have purchased a number of Shares such that when such purchases are taken
together, the aggregate purchase price received by EISI in cash from the sale
hereof shall be at least $ 1,000,000.
ARTICLE 7.
RESTRICTIONS ON TRANSFER
------------------------
7.1. Restrictions on Transfer. Each Purchaser agrees that:
------------------------
(a) It shall not sell, assign, convey, hypothecate or in any
other manner transfer any of the Shares except in compliance with the 1933 Act
and any applicable Blue Sky laws.
(b) Each certificate representing the Shares issued pursuant
to this Agreement shall bear legends in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED
OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE
SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
ARTICLE 8.
MISCELLANEOUS
-------------
8.1. Notices. Any notice, request, instruction or other document to
-------
be given hereunder by any party to the others shall be in writing and delivered
in person or by courier, telegraphed, telexed or by facsimile transmission or
mailed by certified mail, postage prepaid,
5
<PAGE>
return receipt requested (such mailed notice to be effective on the date of
such receipt is acknowledged), as follows:
If to EISI: EISI
140 East Dana Street
Mountain View, California 94041
Attention: Donald J. Esters
Telecopy: (650) 969-5212
With a copy to: Russell F. Sauer, Jr., Esq.
Latham & Watkins
633 West Fifth Street, Suite 4000
Los Angeles, California 90071
Telecopy: (213) 891-8763
If to Purchasers: E*Capital Corporation
1000 Wilshire Boulevard, Suite 900
Los Angeles, California 90017
Telecopy: (213) 688-6642
Feighner Family Trust
c/o John P. Feighner and Anne C. Feighner,
as Trustees
5035 El Mirlo
Rancho Santa Fe, California 92067
Telecopy: (619) 756-9152
Den-Mat Corp.
P.O. Box 1729
Santa Maria, California 93456
Telecopy: (805) 928-5170
Edward W. Wedbush
17891 Via de Fortuna
Rancho Santa Fe. California 92067
Telecopy: (619) 759-9919
8.2. Governing Law; Choice of Forum. This Agreement shall be
------------------------------
construed, interpreted and the rights of the parties determined in accordance
with the internal laws of the State of California without regard to the
conflict of law principles thereof.
8.3. 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.
6
<PAGE>
8.4. Headings. The headings of the Articles and Sections herein
--------
are inserted for convenience of reference only and are not intended to be a
part of or to affect the meaning or interpretation of this Agreement.
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be duly executed on their respective behalf by
their respective officers thereunto duly authorized, as of the day and year
first above written.
EISI, INC.
a California corporation
By: /s/ DONALD J. ESTERS
---------------------------------------
Donald J. Esters
Its: Chairman of the Board
E*CAPITAL CORPORATION,
a California corporation
By: /s/ EDWARD W. WEDBUSH
---------------------------------------
Edward W. Wedbush
Its: President
FEIGHNER FAMILY TRUST
By: /s/ JOHN P. FEIGHNER
---------------------------------------
John P. Feighner
Its: Trustee
By: /s/ ANNE C. FEIGHNER
---------------------------------------
Anne C. Feighner
Its: Trustee
DEN-MAT CORP.,
a Delaware corporation
By: /s/ ROBERT L. IBSEN
---------------------------------------
Robert L. Ibsen,
Its: President
/s/ EDWARD W. WEDBUSH
------------------------------------------
Edward W. Wedbush
8
<PAGE>
SCHEDULE 1
PURCHASER Number of Shares PURCHASE PRICE
- --------- ---------------- --------------
E*Capital Corporation 14,703 $ 400,000
Feighner Family Trust 9,189 $ 250,000
Den-Mat Corp. 5,514 $ 150,000
Edward W. Wedbush 9,189 $ 250,000
------ ----------
Total 38,595 $1,050,000
<PAGE>
EXHIBIT 10.24
THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE STOCK
Corporation: EISI
Number of Shares: 11,246
Class of Stock: Common
Initial Exercise Price: $27.21
Issue Date: June 29, 1998
Expiration Date: June 28, 2005
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and
for other good and valuable consideration, SAND HILL CAPITAL LLC ("Holder") is
entitled to purchase the number of fully paid and nonassessable shares of Common
Stock (the "Shares") of the corporation (the "Company") at the price per Share
(the "Warrant Price") all as set forth above and as adjusted pursuant to Article
2 of this Warrant, subject to the provisions and upon the terms and conditions
set forth in this Warrant.
ARTICLE 1. EXERCISE.
--------
1.1. Method of Exercise. Holder may exercise this Warrant by
------------------
delivering a duly executed Notice of Exercise in substantially the form attached
as Appendix 1 to the principal office of the Company. Unless Holder is
exercising the conversion right set forth in Section 1.2, Holder shall also
deliver to the Company a check for the aggregate Warrant Price for the Shares
being purchased.
1.2. Conversion Right. In lieu of exercising this Warrant as
----------------
specified in Section 1.1, Holder may from time to time convert this Warrant, in
whole or in part, into a number of Shares determined by dividing (a) the
aggregate fair market value of the Shares or other securities otherwise issuable
upon exercise of this Warrant minus the aggregate Warrant Price of such Shares
by (b) the fair market value of one Share. The fair market value of the Shares
shall be determined pursuant to Section 1.4.
1.3. No Rights of Shareholders. This Warrant does not entitle
-------------------------
Holder to any voting rights as a shareholder of the Company prior to the
exercise hereof.
1.4. Fair Market Value. If the Shares are traded in a public
-----------------
market, the fair market value of the Shares shall be the closing price of the
Shares (or the closing price of the Company's stock into which the Shares are
convertible) reported for the business day
<PAGE>
immediately before Holder delivers its Notice of Exercise to the Company. If
the Shares are not traded in a public market, the Board of Directors of the
Company shall determine fair market value in its reasonable good faith
judgment. The Directors of the Company shall determine fair market value in
its reasonable good faith judgment. The foregoing notwithstanding, if Holder
advises the Board of Directors in writing that Holder disagrees with such
determination, then the Company and Holder shall promptly agree upon a
reputable investment banking or public accounting firm to undertake such
valuation. If the valuation of such investment banking firm shall be paid by
the Company. In all other circumstances, such fees and expenses shall be paid
by Holder.
1.5. Delivery of Certificate and New Warrant. Promptly after Holder
---------------------------------------
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6. Replacement of Warrants. On receipt of evidence reasonably
-----------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7. Repurchase on Sale, Merger, or Consolidation of the Company.
-----------------------------------------------------------
1.7.1. "Acquisition". For the purpose of this Warrant,
-------------
"Acquisition" means any sale, license, or other disposition of all or
substantially all of its assets of the Company, or any reorganization,
consolidation, or merger of the Company where the holders of the Company's
securities before the transaction beneficially own less than 50% of the
outstanding voting securities of the surviving entity after the transaction.
1.7.2. Assumption of Warrant. Upon the closing of any
---------------------
Acquisition the successor entity shall assume the obligations of this Warrant,
and this Warrant shall be exercisable for the same securities, cash, and
property as would be payable for the Shares issuable upon exercise of the
unexercised portion of this Warrant as if such Shares were outstanding on the
record date for the Acquisition and subsequent closing. The Warrant Price
shall be adjusted accordingly.
1.7.3. Purchase Right. Notwithstanding the foregoing, at the
--------------
election of Holder, the Company shall purchase the unexercised portion of this
Warrant for cash upon the closing of any Acquisition for an amount equal to (a)
the fair market value of any consideration that would have been received by
Holder in consideration of the Shares had Holder exercised the unexercised
portion of this Warrant immediately before the record date for determining the
shareholders entitled to participate in the proceeds of the Acquisition, less
(b) the aggregate Warrant Price of the Shares, but in no event less than zero.
2
<PAGE>
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
-------------------------
2.1. Stock Dividends, Splits, Etc. If the Company declares or
-----------------------------
pays a dividend on its common stock payable in common stock, or other
securities, subdivides the outstanding common stock into a greater amount of
common stock, then upon exercise of this Warrant, for each Share acquired,
Holder shall receive, without cost to Holder, the total number and kind of
securities to which Holder would have been entitled had Holder owned the
Shares of record as of the date the dividend or subdivision occurred.
2.2. Reclassification, Exchange or Substitution. Upon any
------------------------------------------
reclassification, exchange, substitution, or other event that results in a
change of the number and/or class of the securities issuable upon exercise or
conversion of this Warrant, Holder shall be entitled to receive, upon exercise
or conversion of this Warrant, the number and kind of securities and property
that Holder would have received for the Shares if this Warrant had been
exercised immediately before such reclassification, exchange, substitution, or
other event. The Company or its successor shall promptly issue to Holder a new
Warrant for such new securities or other property. The new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Article 2 including, without
limitation, adjustments to the Warrant Price and to the number of securities or
property issuable upon exercise of the new Warrant. The provisions of this
Section 2.2 shall similarly apply to successive reclassifications, exchanges,
substitutions, or other events.
2.3. Adjustments for Combinations, Etc. If the outstanding Shares
----------------------------------
are combined or consolidated, by reclassification or otherwise, into a lesser
number of shares, the Warrant Price shall be proportionately increased.
2.4. Weighted Average Adjustment. If the Company issues additional
---------------------------
common shares (including shares of common stock ultimately issuable upon
conversion of a security convertible into common stock) after the date of the
Warrant and the consideration per additional common share is less than the
Warrant Price in effect immediately before such issue, the Warrant Price shall
be reduced, concurrently with such Issue, to a price determined by multiplying
the Warrant Price by a fraction:
(a) the numerator of which is the amount of common stock
outstanding immediately before such Issue plus the amount of common stock that
the aggregate consideration received by the Company for the additional common
shares would purchase at the Warrant Price in effect immediately before such
Issue, and
(b) the denominator of which is the amount of common stock
outstanding immediately before such issue plus the number of such additional
common shares.
Upon each adjustment of the Warrant Price, the number of Shares issuable upon
exercise of the Warrant shall be increased to equal the quotient obtained by
dividing (a) the product resulting from multiplying (i) the number of Shares
issuable upon exercise of the Warrant and (ii) the Warrant Price, in each case
as in effect immediately before such adjustment, by (b) the adjusted Warrant
Price.
3
<PAGE>
2.5. No Impairment. The Company shall not, by amendment of its
-------------
Articles of Incorporation or through a reorganization, 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 under this Warrant by the Company, but
shall at all times in good faith assist in carrying out of all the provisions of
this Article 2 and in taking all such actions as may be necessary or appropriate
to protect Holder's rights under this Article against impairment. If the
Company takes any action affecting the Shares or its common stock other than as
described above that adversely affects Holder's rights under this Warrant, the
Warrant Price shall be adjusted downward and the number of Shares issuable upon
exercise of this Warrant shall be adjusted upward in such a manner that the
aggregate Warrant Price of this Warrant is unchanged.
2.6. Fractional Shares. No fractional Shares shall be issuable upon
-----------------
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7. Certificate as to Adjustments. Upon each adjustment of the
-----------------------------
Warrant Price, the Company at its expense shall promptly compute such
adjustment, and furnish Holder with a certificate of its Chief Financial
Officer setting forth such adjustment and the facts upon which such adjustment
is based. The Company shall, upon written request, furnish Holder a certificate
setting forth the Warrant Price in effect upon the date thereof and the series
of adjustments leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
--------------------------------------------
3.1. Representations and Warranties. The Company hereby represents
------------------------------
and warrants to the Holder that all Shares which may be issued upon the exercise
of the purchase rights represented by this Warrant, and all securities, if any,
issuable upon conversion of the Shares, shall, upon issuance, be duly
authorized, validly issued, fully paid and nonassessable, and free of any liens
and encumbrances except for restrictions on transfer provided for herein or
under applicable federal and state securities laws. The Company shall at all
times reserve a sufficient number of shares of common stock for issuance upon
Holder's exercise of its rights hereunder.
3.2. Notice of Certain Events. If the Company proposes at any time
------------------------
(a) to declare any dividend or distribution upon its common stock, whether in
cash, property, stock, or other securities and whether or not a regular cash
dividend; (b) to offer for subscription pro rata to the holders of any class or
series of its stock any additional shares of stock of any class or series of its
stock any additional shares of stock of any class or series or other rights; (c)
to effect any reclassification or recapitalization of common stock; (d) to merge
or consolidate with or into any other corporation, or sell, lease, license, or
convey all or substantially all of its assets, or to liquidate, dissolve or wind
up; or (e) offer holders of registration rights the opportunity to participate
in an underwritten public offering of the company's securities for cash, then,
in
4
<PAGE>
connection with each such event, the Company shall give Holder (1) at least
20 days prior written notice of the date on which a record will be taken for
such dividend, distribution, or subscription rights (and specifying the date on
which the holders of common stock will be entitled thereto) or for determining
rights to vote, if any, in respect of the matters referred to in (c) and (d)
above; (2) in the case of the matters referred to in (c) and (d) above at least
20 days prior written notice of the date when the same will take place (and
specifying the date on which the holders of common stock will be entitled to
exchange their common stock for securities or other property deliverable upon
the occurrence of such event); and (3) in the case of the matter referred to in
(e) above, the same notice as is given to the holders of such registration
rights.
3.3. Information Rights. So long as the Holder holds this Warrant
------------------
and/or any of the Shares, the Company shall deliver to the Holder (a) promptly
after mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual financial statements of the Company.
3.4. Registration Under Securities Act of 1993, as amended. The
-----------------------------------------------------
Company hereby grants to Holder the same piggyback registration rights granted
to the purchasers in the most recently completed issuance of the Company's
equity securities.
ARTICLE 4. MISCELLANEOUS.
-------------
4.1. Term. This Warrant is exercisable, in whole or in part, at
----
any time and from time to time on or before the Expiration Date set forth above.
4.2. Legends. This Warrant and the Shares (and the securities
-------
issuable, directly or indirectly, upon conversion of the Shares, if any) shall
be imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE
TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH
ACT OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE CORPORATION AND ITS COUNSEL THAT SUCH
REGISTRATION IS NOT REQUIRED.
4.3. Compliance with Securities Laws on Transfer. This Warrant and
-------------------------------------------
the Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company, as reasonably
requested by the Company). The Company shall not require Holder to provide an
opinion of counsel if the transfer is to an affiliate of Holder or if there is
no material question as to the availability of current information as referenced
in Rule 144(c), Holder represents that it has complied with
5
<PAGE>
Rule 144(d) and (e) in reasonable detail, the selling broker represents that it
has complied with Rule 144(f), and the Company is provided with a copy of
Holder's notice of proposed sale.
4.4. Transfer Procedure. Subject to the provisions of Section 4.2,
------------------
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any portion of this Warrant to any person who directly competes with
the Company.
4.5. Notices. All notices and other communications from the Company
-------
to the Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6. Waiver. This Warrant and any term hereof may be changed,
------
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought.
4.7. Attorneys Fees. In the event of any dispute between the parties
--------------
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8. Governing Law. This Warrant shall be governed by and construed
-------------
in accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
EISI
By: /s/ DONALD J. ESTERS
------------------------------------
Title: CHAIRMAN
---------------------------------
6
<PAGE>
APPENDIX I
NOTICE OF EXERCISE
------------------
1. The undersigned hereby elects to purchase _______ shares of the
Common Stock of ______________________ pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such shares in
full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to _________________ of the Shares covered
by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said
shares in the name of the undersigned or in such other name as is specified
below:
----------------------------------
(Name)
----------------------------------
----------------------------------
(Address)
3. The undersigned represents it is acquiring the shares solely for
its own account and not as a nominee for any other party and not with a view
toward the resale or distribution thereof except in compliance with applicable
securities laws.
- -------------------------------- -------------------------------
(Date) (Signature)
<PAGE>
EXHIBIT 10.25
AGREEMENT WITH SELLER STOCKHOLDERS
This Agreement with Seller Stockholders dated June 12, 1998 is by and
among EISI, INC., a California corporation (the "Buyer"), and MICHAEL STAMMIRE,
-------
RICHARD BART MORAN, and CHRIS H. URSETTA (collectively the "Seller Stockholders"
----------------------
and each individually referred to herein as a " Seller Stockholder") who each
---------------------
reside in the State of California and who are the stockholders of DIGITAL
NETWORKS CORPORATION, INC., a California corporation (the "Seller"). The Buyer
--------
and the Seller Stockholders are referred to collectively herein as the
"Parties." This Agreement shall be effective on and as of the Closing Date.
- ----------
RECITALS
A. The Buyer and the Seller are entering into an Asset Purchase
Agreement concurrently herewith (the "Asset Purchase Agreement"). Certain terms
--------------------------
used herein without definition are used herein as defined in the Asset Purchase
Agreement.
B. The Asset Purchase Agreement contemplates a transaction in which
the Buyer will purchase the Acquired Assets (and accept responsibility for the
Assumed Liabilities) of the Seller in return for cash and other consideration.
C. The Buyer and the Seller make certain representations, warranties,
and covenants in the Asset Purchase Agreement which will survive the Closing for
purposes of potential indemnification. The Seller Stockholders, however, intend
to cause the Seller to liquidate and dissolve immediately after the Closing. The
Buyer and the Seller Stockholders therefore wish to provide for post-Closing
indemnification against breaches of these representations, warranties, and
covenants and to make certain other covenants among themselves.
AGREEMENT
Now, therefore, in consideration of the premises and the mutual
promises herein made, the Buyer and the Seller Stockholders agree as follows.
1. Definitions.
------------
"Adverse Consequences" means all actions, suits, proceedings,
----------------------
hearings, investigations, charges, complaints, claims, demands, injunctions,
judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs,
amounts paid in settlement, Liabilities,
1
<PAGE>
obligations, Taxes, liens, losses, expenses, and fees, including court costs and
[reasonable] attorneys' fees and expenses.
"Asset Purchase Agreement" has the meaning set forth in the recitals
--------------------------
above.
"Confidential Information" means any information concerning the
--------------------------
businesses and affairs of the Seller that is not already generally available to
the public.
"Indemnified Party" has the meaning set forth in Section 4(d) below.
-------------------
"Indemnifying Party" has the meaning set forth in Section 4(d) below.
--------------------
"Party" has the meaning set forth in the preface above.
-------
"Requisite Seller Stockholders" means Seller Stockholders holding a
-------------------------------
majority in interest of the total number of Seller Shares that all of the Seller
Stockholders hold in the aggregate as set forth in the Annex.
"Third Party Claim" has the meaning set forth in Section 4(d) below.
-------------------
2. Representations and Warranties of the Seller Stockholders. Each of
----------------------------------------------------------
the Seller Stockholders represents and warrants, jointly and severally, to the
Buyer that the statements contained in this Section 2 are correct and complete
as of the date of this Agreement with respect to himself.
(a) Authorization. The Seller Stockholder has full power and authority
--------------
(including, if the Seller Stockholder is a corporation, full corporate power and
authority) to execute and deliver this Agreement and to perform his obligations
hereunder. This Agreement constitutes the valid and legally binding obligation
of the Seller Stockholder, enforceable in accordance with its terms and
conditions.
(b) Noncontravention. Neither the execution and the delivery of this
-----------------
Agreement by the Seller Stockholder, nor the performance by the Seller
Stockholder of his obligations hereunder, will (i) violate any constitution,
statute, regulation, rule, injunction, judgment, order, decree, stipulation,
ruling, charge, or other restriction of any government, governmental agency, or
court to which the Seller Stockholder is subject or (ii) conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel, or
require any notice under any agreement, contract, lease, license, instrument, or
other arrangement to which the Seller Stockholder is a party or by which he or
it is bound or to which any of his assets is subject. Buyer acknowledges,
however, that Seller has not obtained consents to the assignment of those
contracts and
2
<PAGE>
agreements listed in the Disclosure Schedule, and Buyer has agreed to waive the
Seller's obligation to obtain such consents except as provided in
Section 2(h)(i)-(ii) in the Asset Purchase Agreement.
(c) Investment. The Seller Stockholder shall not acquire any of the
-----------
Buyer Notes or the Convertible Notes (collectively, the "Notes") from the Seller
unless such Seller Stockholder provides a written acknowledgement to the Buyer
that the Seller Stockholder (i) understands the Notes have not been, and will
not be, registered under the Securities Act, or under any state securities laws,
and are being offered and sold in reliance upon federal and state exemptions for
transactions not involving any public offering, (ii) is acquiring the Notes
solely for his own account for investment purposes, and not with a view to the
distribution thereof, (iii) is a sophisticated investor with knowledge and
experience in business and financial matters, (iv) has received certain
information concerning the Buyer and has had the opportunity to obtain
additional information as desired in order to evaluate the merits and the risks
inherent in holding the Notes, (v) is relying solely on the basis of his own
independent investigation of the Buyer, (vi) is able to bear the economic risk
and lack of liquidity inherent in holding the Notes, and (vii) is an Accredited
Investor.
(d) Seller Shares. The entire authorized capital stock of the Seller
--------------
consists of 200,000 shares of "Seller Stock," of which only 60,000 shares are
issued and outstanding and no Seller Stock is held in treasury. Each Seller
Stockholder holds of record 20,000 shares of Seller Stock.
(e) Seller Representations. All of the representations and warranties
----------------------
made by the Seller to the Buyer in the Asset Purchase Agreement are correct and
complete as of the Effective Date.
3. Post-Closing Covenants. The Parties agree as follows with respect
-----------------------
to the period following the Closing.
(a) General. In case at any time after the Closing any further action
--------
is necessary or desirable to carry out the purposes of the Asset Purchase
Agreement, each of the Parties will take such further action (including the
execution and delivery of such further instruments and documents) as any other
Party reasonably may request, all the sole cost and expense of the requesting
Party (unless the requesting Party is entitled to indemnification therefor under
Section 4 below). The Seller Stockholders acknowledge and agree that from and
after the Closing the Buyer will be entitled to possession of all documents,
books, records (including Tax records), agreements, and financial data of any
sort relating to the Seller.
(b) Litigation Support. In the event and for so long as any Party
-------------------
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint,
3
<PAGE>
claim, or demand in connection with (i) any transaction contemplated under the
Asset Purchase Agreement or (ii) any fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction on or prior to the Closing Date involving the
Seller, each of the other Parties will cooperate with the contesting or
defending Party and his counsel in the contest or defense, make available his
personnel, and provide such testimony and access to his books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under Section 4 below).
(c) Transition. None of the Seller Stockholders will take any action
-----------
that is designed or intended to have the effect of discouraging any lessor,
licensor, customer, supplier, or other business associate of the Seller from
maintaining the same business relationships with the Buyer after the Closing as
it maintained with the Seller prior to the Closing. Each of the Seller
Stockholders will refer all customer inquiries relating to the businesses of the
Seller to the Buyer from and after the Closing.
(d) Confidentiality. Each of the Seller Stockholders will treat and
----------------
hold as such all of the Confidential Information, refrain from using any of the
Confidential Information except in connection with this Agreement, and deliver
promptly to the Buyer or destroy, at the request and option of the Buyer, all
tangible embodiments (and all copies) of the Confidential Information which are
in his possession. In the event that any of the Seller Stockholders is requested
or required (by oral question or request for information or documents in any
legal proceeding, interrogatory, subpoena, civil investigative demand, or
similar process) to disclose any Confidential Information, that Seller
Stockholder will notify the Buyer promptly of the request or requirement so that
the Buyer may seek an appropriate protective order or waive compliance with the
provisions of this Section 3(d). If, in the absence of a protective order or the
receipt of a waiver hereunder, any of the Seller Stockholders is, on the advice
of counsel, compelled to disclose any Confidential Information to any tribunal
or else stand liable for contempt, that Seller Stockholder may disclose the
Confidential Information to the tribunal; provided, however, that the disclosing
-----------------
Seller Stockholder shall use his best efforts to obtain, at the reasonable
request of the Buyer, an order or other assurance that confidential treatment
will be accorded to such portion of the Confidential Information required to be
disclosed as the Buyer shall designate.
(e) Covenant Not to Compete. Seller Stockholders each acknowledge and
------------------------
agree that they have technical expertise associated with the business of the
Seller and are well known in the presentation/communications industry. In
addition, the Seller Stockholders have valuable business contacts with clients
and potential clients of the Seller and with professionals in the
presentation/communication industry. The Seller's reputation and good will are
an integral part of business success throughout the areas where it conducts its
business. If Seller
4
<PAGE>
Stockholders deprive Buyer of the Seller's goodwill or in any manner use their
reputation and goodwill in competition with the Seller, Buyer will be deprived
of the benefits it has bargained for pursuant to this Agreement. Since Seller
Stockholders have the ability to compete with the Seller in the operation of the
Seller's business, Buyer, therefore, desires that the Seller Stockholders enter
into this covenant not to compete. But for Seller Stockholders' entry into this
covenant not to compete, Buyer would not enter into the Asset Purchase
Agreement. It is, therefore, understood and agreed that by their authorization
of the Seller's entry into the Asset Purchase Agreement, the Seller Stockholders
have transferred to Buyer all of their business goodwill in the Seller as
contemplated by California Business and Professions Code Section 16601. Seller
Stockholders, therefore, agree that for a period of five (5) years from the
Closing (the "Term"), Seller Stockholders shall not, without Buyer's prior
written consent (which may be given or withheld in Buyer's sole and absolute
discretion), directly or indirectly,
(i) own, manage, join, operate or control, or participate in the
ownership, management, operation or control of, or be connected as a director,
officer, employee, partner, consultant or otherwise with, or permit their names
to be used by or in connection with, any profit or non-profit business or
organization which produces, designs, conducts research on, provides, sells,
distributes or markets products, goods, equipment or services which, directly or
indirectly compete with the Seller's and/or the Buyer's business, as conducted
by the Seller immediately prior to the Closing and as is proposed to be
conducted by the Buyer after the Closing, in the Counties specified in Exhibit I
attached hereto of the United States, or in any other countries in which the
Seller's and/or the Buyer's business is conducted;
(ii) call on or solicit or divert or take away from the Seller and/or
the Buyer (including without limitation by divulging to any competitor or
potential competitor of the Seller and/or the Buyer) any Person, firm or
corporation or other entity who is or which at the Closing was a customer of the
Seller and/or the Buyer or whose identity is known to the Seller Stockholders at
the Closing as one whom the Seller and/or the Buyer intends to solicit; or
(iii) hire or offer employment to or seek to hire or offer employment
to any employee of the Seller whose employment is continued by the Seller after
the Closing or any employee of any successor or affiliate of the Seller, unless
Buyer first terminates the employment of such employee or gives its written
consent to such employment or offer of employment.
Seller Stockholders acknowledge that the provisions of this Section 3(e) are
reasonable and necessary to protect legitimate interests of Buyer. Seller
Stockholders further acknowledge that any breach of this Section 3(e) by them
will cause irreparable injury to Buyer, for which the available remedies at law
will not be adequate. Accordingly, in the event of any such breach or threatened
breach of any provisions of this Section 3(e), in addition to any other remedy
provided by law or in equity, the Buyer shall be entitled to appropriate
injunctive relief and/or specific performance, in any court of competent
jurisdiction, restraining the Seller Stockholders from
5
<PAGE>
any such actual or threatened breach of this section without posting bond or
other security. Seller Stockholders stipulate to the entry against them of any
temporary, preliminary or permanent injunction and agree not to resist the
Buyer's application for such equitable relief, except on the grounds that the
acts or omissions alleged do not violate any of the provisions of this section.
Seller Stockholders shall, in the event that any injunctive relief or damages
shall be granted to the Buyer, pay all of the Buyer's reasonable costs and
expenses, including attorneys' fees, incurred in obtaining such relief. If the
final judgment of a court of competent jurisdiction declares that any term or
provision of this Section 3(e) is invalid or unenforceable, the Parties agree
that the court making the determination of invalidity or unenforceability shall
have the power to reduce the scope, duration, or area of the term or provision,
to delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified after
the expiration of the time within which the judgment may be appealed.
(f) Personal Guarantees. The Buyer shall, within ninety (90) days
--------------------
after the date of this Agreement obtain the release of the Seller Stockholders
from any personal guarantees they have given for the indebtedness of the Seller.
The Seller Stockholders have set forth in Schedule 4(f) attached hereto a
complete list of all indebtedness for which they have given a personal guaranty
and have delivered to Buyer correct and complete copies of all documents
evidencing the indebtedness and their personal guarantees.
(g) Note Legend. Each Note will be imprinted with a legend
------------
substantially in the following form:
THE PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS SUBJECT TO
CERTAIN RECOUPMENT AND OFFSET PROVISIONS SET FORTH IN AN AGREEMENT
WITH SELLER STOCKHOLDERS DATED AS OF JUNE 12, 1998 (THE "AGREEMENT")
AMONG THE ISSUER OF THIS NOTE AND CERTAIN OTHER PERSONS. THIS NOTE WAS
ORIGINALLY ISSUED ON ____, 19__, AND HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THE TRANSFER OF THIS NOTE IS
SUBJECT TO CERTAIN RESTRICTIONS SET FORTH IN THE AGREEMENT. THE ISSUER
OF THIS NOTE WILL FURNISH A COPY OF THESE PROVISIONS TO THE HOLDER
HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST.
Each holder desiring to transfer any Note first must furnish the Buyer with (i)
a written opinion satisfactory to the Buyer in form and substance from counsel
reasonably satisfactory to the Buyer by reason of experience to the effect that
the holder may transfer the Note as desired without registration under the
Securities Act and (ii) a written undertaking executed by the desired transferee
satisfactory to the Buyer in form and substance agreeing to be bound by the
offset and recoupment provisions and the restrictions on transfer contained
herein.
6
<PAGE>
4. Remedies for Breaches of this Agreement and the Asset Purchase
--------------------------------------------------------------
Agreement.
- ----------
(a) Survival of Representations and Warranties. All of the
-------------------------------------------
representations and warranties of the Buyer, the Seller, and the Seller
Stockholders contained in the Asset Purchase Agreement and in this Agreement
shall survive the Closing (without regard to any investigation made by any of
the Parties and even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect forever thereafter (subject to any applicable statutes of
limitations).
(b) Indemnification Provisions for Benefit of the Buyer.
----------------------------------------------------
(i) Subject to the provisions of Section 4 (b)(iv) below, in
the event the Seller breaches (or in the event any third party alleges
facts that, if true, would mean the Seller has breached) any of its
representations, warranties, and covenants contained in the Asset
Purchase Agreement, and, if there is an applicable survival period
pursuant to Section 4(a) above, provided that the Buyer makes a
written claim for indemnification against any of the Seller
Stockholders pursuant to Section 5(h) below within such survival
period, then each of the Seller Stockholders agrees to indemnify the
Buyer from and against any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including
any Adverse Consequences the Buyer may suffer after the end of any
applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
(ii) Subject to the provisions of Section 4(b)(iv) below, in the
event any of the Seller Stockholders breaches (or in the event any
third party alleges facts that, if true, would mean any of the Seller
Stockholders has breached) any of his representations, warranties, and
covenants contained in this Agreement, and, if there is an applicable
survival period pursuant to Section 4(a) above, provided that the
Buyer makes a written claim for indemnification against the Seller
Stockholder pursuant to Section 5(h) below within such survival
period, then the Seller Stockholder agrees to indemnify the Buyer from
and against any Adverse Consequences the Buyer may suffer through and
after the date of the claim for indemnification (including any Adverse
Consequences the Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the
nature of, or caused by the breach (or the alleged breach).
(iii) Subject to the provisions of Section 4(b)(iv) below and in
addition to the foregoing, each of the Seller Stockholders agrees to
indemnify the Buyer from and against any Adverse Consequences the
Buyer may suffer resulting from, arising out of, relating to, in the
nature of, or caused by:
7
<PAGE>
(x) any Liability of the Seller which is not an Assumed
Liability (including any Liability of the Seller that becomes a
Liability of the Buyer under any bulk transfer law of any
jurisdiction, under any common law doctrine of de facto merger or
successor liability, or otherwise by operation of law);
(y) any Liability of any of the Seller for any unpaid Taxes
with respect to any Tax year or portion thereof ending on or before
the Closing Date or any Liability of any of the Seller's Subsidiaries
for the unpaid Taxes of any Person (other than any of the Seller and
its Subsidiaries) under Reg. Section 1.1502-6 (or any similar
provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
(iv) The foregoing notwithstanding, the Seller Stockholders shall not
have any obligation to indemnify the Buyer from and against any Adverse
Consequences resulting from, arising out of, relating to, in the nature of,
or caused by the breach (or alleged breach) of any representation or
warranty of the Seller contained in Section 4(g)-(j) and Section 4(l)-(cc)
of the Asset Purchase Agreement until the Buyer has suffered Adverse
Consequences by reason of all such breaches (or alleged breaches) in excess
of a $20,000 aggregate threshold (at which point the Seller Stockholders
will be obligated to indemnify the Buyer from and against such further
Adverse Consequences) and there will be a $1,000,000 aggregate ceiling on
the obligation of the Seller Stockholders to indemnify the Buyer from and
against Adverse Consequences.
(c) Indemnification Provisions for Benefit of the Seller Stockholders. In
------------------------------------------------------------------
the event the Buyer breaches (or in the event any third party alleges facts
that, if true, would mean the Buyer has breached) any of its representations,
warranties, and covenants contained in the Asset Purchase Agreement and in this
Agreement, and, if there is an applicable survival period pursuant to Section
4(a) above, provided that any of the Seller Stockholders makes a written claim
for indemnification against the Buyer pursuant to Section 5(h) below within such
survival period, then the Buyer agrees to indemnify each of the Seller
Stockholders from and against any Adverse Consequences the Seller Stockholder
may suffer through and after the date of the claim for indemnification
(including any Adverse Consequences the Seller Stockholder may suffer after the
end of any applicable survival period) resulting from, arising out of, relating
to, in the nature of, or caused by the breach (or the alleged breach).
The Buyer also agrees to indemnify each of the Seller Stockholders from and
against the entirety of any Adverse Consequences the Seller Stockholder may
suffer resulting from, arising out of, relating to, in the nature of, or caused
by any Assumed Liability.
(d) Matters Involving Third Parties.
--------------------------------
8
<PAGE>
(i) If any third party shall notify any Party (the "Indemnified
------------
Party") with respect to any matter (a "Third Party Claim") which may give
-------------------
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this Section 4, then the Indemnified Party
--------------------
shall promptly notify each Indemnifying Party thereof in writing; provided,
---------
however, that no delay on the part of the Indemnified Party in notifying
-------
any Indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
reasonably satisfactory to the Indemnified Party so long as (A) the
Indemnifying Party notifies the Indemnified Party in writing within 30 days
after the Indemnified Party has given notice of the Third Party Claim that
the Indemnifying Party will indemnify the Indemnified Party from and
against the entirety of any Adverse Consequences the Indemnified Party may
suffer resulting from, arising out of, relating to, in the nature of, or
caused by the Third Party Claim, (B) the Indemnifying Party provides the
Indemnified Party with evidence reasonably acceptable to the Indemnified
Party that the Indemnifying Party will have the financial resources to
defend against the Third Party Claim and fulfill its indemnification
obligations hereunder, (C) the Third Party Claim involves only money
damages and does not seek an injunction or other equitable relief, (D)
settlement of, or an adverse judgment with respect to, the Third Party
Claim is not, in the good faith judgment of the Indemnified Party, likely
to establish a precedential custom or practice [materially] adverse to the
continuing business interests of the Indemnified Party, and (E) the
Indemnifying Party conducts the defense of the Third Party Claim actively
and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with Section 4 (d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party, and (C) the Indemnifying Party
will not consent to the entry of any judgment or enter into any settlement
with respect to the Third Party Claim without the prior written consent of
the Indemnified Party (not to be withheld unreasonably). In the event any
of the conditions in Section 4(d)(ii) above is or becomes unsatisfied,
however, (A) the Indemnified Party may defend against, and consent to the
entry of any judgment or enter into any settlement with respect to, the
Third Party Claim in any manner it reasonably may deem appropriate (and the
Indemnified Party need not consult with, or obtain any consent from, any
Indemnifying Party in connection therewith), (B) the Indemnifying Parties
will reimburse the Indemnified Party promptly and periodically for the
costs of defending against the
9
<PAGE>
Third Party Claim (including reasonable attorneys' fees and expenses), and
(C) the Indemnifying Parties will remain responsible for any Adverse
Consequences the Indemnified Party may suffer resulting from, arising out
of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this Section 4.
(e) Determination of Adverse Consequences. The Parties shall take into
--------------------------------------
account the time cost of money (using the Applicable Rate as the discount rate)
in determining Adverse Consequences for purposes of this (S)4. All
indemnification payments under this Section 4 shall be deemed adjustments to the
Purchase Price.
(f) Recoupment Under The Notes. The Buyer shall have the option of
---------------------------
recouping all or any part of any Adverse Consequences it may suffer (in lieu of
or in addition to seeking any indemnification to which it is entitled under this
Section 4) by notifying any Seller Stockholder that the Buyer is reducing the
principal amount outstanding under any of the Notes. This shall affect the
timing and amount of payments required under the Notes in the same manner as if
the Buyer had made a permitted prepayment (without premium or penalty)
thereunder.
(g) Other Indemnification Provisions. The foregoing indemnification
---------------------------------
provisions are in addition to, and not in derogation of, any statutory,
equitable, or common law remedy any Party may have for breach of representation,
warranty, or covenant. Each of the Seller Stockholders hereby agrees that he or
it will not make any claim for indemnification against any of the Buyer and its
Subsidiaries by reason of the fact that he or it was a director, officer,
employee, or agent of any of the Seller or was serving at the request of any
such entity as a partner, trustee, director, officer, employee, or agent of
another entity (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses, or otherwise and whether
such claim is pursuant to any statute, charter document, bylaw, agreement, or
otherwise) with respect to any action, suit, proceeding, complaint, claim, or
demand brought by the Buyer against such Seller Stockholder (whether such
action, suit, proceeding, complaint, claim, or demand is pursuant to this
Agreement, applicable law, or otherwise).
(h) Buyer's Failure to Make Payments Under The Notes. In the event the
-------------------------------------------------
Buyer fails to make any payment under any of the Notes described in the Section
2(b) of the Asset Purchase Agreement or required by the Earn Out and the failure
is not cured within 120 days after written notice to the Buyer pursuant to
Section 5(h) below, the Seller Stockholders shall be relieved of the
restrictions set forth in of Sections 3(d) and (e) of this Agreement.
5. Miscellaneous.
--------------
10
<PAGE>
(a) Press Releases and Public Announcements. None of the Seller
----------------------------------------
Stockholders shall issue any press release or make any public announcement
relating to the subject matter of the Asset Purchase Agreement without the prior
written approval of the Buyer.
(b) No Third Party Beneficiaries. This Agreement shall not confer any
----------------------------
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
(c) Entire Agreement. This Agreement (including the documents referred to
-----------------
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of his
rights, interests, or obligations hereunder without the prior written approval
of the Buyer and the Requisite Seller Stockholders; provided, however, that the
Buyer may (i) assign any or all of its rights and interests hereunder to one or
more of its Affiliates and (ii) designate one or more of its Affiliates to
perform its obligations hereunder (in any or all of which cases the Buyer
nonetheless shall remain liable and responsible for the performance of all of
its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are inserted
---------
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
--------
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller Stockholders: Michael Stammire
- ------------------------------
25841 Sheriff
Laguna Hills, California 92653
Richard Bart Moran
11
<PAGE>
27377 Paseo Sienna
San Juan Capistrano, California 92675
Chris Ursetta
30351 Via Festivo
San Juan Capistrano, California 92675
with a copy to:
Brown & Streza LLP
7700 Irvine Center Drive, Suite 900
Irvine, California 92618
Attention: Richard E. Streza, Esq.
If to the Buyer: EISI, Inc.
----------------
140 East Dana Street
Mountain View, California 94041
Attention: Donald J. Esters
Chairman of the Board
with a copy to:
Latham & Watkins
633 West Fifth Street, 40th Floor
Los Angeles, California 90071
Attention: Russell F. Sauer, Jr.
If to the Buyer: EISI, Inc.
----------------
140 East Dana Street
Mountain View, California 94041
Attention: Donald J. Esters
Chairman of the Board
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other
12
<PAGE>
communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
--------------
accordance with the domestic laws of the State of California without giving
effect to any choice or conflict of law provision or rule (whether of the State
of California or any other jurisdiction) that would cause the application of the
laws of any other jurisdiction.
(i) Amendments and Waivers. No amendment of any provision of this Agreement
-----------------------
shall be valid unless the same shall be in writing and signed by the Buyer and
the Requisite Seller Stockholders. No waiver by any Party of any default,
misrepresentation, or breach of warranty or covenant hereunder, whether
intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
-------------
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties will bear his own costs and expenses
---------
(including legal fees and expenses) incurred in connection with this Agreement
and the transactions contemplated hereby (except as otherwise provided herein).
(l) Construction. The Parties have participated jointly in the negotiation
-------------
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation.
(m) Incorporation of Exhibits, Annexes and Schedules. The Exhibits, Annexes
-------------------------------------------------
and Schedules identified in this Agreement are incorporated herein by reference
and made a part hereof.
(n) Specific Performance. Each of the Parties acknowledges and agrees that
---------------------
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
13
<PAGE>
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter (subject to the provisions set forth in Section 6(o)
below) in addition to any other remedy to which they may be entitled, at law or
in equity.
(o) Submission to Jurisdiction. Each of the Parties submits to the
---------------------------
jurisdiction of any state or federal court sitting in Orange County, California
in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may be heard and
determined in any such court. Each Party also agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety, or other
security that might be required of any other Party with respect thereto. Each
Party appoints the Process Agent as his agent to receive on his behalf service
of copies of the summons and complaint and any other process that might be
served in the action or proceeding. Any Party may make service on any other
Party by sending or delivering a copy of the process (i) to the Party to be
served at the address and in the manner provided for the giving of notices in
Section 5(h) above or (ii) to the Party to be served in care of the Process
Agent at the address and in the manner provided for the giving of notices in
Section 5(h) above. Nothing in this Section 5(o), however, shall affect the
right of any Party to
[Remainder of this page intentionally left blank.]
14
<PAGE>
serve legal process in any other manner permitted by law or in equity. Each
Party agrees that a final judgment in any action or proceeding so brought shall
be conclusive and may be enforced by suit on the judgment or in any other manner
provided by law or in equity.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date
first above written.
EISI, INC.
By: /s/ DONALD J. ESTERS
-----------------------------
Donald J. Esters
Chairman of the Board
SELLER STOCKHOLDERS
/s/ MICHAEL STAMMIRE
- --------------------------------
Michael Stammire
/s/ RICHARD BART MORAN
- --------------------------------
Richard Bart Moran
/s/ CHRIS H. URSETTA
- --------------------------------
Chris H. Ursetta
15
<PAGE>
EXHIBIT 10.26
LEASE AGREEMENT
THIS LEASE, dated February 7, 1992, by and between: JACK DYMOND LATHING COMPANY
("Lessor") and EDUCATIONAL INDUSTRIAL SYSTEMS, INC. (EISI) ("Lessee"),is made
with reference to the following facts:
A. Lessor is the owner of certain industrial property located at 140
East Dana Street, Mountain View, California, consisting of a building having a
floor area of approximately 15,500 square feet and related parking facilities
and landscaped areas.
B. Lessee desires to rent a portion of the Industrial Building and
Lessor has agreed to lease the same to Lessee, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
ARTICLE 1.
DEMISED PREMISES AND COMMON AREAS
1.01. Lessor does hereby lease to Lessee, and Lessee does hereby rent from
Lessor, that portion of the Industrial Building consisting of approximately
11,200 square feet as shown on the drawing attached hereto as Exhibit "A-1" and
made a part hereof (the "Demised Premises"), together with the right to use the
Common Areas of the Industrial Building as hereinafter described. The parties
hereby stipulate and agree that the Demised Premises constitutes 72.3% of the
total leasable floor area of the Industrial Building.
1.02. Lessee shall have the non-exclusive right to use the Common Areas of the
Industrial Building, subject to any reasonable rules and regulations concerning
such use as may be adopted from time to time by Lessor. The term "Common Areas"
shall mean those areas within the Industrial Building provided and designated by
Lessor for the general non-exclusive use by the occupants of the Industrial
Building and their respective employees, customers and invitees, including
parking areas, loading and unloading areas, trash areas, roadways, sidewalks,
walkways, driveways, and landscaped areas. Lessee is allotted 38 parking spaces
(See Exhibit A-2). Lessor reserves the right of exclusive control and
management of the Common Areas, including the right, in Lessor's sole
discretion:
(a) To make alterations or construct additional improvements within the
Common Areas;
(b) To temporarily close any of the Common Areas for maintenance purposes,
so long as reasonable access to the Demised Premises. and parking areas remains
available at all times; and
(c) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof.
<PAGE>
ARTICLE 2.
TERM
2.01. The term of this Lease shall be a period of Seven (7) years, commencing
on June 1, 1992, and ending on May 31, 1999, unless sooner terminated as
provided herein.
2.02. If Lessor, for any reason whatsoever, is unable to deliver possession of
the Demised Premises to Lessee on the commencement date specified in Section
2.01 above, Lessor shall not be liable to Lessee for any loss or damage
resulting therefrom, nor shall this Lease be void or voidable, but in such event
Lessee shall not be liable for rent or other sums due Lessor until possession of
the Demised Premises is offered to Lessee. However, if Lessor is unable to
deliver premises by October 1, 1992, this lease shall become voidable at the
option of Lessee. No delay in delivery of possession shall operate to extend the
term hereof unless otherwise stipulated in writing by the parties.
2.03. Provided that Lessee is not then in default in the performance of any of
Lessee's obligations hereunder, Lessee shall have the option to extend the term
for an additional period of five (5) years. Such option can only be exercised by
Lessee giving written notice thereof to Lessor at least one hundred twenty(120)
days prior to expiration of the initial term of the lease.
ARTICLE 3.
RENT
3.01. Lessee shall pay to Lessor as Base Rent for the Demised Premises, in
lawful money of the United States, payable in advance on or before the first day
of each calendar month without any deduction, offset or demand, the following
amounts:(a) During the first five (5) years of the lease term, the Base Rent
shall be the sum of EIGHT THOUSAND SIX HUNDRED TWENTY FOUR DOLLARS AND 00/100
($8,624.00).
(a) The Base Rent shall be increased at the beginning of the 6th year of
this Lease based upon the percentage increase, if any, in the Consumer Price
Index of the Bureau of Labor Statistics, U. S. Department of Labor, for Urban
Wage Earners and Clerical Workers, Oakland-San Francisco Area, All Items
("C.P.I."). The amount of such increase shall be calculated by multiplying the
Base Rent provided in Paragraph (a) of this Section by a fraction, the numerator
of which shall be the C.P.I. for the month in which the adjustment is made, and
the denominator of which shall be the C.P.I. for the calendar month in which the
initial term of this lease commences. The sum so calculated shall be added to
the Base Rent provided in paragraph 3.01 and shall constitute the Adjusted Base
Rent payable during the term pursuant to paragraph 3.01 of this Lease. In no
event shall the Base Rent be reduced below the amount provided in Paragraph 3.01
of this Section. In no event shall the rent increase more than 25% over the base
rent for the one time increase in the 6th year of this lease.
Pending receipt of the required C.P.I. and determination of the actual
adjustment, Lessee shall pay an estimated adjusted rental, as reasonably
determined by Lessor according to C.P.I. information then available. Upon
notification of the actual adjustment, any overpayment shall be credited
against the next installment of rent due, and any
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underpayment shall be immediately due and payable by Lessee. Lessor's
failure to request payment of an estimated or actual rent adjustment
shall not constitute a waiver of the right to any rental adjustment
provided herein.
(b) In the event Lessee exercises the option to extend the lease term for
the five (5) year period as provided in Section 2.03, the rent payable during
the extended term shall be pursuant to Article 3.01 (c).
(c) Lessor grants to Lessee (1) one option to extend the term of this
Lease for (5) five years, beginning on the expiration of the original term of
this Lease at 95% fair market value to be mutually agreed upon and subject to
all other terms covenants and conditions contained herein. However, if Lessor
and Lessee cannot agree on a "fair market value", it will be submitted for
arbitration by choosing three Real Estate appraisers; one by Lessor, one by
lessee and the third by the first two appraisers. Lessee shall give Lessor
written notice at least one hundred twenty (120) days prior to the expiration
date of this Lease of Lessee's intention to exercise said option granted herein.
In order for Lessee to avail itself of said option period, Lessee must have
lived up to and observed the timely performance of all terms covenants and
conditions contained in the Lease Agreement. In no event shall the rent be less
than that rent paid at the end of the original seven (7) year term.
3.02. If the commencement date is not the first day of a calendar month, or if
the termination date is not the last day of a calendar month, the monthly rental
for the fractional month shall be prorated on the basis of a thirty (30) day
month.
3.03. Lessee acknowledges that late payment of rent and any other charges
provided herein will cause Lessor to incur costs not contemplated by this Lease,
the exact amount of such costs being extremely difficult and impracticable to
determine. Such costs include, without limitation, processing and accounting
charges, late charges that may be imposed on Lessor by the terms of any
encumbrances against the Industrial Building and penalties on delinquent tax
payments. Lessee therefore agrees that if any installment of rent or other
charge payable by Lessee hereunder is not received by Lessor within ten (10)
days after the same becomes due, Lessor shall be entitled to collect an
additional sum equal to one and one-half percent (1.5%) of the delinquent
payment for each month or fraction thereof that the rent or other charge remains
unpaid. Acceptance of any late charge shall not constitute a waiver of Lessee's
default with respect to the overdue amount, nor prevent Lessor from exercising
any other rights and remedies available to Lessor hereunder or provided by law.
ARTICLE 4.
SECURITY DEPOSIT
4.01. Lessee has deposited with Lessor the sum of($8,624.00) as and for a
security deposit. Upon adjustment of the Base Rent in accordance with Section
3.01, the security deposit shall be increased to an amount equal to the Adjusted
Base Rent for one (1) month and Lessee shall promptly deposit the increase with
Lessor.
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4.02. If Lessee defaults with respect to any provision of this Lease, Lessor
may use, apply or retain all or any part of the security deposit to cure such
default or to compensate Lessor for all damages sustained by Lessor resulting
from Lessee's default. If any portion of said deposit is so used or applied,
Lessee shall within ten (10) days after written demand therefor, deposit cash
with Lessor in an amount sufficient to restore the security deposit to its
original amount, and Lessee's failure to do so shall constitute a material
breach of this Lease. Lessor's obligations with respect to the security deposit
are those of a debtor and not a trustee. Lessor shall not be required to
segregate the security deposit as a separate fund and Lessee shall not be
entitled to any interest thereon. If Lessee shall fully and faithfully perform
every provision of this Lease to be performed by Lessee, the security deposit or
any balance thereof shall be returned to Lessee within thirty (30) days after
termination of the Lease.
ARTICLE 5.
USE
5.01. The Demised Premises shall be used and occupied by Lessee solely for
Office/Warehouse and for no other or additional purpose without the prior
written consent of Lessor.
5.02. Lessee shall not use the Demised Premises or permit anything to be done
in or about the Demised Premises which is prohibited by or will in any way
conflict with any law, statute, ordinance or governmental rule or regulation now
in force or which may hereafter be in force, or which is prohibited by the
standard form of fire insurance policy, or will in any way increase the existing
rate of any fire or other insurance covering the Industrial Building or any of
its contents, or cause any change or cancellation of such insurance. The
judgment of any court of competent jurisdiction or the admission of Lessee in
any action against Lessee, whether Lessor be a party thereto or not, that Lessee
has violated any law, statute, ordinance or governmental rule, regulation or
requirement,, shall' be conclusive of that fact as between Lessor and Lessee.
Lessee shall not do or permit anything to be done in or about the Demised
Premises which will in any way obstruct or interfere with the rights of other
tenants in the Industrial Building, or injure or annoy them, or use or allow the
Demised Premises to be used for any improper, immoral, unlawful or objectionable
purpose, nor shall Lessee cause, maintain or permit any nuisance in, on or about
the Demised Premises or commit or suffer to be committed any waste in, on or
about the Demised Premises.
ARTICLE 6.
LEASEHOLD IMPROVEMENTS
6.01. Lessor shall perform, at Lessor's own expense, the alterations and
improvements to the Demised Premises as described in "Exhibit A-1," attached
hereto and made a part hereof. Acceptance of the Demised Premises shall
constitute acceptance of any alterations and improvements therein performed by
Lessor and shall further constitute an acknowledgment by Lessee that the Demised
Premises are in good order, condition, and repair. Lessee, however, shall have
30 days from occupancy to submit a written "punch list" to Lessor of items to be
corrected by Lessor At Lessor's expense. Lessor shall have thirty (30) days to
complete items submitted by Lessee for correction.
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6.02. Lessee may perform, at Lessee's own expense, the alterations and
improvements if any, to the Demised Premises as required for Lessee's business
and Lessor hereby consents to the performance of such work. Lessee may have
access to the Demised Premises prior to the commencement of the lease term for
the purpose' of installing Lessee's improvements, provided that such work does
not obstruct or interfere with the work being performed therein by Lessor. No
delay by Lessee in the completion of Lessee's work, shall delay commencement of
the lease term on the date specified in Section 2.01, unless such delay was
directly and primarily caused by Lessor. Lessor may submit a bid to Lessee for
performance of the work described in Exhibit "C" by Lessor, but Lessee shall not
be obligated to utilize the services of Lessor and may select any licensed
contractor to perform such work.
6.03. Except as expressly provided herein, Lessor shall have no obligation to
make any alterations or improvements to the Demised Premises for the benefit of
Lessee. Lessee acknowledges that neither Lessor nor anyone acting on Lessor's
behalf has made any representation or warranty as to the suitability or fitness
of the Demised Premises for the conduct of Lessee's business or for any other
purpose.
ARTICLE 7.
UTILITIES AND SERVICES
7.01. Lessor shall provide separate electricity and gas meters for the Demised
Premises. Lessee shall establish its own account with the utility company to
provide electricity and gas service to the Demised Premises and shall pay all
fees and charges for such service directly to the utility company.
7.02. Lessee shall pay, as additional rent, the cost of the following utilities
and services furnished to the Demised Premises:
(a) 72.3% of all water, sewer, and Common Area maintenance charges
(landscaping and parking lot sweeping) for the Industrial Building, as billed to
Lessee by Lessor.
(b) Garbage collection charges attributable to the Demised Premises, as
billed to Lessee by Lessor according to Lessee's actual usage thereof.
The foregoing charges shall be due and payable to Lessor within ten (10) days
after receipt of a billing therefor by Lessee. Billing shall occur on a monthly
basis.
7.03. Lessor shall maintain the Common Areas of the Industrial Building in good
condition and repair, except for damage occasioned by the act of Lessee, which
damage shall be repaired by Lessor at Lessee's or it's agent and invitees
expense. Lessor shall have no obligation to provide janitorial service for the
Demised Premises.
7.04. Lessor shall not be in default hereunder or be liable for any damages
directly or indirectly resulting from, nor shall the rent provided herein be
abated by reason of Lessor's failure to furnish or delay in furnishing any
utilities or services when such failure or delay is caused by accident,
breakage, repairs, strikes, lockouts or other labor dispute, or by limitation,
curtailment,
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rationing or restrictions on use of electricity, gas, water or other utility, or
any other cause, similar or dissimilar, beyond the reasonable control of Lessor.
ARTICLE 8.
INDEMNITY AND INSURANCE
8.01. Lessee and Lessor hereby waives any and all claims against each other for
damage to any property or injury to or death of any person in, upon or about the
Demised premises, arising at any time and from any cause other than solely by
reason of the negligence or willful misconduct of each other. Lessee further
expressly indemnifies and holds Lessor harmless from and against any and all
claims, demands, causes of action, liabilities, costs or expenses, including
attorney's fees, occasioned by or in any way connected with the condition, use
or misuse of the Demised Premises, or occasioned by any act or omission of
Lessee and Lessee's agents, servants, employees, invitees or other persons who
may come upon the Demised Premises, except for damage to any property or injury
to or death of any person caused solely by the negligence or willful misconduct
of Lessor.
8.02. Lessee hereby agrees to maintain in full force and effect at all times
during the term of this Lease, at Lessee's expense, a policy or policies of
comprehensive general liability insurance, insuring against all liability of
Lessee and Lessee's authorized representatives or its agents and invitees,
arising out of or in connection with Lessee's use and occupancy of the Demised
Premises and also insuring performance by Lessee of the indemnity provisions set
forth in Section 8.01. The initial amount of such insurance shall be at least
$1,000,000.00, and shall be subject to periodic increase based upon inflation,
recommendations by Lessor's insurance advisors, and other relevant factors.
However, the amount of such general liability insurance shall not limit Lessee's
liability nor relieve Lessee of any obligations under this Lease. The general
liability insurance policy shall name Lessor as an insured party thereunder, and
shall be endorsed to provide that no cancellation or reduction in coverage will
be made without thirty (30)days prior written notice to Lessor. A copy of the
policy or a certificate of insurance shall be furnished to Lessor.
8.03. Lessor shall maintain in full force and effect a policy or policies
covering loss or damage to the Industrial Building, to the extent of the
replacement value thereof. Such policy or policies shall provide protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, and any other perils (excluding flood
and earthquake) which Lessor deems necessary. Lessor shall also maintain in full
force and effect a rental income insurance policy, with loss payable to Lessor,
in an amount equal to one year's gross rent from the Industrial Building, which
insurance shall also cover all real estate taxes and insurance costs for said
period. Lessee shall pay to Lessor, as additional rent, an amount equal to 72.3%
of the premiums paid by Lessor for the hazard and rental income insurance
policies described herein, such amount to be paid within ten (10) days after
Lessee's receipt of a billing therefor from Lessor. Lessee shall be responsible
for maintaining its own insurance covering the personal property, trade fixtures
and removable leasehold improvements owned by Lessee and located upon the
Demised Premises.
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8.04. Lessor and Lessee each hereby waive any and all rights of recovery
against the other party, or against the agents, employees or representatives of
the other party, on account of loss or damage to the property of the waiving
party to the extent that such loss or damage is insured against under any
insurance policies which either Lessor or Lessee may have in force at the time
of such loss or damage. Each party shall, upon obtaining the insurance required
hereunder, give notice to the insurance carrier that the foregoing mutual waiver
of subrogation is contained in this Lease and Lessee and Lessor shall cause each
insurance policy obtained by each party to provide that the insurance company
waives all right of recovery by way of subrogation against either Lessor or
Lessee in connection with any damage covered by such policy.
ARTICLE 9.
REPAIRS AND MAINTENANCE
9.01. Lessee shall, at all times during the term hereof and at Lessee's own
expense, keep and maintain the Demised Premises and every part thereof in good
condition and repair. Lessee hereby waives all rights to make repairs at the
expense of Lessor or in lieu thereof to vacate the Demised Premises as provided
by California Civil Code Section 1942 or any other law, statute or ordinance now
or hereafter in effect.
9.02. The obligations of Lessee to maintain the Demised Premises shall not
include the roof or structural components of the building or any replacement of
the air conditioning units or replacement of the compressor or heat exchanger
within such units. Moreover, Lessor hereby warrants to Lessee that all
mechanical, electrical, plumbing and other systems within the Demised Premises
are in good operating condition and repair and Lessor will be responsible for
any necessary repairs or replacements thereof, beyond normal maintenance, for a
period of one (1) year from the commencement of the lease term, provided such
repair or replacement is not the result of any negligent act or failure to
maintain or omission by Lessee.
ARTICLE 10.
TAXES AND ASSESSMENTS
10.01. Lessee shall pay to Lessor, as additional rent, 72.3% of all real
property taxes levied or assessed against the Industrial Building during the
Lease term, except that:
(a) Lessee shall pay 100% of any increase in real property taxes
attributable to the alterations and improvements described in Exhibits "A" and
"B" attached hereto, and any other alterations or improvements to the Demised
Premises constructed by or for the benefit of Lessee;
(b) Lessee shall not be charged for any increase in real property taxes
after the date hereof solely attributable to alterations or improvements
constructed or installed within the Industrial Building as leasehold
improvements for the use and benefit to any other tenant or tenants.
(c) Lessee shall not be charged more than seven cents per square foot per
month for any increase in real property taxes occasioned by a sale or transfer
of the Industrial Building, or an ownership interest therein, resulting in a
complete or partial reassessment of the property.
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10.02. Payment by Lessee of the real property taxes referred to herein shall be
made within ten (10) days after Lessor furnishes to Lessee a copy of the tax
bill showing the total amount of property taxes levied or assessed against the
Industrial Building, the amount thereof payable by Lessee, and the calculation
utilized by Lessor to determine such amount. Billing shall be in two
installments made by Lessor on or about February 1, and November 1, of each year
of the Lease.
10.03. As used herein, the term "real property taxes" shall include any form of
real estate tax or assessment, general, special, ordinary or extraordinary, and
any license fee, commercial rental tax, improvement bond or bonds, levy or tax
imposed on the Industrial Building by any authority having the direct or
indirect power to tax, including any city, state or federal agency, or any
school, sanitary, fire, street, drainage, or other improvement district. The
term shall also include any tax, fee, levy, assessment, or charge imposed by any
taxing authority upon Lessor's right to receive, or the receipt of, rent or
income from the Industrial Building, or against Lessor's business of leasing the
Industrial Building. However, the term "real property taxes" does not include
Lessor's federal or state personal income or franchise taxes.
10.04. Lessee shall pay prior to delinquency all taxes levied or assessed
against the trade fixtures, equipment, furnishings, and other personal property
of Lessee located upon the Demised Premises or elsewhere. When possible, Lessee
shall cause said trade fixtures, equipment, furnishings, and other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after Lessor furnishes to Lessee a written statement describing the
property in question and showing the amount of tax thereon payable by Lessee.
ARTICLE 11.
ALTERATIONS AND IMPROVEMENTS
11.01. Except for the leasehold improvements authorized to be performed by
Lessee under Section 6.02, Lessee shall not, without the prior written consent
of Lessor (which consent shall not be unreasonably withheld), make any
alterations, additions or improvements in, on or about the Demised Premises. As
a condition to giving such consent, Lessor may require Lessee to provide Lessor
a surety bond or other security satisfactory to Lessor to insure Lessor against
mechanics' and materialmen's liens and to insure completion of the work.
11.02. All alterations, additions and improvements, whether temporary or
permanent in character, made by Lessee in, on or about the Demised Premises,
except movable trade fixtures installed at the expense of Lessee, shall, in the
absence of a written request by Lessor for their removal, become the property of
Lessor and shall remain upon and be surrendered with the Demised Premises at the
termination of this Lease by lapse of time or otherwise without compensation to
Lessee.
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ARTICLE 12.
DAMAGE OR DESTRUCTION
12.01. If the demised Premises, or other portion of the Industrial Building of
which the Demised Premises constitute a part, are damaged, by fire or other
casualty, Lessor shall forthwith repair the same, provided such repairs can, in
Lessor's opinion, be completed within one hundred eighty (180) days. In such
event, this Lease shall remain in full force and effect except that if there is
damage to the Demised Premises and such damage was not the result of negligence
or willful misconduct of Lessee or Lessee's employees or invitees, the rent
payable by Lessee shall be abated while the repairs are being made by the extent
to which the Demised Premises are unusable by Lessee in the normal conduct of
Lessee's business. If the repairs cannot, in Lessor's opinion, be completed
within one hundred eighty (180) days, Lessee shall have the option to cancel the
lease and notice shall be given within 60 days. In the event Lessor does not
elect to make the repairs which cannot be completed within one hundred eighty
(180) days, and provided the damage affects the Demised Premises or common areas
necessary to Lessee's use, Lessor shall give written notice of such fact to
Lessee within sixty (60) days after the date on which the damage occurred and
either Lessor or Lessee may, within sixty (60) days after the giving of such
notice, terminate this Lease.
12.02. Notwithstanding the provisions of Section 12.01 above, Lessor shall have
the option of terminating this Lease in any of the following circumstances:
(a) Where the damage or destruction arises from a casualty or cause not
covered by Lessor's insurance then in force, and such casualty more than 33 1/3
percent of demised premises.
(b) Where the building in which the Demised Premises are located is
damaged or destroyed to the extent of 50 percent or more of the replacement cost
thereof, whether the Demised Premises be injured or not.
(c) Where the repairs cannot be made by reason of any statute,
ordinance, rule or regulation of any governmental authority.
12.03. If Lessor is obligated or elects to repair any damage pursuant to this
Article, Lessor shall not be required to repair or replace any improvements
installed in the Demised Premises by or for Lessee, other than building.
standard tenant improvements made by Lessor, and Lessee shall, at Lessee's own
expense, repair and restore Lessee's portion of such improvements.
12.04. A total destruction of the entire building in which the Demised Premises
are located shall automatically terminate this Lease.
12.05. Except as otherwise expressly provided in this Article, Lessee hereby
waives the provisions of California Civil Code Sections 1932(2) and 1933(4).
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ARTICLE 13.
CONDEMNATION
13.01. If all of the Demised Premises or so much thereof is taken by right of
eminent domain, or purchase in lieu thereof, such that the Demised Premises are
no longer reasonably suitable for Lessee's use, this Lease shall terminate as of
the date that possession of the Demised Premises or part thereof is taken.
13.02. If any part of the Demised Premises is taken and the remaining part
thereof (after reconstruction of the then existing building) is reasonably
suitable for Lessee's use, this Lease shall, as to the part so taken, terminate
as of the date that possession of such part is taken and the rent payable
hereunder shall be reduced in the same proportion that the floor area of the
portion of the Demised Premises so taken (less any addition thereto by reason of
any reconstruction) bears to the original floor area of the Demised Premises
immediately prior to the taking. Lessor shall, at Lessor's expense, make all
necessary repairs or alterations to restore the remaining Demised Premises to a
complete architectural unit.
13.03. No award for any partial or entire taking shall be apportioned and
Lessee hereby assigns to Lessor all of Lessee's interest therein, except that
Lessee shall be entitled to any portion of the award specifically designated as
compensation for the taking of personal property belonging to Lessee, for the
interruption of Lessee's business, for Lessee's moving costs or loss of goodwill
suffered by Lessee. No temporary taking of the Demised Premises shall terminate
this Lease or give Lessee any right to abatement of rent hereunder; any award
recovered by Lessee for such temporary taking shall belong entirely to Lessee
and Lessor shall have no interest therein. Each party agrees to execute and
deliver to the other all instruments and documents that may be required to
implement the provisions of this Section.
ARTICLE 14.
ASSIGNMENT AND SUBLETTING
14.01. Lessee shall not voluntarily or by operation of law assign, transfer,
mortgage, sublet, pledge, hypothecate or encumber all or any part of Lessee's
interest in this Lease or in the Demised Premises or any part thereof, without
Lessor's prior written consent and any attempt to do so without such consent
being first had and obtained shall be wholly void and shall constitute a breach
of this Lease. If Lessee is a corporation or partnership, any transfer of a
controlling interest in the stock of Lessee shall constitute an assignment
hereunder.
14.02. If Lessee complies with the following conditions, Lessor shall not
unreasonably withhold Lessor's consent to the assignment of this Lease or the
subletting of the Demised Premises or any portion thereof. Lessee shall submit
in writing to Lessor:
(a) The name and legal composition of the proposed Assignee or
Sublessee;
(b) The terms and provisions of the proposed Assignment or Sublease; and
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(c) Such financial information as Lessor may reasonably request
concerning the proposed Assignee or Sublessee.
14.03. No consent by Lessor to any assignment or subletting by Lessee shall
relieve Lessee of any obligation to be performed by Lessee under this Lease,
whether occurring before or after such consent, assignment or subletting. The
consent by Lessor to any assignment or subletting shall not relieve Lessee from
the obligation to obtain Lessor's express written consent to any other
assignment or subletting. The acceptance of rent by Lessor from any other person
shall not be deemed to be a waiver by Lessor of any provisions of this Lease or
to be a consent to any assignment, subletting or other transfer. Consent to one
assignment, subletting or other transfer shall not be deemed to constitute
consent to any subsequent assignment, subletting or other transfer.
ARTICLE 15.
TRANSFER OF LESSOR'S INTEREST
15.01. Lessor shall have the right at any time to sell, transfer, assign,
pledge, hypothecate or otherwise dispose of Lessor's interest in the Demised
Premises and in this Lease. In the event of any such sale, transfer, assignment,
pledge, hypothecation or other disposition, all obligations of Lessor hereunder
from and after the date of such transfer shall devolve upon the transferee and
Lessor shall be released and discharged from all further obligation or liability
hereunder; provided, that Lessor shall be responsible for any funds in the hands
of Lessor in which Lessee has an interest until such funds have been delivered
to the transferee. Lessee agrees to attorn to the transferee provided all of
Lessor's obligations hereunder from and after the date of such transfer are
assumed by the transferee in writing for the benefit of Lessee.
ARTICLE 16.
MECHANICS' LIENS
16.01. Lessee shall keep the Demised Premises free and clear of all mechanics'
liens resulting from any construction work done by or for Lessee. Lessee shall
have the right to contest. the correctness or validity of any such lien if,
immediately on demand by Lessor, Lessee procures and records a lien release bond
issued by a corporation authorized to issue surety bonds in California in an
amount equal to one and one-half (1-1/2) times the amount of the claim of lien
or other security satisfactory to Lessor. If used, the bond shall meet the
requirements of Section 3143 of the California Civil Code and shall provide for
the payment of any sum that the claimant may recover on the claim, together with
costs of suit. Should Lessee fail to discharge any such lien or cause the same
to be released within sixty (60) days from the date the lien is filed, Lessor
may, without inquiring into the validity thereof, cause the same to be
discharged and all amounts so expended by Lessor, together with reasonable
attorney's fees and expenses, shall be paid by Lessee to Lessor as additional
rent hereunder, together with interest thereon at the rate of fifteen percent
(15%) per annum. Lessee shall give ten (10) days prior written notice to Lessor
of the date on which any construction work will be commenced so as to afford
Lessor the opportunity to post a notice of nonresponsibility.
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ARTICLE 17.
ENTRY BY LESSOR
17.01. Lessor and Lessor's authorized representatives shall have the right to
enter the Demised Premises with 48 hour advanced notice except in an emergency
at reasonable hours for any of the following purposes:
(a) To examine and inspect the Demised Premises;
(b) To supply any service to be provided by Lessor to Lessee hereunder;
(c) To perform any necessary maintenance or repairs that Lessor is
required or permitted to perform hereunder;
(d) To serve, post or keep posted any notices required or allowed under
the provisions of this Lease;
(e) To post "Building for sale" signs at any time during the term, to
post "for rent" or "for lease" signs during the last one hundred twenty (120)
days of the Lease term, or during any period while Lessee is in default;
(f) To show the Demised Premises to prospective tenants, buyers, lenders
or other persons at any time during the Lease term;
(g) To do any other act or thing necessary for the safety or
preservation of the Demised Premises or the Industrial Building.
17.02. Lessee hereby waives any claim for damages for any injury or
inconvenience to or interference with Lessee's business, any-loss of occupancy
or quiet enjoyment of the Demised Premises or any other loss occasioned by
Lessor's entry pursuant to Section 17.01. Lessor shall at all times have and
retain a key with which to unlock all of the doors in, on or about the Demised
Premises (excluding Lessee's vaults, safes and other secured areas designated in
writing by Lessee in advance); and Lessor shall have the right to use any and
all means which Lessor may deem proper to open said doors in an emergency in
order to obtain entry to the Demised Premises, and any entry to the Demised
Premises obtained by Lessor by any of said means, or otherwise, shall not under
any circumstances be construed or deemed to be a forcible or unlawful entry into
or a detainer of the Demised Premises, or an eviction, actual or constructive,
of Lessee from the Demised Premises, or any portion thereof.
ARTICLE 18.
DEFAULT BY LESSEE
18.01. The occurrence of any one or more of the following events ("Events of
Default") shall constitute a material default and breach of this Lease by
Lessee:
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(a) With (10) ten days written notice from Lessor, any failure by Lessee
to pay any rental or any other sum required to be paid by Lessee hereunder, as
and when the same becomes due and payable.
(b) Any failure by Lessee to observe and perform any other provision of
this Lease to be observed or performed by Lessee, where such failure continues
for ten (10) days after written notice thereof by Lessor to Lessee; provided,
however, that if the nature of such default is such that it cannot reasonably be
cured within such ten (10) day period, Lessee shall not be deemed to be in
default if Lessee shall within such period commence such cure and thereafter
diligently prosecute the same to completion.
(c) The making by Lessee of any general assignment or general
arrangement for the benefit of creditors; the filing by or against Lessee of a
petition to have Lessee adjudged a bankrupt or a petition for reorganization or
arrangement under any law relating to bankruptcy (unless, in the case of a
petition filed against Lessee, the same is dismissed within ninety (90) days);
the appointment of a trustee or receiver to take possession of substantially all
of Lessee's interest in this Lease, where possession is not restored to Lessee
within sixty (60) days; or the attachment, execution or other judicial seizure
of substantially all of Lessee's assets located at the Demised Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within
forty-five (45) days.
18.02. Any notice given under this Article shall specify the Event of Default
and the applicable lease provisions, and shall demand that Lessee perform the
provisions of this Lease, within the applicable period of time. No such notice
shall be deemed a forfeiture or a termination of this Lease provided Lessee
cures the default within the applicable period of time.
ARTICLE 19.
LESSOR'S REMEDIES UPON DEFAULT
19.01. Lessor shall have the following remedies upon the occurrence of an Event
of Default, such remedies being cumulative and not exclusive and in addition to
any other remedies available to Lessor as now or hereafter provided by law:
(a) Lessor can continue this Lease in full force and effect, and the
Lease will continue in effect as long as Lessor does not terminate Lessee's
right to possession, and Lessor shall have the right to collect rent when due,
irrespective of whether Lessee shall have abandoned the Demised Premises. During
the period Lessee is in default, Lessor can enter the Demised Premises and relet
them, or any part of them, to third parties for Lessee's account. Lessee shall
be liable immediately to Lessor for all costs Lessor incurs in such reletting,
including, without limitation, broker's commissions, expenses of remodeling the
Demised Premises required by reletting, and like costs. Reletting can be for a
period shorter or longer than the remaining term of this Lease. Lessee shall pay
to Lessor the rent specified in this Lease on the dates when the same becomes
due, less the rent Lessor receives from any reletting. No act by Lessor allowed
by this paragraph shall terminate this Lease unless Lessor notifies Lessee that
Lessor elects to terminate this Lease. After Lessee's default and for as long as
Lessor does not terminate Lessee's right to possession of the Demised Premises,
Lessee shall have the right to assign or sublet Lessee's
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interest in this Lease pursuant to Article 14, but Lessor's consent may be
conditioned upon all defaults by Lessee being fully cured at the time of
assignment or subletting.
(b) Lessor can terminate Lessee's right to possession of the Demised
Premises at any time during Lessee's default. No act by Lessor other than giving
written notice to Lessee shall terminate this Lease. Acts of maintenance,
efforts to relet the Demised Premises, or the appointment of a receiver on
Lessor's initiative to protect Lessor's interest under this Lease shall not
constitute a termination of Lessee's right to possession. On termination, Lessor
has the right to recover from Lessee:
(1) The worth, at the time of the award, of the unpaid rent that has
been earned at the time of termination of this Lease; plus
(2) The worth, at the time of the award, of the amount by which the
unpaid rent that would have been earned after the date of termination of this
Lease until the time of award exceeds the amount of the loss of rent that Lessee
proves could have been reasonably avoided; plus
(3) The worth, at the time of the award, of the amount by which the
unpaid rent for the balance of the term after the time of award exceeds the
amount of the loss of rent that Lessee proves could have been reasonably
avoided; and
(4) Any other amount, and court costs, necessary to compensate
Lessor for all detriment proximately caused by Lessee's default.
"The worth, at the time of the award," as used in (1) and (2) above,
is to be computed by allowing interest at the rate of ten percent (10%) per
annum from the date of default. "The worth, at the time of the award" as used in
(3) above is to be computed by discounting the amount at the discount rate of
the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%). The term "rent," as used in this Article shall be deemed to
include all monetary sums required to be paid by Lessee pursuant to the terms of
this Lease.
ARTICLE 20.
LESSOR'S RIGHT TO CURB DEFAULTS
20.01 If Lessee shall fail to pay any sum of money, other than rent, required
to be paid by Lessee hereunder, or shall fail to perform any other act on
Lessee's part to be performed hereunder, and such failure shall continue for ten
(10) days after notice thereof by Lessor, Lessor may, but shall not be obligated
to do so, and without waiving or releasing Lessee from any obligations of
Lessee, make such payment or perform any such other act on Lessee's part to be
made or performed hereunder. All sums expended by Lessor, including necessary
incidental costs, shall be deemed additional rent hereunder and shall be payable
to Lessor immediately upon demand, together with interest thereon at the rate of
fifteen percent (15%) per annum from the date of expenditure to the date of
reimbursement.
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ARTICLE 21.
COSTS OF SUIT
21.01. In the event legal action between Lessor and Lessee shall become
necessary in order to enforce or interpret this Lease, or any provision
contained herein, the prevailing party shall be entitled to recover all costs
and expenses as may be incurred in connection therewith, including reasonable
attorney's fees.
21.02. Should Lessor, without fault on Lessor's part, be made a party to any
litigation instituted by Lessee or by any third party against Lessee, or by or
against any person holding under or using the Demised Premises by license of
Lessee, or for the foreclosure of any lien for labor or materials furnished to
or for Lessee or any such other person or otherwise arising out of or resulting
from any act or transaction of Lessee or of any such other person, Lessee
covenants to save and hold Lessor harmless from any judgment rendered against
Lessor or the Demised Premises or any part thereof, and all costs and expenses,
including reasonable attorney's fees, incurred by Lessor in connection with such
litigation.
ARTICLE 22.
SUBORDINATION
22.01. In the event the holder of any deed of trust hereafter to be placed
against the Demised Premises requires that this Lease be subordinate to any such
encumbrance, this Lease shall be subordinate to that encumbrance if Lessor first
obtains from the holder of the deed of trust a written agreement providing that
for so long as Lessee' shall perform all of Lessee's duties and obligations
hereunder, no foreclosure, deed given in lieu of foreclosure or sale under such
deed of trust shall affect Lessee's rights under this Lease. Lessee shall attorn
to any purchaser at any foreclosure sale, or to any grantee or transferee
designated in any deed given in lieu of foreclosure. Lessee shall execute the
written agreement and any other documents required by the holder of the deed of
trust to accomplish the purposes of this Article, and upon Lessee's failure or
refusal to do so within five (5) days after demand, Lessee hereby appoints
Lessor as Lessee's attorney-in-fact to execute such agreement or other documents
for and on behalf of Lessee. The power of attorney granted herein shall be
deemed to be coupled with an interest and to be irrevocable.
ARTICLE 23.
ESTOPPEL CERTIFICATE
23.01. Each party, within ten (10) days after notice from the other, shall
execute and deliver to the other, in recordable form, a certificate stating that
this Lease is unmodified and in full force and effect, or in full force and
effect as modified stating the modifications. The certificate also shall state
the amount of monthly rent, the dates to which the rent has been paid in
advance, the amount of any security deposit or prepaid rent, and shall further
certify that there is no uncured default by the other party under the Lease, or
specify such default, if any is claimed. Failure to deliver the certificate
within the ten (10) days, shall be conclusive upon the party failing to deliver
the certificate for the benefit of the party requesting the certificate, and any
successor to the party requesting the certificate, that this Lease is in full
force and effect and has not been
15
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modified except as may be represented by the party requesting the certificate,
that there are no uncured defaults by the party requesting the certificate and
that not more than one (1) month's rent has been paid in advance.
ARTICLE 24.
HOLDING OVER
24.01. If Lessee remains in possession of all or any part of the Demised
Premises after the expiration of the term hereof, with the express or implied
consent of Lessor, such tenancy shall be from month to month only, and not a
renewal hereof or an extension for any further term and in such case rent and
other monetary sums due hereunder shall be the amount payable at the expiration
of the term of this Lease and such month to month tenancy shall be subject to
every other term, covenant and agreement contained herein.
ARTICLE 25.
SURRENDER
25.01. Upon the expiration or earlier termination of this Lease, Lessee shall
surrender the Demised Premises in the same condition as received, ordinary wear
and tear and damage by fire, earthquake, act of God or the elements alone
excepted. Lessee shall remove all of Lessee's personal property and trade
fixtures and shall repair, at Lessee's expense, any damage to the Demised
Premises or the Industrial Building caused by such removal, including, without
limitation, repair of floors and patching and repainting of walls where
required, all to Lessor's reasonable satisfaction. Any personal property or
trade fixtures not removed at the expiration or earlier termination of this
Lease shall be deemed abandoned by Lessee. If Lessor so elects, Lessee shall
also remove any alterations or improvements installed by or for Lessee which
would otherwise remain as part of the Demised Premises and Lessee shall restore
the Demised Premises to their condition prior to such installation.
25.02. Should Lessee fail to remove any personal property or trade fixtures, or
fail to remove any alterations or improvements as requested by Lessor, Lessee
shall be liable to Lessor for any and all removal costs, transportation and
storage expenses, and the cost of restoring the Demised Premises as required
herein. Lessee shall indemnify Lessor against any loss, damage or liability
resulting from delay by Lessee in so surrendering the Demised Premises,
including, without limitation, any claims made by any succeeding tenants founded
on such delay.
ARTICLE 26.
WAIVER
26.01. No covenant, term or condition or the breach thereof shall be deemed
waived, except by written consent of the party against whom the waiver is
claimed, and any waiver of any covenant, term or condition shall not be deemed
to be a waiver of any preceding or succeeding breach of the same or any other
covenant, term or condition. Acceptance by Lessor of any performance by Lessee
after the time the same shall have become due shall not constitute a waiver by
Lessor of the breach or default of any covenant, term or condition unless
otherwise
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expressly agreed to by Lessor in writing. The receipt and acceptance by Lessor
of delinquent rent shall constitute only a waiver of timely payment for the
particular rent payment involved.
ARTICLE 27.
QUIET ENJOYMENT
Lessor hereby covenants with Lessee that upon payment by Lessee of the
rent as aforesaid and upon observance and performance of the terms of this Lease
by Lessee, Lessee shall peaceably hold and enjoy the Demised Premises for the
term hereby demised without hindrance or interruption by Lessor or any person or
persons lawfully or equitably claiming by, through or under Lessor.
ARTICLE 28.
NOTICES
28.01. All notices or demands required or permitted to be given hereunder shall
be in writing and shall be either personally served or mailed by certified mail,
return receipt requested, to the other party at the following addresses:
To Lessor: To Lessee:
JACK DYMOND LATHING COMPANY EISI
201 San Antonio Circle, #172 140 E. Dana, Suite "A"
Mountain View, CA 94040 Mountain View, CA 94041
28.02. Either party may change the foregoing address by giving notice to the
other in the manner provided herein. Any notice sent by mail shall be deemed
received on the second business day following deposit of the notice in the
United States Mail, with proper postage prepaid thereon.
ARTICLE 29.
MISCELLANEOUS PROVISIONS
29.01. Captions. The captions used in this Lease are for convenience only and
--------
shall not be deemed to be relevant in resolving any question of interpretation
or construction of any provision contained herein.
29.02. Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties and supersedes and cancels any prior agreements or
understandings, whether written or oral. This Agreement can only be modified by
a written amendment hereto executed by both parties.
29.03. Severability. If any term or provision of this Lease shall, to any
------------
extent, be determined by a court of competent jurisdiction to be invalid or
unenforceable, the remainder of this Lease shall not be affected thereby, and
each term and provision of this Lease shall be valid and enforceable to the
fullest extent permitted by law.
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29.04. Time. Time is hereby declared to be of the essence of this Lease
----
and-each and every provision hereof.
29.05. Corporate Authority. If Lessee is a corporation, each of the persons
-------------------
executing this Lease on behalf of Lessee does hereby represent and warrant that
Lessee currently is in good standing in the state of its incorporation, that
Lessee is qualified to do business in California, that the corporation has full
right and authority to enter into this Lease, and that each person executing
this Lease on behalf of the corporation is duly authorized and empowered to do
so.
29.06. Calendar Days. All references herein to any acts or obligations to be
-------------
performed within a certain number of days shall mean calendar days.
29.07. Effective Date. Submission of this instrument for examination or
--------------
signature by Lessee does not constitute a reservation of or option for lease,
and this instrument is not effective as a lease or otherwise until execution and
delivery by both Lessor and Lessee, in which event this Lease shall become
effective on the date of execution or such other date as may be specified in
writing signed by Lessor and Lessee.
29.08. Choice of Law. This Lease shall be governed by and interpreted in
-------------
accordance with the laws of the State of California.
29.09. Memorandum of Lease. This Lease Agreement shall not be recorded but the
-------------------
parties may agree to execute and record a Memorandum of Lease, in form
satisfactory to Lessor and Lessee.
29.10. Successors and Assigns. Subject to the restrictions against assignment
----------------------
and subletting by Lessee, this Lease shall be binding upon and inure to the
benefit of the respective heirs, executors, administrators, personal
representatives, successors and assigns of the parties hereto.
ARTICLE 30.
ACKNOWLEDGMENT
Lessee acknowledges that there is currently a Deed of Trust on the
Industrial Building for the benefit of Penn Mutual and Annuity-Company, and that
this lease is subordinate to such Deed of Trust. By signing below, Lender agrees
that so long as Lessee performs all of Lessee's obligations and duties
hereunder, no foreclosure, deed given in lieu of foreclosure or sale under such
Deed of Trust shall affect Lessee's rights under this Lease, and Lessee agrees
to attorn to any purchaser at any foreclosure sale, or to any grantee or
transferee designated in any deed given in lieu of foreclosure.
30.01. Hazardous Waste Clause.
1. Lessor represents and warrants that:
a) At no time have the premises, the building or the land been used
for the generation, storage or disposal of hazardous materials, extremely
hazardous materials or as a landfill or other waste disposal site.
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b) The premises are in full compliance with all laws, regulations,
rules, or requirements of law of the federal, state and local governments
relating to the pollution or protection of the environment (including without
limitation, air, water, and land) and with all permits or licenses issued
thereunder. No event has occurred which, with the passage of time or the giving
of notice or both, would constitute non-compliance with such environmental laws.
c) There are no agreements, consent orders, decrees, judgments,
license or permit-conditions, or other directives, issued by a governmental
entity or agency relating to the future use of the Premises or requiring any
change in the present condition of the Premises.
d) There are no actions, suits, claims or proceedings relating to a
violation or non-compliance with any environmental law or with respect to
the disposal, discharge or release of hazardous materials at or from the
Premises.
2. Lessor shall save and hold Lessee harmless from any and all costs for
any government directed or threatened remediation or cleanup at the Premises,
provided, however, that if Lessee has caused such remediation or cleanup to be
required by disposing of hazardous materials on or in the Premise's then, and in
that event, Lessee shall bear the cost of any government required remediation or
cleanup.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease the day and year
first above written.
LESSOR:
JACK DYMOND LATHING COMPANY, a
California General Partnership
By /s/ RONALD MEREDITH
------------------------------
LESSEE:
EISI, INC.
By /s/ ROBERT D. ADAMS
------------------------------
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EXHIBIT 10.27
JACK DYMOND LATHING COMPANY (LESSOR)
EDUCATIONAL INDUSTRIAL SYSTEMS, INC. (LESSEE)
FIRST AMENDMENT
To Lease dated February 7, 1992
This AMENDMENT to lease is entered into this fifth day of October 1995 by and
between Jack Dymond Lathing Company (LESSOR) and Educational Industrial Systems,
Inc. (LESSEE) for premises at 140 E. Dana St., Mountain View, CA.
WHEREAS, Lessor and Lessee agree to modify the lease;
NOW THEREFORE, the parties agree that this amendment modifies the terms and
conditions of the lease. In the event of any conflict between this Amendment and
the Lease, the provisions of this Amendment shall govern:
1. Article 1. Demised premises and common areas; delete paragraph 1.01 and add
the following:
"Lessor does hereby lease to Lessee and Lessee does hereby rent from
Lessor, all of the Industrial Building consisting of approximately 15,500
square feet as shown on the drawing attached hereto as Exhibit "A" and made
a part hereof (the "Demised Premises"), together with the right to use the
common areas of the Industrial Building as hereinafter described. The
parties hereby stipulate and agree that the Demised Premises constitutes
100% of the total leasable floor area of the Industrial Building."
2. Article 2. Term; Delete paragraph 2.01 and add the following: "The term of
this lease shall be for a period of six (6) years, commencing December 1,
1995, and terminating November 30, 2001, unless sooner terminated as
provided herein."
Paragraph 2.03, line four, delete "five (5) years" and add "four (4)
years".
3. Article 3. Rent; Delete paragraph 3.01 and add the following: "Lessee shall
pay to Lessor as base rent for the Demised Premises, in lawful money of the
United States, payable in advance on or before the first day of each
calendar month without any deduction, offset or demand, the following
amounts: (a) During the first three years of the lease term, the base rent
shall be the sum of Eleven thousand one hundred-sixty dollars and 00/100
($11,160.00).
Paragraph 3.01 (a), line two; delete "6th year", and add "4th year". Line
16, 17, 18 delete in its entirety and add; "In no event shall the rent
increase more than 6% over the base rent for the one time increase in the
4th year of this lease."
Paragraph 3.01 (b), line two; delete five (5) years; add four (4) years.
Paragraph 3.01 (c) delete lines two through five; add "of this lease for
(4) four years, beginning on the expiration of the original term of this
lease with the exception of rent
<PAGE>
which shall be the last rent paid by Lessee plus an increase based on the
Consumer Price Index (San Francisco Area) for years (4) four through (6)
six of the Lease." Line 18; delete seven (7) years; add six (6) years.
4. Article 4. Security Deposit; paragraph 4.01, line 1; delete ($8,624.00),
add $11,160.00.
5. Article 7. Utilities; paragraph 7.01 (a), line 1; delete 72.32%, add 100%.
6. Article 8. Indemnity and Insurance; paragraph 8.03, line 13; delete 72.32%,
add 100%.
7. Article 10. Taxes and Assessments; paragraph 10.01, line 1; delete 72.32%,
add 100%.
8. Article 12. Damage or Destruction; paragraph 12.02 (b) line 4; change the
word "injured" to "insured."
9. Tenant Improvements: Lessee shall take the additional 4300 square feet in
an "as is" condition with the exception of cleaning the floor and painting
the walls in the offices.
10. All other terms and conditions of the subject lease are hereby ratified and
confirmed.
IN WITNESS, WHEREOF, the parties hereto have executed these presents as of the
day and year first above mentioned.
LESSOR: LESSEE:
Jack Dymond Lathing Co. Educational Industrial Systems, Inc.
BY: /s/ ROBERT MEREDITH BY: /s/ FRANK DIGIROLAMO
--------------------------- -----------------------------------
DATE: DATE:
-------------------------- ---------------------------------
2
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EXHIBIT 10.28
________________________________________________________________________________
110 PIONEER WAY
________________________________________________________________________________
EDUCATIONAL INDUSTRIAL SALES, INC.
110 PIONEER WAY, UNIT K
MOUNTAIN VIEW, CA 94040
<PAGE>
110 PIONEER WAY
STANDARD FORM INDUSTRIAL LEASE
1. LANDLORD: ROBERT H. GEISLER
TENANT: EDUCATIONAL INDUSTRIAL SALES, INC.
2. PREMISES: 110 Pioneer Way, Unit K
Located in the city of Mountain View, State of
California.
3. USE OF PREMISES: General office and warehouse distribution.
4. TERM: Three (3) Years, One (1) Months
COMMENCEMENT: May 1, 1998
EXPIRATION: June 30, 2001
OPTION TO EXTEND:
Provided Tenant has not been in default of the terms and conditions of
this Lease, Tenant shall have one (1) three (3) year option(s) to extend the
term of this Lease. Tenant shall notify Landlord not more than one hundred
eighty days (180) or less than ninety (90) days of its intention to exercise the
option. The rental shall be negotiated between the parties two months prior to
the expiration of the primary term of the Lease. The tenant shall not be
obligated for the payment of minimum rent during the month of May 1998.
5. RENT
Tenant shall pay to Landlord, in addition to any other sums provided
for herein, on or before the first day of each month the minimum rent of Two
Thousand Nine Hundred Seventy and no/100 Dollars ($2,970.00) without deduction,
set off, prior notice or demand. Tenant hereby acknowledges that Landlord will
not send monthly statements or invoices as a condition to Tenant paying any rent
due under this Lease. Tenant shall not be obligated for the payment of the
minimum rent for the month of May, 1998.
Commencing the second year of the Lease term, the minimum rent as set
forth above shall be increased if the Consumer Price Index (CPI), San Francisco-
Oakland-San Jose-All Items (Index) All Urban Consumers as published by the
United States Department of Labor's Bureau of Labor Statistics, increases over
the base period Index, not to exceed five percent (5%) per annum. The base
period Index shall be the Index for the calendar month which is three months
prior to the month in which rental commences. The base period Index shall be
compared with the same calendar month for each rental adjustment period
(comparison month). If the Index for the comparison month is higher than the
base period Index, then the minimum rent
1
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shall be increased by the identical percentage commencing with the next rental
period. In no event shall the minimum monthly rent be less than the rent for the
preceding period.
LATE CHARGE
Ten percent (10%) of the unpaid balance for any month in which the
Tenant fails to pay the monthly rent owed to Landlord by the fifth (5th) day of
that month.
6. SECURITY DEPOSIT
On execution of this Lease, Tenant shall deposit with Landlord the sum
of Two Thousand Nine Hundred Seventy Dollars ($2,970.00) as a Security Deposit
for the performance by tenant of the provisions of this Lease. If Tenant is in
default, landlord can use the Security Deposit, or any portion of it, to cure
the default or to compensate Landlord for all damages sustained by Landlord
resulting from Tenant's default. Tenant shall, within five (5) days after
written demand therefore, pay to Landlord a sum equal to the portion of the
Security Deposit expended or applied by landlord as provided in this Section so
as to maintain the Security Deposit in the sum initially deposited with
Landlord. If Tenant is not in default at the expiration or termination of this
Lease, Landlord shall return the Security Deposit to Tenant. Landlord can
maintain the Security Deposit separate and apart from Landlord's general funds
or can commingle the Security Deposit with Landlord's general and other funds.
On each anniversary of the commencement date of this Lease, Tenant shall
increase the amount of the Security Deposit to the amount of the monthly fixed
rental in effect for the twelve month period commencing on the anniversary date.
7. REAL PROPERTY TAXES
Tenant shall pay its proportionate share of real property taxes and
general and special assessments levied and assessed against the buildings, other
improvements and land contained in the complex. Tenant's proportionate share of
such real property taxes shall be Seven and 60/100 percent (7.60%) constituting
that percentage of the total square feet in the building in which the leased
premises are located.
8. COMMON AREA MAINTENANCE
Commencing on the date the first Monthly Rental payment is due for the
first full calendar month of the term, Tenant shall also pay to Landlord a
monthly sum (Monthly Common Area Payment) at the time minimum monthly rent is
due which Monthly Common Area Payment shall be applied toward Tenant's share of
Common Area as herein provided. The amount of the first Monthly Common Area
payment shall be the sum set forth in a letter of notification from Landlord to
Tenant. Common area costs included, but shall not be limited to, amounts paid
to a third person, firm, or corporation for a management fee; costs incurred by
Landlord for resurfacing, repainting, restriping, cleaning, sweeping, supplies
(e.g. light bulbs and tubes), and other janitorial services; amounts incurred in
purchase, construction and maintenance of refuse receptacles, amounts incurred
in painting and relandscaping, costs of directional signs and other markers, and
car stops, costs of lighting and other utilities, reasonable depreciation
allowance on
2
<PAGE>
improvements, machinery, and equipment used in connection with the common areas;
all costs of keeping the exterior foundations, exterior walls, downspouts,
gutters, roofs, plumbing sewage systems and air conditioning systems of the
building in good order, condition and repair, and any and all parking charges,
utility surcharges or any other costs levied, assessed or imposed by, or at the
direction of, or resulting from statutes or regulations, or interpretations
thereto, promulgated by any governmental authority in connection with the use or
occupancy of the Premises or the common area; and all the costs (including
payments on equipment) necessary in Landlord's judgment for the maintenance and
operation of the common areas. Common area costs shall also include the cost to
Landlord of any additional improvements made to the common area after the
commence of the term.
Tenant's proportionate share of Common Area costs shall be the ratio
of the total square feet in the Leased Premises bears to the total number of
leaseable square feet in the complex.
9. TENANT'S INSURANCE
Tenant at its cost shall maintain public liability and property damage
insurance and products liability insurance with a single combined liability of
One Million Dollars ($1,000,000.00), insuring against all liability of tenant
and its representatives arising out of or in connection with Tenant's use and
occupancy of the premises, and other areas of the complex as allowed herein.
Both parties shall be named as additional insureds and the policy shall contain
cross-liability endorsements.
If in the opinion of Landlord's lender or of the insurance broker
retained by Landlord, the amount of public liability and property damage
insurance coverage at that time is not adequate, Tenant shall increase the
coverage as required by either Landlord's lender or Landlord's insurance broker
immediately upon receipt of notice from Landlord.
INDEMNITY.
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Tenant shall indemnify and hold Landlord and Landlord's agent harmless
from all damages arising out of any damage to any person or property occurring
in, on or about he Premise and the complex resulting from the acts or omissions
of Tenant or its authorized representatives.
10. HOLDING OVER
Monthly rental of one hundred fifty percent (150%) shall be due and
payable pursuant to the provisions hereof governing payment of rental. Holding
over only applies if a future agreement for occupancy has not been reached with
the Landlord.
11. SQUARE FOOTAGE
Tenant's square footage is approximately 2,700 of the building
consisting of approximately 35,500 square feet.
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12. PARKING
Tenant is entitled to four (4) parking spaces per 1,000 square feet
of the Leased Premises.
13. FIRST RIGHT OF REFUSAL
In the event Unit I becomes available, Landlord shall notify Tenant
of such availability. Tenant shall have ten (10) days within which to notify
Landlord of Tenant's intent to lease the space. In the event Tenant fails to
notify Landlord within the specified period, Landlord will have not further
obligation to Tenant and may market the available space to the general public.
14. POSSESSION
Tenant agrees that in the event of the inability of Landlord to
deliver to Tenant possession of Premises at the Commencement Date of the Term,
Landlord shall not be liable for any damage caused thereby nor shall this Lease
be void or voidable, but Tenant shall not be liable for rent until such time as
Landlord offers to deliver possession of the Premises to Tenant. However, the
Term hereof shall not be extended by such delay. In the event Landlord shall
not have delivered possession of the Premises within six (6) months from the
commencement of the Term hereof, then at Tenant's option, to be exercised within
thirty (30) days after the expiration of said six month period, this Lease shall
terminate and upon Landlord's return of any monies previously deposited by
Tenant the parties shall have no further rights or liabilities toward each
other. If Tenant with Landlord's consent takes possession prior to the
Commencement of the Term, Tenant shall do so subject to al the covenants and
conditions hereof, and shall pay rent for the period beginning with the
Commencement Date of the Term at the same monthly rate as that prescribed for
the Term of this Lease.
15. CONDITION AND REPAIRS
15.1. From and after the commencement of the Term of this Lease, Landlord
shall maintain in good order and repair the roof, the exterior walls, foundation
and structural portions of the Premises, together with roadways, drives,
sidewalks, loading areas, parking areas and landscaped areas whether or not said
roadways, drives, sidewalks, loading areas, parking areas and landscaped areas
are adjacent to or a part of the Premises or located on the entire property of
which the Premises are a part, reasonable wear and tear excepted; provided,
however, Tenant pays his Pro Rata Share of any and all the costs and expenses
incurred for the (i) periodic exterior painting of the building of which the
Premises are a part; and (ii) repairs to and maintenance of any storefronts,
roadways, drives, sidewalks, loading areas, parking areas, and landscaped areas,
whether or not said roadways, drives, sidewalks, loading areas, parking areas
and landscaped areas, are adjacent to or a part of the Premises or located on
the entire property of which the Premises are a part. Said costs and expenses
incurred for maintenance and repair of any store front, roadways, drives,
sidewalks, loading areas, parking areas and landscaped areas are adjacent to or
a part of the Premises or located on the entire property of which the Premises
are a part. Said costs and expense incurred for maintenance and repair of any
store front,
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roadways, drives, sidewalks, loading areas, parking areas and landscaped areas
and referred to in (ii) above shall include but not be limited to:
(a) Maintaining the surfaces in a level, smooth, and evenly covered
condition with the type of surfacing material originally installed or such a
substitute as shall in all respects be equal in quality, use and durability;
(b) Removing all papers, debris, filth, and refuse and thoroughly
sweeping the areas to the extent reasonably necessary to keep said areas in a
neat, clean, and orderly condition;
(c) Placing, keeping in repair, and replacing any necessary
appropriate directional signs, markers and lines; and operating, keeping in
repair, and replacing when necessary such artificial lighting facilities as
shall be reasonably required;
(d) Maintaining any perimeter walls;
(e) Maintaining all landscaped areas, making such replacements of
shrubs and other landscaping as is necessary, and keeping said areas at all
times adequately weeded, fertilized, and watered; and;
(f) Cost of personnel to implement all such services referred to
herein and to police the common areas;
(g) Cost of liability insurance;
(h) Management fee of 5-10% of all costs and expenses described in
this Article 8 and 15.
Said reimbursement by Tenant to Landlord shall be made within ten (10)
days from the date Landlord shall give notice to Tenant of the amount of
Tenant's share of any such cost or expense for items (i) and (ii) above. Tenant
shall, at Tenant's own cost and expense, keep all other parts of the Premises
including the interior of the Premises, windows and skylights, in good and
sanitary order, condition and repair, hereby waiving all right to make repairs
at the expense of Landlord as provided in Section 1942 of the Civil Code of the
State of California, and all rights provided for by Section 1941 of said Civil
Code. Tenant agrees not to place garbage cans or any other receptacles outside
the building without prior written consent and approval of Landlord and in an
area designated by Landlord. Tenant further agrees not to mar or deface in any
manner the wall, woodwork or any other part of Premises. All damage or injury
done to the Premises or property of Landlord by Tenant, or by any person who may
be in or upon the Premises, with the consent of Tenant, shall be paid for by
Tenant at the time the damage or injury is inflicted. By entry hereunder,
Tenant accepts the Premises as being in good and sanitary order, condition and
repair and agrees on the last day of said term, or sooner termination of this
Lease, to surrender unto Landlord all and singular Premises with said
appurtenances in the same condition as when received, reasonable use and wear
thereof and damage by act of God or by the elements excepted, and to remove all
of Tenant's signs from the Premises.
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15.2 Tenant shall repair and maintain at Tenant's sole cost the plumbing,
heating, air conditioning and electrical systems pertaining to the Premises.
Landlord shall where possible obtain at Tenant's expense a heating and air
conditioning maintenance agreement.
15.3 COMMON AREAS: Tenant shall have the right, during the term hereof, to
use the drives, sidewalks, parking areas and loading areas situate on the
Premises provided, however, notwithstanding anything herein to the contrary, any
and all rights of Tenant with respect to said drives, sidewalks, parking areas
and loading areas are nonexclusive and any person and/or persons whomsoever
designated by Landlord shall, at any time and from time to time, have rights
equal or similar to any one or more of those rights granted by landlord to
Tenant under this Lease, or otherwise, with respect to said drives, sidewalks,
parking and loading areas.
15.4 Tenant agrees that there will be no car washing or car repairs done on
the premises.
15.5 Items as pallets, large drums, discarded equipment and boxes are to be
stored in the Tenant's respective unit and not outside in the parking spaces,
garbage dumpster or driveways.
15.6 All boxes are to be broken down before discarding into the garbage
dumpster and all trash must be inside the dumpster and not left in the
enclosure.
15.7 Landlord does not allow any reserved parking (no pavement). Any
abandoned vehicles, vehicles that are not being driven in and out of the
Premises on a regular basis (daily), vehicles without engines or in disrepair as
not running, will be towed away per signs posted on the Premises.
16. UTILITIES AND OTHER EXPENSES
Tenant shall pay timely when due and prior to delinquency for the
water, sewage, garbage, fuel, gas, oil, heat, electricity, telephone,
janitorial, landscape maintenance and all other materials and services which may
be furnished to or used in or about Premises or the building of which the
premises are a part during the term of this Lease. If any said material or
services are not separately metered or billed to Tenant, Tenant shall pay its
Pro-Rata Share of all charges which are jointly metered or billed. The
termination of Tenant's share of such charges shall be made by Landlord, and
payment made by Tenant with ten (10) days or receipt of statement for such
charges.
17. TAXES
Tenant shall pay when due all taxes levied against personal property
and trade fixtures on or about the Premises, including but without prejudice to
the generality of the fore-going, shelves, counters, vaults, vault doors, wall
safes, partitions, fixtures, machinery, printing presses, plant equipment and
atmospheric coolers, and if any such taxes on Tenant's personal property or
trade fixtures are levied against Landlord or Landlord's property, and if
Landlord pays the same, which Landlord shall have the right to do regardless of
the validity of
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such levy, or if the assessed value of Landlord's Premises is increased by the
inclusion herein of a value place on such property of tenant and if Landlord
pays the taxes based on such increase in the assessment, which landlord shall
have the right to do, regardless of the validity thereof, Tenant shall repay the
Landlord upon demand, the taxes so levied against Landlord or the proportion of
such taxes resulting from such increase in the assessment within (10) days after
receipt of an invoice from Landlord advising Tenant of the taxes applicable to
the Tenant's property.
As additional rental Tenant shall pay to Landlord its Pro-Rata Share
of any taxes and special assessments levied, assessed or imposed with respect to
any period within the Lease Term against the Building the land upon which said
Building is located, and any appurtenances thereto, over and above those taxes
and assessments levied or assessed of the base tax year specified in Item 7a of
the Schedule. In the event the property on which the Premises are situated shall
be assessed with other property of Landlord, Landlord shall use its best efforts
to have the property separately assessed, but if Landlord cannot obtain such
separate assessment, then in lieu of the percentage specified above, Tenant
shall pay an equitable proportion of the increase for all the land and
improvements within the parcel so assessed, such proportion to be determined by
Landlord form information available in the assessor's office or reasonably
available elsewhere. Landlord's reasonable determination thereof in good faith
shall be conclusive. A like calculation shall be made if any improvements
contained within the Premises are assessed with other improvements. All such
additional rentals based upon the increase (if any) in such taxes and
assessments shall be payable by Tenant to Landlord within ten (10) days after
receipt of an invoice from Landlord advising Tenant of the increase in Taxes to
be paid by Tenant. Taxes for the last year of the term hereof shall be prorated
between Landlord and Tenant as of the expiration of the Term. Tenant's
obligation to pay its share of the assessments as provided in this Section,
shall be calculated on the basis of the amount due of Landlord allowed the
assessments to go to bond, and the assessment were to be paid in installments,
even if Landlord pays the assessment in full. For purposes of this Article,
"taxes" shall also include any tax assessed upon or measure by rents received by
landlord under or in connection with this Lease.
See Paragraph 7.
18. INSURANCE
A. PUBLIC LIABILITY: Tenant shall, at its sole expense, maintain
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during the term of this Lease, public liability insurance in a form and with
companies acceptable to and approved in writing by Landlord to protect against
and liability for injuries, including death, to third persons or their property,
resulting from any occurrence in or about said premises, the sidewalks adjacent
thereto, and such other areas which Tenant, its officers, servants, agents,
employees, contractors and invitees shall have the right to use under the terms
hereof during the term of this Lease or any occupancy hereunder, in the amounts
specified in item 9 of the Schedule. Landlord shall be named as an additional
insured and a copy of the policy or policies or certificate(s) or insurance
shall be delivered to landlord, and the same shall contain a provision requiring
that Landlord be given thirty (30) days written notice prior to any cancellation
of said policy by the insurer. The minimum limits of policies specified in Item
9 of the Schedule shall
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not however, limit the liability of Tenant hereunder. Tenant shall also procure
and continue in force throughout the term workmen's compensation insurance.
B. FIRE, EXTENDED COVERAGE, UMBRELLA, AND FLOOD INSURANCE: Landlord
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shall bear the cost and expense for the policies of insurance covering the
Building and insuring the same for the benefit of Landlord against loss or
damage by fire and against such other risks as are covered by the endorsement
commonly known as extended coverage and such other policies or endorsements of
insurance, with insurance companies authorized and licensed to issue such
policies in the State of California, in an amount not less than the full
replacement cost of the Building, excluding from said replacement cost the
foundation and such other standard exclusions as appear in the California
Uniform Standard Building Form. All such policies of insurance shall provide
that the proceeds thereof shall be payable to Landlord. The one year annual
premium charged during any fiscal/calendar year, less any annual special hazard
premium chargeable to specific tenants, shall become the insurance base for
determining the Tenant's share of insurance premium increases. Thereafter,
Landlord shall pay all insurance premiums; provided, however, commencing with
the first annual premium due and payable after the expiration of the annual
policy term, any increase in the annual premium, after deducting all special
hazard premium, charges chargeable to the specific tenants, to the extent that
is exceeds the annual premium base hereinabove established, shall be billed to
Tenant and Tenant shall pay its Pro Rata participation in any regular premium
increase, as provided herein, each Tenant of the Building shall be billed for
all and any regular premium increase, as provided herein, and for all and any
special hazard premium charges, whenever made, applicable to said Tenant as
determined by the insuring company or its authorized agent. Landlord shall not
have any obligation to carry or pay the premiums for replacement of plate glass
coverage of glass in the Premises or insurance on Tenant's improvements or
merchandise. Instead, Tenant shall bear the risk of such loss specifically
referred to in the immediately preceding sentence and Tenant may, if Tenant
elects, acquire insurance covering those items.
19. HOLDING OVER
If Tenant holds possession hereunder after the expiration of the term
of this Lease with consent of Landlord, Tenant shall become a tenant from month
to month upon all of the terms and conditions herein specified, at a monthly
rental as specified in Item 10 of the schedule.
20. ALTERATIONS
Tenant shall not make alterations, improvements or additions to the
Premises nor make any contract therefore without obtaining Landlord's prior
written consent. As a condition to giving such consent, landlord may require
that Tenant remove any such alterations, improvements or additions at the
expiration of the term of this lease and to restore the Premises to the
condition prior to making same provided that if Landlord does not so requires
such removal then, to the extent not required, all such alterations, additions
or improvements shall, upon the expiration of the term hereof, become the sole
property of Landlord (excepting that in any event Tenant shall be permitted and
shall remove its signs and trade fixtures).
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Before commencing any work relating to alterations, additions and
improvements affecting the Premises, Tenant shall notify Landlord in writing of
the expected date of commencement thereof. Landlord shall then have the right at
any time and from time to time to post and maintain on the Premises such notices
as Landlord reasonably deems necessary to protect the Premises and Landlord form
mechanics' liens, material men's liens or any other liens. In any event, tenant
shall pay when due, all claims for labor or materials furnished to or for Tenant
at or for use in the Premises. Tenant shall not permit any mechanics' or
material men's liens to be levied against the Premises for any labor or material
furnished to Tenant or claimed to have been furnished to Tenant or to Tenant's
agents or contractors in connection with work of any character performed or
claimed to have been performed on the Premises by or at the direction of Tenant.
21. SIGNS
Landlord reserves the right to the use of the exterior walls and the
roof of the Premises and the Building. Tenant shall not inscribe, paint or
affix any signs, advertisements, placards or awnings on the exterior or roof of
the Premises or upon the entrance doors, windows, or the sidewalk on or adjacent
to the Premises without the prior written consent of Landlord. Any signs so
place in the Premises shall be so placed upon the understanding and agreement
that Tenant, at Tenant's sole cost and expense shall remove same at expiration
or termination of this Lease and will repair any damage or injury to the
premises caused thereby, and if not so removed by Tenant, Landlord may remove it
at Lessee's expense.
Tenant shall order its Building and/or directory signs through CRI
Properties. All of the signs must be conforming as to City approved form and
any applicable CC&R's. If Tenant has ordered its sign and is waiting for the
permanent sign, it may have a temporary sign approved by Landlord until the
permanent sign is installed. Tenant shall be responsible for the cost of the
signs and installation.
22. ASSIGNMENT AND SUBLETTING
Tenant may assign this Lease or an interest therein and may also
sublet the whole of the Premises, provided the written consent of Landlord to
any such assignment or subletting is first obtained by Tenant. If, during the
term of this Lease, Tenant requests the written consent of Landlord to any such
assignment or subletting, or both, Landlord's consent thereto shall not be
unreasonably withheld. A consent to one assignment or subletting shall not be
deemed to be a consent to any subsequent assignment or subletting, and any such
subsequent assignment or subletting without Landlord's consent shall be void and
shall, at Landlord's option, terminate this Lease. This Lease shall not, nor
shall any interest therein, be assignable as to the interest of Tenant by
operation of law without the written consent of Landlord, but such written
consent of Landlord shall not unreasonably be withheld.
22.1 Options Are Nontransferrable.
Each option to extend is granted by Landlord to Tenant personally, and
shall not be exercised or assigned, voluntarily or involuntarily, by or to
anyone other than Tenant. Any
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assignment of the option to extend without Landlord's prior written consent
shall be void, and at Landlord's election shall constitute a default hereunder.
After the exercise of each option to extend and the commencement of the option
term, all preferences in this Lease to the term shall be considered to mean the
term as amended. The occurrence of a default as to the obligations of Tenant
hereunder shall automatically terminate and cancel all its existing options.
23. DESTRUCTION OF PREMISES
In the event of a total or partial destruction of the Premises from
any cause, Tenant shall give immediate notice thereof to Landlord and Landlord
shall forthwith repair the same, provided such repairs can be made within ninety
(90) days by working in the usual and ordinary manner without overtime or
other premium charges for expedited work or materials and under the laws and
regulations of State, County of Municipal authorities, but such destruction or
damage shall in no way annul or void this Lease. Landlord's obligation to
repair shall not include the restoration or replacement of Tenant's trade
fixtures, equipment, merchandise or any improvements or alternations made by
Tenant to the Premises. Tenant shall be required to restore or replace same in
the event of damage. Tenant shall be entitled to a proportionate deduction of
rent while such repairs are being made (provided the destruction or damage shall
not have been caused by the fault or neglect of Tenant, its agents, servants,
employees or invitees), such proportionate deduction to be based upon the extent
to which the making of such repairs shall interfere with the business carried on
by Tenant in the Premises. If such repairs cannot be made in said manner in
ninety (90) days, or such repairs cannot be made under such laws and
regulations, this Lease may be terminated at the option of either party. In
respect to any damage or destruction which Landlord is obligated to repair or
may elect to repair under the terms of this paragraph, the provisions of Section
1932, Subdivision 2, and Section 1933, Subdivision 4, or the Civil Code of the
State of California, are waived by Tenant. In the event that the Building be
damaged or destroyed to the extent of not less than 33-1/3% of the replacement
cost hereof, Landlord may, at Landlord's sole option, elect to terminate this
Lease, whether the Premises be injured or not.
24. CONDEMNATION
The word "condemnation" or "condemned" as used in this Lease shall
mean the exercise or, or intent to exercise the power of eminent domain, and
shall include a voluntary sale by Landlord to any such entity, either under
threat of condemnation or while condemnation proceedings are pending, and
"condemnation" shall occur upon the actual physical taking of possession by the
condemner. If any part of the Premises shall be taken or condemned for a public
or quasi-public use, and a part thereof remains which is susceptible of
occupation hereunder, this Lease shall, as to the part so taken, terminate as of
the date of condemnation, and rent payable hereunder shall be adjusted so that
the Tenant shall be required to pay for the remainder of the Term only such
portion of such rent as the value of the part remaining after the condemnation
bears to the value of the entire Premises at the date of condemnation. If all
the Premises, or such part thereof be taken or condemned so that there does not
remain a portion susceptible for occupation hereunder, this Lease shall
terminate as of the date of condemnation.
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If a part or all of the Premises be condemned, Landlord shall be
entitled to and shall receive the total amount of any award made with respect
thereto, regardless of whether the award is based on a single award or a
separate award as between Landlord and Tenant, and, if and to the extent that
any such award or awards shall be made to Tenant or to any person, firm, or
corporation claiming through or under Tenant, Tenant hereby irrevocably assigns
any and all such awards. No portion of any such award or awards shall be paid to
Tenant for any so-called bonus or excess value of this Lease by reason of the
relationship between the rental payable under this Lease and the fair rental for
the Premises at the time of condemnation. The foregoing notwithstanding,
landlord shall turn over to Tenant that portion of any such award received by
Landlord hereunder which is expressly attributable under the terms of the award
to Tenant's fixtures and equipment shall be the same proportion of the actual
award as said fixtures and equipment were of the entity's appraisal.
25. OPERATION OF BUSINESS AND ABANDONMENT
Tenant shall not vacate or abandon the Premises at any time during the
Term. In this regard, Tenant shall be deemed to have abandoned the Premises
unless Tenant shall, during the entire Term of this Lease, conduct its business
in the Premises during the regular customary days and hours for such type of
business in the city of trade area in which the Premises is located.
26. NUISANCE
Tenant shall not commit or permit to be committed any public or
private nuisance, or any other act or thing prohibited by law or which may
disturb the quiet enjoyment of any tenant in the Building.
27. ENTRY BY LANDLORD
Tenant shall permit Landlord and his agents to enter in to and upon
Premises at all reasonable times for the purpose of inspecting the same or for
the purpose of maintaining the Building or for the purpose of making repairs,
alterations or additions to any other portion of the Building, including the
erection and maintenance of such scaffolding, canopies, fences and props as may
be required, or for the purpose of posting notices of non-responsibility for
alterations, additions, or repairs, or for the purposes of placing upon the
Premises, the Building or the property in which the premises are located any
usual or ordinary "for sale" signs, without any rebate of rent and without any
liability to Tenant for any loss of occupation of quiet enjoyment of the
Premises, hereby occasioned; and shall permit Landlord and his agents, at any
time within thirty (30) days prior to the expiration of this Lease, to place
upon Premises any usual or ordinary "to let" or "to lease" signs and exhibit the
Premises to prospective tenants at reasonable hours.
28. OWNER TO BE HELD HARMLESS; WAIVER OF CLAIMS
Tenant, as a material part of the consideration to be rendered to
Landlord, hereby waives all claims against Landlord for damages to goods, wares,
and merchandise, in upon or about he Premises and for injuries including death
to Tenant, agents or third persons in or about he Premises from any cause
arising at any time, and Tenant will hold Landlord exempt and
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harmless from all claims and demands for damage or injury to any person,
including death, or to the goods, wares and merchandise of any person, arising
from the use of the Premises by Tenant, or from the failure of Tenant to keep
the Premises in good condition and repair, as herein provided. Landlord hereby
releases Tenant, and its officers, agents, employees and servants from any and
all claims or demands for damages, loss, expense or injury to the Premises or to
any property of Landlord in, about or upon the Premises, which is caused by or
results from perils, events, or happenings which are the subject of insurance
carried by the Landlord and in force at the time of any such loss; provided,
however, that such waiver shall be effective only to the extent permitted by the
insurance covering such loss and to the extent such insurance is not prejudiced
thereby.
29. DEFAULT
In the event of any breach of this Lease by Tenant, then Landlord,
besides other rights and remedies he may have at law or in equity, shall have
the immediate right of re-entry and may remove all persons and property from the
premises. If Landlord's right of re-entry is exercised following abandonment of
the premises by Tenant, then Landlord may consider any personal property
belonging to Tenant and left on the Premises to also have been abandoned, in
which case Landlord may dispose of all such personal property in any manner
Landlord shall deem proper and is hereby relieved of all liability for doing so.
Should Tenant breach this Lease and abandon the Premises before the
end of the term hereof or if Tenant's right to possession is terminated by
Landlord because of any breach default, or failure of Tenant hereunder, then in
addition to any other rights or remedies available to Landlord hereunder by law
provided, Landlord shall have all the rights to either terminate the Lease, or
to not terminate the Lease and have said Lease continue in effect, as set forth
in California Civil Code Sections 1951.2 and 1951.4 and may have and recover
from Tenant all those items of damage set forth in either or both of said Code
Sections, in accord with their terms. In determining the amount of damages
allowable under Paragraph (3) of Subdivision (a) of Civil Code Section 1951.2
the Landlord may recover and include only 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 for the same period that Tenant
proves could be reasonably avoided. In determining the amount of damage
allowable under Paragraph (4) of Subdivision (a) of Civil Code Section 1951.2
said items of detriment proximately caused by Tenant's failure to perform his
obligation under this Lease include, but are not limited to, court costs and
reasonable attorneys' fees for services in recovering possession, all costs and
expenses of any reletting including, without limitation, all costs and expenses
of any reletting including, without limitation, all cost of alterations and
repairs, dividing and subdividing of the Premises in connection therewith, all
brokerage commissions, attorneys' fees or other similar expenses of Landlord in
connection with such reletting. All amounts due and unpaid from Tenant
hereunder shall bear interest at the rate of ten percent (10%) per annum from
its due date until paid.
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30. RECEIVERSHIP
If a receiver be appointed at the instance of Landlord in any action
against Tenant to take possession of the Premises and/or to collect the rents
and profits, derived therefrom, the receiver may, if it be necessary or
convenient in order to collect such rents and profits, conduct the business of
Tenant then being carried on in the Premises and may take possession of any
personal property belonging to Tenant and used in the conduct of such business
and may use the same in conducting such business, on the Premises without
compensation to Tenant for such business, and may use the same in conducting
such business, on the Premises without compensation to Tenant for such use.
Neither the application for the appointment of such receiver, nor the
appointment of such receiver, shall be construed as an election on Landlord's
part to terminate this Lease unless a written notice of such intention is given
to Tenant by Landlord.
31. INSOLVENCY OF TENANT
Tenant agrees that in the event all or substantially all of its assets
be placed in the hands of a receiver or trustee, and in the event such
receivership or trusteeship continues for a period of ten (10) days, or should
Tenant make an assignment for the benefit of creditors, or be adjudicated a
bankrupt, or should Tenant institute any proceedings under the state or federal
bankruptcy act wherein Tenant seeks to be adjudicated a bankrupt, or seeks to be
discharged of its debts, or seeks an arrangement under Chapter 11 of the Federal
Bankruptcy Act, or should any involuntary proceedings be filed against such
Tenant under such bankruptcy laws and Tenant consents thereto or acquiesces
therein by default, then this Lease or any interest in and to this premises
shall not become an asset in any of such proceedings and in any of such events,
and in addition to any and all rights or remedies of Landlord hereunder or as
provided by law, it shall be lawful for Landlord at his option to declare the
Term hereof ended and re-enter the premises and take possession thereof and
remove all persons therefrom and Tenant shall have no further claim therein or
hereunder.
32. ATTORNEY'S FEES
If any legal action shall be brought by either of the parties hereto
because of the breach of any terms, covenants or provisions hereof or by
Landlord for the unlawful detainer of the Premises or for the recovery of any
Rent due under the provisions of this Lease, the party prevailing in said action
shall be entitled to recover from the other party reasonable attorneys' fees
which shall be fixed by the Judge of the Court. If Landlord is made a party
defendant to any litigation commenced by any other party concerning this Lease
or the Premises or the property of which they are a part by reason of any act or
omission of Tenant, Tenant shall hold Landlord harmless from all liability and
expense by reason thereof, including reasonable attorney's fees.
33. COMPLIANCE WITH GOVERNMENTAL REGULATION
Tenant shall, at its sole cost and expense, comply with all of the
requirements of all municipal, state and federal authorities now in force, or
which may hereafter be in force, pertaining to the Premises all municipal
ordinances, and state and federal statutes now in force or
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which may hereafter be in force. The judgment of any court of competent
jurisdiction, or the admission of Tenant in any action or proceeding against
Tenant, whether Landlord be a party thereto or not, that Tenant has violated any
such ordinance or statute in the use of the Premises, shall be conclusive of the
fact as between Landlord and Tenant.
34. NOTICES
Certified Mail. Any notice, demand, request, consent, approval,
---------------
submittal or communication that either party desires or is required to give to
the other party or any other person shall be in writing and either served
personally or sent by prepaid, first-class certified mail to the address set
forth in Item 1 of the Schedule.
Address. Any notice, demand, request, consent, approval, submittal or
--------
communication hat either party desires or is required to give to the other party
shall be addressed to Tenant at the Premises and otherwise at the addresses set
forth in the Schedule. Landlord may change its address by notifying the other
party of the change of address. Tenant, at all times during the Term hereof,
may be served at the Premises, whether or not it has vacated same at time of
service.
Notice of Default. Notwithstanding any other provision of this Lease
------------------
a notice to Tenant given under this Section requiring Tenant to quit the
Premises, or one which gives Tenant the alternative to cure its default shall
also constitute notice under California Code of Civil Procedure Section 1161 of
Civil Procedure Section 1162 as well as Section "Address" of this Lease and any
notice served by mail shall be deemed served, and the requisite waiting period
deemed to begin under said Code of Civil Procedure Section and said "Address:
Section upon mailing without any additional waiting requirement under Civil Code
1001 or by other law. For purposes of Code of Civil Procedure Section 1162,
Tenant's "place of residence," "usual place of business," "the property" and
"the place where the property is situated" shall mean and be the Premises,
whether or not Tenant has vacated same at the time of service.
35. SALE OF PREMISES
The term Landlord as used in this Lease means only the owner for the
time being of the land and the Building containing the Premises, so that, in the
event of any sale or transfer of ownership of said land or Building, the
Landlord shall be and hereby is entirely freed and relieved of all covenants and
obligations of Landlord hereunder, and it shall be deemed and construed, without
further agreement between the parties and the purchaser in any such sale that
the purchaser of the Building has assumed and agreed to carry out any and all
covenants and obligations of Landlord hereunder. If any Security be given by
Tenant to secure the faithful performance of all of any of the covenants of this
Lease on the part of Tenant, Landlord shall transfer and deliver the Security,
after making any deductions permitted by law or this Lease, to the purchaser in
any such sale or transfer and thereafter notify Tenant by Certified mail of such
transfer and of the transferee's name and address and thereupon Landlord shall
be discharged from any further liability in reference thereto.
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36. LIENS
Tenant shall keep the Premises and the Building free and clear of any
liens and shall indemnify, hold harmless and defend Landlord from any liens and
encumbrances arising out of any work performed or materials by or at the
direction of Tenant. In the event any lien is filed, Tenant shall do all acts
necessary to discharge any lien within ten (10) days of filing, or if Tenant
desires to contest any lien, Tenant shall deposit with Landlord one and one-half
times the amount of said lien claim. In the event Tenant shall fail to pay any
lien claim after entry of final judgment in favor of the claimant o shall fail
to deposit the security with landlord, then Landlord shall have the right to
expend all sums necessary to discharge the lien claim, and Tenant shall pay as
additional Rental, when the next Tenant payment is due, all sums expended by
Landlord in discharging any lien including attorneys' fees and costs.
37. SURRENDER OF LEASE
The voluntary or other surrender of this Lease, or a mutual
cancellation thereof, shall not work a merger and shall at the option of
Landlord, terminate all or any existing subleases or sub-tenancies, or may, at
the option of the Landlord, operate as an assignment to him of any or all such
subleases or sub-tenancies.
38. WAIVER
The waiver of Landlord of any breach of any term, covenant or
condition herein contained shall not be deemed to be a waiver of such term,
covenant or condition as to any subsequent breach of the same or as to any other
term, covenant or condition herein contained. The subsequent acceptance of Rent
hereunder by Landlord shall not be deemed to be a waiver of any preceding breach
of Tenant of any term, covenant or condition of this Lease, other than the
failure of Tenant to pay the particular rental so accepted, regardless of
Landlord's knowledge of such preceding breach at the time of acceptance of such
rent.
39. SUBORDINATION
This Lease, at Landlord's option, shall be subordinate to any ground
lease, mortgage, deed of trust, or any other hypothecation for security
hereafter placed upon the Premises and to any and all advances made upon the
security hereof and to all renewals, modifications, consolidations, replacements
and extensions thereof. Notwithstanding such subordination, Tenant's right to
quiet possession of the Premises shall not be disturbed if Tenant is not in
default hereunder and so long as Tenant shall pay the Rent and observe and
perform all of the provisions of this Lease in its part to be observed or
performed.
40. CONDITION
All the agreements herein contained upon the part of Tenant, whether
technically covenants or conditions, shall be deemed conditions for the purpose
thereof, conferring upon Landlord, in the event of breach of any said
agreements, the right to terminate this Lease.
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41. CAPTIONS
The captions of the paragraphs contained in this Lease are for
convenience only and shall not be deemed in resolving any questions of
interpretation or construction of any paragraph of this Lease to be relevant.
42. SUCCESSORS AND ASSIGNS
All of the terms, covenants and conditions of this Lease shall be
binding upon and inure to the benefit of the parties hereto and their heirs,
executors and administrators, successors and assigns, except that nothing in
this provision shall be deemed to permit any assignment, subletting or use of
the premises other than as provided for herein.
43. ESTOPPEL CERTIFICATES
Tenant shall, at any time during the term of this Lease, upon not less
than five (5) days prior written notice from Landlord, execute and deliver to
Landlord a statement in writing certifying that this Lease is unmodified and in
full force and effect (or, modified, stating the nature or such modification)
and the date to which the rent and other charges are paid in advance, if any,
and acknowledging that there are not, to Tenant's knowledge, any uncured
defaults on the part of Landlord hereunder or specifying such defaults if they
are claimed. Any such statement may be conclusively relied upon by any
perspective purchaser or encumbrancer of the premises. Tenant's failure to
deliver such statement within such time shall be conclusive upon tenant that (i)
this Lease is in full force and effect, without modification except as may be
represented by Landlord; (ii) there are no uncured defaults in Landlord's
performance; and (iii) the Security Deposit in Item 6 of the Schedule has been
paid.
44. MISCELLANEOUS
This Lease shall be governed and interpreted solely by the laws of the
State of California. Each number, singular, plural, as used in this Lease shall
include all numbers and each gender shall be deemed to include all genders.
Time is of the essence of this Lease and each and every provision hereof, except
as to the condition relating to the delivery of possession of the Premises to
Lessee. All the terms covenants, and conditions contained in this Lease to be
performed by Tenant, if Tenant shall consist of more than one person or
organization, they shall be deemed to be joint and several, and all rights and
remedies granted to Landlord herein or be given to Landlord by law shall be
cumulative and nonexclusive of any other remedy.
Any and all payment to be made by Tenant for which Tenant is obligated
under the terms of this lease to Landlord or other persons including but not
limited to the Rental required in Article 5, utilities, taxes, insurance,
repairs and maintenance shall be deemed and treated as rent within the meaning
of Section 1174 of the Code of Civil Procedure of the State of California, which
payments not made maybe recoverable, including treble damages, by Landlord in a
complaint file for Unlawful Detainer. At any time after the occurrence of a
default (Tenant hereby waiving its right under Section 1161, subsection 2 of the
California Code of Civil Procedure to have landlord serve notice of default on
Tenant within one year after Rent becomes
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due), Landlord may serve Tenant with a notice of default, provided that nothing
herein shall be deemed to require a notice as a condition to Landlord's right to
utilize a remedy where notice is not otherwise required by law.
If any provision of the Lease is held to be invalid by any court, the
invalidity of such provision shall not affect the validity of the remaining
portion hereof.
45. ENTIRE AGREEMENT
It is agreed between the Landlord and Tenant that there are no oral
agreements or representations between the parties hereto affecting this Lease
and this Lease supersedes an cancels any and al previous negotiations,
arrangements, brochures, agreements, representations and understandings, if any,
between the parties hereto or between the parties hereto their agents,
attorneys, accountants, and any real estate brokers who may represent either or
both of said parties, and none thereof shall be used to interpret or construe
this Lease. There are not other representations or warranties between he parties
and all reliance with respect to representations is solely upon the
representations and agreements contained in this Lease.
46. ADDITIONS TO LEASE
All those certain additions and modifications to this Lease attached
hereto and marked Exhibit "A", are incorporated by reference herein and made a
part of this Lease.
47. HAZARDOUS MATERIALS
Landlord and Tenant agree as follows with respect to the existence or
use of "hazardous Material" (as defined herein) on the Leased Premises:
A. Tenant, at its sole cost, shall comply with all laws relating to
the storage, use and disposal of hazardous Materials that Tenant, its agents,
employees, contractors or invited guests bring on the Premises or permit to be
brought on the Premises. If Tenant does store, use, or dispose of any Hazardous
Materials, tenant shall, except for incidental quantities intended for normal
office use, notify Landlord in writing at least five (5) days prior to their
first appearance on the Leased Premises. Tenant shall be solely responsible for
and shall defend, indemnify and hold Landlord and its agents harmless from and
against all claims, costs and liabilities, including attorneys' fees and costs,
arising out of or in connection with the storage, use or disposal of Hazardous
Materials in or about the Leased Premises by Tenant, its agents, employees or
contractors, which occurred prior to the Effective Date or which occurs after
the Effective Date.
B. If the presence of Hazardous Materials on the Leased Premises
caused or permitted by Tenant or its agents, employees, or contractors either
before or after the Effective Date results in contamination or deterioration of
water or soil resulting in a level of permitted contamination greater than the
levels established by any governmental agency having jurisdiction over such
contamination, then Tenant shall promptly take any and all action necessary to
clean up such contamination if required by law or as a condition to the issuance
or continuing effectiveness of any governmental approval which relates to the
use of the Leased Premises or
17
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any part thereof. At any time prior to the expiration of the Lease Term, Tenant
shall have the right to conduct appropriate tests of water and soil and to
deliver to Landlord the results of such tests to demonstrate that no
contamination in excess of permitted levels has occurred as a result of Tenant's
use of the Leased Premises. Tenant shall further be solely responsible for, and
shall defend, indemnify and hold Landlord and its agents harmless from and
against, all claims, costs and liabilities, including attorneys' fees and costs,
arising out of or in connection with any removal, clean-up and restoration work
and materials required hereunder to return the Leased Premises to the extent
required by law.
C. If Landlord has good cause to believe that the Leased Premises has
or may become contaminated by Hazardous Materials as a result of Tenant's
activities, Landlord may cause testing wells to be installed on or about he
Leased Premises or the Property in locations reasonably approved by Tenant, and
may cause the soils and ground water to be tested to detect the presence of
Hazardous Materials by the use of such tests as are then customarily used for
such purposes. If Tenant so requests, Landlord shall supply Tenant with copies
of such test results. The cost of such tests and of the installation,
maintenance, repair and replacement of such wells shall be paid by Landlord;
provided, however, that such cost shall be paid by Tenant if such tests detect
contamination of the Leased Premises by hazardous Materials which result from
Tenant's activity on the Leased Premises. Tenant shall have the right at any
time during the Lease Term to conduct its own test of the soils and ground water
underlying the Leased Premises or the Property by using such wells so long as
each of the following conditions are satisfied: (i) such tests are conducted by
Tenant at its own expense; (ii) Tenant repairs any damage to the Property or to
such wells caused by such tests; and (iii) Tenant delivers copies of the results
of such tests to Landlord.
D. It shall not be unreasonable for Landlord to withhold its consent
to any proposed Assignee or Tenant for Sublet pursuant to paragraph 15 of this
Lease if (i) the proposed Assignee or Tenant for Sublet's anticipated use of the
Leased Premises involves the generation, storage, use, treatment or disposal of
any Hazardous Material; (ii) the proposed Assignee or Tenant for Sublet has been
required by any prior landlord, lender or governmental authority to take
remedial action in connection with Hazardous Material contaminating a property
if the contamination resulted from such Assignee or Tenant for Sublet's actions
or use of the property in question; or (iii) the proposed Assignee or Tenant for
Sublet is subject to an enforcement order issued by any governmental authority
in connection with the use, disposal or storage of a Hazardous Material.
E. As used herein, the term "Hazardous Material" means any hazardous
or toxic substance, material or waste which is or becomes regulated by any local
governmental authority, the State of California or the United States Government.
The term "Hazardous Material" includes, without limitation, any material or
substance which is (i) listed under Article 9 or defined as hazardous or
extremely hazardous pursuant to Article II of Title 22 of the California
administrative code, Division 4, Chapter 20, (ii) defined as a "hazardous waste"
pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act,
42 U.S.C. (S) 6901 et seq. (42 U.S.C. (S) 6903), or (iii) defined as a
"hazardous substance" pursuant to Section
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101 of the Comprehensive Environmental Response, Compensation and Liability Act,
42 U.S.C. (S) 9601 et seq. (42 U.S.C. (S) 9601).
F. To the best of Landlord's knowledge, the Premises and Building are
free of contamination.
IN WITNESS WHEREOF, the Parties hereto have executed this Lease Agreement this
day of:
PLEASE READ THIS LEASE CAREFULLY. A LICENSED REAL ESTATE BROKER, ITS AGENTS OR
EMPLOYEES, ARE NOT AUTHORIZED TO GIVE LEGAL, TAX OR ACCOUNTING ADVICE. IF YOU
DESIRE SUCH ADVICE, CONSULT YOUR ATTORNEY AND OR ACCOUNTANT BEFORE SIGNING THIS
LEASE.
LANDLORD: Robert H. Geisler TENANT: Educational Industrial Sales, Inc.
/s/ ROBERT H. GEISLER /s/ DENNIS KUSHNER
- -------------------------------- -------------------------------------------
Robert H. Geisler Dennis Kushner
Its: Vice President - Operations
---------------------------
DATE: 4/13/98 DATE: 4/1/98
--------------------------- --------------------------------------
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EXHIBIT 10.29
OFFICE LEASE PROVISIONS
-----------------------
This lease (this "Lease") is entered into by Landlord and Tenant as of
the reference date specified in Paragraph 1 of the Summary. All capitalized
terms used in this Lease and not defined in the body of this Lease shall have
the meaning given in the Summary.
1. Lease. Landlord hereby leases to Tenant, and Tenant hereby leases
-----
from Landlord, the Premises described in Paragraph 7 of the Summary on the terms
and conditions set forth below.
2. Term. The Term of this Lease shall commence on the Commencement
----
Date specified in Paragraph 8 of the Summary and, unless terminated sooner
pursuant to the terms hereof, shall expire on the Expiration Date specified in
Paragraph 8 of the Summary. If Landlord, for any reason, cannot deliver
possession of the Premises to Tenant on the estimated Commencement Date, this
Lease shall not be void, nor shall Landlord be liable to Tenant for any loss
resulting therefrom, but Monthly Rent and other monetary obligations of Tenant
hereunder shall not commence until the Premises are delivered to Tenant.
3. Rent. During the Lease Term, Tenant shall pay to Landlord the
----
Monthly Rent set forth in Paragraph 9 of the Summary ("Monthly Rent"). Monthly
Rent shall be paid in advance, without deduction or offset, on the first day of
each calendar month and shall be paid at the address of Landlord specified in
Paragraph 3 of the Summary. Monthly Rent payable for any partial month shall be
prorated on the basis of a thirty (30) day month. Monthly Rent, Additional Rent
(as defined in Paragraph 6 below) and other amounts payable to Landlord by
Tenant under this Lease shall constitute "Rent."
4. Condition of Premises.
---------------------
(a) Prior to the commencement of the Lease Term, Landlord shall
cause to be performed in the Premises the improvements specified in Exhibit B
---------
attached hereto. Except as set forth in Exhibit B, Tenant accepts the Premises
---------
in their "as is" condition. Tenant's taking possession of the Premises shall be
conclusive evidence that the Premises were in good order and satisfactory
condition when Tenant took possession, except as to latent defects. No promise
of Landlord to alter, remodel, repair or improve the Premises or the Building
have been made by Landlord to Tenant, other than as may be contained herein or
in a separate work letter agreement signed by Landlord and Tenant.
(b) Tenant recognizes and understands that floors 2 through 5 of
the Building are currently being used for storage facilities by Landlord, and
may, at any time, be made available by Landlord for lease to third parties.
Landlord shall allocate Real Property Taxes and insurance premiums to the office
area as well as the storage floors; however, Landlord
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may charge all other categories of Operating Expenses that are reasonably
attributable exclusively to the office area to the tenants of the office area
exclusively. As used in this Lease, the term "office area" shall refer to the
rentable area of the Building made available by Landlord for lease to third-
party office tenants. In the event of an increase or decrease in the rentable
area of the Premises or the office area, Tenant's Prorata Share with respect to
Operating Expenses (other than insurance), as specified in Paragraph 11 of the
Summary, shall be appropriately adjusted. In addition, Tenant recognizes and
understands that the Building is in close proximity to a fire station and that
activities at that station may generate noise from time to time. Tenant agrees
that any such noise shall not constitute a constructive eviction from the
Premises by Landlord.
5. Security Deposit. Upon execution of this Lease, Tenant
----------------
shall pay to Landlord the Security Deposit set forth in Paragraph 10 of the
Summary as security for Tenant's compliance with the terms of this Lease. No
interest shall accrue on the Security Deposit. In no event shall the Security
Deposit be deemed or treated as prepaid rent for any rental installment due
hereunder whether for the last month installment or otherwise. Upon the
occurrence of an Event of Default (as defined in Paragraph 26(a), below) by
Tenant under this Lease, Landlord may, but shall not be obligated to, apply any
portion of the Security Deposit to cure the Event of Default or to compensate
Landlord for any expense or damage reasonably incurred by Landlord as a result
of the Event of Default. If all or part of the Security Deposit is used, Tenant
shall, immediately upon demand by Landlord, submit to Landlord the sum necessary
to return the Security Deposit to the original amount. Within a reasonable
period of time following the termination of this Lease and surrender of the
Premises by Tenant, Landlord shall return the remaining balance of the Security
Deposit to Tenant.
6. Additional Rent.
---------------
(a) Operating Expenses and Real Property Taxes. Tenant shall pay
------------------------------------------
to Landlord as "Additional Rent" under this Lease, at the times hereinafter set
forth, Tenant's Prorata Share, as specified in Paragraph 11 of the Summary, of
any increase in the Operating Expenses (as defined below) and Real Property
Taxes (as defined below) incurred by Landlord in each calendar year subsequent
to the Base Year specified in Paragraph 12 of the Summary over the operating
Expenses and Real Property Taxes incurred by Landlord during the Base Year.
(i) Operating Expenses. The term "Operating Expenses" shall
------------------
mean the total costs and expenses incurred by Landlord in
connection with the management, maintenance and repair of the
Building and the real property on which the Building is situated
(collectively called the "Real Property"),as determined in
accordance with generally accepted accounting principles,
excluding "Real Property Taxes", and including the following
costs: (1) salaries, wages and payroll burden, (2) premiums and
other charges incurred by Landlord with respect to fire, other
casualty, rent
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and liability insurance, and, after the Base Year, costs of
repairing an insured casualty to the extent of the deductible
amount under the applicable insurance policy;(3) water charges
and sewer rents or fees;(4) license, permit and inspection
fees;(5) telephone, postage, stationery supplies and other
expenses incurred in connection with the operation, maintenance
or repair of the Building; (6) management fees and expenses; (7)
repairs to and physical maintenance of the Real Property,
including building systems and appurtenances thereto and normal
repair and replacement of worn-out equipment, facilities and
installations, but excluding the replacement of major building
systems(except to the extent provided in (12) and (13) below);
(8) janitorial, rubbish removal, window cleaning, security,
plumbing, service contracts for elevator, electrical,
telecommunications, intrabuilding cabling, mechanical and other
building equipment and systems or as may otherwise be necessary
or proper for the operation or maintenance of the Real Property;
(9) supplies, tools and equipment used in connection with the
operation, maintenance or repair of the Real Property;(10)
accounting, legal and other professional fees and expenses; (11)
painting the exterior or the common areas of the Real Property
and maintaining the sidewalks and landscaping and public areas of
the Real Property; (12) the cost of any capital improvements made
by Landlord to the Real Property or capital assets acquired by
Landlord required under any governmental law, rule or regulation
or any insurance requirement, including the cost of complying
with the Americans with Disabilities Act of 1990 and any other
laws or regulations relating to the accessibility or usability of
the Real Property by disabled persons, and costs relating to
intrabuilding network cables, such cost or allocable portion to
be amortized over the useful life thereof, together with interest
on the unamortized balance at a rate per annum equal to three (3)
percentage points over the reference rate quoted by Bank of
America NT&SA ("Reference Rate") charged at the time such capital
improvements or capital assets are constructed or acquired; and
(13) the cost of any capital improvements made by Landlord to the
Real Property or capital assets acquired by Landlord after the
Base Year that are designed to reduce other Operating Expenses,
such cost or allocable portion thereof to be amortized over the
useful life thereof, together with interest on the unamortized
balance at a rate per annum equal to three (3) percentage points
over the Reference Rate charged at the time such capital
improvements or capital assets are constructed or acquired.
Operating Expenses shall not include the following: (i)
depreciation on the Building or equipment or systems therein;
(ii) debt service; (iii) rental under any ground or underlying
lease; (iv) interest
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(except as expressly provided in this Paragraph 6(a)); (v)
attorneys' fees and expenses incurred in connection with lease
negotiations with prospective tenants; (vi) the cost of any
repairs, alterations or equipment which would be properly
classified as capital expenditures according to generally
accepted accounting principles (except for any capital
expenditures expressly included in Operating Expenses pursuant to
this Paragraph 6(a)); (vii) the cost of decorating, improving for
tenant occupancy, painting or redecorating portions of the
Building to be demised to tenants; (viii) advertising; or (ix)
real estate brokers' or other leasing commissions.
(ii) Real Property Taxes. The term "Real Property Taxes"
-------------------
shall mean all taxes (including any increase in taxes which may
arise as a result of any sale of the Real Property), assessments
(whether general or special), excises, transit charges, housing
fund assessments or other housing charges, levies or fees, which
are assessed, levied or imposed on the Real Property, on the
Landlord with respect to the Real Property, on the act of
entering into this Lease or any other lease of space in the
Building, on the use or occupancy of the Building, or on or
measured by the rent payable under this Lease or in connection
with the business of renting space in the Building, including any
gross income tax or excise tax levied with respect to the receipt
of such rent. Real Property Taxes shall include reasonable
attorneys' fees, costs and disbursements incurred in connection
with proceedings to contest, determine or reduce Real Property
Taxes.
(b) Notice and Payment. During December of each calendar year
------------------
during the Term hereof subsequent to the Base Year, or as soon as practicable
thereafter, Landlord shall give to Tenant notice of Landlord's estimate of the
Additional Rent, if any, payable by Tenant pursuant to Paragraph 6(a) for such
calendar year subsequent to the Base Year. On or before the first day of each
month during such subsequent calendar year, Tenant shall pay to Landlord one
twelfth (1/12th) of the estimated Additional Rent; provided that if Landlord's
notice is not given prior to the first day of any calendar year, Tenant shall
continue to pay Additional Rent on the basis of the prior year's estimate until
the month after Landlord's notice is given. If at any time it appears to
Landlord that the Additional Rent payable under Paragraph 6(a) will vary from
Landlord's estimate, Landlord may, by written notice to Tenant, revise its
estimate for such year, and subsequent payments by Tenant for such year shall be
based upon the revised estimate.
(c) Adjustment for Occupancy Factor. Notwithstanding any other
-------------------------------
provision herein to the contrary, in the event the office area is not at least
ninety-five percent (95%) occupied on average during the Base Year or any year
of the Term of this Lease, an
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<PAGE>
adjustment shall be made by Landlord in computing Operating Expenses for such
year so that the Operating Expenses shall be computed for such year as though
the office area had been ninety-five percent (95%) occupied on average during
such year.
(d) Annual Accounting. Within one hundred twenty (120) days
-----------------
after the close of each calendar year subsequent to the Base Year, or as soon
after such one hundred twenty (120) day period as practicable, Landlord shall
deliver to Tenant a statement of the Additional Rent payable under Paragraph
6(a) for such year. If the annual statement shows that Tenant's payments of
Additional Rent for such calendar year pursuant to Paragraph 6(b) hereof
exceeded Tenant's obligations for the calendar year, Landlord shall, at its
option, either (1) credit the excess to the next succeeding installments of
Monthly Rent and/or estimated Additional Rent or (2) pay the excess to Tenant
within thirty (30) days after delivery of such statement. If the annual
statement shows that Tenant's payments of Additional Rent for such calendar year
pursuant to Paragraph 6(b) hereof were less than Tenant's obligation for the
calendar year, Tenant shall pay the deficiency to Landlord within fifteen (15)
days after delivery of such statement.
(e) Proration for Partial Lease Year. If this Lease terminates
--------------------------------
on a day other than the last day of a calendar year, the Additional Rent payable
by Tenant pursuant to this Paragraph 6 applicable to the calendar year in which
the Lease terminates shall be prorated on the basis that the number of days from
the commencement of such calendar year to and including such termination date
bears to three hundred sixty (360).
7. Late Charge; Interest.
---------------------
(a) Late Charge. Tenant acknowledges that Tenant's failure to
-----------
pay Rent on time will result in additional accounting and other costs to
Landlord and that such costs are difficult to calculate. Therefore, Tenant
agrees that if Tenant fails to pay Monthly Rent, Additional Rent, or make any
other payment due Landlord under this Lease within ten (10) days of the date
due, Tenant will pay to Landlord a late charge equal to the greater of: (a) five
percent (5%) of the overdue sum; or (b) $150.
(b) Interest. If Rent is not received by Landlord within ten
--------
(10) days of the date due, interest shall accrue on such amount from the date
due until the date received by Landlord at an annual interest rate (the
"Interest Rate") equal to the lesser of (i) fifteen percent (15%), or (ii) the
highest rate allowed by law.
(c) Limitation on Grace Period. Notwithstanding the foregoing,
--------------------------
if Tenant fails to pay Rent by the actual date due more than four (4) times
during any twelve (12) month period, then, after such fourth (4th) late payment,
the ten (10) day grace periods provided for in Paragraphs 7 (a) and 7 (b) above
shall no longer apply and the late charge and interest provided for in those
Paragraphs shall commence to accrue on the actual due date until such time as
Tenant has timely made all payments due under this Lease for twelve (12)
consecutive
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months. Notwithstanding anything contained in the Lease, the provisions of this
Paragraph shall not be construed to grant Tenant a grace period and shall in no
way relieve Tenant of the obligation to pay any amount of Rent on or before the
date on which they become due, nor do the terms of this Paragraph in any way
affect Landlord's remedies pursuant to Paragraph 26 of the Lease in the event
any Rent remains unpaid after the due date.
8. Utilities and Services.
----------------------
(a) Description of Utilities and Services. Throughout the Lease
-------------------------------------
Term, Landlord shall provide to the Premises during the period of 8 A.M. to 5
P.M. ("Business Hours") Monday through Friday (except public holidays)
("Business Days"), and subject to governmental laws or the rules or actions of
the public utility company furnishing the service, the following: (i)
electricity for lighting and power suitable for the use of the Premises for
ordinary general office purposes; (ii) heat, ventilation and air conditioning
("HVAC") required in Landlord's judgment for the comfortable use and occupancy
of the Premises for such purposes; (iii) water for restroom and drinking
purposes; (iv) elevator service by nonattended automatic elevators for general
office pedestrian usage; (v) telecommunications intrabuilding network cabling;
and (vi) janitorial services. If Tenant requires HVAC to the Premises other than
during Business Hours on Business Days, Landlord shall, upon Tenants request
given not later than 3 P.M. of the Business Day on which Tenant requires the
after hour service, and not later than 3 P.M. on the Friday before any Saturday
or Sunday on which Tenant requires such service, and not later than 3 P.M. of
the day before any holiday on which Tenant requires such service, furnish such
HVAC. If Tenant receives such services, then Tenant shall pay, upon demand, an
amount equal to Tenant's proportionate share of the actual direct cost to
Landlord in providing the HVAC to Tenant and all other tenants of the Building
requesting such services outside of Business Hours on Business Days.
(b) Interruption of Services. In the event of an interruption in
------------------------
any of the above described services or utilities, such interruption shall not
constitute an eviction of Tenant or impose upon Landlord any liability,
including liability for consequential damages or loss of business by Tenant.
Tenant hereby waives the provisions of California Civil Code Section 1932(1) or
any other applicable existing or future law permitting the termination of this
Lease due to such interruption.
(c) Governmental Controls. If any law (as defined in Paragraph
---------------------
10, below) imposes controls or guidelines on Landlord or the Building relating
to the use or conservation of energy or utilities or other Building systems or
the reduction of automobile or other emissions (collectively "Controls"),
Landlord may comply with such Controls and such compliance shall not constitute
an eviction of Tenant or impose any liability upon Landlord.
9. Use. The Premises shall be used only for general office purposes
---
for the business of Tenant as described in Paragraph 13 of the Summary and for
no other use or purpose without the prior written consent of Landlord. Under no
circumstances shall the Premises or any
6
<PAGE>
portion of the Building be used for residential purposes. Tenant shall not do or
permit anything to be done in the Premises or the Building which would increase
the premium rate of or affect any fire, casualty, liability, rent or other
insurance relating to the Real Property. If any act or omission of Tenant
results in any such increase in premium rates, Tenant shall pay to Landlord upon
demand the amount of such increase. Tenant shall not do or permit anything to be
done in the Premises or the Building which will in any way interfere with the
rights of other occupants of the Building nor shall Tenant cause or permit any
nuisance in the Premises or the Building. Tenant agrees not to handle, store or
dispose of any substance on the Premises which is prohibited by federal, state
or local law or regulation.
10. Compliance with Law. Tenant, at its sole cost, shall promptly
-------------------
comply with all laws, rules, regulations, covenants, conditions and restrictions
now in force or hereafter enacted (collectively, "laws") and with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted relating to the condition, use or occupancy of the
Premises (excluding structural changes to the Building not related to or
affected by Tenant's Alterations, as defined in Paragraph 12 below, or Tenant's
particular use of the Premises), including the Americans with Disabilities Act
of 1990 and any other laws relating to the accessibility or usability of the
Premises by disabled persons, and any and all laws relating to toxic or
hazardous substances or materials. Tenant shall not do or permit anything to be
done in the Premises or on or about the Real Property which will in any way
conflict with any law. Tenant shall immediately furnish Landlord with any
notices received or required by law to be given by Tenant from any insurance
company or governmental agency regarding any unsafe or unlawful conditions
within the Premises.
11. Personal Property and Other Taxes. Tenant shall pay, before
---------------------------------
delinquency, any and all taxes, fees and other governmental impositions levied
against Landlord or Tenant (a) upon Tenant's equipment, fixtures, improvements
and other personal property located in the Premises, or (b) by virtue of any
Alterations (as defined below) made by Tenant to the Premises. If any such fee,
charge or other imposition is paid by Landlord, Tenant shall reimburse Landlord
for Landlord's payment upon demand.
12. Alterations. Tenant shall not make or permit to be made any
-----------
alterations or improvements to the Premises, including installation or
alteration of any telecommunications wiring or cabling in or about the Premises
("Alterations"), without the prior written approval of Landlord. All Alterations
shall be made at Tenant's sole cost. Alterations shall be performed by a general
contractor or other service provider designated by Landlord, with subcontractors
approved in advance by Landlord, which approval shall not be unreasonably
withheld, and shall be performed diligently and in a first-class workmanlike
manner and in accordance with plans and specifications reasonably approved by
Landlord. Tenant shall pay Landlord a fee equal to ten percent (10%) of the cost
of the Alterations for its management and supervision of the progress of the
work. Any Alterations, including moveable partitions that are affixed to the
Premises (but excluding moveable, free standing partitions) and all carpeting,
shall at once
7
<PAGE>
become part of the Building and the property of Landlord. Tenant shall give
Landlord not less than ten (10) days prior written notice of the date the
construction of the Alterations is to commence. Landlord may post and record an
appropriate notice of nonresponsibility with respect to any Alteration and
Tenant shall maintain any such notices posted by Landlord in or on the Premises.
At Landlord's sole election, any or all Alterations made for or by
Tenant shall be removed from the Premises at the expiration or sooner
termination of this Lease, and the Premises shall be restored to their condition
prior to the making of the Alterations, ordinary wear and tear excepted. The
removal of the Alterations and the restoration of the Premises shall be
performed by a general contractor selected by Tenant and reasonably approved by
Landlord, in which event Tenant shall pay the general contractor's fees and
costs in connection with such work. Any separate work letter or other agreement
which is hereafter entered into between Landlord and Tenant pertaining to
Alterations shall be automatically governed by this Paragraph 12, unless
otherwise expressly stated in such work letter or agreement.
13. Repair. Subject to the provisions of this Paragraph 13, Tenant,
------
at Tenant's sole cost, shall keep the Premises in good condition and repair,
damage by fire, earthquake, act of God or the elements excepted. Tenant waives
all rights to make repairs at the expense of Landlord as provided by any law now
or hereafter in effect. Except as specifically set forth in this Lease, Landlord
has no obligation to alter, remodel, improve, repair, decorate or paint the
Premises or any part thereof. Tenant hereby waives the provisions of California
Civil Code Sections 1932(1), 1941 and 1942 and of any similar law, statute or
ordinance now or hereafter in effect.
Landlord shall, at Landlord's sole cost, perform those repairs that
are necessitated because of fire, earthquake, act of God or the elements, or by
the negligence or willful misconduct of Landlord. Further, Landlord shall repair
and maintain in good condition the structural portions of the Building, the
exterior and the public and common areas of the Real Property and all Building
systems, including plumbing, HVAC, electrical, telecommunications cabling, life
safety and other systems installed or furnished by Landlord, but excluding (i)
non-Building standard lighting and electrical and telecommunications wiring and
(ii) extraordinary quantities of electrical, telecommunications, plumbing, HVAC
or other Building facilities or distribution thereof, the costs of all of which
shall be operating Expenses. Notwithstanding the foregoing, if the repairs
Landlord is required to make pursuant to this Paragraph are necessitated by the
negligence or deliberate misconduct of Tenant or Tenant's agents, employees or
contractors, then Tenant shall reimburse Landlord for the cost of such repair to
the extent Landlord is not reimbursed therefor by insurance. Landlord shall in
no event be obligated to repair any wear and tear to the Premises.
14. Assignment and Subletting. Tenant shall not, either voluntarily
-------------------------
or by operation of law, assign, mortgage, pledge, encumber or otherwise transfer
all or any portion of
8
<PAGE>
Tenant's interest in this Lease (collectively, an "assignment") nor sublet all
or any portion of the Premises ("sublease") without Landlord's prior written
consent, which consent shall not be unreasonably withheld. Landlord's conditions
to such consent may include requiring that the assignee or subtenant (i) meets
Landlord's credit standards for tenants of the Building and (ii) will use the
Premises for operation of a business consistent with the use of the Building as
a first-class office building. For purposes hereof, a transfer of twenty-five
percent (25%) or more of the ownership interest in Tenant shall be deemed an
assignment.
Prior to entering into an assignment or sublease, Tenant shall submit
to Landlord for Landlord's reasonable written approval, Tenant's proposed
sublease or assignment agreement (which shall name the proposed assignee or
subtenant), together with a current financial statement, credit references and
business plan of such proposed assignee or subtenant, and such other information
as Landlord may reasonably request. If Tenant enters into an assignment or
subletting without Landlord's prior written approval, or Tenant obtains such
approval but does not deliver to Landlord a copy of the fully executed
assignment or subletting document approved by Landlord, then, at Landlord's
option, such assignment or subletting shall be void and constitute an Event of
Default. Consent by Landlord to an assignment or subletting shall neither
relieve Tenant from the necessity of obtaining consent to any future assignment
or sublease nor release Tenant from any of its obligations under this Lease.
Tenant shall reimburse Landlord for any and all reasonable costs
incurred by Landlord in processing a proposed assignment or sublease. In the
event of an assignment or sublease, Landlord shall be entitled to receive, as
Rent hereunder, any consideration (including payment for leasehold improvements
owned by Landlord) paid by the assignee or subtenant for the assignment or
sublease and, in the case of a sublease, the excess of the amount of Rent paid
for the sublet space by the subtenant over the total amount of Monthly Rent and
Additional Rent under Paragraph 3 and Paragraph 6 hereof. Upon Landlord's
request, Tenant shall assign to Landlord all amounts to be paid to Tenant by any
such subtenant and assignee and shall direct such subtenant or assignee to pay
the same directly to Landlord.
15. Indemnification. Landlord and the holders of any Superior
---------------
Interests (as defined in Paragraph 21 hereof) shall not be liable to Tenant and
Tenant hereby waives all claims against such parties for any loss, injury or
other damage to person or property in or about the Premises or the Real Property
from any cause whatsoever, including earth movement, gas, fire, oil, electricity
or leakage of any character from the roof, walls, basement or other portion of
the Premises or the Building, or acts of other tenants of the Building;
provided, however, that the foregoing waiver shall be inapplicable to any loss,
injury or damage resulting directly from Landlord's gross negligence or willful
misconduct.
Tenant shall hold Landlord and the holders of any Superior Interest,
and the constituent owners thereof (hereinafter collectively called the
"Indemnities") harmless from and indemnify the Indemnitees against any claims,
liability, damages or expenses, including
9
<PAGE>
reasonable attorneys' fees and costs incurred in defending against the same, to
the extent arising from (a) the acts or omissions of Tenant, Tenant's employees,
agents, contractors, licensees, subtenants, customers, guests or invitees in or
about the Real Property, or (b) any breach or Event of Default under this Lease
by Tenant, or (c) any accident, injury or damage, to any person or property,
occurring in or about the Premises or the Real Property; except for such claims,
liability, damages or expenses to the extent they are caused solely and directly
by the negligence or willful acts or omissions of Landlord or its authorized
representatives. In case any action or proceeding be brought against any of the
Indemnitees by reason of any such claim or liability, Tenant, upon notice from
Landlord, covenants to resist and defend at Tenant's sole expense such action or
proceeding by counsel reasonably satisfactory to Landlord. The provisions of
this Paragraph 15 shall survive the termination of this Lease with respect to
any injury, illness, death or damage occurring prior to such termination.
16. Insurance.
---------
(a) Policies. At Tenant's expense, Tenant shall procure, carry
--------
and maintain in effect, in a form acceptable to Landlord and with such insurance
companies as are acceptable to Landlord, insurance coverage by the following
policies of insurance:
(i) Liability insurance on an occurrence basis with limits
in an amount not less than $3,000,000 Combined Single Limits per
occurrence, and for claims or losses arising out of or resulting
from personal injury (including bodily injury), death and
property damage sustained or alleged to have been sustained by
any person for any reason on the Premises, for liability arising
out of or resulting from Tenant's covenant in Paragraph 15 to
indemnify Landlord, its agents and employees, or for contractual
liability;
(ii) All Risk Replacement Cost insurance covering property
of every description and kind owned by Tenant and located in the
Premises and for Tenant's Alterations in an amount equal to 80%
of the full replacement value thereof; and
(iii) Workers' compensation insurance, in accordance with
law.
(b) Increase to Insurance Limits. Not more often than every one
----------------------------
(1) year and upon not less than sixty (60) days prior written notice, Landlord,
in its reasonable discretion, may require Tenant to increase the insurance
limits set forth in Subparagraphs 16(a)(i) and 16(a)(ii), above.
(c) Named Insureds. All policies of liability insurance so
--------------
obtained and maintained shall name each of Landlord and Transamerica Real Estate
Management Co. as an additional insured, provide that the insurance so endorsed
will be the primary insurance
10
<PAGE>
providing coverage for Landlord, and contain a cross-liability endorsement
stating that the rights of named insureds shall not be prejudiced by one insured
making a claim or commencing an action against another named insured. At
Landlord's election, such policies shall name the holder of any mortgage or deed
of trust on the Real Property as an insured party under a standard mortgagee
endorsement.
(d) Landlord's Rights. All such policies shall further provide
-----------------
that no cancellation, reduction or modification of coverage will occur without
thirty (30) days prior written notice to Landlord and Transamerica Real Estate
Management Co. Tenant shall deliver certificates of all insurance required
hereunder upon the commencement of the Term of this Lease. In the event Tenant
does not comply with the requirements of this Paragraph 16, Landlord may, at its
option and at Tenant's expense, purchase such insurance coverage to protect
Landlord. The cost of such insurance shall be paid to Landlord by Tenant
immediately upon demand therefor.
17. Mutual Waiver of Subrogation. The parties release each other, and
----------------------------
their respective authorized representatives, from any claims for loss or damage
that are caused by or result from perils insured under any insurance policies
carried by the parties in force at the time of any such damage. Each party shall
cause each insurance policy obtained by it to provide that the insurer waives
all right of recovery by way of subrogation against either party in connection
with any loss or damage covered by the policy. Neither party shall be liable to
the other for any loss or damage caused by the insured risks under any insurance
policy required by this Lease.
18. Damage and Destruction. If all or a part of the Premises or the
----------------------
Building are damaged by fire or other casualty, and the damage can, in
Landlord's reasonable opinion, be repaired within sixty (60) days of the damage,
then Landlord shall repair the damage and this Lease shall remain in effect. If
the repairs cannot, in Landlord's reasonable opinion, be made within the sixty
(60)-day period, Landlord at its option exercised by written notice to Tenant
within the sixty (60)-day period, shall either (a) repair the damage, in which
event this Lease shall continue in full force and effect, or (b) terminate this
Lease as of the date specified by Landlord in the notice, which date shall be
not less than thirty (30) days nor more than sixty (60) days after the date such
notice is given, and this Lease shall terminate on the date specified in the
notice.
If the fire or other casualty damages the Premises or the common areas
of the Building necessary for Tenant's use and occupancy of the Premises, and
the damage does not result from the negligence or willful misconduct of Tenant
or Tenant's agents, employees, contractors, licensees or invitees, then during
the period the Premises or any part thereof are rendered unusable by such damage
and repair, Tenant's Monthly Rent and Additional Rent under Paragraph 3 and
Paragraph 6 hereof shall be proportionately reduced based upon the extent to
which the damage and repair prevents Tenant from conducting its business at the
Premises. Landlord shall not be obligated to repair or replace any of Tenant's
movable furniture,
11
<PAGE>
equipment, trade fixtures and other personal property, nor any Alterations
installed in the Premises by Tenant. A total destruction of the Building shall
automatically terminate this Lease. Tenant hereby waives California Civil Code
Sections 1932(2) and 1933(4), providing for termination of hiring upon
destruction of the thing hired, and Sections 1941 and 1942, providing for
repairs to and of premises.
19. Eminent Domain. If all or any part of the Premises is taken by
--------------
any entity by exercise of the power of eminent domain, this Lease shall
terminate as of the date of such taking. This Lease shall not terminate upon a
temporary taking of the Premises, but Tenant's Monthly Rent and Additional Rent
hereunder shall abate during the period of the taking. Landlord shall be
entitled to all awards and to all purchase money attributable to the Premises or
the unexpired Term of this Lease, except for any part of the award attributable
to Tenant's removable personal property or relocation expenses, which part shall
be payable to Tenant. Landlord and Tenant waive the provisions of California
Code of Civil Procedure Section 1265.130 and any other applicable existing or
future law that allows a party to petition the courts for termination of this
Lease for a partial taking of the Premises.
20. Estoppel Certificates. Upon not less than ten (10) days' prior
---------------------
notice from Landlord, Tenant shall execute, acknowledge and deliver to Landlord
a statement setting forth and certifying such matters as may be reasonably
requested (e.g., Term of this Lease, Monthly Rent, Additional Rent, Security
Deposit paid, defaults and similar matters). Any such statement given by Tenant
may be conclusively relied upon by a prospective purchaser of the Building or by
a lender obtaining a lien on the Real Property as security.
21. Subordination. This Lease is expressly made subject and
-------------
subordinate to any mortgage, deed of trust, ground lease, underlying lease or
like encumbrance affecting any part of the Building or any interest of Landlord
therein which is now existing or hereafter executed or recorded (any of the
foregoing being a "Superior Interest") without the necessity of any further
documentation evidencing such subordination. Notwithstanding the foregoing,
Tenant shall, upon Landlord's request, execute and deliver to Landlord a
document evidencing the subordination of this Lease to a particular Superior
Interest. If the holder of any Superior Interest should foreclose, judicially or
non-judicially, on its mortgage or deed of trust or, with respect to a ground or
underlying lease, the ground or underlying lease should terminate, then Tenant
shall automatically attorn to and recognize such holder or its assignee,
designee or successor in interest (a "Successor") as the landlord under the
Lease and be in privity of estate and contract with such Successor so long as
such Successor agrees not to disturb Tenant's right of possession under the
Lease except as provided for in the Lease.
22. Mortgage Protection. Tenant agrees to give the holder of any
-------------------
mortgage or deed of trust on the Building ("lender"), by registered or certified
mail, a copy of any notice of default served by Tenant on Landlord, provided
that Tenant has previously been notified in writing of the name and address of
the lender. If Landlord fails to cure the default within thirty
12
<PAGE>
(30) days from the date of Tenant's notice of default, then the lender will have
an additional thirty (30) days to cure the default or if the default cannot
reasonably be cured within that time, then such additional time as may be
reasonably necessary to cure the default, and this Lease will not be terminated
so long as the lender is diligently endeavoring to cure the default.
23. Liens. If any mechanic's, materialman's or other liens arising
-----
out of work performed at the Premises by or on behalf of Tenant is filed against
the Building or Tenant's interest in the Premises, then Tenant shall immediately
upon its notice or actual knowledge of such lien, remove the same of record, by
bonding or otherwise. Landlord shall have the right to post and keep posted on
the Premises any notices which it deems necessary for protection from such
liens. If any such lien is filed and not removed pursuant to the above, Landlord
may, after ten (10) days' written notice to Tenant, without waiving its rights
based on such breach by Tenant, pay and satisfy the same, and in such event the
sums so paid by Landlord shall be due and payable by Tenant immediately upon
demand, with interest at the Interest Rate from the date paid by Landlord
through the date Tenant pays Landlord. Any filing or recordation of this Lease
or any short form or memorandum thereof without the prior written consent of
Landlord shall be deemed a "lien" for purposed of this Paragraph.
24. Entry By Landlord. Landlord may, upon reasonable advance notice
-----------------
(provided that no advance notice need be given if an emergency necessitates an
immediate entry or prior to entry to provide routine janitorial services), enter
the Premises to (a) inspect the same and determine whether Tenant is in
compliance with its obligations hereunder, (b) supply janitorial and any other
service to be provided by Landlord hereunder, (c) show the Premises to
prospective purchasers, mortgagees or tenants, (d) post notices of
nonresponsibility and (e) perform any installation, repair or maintenance
required or permitted to be performed by Landlord. Tenant shall not be entitled
to an abatement of rent, nor shall Landlord be liable to Tenant for any
inconvenience or loss of business resulting from such entry.
25. Abandonment. Tenant shall not vacate or abandon the Premises at
-----------
any time during the Term hereof. If Tenant abandons, vacates or surrenders all
or any part of the Premises or is dispossessed of the Premises by process of
law, or otherwise, any movable furniture, equipment, trade fixtures, or other
personal property belonging to Tenant and left on the Premises shall at the
option of Landlord be deemed to be abandoned and, whether or not the property is
deemed abandoned, Landlord shall have the right to remove such property from the
Premises and charge Tenant for the removal and any restoration of the Premises
as provided in Paragraph 12. Landlord may charge Tenant for the storage of
Tenant's property left on the Premises at such rates as Landlord may from time
to time reasonably determine, or, Landlord may, at its option, store Tenant's
property in a public warehouse at Tenant's expense. Neither the foregoing nor
any other provision of this Lease shall impose upon Landlord any obligation to
care for or preserve any of Tenant's property left upon the Premises, and Tenant
hereby waives and releases Landlord from any claim or liability in connection
with the removal of such
13
<PAGE>
property from the Premises and the storage thereof and specifically waives the
provisions of California Civil Code Section 1542 with respect to such release.
26. Default.
-------
(a) Events of Default. The occurrence of any of the following
-----------------
shall constitute an "Event of Default" by Tenant:
(i) Tenant fails to pay within ten (10) days of the date
due Rent hereunder.
(ii) Abandonment of the Premises by Tenant for ten (10)
consecutive days.
(iii) The making by Tenant of any general assignment for the
benefit of creditors; the filing by or against Tenant of a
petition to have Tenant adjudged an insolvent or a bankrupt or of
a petition seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar arrangement
under any bankruptcy law (unless in the case of a petition filed
against Tenant, the same is dismissed within sixty (60) days);
the appointment of a trustee or receiver to take possession of
substantially all of Tenant's assets or of Tenant's interest in
this Lease where such seizure is not discharged within thirty
(30) days.
(iv) Tenant fails to perform any other provision of this
Lease within thirty (30) days of the date required for such
performance (or if the noncompliance cannot by its nature be
cured within the 30-day period, if Tenant fails to commence to
cure such noncompliance within the 30-day period and thereafter
diligently prosecute such cure to completion).
(b) Remedies. Upon the occurrence of an Event of Default,
--------
Landlord shall have the following remedies, which shall be cumulative and shall
be in addition to any other remedies allowed by law:
(i) Landlord may terminate Tenant's right to possession of
the Premises at any time by written notice to Tenant. Tenant
expressly acknowledges that in the absence of such written notice
from Landlord, no other act of Landlord, including its re-entry
into the Premises, its efforts to relet the Premises, its
reletting of the Premises for Tenant's account, its storage, of
Tenant's personal property and trade fixtures, its acceptance of
keys to the Premises from Tenant or its exercise of any other
rights and remedies under this Paragraph 26, shall constitute an
acceptance of Tenant's surrender of the Premises or constitute a
termination of this
14
<PAGE>
Lease or of Tenant's right to possession of the Premises.
Upon such termination in writing of Tenant's right to
possession of the Premises, this Lease shall terminate and
Landlord shall be entitled to recover damages from Tenant as
provided in California Civil Code Section 1951.2 or any other
applicable existing or future law providing for recovery of
damages for such breach, including the following:
(1) The reasonable cost of recovering the Premises;
plus
(2) The reasonable cost of removing Tenant's
Alterations, trade fixtures and improvements; plus
(3) All unpaid Rent due or earned hereunder prior to
the date of termination, less the proceeds of any reletting
or any rental received from subtenants prior to the date of
termination applied as provided in Paragraph 26(b)(ii)
below, together with interest at the Interest Rate on such
sums from the date such Rent is due and payable until the
date of the reward of damages; plus
(4) The amount by which the Rent which would be
payable by Tenant hereunder, as reasonably estimated by
Landlord, from the date of termination until the date of the
award of damages, exceeds the amount of such rental loss as
Tenant proves could have been reasonably avoided together
with interest at the Interest Rate on such sums from the
date such rent is due and payable until the date of the
award of damages; plus
(5) The amount by which the Rent which would be
payable by Tenant hereunder, as reasonably estimated by
Landlord, for the remainder of the then Term, after the date
of the award of damages exceeds the amount such rental loss
as Tenant proves could have been reasonably avoided,
discounted at the discount rate published by the Federal
Reserve Bank of San Francisco for member banks at the time
of the award plus one percent (1%); plus
(6) Such other amounts in addition to or in lieu of
the foregoing as may be permitted from time to time by
applicable law.
(ii) Landlord may continue this Lease in full force and
effect
15
<PAGE>
and may enforce all of its rights under this Lease, including the
right to recover Rent as it becomes due. During the continuance
of an Event of Default, Landlord may enter the Premises without
terminating this Lease and sublet all or any part of the Premises
for Tenant's account to any person, for such term (which may be a
period beyond the remaining Term of this Lease), at such rents
and on such other terms and conditions as Landlord deems
advisable. In the event of any such subletting, rents received by
Landlord from such subletting shall be applied (i) first, to the
payment of the costs of maintaining, altering and preparing the
Premises for subletting, the other costs of subletting, including
brokers, commissions, attorneys' fees and expenses of removal of
Tenant's personal property, trade fixtures and Alterations; (ii)
second, to the payment of Rent then due and payable hereunder;
(iii) third, to the payment of future Rent as the same may become
due and payable hereunder; (iv) fourth, the balance, if any,
shall be paid to Tenant upon (but not before) expiration of the
Term of this Lease. If the rents received by Landlord from such
subletting, after application as provided above, are insufficient
in any month to pay the Rent due and payable hereunder for such
month, Tenant shall pay such deficiency to Landlord monthly upon
demand. Notwithstanding any such subletting for Tenant's account
without termination, Landlord may at any time thereafter, by
written notice to Tenant, elect to terminate this Lease by virtue
of a previous Event of Default.
During the continuance of an Event of Default, for so
long as Landlord does not terminate Tenant's right to possession
of the Premises, Landlord shall not unreasonably withhold its
consent to an assignment or sublease of Tenant's interest in the
Premises or in this Lease.
(iii) During the continuance of an Event of Default,
Landlord may enter the Premises without terminating this Lease
and remove all Tenant's personal property, Alterations and trade
fixtures from the Premises and store them at Tenant's risk and
expense or dispose of them upon compliance by Landlord with
applicable California law.
(iv) Landlord may require Tenant to remove any and all
Alterations from the Premises or, if Tenant fails to do so within
ten (10) days after Landlord's request, Landlord may do so at
Tenant's expense.
(v) Landlord may cure the Event of Default at Tenant's
expense. If Landlord pays any sum or incurs any expense in curing
the
16
<PAGE>
Event of Default, Tenant shall reimburse Landlord upon demand for
the amount of such payment or expense with interest at the
Interest Rate from the date the sum is paid or the expense is
incurred until Landlord is reimbursed by Tenant. Any amount due
Landlord under this subsection shall constitute Rent hereunder.
27. Surrender; Holding Over.
-----------------------
(a) Surrender. Upon the expiration or other termination of this
---------
Lease, Tenant shall surrender the Premises and all improvements and Alterations
to Landlord broom-clean and in their original condition, except for reasonable
wear and tear. At such time, Tenant shall remove from the Premises all of
Tenant's personal property, trade fixtures and Alterations that Tenant is
required by Landlord to remove under the provisions of this Lease. If such
removal is not completed at the expiration or other termination of this Lease,
Landlord may remove the same at Tenant's expense. Any damage to the Premises or
the Building caused by such removal shall be repaired promptly by Tenant or, if
Tenant fails to do so, Landlord may do so at Tenant's expense. The removal of
Alterations from the Premises shall be governed by Paragraph 12 hereof. Tenant's
obligations under this Paragraph shall survive the expiration or other
termination of this Lease.
(b) Holding Over. If Tenant remains in possession of the
------------
Premises after the expiration of this Lease, Tenant's occupancy shall be a
month-to-month tenancy at a Monthly Rent equal to one hundred fifty percent
(150%) of the Monthly Rent in effect during the month immediately preceding the
expiration of the Lease plus the applicable Additional Rent. Except as provided
in the preceding sentence, the month-to-month tenancy shall be on the terms and
conditions of this Lease. Landlord's acceptance of rent after such holding over
with Landlord's written consent shall not result in any other tenancy or in a
renewal of the original Term hereof.
28. Waiver. No provision of this Lease shall be deemed waived
------
by Landlord unless such waiver is in writing and signed by Landlord. The waiver
by Landlord of any breach of any provision of this Lease shall not be deemed a
waiver of any subsequent breach of the same or any other provision of this
Lease. Landlord's acceptance of any payments of Rent due under this Lease shall
not be deemed a waiver of any default by Tenant under this Lease (including
Tenant's recurrent failure to timely pay Rent) other than Tenant's nonpayment of
the accepted sums, and no endorsement or statement on any check or accompanying
any check or payment shall be deemed an accord and satisfaction. Landlord's
consent to or approval of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waive or render unnecessary Landlord's consent
to or approval of any subsequent act by Tenant.
29. Attorneys' Fees. In any action or proceeding between Landlord and
---------------
Tenant (including an action or proceeding between Landlord and the trustee or
debtor in possession while Tenant is a debtor in a proceeding under any
bankruptcy law) to enforce any
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provision of this Lease, the losing party shall pay to the prevailing party all
costs and expenses, including reasonable attorneys' fees and expenses, incurred
in such action and in any appeal in connection therewith by such prevailing
party. The "prevailing party" will be determined by the court before whom the
action was brought based upon an assessment of which party's major arguments or
positions taken in the suit or proceeding could fairly be said to have prevailed
over the other party's major arguments or positions on major disputed issues in
the court's decision.
30. Time and Applicable Law. Time is of the essence of each provision
-----------------------
of this Lease. This Lease shall be governed by California law.
31. Successors. Subject to the provisions of this Lease, the
----------
covenants and conditions hereunder shall be binding upon and inure to the
benefit of the heirs, successors, executors and administrators of the parties
hereto.
32. Notices. All notices and demands given by either party to
-------
the other hereunder shall be in writing and shall be delivered personally, or by
overnight receipted courier or by United States mail, postage prepaid,
registered or certified mail, return receipt requested, addressed to Tenant or
Landlord, as the case may be, at their respective addresses for notices set
forth in the Summary, or such other address as they may from time to time
designate by notice hereunder. Each notice shall be deemed received on the date
of the personal service or three (3) days after the mailing thereof.
33. Severability. The invalidity or unenforceability of any one or
------------
more provisions of this Lease shall in no way affect any other provision.
34. No Offer. Submission of this document for examination and
--------
signature by Tenant does not constitute a reservation of or option to lease, and
this document is not effective until executed and delivered by both Landlord and
Tenant.
35. Directory Board. Landlord shall list Tenant's name on the
---------------
directory board in the lobby of the Building at Landlord's cost; provided,
however, any change to the initial listing and any additional listings shall be
at Tenant's cost and expense. Landlord's acceptance of any name for listing on
the directory board shall in no event be, or be deemed to be, nor will it
substitute for, Landlord's consent, required by this Lease, to any sublease,
assignment or other occupancy of the Premises.
36. Real Estate Brokers. Landlord and Tenant each represent and
-------------------
warrant to the other that such party has negotiated this Lease only with the
Real Estate Broker(s), if any, identified in Paragraph 14 of the Summary and has
not authorized or employed any other real estate broker or salesperson to act
for such party in connection with this Lease. Each party shall hold the other
harmless from and indemnify and defend the other against any and all claims by
any real estate broker or salesperson other than the Real Estate Broker(s), if
any, identified in the
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Summary for a commission, finder's fee or other compensation as a result of the
inaccuracy of such party's representation above.
37. Interpretation. Whenever the context requires, all words used in
--------------
the singular will be construed to have been used in the plural, and vice versa,
and each gender will include any other gender. The word "include(s)" means
"include(s), without limitation," and the word "including" means "including, but
not limited to."
38. Rules and Regulations. Tenant shall comply with the Rules and
---------------------
Regulations set forth on Exhibit C, as such Rules and Regulations may be
---------
modified from time to time.
39. Limitation of Landlord's Liability. Any liability of Landlord
----------------------------------
(including Landlord's partners, shareholders, affiliates, agents and employees)
under this Lease shall be limited to the equity interest of Landlord in the
Real Property, and Tenant agrees to look solely to such interest for the
recovery of any judgment, it being intended that Landlord shall not be
personally liable for any deficiency or judgment.
40. Entire Agreement. This Lease (which includes the Exhibits and
----------------
Addenda attached hereto) constitutes the entire agreement between Landlord and
Tenant with respect to Tenant's lease of the Premises and supersedes any
previous agreements of the parties with regard thereto. Notwithstanding anything
contained in the Lease, there are no oral agreements between Landlord and Tenant
affecting this Lease. There are no representations between Landlord and Tenant
other than those contained in this Lease and all reliance with respect to any
representation is solely upon the representations contained in this Lease.
41. No Merger. The voluntary or other surrender of this Lease by
---------
Tenant, or mutual cancellation thereof, shall not work a merger, and shall, at
the option of Landlord, terminate all or any existing subleases or subtenancies,
or may, at the option of Landlord, operate as an assignment to Landlord of any
or all such subleases or tenancies.
42. Changes to Building or Common Area. The description of the
----------------------------------
premises and the location of any duct work and plumbing within the Premises
shall be subject to such changes as Landlord determines to be necessary or
desirable in the course of the construction of the same, and no such changes
shall invalidate or affect this Lease. Landlord shall have the right at any
time, and from time to time during the term of the Lease, to change the
arrangement, character, use or locations of entrances or passageways, doors and
doorways, corridors, elevators, stairs, landscaping, toilets, or any other parts
of the Building, to change common area to rental space and rental space to
common area, and to change the name, number or designation by which the Building
is commonly known, and none of the foregoing shall be deemed an actual or
constructive eviction of Tenant nor shall entitle Tenant to any reduction of the
rent hereunder or nor shall result in any liability of Landlord to Tenant. Any
diminution or shutting off of the
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light, air or view by any structure which may be erected on land adjacent to the
Building shall in no way affect this Lease or impose any liability on Landlord.
43. No Partnership. It is expressly understood that Landlord does not
--------------
in any way or for any purpose become a partner of Tenant in the conduct of
Tenant's business, or otherwise, or joint venturer or member of a joint
enterprise with Tenant.
44. Exhibits. The exhibits and addenda, if any, attached to the Lease
--------
are incorporated herein by this reference and made a part hereof as if fully set
forth herein.
45. Lease Summary. At such time as all the Lease terms called for in
-------------
the Summary attached hereto have been finally determined in accordance with the
provisions of this Lease, the Summary shall be completed and signed by the
parties and shall thereafter be a final and binding agreement of the parties as
to the terms and conditions set forth therein.
46. Right to Terminate. Landlord shall have the right to terminate
------------------
this Lease at any time provided that all of the following conditions are met:
(i) the purpose of such termination is because Landlord has elected to demolish
the Building, (ii) Landlord has provided Tenant with at least six months' prior
written notice of its intent to terminate the Lease, with the effective date of
such termination either set forth in the notice or with a provision that
Landlord shall provide Tenant with at least sixty (60) days prior written
notice of the effective date of termination, and (iii) Landlord has terminated
or expects to terminate all other leases for space in the Building.
This Lease is executed by Landlord and Tenant as of the date set
forth above.
LANDLORD: PYRAMID INVESTMENT CORPORATION,
a Delaware corporation
By: /s/ MICHAEL LIPPMAN
-----------------------------------
Its:
-----------------------------
By: /s/ JOHN STRAIN
-----------------------------------
Its:
-----------------------------
TENANT: EDUCATION INDUSTRIAL SYSTEMS, INC.,
a California corporation
----------
By: /s/ FRANK DIGIROLAMO
-----------------------------------
Its:
-----------------------------
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EXHIBIT A
(Attach floor plan indicating premises)
21
<PAGE>
EXHIBIT B
Landlord shall, at its sole cost and expense, furnish and install the
Premises with building standard tenant improvements, utilizing building standard
finishes and materials. Within ten (10) days after the date of this Lease,
Landlord and Tenant shall agree on a space plan and working drawings (the
"Plans") for the design, layout and construction of Tenant's tenant improvements
(the "Tenant Improvements"). Landlord shall pay for the cost of preparing the
space plan and working drawings. Landlord and Tenant agree to work diligently
and in good faith to complete the Plans within this ten (10) day period.
Once the Plans have been approved in writing by both Landlord and
Tenant, Landlord shall proceed to cause the Tenant Improvements to be built,
using Landlord's general contractor. Landlord shall exercise diligent and
commercially reasonable efforts to cause the build out of the Tenant
Improvements to be undertaken and completed in a prompt manner, subject to force
majeure. Landlord shall provide Tenant with a tenant improvement allowance of
Twenty Thousand Six Hundred Dollars ($20,600) (the "TI Allowance"), to be
applied by Landlord against the cost of constructing the Tenant Improvements as
such Tenant Improvements are being constructed. When the Tenant Improvements are
completed, Landlord shall provide Tenant with a written statement of the total
actual cost of constructing the Tenant Improvements.
If the actual cost of constructing the Tenant Improvements exceeds
$20,600, then Tenant shall reimburse Landlord for the amount of such excess.
Tenant shall reimburse Landlord for such excess within ten (10) days after
receipt of a bill therefor from Landlord and such excess amount shall constitute
Rent under the Lease.
If the actual cost of constructing the Tenant Improvements is less
than $20,600, then Tenant shall be entitled to a credit against Monthly Rent
owing under the Lease in an amount equal to the difference between $20,600 and
the actual cost of constructing the Tenant Improvements; provided, however, that
in no event shall the credit exceed Eight Thousand Four Hundred Eleven and
66/100 Dollars ($8,411.66). Tenant may avail itself of this credit by providing
written notice to Landlord of its desire to use the credit, whereupon Landlord
shall apply the credit against the Monthly Rent next owing until the credit is
fully applied. The credit must be applied by Tenant against the Monthly Rent
owing during the first six months of the Lease term. If Tenant fails to provide
written notice to Landlord of its desire to apply the credit during this six
month period, then the credit shall be forfeited. If Tenant provides written
notice to Landlord of its desire to apply the credit at a date such that the
entire credit will not be fully applied against Monthly Rent owing during the
first six months of the Lease term, then any credit that is not applied by the
end of this six month period shall be forfeited.
22
<PAGE>
EXHIBIT C
BUILDING RULES AND REGULATIONS
1. Sidewalks, halls, passages, exits, entrances, elevators,
escalators and stairways shall not be obstructed by tenants or used by them for
any purpose other than for ingress to and egress from their respective premises.
The halls, passages, exits, entrances, elevators, escalators and stairways are
not for the use of the general public and Landlord shall in all cases retain the
right to control and prevent access thereto by all persons whose presence, in
the judgment of Landlord, shall 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 such tenant's business
unless such persons are engaged in illegal activities.
2. No sign, placard, picture, name, advertisement or notice, visible
from the exterior of leased premises shall be inscribed, painted, affixed or
otherwise displayed by any tenant either on its premises or any part of the
Building without the prior written consent of Landlord, and Landlord shall have
the right to remove any such sign, placard, picture, name, advertisement, or
notice without notice to and at the expense of the tenant.
If Landlord shall have given such consent to any tenant at any time,
whether before or after the execution of the Lease, such consent shall in no way
operate as a waiver or release of any of the provisions hereof or of such
Lease, and shall be deemed to relate only to the particular sign, placard,
picture, name, advertisement or notice so consented to by Landlord and shall not
be construed as dispensing with the necessity of obtaining the specific written
consent of Landlord with respect to any other such sign, placard, picture, name,
advertisement or notice.
No signs will be permitted on any entry door unless the door is glass.
All glass door signs must be approved by Landlord. Signs or lettering shall be
printed, painted, affixed or inscribed at the expense of the tenant by a person
approved by Landlord.
3. The bulletin board or directory of the Building will be provided
exclusively for the display of the name and location of tenants only and
Landlord reserves the right to exclude any other names therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or
other coverings, hangings or decorations shall be attached to, hung or placed
in, or Used in connection with, any window on any premises without the prior
written consent of Landlord. In any event, with the prior written consent of
Landlord, all such items shall be installed inside of Landlord's standard
draperies and shall in no way be visible from the exterior of the Building. No
articles shall be placed or kept on the window sills so as to be visible from
the exterior of the Building.
23
<PAGE>
5. Landlord reserves the right to exclude from the Building between
the hours of 6 P.M. and 7 A.M. and at all hours on Saturdays, Sundays and
holidays all persons who do not present a pass to the Building signed by
Landlord. Landlord will furnish passes to persons for whom any tenant requests
the same in writing. Each tenant shall be responsible for all persons for whom
it requests passes and shall be liable to Landlord for all acts of such persons.
Landlord shall in no case be liable for damages for any error with
regard to the admission to or exclusion from the Building of any person.
During any invasion, mob, riot, public excitement or other
circumstance rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access to the Building by closing the doors, or
otherwise, for the safety of tenants and protection of the Building and property
in the Building.
6. No tenant shall employ any person or persons other than the
janitor of Landlord for the purpose of cleaning the premises unless otherwise
agreed to by Landlord in writing. Except with the written consent of Landlord,
no person or persons other than those approved by Landlord shall be permitted to
enter the Building for the purpose of cleaning the same. No tenant shall cause
any unnecessary labor by reason of such tenant's carelessness or indifference in
the preservation of good order and cleanliness. Landlord shall in no way be
responsible to any tenant for any loss of property on the premises, however
occurring, or for any damage done to the property of any tenant by the janitor
or any other employee or any other person. Janitorial service shall include
ordinary dusting and cleaning by the janitor assigned to such work and shall not
include beating or cleaning of carpets or rugs or moving of furniture or other
special services. Janitorial service will not be furnished on nights when rooms
are occupied after 9:30 p.m. Window cleaning shall be done only by Landlord, and
at such intervals and such hours as Landlord shall deem appropriate.
7. No tenant shall obtain for use upon its premises ice, drinking
water, food, beverage, towel or other similar services, or accept barbering or
bootblacking services in its premises, except from persons authorized by
Landlord, and at hours and under regulations fixed by Landlord.
8. Each tenant shall see that the doors of its premises are closed
and securely locked and must observe strict care and caution that all water
faucets or water apparatus are entirely shutoff before the tenant or its
employees leave such premises, and that all utilities shall likewise be
carefully shut off, so as to prevent waste or damage, and for any default or
carelessness the Tenant shall make good all injuries sustained by other tenants
or occupants of the Building or Landlord. On multiple-tenancy floors all tenants
shall keep the door or doors to the Building corridors closed at all times
except for ingress and egress.
24
<PAGE>
9. No tenant shall alter any lock or install a new or additional
lock or any bolt on any door of its premises without the prior written consent
of Landlord. If Landlord shall give its consent, the tenant shall in each case
furnish Landlord with a key for any such lock.
10. Each tenant, upon the termination of the tenancy, shall deliver
to Landlord all the keys of or to the Building, offices, rooms and toilet rooms
which shall have been furnished to the Tenant or which the Tenant shall have had
made. In the event of the loss of any keys so furnished by Landlord, Tenant
shall pay Landlord therefor.
11. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they were
constructed and no foreign substance of any kind whatsoever shall be thrown
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 employees or
invitees, shall have caused it.
12. No tenant shall use or keep in its premises or the Building any
kerosene, gasoline or inflammable or combustible fluid or material or use any
method of heating or air conditioning other than that supplied by Landlord.
13. No tenant shall use, keep or permit to be used or kept in its
premises any foul or noxious gas or substance or permit or suffer such premises
to be occupied or used in a manner offensive or objectionable to Landlord 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 animals or birds be brought or kept in or about any premises or the
Building.
14. No cooking shall be done or permitted by any tenant on its
premises, except that the preparation of coffee, tea, hot chocolate and similar
items for tenants and their employees shall be permitted, nor shall such
premises be used for lodging.
15. Except with the prior written consent of Landlord, no tenant
shall sell, or permit the sale, at retail of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on any premises, nor
shall any tenant carry on, or permit or allow any employee or other person to
carry on, the business of stenography, typewriting or any similar business in or
from any premises for the service or accommodation of occupants of any other
portion of the Building, nor shall the premises of any tenant be used for the
storage of merchandise or for manufacturing of any kind, or the business of a
public barber shop, beauty parlor, or any business or activity other than that
specifically provided for in such tenant's lease.
16. Landlord will direct electricians as to where and how telephone,
telegraph and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of Landlord.
The location of telephones, call boxes
25
<PAGE>
and other office equipment affixed to all premises shall be subject to the
written approval of Landlord. All electrical appliances must be grounded and
must meet UL Label Standards.
17. No tenant shall install any radio or television antenna,
loudspeaker or any other device on the exterior walls of the Building.
18. No tenant shall lay linoleum, tile, carpet or any other floor
covering so that the same shall be affixed to the floor of its premises in any
manner except as approved in writing by Landlord. The expense of repairing any
damage resulting from a violation of this rule or the removal of any floor
covering shall be borne by the tenant by whom, or by whose contractors,
employees or invitees, the damage shall have been caused.
19. Asbestos-containing material ("ACM") is present in the Building
as more particularly described in the special rules and regulations which
Landlord has established regarding the ACM in the Building, the "Transamerica
Asbestos Rules for Tenants at 545 Sansome", which rules and regulations are
attached hereto as Attachment A and are incorporated herein by this reference.
20. No furniture, freight, equipment, packages or merchandise will be
received in the Building or carried up or down the elevators, except between
such hours and in such elevators as shall be designated by Landlord. Landlord
shall have the right to prescribe the weight, size, and position of all safes
and other heavy equipment brought into the Building. Safes or other heavy
objects shall, if considered necessary by Landlord, stand on wood strips of such
thickness as is necessary to properly distribute the weight thereof. Landlord
will not be responsible for loss of or damage to any such safe or property from
any cause, and all damage done to the Building by moving or maintaining any such
safe or other property shall be repaired at the expense of the Tenant.
21. No tenant shall overload the floor of its premises or mark, or
drive nails, screw or drill into, the partitions, woodwork or plaster or in any
way deface such premises or any part thereof.
22. There shall not be used in any space, or in the public areas of
the Building, either by any tenant or others, any hand trucks except those
equipped with rubber tires and side guards. No other vehicles of any kind shall
be brought by any tenant into or kept in or about any premises in the Building.
23. Each tenant shall store all its trash and garbage within the
interior of its premises. No material shall be placed in the trash boxes or
receptacles if such material is of such nature that it may not be disposed of in
the ordinary and customary manner of removing and disposing of trash and garbage
in the City of San Francisco without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
26
<PAGE>
through entryways and elevators provided for such purposes and at such times as
Landlord shall designate.
24. Canvassing, soliciting, and peddling in the Building are
prohibited and each tenant shall cooperate to prevent the same.
25. Landlord shall have the right, exercisable without notice and
without liability to any tenant, to change the name and address of the Building.
26. The requirements of tenants will be attended to only upon
application at the office of the Building. Employees of Landlord shall not
perform any work or do anything outside of their regular duties unless under
special instructions from Landlord, and no employee will admit any person
(tenant or otherwise) to any office without specific instructions from Landlord.
27. Landlord may waive any one or more of these Rules and Regulations
for the benefit of any particular tenant or tenants, but no such waiver by
Landlord shall be construed as a waiver of such Rules and Regulations in favor
of any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all tenants of the Building.
28. These Rules and Regulations may be changed from time to time and
are in addition to, and shall not be construed to in any way modify, alter or
amend, in whole or in part, the terms, covenants and conditions of the Lease.
Notwithstanding Rule #14 above, Tenant shall be entitled to operate a
restaurant in the Premises subject to all of the terms and conditions of the
Lease.
27
<PAGE>
ATTACHMENT "A" TO THE BUILDING RULES AND REGULATIONS
TRANSAMERICA ASBESTOS RULES FOR TENANTS OF 545 SANSOME STREET
Asbestos containing material ("ACM") is present in the building at 545
Sansome Street (the "Building") as thermal pipe insulation throughout the
building; boiler insulation in the basement boiler room; 9" x 9" and 12" x 12"
vinyl asbestos floor tile; joint compounds on partitions; and in roof tar and
felt. Also, the cores of fire-rated doors and all vinyl floor tile in the
Building should be treated as containing ACM until you are notified to the
contrary.
UNDER THE ASBESTOS MANAGEMENT PLAN, EACH TENANT IN THE BUILDING, OR
ANY PERSON (INCLUDING A CONTRACTOR) ACTING ON A TENANT'S BEHALF, IS REQUIRED:
1. To obtain WRITTEN PERMISSION from Building Management's asbestos
site manager ("Site Manager") before the tenant, or any person acting on such
tenant's behalf, performs ANY construction, renovation, maintenance, repair,
alteration, addition, modification, improvement or like work or to the premises
leased.
2. To obtain a WORK PERMIT from the Site Manager before the tenant,
or any person acting on such tenant's behalf, engages in (a) any work requiring
the moving or disturbance of thermal pipe insulation throughout the building or
boiler insulation in the basement boiler room, (b) any work which will penetrate
the sheetrock on exterior walls, demising walls or columns or roof tar and felt,
(c) any work on Building floors that involves disturbance of floor tiles or
penetration of the floor slab, (d) any other work which could disturb ACM in the
Building, or (e) such other work as the Site Manager may designate from time to
time. The work permit shall serve as that written permission required by
paragraph 1, but only for work requiring a work permit.
3. To request permission from the Site Manager to do the work, and
to describe the scope of the work and the name of the contractor(s), if any, who
will perform the work. The Site Manager shall then determine, based upon the
nature and scope of the work described by the tenant, or a person acting on such
tenant's behalf, whether the work requires a work permit. In the case of all
work requiring a work permit, the Site Manager shall also determine whether such
work also requires the use of the Noncontainment or Containment Procedures
prepared by Building Management and shall determine whether it is appropriate
for the tenant or the tenant's contractor(s) to perform the work.
4. To strictly comply with all work permit requirements and
procedures supplied by the Site Manager as well as all directions given by the
Site Manager.
5. To immediately report to the Site Manager any and all spills or
other releases of ACM (including the presence of any debris which may contain
asbestos) which the
28
<PAGE>
tenant, or any person acting on such tenant's behalf, observes or suspects, so
that Building Management can respond as appropriate.
Under no circumstances, shall any tenant, or any person acting on such
tenant's behalf, engage in work involving the disturbance (in any fashion) of
any wall or floor in the leased premises, including the removal of any item or
fixture from any wall or floor in the leased premises, until and unless written
permission is obtained from the Site Manager.
No tenant, or any person acting on a tenant's behalf, shall touch or
disturb the ACM in the Building, including any debris suspected of containing
asbestos, except as specifically authorized in writing by the Site Manager on a
case-by-case basis.
29
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EXHIBIT 10.30
THIS LEASE IS SUBJECT TO THE SURRENDER AND VACATION OF THE PREMISES BY THE
EXISTING TENANT.
STANDARD INDUSTRIAL LEASE - GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. PARTIES.
This Lease, dated, for reference purposes only, August 14, 1996, is
made by and between OLEN PROPERTIES CORP., A FLORIDA CORPORATION (herein called
"Lessor") and EDUCATIONAL INDUSTRIAL SALES INCORPORATED, A CALIFORNIA
CORPORATION (herein called "Lessee").
2. PREMISES. 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, that
certain real property situated in the County of Orange, State of California
commonly known as 2817 McGaw, Irvine, CA 92614 and described as a portion of a
free-standing building.
Said real property including the land and all improvements therein, is herein
called "the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for Three (3) years commencing
on Upon Lessor's notice to Lessee and ending on Three (3) years after
Commencement Date.* that Tenant improvements are complete.* unless sooner
terminated pursuant to any provision hereof. *(See Addendum A, Item E for Start
Date Amendment.)
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, 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 until possession of the Premises is tendered to Lessee; provided,
however, that if Lessor shall not have delivered possession of the Premises
within sixty (60) days from said commencement date. 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 further, however, that if such written notice of 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.
3.3 EARLY POSSESSION. If Lessee occupies the Premises prior to said
commencement date, such occupancy shall be subject to all provisions hereof,
such occupancy shall not advance the termination date, and Lessee shall pay rent
for such period at the initial monthly rates set forth below.
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4. RENT.
Lessee shall pay to Lessor as rent for the Premises, monthly payments
of $4,862.00, in advance, on the first day of each month of the term hereof.
Lessee shall pay Lessor upon the execution hereof $9,724.00 as rent for the
first month plus a Security Deposit equal to one month's rent pursuant to
Article 5 herein.
Rent for any period during the term hereof which is for less than one month
shall be a pro rata portion of the monthly installment. 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.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
$4,862.00 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,
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 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 hereinabove stated and Lessee's failure
to do so shall be a material breach of this Lease. If the monthly rent shall,
from time to time, increase during the term of this Lease, Lessee shall
thereupon deposit with Lessor additional security deposit so that the amount of
security deposit held by Lessor shall at all times bear the same proportion to
current rent as the original security deposit bears to the original monthly rent
set forth in paragraph 4 hereof. Lessor shall not be required to keep said
deposit separate from its general accounts. If Lessee performs all of Lessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
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.
NOTE: SECURITY DEPOSIT SHALL NOT BE APPLIED TOWARD THE LAST MONTH'S RENT.
6. USE.
6.1 USE. The Premises shall be used and occupied only for: office and
warehousing for educational sales company as approved by the City of Irvine or
any other use which is reasonably comparable and for no other purpose.
6.2 COMPLIANCE WITH LAW.
(a) Lessor warrants to Lessee that the Premises, in its state
existing on the date that the Lease term commences, but without regard to the
use for which Lessee will use the
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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. In the event Lessee does not give to Lessor written notice of the
violation of this warranty within six months from the date that the Lease term
commences, the correction of same shall be the obligation of the Lessee at
Lessee's sole cost. The warranty contained in this paragraph 6.2(a) shall be of
no force or effect if, prior to the date of this Lease, Lessee was the owner or
occupant of the Premises, and, in such event, Lessee shall correct any such
violation at Lessee's sole cost.
(b) Except as provided in paragraph 6.2(a), Lessee shall, at Lessee's
expense, comply promptly with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements in
effect during the term or any part of the term hereof, regulating the use by
Lessee of the Premises. Lessee shall not use nor permit the use of the Premises
in any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant in the building containing the Premises, shall tend to
disturb such other tenants.
6.3 CONDITION OF PREMISES.
(a) Lessor shall deliver the Premises to Lessee clean and free of
debris on Lease commencement date (unless Lessee is already in possession) and
Lessor further warrants to Lessee that the plumbing, lighting, air conditioning,
heating, and loading doors in the Premises shall be in good operating condition
on the Lease commencement date. 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.
Lessee's failure to give such written notice to Lessor within thirty (30) days
after the Lease commencement date shall cause the conclusive presumption that
Lessor has complied with all of Lessor's obligations hereunder. The warranty
contained in this paragraph 6.3(a) shall be of no force or effect if prior to
the date of this Lease, Lessee was the owner or occupant of the Premises.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises 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
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 neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 6, 7,
2, and 9 and except for damage caused by any negligent or intentional act or
omission of Lessee, Lessee's agents, employees, or invitees in which event
Lessee shall repair the damage, Lessor, at Lessor's
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expense, shall keep in good order, condition and repair the foundations,
exterior walls and the exterior roof of the Premises. Lessor shall not, however,
be obligated to paint such exterior, nor shall Lessor be required to maintain
the interior surface of exterior walls, windows, doors or plate glass. Lessor
shall have no obligation to make repairs under this Paragraph 7.1 until a
reasonable time after receipt of written notice of the need for such repairs.
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) Subject to the provisions of Paragraphs 6, 7, 1 and 9, Lessee, at
Lessee's expense, shall keep in good order, condition and repair the Premises
and every part thereof (whether or not the damaged portion of the Premises or
the means of repairing the same are reasonably or readily accessible to Lessee)
including, without limiting the generality of the foregoing, all plumbing,
heating, air conditioning. (Lessee shall procure and maintain at Lessee's
expense, an air conditioning system maintenance contract) ventilating,
electrical and lighting facilities and equipment within the Premises, fixtures,
interior walls and interior surface of exterior walls, ceilings, windows, doors,
plate glass, and skylights, located within the Premises, and all landscaping
driveways, parking lots, fences and signs located in the Premises and all
sidewalks and parkways adjacent to the Premises. Lessee expressly waives the
benefit of any statute now or hereinafter 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.
(b) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.2 or under any other paragraph of this Lease, Lessor may at Lessor's
option enter upon the Premises after 10 days prior written notice to Lessee
(except in the case of emergency, in which case no notice shall be required),
perform such obligations on Lessee's behalf and put the Premises in good order,
condition and repair, and the cost thereof together with interest thereon at the
maximum rate than allowable by law shall be due and payable as additional rent
to Lessor together with Lessee's next rental installment.
(c) 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. Lessee shall repair
any damage to the Premises occasioned by the installation or removal of its
trade fixtures, furnishing s and equipment. Notwithstanding anything to the
contrary otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, space heaters,
air conditioning, plumbing and fencing on the premises in good operating
condition.
7.3. ALTERATIONS AND ADDITIONS.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, or Utility Installations in, on or about
the Premises, except for nonstructural alterations not exceeding $2,500 in
cumulative costs during the term of this
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Lease. In any event, whether or not in excess of $2,500 in cumulative cost,
Lessee shall make no change or alterationto the exterior of the Premises nor the
exterior of the building(s) on the Premises without Lessor's prior written
consent. As used in this Paragraph 7.3 the term "Utility Installation" shall
mean carpeting, window coverings, air lines, power panels, electrical
distribution systems, lighting fixtures, space heaters, air conditioning,
plumbing, and fencing. Lessor may require that Lessee remove any or all of said
alterations, improvements, additions or Utility Installations at the expiration
of the term, and restore the Premises to their prior condition. 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, Lessor may require that Lessee remove any or all of the
same.
(b) Any alterations, improvements, additions or Utility Installations
in, or about the Premises that Lessee shall desire to make and which requires
the consent of the Lessor shall be presented to Lessor in written form, with
proposed detailed plans. If Lessor shall give its consent, the consent shall be
deemed conditioned upon Lessee acquiring a permit to do so from appropriate
governmental agencies, the furnishing of a copy thereof to Lessor prior to the
commencement of the work and the compliance by Lessee of 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 mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of non-
responsibility in or on the Premises as provided by Law. If Lessee shall, in
good faith, contest the validity of any such lien, claim or demand, then Lessee
shall, at its sole expense defend 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, upon the condition
that if Lessor shall require, Lessee shall furnish to Lessor a surely bond
satisfactory to Lessor in an amount equal to such contested lien claim or demand
indemnifying Lessor against liability for the same and holding the Premises free
from the effect of such lien or claim. In addition, Lessor may require Lessee
to pay Lessor's attorneys fees and costs in participating in such action if
Lessor shall decide it is to its best interest to do so.
(d) Unless Lessor requires their removal, as set forth in Paragraph
7.3(a), all alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made on the Premises, shall become the property of Lessor and
remain upon and be surrendered with the Premises at the expiration of the term.
Notwithstanding the provisions of this Paragraph 7.3(d), Lessee's machinery and
equipment, other than that which is affixed to the Premises so that it cannot be
removed without material damage to the Premises, shall remain the property of
Lessee and may be removed by Lessee subject to the provisions of Paragraph
7.2(c).
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8. ASSURANCE; INDEMNITY.
8.1 LIABILITY INSURANCE - LESSEE. Lessee shall, at Lessee's expense,
obtain and keep in force during the term of this Lease a policy of Combined
Single Limit Bodily Injury and Property Damage Insurance insuring Lessee and
Lessor against any liability arising out of the use, occupancy or maintenance of
the Premises and all other areas appurtenant thereto. Such insurance shall be
in an amount not less than $1,000,000 per occurrence. The policy shall insure
performance by Lessee of the indemnity provisions of this Paragraph 8. The
limits of said insurance 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 Property Damage Insurance, insuring Lessor, but not Lessee, against any
liability arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto in an amount not less than $1,000,000
per occurrence.
8.3 PROPERTY INSURANCE. 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 Premises, but not Lessee's fixtures, equipment or tenant improvements in an
amount not to exceed the full replacement value thereof, as the same may exist
from time to time, providing protection against all perils included within the
classification of fire, extended coverage, vandalism, malicious mischief, flood
(in the event same is required by a lender having a lien on the Premises)
special extended perils ("all risk", as such term is used in the insurance
industry) but not plate glass insurance. In addition, the 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 real estate taxes and insurance costs for said
period.
8.4 PAYMENT OF PREMIUM INCREASE.
(a) Lessee shall pay to Lessor, during the term hereof, in addition
to the rent, the amount of any increase in premiums for the insurance required
under Paragraphs 8.2 and 8.3 over and above such premiums paid during the Base
Period, as hereinafter defined, whether such premium increase shall be the
result of the nature of Lessee's occupancy, any act or omission of Lessee,
requirements of the holder of a mortgage or deed of trust covering the Premises,
increased valuation of the Premises, or general rate increases. In the event
that the Premises have been occupied previously, the words "Base Period" shall
mean the last twelve months of the prior occupancy. In the event that the
Premises have never been previously occupied, the premiums during the "Base
Period" shall be deemed to be the lowest premiums reasonably obtainable for said
insurance assuming the most nominal use of the Premises. Provided, however, in
lieu of the Base Period, the parties may insert a dollar amount of the end of
this sentence which figure shall be considered as the insurance premium for the
Base Period: 1996 Base Year Budget. In no event, however, shall Lessee be
responsible for any portion of the premium cost attributable to liability
insurance coverage in excess of $1,000,000 procured under paragraph 8.2.
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(b) Lessee shall pay any such premium increases to Lessor within 30
days after receipt by Lessee of a copy of the premium statement or other
satisfactory evidence of the amount due. If the insurance policies maintained
hereunder cover other improvements in addition to the Premises, Lessor shall
also deliver to the Lessee a statement of the amount of such increase
attributable to the Premises and showing in reasonable detail, the manner in
which such amount was computed. If the term of this Lease shall not expire
concurrently with the expiration of the period covered by such insurance,
Lessee's liability for premium increases shall be prorated on an annual basis.
(c) If the Premises are part of a larger building, then Lessee shall
not be responsible for paying any increase in the property insurance premium
caused by the acts or omissions of any other tenant of the building of which the
Premises are a part.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies holding a "General Policyholders Rating" of at least B plus, or such
other rating as may be required by a lender having a lien on the Premises, as
set forth in the most current issue of "Best Insurance Guide." Lessee shall
deliver to Lessor copies of policies of liability insurance required under
Paragraph 8.1 or certificates evidencing the existence and amounts of such
insurance. 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 or "binders" thereof,
or Lessor may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable by Lessee upon demand. Lessee shall not do or permit to
be done anything which shall invalidate the insurance policies referred to in
Paragraph 8.3.
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 lost or damage arising out of or incident to the perils insured against
under paragraphs 8.3 which perils occur in, on or about the Premises, whether
due to the negligence of Lessor or Lessee or their agents, employees,
contractors and/or invitees. Lessee and Lessor shall, upon obtaining the
policies of insurance required hereunder, give notice to the insurance carrier
or carriers that the foregoing mutual waiver of subrogations is contained in
this Lease.
8.7 INDEMNITY. Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the Premises, 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
arising from 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
negligence of the Lessee, or any of Lessee's agents, contractors, or employees,
and from and against all costs, attorney's fees, expenses and liabilities
incurred in the defense of any such claim or any action or proceeding brought
thereon, and in case any action or proceeding be brought against Lessor by
reason of any such claim, Lessee upon notice from Lessor shall defend the same
at Lessee's expense by counsel satisfactory to Lessor. Lessee, as a material
part of the consideration to Lessor, hereby assumes all risk of damage to
property or injury to persons in, upon or about the
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Premises 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 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, 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 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 the said damage or injury results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places and regardless of whether the cause
of such damage or injury or the means of repairing the same is inaccessible to
Lessee. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OF DESTRUCTION.
9.1 DEFINITIONS.
(a) "Premises Partial Damage" shall herein mean damage or destruction
to the Premises to the extent that the cost of repair is less than 50% of the
fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Partial Damage" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is less than 50% of the fair market value of such building as
a whole immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall herein mean damage or
destruction to the Premises to the extent that the cost of repair is 50% or more
of the fair market value of the Premises immediately prior to such damage or
destruction. "Premises Building Total Destruction" shall herein mean damage or
destruction to the building of which the Premises are a part to the extent that
the cost of repair is 50% or more of the fair market value of such building as a
whole immediately prior to such damage or destruction.
(c) "Insured Loss" shall herein mean damage or destruction which was
caused by an event required to be covered by the insurance described in
paragraph 8.
9.2. PARTIAL DAMAGE -- INSURED LOSS. Subject to the provisions of
paragraphs 9.4, 9.5 and 9.6, if at any time during the term of this Lease there
is damage which is an Insured Loss and which falls into the classification of
Premises Partial Damage or Premises Building Partial Damage, then Lessor shall,
at Lessor's sole cost, repair such damage, but not Lessee's fixtures, equipment
or tenant improvements, as soon as reasonably possible and its Lease shall
continue in full force and effect.
9.3. PARTIAL DAMAGE -- UNINSURED LOSS. Subject to the provisions of
Paragraphs
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9.4, 9.5 and 9.6, 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 Partial Damage or Premises Building Partial Damage, unless cause by a
negligent or willful act of Lessee (in which event Lessee shall make the repairs
at Lessee's expense). 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 the event Lessor elects to give such notice of
Lessor's intention to cancel and terminate this Lease, Lessee shall have the
right within ten (10) days after the receipt of such notice to give written
notice to Lessor of Lessee's intention to repair such damage at Lessee's
expense, without reimbursement from Lessor, in which event this Lease shall
continue in full force and effect, and Lessee shall proceed to make such repairs
as soon as reasonably possible. If Lessee does not give such notice within such
10-day period this Lease shall be cancelled and terminated as of the date of the
occurrence of such damage.
9.4. TOTAL DESTRUCTION. If at any time during the term of this Lease
there is damage, whether or not an Insured Loss, (including destruction required
by any authorized public authority), which falls into the classification of
Premises Total Destruction or Premises Building Total Destruction, this Lease
shall automatically terminate as of the date of such total destruction.
9.5. DAMAGE NEAR END OF TERM.
(a) If at any time during the last six months of the term of this
Lease there is damage, whether or not an Insured Loss, which falls within the
classification of Premises Partial Damage, 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 9.5(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 20 days after the occurrence of an Insured
Loss falling within the classification of Premises Partial Damage during the
last six months of the term of this Lease. If Lessee duly exercises such option
during said 20 day period, Lessor shall, at Lessor's expense, repair such damage
as soon as reasonably possible and this Lease shall continue in full force and
effect. If Lessee fails to exercise such option during said 20 day period, then
Lessor may at Lessor's option terminate and cancel this Lease as of the
expiration of said 20 day period by giving written notice to Lessee of Lessor's
election to do so within 10 days after the expiration of said 20 day period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6. ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraphs 9.2 or 9.3, and
Lessor or Lessee repairs or restores the Premises pursuant to the provisions of
this Paragraph 9, the rent payable hereunder for the period during which such
damage, repair or restoration continues shall
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be abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement or 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
under the provisions of this Paragraph 9 and shall not commence such repair or
restoration within 90 days after such obligations shall accrue, 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 of such
repair or restoration. In such event this Lease shall terminate as of the date
of such notice.
9.7. 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.
9.8 WAIVER. Lessor and Lessee waive the provisions of any statutes 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 TAX INCREASE. Lessor shall pay the real property tax, as
defined in paragraph 10.3, applicable to the Premises; provided, however, that
Lessee shall pay, in addition to rent, the amount, if any, by which real
property taxes applicable to the Premises increase over the fiscal real estate
tax year 1996 1997. Such payment shall be made by Lessee within thirty (30)
days after receipt of Lessor's written statement setting forth the amount of
such increase and the computation thereof. If the term of this Lease shall not
expire concurrently with the expiration of the tax fiscal year, Lessee's
liability for increased taxes for the last partial lease year shall be prorated
on an annual basis.
10.2. ADDITIONAL IMPROVEMENTS. Notwithstanding paragraph 10.1 hereof,
Lessee shall pay to Lessor upon demand therefor 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 Premises by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage or other improvement
district thereof, as against any legal or equitable interest of Lessor in the
Premises or in the real property of which the Premises are a part, as against
Lessor's right to rent or other income therefrom, and as against Lessor's
business of leasing the Premises. The term "real property tax" shall also
include any tax, fee, levy, assessment or charge (i) in substitution of,
partially or
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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 transfer, either partial or total, or Lessor's interest in the
Premises or which is added to a tax or charge hereinabove included within the
definition of real property tax by reason of such transfer, or (v) which is
imposed by reason of this transaction, any modifications or changes hereto, or
any transfers hereof.
10.4. JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessees liability shall be an equitable proportion of the real property taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. 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. When possible,
Lessee shall cause said trade fixtures, furnishings, equipment and all other
personal property to be assessed and billed separately from the real property of
Lessor.
(b) If any of Lessee's paid personal property shall be assessed with
Lessor's real property, Lessee shall pay Lessor the taxes attributable to Lessee
within 10 days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone and other utilities and services supplied to the Premises, together
with any taxes thereon. If any such services are not separately metered to
Lessee, Lessee shall pay a reasonable proportion to be determined by Lessor of
all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1. LESSOR'S CONSENT REQUIRED. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all of any part of Lessee's interest in this 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 breach of
this Lease.
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
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entity which acquires all the assets of Lessee as a going concern of the
business that is being conducted on the Premises, provided that said assignee
assumes, in full, the obligations of Lessee under this Lease. 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. NO RELEASE OF LESSEE. Regardless of Lessor's consent, no subletting
or assignment shall release Lessee of Lessee's obligation or alter the primary
liability of Lessee to pay the rent and to perform all other obligations to be
performed by Lessee hereunder. The acceptance of rent by Lessor from any other
person shall not be deemed to be a waiver by Lessor of any provision hereof.
Consent to one assignment or subletting shall not be deemed consent to any
subsequent assignment or subletting. In the event of default by any assignee of
Lessee or any successor of Lessee, in the performance of any of the terms
hereof, Lessor may proceed directly against Lessee without the necessity of
exhausting remedies against said assignee. Lessor may consent to subsequent
assignments or subletting of this Lease or amendments or modifications to this
Lease with assignees of Lessee, without notifying Lessee, or any successor of
Lessee, and without obtaining its or their consent thereto and such action shall
not relieve Lessee of liability under this Lease.
12.4. ATTORNEY'S FEES. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting of if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable attorneys fees incurred in connection
therewith, such attorneys fees not to exceed $350.00 for each such request.
13. DEFAULTS; REMEDIES.
13.1. DEFAULTS. The occurrence of any one ore more of the following
events shall constitute a material default and breach of this Lease by Lessee:
(a) The vacating or abandonment of the Premises by Lessee.
(b) 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 of three days after written notice thereof
from Lessor to Lessee. In the event that Lessor serves Lessee with a Notice to
Pay Rent or Quite pursuant to applicable Unlawful Detainers statutes such Notice
to Pay Rent or Quit shall also constitute the notice required by this
subparagraph.
(c) 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 described in paragraph (b) above, where such failure shall
continue for a period of 30 days after written notice hereof from Lessor to
Lessee; provided, however, that if the nature of Lessee's default is such that
more than 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 30-day period
and
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thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Lessee of any general arrangement or
assignment for the benefit of creditors, (ii) Lessee becomes a "debtor" as
defined in 11 U.S.C. (S) 101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within 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 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 30 days.
Provided, however, in the event that any provision of this paragraph 13.1(d) is
contrary to any applicable law, such provision shall be of no force or effect.
(e) The discovery by Lessor that any financial statement given to
Lessor by Lessee, any assignee of Lessee, any subtenant of Lessee, any successor
in interest of Lessee or any guarantor of Lessee's obligation hereunder, and any
of them, was materially false.
13.2. REMEDIES. In the event of any such material default or breach 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 or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease 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 attorney's 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 abandoned the
Premises. In such event Lessor 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
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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 obligations
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 prosecutes the same to completion.
13.4. LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Lessor by the terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sue due from Lessee shall
not be received by Lessor or Lessor's designee within ten (10) 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 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default with respect to such overdue amount, nor prevent Lessor from
exercising any of the other rights and remedies granted hereunder. In the event
that a late charge is payable hereunder, whether or not collected, for three (3)
consecutive installments of rent, then rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding paragraph 4
or any other provision of this Lease to the contrary.
13.5. IMPOUNDS. In the event that a late charge is payable hereunder,
whether or not collected for three (3) installments of rent or any other
monetary obligation of Lessee under the terms of this Lease, Lessee shall pay to
Lessor, if Lessor shall so request, in addition to any other payments required
under this Lease, a monthly advance installment, payable at the same time as the
monthly rent, as estimated by Lessor, for real property tax and insurance
expenses on the Premises which are payable by Lessee under the terms of this
Lease. Such fund shall be established to insure payment due, before deliquency,
of any or all such real property taxes and insured premiums. If the amounts
paid to Lessor by Lessee under the provisions of this paragraph are insufficient
to discharge the obligations of Lessee to pay such real property taxes and
insurance premiums as the same become due, Lessee shall pay to Lessor, upon
Lessor's demand, such additional sums necessary to pay such obligations. All
moneys paid to Lessor under this paragraph may be intermingled with other moneys
of Lessor and shall not bear interest. In the event of a default in the
obligations of Lessee to perform under this Lease, then any balance remaining
from funds paid to Lessor under the provisions of this paragraph may, at the
option of Lessor, be applied to the payment of any monetary default of Lessee in
lieu of being applied to the payment of real property tax and insurance
premiums.
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14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain, or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than 10% of the floor area of the
building on the Premises, or more than 25% of the land area of the Premises
which is not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing only within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall have
taken possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in accordance
with the foregoing, this Lease shall remain in full force and effect as to the
portion of the Premises remaining, except that the rent shall be reduced in the
proportion that the floor area of the building taken bears to the total floor
area of the building situated on the Premises. No reduction of rent shall occur
if the only area taken is that which does not have a building located thereon.
Any award for the taking of all or any part of the Premises under the power of
eminent domain or any payment made under threat of the exercise of such power
shall be the property of Lessor, whether such award shall be made as
compensation for diminution in value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any award for loss of or damage to Lessee's trade fixtures and removable
personal property. 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) Upon execution of this Lease by both parties. Lessor shall pay
to NA Licensed real estate broker(s), 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 $ per
---
agreement, for brokerage services rendered by said broker(s) to Lessor in this
transaction.
(b) Lessor further agrees that if Lessee exercised any Option as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, Lessor shall pay said broker(s) a fee in accordance with the schedule or
said broker(s) in effect at the time of execution of this Lease.
(c) Lessor agrees to pay said fee not only on behalf of any person,
corporation, association, or other entity having an ownership interest in said
real property or any party 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. Said broker shall be a third party
beneficiary of the provisions of this Paragraph 15.
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16. ESTOPPEL CERTIFICATE.
(a) Lessee shall at any time upon not less than (10) days' prior
written notice from Lessor execute, acknowledge and deliver to Lessor a
statement in writing (i) certifying that this Lease is unmodified and in full
force and effect (or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect) and the
date to which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to Lessee's knowledge, any uncured defaults on
the part of Lessor hereunder, or specifying such defaults if any are claimed.
Any such statement may be conclusively relied upon by any prospective purchaser
or encumbrancer of the Premises.
(b) At Lessor's option, Lessee's failure to deliver such statement
within such time shall be a material breach of this Lease or shall be conclusive
upon Lessee (i) that this Lease is in full force and effect, without
modification except as may be represented by Lessor, (ii) that there are no
uncured defaults in Lessor's performance, and (iii) that not more than one
month's rent has been paid in advance or such failure may be considered by
Lessor as a default by Lessee under this Lease.
(c) If Lessor desires to finance, refinance, or sell the Premises, 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 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 Premises, 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 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.
21. ADDITIONAL RENT. Any monetary obligations of Lessee to Lessor under the
terms of this Lease 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
agreements 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
employees 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 said Premises 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 except as otherwise
specifically stated in this Lease.
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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 mail, and if given
personally or by mail, shall be deemed sufficiently given if addressed to Lessee
or to Lessor at the address noted below the signature of the respective parties,
as the case may be. 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 or 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 a 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.
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, but all options and rights of
first refusal, 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
wherein the Premises are located.
30. SUBORDINATION.
(a) This Lease, 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 real property of which the Premises are a part
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
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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 prior to the lien of its
mortgage, deed of trust or ground lease, and shall give written notice thereof
to Lessee, this Lease shall be deemed to prior to such mortgage, deed of trust,
or ground lease, whether this Lease is 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 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 10 days after written demand shall constitute a
material default by Lessee hereunder, 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).
31. ATTORNEY'S FEES. If either party or the broker named herein brings an
action to enforce the terms hereof or declare rights hereunder, the prevailing
party in any such action, on trial or appeal, shall be entitled to this
reasonable attorney's fees to be paid by the losing party as fixed by the court.
The provisions of this paragraph shall inure to the benefit of the broker named
herein who seeks to enforce a right hereunder.
32. LESSOR'S ACCESS. Lessor and Lessor's agents shall have the right to enter
the Premises at reasonable times for the purpose of inspecting the same, showing
the same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part as Lessor may deem necessary or desirable.
Lessor may at any time place on or about the Premises 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, all without
rebate of rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises without Lessor's
prior written consent except that Lessee shall have the right, without the prior
permission of Lessor to place ordinary and usual for rent or sublet signs
thereon.
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 paragraph 33 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.
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
Premises.
39. OPTIONS.
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39.1. DEFINITION. As used in this paragraph the word "Options" 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 or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to lease
other property of Lessor; (3) the right or option to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first offer
to purchase the Premises or the right 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 are
personal to Lessee and may not be exercised or be assigned, voluntarily or
involuntarily, by or to any person or entity other than Lessee, provided,
however, the Option may be exercised by or assigned to any Lessee Affiliate as
defined in paragraph 12.2 of this Lease. The Options herein granted to Lessee
are not assignable separate and apart from this Lease.
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.
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(b) or 13.1(c) and continuing until the default
alleged in said notice of default is cured, or (ii) during the period of time
commending on the day after a monetary obligation to Lessor is due from Lessee
and unpaid (without any necessity for notice thereof to Lessee) continuing until
the obligation is paid, or (iii) at any time after an event of default described
in paragraphs 13.1(a), 13.1(d), or 13.1(e) (without any necessity of Lessor to
give notice of such default to Lessee), or (iv) in the event that Lessor has
given to Lessee three or more notices of default under paragraph 13.1(b), where
a late charge becomes payable under paragraph 13.4 for each of such defaults, or
paragraph 13.1(c), whether or not the defaults are cured, during the 12 month
period prior to the time that Lessee intends to exercise the subject Option.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of 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(c) within 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
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completion, or (iii) Lessee commits a default described in paragraph 13.1(a),
13.1(d) or 13.1(e) (without any necessity of Lessor to give notice of such
default to Lessee), or (iv) Lessor gives to Lessee three or more notices of
default under paragraph 13.1(d), where a late charge becomes payable under
paragraph 13.4 for each default, or paragraph 13.1(c), whether or not the
defaults are cured.
40. MULTIPLE TENANT BUILDING. In the event that the Premises are part of a
larger building or group of buildings then Lessee agrees that it will abide by,
keep and observe all reasonable rules and regulations which Lessor may take from
time to time for the management, safety, care, and cleanliness of the building
and grounds, the parking of vehicles and the preservation of good order therein
as well as for the convenience of other occupants and tenants of the building.
The violations of any such rules and regulations shall be deemed a material
breach of this Lease by Lessee.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of Lessee, its agents and
invitees from acts of third parties.
42. EASEMENTS. 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 breach of this Lease.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit for recovery of such sum. If it shall be
adjudged that there was no legal obligation on the part of said party to pay
such sum or any part thereof, said party shall be entitled to recover such sum
or so much thereof as it was not legally required to pay under the provisions of
this Lease.
44. AUTHORITY. If Lessee is a corporation, trust, or general or limited
partnership, each individual executing this Lease on behalf of such entity
represents and warrants the he or she 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.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. ADDENDUM. See Addenda A, B, C, and D and Exhibits A and B.
47. RENT PAYMENTS. Rent payments are due on the first of each month. Please
remit to Olen Properties Corp., 7 Corporate Plaza, Newport Beach, CA 92660.
LESSOR DOES NOT INVOICE ON A MONTHLY BASIS.
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<PAGE>
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.
THE PARTIES HERETO HAVE EXECUTED THIS LEASE AT THE PLACE ON THE DATES
SPECIFIED IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
<TABLE>
<CAPTION>
<S> <C>
OLEN PROPERTIES CORP., A FLORIDA
Executed at Newport Beach CORPORATION
-------------------------------
on By /s/ KATHRYN WADSWORTH
---------------------------------------- -------------------------------------------
Kathryn Wadsworth
Address 7 Corporate Plaza By Vice President, Marketing
----------------------------------- -------------------------------------------
Newport Beach, CA 92660
- -------------------------------------------
Executed at "LESSOR" (Corporate seal)
-------------------------------
EDUCATIONAL INDUSTRIAL SALES
- ------------------------------------------- INCORPORATED, A CALIFORNIA
CORPORATION
- ------------------------------------------- -----------------------------------------------
Address By /s/ DONALD J. ESTERS
------------------------------------ --------------------------------------------
Donald J. Esters, President
By
- ------------------------------------------- --------------------------------------------
"LESSEE" (Corporate seal)
</TABLE>
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<PAGE>
ADDENDUM "A"
TO LEASE DATED: AUGUST 14, 1996
BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION
AS LESSOR; AND: EDUCATIONAL
INDUSTRIAL SALES
INCORPORATED,
A CALIFORNIA
CORPORATION
AS LESSEE
- -------------------------------------------------------------------------------
A. EXTERIOR STORAGE:
----------------
Lessee shall neither store, nor permit to be stored, any goods,
machinery, merchandise, equipment, or any other items whatsoever, on the
Premises, other than wholly within its leased suite or building, without the
prior written consent of the Lessor.
B. PARKING:
-------
Lessee shall be entitled to park in twelve (12) spaces as assigned in
the project parking lot. Lessee agrees to not overburden the parking facilities
and agrees to cooperate with Lessor and other tenants in the use of parking
facilities. Lessee agrees not to park anywhere in the industrial park, except
in its assigned parking spaces designated as such by white parking lines and
bumpers. No over-night parking allowed is allowed; violators will be subject to
towing at owner's expense.
C. SIGN CRITERIA:
-------------
These regulations are established in order to maintain a continuity in
appearance throughout Jamboree Corporate Park and to comply with the City of
Irvine signing ordinances. Conformance with the following sign regulations will
be strictly enforced:
1. GENERAL REQUIREMENTS:
(a) Each tenant shall be allowed one identity sign.
(b) The signs shall be constructed and installed at Lessee's
expense.
(c) No electrical or audible signs shall be permitted.
22
<PAGE>
(d) Except as provided herein, no advertising placards, banners,
pennants, names, insignias, trademarks, or other descriptive material shall be
affixed or maintained upon the glass panes or exterior walls of the building(s).
2. SPECIFICATIONS - Single Tenant Buildings
(a) Tenants shall use three dimensional, plant-on, individual
letters. These letters shall be made of 3" thick, poly-styrened back with a high
impact, styrene letter face.
(b) Type face shall be Lessee's choice.
(c) The maximum area within which the sign and logo can be
installed shall be set at 40 sq. ft. per building. (IN THE EVENT THAT MORE THAN
ONE TENANT OCCUPIES ONE BUILDING, THE SIGN ALLOTMENT FOR THAT BUILDING SHALL BE
DETERMINED ON A PRORATA BASIS). The square footage dimensions shall be
calculated by taking the distance from the first to the last letter, including
all spaces between the letters, for the length, and from the top to the bottom
of the largest letter or logo for the width.
(d) Placement of the sign on the building shall be in the
location and in the manner designated by Lessor. Lessee is to submit a sketch of
the proposed sign to Lessor and the City of Irvine for approval prior to
construction and installation.
3. SPECIFICATION - Multi-tenant Buildings
(a) These signs shall be constructed of vinyl press-on letters.
(b) The dimensions of the sign area, including logo, shall not
exceed 1' x 2'. Individual letters shall not exceed 4" in height.
(c) Letter color shall be white. Lettering style, logo and logo
colors shall be at Lessee's option.
(d) The sign shall be placed on the window to the left of the
front door or on the glass front door, where appropriate.
4. SPECIFICATIONS - Warehouse Mandoor Signs
These signs are to be on a 5" x 18" plexiglass, white in color with
black lettering hot stamped onto the plexiglass front. It is to be attached to
the center of the mandoor with adhesive-backed tape, and the skin of the door is
not to be penetrated.
D. COMMON AREA CHARGES:
-------------------
Lessee acknowledges a portion of its base rent includes Lessee's
prorata share of the 1996 base year common area budget. The budget includes,
but is not limited to Lessor's estimated costs of: landscape maintenance,
parking lot sweeping, maintenance and repair, trash removal, management fees,
utilities which are not separately metered, and all other costs or
23
<PAGE>
expenses incurred by Lessor under this Lease which are not otherwise reimbursed
by tenants of the Project. Should Lessor's common area budget increase in 1996
or thereafter, then Lessee's prorata share of such increases shall be passed on
to Lessee annually beginning January 1, 1997, pursuant to Articles 7.2 and 11 of
this Lease. Should Lessor's common area budget decrease, then Lessor shall
credit the difference to Lessee's next monthly installment of rent. The 1996
monthly common area budget is: $7,896.00. Lessee's prorata share of the project
is: 6.05%.
E. START DATE AMENDMENT:
--------------------
Upon establishing a fixed commencement and termination date for this
Lease, an amendment shall be created defining said dates which will be attached
hereto and will become hereof a part of the terms and conditions of this Lease.
F. HVAC:
----
Should the compressor for the HVAC unit fail during Lessee's lease
term and Lessee produces proof of quarterly maintenance service for said unit,
then Lessor agrees to replace the compressor at Lessor's cost. In this event,
Lessee agrees to contact Lessor and Lessor shall contract for the replacement of
the compressor. Lessor shall not be responsible for the compressor cost if
Lessee contracts to have it replaced before notifying Lessor in writing and
giving Lessor the opportunity to repair same.
24
<PAGE>
ADDENDUM "B"
BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION
AS LESSOR; AND EDUCATIONAL INDUSTRIAL
SALES INCORPORATED
A CALIFORNIA CORPORATION
AS LESSEE
TO LEASE DATED: AUGUST 14, 1996
- --------------------------------------------------------------------------------
1. No sign, placard, picture, advertisement, name or notice shall be
inscribed, displayed or printed or affixed on or to any part of the outside
or inside of the building without the written consent of Lessor first had
and obtained and Lessor shall have the right to remove and destroy any such
sign, placard, picture, advertisement, name or notice without notice to
and at the expense of Lessee.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Lessee by a person approved by
the Lessor.
Lessee shall not place anything or allow anything to be placed near
the glass of any window, door, partition or wall which may appear
unsightly from outside the Premises; provided, however, that the
Lessor may furnish and install a Building standard window covering at
all exterior windows. Lessee shall not without prior written consent
of Lessor cause or otherwise install sunscreen on any window.
2. The sidewalks, halls, passages, exits, entrances, elevators and
stairways, driveways, and parking areas shall not be obstructed by Lessees
or used by them for any purpose other than for ingress and egress from
their respective premises.
3. Lessee shall not alter any lock or install any new or additional locks
or bolts on any doors or windows of the premises, without prior written
consent of Lessor and subsequent delivery of a duplicate key to Lessor.
4. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purpose other than that for which they were constructed and no
foreign substance of
25
<PAGE>
any kind whatsoever shall be thrown therein and the expense of any
breakage, stoppage, or damage resulting from the violation of this rule
shall be borne by the Lessee who, or whose employees or invitees shall have
caused it.
5. Lessee shall not overload the floor of the premises or in any way
deface the premises or any part thereof.
6. Lessee shall not use, keep or permit to be used or kept any foul or
noxious gas or substances in the premises, or permit or suffer the premises
to be occupied or used in a manner offensive or objectionable to the Lessor
or other occupants of the building by reason of noise, odors and/or
vibrations, or interfere in any way with other Lessees or those having
business therein, nor shall any animals or birds be brought in or kept in
or about the premises or the building.
7. No cooking shall be done or permitted by any Lessee on the premises,
nor shall the premises be used for washing clothes, for lodging, or for any
improper, objectionable or immoral purpose.
8. Lessee shall not keep in the premises or the building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method
of heating or air conditioning other than that supplied or approved in
writing by the Lessor.
9. Lessor will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will
be allowed without the consent of the Lessor. The locations of telephones,
call boxes and other office equipment affixed to the premises shall be
subject to the approval of Lessor.
10. Lessor reserves the right to exclude or expel from the building any
person who, in the judgment of lessor, is intoxicated or under the
influence of liquor or drugs, or who shall in any manner do any act in
violation of any of the rules and regulations of the building.
11. Lessee shall not disturb, solicit, or canvass any occupant of the
building and shall cooperate to prevent same.
12. Without the written consent of Lessor, Lessee shall not use the name
of the building in connection with or in promoting or advertising the
business of Lessee except as
26
<PAGE>
LESSEE'S ADDRESS.
13. Lessor shall have the right to control and operate the public portions
of the building, and the public facilities, and heating and air
conditioning, as well as facilities furnished for the common use of the
Lessees, in such manner as it deems best for the benefit of the Lessees
generally.
14. All garbage and refuse shall be placed by Lessee in the containers at
the location prepared by Lessor for refuse collection, in the manner and at
the times and places specified by Lessor. Lessee shall not burn any trash
or garbage of any kind in or about the leased premises or the business
park. All cardboard boxes must be "broken down" prior to being placed in
the trash container. All styrofoam chips must be bagged or other wise
contained prior to placement in the trash container, so as not to
constitute a nuisance. Pallets may not be disposed of in the trash bins or
enclosures. It is the lessee's responsibility to dispose of pallets by
alternative means.
Should any garbage or refuse not be deposited in the manner specified
by Lessor, Lessor may after three (3) hours verbal notice to Lessee,
take whatever action necessary to correct the infracture at Lessee's
expense.
15. No aerial antenna shall be erected on the roof or exterior walls of
the leased premises, or on the grounds, without in each instance, the
written consent of Lessor first being obtained. Any aerial or antenna so
installed without such written consent shall be subject to removal by
Lessor at any time without notice.
16. No loud speakers, televisions, phonographs, radios or other devises
shall be used in a manner so as to be heard or seen outside of the leased
premises or in neighboring space without the prior written consent of
Lessor.
17. The outside areas immediately adjoining the leased premises shall be
kept clean and free from dirt and rubbish by the Lessee, to the
satisfaction of the Lessor, and Lessee shall not place or permit any
obstruction or materials in such areas. No exterior storage shall be
allowed.
18. Lessee shall use at Lessee's cost such pest extermination contractors
as Lessor may direct and at such intervals as Lessor may require.
27
<PAGE>
19. These common types of damages will be changed back to the Lessee if
they are not corrected prior to vacating the premises:
- Keys not returned to Lessor for ALL locks, requiring the service of
a locksmith and rekeying.
- Removal of all decorator painting, wallpapering and paneling, or
Lessor's prior consent to remain.
- Electrical conduit and receptacles on the surface of walls.
- Phone outlets, wiring, or phone equipment added on wall surfaces.
- Security tape/magnetic tape switches for burglar alarm systems
added to windows and door surfaces.
- Penetration of roof membrane in any manner.
- Holes in walls, doors, and ceiling surfaces.
- Addition or change of standard door hardware.
- Painting or gluing of carpet or title on warehouse floors.
- Glass damage.
- Damage to warehouse ceiling insulation.
- Stains or damage to carpeting beyond normal wear-and-tear.
- Damaged, inoperative, or missing electrical, plumbing, or HVAC
equipment.
- Debris and furniture requiring disposal.
- Damaged or missing mini-blinds, draperies, and baseboards.
- Installation of additional improvements without Lessor's prior
written approval or obtainment of required City building permits.
Lessee agrees to comply with all such rules and regulations upon notice from
Lessor. Should Lessee not abide by these Rules and Regulations, Lessor may
serve a three (3) day notice to correct deficiencies. If Lessee has not
corrected deficiencies by the end of the notice period, Lessee will be in
default of lease.
Lessor reserves the right to amend or supplement the foregoing rules and
regulations and to adopt and promulgate additional rules and regulations
applicable to the lease premises. Notice of
28
<PAGE>
such rules and regulations and amendments and supplements thereto, if any, shall
be given to the Lessee.
29
<PAGE>
ADDENDUM "C"
TO LEASE DATED: AUGUST 14, 1996
BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION
AS LESSOR; AND: EDUCATIONAL INDUSTRIAL
SALES INCORPORATED,
A CALIFORNIA CORPORATION
AS LESSEE
ANNUAL RENT ADJUSTMENT
- ----------------------
The minimum annual rent and security deposit set forth in Paragraphs 4 and 5 of
this Lease shall be subject to an upward adjustment at the end of each ONE-(1)
YEAR PERIOD of the lease term, including option periods, if any. The first
adjustment shall take effect beginning with the first of the month following one
(1) year from the commencement date of the Lease. If the commencement date is
the first day of the month, then the adjustment shall take effect one (1) year
thereafter. The new rent for each twelve (12) month period shall be determined
by adding to the annual rental for the previous twelve (12) months a sum equal
to any percentage increase that may occur in the Consumer Price Index (all
items) as published by the United States Department of Labor Bureau of Labor
Statistics for the Los Angeles-Long Beach-Riverside Metropolitan Area (1967-100
Base). If such index is not published for the period for which a rental
adjustment determination is to be based upon, another index generally recognized
as being comparable and authoritative shall be substituted by Lessor. Inasmuch
as the appropriate index numbers may not be available on the date when any such
adjustment is to be effective, the latest index numbers available shall be used
until such time as the appropriate index numbers become available, at which time
the calculation shall then be made as soon as reasonably possible and the rent
payment and security deposit shall be appropriately adjusted so as to include
both the correctly adjusted monthly rent and any additional amount required to
bring such adjusted monthly rent current from the intended adjustment date.
30
<PAGE>
In no event shall said adjustment exceed three percent (3%) per annum.
31
<PAGE>
ADDENDUM "D"
TO LEASE DATED: AUGUST 14, 1996
BY AND BETWEEN: OLEN PROPERTIES CORP.
A FLORIDA CORPORATION
AS LESSOR; AND: EDUCATIONAL INDUSTRIAL
SALES INCORPORATED,
A CALIFORNIA CORPORATION
AS LESSEE
TENANT IMPROVEMENTS:
- -------------------
Lessor shall complete Tenant Improvements using Lessor's standards pursuant to
Exhibit "B" attached hereto as follows:
DEMOLISH AND REMOVE ONE (1) WALL WHERE SHOWN AND PATCH CARPET BY
MOVING LARGE SECTION OF CARPET OVER AND INSERTING PATCH ALONG WALL WHERE
SHOWN;
REMOVE EXISTING DOOR AND DRYWALL UP DOORWAY AS SHOWN;
INSTALL TWO (2) DOORS WHERE SHOWN;
INSTALL 3'X4' WINDOW WHERE SHOWN;
RAISE EXISTING T-BAR CEILING, LIGHTS, AND SUPPLY/RETURN HVAC DUCTS TO
14-FOOT CLEAR HEIGHT IN HATCH-MARKED AREA ONLY;
PAINT ENTIRE PREMISES LESSOR'S STANDARD WHITE;
CLEAN ENTIRE SUIT, INCLUDING ALL FLOOR COVERINGS;
Lessor shall make every reasonable effort to complete the above Tenant
Improvements as soon as reasonably possible after receipt of signed leases and
move-in monies and vacation of Premises by existing Tenant, and estimates said
work to take approximately two to three weeks to complete from date of said
vacation of Premises, but Lessor can make no guaranty of an exact date of
completion.
32
<PAGE>
EXHIBIT 10.31
STANDARD INDUSTRIAL/COMMERCIAL MULT-TENANT LEASE-MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1. PARTIES: This Lease ("Lease"), dated for reference purposes only,
February 23, 1998, is made by and between FORTUNE FIFTY ASSOCIATES, A CALIFORNIA
GENERAL PARTNERSHIP ("LESSOR") and EIS, INC., A CALIFORNIA CORPORATION
("LESSEE") (collectively the "Parties," or individually a "Party").
1.2.(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 10461 Old Placerville Road, #130,
located in the City of unincorporated area, County of Sacramento, State of
California, with zip code 95827, as outlined on Exhibit A attached hereto
("PREMISES"). The "Building" is that certain building containing the Premises
and generally described as (describe briefly the nature of the Building):
Approximately 12,600 square feet of space, including approximately 4,980 square
feet of office space, approximately 4,836 square of HVAC tech space and
approximately 2,784 square feet of warehouse space within the 48,518 rental
square foot building known as Fortune Fifty Centre II. In addition to Lessee's
rights to use and occupy the Premises as hereinafter specified, Lessee shall
have non-exclusive rights to the Common Areas (as defined in Paragraph 2.7
below) as hereinafter specified, but shall not have any rights to the roof,
exterior walls or utility raceways of the Building or to any other buildings in
the Industrial Center. The Premises, the Building, the Common Areas, the land
upon which they are located, along with all other buildings and improvements
thereon, are herein collectively referred to as the "Industrial Center." (Also
see Paragraph 2.)
1.2(b) PARKING: See Paragraph #53 unreserved vehicle parking spaces
("UNRESERVED PARKING SPACES"); and no reserved vehicle parking spaces ("RESERVED
PARKING SPACES"). (Also see Paragraph 2.6.)
1.3. TERM: 5 years and 3 months ("ORIGINAL TERM") commencing May 1,
1998 ("Commencement Date") and ending July 31, 2003 ("Expiration Date"). (Also
see Paragraph 3.)
1.4. EARLY POSSESSION: Not applicable ("Early Possession Date").
(Also see Paragraphs 3.2 and 3.3.)
1.5. BASE RENT: $ See Paragraph 49 per month ("BASE RENT"), payable
----------------
on the first day of each month commencing July 1, 1998. (Also see Paragraph 4.)
1.6.(a) BASE RENT PAID UPON EXECUTION: $6,480 as Base Rent for the
period July 1, 1998 to July 31, 1998
1.6.(b) LESSEE'S SHARE OF COMMON AREA OPENING EXPENSES : twenty-five &
97/100 percent (25.97%) (Lessee's Shares) as determined by [x] pro rata square
footage of the Premises
1
<PAGE>
as compared to the total footage of the Building or ( ) other criteria as
described in Addendum ___.
1.7. SECURITY DEPOSIT: $ 6,480.00 ("Security Deposit") (Also see
Paragraph 5)
1.8. PERMITTED USE: administrative offices and warehouse for a
communications business to the extent that said use complies with the existing
M-P zoning.__________________________________________("Permitted Use") (Also see
Paragraph 6)
1.9. INSURING PARTY. Lessor is the "Insuring Party". (Also see
Paragraph 8.)
1.10.(a) REAL ESTATE BROKERS. The following real estate broker (s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[x] Bouldin & English, Inc. (Glenn English) represents Lessor exclusively
---------------------------------------
("Lessee's Broker");
[x] Sylvia-Kirk & Company (John Fondale) represents Lessee exclusively
------------------------------------
("Lessor's Broker");
[x] ________________________________________________ represents both Lessor
and Lessee ("Dual Agency"). (Also see Paragraph 15)
1.10(b) PAYMENT TO BROKERS. Upon the commencement of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $ as
per separate agreement for brokerage services rendered by said Broker(s) in
connection with this transaction.
1.11. GUARANTOR. The obligations of the Lessee under this Lease
are to be guaranteed by not applicable ("Guarantor"). (Also see Paragraph 37)
1.12. ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
--------------------
consisting of Paragraphs 49 through 61, and Exhibits A through C, all of which
constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1. LETTING. Lessor hereby leases to Lessee and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and
2
<PAGE>
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2. CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debits on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition on the Commencement
Date. If a non compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. If Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee's sole cost and expense.
2.3. COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4. ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition to the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, seismic and earthquake
requirements, and compliance with the Americans with Disabilities Act and
applicable zoning, municipal, county, state and federal laws, ordinances and
regulations and any tenants or restrictions of record (collectively, "Applicable
Laws") and the present and future suitability of the Premises for Lessee's
intended use; (b) that Lessee has made such investigation as it deems necessary
with reference to such matters, is satisfied with reference thereto, and assumes
all responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
3
<PAGE>
2.5. LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the date
set forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
2.6. VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designed from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong
to or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited
activities described in this Paragraph 2.6, then Lessor shall have the right,
without notice, in common to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease,
provide the parking facilities required by Applicable Law.
2.7. 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 Industrial Center and interior utility raceways within the Premises
that are provided and designated by the Lessor from time to time for the general
non-exclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
sidewalks, walkways, parkways, driveways and landscaped areas.
2.8. COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use Common Areas be deemed to
include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to
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remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9. COMMON AREAS - RULES AND REGULATIONS. 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 establish,
modify, amend and enforce reasonable Rules and Regulations with respect thereto
in accordance with Paragraph 40. Lessee agrees to abide by and conform to all
such Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lesser shall not be
responsible to Lessee for the non compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10. COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces; parking areas, loading and unloading areas, ingress,
egress, direction of traffic landscaped areas, walkways and utility raceways;
(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 outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(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 Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1. TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2. EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however (including but limited to the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required
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by Paragraph 8) shall be in effect during such period. Any such early possession
shall not affect nor advance the Expiration Date of the Original Term.
3.3. DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such delay affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of 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. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
the Base Rent, if any, that Lessee would otherwise have enjoyed shall run from
the date to delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1. BASE RENT. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2. COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions: (subject to the limitations specified in paragraph 49):
(a) "Common Area Operating Expenses" are defined for purposes
of this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat,
clean, good order and condition, of the following:
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(aa) The Common Areas, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways, landscaped areas, striping, bumpers, irrigation systems,
Common Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and
telephone to service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of
Common Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to
be paid by Lessor for the Building and the Common Areas under Paragraph 10
hereof.
(vi) The cost of the premiums for the insurance
policies maintained by Lessor under
Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(viii) Any other services to be provided by Lessor
that are stated elsewhere in this
Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to any other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation
upon Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses 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 of Lessee's Share of the
Common Area Operating Expenses and the same shall be
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payable monthly or quarterly, as Lessor shall designate, during each 12-month
period of the Lease term, on the same day as the Base Rent is due hereunder.
Lessor shall deliver to Lessee within sixty (60) days after the expiration of
each calendar year a reasonably detailed statement showing Lessee's Share of the
actual Common Area Operating Expenses incurred during the preceding year. If
Lessee's payments under this Paragraph 4.2(d) during said proceeding year exceed
Lessee's Share as indicated on said statement, Lessor shall be credited the
amount of such over-payment against Lessee's Share of Common Area Operating
Expenses next becoming due. If Lessee's payments under this Paragraph 4.2(d)
during said preceding 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. (subject to the
limitations of paragraph 49).
5. SECURITY DEPOSIT.
Lessee shall deposit with Lessor upon Lessee's execution hereof the
Security Deposit set forth in Paragraph 1.7 as security for Lessee's faithful
performance of Lessee's obligations under this Lease. If Lessor fails to pay
Base Rent or other rent or charges due hereunder, or otherwise Defaults under
this Lease(as defined in paragraph 13.1, Lessor may use, apply or retain all or
any portion of said Security Deposit for the payment of any amount due Lessor or
to reimburse or compensate Lessor for any liability, cost, expense, loss or
damage (including attorneys' fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security Deposit,
Lessee shall within ten (10) days after written request thereof deposit monies
with Lessor sufficient to restore said Security Deposit to the full amount
required by this Lease. Any time the Base Rent increases during the term of this
Lease, Lessee shall, upon written request from Lessor, deposit additional monies
with Lessor as an addition to the Security Deposit so that the total amount of
the Security Deposit 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 1.5. Lessor shall not be required to keep all or any part
of the Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
held in trust, to bear interest or other increment of its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1. PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8 or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
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(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee, Lessee's assignees or subtenants,
and by prospective assignees and subtenants of Lessee, its assignees and
subtenants, for a modification of said Permitted Use, so long as the same will
not impair the structural integrity of the improvements on the Premises or in
the Building or the mechanical or electrical systems therein, does not conflict
with uses by other lessees, is not significantly more burdensome to the Premises
or the Building and the improvements thereon, and is otherwise permissible
pursuant to this Paragraph 6. If Lessor elects to withhold such consent, Lessor
shall within five (5) business days after such request give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2. HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous
Substance" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority, or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statue or common law
theory. Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties. Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the Public, the Premises, and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under paragraph 5 hereof.
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(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including but not limited to such documents as may be involved in any Reportable
Use involving the Premises. Lessee shall not cause or permit any Hazardous
Substance to be spilled or exposed in, on, under or about the Premises
(including, without limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3. LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4. INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of any
mortgages, deeds of trust or
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ground leases on the Premises ("Lenders") shall have the right to enter the
Premises at any time in the case of an emergency, and otherwise at reasonable
times, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease and all Applicable Requirements
(as defined in Paragraph 6.3), and Lessor shall be entitled to employ experts
and/or consultants in connection therewith to advise Lessor with respect to
Lessee's activities, including but not limited to Lessee's installation,
operation, use, monitoring, maintenance, or removal of any Hazardous Substance
on or from the Premises. The costs and expenses of any such inspections shall be
paid by the party requesting same, unless a Default or Breach of this Lease by
Lessee or a violation of Applicable Requirements or a contamination, caused or
materially contributed to by Lessee, is found to exist or to be imminent, or
unless the inspection is requested or ordered by a governmental authority as the
result of any such existing or imminent violation or contamination. In such
case, Lessee shall upon request reimburse Lessor or Lessor's Lender, as the case
may be, for the costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1. LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under
this Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days'
prior written notice to Lessee (except in
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the case of an emergency, in which case no notice shall be required), perform
such obligations on Lessee's behalf, and put the Premises in good order,
condition and repair, in accordance with Paragraph 13.2 below.
7.2. LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2 shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearings walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection systems and equipment, fire hydrants, parking lots,
walkways, parkways, driveways, landscaping, fences, signs and utility systems
serving the Common Areas and all parts thereof, as well as providing the
services for which there is a Common Area Operating Expense pursuant to
Paragraph 4.2. Lessor shall not be obligated to paint the exterior or interior
surfaces of exterior walls nor shall Lessor be obligated to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessee expressly waives
the benefit 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 Building, Industrial Center or
Common Areas in good order, condition and repair.
7.3. UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility
Installations" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, hearing, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations and/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make non-
structural Utility Installations to the Interior of the Premises (excluding the
roof) without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all
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applicable permits required by governmental authorities; (ii) the furnishing of
copies of such permits together with a copy of the plans and specifications for
the Alteration or Utility Installation to Lessor prior to commencement of the
work thereon; and (iii) the compliance by Lessee with all conditions of said
permits in a prompt and expeditious manner. Any Alterations or Utility
Installations by Lessee during the term of this Lease shall be done in a good
and workmanlike manner, with good and sufficient materials, and be in compliance
with all Applicable Requirements. Lessee shall promptly upon completion thereof
furnish Lessor with as-built plans and specifications therefor. Lessor may, (but
without obligation to do so) condition its consent to any requested Alternation
or Utility Installation that costs $2,500.00 or more upon Lessee's providing
Lessor with a lien and completion bond in an amount equal to one and one-half
times the estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims
for labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to one and one-half times the amount of such contested lien claim or
demand, indemnifying Lessor against liability for the same, as required by law
for the holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4. OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter provided
in this Paragraph 7.4, all Alterations and Utility Installations made to the
Premises by Lessee shall be the property of and owned by Lessee, but considered
a part of the Premises. Lessor may, at any time and at its option, elect in
writing to Lessee to be the owner of all or any specified part of the
Lessee-Owned Alterations and Utility Installations. Unless otherwise instructed
per Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
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(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination date,
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. Ordinary wear and tear shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified herein, the Premises, as
surrendered, shall include the Alterations and Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Lessee-Owned Alterations and Utility Installations, as well as
the removal of any storage tank installed by or for Lessee, and the removal,
replacement, or remediation of any soil, material or ground water contaminated
by Lessee, all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and shall
be removed by Lessee subject to its obligation to repair and restore the
Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1. PAYMENT OF PREMIUMS. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
pro-rated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2. LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insurers) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "insured contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above. In addition to and not in lieu
of, the insurance required to be maintained by Lessee, Lessee shall not be named
as an additional insured therein.
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8.3. PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for an increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the insuring Party,
Lessor shall not be required to insure Lessee-Owned Alternations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
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8.4. LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility Installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5. INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8, Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policy furnish Lessor with evidence of renewals
or "insurance binders" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand.
8.6. WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lesser and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7. INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case
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of claims made against Lessor) litigated and/or reduced to judgment. In case any
action or proceeding be brought against Lessor by reason of any of the foregoing
matters, Lessee upon notice from Lessor shall defend the same at Lessee's
expense by counsel reasonably satisfactory to Lessor and Lessor shall cooperate
with Lessee in such defense. Lessor need not have first paid any such claim in
order to be so indemnified.
8.8. EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinkles, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1. DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is less than fifty percent (50%)
of the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage of destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is fifty percent
(50%) or more of the then Replacement Cost of the Premises (excluding
Lessee-Owned Alterations and Utility Installations and Trade Fixtures)
immediately prior to such damage or destruction. In addition, damage or
destruction to the Building, other than Lessee-Owned Alterations and Utility
Installations and Trade Fixtures of any lessees of the Building, the cost of
which damage or destruction is fifty percent (50%) or more of the then
Replacement Cost (excluding Lessee-Owned Alterations and Utility Installations
and Trade Fixtures of any lessees of the Building) of the Building shall, at the
option of Lessor, be deemed to be Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
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(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence
or discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in or, on, or under the
Premises.
9.2. PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial Damage
that is an insured loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possibly and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within said ten (10) days following receipt of written notice of such shortage
and request therefor. If Lessor receives said funds or adequate assurance
thereof within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3. PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that
is not an insured loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall
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provide Lessor with the required funds or satisfactory assurance thereof within
thirty (30) days following such commitment from Lessee. In such event this Lease
shall continue to full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible after the required funds are available.
If Lessee does not give such notice and provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4. TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7
9.5. DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to purporting to terminate this
Lease, or (ii) the day prior to the date upon which such option expires. If
Lessee duly exercises such option during such period and provides Lessor with
funds (or adequate assurance thereof) to cover any shortage in insurance
proceeds, Lessor shall, at Lessor's expense repair such damage as soon as
reasonably possible and this Lease shall continue in full force and effect. If
Lessee falls to exercise such option and provide such funds or assurance during
such period, then this Lease shall terminate as of the date set forth in the
first sentence of this Paragraph 9.5.
9.6. ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii)
Hazardous Substance Condition for which Lessee is not legally responsible, the
Base Rent, Common Area Operating Expenses and other charges, if any, payable by
Lessee hereunder for the period during which such damage or condition, its
repair, remediation or restoration continue, shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired, but not in excess
of proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
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(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate the Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as specified in said notice.
If Lessor or a Lender commences the repair or restoration of the Premises within
thirty (30) days after the receipt of such notice, this Lease shall continue in
full force and effect. "Commence" as used in this Paragraph 9.6 shall mean
either the unconditional authorization of the preparation of the required plans,
or the beginning of the actual work on the Premises, whichever occurs first.
9.7. HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance occurs,
unless Lessee is legally responsible therefor (in which case Lessee shall make
the investigation and remediation thereof required by Applicable Requirements
and this Lease shall continue in full force and effect but subject to Lessor's
rights under Paragraph 8.2(c) and Paragraph 13). Lessor may at Lessor's option
either (i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to investigate and remediate such condition exceeds twelve (12) times the
then monthly Base Rent or $100,000 whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to terminate
this Lease as of the date sixty (60) days following the date of such notice. In
the event Lessor elects to give such notice of Lessor's intention to terminate
this Lease, Lessee shall have the right within ten (10) days after the receipt
of such notice to give written notice to Lessor of Lessee's commitment to pay
for the excess costs for the investigation and remediation of such Hazardous
Substance Condition to the extent required by Applicable Requirement, over (b)
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following said
commitment by Lessee. In such event this Lease shall continue in full force and
effect, and Lessor shall proceed to make such investigation and remediation as
soon as reasonably possible after the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the time period specified above, this Lease shall terminate as of the
date specified in Lessor's notice of termination.
9.8. TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9. WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect
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to the termination of this Lease and hereby waive the provisions of any present
or future statute to the extent it is inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1. PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in provided in Paragraph 10.3, any such amounts shall be
included in the calculation of Common Area Operating Expenses in accordance with
the provisions of Paragraph 4.2
10.2. REAL PROPERTY TAX DEFINITION. As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage, or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Industrial Center or any portion thereof,
Lessor's right to rent or other income therefrom, and/or Lessor's business of
leasing the Premises. The term "REAL PROPERTY TAXES" shall also include any tax,
fee, levy, assessment or charge, or any increase therein, imposed by reason of
events occurring, or changes in Applicable Law taking effect, during the term of
this Lease, including but not limited to a change in the ownership of the
Industrial Center or in the Improvements thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.3. ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4. JOINT ASSESSMENT. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable proportion
of the Real Property Taxes for all of the land and improvements included within
the tax parcel assessed, such proportion to be determined by Lessor from the
respective valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Lessor's reasonable determination
thereof, in good faith, shall be conclusive.
10.5. LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade
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Fixtures, furnishings, equipment and all personal property of Lessee contained
in the Premises or stored within the Industrial Center. When possible, Lessee
shall cause its Lessee-Owned Alterations and Utility Installations, Trade
Fixtures, furnishings, equipment and all other personal property to be assessed
and billed separately from the real property of Lessor. If any of Lessee's said
property shall be assessed with Lessor's real property, Lessee shall pay Lessor
the taxes attributable to Lessee's property within ten (10) days after receipt
of a written statement setting forth the taxes applicable to Lessee's property.
11. UTILITIES.
Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1. LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublease any part of Lessee's interests in this Lease or in the
Premises without Lessor's prior written consent given under the subject to the
terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any
transaction, or series of transactions (by way of merger, sale, acquisition,
financing, refinancing, transfer, leveraged buy-out or otherwise), whether or
not a formal assignment or hypothecation of this Lease or Lessee's assets
occurs, which results or will result in a reduction of the Net Worth of Lessee,
as hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor at the
time of full execution and delivery of this Lease or at the time of the most
recent assignment to which Lessor has consented, or as it exists immediately
prior to said transaction or transactions constituting such reduction, at
whichever time said Net Worth of Lessees was or is greater, shall be considered
an assignment of this Lease by Lessee to which Lessor may reasonably withhold
its consent. "Net Worth Of Lessee" for purposes of this Lease shall be the net
worth of Lessee (excluding any Guarantors) established under generally accepted
accounting principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's option,
be a Default curable after notice per Paragraph 13.1, or a non-curable Breach
without the necessity of any police and grace period.
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If Lessor elects to treat such unconsented to assignment or subletting as a non-
curable Breach, Lessor shall have the right to either: (i) terminate this Lease,
or (ii) upon thirty (30) days' written notice ("Lessor's Notice"), increase the
monthly Base Rent for the Premises to the greater of the then fair market rental
value of the Premises, as reasonably determined by Lessor, or one hundred ten
percent (110%) of the Base Rent then in effect. Pending determination of the new
fair market rental value, if disputed by Lessee, Lessee shall pay the amount set
forth in Lessor's Notice, with any overpayment credited against the next
installment(s) of Base Rent coming due, and any underpayment for the period
retroactively to the effective date of the adjustment being due and payable
immediately upon the determination thereof. Further, in the event of such Breach
and rental adjustment, (i) the purchase price of any option to purchase the
Premises hold by Lessee shall be subject to similar adjustment to the then fair
market value as reasonably determined by Lessor (without the Lease being
considered an encumbrance or any deduction for depreciation or obsolescence, and
considering the Premises at its highest and best use and in good condition) or
one hundred ten percent (110%) of the price previously in effect, (ii) any
index-oriented rental or price adjustment formulas contained in this Lease shall
be adjusted to require that the base index be determined with reference to the
index applicable to the time of such adjustment, and (iii) any fixed rental
adjustments scheduled during the remainder of the Lease term shall be increased
in the same ratio as the new rental bears to the Base Rent in effect immediately
prior to the adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2. TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not (i) be effective without the express written assumption by
such assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or 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 under this Lease or the sublease and
without obtaining their consent, and such action shall not relieve such persons
from liability under this Lease or the sublease.
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(d) In the event of any Default or Breach of Lessee's
obligation under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not limited
to the intended use and/or required modification of the Premises, if any,
together with a non-refundable deposit of $1,000 or ten percent (10%) of the
monthly Base Rent applicable to the portion of the Premises which is the subject
of the proposed assignment or sublease, whichever is greater, as reasonable
consideration for Lessor's considering and processing the request for consent.
Lessee agrees to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under this Lease shall, be
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
obtained by Lessor.
12.3. ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor may
collect such rent and income and apply same toward Lessee's obligations under
this Lease; provided, however, that until a Breach (as defined in Paragraph
13.1) shall occur in the performance of Lessee's obligations under this Lease,
Lessee may, except as otherwise provided in this Lease, receive, collect and
enjoy the rents accruing under such sublease. Lessor shall not, by reason of the
foregoing provision or any other
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assignment of such sublease to Lessor, nor by reason of the collection of the
rents from a sublease, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such Sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right to claim against
such sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents or
security deposit paid by such sublessee to such sublessor or for any other prior
defaults or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's prior
written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the Default
of Lessee within the grace period, if any, specified in such notice. The
sublessee shall have a right of reimbursement and offset from and against Lessee
for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1. DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of one or more of the following
Defaults, and, where a grace period for cure after notice is specified herein,
the failure by Lessee to cure such Default prior to the expiration of the
applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
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(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessor.
(d) A Default by Lessee as to the terms, covenants, conditions
or provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided; however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit of
creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section
101 or any successor statue thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
effect the validity of the remaining provisions.
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(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this
Lease is guaranteed; (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance with
the terms of such guaranty, (iii) a Guarantor's becoming insolvent or the
subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such event,
to provide Lessor with written alternative assurances of security, which, when
coupled with the then existing resources of Lessee, equals or exceeds the
combined financial resources of Lessee and the Guarantors that existed at the
time of execution of this Lease.
13.2. REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies or governmental licenses, permits or approvals. The costs and
expenses of any such performance by Lessor shall be due and payable by Lessee to
Lessor upon invoice therefor. If any check given to Lessor by Lessee shall not
be honored by the bank upon which it is drawn, Lessor, at its own option, may
require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee (as
defined in Paragraph 13.1), with or without further notice or demand, and
without limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall terminate
and Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at the
time of the award of the unpaid rent which had been earned at the time of
terminations (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the form after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor
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to mitigate damages caused by Lessee's Default or Breach of this Lease shall not
waive Lessor's right to recover damages under this Paragraph 13.2. If
termination of this Lease is obtained through the provisional remedy of unlawful
detainer, Lessor shall have the right to recover in such proceeding the unpaid
rent and damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suite for such rent and/or
damages. If a notice and grace period required under Subparagraph 13.1(b), (c)
or (d) was not previously given, a notice to pay rent or quit, or to perform or
quit, as the case may be, given to Lessee under any statute authorizing the
forfeiture of leases for unlawful detainer shall also constitute the applicable
notice for grace period purposes required by Subparagraph 13.1(b), (c) or (d).
In such case, the applicable grace period under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two (2) such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after Lessee's
Breach and recover the rent as it becomes due, provided Lessee has the right to
sublet or assign, subject only to reasonable limitations. Lessor and Lessee
agree that the limitations on assignment and subletting in this Lease are
reasonable. Acts of maintenance or preservation, efforts to relet the Premises,
or the appointment of a receiver to protect the Lessor's interest under this
Lease, shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3. INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force and effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the
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provisions of this Paragraph 13.3 unless specifically so stated in writing by
Lessor at the time of such acceptance.
13.4. LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to incur
costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or deed of trust covering the
Premises. Accordingly, if any installment of rent or other sum due from Lessor
shall not be received by Lessor or Lessor's designee within ten (10) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount. The parties hereby agree that such late charge represents a late
and reasonable estimate of the costs Lessor will incur by reason of late payment
by Lessee. Acceptance of such late charge by Lessor shall in no event constitute
a waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder whether or not
collected for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5. BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and by any Lender(s) whose name and address shall have been furnished to
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION.
If the Premises or any portion thereof are taken under the power
of eminent domain or sold under the threat of the exercise of said power (all of
which are herein called "condemnation"), this Lease shall terminate as to the
part so taken as of the date the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of the floor area of the
Premises, or more than twenty five percent (25%) of the portion of the Common
Areas designated for Lessee's parking, is taken by condemnation, Lessee may, at
Lessee's option, to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority takes
such possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and affect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the Premises. No
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reduction of Base Rent shall occur if the condemnation does not apply to any
portion of the Premises. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the property of Lessor, whether such award
shall be made as compensation for diminution of value of the leasehold or for
the taking of the fee, or as severance damages; provided, however, that Lessor
shall be entitled to any compensation, separately awarded to Lessee for Lessee's
relocation expenses and/or loss of Lessee's Trade Fixtures. In the event that
this Lease is not terminated by reason of such condemnation, Lessor shall to the
extent of its net severance damages received, over and above Lessee's Share of
the legal and other expenses incurred by Lessor in the condemnation matter,
repair any damage to the Premises caused by such condemnation authority. Lessor
shall be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKER'S FEES.
15.1. PROCURING CAUSE. The Broker(s) named in Paragraph 1.10
is/are the procuring cause of this Lease.
15.2. ASSUMPTION OF OBLIGATIONS. Any buyer or 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 Broker shall be an intended third party beneficiary of the
provisions of Paragraph 1.10 and of this Paragraph 15 to the extent of its
interest in any commission arising from this Lease and may enforce that right
directly against Lessor and its successors.
15.3. REPRESENTATIONS AND WARRANTEE. Lessee and Lessor each
represent and warrant to the other that it has had no dealings with any person,
firm, broker or finder other than as named in Paragraph 1.10(a) in connection
with the negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
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, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect therein.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1. TENANCY STATEMENT. Each party (as "Responding Party") shall
within ten (10) days after written notice from the other Party (the "Requesting
Party") execute, acknowledge and deliver to the Requesting Party a statement in
writing in a form similar to the then most current "Tenancy Statement" form
published by the American Industrial Real Estate Association, plus such
additional information, confirmation and/or statements as may be reasonably
requested by the Requesting Party.
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16.2. FINANCIAL STATEMENT. If Lessee desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the event
of a transfer of Lessor's title or interest in the Premises or in the Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under the Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest state chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement understanding shall be effective.
Lesser and Lessor each represents and warrants to the Broker that it has made,
and is relying safely upon, its own investigation as to the nature, quality,
character and financial responsibility with respect thereto or with respect to
any default or breach hereof by either Party. Each Broker shall be an intended
third party beneficiary of the provisions of this Paragraph 22.
23. NOTICES.
23.1. NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be
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sent by regular, certified or registered mail or U.S. Postal Service Express
Mail, with postage prepaid, or by facsimile transmission during normal business
hours, and shall be deemed sufficiently given if served in a manner specified in
this Paragraph 23. The addresses noted adjacent to a Party's signature on this
Lease shall be the Party's address for delivery or mailing of notice purposes.
Either Party may by written notice to the other specify a different address for
notice purposes, except that upon Lessee's taking of the Premises, the Premises
shall constitute Lessee's address for the purpose of mailing or delivering
notices to Lessee. A copy of the 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 designated by written
notice to Lessee.
23.2. DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered up telephone or facsimile confirmation or receipt
of the transmission thereof, provided a copy is also delivered via delivery or
mail. If notice is received on a Saturday or a Sunday or a legal holiday, it
shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed in waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provisions
of this Lease requiring such consent. Regardless of Lessor's knowledge of a
Default or Breach at the time of accepting rent, the acceptance of rent by
Lessor shall not be a waiver of any Default or Breach by Lessee of any provision
hereof. Any payment given Lessor by Lessee may be accepted by Lessor on account
of moneys or damages due Lessor, notwithstanding any qualifying statements or
conditions made by Lessee in connection therewith, which such statements and/or
conditions shall be no force or effect whatsoever unless specifically agreed to
in writing by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other ,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of
32
<PAGE>
the expiration or earlier termination this Lease shall be increased to two
hundred percent (200%) of the Base Rent applicable during the month immediately
proceeding such expiration or earlier termination. Nothing contained herein
shall be counted as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, whereover possible, be cumulative with all other remedies
at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1. Subordination. This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "Security Device"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall
given written notice thereof to Lessee, this Lease and such Options shall be
deemed prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2. Attornment. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of the foreclosure of a Security
Device, that in the event of such foreclosure, such new owner shall not: (i) be
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisitions of ownership, (ii) be subject to any offsets or
defenses which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one month's rent.
30.3 Non-Disturbance. With respect to Security Devices entered into
by Lessor after the execution of this lease, Lessee's subordination of this
Lease shall be subject to receiving assurance (a "non disturbance agreement")
from the Lender that Lessor's possession and this Lease, including any options
to extend the term hereof, will not be disturbed so long as Lessee is not in
Breach hereof and attorns to the record owner of the Premises.
33
<PAGE>
30.4 Self-Executing. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that upon written request from Lessor or a Lender in connection with a
sale, financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required in separately document any such
subordination or non subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding,
action, or appeal thereon, shall be entitled to reasonable attorneys' fees. Such
fees may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued in decision or judgment. The term
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be, whether
by compromise, settlement, judgment, or the abandonment by the other Party or
Broker of its claim or defense. The 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. Lessor shall be entitled to
attorneys' fees, costs and expenses incurred in preparation and service of
notices of Default and consultation in connection therewith, whether or not a
legal action is subsequently commenced in connection with such Default or
resulting Breach. Broker(s) shall be intended third party beneficiaries of the
Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of rent or liability to Lessee.
33. AUCTIONS. Lessor shall not conduct, or permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installation, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor
34
<PAGE>
reserves all rights to the use of the roof of the Building, and to the right to
install advertising signs on the Building, including the roof, which do not
unreasonably interfere with the conduct of Lessee's business; Lessor shall be
entitled to all revenues from such advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Broach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lesser shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of the
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
or any such lessor interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withhold
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration, of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to conserving any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledge by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1. Form of Guaranty. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
35
<PAGE>
37.2. Additional Obligations of Guarantor. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the performance of all of the convenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease. Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1. Definition. As used in this Lease, the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lesser; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property to Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right to first refusal to
purchase the Premises, or the right of first offer to purchase the Premises, or
the right to purchase other property of Lessor, or the right of first refusal to
purchase other property of Lessor, or the right of first offer to purchase other
property of Lessor.
39.2. Options Personal to Original Lessee. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 thereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3. Multiple Options. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised unless
the prior Options to extend or renew this Lease have been validly exercised.
39.4. Effect on Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary; (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
36
<PAGE>
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of separate Defaults under Paragraph 13.1 during the twelve
(12) month period immediately preceding the exercise of the Option, whether or
not the Defaults are cured.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lesser hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same
Lessor assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent of joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of patent maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute may 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 logical 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.
37
<PAGE>
44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of
such entity represents and warrants that he or she is duly authorized to
execute and deliver this Lease on its behalf. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after request
be Lessor, deliver to Lessor evidence satisfactory to Lessor of such
authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall
not be declined an offer to lease. This Lease is not intended to be binding
until executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall
amend this Lease from time to time to reflect any adjustments that are made
to the Base Rent or other rent payable under this Lease. As long as they do
not materially change Lessee's obligations hereunder, Lessee agrees to make
such reasonable non-monetary modifications to this Lease as may be
reasonably required by an institutional insurance company or pension plan
Lender in connection with the obtaining of normal financing or refinancing
of the property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee,
the obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT AT THE
TIME THIS LEASE IS EXECUTED. THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO
EVALUATE THE CONDITION OF THE PROPERTY OR THE POSSIBLE PRESENCE OF
ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
See First Amendment Dated 4/3/98.
The parties, hereto have executed the Lease at the place and on the date
specified above their respective signatures.
Executed at: Sacramento Executed at: Sacramento
On: 4/3/98 On: 3/31/98
38
<PAGE>
<TABLE>
<S> <C>
- --------------------------------------------------------- ---------------------------------------------------------
By LESSOR: Fortune Fifty Associates, a California By LESSEE: EIS, Inc., a California Corporation
general partnership
- --------------------------------------------------------- ---------------------------------------------------------
By: /s/ BARBARA A. HARDCASTLE By: /s/ DENNIS KUSHNER
- --------------------------------------------------------- ---------------------------------------------------------
Name Printed: Barbara A. Hardcastle Name Printed: Dennis Kushner
- --------------------------------------------------------- ---------------------------------------------------------
Title: General Partner Title: Vice President-Operations
- --------------------------------------------------------- ---------------------------------------------------------
By: /s/ BILL F. BOULDIN By:
- --------------------------------------------------------- ---------------------------------------------------------
Name Printed: Bill F. Bouldin Name Printed:
- --------------------------------------------------------- ---------------------------------------------------------
Title: General Partner Title:
- --------------------------------------------------------- ---------------------------------------------------------
Address: c/o Bouldin & English, Inc. Address: 10461 Old Placerville Road, #130
10491 Old Placerville Road, #120 Sacramento, CA 95827
Sacramento, CA 95827
- --------------------------------------------------------- ---------------------------------------------------------
Telephone: (916) 361-8000 Telephone: ( )
- --------------------------------------------------------- ---------------------------------------------------------
Facsimile: (916) 361-2269 Facsimile: ( )
- --------------------------------------------------------- ---------------------------------------------------------
BROKER: Bouldin & English, Inc. BROKER: Sylva Kirk & Company
- --------------------------------------------------------- ---------------------------------------------------------
Executed at: Sacramento Executed at: Sacramento
- --------------------------------------------------------- ---------------------------------------------------------
On: 4/3/98 On: 4/3/98
- --------------------------------------------------------- ---------------------------------------------------------
By: /s/ GLENN L. ENGLISH By: /s/ JOHN P. FONDALE
- --------------------------------------------------------- ---------------------------------------------------------
Name Printed: Glenn L. English Name Printed: John P. Fondale
- --------------------------------------------------------- ---------------------------------------------------------
Title: Vice President Title: Partner
- --------------------------------------------------------- ---------------------------------------------------------
Address: 10491 Old Placerville Road #120 Address: 8815 Folsom Blvd., Suite 1
Sacramento, CA 95827 Sacramento, CA 95826
- --------------------------------------------------------- ---------------------------------------------------------
Telephone: (916) 361-8000 Telephone: (916) 381-0300
- --------------------------------------------------------- ---------------------------------------------------------
Facsimile: (916) 361-2269 Facsimile: (916) 381-0458
- --------------------------------------------------------- ---------------------------------------------------------
</TABLE>
NOTE: Those forms are often modified to meet changing requirements of law and
moods of the industry. Always write or call to make sure you are utilizing the
most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 345 So. Figueroa
Street, Los Angeles, CA 90071. (213) 687-8777.
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<PAGE>
ADDENDUM TO LEASE
-----------------
February 23, 1997
LESSOR: FORTUNE FIFTY ASSOCIATES, A California General Partnership
- ------- ----------------------------------------------------------
LESSEE: EIS, INC., A California Corporation
- ------- -----------------------------------
49. RENT SCHEDULE: Lessee shall pay to Lessor Base Rent for the Premises in
-------------
monthly installments on the first day of each month of the least term
as follows:
<TABLE>
<CAPTION>
Months # Months Period Net Base Rent/Mo.
------ -------- ------ -----------------
<S> <C> <C> <C>
01 - 02 2 05/01/1998 - 06/30/1998 Free Rent
03 - 27 25 07/01/1998 - 07/31/2000 $6,480.00
28 - 39 12 08/01/2000 - 07/31/2001 $7,844.00
40 - 51 12 08/01/2001 - 07/31/2002 $8,061.00
52 - 63 12 08/01/2002 - 07/31/2003 $8,285.00
</TABLE>
In addition to Net Base Rent, Lessee shall pay its pro-rata share of
all "COMMON AREA OPERATING EXPENSES", estimated to be $1,705.00 per
month ($.13532/Sq.Ft./month) upon commencement of this lease, as
defined in paragraph #4.2, applicable to the Premises Building.
Lessee's pro-rata share is 25.97%, determined by the Premises rentable
square footage (12,600 square feet) divided by the total rentable
square footage of the Premises Building (48,518 square feet). Lessee
shall not be required to pay Common Area Operating Expenses during the
Free Rent period. During the initial term of this lease, Lessee's share
of Common Area Operating Expenses shall be capped as follows:
<TABLE>
<CAPTION>
Monthly Common Area Operating
Months # Months Period Expenses Cap
------ -------- ------ -----------------------------
<S> <C> <C> <C>
01 - 02 2 05/01/1998 - 06/30/1998 $ 0.00
03 - 08 6 07/01/1998 - 12/31/1998 $1,705.00
09 - 20 12 01/01/1999 - 12/31/1999 $1,756.15
21 - 32 12 01/01/2000 - 12/31/2000 $1,808.83
33 - 44 12 01/01/2001 - 12/31/2001 $1,863.10
45 - 56 12 01/01/2002 - 12/31/2002 $1,918.99
57 - 63 7 01/01/2003 - 07/31/2003 $1,976.56
</TABLE>
See the "1997 Triple Net Expense Reconciliation" attached hereto as
Exhibit "C".
50. OPTION TO EXTEND: Lessor hereby grants to Lessee, subject to all of the
----------------
provisions of this lease, the option to extend this lease for one (1)
additional term of five (5) years, subject to the following conditions:
a. This lease shall be in full force and effect at the time notice of
exercise of option is given and on the last day of the term.
b. Lessee shall not be in default under any provision of this lease at
the time notice of exercise is given, or any time during the term
for a consecutive period of more than of sixty (60) days.
c. Lessee shall give Lessor, at least six (6) months prior to the
last day of the term, written notice exercising the option to
extend.
d. The Base Monthly Rent payable by Lessee during the Option Term
shall be as follows:
<TABLE>
<CAPTION>
Months # Months Period Net Base Rent/Mo.
------- -------- ------ -----------------
<S> <C> <C> <C>
64 -75 12 08/01/2003 - 07/31/2004 $8,533.00
52 - 63 12 08/01/2002 - 07/31/2003 $8,789.00
52 - 63 12 08/01/2002 - 07/31/2003 $9,053.00
52 - 63 12 08/01/2002 - 07/31/2003 $9,325.00
52 - 63 12 08/01/2002 - 07/31/2003 $9,605.00
</TABLE>
<PAGE>
Commencement of the extension term will immediately follow the
expiration date of the original term. The option shall be exercised
by Lessee by delivering or mailing, postage prepaid, certified mail,
notice to Lessor stating that the Lessee is irrevocably exercising his
option to extend. In the event that the option is not exercised as
provided for herein, the option shall expire, and Lessee shall not
have the right to extend the term of this lease. During the option
term of this lease, Lessee's share of Common Area Operating Expenses
shall not be capped.
---
51. CONDITION OF PREMISES UPON OCCUPANCY: Subject to the terms and conditions
-------------------------------------
of paragraphs #2.2, #2.3 and #2.4, Lessor is leasing the Premises to Lessee
in "As-Is" condition. All plumbing, doors, electrical and HVAC shall be in
proper working condition. Lessor shall warrant the HVAC equipment during
the first year of the lease term.
52. TENANT IMPROVEMENTS / ALLOWANCE: The Premises shall be leased by Lessee in
--------------------------------
its existing condition, however, Lessor shall provide an improvement
allowance, not to exceed $2,500, including all plans, permits and fees, to
be used to refurbish, alter and re-carpet the Premises, as necessary.
Lessor shall provide space planning services to be paid/reimbursed out of
the improvement allowance. Lessor and Lessee shall have the right to
approve of the improvement plans. This lease shall be contingent upon
receiving a bid from Denton Construction, Inc. (Nathan Denton), the
licensed general contractor in charge of the construction work, to
determine that the improvement allowance is adequate.
53. PARKING: Lessee shall have the non-exclusive right to use, in common with
--------
others entitled therewith, not more than thirty-eight (38) parking spaces,
subject to all the rules and regulations for use thereof, as prescribed
from time to time by Lessor. There shall be no overnight parking permitted
at any time.
54. SIGN CRITERIA: Lessee shall be permitted to attach white individual vinyl
--------------
letters adjacent to its main glass entry door, similar in size, letter
style and etc. to the existing building signs located at 10461 and 10491
Old Placerville Road. In addition, Lessee shall be permitted to place a
sign (white letters/logo on black plexiglas) on the monument sign located
near the main entrance driveway to the subject building in the location
designated by Lessor. All sign cost (including painting, lettering,
installation and etc.) shall be at Lessee's sole expense.
55. LESSOR DISCLOSURE: Lessee hereby understands and acknowledges that Lessor
------------------
is a partnership entity comprised of one or more licensed real estate
brokers.
56. TELEPHONE SERVICE: Lessor shall not be responsible to provide Lessee with
------------------
any telephone services to the Premises. Brooks Fiber has Fiber Optic phone
service available in the premises building. Lessee shall be responsible,
at Lessee's sole expense, to contract with Brooks Fiber to provided the
phone services necessary for Lessee's business. Lessee should contact
Brooks Fiber at (916) 369-6136 for verification of services needed. No
exterior public telephone(s) will be permitted.
57. CONDITIONAL FREE RENT CREDIT: Lessee hereby acknowledges that its right to
-----------------------------
receive the Free Rent referenced in Addendum Paragraph #49 is absolutely
conditioned upon Lessee's full, faithful and punctual performance of its
obligations under this lease. If Lessee defaults under the terms and
conditions of this lease and does not cure said default within any
applicable grace period, the Free Rent shall immediately become due and
payable and this lease shall be enforced as if there were no such Free
Rent.
58. FINANCIAL APPROVAL: Lessee shall complete and return to Lessor, the
-------------------
"TENANT INFORMATION SHEET" provided herewith, along with the current
financial statements of Lessee, upon Lessee's execution of the Lease.
Lessor shall have the right to obtain any credit reports that Lessor may
deem necessary in qualifying Lessee. Lessor's execution of the Lease shall
be deemed as Lessor's financial approval of Lessee.
59. LESSOR'S LEASE CONTINGENCY: This lease is contingent upon Lessor's
---------------------------
successful negotiation and execution of a lease termination and settlement
agreement with the existing tenant currently leasing the Premises, Reinhard
Bonnke Ministries, Inc.
60. COMPLETE AGREEMENT: This Lease supersedes any prior agreements, written or
-------------------
verbal, and contains the entire agreement of the parties hereto, with
respect to the lease contemplated herein. No other agreement, inducement,
<PAGE>
statement or promise made by any party that is not in writing, signed by
all parties hereto, and incorporated herein, shall be binding.
61. DOCUMENT PREPARATION: This Lease has been prepared merely as a service to
---------------------
Lessor and Lessee by Bouldin & English, Incorporated. Bouldin & English,
Incorporated makes no representations as to the legal sufficiency or
economic interpretation of this Lease. Lessor and Lessee are hereby
advised to consult their personal attorneys regarding this Lease.
LESSOR: FORTUNE FIFTY ASSOCIATES,
- -------
a California General Partnership
--------------------------------
By: /s/ BARBARA A. HARDCASTLE
---------------------------------
Barbara A. Hardcastle, General Partner
Dated:
------------------------------
By: /s/ BILL F. BOULDIN
---------------------------------
Bill F. Bouldin, General Partner
Dated:
------------------------------
LESSEE: EIS, INC., a California Corporation
- ------- -----------------------------------
By: /s/ DENNIS KUSHNER
---------------------------------
Dennis Kushner
Its:
---------------------------
Dated:
---------------------------------
<PAGE>
EXHIBIT "A"
-----------
10461 & 10491 Old Placerville Road Site Plan
--------------------------------------------
<PAGE>
EXHIBIT "B"
-----------
10461 Old Placerville, Suite 130 Floor Plan
-------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
=================================================================================================================
FORTUNE FIFTY CENTRE II
=================================================================================================================
10461 OLD PLACERVILLE ROAD
SACRAMENTO, CA 95827
A.P.N. 077-0050-040-0000
=================================================================================================================
1997 TRIPLE NET EXPENSE RECONCILIATION
=================================================================================================================
<S> <C>
TOTAL RENTABLE SQUARE FEET: 48,518
LESSEE: New Tenant
LEASED SQUARE FEET: 12,600
1997 MONTHS IN OCCUPANCY 12
LESSEE'S SHARE: 25.97%
1997 NNN EXPENSE ESTIMATES PAID: $ 24,723.44
-----------
ACTUAL 1997 TRIPLE NET OPERATING EXPENSES:
- -----------------------------------------
REAL PROPERTY TAXES AND ASSESSMENTS $ 26,443.05
REAL PROPERTY INSURANCE $ 5,115.00
FIRE SPRINKLER MONITORING $ 966.69
COMMON AREA ELECTRICAL $ 3,078.57
SHOWERS $ 1,952.14
UTILITY ROOM $ 878.80
TRASH REMOVAL $ 4,425.88
WATER AND SEWER $ 6,754.15
LANDSCAPING MAINTENANCE $ 6,274.26
REPAIRS AND MAINTENANCE $ 8,754.85
REPAIR/REPLACEMENT RESERVES (1997) $ 4,891.20
MANAGEMENT FEE $ 6,953.46
-----------
TOTAL 1997 NNN OPERATING EXPENSES $ 76,488.05
-----------
LESSEE'S SHARE OF 1997 NNN EXPENSES 25.97% $ 19,863.75
LESSEE'S SHARE OF 1997 NNN EXPENSES PER MONTH (/12) $ 1,655.31
-----------
1998 ESTIMATE BASED UPON 1997 ACTUAL + 3% $ 1,704.97
===========
<CAPTION>
=================================================================================================================
REPAIR/REPLACEMENT RESERVE RECONCILIATION
=================================================================================================================
1997 REPAIR/REPLACEMENT EXPENDITURES:
MAJOR ROOF REPAIRS $ 0.00
MAJOR PARKING LOT REPAIRS $ 0.00
BUILDING EXTERIOR REPAINTING $ 4,770.00
-----------
TOTAL 1997 RESERVE EXPENDITURES $ 4,770.00
===========
LESSEE'S SHARE OF 1996
RESERVE EXPENDITURES 25.97% $ 1,238.76
===========
LESSEE'S CONTRIBUTIONS REMAINING FOR FUTURE REPAIR/
REPLACEMENT RESERVE EXPENDITURES @ 01/01/97 $ 0.00
PLUS: LESSEE'S 1997 CONTRIBUTIONS TO RESERVE:
(ASSUMING LESSEE HAD BEEN IN OCCUPANCY FOR ALL OF 1997): $ 1,270.23
LESS: LESSEE'S SHARE OF 1997 RESERVE EXPENDITURES ($1,238.76)
===========
LESSEE'S CONTRIBUTIONS REMAINING FOR FUTURE REPAIR/
REPLACEMENT RESERVE EXPENDITURES @ 12/31/97
(ASSUMING LESSEE HAD BEEN IN OCCUPANCY FOR ALL OF
1997): $ 31.48
===========
</TABLE>
<PAGE>
EXHIBIT 10.32
FIRST AMENDMENT TO LEASE
------------------------
April 3 ,1998
RE: PREMISES EXPANSION
- -----------------------
This First Amendment, dated for reference purposes only, April 3, 1998, is made
by and between FORTUNE FIFTY ASSOCIATES, a California General Partnership
("LESSOR"), and EIS, INC., a California Corporation ("LESSEE").
WITNESSETH:
- ----------
WHEREAS, Lessor and Lessee did enter into a Lease, dated for reference purposes
- -------
only, February 23, 1998, for the Premises located at 10461 Old Placerville Road,
Suite #130, Sacramento, California, more particularly described in said lease
(hereinafter referred to as the "Agreement"), and;
WHEREAS, Lessor and Lessee desire to amend the Agreement in the manner and to
- -------
the extent hereinafter set forth;
NOW THEREFORE, in consideration of the Premises, of the covenants, and
- -------------
agreements contained herein, and other good valuable consideration mutually
exchanged by and between the parties hereto, it is agreed as follows:
1. The "TERM", referenced in Paragraph 1.3 of the Agreement, is hereby amended
as follows:
"TERM: 5 years and three months ("Original Term") commencing June 1, 1998
("Commencement Date") and ending August 31, 2003 ("Expiration Date"). (Also
see Paragraphs 3.2 and 3.3.)"
2. The "BASE RENT", referenced in Paragraph 1.5 of the Agreement, is hereby
amended as follows:
"BASE RENT: $ (See paragraph 49) per month ("Base Rent"), payable on the
first day of each month commencing August 1, 1998 (August 1998 Base Rent
prepaid by Lessee upon Lease execution) (Also see Paragraph 4.)"
3. The "BASE RENT PAID UPON EXECUTION", referenced in Paragraph 1.6(a) of the
Agreement, is hereby amended as follows:
"BASE RENT PAID UPON EXECUTION: $6,480.00 as Base Rent for the period
August 1, 1998 to August 31, 1998."
4. The "RENT SCHEDULE", as specified in Paragraph #49 of the Agreement, is
hereby amended as follows:
1
<PAGE>
"RENT SCHEDULE: Lessee shall pay to Lessor Base Rent for the Premises in
-------------
monthly installments on the first day of each month of the lease term as
follows:
<TABLE>
<CAPTION>
NETBASE
MONTHS' #MONTHS PERIOD RENT/MO.
------- ------- ------ --------
<S> <C> <C> <C>
01-02 2 06/01/1998 - 07/31/1998 Free Rent
03-26 24 08/01/1998 - 07/31/2000 $6,480.00
27-38 12 08/01/2000 - 07/31/2001 $7,844.00
39-50 12 08/01/2001 - 07/31/2002 $8,061.00
51-63 13 08/01/2002 - 08/31/2003 $8,285.00
</TABLE>
In addition to Net Base Rent, Lessee shall pay its pro-rata share of all
"Common Area Operating Expenses", estimated to be $1,705.00 per month
($.13531/Sq.Ft./month) upon commencement of this lease, as defined in
paragraph #4.2, applicable to the Premises Building. Lessee's pro-rata
share is 25.97%, determined by the Premises rentable square footage (12,600
square feet) divided by the total rentable square footage of the Premises
Building (48,518 square feet). Lessee shall not be required to pay Common
Area Operating Expenses during the Free Rent period. During the initial
term of this lease, Lessee's share of Common Area Operating Expenses shall
be capped as follows:
<TABLE>
<CAPTION>
MONTHLY
COMMON AREA
OPERATING
MONTHS' # MONTHS PERIOD EXPENSES CAP
------- -------- ------ ------------
<S> <C> <C> <C>
01-02 2 06/01/1998 - 07/31/1998 $ 0.00
03-07 5 08/01/1998 - 12/31/1998 $1,705.00
08-19 12 01/01/1999 - 12/31/1999 $1,756.15
20-31 12 01/01/2000 - 12/31/2000 $1,808.83
32-43 12 01/01/2001 - 12/31/2001 $1,863.10
44-55 12 01/01/2002 - 12/31/2002 $1,918.99
56-63 8 01/01/2003 - 08/31/2003 $1,976.56
</TABLE>
See the "1997 Triple Net Expense Reconciliation" attached to the Agreement
as Exhibit "C".
5. The "OPTION TO EXTEND", as specified in Paragraph #50 of the Agreement, is
hereby amended as follows:
"OPTION TO EXTEND: Lessor hereby grants to Lessee, subject to all of the
----------------
provisions of this lease, the option to extend this lease for one (1)
additional term of five (5) years, subject to the following conditions:
a. This lease shall be in full force and effect at the time notice of
exercise of option is given and on the last day of the term.
2
<PAGE>
b. Lessee shall not be in default under any provision of this lease at
the time notice of exercise is given, or at any time during the term
for a consecutive period of more than sixty (60) days.
c. Lessee shall give Lessor, at least six (6) months prior to the last
day of the term, written notice exercising the option to extend.
d. The Base Monthly Rent payable by Lessee during the Option Term shall
be as follows:
<TABLE>
<CAPTION>
NET BASE
MONTHS' #MONTHS PERIOD RENT/MO.
------- ------- ------ --------
<S> <C> <C> <C>
64-75 12 09/01/2003 - 08/31/2004 $8.533.00
76-87 12 09/01/2004 - 08/31/2005 $8,789.00
88-99 12 09/01/2005 - 08/31/2006 $9,053.00
100-111 12 09101/2006 - 08/31/2007 $9,325.00
112-123 12 09/01/2007 - 08/31/2008 $9,605.00
</TABLE>
Commencement of the extension term will immediately follow the expiration
of the original term. The option shall be exercised by Lessee by delivering
or mailing, postage prepaid, certified mail, notice to Lessor stating that
Lessee is irrevocably exercising his option to extend. In the event that
the option is not exercised as provided for herein, the option shall
expire, and Lessee shall not have the right to extend the term of this
lease. During the option term of this lease, Lessee's share of Common Area
Operating Expenses shall not be capped."
---
6. `The "TENANT IMPROVEMENTS / ALLOWANCE", as specified in Paragraph #52 of
the Agreement, is hereby amended as follows:
"TENANT IMPROVEMENTS / ALLOWANCE: The Premises shall be leased by Lessee
-------------------------------
in its existing condition, however, Lessor shall provide an improvement
allowance, not to exceed $62,500.00, including all plans, permits and fees,
to be used to refurbish, alter and re-carpet the Premises, as necessary.
Lessor shall provide space planning services to be paid/reimbursed out of
the improvement allowance. Lessor and Lessee have, as of April 3, 1998,
seen and hereby approve of the space plan. Attached hereto as Exhibit "1"
is a contract and costs breakdown by Denton Construction, Inc. dated March
1, 1998, in the amount of $62,494.00, to be executed herewith by Lessor and
Lessee. Lessee hereby agrees to pay for any change orders requested by
Lessee and approved by both Lessee and Lessor, directly to Denton
Construction, Inc. Also, Lessee agrees to pay any additional costs
associated with exceptions #1 and #2 in Denton Construction, Inc.'s
contract. Now that the Denton Construction, Inc. contract has been
received, the lease contingency to determine that the improvement allowance
is adequate is hereby waived."
3
<PAGE>
LESSOR: FORTUNE FIFTY ASSOCIATES,
- ------ A CALIFORNIA CORPORATION
By: /S/ BARBARA A. HARDCASTLE
--------------------------------------
Barbara A. Hardcastle, General Partner
By: /S/ BILL F. BOULDIN
--------------------------------------
Bill F. Bouldin, General Partner
Dated:
LESSEE: EIS, INC.,
- ------ A CALIFORNIA CORPORATION
By: /S/ DENNIS KUSHNER
--------------------------------------
Dennis Kushner, Vice President
Dated:_____________________________________
4
<PAGE>
EXHIBIT "1"
Denton Construction
2220 Dear Oaks Dr.
Rescue, CA 95672
(916) 677-0906
lic. 458692
March 1, 1998
Mr. Glenn English
Re: 10461 Old Placerville Road, Ste. 130
------------------------------------
We propose to complete the tenant improvements in above unit according to the
plans we have to date, and according to the breakdown sheet which will accompany
this proposal. The only variables I am aware of at this point are as follows:
1). We have allowed $2500 to cover the costs of the permits and the costs of
having the plans drawn and made ready for the county.
2). We have made provision for 30 new electrical circuits in the new sub panel,
but are only including in the price of the improvements 18 of those
circuits, which were given to us originally by Jim. Because we do not know
the exact location of the remaining 5 circuits, they will be priced
directly to Jim when they decide the exact locations.
By signing below, you are accepting this proposal in the amount of $62,494 for
the improvements to this space. A detailed list on the next page will, show you
a breakdown of the different areas and the amounts each of them as per bid.
/s/ GLENN ENGLISH 4/2/98 /s/ DENNIS KUSHNER 4/6/98
- ------------------------------------------ -----------------------------------
Fortune Fifty Associates - Glenn English EIS Inc. - Dennis T. Kushner
/s/ NATHAN DENTON 4/2/98
- ------------------------------------------
Denton Construction Inc. - Nathan Denton
5
<PAGE>
Denton Construction
2220 Dear Oaks Dr.
Rescue, CA 95672
(916) 677-0906
lic. 458692
March 1, 1998
BREAKDOWN STE. 130
14100 All new walls, sheetrock, tape and texturing
3350 HVAC ducting, venting
500 Demo work
750 T-bar ceiling in hallway, repair other ceilings
1375 Insulation
3650 Painting and staining
2400 Plumbing & countertop in bathroom
480 Cut out concrete for plumbing, haul away, repour
120 Marlite 2 walls in new bathroom
400 Vinyl flooring in new bathroom
200 Paper holders, mirror, signs, handicap bars
9350 Carpet, remove old carpet, new baseboard existing areas
2280 Carpet demo room (all carpet is 26 oz., will bring sample book)
2976 Doors, frames, including 1 pr 4' doors and 1-4' door from stock
1200 Door handles (levers)
510 Install doors, frames, levers
8890 Electrical including 100 amp subpanel from main, and 18 circuits
1212 Fire sprinklers
285 Dumpster
2500 Plans and permits (allowance)
285 Lift rental for ceiling work
--------
56,813 Sub total
5681 10% profit and overhead
--------
62,494 TOTALS
<PAGE>
EXHIBIT 10.33
STANDARD OFFICE LEASE-GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. BASIC LEASE PROVISIONS ("BASIC LEASE PROVISIONS").
1.1. PARTIES: This Lease ("Lease"), dated for reference purposes only,
May 14, 1998, is made by and between See Exhibit C (herein called "Lessor") and
EIS, Inc., a California corporation doing business under the name of
______________________________________________ (herein called "Lessee").
1.2. PREMISES: Suite Number(s) 120 floors, consisting of approximately
4,077 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 2401 E. El Segundo
Boulevard in the City of El Segundo County of Los Angeles, State of California
as more particularly described in Exhibit A hereto, and as defined in
paragraph 2.
1.4. USE: General Office, subject to paragraph 6.
1.5. TERM: Sixty-two (62) months commencing August 1, 1998 ("Commencement
Date") and ending September 30, 2003 as defined in paragraph 3.
1.6. BASE RENT: See Paragraph 1.6 of the attached Addendum per month,
payable on the 1st day of each month, per paragraph 4.1 ______________________
______________________________________________________________________________.
1.7. BASE RENT INCREASE: On See Paragraph 1.6 of the attached Addendum
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: $6,319.35 for
______________________________________________________________________________.
1.9. SECURITY DEPOSIT: $6,319.35
1.10. LESSEE'S SHARE OF OPERATING EXPENSE INCREASE: 3.81% as defined
in paragraph 4.2.
<PAGE>
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 facilities 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. VEHICLE PARKING: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use 15 parking spaces in
the Office Building Project at the monthly rate applicable from time to time for
monthly parking as set by Lessor and/or its licensee. See paragraph 2.2 of the
attached Addendum.
2.2.1. If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect, then Lessor 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 Lessee, which cost shall be immediately payable upon demand by Lessor.
2.2.2. The monthly parking rate per parking space will be $0.00
per month at the commencement of the term of this Lease, and is subject to
change upon five (5) days prior written notice to Lessee. Monthly parking fees
shall be payable one month in advance prior to the first day of each calendar
month.
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 the
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
2
<PAGE>
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.
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
3
<PAGE>
executed by Lessor and Lessee and failure to deliver the Premises is solely
within Lessor's control, 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) days 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 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. See Paragraph 4.2 of the
attached Addendum.
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
4
<PAGE>
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 Lessee 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, 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;
5
<PAGE>
(iii) Any other service to be provided by Lessor that is
elsewhere in this Lease slated 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 payment under this paragraph 4.2(g)
during said Comparison Year exceed Lessee's shares as indicated on said
statement, Lessee shall be entitled to credit the amount of such overpayment
against Lessee's Share of Operating Expense Increase next falling due. If
Lessee's payments under this
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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.
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, 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.
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(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 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
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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 or attributable to Lessee's negligence,
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 repair 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 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 paneling, 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 of or all of the same.
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(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 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 to do so.
(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(e). 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.
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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, 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 amount
of not less than 3,000,000 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 as an additional insured against liability arising out
of 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 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
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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 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 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 the 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 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 of 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
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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) "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
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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 into 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 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 (iii) 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.
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(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 an 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, 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) 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.
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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, 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
modification or changes hereto, or any transfers hereof.
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
reasonable 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.
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(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, and janitorial service as reasonably required,
reasonable amounts of electricity for normal lighting and office machines, water
for reasonable and normal drinking and lavatory use, and replacement light bulbs
and/or fluorescent tubes and ballasts for standard overhead fixtures.
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 SERVICES. Said services and utilities shall be provided
during generally accepted business days and hours of 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. See Paragraph 11.3 of the attached Addendum.
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.
12. ASSIGNMENT AND SUBLETTING. See paragraph 12.1 of the attached Addendum.
12.1. LESSOR'S CONSENT REQUIRES. 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
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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 after 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 or 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 subletting and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; however, such persons shall not be responsible to the extent any such
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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 subleasee 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
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performed by 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 the 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)
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(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 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. ss.101 for 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
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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 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 (3) 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 ten (10) 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 6% of such overdue amount. The
parties hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by Lessee.
Acceptance of such late charge by Lessor shall in no event constitute a waiver
of Lessee's default 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
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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 taken shall be excluded from the Common Areas usable by Lessee and no
reduction or 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 al 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 broker's involved in this transaction are
The Seeley Company as "listing broker" and None 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).
(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
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from
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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 encumbracer 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.
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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 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. This Lease contains all agreements of
the parties with respect to any matter mentioned herein. No prior or
contemporaneous agreements of 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,
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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.
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 in 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 performed 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 o 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 Sate 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 to 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
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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).
31. ATTORNEYS' FEES.
31.1. If either party or the broker(s) 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. The provisions of this paragraph shall insure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2. The attorneys' fees 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 consultation 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 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 forceable or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any
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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.
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 paragraph 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 reasonably 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 the
Premises or the right of first offer to lease the Premises or the 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
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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.
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
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paragraph 13.1(b), or is otherwise in default of any of the terms, covenants and
conditions of this Lease.
See paragraph 39.5 of the attached Addendum.
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 to written notice;
(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 need for further
notice to Lessee.
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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 Lease.
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.
45. NO OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same 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 to 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.
49. ATTACHMENTS. Attached hereto are the following documents which constitute a
part 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
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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
AGENT 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
See Exhibit C EIS, Inc., a California corporation
- ----------------------------------- ---------------------------------------
By By /s/ DENNIS KUSHNER
-------------------------------- ------------------------------------
Its Its Vice President
---------------------------- --------------------------------
By By
-------------------------------- ------------------------------------
Its Its
---------------------------- --------------------------------
Executed at Executed at
----------------------- --------------------------
on on
-------------------------------- ------------------------------------
Address Address
--------------------------- -------------------------------
32
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
[LOGO]
Dated: May 14, 1998
By and Between See Exhibit C, as Lessor and EIS Inc. A California Corporation,
as Lessee
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 person 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.
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. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 7 PM. and 7
A.M. of the following day. If Lessee uses the Premises during such periods
Lessee shall be responsible for securely locking any doors it may have opened
for entry.
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 or
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.
PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer
than full size passenger automobiles herein called "Permitted Size Vehicles".
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversize
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessee for such activities.
3. Parking stickers or identification devices shall be the property of
Leasor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces as long as the same complies with applicable laws,ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissable only by such method
or methods as Lessor and/or its licensee may establish at rates generally
applicable is visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the
parking structure or Common Area is prohibited.
10. Lessee shall be responsible for seeing that all of the its employees,
agents and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such
other reasonable and non-discriminatory rules and regulations as it may deem
necessary for the proper operation of the parking areas.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
FULL SERVICE-CROSS
EXHIBIT B
PAGE 1 OF 1 PAGES
<PAGE>
EXHIBIT C
---------
"LESSOR"
Wells Fargo Bank, N.A. (successor by merger to First Interstate Bank of
California), as Corporate Co-Trustee for the Automotive Industries Pension Trust
Fund.
Wells Fargo Bank, N.A., as Corporate Co-Trustee for the Producers-Writers Guild
of America Pension Plan.
Sanwa Bank of California, a California Corporation, as Corporate Co-Trustee for
the California Winery Workers Pension Plan Trust.
Wells Fargo Bank, N.A. (successor by merger to First Interstate Bank of
California), as Custodian for the Northern California Retail Clerks Unions &
Food Employers Joint Pension Trust Fund.
The Northern Trust Company, as Corporate Co-Trustee for the Motion Picture
Industry Individual Account Plan.
Wells Fargo Bank, N.A. (successor by merger to First Interstate Bank of
California), as Corporate Co-Trustee for the Western States Office &
Professional Employees Pension Fund.
Basic PRE. Inc., a California corporation.
Supp. PRE. Inc., a California corporation.
Imperial Trust Company, a California corporation, as Corporate Co-Trustee for
the Pacific Coast Roofers Pension Plan.
Imperial Trust Company, a California corporation, as Corporate Co-Trustee for
the California Butchers' Pension Fund, and
Imperial Trust Company, a California corporation, as Corporate Co-Trustee for
the Newspaper & Periodical Drivers' Helpers' Union Local 921 Publishers'
Retirement Plan.
BY: McMorgan & Company BY: _______________________
David R. Howard
ITS: Investor Manager ITS: Vice President
Notices for the above funds should be sent to the following:
McMorgan & Company
Attn: David R. Howard
One Bush Street, Suite 800
San Francisco, CA 94104
Aviation/El Segundo Corporation
BY:__________________________________
ITS:_________________________________
DATE:________________________________
Notices for the above fund should be sent to the following:
American Realty Advisors
Attn: Gerald Goldman
700 North Brand Blvd., Suite 300
Glendale, CA 91203
<PAGE>
ADDENDUM TO LEASE
BY AND BETWEEN
SEE EXHIBIT C, ("LESSOR"),
AND EIS, INC., A CALIFORNIA CORPORATION ("LESSEE")
DATED: MAY 14, 1998
Upon initialing by Lessor and Lessee, this addendum shall constitute a part of
and be incorporated in the captioned Lease. In the event of any conflict between
this addendum and the provisions of the Lease, this addendum shall prevail.
1.6 BASE RENT/BASE RENT INCREASE
Months 1-20: $1.55 per rentable square foot, per month, full service gross,
(4.077 RSF x $1.55 PRSF = $6,319.35 per month)
Months 21-40: $1.65 per rentable square foot, per month, full service gross,
(4,077 RSF x $1.65 PRSF = $6,727.05 per month)
Months 41-62: $1.75 per rentable square foot, per month, full service gross,
(4,077 RSF x $1.75 PRSF = $7,134.75 per month)
2.2 PARKING
Lessor shall provide Lessee with a total of fifteen (15) parking spaces. Said
parking spaces shall consist of thirteen (13) non-reserved surface parking
spaces and two (2) reserved subterranean parking spaces which shall be at no
additional charge during the initial Lease term.
4.2 OPERATING EXPENSES
Lessor shall provide Lessee with a Calendar year 1998 ("Base Year") reflecting
ninety-five percent (95%) occupancy for all expenses paid or incurred by Lessor
for the building and the project.
11.3 HOURS OF SERVICE
Lessor shall furnish HVAC services Monday through Friday, from 8:00 am to 6:00
p.m. and on Saturdays from 8:00 am to 1:00 pm except for the following days: New
Year's Day, Memorial Day, July 4th, Labor Day, Thanksgiving Day and Christmas
Day. Lessor shall provide Lessee with capability to use after hours HVAC, to be
charged to Lessee at Lessor's direct cost, which shall include amortized
replacement and maintenance costs. The current cost of such service is $35 per
hour.
12.1 ASSIGNMENT AND SUBLETTING
In the event of a permitted assignment or subletting, 50% of any rent received
in excess of a base rent then being paid to Lessor shall be retained by Lessee
and 50% shall be paid to the Lessor.
39.5 OPTION TO TERMINATE:
Provided Lessee is not in default in the performance of any of the terms,
covenants and conditions of this Lease, Lessee shall have an Option to Terminate
at the end of the thirty-eighth (38th) month of the Lease term by giving
Lessor six (6) months prior written notification of such intent. Furthermore,
Lessee agrees that this privilege is conditioned upon the payment by Lessee to
Lessor of an Option to Terminate Fee equal to four (4) months of Base Rent, at
$1.75 per rentable square foot, as well as Lessee paying to Lessor all of the
un-amortized costs of the Tenant improvements and commissions plus interest on
these costs, from the time they were incurred by Lessor, at the prime commercial
rate currently being charged by the Bank of America.
Page 1 of 4
<PAGE>
50. LESSEE IMPROVEMENTS
Lessor, at Lessor's sole cost and expense, shall provide Lessee with a build out
using building standard materials (similar to the Farmer's Insurance space on
the 4th floor) not to exceed twenty-seven dollars ($27.00) per rentable square
foot as per a space plan approved by Lessor. Any and all architectural and
engineering services associated with said tenant improvements shall be provided
by Lessor and included in the tenant improvement allowance.
All contractors and subcontractors retained by Lessee to perform work at the
Property shall be signatory to the appropriate collective bargaining
agreement(s) with the labor organizations affiliated with the Building and
Construction Trades Department of the AFL-CIO or with the International
Brotherhood of Teamsters. The provisions of the Article shall be incorporated
into all contracts and subcontracts executed by contractors or subcontractors
performing work at the Property.
51. RENT ABATEMENT
The Base Rent due for months one (1) and two (2) shall be abated by Lessor.
52. IDENTITY
Lessor, at its sole cost and expense, shall install building standard signage
for Lessee on the directory board in the main lobby as well as at Lessee's suite
entry door.
53. ENVIRONMENTAL MATTERS
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53.1 DEFINITIONS
"Hazardous Materials" shall mean any hazardous or toxic substance, material or
waste which is or becomes regulated by any local governmental authority, any
agency of the State of California or any agency of the United States Government.
The term "Hazardous Materials" includes, without limitation, any material or
substance which is (i) defined as a "hazardous waste," "extremely hazardous
waste" or "restricted hazardous waste" under Sections 25115, 25117, or 25122.7,
or listed pursuant to Section 25140, of the California Health and Safety Code,
Division 20, Chapter 6.5 (Hazardous Waste Control Law), (ii) defined as a
"hazardous substance" under Section 25316 of the California Health and Safety
Code, Division 20, Chapter 6.8 (Carpenter-Presley-Tanner Hazardous Substance
Account Act), (iii) defined as a "hazardous material", "hazardous substance", or
"hazardous waste" under Section 25501 of the California Health and Safety Code,
Division 20, Chapter 6.95 (Hazardous Materials Release Response Plans and
Inventory, (iv) defined as a "hazardous substance" under Section 25281 of the
California Health and Safety Code, Division 20, Chapter 6.7 (Underground Storage
of Hazardous Substances), (v) petroleum and any petroleum by products, (vi)
asbestos, (vii) urea formaldehyde foam insulation, (viii) listed under Article 9
or defined as hazardous or extremely hazardous pursuant to Article 11 of Title
22 of the California Administration Code, Division 4, Chapter 20, (ix)
designated as a "hazardous substance" pursuant to Section 311 of the Federal
Water Pollution Control Act (33 U.S.C. Section 1317), (x) defined as a
"hazardous waste" pursuant to Section 1004 of the Federal Reserve Conservation
and Recovery Act, 42 U.S.C. Section 6901, or (xi) defined a "hazardous
substance" pursuant to Section 101 of the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. Section 9601. Each reference to a
statute or law herein shall be deemed to include any amendments thereto which
are enacted from time to time.
Notwithstanding anything to the contrary contained herein, in no event shall the
term "Hazardous Materials" refer to commonly sold office products generally
available from office product suppliers.
53.2 RESTRICTIONS ON USE OF HAZARDOUS MATERIALS
Lessee shall not cause or permit any Hazardous Materials to be brought upon,
kept or used in or about any part of the Premises or the Project by Lessee, its
agents, employees, contractors, or invitees in violation of any applicable law,
without the prior written consent of Lessor, which consent Lessor shall not
unreasonably withhold. Withhold limiting the generality of Lessee's obligation
to comply with laws as otherwise provided in this Lease, Lessee shall, at its
sole cost
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and expense, comply with all present and future applicable local, state and
federal laws, regulations, ordinances and administrative and judicial orders
relating to its use of Hazardous Materials on the Project. Lessee shall obtain
and maintain any and all necessary government permits and licenses required for
the use, handling and disposition of any Hazardous materials used by Lessee on
or in the Premises and/or the Project or any portion thereof and shall deliver
copies thereof to Lessor together with copies of any plans or programs
respecting Lessee's use and disposition of Hazardous Materials filed with any
governmental authorities, promptly upon Lessee's receipt or preparation thereof.
Unless Lessee is required by law to give an earlier notice to Lessor, Lessee
shall notify Lessee in writing as soon as possible but in no event later than
five (5) days after (a) Lessee becomes aware of any spill or release on or about
the Premises, the Project or any portion thereof of any Hazardous Material by
lessee, its agents, employees, contractors or invitees, or (b) Lessee becomes
aware of any regulatory inquiries, non-routine governmental inspections,
investigations or proceedings, potential investigations or proceedings,
environmental audits or claims by third parties regarding any aspect of the use,
handling or disposition of Hazardous Materials in, or about the Premises, the
Project or any portion thereof by Lessee, its employees, agents, contractors or
invitees shall occur at the Project, Lessee shall at its expense immediately
take any and all necessary remedial action in accordance with applicable laws
and regulations. Lessee shall deliver to Lessor, copies of any plans of remedial
action filed with any governmental authorities and any reports, notices or other
communications received by Lessee from any governmental authority or
environmental consultant respecting such releases or spill. Lessor may, by
written notice to Lessee, declare any such release or spill to be a breach of
this Lease by Lessee. If Lessor shall at any time reasonably determine that the
use, handling or disposition by Lessee of Hazardous Materials in, or about the
Premises, the Project or any portion thereof shall cause an undue risk of damage
to the premises, the Project any part thereof or any adjacent property, injury
or disease to other Tenants or other persons coming onto the Premises, the
Project or any part thereof, or liability of Lessor for the clean up or
disposition of Lessee's Hazardous Materials, Lessor may, at its discretion,
notify Lessee and thereafter by written notice to Lessee reasonably modify any
consent previously given by Lessor allowing the use of any particular Hazardous
Material in, on or about the Premises, the Project or any part thereof.
53.3 HAZARDOUS MATERIALS INDEMNIFICATION BY LESSEE
Without limiting in any way Lessee's obligations under any other provision of
this Lease, Lessee shall indemnify any hold Lessor and the Project and every
part thereof free and harmless from and against any and all claims, judgments,
damages, penalties, fines, costs (including actual attorneys' fees, litigation
expenses and court costs), liabilities and losses, including, without limitation
diminution in the value of the Project or any portion thereof, damages for the
loss or restriction on use of rentable or usable space or of any amenity of the
Project or any part thereof, damages arising from any adverse impact on the
marketing of space in the Project or any part thereof, and sums paid in
settlement of claims, attorneys' fees, consultant fees and expert fees which
arise during or after the term as a result of Hazardous Materials contamination,
and any and all costs incurred in connection with any investigation of site
conditions or any clean up, remedial, removal or restoration work necessary, in
the reasonable judgment of Lessor, or required by any federal, state or local
governmental agency or political subdivision because of the presence of such
Hazardous Material in, on, under or about the Project or any part thereof
arising out of or relating to (a) the use, presence, handling or disposition of
Hazardous Materials by Lessee, its employees, agents, contractors or invitees
in, on, under or about the Project or any part thereof, (b) the breach by
Lessee, its employees, agents, contractors or invitees of any of the terms of
this paragraph, and (c) any Hazardous Materials contamination of the Project or
any part thereof caused by Lessee, its employees, agents, contractors or
invitees. Lessee's obligations hereunder shall survive the termination of this
Lease for a period of five (5) years.
53.4 HAZARDOUS MATERIALS INDEMNIFICATION BY LESSOR
Lessor shall indemnify and hold Lessee, its officers, and employees, and
Lessee's agents and invitees, harmless from all liability arising out of (i) the
presence of Hazardous Materials in, on, under or about the Project prior to the
date hereof arising from the future release of Hazardous Materials by Lessor,
its officers, employees, agents, contractors, in, under or about the Project, or
(ii) arising from the future release of Hazardous Material in, on, under or
about the Premises by other Tenants in the Building, to the extent a prudent
person acting in a commercially reasonable manner should have determined and
prevented such presence or release.
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Lessor represents and warrant to Lessee that to the best of its knowledge,
without independent investigation, Lessor has no knowledge of, and has no reason
to believe that there has been, any release, generating, storage or use of
Hazardous Materials in violation of applicable law on the Project as of the date
hereof. Lessor further agrees that it will not in the future, use, produce,
generate or store any Hazardous Materials on the Project in violation of
applicable laws.
53.5 REMOVAL OF HAZARDOUS MATERIALS ON TERMINATION
Upon termination of this Lease, Lessee shall cause any and all Hazardous
Materials stored on or about the Project or any contaminated equipment placed
thereon by Lessee, its agents or employees, to be removed at Lessee's expense
and in compliance with all applicable laws. The provisions of this subparagraph
shall survive the expiration of this Lease.
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EXHIBIT 10.34
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - GROSS
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only,
August 10, 1995, is made by and between John R. and Vesna Meehan ("LESSOR") and
Digital Network Corporation, a California Corporation ("LESSEE"), (collectively
the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 11 Musick Street, Irvine, located in the County
of Orange, State of California, and generally described as (describe briefly the
nature of the property) that industrial/office building of approximately 7,719
square feet known officially as AP#591-101-14. ("PREMISES"). (See Paragraph 2
for further provisions.)
1.3 TERM: Three(3) years and six(6) months ("ORIGINAL TERM") commencing
September 15, 1995 ("COMMENCEMENT DATE") and ending March 14, 1999 ("EXPIRATION
DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: September 5, 1995 or upon current Tenant's move-out
("Early Possession Date"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $ 3,150.00 per month ("BASE RENT"), payable on the 15th day
of each month commencing Septemeber 15, 1995. Rent payments for all subsequent
months shall be per item #1 of the Addendum attached hereto. (See Paragraph 4
for further provisions.)
[_] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $3,150.00 as Base Rent for the
period September 15, 1995 through October 14, 1995.
1.7 SECURITY DEPOSIT: $ 6,830.00 ("SECURITY DEPOSIT"). (See Paragraph
5 for further provisions.)
1.8 PERMITTED USE: General office, administration and storage for a data
communication and a premise wiring company. (See Paragraph 6 for further
provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." $_________ is the
"BASE PREMIUM." (See Paragraph 8 for further provisions.)
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1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes):
Cushman & Wakefield of California Inc. represents
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[X] Lessor exclusively ("LESSOR'S BROKER"); [ ] both Lessor and Lessee, and
Charles Dunn Company represents
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[X] Lessee exclusively ("LESSEE'S BROKER"); [ ] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR: 1A ("GUARANTOR"). (See Paragraph 37 for further
provisions.)
1.12 ADDENDA: Attached hereto is an Addendum or Addenda consisting of
Paragraphs 1 through 4 and Exhibits N/A all of which constitute a part of this
- - ---
Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a non-
compliance with said warranty exists as of the Commencement Date, Lessor shall,
except as otherwise provided in this Lease, promptly after receipt of written
notice from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give Lessor
written notice of a non-compliance with this warranty within thirty (30) days
after the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six (6)
months following the Commencement Date, correction of that non-compliance shall
be the obligation of Lessee at Lessee's sole cost and expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects,
Item 1A is set forth on Page 1A attached hereto and incorporated herein by
reference.
1A Guarantor. The obligations of the Lessee under this lease are to be
guaranteed by Richard B. Moran, Chris Ursetta, Michael Stammire.
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compliance with Applicable Law, as defined in Paragraph 6.3) and the present and
future suitability of the Premises for Lessee's intended use, (b) that Lessee
has made such investigation as it deems necessary with reference to such matters
and assumes all responsibility therefor as the same relate to Lessee's occupancy
of the Premises and/or the term of this Lease, and (c) that neither Lessor, nor
any of Lessor's agents, has made any oral or written representations or
warranties with respect to the same matters other than as set forth in this
Lease.
2.5 LESSEE PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any non-
compliance of the Premises with said warranties.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent shall be rebated
for the period of such early possession. All other terms of this Lease, however,
shall be in effect during such period. Any such early possession shall not
affect nor advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in paragraph 1.4, or if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to
pay rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, as its option, by notice in writing to Lessor
within ten (10) days thereafter, cancel this Lease. In which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (10) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
4. RENT
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall
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be made to Lessor at its address stated herein or to such other persons or at
such other addresses as Lessor may from time to time designate in writing to
Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in paragraph 13.1), Lessor may use, apply or
retain all or any portion of said Security Deposit for the payment of any amount
due Lessor or to reimburse or compensate Lessor for any liability, cost,
expense, loss or damage (including attorneys' fees) which Lessor may suffer or
incur by reason thereof. If Lessor uses or applies all or any portion of said
Security Deposit, Lessee shall within ten (10) days after written request
therefor deposit moneys with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. Any time the Base Rent increases
during the term of this Lease, Lessee shall; upon written request from Lessor,
deposit additional moneys with Lessor sufficient to maintain the same ratio
between the Security Deposit and the Base Rent as those amounts are specified in
the Basic Provisions. Lessor shall not be required to keep all or any part of
the Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by lessor, no part of the Security Deposit shall be considered to be
held in trust to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. Lessee shall not use or permit the use of the Premises in
a manner that creates waste or a nuisance, or that disturbs owners and/or
occupants of, or causes damage to, neighboring premises or properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees assignees or subtenants, and by prospective assignees
and subtenants of the Lessee, its assignees and subtenants, for a modification
of said permitted purpose for which the premises may be used or occupied, so
long as the same will not impair the structural integrity of the improvements on
the Premises, the mechanical or electrical systems therein, is not significantly
more burdensome to the Premises and the improvements thereon, and is otherwise
permissible pursuant to this Paragraph 6. If Lessor elects to withhold such
consent, Lessor shall within five (5) business days give a written notification
of same, which notice shall include an explanation of Lessor's reasonable
objections to the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
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authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
SUBSTANCE shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner
(at Lessee's sole cost and expense) with all Applicable Law (as defined in
paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of any additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance, or a condition involving or resulting
from same, has come to be located in, on, under or about the Premises, other
than as previously consented to by lessor, Lessee shall immediately give written
notice of such fact to Lessor. Lessee shall also immediately give Lessor a copy
of any statement, report, notice, registration, application, permit, business
plan, license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or
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suffered by Lessee, and the cost of investigation (including consultant's and
attorney's fees and testing), removal, remediation, restoration and/or abatement
thereof, or of any contamination therein involved, and shall survive the
expiration or earlier termination of this Lease. No termination, cancellation or
release agreement entered into by Lessor and Lessee shall release Lessee from
its obligations under this Lease with respect to Hazardous Substances or storage
tanks, unless specifically so agreed by lessor in writing at the time of such
agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "Applicable Law," which term is used in this
Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, compliant or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
Paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the Premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the Premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent
violation or contamination. In any such case, Lessee shall upon request
reimburse Lessor or Lessor's Lender, as the case may be, for the costs and
expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at
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Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair, (whether or not such portion
of the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities serving the Premises, such as
plumbing, heating, air conditioning, ventilation, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire sprinkler and/or
standpipe and hose or other automatic fire extinguishing system, including fire
alarm and/or smoke detection systems and equipment, fire hydrants, fixtures,
walls (interior and exterior), ceilings, floors, windows, doors, plate glass,
skylights, landscaping, driveways, parking lots, fences, retaining walls, signs,
sidewalks and parkways located in, on, about, or adjacent to the Premises, but
excluding foundations, the exterior roof and the structural aspects of the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense, take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of, the Premises, the elements
surrounding same, or neighboring properties, that was caused or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee or under its
control. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any, and
with contractors specializing and experienced in, the inspection, maintenance
and service of the following equipment and improvements, if any, located on the
Premises: (i) heating, air conditioning and ventilation equipment, (ii) boiler,
fired or unfired pressure vessels, (iii) fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing systems, including fire alarm and/or
smoke detection, (iv) landscaping and irrigation systems, (v) roof covering and
drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the need for
such repairs and subject to paragraph 13.5, Lessor shall, at Lessor's expense,
keep the foundations, exterior roof and structural aspects of the Premises in
good order, condition and repair, Lessor shall not, however, be obligated to
paint the exterior surface of the exterior walls or to maintain the windows,
doors or plate glass or the interior surface of exterior walls. Lessor shall
not, in any event, have any obligation to make any repairs until Lessor receives
written
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notice of the need for such repairs. It is the intention of the Parties that the
terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises. Lessee and Lessor expressly waive the
benefit of any statute now or hereafter in effect to the extent it is
inconsistent with the terms of this Lease with respect to, or which affords
Lessee the right to make repairs at the expense of Lessor or to terminate this
Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "Utility Installations"
is used in this Lease to refer to all carpeting, window coverings, air lines,
power panels, electrical distribution, security fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "Trade Fixtures" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "Alterations"
shall mean any modification of the improvements on the Premises from that which
are provided by Lessor under the terms of this Lease, other than Utility
Installations or Trade Fixtures, whether by addition or deletion. "Lessee Owned
Alterations and/or Utility Installations" are defined as Alterations and/or
Utility Installations made by Lessee that are not yet owned by Lessor as defined
in paragraph 7.4(a). Lessee shall not make any Alterations or Utility
Installations in, on, under or about the Premises without Lessor's prior written
consent. Lessee may, however, make non-structural Utility Installations to the
interior of the Premises (excluding the roof), as long as they are not visible
from the outside, do not involve puncturing, relocating or removing the roof or
any existing walls, and the cumulative cost thereof during the term of this
Lease as extended does not exceed $25,000.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plains. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice
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prior to the commencement of any work in, on or about the Premises, and Lessor
shall have the right to post notices of non-responsibility in or on the Premises
as provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in an amount
equal to one and one-half times the amount of such contested lien claim or
demand, indemnifying Lessor against liability for the same, as required by law
for the holding of the Premises free from the effect of such lien or claim. In
addition, Lessor may require Lessee to pay Lessor's attorney's fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "Ordinary wear and tear" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
Installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES,
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(a) Lessee shall pay to Lessor any insurance cost increase ("Insurance
Cost Increase") occurring during the term of this Lease. "Insurance Cost
Increase" is defined as any increase in the actual cost of the insurance
required under Paragraphs 8.2(b), 8.3(a), and 8.3(b). ("Required Insurance"),
over and above the Base Premium, as hereinafter defined, calculated on an annual
basis. "Insurance Cost Increase" shall include, but not be limited to,
increases resulting from the nature of Lessee's occupancy, any act or omission
of Lessee, requirements of the holder of a mortgage or deed of trust covering
the Premises, increased valuation of the Premises, and/or a premium rate
increase. If the parties insert a dollar amount in paragraph 19 such amount
shall be considered the "Base Premium." In lieu thereof, if the Premises have
been previously occupied, the "Base Premium" shall be the annual premium
applicable to the most recent occupancy. If the Premises have never been
occupied, the "Base Premium" shall be the lowest annual premium reasonably
obtainable for the Required Insurance as of the commencement of the Original
Term, assuming the most nominal use possible of the Premises. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b) (Liability Insurance Carried by Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to Lessor within
thirty (30) days after receipt by Lessee of a copy of the premium statement or
other reasonable evidence of the amount due. If the insurance policies
maintained hereunder cover other property besides the Premises, Lessor shall
also deliver to Lessee a statement of the amount of such Insurance Cost Increase
attributable only to the Premises showing in reasonable detail the manner in
which such amount was computed Premiums for policy periods commencing prior to,
or extending beyond, the term of this Lease shall be prorated to coincide with
the corresponding Commencement or Expiration of the Lease term.
8.2 LIABILITY INSURANCE
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as additional insured) against claims for bodily
injury, personal injury and property damage based upon involving or arising out
of the ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" Endorsement and contain
the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but shall include
coverage for liability assumed under this Lease as an "insured contract" for the
performance of Lessee's indemnity obligations under this Lease. The limits of
said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in
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lieu of, the insurance required to be maintained by Lessee. Lessee shall not be
named as additional insured therein.
8.3 PROPERTY INSURANCE-- BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trust or ground leases on the Premises ("Lender(s)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. Lessee Owned Alterations and Utility Installations shall be
insured by Lessee under Paragraph 8.4. If the coverage is available and
commercially appropriate, such policy or policies shall insure against all risks
of direct physical loss or damage (except the perils of flood and/or earthquake
unless required by a Lender), including coverage for any additional costs
resulting from debris removal and reasonable amounts of coverage for the
enforcement of any ordinance or law regulating the reconstruction or replacement
of any undamaged sections of the Premises required to be demolished or removed
by reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss, but not including plate glass insurance.
Said policy or policies shall also contain an agreed valuation provision in lieu
of any coinsurance clause, waiver of subrogation, and inflation guard protection
causing an increase in the annual property insurance coverage amount by a factor
of not less than the adjusted U.S. Department of Labor Consumer Price Index for
All Urban Consumers for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and Lender(s), insuring the loss of the full rental
and other charges payable by Lessee to Lessor under this Lease for one (1) year
(including all real estate taxes, insurance costs, and any scheduled rental
increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or if the Premises are part of a group of buildings owned by Lessor
which are adjacent to the Premises, the Lessee shall pay for any increase in the
premiums for the property insurance of such building or buildings if said
increase is caused by Lessee's acts, omissions, use or occupancy of the Premise.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
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8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Lessee Owned Alterations and Utility
Installations in, on, or about the Premises similar in coverage to that carried
by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for the
replacement of personal property or the restoration of Lessee Owned Alterations
and Utility Installations. Lessee shall be in the Insuring Party with respect to
the insurance required by this Paragraph 8.4 and shall provide Lessor with
written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policy Holders Rating" of at
least B+, V, or such other rating as may be required by a Lender having a lien
on the Premises, as set forth in the most current issue of "Best's Insurance
Guide." Lessee shall not do or permit to be done anything which shall invalidate
the insurance policies referred to in this Paragraph 8. Lessee shall cause to be
delivered to Lessor certified copies of, or certificates evidencing the
existence and amounts of, the insurance, and with the additional insureds,
required under Paragraph 8.2(a) and 8.4. No such policy shall be cancelable or
subject to modification except after thirty (30) days prior written notice to
Lessor. Lessee shall at least thirty (30) days prior to the expiration of such
policies, furnish Lessor with evidence of renewals or "insurance binders"
evidencing renewal thereof, or Lessor may order such insurance and charge the
cost thereof to Lessee, which amount shall be payable by Lessee to Lessor upon
demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("Waiving Party") each hereby release and relieve the other
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not limited to, the defense or pursuit of any claim
or any action or proceeding involved therein, and whether or not (in the case of
claims made against Lessor) litigated and/or reduced to judgment, and whether
well founded or not. In case any action or proceeding be brought against Lessor
by reason of any of the foregoing matters, Lessee upon notice from Lessor shall
defend the same at Lessee's expense by counsel reasonably
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satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premises or upon other portions of the building of which the Premises are a
part, or from other sources or places, and regardless of whether the cause of
such damage or injury or the means of repairing the same is accessible or not.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss
of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements
on the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE-- INSURED LOSS. If a Premises Partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee Owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect. Notwithstanding the foregoing, if the required insurance
was not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
as and when required to complete said repairs. In the event however, the
shortage in proceeds was due to the
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fact that, by reason of the unique nature of the improvements, full replacement
cost insurance coverage was not commercially reasonable and available, Lessor
shall have no obligation to pay for the shortage in insurance proceeds or to
fully restore the unique aspects of the Premises unless Lessee provides Lessor
with the funds to cover same, or adequate assurance thereof, within ten (10)
days following receipt of written notice of such shortage and request therefor.
If Lessor receives said funds or adequate assurance thereof within said ten (10)
day period, the party responsible for making the repairs shall complete them as
soon as reasonably possible and this Lease shall remain in full force and
effect. If Lessor does not receive such funds or assurance within said period,
Lessor may nevertheless elect by written notice to Lessee within ten (10) days
thereafter to make such restoration and repair as is commercially reasonable
with Lessor paying any shortage in proceeds, in which case this Lease shall
remain in full force and effect. If in such case Lessor does not so elect, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to paragraph 9.3 rather than paragraph 9.2.
Notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE--UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor' intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor.
Lessee shall provide Lessor with the required funds within thirty (30) days
following Lessee's said commitment. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such repairs as soon as
reasonably possible and the required funds are available. If Lessee does not
give such notice and provide the funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in Lessor's
notice of Terminate.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in paragraph 8.6.
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9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence
of such damage. Provided, however, if Lessee at that time has an exercisable
option to extend this Lease or to purchase the Premises, then Lessee may
preserve this Lease by, within twenty (20) days following the occurrence of the
damage, or before the expiration of the time provided in such option for its
exercise, whichever is earlier ("Exercise Period"), (i) exercising such option
and (ii) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor' election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in paragraph 9.2 (Partial Damage-
- -Insured), whether or not Lessor or Lessee repairs or restores the Premises, the
Base Rent, Real Property Taxes, insurance premiums, and other charges, if any,
payable by Lessee hereunder for the period during which such damage, its repair
or the restoration continues (not to exceed the period for which rental value
insurance is required under Paragraph 8.3(b)), shall be abated in proportion to
the degree to which Lessee's use of the Premises is impaired. Except for
abatement of Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, as aforesaid, all other obligations of Lessee hereunder shall
be performed by Lessee, and Lessee shall have no claim against Lessor for any
damage suffered by reason of any such repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may , at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee give such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after receipt of such notice, this Lease shall
continue in full force and effect. "Commence" as used in this Paragraph shall
mean either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever first
occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and
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effect, but subject to Lessor's rights under Paragraph 13), Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater, given
written notice to Lessee within thirty (30) days after receipt by Lessor of
knowledge of the occurrence of such Hazardous Substance Condition of Lessor's
desire to terminate this Lease as of the ate sixty (60) days following the
giving of such notice. In the event Lessor elects to give such notice of
Lessor's intention to terminate this Lease, Lessee shall have the right within
ten (10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the investigation and remediation of such
hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater. Lessee shall
provide Lessor with the funds required of Lessee or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect and Lessor shall
proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in Lessor's
notice of termination. If a Hazardous Substance Condition occurs for which
Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph 9.6(a)
for a period of not to exceed twelve (12) months.
9.8 TERMINATION--ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security Deposit
as has not been, or is not then required to be, used by Lessor under the terms
of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in paragraph 10.2, applicable to the Premises; provided, however that
Lessee shall pay, in addition to rent, the amount, if any, by which Real
Property Taxes applicable to the Premises increase over the fiscal tax year
during which the Commencement Date occurs ("Tax Increase"). Subject to Paragraph
10.1(b), payment of any such Tax Increase shall be made by Lessee within thirty
(30) days after receipt of Lessor's written statement setting forth the amount
due and the computation thereof. Lessee shall promptly furnish Lessor with
satisfactory evidence that such taxes have been paid. If any such taxes to be
paid by Lessee shall cover any period of time prior to or after the expiration
or earlier termination of the term hereof, Lessee's share of such taxes shall be
equitably prorated to cover only the period of time within the tax fiscal year
this Lease is in effect, and Lessor shall reimburse Lessee for any overpayment
after such proration.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's
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Tax Increase to be paid in advance to Lessor by Lessee, either: (i) in a lump
sum amount equal to the amount due, at least twenty (20) days prior to the
applicable delinquency date, or (ii) monthly in advance with the payment of the
Base Rent. If Lessor elects to require payment monthly in advance, the monthly
payment shall be that equal monthly amount which, over the number of months
remaining before the month in which the applicable tax installment would become
delinquent (and without interest thereon), would provide a fund large enough to
fully discharge before delinquency the estimated Tax Increase to be paid. When
the actual amount of the applicable Tax Increase is known, the amount of such
equal monthly advance payment shall be adjusted as required to provide the fund
needed to pay the applicable Tax Increase before delinquency. If the amounts
paid to Lessor by Lessee under the provisions of this Paragraph are insufficient
to discharge the obligations of Lessee to pay such Tax Increase as the same
becomes due, Lessee shall pay to Lessor, upon Lessor's demand, such additional
sums as are necessary to pay such obligation. All moneys paid to Lessor under
this paragraph may be intermingled with other moneys of Lessor and shall not
bear interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a)
hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any
increase in Real Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or federal
government, or any school, agricultural, sanitary, fire, street, drainage, or
other improvement district thereof, levied against any legal or equitable
interest of Lessor in the Premises or in the real property of which the Premises
are a part, Lessor's right to rent or other income therefrom, and/or Lessor's
business of leasing the Premises. The term "Real Property Taxes" shall also
include any tax, fee, levy assessment or charge, or any increase therein, in the
ownership of the Premises or in the improvements thereon, the execution of this
Lease, or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed.
Lessee's liability shall be an equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all
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other personal property to be assessed and billed separately from the real
property of Lessor. If any of Lessee's said personal property shall be assessed
with Lessor's real property, Lessee shall pay Lessor the taxes attributable to
Lessee within ten (10) days after receipt of a written statement setting forth
the taxes applicable to Lessee's property or, at Lessor's option, as provided in
Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of fifty
percent (50%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment, (i) the purchase price of any option to
purchase the Premises held by Lessee shall be subject to similar adjustment to
the then fair market value (without the Lease being considered an encumbrance or
any deduction for depreciation or obsolescence, and
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considering the Premises at its highest and best use and in good condition), or
one hundred ten percent (110%) of the price previously in effect, whichever is
greater, (ii) any index-oriented rental or price adjustment formulas contained
in this Lease shall be adjusted to require that the base index be determined
with reference to the index applicable to the time of such adjustment, and (iii)
any fixed rental adjustments scheduled during the remainder of the Lease term
shall be increased in the same ratio as the new market rental bears to the Base
Rent in effect immediately prior to the market value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not: (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee`s obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to
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have assumed and agreed to conform and comply with each and every term,
covenant, condition and obligation herein to be observed or performed by Lessee
during the term of said assignment or sublease, other than such obligations as
are contrary to or inconsistent with provisions of any assignment or sublease to
which Lessor has specifically consented in writing.
(g) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transferees to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor for any such
rents and other charges to paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, 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 the sublessor under such sublease from the time of
the exercise of said option to the expiration of such sublease; provided,
however, Lessor shall not be liable for any prepaid rents or security deposit
paid by such sublessee to such sublessor or for any other prior Defaults or
Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of
the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if
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any, specified in such notice. The sublessee shall have a right of reimbursement
and offset from and against Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH, REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "Default" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "Breach"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with applicable law per
Paragraph 6.3, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the rescission of an unauthorized assignment or
subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per Paragraphs 16 or
37, (v) the subordination or non-subordination of this Lease per Paragraph 30,
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37, (vii) the execution of any document
requested under Paragraph 42 (easements), or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it shall not be deemed to be a Breach of this Lease by Lessee if Lessee
commences such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a
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"debtor" as defined in 11 U.S.C. (S)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 same is dismissed
within sixty (60) days; (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where possession is not restored to Lessee
within thirty (30) days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within
thirty (30) days; provided, however, in the event that any provision of this
subparagraph (e) is contrary to any applicable law, such provision shall be of
no force or effect, and not affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In
such event Lessor shall be entitled to recover from Lessee: (i) the worth at
the time of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably
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avoided; (iii) the worth at the time of award of the amount by which the unpaid
rent for the balance of the term after the time of award exceeds the amount of
such rental loss that the Lessee proves could be reasonably avoided; and (iv)
any other amount necessary to compensate Lessor for all the detriment
proximately caused by the Lessee's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession of the
Premises, expenses of reletting, including necessary renovation and alteration
of the Premises, reasonable attorneys' fees, and that portion of the leasing
commission paid by Lessor applicable to the unexpired term of this Lease. The
worth at the time of award of the amount referred to in provision (iii) of the
prior sentence shall be computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of award plus one
percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's Default
or Breach of this Lease shall not waive Lessor's right to recover damages under
this Paragraph. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve therein the right to recover all or any part thereof in a separate suit
for such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay rent
or quit, or to perform or quit, as the case may be, given to Lessee under any
statute authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee,
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as defined in Paragraph 13.1, any such Inducement Provision shall automatically
be deemed deleted from this Lease and of no further force or effect, and any
rent, other charge, bonus, inducement or consideration theretofore abated, given
or paid by Lessor under such an Inducement Provision shall be immediately due
and payable by Lessee to Lessor, and recoverable by Lessor as additional rent
due under this Lease, notwithstanding any subsequent cure of said Breach by
Lessee. The acceptance by Lessor of rent or the cure of the Breach which
initiated the operation of this Paragraph shall not be deemed a waiver by Lessor
of the provisions of this Paragraph unless specifically so stated in writing by
Lessor at the time of such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within five (5) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 of any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as to the date the condemning authority takes title or
possession, whichever first occurs. If more than the ten percent (10%) of the
floor area of the Premises, or more than twenty-five percent (25%) of the land
area not occupied by any building, is taken by condemnation, Lessee may, at
Lessee's option to be exercised in writing within ten (10) days after Lessor
shall have given Lessee written notice of such taking (or in the absence of such
notice, within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the renewable floor area of the Premises taken bears to the total
renewable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building. Any award for the taking of all or any part of the
Premises under the power of eminent domain or any payment made under threat of
the exercise of such power shall be the
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property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation separately awarded to Lessee or Lessee's relocation expenses and/or
loss of Lessee's Trade Fixtures. In the event that this Lease is not terminated
by reason of such condemnation, Lessor shall to the extent of its net severance
damages received over and above the legal and other expenses incurred by Lessor
in the condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such repair.
15. BROKER'S FEE
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
15.2 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 written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement between
Lessor and said Brokers, the sum of $ per agreed schedule) for brokerage
services rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted to Lessee in this Lease, or (b) if
Lessee acquires any rights to the Premises or other premises described in this
Lease which are substantially similar to what Lessee would have acquired had an
Option herein granted to Lessee been exercised, or (c) if Lessee remains in
possession of the Premises, with the consent of Lessor, after the expiration of
the term of this Lease after having failed to exercise an Option, or (d) if said
Brokers are the procuring cause of any other lease or sale entered into between
the Parties pertaining to the Premises and/or any adjacent property in which
Lessor has an interest, or (e) if Base Rent is increased, whether by agreement
or operation of an escalation clause herein, then as to any of said
transactions, Lessor shall pay said Brokers a fee in accordance with the
schedule of said Brokers in effect at the time of the execution of this Lease.
15.4 Any buyer or 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 Broker shall be a
third party beneficiary of the provisions of this Paragraph 15 to the extent of
its interest in any commission arising from this Lease and may enforce that
right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that it has
had no dealings with any person, firm, broker or finder (other than the Brokers,
if any named in Paragraph 1.10) in connection with the negotiation of this Lease
and/or the consummation of the transaction contemplated hereby, and that no
broker or other person, firm or entity other than said named Brokers is entitled
to any commission or finder's fee in connection with said transaction. Lessee
and Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against 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
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the indemnifying Party, including any costs, expenses, attorneys' fees
reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and all
Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee and
such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes herein
set forth.
17. LESSOR'S LIABILITY. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid. Subject to the foregoing, the
obligations and/or covenants in this Lease to be performed by the Lessor shall
be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME. Time of Essence. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties under
this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to
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this Lease and as to the nature, quality and character of the Premises. Brokers
have no responsibility with respect thereto or with respect to any default or
breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in writing
and may be delivered (by hand or by messenger or courier service) or may be sent
by regular, certified or registered mail or U.S. Postal Service Express Mail,
with postage prepaid, or by facsimile transmission, and shall be deemed
sufficiently given if served in a manner specified in this Paragraph 23. The
addresses noted adjacent to a Party's signature on this Lease shall be that
Party's address for delivery or mailing of notice purposes. Either Party may by
written notice to the other specify a different address for notice purposes,
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for the purpose of mailing or delivering notices to
Lessee. A copy of all notices required or permitted to be given to Lessor
hereunder shall be concurrently transmitted to such party or parties at such
addresses as Lessor may from time to time hereafter designate by written notice
to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Post Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received
on a Sunday or legal holiday, it shall be deemed received on the next business
day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant, or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof. 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 similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
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26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reasons thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "NON-DISTURBANCE AGREEMENT") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in
the same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY"
shall
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include, without limitation, a Party or Broker who substantially obtains or
defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fee award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or building any ordinary "For Sale" signs
and Lessor may at any time during the last one hundred twenty (120) days of the
term hereof place on or about the Premises any ordinary "For Lease" signs. All
such activities of Lessor shall be without abatement of rent or liability to
Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessors' failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent
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pertaining to this Lease or the Premises, including but not limited to consents
to an assignment, a subletting or the presence or use of a Hazardous Substance,
practice or storage tank, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. Subject to Paragraph 12.2(e)
(applicable to assignment or subletting), Lessor may, as a condition to
considering any such request by Lessee, require that Lessee deposit with Lessor
an amount of money (in addition to the Security Deposit held under Paragraph 5)
reasonably calculated by Lessor to represent the cost Lessor will incur in
considering and responding to Lessee's request. Except as otherwise provided,
any unused portion of said deposit shall be refunded to Lessee without interest.
Lessor's consent to any act, assignment of this Lease or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be otherwise specifically
stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to
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purchase the Premises, or the right of first refusal to purchase the Premises,
or the right of first offer to purchase the Premises, or the right to purchase
other property of Lessor, or the right of first refusal to purchase other
property of Lessor, or the right of first offer to purchase other property of
Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee
in this Lease is personal to the original Lessee named in Paragraph 1.1 hereof,
and cannot be voluntarily or involuntarily assigned or exercised by any person
or entity other than said original Lessee while the original Lessee is in full
and actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options
to extend or renew this Lease, a later Option cannot be exercised unless the
prior Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall not
be extended or enlarged by reason of Lessee's inability to exercise an Option
because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the
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protection of the Premises, Lessee, its agents and invitees and their property
from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit or recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE
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THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR
SUBMISSION TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS
SHOULD BE CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS
TO THE POSSIBLE PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS
SUBSTANCES. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER(S) OR THEIR AGENTS OR EMPLOYEES AS TO THE LEGAL
SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR
THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY
UPON THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX
CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY IS LOCATED IN
A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE STATE WHERE
THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
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The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at _________________________ Executed at __________________________
on ___________________________________ on ____________________________________
by LESSOR: by LESSEE:
John R. and Vesna Meehan Digital Network Corporation,
- -------------------------------------- ---------------------------------------
a California Corporation
---------------------------------------
By /s/ JOHN R. MEEHAN By /s/ RICHARD BART MORAN
------------------------------------ ------------------------------------
Name Printed: John R. Meehan Name Printed: Richard Bart Moran
----------------------- ------------------------
Title: President Title: President
-------------------------------- ---------------------------------
By ___________________________________ By ____________________________________
Name Printed: _______________________ Name Printed: ________________________
Title: _______________________________ Title: ________________________________
Address: _____________________________ Address: ______________________________
______________________________________ _______________________________________
Tel No. (__) ______ Fax No. (__) _____ Tel No. (__) _______ Fax No. (__) _____
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ADDENDUM TO LEASE
dated August 10, 1995
by and between
JOHN R. AND VESNA MEEHAN "LESSOR"
and
DIGITAL NETWORK CORPORATION, A CALIFORNIA CORPORATION "LESSEE"
for 11 Musick Street, Irvine, California
1. RENT SCHEDULE: The rent for the entire term of the
Lease shall be as follows:
Months Monthly Rent
------ ------------
1 - 4 $3,150.00/Month
5-42 $6,830.00/Month
2. TENANT IMPROVEMENTS: Lessor shall provide Lessee an
allowance of up to $5,000.00 in Lessee
interior refurbishment and improvement
dollars which shall be completed by
Lessee's contractor. Prior to any
interior work or construction, Lessor
shall approve any work to take place,
in a timely manner, and Lessor shall
verify completed work and pay all
invoices, up to the total allowance,
within fifteen (15) days of receipt.
Lessee shall, at Lessee's sole
discretion, upon vacating the Premises
at the "Expiration Date" be responsible
to return the Premises to its current
condition.
3. OPTION TO EXTEND: Insofar as Lessee is not in default of
any terms of the Lease, Lessor hereby
grants to Lessee the option to extend
the term of this Lease for one (1)
three (3) year period commencing when
the prior term expires. Lessee must
give Lessor written notice of the
exercise of the option to extend, no
earlier than nine (9) months and no
later than six (6) months prior to the
date of the option period would
commence. The monthly rent for the
option period shall be fixed for the
three (3) year term
<PAGE>
at 95% of the then prevailing fair
market value for similar properties in
the area, but in no event lower than
the last month's rent from the original
term.
4. "AMERICANS WITH DISABILITIES ACT": Lessor makes no representations
whatsoever regarding the Premises'
compliance with the American with
Disabilities Act ("ADA"). In the event
the City of Irvine or any other
governmental authority having
jurisdiction requires ADA-mandated
improvements as a condition of
obtaining a building permit for the
tenant improvements to be carried out
by Lessee, Lessee shall be solely
responsible for said costs. In the
event the City of Irvine or any other
governmental authority having
jurisdiction requires any ADA-mandated
changes to the Premises in its current
condition, such alterations or upgrades
shall be the sole obligation of Lessor.
AGREED & ACCEPTED:
"LESSOR" "LESSEE"
JOHN R. AND VESNA MEEHAN DIGITAL NETWORK CORPORATION,
A CALIFORNIA CORPORATION
By: /s/ JOHN MEEHAN By: /s/ RICHARD BART MORAN
------------------------------ --------------------------------
Title: President Title: President
---------------------------- -----------------------------
Date: 8-24-98 Date: 8-15-98
------------------------------ -------------------------------
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EXHIBIT 10.35
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of the
Lease referred to in this Article One explain and define the Basic Terms and are
to be read in conjunction with the Basic Terms.
Section 1.01. DATE OF LEASE: August 12, 1996
Section 1.02. LANDLORD (INCLUDE LEGAL entity): Norris Investments
Limited
Address of Landlord: 5102 North 31st Place, No. 434, Phoenix, Arizona 85016
Section 1.03. TENANT (INCLUDE LEGAL ENTITY): Educational Industrial
Systems, Inc. (a California corporation)
Address of Tenant: 140 East Dana Street, Mountain View, California 94041
Section 1.04. PROPERTY: The Property is part of Landlord's multi-tenant
real property development known as 140 South Lindon Lane, Tempe, Arizona 85251
and described or depicted in Exhibit "A" (the "Project"). The Project includes
the land, the buildings and all other improvements located on the land, and the
common areas described in Paragraph 4.05(a). The Property is (include street
address, approximate square footage and description) an industrial/office
building at the southwest corner of First Street and Lindon Lane in Tempe,
Arizona. The building is 23,269 square feet. This lease refers to an approximate
3,900 square foot suite on the west side of 140 South Lindon Lane, Tempe,
Arizona 85251.
Section 1.05. LEASE TERM: 3 years 0 months beginning on September 1,
1996 or such other date as is specified in this Lease, and ending on August 31,
1999.
Section 1.06. PERMITTED USES: (See Article Five)______________________
_______________________________________________________________________________
Section 1.07. TENANT'S GUARANTOR: (If none, so state) None.
Section 1.08. BROKERS: (See Article Fourteen) (If none, so state)
Landlord's Broker: CB Commercial Real Estate Group, Inc.
Tenant's Broker: Daum Commercial Real Estate
Section 1.09. COMMISSION PAYABLE TO LANDLORD'S BROKER: (See Article
Fourteen) $ per separate agreement
Section 1.10. INITIAL SECURITY DEPOSIT: (See Section 3.03) $2,730.00
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Section 1.11. VEHICLE PARKING SPACES ALLOCATED TO TENANT: (See
Section 4.05) ______
Section 1.12. RENT AND OTHER CHARGES PAYABLE BY TENANT: *Addendum A
(a) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes (See Section
4.02); (ii) Utilities (See Section 4.03); (iii) Insurance Premiums (See Section
4.04); (iv) Tenant's Initial Pro Rata Share of Common Area Expenses 16.8% (See
Section 4.05); (v) Impounds for Insurance Premiums and Property Taxes (See
Section 4.08); (vi) Maintenance, Repairs and Alterations (See Article Six).
Section 1.13. LANDLORD'S SHARE OF PROFIT ON ASSIGNMENT OR SUBLEASE:
(See Section 9.05) One hundred percent (100%) of the Profit (the "Landlord's
Share").
Section 1.14. RIDER: The following Riders are attached to and made a
part of this Lease: (If none, so state) Addendum "A"
EXHIBIT "A"
ARTICLE TWO: LEASE TERM
Section 2.01. LEASE OF PROPERTY FOR LEASE TERM. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 10.05 above, unless the
beginning or end of the Lease Term is changed under any provision of this Lease.
The "Commencement Date" shall be the date specified in Section 1.05 above for
the beginning of the Lease Term, unless advanced or delayed under any provision
of this Lease.
Section 2.02. DELAY IN COMMENCEMENT. Landlord shall not be liable to
Tenant if Landlord does not deliver possession of the Property to Tenant on the
Commencement Date. Landlord's non-delivery of the Property to Tenant on that
date shall not affect this Lease or the obligations of Tenant under this Lease
except that the Commencement Date shall be delayed until Landlord delivers
possession of the Property to Tenant and the Lease Term shall be extended for a
period equal to the delay in delivery of possession of the Property to Tenant,
plus the number of days necessary to end the Lease Term on the last day of a
month. If Landlord does not deliver possession of the Property to Tenant within
sixty (60) days after the Commencement Date, Tenant may elect to cancel this
Lease by giving written notice to Landlord within ten (10) days after the sixty
(60) day period ends. If Tenant gives such notice, the Lease shall be cancelled
and neither Landlord or Tenant shall have any further obligations to the other.
If Tenant does not give such notice, Tenant's right to cancel the Lease shall
expire and the Lease Term shall commence upon the delivery of possession of the
Property to Tenant. If delivery of possession of the Property to Tenant is
delayed, Landlord and Tenant shall, upon such delivery, execute an amendment to
this Lease setting forth the actual Commencement Date and expiration
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date of the Lease. Failure to execute such amendment shall not affect the actual
Commencement Date and expiration date of the Lease.
Section 2.03. HOLDING OVER. Tenant shall vacate the Property upon the
expiration or earlier termination of this Lease. Tenant shall reimburse Landlord
for and indemnify Landlord against all damages which Landlord incurs from
Tenant's delay in vacating the Property. If Tenant does not vacate the Property
upon the expiration or earlier termination of the Lease and Landlord thereafter
accepts rent from Tenant, Tenant's occupancy of the Property shall be a
"month-to-month" tenancy, subject to all of the terms of this Lease applicable
to a month-to-month tenancy, except that the Base Rent then in effect shall be
increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. TIME AND MANNER OF PAYMENT. Upon execution of this Lease,
Tenant shall pay Landlord the Base Rent in the amount stated in Paragraph
1.12(a) above for the first month of the Lease Term. On the first day of the
second month of the Lease Term and each month thereafter, Tenant shall pay
Landlord the Base Rent, in advance, without offset, deduction or prior demand.
The Base Rent shall be payable at the Landlord's address or at such other place
as Landlord may designate in writing.
Section 3.02. SECURITY DEPOSIT; INCREASES.
(a) Upon the execution of this Lease, Tenant shall deposit with
Landlord a cash Security Deposit in the amount set forth in Section 1.10 above.
Landlord may apply all or part of the Security Deposit to any unpaid rent or
other charges due from Tenant or to cure any other defaults of Tenant. If
Landlord uses any part of the Security Deposit, Tenant shall restore the
Security Deposit to its full amount within ten (10) days after Landlord's
written request. Tenant's failure to do so shall be a material default under
this Lease. No interest shall be paid on the Security Deposit. Landlord shall
not be required to keep the Security Deposit separate from its other accounts
and no trust relationship is created with respect to the Security Deposit.
Section 3.04 TERMINATION; ADVANCE PAYMENTS. Upon termination of this
Lease under Article Seven (Damage or Destruction), Article Eight (Condemnation)
or any other termination not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund or credit to Tenant (or Tenant's successor) the unused portion of the
Security Deposit, any advance rent or other advance payments made by Tenant to
Landlord, and any amounts paid for real property taxes and other reserves which
apply to any time periods after termination of the Lease.
ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. ADDITIONAL RENT. All charges payable by Tenant other than
Base Rent are called "Additional Rent." Unless this Lease provides otherwise,
Tenant shall pay all Additional Rent then due with the next monthly installment
of Base Rent. The Term "rent" shall mean Base Rent and Additional Rent.
Section 4.02. PROPERTY TAXES.
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(a) REAL PROPERTY TAXES. Tenant shall pay all real property taxes on
the Property (including any fees, taxes or assessments against, or as a result
of, any tenant improvements installed on the Property by or for the benefit of
Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and Section 4.08
below, such payment shall be made at least ten (10) days prior to the
delinquency date of the taxes. Within such ten (10) day period, Tenant shall
furnish Landlord with satisfactory evidence that the real property taxes have
been paid. Landlord shall reimburse Tenant for any real property taxes paid by
Tenant covering any period of time prior to or after the Lease Term. If Tenant
fails to pay the real property taxes when due, Landlord may pay the taxes and
Tenant shall reimburse Landlord for the amount of such tax payment as Additional
Rent.
(b) DEFINITION OF "REAL PROPERTY TAX." "Real property tax" means: (i)
any fee, license fee, license tax, business license fee, commercial rental tax,
levy, charge, assessment, penalty or tax imposed by any taxing authority against
the Property, (ii) any tax on the Landlord's right to receive, or the receipt
of, rent or income from the Property or against the Landlord's business of
leasing the Property; (iii) any tax or charge of fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction or based
upon a re-assessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of Landlord's interest in the
Property; and (v) any charge or fee replacing any tax previously included within
the definition of real property tax. "Real property tax" does not, however,
include Landlord's federal or state income, franchise, inheritance or estate
taxes.
(c) JOINT ASSESSMENT. If the Property is not separately assessed,
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.02(a) from the assessor's worksheets or
other reasonably available information. Tenant shall pay such share to Landlord
within fifteen (15) days after receipt of Landlord's written statement.
(d) PERSONAL PROPERTY TAXES.
(i) Tenant shall pay all taxes charged against trade fixtures,
furnishings, equipment or any other personal property belonging to Tenant.
Tenant shall try to have personal property taxed separately from the Property.
(ii) If any of Tenant's personal property is taxed with the
Property, Tenant shall pay Landlord the taxes for the personal property within
fifteen (15) days after Tenant receives a written statement from Landlord for
such personal property taxes.
Section 4.03. UTILITIES. Tenant shall pay, directly to the appropriate
supplier, the cost of all natural gas, heat, light, power, sewer service,
telephone, water, refuse disposal and other utilities and services supplied to
the Property. However, if any services or utilities are jointly metered with
other property, Landlord shall make a reasonable determination of Tenant's
proportionate share of the cost of such utilities and services and Tenant shall
pay such share to Landlord within fifteen (15) days after receipt of Landlord's
written statement.
Section 4.04. INSURANCE POLICIES.
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(a) LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain
a policy of commercial general liability insurance (sometimes known as broad
form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of property)
and personal injury arising out of the operation, use or occupancy of the
Property. Tenant shall name Landlord as an additional insured under such policy.
The initial amount of such insurance shall be One Million Dollars ($1,000,000)
per occurrence and shall be subject to periodic increase based upon inflation,
increased liability awards, recommendation of Landlord's professional insurance
advisers and other relevant factors. The liability insurance obtained by Tenant
under this Paragraph 4.04(a) shall (i) be primarily and non-contributing; (ii)
contain cross-liability endorsements; and (iii) insure Landlord against Tenant's
performance under Section 5.05, if the matters giving rise to the indemnity
under Section 5.05 result from the negligence of Tenant. The amount and coverage
of such insurance shall not limit Tenant's liability nor relieve Tenant of any
other obligation under this Lease. Landlord may also obtain comprehensive public
liability insurance in an amount and with coverage determined by Landlord
insuring Landlord against liability arising out of ownership, operation, use or
occupancy of the Property. The policy obtained by Landlord shall not be
contributory and shall not provide primary insurance.
(b) PROPERTY AND RENTAL INCOME INSURANCE. During the Lease Term,
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall contain
an Inflation Guard Endorsement and shall provide protection against all perils
included within the classification of fire, extended coverage, vandalism,
malicious mischief, special extended perils (all risk), sprinkler leakage and
any other perils which Landlord deems reasonably necessary. Landlord shall have
the right to obtain flood and earthquake insurance if required by any lender
holding a security interest in the Property. Landlord shall not obtain insurance
for Tenant's fixtures or equipment or building improvements installed by Tenant
on the Property. During the Lease Term, Landlord shall also maintain a rental
income insurance policy, with loss payable to Landlord, in an amount equal to
one year's Base Rent, plus estimated real property taxes and insurance premiums.
Tenant shall be liable for the payment of any deductible amount under Landlord's
or Tenant's insurance policies maintained pursuant to this Section 4.04, in an
amount not to exceed Ten Thousand Dollars ($10,000). Tenant shall not do or
permit anything to be done which invalidates any such insurance policies.
(c) PAYMENT OF PREMIUMS. Subject to Section 4.08, Tenant shall pay
all premiums for the insurance policies described in Paragraphs 4.04(a) and (b)
(whether obtained by Landlord or Tenant) within fifteen (15) days after Tenant's
receipt of a copy of the premium statement or other evidence of the amount due,
except Landlord shall pay all premiums for non-primary comprehensive public
liability insurance which Landlord elects to obtain as provided in Paragraph
4.04(a). For insurance policies maintained by Landlord which cover improvements
on the entire Project, Tenant shall pay Tenant's prorated share of the premiums,
in accordance with the formula in Paragraph 4.05(e) for determining Tenant's
share of Common Areas costs. If insurance policies maintained by Landlord cover
improvements on real property other than the
5
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Project, landlord shall deliver to Tenant a statement of the premium applicable
to the Property showing in reasonable detail how Tenant's share of the premium
was computed. If the Lease Term expires before the expiration of an insurance
policy maintained by Landlord, Tenant shall be liable for Tenant's prorated
share of the insurance premiums. Before the Commencement Date, Tenant shall
deliver to Landlord a copy of any policy of insurance which Tenant is required
to maintain under this Section 4.04. At least thirty (30) days prior to the
expiration of any such policy, Tenant shall deliver to Landlord a renewal of
such policy. As an alternative to providing a policy of insurance, Tenant shall
have the right to provide Landlord a certificate of insurance, executed by an
authorized officer of the insurance company, showing that the insurance which
Tenant is required to maintain under this Section 4.04 is in full force and
effect and containing such other information which Landlord reasonably requires.
(d) GENERAL INSURANCE PROVISIONS.
(i) Any insurance which Tenant is required to maintain under
this Lease shall include a provision which requires the insurance carrier to
give Landlord not less than thirty(30) days' written notice prior to any
cancellation or modification of such coverage.
(ii) If Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed time period
or if any such policy is cancelled or modified during the Lease Term without
Landlord's consent, Landlord may obtain such insurance, in which case Tenant
shall reimburse Landlord for the cost of such insurance within fifteen (15) days
after receipt of a statement that indicates the cost of such insurance.
(iii) Tenant shall maintain all insurance required under this
Lease with companies holding a "General Policy Rating" of A-12 or better, as set
forth in the most current issue of "Best Key Rating Guide". Landlord and Tenant
acknowledge the insurance markets are rapidly changing and that insurance in the
form and amounts described in this Section 4.04 may not be available in the
future. Tenant acknowledges that the insurance described in this Section 4.04 is
the primary benefit of Landlord. If at any time during the Lease Term, Tenant is
unable to maintain the insurance required under the Lease, Tenant shall
nevertheless maintain insurance coverage which is customary and commercially
reasonable in the insurance industry for Tenant's type of business, as that
coverage may change from time to time. Landlord makes no representation as to
the adequacy of such insurance to protect Landlord's or Tenant's interests.
Therefore, Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance polices
maintained, Landlord and Tenant each hereby waive any and all rights of recovery
against the other, or against the officers, employees, agents or representatives
of the other, for loss of or damage to its property or the property of others
under its control, if such loss or damage is covered by any insurance policy in
force (whether or not described in this Lease) at the time of such loss or
damage. Upon obtaining the required policies of insurance, Landlord and Tenant
shall give notice to the insurance carriers of this mutual waiver of
subrogation.
Section 4.05. COMMON AREAS; USE, MAINTENANCE AND COSTS.
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(a) COMMON AREAS. As used in this Lease, "Common Areas" shall mean
all areas within the Project which are available for the common use of tenants
of the Project and which are not leased or held for the exclusive use of Tenant
or other tenants, including, but not limited to, parking areas, driveways,
sidewalks, loading areas, access roads, corridors, landscaping and planted
areas. Landlord, from time to time, may change the size, location, nature and
use of any of the Common Areas, convert Common Areas into leaseable areas,
construct additional parking facilities (including parking structures) in the
Common Areas, and increase or decrease Common Area land and/or facilities.
Tenant acknowledges that such activities may result in inconvenience to Tenant.
Such activities and changes are permitted if they do not materially affect
Tenant's use of the Property.
(b) USE OF COMMON AREAS. Tenant shall have the nonexclusive right (in
common with other tenants and all others to whom Landlord has granted or may
grant such rights) to use the Common Areas for the purposes intended, subject to
such reasonable rules and regulations as Landlord may establish from time to
time. Tenant shall abide by such rules and regulations and shall use its best
effort to cause others who use the Common Areas with Tenant's express or implied
permission to abide by Landlord's rule and regulations. At any time, Landlord
may close any Common Areas to perform any acts in the Common Areas as, in
Landlord's judgment, are desirable to improve the Project. Tenant shall not
interfere with the rights of Landlord, other tenants or any other person
entitled to use the Common Areas.
(c) SPECIFIC PROVISION RE: VEHICLE PARKING. Tenant shall be entitled
to use the number of vehicle parking spaces in the Project allocated to Tenant
in Section 1.11 of the Lease without paying any additional rent. Tenant's
parking shall not be reserved and shall be limited to vehicles no larger than
standard size automobiles or pickup utility vehicles. Tenant shall not cause
large trucks or other large vehicles to be parked within the Project or on the
adjacent public streets. Temporary parking of large delivery vehicles in the
Project may be permitted by the rules and regulations established by Landlord.
Vehicles shall be parked only in striped parking spaces and not in driveways,
loading areas or other locations not specifically designated for parking.
Handicapped spaces shall only be used by those legally permitted to use them. If
Tenant parks more vehicles in the parking area than the number set forth in
Section 1.11 of this Lease, such conduct shall be a material breach of this
Lease. In addition to Landlord's other remedies under the Lease, Tenant shall
pay a daily charge determined by Landlord for each such additional vehicle.
(d) MAINTENANCE OF COMMON AREAS. Landlord shall maintain the Common
Areas in good order, condition and repair and shall operate the Project, in
Landlord's sole discretion, as a first-class industrial/commercial real property
development. Tenant shall pay Tenant's pro rata share (as determined below) of
all costs incurred by Landlord for the operation and maintenance of the Common
Areas. Common Areas costs include, but are not limited to, costs and expenses
for the following: gardening and landscaping; utilities, water and sewage
charges; maintenance of signs (other than tenants' signs); premiums for
liability, property damage, fire and other types of casualty insurance on the
Common Areas and worker's compensation insurance; all property taxes and
assessments levied on or attributable to the Common Areas and all Common Area
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improvements; all personal property taxes levied on or attributable to personal
property used in connection with the Common Areas; straight-line depreciation on
personal property owned by Landlord which is consumed in the operation or
maintenance of the Common Areas; rental or lease payments paid by Landlord for
rented or leased personal property used in the operation or maintenance of the
Common Areas; fees for required licenses and permits; repairing, resurfacing,
repaving, maintaining, painting, lighting, cleaning, refuse removal, security
and similar items,; reserves for roof replacement and exterior painting and
other appropriate reserves; and a reasonable allowance to Landlord for
Landlord's supervision of the Common Areas (not to exceed five percent (5%) of
the gross rents of the Project for the calendar year). Landlord may cause any or
all of such services to be provided by third parties and the cost of such
services shall be included in Common Area costs. Common Area costs shall not
include depreciation of real property which forms part of the Common Areas.
(e) TENANT'S SHARE AND PAYMENT. Tenant shall pay Tenant's annual pro
rata share of all Common Area costs (prorate for any fractional month) upon
written notice from Landlord that such costs are due and payable, and in any
event prior to delinquency. Tenant's pro rata share shall be calculated by
dividing the square foot area of the property, as set forth in Section 1.04 of
the Lease, by the aggregate square foot area of the Project which is leased or
held for lease by tenants, as on the date on which the computation is made.
Tenant's initial pro rata share is set out in Paragraph 1.12(b). Any changes in
the Common Area costs and/or the aggregate area of the Project leased or held
for lease during the Lease Term shall be effective on the first day of the month
after such change occurs. Landlord may, at Landlord's election, estimate in
advance and charge to Tenant as Common Area costs, all real property taxes for
which Tenant is liable under Section 4.02 of the Lease, all insurance premiums
for which Tenant is liable under Section 4.04 of the Lease, all maintenance and
repair costs for which Tenant is liable under Section 6.04 of the Lease, and all
other Common Area costs payable by Tenant hereunder. At Landlord's election,
such statements of estimated Common Area costs shall be delivered monthly,
quarterly or at any other periodic intervals to be designated by Landlord.
Landlord may adjust such estimates at any time based upon Landlord's experience
and reasonable anticipation of costs. Such adjustments shall be effective as of
the next rent payment date after notice to Tenant. Within sixty (60) days after
the end of each calendar year of the Lease Term, Landlord shall deliver to
Tenant a statement prepared in accordance with generally accepted accounting
principles setting forth, in reasonable detail, the Common Area costs paid or
incurred by Landlord during the preceding calendar year and Tenant's pro rata
share. Upon receipt of such statement, there shall be an adjustment between
Landlord and Tenant, with payment to or credit given by Landlord (as the case
may be) so that the Landlord shall receive the entire amount of Tenant's share
of such costs and expenses for such period.
Section 4.06. LATE CHARGES. Tenant's failure to pay rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, mortgage or trust deed encumbering the
Property. Therefore, if Landlord does not receive any rent payment
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within ten (10) days after it becomes due, Tenant shall pay Landlord a late
charge equal to ten percent (10%) of the overdue amount. The parties agree that
such late charges represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment.
Section 4.07. INTEREST ON PAST DUE OBLIGATIONS. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate of
fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this Lease
is higher than the rate permitted by law, the interest rate is hereby decreased
to the maximum legal interest rate permitted by law.
Section 4.08. IMPOUNDS FOR INSURANCE PREMIUMS AND REAL PROPERTY TAXES.
If requested by any ground lessor or lender to whom Landlord has granted a
security interest in the Property, or if Tenant is more than ten (10) days late
in the payment of rent more than once in any consecutive twelve (12) month
period, Tenant shall pay Landlord a sum equal to one-twelfth (1/12) of the
annual real property taxes and insurance premiums payable by Tenant under this
Lease, together with each payment of Base Rent. Landlord shall hold such
payments in a non-interest bearing impound account. If unknown, Landlord shall
reasonably estimate the amount of real property taxes and insurance premiums
when due. Tenant shall pay any deficiency of funds in the impound account to
Landlord upon written request. If Tenant defaults under this Lease, Landlord may
apply any funds in the impound account to any obligation then due under this
Lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. PERMITTED USES. Tenant may use the Property only for the
Permitted Uses set forth in Section 1.06 above.
Section 5.02. MANNER OF USE. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance, or governmental regulation or order, which annoys or interferes with
the rights of tenants of the Project, or which constitutes a nuisance or waste.
Tenant shall obtain and pay for all permits, including a Certificate of
Occupancy, required for Tenant's occupancy of the Property and shall promptly
take all actions necessary to comply with all applicable statutes, ordinances,
rules, regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
Section 5.03. HAZARDOUS MATERIALS. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosive, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances", "hazardous wastes", "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state or
local laws or regulations, including without limitation petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing inks, acids,
pesticides, ammonia, compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and
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materials which are subsequently found to have adverse effects on the
environment or the health and safety of persons. Tenant shall not cause or
permit any Hazardous Material to be generated, produced, brought upon, used,
stored, treated or disposed of in or about the Property by Tenant, its agents,
employees, contractors, sublessees or invitees without the written consent of
Landlord. Landlord shall be entitled to take into account such other factors or
facts as Landlord may reasonably determine to be relevant in determining whether
to grant or withhold consent to Tenant's proposed activity with respect to
Hazardous Material. In no event, however, shall Landlord be required to consent
to the installation or use of any storage tanks on the Property.
Section 5.04. SIGNS AND AUCTIONS. Tenant shall not place any signs on
the Property without Landlord's prior written consent. Tenant shall not conduct
or permit any auctions or sheriff's sales at the Property.
Section 5.05. INDEMNITY. Tenant shall indemnify Landlord against and
hold Landlord harmless from any and all costs, claims or liability arising from:
(a) Tenant's use of the Property; (b) the conduct of Tenant's business or
anything else done or permitted by Tenant to be done in or about the Property,
including any contamination of the Property or any other property resulting from
the presence or use of Hazardous Material caused or permitted by Tenant; (c) any
breach or default in the performance of Tenant's obligations under this Lease;
(d) any misrepresentation or breach of warranty by Tenant under the Lease; or
(e) other acts or omissions of Tenant. Tenant shall defend Landlord against any
such costs, claims or liability at Tenant's expense with counsel reasonably
acceptable to Landlord or, at Landlord's election, Tenant shall reimburse
Landlord for any legal fees or costs incurred by Landlord in connection with any
such claim. As a material part of the consideration to Landlord, Tenant assumes
all risk of damage to property or injury to persons in or about the Property
arising from any cause, and Tenant hereby waives all claims in respect thereof
against Landlord, except for any claim arising out of Landlord's gross
negligence or willful misconduct. As used in this Section, the term "Tenant"
shall include Tenant's employees, agents, contractors and invitees, if
applicable.
Section 5.06. LANDLORD'S ACCESS. Landlord or its agents may enter the
Property at all reasonable times to show the Property to potential buyers,
investors or tenants or other parties; to do any other act or to inspect and
conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purposes Landlord deems necessary. Landlord shall
give Tenant prior notice of such entry, except in the case of an emergency.
Landlord may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. QUIET POSSESSION. If Tenant pays the rent and complies
with all other terms of this Lease, Tenant may occupy and enjoy the Property for
the full Lease Term, subject to the provisions this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. EXISTING CONDITIONS. Tenant accepts the Property in its
condition as of the execution of the Lease, subject to all recorded matters,
laws, ordinances, and governmental
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regulations and orders. Except as provided herein, Tenant acknowledges that
neither Landlord nor any agent or Landlord has made any representation as to the
condition of the Property or the suitability of the Property for Tenant's
intended use. Tenant represents and warrants that Tenant has made its own
inspection of and inquiry regarding the condition of the Property and is not
relying on any representations of Landlord or any Broker with respect thereto.
If Landlord or Landlord's Broker has provided a Property Information Sheet or
other Disclosure Statement regarding the Property, a copy is attached as an
exhibit to the Lease.
Section 6.02. EXEMPTION OF LANDLORD FROM LIABILITY. Landlord shall not
be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Property, whether such damage or injury is caused by or results from: (a) fire,
steam, electricity, water, gas or rain; (b) the breakage, leakage, obstruction
or other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures or any other cause; (c) conditions arising in
or about the Property or upon other portions of the Project from other sources
or places; or (d) any act or omission of any other tenant of the Project.
Landlord shall not be liable for any such damages or injury even though the
causes of or the means of repairing such damage or injury are not accessible to
Tenant. The provision of this Section 6.02 shall not, however, exempt Landlord
from liability for Landlord's gross negligence or willful misconduct.
Section 6.03. LANDLORD'S OBLIGATIONS.
(a) Except as provided in Article Seven (Damage or Destruction) and
Article Eight (Condemnation), Landlord shall keep the following in good order,
condition and repair: the foundations, exterior walls and roof of the Property
(including painting the exterior surface of the exterior walls of the Property
not more often than once every five (5) years, if necessary) and all components
of electrical, mechanical, plumbing, heating and air conditioning systems and
facilities located in the Property which are concealed or used in common by
tenants of the Project. However, Landlord shall not be obligated to maintain or
repair windows, doors, plate glass or the interior surfaces of exterior walls.
Landlord shall make repairs under this Section 6.03 within a reasonable time
after receipt of written notice from Tenant of the need for such repairs.
(b) Tenant shall pay or reimburse Landlord for all costs Landlord
incurs under Paragraph 6.03(a) above as Common Area costs as provided for in
Section 4.05 of the Lease. Tenant waives the benefit of any statute in effect
now or in the future which might give Tenant the right to make repairs at
Landlord's expense or to terminate this Lease due to Landlord's failure to keep
the Property in good order, condition and repair.
Section 6.04. TENANT'S OBLIGATIONS.
(a) Except as provided in Section 6.03, Article Seven (Damage or
Destruction) and Article Eight (Condemnation), Tenant shall keep all portions of
the Property (including structural, nonstructural, interior, systems and
equipment) in good order, condition and repair (including interior repainting
and refinishing, as needed). If any portion of the Property or any
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system or equipment in the Property which Tenant is obligated to repair cannot
be fully repaired or restored, Tenant shall promptly replace such portion of the
Property or system or equipment in the Property, regardless of whether the
benefit of such replacement extends beyond the Lease Term; but if the benefit or
useful life of such replacement extends beyond the Lease Term (as such term may
be extended by exercise of any options), the useful life of such replacement
shall be prorated over the remaining portion of the Lease Term (as extended),
and Tenant shall be liable only for that portion of the cost which is applicable
to the Lease Term (as extended). Tenant shall maintain a preventative
maintenance contract providing for the regular inspection and maintenance of the
heating and air conditioning system by a licensed heating and air conditioning
contractor, unless Landlord maintains such equipment under Section 6.03 above.
If any part of the Property or the Project is damaged by any act or omission of
Tenant, Tenant shall pay Landlord the cost of repairing or replacing such
damaged property, whether or not Landlord would otherwise be obligated to pay
the cost of maintaining or repairing such property. It is the intention of
Landlord and Tenant that at all times Tenant shall maintain the portions of the
Property which Tenant is obligated to maintain in an attractive, first-class and
fully operative condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.04, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.05. ALTERATIONS, ADDITIONS AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions or improvements
to the Property without Landlord's prior written consent, except for non-
structural alterations which do not exceed Ten Thousand Dollars ($10,000) in
cost cumulatively over the Lease Term and which are not visible from the outside
of any building of which the Property is part. Landlord may require Tenant to
provide demolition and/or lien and completion bonds in form and amount
satisfactory to Landlord. Tenant shall promptly remove any alterations,
additions, or improvements construed in violation of this Paragraph 6.05(a) upon
Landlord's written requests. All alterations, additions, and improvements shall
be done in a good and workmanlike manner, in conformity with all applicable laws
and regulations, and by a contractor approved by Landlord. Upon completion of
any such work, Tenant shall provide Landlord with "as built" plans, copies of
all construction contracts, and proof of payment for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give the Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord may
elect to record and post notices of non-responsibility on the Property.
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Section 6.06. CONDITION UPON TERMINATION. Upon the termination of the
Lease, Tenant shall surrender the Property to Landlord, broom clean and in the
same condition as received except for ordinary wear and tear with Tenant was not
otherwise obligated to remedy under any provision of this Lease. However, Tenant
shall not be obligated to repair any damage which Landlord is required to repair
under Article Seven (Damage or Destruction). In addition, Landlord may require
Tenant to remove any alterations, additions or improvements (whether or not made
with Landlord's consent) prior to the expiration of the Lease and to restore the
Property to its prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
expiration or earlier termination of the Lease, except that Tenant may remove
any of Tenant's machinery or equipment which can be removed without material
damage to the property. Tenant shall repair, at Tenant's expense, any damage to
the Property caused by the removal of any such machinery or equipment. In no
event, however, shall Tenant remove any of the following materials or equipment
(which shall be deemed Landlord's property) without Landlord's prior written
consent; any power wiring or power panels; lighting or lighting fixtures; wall
covering; drapes, blinds or other window coverings; carpets or other floor
coverings; heaters, air conditioners or any other heating or air conditioning
equipment; fencing or security gates; or other similar building operating
equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01 PARTIAL DAMAGE TO PROPERTY.
(a) Tenant shall notify Landlord ins writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04 (b) are sufficient to pay for the
necessary repairs, this Lease shall remain in effect and Landlord shall repair
the damage as soon as reasonably possible. Landlord may elect (but is not
required) to repair any damage to Tenant's fixtures, equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not sufficient
to pay the entire cost of repair, or if the cause of the damage is not covered
by the insurance policies which Landlord maintains under Paragraph 4.04(b),
Landlord may elect either to (i) repair the damage as soon as reasonably
possible, in which case this Lease shall remain in full force and effect, or
(ii) terminate this Lease as of the date the damage occurred. Landlord shall
notify Tenant within thirty (30) days after receipt of notice of the occurrence
of the damage whether Landlord elects to repair the damage or terminate the
Lease. If Landlord elects to repair the damage, Tenant shall pay Landlord the
"deductible amount" (if any) under Landlord's insurance policies and, if the
damage was due to an act or omission of Tenant, or Tenant's employees, agents,
contractors or invitees, the difference between the actual cost of repair and
any insurance proceeds received by Landlord. If Landlord elects to terminate the
Lease, Tenant may elect to continue this Lease in full force and effect, in
which case Tenant shall repair any damage to the Property and any
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building in which the Property is located. Tenant shall pay the cost of such
repairs, except that upon satisfactory completion of such repairs, Landlord
shall deliver to Tenant any insurance proceeds received by Landlord for the
damage repaired by Tenant. Tenant shall give Landlord written notice of such
election within ten (10) days after receiving Landlord's termination notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30) days
to repair, either Landlord or Tenant may elect to terminate this Lease as of the
date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. SUBSTANTIAL OR TOTAL DESTRUCTION. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease shall
terminate as of the date the destruction occurred. Notwithstanding the preceding
sentence, if the Property can be rebuilt within six (6) months after the date of
destruction, Landlord may elect to rebuild the Property at Landlord's own
expense, in which case this Lease shall remain in full force and effect.
Landlord shall notify Tenant of such election within thirty (30) days after
Tenant's notice of the occurrence of total or substantial destruction. If
Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. TEMPORARY REDUCTION OF RENT. If the Property is destroyed
or damaged and Landlord or Tenant repairs or restores the Property pursuant to
the provision of this Article Seven, any rent payable during the period of such
damage, repair and/or restoration shall be reduced according to the degree, if
any, to which Tenant's use of the Property is impaired. However, the reduction
shall not exceed the sum of one year's payment of Base Rent, insurance premiums
and real property taxes. Except for such possible reduction in Base Rent,
insurance premium and real property taxes, Tenant shall not be entitled to any
compensation, reduction, or reimbursement from Landlord as a result of any
damage, destruction, repair, or restoration of or to this Property.
Section 7.04. WAIVER. Tenant waives the protection of any statute, code
or judicial decision which grants a tenant the right to terminate a lease in the
event of the substantial or total destruction of the leased property. Tenant
agrees that the provision of Section 7.02 above shall govern the rights and
obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on the
date the condemning authority takes title or
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possession, whichever occurs first. If more than twenty percent (20%) of the
floor area of the building in which the Property is located, or which is located
on the Property, is taken, either Landlord or Tenant may terminate this Lease as
of the date the condemning authority takes title or possession, by delivering
written notice to the other within ten (10) days after receipt of written notice
of such taking (or in the absence of such notice, within ten (10) days after the
condemning authority takes title or possession). If neither Landlord or Tenant
terminate this Lease this Lease shall remain in effect as to the portion of the
Property not taken, except that the Base Rent and Additional Rent shall be
reduced in proportion to the reduction in the floor area of the Property. Any
Condemnation award or payment shall be distributed in the following order: (a)
first, to any ground lessor, mortgagee or beneficiary under a deed of trust
encumbering the Property, the amount of its interest in the Property, (b)
second, to Tenant, only the amount of any award specifically designated for loss
or damage to Tenant's trade fixtures or removable personal property; and (c)
third, to Landlord, the remainder of such award, whether as compensation for
reduction in the value of the leasehold, the taking of the fee, or otherwise. If
this Lease is not terminated, Landlord shall repair any damage to the Property
caused by Condemnation except that Landlord shall not be obligated to repair any
damage for which Tenant has been reimbursed by the condemning authority. If the
severance damages received by Landlord are not sufficient to pay for such
repair, Landlord shall have the right to either terminate this Lease or make
such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. LANDLORD'S CONSENT REQUIRED. No portion of the Property or
of Tenant's interest in this Lease may be acquired by any other person or
entity, whether by sale, assignment, mortgage, sublease, transfer, operation of
law, or act of Tenant, without Landlord's prior written consent, except as
provided in Section 9.02 below. Landlord has the right to grant or withhold its
consent as provided in Section 9.05 below. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of this Lease.
If Tenant is a partnership, any cumulative transfer of more than twenty percent
(20%) of the partnership interest shall require Landlord's consent. If Tenant is
a corporation, any change in the ownership of a controlling interest of the
voting stock of the corporation shall require Landlord's consent.
Section 9.02. TENANT AFFILIATE. Tenant may assign this Lease or sublease
the Property, without Landlord's consent, to any corporation which controls, is
controlled by or is under common control with Tenant, or to any corporation
resulting from the merger of or consolidation with Tenant ("Tenant's
Affiliate"). In such case, any Tenant's Affiliate shall assume in writing all of
Tenant's obligations under this Lease.
Section 9.03. NO RELEASE OF TENANT. No transfer permitted by this Article
Nine, whether with or without Landlord's consent, shall release Tenant or change
Tenant's primary liability to pay the rent and to perform all other obligations
of Tenant under this Lease. Landlord's acceptance of rent from any other person
is not a waiver of any provision of this Article Nine. Consent to one transfer
is not a consent to any subsequent transfer. If Tenant's transferee defaults
under this Lease, Landlord may proceed directly against Tenant without
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pursuing remedies against the transferee. Landlord may consent to subsequent
assignments or modifications of this Lease by Tenant's transferee, without
notifying Tenant or obtaining its consent. Such action shall not relieve
Tenant's liability under this Lease.
Section 9.04. OFFER TO TERMINATE. If Tenant desires to assign the Lease
or sublease the Property, Tenant shall have the right to offer, in writing, to
terminate the Lease as of a date specified in the offer. If Landlord elects in
writing to accept the offer to terminate within twenty (20) days after notice of
the offer, the Lease shall terminate as of the date specified and all the terms
and provisions of the Lease governing termination shall apply. If Landlord does
not so elect, the Lease shall continue in effect until otherwise terminated and
the provisions of Section 9.05 with respect to any proposed transfer shall
continue to apply.
Section 9.05. LANDLORD'S CONSENT.
(a) Tenant's request for consent to any transfer described in Section 9.01
shall set forth in writing the details of the proposed transfer, including the
name, business and financial condition of the prospective transferee, financial
details of the proposed transfer (e.g., the term of and the rent and security
deposit payable under any proposed assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right to withhold
consent, if reasonable, or to grant consent based on the following factors: (i)
the business of the proposed assignment or subtenant and the proposed use of the
Property; (ii) the net worth and financial reputation of the proposed assignee
or subtenant; (iii) Tenant's compliance with all of its obligations under the
Lease; and (iv) such other factors as Landlord may reasonably deem relevant. If
Landlord objects to a proposed assignment solely because of the net worth and/or
financial reputation of the proposed assignee, Tenant may nonetheless sublease
(but not assign), all or a portion of the Property to the proposed transferee,
but only on the other terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under the Lease
the Landlord's Share (stated in Section 1.13) of the Profit (defined below) on
such transaction as and when received by Tenant, unless Landlord gives written
notice to Tenant and the assignee or subtenant that Landlord's Share shall be
paid by the assignee or subtenant to Landlord directly. The "Profit" means (A)
all amounts paid to Tenant for such assignment or sublease, including "key"
money, monthly rent in excess of the monthly rent payable under the Lease, and
all fees and other consideration paid for the assignment or sublease, including
fees under any collateral agreements, less (B) costs and expenses directly
incurred by Tenant in connection with the execution and performance of such
assignment or sublease for real estate broker's commissions and costs of
renovation or construction of tenant improvements required under such assignment
or sublease. Tenant is entitled to recover such costs and expenses before Tenant
is obligated to pay the Landlord's share to Landlord. The Profit in the case of
a sublease of less than all the Property is the rent allocable to the subleased
space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement certifying all
amounts to be paid from any assignment or sublease of the Property within thirty
(30) days after the transaction
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documentation is signed, and Landlord may inspect Tenant's books and records to
verify the accuracy of such statement. On written request, Tenant shall promptly
furnish to Landlord copies of all the transaction documentation, all of which
shall be certified by Tenant to be complete, true and correct. Landlord's
receipt of Landlord's Share shall not be a consent to any further assignment or
subletting. The breach of Tenant's obligation under this Paragraph 9.05(b) shall
be a material default of the Lease.
Section 9.06. NO MERGER. No merger shall result from Tenant's sublease of
the Property under this Article Nine, Tenant's surrender of this Lease or the
termination of this Lease in any other manner,. In any such event, Landlord may
terminate any or all subtenancies or succeed to the interest of Tenant as
sublandlord under any or all subtenancies.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. COVENANTS AND CONDITIONS. Tenant's performance of each of
Tenant's obligations under this Lease is a condition as well as a covenant.
Tenant's right to continue in possession of the Property is conditioned upon
such performance. Time is of the essence in the performance of all covenants and
conditions.
Section 10.01. DEFAULTS. Tenant shall be in material default under this
Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section 4.04;
(b) If Tenant fails to pay rent or any other charge when due;
(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant commences
such performance within the thirty (30) day period and thereafter diligently
pursues its completion. However, Landlord shall not be required to give such
notice if Tenant's failure to perform constitutes a non-curable breach of this
Lease. The notice required by this Paragraph is intended to satisfy any and all
notice requirements imposed by law on Landlord and is not in addition to any
such requirement.
(d) (i) If Tenant makes a general assignment or general arrangement
for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored to
Tenant within thirty (30) days; or (iv) if substantially all of Tenant's assets
located at the Property or of Tenant's interest in this Lease is subjected to
attachment, execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines that any of
the acts described in this subparagraph (d) is not a default under this Lease,
and a trustee is appointed to take possession (or if Tenant remains a debtor in
possession) and such trustee or Tenant transfers Tenant's interest hereunder,
then Landlord shall receive, as Additional
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Rent, the excess, if any, of the rent (or any other consideration) paid in
connection with such assignment or sublease over the rent payable by Tenant
under this Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates, or
purports to revoke or otherwise terminate, any guaranty of all or any portion of
Tenant's obligations under the Lease. Unless otherwise expressly provided, no
guaranty of the Lease is revocable.
Section 10.3. REMEDIES. On the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease Term after the time of award
exceeds the amount of such rental loss that Tenant proves Landlord could have
reasonably avoided; and (iv) any other amount necessary to compensate Landlord
for all the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of things would be
likely to result therefrom, including, but not limited to, any costs or expenses
Landlord incurs in maintaining or preserving the Property after such default,
the cost of recovering possession of the Property, expenses of reletting,
including necessary renovation or alteration of the Property, Landlord's
reasonable attorneys' fees incurred in connection therewith, and any real estate
commission paid or payable. As used in subparts (i) and (ii) above, the "worth
at the time of the award" is computed by allowing interest on unpaid amounts at
the rate of fifteen percent (15%) per annum, or such lesser amount as may then
be the maximum lawful rate. As used in subpart (iii) above, the "worth at the
time of the award" is computed by discounting such amount at the discount rate
of the Federal Reserve Bank of San Francisco at the time of the award, plus one
percent (1%). If Tenant has abandoned the Property, Landlord shall have the
option or (i) retaking possession of the Property and recovering from Tenant the
amount specified in this Paragraph 10.03(a), or (ii) proceeding under Paragraph
10.03(b).
(b) Maintain Tenant's right to possession, in which case this Lease
shall continue in effect whether or not Tenant has abandoned the Property. In
such event, Landlord shall be entitled to enforce all of Landlord's rights and
remedies under this Lease, including the right to recover the rent as it becomes
due;
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
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Section 10.04. REPAYMENT OF "FREE" RENT. If this Lease provides for a
postponement of any monthly rental payments a period of "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated Rent".
Tenant shall be credited with having paid all of the Abated Rent on the
expiration on the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition required
by this Lease. Tenant acknowledges that its right to receive credit for the
Abated Rent is absolutely conditioned upon Tenant's full, faithful and punctual
performance of its obligations under this Lease. If Tenant defaults and does not
cure within any applicable grace period, the Abated Rent shall immediately
become due and payable in full and this Lease shall be enforced as if there were
no such rent abatement or other rent concession. In such case Abated Rent shall
be calculated based on the full initial rent payable under this Lease.
Section 10.05. AUTOMATIC TERMINATION. Notwithstanding any other term or
provision hereof to the contrary, the Lease shall terminate on the occurrence of
any act which affirms the Landlord's intention to terminate the Lease as
provided in Section 10.03 hereof, including the filing of an unlawful detainer
action against Tenant. On such termination, Landlord's damages for default shall
include all costs and fees, including reasonable attorneys' fees that Landlord
incurs in connection with the filing, commencement, pursuing and/or defending of
any action in any bankruptcy court or other court with respect to the Lease; the
obtaining of relief from any stay in bankruptcy restraining any action to evict
Tenant; or the pursing of any action with respect to Landlord's right to
possession of the Property. All such damages suffered (apart from Base Rent and
other rent payable hereunder) shall constitute pecuniary damages which must be
reimbursed to Landlord prior to assumption of the Lease by Tenant or any
successor to Tenant in any bankruptcy or other proceeding.
Section 10.06. CUMULATIVE REMEDIES. Landlord's exercise of any right or
remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. SUBORDINATION. Landlord shall have the right to subordinate
this Lease to any ground lease, deed of trust or mortgage encumbering the
Property, any advances made on the security thereof and any renewals,
modifications, consolidations, replacements or extensions thereof, whenever made
or recorded. Tenant shall cooperate with Landlord and any lender which is
acquiring a security interest in the Property or the Lease. Tenant shall execute
such further documents and assurances as such lender may require, provided that
Tenant's obligations under this Lease shall not be increased in any material way
(the performance of ministerial acts shall not be deemed material), and Tenant
shall not be deprived of its rights under this Lease. Tenant's right to quiet
possession of the Property during the Lease Term shall not be disturbed if
Tenant pays the rent and performs all of Tenant's obligations under this Lease
and is not otherwise in default. If any ground lessor, beneficiary or mortgagee
elects to have this Lease prior to the lien of its ground lease, deed of trust
or mortgage and gives written notice thereof to Tenant, this Lease shall be
deemed prior to such ground lease, deed of trust or mortgage whether
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<PAGE>
this Lease is dated prior or subsequent to the date of said ground lease, deed
of trust or mortgage or the date of recording thereof.
Section 11.02. ATTORNMENT. If Landlord's interest in the Property is
acquired by any ground lessor, beneficiary under a deed of trust, mortgagee, or
purchaser at a foreclosure sale, Tenant shall attorn to the transferee of or
successor to Landlord's interest in the Property and recognize such transferee
or successor as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any right to
terminate this Lease or surrender possession of the Property upon the transfer
of Landlord's interest.
Section 11.03. SIGNING OF DOCUMENTS. Tenant shall sign and deliver any
instrument or documents necessary or appropriate to evidence any such attornment
or subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the attorney-in-
fact of Tenant to execute and deliver any such instrument or document.
Section 11.04. ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they have
been changed, stating how they have been changed); (ii) that this Lease has not
been cancelled or terminated; (iii) the last date of payment of the Base Rent
and other charges and the time period covered by such payment; (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be in
default, stating why); and (v) such other representations or information with
respect to Tenant or the Lease as Landlord may reasonably request or which any
prospective purchase or encumbrancer of the Property may require. Tenant shall
deliver such statement to Landlord within ten (10) days after Landlord's
request. Landlord may give any such statement by Tenant to any prospective
purchaser or encumbrancer of the Property. Such purchaser or encumbrancer may
rely conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such
ten (10) day period, Landlord, and any prospective purchaser or encumbrancer,
may conclusively presume and rely upon the following facts: (i) that the terms
and provisions of this Lease have not been changed except as otherwise
represented by Landlord; (ii) that this Lease has not been cancelled or
terminated except as otherwise represented by Landlord; (iii) that not more than
one month's Base Rent or other charges have been paid in advance; and (iv) that
Landlord is not in default under the Lease. In such event, Tenant shall be
estopped from denying the truth of such facts.
Section 11.05. TENANT'S FINANCIAL CONDITION. Within ten (10) days after
written request from Landlord, Tenant shall deliver to Landlord such financial
statements as Landlord reasonably requires to verify the net worth of Tenant or
any assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall
deliver to any lender designated by Landlord any financial statements required
by such lender to facilitate the financing or refinancing of the Property.
20
<PAGE>
Tenant represents and warrants to Landlord that each such financial statement is
a true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS.
Section 12.01. LEGAL PROCEEDINGS. If Tenant or Landlord shall be in breach
or default under this Lease, such party (the "Defaulting Party") shall reimburse
the other party (the "Nondefaulting Party") upon demand for any costs or
expenses that the Nondefaulting Party incurs in connection with any breach or
default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the provisions
of this Lease is commenced, the court in such action shall award to the party in
whose favor a judgment is entered, a reasonable sum and attorneys' fees and
costs. The losing party in such action shall pay such attorneys' fees and costs.
Tenant shall also indemnify Landlord against and hold Landlord harmless from all
costs, expenses, demands and liability Landlord may incur if Landlord becomes or
is made a party to any claim or action (a) instituted by Tenant against any
third party, or by any third party against Tenant, or by or against any person
holding any interest under or using the Property by license of or agreement with
Tenant; (b) for foreclosure of any lien for labor material furnished to or for
Tenant or such other person; (c) otherwise arising out of or resulting from any
act or transaction of Tenant or such other person; or (d) necessary to protect
Landlord's interest under this Lease in a bankruptcy proceeding, or other
proceeding under Title 11 of the United States Code, as amended. Tenant shall
defend Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's election, Tenant
shall reimburse Landlord for any legal fees or costs Landlord incurs in any such
claim or action.
Section 12.02. LANDLORD'S CONSENT. Tenant shall pay Landlord's reasonable
attorneys' fees incurred in connection with Tenant's request for Landlord's
consent under Article Nine (Assignment and Subletting), or in connection with
any other act which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. NON-DISCRIMINATION. Tenant promises, and it is a condition
to the continuance of this Lease, that there will be no discrimination against,
or segregation of any person or group of persons on the basis of race, color,
sex, creed, national origin or ancestry in the leasing, subleasing,
transferring, occupancy, tenure or use of the Property or any portion thereof.
Section 13.02. LANDLORD'S LIABILITY; CERTAIN DUTIES.
(a) As used in this Lease, the term "Landlord" means only the current
owner or owners of the fee title to the Property or Project or the leasehold
estate under a ground lease of the Property or Project at the time in question.
Each Landlord is obligated to perform the obligations of landlord under this
Lease only during the time such Landlord owns such interest or
21
<PAGE>
little. Any Landlord who transfers its title or interest is relieved of all
liability with respect to the obligations of Landlord under this Lease to be
performed on or after the date of transfer. However, each Landlord shall deliver
to its transferee all funds that Tenant previously paid if such funds have not
yet been applied under the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such non-
performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary, the
liability of Landlord for the performance of its duties and obligations under
this Lease is limited to Landlord's interest in the Property and the Project,
and neither the Landlord nor its partners, shareholders, officers or other
principals shall have any personal liability under this Lease.
Section 13.03. SEVERABILITY. A determination by a court of competent
jurisdiction that any provision of this Lease or any part thereof is illegal or
unenforceable shall not cancel or invalidate the remainder of such provision of
this Lease, which shall remain in full force and effect.
Section 13.04. INTERPRETATION. The captions of the Articles or Sections of
this Lease are to assist the parties in reading this Lease and are not a pat of
the terms or provisions of this Lease. Whenever required by the context of this
Lease, the singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each include each
other. In any provision relating to the conduct, acts or omissions of Tenant,
the term "Tenant" shall include Tenant's agents, employees, contractors,
invitees, successors or others using the Property with Tenant's expressed or
implied permission.
Section 13.05. INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease
is the only agreement between the parties pertaining to the lease of the
Property and no other agreements are effective. All amendments to this Lease
shall be in writing and signed by all parties. Any other attempted amendment
shall be void.
Section 13.06. NOTICES. All notices required or permitted under this Lease
shall be in writing and shall be personally delivered or sent by certified mail,
return receipt requested, postage prepaid. Notices to Tenant shall be delivered
to the address specified in Section 1.03 above, except that upon Tenant's taking
possession of the Property, the Property shall be Tenant's address for notice
purposes. Notices to Landlord shall be delivered to the address specified in
Section 1.02 above. All notices shall be effective upon delivery. Either party
may change its notice address upon written notice to the other party.
22
<PAGE>
Section 13.07. WAIVERS. All waivers must be in writing and signed by the
waiving party. Landlord's failure to enforce any provision of this Lease or its
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a payment check from Tenant or in a letter accompanying a payment
check shall be binding on Landlord. Landlord may, with or without notice to
Tenant, negotiate such check without being bound to the conditions of such
statement.
Section 13.08. NO RECORDATION. Tenant shall not record this Lease without
prior written consent from Landlord. However, either Landlord or Tenant may
require that a "Short Form" memorandum of this Lease executed by both parties be
recorded. The party requiring such recording shall pay all transfer taxes and
recording fees.
Section 13.09. BINDING EFFECT; CHOICE OF LAW. This Lease binds any part who
legally acquires any rights or interest in this Lease from Landlord or Tenant.
However, Landlord shall have no obligation to Tenant's successor unless the
rights or interests of Tenant's successor are acquired in accordance with the
terms of this Lease. The laws of the state in which the Property is located
shall govern this Lease.
Section 13.10. CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY. If Tenant is a
corporation, each person signing this Lease on behalf of Tenant represents and
warrants that he has full authority to do so and that this Lease binds the
corporation. Within thirty (30) days after this Lease is signed, Tenant shall
deliver to Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence of such
authority reasonably acceptable to Landlord. If Tenant is a partnership, each
person or entity signing this Lease for Tenant represents and warrants that he
or it is a general partner of the partnership, that he or it has full authority
to sign for the partnership and that this Lease binds the partnership and all
general partners of the partnership. Tenant shall give written notice to
Landlord of any general partner's withdrawal or addition. Within thirty (30)
days after this Lease is signed, Tenant shall deliver to Landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership.
Section 13.11. JOINT AND SEVERAL LIABILITY. All parties signing this Lease
as Tenant shall be jointly and severally liable for the obligations of Tenant.
Section 13.12. FORCE MAJEURE. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. EXECUTION OF LEASE. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this Lease
to Tenant shall not be deemed to be an offer to lease and shall not be binding
upon either party until executed and delivered by both parties.
23
<PAGE>
Section 13.14. SURVIVAL. All representations and warranties of Landlord
and Tenant shall survive the termination of this Lease.
ARTICLE FOURTEEN: BROKERS
Section 14.01. BROKER'S FEE. When this Lease is signed by and delivered to
both Landlord and Tenant, Landlord shall pay a real estate commission to
Landlord's Broker named in Section 1.08 above, if any, as provided in the
written agreement between Landlord and Landlord's Broker, or the sum stated in
Section 1.09 above for services rendered to Landlord by Landlord's Broker in
this transaction. Landlord shall pay Landlord's Broker a commission if Tenant
exercises any option to extend the Lease Term or to buy the Property, or any
similar option or right which Landlord may grant to Tenant, or if Landlord's
Broker is the procuring cause of any other lease or sale entered into between
Landlord and Tenant covering the Property. Such commission shall be the amount
set forth in Landlord's Broker's commission schedule in effect as of the
execution of this Lease. If a Tenant's Broker is named in Section 1.08 above,
Landlord's Broker shall pay an appropriate portion of its commission to Tenant's
Broker if so provided in any agreement between Landlord's and Tenant's Broker.
Nothing contained in this Lease shall impose any obligation on Landlord to pay a
commission or fee to any party other than Landlord's Broker.
Section 14.02. PROTECTION OF BROKERS. If Landlord sells the Property, or
assigns Landlord's interest in this Lease, the buyer or assignee shall, by
accepting such conveyance of the Property or assignment of the Lease, be
conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party in such action shall be entitled to
reasonable attorneys' fees to be paid by the losing party. Such attorneys' fees
shall be fixed by the court in such action. This Paragraph is included in this
Lease for the benefit of Landlord's Broker.
Section 14.03. AGENCY DISCLOSURE; NO OTHER BROKERS. Landlord and Tenant
each warrant that they have dealt with no other real estate broker(s) in
connection with this transaction except: CB COMMERCIAL REAL ESTATE GROUP, INC.,
who represents Landlord and DAUM COMMERCIAL REAL ESTATE, who represents Tenant.
In the event that CB COMMERCIAL REAL ESTATE GROUP, INC. represents both
Landlord and Tenant, Landlord and Tenant hereby confirm that they were timely
advised of the dual representation and that they consent to the same, and that
they do not expect said broker to disclose to either of them the confidential
information of the other party.
ARTICLE FIFTEEN: COMPLIANCE
The parties hereto agree to comply with all applicable federal, state and
local laws, regulations, codes, ordinances and administrative orders having
jurisdiction over the parties, property or the subject matter of this Agreement,
including, but not limited to, the 1964 Civil Rights Act and all amendments
thereto, the Foreign Investment In Real Property Tax Act, the
24
<PAGE>
Comprehensive Environmental Response Compensation and Liability Act, and The
Americans With Disabilities Act.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED HERETO
OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED, PLEASE
DRAW A LINE THROUGH THE SPACE BELOW.
Landlord and Tenant have signed this Lease at the place and on the dates
specified adjacent to their signatures below and have initialed all Riders which
are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on , Norris Investments, Inc.
------------------------ ---------------------------------
19___
_________________________________
at_________________________________
By: /s/ JACK NORRIS
-------------------------------
Jack Norris
Its: Managing Partner 602-730-1673
------------------------------
By:_______________________________
Its:______________________________
"TENANT"
Signed on ________________________, Educational Industrial Systems, Inc.
19___ ------------------------------------
(a California Corporation)
------------------------------------
at_________________________________ By: /s/ FRANK DIGIROLAMO
---------------------------------
Frank DiGirolamo
Its: Vice President of Operations
-------------------------------
25
<PAGE>
By:____________________________
Its:___________________________
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT WITH A
PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER PERSON
WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING THE
POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE DIRECTION OF
THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE
REALTORS, INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE SOUTHERN
CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS, INC., ITS
LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR EMPLOYEES OR
AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX CONSEQUENCES OF THIS
LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD RETAIN LEGAL COUNSEL TO
ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE ADVICE OF SUCH LEGAL
COUNSEL.
26
<PAGE>
ADDENDUM "A"
RENT SCHEDULE
- -------------
Rate Monthly Rent
---- ------------
Months 1-2 $0.60 NNN per square foot per month $2,340.00 NNN*
Months 13-24 $0.65 NNN per square foot per month $2,535.00 NNN*
Months 25-36 $0.70 NNN per square foot per month $2,730.00 NNN*
*Plus applicable rental tax.
27
<PAGE>
EXHIBIT 10.36
LEASE AGREEMENT
(Office)
INVERNESS ASSOCIATES - 373
a Colorado general partnership
(As Landlord)
and
EIS, INC.
a California corporation
(as Tenant)
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
(S) 1. RENT.................................................................................................. 3
(S) 2. FINISH WORK FOR AND ACCEPTANCE OF THE PREMISES........................................................ 3
(S) 3. OPERATING EXPENSES.................................................................................... 3
(S) 4. SERVICES.............................................................................................. 7
(S) 5 SECURITY DEPOSIT.... ................................................................................. 9
(S) 6. CHARACTER OF OCCUPANCY................................................................................ 9
(S) 7. ALTERATIONS AND REENTRY BY LANDLORD................................................................... 10
(S) 8. ALTERATIONS AND REPAIRS BY TENANT..................................................................... 10
(S) 9. MECHANICS' LIENS/ PERSONAL PROPERTY TAX............................................................... 11
(S) 10. SUBLETTING AND ASSIGN-MENT............................................................................ 12
(S) 11. DAMAGE TO PROPERTY.................................................................................... 13
(S) 12. INSURANCE AND WAIVER OF SUBROGATION................................................................... 13
(S) 13. CASUALTY AND RESTORATION OF PREMISES.................................................................. 14
(S) 14. CONDEMNATION.......................................................................................... 14
(S) 15. DEFAULT............................................................................................... 15
(S) 16. SURRENDER............................................................................................. 19
(S) 17. SUBORDINATION AND ATTORNMENT.......................................................................... 20
(S) 18. ESTOPPEL.............................................................................................. 20
(S) 19. ENVIRONMENTAL......................................................................................... 21
(S) 20. SUBSTITUTED PREMISES.................................................................................. 22
(S) 21. AUTHORITIES/NOTICE.................................................................................... 22
(S) 22. RULES AND REGULATIONS................................................................................. 23
(S) 23. LIMITATION OF LANDLORD'S LIABILITY.................................................................... 23
(S) 24. PARKING............................................................................................... 23
(S) 25. MISCELLANEOUS......................................................................................... 23
(S) 26. SUBMISSION............................................................................................ 25
(S) 27. OPTION TO EXTEND...................................................................................... 25
</TABLE>
i
<PAGE>
LEASE AGREEMENT
---------------
(Office)
THIS LEASE ("LEASE") made as of July 29, 1997, is between
Inverness Associates - 373, a Colorado general partnership, having an office at
c/o Inverness Properties, Inc., 2 Inverness Drive East, Suite 200, Englewood,
Colorado 80112 ("LANDLORD"), and EIS, Inc., a California corporation having an
office at 373 Inverness Drive South, Suite 205, Englewood, Colorado ("TENANT").
This Lease is made on the terms and provisions set forth below, and
each of the terms, covenants, provisions, and agreements in this Lease shall be
a condition. The parties, for themselves, their legal representatives,
successors, and assigns, agree as follows:
A. Landlord leases to Tenant and Tenant leases from Landlord the
promises shown on the attached EXHIBIT A ("PREMISES"), containing approximately
5,960 rentable square feet and being a part of that building ("BUILDING") parcel
of real property ("REAL PROPERTY") the address of which is 373 Inverness Drive
South, Suite 205, Englewood, Colorado 80112, together with a non-exclusive
right, subject to the provisions hereof, to use all appurtenances thereto,
including, but not limited to, the surface parking area, walkways and other
common areas on the Real Property designated by Landlord for use by tenants of
the Building. (The Real Property, including common corridors, lobby area,
parking area, landscaped areas, walkways and other areas designated by Landlord
for use by all tenants of the Building are collectively referred to as the
"COMMON AREAS.")
B. (1) The term of this Lease shall, unless the term shall sooner
cease or expire as provided herein, commence on occupancy of the Premises by
Tenant, but in no event later than September 1, 1997, (the "COMMENCEMENT DATE")
and shall end on October 31, 2000, both dates inclusive and subject to extension
as provided in Section 2.C (the "LEASE TERM", which definition shall also
include any option term if the option is validly exercised), at a base annual
rental ("BASE RENT") payable in monthly installments as set forth below:
<TABLE>
<CAPTION>
Period Monthly Payment
------ ---------------
<S> <C>
Commencement to August 31, 1997, if applicable $ 0.00
September 1 - October 31, 1997 $2,297.00
November 1, 1997 - October 31, 2000 $4,594.00
</TABLE>
Base Rent is calculated on the basis that the Premises shall contain
approximately the rentable square feet specified above. Tenant shall pay the
first monthly installment of Base Rent upon execution of this Lease.
(2) In addition to Base Rent, Tenant shall pay Landlord an amount
equal to Five and 25100 Dollars ($5.25) times the rentable square feet of the
Promises, which represents Base Operating Expenses for the Premises, payable in
equal monthly installments of Two Thousand Six Hundred Eight and 00100
($2,608.00), beginning on the first day of September, 1997 and continuing each
month thereafter during the term hereafter.
C. Tenant shall use the Promises only for the purpose of selling,
designing, and installing communication technology.
<PAGE>
D. As referred to in Section 3.A, Base Operating Expenses for the
calendar year in which the term of this Lease commences, shall mean $5.25,
Rentable Area shall be 82,957 square feet, and Tenant's Pro Rate Share shall be
7.184%.
E. The security deposit referred to in Section 5 shall be $7,202.00.
F. Tenant shall be entitled to utilize, on an unreserved basis, one
parking space per 275 rentable square feet of the Premises in accordance with
and subject to the provisions of Section 24.
2
<PAGE>
Section 1. RENT.
----
All Base Rent shall be paid in advance on the first day of each
month of the Lease Term. Rent for any period during the Lease Term which is for
less than one month shall be prorated based upon the actual number of days in
that month during which this Lease is in effect. All Base Rent and other charges
hereunder shall be payable without notice or demand and without any deduction,
offset or abatement, in lawful money of the United States of America to Landlord
at Inverness Associates, Department 0337, Denver, Colorado 80256-0337, or to
such other persons or at such other places as Landlord may, from time to time,
designate in writing. "LEASE YEAR" as used in this Lease shall mean each 12 full
calendar month period following the Lease Commencement Date (as such date is
determined under Section 2.C) and each 12-month period thereafter.
Section 2. FINISH WORK FOR AND ACCEPTANCE OF THE PREMISES.
----------------------------------------------
A. The Premises shall be improved by Landlord at its cost in
accordance with the plan attached as EXHIBIT B ("TENANT FINISH WORK"). All work
and materials specifically identified on the attached Exhibit B shall be at
Landlord's cost and shall be referred to as "STANDARD TENANT FINISH." All work
and materials required to complete the Tenant Finish Work not specifically
identified on EXHIBIT B shall be at Tenant's cost and shall be referred to as
"ABOVE STANDARD TENANT FINISH." Landlord shall promptly cause its contractor to
commence and proceed with due diligence to complete the Tenant Finish Work in a
good and workmanlike manner and in compliance with all applicable laws, rules,
and regulations, and substantially in accordance with Exhibit B, subject to
delays beyond the control of Landlord or Landlord's contractor. Tenant
acknowledges that the Landlord may be completing the Tenant Finish Work, other
than carpeting and painting the Preinises which shall be done prior to the
Commencement Date, after Tenant has taken possession of the Premises.
B. Tenant's taking possession of the Premises shall be conclusive
against Tenant that as of the date of such taking the Promises were ready for
occupancy and in the condition agreed by the parties except for the remaining
Tenant Finish Work and those items set forth on the punch list (if any)
furnished to Landlord not later than 15 days after such taking of possession and
latent defects, if any, of which Landlord is given written notice not later than
90 days following the date Tenant takes possession. Damage which is the result
of the acts of Tenant or its employees or contractors, including any damage
which occurs during Tenant's move into the Premises, shall not be included on
the punch list. Landlord shall complete the punch list item with reasonable
diligence. If it has not taken possession earlier, Tenant shall be deemed to
have taken possession of the Premises 5 days after Landlord shall have delivered
to Tenant a notice that the Premises are ready for occupancy.
C. If Landlord shall permit Tenant to occupy any part of the
Premises; before the Lease Commencement Date, such occupancy shall be subject to
all of the provisions of this Lease. Early possession shall not advance the
expiration date of this Lease.
Section 3. OPERATING EXPENSES.
------------------
A. The following terms shall have the meanings respectively given
them below:
(1) "BASE OPERATING EXPENSES" - the annual amount set forth in
Paragraph E on page 1 of the Lease multiplied by the total number of square feet
of Rentable Area. Tenant acknowledges that Landlord has not made any
representation or given Tenant any assurance that Base Operating Expenses will
equal or approximate the actual Operating
3
<PAGE>
Expenses for any Lease Year, including the first Lease Year.
(2) "RENTABLE AREA" - all rentable space available for lease in the
Building. If there is a significant change in the aggregate Rentable Area as the
result of an addition to the Building, partial destruction, modification to
design or other cause which causes a reduction or increase on a permanent basis,
Landlord's Accountants shall make such adjustments in the computations as shall
be necessary to reflect any such change.
(3) "TENANT'S PRO RATE SHARE" - Tenant's percentage portion of
increases in Operating Expenses as such percentage is specified in Paragraph E
on page 1 of this Lease. If at any time during the Lease Term, Tenant leases
additional space in the Building, Tenant's Pro Rata Share shall be recomputed by
dividing the total rentable square footage of space then being leased by Tenant
(including the Additional space) by the Rentable Area and the resulting
percentage figure shall then become Tenant's Pro Rata Share.
(4) "LANDLORD'S ACCOUNTANTS" - the individual or firm employed by
Landlord from time to time to keep the books and records for the Building and
Common Area and/or to prepare the federal and state income tax returns for
Landlord with respect to the Building and Common Area, which shall be certified
to by an appropriate representative of Landlord.
(5) "OPERATING EXPENSES" - all operating expenses of any kind or
nature determined in accordance with sound accounting practice as applied to the
operation and maintenance of first class office buildings in the metropolitan
Denver, Colorado area, including without limitation:
(a) all real property taxes and assessments levied against the
Building and/or Common Areas by any governmental or quasi-governmental
authority, including ny taxes, impositions, or assessments of a nature not
presently in effect and subsequently levied on the Building and/or Common Areas
as a result of the use, ownership or operation of the Building and/or Common
Areas, or for any other reason, whether in lieu of, or in addition to, any
current real estate taxes and assessments, provided, that (i) any taxes levied
on the rentals of the Building shall be determined as if the Building were
Landlord's only property and, (ii) in no event shall "taxes or assessments"
include any net federal or state income taxes levied or assessed on Landlord
unless such taxes are a specific substitute for real property taxes (such term
shall, however, include gross tax an rentals); expenses incurred by Landlord for
tax consultants and in contesting the amount or validity of any such taxes or
assessments shall be also included in such computations (all of the foregoing
are collectively referred to as "TAXES");
(b) Costs of supplies, including, without limitation, costs of
relamping all standard building tenant lighting as required from time to time;
(c) Costs in connection with obtaining and providing energy for the
Building, including, without limitation, costs of propane, butane, natural gas,
steam, electricity, solar energy and fuel oils, or coal;
(d) Costs of water and sanitary and storm drainage services,
(e) Costs of security services and of managing and operating any
computer which controls building energy consumption, life safety equipment, fire
alarms, and security access response, when applicable, and costs of janitorial
services for the Common areas.
(f) Costs of maintenance and non-structural repairs to any part of
the interior or exterior of the Building (and its systems and equipment) or
Common Areas, including without limitation costs under maintenance contracts and
repairs and replacements of
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equipment used in connection with such maintenance and repair work;
(g) Costs of maintenance and replacement of landscaping;
(h) Insurance premiums, including fire and all-risk coverage,
together with loss of rent endorsement, the part of any claim required to be
paid under the deductible portion of any insurance policy carded by Landlord in
connection with the Building or Common Areas or their component parts (where
Landlord is unable to obtain insurance without such deductible from a major
insurance carrier at reasonable rates), public liability insurance, and any
other insurance carried by Landlord on the Building or Common Area or their
component parts (all such insurance shall be in such amounts as Landlord may
reasonably determine);
(i) Labor costs, including wages and other payments, costs to
Landlord of workmen's compensation and disability insurance, payroll taxes,
welfare fringe benefits, and all legal fees and other costs or expenses incurred
in resolving any labor dispute;
(j) Professional building management fees,
(k) Legal, accounting, inspection and other consultation fees
incurred in the ordinary course of operating the Building and in making the
computations required hereunder; and
(l) Costs of capital improvements and structural repairs and
replacements made in or to the Building and/or Common Areas in order to conform
to new, or changes in existing, laws, ordinances, rules, regulations or orders
of any governmental or quasigovernmental authority having jurisdiction over the
Building and/or Common Areas effective after the date hereof ("REQUIRED CAPITAL
IMPROVEMENTS"); costs of any capital improvements and structural repairs and
replacements designed primarily to reduce Operating Expenses ("COST SAVINGS
IMPROVEMENTS"); and a reasonable annual reserve for all other capital
improvements and structural repairs and replacements reasonably necessary to
permit Landlord to maintain the Building as a first class office building. The
expenditures for Required Capital Improvements and Cost Savings Improvements
shall be amortized at a market rate of return over their useful life, as
reasonably detertnined by Landlord's Accountants, provided that the amortized
amount of any Cost Savings Improvement shall be limited in any year to the
reduction in Operating Expenses as a result thereof.
"Operating Expenses" shall not include: (i) costs of any work, including
painting, decorating and tenant-change work, which Landlord performs for any
tenant or in any tenant's space in the Building other than work of a kind and
scope which Landlord would be obligated to furnish to all tenants whose leases
contain a rental adjustment provision and services provision similar to those
herein; (ii) costs of repairs or other work occasioned by fire, windstorm or
other insured casualty to the extent of insurance proceeds received; (iii)
leasing commissions, advertising expenses and other costs incurred in leasing
space in the Building; (iv) costs of repairs or rebuilding necessitated by
condemnation; (v) interest on borrowed money or debt amortization, except as
specifically set forth above; or (vi) depreciation on the Building.
B. As provided below, for each calendar year of the Lease Term
(including the calendar year in which the Lease Term commences) Tenant shall pay
to Landlord Tenant's Pro Rata Share of the amount of the increase in the
Operating Expenses for the calendar year just completed over Base Operating
Expenses and shall also pay to Landlord monthly during each calendar year
following the year in which the Lease Term commences, an estimate of Tenant's
Pro Rata Share of the amount by which actual Operating
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Expenses attributable to the calendar year during which such amounts are paid
will exceed the Base Operating Expenses. As soon as practicable after the end of
each calendar year during the Lease Term, beginning with the end of the calendar
year in which the Lease Term commences, Landlord shall submit to Tenant a
statement setting forth: (i) the amount of the increase, if any, in the amount
of Tenant's Pro Rate Share for the calendar year just completed over Base
Operating Expenses, and (ii) for each calendar year following the year in which
the Lease Term commences, the difference, if any, between the amount of Tenant's
actual Pro Rata Share of the Operating Expenses for the calendar year just
completed and the estimated amount of Tenant's Pro Rata Share of the increases
paid for that year. Each statement shall also set forth the amount of the
estimated increases in Operating Expenses over Base Operating Expenses for the
new calendar year computed in accordance with the foregoing. To the extent that
the amount of Tenant's Pro Rata Share of actual increases for the period covered
by such statement is higher than Tenant's payments (if any) of its Pro Rata
Share of the estimated increases for the calendar year just completed, Tenant
shall pay to Landlord the difference in cash within 30 days following receipt of
the statement from Landlord. If, however, the amount of Tenant's Pro Rata Share
of the actual increases for the period covered by the statement is less than the
amount of Tenant's Pro Rata Share of the estimated increases paid during the
calendar year just completed, Landlord shall credit the difference against the
Tenant's estimated payment for such Operating Expenses for the current year.
Until Tenant receives each such statement, Tenant shall continue to pay the
amount required for the prior year, but Tenant shall commence payment to
Landlord of the monthly installments of such estimates on the basis of the
statement beginning on the first day of the month following the month in which
Tenant receives such statement. Tenant shall also pay to Landlord or deduct from
the rent, as the case may be; the difference, if any, between the monthly
installments of rent, so adjusted, for the new year and the monthly
installments of rent actually paid during the new year.
C. Tenant's obligation with respect to payment of its Pro Rata Share
of increases shall survive the expiration or early termination of this Lease and
Landlord shall have the right to retain the Security Deposit, or so much of it
as it deems necessary, to secure such payment attributable to the year in which
this Lease terminates. If this Lease is in effect for less than a full calendar
year during the first or last calendar year of the Lease Term, Tenant's Pro Rata
Share for such partial year shall be calculated by proportionately reducing the
Base Operating Expenses to reflect the number of months in iuch year during
which this Lease was in effect (the "Adjusted Base Operating Expenses"), and the
Adjusted Base Operating Expenses shall then be compared with the actual
Operating Expenses for that partial year to determine the amount, if any, of any
increases in the actual Operating Expenses for such partial year over the
Adjusted Base Operating Expenses.
D. Tenant shall have the right within 30 days after a statement of
actual Operating Expenses for a particular calendar year has been rendered by
Landlord, upon notice to Landlord, at Tenant's sole cost, to examine Landlord's
books and records relating to the determination of these Operating Expenses.
Unless Tenant objects to the resulting rental adjustment within the 30-day
period, the statement and adjustment shall be deemed conclusive.
E. In computing increases any special assessments shall be deemed
payable in such number of installments as permitted by law, whether or not
actually so paid. If the Building has not been fully assessed as a completed
structure, then for the purposes of computing the Operating Expenses for any
adjustment herein, Taxes shall be adjusted by Landlord as of the date on which
the adjustment is to be made to reflect full completion of the Building
including installation of Tenant Finish
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Work for all Rentable Area. If any lease entered into by Landlord with any
tenant in the Building is on a so-called "net" basis, or provides for a separate
basis of computation for any Operating Expenses, then, to the extent that
Landlord's Accountants determine that an adjustment should be made in making the
computations herein, Landlord's Accountants shall be permitted to modify the
computation of Base Operating Expenses, Rentable Area, and Operating Expenses
for a particular Lease Year in order to eliminate or otherwise modify any such
expenses which are paid for in whole or in part by such tenant. In making the
computations above Landlord's Accountants shall also be permitted to make such
adjustments and modifications to the provisions of this Section as shall be
reasonably necessary to achieve the intention of the parties. If the Rentable
Area is not fully occupied during a Lease Year, Landlord's Accountants may
reasonably adjust those Operating Expenses which are affected by the occupancy
rates for that Lease Year, or portion thereof, as the case may be, to reflect
full occupancy.
F. The Rentable Area, the Base Rent, and Tenant's Pro Rata Share may
be appropriately recalculated and adjusted in the event that the Building and/or
Premises are measured upon completion and it is determined that the square
footage of the Building and/or Premises differs from those figures set forth on
page I of this Lease.
G. Tenant shall at its sole cost and expense, separately contract for
and provide janitorial service to the Premises. Landlord may impose reasonable
rules, regulations and requirements on such janitorial service.
H. Tenant acknowledges that the Premises together with adjacent space
currently leased by General Electric Company (the "GE Space") are collectively
seperately metered for electrical power. Because of the prohibitive cost of
seperately metering the Premises and the GE Space, Landlord will not separately
meter the Premises. In lieu of such seperate metering, Landlord shall have the
electricity metered in Landlord's name and seperately bill Tenant and such
tenant as leases the GE Space for alectjical usage on a pro rate basis based on
the rentable square footage of each tenant Based on that formula, commencing
with the commencement of the Lease, Tenant would be responsible for 38% (5,960 +
15,690) of the electrical cost billed to Landlord. During such time as the GE
Space is unoccupied by a subsequent tenant, Tenant shall be responsible for all
of the electrical bill to Landlord, less an appropriate deduction, such
deduction to be reasonably determined and agreed upon between Tenant and
Landlord, for the electrical consumption that is required for the GE Space when
vacant. If the use of the Premises or the GE Space increase from Ordinary
Business Hours, Landlord shall make reasonable adjustments so that Tenant is
paying for an equitable pro ration of the electrical consumption. Any amounts
billed to Tenant by Landlord pursuant to this subparagraph H are in addition to
any other amounts paid to Landlord by Tenant pursuant to Section 3 of the Lease.
Section 4. SERVICES.
--------
A. Subject to the provisions of D below, Landlord agrees, without
charge except as provided in this Lease, and in accordance with those standards
prevailing from time to time for the Building: (1) to furnish running water at
those points of supply for general use of tenants of the Building, heated and
cooled air, electrical current, janitorial services and such maintenance as
Landlord reasonably deems necessary for all Common Areas; (2) to furnish, during
Ordinary Business Hours such heated or cooled air to the Premises as may, in the
reasonable judgment of Landlord, be required for the comfortable use and
occupancy of the Premises, provided that the recommendations of Landlord's
engineer regarding occupancy and use of the Premises are complied with by
Tenant, and cooled air is used only for standard office use; (3) if the Building
is equipped with elevators, to provide,
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during Ordinary Business Hours, non-exclusive use of a passenger elevator for
access to and from the Premises (with at least one such elevator being available
at all times except in the case of emergencies or repair); (4) to provide
janitorial services for the Premises to the extent of the Standard Tenant Finish
items contained therein (including such window washing of the outside of
exterior windows as may, in the judgment of Landlord, be reasonably required),
but unless and until Building standard changes, such janitorial services will be
provided after business hours only on Monday through Friday, excluding Legal
Holidays; and (5) to cause electric power to be supplied to the Premises for
building standard fluorescent lighting and for general purpose 120 volt single-
phase plug-in power for ordinary office usage, but in any event, the combination
of both are not to exceed 5 watts per useable square foot per National Electric
Code connected load requirements ("PERMITTED POWER"). "ORDINARY BUSINESS HOURS"
shall be 7:00 a.m. to 6:00 p.m. Monday through Friday and 9:00 a.m. to 12:00
p.m. on Saturdays, Legal Holidays excepted. "LEGAL HOLIDAYS" shall mean New
Year's day, Presidents' Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas Day, and such other national holidays as may be
established by the federal government.
B. To the extent (a) electric current in excess of Permitted Power is
used for any machinery, equipment or otherwise in the operation of the Premises,
(b) electric current is used in the Promises at times other than Ordinary
Business Hours, or (c) any use of machinery or equipment would overload Building
facilities (or would result in an imbalance in the HVAC systems designed for the
Building), then and in each such case Tenant's rent may be increased by Landlord
in such amounts as Landlord reasonably determines necessary to cover the
increased cost resulting from such uses, including additional air conditioning
costs and other ancillary costs incurred by Landlord attributable to any such
uses (including costs required to make such service available to the Premises).
Such increases shall be paid monthly with the monthly rental installment. Tenant
shall also reimburse Landlord for all costs of modifying the Building HVAC
system and/or extending or modifying any electrical service as Landlord may
reasonably determine is necessary as a result of Tenant's excess usage. Before
installation or use by Tenant of any equipment other than that which utilizes
only Permitted Power, or operation of the Premises for extended hours on an
ongoing basis, Tenant shall notify Landlord of such intended installation or
use, and obtain Landlord's consent. In addition to the foregoing, Landlord may,
at Landlord's option, then or at any time thereafter, require Tenant, at
Tenant's sole cost and expense, to install a check meter to assist in
determining the amount by which Tenant's rent should be increased. If Tenant
desires electric current or heated or cooled air to the Premises during periods
other than Ordinary Business Hours, Landlord will use reasonable efforts to
supply such services, but at the expense of Tenant at Landlord's standard rate
as reasonably established by it from time to time for such services. Not less
than 48 hours prior notice shall be given to Landlord of Tenant's desire for
these additional services. Tenant shall also pay the cost of replacing light
bulbs or tubes used in all non-standard Building lighting in the Premises.
C. If Tenant requests janitorial services other than those standard
services provided to other tenants of the Building, Tenant shall separately pay
for such service monthly upon billing by Landlord, or, at Landlord's option,
Tenant shall separately contract for such services with the same company
furnishing janitorial services to Landlord. Tenant shall have the right, subject
to Landlord's prior written consent and'such rules, regulations and requirements
as Landlord may reasonably impose (including, but not limited to, the
requirement thatsuch janitors belong to a trade union), to employ janitors other
than those employed by Landlord to perform such additional services.
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D. Landlord shall not be liable for failure to supply heating, air
conditioning, elevator, electrical, janitorial, lighting or other services
during any period as long as Landlord is using reasonable diligence to supply
such services, or during any period Landlord is required to reduce or curtail
such services pursuant to any applicable laws, rules or regulations, including
utility regulations, it being agreed that such services may be discontinued,
reduced or curtailed (either temporarily or permanently) at such times as may be
necessary by reason of accident, repairs, alterations, improvements, strikes,
lockouts, riots, acts of God, application of applicable laws, rules and
regulations, or any other happening beyond the control of Landlord. In the event
of an interruption, reduction, or discontinuance of services (either temporary
or permanent) as set forth above, Landlord shall neither be liable for damages
to person or property as a result thereof nor shall the occurrence of any such
event in any way be construed as an eviction of Tenant, cause or permit an
abatement, reduction, or setoff of rent, or operate to release Tenant from any
of its obligations under this Lease.
E Tenant shall promptly notify the Landlord (or its representative)
of any accidents or defects in the Building of which Tenant becomes aware,
including defects in pipes, electric wiring, and HVAC equipment, and provide
Landlord with prompt notification of any condition of which it becomes aware
which may cause injury or damage to the Building or any person or property
therein.
Section 5. SECURITY DEPOSIT.
----------------
Concurrent with the execution of this Lease, Tenant shall deposit
with Landlord, and will keep on deposit at all times during the term of this
Lease, the amount set forth:in Paragraph F on page 1 of this Lease, as security
for the payment by Tenant of all rent and other amounts agreed to be paid and
for the performance of all the terms and conditions of this Lease to be
performed by Tenant. If Tenant shall be in default in the performance of any
provision of this Lease, Landlord shall have the right to use the deposit, or so
much as is necessary, in payment of any, rent or other amounts in default,
reimbursement of expenses incurred by Landlord, and payment of damages incurred
by Landlord by reason of Tenant's default. In such event, Tenant shall, on
written demand of Landlord, promptly remit to Landlord a sufficient amount in
cash to restore the deposit to its original amount If the deposit is not
utilized, it (or as much thereof as has not been utilized for such purposes)
shall be refunded to Tenant, or to whoever is than the holder of Tenant's
interest in this Lease, without interest, upon full performance of this Lease by
Tenant. Landlord shall have the right to commingle the deposit with other funds
of Landlord and need not keep it in a trust account Landlord may deliver the
deposit to the purchaser of Landlord's interest in the Premises in the event
such interest be sold, and Landlord shall then be discharged from further
liability with respect to it. If claims of Landlord exceed the deposit, Tenant
shall remain liable for the balance of such claims.
Section 6. CHARACTER OF OCCUPANCY.
----------------------
Tenant shall: occupy the Premises only for the purpose set forth in
Paragraph D on Page 1 of this Lease for no other purpose; use them in a careful,
safe and proper manner; pay on demand for any damage to the Premises caused by
misuse or abuse thereof by Tenant, Tenant's agents or employees, or of any other
person entering upon the Premises under express or implied invitation of Tenant;
and comply with all, and not use or permit the Premises to be used for any
purposes prohibited by, the laws, codes, rules and regulations of any
governmental authority having jurisdiction feven if the foregoing shall
necessitate
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changes or modificafions within the Premises) or the provisions of the
restrictive covenants affecting the Building and not permit any nuisance on or
in the Premises. Tenant shall allow no use to be made of the Premises which will
cause the cancellation of any insurance policy covering the Premises or the
Building, and if the particular use to which the Tenant puts the Premises
causes an increase in insurance rates, Tenant shall pay any such increase.
Section 7. ALTERATIONS AND REENTRY BY LANDLORD.
-----------------------------------
A. Unless otherwise expressly provided herein Landlord shall not
be required to make any modifications, improvements or repairs of any kind or
character to the Premises during the Lease Term, except such repairs to the
base, shelf and core of the Building, the roof, building standard HVAC,
electrical and plumbing facilities and Common Areas as may be deemed necessary
by Landlord for normal maintenance operations of the Building and Common Areas
(so long as the need for such repairs is not the result of Tenant's negligence)
and provided such obligation shall not include the interior surface of exterior
walls, windows, doors, or interior plate glass. Tenant agrees that for the
purposes of completing or making repairs or alterations in any portion of the
Building, Landlord may use one or more of the street entrances, the halls,
passageways and elevators of the Building.
B. Tenant shall permit Landlord to enter the Premises at any time
upon reasonable notice to Tenant to show the Premises for leasing or to examine
and inspect the same or, if Landlord so elects, to perform any obligations of
Tenant hereunder which Tenant shall fail to perform or to perform such cleaning,
maintenance, janitorial services, repairs, additions or alterations as Landlord
may deem necessary or proper for the safety, improvement or preservation of the
Premises or of other portions of the Building and Common Areas or as may be
required by governmental authorities. Any such reentry shall not constitute an
eviction or entitle Tenant to abatement of rent. Landlord shall have the right
at its election to make such alterations or changes in other portions of the
Building and Common Areas as Landlord may from time to time deem necessary and
desirable as long as such alterations and changes do not unreasonably interfere
with Tenant's use and occupancy of the Premises.
Section 8. ALTERATIONS AND REPAIRS BY TENANT.
---------------------------------
A. Tenant shall not make any alterations in or additions to the
Premises (subsequent to the work in the Premises performed by Landlord in
accordance with Section 2.A above), including installation of any equipment or
machinery which requires modification of or additions to any existing electrical
outlet or which would increase Tenant's usage of electricity beyond Permitted
Power (all such alterations being referred to collectively as "ALTERATIONS"),
without in each instance first obtaining the written consent of Landlord. As to
any Alterations to which Landlord has consented, Tenant, at its expense, shall
pay all engineering and design costs incurred by Landlord attributable to the
Alterations and obtain all required governmental permits and certificates, and
cause such Alterations to be completed in compliance therewith and all
applicable laws and regulations and all applicable requirements of Landlord's
insurance carriers. All Alterations shall be performed in a good and workmanlike
manner, using new materials and equipment equal or better in quality to the
odginal installations in the Premises. All repair and maintenance work required
to be performed by Tenant pursuant to the provisions of B below, and any
Alterations permitted by Landlord pursuant hereto, shall be done at Tenant's
expense by Landlord's employees or, with Landlord's consent by persons requested
by Tenant and authorized in writing by Landlord; provided, however, if such work
is performed by persons who are not employees of Landlord,
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Tenant shall pay to Landlord, upon receipt of billing therefor, the costs for
supervision and control of such persons as Landlord may determine to be
necessary. If Landlord authorizes persons requested by Tenant to perform such
work, prior to the commencement of any such work, Tenant shall on request
deliver to Landlord certificates issued by insurance companies qualified to do
business in Colorado evidencing that workmen's compensation, public liability
insurance and property damage insurance (all in amounts, with companies and on
forms satisfactory to Landlord) are in force and effect and maintained by all
contractors and subcontractors engaged by Tenant to perform such work. All such
policies shall name Landlord (and any Mortgagee) as an additional insured. Each
such certificate shall provide that the same may not be canceled or modified
without 10 days prior written notice to Landlord and such Mortgagee. Further,
Landlord or such Mortgagee shall have the right to post notices in the Premises
in locations which will be visible by parties performing any work on the
Promises stating that Landlord is not responsible for the payment for such work
and setting forth such other information as Landlord may deem necessary.
Alterations, repair and maintenance work shall be performed in a manner which
will not unreasonably interfere with, delay, or impose any additional expense
upon Landlord in the maintenance or operation of the Building or upon other
tenants' use of their premises.
B. Tenant shall keep the Premises in as good condition and repair as
when they were entered upon, and in an orderly state, loss by fire or other
casualty or ordinary wear excepted. Subject to Landlord's obligation to make
repairs in the event of certain casualties as set forth in Section 13 , Landlord
shall have no obligation for the repair or replacement of any portion of the
interior of the Premises which is damaged or wears out during the Lease Term
regardless of cause, including, without limitation, carpeting, draperies, window
coverings, interior plate glass, wallcoverings, painting, or any of Tenant's
property or betterments in the Premises.
C. All Alterations and permanent fixtures installed in the Premises,
including all partitions, paneling, carpeting, drapes or other window covering,
and light fixtures (but not including movable office furniture not permanently
attached to the Building), shall be deemed a part of the real estate and the
property of Landlord and shall remain upon and be surrendered with the Premises
without disturbance or injury at the end of the Lease Term, unless Landlord
gives Tenant notice not later than 15 days before the end of the Lease Term to
have Tenant remove all or any of the Alterations, and which event Tenant shall
promptly remove at Tenant's expense the Alterations specified by Landlord and
restore the Premises to their prior condition, reasonable wear and tear
excepted.
Section 9. MECHANICS' LIENS/ PERSONAL PROPERTY TAX.
---------------------------------------
A. Tenant shall cause to be paid all costs for work done or caused
to be done by Tenant an the Premises (including work performed by Landlord or
its contractor at Tenant's request following commencement of the Lease Term) of
a character which could result in liens on Landlord's interem Tenant will keep
the Premises free and clear of all mechanics' and other liens on account of work
done for Tenant or persons claiming under it, excluding Tenant Finish Work
performed by Landlord pursuant to this Lease. Tenant agrees to indemnify and
defend Landlord with respect to all liability, loss, damage, cost or expense,
including attorneys' fees, on account of any claims of any nature whatsoever,
including claims or liens of laborers or materialmen or others, for work
performed for or materials or supplies furnished to Tenant or persons claiming
under Tenant Should any liens be filed or recorded against the Premises and/or
the Building or any action affecting the title thereto be commenced as a result
of such work, Tenant shall cause such liens to be removed of record
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within 5 days after notice from Landlord. If Tenant desires to contest any claim
or lien, Tenant shall furnish to Landlord adequate security of at least 150% of
the amount of the claim, plus estimated costs and interest, or, at Landlord's
option, file a bond and obtain a release of the lien pursuant to applicable law.
If a final judgment establishing the validity or existence of any such lion is
entered, Tenant shall pay and satisfy it at once. If Tenant shall be in default
in paying any charge for which a mechanic's lien or suit to foreclose the lien
has been recorded or filed, and shall not have given Landlord security as
provided above, Landlord may (but without being required) pay such lien or claim
and any costs, and the amount so paid, together with reasonable attorneys' fees
incurred in connection therewith, shall be immediately due from Tenant to
Landlord.
B. Tenant shall pay all sales and use taxes imposed as the result of
Tenant's business conducted on the Premises and all personal property taxes
assessed against personal property of Tenant situated thereon during the Lease
Term.
Section 10. SUBLETTING AND ASSIGNMENT.
-------------------------
A. Without the prior written consent of Landlord neither Tenant
nor Tenant's legal representatives or successors, shall, by operation of law or
otherwise, assign or mortgage this Lease or sublet the whole or any part of the
Premises or permit any part thereof to be used or occupied by others.
Landlord's consent to any such transaction shall be in Landlord's sole and
absolute discreton. The term "assign" as used herein, shall also include the
following: (i) a sale or distribution by Tenant of all or substantially all of
its assets, (ii) the sale or transfer by Tenant of all or substantially all of
its stock if Tenant is a corporation; (iii) a merger of Tenant with another
corporation; (iv) a sale or transfer of all or substantially all of the
beneficial ownership interests in a tenant which is a partnership; or (v) an
assignment of a part interest in this Lease or any assignment from one co-tenant
to another.
B. If this Lease is assigned, or if the Premises or any part
thereof is sublet or occupied by other than Tenant, Landlord may, after default
by Tenant, collect rent from the assignee, subtenant, or occupant, and apply the
net amount collected to the rent and other charges hereunder, but no such
assignment, subletting, occupancy, or collection shall be deemed an acceptance
of the assignee, subtenant, or Occupant as the Tenant hereof, or a release of
Tenant from further performance by Tenant unless expressly agreed to in writing
by Landlord. Consent by Landlord to any one assignment or subletting shall not
be construed as releasing the requirement of obtaining the Landlord's written
consent to any further assignment or subletting rincluding subletting by any
subtenant). Notwithstanding the consent of Landlord to any subletting or
assignment, Tenant shall not be relieved from its primary obligations hereunder
to Landlord including but not limited to the payment of all Base Rent and
Tenant's Pro Rata Share of increases in Operating Expenses unless explicitly
agreed to in writing by Landlord. Landlord's consent to any requested subletting
or assignment shall not waive Landlord's right to refuse to consent to any other
such request Tenant shall pay to Landlord within 30 days of receipt of an
invoice therefor all reasonable costs incurred by Landlord in reviewing and
preparing documents with respect to any proposed subletting or assignment of the
Premises.
C. In the event Tenant receives rental or other sums from any
subtenant or assignee in excess of the Base Rent and increases in Operating
Expenses required to be paid by Tenant, Landlord shall be entitled to 50% of
such excess. Tenant shall promptly pay to Landlord 50% of such excess rental as
when it is received by Tenant from any such subtenant or assignee.
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Section 11. DAMAGE TO PROPERTY.
------------------
A. Tenant shall not hold or attempt to hold Landlord liable for
any injury or damage, either proximate or remote, occurring through or caused by
fire, water, steam, or any repairs, alterations, injury, accident, or any other
cause, to any furniture, fixtures, Tenant improvements, or other personal
property of Tenant kept or stored in the Premises or in other parts of the
Building and/or Common Areas or to Tenant's business or loss of income from it,
whether by reason of the negligence or default of the owners or occupants
thereof or any other person or otherwise, and keeping or storing of all property
of Tenant in the Building, Common Areas and/or Premises shall be at the sole
risk of Tenant Tenant waives all claims with respect to damage to property or
personal injury, except with respect to personal injury claims arising out of
the affirmative negligent acts or intentional misconduct of Landlord or its
agents or employees.
B. Subject to provisions of Section 12 below, Tenant agrees to
indemnify, defend, and save Landlord harmless of and from all liability, loss,
damages, costs, or expenses, including attorneys' fees, on account of injuries
to the person or property of Landlord or of any other tenant in the Building, or
to any other invitee in the Building and Common Areas for any purpose
whatsoever, where the injuries are caused by the negligence or misconduct of the
Tenant, Tenant's agents, servants or employees, or of any other person entering
upon the Premises; under express or implied invitation of Tenant, or where such
injuries are the result of the violation of the provisions of this Lease by any
of such persons.
Section 12. INSURANCE AND WAIVER OF SUBROGATION.
-----------------------------------
A. Landlord shall maintain property insurance on the shell and
core of the Building and on the Premises, Building and Common Areas to the
extent of the Standard Tenant Finish therein, in such amounts, from such
companies, and on such terms and conditions, including loss of rental insurance,
as Landlord deems appropriate. Landlord will not carry insurance of any kind on
Tenant's furniture and furnishings or an any fixture or equipment removable by
Tenant under the provisions of this Lease or any other improvements installed in
the Premises by or for Tenant other than Standard Tenant Finish, and Landlord
shall not be obligated to replace or repair any damage to them.
B. Tenant shall maintain throughout the term of this Lease "all
risk" insurance an all of Tenant's property and betterments in the Premises
including, without limitation, all furniture, fixtures, personal property, and
all tenant finish in excess of that included within the Standard Tenant Finish.
C. Tenant shall maintain throughout the term of this Lease a
comprehensive general liability policy, including protection against death,
personal injury and property damage, issued by a reputable insurance company
qualified to do business in Colorado with a single limit of not less than
$1,000,000.
D. All policies of insurance required to be carried by Tenant
shall name Landlord as an additional insured. Each such policy shall provide
that it may not be canceled or modified without at least 30 days prior written
notice to Landlord and any Mortgagee. Tenant shall deliver certificates as
requested by Landlord evidencing that such insurance is in force and effect. The
limits of such insurance shall not, under any circumstances, limit the liability
of Tenant hereunder.
E. Notwithstanding anything to the contrary contained herein,
Landlord and Tenant hereby mutually waive and release their respective rights of
recovery against each other for (a) any loss to its property capable of being
insured against by "all risk" insurance coverage whether carried or not; and
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(b) all loss, cost, damage or expense arising out of or due to any interruption
of business (regardless of the cause therefor), increased or additional
operating costs or other costs or expenses, whether similar or dissimilar,
which could be insured against under business interruption insurance (whether or
not carried). Each party shall notify their insurers of these mutual waivers,
obtain at its cost waivers of subrogation and any other special endorsements
required by their insurer to evidence compliance with the aforementioned waiver,
and shall upon request provide the other evidence that its policies have been so
endorsed.
Section 13. CASUALTY AND RESTORATION OF PREMISES.
------------------------------------
A. If the Premises or the Building are damaged by fire or other
casualty so as to render the Premises wholly untenantable, and if a licensed
architect selected by Landlord shall certify in writing to Landlord and Tenant
within 60 days of the casualty that the Premises cannot, with the exercise of
reasonable diligence, be made fit for occupancy within 180 days from the date
of the casualty, then this Lease shall terminate as of the date of such casualty
and Tenant shall thereupon surrender to Landlord the Premises and all interest
therein, and Landlord may reenter and take possession of the Premises and remove
Tenant therefrom. Tenant shall pay rent, duly apportioned, up to the time of
such termination. If, however, the damage is such that the architect shall
certify within the 60-day period that the Premises can be made tenantable within
the 180-day period, then, except as provided in C below, Landlord shall repair
such damage to the extent of the Standard Tenant Finish with all reasonable
promptness.
B. If the Premises, without the fault of Tenant, is slightly
damaged by casualty, but not so as to render them wholly untenantable or to
require a repair period in excess of 180 days, then, Landlord, after receiving
notice in writing of the occurrence of the casualty, shall, except as provided
in C below, cause them to be repaired to the extent of the Standard Tenant
Finish with all reasonable promptness. If the estimated repair period as
established in accordance with the provisions of A above exceeds 180 days, then
the provisions of A shall control even if the Premises are not wholly
untenantable.
C. If the Building is materially damaged by casualty so that
the estimated repair period established in accordance with A above exceeds 180
days, or if the damage is material and is not covered by Landlord's casualty
insurance (even if in either instance the Premises may not be affected, or if
affected, can be repaired within the 180 day period), Landlord may, within 60
days of such casualty, in the exercise of its reasonable business judgment,
determine not to reconstruct or rebuild the Building, in which event, upon
notice in writing to that effect given by Landlord to Tenant within the 60-day
period, Tenant shall pay the rent and other charges, properly apportioned up to
the date of notice (or the date of the casualty if the Promises is untenantable
by reason of such casualty), and this Lease shall terminate as of such date.
D. Provided that the casualty is not the fault of Tenant,
Tenant's agents, servants or employees, Tenant's rent shall abate during any
such period of repair and restoration in the same proportion that the part of
the Premises rendered untenantable bears to the whole.
Section 14. CONDEMNATION.
------------
If all or substantially all of the Premises, or any portion of
the Building and Common Areas which shall render the Premises untenantable,
shall be taken by condemnation or similar proceeding, or shall be conveyed in
lieu thereof, then this Lease, at the option of either Landlord or Tenant
exercised by either party giving notice to the other of such termination within
30 days after such taking or conveyance, shall terminate and the rent shall be
duly
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apportioned as of the date of such taking or conveyance. Tenant shall surrender
to Landlord the Premises and all interest therein under this Lease, and if
necessary Landlord may reenter and take possession of the Premises or remove
Tenant therefrom. If less than all of the Premises shall be taken by such
proceeding, Landlord shall promptly repair the Premises as nearly as possible
to their immediately prior condition unless Landlord elects not to reconstruct
or rebuild as described in Section 13.C. Landlord shall receive the entire award
or consideration for the portion of the Building so taken in the event of any
such taking or conveyance, provided Tenant shall be entitled to separately claim
for Tenant's trade fixtures and removable personal property.
Section 15. DEFAULT.
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A. Each of the following shall be an "EVENT OF DEFAULT":
(1) Tenant shall fail to pay punctually rent or any other
amounts due hereunder, provided, however, that Tenant may cure an Event of
Default under this provision at any time prior to 5 days after receipt of
written notice thereof from Landlord. Tenant shall not be entitled to more than
2 notices of a monetary default during any Lease Year, and thereafter if any
rent or other amounts owing hereunder are not paid when due, no cure period
shall be allowed under this provision;
(2) Tenant shall abandon the Premises,
(3) This Lease or the interest of Tenant shall be
transferred to or shall pass to any other person or party except in accordance
with Section 10;
(4) This Lease or the Premises (or any part) shall be
taken by execution or other process directed against Tenant, or shall be taken
by any attachment by any creditor of or claimant against Tenant and is not be
discharged or disposed of within 15 days after its levy;
(5) The filing of any petition or the commencement of any
case or proceeding by the Tenant under any provision or chapter of any federal
or state bankruptcy low or any other federal or state law relating to insolvency
or reorganization, the adjudication that the Tenant is insolvent or bankrupt, or
the entry of an order for relief under any federal or state bankruptcy law with
respect to Tenant.
(6) The filing of any petition or the commencement of any
case or proceeding described in (5) above against the Tenant, unless such
petition and all related proceedings are dismissed within 60 days from the
filing, the filing of an answer by Tenant admitting the allegations of any such
petition, or the appointment of or taking possession by a custodian, trustee or
receiver for all or any assets of the Tenant, unless such appointment is vacated
or dismissed within 60 days from the date of such appointment;
(7) The insolvency of the Tenant or the execution by the
Tenant of an assignment for the benefit of creditors, the convening by Tenant of
a meeting of its creditors, or any class thereof, for purposes of effecting a
moratorium upon or extension or composition of its debts, or the failure of the
Tenant generally to pay its debts as they mature;
(8) The admission in writing by Tenant or if Tenant is a
partnership any partner of Tenant that Tenant is unable to pay its debts as they
mature or it is generally not paying its debts as they mature;
(9) Tenant shall fail to take possession of the Premises on
the date the Lease Term commences,
(10) Tenant shall fail to perform any of the other provision
of this Lease
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on Tenant's part to be performed, and such failure shall continue for a period
of 30 days after written notice to Tenant, or if such failure cannot be
reasonably be cured within the 30-day period but can be had within 75 days or
less, Tenant shall not in good faith have commenced such cure within such 30-day
period and shall not diligently proceed to completion.
B. Upon any one or more Events of Default, then Landlord shall
at its election have the right, then or at any time thereafter, either:
(1) (a) To reenter and take possession of the Premises (or any
part) without demand or notice, and repossess them and expel Tenant and those
claiming through or under Tenant and remove the effects of both or either, using
such force as may be necessary, without being liable for the prosecution
thereof, or being deemed guilty of trespass and without prejudice to any
remedies. Should Landlord elect to reenter as provided herein, or should
Landlord take possession pursuant to legal proceedings or pursuant to any notice
provided for by law, Landlord may, from time to me, without terminating this
Lease, relet the Premises (or any part), either alone or in conjunction with
other portions of the Building, in Landlord's or Tenant's name, but for the
account of Tenant, for such term or term (which may be greater or less than the
perioi which would otherwise have constitked the balance of the Lease Term) and
on such conditions and upon such other term (which may include such concessions,
free rent, alterations, and repair of the Premises) as Landlord, in its sole
discretion, nay determine, and Landlord may collect and receive the rents
therefor. Landlord shall not be responsible or liable for any failure to relet
the Premises, or any part thereof, or for any failure to collect any rent due
upon such reletting. No reentry or taking possession of the Premises by Landlord
shall be construed as an election on Landlord's part to terminate this Lease
unless written notice of such intention is given to Tenant and no notice from
Landlord hereunder or under a forcible entry and detainer statute or similar law
shall constitute an election by Landlord to terminate this Lease unless the
notice specifically so states. Landlord reserves the right following any reentry
and/or reletting to exercise its right to terminate this Lease by giving Tenant
such written notice, in which event the Lease will terminate as specified in the
notice.
(b) If Landlord elects to take possession of the Premises as
provided herein without terminating the Lease, Tenant shall pay to Landlord (i)
the rent and other sums which would be payable hereunder if such repossession
had not occurred, less (ii) the net proceeds, if any, of any reletting of the
Premises after deducting all of Landlord's expenses incurred in connection with
such reletting, including, without limitation, all repossession costs, brokerage
commissions, legal expenses, attorneys' fees, alteration, remodeling and repair
costs, tenant finish costs, and expenses of preparation for such reletting. If,
in connection with any reletting, the now lease term extends beyond the existing
Lease Term, or the premises covered thereby include other premises not part of
the Premises, a fair apportionment of the rent received from such reletting and
the expenses incurred in connection therewith, as provided above, will be made
in determining the net proceeds received from reletting within such
determination, any rent concessions will be apportioned over the term of the new
Lease. Tenant shall pay such amounts to Landlord monthly on the days on which
the rent and other amounts owing hereunder would have been payable if possession
had not been retaken and Landlord shall be entitled to receive them from Tenant
on each such day;
(2) To give Tenant written notice of intention to terminate this
Lease as of the date of such notice or an any later date specified therein, and
on such date, Tenant's right to possession of the Premises shall cease and the
Lease shall terminate, except as to Tenant's liability as provided below, as if
the expiration date specified in such notice was the date otherwise fixed as
the end of the Lease
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Term. If this Lease is terminated pursuant to the provisions of this (2), Tenant
shall remain liable to Landlord for damages in an amount equal to the rent and
other sums which would have been owing by Tenant hereunder for the balance of
the Lease Term had it not been terminated, less the net proceeds (if any) of any
reletting of the Premises by Landlord subsequent to such termination, after
deducting all Landlord's expenses in connection with such reletting, including,
without limitation, the expenses enumerated in (1)(b). Landlord shall be
entitled to collect these damages from Tenant monthly on the days on which the
rent and other amounts would have been payable hereunder if this Lease had not
been terminated, and Landlord shall be entitled to receive these from Tenant on
each such day. Alternatively, at the option of Landlord, in the event this Lease
is terminated, Landlord shall be entitled to recover forthwith against Tenant,
as damages for loss of bargain and not as a penalty, an amount equal to the
worth at the time of termination of the excess, if any, of the amount of rent
reserved and payable under this Lease for the balance of the Lease Term hereof
over the amount of rental which Landlord can obtain as rent for the remaining
balance of the term ("REASONABLE RENTAL VALUE"), plus all amounts incurred by
Landlord in obtaining possession of and reletting the Premises including but
not limited to attorneys' fees, reletting expenses, alterations and repair
costs, and brokerage commissions), plus all amounts for unamortized Standard
Tenant Finish costs which have not yet been recovered through rental payments.
(3) In addition to Landlord's rights set forth in (1) and (2)
above, if Tenant fails to pay rent and other amounts owing hereunder as and when
due more than two times during any 12-month period during the Lease Term, then,
upon the occurrence of the third or any subsequent failure to pay during that
12-month period, Landlord, at its sole option, shall have the right to require
that Tenant, as a condition precedent to curing such default, pay to Landlord,
in cash or its equivalent, in advance, the entire rent and Landlord's estimate
of all other amounts which will become due and owing hereunder by Tenant for the
balance of the Lease Term (or if such default occurs during any extension term,
the amounts which will be required to be paid will be those attributable to the
balance of the extension term). All such amounts shall be paid by Tenant within
30 days after demand from Landlord. All monies so paid shall be retained by
Landlord, without interest, for the balance of the Lease Term, and shall be
applied by Landlord to all amounts owing hereunder by Tenant as they become due
Of Landlord's estimate of the amounts for which Tenant is responsible hereunder
are inaccurate, when such error is discovered Landlord shall pay to Tenant, or
Tenant shall pay to Landlord, within 30 days after written notice, of the excess
or deficiency, as the case may be, which is required to reconcile the amount on
deposit with Landlord with the actual amount for which Tenant is responsible).
C. Action(s) to recover rent, other amounts, and damages set
forth above may be brought by Landlord, from time to time, at Landlord's
election, and nothing shall be deemed to require Landlord io await the date on
which the Lease Term would have otherwise expired had there been no such default
or termination. Landlord agrees to use reasonable efforts, subject to the
exercise of its reasonable business judgment, to relet the premises to a
qualified tenant(s) should it retake possession pursuant to B.(1) or (2) above,
recognizing, however, that Landlord for its affiliates) is the owner or operator
of other buildings and is not obligated in any way to give any preference to
such reletting over leasing in such other buildings. Each right and remedy
provided in this Lease shall be cumulative and in addition to, and not in lieu
of, every other right or remedy provided in this Lease or now or hereafter
existing by statute or otherwise, including suits for injunctive relief or
specific performance. The exercise by Landlord of any one or more of the fights
or remedies provided in this Lease or now or hereafter existing by statute or
otherwise shall not preclude the simultaneous or later exercise by Landlord of
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any or all other rights or remedies provided in this Lease or now or hereafter
existing by statute or otherwise. If any action is commenced arising out of the
terms and provisions of this Lease, the prevailing party shall be entitled to
recover from the other party all costs and expenses, including without
limitation all reasonable attorneys' fees, incurred in connection with that
action.
D. No failure by Landlord to insist upon the strict performance
of any provision of, or the exercise of any right or remedy upon a breach of
this Lease, and no acceptance of full or partial rent during the continuance of
any such breach, shall constitute a waiver of any such provision. No provision
to be performed or complied with by Tenant and no breach thereof shall be
waived, altered, or modified except by written instrument signed by Landlord. No
waiver of any breach shall affect or after this Lease. Notwithstanding any
termination of this Lease, any provisions which by their nature require
observance or performance by Landlord or Tenant subsequent to such termination
shall continue in force and affect.
E. Nothing contained in this Section 15 shall limit or
prejudice the right of Landlord to liquidated damages in any bankruptcy,
insolvency, receivership, reorganization, or dissolution proceeding in an amount
equal to the maximum allowed by any statute or rule of law governing such
proceeding, whether or not such amount be greater, equal to or less than the
amounts recoverable, either as damages or rent, under any of the preceding
provisions of this Lease. Any such proceeding or action involving bankruptcy,
insolvency, reorganization, arrangement, assignment for the benefit of
creditors, or appointment of a receiver or trustee, as set forth above, shall be
considered an Event of Default only when it shall be taken or brought by or
against the then holder of the leasehold estate under this Lease. Landlord shall
be entitled under the federal bankruptcy law to "adequate assurance" of future
performance of the terms and provisions of this Lease in the event of an
assumption or assignment in bankruptcy, and the parties agree that the term
"adequate assurance" shall include at few the following: (i) The financial
condition and resources of Tenant were a material inducement to Landlord in
entering into this Lease, and to assure that the proposed assignee will have the
resources to pay the rent under this Lease, any proposed assignee must have a
net worth (as defined in accordance with generally accepted accounting
principles consistently applied) at least as great as the net worth of Tenant on
the date this Lease became effective increased by 7%, compounded annually, for
each year from the Lease Commencement Date through the date of the proposed
assignment; (ii) Any proposed assignee of this Lease must assume and agree to be
personally bound by the terms, provisions, and covenants of this Lease.
F. Any rents or other amounts owing hereunder not paid within 5
days after the date they are due or any amounts advanced by Landlord on behalf
of Tenant shall thereafter bear interest at an annual rate of three percentage
points over the prime rate then being charged by First Interstate Bank of
Denver, N.A. to its most creditworthy customers on an unsecured basis for short
term loans (the "PRIME RATE"), or the highest rate permitted by applicable usury
law, whichever is lower, until paid. Further, in the event any rents or other
amounts owing hereunder are not paid within 5 days after written notice,
Landlord will incur additional administrative expenses, the amount of which will
be difficult if not impossible to determine; accordingly, Tenant shall pay to
Landlord an additional one-time late charge for any such late payment in the
amount of 5% of such payment.
G. In the event of any alleged default on the part of Landlord,
Tenant shall give written notice to Landlord in the manner herein set forth and
shall afford Landlord a reasonable opportunity to cure any such default (which
shall not be less than 30 days). Notice to Landlord of any such alleged default
shall be
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ineffective unless such notice is simultaneously delivered to any holder of a
mortgage and/or deed of trust affecting all or any portion of the Building
("MORTGAGEES"); Tenant agrees to give all Mortgagees, by certified mail, return
receipt requested, a copy of any notice of default served upon Landlord,
provided that prior to such notice Tenant has been notified in writing (by way
of notice of assignment of rents and Leases, or otherwise), of the address of
such Mortgagees. Tenant further agrees that if Landlord shall have failed to
cure such default within the time provided for in this Lease, then the
Mortgagees shall have an additional 30 days within which to cure such default,
or if such default cannot be cured within that time, then such additional time
as may be necessary if, within such 30 days, any Mortgagee has commenced and is
diligently pursuing the remedies necessary to cure such default (including
commencement of foreclosure proceedings if necessary to effect such cure), in
which event this Lease shall not be terminated while such remedies are being
diligently pursued. In no event will Landlord or any Mortgagee be responsible
for any consequential damages incurred by Tenant as a result of any default,
including but not limited to lost profits or interruption of business at a
result of any alleged default by Landlord hereunder.
Section 16. SURRENDER.
---------
A. Upon expiration or other termination of the Lease Term,
Tenant shall promptly quit and surrender to Landlord the Premises broom clean,
in good order and condition, ordinary wear and tear and loss by fire or other
casualty excepted unless due to the negligence of Tenant, and Tenant shall
remove all of its movable furniture and other effects and such Alterations as
Landlord shall have required Tenant to remove pursuant to Section 8.C. If Tenant
fails to so vacate the Promises, Tenant shall be responsible to Landlord for all
costs incurred by Landlord as a result of such failure, including amounts
required to be paid to third parties who were to have occupied the Premises.
B. All movable furniture and personal effects of Tenant not
removed from the Premises upon their abandonment or upon termination of this
Lease shall conclusively be deemed to have been abandoned and may be
appropriated, sold, stored, destroyed, or otherwise disposed of by Landlord
without notice to Tenant or any other person, and without obligation to account
therefor, and Tenant shall pay Landlord all expenses incurred in connection with
the storage and/or disposition of such property.
C. If, after the expiration of this Lease, Tenant shall without
any express written agreement remain in possession of the Premises and continue
to pay rent then such holding-over shall be deemed to be a holding upon a
tenancy from month-to-month, subject to all the terms and conditions hereof on
the part of Tenant to be observed and performed, at a monthly rent equivalent to
150% of the monthly installment paid by Tenant immediately prior to such
expiration or the then current market rental rate, whichever is greater. All
such rent shall be payable in advance on the same day of each calendar month.
Such month-to-month tenancy may be terminated by either party upon 10 days
notice prior to the end of any such monthly period. Nothing contained herein
shall be construed as obligating Landlord to accept any rental tendered by
Tenant after the expiration of the Lease Term or, if so accepted, as relieving
Tenant of its liability and obligations pursuant to this Section.
D. No monetary payments by Tenant to Landlord after the
termination of this Lease or after giving of any notice (other than a demand for
payment of money) by Landlord to Tenant, shall reinstate, continue or extend the
Lease Term or affect any notice given to Tenant before the payment of such
money, it being agreed that after the service of notice, the commencement of
suit, or final judgment granting Landlord possession of the Premises, Landlord
may receive and collect any rent, or any other sums of money due under this
Lease, or otherwise exercise Landlord's rights and
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remedies, and the payment of such sums, whether as rent or otherwise, shall not
waive the notice or affect any pending suit or judgment obtained.
Section 17. SUBORDINATION AND ATTORNMENT.
----------------------------
A. At Landlord's option, this Lease shall be subordinate to any
present or future mortgage or dead of trust encumbering the Building, including
any amendment, modification, or restatement, and to any and all advances made
under any such mortgage or deed of trust. Tenant agrees that with respect to any
of the foregoing, no documentation, other than this Lease, shall be required to
evidence such subordination.
B. If any holder of such mortgage or deed of trust shall elect
to have this Lease superior to the lien of the holder's mortgage or deed of
trust, and shall give written notice to Tenant, this Lease shall be deemed prior
to such mortgage or deed of trust, whether this Lease is dated prior or
subsequent to the date of such mortgage or deed of trust, or its recording date.
C. In confirmation of such subordination or superior position,
as the case may be, Tenant shall execute such documents as may be required by
Landlord or its mortgagee to evidence the subordination of its interest herein
to any of the documents described above, or to make this Lease prior to the lien
of any mortgage or deed of trust, and failing to do so within 10 days after
written demand, Tenant hereby irrevocably appoints Landlord as Tenant's
attorney-in-fact and in Tenant's name, place and stead, to execute such
documents.
D. Tenant agrees to attorn to all successor owners of the
Building whether or not such ownership is acquired as a result of a sale,
foreclosure, or otherwise.
Section 18. ESTOPPEL. Tenant agrees at any time and from time to time, upon
--------
not less than 10 days prior written request by Landlord, to 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 the same is in full force and effect is modified, and stating the
modifications), that there have been no defaults thereunder by Landlord or
Tenant (or if there have been defaults, setting forth the nature thereof), the
date to which the rent and other charges have been paid in advance, if any, and
such other information as Landlord may request. It is intended that any such
statement may be relied upon by a prospective purchaser of all or any portion of
Landlord's interest herein or a holder of any mortgage or deed of trust
encumbering the Building. Tenant's failure to deliver such statement within such
time shall be conclusive upon Tenant that (i) this Lease is in full force and
effect, without modification except as may be represented by Landlord; (ii)
there are no uncured defaults in Landlord's performance; and (iii) not more that
1 months rent has been paid in advance. Tenant shall also provide such other
information as Landlord may reasonably require from time to time and, upon
request, deliver to Landlord a corporate or partnership resolution, as the case
may be, certifying that the party signing the statement of Tenant is properly
authorized to do so.
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Section 19. ENVIRONMENTAL.
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A. Attached as EXHIBIT B is a report (the "ENVIRONMENTAL
REPORT") prepared by a consultant reporting on Hazardous Substances (if any) at
the Premises and/or Building. Tenant has reviewed the Environmental Report, has
no objection to it, and accepts the Premises subject to any items noted in the
Environmental Report. Landlord represents and warrants that to its knowledge it
knows of no violation at the Building relating to Hazardous Substances other
than as stated in the Environmental Report.
B. Tenant shall: generate and store Hazardous Substances at the
Premises only in amounts as are incident to and necessary for the normal
operation of Tenant as permitted by this Lease; comply with all obligations
imposed by applicable law, rules, regulations, or requirements regarding such
generation and storage of Hazardous Substances, prohibit any generation,
storage, or disposal of Hazardous Substances at the Premises except as permitted
above; promptly deliver to Landlord complete copies of all notices received by
Tenant from any governmental authority with respect to the generation, storage
or disposal by Tenant of Hazardous Substances; promptly notify Landlord of any
spills or accidents involving a Hazardous Substance; and permit reasonable entry
to the Premises by Landlord for verification of Tenant's compliance with these
provisions. Tenant shall install and maintain a self-contained system for
collecting, retaining and disposing of Hazardous Substances and shall not allow
any Hazardous Substances to enter subsurface soils or to be discharged into any
sanitary or storm sewer system. Tenant agrees to utilize only transporters
approved by the Environmental Protection Agency and State of Colorado to deliver
to and remove Hazardous Substances from the Premises. Tenant shall indemnify and
defend Landlord with legal counsel reasonably acceptable to Landlord) from and
against any costs, fees or expenses including, without limitation, clean-up
expenses, third party claims and environmental impairment expenses, and
reasonable attorneys' fees and expenses) incurred by Landlord in connection with
Tenant's generation, storage or disposal of Hazardous Substances. This
indemnification by Tenant shall survive the termination or expiration of this
Lease.
C. On or before 10 days before the expiration date of the Lease
Term, Tenant shall, at its sole cost and expense, update the Environmental
Report, using the consultant who initially prepared the report or another
licensed consultant reasonably acceptable to Landlord, to determine the
environmental status of the Premises as of the date of that update. To the
extent the update or any inspection by Landlord prior Tenant's delivery of the
Premises to Landlord shows that Tenant has generated, stored or disposed of
Hazardous Substances contrary to the provisions of this Lease, Tenant shall
immediately, at its sole expense, commence and pursue to completion a
remediation program as to such Hazardous Substances and shall, to Landlord's
reasonable satisfaction, bring the Premises into an environmental condition
equal or better than the condition disclosed under the initial Environmental
Report described in A above. If Tenant fails to comply with the provisions of
this Section prior to the expiration or earlier termination of the Lease Term,
or prior to Tenant's vacating the Premises, then Landlord, in addition to
Landlord's right to utilize all or any portion of any security deposit to
satisfy Tenant's obligations hereunder, shall have the option of either
considering this Lease as having ended or treating Tenant as a holdover Tenant
in possession of the Premises, in which event, in addition to complying with all
requirements of this Section and the Lease, Tenant shall pay monthly to Landlord
double the Base Rent and other amounts payable under the Lease which Tenant
would otherwise pay under this Lease until such time as Tenant fulfills its
obligations under this Section, and during such holdover period all of the term
of this Lease and Tenant's obligations hereunder shall remain in full force and
effect.
21
<PAGE>
D. "HAZARDOUS SUBSTANCES" shall mean any chemical substance (i)
the presence of which requires investigation or remediation under any federal,
state or local statute, regulation, ordinance, order, action, policy or common
law; (ii) which is or becomes defined as a "hazardous waste", or "hazardous
substance", or "regulated substance" under any federal, state or local statute,
regulation or ordinance or amendments thereto including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act and/or the
Resource Conservation and Recovery Act; (iii) which is toxic, explosive,
corrosive, carcinogenic, mutagenic or otherwise hazardous and is or becomes
regulated by any governmental authority, agency, department, commission, board,
agency or instrumentality of the federal or state government or any political
subdivision thereof, (iv) the presence of which causes or threatens to cause a
nuisance upon the Real Property or to adjacent properties or poses or threatens
to pose a hazard to the health or safety of persons on or about the Real
Property, (v) the presence of which an adjacent properties could constitute a
trespass, (vi) which contains gasoline, diesel fuel or other petroleum
hydrocarbons; or (vii) which contains polychlorinated biphenyls (PCBs), or
asbestos or urea formaldehyde foam insulation.
Section 20. SUBSTITUTED PREMISES.
--------------------
At any time during the Lease Term, Landlord shall have the right
upon 90 days prior written notice to Tenant to substitute other space within the
Building, or within other buildings owned by Landlord or related entities within
the Inverness Business Park if no substitute space is then available in the
Building, for the Premises (the "SUBSTITUTED PREMISES"). Tenant shall relocate
to the Substituted Premises on the date set forth in Landlord's notice (to occur
no sooner than 90 days after receipt by Tenant of the notice) and Landlord
agrees to pay all reasonable moving expenses of Tenant incidental to the
Substituted Premises, including the reasonable replacement of Tenant's
improvements incidental to the Substituted Premises. If Landlord elects to
exercise this right, the Substituted Premises shall be generally comparable
space and contain approximately as much square footage as the originally Leased
Premises and the rental rate shall remain as set forth in Paragraph a on page 1
of this Lease. Except for such revisions, the terms and provisions of the Lease
shall be applicable to the Substituted Premises and the Substituted Premises
shall be deemed to be the Premises under the Lease.
Section 21. AUTHORITIES/NOTICE.
------------------
A. Except as otherwise provided, Landlord may act in any manner
provided for herein through Landlord's Building manager or any other person who
shall from time to time be so designated in writing.
B. All notices, demands, statements or communications required
or permitted to be given to Landlord hereunder shall be in writing, and shall be
deemed duly served when deposited in the United States mail, postage prepaid,
certified or registered, return receipt requested, addressed to Landlord at the
address on the first page of this Lease, or at the most recent address of which
Landlord has notified Tenant in writing. All notices or demands required to be
given to Tenant hereunder shall be in writing, and shall be deemed duly served
when delivered personally to any officer (or a partner of Tenant if Tenant is a
partnership or to Tenant individually if Tenant is a sole proprietor) or manager
of Tenant whose office is in the Building, or when deposited in the United
States mail, postage prepaid, certified or registered, return receipt requested,
addressed to Tenant at the Premises, or, prior to Tenant's taking possession of
the Promises, to the address known to Landlord as
22
<PAGE>
Tenant's principal office address. Either party shall have the right to
designate in writing served as above provided a different address to which
notice is to be mailed. The foregoing shall in no event prohibit notice from
being given as provided in the Colorado Rules of Civil Procedure.
Section 22. RULES AND REGULATIONS.
---------------------
The rules and regulations attached as EXHIBIT D ("RULES AND
REGULATIONS") are hereby made a part of this Lease, and Tenant agrees that
Tenant's employees and agents, or any others permined by Tenant to occupy or
enter. the Premises, will at all times abide by them. Tenant agrees that
Landlord may amend, modify, delete, or add to the Rules and Regulations of the
use and care of the Premises and the Building and Common Areas, and agrees to
comply with all such Rules and Regulations as amended, etc., upon notice to
Tenant from Landlord thereof. If any Rules and Regulations are breached by
Tenant or its employees, Landlord shall have all remedies in this Lease provided
for in the Event of Default by Tenant.
Section 23. LIMITATION OF LANDLORD'S LIABILITY. Notwithstanding anything to
----------------------------------
the contrary contained herein, none of the partners (including any trustees or
beneficiaries of trusts which are partners) of Landlord shall have any
individual or personal liability for the performance or observance of Landlord's
responsibilities and covenants hereunder, Landlord's liability under the Lease
shall be limited to Landlord's interest in the Building and Common Areas.
Section 24. PARKING. Tenant (and its employees) shall be permitted, without a
-------
parking charge except as provided below, to park up to the number of passenger
vehicles determined in accordance with Paragraph G on page 1 of this Lease, on
an unreserved basis, in the common parking areas as designated by Landlord from
time to time for use by occupants of the Building. Tenant agrees to abide by
those parking regulations and rules as may be established by Landlord (which may
include Landlord's designation of reserved spaces and the requirement that
vehicles bear a permanently affixed sticker) and, in the event a surcharge or
regulatory fee may be imposed by any governmental agency with reference to
parking, Tenant shall pay per vehicle, to Landlord in advance (monthly or on
such other basis as may be imposed by the governmental agency) such surcharge or
fee as additional rent under this Lease. Tenant agrees that no vehicles
belonging to, or subject to the control of Tenant or its employees, shall be
"stored" in the parking area (which for this purpose shall mean remaining
stationary for a period of longer than 3 consecutive days).
Section 25. MISCELLANEOUS.
-------------
A. "LANDLORD" as used in this Lease shall mean and include only
the owner or owners of the Building at the time in question, and in the event of
any transfer or transfers of the title, the Landlord herein named (and in the
case of any subsequent transfers or conveyances, the then owner of the Building)
shall be automatically released from and after the date of such transfer or
conveyance of all liability for the performance of any covenants or obligations
on the part of Landlord contained in this Lease thereafter to be performed;
provided that any funds held by Landlord or the then owner at the time of such
transfer in which Tenant has an interest shall be turned over or otherwise
credited to the grantee, and any amount then due and payable to Tenant by
Landlord or the then owner under any provisions of this Lease shall be paid to
Tenant.
B. The termination or cancellation of this Lease shall the
option of
23
<PAGE>
Landlord, either terminate all subleases and subtenancies operate as an
assignment to Landlord of any or all such subleases or subtenancies.
C. The covenants in this Lease are independent and not
dependent, and Tenant shall not be entitled to any setoff against rent or other
amounts owing hereunder if Landlord fails to perform its obligations set forth
herein; provided, however, the foregoing shall not impair thi right of Tenant to
commence a separate action against Landlord for any violation by Landlord of the
provisions hereof so long as notice is first given to Landlord and any Mortgagee
and an opportunity granted to Landlord and such holder to correct such violation
as provided in Section 15.G. If any provision of this Lease is illegal, invalid,
or unenforceable under present or future laws effective during the Lease Term,
it is the intention of the parties that the remainder of this Lease shall not be
affected and that in lieu of each provision of this Lease that is illegal,
invalid, or unenforceable, there shall be added as a part of this Lease a
provision as similar to such illegal, invalid, or unenforceable provision as may
be possible and be legal, valid, and enforceable.
D. The captions to this Lease are added as a convenience and
have no legal significance.
E. Except as otherwise specifically set forth in this Lease,
all terms, conditions,and covenants to be observed and performed by the parties
hereto shall be applicable to and binding upon their respective heirs,
administrators, executors, and assigns. The terms, provisions, conditions, and
covenants hereof shall also be considered to be covenants running with the land
to the fullest extent permitted by law. If more than one entity or person
comprises the Tenant under this Lease, the obligations imposed upon Tenant under
this Lease shall be joint and several.
F. Tenant and the party executing this Lease on behalf of
Tenant represent to Landlord that such party is authorized to do so by requisite
action of the board of directors or partners, as the case may be, and agree upon
request to deliver to Landlord a resolution or similar document or opinion of
counsel to that effect.
G. Nothing done by Landlord or Landlord's agents during the
term hereof, including without limitation any agreement to accept surrender of
the Premises or to amend or modify this Lease, shall be deemed to be binding on
Landlord unless agreed to by a partner or officer of Landlord, as the case may
be, or a party designated in writing by Landlord as so authorized to act. The
delivery of keys to Landlord or Landlord's agents, employees, or officers shall
not operate as a termination of this Lease or a surrender of the Premises. No
payment by Tenant or receipt by Landlord of a lesser amount than the monthly
rent and all other amounts owing as herein stipulated shall he deemed to be
other than on account of the earliest stipulated rent or other amounts. No
endorsement or statement on any check or any letter accompanying any check or
payment as rent shall 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 available to Landlord.
H. Landlord shall have the right at any time to change the name
of the Building, to increase the size of the Building and/or Common Areas by
adding additional real property thereto, to construct other buildings or
improvements on any portion of the Building and/or Common Areas or to change the
location and/or character of, or to make alterations of or additions to the
Building and/or Common Areas. In the event any such additional buildings are
constructed or Landlord increases the size of the Building and/or Common Areas,
Landlord and Tenant shall execute an amendment to the Lease which incorporates
such modifications, additions and adjustments to Tenant's Pro Rata Share, if
necessary. Tenant shall not use the name and/or mark "Inverness,"
24
<PAGE>
or other mark, name or logo belonging to Landlord or Southeast Venturers, alone
or in conjunction with any words or symbols as a trade name, corporate name,
trade mark, service mark or in another similar manner, without a prior written
agreement from Southeast Venturers, or its successor-in-interest.
I. Tenant agrees that no diminution of light, air or view by
any structure that may hereafter be erected (whether or not by Landlord) shall
entitle Tenant to any reduction of rent or other charges under this Lease,
result in any liability of Landlord to Tenant, or in any other way affect this
Lease or Tenant's obligations.
J. So long as Tenant complies with the provisions hereof
Landlord agrees to warrant and defend Tenant in the quiet enjoyment and
possession of the Premises during the Lease Term without hindrance by Landlord
or persons lawfully claiming by, through or under Landlord.
K. Whenever the Lease provides for Landlord to consent or
approve any action or documents, it is understood and agreed that such consent
or approval shall be in Landlord's sole and absolute discretion, except where
specifically provided that such consent or approval shall not be unreasonably
withheld.
L. Time is of the essence hereof.
M. Tenant acknowledges and agrees that it has not relied upon
any statements, representations, agreements, or warranties by Landlord, its
agents or employees, except as are specifically stated herein, and no amendment
or modification of this Lease shall be valid or binding unless in writing and
signed by the parties.
N. Tenant shall not record this Lease.
O. Tenant and Landlord hereby waive any and all rights to a
trial by jury in suit or suits brought to enforce any provision of this Lease or
arising out of or concerning the provisions of this Lease. If arbitration of any
disputes is required by law, Landlord and Tenant hereby agree that such disputes
shall be subject to binding arbitration between the parties in accordance with
the commercial arbitration rules of the American Arbitration Association, with
any such controversies being submitted to a panel of three arbitrators selected
from the panels of arbitrators of the American Arbitration Association. However,
the issue of possession shall not be subject to either jury trial or
arbitration.
Section 26. SUBMISSION. Submission of this Lease for examination or signature
----------
by Tenant does not constitute a commitment or option for Lease, and it is not
effective as a Lease or otherwise until execution and delivery by both Landlord
and Tenant.
Section 27. OPTION TO EXTEND. As additional consideration for the covenant's
----------------
of Tenant hereunder, Landlord hereby grants unto Tenant an option the ("Option")
to extend the term of the Lease for one (1) additional term of two years (the
"Option Term"). The Option shall apply to all space then under the Lease at the
time the Option Term would commence, and shall be on the following term and
conditions.
A. Written notice of Tenant's interest in exercising the Option
shall be given to Landlord no earlier then twelve (12) months and no later than
ten (10) months prior to the expiration of the Primary Lease Term ("TENANT'S
NOTICE"). Not later than thirty (30) days after receiving Tenant's Notice,
Landlord shall give to Tenant notice of the terms, conditions and rental rate
applicable during the Option Term, in accordance with subparagraph E below
("LANDLORD'S NOTICE").
25
<PAGE>
B. Tenant shall have fifteen (15) days following Tenant's
receipt of Landlord notice of such exercise to Landlord under the terms,
conditions, and rental rate set forth in Landlord's Notice. If Tenant timely
exercises the Option, the Lease shall be deemed extended and thereafter the
parties shall execute amendment to the Lease setting forth the terms of the
extension.
C. Unless Landlord is timely notified by Tenant in accordance
with subparagraphs A and B above, it shall be conclusively deemed that Tenant
does not desire to exercise the Option, and the Lease shall expire in
accordance with its terms, at the end of the Primary Lease Term.
D. Tenant shall not be in default under the Lease at the time
of exercise of the Option or at the time of the commencement of the Option Term.
E. The Option granted hereunder shall be upon the terms and
conditions set forth herein, except that the rental to be paid by Tenant to
Landlord during the Option Term shall be the market rental rate for a comparable
building in the Southeast Denver Metropolitan Area, but in no event shall the
rental rate be less than the rent which Tenant is paying immediately prior to
the commencement of the Option Term. Such terms and conditions may include,
among other things, net rent escalations, passthroughs and other matters then
included in Landlord's standard lease form for the Building which it uses for
the leasing of space to third parties.
26
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seats the day and year first above written.
EIS, INC., INVERNESS ASSOCIATES-373,
a California corporation a Colorado general partnership
By: /s/ FRANK DIGIROLAMO By: Invernel Associates Joint Venture,
---------------------------- a Colorado joint venture, as agent
Title: V.P. OPERATIONS
------------------------- By: /s/ GEORGE G. BEARDSLEY
-------------------------------
Authorized Signatory
Attest:
By: /s/ TONY HELD By: Metropolitan Life Insurance
---------------------------- Company, a New York corporation,
its general partner
Title: CONTROLLER
-------------------------
"Tenant" By: /s/ BRUCE READ
-------------------------------
Bruce Read, Vice President
"Landlord"
EXHIBIT CHECKLIST
-----------------
Exhibit A Floor Plan and Plans and Specifications
Exhibit B Environmental Report
Exhibit C Rules and Regulations
27
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT B
#373 Inverness Drive East
5,960 s.f.
Office Area
- -----------
1. Split existing offices A & B (see attached) into two offices each (four
total) by adding two new walls and two new doors.
2. Install 9 linear feet of cabinets, VCT flooring, sink with disposal in
room C.
3. Shorten the glass vestibule at the front entry by one panel.
4. Repair the existing exterior concrete steps.
5. Repair and replace ceiling tiles, as needed.
6. Repaint office area.
7. Recarpet with comparable carpet where existing in premises, except
break room.
Warehouse
- ---------
1. Broom clean, otherwise "as-is".
Bathrooms
- ---------
1. "As-is". In the event tenant desires, or is required for any reason,
to expand or modify such facilities in any way, all said costs and
improvements shall be Tenant's responsibility.
<PAGE>
EXHIBIT C
---------
A. The sidewalks, entries, passages, corridors, stairways, and elevators
of the Building and/or Common Areas shall not be obstructed by Tenant, or
Tenant's agents or employees, or used for any purpose other than ingress and
egress to and from the Premises, it being understood and agreed that such access
may be obtained only via the elevators in the lobby of the Building.
B. Furniture, equipment, or supplies will be moved in or out of the
Building only upon the elevator designated by Landlord and then only during such
hours and in such manner as may be prescribed by Landlord. The Landlord shall
have the right to approve or disapprove the movers or moving company employed by
Tenant, and Tenant shall cause the movers to use only the loading facilities and
elevator designated by Landlord. In the event Tenant's movers damage the
elevator or any part of the Building, Tenant shall forthwith pay to Landlord the
amount required to repair the damage.
C. No safe or article, the weight of which may, in the opinion of
Landlord, constitute a hazard or damage to the Building or the Building's
equipment, shall be moved into the Premises. Safes and other equipment, the
weight of which is not excessive, shall be moved into, from, or about the
Building only during such hours and in such manner as shall be prescribed by
Landlord, and Landlord shall have the fight to designate the location of such
articles in the Premises.
D. No sign, advertisement, or notice shall be inscribed, painted or
affixed on any part of the inside or outside of the Building unless of such
color, size and style and in such place upon or in the Building as shall be
first designated by Landlord in writing, but there shall be no obligation or
duty on Landlord to allow any sign, advertisement or notice to be inscribed,
painted or affixed on any part of the inside or outside of the Building. A
directory in a conspicuous place, with names of tenants, not to exceed one name
per 1,000 Rentable Square Feet of space contained in the respective premises,
will be provided by Landlord. Any necessary revision in the directory will be
made by Landlord at Tenant's expense within a reasonable time after notice from
Tenant of the change making the revision necessary. No furniture shall be placed
in front of the Building or in any lobby or corridor of the Building (whether
included wholly within the Premises or otherwise), without the prior written
consent of Landlord. Landlord shall have the right to remove all non-permitted
signs and furniture, without notice to Tenant, at the expense of Tenant.
E. Tenant shall not do or permit anything to be done in the Premises or
bring or keep anything therein which would in any way increase the rate of fire
insurance on the Building or on personal property kept therein, constitute a
nuisance or waste, obstruct or interfere with the fights of other tenants or in
any way injure or annoy them, or conflict with the laws relating to fire or with
any regulations of the fire department, fire insurance underwriters or with any
insurance policy upon the Building or any part thereof, or conflict with any of
the rules or ordinances of the Department of Health of the City and County where
the Building is located.
F. Tenant shall not employ any person or persons other than the janitor
of Landlord for the purpose of cleaning or taking care of the Promises without
the prior written consent of Landlord. Landlord shall be in no way responsible
to Tenant for any loss of property from the Premises, however occurring, or for
any damage done to Tenant's furniture or equipment by the janitor or any of the
janitor's staff, or by any other person or persons whomsoever. The janitor of
the Building may at all times keep a passkey and other agents of Landlord shall
at all times be allowed admittance to the Premises.
1
<PAGE>
G. Water closets and other water fixtures shall not be used for any
purpose other than that for which they are intended, and any damage resulting to
them from misuse on the part of Tenant or Tenant's agents or employees shall be
paid for by Tenant. No person shall waste water by tying back or wedging the
faucets or in any other manner.
H. No animals shall be allowed in the offices, halls, corridors, and
elevators in the Building. No person shall disturb the tenants of the Building
or adjoining buildings or premises by the use of any radio, sound equipment, or
musical instrument or by the making of loud or improper noises.
I. Bicycles or other vehicles shall not be permitted in the offices,
halls, corridors, and elevators in the Building nor shall any obstruction of
sidewalks or entrances of the Building be permitted.
J. Tenant shall not allow anything to he placed on the outside of the
Building nor shall anything be thrown by Tenant, Tenant's agents or employees
out of the windows or doors, or down the corridors, elevator shafts, or
ventilating ducts of shafts of the Building. Tenant, except in case of fire or
other emergency, shall not open any outside window.
K. No additional lock or locks shall be placed by Tenant on any door in
the Building unless written consent of Landlord shag first have been obtained.
Two keys to the Promises and the toilet rooms, if locked by Landlord, will be
furnished by Landlord, and neither Tenant nor Tenant's agents or employees shall
have any duplicate keys made. Landlord shall supply Tenant with such additional
keys as Tenant may require at Tenant's sole cost and expense. At the termination
of this tenancy, Tenant shall promptly return to Landlord all keys to offices,
toilet rooms or vaults.
L. No window shades, blinds, screens, draperies, or other window
coverings will be attached or detached by Tenant without Landlord's prior
written consent. Tenant agrees to abide by Landlord's rules with respect to
maintaining uniform curtains, draperies, and linings or blinds at all windows
and hallways.
M. If any Tenant desires telegraphic, telephonic, or other electric
connections, Landlord or Landlord's agents will direct the electricians as to
where and how the wires may be introduced. Without such directions, no boring or
cutting for wires will be permitted. Any such installation and connection shall
be made at Tenant's expense.
N. Tenant shall not install or operate any steam or gas engine or boiler,
or carry on any mechanical business in the Premises. The use of oil, gas, or
inflammable liquids for heating, lighting, or any other purpose is expressly
prohibited. Explosives or other articles deemed extra hazardous shall not be
brought into the Building.
O. Any painting or decorating as may be agreed to be done by and at the
expense of Landlord shall be done during regular weekday working hours, should
Tenant desire such work on Saturdays, Sundays, Legal Holidays, or outside of
regular working hours, Tenant shall pay for the extra cost thereof.
P. Except as permitted by Landlord, Tenant shall not mark upon, paint
signs upon, cut, drill into, drive nails or screws into, or in any way deface
the walls, ceilings, partitions, or floors of the Premises or of the Building,
and any defacement, damage, or injury caused by Tenant, Tenant's agents or
employees, shall be paid for by Tenant.
2
<PAGE>
EXHIBIT 10.37
GREATER FORT WORTH ASSOCIATION OF REALTORS, INC.
COMMERCIAL-INDUSTRIAL LEASE AGREEMENT
ARTICLE ONE: BASIC TERMS
1.01 Date Of Lease: June 15, 1998
1.02 Landlord: Robert V. Higginbotham
2126 Vanco Drive, Irving, TX, 75061
1.03 Tenant: EIS, Inc.
1.04 Property: Approximately 11,000 square feet of space situated at
2126 Vanco Dr., Irving, TX 75061
Legal Description: Wildwood Industrial Park I, part of Block 1,
consisting of 65909 acres located in the City of Irving, also
known as 2126 Vanco Drive, Irving, TX 75061
1.05 Lease Term: 36 months, commencing on the 15th day of June, 1998
and ending on the 15th day of June, 2003.
1.06 Rent: Five Thousand, One Hundred Dollars ($5,100.00) per month
beginning on the Commencement Date through June 1999.
Adjust to market value Dollars ($As Advised )
---------------------------------- -----------
per month beginning June 16, 1999 through June 15, 2001.
------- ---- ------- ----
Dollars ($ )
---------------------------------- -----------
per month beginning , through , 19 .
----- ----- ------- ----
Dollars ($ )
---------------------------------- -----------
per month beginning , through , 19 .
----- ----- ------- ----
1.07 Security Deposit (See Section 3.03): -0- Dollars
($ -0- ). (If none, so state)
-----------------
1.08 Last Month's Rent Payable In Advance: -0- Dollars
($ -0- ). (If none, so state)
1.09 Permitted Use (See Section 4.01): As Needed.
1.10 Base Year For Taxes (See Section 12.02): 1997
1
<PAGE>
1.11 Rent To Be Paid To: Robert V. Higginbotham
Address: 2126 Vanco Drive, Irving, TX 75061
1.12 Daily Late Charge (See Section 3.02): -0- Dollars
($ -0- ). (If none, so state)
1.13 Principal Realtor: -0-
1.14 Cooperating Realtor (If none, so state): -0-
1.15 Realtors Commissions (See Section 10.01 and 10.02):
A. Lease Commission due to the Principal Realtor shall be equal
to -0- percent ( -0- %) calculated in
--------------- ---------
accordance with Section 10.01. Said lease commission shall be
payable to the Principal Realtor in Tarrant County, Texas:
(i) In installments equal to the percentage stated in this
Section 1.15A of each rental payment to become due to Landlord
and each such installment shall be paid at the time such
rental payment is due; or
(ii) In cash payable as follows: -0-
[Strike subparagraph (i) and complete subparagraph (ii)]
B. Sales commission (See Section 10.02): -0- percent (-0-%).
C. If there is a Cooperating Realtor named in Section 1.14, Principal Realtor
agrees to pay Cooperating Realtor a fee equal to -0- percent (-0-%) of the lease
commission and sales commission received by Principal Realtor hereunder. Such
fee shall be payable to Cooperating Realtor in Tarrant County, Texas, within
five (5) business days (Monday through Friday) after Principal Realtor receives
each payment of lease commission or sales commission.
ARTICLE TWO: LEASE AND LEASE TERM
2.01 LEASE OF PROPERTY. Landlord hereby leases the Property to Tenant and
Tenant hereby leases the Property from Landlord for the Lease Term stated in
Section 1.05. As used herein, the "Commencement Date" shall be the date
specified in Section 1.05 for the beginning of the Lease Term.
2.02 EARLY OCCUPANCY. If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all
the provisions of this Lease. Early occupancy of the Property shall not advance
the expiration date of this Lease.
2.03 HOLDING OVER. Tenant shall vacate the Property upon the expiration or
earlier termination of this Lease. Tenant shall reimburse Landlord for and
indemnify Landlord against
2
<PAGE>
all damages incurred by Landlord from any delay by Tenant in vacating the
Property. If Tenant does not vacate the Property upon the expiration or earlier
termination of this Lease, Tenant's occupancy of the Property shall be a "month-
to-month" tenancy, subject to all the terms and provisions applicable to a
month-to-month tenancy, except that the rent then in effect shall be increased
by fifty percent (50%).
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01 RENT. Tenant agrees to pay rent for the Property at the rate specified in
Section 1.06. Tenant shall pay the rent for the first and last (if applicable
under Section 1.08) months of the Lease Term upon the execution of this Lease.
One monthly rental installment shall be due and payable on or before the same
day of the second calendar month of the Lease Term as the Commencement Date, and
a like monthly installment shall be due and payable on or before the same day of
each succeeding calendar month during the Lease Term. All rent shall be paid to
the party designated in Section 1.11 at the address stated herein for such
party.
3.02 LATE CHARGE. If any rend due hereunder is not received within five (5)
days after its due date, Tenant shall pay the party named in Section 1.11 above
a late charge equal to the sum stated in Section 1.12 above for each day from
its due date until such delinquent sum is received. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
3.03 SECURITY DEPOSIT. Upon execution hereof, Tenant shall deposit with the
party named in Section 1.11 above a cash Security Deposit in the sum stated in
Section 1.07. Landlord may apply all or part of the Security Deposit to any
unpaid rent or other charges due from Tenant or to cure any other defaults of
Tenant. No interest shall be paid on the Security Deposit. Landlord shall not
be required to keep the Security Deposit separate from its other accounts and no
trust relationship is created in respect to the Security Deposit. Upon any
termination of the Lease not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund the unused portion of the Security Deposit to Tenant.
ARTICLE FOUR: USE OF PROPERTY
4.01 PERMITTED USE. Tenant may use the Property only for Permitted Use stated
in Section 1.09.
4.02 COMPLIANCE WITH LAW. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the Property, and shall
promptly comply with all governmental orders and directives for the correction,
prevention and abatement of nuisances on or upon, or connected with the
Property, all at Tenant's sole expense. Tenant agrees to not store or permit
hazardous or toxic substances to be placed on the premises without prior written
permission from the Landlord. Hazardous or toxic substances as referred to in
this paragraph shall be defined by U.S. Environmental Protection Agency
regulations and/or Texas Natural
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Resources Preservation Commission regulations. Tenant further agrees to not
place underground or above ground storage tanks on the leased premises without
prior written consent of Landlord.
4.03 SIGNS. Without the prior written consent of Landlord, Tenant shall not
place or affix any signs or other objects upon or to the Property, including but
not limited to the roof or exterior walls of the building or other improvements
thereon, or paint or otherwise deface said exterior walls. Any signs installed
by Tenant shall conform with applicable laws and deed and other restrictions.
Tenant shall remove all signs at the termination of this Lease and shall repair
any damage and close any holes caused or revealed by such removal.
4.04 UTILITIES. Tenant shall pay the cost of all utility services, including
but not limited to initial connection charges, all charges for gas, water and
electricity used on the Property, and for all electric lights, lamps and tubes.
4.05 LANDLORD'S ACCESS. Landlord and its authorized agents shall have the
right, during normal business hours, to enter the Property and any buildings and
other improvements thereon to view, inspect, repair or show the Property.
Landlord shall attempt to advise tenant of the intent of Landlord or its
authorized agents to enter the property.
4.06 INTERRUPTION OF SERVICE. Interruption or curtailment of services
furnished to the Property, if caused by strikes, mechanical difficulties, or any
cause beyond Landlord's control, whether similar or dissimilar to those
enumerated, shall not entitle Tenant to any claim against Landlord or to nay
abatement in rent, nor shall the same constitute constructive or partial
eviction, unless Landlord fails to take such measures as may be reasonable in
the circumstances to restore the service without undue delay. If the premises
are rendered untenantable in whole or in part for fifteen (15) business days
because of such interruption or curtailment of services (other than caused by
any act or omission of Tenant or its invitees, employees or customers), there
shall be a proportionate abatement of rent during the period of such
untenantability.
4.07 EXEMPTIONS FROM LIABILITY. Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas, or rain;
(b) the breakage, leakage, obstruction or other defects of pipes, sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures or any other
cause; (c) conditions arising on or about the Property or upon other portions of
any building of which the Property is a part, or from other sources or places;
or (d) any act or omission of any other tenant of any building of which the
Property is a part. Landlord shall not be liable for any such damage or injury
even though the cause of or the means of repairing such damage or injury are not
accessible to Tenant. The provisions of this Section 4.07 shall not, however,
exempt Landlord from liability or Landlord's gross negligence or willful
misconduct.
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ARTICLE FIVE: MAINTENANCE, REPAIRS AND ALTERATIONS
5.01 ACCEPTANCE OF PREMISES. Tenant acknowledges that Tenant has fully
inspected the Property. Tenant hereby accepts the Property and the buildings
and improvements situated thereon, as suitable for the purpose for which the
same are leased, in their present condition (including all latent or
environmental defects or risks), with such changes therein as may be caused by
reasonable deterioration between the date hereof and the Commencement Date;
provided that Tenant shall not be responsible for remedying any such latent or
environmental defects or risks unless it becomes necessary to remedy such
defects or risks because of alterations, additions or improvements to the
Property made by Tenant, and that Landlord agrees to (a) repair promptly any
presently installed plumbing, plumbing fixtures, electrical wiring, lighting
fixtures, air conditioning or heating equipment or doors that are not in good
working condition on the Commencement Date of which Tenant delivers written
notice to Landlord within thirty days after the Commencement Date; and (b) make
any additional repairs and alterations necessary for Tenant to obtain a
Certificate of Occupancy from the municipality in which the Property is located,
except for those repairs and alterations required solely because of the nature
of Tenant's business. Landlord expressly disclaims and Tenant waives any and
all warranties (including the warranty of suitability), representations and
obligations of Landlord or Landlord's agents that are not expressly stated
herein. Landlord and Tenant acknowledge that Principal Realtor and cooperating
Realtor have no expertise in the detection or correction of environmentally
hazardous or undesirable items. Expert inspections are necessary. Current or
future laws may require clean up by past, current and/or future owners and/or
tenants of the Property. It is the responsibility of Landlord and Tenant to
retain qualified experts to detect and correct such matters. Landlord and
Tenant acknowledge that neither Principal Realtor, nor Cooperating Realtor, have
made an independent investigation or determination with respect to the existence
of hazardous substances and environmental conditions in, on or about the
Property. Any such investigation or determination shall be the responsibility
of Landlord and Tenant. The Principal Realtor or Cooperating Realtor shall not
be responsible for such an investigation. Landlord and Tenant shall, jointly
and severally, defend, indemnify and hold harmless Principal Realtor and
Cooperating Realtor from and against all claims, costs, expenses, actions,
losses, damages and liabilities of any kind whatsoever (including reasonable
attorney's fees) directly or indirectly arising out of the existence of
hazardous substances and/or environmental conditions in, on or about the
Property. This indemnification shall survive the termination of this Lease.
5.02 MAINTENANCE AND REPAIRS BY LANDLORD. Landlord shall at his expense
maintain only the roof, foundation, underground pipes, all outside plumbing and
the structural soundness of the exterior walls (excluding all windows, window
glass, plate glass, and all doors) of the improvements on the Property in good
repair and condition, except for reasonable wear and tear and any damage caused
by the act or omission of Tenant, or Tenant's invitees, employees or customers.
Tenant shall give immediate written notice to Landlord of the need for repairs
or corrections and Landlord shall proceed promptly to make such repairs.
5.03 MAINTENANCE AND REPAIRS BY TENANT. Tenant shall at his expense and risk
maintain all other parts of the improvements on the Property in good repair and
condition, including but not limited to repairs (including necessary
replacement) to the interior plumbing, windows, window glass, plate glass,
doors, heating system, air conditioning equipment, fire protection sprinkler
system, elevators and the interior of the said improvements in general; and
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including the reasonable care of landscaping and regular mowing of the grass,
and maintenance of the paving outside of the improvements and any railroad
siding. In the event Tenant should neglect reasonably to maintain the demised
premises, Landlord shall have the right (but not the obligation) to cause
repairs or corrections to be made and any reasonable costs therefor shall be
payable by Tenant to Landlord as additional rental on the next rental payment
due date. Upon termination of this Lease, Tenant shall deliver up the Property
in good repair and condition, reasonable wear and tear, and damage by fire, wind
storm or other causally excepted. Tenant shall repair any damage caused by
Tenant's act or omission, or the act or omission of Tenant's invitees, employees
or customers.
5.04 ALTERATIONS. Tenant shall not create any openings in the roof or exterior
wall, or make any alterations, additions or improvements to the Property without
the prior written consent of Landlord. Consent to nonstructural alterations,
additions or improvements shall not be unreasonably withheld by Landlord.
Tenant shall have the right to erect or install shelves, bins, machinery, and
trade fixtures, provided that Tenant complies with all applicable governmental
laws, ordinances and regulations. At the expiration or termination of this
Lease, Tenant shall, subject to the restrictions of Section 5.05 below, have the
right to remove such items so installed by it, provided Tenant is not in default
at the time of such removal and provided further that Tenant shall, at the time
of removal of such items, repair in a good and workmanlike manner any damage
caused by installation or removal thereof and restore the premises to the
condition that existed prior to the installation of such items, reasonable wear
and tear excepted. Tenant shall pay for all costs incurred or arising out of
alterations, additions or improvements in or to the Property and shall not
permit a mechanic's or materialman's lien to be asserted against the Property.
5.05 CONDITION UPON TERMINATION. Upon termination of this Lease, Tenant shall
surrender the Property to Landlord, broom clean and in the same condition as
received except for ordinary wear and tear which Tenant was not otherwise
obligated to remedy under any provision of this Lease. However, Tenant shall
not be obligated to repair any damage which Landlord is required to repair under
Article Five. In addition, Landlord may require Tenant to remove any
alterations, additions or improvements made during the term of this Lease,
whether or not made with Landlord's consent. In no event, however, shall Tenant
remove any of the following materials or equipment without Landlord's prior
written consent: any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters; air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operation equipment and decorations.
ARTICLE SIX: INSURANCE AND INDEMNITY
6.01 PROPERTY INSURANCE. Tenant shall not keep anything upon the Property, or
do anything in or about Property except the usage specified herein, which will
increase the rates for fire and standard extended coverage insurance upon the
building or buildings which are part of the Property. Tenant agrees to pay on
demand any increase in insurance premiums that may be charged to Landlord during
the term of this Lease resulting from a deviation from the usage
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specified herein or from any other cause within Tenant's control. Tenant shall
be responsible for maintaining insurance on Tenant's equipment and other
personal property located on the Property.
6.02 LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
policy of comprehensive public liability insurance, at Tenant's expense,
insuring Landing against liability arising out of the ownership, use occupancy
or maintenance of the Property. The initial amount of such insurance shall be
at least $1,000,000. Such policy shall contain a provision which prohibits
cancellation or modification of the policy except upon thirty (30) days prior
written notice to Landlord. Tenant shall deliver a copy of such policy or
certificate (or a renewal thereof) to Landlord prior to the Commercial Date and
prior to the expiration of any such policy during the Lease Term. If Tenant
fails to maintain such policy, Landlord may elect to maintain such insurance at
Tenant's expense.
6.03 INDEMNITY. Tenant hereby agrees to indemnify and hold Landlord harmless
from any loss, expense or claims arising out of any injury to persons or damage
to property on or about the Property or any adjacent area owned by Landlord
caused by the negligence or misconduct of Tenant, its employees, subtenants,
licensees or concessionaires or any other person entering the Property under
express or implied invitation of Tenant, or arising out of the use of the
Property by Tenant and the conduct of its business therein, or arising out of
any breach or default by Tenant in the performance of its obligations hereunder.
Tenant shall not be liable for any injury or damage caused by the negligence or
misconduct of Landlord, or its employees or agents, and Landlord agrees to
indemnify Tenant and hold it harmless from any loss, expense or damage arising
out of such damage or injury.
6.04 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive any and all
rights of recovery against the other, or against the officers, employees, agents
or representatives of the other, for loss of or damage to its property, or the
property of others under its control, if such loss or damage is covered by any
insurance policy in force (whether or not described in this Lease) at the time
of such loss or damage; provided however such waiver is made only on the
condition that it does not adversely affect the right of the insured to recover
under the applicable insurance policy or policies.
ARTICLE SEVEN: ASSIGNMENT AND SUBLETTING
Tenant shall not assign this agreement or sublet the premises, or any part
thereof without the consent of the Landlord in writing, which consent Landlord
agrees it will unreasonably withhold, but no assignment or subletting shall
release Tenant from any obligation hereunder.
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
8.01 PARTIAL DAMAGE. In the event the improvements situated on the Property
are partial damaged, or rendered partially unfit for occupancy, by fire or other
casualty, Tenant shall give immediate written notice thereof to Landlord. If
Landlord's insurance proceeds are sufficient to
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pay for the necessary repairs, and if the repairs can reasonably be made within
90 days after the Landlord receives such written notice from Tenant, Landlord
shall forthwith cause such repairs to be made and this Lease shall not
terminate. While such repairs are being made, Landlord shall allow Tenant a fair
reduction in rent in proportion to the extent the improvements are partially
unfit for occupancy, unless such damage, or unfitness for occupancy, is due to
the act or omission of Tenant or Tenant's employees, invitees or licensees.
8.02 UNINSURED PARTIAL DAMAGE OR TOTAL SUBSTANTIAL DESTRUCTION. In the event
of total or substantial destruction of the improvements situated on the Property
by fire or other casualty, Tenant shall give immediate written notice thereof to
Landlord. If Landlord's insurance proceeds are insufficient to pay for the
necessary repairs or restoration, or the repairs or restoration cannot
reasonably be made within 90 days after Landlord receives such written notice
from Tenant, this Lease shall terminate and the rent shall be paid to the date
of such casualty. However, if such damage or destruction is due to the act or
omission of Tenant or Tenant's employees, invitees or licensees, Tenant shall
pay to Landlord, within 60 days after the occurrence of such casualty, any
portion of the anticipated cost of repairing or restoring the improvements to
the same condition as on the date of this Lease that are not reimbursed to
Landlord by insurance proceeds. Such anticipated cost shall be determined by
Landlord. Tenant shall make such payment to Landlord, whether or not Landlord
repairs or restores the improvements.
ARTICLE NINE: DEFAULT AND REMEDIES
9.01 DEFAULT. The following events shall be deemed to be events of default
under this Lease:
a. Failure of Tenant to pay any installment of the rent or other sum
payable to Landlord hereunder on the date that same is due and such failure
shall continue for a period of five (5) days after written notice thereof to
tenant;
b. Failure of Tenant to comply with any term, condition or covenant of
this Lease, other than the payment of rent or other sum of money, and such
failure shall not be cured within thirty (30) days after written notice thereof
to Tenant;
c. Tenant shall make an assignment for the benefit of creditors;
d. Abandonment by Tenant of any substantial portion of the Property or
cessation of the use of the use of the Property for the purpose leased for a
period of more than thirty (30) consecutive calendar days.
9.02 REMEDIES. Upon the occurrence of any of the events of default listed in
Section 9.01, Landlord shall have the option to pursue any one or more of the
following remedies without any notice or demand whatsoever:
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a. Terminate this Lease, in which event Tenant shall immediately surrender the
Property to Landlord. If Tenant fails to so surrender such premises, Landlord
may, without prejudice to any other remedy which it may have for possession of
the Property or arranges in rent, enter upon and take possession of the Property
and expel or remove Tenant any other person who may be occupying such premises
or any part thereof. Landlord may hold Tenant liable for all rent and other
indebtedness accrued to the date of such termination, plus, as liquidated
damages and not as a penalty, an amount equal to the then present value of rent
provided for hereunder for the remaining portion of the Lease Term (had this
Lease not been terminated) using a ten (10%) percent value discount factor. In
the event Landlord elects to terminate this Lease by reason of an event of
default, in lieu of recovering from Tenant under the preceding sentence,
Landlord may hold Tenant liable for the amount of all loss and damage which
Landlord may suffer by reason of such termination, whether through inability to
relet the Property on satisfactory terms or otherwise.
b. Enter upon and take possession of the Property without terminating this
Lease, and expel or remove Tenant and any other person who may be occupying such
premises or any part thereof. Landlord may relet the Property and receive the
rent therefor. Tenant agrees to pay to Landlord monthly or on demand from time
to time any deficiency that may arise by reason of any such releting. In
determining the amount of such deficiency, the brokerage commission, attorneys
fees, remodeling expenses and other costs of releting shall be subtracted from
the amount of rent received under such releting.
c. Enter upon the property without terminating the Lease, and do whatever
Tenant is obligated to due under the terms of this Lease. Tenant agrees to pay
Landlord on demand for expenses which Landlord may incur in thus effecting
compliance with Tenant's obligations under this Lease, together with interest
thereon at the rate of eighteen (18%) percent per annum from the date expended
until paid. Landlord shall not be liable for any damages resulting to Tenant
from such action, whether caused by negligence of Landlord or otherwise.
d. Tenant is presumed to have abandoned the Property if Tenant's goods,
equipment, or other property are removed from the Property in an amount
substantial enough to indicate a probable intent to abandon the Property and
such removal is not within the normal course of Tenant's business. In the event
that Tenant is presumed to have abandoned the Property, Landlord may remove and
store any property of tenant that remains on the Property. Landlord may store
such property at any location satisfactory to Landlord. Landlord may dispose of
such stored property after the expiration of sixty (60) days after the date the
property was stored. Landlord shall deliver by certified mail to Tenant at
Tenant's last known address as shown by Landlord's records a notice stating that
Landlord may dispose of Tenant's property if Tenant does not claim the same
within sixty (60) days after the date the property was stored.
e. In the event Tenant is in default under this Lease by reason of Tenant's
failure to pay rent as set forth above, then Landlord may, at Landlord's option,
change all door locks and leave a written notice on a door to Tenant's premises
slating the name and address or telephone number of the individual from whom a
new key can be obtained during Tenant's regular business hours, which are
defined for this purpose as being between 9:00 a.m. and 5:00 p.m. on Monday
through
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Friday of each week. Tenant hereby waives the three (3) days written
notice to vacate required by Texas Property Code Section 24.005 and agrees that
one (1) day written notice to vacate is sufficient for purposes of Texas
Property Code Section 24.005 and the filing of a Forcible Entry and Detainer
lawsuit.
Upon the occurrence of any such events of default, Landlord may enter upon and
take possession of the Property by force, if necessary, without being liable for
prosecution of any claim for damages therefor. Pursuit of any of the foregoing
remedies shall not preclude pursuit of any of the other remedies herein provided
or any other remedies provided by law, nor shall pursuit of any remedy herein
provided substitute a forfeiture or waiver of any rent due to Landlord hereunder
or of any damages accruing to Landlord by reason of the violation of any of the
terms, conditions and convenants herein contained.
ARTICLE TEN: REALTOR'S COMMISSIONS
10.01 AMOUNT AND MANNER OF PAYMENT OF LEASE COMMISSIONS. Landlord agrees to
pay to the Principal Realtor a commission for negotiating this Lease equal to
the percentage stated in Section 1.15A of the total rent to become due to the
Landlord during or because of (i) the Lease Term; (ii) each period of occupancy
of the Property by Tenant, its affiliates, successors or assign, beyond the
Lease Term, whether such continued occupancy be caused by renewal, extension,
holding over, new lease or agreement or otherwise and whether upon the same or
different terms, conditions of covenants of this Lease; (iii) any expansion,
lease extension, renewal or other rental agreement with Landlord, its
affiliates, successor or assigns, demising to Tenant, its affiliates, successors
or assigns, any premises located on or constituting all or part of any tract or
parcel of real property adjoining, adjacent to or contiguous to the Property.
Said lease commission shall be paid in accordance with Section 1.15A. If the
lease commission is payable in cash under Section 1.15A(ii), the lease
commission for any continued occupancy or expansion, as provided above, shall be
payable in cash for the entire term of any such continued occupancy or expansion
at the beginning of such term and at the beginning of any subsequent term.
Notwithstanding that Principal Realtor, or Cooperating Realtor, may be
designated under Section 1.11 to receive rent hereunder and may from time to
time gratuitously perform rent collection and limited property management
services for Landlord, neither Principal Realtor, nor Cooperating Realtor shall
have any obligation under this Lease to perform such rent collection and
management services, unless such obligation arises from a separate agreement
with Landlord that provides for an additional fee for such services.
10.02 COMMISSION ON PURCHASE. In the event Tenant, its affiliates, successors
or assigns, should purchase the Property during the term of this Lease (as the
same may be renewed or extended) and for a period of one hundred twenty (120)
days after Tenant, its affiliates, successors or assigns, vacates the Property,
Landlord shall pay to the undersigned Principal Realtor a sales commission in
cash equal to the percentage stated in Section 1.15B of the purchase price
payable at the closing. Upon the closing of such sale, the lease commission
payments shall terminate if the lease commission is payable in installments in
accordance with Section 1.15A(i); or, in the event the lease commission is
payable in case in accordance with Section 1.15A(ii), Landlord shall receive a
credit against the sales commission equal to the total lease commission paid by
Landlord to the Principal Realtor multiplied by the unexpired
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percentage of the Lease Term as of the date of such closing. (In the event the
Principal Realtor is paid a lease commission in cash in accordance with Section
1.15A(ii) for any continued occupancy beyond the Lease Term or expansion, such
credit shall be equal to the total lease commission paid for such continued
occupancy or expansion multiplied by the unexpired percentage of the term of
such continued occupancy or expansion as of the date of such closing.
10.03 PROTECTION OF REALTORS. If Landlord sells the Property, or assigns
Landlord's interest in this Lease, the buyer or assignee shall, by accepting
such conveyance of the Property or assignment of the lease, be conclusively
deemed to have agreed to make all payments to Principal Realtor thereafter
required of Landlord under this Article Ten. Principal Realtor shall have the
right to bring a legal action to enforce or declare rights under this provision.
The prevailing party in such action shall be entitled to reasonable attorneys
fees to be paid by the losing party. This section is included in this lease for
the benefit of Principal Realtor.
10.04 REALTOR'S LIEN. The Principal Realtor is hereby granted a lien against
the Property to secure payment of all commissions payable under this Article Ten
(including any additional commissions which may hereafter become payable by
reason of renewals, new leases, rental agreements, sales or otherwise). This
lien is subject to the rights of Tenant under this lease, but prior an superior
to any liens hereafter created against the Property, excepting only liens in
favor of banks, insurance companies, savings and loan associations and similar
regulated financial institutions securing indebtedness incurred for the purpose
of acquiring the Property of constructing, repairing, rebuilding or remodeling
buildings and other improvements thereon, to all of which liens the lien hereby
created shall be subordinate and inferior.
10.05 PAYMENT TO PRINCIPAL REALTOR. Landlord shall be liable for payment of
all commissions to Principal Realtor only, whereupon it shall be protected from
any claims from any Cooperating Realtor or Broker.
ARTICLE ELEVEN: CONDEMNATION
Landlord shall notify Tenant if Landlord receives notice of any potential
condemnation of the Property or portion thereof. If all or any portion of the
Property is taken under the power of eminent domain or sold under the threat of
that power (all of which are called "Condemnation"), this Lease shall terminate
as to the part taken or sold on the date the condemning authority takes title or
possession, by delivering written notice to the other within ten (10) days after
receipt of written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority takes possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the rent shall
be reduced in proportion to the reduction in floor area of the Property. Any
Condemnation award or payment shall be distributed in the following order; (a)
first, to any ground lessor, mortgagee or beneficiary under a deed of trust
encumbering the Property, the amount of its interest in the Property; (b)
second, to Tenant, only the amount of any award specifically designated for loss
of or damage to Tenant's trade fixtures or removable personal property; and (c)
third, to Landlord, the remainder of such award, whether as compensation for
reduction in the value of the leasehold, the taking of the fee, or otherwise.
If this Lease is not terminated,
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Landlord shall repair any damage to the Property caused by the Condemnation,
except that Landlord shall not be obliged to repair any damage for which Tenant
has been reimbursed by the condemning authority. If the severance damages
received by Landlord are not sufficient to pay for such repair, Landlord shall
have the right to either terminate this Lease or make such repair at Landlord's
expense.
ARTICLE TWELVE: TAXES
12.01 PAYMENT BY TENANT. Tenant shall pay the real estate taxes on the
Property during the Lease Term.
12.02 PAYMENT BY TENANT. Tenant shall pay the party named in Section 1.11
above, as additional rental, the excess, if any, of the real estate taxes on the
Property for any year during the Lease Term over the real estate taxes on the
Property for the base year stated in Section 1.10. Tenant shall make such
payment within fifteen (15) days after receipt of a statement showing the amount
and computation of such increase. Tenant shall be responsible for the pro-rata
portion of such additional rental for any fractional part of a year preceding
the end of the Lease Term, which prorated sum shall be due and payable upon the
termination of this Lease. If the termination of this Lease occurs before the
tax rate is fixed for the particular year, the proration shall be upon the basis
of the tax rate for the preceding year applied to the latest assessed valuation,
and notwithstanding the termination of this Lease, any difference in the actual
real estate taxes for such year shall be adjusted between the parties upon
receipt of written evidence of the payment thereof. Tenant agrees to pay all
personal property taxes levied against the leased premises and Tenant during the
term hereof by reason of Tenant's improvements, inventory, equipment and
business conducted at the leased premises.
12.03 JOINT ASSESSMENT. If the Property is not separately assessed, Tenant's
share of the real estate taxes payable by Tenant under Section 12.02 shall be
determined from reasonably available information. Landlord shall make a
reasonable determination of Tenant's proportionate share of such real estate
taxes and Tenant shall pay such share to Landlord within fifteen (15) days after
receipt of Landlord's written statement.
12.04 CONTEST BY TENANT. Tenant may, at its own expense, contest any tax
assessment for which Tenant may be wholly or partially responsible. Except as
hereinafter provided, Tenant need not pay the tax, assessment or charge during
the pendency of the contest and Tenant may prevent Landlord from paying any tax,
assessment or charge that Tenant is contesting pursuant to this section 12.04,
pending any resolution of the contest, by depositing with Landlord, before such
tax, assessment or charge becomes delinquent, Tenant's portion of the full
amount of the tax or assessment, plus the full amount of any penalty that might
be imposed for failure to make timely payment and six (6) months of interest at
the rate imposed by the entity levying the tax or assessment. Upon final
resolution of the tax or assessment contest, Landlord may use the money
deposited by Tenant to pay Tenant's portion of any tax or assessment, plus the
full amount of any penalty or interest, due under the final resolution, and
Tenant shall receive the balance of the deposit, if any. If the deposit is
insufficient to pay these amounts, Tenant must immediately pay such
insufficiency to Landlord. Notwithstanding the foregoing, Landlord may pay, or
require
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Tenant to pay, any tax, assessment or charge, or any portion thereof, for which
Tenant is responsible under this Article Twelve, pending resolution of Tenant's
contest of the tax, assessment or charge, if payment is demanded by a holder of
a mortgage on the property, or if failure to pay will subject all or part of the
Property to forfeiture or loss. Landlord reserves the right to contest any tax,
assessment or charge on the Property.
ARTICLE THIRTEEN: LANDLORD'S LIEN
In addition to the statutory landlord's lien, Tenant hereby grants to Landlord a
security interest to secure payment of all rent and other sums of money becoming
due hereunder from Tenant, upon all goods, wares, equipment, fixtures, furniture
and other personal property of Tenant situated in or upon the Property, together
with the proceeds from the sale or lease thereof. Such property shall not be
removed without the consent of Landlord until all arrearages in rent and other
sums of money then due to Landlord hereunder shall first have been paid and
discharged. Upon request by Landlord, Tenant agrees to execute and deliver to
Landlord a financing statement in form sufficient to perfect the security
interest of Landlord in the aforementioned property and proceeds thereof under
the provisions of the Uniform Commercial Code in force in the State of Texas.
ARTICLE FOURTEEN: SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
14.01 SUBORDINATION. Landlord shall have the right to subordinate this lease
to any ground lease, deed of trust or mortgage encumbering the Property, and
advances made on the security thereof and any renewals, modifications,
consolidations, replacements or extensions thereof, whenever made or recorded.
However, Tenant's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this lease is dated prior or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
14.02 ATTORNMENT. If Landlord's interest in the Property is acquired by any
ground lessor, beneficiary under a deed of trust, mortgage or purchaser at a
foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or successor
as landlord under this Lease. Tenant waives the protection of any statue or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the property upon the transfer of Landlord's
interest.
14.03 SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instruments or
documents necessary or appropriate to evidence any such attornment or
subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord the attorney-in-
fact of Tenant to execute and deliver any such instrument or document.
13
<PAGE>
14.04 ESTOPPEL CERTIFICATES.
a. Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying (i) that none of the terms or
provisions of this Lease have been charged (or if they have been charged,
stating how they have been changed); (ii) that this Lease has not been canceled
or terminated; (iii) the last due date of payment of the rent and other changes
and the time period covered by such payment; and (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why). Tenant shall deliver such statement to Landlord within ten (10) days
after Landlord's request. Any such statement by Tenant may be given to Landlord
to any prospective purchaser or encumbrancer of the Property. Such purchaser or
encumbrancer may rely conclusively upon such statement as true and correct.
b. If Tenant does not deliver such statement to Landlord within such ten (10)
day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by the Landlord; (iii) that not more than one month's rent
or other charges have been paid in advance; and (iv) that Landlord is not in
default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
ARTICLE FIFTEEN: MISCELLANEOUS
15.01 EXHIBITS. All exhibits, attachments, annexed instruments and addenda
referred to herein shall be considered a part hereof for all purposes with the
same force and effect as if copied at full length herein.
15.02 INTERPRETATION. Words of any gender used in this Lease shall be held and
construed to include any other gender, and words in the singular shall be held
to include the plural, unless the context otherwise requires. In any provision
relating to the conduct, acts or omissions of Tenant, the term "Tenant" shall
include Tenant's agents, employees, contractors, invitees, successors, permitted
assigns or others using the Property with Tenant's expressed or implied
permission.
15.03 CAPTIONS. The captions or headings of paragraphs in the Lease are
inserted for convenience only, and shall not be considered in construing the
provisions hereof if any question of intent should arise.
15.04 WAIVERS. All waivers must be in writing and signed by the waiving party.
Landlord's failure to enforce any provision of this Lease or its acceptance of
rent shall not be a waiver and shall not prevent Landlord from enforcing that
provision or any other provision of this Lease in the future. No statement on a
check from Tenant or in a letter accompanying a payment check shall be binding
on Landlord. Landlord may, with or without notice to Tenant, negotiate such
check without being bound to the conditions of such statement.
14
<PAGE>
15.05 SEVERABILITY. A determination by a court of competent jurisdiction that
any provision of this Lease or any part thereof is illegal or unenforceable
shall not cancel or invalidate the remainder of such provision of this Lease,
which shall remain in full force and effect.
15.06 JOINT AND SEVERAL LIABILITY. All parties signing this Lease as Tenants
shall be jointly and severally liable for the obligations of Tenant.
15.07 INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This Lease is the only
agreement between the parties pertaining to the lease of the Property and no
other agreements are in effect. All amendments to this Lease shall be in
writing and signed by all parties. Any other attempted amendment shall be void.
15.08 BINDING EFFECT. The terms, conditions and covenants contained in the
Lease, shall apply to, inure to the benefit of, and be binding upon the parties
hereto and their respective heirs, representatives, successors and permitted
assigns, except as otherwise herein expressly provided. All rights, powers,
privileges, immunities and duties of Landlord under this Lease, including but
not limited to any notices required or permitted to be delivered by Landlord to
Tenant hereunder, may, at Landlord's option, be exercised or performed by
Landlord's agent or attorney.
15.09 NOTICES. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not when
deposited in the United States Mail, postage prepaid, registered or certified
mail, return receipt requested, addressed to parties hereto at the respective
addresses stated herein, or at such other address as they have theretofore
specified by written notice delivered in accordance herewith. Notices to Tenant
shall be delivered to the address specified on the signature page hereof, except
that, upon Tenant's taking possession of the Property, the Property address
shall be Tenant's address for notice purposes.
15.10 FORCE MAJEURE. In the event performance by Landlord of any term,
condition or covenant in this Lease is delayed or preempted by any Act of God,
strike, lockout, shortage of material or labor, restriction by any governmental
authority, civil riot, flood or any other cause not within the control of
Landlord, the period of performance of such term, condition or covenant shall be
extended for a period equal to the period Landlord is so delayed or hindered.
15.11 ATTORNEYS FEES. If on account of any breach or default of any party
hereto in its obligations to any other party hereto (including but not limited
to the Principal Realtor), it shall become necessary for the non-defaulting
party to employ an attorney to enforce or defend any of its rights or remedies
hereunder, the defaulting party agrees to pay the non-defaulting party its
reasonable attorneys' fees, whether or not suit is instituted in connection
therewith.
15.12 TIME OF ESSENCE. Time is of the essence in this Lease.
15
<PAGE>
ARTICLE SIXTEEN: SPECIAL PROVISIONS AND RIDERS
Special provisions may be set forth in the blank space and/or a rider or riders
attached hereto. If no additional provisions are to be inserted in the blank
space below, please draw line through such space. If no rider or riders are to
be attached hereto, please state "No Riders" in the blank space below. If a
rider or riders are to be attached hereto, please state in the blank space
below: "See Rider or Riders Attached," and please have Landlord and Tenant
initial all such riders.
1. Lease commencement date is contingent on the completion of the sale of B.
Higginbotham Enterprises Inc. to EIS Inc.
2. Tenant pays all property insurance.
16
<PAGE>
THIS IS A LEGAL DOCUMENT, READ IT CAREFULLY. IF YOU DO NOT UNDERSIGNED THE
EFFECT OF ANY PART OF THIS LEASE, SEEK COMPETENT LEGAL ADVICE. THE GREATER
FORTH WORTH ASSOCIATION OF REALTORS ("GFWAR") HAS FURNISHED THIS FORM FOR THE
CONVENIENCE OF ITS MEMBERS. LANDLORD AND TENANT ACKNOWLEDGE THAT THEY HAVE NOT
RULED ON ANY LEGAL ADVICE FROM PRINCIPAL REALTOR, COOPERATING REALTOR, GFWAR OR
GFWAR'S OFFICERS, DIRECTORS, EMPLOYEES, MEMBERS, AFFILIATES OR ATTORNEYS.
EXECUTED as of the date in Section 1.01 above.
LANDLORD TENANT
ROBERT V. HIGGINBOTHAM EIS, Inc.
- ------------------------------------ --------------------------------------
By: /s/ ROBERT V. HIGGINBOTHAM By: /s/ DENNIS KUSHNER
- ------------------------------------ --------------------------------------
Title: President Title: V.P. Operations
- ------------------------------------ --------------------------------------
Address:____________________________ Address:______________________________
____________________________________ ______________________________________
Date of execution by Landlord: 5/28/98 Date of execution by Tenant:__________
PRINCIPAL REALTOR, Member of the COOPERATING REALTOR
Greater For Worth Association
of Realtors
None.
- ------------------------------------ --------------------------------------
By:_________________________________ By:___________________________________
Address:____________________________ Address:______________________________
____________________________________ ______________________________________
17
<PAGE>
EXHIBIT 10.38
LEASE AGREEMENT
ARTICLE I: BASIC TERMS
1.01. Date of Lease: June 1, 1998
1.02. Landlord: Richard J. Ranger
Address of 31750 S.W. Village Crest Ln.
Landlord: Wilsonville, OR 97070
1.03. Tenant: Higginbotham Audio/Visual Solutions
Address of 2126 Vanco Drive
Tenant: Irving, TX 75061
1.04. Property (Include street address, as well as legal description and
approximate square footage):
An approximately 6,100 s.f. portion out of a larger 50,000 s.f. masonry building
situated on part of Block 4/6491, located in Kings Row VI Addition, an Addition
to the City of Dallas, Texas, as recorded in Volume 77199, pp 1034 of the Deed
Records of Dallas County, Texas and known locally as 10523 KING WILLIAM DRIVE,
Dallas, Texas.
1.05. Lease Term: Thirty-six months, beginning on June 1, 1998, and
----------------- ------------
ending on May 31, 2001.
------------
1.06. Rent: $1,906.00
---------
Dollars ($1,906.00) per month.
---------
1.07. Security Deposit: $1,906.00
1.08. Permitted Use (see Section 6.01): Officing, warehousing and sales/lease of
audio/visual equipment.
1.09. Principal REALTOR (If none, so state): Tom Buck of Warehouse Properties
Address: 8585 N. Stemmons Frwy., #M23
Dallas, TX 75247
1.10. Cooperating REALTOR (If none, so state:) n/a
Address:
1.11. REALTOR'S Commissions (See Article Fourteen):
<PAGE>
A. Commissions due to the undersigned Principal REALTOR shall be
calculated and paid in accordance with paragraph (a) or (b) or Section 14.01
(Strike out inapplicable letter).
B. The percentage applicable in Sections 14.01 and 14.02 shall be six
percent (6%).
1.12. Base Year for Taxes (see Section 4.02): 1997
1.13. Party to Receive Payments from Tenant Hereunder:
Landlord/Principal REALTOR (strike one)
1.14. Daily Late Charge (See Section 3.03): After the 5th day, Twenty-Five
Dollars ($25.00) per day.
1.15. Acceptance (see Section 15.13):
The number of days for acceptance shall be seven (7) days.
ARTICLE II.: LEASE AND LEASE TERM
2.01. Lease of Property for Lease Term. Landlord leases the Property to Tenant
and Tenant leases the Property from Landlord for the Lease Term stated in
Section 1.05. As used herein, the "Commencement Date" shall be the date
specified in Section 1.05 for the beginning of the Lease Term, unless advanced
or delayed under any provision of this Lease.
2.02. Delay in Commencement. Landlord shall not be liable to Tenant if Landlord
does not deliver possession of the Property to Tenant on the first date
specified in Section 1.05 above. Landlord's non-delivery of the Property to
Tenant on that date shall not affect this Lease or the obligations of Tenant
under this Lease. However, the Commencement Date shall be delayed until
possession of the Property is delivered to Tenant. The Lease Term shall be
extended for a period equal to the delay in delivery of possession of the
Property to Tenant, plus the number of days necessary to end the Lease Term on
the last day of a month. If Landlord does not deliver possession of the Property
to Tenant within sixty (60) days after the first date specified in Section 1.05
above, Tenant may elect to cancel this Lease by giving written notice to
Landlord within ten (10) days after the 60-day period ends. If Tenant gives such
notice, the Lease shall be cancelled effective as of the date of its execution,
and no party hereto shall have any obligations, one to the other. If Tenant does
not give such notice, Tenant's right to cancel the Lease shall expire and the
Lease Term shall commence upon the delivery of possession of the Property to
Tenant. If delivery of possession of the Property to Tenant is delayed, Landlord
and Tenant shall, upon such delivery, execute an amendment to this Lease setting
forth the Commencement Date and expiration date of the Lease.
2.03. Early Occupancy. If Tenant occupies the Property prior to the Commencement
Date, Tenant's occupancy of the Property shall be subject to all of the
provisions of this Lease. Early occupancy of the Property shall not advance the
expiration date of this Lease. Tenant shall pay Base Rent and all other charges
specified in this Lease for the occupancy period.
<PAGE>
2.04. Holding Over. Tenant shall vacate the Property upon the expiration or
earlier termination of this Lease. Tenant shall reimburse Landlord for and
indemnify Landlord against all damages incurred by Landlord from any delay by
Tenant in vacating the Property. If Tenant does not vacate the Property upon the
expiration or earlier termination of the Lease, Tenant's occupancy of the
Property shall be a "month-to-month" tenancy, subject to all of the terms of
this Lease, applicable to a month-to-month tenancy, subject to all the terms of
this Lease applicable to a month-to-month tenancy, except that the Base Rent
then in effect shall be increased by fifty percent (50%).
ARTICLE III: RENT AND SECURITY DEPOSIT
3.01. Manner of Payment. All sums to become due hereunder by Tenant shall be
made to the party named in Section 1.13 above, at the address stated herein for
such party, unless such address is changed as provided herein. Any and all
payments made to the Principal REALTOR for the account of Landlord shall be
deemed made to Landlord when received by the Principal REALTOR. All sums payable
by Tenant hereunder, whether or not expressly denominated as rent, shall
constitute rent for the purposes of section 502(b)(7) of the Bankruptcy Code.
3.02. Time of Payment. Upon execution hereof, Tenant shall pay the rent for the
first month of the Lease Term. On or before the first day of the second month of
the Lease Term and of each month thereafter, a like monthly installment shall be
due and payable, in advance, without off-set, deduction or prior demand. If the
Lease Term commences or ends during a calendar month, the rent for any
fractional calendar month following the Commencement Date or preceding the end
of the Lease Term shall be prorated by days.
3.03. Late Charges. Tenant's failure to pay sums due hereunder promptly may
cause Landlord to incur unanticipated costs. The exact amount of such costs are
impractical or extremely difficult to ascertain. Such costs may include, but are
not limited to, processing and accounting charges and late charges which may be
imposed on Landlord by any ground lease, deed of trust or mortgage encumbering
the Property. Therefore, if any sum due hereunder is not received on its due
date, Tenant shall pay the party named in Section 1.13 above a late charge equal
to the sum stated in Section 1.14 above for each day from its due date until
such delinquent sum is received. If any check tendered in payment of any sum due
from Tenant hereunder is returned for any reason, Tenant shall pay a late charge
for each day from said due date until such check is made good. The parties agree
that such late charge represents a fair and reasonable estimate of the costs
Landlord will incur by reason of such late payment of such returned check.
3.04. Security Deposit. Upon execution hereof, Tenant shall deposit with the
party named in Section 1.13 above a cash Security Deposit in the sum stated in
Section 1.07. Landlord may apply all or part of the Security Deposit to any
unpaid rent or other charges due from Tenant or to cure any other defaults of
Tenant. If Landlord uses any part of the Security Deposit, Tenant shall restore
the Security Deposit to its full amount within ten (10) days after Landlord's
written request. Tenant's failure to do so shall be a material default under
this Lease. No interest shall be paid on the Security Deposit. Landlord shall
not be required to keep the Security Deposit separate from its other accounts
and no trust relationship is created with respect to the Security
<PAGE>
Deposit. Upon any termination of this Lease not resulting from Tenant's default,
and after Tenant has vacated the Property in the manner required by this Lease.
Landlord shall refund the unused portion of the Security Deposit to Tenant.
ARTICLE IV.: TAXES
4.01. Payment by Landlord. Landlord shall pay the real estate taxes on the
Property during the Lease Term.
4.02. Payment by Tenant. Tenant shall pay the party named in Section 1.13 above,
as additional rental, the excess, if any, of the real estate taxes for any year
during the Lease Term over the real estate taxes for the base year stated in
Section 1.12. Tenant shall make such payment within fifteen (15) days after
receipt of a statement showing the amount and computation of such increase.
Tenant shall be responsible for the pro-rata portion of such additional rental
for any fractional part of a year preceding the end of the Lease Term, which
prorated sum shall be due and payable upon the termination of this Lease. If the
termination of this Lease occurs before the tax rate is fixed for the particular
year, the proration shall be upon the basis of the tax rate for the preceding
year applied to the latest assessed valuation, and notwithstanding the
termination of this Lease, any difference in the actual real estate taxes for
such year shall be adjusted between the parties upon receipt of written evidence
of the payment thereof.
4.03. Improvements by Tenant. In the event the real estate taxes levied against
the Property for the real estate tax year in which the Lease Term commences are
increased as a result of any alterations, additions or improvements made by
Tenant or by Landlord at the request of Tenant, Tenant shall pay to Landlord
upon demand the amount of such increase. For the purposes of the calculations
under Section 4.02, the amount of the real estate taxes during the real estate
tax year in which the Lease Term commences shall not include any taxes resulting
from any such alterations, additions or improvements made in or to the Property.
Landlord shall obtain from the tax assessor or assessors a written statement of
the total amount of such increase.
4.04. Joint Assessment. If the real estate taxes are assessed against the
Property jointly with other property not constituting a part of the Property,
the real estate taxes for such years shall be equal to the amount bearing the
same proportion to the aggregate assessment that the total square feet of
building area in the Property bears to the total square feet of building area
included in the joint assessment.
4.05. Personal Property Taxes. Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property belonging to
Tenant. Tenant shall try to have its personal property taxed separately from the
Property, but if any of Tenant's personal property is taxed with the Property,
Tenant shall pay the taxes for the personal property within fifteen (15) days
after Tenant receives a written statement for such personal property taxes.
<PAGE>
ARTICLE V.: INSURANCE AND INDEMNITY
5.01. Casualty Insurance. During the Lease Term, Landlord shall maintain
policies of insurance covering loss of or damage to the Property in such amount
or percentage of replacement value as Landlord or its insurance advisor deems
reasonable in relation to the age, location, type of construction and physical
condition of the Property and the availability of such insurance at reasonable
rates. Such policies shall provide protection against all perils included within
the classification of fire and extended coverage and any other perils which
Landlord deems necessary. Landlord may obtain insurance coverage for Tenant's
fixtures, equipment or building improvements installed by Tenant in or on the
Property. Tenant shall, at Tenant's expense, maintain such primary or additional
insurance on its fixtures, equipment and building improvements as Tenant deems
necessary to protect its interest. Tenant shall not do or permit to be done
anything which invalidates any such insurance polices. Any casualty insurance
which may be carried by Landlord or Tenant shall be for the sole benefit of the
party carrying such insurance and under its sole control.
5.02. Increase in Premiums. Tenant shall not permit any operation or activity to
be conducted or storage or use of any volatile or any other materials on the
Property that would cause suspension or cancellation of any fire and extended
coverage insurance policy carried by Landlord, or increase the premiums
therefor, without the prior written consent of Landlord. If Tenant's use and
occupancy of the Property causes an increase in the premiums for any fire and
extended coverage insurance policy carried by Landlord on the day before Tenant
shall have first gone into possession of the Property under this Lease, Tenant
shall pay, as additional rental, the amount of such increase to Landlord upon
demand and presentation of written evidence of the increase by Landlord.
5.03. Liability Insurance. During the Lease Term, Tenant shall maintain a policy
of comprehensive public liability insurance, at Tenant's expense, insuring
Landlord against liability arising out of the ownership, use, occupancy or
maintenance of the Property. The initial amount of such insurance shall be at
least $1,000,000, and shall be subject to periodic increase based upon
inflation, increased liability awards, recommendation of professional insurance
advisors, and other relevant factors. However, the amount of such insurance
shall not limit Tenant's liability nor relieve Tenant of any obligation
hereunder. The policy shall contain cross-liability endorsements, if applicable,
and shall insure Tenant's performance of the indemnity provisions of Section
5.04. Such policy shall contain a provision which prohibits cancellation or
modification of the policy except upon thirty (30) days' prior written notice to
Landlord. Tenant may discharge its obligations under this Section by naming
Landlord as an additional insured under a policy of comprehensive liability
insurance maintained by Tenant and containing the coverage and provisions
described in this Section. Tenant shall deliver a copy of such policy or
certificate (or a renewal thereof) to Landlord prior to the Commencement Date
and prior to the expiration of any such policy during the Lease Term. If Tenant
fails to maintain such policy, Landlord may elect to maintain such insurance at
Tenant's expense. Tenant shall, at Tenant's expense, maintain such other
liability insurance as Tenant deems necessary to protect Tenant.
<PAGE>
5.04. Indemnity. Landlord shall not be liable to Tenant or to Tenant's
employees, agents or visitors, or to any other person, whomsoever, for any
injury to persons or damage to property on or about the Property or any adjacent
area owned by Landlord caused by the negligence or misconduct of Tenant, its
employees, subtenants, licensees or concessionaires or any other person entering
the Property under express or implied invitation of Tenant, or arising out of
the use of the property by Tenant and the conduct of its business therein, or
arising out of any breach or default by Tenant in the performance of its
obligations hereunder; and Tenant hereby agrees to indemnify Landlord and hold
it harmless from any loss, expense or claims arising out of such damage or
injury. Tenant shall not be liable for any injury or damage caused by the
negligence or misconduct of Landlord, or its employees or agents, and Landlord
agrees to indemnify Tenant and hold it harmless from any loss, expense or damage
arising out of such damage or injury.
5.05. Waiver of Subrogation. Each party hereto waives any and every claim which
arises or may arise in its favor against the other party hereto during the term
of this Lease or any renewal or extension thereof for any and all loss of, or
damage to, any of its property located within or upon, or constituting a part
of, the Property, which loss or damage is covered by valid and collectible fire
and extended coverage insurance policies, to the extent that such loss or damage
is recoverable under such insurance policies. Such mutual waivers shall be in
addition to, and not in limitation or derogation of, any other waiver or release
contained in this Lease with respect to any loss of, or damage to, property of
the parties hereto. Inasmuch as such mutual waiver will preclude the assignment
of any aforesaid claim by way of subrogation or otherwise to an insurance
company (or any other person), each party hereby agrees immediately to give to
each insurance company which has issued to it policies of fire and extended
coverage insurance, written notice of the terms of such mutual waivers, and to
cause such insurance policies to be properly endorsed, if necessary, to prevent
the invalidation of such insurance coverages by reason of such waivers.
ARTICLE VI.: USE OF PROPERTY
6.01. Permitted Use. Tenant may use the Property only for the permitted use
stated in Section 1.08.
6.02. Compliance with Law. Tenant shall comply with all governmental laws,
ordinances and regulations applicable to the use of the Property, and shall
promptly comply with all governmental orders and directives for the correction,
prevention and abatement of nuisances in or upon, or connected with the
Property, all at Tenant's sole expense.
6.03. Certificate of Occupancy. Tenant may, prior to the commencement of the
term of this Lease, apply for a Certificate of Occupancy to be issued by the
municipality in which the Property is located, but this Lease shall not be
contingent upon issuance thereof. Nothing herein contained shall obligate
Landlord to install any additional electrical wiring, plumbing or plumbing
fixtures which are not presently existing on the Property, or which have not
been expressly agreed upon by Landlord in writing.
6.04. Signs. Without the prior written consent of Landlord, Tenant shall not
place or affix any signs or other objects upon or to the Property, including but
not limited to the roof or exterior
<PAGE>
walls of the building or other improvement thereon, or paint or otherwise deface
said exterior walls. Any signs installed by Tenant shall conform with applicable
laws and deed and other restrictions. Tenant shall remove all signs at the
termination of this Lease and shall repair any damage and close any holes caused
or revealed by such removal.
6.05. Utility Services. Tenant shall pay the cost of all utility services,
including but not limited to initial connection charges, all charges for gas,
water and electricity used on the Property, and for all electric lights, lamps
and tubes.
6.06. Landlord's Access. Landlord and its authorized agents shall have the
right, during normal business hours, to enter the Property (a) to inspect the
general condition and state of repair thereof, (b) to make repairs required or
permitted under this Lease, (c) to show the property to any prospective tenant
or purchaser or (d) for any other reasonable purpose. During the final 150 days
of the lease Term, Landlord and its authorized agents shall have the right to
erect and maintain on or about the Property customary signs advertising the
Property for lease or for sale.
6.07. Quiet Possession. If Tenant pays the rent and complies with all other
terms of this Lease, Tenant may occupy and enjoy the Property for the full Lease
Term, subject to the provisions of this Lease.
6.08. Exemptions from Liability. Landlord shall not be liable for any damage or
injury to the person, business (or any loss of income therefrom), goods, wares,
merchandise or other property of Tenant, Tenant's employees, invitees, customers
or any other person in or about the Property, whether such damage or injury is
caused by or results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures or any other cause;
(c) conditions arising on or about the Property or upon other portions of any
building of which the Property is a part, or from other sources or places; or
(d) any act or omission of any other tenant of any building of which the
Property is a part. Landlord shall not be liable for any such damage or injury
even though the cause of or the means of repairing such damage or injury are not
accessible to Tenant. The provisions of this Section 6.08 shall not, however,
exempt Landlord from liability for Landlord's gross negligence or willful
misconduct.
ARTICLE VII.: MAINTENANCE, REPAIRS AND ALTERATIONS
7.01. Acceptance of Premises. Tenant acknowledges that it has fully inspected
the Property and accepts the Property in its condition as of the execution of
this Lease as suitable for the purposes for which it is leased. Tenant
acknowledges that, except as stated in the following sentence, neither Landlord
nor an agent of Landlord has made any representation as to the condition of the
Property or the suitability of the Property for Tenant's intended use. Landlord
represents that on the Commencement Date, the plumbing, electrical system and
exterior doors, and any fire protection sprinkler system, heating system, air
conditioning equipment and elevators existing on the date of this Lease, are or
will be in good operating condition.
<PAGE>
7.02. Landlord's Obligation to Repair. Subject to the provisions of Article
Eight (Damage or Destruction) and Article Nine (Condemnation) and except for
damage caused by any act or omission of Tenant, Landlord shall keep the
foundation, roof and the structural portions of exterior walls of the
improvements of the Property in good order, condition and repair. However,
Landlord shall not be obligated to maintain or repair windows, doors, plate
glass or the surfaces of walls. In addition, Landlord shall not be obligated to
make any repairs under this Section until a reasonable time after receipt of
written notice from Tenant of the need of such repairs. If any repairs are
required to be made by Landlord, Tenant shall, at Tenant's sole cost and
expense, promptly remove Tenant's fixtures, inventory, equipment and other
Property, to the extent required to enable Landlord to make such repairs.
Landlord's liability hereunder shall be limited to the cost of such repairs or
corrections. Tenant waives the benefit of any present or future law which might
give Tenant the right to repair the Property at Landlord's expense or to
terminate the Lease because of the condition of the Property.
7.03. Tenant's Obligation to Repair. Subject to the provisions of the last
sentence of Section 7.01, the preceding Section 7.02, Article Eight (Damage or
Destruction) and Article Nine (Condemnation), Tenant shall, at all times, keep
that portion of the Property not required to be maintained by Landlord in good
order, condition and repair including but not limited to repairs (including all
necessary replacements) of the windows, plate glass, doors, heating system, air
conditioning equipment, fire protection sprinkler system, elevators, interior
and exterior plumbing and the interior of the building in general, and including
care of landscaping and regular mowing of grass and maintenance of any paving
and railroad siding. In addition, Tenant shall, at Tenant's expense, repair any
damage to the roof, foundation or structural portions of exterior walls caused
by Tenant's acts or omissions. If Tenant fails to maintain and repair the
property as required by this Section, Landlord may, on ten (10) days' prior
written notice, enter the Property and perform such maintenance or repair on
behalf of Tenant, except that no notice shall be required in case of emergency,
and Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
7.04. Alterations, Additions and Improvements. Tenant shall not create any
openings in the roof or exterior walls, or make any alterations, additions or
improvements to the Property without the prior written consent of Landlord.
Consent for nonstructural alterations, additions or improvements shall not be
unreasonably withheld by Landlord. Tenant shall have the right to erect or
install shelves, bins, machinery, air conditioning or heating equipment and
trade fixtures, provided that Tenant complies with all applicable governmental
laws, ordinances and regulations. At the expiration or termination of this
Lease, Tenant shall, subject to the restrictions of Section 7.05 below, have the
right to remove such items so installed by it, provided Tenant is not in default
at the time of such removal and provided further that Tenant shall, at the time
of removal of such items, repair in a good and workmanlike manner any damage
caused by installation or removal thereof. Tenant shall pay for all costs
incurred or arising out of alterations, additions or improvements in or to the
Property and shall not permit a mechanic's or materialman's lien to be asserted
against the Property. Upon request by Landlord, Tenant shall deliver to Landlord
proof of payment reasonably satisfactory to Landlord of all costs incurred or
arising out of any such alterations, additions or improvements.
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7.05. Condition upon Termination. Upon the termination of the Lease, Tenant
shall surrender the Property to Landlord, broom clean and in the same condition
as received except for ordinary wear and tear which Tenant was not otherwise
obligated to remedy under any provision of the Lease. However, Tenant shall not
be obligated to repair any damage which Landlord is required to repair under
Article Eight (Damage or Destruction). In addition, Landlord may require Tenant
to remove any alterations, additions or improvements (whether or not made with
Landlord's consent) prior to the termination of the Lease and to restore the
Property to its prior condition, all at Tenant's expense. All alterations,
additions and improvements which Landlord has not required Tenant to remove
shall become Landlord's property and shall be surrendered to Landlord upon the
termination of the Lease. In no event, however, shall Tenant remove any of the
following materials or equipment without Landlord's prior written consent: any
power wiring or power panels; lighting or lighting fixtures; wall coverings;
drapes, blinds or other window coverings; carpets or other floor coverings;
heaters, air conditioners or any other heating or air conditioning equipment;
fencing or security gates; or other similar building operating equipment and
decorations.
ARTICLE VIII.: DAMAGE OR DESTRUCTION
8.01. Notice. If the building or other improvements situated on the Property
should be damaged or destroyed by fire, tornado or other casualty, Tenant shall
immediately give written notice thereof to Landlord.
8.02 Partial Damage. If the building or other improvements situated on the
Property should be damaged by fire, tornado or other casualty but not to such an
extent that rebuilding or repairs cannot reasonably be completed within 120 days
from the date Landlord receives written notification by Tenant of the happening
of the damage, this Lease shall not terminate, but Landlord shall, at its sole
cost and risk, proceed forthwith and use reasonable diligence to rebuild or
repair such building and other improvements on the Property (other than
leasehold improvements made by Tenant or any assignee, subtenant or other
occupant of the Property) to substantially the condition in which they existed
prior to such damage; provided, however, if the casualty occurs during the final
18 months of the Lease Term, Landlord shall not be required to rebuild or repair
such damage unless Tenant shall exercise its renewal option (if any is contained
herein) within fifteen (15) days after the date of receipt by Landlord of the
notification of the occurrence of the damage. If Tenant does not elect to
exercise its renewal option or if there is no renewal option contained herein or
previously unexercised at such time, this Lease shall terminate at the option of
the Landlord and rent shall be abated for the unexpired portion of this Lease,
effective from the date of actual receipt by Landlord of the written
notification of the damage. If the building and other improvements are to be
rebuilt or repaired and are untenantable in whole or in part following such
damage, the rent payable hereunder during the period in which they are
untenantable shall be adjusted equitably.
8.03. Substantial or Total Destruction. If the building or other improvements
situated on the Property should be substantially or totally destroyed by fire,
tornado or other casualty, or so damaged that rebuilding or repairs cannot
reasonably be completed within 120 days from the date Landlord receives written
notification by Tenant of the happening of the damage, this Lease
<PAGE>
shall terminate at the option of Landlord and rent shall be abated for the
unexpired portion of this Lease, effective from the date of receipt by Landlord
of such written notification. If this Lease is not terminated, the building and
the improvements shall be rebuilt or repaired and rent abated to the extent
provided under Section 8.02.
ARTICLE IX. CONDEMNATION
If, during the term of this Lease or any extension or renewal thereof, all or a
substantial part of the Property should be taken for any public or quasi-public
use under any governmental law, ordinance or regulation or by right of eminent
domain, or should be sold to the condemning authority under threat of
condemnation, this Lease shall terminate and the rent shall be abated during the
unexpired portion of this Lease, effective from the date of taking of the
Property by the condemning authority. If less than a substantial part of the
demised premises is taken for public or quasi-public use under any governmental
law, ordinance or regulation, or by right of eminent domain, or is sold to the
condemning authority under threat of condemnation, Landlord, at its option, may
by written notice terminate this Lease or shall forthwith at its sole expense
restore and reconstruct the buildings and improvements (other than leasehold
improvements made by Tenant or any assignee, subtenant or other occupant of the
Property) situated on the Property in order to make the same reasonably
tenantable and suitable for the use for which the Property is leased as defined
in Section 6.01. The rent payable hereunder during the unexpired portion of this
Lease shall be adjusted equitably. Landlord and Tenant shall each be entitled to
receive and retain such separate awards and portions of lump sum awards as may
be allocated to their respective interests in any condemnation proceedings. The
termination of this Lease shall not affect the rights of the respective parties
to such awards.
ARTICLE X.: ASSIGNMENT AND SUBLETTING
Tenant shall not, without the prior written consent of Landlord, assign
this Lease or sublet the Property or any portion thereof. Any assignment or
subletting shall be expressly subject to all terms and provisions of this Lease,
including the provisions of Section 6.01 pertaining to the use of the Property.
In the event of any assignment or subletting, Tenant shall remain fully liable
for the full performance of all Tenant's obligations under this Lease. Tenant
shall not assign its rights hereunder or sublet the Property without first
obtaining a written agreement from the assignee or sublessee whereby the
assignee or sublessee agrees to be bound by the terms of this Lease. No such
assignment or subletting shall constitute a novation. In the event of the
occurrence of an event of default while the Property is assigned or sublet,
Landlord, in addition to any other remedies provided herein or by law, may at
Landlord's option, collect directly from such assignee or subtenant all rents
becoming due under such assignment or subletting and apply such rent against any
sums due to Landlord hereunder. No direct collection by Landlord from any such
assignee or subtenant shall release Tenant from the performance of its
obligations hereunder.
ARTICLE XI.: DEFAULT AND REMEDIES
11.01. Default. The following events shall be deemed to be events of default
under this Lease:
<PAGE>
(a) Failure of Tenant to pay any installment of the rent or other sum
payable to Landlord hereunder on the date that same is due and such failure
shall continue for a period of ten (10) days;
(b) Failure of Tenant to comply with any term, condition or covenant of
this Lease, other than the payment of rent or other sum of money, and such
failure shall not be cured within thirty (30) days after written notice thereof
to Tenant;
(c) Tenant or any guarantor of Tenant's obligations hereunder shall
generally not pay its debts as they become due or shall admit in writing its
inability to pay its debts, or shall make a general assignment for the benefit
of creditors.
(d) Tenant or any guarantor of Tenant's obligations hereunder shall
commence any case, proceeding or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property;
(e) Any case, proceeding or other action against Tenant or any guarantor
of Tenant's obligations hereunder shall be commenced seeking to have an order
for relief entered against it as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and Tenant (i) fails
to obtain a dismissal of such case, proceeding, or other action within sixty
(60) days of its commencement or (ii) converts the case from one chapter of the
Federal Bankruptcy Code to another chapter or (iii) is the subject of an Order
of Relief which is not fully stayed within seven business days after the entry
thereof.
(f) Abandonment by Tenant of any substantial portion of the Property or
cessation of the use of the Property for the purpose leased.
11.02. Remedies. Upon the occurrence of any of the events of default listed in
Section 11.01, Landlord shall have the option to pursue any one or more of the
following remedies without any notice or demand whatsoever:
(a) Terminate this Lease, in which event Tenant shall immediately surrender
the Property to Landlord. If Tenant fails to so surrender such premises,
Landlord may, without prejudice to any other remedy which it may have for
possession of the Property or arrearages in rent, enter upon and take possession
of the Property and expel or remove Tenant and any other person who may be
occupying such premises or any part thereof, by force if necessary, without
being liable for prosecution or any claim for damages therefor, Tenant shall pay
to Landlord on demand the amount of all loss and damage which Landlord may
suffer by reason of such termination, whether through inability to relet the
Property on satisfactory terms or otherwise;
(b) Enter upon and take possession of the Property, by force if necessary,
without terminating
<PAGE>
this Lease and without being liable for the prosecution or for any claim for
damages therefor, and expel or remove Tenant and any other person who may be
occupying such premises or any part thereof. Landlord may relet the Property and
receive the rent therefor. Tenant agrees to pay to Landlord monthly or on demand
from time to time any deficiency that may arise by reason of any such reletting.
In determining the amount of such deficiency, the brokerage commission,
attorneys' fees, remodeling expenses and other costs of reletting shall be
subtracted from the amount of rent received under such reletting;
(c) Enter upon the Property, by force, if necessary, without terminating this
Lease and without being liable for prosecution or for any claim for damages
therefor, and do whatever Tenant is obligated to do under the terms of this
Lease. Tenant agrees to pay Landlord on demand for expenses which Landlord may
incur in thus effecting compliance with Tenant's obligations under this Lease,
together with interest thereon at the rate of twelve percent (12%) per annum
from the date expended until paid. Landlord shall not be liable for any damages
resulting to Tenant from such action, whether caused by negligence of Landlord
or otherwise.
Pursuit of any of the foregoing remedies shall not preclude pursuit of
any of the other remedies herein provided or any other remedies provided by law,
nor shall pursuit of any remedy herein provided constitute a forfeiture or
waiver of any rent due to Landlord hereunder or of any damages accruing to
Landlord by reason of the violation of any of the terms, conditions and
covenants herein contained.
11.03. Notice of Default. Tenant shall give written notice of any failure by
Landlord to perform any of its obligations under this Lease to Landlord and to
any ground lessor, mortgagee or beneficiary under any deed of trust encumbering
the Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than thirty (30) days to cure, Landlord
shall not be in default if such cure is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
11.04. Limitation of Landlord's Liability. As used in this Lease, the term
"Landlord" means only the current owner or owners of the fee title to the
Property or the leasehold estate under a ground lease of the Property at the
time in question. Each Landlord is obligated to perform the obligations of
Landlord under this Lease only during the time such Landlord owns such interest
or title. Any Landlord who transfers its title or interest is relieved of all
liability with respect to the obligations of Landlord under this Lease to be
performed on or after the date of transfer. However, each Landlord shall deliver
to is transferee all funds previously paid by Tenant if such funds have not yet
been applied under the terms of this Lease.
ARTICLE XII.: LANDLORD'S LIEN
In addition to the statutory Landlord's lien, Tenant hereby grants to
Landlord a security interest to secure payment of all rent and other sums of
money becoming due hereunder from Tenant, upon all goods, wares, equipment,
fixtures, furniture and other personal property of Tenant situated in or upon
the Property, together with the proceeds from the sale or lease thereof. Such
property shall not be removed without the consent of Landlord until all
arrearages in rent
<PAGE>
and other sums of money then due to Landlord hereunder shall first have been
paid and discharged. Upon the occurrence of an event of default, Landlord may,
in addition to any other remedies provided herein or by law, enter upon the
Property and take possession of any and all goods, wares, equipment, fixtures,
furniture and other personal property of Tenant situated on the Property without
liability for trespass or conversion, and sell the same at public or private
sale, with or without having such property at the sale, after giving Tenant
reasonable notice of the time and place of any such sale. Unless otherwise
required by law, notice to Tenant of such sale shall be deemed sufficient if
given in the manner prescribed in this Lease at least ten (10) days before the
time of the sale. Any public sale made under this Article shall be deemed to
have been conducted in a commercially reasonable manner if held on the Property
or where the property is located, after the time, place and method of sale and a
general description of the types of property to be sold have been advertised in
a daily newspaper published in Dallas County, Texas, for five consecutive days
before the date of the sale. Landlord or its assigns may purchase at a public
sale and, unless prohibited by law, at a private sale. The proceeds from any
disposition dealt with in this Article, less any and all expenses connected with
the taking of possession, holding and selling of the property (including
reasonable attorneys' fees and legal expenses), shall be applied as a credit
against the indebtedness secured by the security interest granted herein. Any
surplus shall be paid to Tenant or as otherwise required by law; Tenant shall
pay any deficiencies forthwith. Upon request by Landlord, Tenant agrees to
execute and deliver to Landlord a financing statement in form sufficient to
perfect the security interest of Landlord in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial Code in force in
the State of Texas. The statutory lien for rent is expressly reserved; the
security interest herein granted is in addition and supplementary thereto.
ARTICLE XIII.: PROTECTION OF LENDERS
13.01. Subordination. Landlord shall have the right to subordinate this Lease to
any ground Lease, deed of trust or mortgage encumbering the Property, and
advances made on the security thereof and any renewals, modifications,
consolidations, replacements or extensions thereof, whenever made or recorded.
However, Tenant's right to quiet possession of the Property during the Lease
Term shall not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage and gives written notice thereof to Tenant, this Lease shall be deemed
prior to such ground lease, deed of trust or mortgage whether this Lease is
dated prior or subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof.
13.02. Attornment. If Landlord's interest in the Property is acquired by any
ground lessor, beneficiary under a deed of trust, mortgagee or purchaser at a
foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any statute or
rule of law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the Property upon the transfer of Landlord's
interest.
<PAGE>
13.03. Signing of Documents. Tenant shall sign and deliver any instruments or
documents necessary or appropriate to evidence any such attornment or
subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor of Landlord, the
attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
13.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying: (i) that none of the terms
or provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been canceled
or terminated; (iii) the last date of payment of the Base Rent and other charges
and the time period covered by such payment; and (iv) that Landlord is not in
default under this Lease (or, if Landlord is claimed to be in default, stating
why). Tenant shall deliver such statement to Landlord within ten (10) days after
Landlord's request. Any such statement by Tenant may be given by Landlord to any
prospective purchaser or encumbrancer of the Property. Such purchaser or
encumberancer may rely conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within such ten
(10) day period, Landlord, and any prospective purchaser or encumbrancer, may be
conclusively presume and rely upon the following facts; (i) that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been canceled or terminated except as
otherwise presented by Landlord; (iii) that not more than one month's Base Rent
or other charges have been paid in advance; and (iv) that Landlord is not in
default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
13.05. Tenant's Financial Condition. Within ten (10) days after written request
from Landlord, Tenant shall deliver to Landlord such financial statements as are
reasonably required by Landlord to verify the net worth of Tenant, or any
assignee, subtenant, or guarantor of Tenant. In addition, Tenant shall deliver
to any lender designated by Landlord any financial statements required by such
lender to facilitate the financing or refinancing of the Property. Tenant
represents and warrants to the Landlord that each such financial statement is a
true and accurate statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the purposes set
forth herein.
ARTICLE XIV.: REALTORS' COMMISSIONS
14.01. Amount and Manner of Payment of Commissions. Commissions due to the
undersigned Principal REALTOR shall be calculated and paid as follows:
(a) Landlord agrees to pay to the undersigned Principal REALTOR a commission
for negotiating this Lease equal to the percentage stated in Section 1.11B of
each monthly rental payment at the time such rental payment is due.
(b) Landlord agrees to pay to the undersigned Principal REALTOR a commission
for
<PAGE>
negotiating this Lease equal to the percentage stated in Section 1.11B of the
total rent to become due to Landlord during the term of this Lease. Said
commission shall be payable to Principal REALTOR on the date of the execution of
this Lease.
14.02. Commissions on Renewal, Expansion or Purchase. If during the term of this
Lease (as the same may be renewed or extended) or within ten (10) years from the
date hereof, whichever shall be the greater period of time, Tenant, its
successors or assigns, shall (a) exercise any right or option to renew or extend
the term of this Lease (whether contained in this Lease or in any amendment,
supplement or other agreement pertaining hereto) or enter into a new lease or
rental agreement with Landlord covering the Property, or (b) enter into any
lease, extension, renewal, expansion or other rental agreement with the Landlord
demising to Tenant any premises located on or constituting all or part of any
tract or parcel of real property adjoining, adjacent to or contiguous to the
Property and owned by Landlord on the date of this Lease, Landlord shall pay to
the Principal REALTOR an additional commission covering the full period of such
renewal, extension, lease, expansion or other rental agreement which shall be
due on the date of exercise, in the case of the exercise of an option, or the
execution, in the case of a lease or other agreement. Such commissions shall be
computed under Section 14.01(a) or 14.01(b) above (whichever has been made
applicable under Section 1.11A), as if a new lease had been made for such period
of time. In the event Tenant, its successors or assigns, should purchase the
Property at any time, pursuant to a purchase option contained in this Lease (or
any lease, extension, renewal, expansion or other rental agreement upon which an
additional commission would be due under the above provisions) or, in the
absence of any purchase option or exercise thereof, should purchase the Property
within ten (10) years from the date hereof, Landlord shall pay to the
undersigned Principal REALTOR a sales commission in cash equal to the percentage
stated in Section 1.11B of the purchase price, payable at closing. Upon closing
of the sale, all lease commissions shall terminate if the lease commissions are
payable monthly.
14.03. Joint Liability of Tenant. Tenant expressly acknowledges and agrees that
if Tenant enters into any new lease, extension, renewal, expansion or other
agreement to rent, occupy or purchase any property described in the preceding
Section 14.02 within the time specified in such preceding Section, such
agreement must be handled by and through the undersigned Principal REALTOR,
otherwise Tenant shall be jointly and severally liable with Landlord for any
commissions due or to become due to Principal REALTOR.
14.04. Sale. In the event of a sale of the Property or the assignment of this
Lease by Landlord, Landlord shall obtain from the purchaser or assignee an
Assumption Agreement in recordable form whereby such purchaser or assignee
agrees to pay the undersigned Principal REALTOR all commissions payable under
this Lease and shall deliver a fully executed counterpart thereof to Principal
REALTOR on the date of closing of the sale of the Property or assignment of this
Lease. Landlord shall be released from personal liability for subsequent
payments of commissions only upon the delivery of such counterpart of said
Assumption Agreement. Landlord expressly agrees that it will not transfer,
convey or sell the Property or assign this Lease without first obtaining from
the purchaser or assignee such Assumption Agreement. The form of such Assumption
Agreement shall be furnished to the Principal REALTOR at the time Landlord
enters into any contract for the sale of the Property or assignment of this
Lease.
<PAGE>
14.05. Lien. The Principal REALTOR is hereby granted a lien against the Property
to secure payment of all commissions (including not only the commission
originally payable hereunder but also any additional commissions which may
hereafter become payable by reason of renewals, new leases, rental agreements,
sales or otherwise). This lien is subject to the rights of Tenant under this
Lease, but prior and superior to any liens hereafter created against the
Property, excepting only liens in favor of banks, insurance companies, building
and loan associations and similar regulated financial institutions security
indebtedness incurred for the purposes of acquiring the Property or
constructing, repairing, rebuilding or remodeling buildings and other
improvements thereon, to all of which liens the lien hereby created shall be
subordinate and inferior.
ARTICLE XV.: MISCELLANEOUS
15.01. Force Majeure. In the event performance by Landlord of any term,
condition or covenant in this Lease is delayed or prevented by any Act of God,
strike, lockout, shortage or material or labor, restriction by any governmental
authority, civil riot, flood, or any other cause not within the control of
Landlord, the period for performance of such term, condition or covenant shall
be extended for a period equal to the period Landlord is so delayed or hindered.
15.02. Interpretation. The captions of the Articles or Sections of this Lease
are to assist the parties in reading this Lease and are not a part of the terms
or provisions of this Lease. Whenever required by the context of this Lease, the
singular shall include the plural and the plural shall include the singular. For
convenience, each party hereto is referred to in the neuter gender, but the
masculine, feminine and neuter genders shall each include the other. In any
provision relating to the conduct, acts or omissions of Tenant, the term
"Tenant" shall include Tenant's agents, employees, contractors, invitees,
successors or others using the Property with Tenant's expressed or implied
permission.
15.03. Waivers. All waivers must be in writing and signed by the waiving party.
Landlord's failure to enforce any provisions of this Lease or its acceptance of
rent shall not be a waiver and shall not prevent Landlord from enforcing that
provision or any other provision of this Lease in the future. No statement on a
payment check from Tenant or in a letter accompanying a payment check shall be
binding on Landlord. Landlord may, with or without notice to Tenant, negotiate
such check without being bound to the conditions of such statement.
15.04. Severability. A determination by a court of competent jurisdiction that
any provision of this Lease or any part thereof is illegal or unenforceable
shall not cancel or invalidate the remainder of such provision or this Lease,
which shall remain in full force and effect.
15.05. Joint and Several Liability. All parties signing this Lease as Tenant
shall be jointly and severally liable for all obligations of Tenant.
15.06. Incorporation of Prior Agreements; Modifications. This Lease is the only
agreement between the parties pertaining to the lease of the Property and no
other agreements are effective. All amendments to this Lease shall be in writing
and signed by all parties. Any other attempted amendment shall be void.
<PAGE>
15.07. Notices. All notices required or permitted under this Lease shall be in
writing and shall be personally delivered or shall be deemed to be delivered,
whether actually received or not, when deposited in the United States mail,
postage pre-paid, registered or certified mail, return receipt requested,
addressed as stated herein. Notices to Tenant shall be delivered to the address
specified in Section 1.03 above, except that, upon Tenant's taking possession of
the Property, the Property shall be Tenant's address for notice purposes.
Notices to any other party hereto shall be delivered to the address specified in
Article I as the address for such party. Any party hereto may change its notice
address upon written notice to the other parties.
15.08. Attorneys' Fees. If on account of any breach or default by any party
hereto in its obligations to any other party hereto (including but not limited
to the Principal REALTOR), it shall become necessary for the non-defaulting
party to employ an attorney to enforce or defend any of its rights or remedies
hereunder, the defaulting party agrees to pay the non-defaulting party its
reasonable attorneys' fees, whether or not suit is instituted in connection
therewith.
15.09 Venue. All obligations hereunder, including but not limited to the
payment of commissions to the Principal REALTOR, shall be performable and
payable in Dallas, Dallas County, Texas.
15.10 Governing Law. The laws of the State of Texas shall govern this Lease.
15.11 Survival. All obligations of any party hereto not fulfilled at the
expiration or the earlier termination of this Lease shall survive the expiration
or earlier termination as continuing obligations of such party.
15.12 Binding Effect. This Lease shall inure to the benefit and be binding upon
each of the parties hereto and their heirs, representatives, successors and
assigns; provided, however, Landlord shall have no obligation to Tenant's
successors or assigns unless the rights or interest of such successors or
assigns are acquired in accordance with the terms of this Lease.
15.13 Execution as Offer. The execution of this Lease by the first party to do
so constitutes an offer to lease the Property. Unless within the number of the
days stated in Section 1.15 above from the date of its execution by the first
party to do so, this Lease is accepted by the other party and a fully executed
copy is delivered to the first party, such offer shall be automatically revoked
and terminated.
ARTICLE XVI.: ADDITIONAL PROVISIONS AND RIDERS
Additional provisions may be set forth in the blank space below, and/or a
rider or riders attached hereto. If no additional provisions are to be inserted
in the blank space below. If a rider or riders are to be attached hereto, please
state in the blank space below: "See rider or riders attached," and please have
Landlord and Tenant initial all such riders.
1. Landlord, at Landlord's expense, will carpet offices.
2. Landlord, at Landlord's expense, will paint warehouse walls.
3. Landlord, at Landlord's expense, will paint warehouse floor.
4. Tenant will construct office and install a/c unit at Tenant's expense and
will be required to remove at Tenant's expense upon termination of lease.
5. Rent will remain fixed during the rental period in the case of purchase of
B. Higginbotham Enterprises, Inc. by some outside buyer. All financial
obligations will transfer in full to the buyer. Landlord reserves the right
to determine the ability of the Buyer to meet all provisions of the Lease.
<PAGE>
EXECUTED as of the date stated in Section 1.01 above.
ATTEST: LANDLORD: Richard J. Ranger
---------------------
_____________________________________ By: /s/ RICHARD RANGER
---------------------
Title: _____________________
Date of Execution by
Landlord:
---------------------------
ATTEST
TENANT: Bob Higginbotham
- ------------------------------------- ---------------------
By: /s/ BOB HIGGINBOTHAM
---------------------
Title: President
---------------------
Date of Execution by
Tenant:
----------------------------
REALTORS(R)
n/a Tom Buck of Warehouse Properties
- ------------------------------------- --------------------------------
Cooperating REALTOR(R) Principal REALTOR,
Member of The Greater
Dallas Board of
REALTOR
/s/ TOM BUCK, SR.
By: ____________________________ By: ------------------------
Tom Buck, Sr.
*NOTE: If this Lease Agreement is negotiated by Principal Realtor in
cooperation with another Realtor, Landlord shall be liable for payment of
all commissions to Principal Realtor only, whereupon it shall be protected
from any claims from said Cooperating Realtor.
<PAGE>
OPTION TO EXTEND TERM
LEASE RIDER*
This Rider is attached to and made a part of that certain Lease Agreement
dated June 1, 1998 by and between Richard J. Ranger as Landlord, and
Higginbotham Audio/ Visual Solutions, as Tenant, covering the Property commonly
known as 10523 King William (the "Property").
A. Option(s) to Extend Term
1. Landlord hereby grants to Tenant one (1) option(x) (the "Option(x)") to
extend the Lease Term for additional term(s) of 3 years each (the
"Extension(s)"), on the same terms, conditions and covenants set forth in the
Lease Agreement, except as provided below. Each Option shall be exercised only
by written notice delivered to the Landlord at least one hundred twenty (120)
days before the expiration of the Lease Term or the preceding Extension of the
Lease Term. If Tenant fails to deliver Landlord written notice of the exercise
of an Option within the prescribed time period, such Option and any succeeding
Options shall lapse, and there shall be no further right to extend the Lease
Term. Each Option shall be exercisable by Tenant on the express condition that
at the time of the exercise, and at all times prior to the commencement of such
Extension(s), Tenant shall not be in default under any of the provisions of this
Lease. The foregoing Option(s) are personal to Tenant and may not be exercised
by any assignee or sub-tenant.
B. Calculation of Rent
The rent during the Extension(s) shall be determined by one of the
following methods (INDICATE YOUR CHOICE BY PUTTING AN "X" IN THE APPROPRIATE
BLANK UPON THE EXECUTION OF THE LEASE AGREEMENT):
1. Consumer Price Index Adjustment ____________________________
2. Fair Rental Value Adjustment X
----------------------------
3. Fixed Rental Adjustment ____________________________
1. Consumer Price Index Adjustment
The monthly rent during the particular Extension shall be determined by
multiplying the monthly rent during the Lease Term by a fraction determined as
follows:
a. The numerator shall be the latest index.
<PAGE>
b. The denominator shall be the initial index.
If such computation would reduce the rent for the particular Extension, it
shall be disregarded, and the rent during the immediately preceding period shall
apply instead.
The index shall mean the Consumer Price Index for Urban Consumers (all
items), Dallas-Fort Worth, Texas area (1967 = 100) published by the United
States Department of Labor, Bureau of Labor Statistics.
The initial index shall mean the index published for the nearest calendar
month preceding the commencement date of the Lease Term. The latest index shall
mean the index published for the nearest calendar month preceding the first day
of the Extension.
If a base year other than 1967 is adopted, the index shall be converted in
accordance with the appropriate conversion factor. If the index is discontinued
or revised, such other index or computation with which it is replaced shall be
used in order to obtain substantially the same result as would have been
obtained it if had not been discontinued or revised.
2. Fair Rental Value Adjustment
The rent shall be increased on the first day of the particular Extension to
the "Fair Rental Value" of the Property, determined in the following manner:
a. If the Landlord and Tenant have not been able to agree on the Fair
Rental Value Adjustment prior to the date the option is required to be
exercised, the rent for the Extension shall be determined as follows: Within
fifteen (15) days following the exercise of the option, Landlord and Tenant
shall endeavor in good faith to agree upon a single appraiser. If Landlord and
Tenant are unable to agree upon a single appraiser within said fifteen (15) day
period, each shall then, by written notice to the other, given within ten (10)
days after said fifteen (15) day period, appoint one appraiser. The two
appraisers appointed by Landlord and Tenant shall be required to be first
approved by the then president of the Greater Dallas Board of REALTORS Inc. as
qualified to determine rental applicable to the Property. Within ten (10) days
after the two appraisers are appointed, they shall appoint a third appraiser. If
either Landlord or Tenant fails to appoint its appraiser within the prescribed
time period the single appraiser appointed shall determine the Fair Rental Value
of the Property. If the two appointed appraisers fail to agree on the third
appraiser, he shall be appointed by the then president of the Greater Dallas
Board of Realtors. Each party shall bear the cost of the appraiser appointed by
it and the parties shall share equally the cost of the third appraiser.
b. The "Fair Rental Value" of the Property shall mean the price that
a ready and willing tenant would pay as of the commencement of the Extension as
monthly rent to a ready and willing landlord of Property comparable to the
Property if such property were exposed for lease on the open market for a
reasonable period of time and taking into account all of the purposes for which
such property may be used and not just the use proposed to be made of the
<PAGE>
Property by Tenant. The Fair Rental Value of the Property shall be the average
of the two of the three appraisals which are closest in amount, and the third
appraisal shall be disregarded. In no event shall the rent by reduced by reason
of such computation. If the Fair Rental Value is not determined prior to the
commencement of the Extension, then Tenant shall continue to pay to Landlord the
rent applicable to the Property immediately prior to such Extension until the
Fair Rental Value is determined, and when it is determined, Tenant shall pay to
Landlord within ten (10) days after receipt of such notice the difference
between the rent actually paid by Tenant to Landlord and the new rent determined
hereunder.
3. Fixed Adjustments.
The base rent shall be increased to the following amounts on the following
dates:
DATE: AMOUNT:
N/A FIXED FOR 1 YEAR $1,906
- ----------------------------- -----------------------------
N/A ______________________________
- -----------------------------
N/A ______________________________
- -----------------------------
INITIALS:
LANDLORD: ____________________
TENANT: BH
----------------------
______
* To be attached to Lease Agreement GDBR-062-10/85, and to be incorporated and
made part thereof if said agreement provides for a building to be construed by
Landlord for Tenants.
<PAGE>
EXHIBIT 10.39
Greater Fort Worth Association of Realtors, Inc.
COMMERICAL-INDUSTRIAL LEASE AGREEMENT
ARTICLE ONE: BASIC TERMS
DATE OF LEASE: June 15 98
--------------------,19 ----.
1.02 LANDLORD: Robert V. Higginbotham
-----------------------------------------------------------------
2126 Vanco Drive, Irving, TX 75061
-----------------------------------------------------------------
1.03 TENANT: EIS, INC
-----------------------------------------------------------------
-----------------------------------------------------------------
1.04 PROPERTY: Approximately 5,000
------------------ square feet of space situated at
503 Bryan St.
---------------------------------------------------------------------------
(street address)
Ft. Worth
--------------------------------------------------- (Tarrant County, Texas)
(City)
Legal Description: See Attachment A
---------------------------------------------------------
---------------------------------------------------------------------------
1.05 LEASE TERM: 60 months, commencing on this 15th day of June 98
------- ---- -------,19 ------
and ending on the 15th day of June. 2003.
-------- ------ ------
1.06 RENT: Three Thousand, Eight Hundred, Thirty Three Dollars ($3,833,00)
------------------------------------------------ ---------
per month beginning on the Commencement Date through June 15th, 2000.
----------- ----
Adjusted to market value Dollars ($ as determined
------------------------------- --------------
per month beginning June 16th, 2000 through June 15, 2003
---------- ---- --------- ----
________________________________________ Dollars ($________)
per month beginning ________________, 19 _________ through
________, 19 ___________.
________________________________________ Dollars ($ _______)
per month beginning _________________, 19 _______ through
________, 19 ___________.
_______________________________________ Dollars ($_________)
per month beginning _________________, 19 _______ through
___________, 19 ____________.
1.07 SECURITY DEPOSIT (See Section 3.03): -0-
------------------------------ Dollars
($________________), (if none, so state)
1.08 LAST MONTH'S RENT PAYABLE IN ADVANCE: -0-
------------------------------ Dollars
($______0_________), (if none, so state)
1.09 PERMITTED USE (See Section 4.01): As Needed
------------------------------------------
___________________________________________________________________________
1.10 BASE YEAR FOR TAXES (See Section 12.02): 1997
-------------
1.11 RENT TO BE PAID TO: Robert V. Higginbotham
--------------------------------------------------------
Address: 2126 Vanco Drive, Irving, TX 75061
-------------------------------------------------------------------
1.12 DAILY LATE CHARGE (See Section 3.02): -0-
----------------------------- Dollars
($_____0_____) per day, (if none, so state)
1.13 PRINCIPAL REALTOR: -0-
-------------------------------------------------------
1.14 COOPERATING REALTOR (if none, so state): -0-
-----------------------------------
1.15 REALTORS COMMISSIONS (See Section 10.01 and 10.02):
A. Lease Commission due to the Principal Realtor shall be equal to -0-
------
percent ( -0- %) calculated in accordance with Section 10.01. Said lease
------
commission shall be payable to the Principal Realtor in Tarrant County,
Texas:
(1) In Installments equal to the percentage stated in this Section
1.15A of each rental payment to become due to Landlord and each
such Installment shall be paid at the time each such rental
payment is due; or
(ii) In each payable as follows:
-0-
----------------------------------------------------------------------
______________________________________________________________________
(Strike subparagraph (i) and complete subparagraph (ii)
B. Sales commission (See Section 10.02): -0- percent ( -0- %).
------- ---------
C. If there is a Cooperating Realtor named in Section 1.14, Principal
Realtor agrees to pay Cooperating Realtor a fee equal to -0- percent
-----
(-0- %) of the lease commission and sales commission received by Principal
---- Realtor hereunder. Such fee shall be payable to Cooperating Realtor in
Tarrant County, Texas, within five (5) business days (Monday through
Friday) after Principal Realtor receives each payment of lease
commission or sales commission.
<PAGE>
ARTICLE TWO: LEASE AND LEASE TERM
2.01 LEASE OF PROPERTY. Landlord hereby leases the Property to Tenant and
Tenant hereby leases the Property from Landlord for the Lease Term stated in
Section 1.05. As used herein, the "Commencement Date" shall be the date
specified in Section 1.05 for the beginning of the Lease Term.
2.02 EARLY OCCUPANCY. If Tenant occupies the Property prior to the
Commencement Date, Tenant's occupancy of the Property shall be subject to all
the provisions of this Lease. Early occupancy of the Property shall not advance
the expiration date of this Lease.
2.03 HOLDING OVER. Tenant shall vacate the Property upon the expiration or
earlier termination of this Lease. Tenant shall reimburse Landlord for and
indemnify Landlord against all damages incurred by Landlord from any delay by
Tenant in vacating the Property. If Tenant does not vacate the Property upon the
expiration or earlier termination of this Lease. Tenant's occupancy of the
Property shall be a "month-to-month" tenancy, subject to all the terms and
provisions applicable to a month-to-month tenancy, except that the rent then in
effect shall be increased by fifty percent (50%).
ARTICLE THREE: RENT AND SECURITY DEPOSIT
3.01 RENT. Tenant agrees to pay rent for the Property at the rate
specified in Section 1.06. Tenant shall pay the rent for the first and last (if
applicable under Section 1.08) months of the Lease Term upon the execution of
this Lease. One monthly rental installment shall be due and payable on or before
the same day of the second calendar month of the Lease Term as the Commencement
Date, and a like monthly installment shall be due and payable on or before the
same day of each succeeding calendar month during the Lease Term. All rent shall
be paid to the party designated in Section 1.11 at the address stated herein for
such party.
3.02 LATE CHARGE. If any rent due hereunder is not received within five (5)
days after its due date, Tenant shall pay the party named in Section 1.11 above
a late charge equal to the sum stated in Section 1.12 above for each day from
its due date until such delinquent sum is received. The parties agree that such
late charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of such late payment.
3.03 SECURITY DEPOSIT. Upon execution hereof, Tenant shall deposit with the
party named in Section 1.11 above a cash Security Deposit in the sum stated in
Section 1.07. Landlord may apply all or part of the Security Deposit to any
unpaid rent or other charges due from Tenant or to cure any other defaults of
Tenant. No Interest shall be paid on the Security Deposit. Landlord shall not be
required to keep the Security Deposit separate from its other accounts and no
trust relationship is created in respect to the Security Deposit. Upon any
termination of the Lease not resulting from Tenant's default, and after Tenant
has vacated the Property in the manner required by this Lease, Landlord shall
refund the unused portion of the Security Deposit to Tenant.
ARTICLE FOUR: USE OF PROPERTY
4.01 PERMITTED USE. Tenant may use the Property only for Permitted Use
stated in Section 1.09.
4.02 COMPLIANCE WITH LAW. Tenant shall comply with all governmental laws,
ordinance and regulations applicable to the use of the Property, and shall
promptly comply with all governmental orders and directives for the correction,
prevention and abatement of nuisances on or upon, or connected with the
Property, all at Tenant's sole expense, Tenant agrees to not store or permit
hazardous or toxic substances to be placed on the premises without prior written
permission from the Landlord. Hazardous or toxic substances as referred to in
this paragraph shall be defined by U.S. Environmental Protection Agency
regulations and/or Texas Natural Resources Preservation Commission regulations.
Tenant further agrees to not place underground or above ground storage tanks on
the leased Premises without prior written consent of Landlord.
4.03 SIGNS. Without the prior written consent of Landlord, Tenant shall not
place or affix any signs or other objects upon or to the Property, including but
not limited to the roof or exterior walls of the building or other improvements
thereon, or paint or otherwise deface said exterior walls. Any signs installed
by Tenant shall conform with applicable laws and deed and other restrictions.
Tenant shall remove all signs at the termination of this Lease and shall repair
any damage and close any holes caused or revealed by such removal.
4.04 UTILITIES. Tenant shall pay the cost of all utility services,
including but not limited to initial connection charges, all charges for gas,
water and electricity used on the Property, and for all electric lights, lamps
and tubes.
4.05 LANDLORD'S ACCESS. Landlord and the authorized agents shall have the
right, during normal business hours, to enter the Property and any buildings and
other improvements thereon to view, inspect, repair or show the Property.
Landlord shall attempt to advice tenant of the intent of Landlord or the
authorized agents to enter the Property.
4.06 INTERRUPTION OF SERVICE. Interruption or curtailment of services
furnished to the Property, if caused by strikes, mechanical difficulties, or any
cause beyond Landlord's control, whether similar or dissimilar to those
enumerated, shall not entitle Tenant to any claim against Landlord or to any
abatement in rent, nor shall the same constitute constructive or partial
eviction, unless Landlord fails to take such measures as may be reasonable in
the circumstances to restore the service without undue delay. If the premises
are rendered untenantable in whole or in part for fifteen (15) business days
because of such interruption or curtailment of services (other than caused by
any act or omission of Tenant or as invitees, employees or customers, there
shall be a proportionate abatement of rent during the period of such
untenantability.
4.07 EXEMPTIONS FROM LIABILITY. Landlord shall not be liable for any damage
or injury to the person, business (or any lost of income therefrom), goods,
wares, merchandise or other property of Tenant, Tenant's employees, invitees,
customers or any other person in or about the Property, whether such damage or
injury is caused by or results from: (a) fire, steam, electricity, water, gas or
rain; (b) the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or lighting fixtures
or any other cause; (c) conditions arising on or about the Property or upon
other portions of any building of which the Property is a part, or from other
sources or places; or (d) any act or omission of any other tenant of any
building of which the Property is a part. Landlord shall not be liable for any
such damage or injury even though the cause of or the means of repairing such
damage or injury are not accessible to Tenant. The provisions of this Section
4.07 shall not, however, exempt Landlord from liability for Landlord's gross
negligence or willful misconduct.
ARTICLE FIVE: MAINTENANCE, REPAIRS AND ALTERATIONS
5.01 ACCEPTANCE OF PREMISES. Tenant acknowledges that Tenant has fully
inspected the Property. Tenant hereby accepts the Property and the buildings and
improvements situated thereon, as suitable for the purpose for which the same
are leased, in their present condition (including all latent or environmental
defects or risk), with such changes therein as may be caused by reasonable
deteriotation between the date hereof and the Commencement Date; provided that
Tenant shall not be responsible for remedying any such latent or environmental
defects or risks unless it becomes necessary to remedy such defects or risks
because of alterations, additions or improvements to the Property made by
Tenant, and that Landlord agrees to (a) repair promptly any presently installed
plumbing, plumbing fixtures, electrical wiring, lighting fixtures, air
conditioning or heating equipment or doors that are not in good working
condition on the Commencement Date of which Tenant delivers written notice to
Landlord within thirty days after the Commencement Date; and (b) make any
additional repairs and alterations necessary for Tenant to obtain a Certificate
of Occupancy from the municipality in which the Property is located, except for
those repairs and alterations required solely because of the nature of Tenant's
business. Landlord expressly disclaims
(2)
<PAGE>
and Tenant waives any and all warranties (including the warranty of
suitability), representations and obligations of Landlord or Landlord's agents
that are not expressly stated herein. Landlord and Tenant acknowledge that
Principal Realtor and cooperating Realtor have no expertise in the detection or
correction of environmentally hazardous or undesirable items, Expert Inspections
are necessary. Current or future laws may require clean up by past, current
and/or future owners and/or tenants of the Property. It is the responsibility of
Landlord and Tenant to retain qualified experts to detect and correct such
matters. Landlord and Tenant acknowledge that neither Principal Realtor, nor
Cooperating Realtor, have made an independent investigation or determination
with respect to the existence of hazardous substances environmental conditions
in, on or about the Property. Any such investigation or determination shall be
the responsibility of Landlord and Tenant. The Principal Realtor or
cooperating Realtor shall not be responsible for such an investigation. Landlord
and Tenant shall, jointly and coverally, defend, indemnify and hold harmless
Principal Realtor and Cooperating Realtor from and against all claims, costs,
expenses, actions, losses, damages and liabilities of any kind whatsoever
(including reasonable attorney's fees) directly or indirectly arising out of the
existence of hazardous substances and/or environmental conditions in, on or
about the Property. This Indemnification shall survive the termination of this
Lease.
5.02 MAINTENANCE AND REPAIRS BY LANDLORD. Landlord shall at his expense
maintain only the roof, foundation, underground pipes, all outside plumbing and
the structural soundness of the exterior walls (excluding all windows, window
glass, plate glass, and all doors) of the improvements on the Property in good
repair and condition, except for reasonable wear and tear and any damage caused
by the act or omission of Tenant, or Tenant's invitees, employees or customers.
Tenant shall give immediate written notice to Landlord of the need for repairs
or corrections and Landlord shall proceed promptly to make such repairs.
5.03 MAINTENANCE AND REPAIRS BY TENANT. Tenant shall at his expense and risk
maintain all other parts of the Improvements on the Property in good repair and
condition, including but not limited to repairs (including necessary
replacement) to the interior plumbing, windows, window glass, plate glass,
doors, heating system, air conditioning equipment, fire protection sprinkler
system, elevators, and the interior of the said Improvements in general; and
including the reasonable care of landscaping and regular mowing of the grass,
and maintenance of the paving outside of the improvements and any railroad
siding. In the event Tenant should neglect reasonably to maintain the demised
premises, Landlord shall have the right (but not the obligation) to cause
repairs or corrections to be made and any reasonable costs therefor shall be
payable by Tenant to Landlord as additional rental on the next rental payment
due date. Upon termination of this Lease, Tenant shall deliver up the Property
in good repair and condition, reasonable wear and tear, and damage by fire, wind
storm or other casualty excepted. Tenant shall repair any damage caused by
Tenant's act or omission, or the act or omission of Tenant's invitees, employees
or customers.
5.04 ALTERATIONS. Tenant shall not create any openings in the roof or
exterior wall, or make any alterations, additions or improvements to the
Property without the prior written consent of Landlord. Consent to nonstructural
alterations, additions or improvements shall not be unreasonably withheld by
Landlord. Tenant shall have the right to erect or install shelves, bins,
machinery, and trade fixtures, provided that Tenant complies with all applicable
governmental laws, ordinances and regulations. At the expiration or termination
of this Lease, Tenant shall, subject to the restrictions of Section 5.05 below,
have the right to remove such items so installed by it, provided Tenant is not
in default at the time of such removal and provided further that Tenant shall,
at the time of removal of such items, repair in a good and workmanlike manner
any damage caused by installation or removal thereof and restore the premises to
the condition that existed prior to the installation of such items, reasonable
wear and tear excepted. Tenant shall pay for all costs incurred or arising out
of alterations, additions or Improvements in or to the Property and shall not
permit a mechanic's or materialman's lien to be asserted against the Property.
5.05 CONDITION UPON TERMINATION. Upon termination of this Lease, Tenant
shall surrender the Property to Landlord, broom clean and in the same condition
as received except for ordinary wear and tear which Tenant was not otherwise
obligated to remedy under any provision of this Lease. However, Tenant shall not
be obligated to repair any damage which Landlord is required to repair under
Article Five. In addition, Landlord may require Tenant to remove any
alterations, additions or improvements made during the term of this lease,
whether or not made with Landlord's consent. In no event, however, shall tenant
remove any of the following materials or equipment without Landlord's prior
written consent; any power wiring or power panels; lighting or lighting
fixtures; wall coverings; drapes, blinds or other window coverings; carpets or
other floor coverings; heaters; air conditioners or any other heating or air
conditioning equipment; fencing or security gates; or other similar building
operation equipment and decorations.
ARTICLE SIX: INSURANCE AND INDEMNITY
6.01 PROPERTY INSURANCE. Tenant shall not keep anything upon the Property,
or do anything in or about Property except the usuage specified herein, which
will increase the rates for fire and standard extended coverage insurance upon
the building or buildings which are part of the Property. Tenant agrees to pay
on demand any increase in insurance premiums that may be charged to Landlord
during the term of this Lease resulting from a deviation from the usage
(3)
<PAGE>
specified herein or from any other cause within Tenant's control. Tenant shall
be responsible for maintaining insurance on Tenant's equipment and other
personal property located on the Property.
6.02 LIABILITY INSURANCE. During the Lease Term, Tenant shall maintain a
policy of comprehensive public liability insurance, at Tenant's expense,
insuring Landlord against liability arising out of the ownership, use occupancy
or maintenance of the Property. The initial amount of such insurance shall be at
least $1,000,000. Such policy shall contain a provision which prohibits
cancellation or modification of the policy except upon thirty (30) days prior
written notice to Landlord. Tenant shall deliver a copy of such policy or
certificate (or a renewal thereof) to Landlord prior to the Commencement Date
and prior to the expiration of any such policy during the Lease Term. If Tenant
fails to maintain such policy, Landlord may elect to maintain such insurance at
Tenant's expense.
6.03 INDEMNITY. Tenant hereby agrees to Indemnify and hold Landlord
harmless from any loss, expense or claims arising out of any injury to persons
or damage to property on or about the Property or any adjacent area owned by
Landlord caused by the negligence or misconduct of Tenant, its employees,
subtenants, licensees or concessionaires or any other person entering the
Property under express or implied invitation of Tenant, or arising out of the
use of the Property by Tenant and the conduct of its business therein, or
arising out of any breach or default by Tenant in the performance of its
obligations hereunder. Tenant shall not be liable for any injury or damage
caused by the negligence or misconduct of Landlord, or his employees or agents,
and Landlord agrees to indemnity Tenant and hold it harmless from any loss,
expense or damage arising out of such damage or injury.
6.04 WAIVER OF SUBROGATION. Landlord and Tenant each hereby waive any and
all rights of recovery against the other, or against the officers, employees,
agents or representatives of the other, for loss of or damage to its property,
or the property of others under its control, if such loss or damage is covered
by any insurance policy in force (whether or not described in this Lease) at the
time of such loss or damage; provided however such waiver is made only on the
condition that it does not adversely affect the right of the insured to recover
under the applicable insurance policy or policies.
ARTICLE SEVEN: ASSIGNMENT AND SUBLETTING
Tenant shall not assign this agreement or sublet the premises, or any part
thereof without the consent of the Landlord in writing, which consent Landlord
agrees it will not unreasonably withhold, but no assignment or subletting shall
release Tenant from any obligation hereunder.
ARTICLE EIGHT: DAMAGE OR DESTRUCTION
8.01 PARTIAL DAMAGE. In the event the Improvements situated on the Property are
partially damaged, or rendered partially unfit for occupancy, by fire or other
casualty. Tenant shall give immediate written notice thereof to Landlord. If
Landlord's insurance proceeds are sufficient to
(4)
<PAGE>
pay for the necessary repairs, and if the repairs can reasonably be made within
90 days after Landlord receives such written notice from Tenant, Landlord shall
forthwith cause such repairs to be made and this Lease shall not terminate.
While such repairs are being made, Landlord shall allow Tenant a fair reduction
in rent in proportion to the extent the improvements are partially unfit for
occupancy, unless such damage, or unfitness for occupancy, is due to the act or
omission of Tenant or Tenant's employees, invitees or licenses.
8.02 UNINSURED PARTIAL DAMAGE OR TOTAL OR SUBSTANTIAL DESTRUCTION. In the event
of total or substantial destruction of the improvements situated on the Property
by fire or other casualty. Tenant shall give immediate written notice thereof to
Landlord. If Landlords insurance proceeds are insufficient to pay for the
necessary repairs or restoration, or the repairs or restoration cannot
reasonably be made within 90 days after Landlord receives such written notice
from Tenant, this Lease shall terminate and the rent shall be paid to the date
of such casualty. However, if such damage or destruction is due to the act or
omission of Tenant or tenant's employees, invitees or licenses. Tenant shall
pay to Landlord, within 60 days after the occurrence of such casualty, any
portion of the anticipated cost of repairing or restoring the improvements to
the same condition as on the date of this Lease that are not reimbursed to
Landlord by insurance proceeds. Such anticipated cost shall be determined by
Landlord. Tenant shall make such payment to Landlord, whether or not Landlord
repairs or restores the Improvements.
ARTICLE NINE: DEFAULT AND REMEDIES
9.01 DEFAULT. The following events shall be deemed to be events of default under
this Lease:
a. Failure of Tenant to pay any installment of the rent or other sum payable to
Landlord hereunder on the date that same is due and such failure shall continue
for a period of five (5) days after written notice thereof to tenant:
b. Failure of Tenant to comply with any term, condition or covenant of this
Lease, other than the payment of rent or other sum of money, and such failure
shall not be cured within thirty (30) days after written notice thereof to
Tenant;
c. Tenant shall make an assignment for the benefit of creditors;
d. Abandonment by Tenant of any substantial portion of the Property or cessation
of the use of the use of the Property for the purpose leased for a period of
more than thirty (30) consecutive calendar days.
9.02 REMEDIES. Upon the occurrence of any of the events of default listed in
Section 9.01, Landlord shall have the option to pursue any one or more of the
following remedies without any notice or demand whatsoever:
a. Terminate this Lease, in which event Tenant shall immediately surrender the
Property to Landlord. If Tenant fails to so surrender such premises, Landlord
may, without prejudice to any other remedy which it may have for possession of
the Property or arrearages in rent, enter upon and take possession of the
Property and expel or remove Tenant and any other person who may be occupying
such premises or part thereof. Landlord may hold Tenant liable for all rent and
other indebtedness accrued to the date of such termination, plus, as liquidated
damages and not as a penalty, an amount equal to the then present value of rent
provided for hereunder for the remaining portion of the Lease Term (had this
Lease not been terminated) using a ten (10%) percent value discount factor. In
the event Landlord elect to terminate this Lease by reason of an event of
default, in lieu of recovering from Tenant under the preceding sentence,
Landlord may hold Tenant liable for the amount of all loss and damage which
Landlord may suffer by reason of such termination, whether through inability to
relet the Property on satisfactory terms or otherwise.
(5)
<PAGE>
b. Enter upon and take possession of the Property without terminating this
Lease, and expel or remove Tenant and any other person who may be occupying such
premises or any part thereof. Landlord may relet the Property and receive the
rent therefor. Tenant agrees to pay to Landlord monthly or on demand from time
to time any deficiency that may arise by reason of any such reletting. In
determining the amount of such deficiency, the brokerage commission, attorneys
fees, remodeling expenses and other costs of reletting shall be subtracted from
the amount of rent received under such reletting.
c. Enter upon the Property without terminating the Lease, and do whatever Tenant
is obligated to due under the terms of this Lease. Tenant agrees to pay Landlord
on demand for expenses which Landlord may incur in thus effecting compliance
with Tenant's obligations under this Lease, together with interest thereon at
the rate of eighteen (18%) percent per annum from the date expended until paid.
Landlord shall not be liable for any damages resulting to Tenant from such
action, whether caused by negligence of Landlord or otherwise.
d. Tenant is presumed to have abandoned the Property if Tenant's goods,
equipment, or other property are removed from the Property in an amount
substantial enough to indicate a probable intent to abandon the Property and
such removal is not within the normal course of Tenant's business. In the event
that Tenant is presumed to have abandoned the Property, Landlord may remove and
store any property of Tenant that remains on the Property. Landlord may
store such property at any location satisfactory to Landlord. Landlord may
dispose of such stored property after the expiration of sixty (60) days from the
date such property is so stored. Landlord shall deliver by certified mail to
Tenant at Tenant's last known address as shown by Landlord's records a notice
stating that Landlord may dispose of Tenant's property if Tenant does not claim
the same within sixty (60) days after the date property was stored.
e. In the event Tenant is in default under this Lease by reason of Tenant's
failure to pay rent as set forth above, then Landlord may, at Landlord's option,
change all door locks and leave a written notice on a door to Tenant's leased
premises stating the name and address or telephone number of the individual from
whom a new key can be obtained during Tenant's regular business hours, which are
defined for this purpose as being between 8.00 a.m. and 5.00 p.m. on Monday
through Friday of each week, Tenant hereby waives the three (3) days written
notice to vacate required by Texas Property Code Section 24.005 and agrees that
one (1) day written notice to vacate is sufficient for the purpose of Texas
Property Code Section 24.005 and the filing of a Forcible Entry and Detainer
lawsuit.
Upon the occurrence of any of such events of default, Landlord may enter upon
and take possession of the Property by force, if necessary, without being liable
for prosecution of any claim for damages therefor. Pursuit of any of the
foregoing remedies shall not preclude pursuit of any of the other remedies
herein provided or any other provided by law, nor shall pursuit of any remedy
herein provided constitute a forfeiture or waiver of any rent due to landlord
hereunder or of any damages accruing to Landlord by reason of the violation of
the terms, conditions and covenants herein contained.
ARTICLE TEN: REALTOR'S COMMISSIONS
10.01 AMOUNT AND MANNER OF PAYMENT OF LEASE COMMISSIONS: Landlord agrees to pay
to the Principal Realtor a commission for negotiating this Lease equal to the
percentage stated in Section 1.15A of the total rent to become due to the
Landlord during or because of (i) the Lease Term; (ii) each period of occupancy
of the Property by Tenant, its affiliates, successors or assign, beyond the
Lease Term, whether such continued occupancy be caused by renewal, extension,
holding over, new lease or agreement or otherwise and whether upon the same or
different terms, conditions of covenants of this Lease; (iii) any expansion,
lease extension, renewal or other
(6)
<PAGE>
rental agreement with Landlord, its affiliate, successors or assigns, demising
to Tenant, its affiliates, successors or assigns, any premises located on or
constituting all or part of any tract or parcel of real property adjoining,
adjacent to or contiguous to the Property. Said lease commission shall be paid
in accordance with Section 1.15A. If the lease commission is payable in cash
under Section 1.15A(ii) the lease commission for any continued occupancy or
expansion, as provided above, shall be payable in cash for the entire term of
any such continued occupancy or expansion at the beginning of such term and at
the beginning of any subsequent term. Notwithstanding that Principal Realtor, or
Cooperating Realtor, may be designated under Section 1.11 to receive rent
hereunder and may from time to time gratuitously perform rent collection and
limited property management services for Landlord, neither Principal Realtor,
nor Cooperating Realtor shall have any obligation under this Lease to perform
such rent collection and management services, unless such obligation arises
under separate agreement with Landlord that provides for an additional fee for
such services.
10.02 COMMISSION ON PURCHASE. In the event Tenant, its affiliates, successors
or assigns, should purchase the Property during the term of this Lease (as the
same may be renewed or extended) and for a period of one hundred twenty (120)
days after Tenant, its affiliates, successors or assigns, vacates the Property,
Landlord shall pay to the undersigned Principal Realtor a sales commission in
each equal to the percentage stated in Section 1.15B of the purchase price
payable at the closing. Upon the closing of such sale, the lease commission
payments shall terminate if the lease commission is payable in installments in
accordance with Section 1.15A(i); or, in the event the lease commission is
payable in case in accordance with Section 1.15A(ii), Landlord shall receive a
credit against the sales commission equal to the total lease commission paid by
Landlord to the Principal Realtor multiplied by the unexpired percentage of the
Lease Term as of the date of such closing. (In the event the Principal Realtor
is paid a lease commission in cash in accordance with Section 1.15A(ii) for any
continued occupancy beyond the Lease Term or expansion, such credit shall be
equal to the total lease commission paid for such continued occupancy or
expansion multiplied by the unexpired percentage of the term of such continued
occupancy or expansion as of the date of such closing).
10.03 PROTECTION OF REALTORS. If Landlord sells the Property, or assigns
Landlord's interest in this Lease, the buyer or assignee shall, by accepting
such conveyance of the Property or assignment of the lease, be conclusively
deemed to have agreed to make all payments to Principal Realtor thereafter
required of Landlord under this Article Ten. Principal Realtor shall have the
right to bring a legal action to enforce or declare rights under this provision.
The prevailing party in such action shall be entitled to reasonable attorneys
fees to be paid by the losing party. This section is included in this lease for
the benefit of Principal Realtor.
10.04 REALTOR'S LIEN. The Principal Realtor is hereby granted a lien against
the Property to secure payment of all commissions payable under this Article Ten
(including any additional commissions which may hereafter become payable by
reason of renewals, new leases, rental agreements, sales or otherwise). This
lien is subject to the rights of Tenant under this lease, but prior and superior
to any liens hereafter created against the Property, excepting only liens in
favor of banks, insurance companies, savings and loan associations and similar
regulated financial institutions securing indebtedness incurred for the purpose
of acquiring the Property of constructing, repairing, rebuilding or remodeling
buildings and other improvements thereon, to all of which liens the lien hereby
created shall be subordinate and inferior.
10.05 PAYMENT TO PRINCIPAL REALTOR. Landlord shall be liable for payment of all
commissions to Principal Realtor only, where upon it shall be protected from any
claims from any Cooperating Realtor or Broker.
ARTICLE ELEVEN: CONDEMNATION
Landlord shall notify Tenant if Landlord receives notice of any potential
condemnation of the Property or portion thereof. If all or any portion of the
Property is taken under the power of eminent domain or sold under the threat of
that power (all of which are called "Condemnation"), this Lease shall terminate
as to the part taken or sold on the date the condemning authority takes title or
possession, by delivering written notice to the other within ten (10) days after
receipt of written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority takes possession). If
neither Landlord nor Tenant terminates this Lease, this Lease shall remain in
effect as to the portion of the Property not taken, except that the rent shall
be reduced in proportion to the reduction in floor area of the Property. Any
Condemnation award or payment shall be distributed in the following order: (a)
first, to any ground lessor, mortgagee or beneficiary under a deed of trust
encumbering the Property, the amount of its interest in the Property; (b)
second, to Tenant, only the amount of any award specifically designated for loss
of or damage to Tenant's trade fixtures or removable personal property; and (c)
third, to Landlord, the remainder of such award, whether as compensation for
reduction in the value of the leasehold, the taking of the fee, or otherwise.
If this Lease is not terminated, Landlord shall repair any damage to the
Property caused by the Condemnation, except that Landlord shall not be obligated
to repair any damage for which Tenant has been reimbursed by the condemning
authority. If the severance damages received by Landlord are not sufficient to
pay for such repair, Landlord shall have the right to either terminate this
Lease or make such repair at Landlord's expense.
(7)
<PAGE>
ARTICLE TWELVE: TAXES
12.01 PAYMENT BY TENANT. Tenant shall pay the real estate taxes on the
Property during the Lease Term.
12.02 PAYMENT BY TENANT. Tenant shall pay the party named in Section 1.11
above, as additional rental, the excess, if any, of the real estate taxes on the
Property for any year during the Lease Term over the real estate taxes on the
Property for the base year stated in Section 1.10. Tenant shall make such
payment within fifteen (15) days after receipt of a statement showing the amount
and computation of such increase. Tenant shall be responsible for the pro-rata
portion of such additional rental for any fractional part of a year preceding
the end of the Lease Term, which prorated sum shall be due and payable upon the
termination of this Lease. If the termination of this Lease occurs before the
tax rate is fixed for the particular year, the proration shall be upon the basis
of the tax rate for the preceding year applied to the latest assessed valuation,
and notwithstanding the termination of this Lease, any difference in the actual
real estate taxes for such year shall be adjusted between the parties upon
receipt of written evidence of the payment thereof. Tenant agrees to pay all
personal property taxes levied against the leased premises and Tenant during the
term hereof by reason of Tenant's improvements, inventory, equipment and
business conducted at the leased premises.
12.03 JOINT ASSESSMENT. If the Property is not separately assessed, Tenant's
share of the real estate taxes payable by Tenant under Section 12.02 shall be
determined from reasonably available information. Landlord shall make a
reasonable determination of Tenant's proportionate share of such real estate
taxes and Tenant shall pay such share to Landlord within fifteen (15) days after
receipt of Landlord's written statement.
12.04 CONTEST BY TENANT. Tenant may, at its own expense, contest any tax or
assessment for which Tenant may be wholly or partially responsible. Except as
hereinafter provided, Tenant need not pay the tax, assessment or charge during
the pendency of the contest and Tenant may prevent Landlord from paying any tax,
assessment or charge that Tenant is contesting pursuant to this section 12.04,
pending any resolution of the contest, by depositing with Landlord, before such
tax, assessment or charge becomes delinquent, Tenant's portion of the full
amount of the tax or assessment, plus the full amount of any penalty that might
be imposed for failure to make timely payment and six (6) months of interest at
the rate imposed by the entity levying the tax or assessment. Upon final
resolution of the tax or assessment contest. Landlord may use the money
deposited by Tenant to pay Tenant's portion of any tax or assessment, plus the
full amount of any penalty or interest, due under the final resolution, and
Tenant shall receive the balance of the deposit, if any. If the deposit is
insufficient to pay these amounts, Tenant must immediately pay such
insufficiency to Landlord. Notwithstanding the foregoing, Landlord may pay, or
require Tenant to pay, any tax, assessment or charge, or any portion thereof,
for which Tenant is responsible under this Article Twelve, pending resolution of
Tenant's contest of the tax, assessment or charge, if payment is demanded by a
holder of a mortgage on the property, or if failure to pay will subject all or
part of the Property to forfeiture or loss. Landlord reserves the right to
contest any tax, assessment or charge on the Property.
ARTICLE THIRTEEN: LANDLORD'S LIEN
In addition to the statutory landlord's lien, Tenant hereby grants to Landlord a
security interest to secure payment of all rent and other sums of money becoming
due hereunder from Tenant, upon all goods, wares, equipment, fixtures and other
personal property of Tenant situated in or upon the Property, together with the
proceeds from the sale or lease thereof. Such property shall not be removed
without the consent of Landlord until all arrearages in rent and other sums of
money then due to Landlord hereunder shall first have been paid and discharged.
Upon request by Landlord, Tenant agrees to execute and deliver to Landlord a
financing statement in form sufficient to perfect the security interest of
Landlord in the aforementioned property and proceeds thereof under the
provisions of the Uniform Commercial Code in force in the State of Texas.
(8)
<PAGE>
ARTICLE FOURTEEN: SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE
14.01 SUBORDINATION. Landlord shall have the right to subordinate this
lease, deed of trust or mortgage encumbering the Property, and advances made on
the security thereof and any renewals, modifications, consolidations,
replacements or extensions thereof, whenever made or recorded. However, Tenant's
right to quiet possession of the Property during the Lease Term shall not be
disturbed if Tenant pays the rent and performs all of Tenant's obligations under
this Lease and is not otherwise in default. If any ground lessor, beneficiary or
mortgagee elects to have this Lease prior to the lien of its ground lease, deed
of trust or mortgage and gives written notice thereof to Tenant, this Lease
shall be deemed prior to such ground lease, deed of trust or mortgage whether
this lease is dated prior or subsequent to the date of said ground lease, deed
of trust or mortgage or the date of recording thereof.
14.02 ATTORNMENT. If Landlord's interest in the Property is acquired by any
ground lessor, beneficiary under a deed of trust, mortgage or purchaser at a
foreclosure sale, Tenant shall attorn to the transferee of or successor to
Landlord's interest in the Property and recognize such transferee or successor
as landlord under this Lease. Tenant waives the protection of any statue or rule
and law which gives or purports to give Tenant any right to terminate this
Lease or surrender possession of the property upon the transfer of Landlord's
interest.
14.03 SIGNING OF DOCUMENTS. Tenant shall sign and deliver any instruments or
documents necessary or appropriate to evidence any such attornment or
subordination or agreement to do so. If Tenant fails to do so within ten (10)
days after written request, Tenant hereby makes, constitutes and irrevocably
appoints Landlord, or any transferee or successor Landlord the attorney-in-fact
of Tenant to execute and deliver any such instrument or document.
14.04 ESTOPPEL CERTIFICATES
a. Upon Landlord's written request, Tenant shall execute, acknowledge and
deliver to Landlord a written statement certifying (i) that none of the terms or
provisions of this Lease have been changed (or if they have been changed,
stating how they have been changed); (ii) that this Lease has not been
cancelled or terminated; (iii) the last due date of payment of the rent and
other charges and the time period covered by such payment; and (iv) that
Landlord is not in default under this Lease (or, if Landlord is claimed to be in
default, stating why), Tenant shall deliver such statement to Landlord within
ten (10) days after Landlord's request. Any such statement by Tenant may be
given by Landlord to any prospective purchaser or encumbrancer of the Property.
Such purchaser or encumbrancer may rely conclusively upon such statement as true
and correct.
b. If Tenant does not deliver such statement to Landlord within such ten (10)
day period, Landlord, and any prospective purchaser or encumbrancer, may
conclusively presume and rely upon the following facts: (i)that the terms and
provisions of this Lease have not been changed except as otherwise represented
by Landlord; (ii) that this Lease has not been cancelled or terminated except as
otherwise represented by the Landlord; (iii) that not more than one month's rent
or other charges have been paid in advance; and (iv) that Landlord is not in
default under the Lease. In such event, Tenant shall be estopped from denying
the truth of such facts.
ARTICLE FIFTEEN: MISCELLANEOUS
15.01 EXHIBITS. All exhibits, attachments, annexed instruments and addenda
referred to herein shall be considered a part hereof for all purposes with the
same force and effect as if copied at full length herein.
15.02 INTERPRETATION. Words of any gender used in this Lease shall be held
and construed to include any other gender, and words in the singular shall be
held to include the plural, unless the context otherwise requires. In any
provision relating to the conduct, acts or omissions of Tenant, the term
"Tenant" shall include Tenant's agents, employees, contractors, invitees,
successors, permitted assigns or others using the Property with Tenant's
expressed or implied permission.
15.03 CAPTIONS. The captions or headings of paragraphs in the Lease are
intended for convenience only, and shall not be considered in construing the
provisions hereof if any question of intent should arise.
15.04 WAIVERS. All waivers must be in writing and signed by the waiving
party. Landlord's failure to enforce any provision of this Lease or the
acceptance of rent shall not be a waiver and shall not prevent Landlord from
enforcing that provision or any other provision of this Lease in the future. No
statement on a check from Tenant or in a letter accompanying a payment check
shall be binding on Landlord. Landlord may, with or without notice to Tenant,
negotiate such check without being bound to the conditions of such statement.
15.05 SEVERABILITY. A determination by a court of competent jurisdiction
that any provision of this Lease or any part thereof is illegal or unenforceable
shall not cancel or invalidate the remainder of such provision of this Lease,
which shall remain in full force and effect.
15.06 JOINT AND SEVERAL LIABILITY. All parties signing this Lease as Tenants
shall be jointly and severally liable for the obligations of Tenant.
15.07 INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS. This lease is the
only agreement between the parties pertaining to the lease of the Property and
no other agreements are in effect. All amendments to this Lease shall be in
writing and signed by all parties. Any other attempted amendment shall be void.
15.08 BINDING EFFECT. The terms, conditions and covenants contained in the
Lease, shall apply to, inure to the benefit of, and be binding upon the parties
hereto and their respective heirs, representatives, successors and permitted
assigns, except as otherwise herein expressly provided. All rights, powers,
privileges, immunities and duties of Landlord under this Lease, including but
not limited to any notices required or permitted to be delivered by Landlord to
Tenant hereunder, may, at Landlord's option, be exercised or performed by
Landlord's agent or attorney.
15.09 NOTICES. Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not when
deposited in the United States Mail, postage prepaid, registered or certified
mail, return receipt requested, addressed to parties hereto at the respective
addresses stated herein, or at such other address as they have theretofore
specified by written notice delivered in accordance herewith. Notices to Tenant
shall be delivered to the address specified on the signature page hereof, except
that, upon Tenant's taking possession of the Property, the Property address
shall be Tenant's address for notice purposes.
15.10 FORCE MAJEURE. In the event performance by Landlord of any term, condition
or covenant in this Lease is delayed or prevented by any Act of God, strike,
lockout, shortage of material or labor, restriction by any governmental
authority, civil riot, flood or any other cause not within the control of
Landlord, the period of performance of such term, condition or covenant shall be
extended for a period equal to the period Landlord is so delayed or hindered.
15.11 ATTORNEYS FEES. If on account of any breach or default of any party
hereto in its obligations to any other party hereto (including but not limited
to the Principal Realtor), it shall become necessary for the non-defaulting
party to employ an attorney to enforce or defend any of its rights or remedies
hereunder, the defaulting party agrees to pay the non-defaulting party its
reasonable attorney's fees, whether or not suit is instituted in connection
therewith.
15.12 TIME OF ESSENCE. Time is of the essence in this Lease.
(9)
<PAGE>
ARTICLE SIXTEEN: SPECIAL PROVISIONS AND RIDERS
Special provisions may be set forth in the blank space and/or on a rider or
riders attached hereto. If no additional provisions are to be inserted in the
blank space below, please draw line through such space. If no rider or riders
are to be attached hereto, please state "No Riders" in blank space below. If a
rider or riders are to be attached hereto, please state in the blank space
below. "See Rider or Riders Attached," and please have Landlord and Tenant
initial all such riders.
1) Lease commencement date is contingent upon:
A) Completion of construction work and Landlord improvements to a
point where the tenant has occupied the building.
B) The completion of the sale of B. Higginbotham Enterprises Inc.
to EIS Inc.
2) Tenant pays all Property Insurance.
THIS IS A LEGAL DOCUMENT, READ IT CAREFULLY, IF YOU DO NOT UNDERSTAND THE EFFECT
OF ANY PART OF THIS LEASE, SEEK COMPETENT LEGAL ADVICE. THE GREATER FORT WORTH
ASSOCIATION OF REALTORS ("GFWAR") HAS FURNISHED THIS FORM FOR THE CONVENIENCE OF
ITS MEMBERS. LANDLORD AND TENANT ACKNOWLEDGE THAT THEY HAVE NOT RELIED ON ANY
LEGAL ADVICE FROM PRINCIPAL REALTOR, COOPERATING REALTOR, GFWAR OR GFWAR'S
OFFICERS, DIRECTORS, EMPLOYEES, MEMBERS, AFFILIATES OR ATTORNEYS.
EXECUTED as of the date in Section 1.01 above.
LANDLORD TENANT
Robert V. Higginbotham EIS Inc.
- ----------------------------------- ----------------------------
By: /s/ ROBERT V. HIGGINBOTHAM By: /s/ DENNIS KUSHNER
--------------------------------- -------------------------
TITLE: President TITLE: Vice President
----------------------------- ----------------------
ADDRESS____________________________ ADDRESS______________________________
___________________________________ ______________________________________
Date of execution by Landlord: 5/28/98 Date of execution by Tenant __________
PRINCIPAL REALTOR, MEMBER OF THE COOPERATING REALTOR
GREATER FORT WORTH ASSOCIATION OF
REALTORS
NONE NONE
- ---------------------------------- --------------------------------------
By: ______________________________ By:___________________________________
ADDRESS:__________________________ ADDRESS:______________________________
By: ______________________________ By:___________________________________
(10)
<PAGE>
EXHIBIT 10.40
COMMERCIAL LEASE AGREEMENT
THE STATE OF TEXAS (S)
(S) KNOW ALL MEN BY THESE PRESENTS
COUNTY OF HARRIS (S)
In consideration of the rent hereinafter stipulated and agreed to be paid
by Tenant to Landlord, and of the terms, covenants, and conditions herein
contained and on the part of the Tenant to be kept, observed and performed, the
Landlord has LEASED, LET AND DEMISED, and by these presents does hereby LEASE,
LET AND DEMISE unto the Tenant the following described premises for the period
of time, subject to and upon the terms, covenants and conditions herein set
forth, to-wit:
1.
--
BASIC TERMS
-----------
1.01. Date of Lease: February 9, 1998
--------------
1.02. Landlord: IVEST, INC.
---------
Address of Landlord: P.O. Box 691784
Houston, Texas 77269-1784
1.03. Tenant: HIGGINBOTHAM AUDIO/VISUAL SOLUTIONS
-------
Address of Tenant: 2126 Vanco Drive
------------------ Irving, Texas 77561
1.04. Manager: GUARDIAN MANAGEMENT CO.
--------
Address of Manager: P.0. Box 691784
------------------- Houston, Texas 77269-1784
1.05. Commencement Date: March 1, 1998
------------------
In the event the Leased Premises are not ready for occupancy by Tenant on
the Commencement Date, because Tenant's leasehold improvements are not
substantially complete, or, for any other reason, the obligations of Landlord
and Tenant shall nevertheless continue in full force and effect, but if the
Leased Premises are not ready for occupancy for reasons other than (a) any delay
in the completion of Tenant's Plans (as hereinafter defined) beyond March 1,
1998, due to Tenants failure to work and cooperate with Landlord in connection
therewith, or (b) any delay in the installation of Tenant's leasehold
improvements due to any change in or addition to the work called for by Tenants
Plans as ordered by Tenant, then the Base Rental provide in Section 1.12 (a)
hereof, shall abate and not commence until the date the leasehold improvements
to the leased Premises are substantially complete; such abatement of Base Rental
shall constitute
1
<PAGE>
full settlement of all claims that Tenant may otherwise have against Landlord by
reason of the Leased Premises not being ready for occupancy by Tenant on the
Commencement Date, the Term shall be extended by the period of time which
elapses between the Commencement Date and the date that the Leased Premises are
ready for occupancy by Tenant and the parties agree to execute an agreement
between them confirming any such extension of the Term.
1.06. Expiration Date: August 31, 1999
---------------
1.07. Leased Premises: The subject of this Lease Agreement is a portion
---------------
of the commercial warehouse(s) located in Harris County, Texas, on real
estate which is legally defined in Exhibit "A" and attached hereto and
incorporated herein by reference. This entire tract described in Exhibit "A",
together with improvements (hereinafter referred to as the "Development
Complex") and such leased portion being approximately 1,685 square feet of such
warehouse space is more commonly referred to as 8825 Solon Road, Suite E8,
Houston, Texas, 77064 (hereinafter referred to as the "Leased Premises" and/or
"Premises"), and is more particularly described and attached hereto as Exhibit
"A-1" and incorporated herein by reference.
1.08. Lease Term: Subject to and upon the terms and conditions set
----------
forth herein, or in any exhibit hereto, this Lease shall continue in full
force and effect for a term of 18 months (hereinafter referred to as the
"Term").
1.09. Permitted Use: Office and warehouse for Higginbotham Audio/Visual
-------------
Solutions and for no other purpose.
1.10. Tenant's Guarantor: The Guarantor of Tenant's obligations under
------------------
this Lease is Higginbotham Audio/Visual Solutions, and such Guarantors
obligations are governed by that certain Guaranty, attached hereto as Page 20 of
the lease.
1.11. Initial Security Deposit: Landlord hereby acknowledges that a
------------------------
security deposit in the amount of $575.00 was received by Guardian Management
Co. of Houston in accordance with the Lease Agreement entered into on
____________________ 1998.
1.12. Rent and Other Charges Payable by Tenant: Tenant covenants and
----------------------------------------
agrees to pay to Landlord as rent and common area maintenance (CAM) for the
Leased Premises, a monthly payment in the amount of $575.00.
(a) BASE RENT: $558.15 per month as provided in Section 2 below. The
prorated rent from date of entry on February , 1998, is ______________.
(b) OTHER PERIODIC PAYMENTS: When and as billed by Landlord;
(i) Real Property Taxes above the "Base Real Property Taxes"; (ii) Utilities;
(iii) Increased Insurance Premiums above "Base Premiums"; (iv) Common Area
Charge of $16.85 per month; (v) Maintenance, Repairs and Alterations.
2
<PAGE>
1.13. Service Charges:
---------------
(a) Late Payment Charge: An amount equal to the greater of $50.00 or
ten percent (10%) of any installment of Base Rent and other charges past due for
more than five days.
(b) Returned Checks: $50.00 for each returned check.
1.14. Parking Spaces: Allocated to Tenant: Only those spaces located
--------------
in front of tenant's Unit.
1.15. Costs and Charges Payable by Landlord:
-------------------------------------
(a) Base Real Property Taxes; and
(b) Base Insurance Premiums.
2.
--
RENT
----
Tenant, in consideration for this Lease, agrees to pay to landlord the Base
Rent in monthly installments in the amount stated in Section 1.12(a) above,
payable at Landlord's address herein provided in legal tender of the United
States of America, without notice, demand, counterclaim, set-off or abatement in
advance on the first day of each calendar month throughout the Lease Term. The
first such monthly installment shall be due and payable on the date of execution
of this Lease by Tenant and subsequent installments shall be due and payable on
or before the first day of each succeeding calendar month during the Lease Term.
The term "rent" shall mean any sum required to be paid by Tenant to Landlord
under this Lease including without limitation, the specified minimum monthly
rent, additional rent, adjustments to rent, fixed rent increases, impounds, or
reimbursements to Landlord relating to taxes, insurance and/or common area
maintenance costs, if any, attorney's fees, interest or any past due amounts,
late fees (regardless of how such are designated) and any sums due to Landlord.
If any part of the rent remains due and payable for a term of five (5) days
after the first of each calendar month, Landlord shall have the option of
declaring the balance of the entire rent for the full rental term of this Lease
Agreement to be immediately due and payable.
3.
--
SECURITY DEPOSIT
----------------
Tenant shall deposit with Landlord upon execution of the Lease Agreement
hereof, a security deposit in the amount set forth in Section 1.11 above, for
full and timely performance by Tenant of all respective obligations, covenants
and conditions of Tenant as specified under this Lease Agreement. If Tenant
defaults in the performance of its obligations, covenants and conditions under
the Lease Agreement, Landlord may use the security deposit, or any portion of
it, to cure default or to compensate Landlord for all damage sustained by
Landlord resulting from
3
<PAGE>
Tenant's default. If any portion of the security deposit is so used, Tenant
shall deposit cash with landlord in an amount sufficient to restore the security
deposit to the full amount within five (5) days after Landlord has demanded such
replenishment. At least ninety (90) days written notice of intent to vacate must
be given to Landlord prior to move-out at the end of the above lease term or
extension period. If Tenant is not in default at the expiration or termination
of this Lease Agreement, Landlord shall return the security deposit to Tenant
within thirty (30) days after expiration or termination of this Lease Agreement
subject to the conditions that Tenant has surrendered possession of the Premises
to Landlord free of any subtenants or other persons claiming possession or right
to occupy the Premises and Tenant has performed all of its obligations under
this Lease Agreement. Landlord will commingle the security deposit with
Landlord's general and other funds and shall not be required to pay interest on
the security deposit. No trust relationship is created herein between Landlord
and Tenant with respect to the security deposit The use of the security deposit
by Landlord in the manner stated above shall not limit or restrict Landlord from
exercising any other rights or remedies provided to Landlord under this Lease
Agreement or under law or in equity if Tenant defaults. If Landlord sells or
otherwise transfers the premises or any interest in this Lease, Landlord may
assign the security deposit to the purchaser or other transferee thereof and
Landlord shall no longer be liable to Tenant and Tenant shall look solely to
such purchaser or other transferee for the return of the security deposit.
Tenant shall not assign or encumber its contingent rights to the return of the
security deposit.
4.
--
COMMON AREA AND OCCUPANCY COSTS
-------------------------------
The term "common areas" means the parking areas, roadways, pedestrian
sidewalks, driveways, sidewalks, mail, whether open or closed, delivery areas,
trash removal areas, landscaped areas, security areas, public washrooms, and all
other areas or improvements that may be provided by landlord for the common use
of the tenants in the Development Complex.
Landlord reserves the following rights with respect to the common areas:
(a) To establish reasonable rules and regulations for the use of the common
areas (including without limitation the delivery of goods and the disposal of
trash);
(b) To use or permit the use of such common areas by others to whom
landlord may grant or may have granted such rights in such manner as Landlord
may from time to time designate;
(c) To close all or any portion of the common areas to make repairs or
changes, to prevent a dedication of the common areas or the accrual of any
rights to any person or the public, or to discourage noncustomer use or parking;
4
<PAGE>
(d) To construct additional buildings in the common areas and to change the
layout of such common areas, including the right to add to or subtract from
their shape and size, whether by the addition of building improvements or
otherwise;
(e) To enter into operating agreements with respect to the common areas;
and
(f) To do such other acts in and to the common areas as in Landlord's
judgment may be desirable.
Landlord grants Tenant and Tenant's customers and invitees the non-
exclusive right to use the common areas, in common with others to whom the
Landlord has granted or will grant a similar right.
Tenant will pay Landlord as a common area charge Tenant's proportionate
share of all costs paid or incurred by Landlord in operating and maintaining the
common areas, including without limitation: cleaning, window washing,
landscaping, lighting, heating, air conditioning, maintaining, painting,
repairing, and replacing (except to the extent proceeds of insurance or
condemnation awards are available) the enclosed malls and other enclosed common
areas; maintaining, repairing, replacing cleaning, lighting, removing snow and
ice from, painting, and landscaping all vehicle parking areas and other outdoor
common areas, including any shopping center pylon and sign; providing security;
seasonal holiday decorations; removing trash from the common areas; providing
public liability, property damage, fire, and extended coverage and such other
insurance as Landlord deems appropriate; total compensation and benefits
(including premiums for workmen's compensation and other insurance) paid to or
on behalf of employees; personal property taxes; supplies; fire protection and
fire hydrant charges; steam, water, and sewer charges; gas, electricity, and
telephone utility charges; licenses and permit fees; supplying music to the
common areas; and rent paid for leasing equipment used in operating and
maintaining the common areas; cost not to exceed $16.85 per month for the term
of the lease.
Tenant's common area charge will be determined by multiplying the total
cost incurred by Landlord by a fraction, the numerator of which is the number of
square feet of floor area within the premises and the denominator of which is
the total number of square feet of floor area leased within all the buildings in
the Development Complex in the amount set forth in Section 1.12 (b)(iv) of this
lease.
5.
--
TAXES
-----
Landlord shall pay the "Base Real Property Taxes" on the Premises during
the lease term. Tenant shall reimburse Landlord Tenant's proportionate share of
the amount of increases in taxes for the Premises in the manner as specified for
any calendar year during the Lease term if the taxes are greater than the amount
of taxes for the Base Year. Base Real Property Taxes are real property taxes
applicable to the Premises as shown on the tax bill for the most recent tax
fiscal
5
<PAGE>
year ending the year of the execution of this lease. Tenant shall pay the costs
of taxes to Landlord as further rent for the use and occupancy of the Premises
at the times, to the extent and in the manner as specified in Section 1.12
(b)(1). Tenant's proportionate share of increases in taxes equals the ratio
which the area of the Premises bears to total area of the building(s) located
Within the complex and/or project which are included in the same tax parcel
within which the Premises is located for which tax parcel a separate assessment
is made and tax bill is issued by the applicable taxing authority. All
determinations of "Tenant's proportionate share" as used herein shall be made by
Landlord and shall be conclusive and binding on the parties hereto.
As defined herein, "taxes" shall mean any form of tax, assessment, excise,
license fee, sales tax, use tax, business tax, rental tax, ad valorem (real or
personal property) tax, improvement bond, levy, lien, charge or penalty (Whether
general, special, ordinary or extraordinary, foreseen or unforeseen) imposed or
assessed 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, sewage, irrigation or other improvement or other appraisal,
utility special or similar district) against or in respect of or which may be or
become a lien or charge upon (a) any legal or equitable interest of Landlord in
the Leased Premises or in the real property of which the Leased Premises is a
part, or (b) Landlord's rights to or receipt of rent or other income from the
Leased Premises or by Landlord's business of leasing the Leased Premises, the
parking facilities, or other appurtenances or facility located on or within the
Premises. "Taxes" shall also mean any tax imposed in substitution, partially or
totally, of or for any tax previously included in the definition of taxes herein
above stated. "Taxes" shall also mean any tax imposed or added to real property
taxes as a result of reassessment upon a transfer or lease of all or part of
Landlord's interest in the Premises or the real property of which the Premises
is a part. Landlord and Tenant intend that all taxes of any kind or character
now existing or subsequently enacted relating to or concerning the Premises or
any part thereof, including without limitation, a reassessment of the value
thereof, the lease of the Premises by Tenant shall be included with the term
"taxes". "Taxes shall not include Landlord's personal income, franchise,
inheritance or estate taxes.
6.
--
PROPERTY INSURANCE
------------------
At all times during the Lease Term, Tenant shall maintain in full force and
effect his own insurance coverage on any of its property that may be located on
the demised premises, and it is further agreed that LANDLORD SHALL IN NO WAY BE
LIABLE FOR DAMAGE TO TENANT'S PERSONAL PROPERTY, ALTERATIONS OR IMPROVEMENTS
WHATSOEVER, BY REASON OR LOSS DAMAGES BY ANY CAUSE WHATSOEVER OR ANY
CONSEQUENTIAL DAMAGES SUFFERED BY TENANT. Tenant's property shall not be
covered by any insurance maintained by Landlord.
6
<PAGE>
7.
--
LIABILITY INSURANCE
-------------------
At all times during the Lease Term, Tenant shall maintain in full force and
effect comprehensive liability insurance as may be generally available from
insurance companies of that type, in the form as approved by Landlord insuring
Landlord and Tenant against any liability arising out of the use, occupancy, or
maintenance of the Premises or other areas appurtenant thereto in a amount of
not less than $1,000,000.00 with such policy showing Landlord and GUARDIAN
MANAGEMENT CO. as additional insureds. The term of such insurance policy may be
for such period as shall be designated by Tenant provided, however, that within
thirty (30) days prior to the expiration of such policy, Tenant shall procure
another policy of said insurance so that, throughout the entire Lease Term
Landlord and Landlord's managing agent shall always be additional insureds under
policies with insurance coverage of that so specified. The policy limits shall
never be decreased, but shall be reasonably increased in accordance with
increases, if any, necessary to maintain policy limits from time to time
customary and usual for premises of the similar type, size and use as the
Premises in the city and county where the Premises is located. Increases in the
policy limits shall not be required more frequently than once a year. Tenant's
Property shall not be covered by any insurance maintained by Landlord.
Each party hereby releases the other for any liability or damages incurred
to the extent such liability or damage is covered by insurance procured by such
releasing party. Each party shall have included within any insurance maintained
by such party, a waiver of subrogation rights as to such other party as well as
to GUARDIAN MANAGEMENT CO.
8.
--
UTILITIES
---------
Tenant shall make all arrangements and pay for all utilities and services
furnished to or used by it, including, without limitation, gas, electricity,
water, telephone service, sewage service, pest control, cleaning, trash
collection for all connection charges, initial deposits or other fees therefor.
Landlord shall have the option of requiring Tenant to install its own meter(s),
at Tenant's expense. Otherwise, Tenant shall pay its pro rata share of
utilities or services which are jointly metered or furnished based upon the
square footage of the building(s) within the Development Complex being serviced
as solely determined by Landlord. Landlord shall not be liable or responsible
for damages or losses incurred by Tenant for the failure of Landlord to furnish
any service or utility to the Tenant or otherwise for any failure or
interruption of any utility services and Tenant shall not be entitled to
terminate this Lease Agreement or abate any portion of the rent due under the
Lease as a result of such failure or interruption, as long as Landlord does not
maliciously or in bad faith cause such interruption of services. Furthermore,
at the termination of this Lease Agreement, Tenant shall be responsible for the
closing out of Tenant's accounts with the various utility companies for the
services supplied to the Premises, and shall be solely responsible for the
payment of said accounts. Upon vacating the Premises,
7
<PAGE>
Tenant shall leave the electrical, water and sewage equipment in place and
intact. Tenant will also procure, or cause to be procured, without cost to
Landlord, any and all necessary permits, licenses, or other authorizations
required for the lawful and proper installation and maintenance upon Premises of
wired, pipes, conduits, tubes, and other equipment and appliances for use in
supplying an such service to and upon the Premises. Landlord, upon request of
Tenant, and at the sole expense and liability of Tenant, will join with Tenant
in any application required for obtaining or continuing any such services. Any
improvements and additions to the electrical and/or plumbing services to the
Premises made during the Lease, whether by Tenant or anyone else, shall become
part of the Premises and remain with the Premises upon Tenant vacating the
Premises.
9.
--
USE OF PREMISES
---------------
Tenant shall use the Premises only in a lawful manner in which does not
constitute nuisance or disturbance to any other tenants of Landlord in their
occupancy or use of their lease spaces. The taking of possession of the Leased
Premises by Tenant shall conclusively establish that the Leased Premises were,
at such time, in satisfactory condition and free from defect. Tenant shall not
commit, or permit to be committed, any waste upon the Leased Premises, or any
other act in violation of public policy. Further, Tenant shall not commit, or
suffer to be committed, anything which would subject Landlord to responsibility
or liability for injury or damage to any person or property or which would
invalidate or increase the cost of any insurance coverage described in this
Lease Agreement. Tenant shall comply with all rules, regulations, orders
requirements of Landlord's then current insurance carrier(s) with respect to the
use of the Leased Premises, and for maintaining reasonable insurance coverage of
the types specified in this Lease. Tenant shall not do or permit anything to be
done in, or about the Leased Premises or the Development Complex which will in
any way, obstruct or interfere with the rights of other tenants or occupants of
the complex and/or project, or injury, or annoy them, or use or allow the Leased
Premises to be used for any improper, immoral, unlawful or objectionable
purpose.
Tenant agrees to comply with all rules and regulations that Landlord may
adopt from time to time for the operation, protection, and welfare of the
Development Complex, its occupants and visitors. The present rules and
regulations are as Exhibit "B". Any future rules and regulations shall become a
part of this Lease Agreement upon delivery of a copy to Tenant in accordance
with notice provisions of this Lease Agreement. Landlord will not be
responsible to Tenant for the nonperformance of any such rules and regulations
to any other Tenant or occupant of the Development Complex. Tenant shall not
store or permit to be stored on the Leased Premises, other than within the
building which is the principal building located on the Leased Premises in the
case of a free-standing building or within the Leased Premises in the case where
the Leased Premises is a part of a multi-tenant structure, any goods, machinery,
merchandise, equipment or other property or materials unless such exterior
storage is
8
<PAGE>
specifically provided for by rider, addendum or other amendment to this Lease
and only if such exterior storage is permitted by law, ordinance, rule or
regulation of all applicable governing authorities having jurisdiction over the
Premises.
10.
---
CONDITION OF THE PREMISES
-------------------------
Tenant acknowledges that neither Landlord nor its agents have made any
promise to repair, alter, remodel or improve the Premises or the building or any
other improvement thereon, except as expressly provided in a written rider,
addendum or amendment to this Lease. Tenant acknowledges neither Landlord nor
its agents have made any representation or warranty with respect to the
condition of the Leased Premises or the building or any other improvement
thereon. Tenant's taking possession of the premises shall conclusively
-------------------------------------------------------------
establish that the Premises and the building and other improvements located
- ---------------------------------------------------------------------------
thereon were, at such time, taken by Tenant "as is" and "with all faults" and
- -----------------------------------------------------------------------------
Tenant hereby waives any claims which may hereinafter arise against Landlord
- ----------------------------------------------------------------------------
resulting from the condition of the Premises or any improvement thereon. Except
- -----------------------------------------------------------------------
as otherwise provided in this Lease, Tenant shall only maintain on the Premises
such furniture, furnishings, equipment and other property as may be required to
use the Premises for the purposes described herein above. LANDLORD AND TENANT
EXPRESSLY AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OR
MERCHANTABILITY, HABITABILITY, SUITABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR
ANY OTHER SIMILAR WARRANTY ARISING OUT OF OR IN ANY WAY CONNECTED WITH THE
PERFORMANCE OF ANY PARTY TO THIS LEASE, THE LEASED PREMISES, OR ANY AGREEMENT
INCIDENT HERETO, SUCH WARRANTIES BEING EXPRESSLY DISCLAIMED BY LANDLORD, AND
TENANT DOES HEREBY RELEASE, DISCHARGE AND HOLD HARMLESS LANDLORD IN CONNECTION
WITH ANY CLAIM, DEMAND OR EXPENSE ARISING OUT OF OR BY VIRTUE THEREOF.
11.
---
MAINTENANCE
-----------
11.01. Landlord's Obligations.
----------------------
(i) Landlord shall, at its sole expense, maintain the structural soundness
of the roof, of the exterior walls and of the foundation of the Premises,
reasonable wear and tear and events covered by the destruction provisions hereof
excepted. The phrase "exterior walls" shall not include windows or glass or
plate glass, doors, window mullions or gaskets, or signs; the phrase "reasonable
wear and tear" shall include minor cracking in the walls or foundation caused by
the elements, or otherwise, which affects neither the structural integrity nor
safety of the Premises. Landlord shall not be responsible for the following:
(a) damage to the roof, exterior walls, and/or foundation resulting from the
negligent act or acts, or omissions of Tenant, or Tenants employees,
contractors, agents, vendors material men, suppliers, customers, invitees or
concessionaires; and (b) the upkeep or repair of any air condition, heating
ventilation or refrigeration systems used or required for the Premises.
9
<PAGE>
(ii) Subject to the Common Area Maintenance provisions Sections 3 and 4
(ii) hereof, Landlord shall also maintain all landscaping, exterior lighting,
site concrete and paving including driveway and parking area surfaces (subject,
however, to the limitations of Section B hereof), pedestrian walks and other
common areas.
11.02. Tenant's Obligations. Tenant, at Tenant's sole cost and expense,
--------------------
shall maintain and repair all other parts of the Premises, including but
not limited to, the following items: All glass, including windows of glass
or plate glass, window mullions and gaskets; doors and attached hardware;
special store fronts; interior walls, cabinets, millwork, paneling and other
finish work; floors and floor coverings; heating, ventilation, refrigeration and
air conditioning systems and related mechanical equipment; dock boards, dock
levelers, and/or dock bumpers; overhead truck doors; down spouts of roof gutters
attached to exterior of Premises for damage caused by Tenant's operation;
plumbing fixtures and sanitary sewers between Tenant's plumbing fixtures and the
main project sanitary sewers; electrical facilities and electrical fixtures; and
all other fixtures and trade fixtures. It is specifically agreed by Tenant that
cleaning or policing of the driveway area immediately adjoining the dock area of
the Premises shall be the responsibility of the Tenant. Tenant shall also be
responsible for the cleaning and sweeping of Tenant's parking spaces as
designated by Landlord pursuant to the terms of Exhibit B, Number 11. Tenant
shall be responsible for disposal of its trash from the Project and will
maintain adequate receptacles for such disposal, the design, placement, and
capacity of such receptacles to be approved by Landlord. Outdoor storage of
trash or any other material in receptacles or containers not approved by
Landlord is strictly prohibited.
Replacement and repair parts, material, equipment shall be of quality
equivalent to those initially installed within the Premises; repair and
maintenance work shall be done in accordance with the then existing federal,
state and local laws, regulations and ordinances pertaining thereto.
11.03. Surrender of Possession. Upon any termination of this Lease, tenant
-----------------------
shall surrender the Premises in a condition and repair similar to their original
condition and repair, reasonable wear and tear and events of destruction
excepted, and shall surrender all keys for the Premises to the Landlord at the
place then fixed for the payment of rent.
12.
---
DELAY IN POSSESSION
-------------------
Notwithstanding said Commencement Date, if for any reason Landlord cannot
deliver possession of the Premises to Tenant on said date, Landlord shall not be
subject to any liability therefore, nor shall such failure effect the validity
of this Lease or the obligations of Tenant hereunder or extend the term hereof,
but in such case, Tenant shall not be obligated to pay rent until possession of
the Premises is tendered to Tenant; provided, however, that if Landlord shall
not have delivered possession of the Premises within forty-five (45) days from
said Commencement Date, either party may, by written notice to the other, within
ten (10) days thereafter, cancel this Lease, in which event the parties shall be
discharged; provided that if such
10
<PAGE>
written notice of Tenant is not received by Landlord within said ten (10) day
period, Tenants right to cancel this Lease hereunder shall terminate and be of
no further force or effect.
13.
---
EARLY POSSESSION
----------------
If Tenant occupies the Premises prior to said Commencement Date, such
occupancy shall be subject to all provisions hereof, such occupancy shall not
advance the termination date, and Tenant shall pay rent for such period at the
initial monthly rates set forth in Section 1. 12.
14.
---
FORM OF PAYMENT
---------------
All payments to Landlord shall be in the United States Funds with any
checks being drawn on depositories located within the United States. Landlord
shall have the right at any time upon written notification by Landlord to Tenant
to require all payments by Tenant to Landlord to be made in the form of cash,
cashier check/or money order.
15.
---
COMPLIANCE WITH ORDINANCES, ETC.
--------------------------------
Tenant agrees to promptly comply with all ordinances, regulations, and laws
of the United States, the State of Texas, Harris County, City and other
governmental agencies, boards or departments applicable to Tenant's use of the
Premises and all ordinances or orders imposed by the Board of Health, Sanitation
and Police or Fire Department for the correction, prevention and abatement of
nuisances in or upon or connected with the activities conducted by the Tenant in
or upon the Premises during the term of this Lease and at all times while Tenant
is in possession of the Premises.
16.
---
ASSIGNMENT, SUB-LETTING PROHIBITED
----------------------------------
Tenant shall not assign this Lease Agreement, nor sublet the whole or any
part of the Leased Premises, or transfer any interest herein created without the
written consent of the Landlord first obtained, which may be unilaterally
withheld in Landlord's sole discretion.
17.
---
LANDLORD'S RIGHTS
-----------------
Landlord, his agents, servants, employees, contractors or assigns, shall
have the right at all reasonable times and hours to enter into and go upon the
Premises to: inspect the same; exhibit the same to prospective purchasers,
lenders or tenants; determine whether Tenant is complying with all of its
obligations under this Lease Agreement; to post customary "For Sale",
11
<PAGE>
"For Lease" and any similar type of sign; post notices of non responsibility;
and make repairs or improvements in or to the Premises or building as Landlord
deems necessary or proper, provided, however, that Landlord shall exercise any
such rights so as to cause as little interference to Tenant as is reasonably
possible. Tenant hereby waives any claim for damages for any injury or
inconvenience to, or interference with Tenants business, any loss of occupancy
or quiet enjoyment of the Premises or any other loss occasioned by such entry.
Landlord may have and retain a key with which to unlock all of the doors in, on
or about the Premises (excluding Tenants vaults, safes and similar areas
designated by Tenant in writing in advance), and Landlord shall have the right
to use any and all means by which Landlord may deem proper to open such doors to
obtain entry to the Premises, and any entry to the Premises obtained by Landlord
by any such means, or otherwise, shall not under any circumstances be deemed or
construed to be a forcible or unlawful entry into or a detainer of the Premises
or any eviction, actual or constructive, of Tenant from any part of the
Premises.
18.
---
SALE BY LANDLORD
----------------
Landlord shall have the right to sell, transfer, or assign its interest
hereunder or any part thereof without the prior consent of Tenant. After such
sale, transfer, or assignment, Tenant shall attorn to such purchaser,
transferee, or assignee, and Landlord shall be released of all obligations
hereunder after the effective date of such sale, transfer, or assignment.
19.
---
ESTOPPEL CERTIFICATES
---------------------
Tenant agrees within fifteen (15) days following request by Landlord to
execute and deliver to Landlord any documents (including an estoppel
certificate) (a) 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 (b)
acknowledging that there are no, to Tenant's knowledge, accrued defaults on the
part of the Landlord hereunder, or so specifying such defaults, if any, are
claimed, evidencing the status of the Lease as may be required either by a
lender making a loan to Landlord to be secured by a deed of trust of mortgage
covering the premises or a purchaser of the Premises from Landlord, and (c) to
deliver to Landlord current financial statements of Tenant (with an opinion by a
certified public accountant, if available), including a balance sheet and a
profit and loss statement for at least two (2) years, all prepared in accordance
with generally accepted accounting principles consistently applied. Tenant's
failure to deliver an estoppel certificate within such time shall be conclusive
upon Tenant (i) that this Lease is in full force and effect,, without
modification except as may be represented by Landlord, (ii) that to Tenant's
knowledge, there are no uncured defaults in Landlord's performance, and (iii)
that no rent has been paid in advance except as set forth in this lease.
12
<PAGE>
20.
---
ATTORNEYS' FEES
---------------
In the event Tenant shall default under the terms of the Lease Agreement,
and shall remain in default for a period of five (5) days after the date due,
and such rent or other sum of money is placed in the hands of an attorney for
collection is collected through suits, bankruptcy or other judicial proceeding,
then Tenant agrees to pay to Landlord all reasonable attorney's fees and costs
incurred by Landlord due to such nonpayment in a sum not less than fifteen
percent (15%) of the amount of rent or other sums of money then owed by Tenant
to Landlord as attorney's fees. The mere placing of any past due rents or other
past due sums of money in the hands of an attorney for collection, shall
obligate the Tenant to pay such attorney's fees, and it shall not be necessary
that same be collected through any suit or other judicial proceedings. Should
Tenant remain in possession of the Premises past the term of this Lease after
request to vacate by Landlord, Tenant agrees to pay Landlord's reasonable
attorney's fees.
21.
---
DEFAULTS AND REMEDIES
---------------------
21.01 Events of Default:
-----------------
The occurrence of any of the following shall constitute a material
default and breach of this Lease of Tenant.
(i) Failure to pay rent as such term is defined in Paragraph 2 when
due.
(ii) Abandonment and vacation of the Premises. Failure to occupy and
operate Tenant's business at the Premises for ten (10) consecutive days and/or
for a sufficient period of time as determined by Landlord shall be deemed an
abandonment and vacation of the Premises.
(iii) Failure to perform any other provisions of this Lease if the
failure to perform is not cured within (10) days after written notice has been
given to Tenant If the default cannot reasonably be cured within ten (10) days,
Tenant shall not be in default of the Lease if Tenant commences to cure the
default within the ten (10) day period and diligently and in good faith
continues to cure the default to completion.
(iv) The making by Tenant of any general assignment for the benefit of
creditors, the filing by or against Tenant of a petition under any federal or
state bankruptcy or insolvency laws (unless, in the case of petition filed
against Tenant, the same is dismissed within thirty (30) days after filing); the
appointment of a Trustee or Receiver to take possession or substantially all of
Tenant's assets at the Premises or Tenant's interest in this Lease or the
Premises , when possession is not restored to Tenant within thirty (30) days; or
the attachment, execution or other seizure of substantially all of Tenant's
assets located at the Premises or Tenants interest in this Lease or the
Premises, if such seizure is not discharged within thirty (30) days.
13
<PAGE>
21.02. Notices:
-------
Notices given under this Paragraph shall specify the alleged default and
shall demand that Tenant perform the provisions of this Lease or pay the rent
that is in arrears, as the case may be, within the applicable time period, or
quit the Premises. No such notice shall be deemed a forfeiture or a termination
of this Lease unless Landlord so elects in the notice.
Any notice, request, approval, consent or other communication required
or contemplated by this Lease must be in writing, and may, unless otherwise in
this Lease expressly provided, be given or served by depositing the same in the
United States Postal Service, post-paid and certified and addressed to the party
to be notified, with return receipt requested, or by delivering the same in
person to such party (or, in the case of a corporate party, to an officer of
such party), or by prepaid telegram, when appropriate, addressed to the party to
be notified.
21.03. Landlord's Remedies:
-------------------
Landlord shall have the following remedies if Tenant commits a default.
These remedies are not exclusive; however, they are cumulative and in addition
to any remedies now or later allowed by law or in equity.
(i) Landlord's Election to continue the Lease, in Full Force and Effect:
Landlord can continue this Lease in full force and effect, and the Lease will
continue in effect, and Landlord shall have the right to collect rent when due.
During the period Tenant is in default, Landlord can enter the Premises and
relet it, or any part of it, to third parties for Tenant's account. Tenant shall
be liable immediately to Landlord for all costs Landlord incurs in reletting the
Premises, including without limitation, brokers' commissions, expenses of
remodeling the Premises required by the reletting, and the costs. Reletting can
be for a period shorter or longer than the remaining term of this Lease. Tenant
shall pay Landlord the rent due under this Lease on the dates the rent is due,
less the rent Landlord receives from any reletting. No act by Landlord allowed
by this Paragraph, subparagraph C(i) shall terminate this Lease unless Landlord
notifies Tenant in writing that Landlord elects to terminate this Lease. If
Landlord elects to relet the Premises as provided in this Paragraph,
subparagraph C(i), rent that Landlord receives from reletting shall be applied
in the following order of priority: (a) to any indebtedness from Tenant to
Landlord other than rent due from Tenant; (b) to all costs, including those for
maintenance, incurred by Landlord in reletting; and (c) to rent due and unpaid
under this Lease. After deducting the payments referred to in this Paragraph,
subparagraph C(i) any sum remaining from the rent Landlord receives from
reletting shall be held by Landlord and applied in payment of future rent as
rent becomes due under this Lease. In no event shall Tenant be entitled to any
excess rent received by Landlord. If, on the date rent is due under this Lease
the rent received from the reletting is less than the rent due on' that date,
Tenant shall pay to Landlord, in addition to the remaining rent due, all costs
Landlord incurred in reletting that remain after applying the rent received from
the reletting as provided in this Paragraph, subparagraph C(i).
14
<PAGE>
(ii) Landlord's Election to Terminate: Landlord can terminate this Lease
Agreement. No act by Landlord or other than giving express written notice of
Landlord's election to terminate the Lease to Tenant shall terminate this Lease.
Acts of maintenance, efforts to relet the Premises, or the appointment of a
receiver on Landlord's initiative to protect landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. On
termination, Landlord has the right to recover from Tenant the sum of the
following:
(a) The excess, if any, of (1) the present value of all amounts which
would have become due under this Lease for the remainder of the Term, over (2)
the present value of any net amounts which Tenant establishes Landlord may not
reasonably expect to recover by reletting the Premises for the remainder of the
Term, taking into consideration the cost of such reletting, including
remodeling, the availability of acceptable Tenants and other market conditions
affecting leasing. Such present value shall be calculated at a discount rate
which is the lesser of (i) the maximum rate allowed by law, or (ii) the rate
commonly called the prime or base rate announced by Texas Commerce Bank, N.A.
(or its successor, but if there is not a successor which announces a prime or
base rate, then by a national bank selected by Landlord) at the time of such
termination.
(b) All legal expenses, including attorneys' fees, experts' fees,
witness fees, court costs, and other costs incurred in preparation of any
litigation or consultations with counsel, incurred by Landlord in affecting re-
entry or repossession of the Premises and in prosecuting any related action
against Tenant;
(c) All costs incurred by Landlord in restoring the Premises to good
order and condition;
(d) All costs incurred by Landlord in altering or preparing the
Premises for reletting;
(e) All commissions incurred by Landlord in reletting the Premises;
and
(f) Any other amount, and court costs necessary to compensate Landlord
for all detriment proximately caused by Tenant's default.
(iii) Appointment of Receiver: If Tenant is in default of this
Lease, Landlord shall have the right to have a Receiver appointed to collect
rent and conduct Tenants business. Neither the filing of a petition for the
appointment of a Receiver nor the appointment itself shall constitute an
election by Landlord to terminate this Lease.
(iv) Right to Regain Possession: Landlord may enter upon and take
possession of the Premises, by picking, altering or changing of the locks, if
necessary, and lock out, expel or remove Tenant and any other person who may be
occupying all or a part of the Premises without being liable for any claim for
damages, and relet the Premises on behalf of Tenant and receive
15
<PAGE>
directly the rent by reason of such reletting. Exercise by Landlord of any one
or more remedies hereunder granted or otherwise available shall not be deemed to
be an acceptance of surrender of the Premises by Tenant and no such alteration
of locks or other security devices and no removal or exercise of dominion by
Landlord over the property of Tenant or others at the Premises shall be deemed
unauthorized or constitute a conversion, Tenant hereby consenting after default
to the aforesaid exercise of dominion over Tenants property within the Premises.
All claims for damages by reason of such re-entry and/or repossession and/or
alteration of locks or other security devices are hereby waived as are all
claims for damages by reason of any distress warrant, forcible detainer
proceeding, sequestration proceeding or other legal process. Tenant agrees that
any re-entry by Landlord may be pursuant to judgment obtained in forcible
detainer proceedings or other legal proceedings or without the necessity of any
legal proceedings as Landlord may elect and Landlord shall not be liable in
trespass or otherwise, Landlord shall have no duty to give a key to the Leased
Premises to Tenant except and until the default and payments due by Tenant by
reason thereof have been fully satisfied.
In the event that Landlord shall have taken possession of the Premises
pursuant to authority granted herein. then Landlord shall have the right to
keep in place and use all of the furniture, fixtures and equipment at the
Premises including that which is owned by or leased to Tenant at all times prior
to any foreclosure thereon by Landlord or repossession thereof by any Lessor
thereof or third party having a lien thereof. Landlord shall also have the
right to remove from the Premises (without the necessity of obtaining a distress
warrant, writ of sequestration or other legal process) all or any portion of the
furniture, fixtures, equipment, records and other properties located thereon and
to place same in storage at the Premises within the county in which the Premises
is located and in such event Tenant shall be liable to Landlord for costs
incurred by Landlord in connection with such removal and storage. Landlord
shall also have the right to relinquish possession of all or a portion of the
furniture, fixtures, equipment and other property to any person ("Claimant")
claiming to be entitled to possession thereof who presents to Landlord a copy of
any instrument represented to Landlord by Claimant to have been executed by
Tenant (or any predecessor of Tenant) granting Claimant the right under various
circumstances to take possession of such furniture, fixtures, equipment or other
property without the necessity on the part of Landlord to inquire into the
authenticity of said instruments copy of Tenant's or Tenants predecessor's
signature thereon and without the necessity of Landlord making any nature of
investigation or inquiry as to the validity of the factual or legal basis upon
which the Claimant purports to act; and Tenant agrees to indemnify and hold
harmless Landlord from all costs, expenses, loss, damage and liability incident
to Landlord's relinquishment of possession of all or any portion of such
furniture, fixtures, equipment or other property of Claimant. The rights of
Landlord herein stated shall be in addition to any and all other rights which
Landlord has or may hereinafter have at law or in equity; and Tenant stipulates
and agrees that the rights herein granted Landlord are commercially reasonable.
If, after the payment of all amounts due claimant by Tenant, there remains any
movable equipment, furniture and/or personal property of Tenant which is not
removed by Tenant before the expiration of such time period, then the parties
agree that such property shall be in all things conclusively determined
16
<PAGE>
and established to be abandoned by Tenant in favor of Landlord and shall at once
become the property of Landlord upon such abandonment. In no event will Landlord
be responsible for the removal, custody or disposition for such abandoned
property of Tenant or, in any way, be held liable for conversion or any action
in relation to the removal, retention and disposition of such personal property,
all such claims of Tenant being waived by Tenant herein, and Landlord will be
free to dispose of such property in its sole and absolute discretion under the
terms and conditions acceptable to it.
(v) Landlord's Right to Cure Tenant's Default: Landlord, at any time after
Tenant commits a default, can cure the default at Tenant's cost. If Landlord,
at any time by reason of Tenants default, pays any sum or does any act that
requires the payment of any sum, the sum paid by the Landlord shall be due
immediately from Tenant to Landlord at the time the sum is paid, and if paid at
a later date, shall bear interest at the maximum legal rate an individual is
permitted by law to charge from the date the sum is paid by Landlord until
Landlord is reimbursed by Tenant. The sum, together with interest on it, shall
be additional rent.
(vi) Interest on Unpaid Rent: Rent not paid when due shall bear interest
from the date due until paid at the highest legal rate of interest per annum.
(vii) Late Charge: Tenant acknowledges that late payment by Tenant to
Landlord of' rent will cause Landlord to incur costs not contemplated by this
Lease, the exact amount of such costs being extremely difficult and
impracticable 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 encumbrances not secured by an encumbrance covering the Premises.
Therefore, if any installment of rent due from Tenant is not received by
Landlord within five (5) days of when due, or any check tendered to Landlord by
Tenant is returned to Landlord as uncollectible, Tenant shall pay to Landlord
the applicable charges set forth in Section 1.13, hereof. The parties agree that
this late charge represents a fair and reasonable estimate of the costs that
Landlord will incur by reason of late payment of Tenant. Acceptance of any late
charge shall not constitute a waiver of Tenant's default with respect to the
overdue amount, or prevent Landlord from exercising any of the other rights and
remedies available to Landlord.
(viii) Non-Waiver: No covenant, term or condition or the breach thereof
shall be deemed waived, except by written consent of the party against whom the
waiver is claimed, and any waiver or the breach of any covenant, term or
condition shall not be deemed to be a waiver of any preceding or succeeding
breach of the same or any other covenant, term or condition of this Lease.
Acceptance by Landlord of any performance by Tenant after the time the same
shall have become due shall not constitute a waiver by Landlord of the breach or
default of any covenant, term or condition of the Lease unless otherwise
expressly agreed to by Landlord in writing. No payment by Tenant or receipt by
Landlord of a lesser amount than the minimum monthly rent or any other amount
payable by Tenant and defined as "rent" in Paragraph 2, shall be deemed to be
other than on account of the earliest outstanding installment of any such
17
<PAGE>
stipulated amount due. No endorsement or statement on any check or any letter
accompanying any check or payment shall be deemed an accord and satisfaction and
Landlord may accept such check or payment without prejudice to Landlord's rights
to recover the balance of any outstanding amounts then due and payable or past
due and in arrears under this Lease and without prejudice to any other remedy
provided in this Lease. Nothing in this Paragraph shall be deemed to affect
Landlord's rights to indemnification and other rights provided under this Lease
arising out of any act, omission, event or occurrence which took place prior to
the termination of the Lease whether a claim relating to such acts, omissions,
events or occurrences is made before or after the date of termination of this
Lease. The delivery of keys to any employee of landlord or its agents or
employees shall not operate as a termination of this Lease or a surrender of the
Premises.
(ix) Right of Redemption: Tenant hereby expressly waives any and all
rights of redemption granted by or under any present or future law in the event
of Tenant's eviction or dispossession pursuant to any default under this Lease
or in the event of Landlord's obtaining possession of the Premises by reason of
Tenant's violation of any of the covenants, conditions or agreements contained
herein.
22.
---
EMINENT DOMAIN
--------------
22.01 Total Taking: In the event of a taking of the Premises or
------------
damage related to the exercise of the power of eminent domain by any agency,
authority, public utility, person, or corporation or entity empowered to condemn
property ("Taking") of the entire Premises or so much thereof as to prevent or
substantially impair their use by Tenant during Lease term; (i) the rights of
Tenant under the Lease and the leasehold estate of Tenant in and to the Premises
shall cease and terminate as of the date upon which title to the Premises, or a
portion thereof, passes to and vests in the condemnor or the effective date of
any order for possession if issued prior to the date title vests in the
condemnor ("Date of Taking"); (ii) Landlord shall refund to Tenant any prepaid
rent; (iii) Tenant shall pay to Landlord any rent or charges due Landlord under
the Lease, each pro rated as of the Date of Taking; (iv) Tenant shall receive
from the Award those portions of the Award attributable to relocation of Tenant
and trade fixtures, equipment, and furniture of Tenant, and (v) the remainder of
the Award shall be paid to and be the property of Landlord.
22.02 Partial Taking: In the event of Taking on only a part of
--------------
the Premises which does not constitute a "Total Taking" during the Lease term;
(i) the rights of Tenant under the Lease and the leasehold estate of Tenant in
and to the portion of the Premises taken shall cease and terminate as of the
Date of Taking; (ii) from and after the Date of Taking, the Total Monthly Rent
shall be the product obtained by multiplying (a) the Total Monthly Rent by (b)
the quotient obtained by dividing the total square feet of the Premises
remaining after the taking by the total square feet of the premises prior to the
taking; (iii) Tenant shall receive from the Award those portions of the Award
attributable to improvements to the Premises made and paid for by Tenant
18
<PAGE>
and trade fixtures, equipment, and furniture of Tenant; and (iv) the remainder
of the Award shall be paid to and be the property of Landlord. Landlord, from
his portion of the Award, shall restore the remainder of the Premises, as nearly
as possible, to one architectural unit.
23.
---
INDEMNIFICATION
---------------
Tenant agrees to indemnify, hold harmless and protect Landlord and its
----------------------------------------------------------------------
partners, directors, officers, agents and employees, successors and assigns,
- ---------------------------------------------------------------------------
from any loss, cost, damage, liability or expense (including, without
- ---------------------------------------------------------------------
limitation, attorneys' fees and legal costs) arising out of or related to any
- -----------------------------------------------------------------------------
claim, suit or judgment brought by or in favor of any person(s) or entity(ies)
- -----------------------------------------------------------------------------
for damage, loss or expense (including, without limitation, bodily injury,
- -------------------------------------------------------------------------
including death or Property damage) which is occasioned by or in any way
- ------------------------------------------------------------------------
attributable to or arising out of (in whole or in part) the use or occupancy of
- -------------------------------------------------------------------------------
the Premises or the negligent acts or omissions or gross negligence of Tenant
- -----------------------------------------------------------------------------
and/or Landlord or its employees, agents, customers, servants or invitees or the
- --------------------------------------------------------------------------------
breach or default by Tenant of any of its obligations under this Lease. However,
- --------------------------------------------------------------------------------
Tenant shall not be responsible for damage, loss or expense solely caused by the
- --------------------------------------------------------------------------------
sole negligence or willful misconduct of Landlord or its agents or employees.
- ----------------------------------------------------------------------------
Tenants obligations under this Paragraph shall expressly survive the termination
- --------------------------------------------------------------------------------
of this Lease. Landlord shall not be liable for, and is released by Tenant with
- -------------------------------------------------------------------------------
respect to any damage, loss or expense occurring on or about the Premises during
- --------------------------------------------------------------------------------
the Lease term unless solely caused by the sole negligence or willful misconduct
- --------------------------------------------------------------------------------
of Landlord or its agents, employees or assigns. The limits of any insurance
- ----------------------------------------------------------------------------
required to be maintained by Landlord or Tenant, as provides in this Lease shall
- --------------------------------------------------------------------------------
not be deemed to limit Tenants obligations under this Paragraph or under any
- ----------------------------------------------------------------------------
other provisions of this Lease. Neither Landlord nor its agents, employees or
- -----------------------------------------------------------------------------
assigns shall be liable for any damage to Property or injury or death to any
- ----------------------------------------------------------------------------
person resulting in whole or in part from theft, malicious mischief, vandalism,
- ------------------------------------------------------------------------------
intentional act of any third Party, fire, earthquake or earth movement,
- ----------------------------------------------------------------------
explosion, falling glass or other materials, steam, gas, electricity, water or
- ------------------------------------------------------------------------------
rain which may leak from any part of the building or other improvements forming
- -------------------------------------------------------------------------------
a part of the Premises or of which the Premises is a part or from the pipes,
- ---------------------------------------------------------------------------
appliances or plumbing works therein, or from the roof, street, or subsurface
- -----------------------------------------------------------------------------
thereof or from any other Place or resulting from dampness or any other cause
- -----------------------------------------------------------------------------
whatsoever, unless caused solely by or due to the sole negligence or willful
- ----------------------------------------------------------------------------
misconduct of Landlord, its agents, employees or assigns. Landlord or its
- -------------------------------------------------------------------------
agents, employees or assigns shall not be liable for interference with light or
- -------------------------------------------------------------------------------
other incorporeal hereditaments or any way responsible for providing or
- -----------------------------------------------------------------------
maintaining security to or for the Development complex, Leased Premises, Tenant,
- -------------------------------------------------------------------------------
its agents, employees, visitors, guests, invitees for any person in connection
- ------------------------------------------------------------------------------
with the use of the Leased Premises by Tenant. Landlord shall not be liable for
- -------------------------------------------------------------------------------
any latent defect in the Leased Premises or the building or other improvements
- ------------------------------------------------------------------------------
forming a part thereof or of which the Leased Premises is a part. Tenant shall
- ------------------------------------------------------------------------------
give prompt notice to Landlord in case of fire or accidents in the Premises or
- ------------------------------------------------------------------------------
the building or of defects therein or in the fixtures or equipment related
- --------------------------------------------------------------------------
thereto.
- -------
19
<PAGE>
24.
---
DESTRUCTION OF PREMISE
----------------------
Should the premises be damaged or destroyed by fire, explosion, wind storm,
water or other casualty or combination thereof during the term of this Lease, to
the extent that it is impracticable for Tenant to operate its business from
the Premises, Landlord shall, at Landlord's option exercisable by written notice
to Tenant within thirty (30) days after such damage or destruction, either
terminate this Lease effective as of the date of such damage or destruction, or
Landlord may proceed to repair and rebuild the damaged or destroyed premises
upon substantially the same plan as existed immediately prior to such damage or
destruction, provided, however, in any event, Landlord shall not be required to
initiate any such repair until receipt of insurance proceeds covering such
damages nor shall Landlord be obligated to expend any funds in excess of such
insurance proceeds in completing such restoration. In the event that the
business of Tenant is materially impaired due to such damage, the monthly
rentals payable hereunder shall be proportionately abated to the extent that the
Premises are not usable from the occurrence of such damage until the premises
have been put in substantially complete repair. Tenant shall not be entitled to
compensation from Landlord for any damages on account of inconvenience,
annoyance or loss of business during any period of repair or reconstruction. IN
NO EVENT SHALL LANDLORD BE RESPONSIBLE FOR ANY CONSEQUENTIAL DAMAGES.
25.
---
TENANT NOT TO CREATE LIENS
--------------------------
Tenant shall not have the power to commit any act or make any contract that
may create or be the foundation of any lien upon the present or other estate of
the Leasehold and Premises, or upon any of the buildings or improvements
thereon; and should any such lien be created or filed, Tenant, at its own cost
and expense, shall liquidate and discharge same in full within ten (10) days
after filing thereof, and should Tenant fail to discharge same, that shall
constitute a breach of Tenant's covenant herein.
26.
---
HOLDING OVER
------------
In the event the Tenant shall hold over the Premises with the consent of
Landlord after the expiration or termination of the primary or extended term of
this Lease, such holding over shall not be deemed to operate as or constitute an
extension or renewal of this Lease, but the Tenant so holding over shall be
deemed to be Tenant from month-to-month during such holdover period at a
holdover rental rate of one hundred fifty percent (150%) of rent last charged
hereunder prior to the beginning of such holdover period, which month-to-month
tenancy may be terminated at the end of any month by Landlord or Tenant upon (4)
weeks' advance written notice of the intent to vacate prior to the expiration of
the lease or any extension thereof. Neither
20
<PAGE>
the giving of such notice to vacate nor the acceptance of such notice or
holdover period shall in any way waive any rights of Landlord herein or be
deemed a consent by Landlord to holdover.
27.
---
LANDLORD'S LIEN
---------------
Subject to any applicable state and federal laws, in addition to the
statutory Landlord's lien, Landlord shall have, at all times, a valid security
interest to secure payment of all rentals and other sums of money becoming due
hereunder from Tenant, and to secure payment of any damages or loss which
Landlord may suffer by reason of the breach by Tenant of any covenant agreement
or condition captained herein, upon al goods, wares, equipment, fixtures,
furniture, improvements, and other personal property of Tenant present of which
may hereinafter be situated on the Premises, and all proceeds therefrom, and
such property shall not be removed therefrom, with the consent of Landlord until
all arrearages in rent as well as any and all other sums of money due to
Landlord hereunder shall first have been paid and discharged and all the
covenant agreement, and conditions hereof have been fully complied with and
performed by Tenant. Upon the occurrence of an event of default by Tenant,
Landlord may, in addition to any other remedies provided herein, to the extent
allowed by law, enter upon the Premises and take possession of any and all
goods, wares, equipment, fixtures, furniture, improvements, and other personal
property of Tenant situated on the Premises, without liability for trespass or
conversion, and sell the same at public or private sale, after giving Tenant
reasonable notice of the time and place of any public sale or of the time after
which any private sale is to be made, at which sale, the Landlord or its assigns
may purchase unless otherwise prohibited by law. Unless otherwise provided by
law, and without intending to exclude any other manner of giving Tenant
reasonable notice, the requirement of reasonable notice shall be met if such
notice is given at least five (5) days before the time of sale. The proceeds
from any such disposition, less any and all expenses connected with the taking
of possession, holding, and selling of the property (including reasonable
attorney's fees and other expenses), shall be applied as a credit against the
indebtedness secured by the security interest granted in this section. Any
surplus shall be paid to Tenant or as otherwise required by law; and the Tenant
shall pay any deficiencies forthwith. Upon request by Landlord, Tenant agrees
to execute and delivery to Landlord a financing statement in form sufficient to
perfect the security interest of Landlord in the aforementioned property and
proceeds thereof under the provisions of the Uniform Commercial Code in force in
the State of Texas. Tenant does hereby appoint Landlord its attorney-in-fact to
execute in Tenants name and in its place and stead any instrument necessary to
effectuate the terms of this Landlord's Lien including any Financing Statement
in connection therewith. The statutory lien for rent is not hereby waived, the
security interest herein granted being in addition and supplementary thereto.
21
<PAGE>
28.
---
TIME
----
Time for performance of all obligations of Tenant hereunder is of the
essence.
29.
---
INTEREST
--------
Except as expressly provided herein, any sums due Landlord from Tenant not
paid or due, shall accrue interest from the date due until paid at the highest
legal rate of interest per annum. Payment of such interest shall not excuse or
cure any default of Tenant under this Lease. Interest shall not be payable on
any late charges incurred by Tenant.
30.
---
OSHA STATEMENT AND COMPLIANCE WITH LAWS
---------------------------------------
Landlord agrees that, in connection with the initial construction of the
building and the Premises, it will comply with all federal, state, and local
laws, rules and regulations applicable thereto. If thereafter, structural and
other changes are necessary in the Premises as a result of change in such laws,
Landlord shall make such changes at Tenants expense. Further, notwithstanding
anything to the contrary contained above, it should be Tenant's exclusive
responsibility to comply, and Tenant agrees to comply at all times with all
federal, state and local laws, rules and regulations, including without
limitation those promulgated by the U.S. Occupational Safety and Health
Administration and the entity responsible for administration of the American
With Disabilities Act, with respect to Tenants use and occupancy of the
Premises.
31.
---
SEVERABILITY
------------
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 as to which it is held invalid or
unenforceable, shall not be affected thereby, and each term and provision of the
Lease shall be valid and enforced to the fullest extent permitted by law.
32.
---
PERSONAL PRONOUNS
-----------------
All personal pronouns used in this Lease shall include the other genders,
whether used in the masculine, feminine or neuter gender, and the singular shall
include the plural (and vice versa) whenever and as often as may be appropriate.
22
<PAGE>
33.
---
CONFLICT OF INTEREST
--------------------
Landlord represents and warrants that no officer, employee, or agent of
the Tenant has been or will be employed, retained, or will receive any personal
compensation or consideration by or from the Landlord or any of Landlord's
employees or agents in connection with the obtaining, arranging, or negotiation
of the agreement or with other documents or agreements entered into or executed
in connection herewith.
34.
---
BINDING ON HEIRS
----------------
The agreement, conditions, covenants, and terms herein contained shall, in
every case, apply to be binding upon and inure to the benefit of the respective
parties hereto, their heirs, executors, administrators, successors and assigns,
with the same force and effect as is specifically mentioned in each instance
where a party hereto is named, provided, however, that no assignment or under-
letting by Tenant in violation of the provisions of this Lease shall vest in any
such assignee or under-tenant any right or title in or to the leasehold estate
hereby created.
35.
---
ENVIRONMENTAL PROTECTION
------------------------
Tenant further agrees not to utilize, in any manner, any chemical, water
product, "hazardous substance" as that term is defined under the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 and any
amendments thereto or any other material for which notification, permitted or
regulation is required for use, storage or disposal by any federal statute or
regulation or any statute or regulation of the State of Texas or its political
subdivisions (hereinafter collectively referred to as "substance"), without
complete written notice to Landlord, prior to such substance being brought into
the Leased Premises, including the common and recognized chemical names of such
substance, the amount of such substance to be used or utilized and the delivery
to Landlord of copies of the material safety data sheets relative to any such
substance. Further, such substance shall not be brought upon the Leased
Premises without the prior written permission of Landlord for such use, storage,
disposal or utilization which consent may be unilaterally withheld at the sole
discretion of the Landlord. Tenant further agrees not to permit or cause the
abandonment or disposal of any substance as previously defined herein on or at
the Leased Premises whether on or under the ground, floor or other portions of
the Leased Premises. Tenant further agrees to comply with all laws, ordinances,
regulations, directives and requirements of all governmental authorities
heretofore described with respect to the use, storage, existence and/or disposal
of such substance and shall not permit anything to be done on the Leased
Premises or the property to which this Lease relates in violation thereof.
Tenant further agrees to indemnify and hold harmless the Landlord for any
and all costs, damages, fines, response costs, clean-up costs or any other sums,
including, without limitation,
23
<PAGE>
legal fees and investigative expenses to which Landlord may be subject on
account of any activity of the Tenant on or at the Leased Premises caused, in
whole or in part by the utilization, abandonment, disposal, use and/or existence
of any substance during the term of this Lease Agreement or arising, beginning
or continuing during the term of this Lease Agreement. This obligation of the
Tenant shall survive the lease term and be a continuing and on-going indemnity
agreement between Tenant and Landlord.
36.
---
MISCELLANEOUS PROVISIONS
------------------------
This Lease Agreement shall not be amended, changed or modified in any way
unless in writing executed by Landlord and Tenant, Landlord shall not have
waived or released any of its rights hereunder unless in writing and executed by
Landlord.
Except as expressly provided herein, the Lease Agreement and the
obligations of Landlord and Tenant shall Bind and benefit the successors and
assigns of each of the parties.
This Lease Agreement shall be governed by and construed in accordance with
the laws of the State of Texas, performable in the county in which the Premises
are located.
Each covenant, agreement, obligation or other provision of this Lease
Agreement to be performed by Tenant are separate and independent covenants of
Tenant, and not dependent on any other provision of the Lease Agreement.
The submission of this Lease Agreement to Tenant or its broker or other
agent, does not constitute an offer to Tenant to lease the Leased Premises. The
instrument shall have no force and effect until it is executed and delivered by
Tenant to Landlord and executed by Landlord.
37.
---
ENTIRE AGREEMENT
----------------
This Agreement sets out the entire agreement between the parties hereto and
it is expressly agreed and understood that any prior agreement or
representation, made by or on behalf of either or any of the parries hereto
which are not expressly incorporated and set out in this instrument, are hereby
expressly waived and shall not be actionable or form the basis for any claim,
demand or cause of action, either at law or in equity.
EXECUTED in duplicate originals dated the date first above written.
LANDLORD REPRESENTATIVE: TENANT: HIGGINBOTHAM
AUDIO/VISUAL SOLUTIONS
GUARDIAN MANAGEMENT CO.
24
<PAGE>
Bob Higginbotham
-------------------------------
Print Name
BY: /s/ COLEENE R. DEHOOS BY: /s/ BOB HIGGINBOTHAM
------------------------------------ -------------------------------
Signature
P.O. Box 691784
Houston, Texas 77269
(713) 955-1144
UTILITIES ARE TO BE CHANGED INTO TENANT'S NAME BY MOVE-IN DATE
- --------------------------------------------------------------
Houston Lighting & Power (713) 207-7777
------------------------
City of Houston Water (713) 226-5444
---------------------
4200 Leland
Houston, Texas 77023
25
<PAGE>
GUARANTY
--------
To induce Lessor to enter into this Lease Agreement with Lessee, I/we, the
undersigned "Guarantor" agree to guaranty the obligation of Lessee, including
without limitation, the payment, when due, of rentals to Lessor. I agree that
my/our liability under this guaranty is joint and several and shall be binding
on me, my heirs, personal representatives, successors and assigns, and shall
inure to the benefit of Lessor, its personal representatives, successors and
assigns.
Signed this 2nd day of February, 1998, in Houston, Texas.
Individual "Guarantor" Signature: /s/ BOB HIGGINBOTHAM
------------------------------------
Type Name: Bob Higginbotham
------------------------------------
Address: 2126 Vanco Dr., Irving, TX
------------------------------------
Telephone Number: 972-554-0451
------------------------------------
Corporate "Guarantor":
------------------------------------
By:
--------------------------------
Title
Address:
------------------------------------
Telephone Number
------------------------------------
(Attach Sealed Corporate Resolution)
(Individual and Corporate Acknowledgments)
26
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ADDENDUM A
This Addendum is subject to and upon the terms and conditions set forth in
the Commercial Lease Agreement dated February 9, 1998, between HIGGINBOTHAM
AUDIO/VISUAL SOLUTIONS, "Tenant", and IVEST, INC., "Landlord". The lease term
commences on March 1, 1998, and ends at midnight on August 31, 1999, for the
lease space at 8825 Solon Road, Suite E-8, Houston, Texas 77064.
Tenant and Landlord agree to the following additional provisions:
1 Landlord will prepare the unit for Tenant's use to included painting the
walls, replace all carpet with new carpet. Replace cove base.
2. Landlord will service the HVAC system, plumbing, electrical work and
other mechanical systems.
3. Landlord will warranty the HVAC system, plumbing, electrical work, and
other mechanical systems for thirty days.
4. Clean damaged window tinting from front door.
TENANT: HIGGINBOTHAM AUDIO/VISUAL SOLUTIONS
BY: /s/ BOB HIGGINBOTHAM
-----------------------------------
TITLE: President
--------------------------------
LANDLORD: IVEST, INC.
BY: /s/ COLEENE R. DEHOOS
-----------------------------------
TITLE: Office Manager
--------------------------------
27
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EXHIBIT A
(LOCATION OF LEASED PREMISES)
28
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EXHIBIT A-1
8825 Solon Road, Suite E8
Houston, TX 77064
1685 Square Feet
29
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EXHIBIT B
RULES AND REGULATIONS
The following Rules and Regulations shall be in effect at the Building.
Landlord reserves the right to adopt reasonable nondiscriminatory modifications
and additions hereto. In the case of the any conflict between these regulations
and the Lease, the Lease shall be controlling.
1. Landlord will furnish tenant with two keys free of charge. Landlord
may make reasonable charge for any additional keys. Tenant will not alter any
lock or install a new or additional lock or any bolt on any door of the premises
without the prior written consent of landlord; tenant will furnish landlord with
a key for each of those locks. Tenant, upon the termination of its tenancy,
will deliver to landlord all keys to doors in the complex that have been
furnished to Tenant.
2. If Landlord provides a sign or directory board in the Complex, all
entries on said directory will be approved by Landlord prior to manufacture
and each tenant shall be billed and pay for such service.
3. Tenant will refer all contractors, contractor's representatives and
installation technicians, rendering any service to Tenant, to Landlord for
Landlord's supervision, approval, and control before performance of any
contractual service. This provision shall apply to all work performed in the
complex including installation of telephones, telegraph equipment, electrical
devices and attachments, and installments of any nature affecting floors, walls,
woodwork, trim, windows, ceilings, equipment of any other physical portion of
the complex, Tenant shall be responsible for all costs and expenses incurred by
Landlord hereunder including management and administrative charges and shall
provide advance deposits to cure costs as estimated by Landlord subject to
reconciliation to actual cost when determined, together with all assurance,
funds and information as required by Landlord.
4. Tenant shall not place, install or operate on the Leased Premises or in
any part of the Complex, any engine, stove, or machinery, or conduct mechanical
operations or cook thereon or therein, or place or use in or about premises any
explosives, gasoline, kerosene, oil, acids, caustics or any other inflammable,
explosive, or hazardous material without the prior written consent of Landlord.
Tenant shall not use any method of heating other than that supplied by Landlord.
5. Landlord will not be responsible for lost or stolen personal property,
equipment, money, or jewelry regardless of whether such loss occurs when the
Complex is locked against entry or not.
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6. No birds, reptiles, insects, or animals shall be brought into or kept
in or about the Complex.
7. Employees of Landlord shall not receive or carry messages for or to
Tenant or other persons, nor contract with or render free or paid services to
Tenant or Tenant's agents, employees, or invitees.
8. Landlord will not permit entrance to the Leased Premises by use of pass
keys controlled by Landlord, to any person at any time without written
permission by Tenant, except employees, contractors, or service personnel
directly supervised by Landlord.
9. None of the entries, passages, doors, elevators, elevator doors,
hallways, or stairways shall be blocked or obstructed or any rubbish, litter,
trash, or material of any nature placed, emptied or thrown into these areas, nor
shall such areas be used at any time except for ingress by Tenant, Tenant's
agents, employees, or invitees.
10. Tenant and its employees, agents and invitees shall observe and comply
with the driving and parking signs and markers on the Property. Landlord
reserves the right to change from time to time the parking and movement of all
vehicles on the parking lot and driveway and to designate when necessary the
allocation of all or a portion of all of the parking spaces. There will be no
overnight parking. All unauthorized vehicles (those not working or without
license) will be towed at owner's expense. Lessee shall at all times during the
Lease Term (defined above), lease parking rights for 2 cars. Lessee, its
employees and all persons using the drive and parking areas do so at their own
risk and Lessor shall not be responsible for, or in any way have any obligation
or liability for, any damage, loss, theft or injury to any vehicle or other
equipment, any contents thereof or any other personal property, or the death or
injury to any person while located in or entering or exiting any portion of the
drive and parking areas.
IN NO EVENT SHALL TENANT, ITS EMPLOYEES VISITORS, CONTRACTORS,
SUBCONTRACTORS, OR OTHER PERSONS KNOWN TO TENANT, BE PERMITTED TO LEAVE
AUTOMOBILES, EQUIPMENT, MACHINERY, BOATS, MOTORCYCLES, OR ANY OTHER TYPES OF
VEHICLES, PARKED OUTSIDE THE LEASED PREMISES, OR ON THE PREMISES OF THE
DEVELOPMENT PROJECT, FOR A PERIOD OF MORE THAN 24 HOURS, WITHOUT PRIOR
PERMISSION FROM LANDLORD.
ANY VEHICLES WHICH ARE LEFT ON THE LEASED PREMISES MORE THAT TWENTY FOUR
HOURS WITHOUT LANDLORD'S PERMISSION, WILL BE TOWED AWAY AT OWNER'S EXPENSE.
11. Landlord shall have the right to prescribe the weight and position of
safes, computers and, without limitation, other heavy items which shall, in all
cases, in order to distribute their weight, stand on supporting devices approved
by Landlord and Landlord shall have the absolute right to proscribe any item
which could damage the Leased Premises, or the
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Complex or which creates any dangerous condition. All damage done to the Complex
by placing in or taking out any property of Tenant shall be repaired promptly at
the expense of Tenant.
12. Landlord reserves the right to name the Complex and to change the name
or street address of the Complex and to install and maintain a sign or signs on
the exterior or interior of the Complex.
13. Should Tenant require telegraphic, telephonic, enunciator or other
communication services, Landlord shall direct where and how wires are to be
introduced and placed and none shall be introduced or placed except if and as
Landlord shall direct and approve in writing.
14. Without Landlord's prior written approval, Tenant shall not install
any radio or television antenna, loudspeaker, music system or other device on
the roof or exterior walls of the Complex or on common walls with adjacent
tenants.
15. Tenant shall store all its trash, waste, and garbage within its Leased
Premises. No material shall be placed in the trash receptacles, or drainage, or
plumbing system, if such material is of such nature that it may not be disposed
of in the ordinary and customary manner of removing and disposing of trash,
waste, and garbage and without being in violation of any law or ordinance
governing such disposal. All garbage and refuse disposal shall be made only
through entry ways and elevators or other means provided for such purposes and
at such times as Landlord shall designate.
16. No vending machines shall be permitted or installed in the Leased
Premises without the proper written consent of Landlord.
17. Landlord reserves the right to prohibit personal goods and services
vendors from access to the Complex except upon such reasonable terms and
conditions, including but not limited to the payment of a reasonable fee and
provision for insurance coverage, as are related to the safety, care and
cleanliness of the Complex, the preservation of good order therein, and the
relief of any financial or other burden on Landlord occasioned by the presence
of such vendors or the sale by them of personal goods or services to a tenant or
its employees. If reasonably necessary for the accomplishment of these
purposes, Landlord may exclude a particular vendor entirely or limit the number
of vendors who may be present at any one time in the Complex. The Term
"personal goods or services vendors" means persons who periodically enter the
Complex of which the Leased Premises are a part for the purpose of selling goods
or services to a tenant, other than goods or services which are used by a tenant
only for the purpose of conducting its business on the Premises. "Personal
goods or services" include, but are not limited to, drinking water and other
beverages, food, barbering services, and shoe shining services. Canvassing,
soliciting and peddling in the Complex are prohibited and Tenant shall cooperate
to prevent the same.
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18. The sidewalks, and passages, shall not be obstructed by any Tenant or
used by it for any purpose other than for ingress to and egress from their
respective premises. The passages, entrances, and roof are not for the use of
the general public, and Landlord shall in all cases retain right to control and
prevent access thereto of all persons whose presence in the judgment of Landlord
shall be prejudicial to the safety, character, reputation and interests of the
Complex and its tenants, provided that nothing herein contained shall be
construed to prevent such access to persons with whom Tenant normally deals only
for the purpose of conducting its business on the Premises (such as clients,
customers, office suppliers and equipment vendors, and the like) unless such
persons are engaged in illegal activities except that no tenant and no employees
or invitees of any tenant shall go upon the roof of the Building without the
written consent of Landlord.
19. The sashes, sash doors, windows, glass lights, and any lights or sky
lights that reflect or admit light into the halls or other places of the Complex
shall not be covered or obstructed. The toilet rooms, water and wash closets
and other water apparatus shall not be used for any purpose other than that for
which they were constructed, and no foreign substance of any kind whatsoever
shall be thrown 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 invitees, shall have caused it. Tenant
shall keep its window coverings closed during any period of the day when the sun
is shining directly on the window.
20. No sign, advertisement or notice visible from the exterior of the
Leased Premises or Building shall be inscribed, painted or affixed by Tenant on
any part of the Building or the Leased Premises without the prior written
consent of Landlord. If Landlord shall have given such consent at any time,
whether before or after the execution of this Lease, such consent shall in no
way operate as a waiver or release of any of the provisions hereof, and shall be
deemed to relate only to the particular sign, advertisement or notice so
consented to by Landlord and shall not be construed as dispensing with the
necessity of obtaining the specific written consent of Landlord with respect to
each and every sign, advertisement or notice as the case may be, so consented to
by Landlord. Landlord will provide for uniform signage in the public corridors
or on corridor doors and entrances to the Leased Premises, such signs to be
contracted for by Landlord for Tenant at a rate fixed by Landlord from time to
time and Tenant will be billed and pay for such service accordingly in advance.
21. In order to maintain the outward professional appearance of the
Complex, all window coverings to be installed at the Leased Premises shall be
subject to Landlord's prior approval. If Landlord, by a notice in writing to
Tenant, shall object to any curtain, blind, shade or screen attached to, or
hung, in or used in connection with any window or door of the Leased Premises,
or the manner of such use, of such curtain, blind, shade or screen such item or
use shall be forthwith discontinued by Tenant. No awning shall be permitted on
any part of the Leased Premises.
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22. If Leased Premises is or becomes infested with vermin as a result of
the use or any misuse or neglect of Leased Premises by Tenant, its agents,
servants, employees, contractors, invitees or licensees, Tenant, shall forthwith
at Tenant's expense cause the same to be fumigated from time to time to the
satisfaction of Landlord and shall employ such licensed exterminators as shall
be approved in writing in advance by Landlord.
23. No Tenant shall sweep or throw or permit to be swept or thrown from
the Leased Premises any dirt or other substance into any of the corridors or
halls or elevators, or out of the doors or windows or stairways of the Complex,
and Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Leased Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors, and/or vibrations or
interfere in any way with other tenants. Smoking or carrying lighted cigars or
cigarettes in the elevators of the Complex is prohibited.
24. No cooking shall be done or permitted by Tenant in the Leased
Premises, nor shall the Complex be used for lodging.
25. No Tenant shall lay linoleum or other floor covering so that the same
shall be affixed to the floor of the Leased Premises in any manner except by a
paste, or other material which may easily be removed with water; the use of
cement or other similar adhesive materials being expressly prohibited. The
method of affixing any such linoleum or other floor covering to the floor,
including the method of affixing carpets or rugs in the Leased Premises, shall
be subject to approval by Landlord. The expense of repairing any damage
resulting from a violation of this rule shall be borne by Tenant by whom, or by
those agents clerks, employees or invitees, the damage shall have been caused.
26. In case of invasion, mob, riot, public excitement, or other commotion,
Landlord, reserves the right, but shall not be obligated to prevent access to
the Complex or Building during the continuance of the same by closing the doors
or gates or otherwise, for the safety of the Tenants and protection of property
in the Complex.
27. Tenant shall see that the windows and doors of the Leased Premises are
closed and securely locked before leaving the Complex and Tenant shall exercise
extraordinary care and caution that all water faucets or water apparatus are
entirely shut off before Tenant or Tenant's employees leave the Building, and
that all electricity, gas or air shall likewise be carefully shut off, so as
to prevent waste or damage, and Tenant shall make good all injuries sustained by
other Tenant or occupants of the Complex or Landlord by reason of any default or
carelessness of Tenant, its employees, or invitees.
28. Tenant shall not use the name of the Complex for any purpose other
than as the address of the business to be conducted by Tenant in the Leased
premises, nor shall Tenant use any picture of the Complex in its advertising,
stationery or in any other manner without the
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proper written Permission of Landlord. Regardless of Landlord granting such
consent, Landlord expressly reserves the right at anytime to change said name or
structure without in any manner being liable to Tenant therefor.
29. Tenant shall install and maintain, at Tenant's sole cost and expense,
an adequate visibly marked class 2A fire extinguisher next to any duplicating or
photocopying machine or other heat producing equipment, which may or may not
contain combustible material, or for each 3000 square feet of floor area in the
Leased Premises. The fire extinguisher must be serviced annually.
30. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify, alter or amend in whole or in part, the terms,
covenants, agreements and conditions of any lease covering the Leased Premises
in the Complex.
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EXHIBIT 10.41
FIRST AMENDMENT TO LEASE
RE: 8825 Solon Road, Suite E8, Houston, Texas 77064
BY THIS AGREEMENT, the Lease Agreement dated February 9, 1998, by and between
IVEST, INC., "Landlord," and HIGGINBOTHAM AUDIO/VISUAL SOLUTIONS, "Tenant," is
hereby amended and supplemented in the following respects:
1. Article 1.07 Leased Premises: The subject of this First Amendment to Lease
---------------
is a portion of the warehouse(s) located in Harris County, Texas, on real estate
which is legally defined in Exhibit "A" of the lease. The leased portion is
approximately 2,500 square feet of warehouse space and is more commonly referred
to as 8825 Solon Road, Suite E9, Houston, Texas 77064 (hereinafter referred to
as "Premises"), and is more particularly described and attached hereto as
Exhibit "A-2" and incorporated herein by reference.
2. Article 1.08 Lease Term: Subject to and upon the terms and conditions set
----------
forth herein, this lease shall continue in full force and effect for a term of
20 months beginning August 1, 1998, and ending at midnight on March 31, 2000.
The prorated rent from date of entry on July , 1998, is .
-- ------------
3. Article 1.11 Security Deposit: Landlord hereby acknowledges that a security
----------------
deposit in the amount of $575.00 was received by Guardian Management Co. of
Houston, in accordance with the Lease agreement entered into on February 9,
1998. An additional $800.00 is required.
4. Article 1.12 Rent: Tenant covenants and agrees to pay Landlord as Base Rent
----
and Common Area Charge (CAM) for the Leased Premises, a monthly payment in the
amount of $800.00. Base Rent will be $750.00. Common Area Charge will be
$50.00.
5. Landlord will prepare the unit for Tenant's use to include servicing the
HVAC system, electrical work, and plumbing system and other mechanical systems
in Suite E9. Suite E9 will also be cleaned and painted and the carpet will be
cleaned. Single encased doorways will be constructed between the offices of
Suite E8 and Suite E9 on the first floor and the second floor. A double door
will be constructed between the warehouses of Suite E8 and Suite E9. Tenant
will be able to lock the warehouse door in both Suites.
6. Except for the above, all other terms and conditions shall remain unchanged
and in full force and effect.
AGREED TO AND ACCEPTED THIS 13th DAY OF JULY, 1998.
TENANT: HIGGINBOTHAM AUDIO/VISUAL SOLUTIONS
BY: /s/ ROBERT HIGGINBOTHAM
----------------------------------------
TITLE: Vice President, EIS, Inc.
----------------------------------------
LANDLORD: IVEST, INC.
BY: /s/ COLEEN DEHOOS
----------------------------------------
TITLE: Office Manager
----------------------------------------
<PAGE>
EXHIBIT 10.42
STANDARD SHOPPING CENTER LEASE
This Lease made this 31st day of December, 1997, The Raymond Malooly Trust
(hereinafter "Landlord") and B. Higginbotham Enterprises Inc. , (hereinafter
"Tenant", whether one or more).
Witnesseth:
In consideration of the rents, covenants and agreements herein set forth,
Landlord and Tenant enter into the following agreement:
1. LEASE OF PREMISE. Landlord hereby Leases to Tenant, and Tenant hereby
----------------
rents from Landlord, space D 107 and 108 in the Alto Mesa Shopping Center ("the
Center"), located at 5200 N. Mesa El Paso, TX. 79912, said location being more
-----------
particularly described in Exhibit "A" attached hereto. The space Leased
hereunder is outlined on Exhibit "A" (herein called "the premise"), width a
front with of approximately 40 feet, and a depth of approximately 50 feet,
measured to the Center line of all party walls, to the exterior face of all
other walls, and to the building line where there is no wall, containing
approximately 2,000 square feet (the actual number of square feet, when the
Premises are completed, being herein called "the Store Area").
2. TERM. The term of this Lease shall be for 24 months, commencing on
----
the 1st day of February, 1998 (the "Commencement Date") and ending 24 months
from that date unless terminated earlier as herein provided, except that in the
event that the Commencement date is a date other than the first day of a
calendar month, said term shall extend for 24 months in addition to the
remainder of the calendar month following the Commencement Date.
3. RENT.
----
3.1. BASE RENT. Tenant shall pay base rent to Landlord for the Premises
---------
as follows: ($1,400.00 per month), one thousand four hundred and 00/100. per
month until the end of the Lease Term, which totals $ 33, 600.00 over the Term
of the Lease. Said monthly base rental shall be paid in accordance with
Paragraph 5.1 hereof.
4. SECURITY DEPOSIT. Concurrently with Tenant's execution to this Lease,
----------------
Tenant shall deposit with Landlord of $1,400.00 which shall be held by Landlord
in accordance with Paragraph 6.
5. RENT PAYMENTS.
-------------
5.1. BASE RENT. Said monthly rent shall be paid in advance on the first day
---------
of each month of the Term, with proration to occur for any partial month if the
Commencement Date is other than on the first day of a calendar month. All
rentals to be paid by Tenant to Landlord shall be in lawful money of the United
States of America and shall be paid without deduction or offset, prior notice,
or demand, on or before the first day of each and every month during the Term
hereof, and at such a place or places as may be designated from time to time by
Landlord.
5.2. TENANT'S SHARE. For purposes of this Lease, the term "Tenant's Share"
--------------
shall mean the fraction, the numerator of which is the Store Area and the
denominator of which is the total number of square feet of rentable space in the
Center.
5.3. OBLIGATION TO PAY RENT. Tenant's obligation to pay rent under this
----------------------
Lease is an independent covenant and no act or circumstance, regardless of
whether such act or circumstance constitutes a breach of this Lease by Landlord,
shall release Tenant of its obligation to pay rent as required by this Lease.
6. SECURITY DEPOSIT. Concurrently with Tenant's execution of this Lease,
----------------
Tenant shall deposit with Landlord the sum of $1,400.00 which shall be held by
Landlord, without obligation for interest or segregation, as
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security for performance of Tenant's covenants and obligations under this Lease,
it being expressly understood and agreed that such deposit is not an advance
rental deposit or a measure of Landlord's damages in case of Tenant's default.
Upon the occurrence of any default by Tenant, Landlord may, without prejudice to
any other available remedy, use such fund to make good any rent arrearage or any
other demand the amount so applied in order to restore the security deposit to
its original amount. If Tenant is no later than thirty (30) days from the date
of termination of this Lease.
7. LATE CHARGES. Tenant agrees to pay a late charge of ten (10) percent
------------
as additional rent for each payment due hereunder that is more than five (5)
days delinquent. In addition to said late charge, any rental or other amount due
from Tenant under this Lease which is more than thirty (30) days delinquent
shall bear interest from the date such rental or other amount was due at the
rate of eighteen (18) percent per year. Any rental and/or other payments due
hereunder returned to Landlord marked "Insufficient Funds" will entitle Landlord
to collect an additional twenty-five ($25.00) dollars from Tenant for each such
payment.
8. QUIET ENJOYMENT. Landlord conveys and agrees that upon Tenants' paying
---------------
rent and performing all of the covenants and conditions set forth in this Lease,
Tenant shall, subject to all easements, rights-of-way, and prescriptive rights,
and all presently recorded instruments which affect the Premises, peaceably and
quietly have, hold and enjoy the Premises for the term provided in this Lease.
9. CONDUCT OF BUSINESS OF TENANT.
-----------------------------
9.1. USE OF PREMISES. The Premises shall be occupied and used by Tenant
---------------
solely for the purpose of conducting therein the business of audio/visual
systems installation and rental. Tenant's acceptance of occupancy from Landlord
shall constitute acknowledgment by Tenant that Tenant has inspected the Premises
and the Center of which the Premises are a part and that same are suitable for
Tenant's intended use thereof as stated in this Paragraph. Tenant recognizes and
agrees that Landlord is making no warranties, expressed or implied, as to the
suitability of the premises or the Center for any particular use.
9.2. PROMPT OCCUPANCY AND USE. Tenant will occupy the Premises upon the
------------------------
Commencement Date and thereafter continuously operate and conduct in 100% of the
Premises the business permitted under Paragraph 9.1 hereof, with a full staff
and full stock of merchandise, using only such minor portions of the Premises
for storage and office purposes as are reasonably required.
9.3. CONDUCT OF BUSINESS. Such business shall be conducted:
-------------------
(a) In the Tenant's own name or under the name of:
Higginbotham Audio/Visual Solutions unless another name is
previously approved in writing by the Landlord, and:
(b) In such manner as shall assure the transaction of a maximum
volume of business in and at the Premises.
9.4. OPERATION BY TENANT. Tenant covenants and agrees to the following:
-------------------
(a) Tenant shall not place or maintain any merchandise, vending
machines or other articles in any vestibule or entry of the Premises or outside
the premises.
(b) Tenant shall store garbage, trash, rubbish and other refuse in
rat-proof and insect-proof containers inside the Premises. Tenant shall remove
the same frequently and regularly, subject to direction of Landlord by such
means and methods and at such times and intervals as are designated by Landlord,
all at Tenant's cost.
(c) Tenant shall not permit any audible sound system or objectionable
visible advertising medium outside the Premises.
(d) Tenant shall keep all mechanical equipment free of vibration and
noise, and in good working order and condition.
2
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(e) Tenant shall not commit or permit waste or a nuisance upon the
Premises, and shall not permit or cause odors to emanate or be dispelled from
the Premises.
(f) Tenant shall not solicit business in the Common Area nor
distribute advertising matter in or upon the Common Area.
(g) Tenant shall not permit the loading or unloading, or the parking
or standing of delivery vehicles outside any area not designated therefore, nor
permit any use of vehicles which will interfere with the use of the Common Area
in the Center nor permit its employees to park anywhere in the Center other than
those areas designated from time to time by Landlord as "employee parking
areas".
(h) Tenant shall comply with all laws, recommendations, ordinances,
rules and regulations of governmental agencies whether public or private and
other authorities and agencies, including those with authority over insurance
rates, with respect to the use or occupancy of the Premises.
(i) Tenant shall not permit any noxious, toxic or corrosive fuel or
gas, dust, dirt or fly ash on the Premises, nor place a load on any floor in the
Center which exceeds the floor load per square foot which such floor was
designed to carry.
(j) Landlord shall have the exclusive right to use all or part of
the roof, side and rear walls of the Premises for any purpose, including but not
limited to erecting signs or other structures on or over all or any part of the
same, erecting scaffolds and other aids to the construction and installation of
the same, and installing, maintaining, using, repairing, and replacing pipes,
duct, conduits and wires leading through, to or from the Premises and serving
other parts of the Center in locations which do not materially interfere with
Tenant's use of the Premises; and
(k) Tenant shall have no rights whatsoever to the exterior or
exterior walls, or the roof of the Premises or any portion of the Center outside
the Premises, except as otherwise provided in this Lease.
9.5. STORAGE. Except in emergencies, Tenant shall have in the Premises
-------
only merchandise which Tenant intends to sell at retail in or from the Premises.
9.6. SALES AND DIGNIFIED USE. No public or private auction or any fire,
-----------------------
"going out of business," bankruptcy or similar sales or auctions shall be
conducted in or from the Premises. The Premises shall not be used except in a
dignified and ethical manner consistent with the general high standards of
merchandising in the Center and not in a disreputable or immoral manner or in
violation of the national, state or local laws.
10. PARKING AND USE OF COMMON AREA AND FACILITIES.
---------------------------------------------
10.1. COMMON AREA.
-----------
10.1.1. All parking areas, access roads and facilities furnished,
made available or maintained by Landlord in or near the Center, including
employee parking areas, truck ways, driveways, loading docks, delivery areas,
package pickup stations, pedestrian sidewalks, malls (including enclosed malls),
courts and ramps, landscaped areas, retaining walls, stairways, bus stops, first
aid and comfort stations, lighting facilities, and other areas and improvements
provided by Landlord for the general use in common of Tenants and their
customers in the Center (all herein collectively called the "Common Area") shall
at all times be subject to the exclusive control and management of Landlord, and
Landlord shall have the right, from time to time, to establish, modify and
enforce reasonable rules and regulations with respect to the Common Area.
10.1.2. Landlord shall have the right, from time to time, to: (a)
change the size, location, shape and arrangement of parking areas and the other
Common Area provided, however, that size of parking areas on the Center, as
shown upon Exhibit "A", shall not be substantially reduced; (b) restrict parking
by Tenants and their employees to designated areas; (c) construct surface,
subsurface or elevated parking areas and facilities; (d) establish and/or change
the level or grade of parking surfaces; (e) enforce parking charges (by meter or
otherwise) with appropriate provisions for ticket validating; and (f) do and
perform such other acts in and to the Common Area as Landlord, in its sole
discretion reasonably applied, deems advisable for use thereof by Tenants and
their customers.
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10.1.3. Any condemnation or taking by any public authority, or any
sale in lieu of condemnation of any or all of said parking areas located on the
Common Area shall not constitute a violation of any covenant by Landlord or
entitle Tenant to terminate this Lease nor to any abatement of rent due
hereunder.
10.2. USE OF COMMON AREA. Tenant and Tenant's business invitees, employees
------------------
and customers shall have the nonexclusive right, in common with Landlord and all
others to whom Landlord has granted or may hereafter grant rights, to use the
Common Area, subject to such reasonable regulations as Landlord may from time to
time impose, and the rights of Landlord set forth above. Tenant shall pay
Landlord, upon demand, $20.00 for each day on which a car of Tenant or a
concessionaire, employees or agent of Tenant is parked outside any area
designated by Landlord for employee parking. Tenant authorizes Landlord to cause
any such car to be towed from the Center and Tenant shall reimburse Landlord for
the cost thereof upon demand, and otherwise indemnify and hold Landlord harmless
with respect thereto. Tenant shall abide by all rules and regulations and cause
its concessionaires, officers, employees, agents, customers and invitees to
abide thereby. Landlord may at any time close temporarily all or any part of the
Common Area to make repairs or changes, to prevent the acquisition of public
rights therein, to discourage non customer parking, or for any other reasonable
purpose. Tenant shall furnish Landlord license numbers and descriptions of cars
used by Tenant and its concessionaires, officers and employees. Tenant shall not
interfere with the other Tenants' rights to use any part of the Common Area.
11. RULES AND REGULATIONS. Tenant and Tenant's agents, employees and
---------------------
invitees shall faithfully observe and comply with all reasonable rules and
regulations promulgated by the Landlord for the safety, care or cleanliness of
the Center, and for the preservation of good order therein. Landlord shall not
be responsible to Tenant for the nonperformance by any other Tenant or occupant
of the Center for any of the rules and regulations.
12. MAINTENANCE OF PREMISES.
-----------------------
12.1. MAINTENANCE BY LANDLORD. Landlord shall keep or cause to be kept the
-----------------------
foundations, roofs, (except for HVAC portions as provided in Section 12.2) and
structural portions of the walls of the Premises in good order, repair and
condition except damage thereto due to the acts or omissions of Tenant, Tenant's
employees, or invitees. Landlord shall commence required repairs as soon as
reasonably practical after receiving written notice from Tenant thereof. Except
as provided in this Paragraph, Landlord shall not be obligated to make repairs,
replacements or improvements of any kind upon the Premises or to any equipment,
merchandise, stock in trade, facilities or fixtures therein, all of which shall
be Tenant's responsibility.
12.2. MAINTENANCE BY TENANT. Tenant shall at all times keep the Premises
---------------------
(including all entrances and vestibules) and all partitions, windows, window
frames, molding, glass, door openers, fixtures, equipment and appurtenances
thereof (including lighting, electrical and plumbing equipment and appurtenances
and all interior and exterior heating, ventilation and air-conditioning
equipment "HVAC" systems) and all parts of the premises not required herein to
be maintained by Landlord in good order, condition and repair, in clean,
orderly, sanitary and safe condition. Damage by unavoidable casualty excepted
including but not limited to doing such things as necessary to cause the
Premises to comply with applicable laws, rules, regulations and orders of
governmental and public bodies and agencies. If replacement of equipment,
fixtures and appurtenances thereto are necessary, Tenant shall replace the same
with equipment, fixtures and appurtenances of the same quality, and shall repair
all damages done in or by such replacement. If Tenant fails to perform its
obligations hereunder, Landlord without notice may, but shall not be obligated
to perform Tenant's obligations or perform work resulting from Tenant's actions
or omissions and add the costs of the same to the next installment of minimum
monthly rent due hereunder, together with interest thereon at the rate of
eighteen percent (18) per annum.
12.3. SURRENDER OF PREMISES. At the termination of this Lease, Tenant shall
---------------------
surrender the Premises in the same condition as they were on the Commencement
Date, reasonable wear and tear excepted, and deliver all keys for, and all
combinations on locks, safes and vaults in the Premises to Landlord.
12.4. FIRE EXTINGUISHERS. Tenant agrees to supply and maintain at its own
------------------
expense any fire extinguishers or other fire prevention equipment required by
law, rules, orders, ordinances, and regulations of city,
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county, or state in which the Premises are located and/or required by any
underwriters association, bureau, or any other similar body having jurisdiction
involving the Premises.
13. ALTERATIONS, FIXTURES AND SIGNS.
-------------------------------
13.1. ALTERATIONS. Tenant will not paint, decorate or change the
-----------
architectural treatment or any part of the exterior of the Premises, nor any
part of the interior of the Premises visible from the exterior, without
Landlord's prior written approval thereto, and will promptly remove any paint,
decoration, alteration, addition or changes applied or installed without
Landlord's approval or take such other action with respect thereto as Landlord
directs. Tenant will install and maintain at all times merchandise displays in
any show windows on the Premises subject to the other provisions of this
Paragraph. The arrangement, style, color and general appearance thereof of
displays in the interior of the Premises which are visible from the exterior
including, but not limited to, window displays, advertising matter, signs,
merchandise and store fixtures shall be maintained in keeping with the character
and standards of the Center. Tenant shall not make any structural alterations,
additions or changes to the Premises. If Landlord grants consent to any
requested alterations, the alterations shall be performed in a good and
workmanlike manner in accordance with all applicable legal requirements and any
restrictions which may be imposed by landlord as a condition to its consent.
13.2. FIXTURES. All fixtures installed by Tenant shall be new or completely
--------
reconditioned.
13.3. REMOVAL AND RESTORATION BY TENANT. All alterations, changes and
---------------------------------
additions and all improvements, including Leasehold improvements made by Tenant,
or made by Landlord on Tenant's behalf (all such items collectively referred to
as "Tenant's Additions"), whether or not paid for wholly or in part by Landlord,
shall remain Tenant's properly for the term of this Lease. Tenant's Additions
(but not including items used primarily in the conduct of Tenant's business and
commonly considered "trade fixtures") shall immediately upon the termination of
this Lease become Landlord's property, be considered part of the premises, and
not be removed at or prior to the end of the term of this Lease without
Landlord's prior written consent. Upon termination of the Lease, Tenant shall
remove its trade fixtures and shall repair any damages to the Premises caused
thereby.
13.4. TENANT SHALL DISCHARGE ALL LIENS. Tenant shall promptly pay all
--------------------------------
contractors and materialmen and will not permit or suffer any lien to attach to
the center or any part thereof, and indemnify and save harmless Landlord against
the same. Landlord shall have the right to require Tenant to furnish a bond or
other indemnity satisfactory to Landlord prior to the commencement of any work
by Tenant on the Premises, or if any lien attaches or is claimed, to require
such a bond or indemnity in addition to all other remedies. Tenant shall
discharge any such lien within ten (10) days of the filing thereof.
13.5. CENTER SIGN. Landlord may install a Center sign, which will be
-----------
changed, altered or modified either through an electrical or computerized method
or manually, for the purpose of promotional advertising for seasonal items,
specials and the like, hereinafter referred to as the "Center Sign". Should
Landlord install a Center Sign, Landlord may, at its option and conditioned on
the availability of space on such a sign, to allow Tenant to use the Center
Sign. If space on the Center Sign is used by Tenant, Tenant shall pay to
Landlord, as additional rent, the monthly sum of $ N/A for said use. Landlord
reserves the right to increase said amount if Landlord determines an increase is
necessary to cover its expense in operating the Center sign. Tenant agrees to
pay any such increase upon demand by Landlord.
13.6. SIGNS, AWNINGS, AND CANOPIES. Tenant will not place or permit on any
----------------------------
exterior door or window or any wall of the Premises or otherwise, any sign,
awning, canopy, advertising matter, decoration, lettering or other items of any
kind which does not comply with the Sign Criteria set forth in Exhibit "B"
attached hereto.
14. PERSONAL PROPERTY TAXES. During the term of this Lease, Tenant shall
-----------------------
pay prior to delinquency all taxes assessed against and levied upon fixtures,
furnishings, equipment and all other personal property of Tenant contained in
the Premises.
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15. UTILITIES. Tenant agrees to pay all utilities, before delinquency,
---------
(including, but not limited to, water, sewer, power, electricity, telephone,
garbage removal, water meter charges and hookup or connection fees or charges)
which may accrue with respect to the Premises during the term of this Lease,
regardless of whether the same be charged or assessed at a flat rate, measured
by separate meters or prorated by the utility company or Landlord. Additionally,
Tenant shall pay to Landlord, as additional rent, upon demand, Tenant's share of
any utilities which are not separately metered in the event that Landlord incurs
any such expenses for the benefit of Tenant. Tenant agrees to reimburse Landlord
for the entire cost thereof promptly upon demand. Landlord shall in no event be
liable to Tenant for any interruption in the service of any such utilities to
the Premises, howsoever such interruption may be caused and this Lease shall
continue in full force and effect despite any such interruptions.
16. INSURANCE.
---------
16.1. LANDLORD'S OBLIGATION. Landlord shall procure and maintain at its own
---------------------
expense during the term of this Lease, all risk property and general liability
insurance coverage on the buildings and Common Areas in the Center as Landlord
deems appropriate.
16.2. TENANT'S OBLIGATION.
-------------------
16.2.1. ALL RISK PROPERTY AND GENERAL LIABILITY. Tenant, as
---------------------------------------
additional rent shall pay to Landlord an amount equal to Tenant's Share of all
premiums paid by Landlord for all risk property and general liability insurance
on the buildings in the Center as described in Paragraph 16.1. Tenant's share of
premiums paid is payable as additional rent in accordance with Paragraph 5.3.
16.2.2. PLATE GLASS. Tenant, during the term of this Lease, shall
-----------
carry full coverage insurance on all plate glass in the Premises and cause the
same to be replaced if chipped, cracked or broken.
16.2.3. LIABILITY. Tenant shall procure and maintain a policy or
---------
policies of insurance, insuring both Landlord and Tenant, against all claims,
damages, or actions arising out of or in connection with Tenant's use or
occupancy of the Premises or by the condition of the Premises, the limits of
such policy or policies to be in an amount not less than $500,000.00 per
occurrence and in an amount not less than $1,000,000.00 in the general aggregate
for bodily injury and property damage. Said policy or policies shall
additionally include Fire Legal liability insurance coverage in the maximum
allowable amount.
16.2.4. PERSONALTY COVERAGE. Tenant also agrees to carry insurance
-------------------
against fire and such other risks as are from time to time included in standard
extended coverage insurance for the full insurable value covering all of
Tenant's merchandise, trade fixtures, furnishings, wall coverings, floor
coverings, carpeting, drapes, equipment and all items of personal property of
Tenant located on or within the Premise. Such policy or policies shall contain
an endorsement in favor of Landlord, waiving such insurance company's rights of
subrogation against Landlord. All property of Tenant kept in the Premises shall
be so kept at Tenant's risk only.
16.2.5. CONSTRUCTION LIABILITY. Tenant, at its own cost and expense,
----------------------
shall obtain and maintain (to the extent reasonably procurable) at all times
when demolition, excavation, or construction is in progress on the Premises,
construction liability insurance with responsible insurance companies duly
authorized to contract business in Texas and approved by Landlord, with limits
of not less than $500,000.00 for property damage insurance and liability per
occurrence and $1,000,000.00 in the general aggregate for bodily injury and
property damage, protecting Landlord and Tenant as well as such other person or
persons as Tenant may designate against any and all liability for injury or
damage to any person or property in any way arising out of such demolition,
excavation, or construction work.
16.2.6. FORM OF INSURANCE. All policies required of Tenant hereunder
-----------------
shall: (i) be issued by a reputable insurance company qualified to do business
in the state where the Premises are located; (ii) shall name Landlord as an
additional insured and Tenant as the named insured; (iii) shall provide that
they cannot be canceled for any reason unless Landlord is given forty-five (45)
days prior written notice by the insurer. A duly executed certificate of
insurance shall be delivered to Landlord at least ten (10) days prior to the
expiration of the respective
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policy terms. Landlord shall have the right to review said insurance amounts at
least yearly during the term of this Lease and require Tenant to increase said
insurance policies to provide coverage in such amounts as Landlord, in its sole
discretion deems necessary. Tenant agrees to procure and maintain said increased
insurance coverage.
16.3. MUTUAL WAIVER OF SUBROGATION RIGHTS. Landlord and Tenant and all
-----------------------------------
parties claiming under them mutually release and discharge each other from all
claims and liabilities arising from or caused by any casualty or hazard covered
by valid and collectible insurance on the Premises, and waive any right of
subrogation which might otherwise exist in or accrue to any person on account
thereof; provided that such release shall not operate in any case where the
effect is to invalidate such insurance coverage. This release shall apply even
if the loss or damage shall be caused by the fault or negligence of a party
hereto or for any person for which such party is responsible.
16.4. WAIVER. Landlord, its agent or employees shall not be liable, and
------
Tenant waives all claims for damages (except claims caused by or resulting from
the gross negligence or willful misconduct of Landlord, its agents or
employees), including but not limited to consequential damages to person,
property or otherwise sustained by Tenant or any person claiming through Tenant
resulting from any accident or occurrence in or upon any part of the Premises or
the Center, including but not limited to, claims for damage resulting from: (a)
any equipment or appurtenances becoming out of repair; (b) Landlord's failure to
keep any part of the Center or Premises in repair; (c) injury done or caused by
wind, water, or other natural elements; (d) any defect in or failure of
plumbing, heating, and air conditioning equipment, electric wiring or
installation thereof, gas, water and steam pipes, stairs, porches, railings or
walks; (e) broken glass; (f) the backing up any sewer pipe or down spout; (g)
the bursting, leaking or running of any tank, tub, washstand, water, snow, or
ice upon the Premises; (h) the falling of any fixture, plaster or stucco, (i)
damage to or loss by theft or otherwise of property of Tenant or others; (J)
acts or omissions of persons in the Premises, other Tenants in the Center,
occupants of nearby properties, or any other persons; (k) any act or omission of
owners of adjacent or contiguous property; (l) any fire or casualty and (m) any
act of public enemy, criminal conduct, insurrection or war. All property of
Tenant kept in the Premises shall be so kept at Tenant's risk only and Tenant
shall save Landlord harmless from claims arising out of damage to the same.
17. RIGHT OF ENTRY. Landlord, its agents and employees, shall have the
--------------
right to enter the Premises from time to time at reasonable times to examine the
Premises, to show them to prospective purchasers and other persons and to make
such repairs, alterations, improvements or additions as Landlord deems
desirable. Rent shall in no wise abate while any such repairs, alterations,
improvements or additions are being made. During the last six (6) months of the
term of this Lease, Landlord may exhibit the Premises to prospective Tenants and
maintain upon the Premises notices deemed advisable by Landlord. In addition,
during any apparent emergency, Landlord, its agents and employees, may enter the
Premises forcibly without liability therefore and without in any manner
affecting Tenant's obligations under this Lease. Nothing herein contained
however, shall be deemed to impose upon Landlord any obligation responsibility
or liability whatsoever for any care, maintenance or repair except as otherwise
herein expressly provided.
18. INDEMNIFICATION. Tenant shall indemnify and save harmless Landlord
---------------
from and against any and all liability, liens, claims, demands, damages,
expenses, fees, costs, fines, penalties, suits, proceedings, actions and causes
of action of any and every kind and nature arising or growing out of or in any
way connected with Tenant's use, occupancy, management or control of the
Premises or Tenant's operations, conduct or activities in the Center. Tenant
authorizes Landlord (although expressly recognizing that Landlord is under no
obligation to do so) to defend, settle or compromise any claims, demands, suits,
proceedings or the like which may represent an indemnifiable obligation of
Tenant hereunder. Such action or inaction by Landlord shall in no way effect
Tenant's indemnity obligations as provided herein.
19. SUBORDINATION AND ATTORNMENT. Tenant accepts this Lease subject and
----------------------------
subordinate to any mortgage, deed of trust, or other lien presently existing on
the Premises or the Center as a whole, and to any renewals and extensions
thereof; but, Tenant agrees that any such mortgagee shall have the right at any
time to subordinate such mortgage, deed of trust, or other lien to this Lease.
Landlord is hereby irrevocably vested with full power and authority to
subordinate this Lease to any mortgage, deed of trust, or other lien hereafter
placed on the Premises or the Center as a whole and Tenant agrees on demand to
execute such further instruments subordinating
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this Lease as Landlord may request, provided such subordination shall be on the
express condition that this Lease shall be recognized by the mortgagee and that
the rights of Tenant shall remain in full force and effect during the term of
this Lease so long as Tenant shall continue to perform all of the covenants and
conditions of this Lease. Tenant covenants and agrees that upon foreclosure of
any deed of trust, mortgage or other instrument of security and the sale of the
Premises or Center pursuant to any such document, to attorn to any purchaser at
such a sale and to recognize such purchaser as the Landlord under this Lease.
The agreement of Tenant to attorn to any purchaser pursuant to such a
foreclosure sale or trustee's sale in the preceding sentence shall survive any
such sale.
20. ESTOPPEL CERTIFICATE. Tenant shall at any time, upon the request of
--------------------
Landlord, execute, acknowledge and deliver to Landlord a statement in writing
certifying that this Lease is unmodified and in full force and effect (or if
modified stating the nature of such modification and certifying that the Lease
as modified is in full effect), the dates to which the rent and other charges
are paid in advance, if any, and acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder, or specifying
such defaults if any are claimed. The parties agree that any such statement may
be relied upon by any prospective purchaser or encumbrance of all or any portion
of the Center. Tenant's failure to deliver such statement within ten (10) days
after Landlord's request for the same, shall be conclusive upon Tenant that: (i)
this Lease is in full force and effect; (ii) there are no uncured defaults in
Landlord's performance and (iii) not more than one month's rent or other charge
has been pain in advance.
21. DAMAGE AND DESTRUCTION. If the Premises are hereafter damaged or
----------------------
destroyed or rendered partially untenantable for their accustomed use by fire or
other casualty insured under the coverage which Landlord is obligated to carry
hereunder, Landlord shall promptly repair the same to substantially the
condition which they were in immediately prior to the happenings or such
casualty (excluding stock in trade, fixtures furniture, furnishings, carpeting,
floor covering, wall covering, drapes and equipment). From the date of such
casualty, until the Premises are so repaired and restored, the monthly rent
payments hereunder shall abate in such proportion as the part of said Premises
thus destroyed or rendered untenantable bears in the total Premises; provided
however, that Landlord shall not be obligated to repair and restore if such
casualty is caused directly or indirectly by the negligence of Tenant, its
agents or employees; and provided further, that Landlord shall not be obligated
to expend for such repair or restoration an amount in excess of the insurance
proceeds recovered as a result of such damage. Notwithstanding that above, if
the Premises are wholly or partially damaged, destroyed or rendered untenantable
for their accustomed use by fire or other casualty then Landlord shall have the
right to terminate this Lease effective as of the date of such casualty by
giving Tenant, within sixty (60) days after the happening of such casualty,
written notice of such a termination if such notice is given, this Lease shall
terminate and Landlord shall promptly repay to Tenant any rent paid in advance
which was not earned at the date of such a casualty. If said notice is not given
and Landlord is required or elects to repair or restore the Premises as herein
provided, then Tenant shall promptly repair or replace its stock in trade
fixtures, furnishings, furniture, carpeting, wall covering, floor covering,
drapes and equipment to the same condition as they were in immediately prior to
the casualty and, if Tenant has closed its business, Tenant shall promptly
reopen for business upon the completion of such repairs.
22. EMINENT DOMAIN.
--------------
22.1. EMINENT DOMAIN. If 10% or more of the Premises or 15% or more of the
--------------
Center shall be acquired or condemned by right of eminent domain for any public
or quasi-public use or purpose then Landlord at its election may terminate this
Lease by giving notice to Tenant of its election, and in such event, rentals
shall be apportioned and adjusted as of the date of termination. If the Lease
shall not be terminated as aforesaid, then it shall continue in full force and
effect, and Landlord shall within a reasonable time after possession is
physically taken (subject to delays due to shortage of labor, materials or
equipment, labor difficulties, breakdown of equipment, governmental
restrictions, fires, other casualties or other causes beyond the reasonable
control of Landlord) to repair or rebuild what remains of the Premises for
Tenant's occupancy, and a just proportion of the rent shall be abated, according
to the nature and extent of the injury to the Premises, until such repairs and
rebuilding are completed, and thereafter for the balance of the term of this
Lease.
22.2. DAMAGES. Landlord reserves and Tenant assigns to Landlord, all rights
-------
to damages on account of any taking or condemnation or any act of any public or
quasi-public authority for which damages are payable.
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Tenant shall execute such instruments of assignment as Landlord requires, join
with Landlord in any action for the recovery of damages if requested by
Landlord, and turn over to Landlord any damages recovered in any proceeding. If
Tenant fails to execute instruments required by Landlord, or undertakes such
other steps as requested, Landlord shall be deemed the duly authorized
irrevocable agent and attorney-in-fact of Tenant to execute such instruments and
undertake such other steps on behalf of Tenant. However, Landlord does not
reserve any damages payable for trade fixtures installed by Tenant at its own
cost which are not part of the realty.
23. ASSIGNMENT AND SUBLETTING. Tenant shall not assign this Lease or any
-------------------------
interest therein, whether voluntarily, by operation of law, or otherwise, and
shall not sublet the Premises or any part thereof except by written permission
and consent of Landlord being first had and obtained. Consent of Landlord to any
such assignment or subletting shall not be unreasonably withheld if: (i) at the
time of such assignment or subletting Tenant is not in default in the
performance and observance of any of the covenants and conditions of this Lease;
(ii) the assignee or subtenant of Tenant shall expressly assume in writing all
of Tenant's obligations hereunder; (iii) Tenant shall provide proof to Landlord
that the assignee or subtenant has a financial condition which is satisfactory
to Landlord and Landlord's lender; (iv) the Premises continue to be used solely
for the purpose set forth in Paragraph 9.1; (v) in Landlord's opinion the
proposed operation of the prospective assignee or subleasee will generate
percentage rental at Lease equal that currently paid by Tenant; (vi) the
assignee or subtenant is, in Landlord's opinion, capable of operating such
business; and (vii) the assignee or subtenant agrees to pay such additional
rent, if any, as Landlord desires to charge. In connection with any such
assignment or sublease, Tenant or the assignee or subtenant of Tenant shall pay
to Landlord any legal and administrative costs incurred by Landlord in approving
such assignment or subletting, not to exceed $1,000.00. Any such assignment or
sublease, even with the approval of Landlord, shall not relieve Tenant from
liability for payment of all forms of rental and other charges herein provided
or from the obligations to keep and be bound by the terms, conditions and
covenants of this Lease. The acceptance of rent from any other person shall not
be deemed to be a waiver of any of the provisions of this Lease or a consent to
the assignment or subletting of the premises. Consent to any assignment or
subletting shall not be deemed a Consent to any future assignment or subletting.
Any merger, consolidation or transfer of corporate shares of Tenant, if Tenant
is a corporation, so as to result in a change in the present voting control of
the Tenant by the person or persons owning a majority of said corporate shares
on the date of this Lease, shall constitute an assignment and be subject to the
conditions of this Paragraph. If Tenant is a general partnership having one or
more corporations as partners, the provisions of the proceeding sentence shall
apply to each of such corporations as if such corporation alone had been the
Tenant hereunder. Moreover, in the event that the rental due and payable by a
sublessee or a combination of the rental payable under such sublease plus any
bonus or other consideration therefore or incident thereto exceeds the rent
payable under this Lease or if with respect to a permitted assignment, permitted
licenses or other transfer by Tenant permitted by Landlord, the consideration
payable to Tenant by the assignee, licensee or other transferee exceeds the
rental payable under this Lease, then Tenant shall be bound and obligated to pay
Landlord all such excess rental and other excess consideration within ten (10)
days following receipt thereof by Tenant from such sublessee, assignee, licensee
or other transferee as the case may be. Finally in the event of any assignment
or subletting it is understood and agreed that all rentals paid to Tenant by an
assignee or sublessee shall be received by Tenant in trust for Landlord, to be
forwarded immediately to Landlord without reduction of any kind, and upon
election by Landlord such rentals shall be paid directly to Landlord.
24. LANDLORD'S PERFORMANCE FOR ACCOUNT OF TENANT. If the Tenant shall
--------------------------------------------
continue in default in the performance of any of the covenants or agreements
herein contained after the time limit for the curing thereof, then Landlord may
perform the same for the account of Tenant. Any amount paid or expense or
liability incurred by Landlord in the performance of any such matter for the
account of Tenant shall be deemed to be additional rent and the same (together
with interest thereon at the rate of eighteen percent (18%) per year from the
date upon which any such expense shall have been incurred) may, at the option of
Landlord, be added to any rent then due, or thereafter falling due hereunder.
25. DEFAULT BY TENANT.
-----------------
25.1. EVENTS OF DEFAULT. The following shall be considered for all purposes
-----------------
to be events of default under and a breach of this Lease: (a) any failure of
Tenant to pay any rent or other amount when due hereunder; (b) any failure by
Tenant to perform or observe any other of the terms, provisions, conditions and
covenants of this
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Lease for more than ten (10) days after written notice of such failure; (c)
Landlord determining that Tenant has submitted any false report required to be
furnished hereunder; (d) if Tenant shall do anything upon or in connection with
the Premises or the construction of any part thereof which directly or
indirectly interferes in any way with or results in a work stoppage in
connection with construction of any part of the Center or any other Tenant's
space; (e) Tenant shall become bankrupt or insolvent, or file or have filed
against it a petition in bankruptcy or for reorganization or arrangement or for
the appointment of a receiver or trustee of all or a portion of Tenant's
property, or Tenant makes an assignment for the benefit of creditors; (f) if
Tenant abandons, vacates or does not do business in the Premises for ten (10)
days; (g) this Lease, Tenant's interest herein or in the Premises, any
improvements thereon, or any property of Tenant is executed upon or attached; or
(h) the Premises comes into the hands of any person other than expressly
permitted under this Lease.
25.2. LANDLORD'S REMEDIES. Upon the occurrence of any event of default
-------------------
specified in this Lease, Landlord, without a grace period, demand or notice (the
same being hereby waived by Tenant, and in addition to all other rights or
remedies Landlord may have for such default, shall have the right to pursue any
one or more of the following remedies:
(a) Thereupon or any time thereafter, change the locks of the
Premises in accordance with Paragraph 25.3:
(b) 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
arrearage in rent, enter upon and take possession of the Premises and expel or
remove Tenant and any other person who may be occupying said Premises or any
part thereof, by force if necessary, without notice or the need to resort to
legal process and without being deemed guilty of trespass or becoming liable for
any loss or damage occasioned thereby; and Tenant agrees to pay to Landlord on
demand the amount of all loss and damages which Landlord may suffer by reason of
such termination, whether through inability to relet the Premises on
satisfactory terms or otherwise, including the loss of rental for the remainder
of the Lease term;
(c) Without terminating this Lease, enter upon and take possession
of the Premises, and expel or remove Tenant and any other person who may be
occupying said Premises, or any part thereof, by force if necessary, without
notice or the need to resort to legal process and without being deemed guilty of
trespass or becoming liable for any loss or damage occasioned thereby. Landlord
may make such alternations and repairs as it deems advisable to relet the
Premises and relet the Premises or any part thereof for such term or terms
(which may extend beyond the term of this Lease) and at such rentals and upon
such other terms and conditions as Landlord in its sole discretion deems
advisable. Upon each such reletting all rentals received by Landlord therefrom
shall be applied first to any indebtedness other than rent due hereunder from
Tenant to Landlord; second, to pay any costs and expenses of reletting including
brokers and attorney's fees and costs of alterations and repairs; third, to rent
due hereunder; and fourth, the residue, if any, shall be held by Landlord and
applied in payment of future rent as it becomes due hereunder. If rentals
received from such reletting during any month are less than that to be paid
during that month by Tenant hereunder, Tenant shall immediately pay any such
deficiency to Landlord. No reentry or taking possession of the Premises by
Landlord shall be construed as an election to terminate this Lease unless a
written notice of such termination is given by Landlord to Tenant.
Notwithstanding any such reletting or reentry or taking possession, without
termination, Landlord may at any time thereafter terminate this Lease for any
prior breach or default. Pursuit of any of the foregoing remedies shall not
preclude pursuit of any of the other remedies herein provided or any other
remedy provided by law, nor shall the pursuit of any remedy herein provided
constitute a forfeiture or waiver of any rent due to Landlord hereunder or of
any damages accruing to Landlord. If Landlord terminates this Lease for any
breach or default by Tenant, in addition to all other remedies provided by law
to which Landlord may be entitled, Landlord may recover from Tenant all damages
incurred by reason of such breach or default, including, without limitation, all
costs of retaking the Premises and the total rent and charges reserved in this
Lease for the remainder of the term of this Lease, all of which shall be
immediately due and payable by Tenant to Landlord.
25.3. LOCKOUT PROVISIONS. Upon the occurrence of an event of default under
------------------
the Lease, Landlord shall be entitled to change the locks of the Premises.
Tenant agrees that entry may be gained for that purpose through use
10
<PAGE>
of a duplicate or master key or any other peaceable means, that same may be
conducted out of the presence of Tenant if Landlord so elects, that no notice
shall be required to be posted by the Landlord on any door to the Premises (or
elsewhere) disclosing the reason for such action or any other information and
that Landlord shall not be obligated to provide a key to the changed lock to
Tenant unless Tenant shall have first:
(1) Brought current all payments due to Landlord under this
Lease; provided, however, that if Landlord has theretofore formally and
permanently repossessed the Premises or has terminated this Lease, then Landlord
shall be under no obligation to provide a key to the new lock(s) to Tenant
regardless of Tenant's payment of past-due rent or other past-due amounts,
damages, or any other payment or amounts of any nature or kind whatsoever.
(2) Fully cured and remedied to Landlord's satisfaction all
other defaults of Tenant under this Lease (but if such defaults are not subject
to cure, such as early abandonment or vacation of the Premises, then Landlord
shall not be obligated to provide the new key to Tenant under any
circumstances); and
(3) Given Landlord security and assurances satisfactory to
Landlord that Tenant intends to and is able to meet and comply with its future
obligations under this Lease, both monetary and non monetary.
Landlord will, upon written request by Tenant, at Landlord's
convenience and upon Tenant's execution and delivery of such waivers and
indemnifications as Landlord may require, at Landlords option either (i) escort
Tenant or its specifically authorized employees or agents to the Premises to
retrieve personal belongings and effects of Tenant's employees (as opposed to
property which is an asset of Tenant or any guarantor), and property of Tenant
that is not subject to the Landlord's liens and security interests described
herein or (ii) obtain from Tenant a list of such property described (i) above,
the arrange for such items to be removed from the Premises and made available to
Tenant at such place and at such time in or about the Premises or the Center as
Landlord may designate; provided, however, that if Landlord elects option (ii),
then Tenant shall be required to pay in cash, in advance to Landlord (a) the
estimated costs that Landlord will incur in removing such property from the
Premises and making same available to Tenant at the stipulated location, and (b)
all moving and/or storage charges theretofore are to be incurred by Landlord
with respect to such property. The provisions of this Paragraph 25.3 are
intended to override and supersede any conflicting provisions of the Texas
Property Code (including, without limitation, Chapter 93 thereof, and any
amendments or successor statutes thereto), and of any other law, to the maximum
extent permitted by applicable law.
26. LANDLORD'S LIEN. To secure the performance of Tenant's obligation
---------------
under this Lease, Tenant, as Debtor, and referred to in this Paragraph as
"Debtor", hereby grants to Landlord, as "Secured Party", a security interest in
and an express contractual lien upon all of Debtors equipment, furniture,
furnishings, appliances, goods, trade fixtures, inventory, chattels, and other
personal property of Debtor which is now on the Premises or which is placed on
the Premises at some later date, and all proceeds from such items. This property
shall not be removed from the Premises without the consent of the secured party
under this Lease, until this Lease has been paid and discharged, and all the
covenants, agreements, and conditions of this lease have been fully complied
with and performed by Debtor. Secured Party is authorized and Debtor hereby
irrevocably and throughout the term of this Lease (and any extensions or
renewals thereof) appoints Secured Party as its attorney-in-fact to prepare and
file financing statements signed only by Secured Party as attorney-in-fact on
behalf of debtor covering the security described above; moreover, Debtor agrees
to sign the same upon request. Notwithstanding the foregoing, secured party is
hereby authorized to file a duplicate original or Xerox copy of this Lease as a
financing statement located as appropriate. Upon default under this Lease by
Debtor, as defined in Paragraph 25.1 hereof, any or all of debtors obligations
to secured party, secured hereby shall, at Secured Party's option, be
immediately due and payable without notice or demand. In addition to all rights
or remedies of Secured Party under this Lease and the law, including the right
to a judicial or non-judicial foreclosure, Secured Party shall have all the
rights and remedies of a secured party under the uniform commercial Code as
enacted in the State of Texas. This security agreement and the security interest
hereby created shall survive the termination of this Lease if such termination
results from debtor's default. The above-described security interest and lien
are in addition to and cumulative of the Landlord's lien provided by the laws of
the State of Texas.
11
<PAGE>
27. WAIVER OF RIGHTS OF REDEMPTION. To the extent permitted by law,
------------------------------
Tenant waives any and all rights of redemption granted by or under any present
or future laws if Tenant is evicted or dispossessed for any cause, or if
Landlord obtains possession of the Premises due to Tenant's default hereunder or
otherwise.
28. DEFAULT BY LANDLORD. Landlord shall in no event be charged with
-------------------
default in any of its obligations hereunder unless and until Landlord shall have
failed to perform such obligations within thirty (30) days (or such additional
time as is reasonably required to correct any such default) after written notice
to Landlord by Tenant, specifically describing such failure.
29. APPLICATION OF PAYMENT RECEIVED FROM TENANT. Landlord shall have
-------------------------------------------
the right to apply any payments made by Tenant to the satisfaction of any debt
or obligation of Tenant to Landlord according to Landlord's sole discretion and
regardless of the instructions of Tenant as to application of any such sum,
whether such instructions be endorsed upon Tenant check or otherwise, unless
otherwise agreed upon by both parties in writing. The acceptance by Landlord of
a check or checks drawn by a party other than Tenant shall not affect Tenant's
liability hereunder nor shall it be deemed an approval of any assignment of this
Lease by Tenant.
30. RESTRICTIVE COVENANT. During the term of this Lease Tenant shall
--------------------
not directly or indirectly engage in any similar or competing business within a
radius of three miles from the outside boundary of the property on which the
Center is located.
31. NOTICES. All notices required to be given hereunder shall be in
-------
writing, and shall be served upon the party to be notified or upon its agent, or
shall be mailed by certified or registered mail, postage prepaid, to the
appropriate address shown below:
LANDLORD:
Raymond Malooly, Trustee
804 Cherry Hill
El Paso, TX 79912
TENANT: Higginbotham, Bob Contact:Roger Patrick
2126 Vanco Dr. Head Accountant
Irving, TX 75061 (972) 544-0481 Fax (972) 544-1984
Either party shall have the right to change its principal
office by notifying the other party of such change in accordance with this
Paragraph.
32. SALE OF PREMISES BY LANDLORD. In the event of any sale of the
----------------------------
Premises by Landlord, Landlord shall be and is hereby entirely freed and
relieved of all liability under any and all of its covenants and obligation
contained in or derived from this Lease arising out of any act, occurrence or
omission occurring after the consummation of such sale; and, the purchaser, at
such sale or any subsequent sale of the Premises shall be deemed, without any
further agreement between the parties or their successors in interest or between
the parties and any such purchaser, to have assumed and agreed to carry out any
and all of the covenants and obligations of the Landlord under this Lease.
Furthermore, in the event of a sale or conveyance by Landlord of the Premises,
or the property of which the Premises are a part, this Lease shall not be
affected by any such sale, and Tenant agrees to attorn to the purchaser thereof.
33. TITLE OF SHOPPING CENTER. Tenant shall use the name of the Center
------------------------
in all Tenant's advertising in connection with Tenant's business at the Premises
and for no other purpose, except with Landlord's prior written consent. Tenant
shall not have or acquire any interest in the name of the Center. Landlord
reserves the right to change the name, title or address of the Center or the
address of the Premises at any time, and Tenant waives all claims for damages
caused by such change.
12
<PAGE>
34. WAIVER. No delay or omission in the exercise of any right or
------
remedy of Landlord on any default of Tenant shall impair such a right or remedy
or be construed as a waiver. The receipt and acceptance by Landlord of
delinquent rent shall not constitute a waiver of any other default; it shall
constitute only a waiver of timely payment for the particular rent payment
involved. No act or conduct of Landlord, including, without limitation, the
acceptance of the keys to the Premises, shall constitute an acceptance of the
surrender of the Premises by Tenant before the expiration of the term. Only a
written notice from Landlord to tenant shall constitute acceptance of the
surrender of the Premises and accomplish a termination of the Lease. Landlords
consent to or approval of any act by Tenant requiring Landlord's consent or
approval shall not be deemed to waiver or render unnecessary Landlords consent
to or approval of any subsequent act by Tenant. Any waiver by Landlord or any
default must be in writing and shall not be a waiver of any other default
concerning the same or any other provision of the Lease.
35. HOLDING OVER AND SUCCESSORS.
---------------------------
35.1. HOLDING OVER. If Tenant holds over or occupies the Premises
------------
beyond the term of the Lease (it being agreed there shall be no such holding
over or occupancy without Landlord's written consent), Tenant shall pay Landlord
for each day of such holding over, a sum equal to twice the monthly rent
applicable hereunder at the expiration of the term, prorated for the number of
days of such holding over. If Tenant holds over with or without Landlord's
written consent, Tenant shall occupy the Premises on a tenancy from month to
month and all other terms and provisions of this Lease shall be applicable to
such Period.
35.2. SUCCESSORS. All rights and liabilities herein given or imposed
----------
upon the respective parties hereto shall bind and inure to the several
respective heirs, successors, administrators, executors and assigns of the
parties and if Tenant is more than one person they shall be bound jointly and
severally by this Lease. No rights, however, shall inure to the benefit of any
assignee of Tenant unless the assignment was approved by Landlord in writing.
36. BROKERS AND FINDERS FEES. Tenant represents and warrants to
------------------------
Landlord that it has not engaged a broker or finder and that no claims for
brokerage commissions or finders' fees will arise in connection with the
execution of this Lease. Tenant agrees to indemnify Landlord against and hold it
harmless from any liability or expenses (including attorneys fees) arising from
any such claim.
37. ENVIRONMENTAL ISSUES.
--------------------
37.1. TENANT'S COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant, at Tenants
-------------------------------------------
expenses, shall comply with all laws, rules, orders, ordinances, directions,
regulations and requirements of federal, state, county and municipal authorities
pertaining to Tenants' use of the Premises and with any recorded covenants,
conditions and restrictions, regardless of when they become effective,
including, without limitation, all applicable federal, state and local laws,
regulations or ordinances pertaining to air and water quality, Hazardous
Materials (as hereinafter defined), waste disposal, air emissions and other
environmental, zoning and land use matters, and with any directive or order of
any public officer or officers, pursuant to law, which shall impose any duty
upon Landlord or Tenant with respect to the use or occupancy of the Premises,
hereinafter referred to as "Environmental Laws."
37.1.1. HAZARDOUS MATERIAL. Tenant shall not cause or permit any
------------------
Hazardous Material to be brought upon, kept or used in or about the Premises by
Tenant, its agents, employees, contractors or invitees without the prior written
consent of Landlord, which Landlord shall not unreasonably withhold, provided
Tenant demonstrates to Landlord's satisfaction that such Hazardous Material is
necessary or useful to Tenant's business and will be used, kept and stored in a
manner that complies with all laws regulating any such Hazardous Material so
brought upon or used or kept in or about the Premises.
37.2. INDEMNIFICATION. In addition to, and without limitation on the
---------------
general indemnity obligations of Tenant under Paragraph 18 of this Lease, Tenant
specifically agrees that it shall indemnify, defend and hold Landlord harmless
from any and all claims, judgments, damages, penalties, fines, costs,
liabilities or losses (including without limitation diminution in value of the
Premises or the Center, damages for the loss or restriction on use of rentable
or usable space or of any amenity of the Premises and sums paid in settlement of
claims, attorneys fees, consultant fees and expert fees) which arise during or
after the Lease term as a result of any breach
13
<PAGE>
by Tenant of its obligations under this Paragraph 37, or any contamination of
the Premises or the Center resulting from the presence of Hazardous Material on
or about the Premises caused or permitted by Tenant. This indemnification of
Landlord or Tenant includes, without limitation, costs incurred in connection
with any investigation of site conditions or any clean-up, remedial, removal or
restoration work required by any federal, state, or local governmental agency or
political subdivision because of Hazardous Material present in the soil or
ground water on or under the Premises or Center. Without limiting the foregoing,
if the presence of any Hazardous Material on the Premises or Center caused or
permitted by Tenant results in any contamination of the Premises or Center.
Tenant shall promptly take all actions at its sole expense as are necessary to
return the Premises and/or Center to the condition existing prior to the
introduction of any such Hazardous Material to the Premises or Center, provided
that Landlord's approval of such actions shall first be obtained, Tenant further
agrees to defend Landlord, its agents, employees, and assigns in any
administrative or judicial proceeding commenced by private individuals or
governmental entities seeking recovery of damages for Personal injury or
property damage, or recovery of civil penalties or fines arising out of
connected with, or relating to any breach by Tenant of its obligations under
this Paragraph 37 or any contamination of the Premises or the Center resulting
from the presence of Hazardous Materials on or about the Premises or the Center
caused or permitted by Tenant. The foregoing indemnity shall survive the
expiration or earlier termination of this Lease.
37.3. HAZARDOUS MATERIAL. As used herein, the term "Hazardous Material"
------------------
means any pollutant, toxic substance, hazardous waste, hazardous material,
hazardous substance, or oil as defined in or pursuant to the Resource
Conservation and Recovery Act, as amended, the Comprehensive Environmental
Response, Compensation and Liability Act, as amended, the federal Clean Water
Act, as amended, the Safe Drinking Water Act, as amended, the Federal Water
Pollution Control Act, as amended, the Texas Water Code, as amended, the Texas
Solid Waste Disposal Act, as amended, or any other federal, state or local
environmental law, regulation, ordinance, rule, or bylaw, whether existing as of
the date hereof, previously enforced or subsequently enacted.
37.4. NOTICE OF CERTAIN EVENTS. Tenant shall immediately advise
------------------------
Landlord in writing of: (a) any governmental or regulatory actions instituted or
threatened under any Environmental Law affecting the Premises; (b) all claims
made or threatened by any third party against Tenant or the Premises relating to
damage, contribution, cost recovery, compensation loss or injury resulting from
any Hazardous Materials; (c) the discovery of any occurrence or condition on any
real property adjoining or in the vicinity of the Premises that could cause the
Premises to be classified in a manner which may support a claim under any
Environmental Law, and (d) the discovery of any occurrence or condition on the
Premises or any real property adjoining or in the vicinity of the Premises which
could subject Tenant or the Premises to any restrictions in ownership,
occupancy, transferability or use of the Premises under any Environmental Law.
Landlord may elect to join and participate in any settlements, remedial actions,
legal proceedings or other actions initiated in connection with any claims under
any Environmental Law and to have its reasonable attorney's fees paid by Tenant.
At its sole cost and expense, Tenant agrees when applicable or upon request of
Landlord to promptly and completely cure and remedy every violation of an
Environmental Law caused by Tenant or existing on or because of the Premises and
to dispose of the same as required by Environmental Laws or by Landlord.
37.5. ENVIRONMENTAL REVIEW. In the event reasonable evidence exists of
--------------------
the occurrence or existence of the violation of any Environmental Law on the
Premises, Landlord (by its officers, employees and agents) at any time and from
time to time may contract for the services of persons (the "Site Reviewers") to
perform environmental site assessments ("Site Assessments") on the Premises for
the purpose of determining whether there exists on the Premises any
environmental condition which could reasonably be expected to result in any
liability cost or expense to the Environmental Laws relating to Hazardous
Materials. The Site Reviewers are hereby authorized to enter upon the Premises
for purposes of conducting Site Assessments. The Site Reviewers are further
authorized to perform both above and below the ground this Lease is held testing
for environmental damage or the presence of Hazardous Materials on the Premises
and the Center and such other tests on the Premises or the Center as may be
necessary to conduct the Site Assessments in the reasonable opinion of the Site
Reviewers. Tenant agrees to supply to the Site Reviewers such historical and
operational information regarding the Premises as may be reasonably requested by
the Site Reviewers to facilitate the Site Assessments and will make available
for meetings with the Site Reviewers appropriate personnel having knowledge of
such matters. The results of Site Assessments shall be furnished to Tenant upon
request. The cost of Performing such Site Assessments shall be paid by Tenant.
14
<PAGE>
38. MISCELLANEOUS.
-------------
38.1. PARTIAL INVALIDITY. If any term, covenant, condition or
------------------
provision or by account of Competent jurisdiction to be invalid, void or
unenforceable, the remainder of the provisions hereof shall remain in full force
and effect and shall in no way be affected, impaired or invalidated thereby.
38.2. CAPTIONS. The various headings and numbers herein and the
--------
grouping of the provisions of this Lease into Paragraphs are for the purpose of
convenience only and shall not be considered a part hereof.
38.3. GENDER: NUMBER. Words of any gender used in this Lease shall be
---------------
held and construed to include any other gender, and words in the singular number
shall be held to include the plural, and vice versa, unless the context
otherwise requires.
38.4. APPLICABLE LAW. This Lease shall be governed by the laws of the
--------------
State of Texas.
38.5. CORPORATION AS TENANT. If a corporation executes this Lease as
---------------------
Tenant, it shall promptly furnish Landlord with certified corporate resolutions
attesting to the authority of the officers executing this Lease on behalf of
such corporation.
38.6. TIME. Time is of the essence of this Lease.
----
38.7. JOINT AND SEVERAL LIABILITY. If Tenant is a partnership or other
---------------------------
business organization, the members of which are subject to personal liability
the liability of each such member shall be deemed to be joint and several.
38.8. MORTGAGEE'S APPROVAL. If any mortgagee of the Center requires
---------------------
any modification of the terms and provisions of this Lease as a condition to
such financing as Landlord may desire, then Landlord shall have the right to
cancel this Lease if Tenant fails or refuses to approve and execute such
modification(s) thirty (30) days after Landlord's request therefore, provided
said request is made at least thirty (30) days prior to delivery of possession.
Upon such cancellation by Landlord, this Lease shall be null and void and
neither party shall have any liability for damages or otherwise to the other by
reason of such cancellation. In no event, however, shall Tenant be required to
agree, and Landlord shall not have any right of cancellation for Tenant's
refusal to agree, to any modification of the provisions of this Lease relating
to: (a) the amount of rent or other charges reserved herein; (b) the size and/or
location of the Premises; or (c) the duration and/or Commencement Date of the
term of the Lease.
38.9. ACCORD AND SATISFACTION. Landlord is entitled to accept, receive
-----------------------
and cash or deposit any payment made by Tenant for any reason or purpose or in
any amount whatsoever, and apply the same at Landlords option to any obligation
of Tenant and the same shall not constitute payment of any amount owed except
that to which Landlord has applied the same. No endorsement or statement on any
check or letter of Tenant shall be deemed an accord and satisfaction or
otherwise recognized for any purpose whatsoever. The acceptance of any such
check or payment shall be without prejudice to Landlord's right to recover any
and all amounts owed by Tenant hereunder and the Landlord's right to pursue any
other available remedy.
38.10. NO PARTNERSHIPS. Landlord does not, in any way or for any
---------------
purpose, become a partner, employer, principal, master, agent or joint venturer
of or with Tenant.
38.11. FORCE MAJEURE. If either party hereto shall be delayed or
-------------
hindered in or prevented from the performance of any act required hereunder by
reason of strikes, labor troubles, inability to procure material, failure of
power, restrictive governmental laws or regulations, riots, insurrection, war or
other reason of a like nature, not the fault of the party delayed in performing
work or doing acts required under this Lease, the period for the performance of
any such act shall be extended for a period equivalent to the period of such
delay. Tenant shall not be excused from any obligations for payment of rent,
Percentage Rent, additional rent or any other payments required by the terms of
this Lease when same are due, and all such amounts shall be paid when due.
15
<PAGE>
38.12. SUBMISSION OF LEASE. Submission of this Lease to Tenant does not
-------------------
constitute an offer to Lease; this Lease shall become effective only upon
execution and delivery thereof by Landlord and Tenant. Upon execution of this
Lease by Tenant, Landlord is granted an irrevocable option for sixty (60) days
to execute this Lease within said period and thereafter return a fully executed
copy to Tenant. The effective date of this Lease shall be the date filled in on
Page 1 hereof by Landlord, which shall be the date of execution by the last of
the parties to execute this Lease.
38.13. ATTORNEY'S FEES AND WAIVER OF JURY TRIAL. In the event the
-----------------------------------------
Landlord finds it necessary to retain an attorney in connection with the default
by Tenant in any of the agreements or covenants contained in this Lease, Tenant
shall pay reasonable attorney's fees to said attorney. In the event of any
litigation regarding this Lease, the losing party shall pay to the prevailing
party reasonable attorney's fees. Landlord and Tenant acknowledges the delay,
expense and uncertainty associated with a jury trial involving a complex
commercial Lease of this nature, and in recognition of these inherent problems
hereby waive their rights to a jury trial and agree that any litigation
regarding this Lease will be tried without a jury.
38.14. EXHIBITS. The exhibits listed below and attached to this Lease
--------
are incorporated herein referenced:
(a) Exhibit "A". Plot and Floor Plan to be Leased by Tenant;
----------
and Legal description of real estate to be developed for the Center.
(b) Exhibit "B". Sign Criteria applicable to Tenant.
----------
38.15. CENTER MODIFICATION. Notwithstanding anything else contained in
-------------------
this Lease, Landlord reserves the right to change or modify and add to or
subtract from the size and dimensions of the Center or any part thereof, the
number, locations and dimensions of hallways, malls, and corridors, the size,
shape and location and arrangement of Common Area, and to design and decorate
any portion of the Center it desires.
38.16. FINANCIAL STATEMENTS. Tenant shall deliver to Landlord, within
--------------------
ninety (90) days after the end of each of Tenant's fiscal years, financial
statements of Tenant, in reasonable detail and certified as complete and correct
by an authorized officer or principal of Tenant or, certified by an independent
certified public accountant if Tenant ordinarily has such statements prepared by
independent accountant or accounting firm.
38.17. ENTIRE AGREEMENT. There are no representations, covenants,
----------------
warranties, promises, agreements, conditions or undertakings, oral or written,
between Landlord and Tenant other than herein set forth. Except as otherwise
provided herein, no subsequent alteration, amendment, changes or addition to
this Lease shall be binding upon Landlord or Tenant unless in writing and signed
by them.
39. ADDITIONAL PROVISIONS:
---------------------
Signs: Lessee shall have the right, subject to Lessor's
specifications and prior written approval, to install such Signs, upon the
exterior front of the Leased Premises only, subject to any applicable laws,
ordinances and other governmental regulations and requirements. A permanent Sign
must be erected within forty-five (45) days of the Commencement Date, by the
Lessee. Lessee shall remove such Signs at the termination of this Lease. Such
installation and removal shall be done in such manner as to avoid injury,
defacement or overloading of the Leased Premises. Lessee shall not be permitted
to individually install a street-side on its behalf.
IN WITNESS WHEREOF, Landlord and Tenant have signed and sealed
this Lease as of the day and year first above written.
Lessor acknowledges the receipt of the following amounts:
First months rent...................... $ 1,400.00
Security Deposit....................... $ 1,400.00
Total.................................. $ 2,800.00
16
<PAGE>
Driver's License #________________________
Soc. Sec. #_______________________________
Fed. Tax Id #_____________________________
Landlord: Raymond Malooly, Trustee
-------------------------------------------
by: /s/ RAYMOND MALOOLY
---------------------------------------
Tenant:
------
signed: /s/ ROBERT HIGGINBOTHAM
-------------------------------------------
by: Robert Higginbotham
-------------------------------------------
17
<PAGE>
EXHIBIT 10.43
AGREEMENT TO EXCHANGE
---------------------
PRODUCTS/SERVICES
-----------------
AGREEMENT CONTRACT NUMBER
069802
THIS AGREEMENT: made and entered into this June 1, 1998 in the state of
California, by and between YOUR OFFICE USA, INC, through its duly appointed and
---------------------
acting officer, hereinafter called YOUR OFFICE USA and ELECTRONIC INTEGRATED
---------------------
SOLUTIONS, INC, hereinafter called EIS, INC,
- ---------------
This Agreement sets forth the terms and conditions governing the exchange of EIS
equipment, training, consulting, and support for use of YOUR OFFICE USA office
space, conferencing facilities, phone, and office furniture in accordance with
the following document which by this reference shall be incorporated herein:
A. Supplemental Terms and Conditions (See Page 2)
The term of this Agreement shall be from June 1, 1998 through December 1, 1999
subject to earlier termination, modification or amendment by mutual agreement.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto, upon
the date first above written.
________________________________________________________________________________
Trustees of YOUR OFFICE USA, INC E.I.S. INC.
================================================================================
BY (Authorized Signature) Date BY (Authorized Signature) Date
/s/ JEFF JOHNSON 6/26/98 /S/ DANIEL CASERZA
- ------------------------------- ------- --------------------------- --------
Printed Name of Person Signing Printed Name of Person Signing
JEFF JOHNSON Daniel Caserza
- ------------------------------- -------------------------------
- --------------------------------------------------------------------------------
I hereby certify upon my own personal knowledge that budgeted funds are
available for the period and purpose of the expenditure above.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
- --------------------------------------------------------------------------------
1
<PAGE>
SUPPLEMENTAL TERMS AND CONDITIONS
EIS RESPONSIBILITIES:
- --------------------
A. Provide to YOUR OFFICE USA (at no charge)
1. (1) Micrographics SoftBoard - Electronic Whiteboard
2. (1) Crestron STS wireless, grayscale control panel
3. (1) Crestron Dual Current Sensor
4. (1) Crestron Infrared Extender
* At the end of this 19 month agreement, YOUR OFFICE USA will own these
components.
B. For the term of 19 months, EIS shall provide functional state of the art,
audio/visual and conferencing equipment for the main conference room located
at the YOUR OFFICE USA world headquarters at 1455 Frazee Road, Suite 100, San
Diego, CA 92108. This equipment is considered to be "Demonstration Equipment"
that is owned and maintained by EIS.
C. EIS shall (at no charge) install, maintain, and train YOUR OFFICE USA end
users on this equipment.
YOUR OFFICE USA RESPONSIBILITIES:
- --------------------------------
A. Provide EIS (at no charge)
1. (1) 180 square foot office space
2. (1) Analog Port
3. (1) Set of office furniture (Desk, Chairs, File Cabinet)
4. Unlimited use of the conference room (Based upon availability)
5. Provide a second phone, desk, and chair when required.
* EIS will not have any equity in these items at the end of this agreement.
EIS will be responsible for all administrative service charges (postage, word
processing, long distance charges, and any ISDN charges) incurred for EIS
Business.
ENTIRE AGREEMENT: This agreement, including the exhibit attached hereto and
- ----------------
made a part hereof, constitutes and expresses the entire agreement and
understanding between the parties. All previous discussions, promises, and
representations and understandings between the parties relative to this
Agreement, if any, have been merged into this document. This Agreement cannot
be transferred or assigned.
EXPIRATION: This Agreement at Expiration will not automatically renew.
- ----------
NOTICES: All notices given hereunder shall be in writing. Notice shall be
- -------
deemed given upon actual receipt which may be evidenced by return receipt to:
YOUR OFFICE USA E.I.S. INC
Jeff Johnson Dan Caserza
Director of Operations Controller
1455 Frazee Road Suite 100 140 East Dana Street
San Diego, CA 92108 Mountain View, CA 94041
2
<PAGE>
SUPPLEMENTAL TERMS AND CONDITIONS
NOTICE:
- ------
Listed in the Supplemental Terms and Conditions section: "EIS Responsibilities"
Section, changes have been made with YOUR OFFICE USA'S approval. Those changes
are as follows:
A. Provide to YOUR OFFICE USA (at no charge)
1. (1) Micrographics Softboard -Electronic Whiteboard
2. (1) AMX wireless, grayscale viewpoint control panel
3. (1) AMX Dual Current Sensor
4. (1) AMX Infrared Extender
* At the end of this 19 month agreement YOUR OFFICE USA will own these
components.
3
<PAGE>
Master Purchase Agreement
-------------------------
Contract Number
AGREEMENT 06981
THIS AGREEMENT: made and entered into this 1st day of June, 1998 in the state
of California, by and between YOUR OFFICE USA, INC, through its duly appointed
---------------------
and acting officer, hereinafter called YOUR OFFICE USA and ELECTRONIC INTEGRATED
---------------------
SOLUTIONS, INC, hereafter called EIS, INC,
- ---------------
WITNESSETH: That EIS, INC for and in consideration of the covenants,
conditions, and agreements and stipulations of YOUR OFFICE USA hereinafter
expressed, does hereby agree to furnish to YOUR OFFICE USA services and
materials as follows:
This Agreement sets forth the terms and conditions governing the purchase of EIS
equipment, training, consulting, and support for use on YOUR OFFICE USA sites in
accordance with these pre-negotiated terms and conditions which shall govern the
ordering, pricing, and delivery of Products covered herein. YOUR OFFICE USA
corporate may purchase Products via E.I.S. INC.
YOUR OFFICE USA franchises shall issue individual orders referencing this Master
Agreement to E.I.S. INC.
YOUR OFFICE USA franchises shall have the right, but not the obligation, to
purchase Products in accordance with the following documents which by this
reference shall be incorporated herein:
A. Supplemental Terms and Conditions
The term of this Agreement shall be from June 1, 1998 through December 31, 1999
subject to earlier termination, modification or amendment by mutual agreement or
amendment by a written 30 day notice by either party.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto, upon
the date first above written.
________________________________________________________________________________
Trustees of YOUR OFFICE USA, INC E.I.S. INC.
================================================================================
BY (Authorized Signature) Date BY (Authorized Signature) Date
/s/ JEFF JOHNSON /s/ DANIEL CASERZA
- ------------------------------- -------- --------------------------- --------
Printed Name of Person Signing Printed Name of Person Signing
Jeff Johnson Daniel Caserza
- ------------------------------- -------------------------------
- --------------------------------------------------------------------------------
I hereby certify upon my own personal knowledge that budgeted funds are
available for the period and purpose of the expenditure above.
- --------------------------------------------------------------------------------
SIGNATURE OF ACCOUNTING OFFICER DATE
- --------------------------------------------------------------------------------
1
<PAGE>
MASTER PURCHASE AGREEMENT
-------------------------
SUPPLEMENTAL TERMS AND CONDITIONS
DISCOUNTS: Upon acceptance of agreement, EIS INC. will reflect on its formal
- ---------
quotation, an agreed upon price and discounts for products and services. This
quotation will be based upon multiple site purchase. In return for the agreed
upon price, YOUR OFFICE USA agrees to purchase all audio/visual products and
services from E.I.S. Inc. for the term of Nineteen months (June 1, 1998 through
December 31, 1999). See Terms and Conditions for invoicing, payment and
shipping arrangements.
MARKUP/ADMINISTRATION FEES: EIS agrees to markup the gross sale by 9% and
- --------------------------
provide in the form a check to YOUR OFFICE USA 8% of that revenue upon receipt
of final payment for that franchise. The additional 1% will belong to EIS for
administrative and processing fees incurred.
GOVERNING LAW: All contracts and purchase orders shall be construed in
- -------------
accordance with, and their performance governed by, the laws of the State of
California. Further, E.I.S. INC. shall comply with any State or federal law
applicable to Contractor's performance under this agreement.
CONFIDENTIALITY: All information disclosed on this document and prepared and
- ---------------
furnished by EIS is proprietary property of EIS and is only for the exclusive
use specifically on this project named here. No transfer of any rights thereto
is intended or effected by delivery hereof and except upon written permission
and agreement of EIS officers. All information on this document may not be
disclosed to others, reproduced, or copied in whole or in part, or used in, or
any portion thereof, any fabrication of and construction of other communications
systems or projects in accordance with section #6737.4 of the Professionals
Engineers Act and legal statutes of the STATE OF CALIFORNIA.
CHANGES IN WRITING: This agreement may not be and shall not be deemed or
- ------------------
construed to have been modified, amended, rescinded, cancelled, or waived in
whole or in part, except by written instruments signed by the parties hereto.
ENTIRE AGREEMENT: This agreement, including the exhibit attached hereto and
- ----------------
made a part hereof, constitutes and expresses the entire agreement and
understanding between the parties. All previous discussions, promises, and
representations and understandings between the parties relative to this
Agreement, if any, have been merged into this document. This Agreement cannot
be transferred or assigned.
CONFLICT RESOLUTION: This Master Purchase Agreement overrides any conflicting
- -------------------
terms in a YOUR OFFICE USA purchase order.
PAYMENT TERMS: The payment terms MUST be EIS, INC standard payment terms. At
- -------------
the request of YOUR OFFICE USA, EIS agrees to the following changes in terms:
50% Deposit, 50 % upon Job completion BASED UPON THE INDIVIDUAL FRANCHISE AND/OR
------------------------------------------
LEASING COMPANIES CREDIT APPROVAL.
- ----------------------------------
SHIPMENTS: Shipments to YOUR OFFICE USA are subject to credit approval.
- ---------
FINAL POINT OF SALE: Any product/service EIS, INC sells to YOUR OFFICE USA, is
- -------------------
for their use as an end user, and is not intended for resale.
LABOR: Labor charges are subject to site inspection and site location.
- -----
Additional labor charges may apply. Additional labor charges must be pre-
approved by YOUR OFFICE USA.
2
<PAGE>
Master Purchase Agreement
-------------------------
VIDEOCONFERENCING: Vdieoconferencing products/services are subject to ISDN
- -----------------
availability at the installation site.
ELECTRICAL PROJECTION SCREEN: Electrical screen cabling and installation to be
- ----------------------------
provided by the franchise electrical contractor. EIS will provide
specifications on location and power requirements. Additional expenses incurred
by the contractor for Electrical Projection Screen installation will be the
responsibility of EIS. Any additional expenses must be pre authorized by EIS.
REPORTING: E.I.S. INC. shall provide YOUR OFFICE USA, Office of the Director of
- ---------
Operations, with quarterly reports showing total sales activity by product
category for each ordering entity and system-wide aggregate activity. Prompt
and accurate reporting is an essential part of this agreement.
EXPIRATION: This Agreement at Expiration will not automatically renew. Prices
- ----------
for products/services that are unfilled at expiration will be based upon when
the order was received.
NOTICES: All notices given hereunder shall be in writing. Notice shall be
- -------
deemed given upon actual receipt which may be evidenced by return receipt to:
YOUR OFFICE USA E.I.S. INC
Jeff Johnson Dan Caserza
Director of Operations Controller
1455 Frazee Road Suite 100 140 East Dana Street
San Diego, CA 92108 Mountain View, CA 94041
3
<PAGE>
EXHIBIT 10.44
LOAN AND SECURITY AGREEMENT
Dated as of September 3, 1998
between
SANWA BUSINESS CREDIT CORPORATION
and
ELECTRONIC INTEGRATED SOLUTIONS
EDUCATIONAL INDUSTRIAL SALES, INCORPORATED,
ALFORD MEDIA SALES, INC.
and
B. HIGGINBOTHAM ENTERPRISES, INC.
<PAGE>
INDEX
-----
SECTION TITLE PAGE
1. DEFINITIONS AND ACCOUNTING TERMS 1
1.1 Definitions 1
1.2 Accounting Terms 8
1.3 Other Terms 8
2. LOANS: GENERAL TERMS 8
2.1 Total Facility 8
2.2 Advances to Constitute One Loan; Loan Purpose 11
2.3 Interest Rate 11
2.4 Change of Circumstances 12
2.5 Funding Loss Indemnification 13
2.6 Term of Agreement; Prepayment; Liquidated
Damages 14
2.7 Credit Availability Charge 15
2.8 Audit Fee 15
2.9 Loan Fee 15
2.10 Unused Line Fee 15
2.11 Commitment Fee 15
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY 15
3.1 Eligible Accounts 15
3.2 Eligible Inventory 17
4. PAYMENTS 18
4.1 Loan Account; Method of Making Payments 18
4.2 Payment Terms 18
4.3 Collection of Accounts and Payments 18
4.4 Application of Payments and Collections 19
4.5 Statements 19
5. COLLATERAL: GENERAL TERMS 19
5.1 Security Interest 19
5.2 Disclosure of Security Interest 20
5.3 Special Collateral 20
5.4 Further Assurances 20
5.5 Inspection 20
5.6 Perfection and Priority; Location of Collateral 20
5.7 Lender's Payment of Claims Asserted Against
Collateral 21
6. COLLATERAL: ACCOUNTS 21
6.1 Verification of Accounts 21
6.2 Assignments, Records and Daily Collateral Report 21
6.3 Notice Regarding Disputed Accounts 21
6.4 Sale or Encumbrance of Accounts 21
<PAGE>
7. COLLATERAL: INVENTORY 21
7.1 Sale of Inventory 21
7.2 Safekeeping of Inventory; Inventory Covenants 21
7.3 Records and Schedules of Inventory 22
7.4 Returned and Repossessed Inventory 22
7.5 Evidence of Ownership of Inventory 22
8. COLLATERAL: EQUIPMENT 22
8.1 Maintenance of the Equipment 22
8.2 Evidence of Ownership of Equipment 22
8.3 Proceeds of the Equipment 22
9. WARRANTIES AND REPRESENTATIONS 23
9.1 General Warranties and Representations 23
9.2 Account Warranties and Representations 26
9.3 Inventory Warranties and Representations 28
9.4 Automatic Warranty and Representations
and Reaffirmation of Warranties and
Representations 28
9.5 Survival of Warranties and Representations 28
10. COVENANTS AND CONTINUING AGREEMENTS 29
10.1 Affirmative Covenants 29
10.2 Negative Covenants 32
10.3 Contesting Charges 34
10.4 Payment of Charges 34
10.5 Insurance; Payment of Premiums 34
10.6 Survival of Obligations Upon Termination
of Agreement 35
10.7 Environmental Indemnity 35
10.8 Change of Control 35
10.9 Revisions or Updates 36
11. CONDITIONS PRECEDENT TO CLOSING 36
12. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT 38
12.1 Default 38
12.2 Acceleration of the Liabilities 40
12.3 Advances During Cure Period 40
12.4 Default Rate 40
12.5 Remedies 40
12.6 Notice 41
13. MISCELLANEOUS 41
13.1 Appointment of Lender as the Borrowers' Lawful
Attorney-In-Fact 41
13.2 Modification of Agreement; Assignment or Sale
of Interest 42
13.3 Attorneys' Fees and Expenses; Lender's
Out-of-Pocket Expenses 42
13.4 Waiver by Lender 43
13.5 Severability 43
13.6 Parties; Entire Agreement 43
13.7 Conflict of Terms 43
<PAGE>
13.8 Waiver by Borrower 44
13.9 Governing Law, Venue 44
13.10 Notice 44
13.11 Section Titles, Etc. 45
13.12 Course of Dealing 45
13.13 Setoff 45
13.14 Nonliability of Lender 46
13.15 Time of the Essence 46
13.16 Indemnification 46
13.17 Suretyship Waivers and Consents 47
13.18 WAIVER OF RIGHT TO TRIAL BY JURY 48
Schedules and Exhibits
- ----------------------
Exhibit "A" - Financials
Exhibit "B" - Notice of Borrowing/Conversion
Exhibit "C" - Borrowers' Locations
Exhibit "D" - Borrowers' Names or Tradestyles
Exhibit "E" - Litigation, Other Indebtedness, Guaranties, Contracts,
Judgments, Labor Disputes
Exhibit "F" - Liens
Exhibit "G" - Borrowers' Affiliates
Exhibit "H" - Documents
Exhibit "I" - Loan Account Statement
Schedule 10.2 - Deposit Accounts
<PAGE>
LOAN AND SECURITY AGREEMENT
---------------------------
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") is made as of the
3rd day of September, 1998, by and between Sanwa Business Credit Corporation, a
Delaware corporation ("Lender"), and Electronic Integrated Solutions, a
California corporation (the "Parent"), including its Digital Network division
(the "Digital Division"), Educational Industrial Sales Incorporated, a
California corporation ("EISI"), Alford Media Sales, Inc., a Texas corporation
("Alford"), and B. Higginbotham Enterprises, Inc., a Texas corporation
("Higginbothan") (the Parent, EISI, Alford and Higginbotham hereinafter are
referred to individually as a "Borrower" and collectively as the "Borrowers").
W I T N E S S E T H:
WHEREAS, the Borrowers desire to borrow funds from Lender, and Lender
is willing to make certain loans to the Borrowers on a joint and several
liability basis upon the terms and conditions set forth herein;
NOW THEREFORE, in consideration of the terms and conditions contained
herein, and of any loans or other financial accommodations heretofore, now or
hereafter made to, or for the benefit of, the Borrowers by Lender, the parties
hereto agree as follows:
1. DEFINITIONS AND ACCOUNTING TERMS
--------------------------------
1.1 Definitions. When used herein, the following terms shall have the
-----------
following meanings:
"Account Debtor" shall mean any Person who is or who may become
obligated to any of the Borrowers under, with respect to, or on account of
an Account.
"Accounts" shall mean and include all of the Borrowers' presently
existing and hereafter arising or acquired accounts, receivables and rights
of the Borrowers to payment for goods sold or leased or for services
rendered, including, without limitation, those which are not evidenced by
instruments or chattel paper, and whether or not they have been earned by
performance; proceeds of any letters of credit on which any of the
Borrowers is named as beneficiary; contract rights; chattel paper;
instruments; documents; insurance proceeds; and all such obligations
whatsoever owing to any of the Borrowers, together with all instruments and
all documents of title representing any of the foregoing, all rights in any
merchandise or goods which any of the same may represent, and all right,
title, security and guaranties with respect to each of the foregoing,
including, without limitation, any right of stoppage in transit.
"Affiliate" shall mean any and all Subsidiaries and any and all
Persons which, in the reasonable judgment of Lender, directly or
indirectly, own or control, are controlled by or are under common control
with any of the Borrowers, and any and all Persons from whom, in the
reasonable judgment of Lender, any of the Borrowers has not or is not
likely to exhibit independence of decision or action. For the purpose of
<PAGE>
this definition, "control" means the possession, directly or indirectly, of
the power to direct or cause the direction of management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"Ancillary Agreements" shall mean all Security Documents and all
agreements, instruments and documents, including without limitation, notes,
guaranties, mortgages, deeds of trust, chattel mortgages, pledges, powers
of attorney, consents, assignments, contracts, notices, security
agreements, leases, financing statements, subordination agreements, trust
account agreements and all other written matter whether heretofore, now, or
hereafter executed by or on behalf of the Borrowers or any other Person or
delivered to Lender or any Participant with respect to this Agreement.
"Borrowing" shall mean a borrowing by the Borrowers consisting of a
Loan made by Lender on the same date and of the same Type pursuant to a
single Notice of Borrowing/Conversion.
"Business Day" shall mean any day in which (a) commercial banks are
not authorized to close or not required to close in Los Angeles, California
or New York, New York and (b) if such Business Day is related to a Loan
which bears or is to bear interest in a Euro-Rate, dealings in dollar
deposits are carried out in the London interbank market.
"Charges" shall mean all national, federal, state, county, city,
municipal, or other governmental taxes, levies, assessments, charges,
liens, claims or encumbrances (including, without limitation, those of the
Pension Benefit Guaranty Corporation) upon or relating to (i) the
Collateral, (ii) the Liabilities, (iii) the Borrowers' employees, payroll,
income or gross receipts, (iv) the Borrowers' ownership or use of any of
their assets, or (v) any other aspect of the Borrowers' respective
businesses.
"Closing Date" shall mean the date the initial Loans are made.
"Collateral" shall mean all of the property and interests in property
described in Section 5.1 and all other property and interests in property
-----------
which shall, from time to time, secure any part of the Liabilities.
"Computers" shall mean all of the Borrowers' right, title and
interest, now owned and hereafter acquired, in computer equipment and
hardware, including, without limitation, all central processing units,
terminals, disk drives, tape drives, electronic memory units, printers,
keyboards, screens, peripherals (and other input/output devices), modems
and other communication controllers, and any and all accessions, parts and
appurtenances thereto, substitutions therefore and replacements thereof,
all intellectual property used by the Borrowers, at any time, in the
operation of such computer equipment hardware, including, without
limitation, all software, all of the Borrowers' rights under any licenses
related to the Borrowers' software or hardware, and all leases pursuant to
which the Borrowers lease any computer equipment, hardware or software.
"Credit Availability Charge" shall have the meaning ascribed to it in
Section 2.7
-----------
<PAGE>
"Current Assets" shall mean the aggregate net book value of the
current assets of the Borrowers on a consolidated basis as determined in
accordance with generally accepted accounting principles, excluding any
Accounts owing to any of the Borrowers from any Affiliate.
"Current Liabilities" shall mean the aggregate amount of all
liabilities of the Borrowers on a consolidated basis which would be
classified as current liabilities under generally accepted accounting
principles.
"Daily Collateral Report" shall mean a borrowing base report delivered
to Lender by the Borrowers, as required by Section 6.2, consisting of sales
-----------
and collections of all of the Accounts existing as of the date of such
Daily Collateral Report, specifying for each Account Debtor obligated on
the Accounts, such Account Debtor's name, address and outstanding balance
and the aging of such outstanding balance; inventory valuations as set
forth in the most recent Inventory Report, and such other information as
may, from time to time, be required by Lender.
"Default" shall mean the occurrence or existence of any one or more of
the events described in Section 12.1.
------------
"Default Rate" shall have the meaning ascribed to it in Section 12.4.
------------
"Depository Bank" shall mean the banking institution which is referred
to in Section 4.3.
-----------
"Eligible Accounts" shall mean those Accounts included in an Daily
Collateral Report which, as of the date of such Daily Collateral Report and
at all times thereafter, (i) satisfy the requirements for eligibility as
described in Section 3.1, (ii) do not violate the covenants,
-----------
representations and warranties and other provisions of this Agreement and
(iii) Lender, in its reasonable credit judgment, deems to be Eligible
Accounts.
"Eligible Demonstration Inventory" shall mean Eligible Inventory which
SBCC determines is being utilized by the Borrowers for demonstration
purposes.
"Eligible Inventory" shall mean those items of Inventory included in
an Inventory Report which, as of the date of such Inventory Report and at
all times thereafter, (i) satisfy the requirements for eligibility as
described in Section 3.2, (ii) do not violate the covenants,
-----------
representations and warranties and other provisions of this Agreement and
(iii) Lender, in its reasonable credit judgment, deems to be Eligible
Inventory.
"Environmental Laws" shall mean the Resource Conservation and Recovery
Act of 1987, the Comprehensive Environmental Response, Compensation and
Liability Act, any so-called "Superfund" or "Superlien" law, the Toxic
Substances Control Act, or any other federal state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to,
or imposing liability or standards of conduct concerning, any hazardous,
toxic or dangerous waste, substance or material, as now
<PAGE>
or at any time hereafter in effect.
"Equipment" shall mean all of the Borrowers' now owned and hereafter
acquired equipment and fixtures, including without limitation, furniture,
machinery, vehicles and trade fixtures, together with any and all
accessories, parts and appurtenances thereto, substitutions therefor and
replacements thereof.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"Euro-Rate" shall mean with respect to any Interest Period for the
Euro-Rate Loans or Euro-Rate Portions, the rate per annum (which shall be
the same as of each day of such Interest Period) which is ordinarily
reported on page 3750 of the Telerate Matrix (in Dollars) for a principal
amount substantially equal to the amount of such Euro-Rate Portion and
having a maturity comparable to the Interest Period proposed to be
applicable to such Euro-Rate Portion, as quoted to the Borrowers by Lender;
provided, however, that if, for whatever reason, Lender shall be unable to
ascertain the Euro-Rate pursuant to the preceding provisions, the Euro-Rate
in such circumstances shall be the rate per annum determined by Lender by
dividing (the resulting quotient to be rounded upward to the nearest 1/100
of one percent) (a) the rate of interest (which shall be the same as of
each day of such Interest Period) per annum at which deposits in Dollars
are offered Lender or its Affiliates in the London interbank market at
approximately 11:00 a.m. (London time) two Business Days before the first
day of such Interest Period in an amount substantially equal to the amount
of such Euro-Rate Portion and having maturities comparable to such Interest
Period by (b) a number equal to 1.0 minus the aggregate (but without
duplication) of the rates (expressed as a decimal fraction of reserve
requirements in effect on the day which is two (2) Business Days prior to
the beginning of such Interest Period (including, without limitation,
basic, supplementary, marginal and emergency reserves under any regulations
of the Board of Governors of the Federal Reserve System or other
governmental authority having jurisdiction with respect thereto, as now and
from time to time in effect) for Eurocurrency funding (currently referred
to as "Eurocurrency liabilities" in regulation D of such Board) which are
required to be maintained by Lender; in every event such Euro-Rate to be
rounded upward to the next whole multiple of one-sixteenth of one percent
(.0625%).
"Euro-Rate Loan" shall mean any Loan or Portion which bears interest
at a rate per annum based upon the Euro-Rate.
"Euro-Rate Portion" shall mean with respect to the Loans, the Portion
of the Loans which bears interest at a rate determined by reference to the
Euro-Rate as provided in Section 2.1(c).
--------------
"Event of Default" shall mean any event or condition which, with the
passage of time or the giving of notice or both, would constitute a
Default.
"Financials" shall mean those financial statements of the Borrowers
attached hereto as Exhibit "A" or delivered to Lender pursuant to Section
----------- -------
10.1(e).
-------
<PAGE>
"GAAP" shall mean generally accepted accounting principles,
consistently applied.
"General Intangibles" shall mean all choses in action, general
intangibles, causes of action and all other intangible personal property of
the Borrowers of every kind and nature (other than Accounts) now owned or
hereafter acquired by the Borrowers. Without in any way limiting the
generality of the foregoing, General Intangibles specifically include,
without limitation, all corporate or other business records, security
deposits, prepaid deposits and expenses, inventions, designs, patents,
patent applications, trademarks, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, tax refunds and tax refund
claims, all rights and claims against carriers and shippers, all rights to
indemnification, and all letters of credit, guarantee claims, security
interests or other security held by or granted to any of the Borrowers to
secure payment by an Account Debtor of any Accounts.
"Guarantor" shall mean any Person, other than any of the Borrowers,
who is liable for the payment of any of the Liabilities, either primarily
or secondarily (as a guarantor or an accommodation party) or one who
hypothecates property as security for the payment of any of the
Liabilities, including Donald J. Esters, an individual.
"Hazardous Materials" shall mean any hazardous substance or pollutant
or contaminant defined as such in (or for the purposes of) any
Environmental Law and shall include, but not be limited to, petroleum, any
radioactive material, and asbestos in any form or condition.
"Indebtedness" shall mean all of the Borrowers' liabilities,
obligations and indebtedness to any Person of any and every kind and
nature, whether primary, secondary, direct, indirect, absolute, contingent,
fixed, or otherwise, heretofore, now or hereafter owing, due or payable,
however evidenced, created, incurred, acquired or owing and however
arising, whether under written or oral agreement, by operation of law, or
otherwise. Without in any way limiting the generality of the foregoing,
Indebtedness specifically includes (i) the Liabilities, (ii) all
obligations or liabilities of any Person that are secured by any lien,
claim, encumbrance or security interest upon property owned by any of the
Borrowers, even though such Borrower has not assumed or become liable for
the payment thereof, (iii) all obligations or liabilities created or
arising under any lease of real or personal property, or conditional sale
or other title retention agreement with respect to property used or
acquired by any of the Borrowers, even though the rights and remedies of
the lessor, seller or lender thereunder are limited to repossession of such
property, (iv) all unfunded pension fund obligations and liabilities and
(v) deferred taxes.
"Initial Term" shall have the meaning ascribed to it in Section 2.6.
-----------
"Interest Period" shall mean with respect to any Euro-Rate Loan or
Euro-Rate Portion, the time period selected by the Borrowers pursuant to
Section 2.1(e) which commences on the first day of such Loan or the
--------------
effective date of any conversion and ends on the last day of such time
period, and thereafter, each subsequent time period selected by the
Borrowers pursuant to Section 2.1(e) which commences on the last day of the
--------------
immediately preceding time period and ends on the last day of that
<PAGE>
time period.
"Inventory" shall mean all goods, inventory, merchandise and other
personal property, including, without limitation, goods in transit,
wherever located and whether now owned or hereafter acquired by the
Borrowers which is or may at any time be held for sale or lease, furnished
under any contract of service or held as raw materials, work in process,
supplies or materials used or consumed in the business of any of the
Borrowers or are or might be used in connection with the manufacturing,
shipping, advertising or selling or finishing of such goods, merchandise
and other personal property and all documents of title or documents
representing the same, and all such property the sale or other disposition
of which has given rise to Accounts and which has been returned to or
repossessed or stopped in transit by any of the Borrowers.
"Inventory Report" shall mean a report delivered to Lender by the
Borrowers, as required by Section 7.3, consisting of a detailed listing of
-----------
all Inventory as of the date of such Inventory Report describing the kind,
type, quality, quantity, location and the lower of cost (computed on the
basis of a first-in, first-out cost flow assumption) or market value of
such Inventory and such other information as may, from time to time be
required by Lender.
"Leverage Ratio" shall mean as of the last day of any fiscal quarter
of the Borrowers the ratio of (i) the Borrowers' total consolidated
indebtedness to (ii) Tangible Net Worth.
"Liabilities" shall mean all of the Borrowers' liabilities,
obligations and indebtedness to Lender of any and every kind and nature,
whether primary, secondary, direct, absolute, contingent, fixed, or
otherwise (including, without limitation, the Loans, interest, charges,
expenses, attorneys' fees and other sums chargeable to the Borrowers by
Lender, future advances made to or for the benefit of the Borrowers and
obligations of performance), whether arising under this Agreement, under
any other Ancillary Agreement or acquired by Lender from any other source,
whether heretofore, now or hereafter owing, arising, due, or payable from
the Borrowers to Lender, however evidenced, created, incurred, acquired or
owing and however arising, whether under written or oral agreement,
operation of law, or otherwise.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
security interest, encumbrance, lien or charge whether arising by operation
of law or otherwise.
"Loan" or "Loans" shall mean any or all of the advance or advances to
be made by Lender pursuant to this Agreement.
"Loan Account" shall have the meaning ascribed to it in Section 4.1.
-----------
"Net Income" shall mean net income, on a consolidated basis, for such
period of the Borrowers determined in accordance with GAAP (excluding any
extraordinary items, including, without limitation, income or expenses
related to foreign exchange,
<PAGE>
swaps or other derivative transactions and changes in GAAP).
"Participant" shall mean any Person, now or at any time or times
hereafter, participating with Lender in the loans or other financial
accommodations made by Lender to the Borrowers pursuant to this Agreement
and the Ancillary Agreements.
"Permitted Liens" shall mean the following:
(i) Any Liens existing on the Closing Date and disclosed in
Exhibit "F" or arising under this Agreement or the other Ancillary
-----------
Documents;
(ii) Liens for taxes, fees, assessments or other
governmental charges or levies on real property, either not delinquent
or being contested in good faith by appropriate proceedings;
(iii) Liens upon or in any Equipment acquired or held by any
of the Borrowers to secure the purchase price of such Equipment or
indebtedness incurred solely for the purpose of financing the
acquisition of such Equipment in the original principal amount not to
exceed Seven Hundred fifty Thousand Dollars ($750,000).
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party, or government (whether national,
federal, state, county, city, municipal or otherwise, including, without
limitation, any instrumentality, division, agency, body or department
thereof).
"Portion" shall mean an amount of any Loan which is less than the
entire outstanding principal balance of such Loan.
"Prepayment Fee" shall have the meaning ascribed to it in Section 2.6.
-----------
"Prime Rate" shall mean the highest "Prime Rate" of interest quoted
from time to time by The Wall Street Journal, provided, however, that in
-----------------------
the event that The Wall Street Journal ceases quoting a "Prime Rate",
-----------------------
"Prime Rate" shall mean the per annum rate of interest quoted as the "Bank
Prime Loan" rate for the most recent weekday for which such rate is quoted
in Statistical Release H.15(519) published from time to time by the Board
of Governors of the Federal Reserve System, provided further that in the
event that both of the aforesaid indices cease to be published or to quote
rates of the aforesaid types, the "Prime Rate" shall be determined from a
comparable index chosen by Lender in good faith. The Prime Rate shall
change effective on the date of the publication of any change in the
applicable index by which such "Prime Rate" is determined.
"Prime Rate Loan" shall mean any Loan or any Portion of any Loan which
bears interest at a rate per annum based upon the Prime Rate.
"Renewal Term" shall have the meaning ascribed to it in Section 2.6.
-----------
"Reportable Event" shall have the meaning ascribed to it in Section
-------
9.1(n).
------
<PAGE>
"Security Documents" shall mean this Agreement and all other
agreements, security agreements, instruments, documents, financing
statements, warehouse receipts, bills of lading, notices of assignment,
schedules, assignments, deeds of trust, Ancillary Agreements, mortgages and
other written matter necessary or requested by Lender to create, perfect
and maintain perfected, Lender's security interest in the Collateral.
"Subsidiary" shall mean, as of any date of determination thereof and
with respect to any Person, any corporation, partnership or joint venture,
whether now existing or hereafter organized or acquired: (a) in the case
of a corporation, of which a majority of the securities having ordinary
voting power for the election of directors or other governing body (other
than securities having such power only by reason of the happening of a
contingency) are at the time owned by such Person and/or one or more
Subsidiaries of such Person, or (b) in the case of a partnership or joint
venture, of which such Person or a Subsidiary of such Person is a general
partner or joint venturer or of which a majority of the partnership or
other ownership interests are at the time owned by such Person and/or one
or more of its Subsidiaries.
"Special Collateral" shall have the meaning ascribed to it in Section
-------
5.3.
---
"Stock" shall mean all shares, options, interests, participations or
other equivalents (however designated) of or in a corporation, whether
voting or non-voting, including, without limitation, common stock,
warrants, preferred stock, convertible debentures and all agreements,
instruments and documents convertible, in whole or in part, into any one or
more or all of the foregoing.
"Tangible Net Worth" shall mean, as of any particular date, the
difference between (a) the Borrowers' consolidated total assets as they
would normally be shown on the balance sheet of the Borrowers, but
excluding therefrom the aggregate amount of all of the Borrowers'
intangible assets, including but not limited to all values attributable to
goodwill, patents, copyrights, trademarks, trade names, licenses, prepaid
deposits and expenses, leasehold improvements net of depreciation, other
General Intangibles and Accounts due from Affiliates, and other intangible
assets as reasonably determined by Lender and (b) the Borrowers'
consolidated total liabilities and deferred charges (excluding subordinated
debt) as they would usually be shown on such balance sheet, including as
liabilities all guarantees of the indebtedness of Affiliates or any other
Person.
"Total Facility" shall have the meaning ascribed to it in Section 2.1.
-----------
"Type" shall mean, with respect to any Loan, Borrowing or Portion at
any time, the classification of such Loan, Borrowing or Portion by the type
of interest rate it then bears, whether an interest rate based on the Prime
Rate or the Euro-Rate.
1.2 Accounting Terms. All accounting terms used in this Agreement which
----------------
are not specifically defined shall have the respective meanings customarily
given them in accordance with generally accepted accounting principles,
consistently applied.
<PAGE>
1.3 Other Terms. All other terms contained in this Agreement which are
-----------
not otherwise defined in this Agreement shall, unless the context indicates
otherwise, have the respective meanings provided for by the Uniform Commercial
Code of the State of California to the extent the same are used or defined
therein.
2. LOANS: GENERAL TERMS
--------------------
2.1 Total Facility.
--------------
(a) Revolving Loans. Lender agrees to make available for the
---------------
Borrowers' use from time to time during the term of this Agreement, upon
the Borrowers' request therefor, certain Loans in an aggregate principal
amount outstanding not to exceed Fifteen Million Dollars ($15,000,000) (the
"Total Facility"). The Total Facility shall be subject to all of the terms
and conditions of this Agreement and shall consist of revolving advances
based upon the Eligible Accounts and Eligible Inventory of the Borrowers in
accordance with the following applicable advance rates and dollar
limitations:
An amount equal to the lesser of:
---------
(i) the sum of
(A) eighty-five percent (85%) of the Eligible
Accounts of the Borrowers, except for the Eligible Accounts
of the Digital Division, plus seventy-five percent (75%) of
the Eligible Accounts of the Digital Division (subject, in
--------
each case, to adjustment based upon dilution as detailed
below) and
(B) the sum of (1) the lesser of (aa) thirty-five
------
percent (35%) of Eligible Demonstration Inventory and (bb)
One Million Five Hundred Thousand Dollars ($1,500,000) plus
----
(2) the lesser of (aa) fifty percent (50%) of all Eligible
------
Inventory other than Eligible Demonstration Inventory and
(bb) Five Million Dollars ($5,000,000) less the aggregate
----
outstanding amount of Loans made on the basis of Eligible
Demonstration Inventory, or
(ii) Fifteen Million Dollars ($15,000,000).
Lender may, in the exercise of its reasonable discretion, at any
time and from time to time, increase or decrease the advance percentages to
be applied to Eligible Accounts and Eligible Inventory which are contained
in this Section. In the event such percentages are decreased, such
decrease shall become effective upon not less than ten (10) Business Days
notice to Borrower, unless an Event of Default has occurred and is
continuing or a material, negative audit finding has been made in which
case such decrease shall be effective immediately, for the purpose of
calculating the amount which Lender may be willing to advance, or allow to
remain outstanding, against Eligible Accounts and Eligible Inventory.
<PAGE>
Without limiting the generality of the preceding paragraph,
Lender may adjust the advance rate for the Eligible Accounts of the
Borrowers based upon the historical dilution of such Eligible Accounts in
accordance with the matrix set forth below:
Dilution Advance Rate
-------- ------------
Less than 5% 85%
Greater than 5% but less than
or equal to 10% 80%
Greater than 10% 75%
Based upon Lender's understanding of the historical dilution
rates of the Borrowers' Accounts, the initial advance rate for the Eligible
Accounts of the Borrowers, except for the Digital Division, will be eighty-
five percent (85%) and the initial advance rate for the Digital Division
will be seventy-five percent (75%). Lender will permit increases in the
advance rate for the Eligible Accounts of the Digital Division (up to a
maximum limit of 85%) provided that Lender's auditors verify that the
dilution rate of the Accounts of the Digital Division during the preceding
six-month period warrants such increase pursuant to the matrix set forth
above.
The Borrowers may permanently reduce the Total Facility (to an
amount mutually acceptable to the Borrowers and Lender) without the
obligation to pay any amendment fee (other than attorneys' fees and
expenses incurred by Lender in preparing any required amendment documents)
or Prepayment Fee by paying down the Loans with the proceeds of an initial
public offering or a private placement of equity securities or subordinated
debt.
(b) Notice of Borrowing. The Borrowers shall request each Loan
-------------------
by delivering to Lender an irrevocable written notice in the form of
Exhibit "B", appropriately completed (a "Notice of Borrowing/Conversion"),
-----------
which specifies, among other things:
(i) The principal amount of the requested Loan Borrowing;
(ii) Whether the requested Loan(s) are to consist of Prime
Rate Loans or Euro Rate Loans; each Euro-Rate Loan shall be in a
minimum amount of $500,000 or an integral multiple of $100,000 in
excess thereof;
(iii) If the requested Loan(s) are to be Euro-Rate Loan(s),
the Interest Period selected by the Borrowers for such Loan(s) in
accordance with Section 2.1(e); and
--------------
(iv) The date of the requested Loan, which shall be a
Business Day.
The Borrowers shall give each Notice of Borrowing/Conversion to Lender at
least three (3) Business Days before the date of the requested Loan in the
case of a Loan which will be a Euro-Rate Loan and before 10:00 a.m. Pacific
time on the date of the requested Loan in the case of a Loan which will be
a Prime Rate Loan. Each Notice of Borrowing/Conversion shall be delivered
to Lender at the office or telecopy number
<PAGE>
specified in Section 13.10; provided, however, that the Borrowers shall
-------------
promptly deliver to Lender the original of any Notice of
Borrowing/Conversion initially delivered by telecopy. Notwithstanding the
above, the Borrowers shall not have outstanding more than three (3) Euro-
Rate Loans at any one time during the Initial Term or any Renewal Term of
this Agreement.
(c) Interest Rates. The Borrowers shall pay interest on the
--------------
outstanding principal balance of each Loan from the date of such Loan until
such Loan is repaid, at one of the following rates per annum:
(i) During such periods as such Loan is a Prime Rate Loan,
at a rate per annum equal to the Prime Rate plus one-half percent
----
(0.5%), such rate to change from time to time as the Prime Rate shall
change; and
(ii) During such periods as such Loan is a Euro-Rate Loan,
at a rate per annum equal at all times during each Interest Period for
such Euro-Rate Loan to the Euro-Rate for such Interest Period plus
----
three and one-quarter percent (3.25%).
All outstanding Loans shall bear interest at one, and only one, of the
above rates. All computations of interest on Loans shall be based on
a year of 360 days for actual days elapsed.
(d) Conversion of Interest Rate on Loans. The Borrowers may
------------------------------------
convert outstanding Prime Rate Loans into Euro-Rate Loans and outstanding
Euro-Rate Loans into Prime Rate Loans; provided, however, that any
conversion of Euro-Rate Loans into Prime Rate Loans shall be made on, and
only on, the last day of an Interest Period for such Euro-Rate Loans. The
Borrowers shall request such a conversion by delivering to Lender an
appropriately completed Notice of Borrowing/Conversion, which specifies,
among other things:
(i) The Prime Rate Portion or the Euro-Rate Portion which
is to be converted;
(ii) The Type of Loans into which such Loans or Portion are
to be converted;
(iii) If Prime Rate Loans are to be converted into Euro-Rate
Loans, the Interest Period selected by the Borrowers for such Loans in
accordance with Section 2.1(e); and
--------------
(iv) The date of the requested conversion, which shall be a
Business Day.
The Borrowers shall give each Notice of Loan/Conversion to Lender at least
three (3) Business Days before the date of the requested conversion in the
case of a conversion into Euro-Rate Loans, and at least one (1) Business
Day before the date of the requested conversion in the case of a conversion
into Prime Rate Loans. Each Request for Loan/Conversion shall be delivered
to Lender at the office or to the
<PAGE>
telecopy number specified in Section 13.10; provided, however, that the
-------------
provided, however, that the Borrowers shall Borrowers shall promptly
deliver to Lender the original of any Notice of Loan/Conversion initially
delivered by telecopy.
(e) Euro-Rate Interest Periods. The initial and each subsequent
--------------------------
Interest Period selected by the Borrowers for a Euro-Rate Loan shall be
thirty (30), sixty (60) or ninety (90) days; provided, however, that (A)
any Interest Period which would otherwise end on a day which is not a
Business Day shall be extended to the next succeeding Business Day, unless
such next Business Day falls in another calendar month, in which case such
Interest Period shall end on the immediately preceding Business Day; (B)
any interest Period for a Euro-Rate Loan which begins on the last Business
Day of a calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such Interest Period)
shall end on the last Business Day of a calendar month; (C) no such
Interest Period shall end after the Initial Term or any Renewal Term; and
(D) no more than three (3) Loans bearing interest at the Euro-Rate may be
originated or converted in any one month. If the Borrowers fail to notify
Lender of the next Interest Period for Euro-Rate Loans in accordance with
this Section 2.1(e), such Loans shall automatically convert to Prime Rate
--------------
Loans on the last day of the current Interest Period therefor.
2.2 Advances to Constitute One Loan; Loan Purpose. All loans and advances
---------------------------------------------
by Lender to Borrower under this Agreement and the Ancillary Agreements shall
constitute one loan and all Liabilities of Borrower to Lender under this
Agreement and the Ancillary Agreements shall constitute one general obligation
secured by the Collateral.
2.3 Interest Rate. In no contingency or event whatsoever shall the rate
-------------
or amount of interest paid by the Borrowers under this Agreement or any of the
Ancillary Agreements exceed the maximum rate or amount permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that Lender has
received interest hereunder or under any Ancillary Agreement in excess of the
maximum amount permitted by such law, (i) Lender shall apply such excess to any
unpaid principal owed by the Borrowers to Lender or, if the amount of such
excess exceeds the unpaid balance of such principal, Lender shall promptly
refund such excess interest to the Borrowers and (ii) the provisions hereof
shall be deemed amended to provide for such permissible rate. All sums paid, or
agreed to be paid, by the Borrowers which are, or hereafter may be construed to
be, compensation for the use, forbearance or detention of money shall, to the
extent permitted by applicable law, be amortized, prorated, spread and allocated
throughout the full term of all such indebtedness until the indebtedness is paid
in full.
2.4 Change of Circumstances.
-----------------------
(a) Inability to Determine Rates. If, on or before the first day
----------------------------
of any Interest Period of any Loan or Portion, (i) the Euro-Rate for such
Interest Period cannot be adequately and reasonably determined due to the
unavailability of funds in, or other circumstances affecting, the London
interbank market or (ii) the Euro-Rates of interest for such Loans or
Portions do not adequately and fairly reflect the cost to Lender of making
or maintaining such Loans or Portions, Lender shall
<PAGE>
immediately give notice of such condition to Borrower. After the giving
of any such notice and until Lender shall otherwise notify the Borrowers
that the circumstances giving rise to such condition no longer exist, the
Borrowers' right to request the making of or conversion to, and Lender's
obligations to make or convert to Euro-Rate or Euro-Rate Portions of the
Type affected by such condition shall be suspended. Any Euro-Rate Loans
or Euro-Rate Portions of the Type affected by such condition outstanding
at the commencement of any such suspension shall be converted at the end
of the then current Interest Period for such Loans or Portions into
another Type of Loan or Portion not affected by such suspension unless
such suspension has then ended.
(b) Illegality. If, after the date of this Agreement the
----------
adoption of any Governmental Rule, any change in any Governmental Rule or
the application of requirements thereof (whether such change occurs in
accordance with the terms of such Governmental Rule as enacted, as a result
of amendment or otherwise), any change in the interpretation or
administration of any Governmental Rule by any Governmental Authority, or
compliance by Lender with any request or directive (whether of not having
the force of law) of any Governmental Authority (a "Change of Law") shall
make it unlawful or impossible for Lender to make or maintain any Euro-Rate
Loan or Euro-Rate Portion, Lender shall immediately notify the Borrowers of
such Change of Law. Upon receipt of such notice, (i) the Borrowers' right
to request the making of or conversion to, and Lender's obligations to make
or convert to, any Loans or Portions of the Type affected by such Change of
Law shall be terminated, and (ii) the Borrowers shall, at the request of
Lender, either (A) pursuant to Section 2.1(d), as the case may be, convert
--------------
any such then outstanding Loans or Portions into another Type of Loans or
Portions not affected by such Change of Law at the end of the current
Interest Period for such Loans or Portions, or (B) immediately repay or
convert any such Loans or Portions if Lender shall notify the Borrowers
that the Lender may not lawfully continue to fund and maintain such Loans
or Portions. Any conversion or prepayment of Loans or Portions made
pursuant to the preceding sentence prior to the last day of an Interest
Period for such Loans or Portions shall be deemed a prepayment thereof for
purposes of this Agreement.
(c) Increased Costs. If any Change of Law announced after the
---------------
date of this Agreement:
(i) Shall subject Lender to any tax, duty or other charge
with respect to any Euro-Rate Loan or Euro-Rate Portion, or shall
change the basis of taxation of payments by the Borrowers to Lender on
such a Loan or Portion or in respect to such a Loan or Portion under
this Agreement (except for changes in the rate of taxation on the
overall net income of Lender); or
(ii) Shall impose, modify or hold applicable any reserve,
special deposit or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by Lender for any Euro-
Rate Loan or Euro-Rate Portion; or
(iii) Shall impose on Lender any other condition related to
any Euro-Rate Loan or Euro-Rate Portion;
<PAGE>
And the effect of any of the foregoing is to increase the cost to Lender of
making, renewing, or maintaining any such Euro-Rate Loan or Euro-Rate
Portion or to reduce any amount receivable by Lender hereunder; then the
Borrowers shall from time to time, upon demand by Lender, pay to Lender
additional amounts sufficient to reimburse Lender for such increased costs
or to compensate Lender for such reduced amounts showing the calculation
thereof in reasonable detail. A certificate as to the amount of such
increased costs or reduced amounts, submitted by Lender to the Borrowers
shall, in the absence of manifest error, be conclusive and binding on the
Borrowers for all purposes; provided, however, that the increased costs or
reduced amounts shall not relate to any period more than 180 days prior to
the date of such certificate.
(d) Capital Requirements. If, after the date of this Agreement,
--------------------
Lender determines that (i) any Change of Law announced after the date of
this Agreement affects the amount of capital required or expected to be
maintained by Lender or any Person controlling Lender (a "Capital Adequacy
Requirement") and (ii) the amount of capital maintained by Lender or such
Person which is attributable to or based upon the Loans or this Agreement
must be increased as a result of such Capital Adequacy Requirement (taking
into account Lender's or such Person's policies with respect to capital
adequacy), the Borrowers shall pay to Lender or such Person, upon demand of
Lender, such amounts as Lender or such Person shall determine are necessary
to compensate Lender or such Person for the increased costs to Lender or
such Person of such increased capital. A certificate of Lender setting
forth in reasonable detail the computation of any such increased costs,
delivered by Lender to the Borrowers shall, in the absence of manifest
error, be conclusive and binding on the Borrowers for all purposes;
provided, however, that the increased costs or reduced amounts shall not
relate to any period more than 180 days prior to the date of such
certificate.
2.5 Funding Loss Indemnification. If the Borrowers shall (a) repay or
----------------------------
prepay any Euro-Rate Loan or Euro-Rate Portion on any day other than the last
day of an Interest Period therefor (whether an optional prepayment, a mandatory
prepayment, a payment upon acceleration or otherwise) or (b) fail to borrow any
Euro-Rate Loan or Euro-Rate Portion for which a Notice of Borrowing has been
delivered to Lender (whether as a result of the failure to satisfy any
applicable conditions or otherwise), the Borrowers shall, upon demand by Lender,
reimburse Lender and hold Lender harmless for all costs and losses incurred by
Lender as a result of such repayment, prepayment or failure. The Borrowers
understand that such costs and losses may include, without limitation, losses
incurred by Lender as a result of funding and other contracts entered into by
Lender to fund a Euro-Rate Loan or Euro-Rate Portion. If Lender shall demand
payment under this Section 2.5, Lender shall deliver to the Borrowers a
-----------
certificate setting forth the amount of costs and losses for which demand is
made, showing the calculation thereof in reasonable detail. Such a certificate
so delivered to the Borrowers shall, in the absence of manifest error, be
conclusive and binding on the Borrowers as to the amount of such loss for all
purposes.
2.6 Term of Agreement; Prepayment; Liquidated Damages. This Agreement
-------------------------------------------------
shall be in effect until two (2) years from the date hereof (the "Initial
Term") and shall be automatically renewed thereafter for successive periods of
one year (each a "Renewal Term") unless terminated as provided below. Either
party shall have the right to terminate
<PAGE>
this Agreement at the end of the Initial Term or at the end of any Renewal
Term by giving the other party at least ninety (90) days' prior written notice
of such termination. In the event the Borrowers give notice of termination and
the Total Facility is not paid in full at the end of the Initial Term or
Renewal Term, as applicable, upon the request of the Borrowers, but in
Lender's sole discretion, Lender can continue to make advances and renew this
Agreement for an additional year, upon such terms and conditions as Lender may
require. In the event Lender does not agree to continue to make advances and
renew the term for an additional year, all Liabilities shall be immediately
due and payable. This Agreement may also be terminated by Lender upon the
occurrence of a Default. Upon the effective date of any termination, all of
the Liabilities shall become immediately due and payable without presentment,
notice or demand. Notwithstanding any termination, until all of the
Liabilities shall have been fully and finally paid and satisfied, Lender shall
be entitled to retain its security interest in the Collateral, the Borrowers
shall continue to remit collections of Accounts and proceeds of Collateral as
provided in this Agreement, and Lender shall retain all of its rights and
remedies under this Agreement. During the Initial Term or any Renewal Term,
the Borrowers may, at their option, upon not less than thirty (30) days
written notice to Lender specifying the date of prepayment, terminate this
Agreement on the first day of any month prior to the end of the Initial Term
or any Renewal Term and prepay all of the Liabilities hereunder. In such
event, the Borrowers shall pay to Lender, for loss of the bargain and not as a
penalty, as liquidated damages and as compensation for the costs of Lender
being prepared to make funds available to the Borrowers under this Agreement,
an amount (the "Prepayment Fee") equal to the following applicable percentage
of the Total Facility:
Prepayment Date Applicable Prepayment Fee
--------------- -------------------------
After the Closing Date Two percent (2.0%) of the
and before the first Total Facility
anniversary of this
Agreement
From and after the first One and one-half percent
anniversary of this (1.50%) of the Total Facility
Agreement and before the
second anniversary of
this Agreement
During the first Renewal One percent (1.00%) of
Term of this Agreement the Total Facility
At any time after the first Zero percent (0.00%) of
Renewal Term of this Agreement the Total Facility
The Borrowers shall also be responsible to pay, in every event, Euro-
Rate breakage penalties pursuant to Section 2.5, and if any fixed rate Loan is
-----------
outstanding, the Borrowers agree to pay an additional prepayment charge equal
to the actual loss, if any, that may be sustained by Lender through
redeployment of the funds loaned to the Borrowers at the then prevailing
interest rates.
2.7 Credit Availability Charge. To compensate Lender for the costs of
--------------------------
being prepared to make funds available to the Borrowers, the Borrowers agree
that if, during any such month, the daily average outstanding borrowings under
the Total Facility is less than Seven Million Five Hundred Thousand Dollars
($7,500,000), then the Borrowers shall pay to Lender at the end of each such
month a Credit Availability Charge, in addition to accrued
<PAGE>
interest on the outstanding Liabilities, equal to such shortfall times the
applicable Prime Rate based interest rate for the Loans. The Credit
Availability Charge is in addition to any other applicable fees and charges
and shall be payable for the entire period covered by the Initial Term and
each Renewal Term, unless this Agreement is terminated by the Borrowers
pursuant to Section 2.6 above and the Borrowers have paid the applicable
-----------
Prepayment Fee and Euro-Rate breakage penalties. The Credit Availability
Charge shall be payable monthly during the Initial Term and during each
Renewal Term or immediately upon termination if this Agreement is terminated
prior to the end of the Initial Term or a Renewal Term.
2.8 Audit Fee. The Borrowers shall pay to Lender its reasonable costs and
---------
expenses incurred during the course of field examinations and audits, which
Lender will conduct on a quarterly basis prior to the existence of a Default and
as frequently as Lender may require following the occurrence and during the
continuance of a Default, including a per diem charge for examiners in the field
and office at Lender's then prevailing rate (currently $750 per person per day),
not to exceed aggregate examiners' charges of $3,000 plus reasonable costs and
expenses for any one field examination or audit occurring prior to a Default.
2.9 Loan Fee. The Borrowers shall pay Lender in cash, on the Closing
--------
Date, a Loan Fee equal to one percent (1.00%) of the Total Facility, with such
Loan Fee being credited on the Closing Date with the $50,000 portion of the
commitment fee previously paid by the Borrowers to Lender.
2.10 Unused Line Fee. The Borrowers shall pay to Lender each month, an
---------------
unused line fee equal to one-half percent (0.5%) per annum of the difference
between the Total Facility and the daily average outstanding principal balance
of the Loans for the prior month.
2.11 Commitment Fee. The Borrowers shall pay to Lender in cash, on the
--------------
Closing Date, the balance ($100,000) of the commitment fee payable by the
Borrowers to Lender in connection with Lender's commitment to provide the
Borrowers with the Loans contemplated hereunder, which commitment fee was fully
earned upon Borrowers' acceptance of Lender's commitment letter to the
Borrowers dated August 14, 1998.
3. ELIGIBLE ACCOUNTS; ELIGIBLE INVENTORY
-------------------------------------
3.1 Eligible Accounts. Upon the Borrowers' delivery to Lender of a Daily
-----------------
Collateral Report, Lender shall, in its reasonable discretion, determine which
individual Accounts listed thereon are Eligible Accounts. Unless otherwise
agreed to by Lender, Eligible Accounts shall, at all times, be subject to the
following requirements for eligibility:
(a) If the Account arises from the sale of goods, such goods
shall have been shipped or delivered on open account and on an absolute
sale basis and not on consignment, on approval or on a sale-or-return basis
and shall not be subject to any other repurchase or return agreement and no
material part of such goods shall have been returned (other than returns
described in Section 7.4), repossessed, rejected, lost or damaged;
-----------
(b) The Account shall not be evidenced by chattel paper or an
<PAGE>
instrument of any kind;
(c) The Account Debtor obligated on such Account shall not be
suspended from doing business, insolvent or the subject of any bankruptcy
or insolvency proceeding of any kind, or the subject of an assignment for
the benefit of creditors, or have had a receiver or trustee appointed for a
significant portion of its assets, and Lender shall be satisfied with the
creditworthiness of such Account Debtor;
(d) The Account Debtor obligated on such Account shall not be a
supplier to or creditor of any Borrower unless Borrower has a written
agreement with the Account Debtor in a form acceptable to Lender which
provides that such Account Debtor's Accounts are independent of and not be
subject to any right of offset whatsoever for any obligation or debt owed
by Borrower to such Account Debtor;
(e) If the Account is owing from an Account Debtor located
outside the United States, such Account Debtor shall have furnished the
applicable Borrower with an irrevocable letter of credit issued or
confirmed by a financial institution acceptable to Lender, which letter of
credit shall be in form and substance acceptable to Lender, pledged to
Lender, and be payable in United States dollars in an amount not less than
the face value of the Account;
(f) The Account shall be a valid, legally enforceable obligation
of the Account Debtor and such Account Debtor shall not have asserted, nor
be entitled to any offset, counterclaim or defense denying liability
thereunder;
(g) The Account shall be subject to and covered by Lender's
perfected security interest and shall not be subject to any other lien,
claim, encumbrance or security interest;
(h) The Account shall be evidenced by an invoice or other
documentation in form acceptable to Lender;
(i) The Account shall not have remained unpaid for a period
exceeding ninety (90) days after the original invoice date of the related
invoice and not more than fifty percent (50%) of the balance of all
Accounts owing from the Account Debtor obligated under such Account have
remained unpaid for more than ninety (90) days after the invoice date of
the related invoices or otherwise be deemed ineligible;
(j) If the Account Debtor is located in the State of New Jersey
or the State of Minnesota, Borrower shall have filed a Notice of Business
Activities Report with the appropriate agency in New Jersey or Minnesota,
as applicable, for the then current year;
(k) The Account shall not be owing from an employee, officer,
agent, director, stockholder of Borrower or any Affiliate or from the
United States of America or any department, agency or instrumentality
thereof;
<PAGE>
(l) The aggregate amount of Accounts from an Account Debtor shall
not, at any time, exceed fifteen percent (15%) of the aggregate amount of
existing Eligible Accounts;
(m) The Account shall be one against which Lender is legally
permitted to make loans and advances;
(n) The Account shall not involve a contract requiring a
Borrower to provide goods or render services for a term of longer than one
hundred twenty (120) days;
(o) Each of the warranties and representations set forth in
Section 9.2 shall be reaffirmed with respect to such Account at the time
-----------
that the most recent Daily Collateral Report was delivered to Lender; and
(p) The Account shall otherwise be acceptable to Lender, in its
reasonable discretion.
3.2 Eligible Inventory. Upon the Borrowers' delivery to Lender of an
------------------
Inventory Report, Lender shall, in its reasonable discretion, determine which
items of Inventory listed thereon are Eligible Inventory. Unless otherwise
agreed to by Lender, Eligible Inventory shall, at all times, be subject to the
following requirements for eligibility:
(a) The item of Inventory shall constitute raw materials or
finished goods, shall be in good condition, meet all standards imposed by
any governmental agency or department or division thereof having regulatory
authority over such goods or their use or sale, shall be either currently
usable or currently saleable in the ordinary course of a Borrower's
business and shall not otherwise be unacceptable to Lender due to age,
type, category, quality or quantity;
(b) The item of Inventory shall be located at one of the
locations listed on Exhibit "C" attached hereto, shall be subject to and
-----------
covered by Lender's perfected security interest and shall not be subject to
any other lien, claim, encumbrance or security interest;
(c) The item of Inventory shall not have been consigned, sold or
leased to any Person;
(d) The item of Inventory shall not have been purchased by a
Borrower in or as part of a bulk transfer or sale of assets unless there
was compliance, or an exemption from compliance, with all applicable bulk
sales or transfer laws;
(e) The item of Inventory may have been relieved from a
Borrower's Inventory supply and may be accounted for by such Borrower as an
"unbilled" Account, provided such Borrower can document the status of such
item of Inventory to Lender's satisfaction;
<PAGE>
(f) Each of the warranties and representations set forth in
Section 9.3 shall be reaffirmed with respect to such item of Inventory at
-----------
the time that the most recent Inventory Report was delivered to Lender; and
(g) The item of Inventory shall otherwise be acceptable to
Lender, in its reasonable discretion.
4. PAYMENTS
--------
4.1 Loan Account; Method of Making Payments. Lender shall maintain a loan
---------------------------------------
account (the "Loan Account") on its books in which shall be recorded (i) all
Loans made by Lender to the Borrowers pursuant to this Agreement, (ii) all
payments made by the Borrowers on all such Loans and (iii) all other appropriate
debits and credits as provided in this Agreement, including, without limitation,
all fees, charges, expenses and interest. All entries in the Loan Account shall
be made in accordance with Lender's customary accounting practices as in effect
from time to time. Unless otherwise agreed to in writing, all payments which
the Borrowers are required to make to Lender under this Agreement or under any
of the Ancillary Agreements shall be made by appropriate debits to the Loan
Account. Lender may, in its discretion, elect to bill the Borrowers for the
amount of any such payment in which case such amount shall be immediately due
and payable with interest thereon at the rate set forth in Section 2.3.
-----------
4.2 Payment Terms. Unless otherwise expressly provided in writing, the
-------------
Liabilities will be repayable as follows: (i) interest shall be payable on the
first day of each month (for the immediately preceding month) out of the first
collections received with respect to any proceeds of Collateral, (ii) fees,
costs, expenses and similar charges shall be payable as and when provided for in
this Agreement or the Ancillary Agreements and (iii) the principal balance of
the Liabilities shall be payable from collections received with respect to any
proceeds of Collateral as such proceeds are received; provided, however, that if
at any time the outstanding principal balance of the Loans exceed the applicable
percentage or dollar limitations set forth in Section 2.1(a), or the outstanding
--------------
principal balance of all of the Liabilities exceeds the Total Facility, Borrower
shall immediately pay to Lender such amount as is necessary to eliminate such
excess. All of the Liabilities shall be payable at the address set forth in
Section 13.10. Nothing contained in this Section shall authorize Borrower to
- -------------
sell, lease or otherwise dispose of any Collateral other than as expressly set
forth in Sections 6.4, 7.1 and 8.3.
------------ --- ---
4.3 Collection of Accounts and Payments. The Borrowers shall establish
-----------------------------------
such blocked accounts or lockbox accounts as Lender may require, into which the
Borrowers will immediately deposit all remittances and proceeds of the
Collateral in the identical form in which such payment was made, whether by cash
or check. The banks with which such accounts are maintained (collectively, the
"Depository Banks") shall acknowledge and agree, in a manner satisfactory to
Lender, that all payments made to such accounts are the sole and exclusive
property of Lender, that the Depository Banks have no right of setoff against
the funds in such accounts and that the Depository Banks will wire, or otherwise
transfer immediately available funds in a manner satisfactory to Lender, funds
deposited in such accounts to Lender on a daily basis as soon as such funds are
collected. The Borrowers hereby agree that all payments made to such accounts
or otherwise received by Lender,
<PAGE>
whether on the Accounts or as proceeds of other Collateral or otherwise, will
be the sole and exclusive property of Lender and will be applied on account of
the Liabilities. After allowing one (1) business day for collection after such
funds are received by Lender, Lender will credit (conditional upon final
collection) all payments received through such accounts to the Loan Account.
The Borrowers and any Affiliates, shareholders, directors, officers,
employees, agents of the Borrowers and all Persons acting for or in concert
with the Borrowers who receive any monies, checks, notes, drafts or any other
payments relating to or proceeds of Accounts or other Collateral which come
into their possession or under their control shall, acting as trustee for
Lender, hold such property as the sole and exclusive property of Lender and
immediately upon receipt thereof, shall remit the same or cause the same to be
remitted, in kind, to Lender. The Borrowers agree to pay to Lender any and all
fees, costs and expenses (if any) which Lender incurs in connection with
opening and maintaining the accounts and depositing for collection by Lender
any check or item of payment received or delivered to any Depository Bank or
Lender on account of the Liabilities and the Borrowers further agree to
reimburse Lender for any claims asserted by any Depository Bank in connection
with any account or any returned or uncollected checks received by any
Depository Bank for deposit in the accounts.
4.4 Application of Payments and Collections. The Borrowers irrevocably
---------------------------------------
waive the right to direct the application of payments and collections received
by Lender from or on behalf of the Borrowers, and the Borrowers agree that
Lender shall have the continuing exclusive right to apply and reapply any and
all such payments and collections against the Liabilities in such manner as
Lender may deem appropriate, notwithstanding any entry by Lender upon any of its
books and records. To the extent that the Borrowers make a payment or payments
to Lender or Lender receives any payment or proceeds of the Collateral for the
Borrowers' benefit, which payment(s) or proceeds or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
or required to be repaid to a trustee, receiver or any other party under any
bankruptcy act, state or federal law, common law or equitable cause, then, to
the extent such payment or proceeds received are so set aside, invalidated,
required to be repaid or the like, the Liabilities or part thereof intended to
be satisfied shall be revived and shall continue in full force and effect, as if
such payments or proceeds had not been received by Lender.
4.5 Statements. All Loans and all other debits and credits provided for
----------
in this Agreement, shall be evidenced by entries made by Lender in its internal
data control systems showing the date, amount and reason for each such debit or
credit. Until such time as Lender shall have rendered to the Borrowers written
statements of account as provided herein, the balance in the Loan Account, as
set forth on Lender's most recent statement, reasonably maintained, shall be
presumptive evidence of the amounts due and owing to Lender by the Borrowers.
Not more than ten (10) days after the final day of each calendar month, Lender
shall render to the Borrowers a statement setting forth the balance of the Loan
Account, and such other information in substantially the form attached hereto as
Exhibit "I". Each such statement shall be subject to subsequent adjustment by
Lender and Lender's right to reapply payments in accordance with Section 4.4,
-----------
but shall, absent manifest errors or omissions, be presumed correct and binding
upon the Borrowers and shall constitute an account stated unless, within thirty
(30) days after receipt of any statement from Lender, the Borrowers shall
deliver to Lender written objection thereto specifying the error or errors, if
any, contained in such statement.
<PAGE>
5. COLLATERAL: GENERAL TERMS
-------------------------
5.1 Security Interest. To secure the prompt payment to Lender of the
-----------------
Liabilities, the Borrowers hereby grant to Lender a continuing security interest
in and to all of the following property and interest in property of the
Borrowers, whether now owned or existing or hereafter acquired or arising and
wherever located: (i) all Accounts, Inventory, Equipment, contract rights,
General Intangibles, tax refunds, chattel paper, instruments, letters of credit,
investment property, documents and documents of title; (ii) all of the
Borrowers' deposit accounts (general or special) including those maintained with
the Depository Bank or any other financial institution (iii) all monies, and any
and all other property of the Borrowers now or hereafter coming into the actual
possession, custody or control of Lender or any agent or affiliate of Lender in
any way or for any purpose (whether for safekeeping, deposit, custody, pledge,
transmission, collection or otherwise); (iv) all insurance proceeds of or
relating to any of the foregoing; (v) all of the Borrowers' Computers, books and
records; and (vi) all accessions and additions to, substitutions for, and
replacements, products and proceeds of any of the foregoing.
5.2 Disclosure of Security Interest. The Borrowers shall make appropriate
-------------------------------
entries upon their financial statements and books and records disclosing
Lender's security interest in the Collateral.
5.3 Special Collateral. Immediately upon the Borrowers' receipt of any
------------------
Collateral which is evidenced or secured by an agreement, chattel paper, letter
of credit, instrument or document, including, without limitation, promissory
notes, certificated securities, documents of title and warehouse receipts (the
"Special Collateral"), the Borrowers shall deliver the original thereof to
Lender or to such agent of Lender as Lender shall designate, together with
appropriate endorsements, the documents required to draw thereunder (as may be
relevant to letters of credit) or other specific evidence (in form and substance
acceptable to Lender) of assignment thereof to Lender and shall take such
actions as Lender may require to perfect Lender's security interest in such
Special Collateral and any collateral securing such Special Collateral.
5.4 Further Assurances. At Lender's request, the Borrowers shall, from
------------------
time to time, (i) execute and deliver to Lender all Security Documents that
Lender may reasonably request, in form and substance acceptable to Lender, and
pay the costs of any recording or filing of the same and (ii) take such other
actions as Lender may reasonably request in order to fully effect the purposes
of this Agreement and to protect Lender's interest in the Collateral. Upon the
occurrence and during the continuance of any Default, the Borrowers hereby
irrevocably make, constitute and appoint Lender (and all Persons designated by
Lender for that purpose) as the Borrowers' true and lawful attorney and agent-
in-fact to sign the name of the Borrowers on any of the Security Documents and
to deliver any of the Security Documents to such Persons as Lender, in its sole
discretion, may elect. This power of attorney is coupled with an interest. The
Borrowers agree that a carbon, photographic, photostatic, or other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement.
5.5 Inspection. Lender (by any of its officers, employees or agents)
----------
shall have the right, at any time or times during the Borrowers' usual business
hours, without prior notice, to
<PAGE>
inspect the Collateral, all records related thereto (and to make extracts from
such records) and the premises upon which any of the Collateral is located, to
discuss the Borrowers' affairs and finances with any Person and to verify the
amount, quality, value and condition of, or any other matter relating to, the
Collateral. The Borrowers shall pay all costs and expenses incurred by Lender
in the course of periodic audits and examinations of the Collateral and the
Borrowers' operations, which Lender will conduct on a quarterly basis prior to
a Default and as frequently as Lender may require after a Default, plus a per
diem charge at Lender's then prevailing rate (currently $750 per person per
day) for its auditors and examiners in the field and office, not to exceed
aggregate examiners' charges of $3,000 plus reasonable costs and expenses for
any one field audit or examination occurring prior to a Default.
5.6 Perfection and Priority; Location of Collateral. The Borrowers'
-----------------------------------------------
respective chief executive offices, principal places of business and all other
offices and locations of the Collateral and books and records related thereto
(including, without limitation, the Computers, computer programs, printouts and
other computer materials and records concerning the Collateral) are set forth on
Exhibit "C" attached hereto. The Borrowers shall not remove their respective
- -----------
books and records or the Collateral from any such locations (except for removal
of items of Inventory upon their sale in accordance with the terms of this
Agreement) and shall not open any new offices or relocate any of their
respective books and records or the Collateral except within the continental
United States of America and with at least thirty (30) days' prior written
notice thereof to Lender.
5.7 Lender's Payment of Claims Asserted Against Collateral. Lender may,
------------------------------------------------------
but shall not be obligated to, at any time or times hereafter, in its sole
discretion, and without waiving any Default or waiving or releasing any
obligation, liability or duty of the Borrowers under this Agreement or the
Ancillary Agreements, pay, acquire or accept an assignment of any security
interest, lien, claim or other encumbrance asserted by any Person against the
Collateral. All sums paid by Lender under this Section, including all costs,
fees (including reasonable attorneys' fees), expenses and other charges relating
thereto, shall be payable by the Borrowers to Lender on demand and shall be
additional Liabilities secured by the Collateral.
6. COLLATERAL: ACCOUNTS
--------------------
6.1 Verification of Accounts. Any of Lender's officers, employees or
------------------------
agents shall have the right, at any time or times hereafter, in the applicable
Borrower's or Lender's name or tradestyle or in the name of a firm of
independent certified public accountants acceptable to Lender, to verify the
validity, amount or any other matters relating to any Accounts by mail,
telephone, telegraph or otherwise.
6.2 Assignments, Records and Daily Collateral Report. The Borrowers shall
------------------------------------------------
keep accurate and complete records of the Accounts and, as frequently as Lender
shall require, but not less frequently than twice weekly, the Borrowers shall
deliver to Lender a Daily Collateral Report and formal written assignments of
all Accounts, together with copies of the invoices related thereto. The
Borrowers shall also deliver to Lender, upon demand, the original copy of all
documents, including, without limitation, repayment histories, present status
reports and shipment reports, relating to the Accounts included in any Daily
Collateral
<PAGE>
Report and such other matters and information relating to the status of then
existing Accounts as Lender shall reasonably request.
6.3 Notice Regarding Disputed Accounts. The Borrowers shall give Lender
----------------------------------
prompt notice of any Accounts which, for an Account Debtor, aggregate in excess
of Twenty-Five Thousand Dollars ($25,000) and which are in dispute between such
Account Debtor and a Borrower. In addition, each Daily Collateral Report shall
identify all disputed Accounts and disclose, in reasonable detail, the reason
for the dispute, all claims related thereto and the amount in controversy.
6.4 Sale or Encumbrance of Accounts. The Borrowers shall not, without the
-------------------------------
prior written consent of Lender, sell, transfer, grant a security interest in or
otherwise dispose of or encumber any of the Accounts to any Person other than
Lender.
7. COLLATERAL: INVENTORY
---------------------
7.1 Sale of Inventory. Unless a Default occurs, the Borrowers may sell
-----------------
Inventory in the ordinary course of their respective businesses (which does not
include a transfer in partial or total satisfaction of Indebtedness, sales in
bulk, sales on consignment or sales on an approval or a sale or return basis).
All proceeds of such sales shall be part of the Collateral and remitted to the
special account referred to in Section 4.3. The Borrowers shall not, except as
-----------
set forth in this Section, rent, lease or otherwise transfer or dispose of any
of the Inventory without Lender's prior written consent.
7.2 Safekeeping of Inventory; Inventory Covenants. The Borrowers shall
---------------------------------------------
maintain all Inventory in good and saleable condition at all times. Lender
shall not be responsible for (i) the safekeeping of the Inventory; (ii) any loss
or damage thereto or destruction thereof occurring or arising in any manner or
fashion from any cause; (iii) any diminution in the value of Inventory or (iv)
any act or default of any carrier, warehouseman, bailee or forwarding agency or
any other Person in any way dealing with or handling the Inventory. All risk of
loss, damage, distribution or diminution in value thereof shall be borne by the
Borrowers.
7.3 Records and Schedules of Inventory. The Borrowers shall keep correct
----------------------------------
and accurate daily records on a first-in, first-out basis, itemizing and
describing the kind, type, quality and quantity of Inventory, the Borrowers'
cost therefor and selling price thereof, and the daily withdrawals therefrom and
additions thereto and Inventory then on consignment, if any, provided that
Lender's prior written consent to such consignment must be obtained, and shall
furnish to Lender, monthly by the fifteenth (15th) day of the following month,
a current updated Inventory Report, based on a first in-first out cost
assumption. A physical count of the Inventory shall be conducted no less often
than semi-annually and a report based on such count of the Inventory shall
promptly be provided to Lender together with such supporting information
including, without limitation invoices relating to Borrowers' purchase of goods
listed in said Report, as Lender shall, in its sole discretion, request.
7.4 Returned and Repossessed Inventory. If at any time prior to the
----------------------------------
occurrence of a Default, any Account Debtor returns any of the Inventory to a
Borrower, such Borrower shall promptly determine the reason for such return and,
if Borrower accepts such return, issue a credit memorandum (with a copy to be
immediately sent to Lender) in the appropriate
<PAGE>
amount to such Account Debtor; provided, however, that no Borrower shall,
without the prior consent of Lender, accept on any single day, returned
Inventory the sale price of which was in excess of Twenty-Five Thousand
Dollars ($25,000) in the aggregate. After the occurrence of a Default, the
Borrowers shall hold all returned Inventory in trust for Lender, shall
segregate all returned Inventory from all other property of the Borrower or in
the Borrowers' possession and shall conspicuously label such returned
Inventory as the property of Lender. The Borrowers shall, in all cases,
immediately notify Lender of the return of any Inventory, specifying the
reason for such return and the location and condition of the returned
Inventory.
7.5 Evidence of Ownership of Inventory. The Borrowers shall, upon
----------------------------------
Lender's request, deliver to Lender all evidence of ownership of the Inventory.
8. COLLATERAL: EQUIPMENT
---------------------
8.1 Maintenance of the Equipment. The Borrowers shall keep and maintain
----------------------------
the Equipment in good operating condition and repair and shall make all
necessary replacements thereof so that the value, utility and operating
efficiency thereof shall at all times be maintained and preserved and shall
promptly inform Lender of any material additions to or deletions from the
Equipment. The Borrowers shall not permit any such Equipment to become affixed
to real estate in such manner that such Equipment will become a fixture or an
accession to other personal property.
8.2 Evidence of Ownership of Equipment. The Borrowers shall, upon
----------------------------------
Lender's request, deliver to Lender all evidence of ownership of the Equipment
(including, without limitation, bills of sale, certificates of title and
applications for title).
8.3 Proceeds of the Equipment. The Borrowers shall not sell, transfer,
-------------------------
lease, grant a security interest in (other than a Permitted Lien) or otherwise
dispose of or encumber the Equipment or any part thereof to any Person other
than Lender; provided, however, that in any fiscal year of the Borrowers, the
Borrowers may sell or otherwise dispose of Equipment with an aggregate net book
value not to exceed Fifty Thousand Dollars ($50,000). In the event any
Equipment is sold, transferred or otherwise disposed of as permitted in this
Section, the Borrowers shall promptly notify Lender of such fact and deliver all
of the cash proceeds of such sale, transfer or disposition to Lender, which
proceeds shall be applied to the repayment of the Liabilities; provided,
however, that with Lender's prior consent the Borrowers may use the proceeds of
such sale, transfer or disposition to finance the purchase of replacement
Equipment in which Lender has a first, perfected security interest documented to
the satisfaction of Lender. The Borrowers shall deliver to Lender written
evidence of the use of the proceeds for such purchase. All replacement
Equipment purchased by the Borrowers shall be free and clear of all liens,
claims, security interests and other encumbrances, except for the security
interest granted to Lender and Permitted Liens.
9. WARRANTIES AND REPRESENTATIONS
------------------------------
9.1 General Warranties and Representations. The Borrowers warrant and
--------------------------------------
represent that:
<PAGE>
(a) Existence and Qualification. Each Borrower is a corporation
---------------------------
duly organized and validly existing and in good standing under the laws of
the state of its incorporation and is qualified or licensed as a foreign
corporation to do business in all other countries, states and provinces in
which the laws thereof require such Borrower to be so qualified or
licensed;
(b) Other Names. No Borrower has used, during the five (5) year
-----------
period preceding the date of this Agreement, nor does any Borrower intend
to use, any other corporate or fictitious name, except as disclosed in
Exhibit "D" attached hereto;
-----------
(c) Authority and Power. Each Borrower has the right and power
-------------------
and is duly authorized and empowered to enter into, execute, deliver and
perform this Agreement and the Ancillary Agreements;
(d) Compliance with Law and Other Agreements. The execution,
----------------------------------------
delivery and performance by each Borrower of this Agreement and the
Ancillary Agreements shall not, by their execution or performance, the
lapse of time, the giving of notice or otherwise, constitute a material
violation of any applicable law, rule, regulation, judgment, order or
decree or a breach of any provision contained in such Borrower's charter
documents or by-laws or contained in any agreement, instrument, indenture
or other document to which such Borrower is now a party or by which it is
bound;
(e) Use of Proceeds. Each Borrower's use of the proceeds of any
---------------
advances made by Lender are, and will continue to be used for, legal and
proper corporate uses (duly authorized by its board of directors, in
accordance with applicable law, rule or regulation) and such uses are and
will be consistent with all applicable laws, rules and regulations;
(f) Governmental Approvals. Each Borrower has, and is current
----------------------
and in good standing with respect to, all material governmental approvals,
permits, certificates, inspections, consents and franchises necessary to
conduct and to continue to conduct its present business as heretofore
conducted by it and to own or lease and operate its properties as now owned
or leased and operated by it; and to the best knowledge of each Borrower,
none of said governmental approvals, permits, certificates, consents or
franchises contains any term, provision, condition or limitation more
burdensome than such as are generally applicable to Persons engaged in the
same or similar business as such Borrower;
(g) Solvency. Each Borrower now has capital sufficient to carry
--------
on its business and transactions and is now solvent and able to pay its
debts as they mature and each Borrower now owns property the fair saleable
value of which is greater than the amount required to pay such Borrower's
debts;
(h) No Litigation, Indebtedness or Guaranties. Except as
-----------------------------------------
disclosed on Exhibit "E" attached hereto, no Borrower has any litigation
-----------
pending, or to the best of its knowledge, threatened, and no Indebtedness
(except for trade payables arising
<PAGE>
in the ordinary course of its business since the dates reflected in the
Financials) and has not guaranteed the obligations of any other Person;
(i) No Other Adverse Agreements or Arrangements. No Borrower is
-------------------------------------------
a party to any contract or agreement or subject to any charge, restriction,
judgment, decree or order materially and adversely affecting its business,
property, assets, operations or condition, financial or otherwise, and is
not a party to any labor dispute, lockout, strike or walkout relating to
any labor contracts and no such contract is scheduled to expire during the
Initial Term;
(j) Good Title. Each Borrower has good, indefeasible and
----------
merchantable title to, and ownership of, the Collateral, free and clear of
all liens, claims, security interests and other encumbrances, except those
of Lender and those described on Exhibit "F" attached hereto;
-----------
(k) No Violation of Laws. No Borrower is in violation of any
--------------------
applicable statute, rule, regulation or ordinance of any governmental
entity, including, without limitation, the United States of America, any
state, city, town, municipality, county or of any other jurisdiction, or of
any agency thereof, in any respect materially and adversely affecting the
Collateral or such Borrower's business, property, assets, operations or
condition, financial or otherwise;
(l) No Lien or Borrowing Defaults. No Borrower is in default
-----------------------------
under any indenture, loan agreement, mortgage, lease, deed of trust or
other similar agreement relating to the borrowing of monies or encumbering
of assets to which it is a party or by which it is bound;
(m) Financials. The Financials fairly present the assets,
----------
liabilities and financial condition and results of operations of the
Borrowers and such other Persons described therein as of the dates thereof;
there are no omissions or other facts or circumstances which are or may be
material and there has been no material and adverse change in the assets,
liabilities or financial or other condition of the Borrowers since the date
of the Financials; there exist no equity or long term investments in or
outstanding advances to any Person not reflected in the Financials; there
are no actions or proceedings which are pending or, to the best of the
Borrowers' knowledge, threatened, against any Borrower or any other Person
which might result in any material adverse change in the Borrowers'
financial condition or materially and adversely affect the Borrowers'
operations, their assets or the collateral;
(n) ERISA. No Borrower has received a notice to the effect that
-----
it is not in full compliance with any of the requirements of ERISA, and the
regulations promulgated thereunder and, to the best of knowledge of each
Borrower, there exists no event described in Section 4043 of ERISA,
excluding subsections 4043(b)(2) and 4043 (b)(3) thereof ("Reportable
Event"), with respect to any Borrower, and neither any of the Borrowers nor
any Person who is a member of the Borrowers' controlled group for Federal
income tax purposes has directly or indirectly, caused or permitted any of
the following to occur: (i) restated or amended any pension, profit-
sharing, savings, stock bonus, or other deferred compensation plans
established and
<PAGE>
maintained by it which are subject to ERISA since ERISA became effective
with respect to such plans in a manner designed to or which would
disqualify those plans and their related trusts under the applicable
requirements of the Internal Revenue Code of 1986, as amended (the
"IRC"); (ii) permitted any of its officers to materially and adversely
affect the qualified tax-exempt status of any of its pension, profit-
sharing, savings, stock bonus or other deferred compensation plans and
trusts under the IRC; (iii) engaged in or permitted any officer to engage
in any "prohibited transaction" as defined in Section 406 of ERISA or
Section 4975 of the IRC; (iv) incurred any "accumulated funding
deficiency" as defined in Section 302 of ERISA or Section 412(a) of the
IRC, whether or not waived in connection with any pension, profit-
sharing, savings, stock bonus or other deferred compensation plans; (v)
taken or failed to take any action which caused or may cause a
termination of any pension plan in a manner which could result in the
imposition of a lien on any Borrower's property pursuant to Section 4068
of ERISA; (vi) failed to notify Lender that notice has been received of a
"termination" (as defined in ERISA) of any "multi-employer plan" (as
defined in ERISA) to which such Borrower has an obligation to contribute;
(vii) incurred a "complete withdrawal" (as defined in ERISA) from any
"multi-employer plan" to which such Borrower has an obligation to
contribute; (viii) incurred a "partial withdrawal" (as defined in ERISA)
from any "multi-employer plan" to which such Borrower has an obligation
to contribute; or (ix) failed to notify Lender that notice has been
received from the Administrator of any "multi-employer plan" to which
such Borrower has an obligation to contribute that any such plan will be
placed in "reorganization" as defined in ERISA;
(o) Taxes. Each Borrower has filed all federal, state and local
-----
tax returns and other reports, or has been included in consolidated returns
or reports filed by an Affiliate, which such Borrower is required by law,
rule or regulation to file and all Charges that are due and payable have
been paid;
(p) No Securities. The Borrowers' execution and delivery of this
-------------
Agreement or any of the Ancillary Agreements does not directly or
indirectly violate or result in a violation of any applicable laws, rules
or regulations, including without limitation, the Securities Exchange Act
of 1934, as amended, and Regulations U, G, T and X of the Board of
Governors of the Federal Reserve System (12 CFR 221, 207, 220 and 224,
respectively), and the Borrowers do not own or intend to purchase or carry
any "margin security," as defined in such Regulations.
(q) Affiliates. All Persons who are Affiliates of the Borrowers
----------
at this time are identified on Exhibit "G" hereto;
-----------
(r) Subsidiaries. Exhibit "G" correctly sets forth the names,
------------ -----------
forms of legal entity and jurisdictions of formation of all Subsidiaries of
the Borrowers. Except as described in Exhibit "G", the Borrowers do not
-----------
own any capital stock, partnership interest, joint venture interest or
other equity interest in any Person. Unless otherwise indicated in Exhibit
-------
"G", all of the outstanding shares of capital stock or partnership or joint
---
venture interests of each Subsidiary of the Borrowers are owned of record
and beneficially by the applicable Borrower, and all securities and
interests so owned are duly authorized, validly issued, fully paid, non-
assessable and issued in compliance with all applicable state and federal
securities and other laws, and are
<PAGE>
free and clear of all liens. Each Subsidiary of the Borrowers is a legal
entity duly formed, validly existing and in good standing under the laws
of its jurisdiction of formation, is duly qualified or registered to
transact business and is in good standing in each jurisdiction in which
the conduct of its business or the ownership or leasing of its properties
makes such qualification or registration necessary and has all requisite
legal power and authority to conduct its business and to own and lease
its properties. Each Subsidiary of the Borrowers is in compliance with
all laws and other legal requirements applicable to its business, has
obtained all authorizations, consents, approvals, orders, licenses and
permits from, and has accomplished all filings, registrations and
qualifications with, or obtained exemptions from any of the foregoing
from, any governmental agency that are necessary for the transaction of
its business.
(s) Environmental Matters. (i) The operations of each Borrower,
---------------------
any other obligor and each subsidiary of the Borrowers comply in all
material respects with all applicable Environmental Laws: (ii) none of the
operations of the Borrowers, any other obligor or any Subsidiary of the
Borrowers is subject to any judicial or administrative proceeding alleging
the violation of any Environmental laws; (iii) none of the operations of
the Borrowers, any other obligor or any Subsidiary of the Borrowers is the
subject of any federal or state investigation evaluating whether any
remedial action is needed to respond to a release of any Hazardous Material
into the environment; (iv) none of the Borrowers, nor any other obligor or
any Subsidiary of the Borrowers has filed any notice under any federal or
state law indicating past or present treatment, storage or disposal of a
Hazardous Material or reporting a spill or release of a Hazardous Material
into the environment; and (v) none of the Borrowers, any other obligor or
any Subsidiary of the Borrowers has any known material contingent liability
in connection with any release of any Hazardous Material into the
environment. The materiality standard used in this Section shall be
exceeded if the facts giving rise to a breach or breaches of the
representations or warranties contained herein might result in liability in
excess of Fifty Thousand Dollars ($50,000) in the aggregate.
(t) No Broker's Fee. No brokerage, finder's or similar fees or
---------------
commission is due to any party by reason of the Borrowers' entering into
this Agreement or by reason of any of the transactions contemplated hereby,
and the Borrowers shall indemnify and hold Lender harmless from all such
fees and commissions.
(u) Year 2000 Capabilities. The Borrowers have taken all action
----------------------
necessary to assure that there will be no material adverse change to the
business of any of the Borrowers by reason of the advent of the year 2000,
including, without limitation, that all computer-based systems, embedded
microchips and other processing capabilities of the Borrowers effectively
recognize and process dates after April 1, 1999.
9.2 Account Warranties and Representations. The Borrowers warrant and
--------------------------------------
represent that Lender may rely, in determining which Accounts listed on any
Daily Collateral Report are
<PAGE>
Eligible Accounts, without independent investigation, on all statements,
warranties and representations made by the Borrowers on or with respect to any
such Daily Collateral Report and, unless otherwise indicated in writing by the
Borrowers, that
(a) Such Accounts are genuine, are in all respects what they
purport to be, are not reduced to a judgment and, if evidenced by any
instrument, item of chattel paper, agreement, contract or document, are
evidenced by only one executed original instrument, item of chattel paper,
agreement, contract, or document, which original has been endorsed and
delivered to Lender;
(b) Such Accounts represent undisputed, bona fide transactions
completed in accordance with the terms and provisions contained in any
documents related thereto;
(c) Except for credits issued to any Account Debtor in the
ordinary course of a Borrower's business for Inventory returned pursuant to
Section 7.4, the amounts shown on the Daily Collateral Report, and all
-----------
invoices and statements delivered to Lender with respect to any Account,
are actually and absolutely owing to the indicated Borrower and are not
contingent for any reason;
(d) Except as may be disclosed on such Daily Collateral Report,
there are no setoffs, counterclaims or disputes existing or asserted with
respect to any Accounts included on a Daily Collateral Report, and no
Borrower has made any agreement with any Account Debtor for any deduction
from such Account, except for discounts or allowances allowed by the
applicable Borrower in the ordinary course of its business for prompt
payment, which discounts and allowances have been disclosed to Lender and
are reflected in the calculation of the invoice related to such Account;
(e) To the best of the Borrowers' knowledge, there are no facts,
events or occurrences which in any way impair the validity or enforcement
of any of the Accounts or tend to reduce the amount payable thereunder from
the amount of the invoice shown on any Daily Collateral Report and on all
contracts, invoices and statements delivered to Lender with respect
thereto;
(f) To the best of the Borrowers' knowledge, all Account Debtors
are solvent and had the capacity to contract at the time any contract or
other document giving rise to or evidencing the Accounts was executed;
(g) To the best of the Borrowers' knowledge, the goods, the sale
of which gave rise to the Accounts, (i) were produced in full compliance
with the Federal Labor Standards Act, 29 U.S.C. (S)(S) 207 et seq. as
amended from time to time, and (ii) are not subject to any lien, claim,
security interest or other encumbrance, except those of Lender and
Permitted Liens, and those removed or terminated prior to the date hereof;
(h) The Borrowers have no knowledge of any fact or circumstance
which would impair the validity or collectibility of any of the Accounts;
<PAGE>
(i) To the best of the Borrowers' knowledge, there are no
proceedings or actions which are threatened or pending against any Account
Debtor which might result in any material adverse change in its financial
condition or business; and
(j) The Accounts have not been pledged or sold to any other
Person or otherwise encumbered and the respective Borrowers are the owners
of the Accounts free of all claims, liens and encumbrances except those of
Lender.
9.3 Inventory Warranties and Representations. The Borrowers warrant and
----------------------------------------
represent that Lender may rely, in determining which items of Inventory listed
on any Inventory Report are Eligible Inventory, without independent
investigation, on all statements, warranties and representations made by the
Borrowers on or with respect to any such Inventory Report and, unless otherwise
indicated in writing by the Borrowers, that
(a) All Inventory is located on premises listed on Exhibit "C" or
-----------
is Inventory which is in transit and is so identified on the relevant
Inventory Report;
(b) The Inventory has been produced in full compliance with all
requirements of the Federal Labor Standards Act, 29 U.S.C. (S)(S) 207 et
seq., as amended from time to time;
(c) Except as specified on Exhibit "C", no Inventory is now, and
-----------
shall not at any time or times hereafter be, stored with a bailee,
warehouseman or similar party without Lender's prior written consent and,
if Lender gives such consent, the applicable Borrower will concurrently
therewith cause any such bailee, warehouseman or similar party to issue and
deliver to Lender, in form and substance acceptable to Lender, warehouse
receipts therefor in Lender's name; and
(d) The indicated Borrower is the owner of all of the Inventory
free and clear of all claims, liens and encumbrances except those of Lender
and none of the Inventory has been leased, rented, transferred or sold,
either on consignment, on a sale or return basis, on approval, or
otherwise.
9.4 Automatic Warranty and Representation and Reaffirmation of Warranties
---------------------------------------------------------------------
and Representations. Each request for an advance made by the Borrowers pursuant
- -------------------
to this Agreement or the Ancillary Agreements shall constitute (i) an automatic
warranty and representation by the Borrowers to Lender that there does not then
exist a Default or an Event of Default and (ii) a reaffirmation as of the date
of said request of all of the warranties and representations of the Borrowers
contained in this Agreement and in the Ancillary Agreements.
9.5 Survival of Warranties and Representations. The Borrowers covenant,
------------------------------------------
warrant and represent to Lender that all representations and warranties of the
Borrowers contained in this Agreement and the Ancillary Agreements shall be true
at the time of the Borrowers' execution of this Agreement and the Ancillary
Agreements, and shall survive the execution, delivery and acceptance hereof and
thereof by the parties thereto and the closing of the transactions described
herein and therein or related hereto or thereto.
<PAGE>
10. COVENANTS AND CONTINUING AGREEMENTS
-----------------------------------
10.1 Affirmative Covenants. The Borrowers covenant that they shall:
---------------------
(a) Financial Tests. At all times hereafter maintain in each
---------------
case, on a consolidated basis:
(i) Tangible Net Worth of not less than the correlative
amounts indicated below for the periods stated:
Minimum Consolidated
Fiscal Quarter Ending Tangible Net Worth
--------------------- --------------------
September 30, 1998 $ 750,000
December 31, 1998 $1,100,000
March 31, 1999 $1,250,000
June 30, 1999 $1,400,000
September 30, 1999 $1,700,000
December 31, 1999 $2,000,000
March 31, 2000 $2,300,000
June 30, 2000 $2,600,000;
at no time shall any individual Borrower have a negative Tangible Net
Worth.
(ii) Net Income (calculated year to date) of not less
than the correlative amounts indicated below for the periods stated:
Minimum Consolidated
Fiscal Quarter Ending Tangible Net Income
--------------------- ---------------------
September 30, 1998 $150,000
December 31, 1998 $300,000
March 31, 1999 $150,000
June 30, 1999 $120,000
September 30, 1999 $300,000
December 31, 1999 $300,000
March 31, 2000 $300,000
June 30, 2000 $300,000; and
(iii) Leverage Ratio of not greater than the correlative
amounts indicated below for the periods stated:
Minimum Consolidated
Fiscal Quarter Ending Leverage Ratio
--------------------- --------------------
September 30, 1998 25.0 to 1.0
December 31, 1998 22.0 to 1.0
March 31, 1999 28.0 to 1.0
<PAGE>
Minimum Consolidated
Fiscal Quarter Ending Leverage Ratio
--------------------- --------------------
June 30, 1999 22.0 to 1.0
September 30, 1999 17.0 to 1.0
December 31, 1999 13.0 to 1.0
March 31, 2000 12.0 to 1.0
June 30, 2000 11.0 to 1.0
(b) Bank Fees. Pay to Lender, on demand, any and all fees, costs
---------
or expenses which Lender or any Participant pays to a bank or other similar
institution arising out of or in connection with (i) the forwarding to the
Borrowers or any other Person on behalf of the Borrowers, by Lender or any
Participant, of proceeds of loans made by Lender to the Borrowers pursuant
to this Agreement and (ii) the depositing for collection, by Lender or any
Participant, of any check or item of payment received or delivered to
Lender or any Participant on account of the Liabilities;
(c) Notice of Loss of Collateral. Notify Lender promptly of any
----------------------------
event or occurrence causing a material loss or decline in value of the
Collateral and the estimated (or actual, if available) amount of such loss
or decline;
(d) Notice re Account Debtors. Promptly upon any Borrower's
-------------------------
learning thereof, notify Lender of (i) any material delay in such
Borrower's performance of any of its obligations to any Account Debtor and
of any assertion of any claims, offsets, defenses or counterclaims by any
Account Debtor and of any allowances or credits granted (including all
credits issued for returned or repossessed Inventory) or other monies
advanced by such Borrower to any Account Debtor and (ii) all material
adverse information relating to the financial or other condition of any
Account Debtor;
(e) Financials. Keep books of account and prepare consolidated
----------
and consolidating financial statements ("Financials") and furnish to Lender
the following (all to be kept and prepared in accordance with GAAP, unless
the Borrowers' independent certified public accountants concur in any
changes therein and such changes are disclosed in writing to Lender and are
consistent with then generally accepted accounting principles):
(i) as soon as available, but not later than ninety (90)
days after the close of each fiscal year of the Borrowers, Financials
of the Borrowers (including a balance sheet, a statement of profit and
loss and of surplus, and a statement of cash flows, each with
supporting footnotes) as at the end of such year and for the year then
ended all in reasonable detail as requested by Lender and audited by a
firm of independent certified public accountants of recognized
national standing selected by the Borrowers and containing the
unqualified opinion of such independent certified public accountants
with respect to the Financials;
(ii) as soon as available, but not later than thirty (30)
days after the end of each month, unaudited Financials of the
Borrowers (including a statement of profit and loss and of surplus for
the month then ended and a balance sheet as at the end of such month)
as at the end of the portion of the Borrowers' fiscal year then
elapsed, all in reasonable detail as requested by Lender and certified
<PAGE>
by the Borrowers' principal financial officer as prepared in
accordance with GAAP and fairly presenting the financial position and
results of operations of the Borrowers for such period;
(iii) as soon as possible, but not later than fifteen (15)
days after the end of each month, (A) an Accounts aging (B) an aging
of all accounts payable, and (C) an Inventory Report, all in
reasonable detail as requested by Lender and certified by the
principal financial officer of each Borrower as prepared in accordance
with GAAP and fairly presenting the financial position and results of
each Borrower for such period;
(iv) by Friday of each week, a Daily Collateral Report;
(v) as soon as available, but not later than sixty (60)
days before the beginning of each fiscal year of the Borrowers, a
cash flow projection for such fiscal year, together with appropriate
supporting documents reasonably acceptable to Lender; and
(vi) such other data and information (financial or
otherwise) as Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral, the Borrowers' financial
condition or results of operations, or the financial condition of any
Person who is a Guarantor;
(f) Notice re Ineligibility of Accounts or Inventory. Notify
------------------------------------------------
Lender promptly, but in no event later than five (5) days after any
Borrower's learning thereof, that any Eligible Account or Eligible
Inventory has ceased to be an Eligible Account or Eligible Inventory and
the reason(s) for such ineligibility;
(g) Notice re Litigation. Notify Lender, promptly upon any
--------------------
Borrower's learning of (i) any litigation affecting such Borrower, whether
or not the claim is considered by such Borrower to be covered by insurance;
and (ii) the institution of any suit or administrative proceeding which may
materially and adversely affect the operations, financial condition or
business of such Borrower or which may affect Lender's security interest in
the Collateral;
(h) Copies of Agreements. Provide Lender with copies of all
--------------------
agreements between any Borrower and any warehouse at which Inventory may,
from time to time, be kept and all leases or similar agreements between any
Borrower and any Person, whether such Borrower is the lessor or lessee
thereunder;
(i) Notice of Default. Notify Lender, promptly upon learning
-----------------
thereof, of any Default or Event of Default;
(j) Environmental Matters. Give written notice to Lender
---------------------
immediately upon receipt of any notice that (i) the operations of any
Borrower, any other obligor or any Subsidiary of any Borrower are not in
full compliance with requirements of applicable Environmental Laws: (ii)
any Borrower, any other obligor or any Subsidiary of any Borrower is
subject to any federal or state investigation evaluating whether any
remedial action is needed to respond to the release of any Hazardous
<PAGE>
Material into the environment; or (iii) any properties or assets of any
Borrower, any other obligor or any Subsidiary of any Borrower are subject
to an Environmental Lien. As used herein, "Environmental Lien" means a
lien in favor of any governmental entity for (A) any liability under any
Environmental Laws, or (B) damages arising from or costs incurred by such
governmental entity in response to a release of a Hazardous Material into
the environment. Without limiting the generality of any of the Borrowers'
other covenants and agreements, the operations of the Borrowers, any other
obligor and each of the Borrowers' Subsidiaries shall at all times comply
in all material respects with all applicable Environmental Laws. The
materiality standard used in this Section shall be exceeded if the facts
giving rise to a breach or breaches of the covenant contained herein might
result in liability in excess of Fifty Thousand Dollars ($50,000) in the
aggregate.
(k) Guaranty. Provide Lender with and maintain in effect a
--------
guaranty in form and substance satisfactory to Lender and executed by
Donald J. Esters, an individual; and
(l) Accounting Systems Upgrade. The Borrowers shall upgrade
--------------------------
their accounting systems to Lender's satisfaction, making such upgraded
systems fully operational by January 31, 1999 for EISI and by March 31,
1999 for Higginbotham, Alford and the Parent, including the Parent's
Digital Division.
(m) Year 2000 Compatibility. The Borrowers shall take all
-----------------------
actions necessary to ensure that there will be no material adverse change
to any Borrower's business by reason of the advent of the year 2000,
including, without limitation, that all computer-based systems, embedded
microchips and other processing capabilities effectively recognize and
process dates after April 1, 1999. At Lender's request, the Borrowers
shall provide to Lender assurance reasonably acceptable to Lender that the
Borrowers' computer-based systems, embedded microchips and other processing
capabilities are year 2000 compatible.
10.2 Negative Covenants. The Borrowers covenant that they shall not,
------------------
without the prior written consent of Lender:
(a) Merger. Merge or consolidate with or acquire any Person;
------
(b) Investments. Other than in the ordinary course of its
-----------
business, make any investment in the securities of any Person;
(c) Dividends. Declare or pay dividends upon any of their Stock
---------
or make any distribution of their property or assets or make any loans,
advances or extensions of credit to any Person, including, without
limitation, any of their respective Affiliates, officers or employees;
provided that each Borrower may issue stock dividends upon its Stock so
long as the same is in accordance with all applicable laws and provided no
Default has occurred;
(d) Loans, Advances and Salaries. In any twelve month period,
----------------------------
make any loans or other advances of money (other than salary) to officers,
directors, stockholders or Affiliate of any Borrower that exceed Twenty-
Five Thousand Dollars
<PAGE>
($25,000) individually or Fifty Thousand Dollars in the aggregate, or
permit the annual salary and all other direct and indirect remuneration
to the officers of any Borrower to exceed One Million Five Hundred
Thousand Dollars ($1,500,000) in the aggregate;
(e) Redemptions. Redeem, retire, purchase or otherwise acquire,
-----------
directly or indirectly, any Stock of any of the Borrowers;
(f) Change in Business. Make any material change in any
------------------
Borrower's capital structure or in any of its business objectives, purposes
and operations which might in any way adversely affect the repayment of the
Liabilities;
(g) Affiliate Transactions. Enter into, or be a party to, any
----------------------
transaction with any Affiliate, director, officer or stockholder of any
Borrower, except in the ordinary course of and pursuant to the reasonable
requirements of such Borrower's business and upon fair and reasonable terms
which are fully disclosed to Lender and are no less favorable to such
Borrower than would obtain in a comparable arm's length transaction with a
Person not an Affiliate, director, officer or stockholder of such Borrower;
(h) Agreements re Collateral. Enter into any transaction which
------------------------
materially and adversely affects the Collateral or the Borrowers' ability
to repay the Liabilities or permit or agree to any extension, compromise or
settlement or make any change or modification of any kind or nature with
respect to any Account, including any of the terms relating thereto, except
for credits given for Inventory returned pursuant to Section 7.4;
-----------
(i) Guaranty. Guarantee or otherwise, in any way, become liable
--------
with respect to the obligations or liabilities of any Person, except (i)
their Affiliates' obligations to Lender and (ii) by endorsement of
instruments or items of payment for deposit to the general account of the
Borrowers or for delivery to Lender on account of the Liabilities;
(j) Deposits to Affiliates. Make deposits to or withdrawals from
----------------------
any of their deposit accounts for the benefit of any Affiliate;
(k) Encumbrances. Except as otherwise expressly permitted herein
------------
or in the Ancillary Agreements, encumber, pledge, mortgage, grant a
security interest in, assign, sell, lease or otherwise dispose of or
transfer, whether by sale, merger, consolidation, liquidation, dissolution,
or otherwise, any of the Borrowers' assets;
(l) Indebtedness for Borrowed Money. Incur any Indebtedness for
-------------------------------
borrowed money in excess of Seven Hundred Fifty Thousand Dollars ($750,000)
other than the Liabilities, except for Indebtedness which is unsecured and
is with Persons who execute and deliver to Lender (in form and substance
acceptable to Lender) subordination agreements subordinating their claims
against the applicable Borrower to the payment of the Liabilities;
(m) Capital Expenditures. Make capital expenditures, including
--------------------
capital
<PAGE>
leases and operating leases, in any fiscal year which, in the aggregate,
exceed Two Million Dollars ($2,000,000);
(n) Affiliate Accounts. Permit any Accounts owing to any
------------------
Borrower from any Affiliate to be payable on terms which would not allow
such Borrower to demand payment upon the occurrence of a default or permit
the aggregate amount of all Accounts owing from its Affiliates at any time
to exceed Ten Thousand Dollars ($10,000) unless a Default has occurred in
which case such Borrower shall permit no Accounts to be owing from its
Affiliates;
(o) Deposit Accounts. Open, transfer, close or change any of the
----------------
Borrowers' deposit accounts. A description of all of the Borrowers'
deposit accounts is provided in Schedule 10.2 hereto; or
-------------
(p) Subordinated Debt. Make any payments (whether of interest,
-----------------
principal or otherwise) on any Indebtedness subordinated to the Liabilities
while any Default exists or otherwise in contravention of the terms of the
subordination agreement between Lender and the holder of such Indebtedness.
10.3 Contesting Charges. Notwithstanding anything to the contrary herein,
------------------
the Borrowers may dispute any Charges without prior payment thereof, even if
such non-payment may cause a lien to attach to a Borrower's assets, provided
that the Borrowers shall give Lender prompt notice of such dispute and shall be
diligently contesting the same in good faith and by an appropriate proceeding
and there is no danger of a loss or forfeiture of any of the Collateral or of
Lender's priority position with respect to such Collateral and provided further
that, if the same are potentially or actually in excess of Twenty-Five Thousand
Dollars ($25,000) in the aggregate at any time hereafter, the Borrowers shall
give Lender such additional collateral and assurances as Lender, in its sole
discretion, deems necessary under the circumstances, immediately upon demand by
Lender.
10.4 Payment of Charges. Subject to the provisions of Section 10.3, the
------------------ ------------
Borrowers shall pay all of the Charges promptly when due . In the event the
Borrowers, at any time or times hereafter, shall fail to pay the Charges or to
promptly obtain the satisfaction of such Charges, the Borrowers shall promptly
so notify Lender thereof and Lender may, without waiving or releasing any
obligation or liability of the Borrowers hereunder or any Default, in its sole
discretion, at any time or times thereafter, make such payment or any part
thereof, (but shall not be obligated so to do) or obtain such satisfaction and
take any other action with respect thereto which Lender deems advisable. All
sums so paid by Lender and any expenses, including reasonable attorneys' fees,
court costs, expenses and other charges relating thereto, shall be payable by
the Borrower to Lender upon demand and shall be additional Liabilities.
10.5 Insurance; Payment of Premiums. At their sole cost and expense, the
------------------------------
Borrowers shall (i) keep and maintain the Collateral insured for the greater of
original cost or replacement value of the Collateral against loss or damage by
fire, theft, explosion, sprinklers and all other hazards and risks in amounts
customary for companies of similar size engaged in the same or similar
businesses; (ii) maintain product liability insurance in an amount customary for
the business conducted by the Borrowers and acceptable to Lender; and (iii)
general public liability insurance in an amount satisfactory to Lender but in no
event
<PAGE>
less than Two Million Dollars ($2,000,000) per occurrence, for bodily
injury and property damage. All policies of insurance on the Collateral or
otherwise required hereunder shall be in form and amount satisfactory to Lender
and with insurers reasonably recognized as adequate by Lender. The Borrowers
shall deliver to Lender a copy of each policy of insurance and, if requested,
evidence of payment of all premiums therefor and shall deliver renewals of all
such policies to Lender at least thirty (30) days prior to their expiration
dates. Such policies of insurance shall contain an endorsement, in form and
substance acceptable to Lender, showing all losses payable to Lender. Such
endorsement shall provide that the insurance companies will give Lender at least
thirty (30) days' prior notice before any such policy shall be altered or
canceled and that no act or default of any Borrower or any other person shall
affect the right of Lender to recover under such policy in case of loss or
damage. The Borrowers hereby direct all insurers under such policies to pay all
proceeds payable thereunder directly to Lender. After the occurrence and during
the continuance of a Default, each of the Borrowers irrevocably makes,
constitutes and appoints Lender (and all officers, employees or agents
designated by Lender) as such Borrower's true and lawful attorney and agent-in-
fact for the purpose of making, settling and adjusting claims under such
policies (provided that Lender shall consult with such Borrower prior to
finally making, settling or adjusting claims under such policies), endorsing
the name of such Borrower in writing or by stamp on any check, draft,
instrument or other item of payment for the proceeds of such policies and for
making all determinations and decisions with respect to such policies. If the
Borrowers shall fail to obtain or maintain any of the policies required by
this Section 10.5 or to pay any premium relating thereto, then Lender, without
------------
waiving or releasing any obligation or default by the Borrowers hereunder, may
(but shall be under no obligation to do so) obtain and maintain such policies
of insurance and pay such premiums and take any other action with respect
thereto which Lender deems advisable. All sums so disbursed by Lender,
including reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, shall be payable by the Borrowers to Lender upon demand and
shall be additional Liabilities.
10.6 Survival of Obligations Upon Termination of Agreement. Except as
-----------------------------------------------------
otherwise expressly provided for in this Agreement and in the Ancillary
Agreements, no termination or cancellation (regardless of cause or procedure) of
this Agreement or the Ancillary Agreements shall in any way affect or impair the
powers, obligations, duties, rights, and liabilities of the Borrowers or Lender
in any way or respect relating to any transaction or event occurring prior to
such termination or cancellation, the Collateral, or any of the undertakings,
agreements, covenants, warranties and representations of the Borrowers or Lender
contained in this Agreement or the Ancillary Agreements. All such undertakings,
agreements, covenants, warranties and representations shall survive such
termination or cancellation.
10.7 Environmental Indemnity. Each of the Borrowers hereby indemnifies
-----------------------
Lender, its successors and assignees, and agrees to hold Lender harmless from
and against any and all losses, liabilities, damages, injuries, costs, expenses
and claims of any and every kind whatsoever (including, without limitation,
court costs and attorneys' fees) which at any time or from time to time may be
paid, incurred or suffered by, or asserted against, Lender for, with respect to,
or as a direct or indirect result of the violation by such Borrower, any other
obligor or any of such Borrower's Subsidiaries, of any laws, including but not
limited to, the Environmental Laws or any laws or regulations relating to
Hazardous Materials, treatment, storage, disposal, generation and
transportation, air, water and noise pollution, soil or ground
<PAGE>
or water contamination, the handling, storage or release into the environment
of Hazardous Materials; or with respect to, or as a direct or indirect result
of the presence on or under, or the escape, seepage, leakage, spillage,
discharge, emission or release from, properties utilized by such Borrower, any
other obligor or any of such Borrower's Subsidiaries in the conduct of their
respective business into or upon any land, the atmosphere, or any watercourse,
body of water or wetland, of any Hazardous Materials (including, without
limitation, any losses, liabilities, damages, injuries, costs, expenses or
claims asserted or arising under the Environmental Laws) provided that such
Borrower shall not be liable to any indemnified party with respect to any
matter arising from such indemnified party's gross negligence or wilful
misconduct; and the provisions of and undertakings and indemnification set out
in this Section shall survive the satisfaction and payment of the Liabilities
and the termination of this Agreement.
10.8 Change of Control. It is covenanted and agreed by the Borrowers that
-----------------
no person or group which is not a shareholder in or beneficial owner of any of
the Borrowers as of the Closing Date, shall directly or indirectly acquire the
legal or beneficial ownership of more than five percent (5%) of the Borrowers;
provided, however, that if such group is Levine & Leichtman Capital Partners,
Weston Presidio Capital or other comparable investment firm reasonably
acceptable to Lender, the above five percent (5%) limitation shall be increased
to twenty-five percent (25%). In addition, Donald J. Esters and his family
partnership or trust collectively shall be required to maintain legal or
beneficial ownership, either directly or by ownership of shares in the
Borrowers' parent company in a sufficient amount to have the power to direct or
cause the direction of management, operation or policies of the Borrowers. In
no event, however, shall any other group or person (other than Donald J. Esters
and his family partnership or trust) obtain the power to elect, appoint or cause
the election or appointment of, a majority of the members of the Board of
Directors of any Borrower, through beneficial ownership of capital stock of such
Borrower or otherwise.
10.9 Revisions or Updates. Should any of the information or disclosures
--------------------
provided on any of the Schedules or Exhibits originally attached hereto become
outdated or incorrect in any material respect, the Borrowers promptly shall
provide to Lender such revisions or updates as may be necessary or appropriate
to update or correct such Schedule(s) or Exhibit(s); provided that no such
revisions or updates shall be deemed to have amended, modified or superseded
such Schedule or Exhibit as originally attached hereto, or to have cured any
breach of warranty or representation resulting from the inaccuracy or
incompleteness of any such Schedule or Exhibit unless and until Lender, in its
sole and absolute discretion, shall have accepted in writing such revisions or
updates.
11. CONDITIONS PRECEDENT TO CLOSING
-------------------------------
Lender will not be obligated to make any advances hereunder unless the
following conditions precedent have been satisfied as determined by Lender:
(a) All of the Borrowers' representations and warranties
contained in this Agreement and the Ancillary Agreements shall be correct
and complete; the Borrowers shall have performed and complied with all
covenants, agreements, and conditions contained herein and in the Ancillary
Agreements which are required to have been performed or complied with; and
there shall exist no Default or Event of
<PAGE>
Default.
(b) The Borrowers shall have delivered, or cause to be delivered,
to Lender the documents listed on Exhibit "H" hereto and such other
-----------
documents, instruments and agreements as Lender shall request in
connection herewith, duly executed by all parties thereto other than
Lender, and in form and substance satisfactory to Lender and its
counsel.
(c) No material adverse change in the condition or operations,
financial or otherwise, of the Borrowers or the Guarantor shall have
occurred during the period (the "Interim Period") commencing on the
date of Lender's latest audit of the Borrowers (i.e., May 31, 1998)
and ending on the Closing Date;
(d) None of the Borrowers shall have entered into any material
commitment or material transaction during the Interim Period,
including, without limitation, transactions for borrowings and capital
expenditures, which are not in the ordinary course of such person's
business.
(e) None of the Borrowers shall have made any material change in
its accounting methods or principles during the Interim Period;
(f) No materially advantageous agreement now in effect between
any of the Borrowers and any other person or entity shall have been
terminated, modified or declared to be in default during the Interim
Period;
(g) There shall not have been instituted or threatened, during
the Interim Period, any material litigation or proceeding in any court
or administrative forum to which any of the Borrowers is, or might
become, a party;
(h) On the Closing Date, the present fair saleable value of the
assets of each of the Borrowers shall be greater than the total
liabilities of such Borrower, including without limitation, contingent
liabilities, and Lender shall be satisfied that the present fair
saleable value of the assets of each of the Borrowers will continue
thereafter to be greater than the total liabilities of such Borrower,
including, without limitation, contingent liabilities;
(i) On the Closing Date, all of the assets supporting the
Liabilities shall be sufficient in value, as determined by Lender, to
provide the Borrowers with working capital to enable the Borrowers to
profitably operate their respective business;
(j) Subordination agreements and intercreditor agreements
(including, without limitation, debt subordination agreements with
Sand Hill Partners and with the respective sellers of Higginbotham and
the Digital Division) in form and substance satisfactory to Lender
shall have been executed and delivered by the Borrowers and such other
parties as Lender deems necessary;
(k) During the Interim Period, Lender or its representatives
shall have
<PAGE>
been given access at all reasonable times to inspect and evaluate the
Collateral and the Borrower's books and records, and the Borrowers and
the Guarantor shall have provided Lender with all Financial and other
information which Lender may have reasonably requested;
(l) On the Closing Date, the Borrowers shall have excess
borrowing availability of not less than Five Hundred Thousand Dollars
($500,000) after giving effect to the refinancing of the Borrowers'
obligations to their existing Lenders, the payment of all fees, costs and
expenses associated with the closing of the financing transaction
contemplated hereunder and after bringing all accounts payable to within
sixty (60) days past due based on vendor terms;
(m) Lender shall have received the final written report from
Dovetech, Inc. regarding such company's appraisal of the inventory of the
Borrowers, and Lender's AAAG division shall have reviewed and been
satisfied with the information reflected in such report;
(n) Lender shall have received and been satisfied with its review
of the personal financial statement of Donald J. Esters, which financial
statement, among other things, shall demonstrate that Mr. Esters' net
worth, excluding the value of his equity interests in the Borrowers, is at
least $2,000,000;
(o) Lender shall have completed its review of, and found
acceptable, the Borrowers' insurance coverage;
(p) Lender shall have received copies of all labor contracts to
which any Borrower is a party, and all labor contracts necessary to the
continuation of the respective business operations of the Borrowers shall
be in effect on the Closing Date; and
(q) The Borrowers shall have paid the Loan Fee, the balance of
the Commitment Fee, Lender's initial Audit Fee and all other fees and
expenses of Lender which are due and payable on the Closing Date.
12. DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
---------------------------------------
12.1 Default. The occurrence of any one or more of the following events
-------
shall constitute a Default:
(a) The Borrowers fail to pay any part of the Liabilities when
due or declared due or the Borrowers in default in the payment of any of
the Indebtedness;
(b) The Borrowers or any Guarantor fail or neglect to perform,
keep or observe any other term, provision, condition or covenant contained
in this Agreement or in the Ancillary Agreements, which is required to be
performed, kept or observed by the Borrowers or any Guarantor;
(c) A default shall occur under any material agreement, document
or instrument, other than this Agreement or any of the Ancillary
Agreements, now or
<PAGE>
hereafter existing, to which any Borrower is a party;
(d) Any statement, warranty, representation, report, financial
statement, or certificate made or delivered by any Borrower or by any
Guarantor, or any of their officers, employees or agents, to Lender is not
true and correct in any material respect;
(e) There shall occur any material uninsured damage to or loss,
theft, or destruction of any of the Collateral;
(f) The Collateral or any other asset of any of the Borrowers or
of any Guarantor is attached, seized, levied upon or subjected to a writ or
distress warrant, or comes within the possession of any receiver, trustee,
custodian or assignee for the benefit of creditors and the same is not
dismissed or otherwise avoided within thirty (30) days thereafter; or
applica tion is made by any Person other than a Borrower or any Guarantor
for the appointment of a receiver, trustee, or custodian for any of the
Collateral or any other asset of any of the Borrowers or of any Guarantor
and the same is not dismissed within thirty (30) days after the application
therefor;
(g) An application is made by any Borrower or any Guarantor for
the appointment of a receiver, trustee or custodian for any of the
Collateral or any other asset of any of the Borrowers or of any Guarantor;
a petition under any section or chapter of the Bankruptcy Code or similar
law or regulation is filed by any Borrower or any Guarantor; a petition
under any section or chapter of the Bankruptcy Code or similar law or
regulation is filed against any Borrower or any Guarantor and is not
dismissed within thirty (30) days after filing; any Borrower or any
Guarantor makes an assignment for the benefit of its creditors or any case
or proceeding is filed by or against any Borrower or any Guarantor for its
dissolution, liquidation, or termina tion; any Borrower or any Guarantor
ceases to conduct its business as now conducted or is enjoined, restrained
or in any way prevented by court order from conducting all or any material
part of its business affairs;
(h) Except as permitted in Section 10.3, a notice of lien, levy
------------
or assessment is filed of record with respect to all or any substantial
portion of any Borrower's or any Guarantor's assets by the United States,
or any department, agency or instrumentality thereof, or by any state,
county, municipal or other governmental agency including, without
limitation, the Pension Benefit Guaranty Corporation, or any taxes or debts
owing to any of the foregoing becomes a lien or encumbrance upon the
Collateral or any other asset of any of the Borrowers or of any Guarantor
and such lien or encumbrance is not released within thirty (30) days after
its creation;
(i) Judgment is rendered against any Borrower or any Guarantor in
excess of Twenty-Five Thousand Dollars ($25,000) and such Borrower or
Guarantor, as applicable, fails to immediately satisfy such judgment or
fails to bond and stay enforcement of such judgment and commence
appropriate proceedings to appeal such judgment within the applicable
appeal period or, after such appeal is filed, such Borrower or Guarantor,
as applicable, fails to diligently prosecute such appeal or such appeal is
denied;
<PAGE>
(j) Any Borrower or any Guarantor becomes insolvent or fails
generally to pay its or his debts as they become due;
(k) The Borrowers fail within fifteen (15) days after the
occurrence of any of the following events, to furnish Lender with
appropriate notice thereof: (i) the happening of a Reportable Event with
respect to any profit sharing or pension plan governed by ERISA (such
notice shall contain the statement of the chief financial officer of the
applicable Borrower setting forth details as to such Reportable Event and
the action which such Borrower proposes to take with respect thereto and a
copy of the notice of such Reportable Event to the Pension Benefit Guaranty
Corporation), (ii) the termination of any such plan, (iii) the appointment
of a trustee by an appropriate United States District Court to administer
any such plan, or (iv) the institution of any proceedings by the Pension
Benefit Guaranty Corporation to terminate any such plan or to appoint a
trustee to administer any such plan;
(l) The Borrowers fail to: (i) furnish to Lender a copy of each
report which is filed by any Borrower with respect to any profit sharing or
pension plan governed by ERISA promptly after the filing thereof with the
Secretary of Labor or the Pension Benefit Guaranty Corporation or (ii)
notify Lender promptly upon receipt by any Borrower of any notice of the
institution of any proceeding or other actions which may result in the
termination of any such plans;
(m) Any individual who is a Guarantor shall die or become
incompetent and a new Guarantor or substitute performance, acceptable to
Lender, is not provided within thirty (30) days;
(n) Any Guarantor revokes or terminates any guaranty relating to
any of the Liabilities or defaults under the terms of any such guaranty; or
(o) A default occurs under any agreement, instrument or document
relating to any of the Liabilities heretofore, now or at any time or times
hereafter executed by, or delivered to Lender by any Borrower or by any
Guarantor.
12.2 Acceleration of the Liabilities. Upon and after the occurrence of a
-------------------------------
Default, all of the Liabilities may, at the option of Lender and without demand,
notice, or legal process of any kind, be declared, and immediately shall become,
due and payable.
12.3 Advances During Cure Period. Upon the occurrence of a Default which
---------------------------
is subject to any cure period, Lender may, in its sole discretion, cease making
further advances during the time such Default remains uncured.
12.4 Default Rate. Upon the occurrence and during the continuance of a
------------
Default, the Loans shall bear interest at a Default Rate equal at all times to
three percent (3%) above the applicable interest rate provided for such Loans,
such Default rate to begin upon the occurrence of the Default and to be adjusted
upon any interest rate change as provided herein.
12.5 Remedies. Upon and after the occurrence of a Default, Lender shall
--------
have all of
<PAGE>
the following rights and remedies:
(a) All of the rights and remedies of a secured party under the
California Commercial Code or any other applicable law, all of which rights
and remedies shall be cumulative, and not exclusive, to the extent
permitted by law and in addition to any other rights and remedies contained
in this Agreement and in any of the Ancillary Agreements;
(b) The right to (i) peacefully enter upon the premises of any
Borrower or any other place or places where the Collateral is located,
without any obligation to pay rent to any Borrower or any other Person,
through self-help and without judicial process or first obtaining a final
judgment or giving any Borrower notice and opportunity for a hearing on the
validity of Lender's claim, and remove the Collateral from such premises
and places to the premises of Lender or any agent of Lender, for such time
as Lender may require to collect or liquidate the Collateral, and/or (ii)
require the Borrowers to assemble and deliver the Collateral to Lender at a
place to be designated by Lender;
(c) The right to (i) open any Borrower's mail and collect any and
all amounts due from Account Debtors or direct that any Borrower's mail be
diverted to a post office box or other location as determined by Lender,
(ii) notify Account Debtors that the Accounts have been assigned to Lender
and that Lender has a security interest therein and (iii) direct such
Account Debtors to make all payments due from them upon the Accounts,
including the Special Collateral, directly to Lender or to a lock box
designated by Lender. Lender shall promptly furnish the Borrowers with a
copy of any such notice sent and the Borrowers hereby agree that any such
notice in Lender's sole discretion, may be sent on Lender's stationery, in
which event, the Borrowers shall, upon demand, co-sign such notice with
Lender;
(d) The right to sell, lease or to otherwise dispose of all or
any Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, in lots or in bulk,
for cash or on credit, all as Lender, in its sole discretion, may deem
advisable. At any such sale or sales of the Collateral, the Collateral
need not be in view of those present and attending the sale, nor at the
same location at which the sale is being conducted. Lender shall have the
right to conduct such sales on the Borrowers' premises or elsewhere and
shall have the right to use the Borrowers' premises without charge for such
sales for such time or times as Lender may see fit. Lender is hereby
granted a license or other right to use, without charge, the Borrowers'
labels, patents, copyrights, rights of use of any name, trade secrets,
trade names, trademarks and advertising matter, or any property of a
similar nature, as it pertains to the Collateral, in advertising for sale
and selling any Collateral and the Borrowers' rights under all licenses and
all franchise agreements shall inure to Lender's benefit but Lender shall
have no obligations thereunder. Lender may purchase all or any part of the
Collateral at public or, if permitted by law, private sale and, in lieu of
actual payment of such purchase price, may setoff the amount of such price
against the Liabilities. The proceeds realized from the sale of any
Collateral shall be applied first to the costs, expenses and attorneys'
fees and expenses incurred by Lender for collection and for acquisition,
completion, protection, removal, storage, sale and delivery of the
Collateral; second
<PAGE>
to interest due upon any of the Liabilities; and third to the principal
of the Liabilities. Lender shall account to the Borrowers for any
surplus. If any deficiency shall arise, the Borrowers shall remain liable
to Lender therefor.
12.6 Notice. The Borrowers agree that any notice required to be given by
------
Lender of a sale, lease, or other disposition of any of the Collateral or any
other intended action by Lender, which is personally delivered to the Borrowers
or which is deposited in the United States mail, postage prepaid and duly
addressed to the Borrowers at the address set forth in Section 13.10, at least
-------------
five (5) days prior to any such public sale, lease or other disposition or other
action being taken, or the time after which any private sale of the Collateral
is to be held, shall constitute commercially reasonable and fair notice thereof
to the Borrowers.
13. MISCELLANEOUS
-------------
13.1 Appointment of Lender as the Borrowers' Lawful Attorney-In-Fact. Each
---------------------------------------------------------------
Borrower, irrevocably designates, makes, constitutes and appoints Lender (and
all persons designated by Lender) as such Borrower's true and lawful attorney
and agent-in-fact (this power of attorney is coupled with an interest) and
Lender, or Lender's agent, may, without notice to such Borrower:
(a) At any time hereafter, endorse by writing or stamp such
Borrower's name on any checks, notes, drafts or any other payment relating
to the Collateral which comes into the possession of Lender or under
Lender's control and deposit the same to the account of Lender for
application to the Liabilities;
(b) At any time after the occurrence of a Event of Default, in
such Borrower's or Lender's name: (i) demand payment of the Collateral;
(ii) enforce payment of the Collateral, by legal proceedings or otherwise;
(iii) exercise all of such Borrower's rights and remedies with respect to
the collection of the Collateral; (iv) settle, adjust, compromise, extend
or renew the Accounts and the Special Collateral; (v) settle, adjust or
compromise any legal proceedings brought to collect the Collateral; (vi) if
permitted by applicable law, sell or assign the Collateral upon such terms,
for such amounts and at such time or times as Lender deems advisable; (vii)
satisfy and release the Accounts and Special Collateral; (viii) take
control, in any manner, of any item of payment or proceeds referred to in
Section 4.3; (ix) prepare, file and sign such Borrower's name on any proof
-----------
of claim in Bankruptcy or similar document against any Account Debtor; (x)
prepare, file and sign such Borrower's name on any notice of lien,
assignment or satisfaction of lien or similar document in connection with
the Collateral; (xi) do all acts and things necessary, in Lender's sole
discretion, to fulfill such Borrower's obligations under this Agreement;
(xii) endorse by writing or stamp the name of such Borrower upon any
chattel paper, document, instrument, invoice, freight bill, bill of lading
or similar document or agreement relating to the Collateral; and (xiii) use
the information recorded on or contained in any data processing equipment
and computer hardware and software relating to the Collateral to which such
Borrower has access; and
(c) At any time after the occurrence of an Event of Default
notify the post office authorities to change the address for delivery of
such Borrower's mail to
<PAGE>
an address designated by Lender and receive, open and dispose of all mail
addressed to such Borrower.
13.2 Modification of Agreement; Assignment or Sale of Interest. This
---------------------------------------------------------
Agreement and the Ancillary Agreements may not be modified, altered or amended,
except by an agreement in writing signed by the Borrowers and Lender. The
Borrowers may not sell, assign or transfer this Agreement or the Ancillary
Agreements or any portion hereof or thereof, including, without limitation, the
Borrowers' right, title, interest, remedies, powers, or duties hereunder or
thereunder. The Borrowers hereby consent to Lender's participation, sale,
assignment, transfer or other disposition, at any time or times hereafter, of
this Agreement or the Ancillary Agreements or of any portion hereof or thereof,
including, without limitation, Lender's right, title, interest, remedies,
powers, or duties hereunder or thereunder.
13.3 Attorneys' Fees and Expenses; Lender's Out-of-Pocket Expenses. If, at
-------------------------------------------------------------
any time or times, whether prior or subsequent to the date hereof and regardless
of the existence of a Default or an Event of Default, Lender incurs legal or
other costs and expenses or employs counsel, accountants, advisors, consultants
and/or other professionals for advice or other representation or services in
connection with:
(a) The preparation, negotiation, execution and administration of
this Agreement, all Ancillary Agreements, any amendment of or modification
of this Agreement or the Ancillary Agreements or any sale or attempted sale
of any interest herein to a Participant;
(b) Any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Lender, any Borrower or any other Person) in any way
relating to the Collateral, this Agreement, the Ancillary Agreements or the
affairs of any of the Borrowers;
(c) Any attempt to enforce any rights of Lender or any
Participant against any Borrower or any other Person which may be obligated
to Lender or such Participant by virtue of this Agreement or the Ancillary
Agreements, including, without limitation, the Account Debtors;
(d) Any attempt to inspect, verify, protect, collect, sell,
liquidate or otherwise dispose of any of the Collateral; or
(e) Any inspection, verification, protection, collection, sale,
liquidation or other disposition of any of the Collateral, including
without limitation, Lender's periodic or special audits of the Borrowers'
books and records;
then, in any such event, the reasonable attorneys' and paralegals' fees and
expenses arising from such services and all reasonably incurred expenses, costs,
charges and other fees of or paid by Lender in any way or respect arising in
connection with or relating to any of the events or actions described in this
Section shall be payable by the Borrowers to Lender upon demand and shall be
additional Liabilities. Without limiting the generality of the foregoing, such
expenses, costs, charges and fees may include bank charges and fees,
accountants' fees, costs and expenses, court costs, fees and expenses,
photocopying and duplicating expenses, court reporter fees, costs and expenses,
long distance telephone charges, air
<PAGE>
express charges, telegram charges, secretarial over-time charges, and expenses
for travel, lodging and food paid or incurred in connection with the
performance of all such services. Notwithstanding the foregoing, in no event
shall the Borrowers be liable to Lender for the above-described costs and
expenses incurred by Lender through the Closing Date in an aggregate amount in
excess of $85,000.
13.4 Waiver by Lender. Lender's failure, at any time or times hereafter,
----------------
to require strict performance by the Borrowers of any provision of this
Agreement or the Ancillary Agreements shall not constitute a waiver, or affect
or diminish any right of Lender thereafter to demand strict compliance and
performance herewith or therewith. Any suspension or waiver by Lender of a
Default under this Agreement or the Ancillary Agreements shall not suspend,
waive or affect any other Default under this Agreement or the Ancillary
Agreements, whether the same is prior or subsequent thereto and whether of the
same or of a different type. None of the undertakings, agreements, warranties,
covenants and representations of the Borrowers contained in this Agreement or
the Ancillary Agreements and no Default under this Agreement or the Ancillary
Agreements shall be deemed to have been suspended or waived by Lender, unless
such suspension or waiver is by an instrument in writing signed by an officer of
Lender and directed to the Borrowers specifying such suspension or waiver.
13.5 Severability. Wherever possible, each provision of this Agreement and
------------
the Ancillary Agreements shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement or the
Ancillary Agreements shall be prohibited by or invalid under applicable law,
such provision shall be ineffective to the extent of such prohibition or
invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or the Ancillary Agreements.
13.6 Parties; Entire Agreement. This Agreement and the Ancillary
-------------------------
Agreements shall be binding upon and inure to the benefit of the respective
successors and assigns of the Borrowers and Lender. The Borrowers' respective
successors and assigns shall include, without limitation, a trustee, receiver or
debtor-in-possession of or for any of the Borrowers. Nothing contained in this
Section shall be deemed to modify Section 13.2. This written Agreement, the
------------
Ancillary Agreements and the other documents described or contemplated herein
represent the final agreement between the parties, embody the entire agreement
and understanding between the parties hereto and thereto, supersede all prior
agreements and understandings related to the subject matter hereof and thereof,
and may not be contradicted by evidence of prior, contemporaneous, or subsequent
oral agreements of the parties. There are no unwritten oral agreements between
the parties.
13.7 Conflict of Terms. The provisions of the Ancillary Agreements are
-----------------
incorporated in this Agreement by this reference. Except as otherwise provided
in this Agreement and except as otherwise provided in the Ancillary Agreements
by specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in conflict with, or inconsistent with,
any provision in any Ancillary Agreement, the provision contained in this
Agreement shall govern and control.
13.8 Waiver by Borrower. Except as otherwise provided for in this
------------------
Agreement, each Borrower waives (a) presentment, demand and protest, notice of
protest, notice of presentment, default, non-payment, maturity, release,
compromise, settlement, extension or
<PAGE>
renewal of any or all commercial paper, accounts, contract rights, documents,
instruments, chattel paper and guaranties at any time held by Lender on which
such Borrower may in any way be liable and hereby ratifies and confirms
whatever Lender may do in this regard; (b) all rights to notice and a hearing
prior to Lender's taking possession or control of, or to Lender's replevy,
attachment or levy upon, the Collateral or any bond or security which might be
required by any court prior to allowing Lender to exercise any of Lender's
remedies; and (c) the benefit of all valuation, appraisement, extension and
exemption laws. Each Borrower acknowledges that it has been advised by its own
counsel with respect to this Agreement and the transactions evidenced by this
Agreement. Each Borrower further agrees that (y) Lender shall have no
obligation to take, and such Borrower shall have the sole responsibility for
taking, any and all steps to preserve rights against any and all Account
Debtors and against any and all prior parties to any note, chattel paper,
draft, trade acceptance, or other instrument for the payment of money covered
by the security interest whether or not in Lender's possession and (z) Lender
shall not be responsible to such Borrower for loss or damage resulting from
Lender's failure to enforce any Accounts or to collect any moneys due or to
become due thereunder or other proceeds constituting Collateral hereunder
unless such loss or damage results from Lender's gross negligence or willful
misconduct.
13.9 Governing Law, Venue. This Agreement has been delivered for
--------------------
acceptance by Lender in Los Angeles County, California and shall be governed by
and construed in accordance with the internal laws (as opposed to the conflicts
of law provisions) of the State of California as the same may from time to time
be in effect, including without limitation the Uniform Commercial Code as
adopted in California. Each Borrower hereby (a) irrevocably submits to the
jurisdiction of any state or federal court located in Los Angeles County,
California over any action or proceeding to enforce or defend any matter arising
from or related to this Agreement; (b) waives personal service of any and all
process upon such Borrower, and consents that all such service of process be
made by messenger, certified mail or registered mail directed to such Borrower
at the address set forth in Section 13.10 and service so made shall be deemed to
-------------
be completed upon the earlier of actual receipt or three (3) days after the same
shall have been posted to such Borrower's address; (c) irrevocably waives, to
the fullest extent such Borrower may effectively do so, the defense of an
inconvenient forum to the maintenance of any such action or proceeding; (d)
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in any other jurisdictions by suit on the
judgment or in any other manner provided by law; and (e) agrees not to institute
any legal action or proceeding against Lender or any of Lender's directors,
officers, employees, agents or property, concerning any matter arising out of or
relating to this Agreement in any court other than one located in Los Angeles
County, California. Nothing in this Section shall affect or impair Lender's
right to serve legal process in any manner permitted by law or Lender's right to
bring any action or proceeding against any Borrower or any Borrower's property
in the courts of any other jurisdiction.
13.10 Notice. Except as otherwise provided herein or in the Ancillary
------
Agreements:
(a) All notices, requests, demands, directions and other
communications provided for hereunder or under any other Ancillary
Agreement must be in writing and must be mailed, telecopied or delivered to
the appropriate party at the address set forth below or, as to any party
hereto or to any Ancillary Agreement, at any other address as may be
designated by it in a written notice sent to all other
<PAGE>
parties in accordance with this Section; and
(b) Any notice, request, demand, direction or other communication
given by telecopier will be confirmed within 48 hours by letter mailed or
delivered to the appropriate party at its respective address. Except as
otherwise expressly provided herein or in any Ancillary Agreement, if any
notice, request, demand, direction or other communication required or
permitted by any Loan Document is given by mail it will be effective on the
earlier of receipt or the third calendar day after deposit in the United
States mail with first class or airmail postage prepaid; if given by
telecopier, when sent; or if given by personal delivery, when delivered.
If to Lender, at:
Sanwa Business Credit Corporation
550 North Brand Boulevard, Suite 950
Glendale, California 91203
Attn: Regional Credit Manager
Telephone (818) 545-0090
Telecopier (818) 545-0095
If to Borrowers, at:
c/o Electronic Integrated Solutions, Inc.
140 East Dana Street
Mountain View, California 94041-1508
Attn: Dennis T. Kushner
Vice President - Operations
Telephone (650) 237-4042
Telecopier (650) 969-4136
13.11 Section Titles, Etc.. The Section titles and table of contents, if
--------------------
any, contained in this Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto. All references herein to Sections, paragraphs, clauses and
other subdivisions refer to the corresponding Sections, paragraphs, clauses and
other subdivisions of this Agreement; and the words "herein", "hereof",
"hereby", "hereto", "hereunder", and words of similar import refer to this
Agreement as a whole and not to any particular Section, paragraph, clause or
subdivision hereof. All Exhibits which are referred to herein or attached
hereto are hereby incorporated by reference.
13.12 Course of Dealing. No course of dealing between Lender and the
-----------------
Borrowers or any third party and no delay or omission by Lender in exercising
any right or remedy hereunder or under any Ancillary Agreement or with respect
to any Liabilities shall operate as a waiver thereof or of any other right or
remedy, and no single or partial exercise thereof shall preclude any other or
further exercise thereof or the exercise of any other right or remedy. All
rights and remedies of Lender are cumulative.
<PAGE>
13.13 Setoff. Without limiting any other right of Lender, whenever Lender
------
has the right to declare any Liabilities to be immediately due and payable
(whether or not it has so declared), Lender at its sole election may setoff
against the Liabilities any and all monies then or thereafter owed to the
Borrowers by Lender in any capacity, whether or not the Liabilities or the
obligation to pay such monies owed by Lender is then due, and Lender shall be
deemed to have exercised such right of setoff immediately at the time of such
election even though any charge therefor is made or entered on Lender's records
subsequent thereto.
13.14 Nonliability of Lender. The Borrowers acknowledge and agree that:
----------------------
(a) Any inspections of any Collateral made by or through Lender
are for purposes of administration of advances made hereunder only and the
Borrowers are not entitled to rely upon the same;
(b) By accepting or approving anything required to be observed,
performed, fulfilled or given to Lender pursuant to this Agreement or the
Ancillary Agreements, Lender shall not be deemed to have warranted or
represented the sufficiency, legality, effectiveness or legal effect of the
same, or of any term, provision or condition thereof, and such acceptance
or approval thereof shall not constitute a warranty or representation to
anyone with respect thereto by Lender;
(c) The relationship between each Borrower and Lender is, and
shall at all times remain, solely that of a borrower and lender; Lender
shall not under any circumstance be construed to be a partner or joint
venturer of any Borrower; Lender shall not under any circumstance be deemed
to be in a fiduciary relationship with any Borrower; Lender does not
undertake or assume any responsibility or duty to any Borrower to select,
review, inspect, supervise, pass judgment upon or inform such Borrower of
any matter in connection with its property or the operations of such
Borrower; each Borrower shall rely entirely upon its own judgment with
respect to such matters; and any review, inspection, supervision, exercise
of judgment or supply of information undertaken or assumed by Lender in
connection with such matters is solely for the protection of Lender and
neither such Borrower nor any other Person is entitled to rely thereon; and
(d) Lender shall not be responsible or liable to any Person for
any loss, damage, liability or claim of any kind relating to injury or
death to such Persons or damage to property not caused by Lender and caused
by the actions, inaction or negligence of any Borrower and each Borrower
hereby indemnifies and holds Lender harmless from any such loss, damage,
liability or claim.
13.15 Time of the Essence. Time is of the essence hereunder and under the
-------------------
Ancillary Agreements.
13.16 Indemnification.
---------------
If after receipt of any payment of all or any part of the
Indebtedness, Lender is for any
<PAGE>
reason compelled to surrender such payment to any Person, because such payment
is determined to be void or voidable as a preference, impermissible setoff, or
a diversion of trust funds, or for any other reason, this Agreement shall
continue in full force and the Borrowers shall be liable to, and shall
indemnify and hold Lender harmless for, the amount of such payment
surrendered. The provisions of this Section shall be and remain effective
notwithstanding any contrary action which may have been taken by Lender in
reasonable reliance upon such payment, and any such contrary action so taken
shall be without prejudice to Lender's rights under this Agreement and shall
be deemed to have been conditioned upon such payment having become final and
irrevocable. The provisions of this Section shall survive the termination of
this Agreement.
Each Borrower agrees to indemnify, save and hold harmless Lender and
its directors, officers, agents, attorneys and employees (collectively the
"Indemnitees") from and against: (i) Any and all claims, demands, actions or
causes of action that are asserted against any Indemnitee by any Person if the
claim, demand, action or cause of action directly or indirectly relates to a
claim, demand, action or cause of action that such Person asserts or may assert
against such Borrower, or any Affiliate or any officer, director or shareholder
of such Borrower and such claim, demand, action or cause of action arises out of
or relates to this Agreement or the Ancillary Agreements, the use of proceeds of
any advance, or the relationship of such Borrower and Lender under this
Agreement; (ii) Any and all claims, demands, actions or causes of action if the
claim, demand, action or cause of action arises out of or relates to such
Borrower's compliance or noncompliance with the requirements of any
environmental law; (iii) Any administrative or investigative proceeding by any
governmental agency arising out of or related to a claim, demand, action or
cause of action described in clauses (i) or (ii) above; and (iv) Any and all
liabilities, losses, costs or expenses (including reasonable attorneys' fees and
---------
disbursements and other professional services) that any Indemnitee suffers or
incurs as a result of the assertion of any foregoing claim, demand, action or
cause of action; provided that no Indemnitee shall be entitled to
--------
indemnification for any loss caused by its own gross negligence or willful
misconduct. Each Indemnitee is authorized to employ counsel of its own choosing
in enforcing its rights hereunder and in defending against any claim, demand,
action or cause of action covered by this Section; provided that each Indemnitee
--------
shall endeavor, in connection with any matter covered by this Section which also
involves other Indemnitees, to use reasonable efforts to avoid unnecessary
duplication of effort by counsel for all Indemnitees. Whenever practicable,
upon obtaining actual knowledge of any event that would entitle Lender to be
indemnified under this Section, Lender shall endeavor to provide notice to the
Borrowers of such fact and Lender shall cooperate with Borrower to endeavor to
minimize the liabilities for which Lender is entitled to be indemnified. Any
obligation or liability of Borrower to any Indemnitee under this Section shall
survive the expiration or termination of this Agreement and the repayment of all
Liabilities and the payment and performance of all other obligations under this
Agreement owed to Lender.
13.17 Suretyship Waivers and Consents. (a) The obligations of each Borrower
-------------------------------
are independent of the obligations of all of the other Borrowers. Each Borrower
expressly waives any right to require Lender to proceed against any other
Borrower, to proceed against or exhaust any Collateral or any other security for
the Liabilities or to pursue any remedy Lender may have at any time. Each
Borrower agrees that Lender may proceed against any one or more of the Borrowers
and/or the Collateral in such order and manner as Lender shall determine in its
sole and absolute discretion. A separate action or actions may
<PAGE>
be brought and prosecuted against any one or more of the Borrowers whether an
action is brought or prosecuted against any other Borrower or with respect to
any Collateral or whether any other Person shall be joined in any such action
or actions. Each Borrower expressly waives the benefit of any statute(s) of
limitations affecting its liability under this Agreement or the Ancillary
Documents or the enforcement of the Liabilities or any rights of Lender
created or granted under this Agreement or the Ancillary Documents. Lender's
rights hereunder and under the Ancillary Documents shall be reinstated and
revived, and the obligations and liability of each Borrower hereunder and
thereunder shall continue, with respect to any amount at any time paid on
account of the Liabilities which thereafter shall be required to be restored
or returned by Lender upon the bankruptcy, insolvency or reorganization of any
Borrower, or otherwise, all as though such amount had not been paid.
(b) Each Borrower expressly waives any and all defenses now or
hereafter arising or asserted by reason of (i) any disability or other defense
of any other Borrower or with respect to the Liabilities; (ii) the cessation for
any cause whatsoever of the liability of any other Borrower and (iii) any act or
omission of Lender or others that directly or indirectly results in or aids the
discharge or release of any other Borrower or the Liabilities or any Collateral
or guaranty therefor by operation of law or otherwise. Each Borrower agrees that
any amounts received by Lender from whatever source on account of the
Liabilities may be applied by Lender toward the payment of such of the
Liabilities and in such order of application as Lender may from time to time
elect; and, notwithstanding any payments made by any Borrower, such Borrower
shall have no right of subrogation, reimbursement, exoneration, indemnity,
contribution or any other rights that would result in such Borrower being deemed
a creditor of any other Borrower under the federal Bankruptcy Code or any other
law or for any other purpose and such Borrower hereby irrevocably waives all
such rights, the right to assert any such rights and any right to enforce any
remedy which Lender now or may hereafter have against any Borrower and hereby
irrevocably waives any benefit of and any right to participate in, any security
now or hereafter held by Lender, whether any of the foregoing rights arise in
equity, at law or by contract.
(c) Each Borrower represents and warrants to Lender that it has
established adequate means of obtaining from each of the other Borrowers, on a
continuing basis, financial and other information pertaining to the businesses,
operations and condition (financial and otherwise) of each of the other
Borrowers and its properties, and each Borrower now is and hereafter will be
completely familiar with the businesses, operations and condition (financial and
otherwise) or each of the other Borrowers and their properties. Each Borrower
hereby expressly waives and relinquishes any duty on the part of Lender (should
any such duty exist) to disclose to any Borrower any matter, fact or thing
related to the businesses, operations or condition (financial or otherwise) of
any Borrower or their properties, whether now known or hereafter known by
Lender.
(d) Each Borrower represents and warrants that each of the
waivers set forth herein is made with each Borrower'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 of such waivers is
determined to be contrary to any applicable law or public policy, such waiver
shall be effective only to the
<PAGE>
maximum extent permitted by law.
13.18 WAIVER OF RIGHT TO TRIAL BY JURY. THE PARTIES TO THIS AGREEMENT
--------------------------------
ACKNOWLEDGE THAT JURY TRIALS OFTEN ENTAIL ADDITIONAL EXPENSES AND DELAYS NOT
OCCASIONED BY NONJURY TRIALS. THE PARTIES TO THIS AGREEMENT AGREE AND STIPULATE
THAT A FAIR TRIAL MAY BE HAD BEFORE A STATE OR FEDERAL JUDGE IN A COURT BY MEANS
OF A BENCH TRIAL WITHOUT A JURY. IN VIEW OF THE FOREGOING, AND AS A
SPECIFICALLY NEGOTIATED PROVISION OF THIS AGREEMENT, EACH PARTY TO THIS
AGREEMENT HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS AGREEMENT OR ANY OTHER
INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH,
OR IN ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE
PARTIES HERETO WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT
OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE TRANSACTIONS
RELATED HERETO OR THERETO, WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE; AND EACH PARTY HEREBY AGREES
AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE
DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY PARTY TO THIS AGREEMENT MAY
FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS SECTION WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
IN WITNESS WHEREOF, this Agreement has been duly executed as of the
day and year specified at the beginning hereof.
BORROWERS:
- ---------
ELECTRONIC INTEGRATED SOLUTIONS,
a California corporation
By: /s/ DONALD J. ESTERS
------------------------------
Donald J. Esters,
President
EDUCATIONAL INDUSTRIAL
SALES, INCORPORATED
a California corporation
By: /s/ DONALD J. ESTERS
------------------------------
Donald J. Esters,
<PAGE>
President
By: /s/ DENNIS T. KUSHNER
------------------------------
Dennis T. Kushner,
Secretary
ALFORD MEDIA SALES, INC.
a Texas corporation
By: /s/ DONALD J. ESTERS
------------------------------
Donald J. Esters,
President
By: /s/ DENNIS T. KUSHNER
------------------------------
Dennis T. Kushner,
Secretary
B. HIGGINBOTHAM ENTERPRISES, INC.
a Texas corporation
By: /s/ DONALD J. ESTERS
------------------------------
Donald J. Esters,
President
By: /s/ DENNIS T. KUSHNER
------------------------------
Dennis T. Kushner,
Secretary
LENDER:
- ------
SANWA BUSINESS CREDIT CORPORATION,
a Delaware corporation
By /s/ TIMOTHY TURNER
-------------------------------
Title First Vice President
-----------------------------
<PAGE>
EXHIBIT 10.45
LOAN AGREEMENT
Dated as of June 29, 1998
by and among
SAND HILL CAPITAL, LLC
as lender
and
EDUCATIONAL INDUSTRIAL SALES INCORPORATED
a California corporation
140 East Dana Street
Mountain View, CA 94041
as borrower
TOTAL CREDIT AMOUNT: $1,020,000
Maturity Date: January 15, 1999
Interest Rate: 12 percent
Facility Fee: $15,000
Warrants:
Number of shares: 30% Coverage
Class of stock: Common
Initial exercise price: $27.21 per share
The terms and information set forth on this cover page are a part of
the attached Loan Agreement, dated as of the date first written above (this
"Agreement"), entered into by and among Sand Hill Capital, LLC ("Sand Hill") and
the borrower ("Borrower") set forth above. The terms and conditions of the
Agreement agreed to between Lender and Borrower are as follows:
<PAGE>
LOAN AGREEMENT
The undersigned EDUCATIONAL INDUSTRIAL SALES INCORPORATED
("Borrower"), for value received, hereby promises to pay to SAND HILL CAPITAL
LLC ("Sand Hill") at such place as Sand Hill may specify, in lawful money of the
United States of America, (i) the principal amount of $1,020,000 or, if lower,
(ii) the principal amount of all outstanding advances ("Advances") that Sand
Hill makes hereunder, plus interest on the principal amount hereof from time to
time outstanding at a rate equal to the rate per annum specified on the cover
page. Interest shall be payable on the first day of each month, beginning the
month following the date of this Agreement and continuing through the Maturity
Date specified on the cover page. The entire principal balance and all accrued
interest shall be immediately due and payable on the Maturity Date.
1. Advance Requests; Payments. Borrower may request an Advance from time
--------------------------
to time at any time after Borrower's receipt of not less than $1,000,000 from
the sale or issuance of its equity securities after the date hereof on terms
reasonably acceptable to Sand Hill (the "Wedbush Transaction"), upon one
business day's prior notice to Sand Hill, provided the representations contained
in this Agreement are true on such date and Borrower is in compliance with the
terms of this Agreement. All Advances made by Sand Hill to Borrower pursuant to
this Agreement shall be recorded by Sand Hill on the books and records of Sand
Hill. The failure of Sand Hill to record any Advance or any prepayment or
payment made on account of the principal balance hereof shall not limit or
otherwise affect the obligation of Borrower under this Agreement to pay the
principal, interest and other amounts due and payable under this Agreement.
Amounts repaid hereunder may be reborrowed through the Maturity Date.
All payments on this Agreement shall be applied first to fees and
expenses, then to interest and then to principal. Any principal or interest
payments on this Agreement outstanding after the occurrence and during the
continuance of a default under this Agreement shall bear interest at a rate
equal to Five Percent above the rate otherwise applicable under this Agreement.
2. Secured Agreement. To secure repayment of all obligations evidenced by
-----------------
this Agreement and performance of all of Borrower's obligations hereunder,
Borrower grants Sand Hill a security interest in the property described in
Exhibit A attached hereto (the "Collateral"). Borrower shall take such actions
- ---------
as Sand Hill requests from time to time to perfect or continue the security
interest granted hereunder. Borrower shall not dispose of or encumber all or any
substantial part of the Collateral without Sand Hill's prior written consent,
other than inventory in the ordinary course of business.
3. Representations and Warranties. Borrower represents to Sand Hill as
------------------------------
follows: (a) Except for Borrower's failure to comply with the leverage covenant
contained in Section V.9(b) of that certain letter agreement dated as of June
16, 1997, as amended by that certain letter agreement dated March 1, 1998, each
between borrower and Wells Fargo Bank (the "Wells Agreement"), and for any
default arising thereunder by virtue of restrictions contained in such agreement
on the security interest to be granted in the Collateral to Sand Hill, Borrower
is not in default under any agreement under which Borrower owes any money, or
any agreement, the violation or termination of which could have a material
adverse effect on Borrower, (b) Borrower has taken all action necessary to
authorize the execution, delivery and performance of this Agreement; (c) except
for purchase money security interests on particular items of equipment and
inventory and for a blanket lien under the Wells Agreement, there are no liens,
security interests or other encumbrances on the Collateral; (d) the execution
and performance of this Agreement do not conflict with, or constitute a default
under, any agreement to which Borrower is party or by which Borrower is bound,
other than the Wells Agreement; (e) the
<PAGE>
information provided to Sand Hill on or prior to the date of this Agreement is
true and correct in all material respects; (f) all financial statements and
information provided to Sand Hill fairly present Borrower's financial condition,
and there has not been a material adverse change in the financial or other
condition of Borrower since the date of the most recent of the financial
statements submitted to Sand Hill; (g) Borrower is in compliance with all laws
and orders applicable to it; (h) except as otherwise noted above, the Wells
Agreement is in full force and effect in the form attached hereto, there are no
defaults under the Wells Agreement, and $6,398,205.86 is outstanding under the
Wells Agreement as of June 24, 1998; and (i) no representation or other
statement made by Borrower to Sand Hill contains any untrue statement of a
material fact or omits to state a material fact necessary to make any statements
made to Sand Hill not misleading.
4. Covenants. (a) Borrower will provide Sand Hill: monthly company-
---------
prepared financial statements within 30 days after the end of each month; and
such other financial reports and other information as Sand Hill may reasonably
request from time to time.
(b) Borrower will maintain insurance on the Collateral that includes
a lender's loss payable endorsement in favor of Sand Hill as an additional loss
payee. Borrower will maintain insurance in a form acceptable to Sand Hill
relating to the Collateral and Borrower's business in amounts and of a type that
are customary to businesses similar to Borrower's.
(c) Borrower will maintain its corporate existence and good standing
and will maintain in force all licenses and agreements, the loss of which could
have a material adverse effect on Borrower's business. Borrower will comply with
all laws and orders, the violation of which could have a material adverse effect
on Borrower's business.
(d) Borrower will not incur additional indebtedness for borrowed
money, or make any investments (unless Sand Hill has a second priority security
interest in the assets acquired or investments made), or make any distributions
on account of any equity interest held in Borrower, or redeem any equity
interest in Borrower, or repay any subordinated debt, without Sand Hill's prior
written consent. Except for the security interests in favor of Wells Fargo Bank
(including any financial institution or lender that refinances the credit
facility related to the Wells Agreement) and Colorado Business Leasing
Incorporated, Borrower will cause all security interests granted in its personal
property to be terminated within forty-five (45) days of the date of this
Agreement.
5. Fees and Expenses. Borrower shall pay Sand Hill the Facility Fee
-----------------
specified on the cover page hereof on the date of this Agreement, and shall
reimburse Sand Hill for all costs and expenses, including reasonable attorneys
fees incurred in the preparation of this Agreement and the other documents
executed in connection with this Agreement. Borrower shall also deliver a
warrant to purchase stock to Sand Hill in a form acceptable to Sand Hill.
Borrower shall indemnify Sand Hill for any losses or claims incurred in
connection with this Agreement or the transactions contemplated hereby. Borrower
shall pay all costs that Sand Hill incurs in enforcing this Agreement or
exercising any rights with respect to the Collateral, including without
limitation reasonable attorneys fees and expenses.
6. Events of Default; Remedies. Borrower's failure (i) to pay all or any
---------------------------
part of the principal or interest hereunder on the date due and payable, (ii) to
comply with any agreement or covenant set forth in this Agreement, (iii) to
comply with the terms of the Wells Agreement or any
2
<PAGE>
material contract to which Borrower is a party or any agreement pursuant to
which Borrower has incurred indebtedness, or (iv) to comply with any law to
which Borrower is subject which noncompliance has a material adverse effect on
the Borrower, or the occurrence of a material adverse change in the financial or
other condition of Borrower, or the exercise by Wells Fargo Bank of any remedies
available under the Wells Agreement, including without limitation the
institution of any foreclosure proceedings involving any Collateral, shall
constitute a default under this Agreement. Upon the occurrence of a default
under (i) above, or under (ii) through (iv) above and Borrower's failure to cure
any default that is capable of being cured within ten (10) days after written
notice from Sand Hill, all unpaid principal, accrued interest and other amounts
owing hereunder shall, at the option of Sand Hill, be immediately due and
payable, and Sand Hill may exercise all of the rights of a secured party under
the California Uniform Commercial Code. Sand Hill shall have a right to dispose
of the Collateral in any commercially reasonable manner, and shall have a
royalty-free license to use any name, trademark, advertising matter or any
property of a similar nature to complete production of, advertisement for, and
disposition of any Collateral. Sand Hill shall have a license to enter into,
occupy and use Borrower's premises and the Collateral without charge to exercise
any of Sand Hill's rights or remedies under this Agreement.
7. Waivers; Indemnity. Borrower waives presentment and demand for
------------------
payment, notice of dishonor, protest and notice of protest of this Agreement,
and shall pay all costs of collection when incurred, including reasonable
attorneys' fees, costs and expenses. Borrower shall indemnify and hold Sand Hill
harmless from any claim, obligation or liability (including without limitation
reasonable attorneys fees and expenses) arising out of this Agreement or the
transactions contemplated hereby.
8. Miscellaneous. This Agreement cannot be amended orally. All prior
-------------
agreements are superseded by this Agreement. Borrower may not assign any
obligation hereunder without Sand Hill's consent. Sand Hill may assign or grant
a participation of other interest in this Agreement without Borrower's consent.
This Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which shall constitute one instrument.
9. JURY WAIVER. SAND HILL AND BORROWER EACH WAIVES ANY RIGHTS TO A JURY
-----------
TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF THIS AGREEMENT OR ANY OF
THE TRANSACTIONS CONTEMPLATED HEREIN.
EDUCATIONAL INDUSTRIAL SALES
INCORPORATED
By: /s/ DONALD ESTERS
--------------------------------
Title: Chairman
-----------------------------
SAND HILL CAPITAL, LLC
By: /s/ DANIEL W. CORRY
--------------------------------
Title:
-----------------------------
3
<PAGE>
EXHIBIT A
---------
The Collateral shall consist of all right, title and interest of
Borrower in and to the following:
(a) All goods and equipment now owned or hereafter acquired,
including, without limitation, all machinery, fixtures, vehicles (including
motor vehicles and trailers), and any interest in any of the foregoing, and all
attachments, accessories, accessions, replacements, substitutions, additions,
and improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including,
without limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's books relating to any of the foregoing:
(c) All contract rights and general intangibles now owned or
hereafter acquired, including, without limitation, goodwill, trademarks,
servicemarks, trade styles, trade names, patents, patent applications, leases,
license agreements, franchise agreements, blueprints, drawings, purchase orders,
customer lists, route lists, infringements, claims, computer programs, computer
discs, computer tapes, literature, reports, catalogs, design rights, income tax
refunds, payments of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to Borrower
arising out of the sale or lease of goods, the licensing of technology or the
rendering of services by Borrower, whether or not earned by performance, and any
and all credit insurance, guaranties, and other security therefor, as well as
all merchandise returned to or reclaimed by Borrower and Borrower's books
relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, investment
property, securities accounts, letters of credit, certificates of deposit,
instruments and chattel paper now owned or hereafter acquired and Borrower's
books relating to the foregoing;
(f) All copyright rights, copyright applications, copyright
registrations and like protections in each work of authorship and derivative
work thereof, whether published or unpublished, now owned or hereafter acquired;
all trade secret rights, including all rights to unpatented inventions, know-
how, operating manuals, license rights and agreements and confidential
information, now owned or hereafter acquired; all mask work or similar rights
available for the protection of semiconductor chips, now owned or hereafter
acquired; all claims for damages by way of any past, present and future
infringement of any of the foregoing; and
(g) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
<PAGE>
EXHIBIT 10.46
EXHIBIT D TO ASSET PURCHASE AGREEMENT
-------------------------------------
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
----------------------------------------
U.S. $179,085.24 Mountain View, California
August 24, 1998
For Value Received, the undersigned ELECTRONIC INTEGRATED SOLUTIONS
(formerly known as EIS, INC.) ("EIS") promises to pay to the order of DIGITAL
NETWORKS CORPORATION ("Seller") at 11 Musick, Irvine, California, or at such
other places as may be designated by Seller (the "Note"), the principal amount
of ONE HUNDRED SEVENTY NINE THOUSAND EIGHTY FIVE DOLLARS AND TWENTY FOUR CENTS
($179,085.24). The outstanding balance on this Note shall bear interest at an
annual rate of seven percent (7%). This Note is issued pursuant to the terms of
that certain Asset Purchase Agreement dated as of June 12, 1998, the terms and
conditions of which Asset Purchase Agreement are incorporated fully herein by
this reference. Unless otherwise defined herein, defined terms shall have the
meanings as set forth in the Asset Purchase Agreement.
All interest is calculated daily and shall be paid based upon a 360-day
year.
FORM OF PAYMENT:
- ---------------
Any and all payments of any nature made or required to be made under
this Note shall be made in lawful money of the United States collectable on the
date of payment as provided in the Asset Purchase Agreement.
SUBORDINATION:
- -------------
(a) The Seller agrees that the indebtedness evidenced by this Note is
subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt.
(b) For the purposes of this Note, the following definitions shall
apply:
(1) "Debt" of any person means any indebtedness, contingent or
----
otherwise, in respect of borrowed money (whether or not the recourse of
the lender is to the whole of the assets of such person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or letters of credit, or representing the balance deferred
and unpaid of the purchase price of any property or interest therein,
except any such balance that constitutes a trade payable, if and to the
extent such indebtedness would appear as a liability upon a balance
sheet of such person prepared on a consolidated basis in accordance with
generally accepted accounting principles.
<PAGE>
(2) "Senior Debt" means all Debt (present or future) created,
-----------
incurred, assumed or guaranteed by EIS (and all renewals, extensions or
refundings thereof) with Wells Fargo Bank or any successor or
replacement lender, unless the instrument under which such Debt is
created, incurred, assumed or guaranteed expressly provides that such
Debt is not senior or superior in right of payment to the Seller.
(c) Upon any distribution to creditors of EIS in a liquidation or
dissolution of EIS or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to EIS or its property, holders of Senior Debt
shall be entitled to receive payment in full in cash of the principal of and
interest (including interest accruing after the commencement of any such
proceeding) to the date of payment on the Senior Debt before Seller shall be
entitled to receive any payment of principal of or interest on the Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by EIS or any person
acting on behalf of EIS on account of the principal or interest of the Note.
(e) EIS may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that permits
holders of such Senior Debt to accelerate its maturity, and
(2) the default is the subject of judicial proceedings or EIS receives a
notice of the default from a person who holds Senior Debt. If EIS
receives any such notice, a subsequent notice received within nine
months thereafter relating to the same issue of Senior Debt shall not be
effective for purposes of this provision.
(f) EIS shall resume payments on the Note and may acquire the Note when:
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default is not the
subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
(g) If payment of the Note is accelerated because of an Event of
Default, EIS shall promptly notify holders of Senior Debt of the acceleration.
EIS shall pay the Note when 120 days pass after the acceleration occurs if the
Note permits the payment at that time; provided, however, that if no Senior Debt
is outstanding at the time of such acceleration EIS shall pay the Note in
accordance with the provisions of this Note.
(h) If a payment is made to the Seller that because of this
subordination provision should not have been made to them, the Seller shall hold
such payment in trust for holders of
<PAGE>
Senior Debt and pay it over to them as their interests may appear; provided,
however, that if neither EIS nor the holders of the Senior Debt notify the
Seller within 120 days after the payment is made that such payment should not
have been made, the Seller shall no longer be deemed to be holding such payment
in trust pursuant to this subsection (h).
(i) This subordination provision defines the relative rights of Seller
and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between EIS and Seller, the obligation of EIS, which is
absolute and unconditional, to pay principal of and interest on the Note
in accordance with its terms;
(2) affect the relative rights of Seller and creditors of EIS other
than holders of Senior Debt; or
(3) prevent Seller from exercising their available remedies upon a
Default or Event of Default, subject to the rights of holders of Senior
Debt to receive payments otherwise payable to Seller.
(j) If EIS fails because of this subordination provision to pay
principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
(k) No right of any holder of Senior Debt to enforce the subordination
of the indebtedness evidenced by the Note shall be impaired by any act or
failure to act by EIS or by its failure to comply with this subordination
provision.
CONVERSION OPTION
- -----------------
At any time after the Closing Date and prior to December 31, 1999 (the
"Final Conversion Date"), if there has been no Initial Public Offering of EIS's
common stock the Seller shall have the right, on written notice to EIS to
convert this Note into common stock of EIS (the "Conversion Option"). If there
has been an Initial Public Offering of EIS's common stock prior to the Final
Conversion Date, this Note shall automatically be canceled and converted into
EIS common stock on the date immediately following the Initial Public Offering
(the "Mandatory Conversion"). If the Seller timely elects the Conversion Option
or there is a Mandatory Conversion, this Note shall be exchanged for FIVE
THOUSAND NINE HUNDRED EIGHTY TWO (5,982) shares of common stock in EIS. The EIS
common stock issued pursuant to either conversion shall be subject to the same
limitations and restriction as the common stock held by the other principal
shareholders of EIS.
REQUIRED PAYMENTS AND LOAN MATURITY:
- -----------------------------------
If there has been no Mandatory Conversion or the Seller fails to
timely exercise the Conversion Option, this Note shall be paid in six (6) equal
monthly installments of principal and interest on the unpaid principal amount by
5:00 p.m. commencing on the first business day of January 2000 and on the first
business day of every month thereafter until June 2000 when the
<PAGE>
principal balance hereof and all accrued and unpaid interest hereunder is paid
in full. If EIS fails to make any payment when due, then Seller shall have the
option, to be exercised in its sole and absolute discretion, to accelerate the
payments due hereunder and declare the unpaid principal amount and all accrued
and unpaid interest immediately due and payable.
LATE CHARGE:
- -----------
If any payment required hereunder is not received by holder when due, a
late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- -----------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
VOLUNTARY PREPAYMENT CLAUSE:
- ---------------------------
This Note may not be prepaid prior to December 31, 1999 and may only be
prepaid thereafter if the Seller has not timely exercised the Conversion Option.
Any permitted prepayment shall be applied to the last principal due hereunder
and no such prepayment shall affect or reduce the amount of any scheduled
payments hereunder.
RIGHT OF SET-OFF:
- ----------------
EIS shall have the right to withhold and set-off against any amount
due hereunder the amount of any claim for indemnification or payment of damages
to which EIS may be entitled as a result of Seller's or the Seller's
Stockholder's breach of the provisions in the Asset Purchase Agreement and/or
the Agreement of Seller Stockholders.
COSTS:
- -----
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
LAWS:
- ----
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflicts of laws, and any applicable laws of the United States of
America and may not be amended except by a written document executed by the
holder and maker.
<PAGE>
PARTIES IN INTEREST:
- -------------------
This Note shall bind EIS and its successors and assigns. This Note
shall not be assigned or transferred by Seller (except to the Seller
Stockholders) without the express prior written consent of EIS, except by will
or, in default thereof, by operation of law.
MARGINAL CAPTIONS:
- -----------------
The marginal captions appearing on this Note are for reference
purposes only and shall not in any way limit or otherwise affect the meaning,
content or interpretation of this Note.
LEGEND, RESTRICTIONS AND LIMITATIONS:
- ------------------------------------
THE PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS SUBJECT TO
CERTAIN RECOUPMENT AND OFFSET PROVISIONS SET FORTH IN THE ASSET PURCHASE
AGREEMENT AND AN AGREEMENT WITH SELLER STOCKHOLDERS, EACH DATED AS OF JUNE 12,
1998 AMONG EIS AND CERTAIN OTHER PERSONS. THIS NOTE WAS ORIGINALLY ISSUED ON
AUGUST 24, 1998, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS SET
FORTH IN THE AGREEMENTS REFERRED TO ABOVE. EIS WILL FURNISH A COPY OF THESE
PROVISIONS TO THE HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST.
ELECTRONIC INTEGRATED SOLUTIONS
a California corporation
By: /s/ DONALD J. ESTERS
------------------------------
Donald J. Esters
Chairman of the Board
<PAGE>
EXHIBIT E TO ASSET PURCHASE AGREEMENT
-------------------------------------
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
----------------------------------------
U.S. $ 179,085.24 Mountain View, California
August 24, 1998
For Value Received, the undersigned ELECTRONIC INTEGRATED SOLUTIONS
(formerly known as EIS, INC.) ("EIS") promises to pay to the order of DIGITAL
NETWORKS CORPORATION ("Seller") at 11 Musick, Irvine, California, or at such
other places as may be designated by Seller (the "Note"), the principal amount
of ONE HUNDRED SEVENTY NINE THOUSAND EIGHTY FIVE DOLLARS AND TWENTY FOUR CENTS
($179,085.24). The outstanding balance on this Note shall bear interest an
annual rate of seven percent (7%). This Note is issued pursuant to the terms of
that certain Asset Purchase Agreement dated as of June 12, 1998, the terms and
conditions of which Asset Purchase Agreement are incorporated fully herein by
this reference. Unless otherwise defined herein, defined terms shall have the
meanings as set forth in the Asset Purchase Agreement.
All interest is calculated daily and shall be paid based upon a 360-day
year.
FORM OF PAYMENT:
- ---------------
Any and all payments of any nature made or required to be made under
this Note shall be made in lawful money of the United States collectable on the
date of payment as provided in the Asset Purchase Agreement.
SUBORDINATION:
- -------------
(a) The Seller agrees that the indebtedness evidenced by this Note is
subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt.
(b) For the purposes of this Note, the following definitions shall
apply:
(1) "Debt" of any person means any indebtedness, contingent or
----
otherwise, in respect of borrowed money (whether or not the recourse of
the lender is to the whole of the assets of such person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or letters of credit, or representing the balance deferred
and unpaid of the purchase price of any property or interest therein,
except any such balance that constitutes a trade payable, if and to the
extent such indebtedness would appear as a liability upon a balance
sheet of such person prepared on a consolidated basis in accordance with
generally accepted accounting principles.
<PAGE>
(2) "Senior Debt" means all Debt (present or future) created, incurred,
-----------
assumed or guaranteed by EIS (and all renewals, extensions or refundings
thereof) with Wells Fargo Bank or any successor or replacement lender,
unless the instrument under which such Debt is created, incurred,
assumed or guaranteed expressly provides that such Debt is not senior or
superior in right of payment to the Seller.
(c) Upon any distribution to creditors of EIS in a liquidation or
dissolution of EIS or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to EIS or its property, holders of Senior Debt
shall be entitled to receive payment in full in cash of the principal of and
interest (including interest accruing after the commencement of any such
proceeding) to the date of payment on the Senior Debt before Seller shall be
entitled to receive any payment of principal of or interest on the Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by EIS or any person
acting on behalf of EIS on account of the principal or interest of the Note.
(e) EIS may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that permits
holders of such Senior Debt to accelerate its maturity, and
(2) the default is the subject of judicial proceedings or EIS receives a
notice of the default from a person who holds Senior Debt. If EIS
receives any such notice, a subsequent notice received within nine
months thereafter relating to the same issue of Senior Debt shall not be
effective for purposes of this provision.
(f) EIS shall resume payments on the Note and may acquire the Note when:
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default is not the
subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
(g) If payment of the Note is accelerated because of an Event of
Default, EIS shall promptly notify holders of Senior Debt of the acceleration.
EIS shall pay the Note when 120 days pass after the acceleration occurs if the
Note permits the payment at that time; provided, however, that if no Senior
Debt is outstanding at the time of such acceleration EIS shall pay the Note in
accordance with the provisions of this Note.
(h) If a payment is made to the Seller that because of this
subordination provision should not have been made to them, the Seller shall hold
such payment in trust for holders of
<PAGE>
Senior Debt and pay it over to them as their interests may appear; provided,
however, that if neither EIS nor the holders of the Senior Debt notify the
Seller within 120 days after the payment is made that such payment should not
have been made, the Seller shall no longer be deemed to be holding such payment
in trust pursuant to this subsection (h).
(i) This subordination provision defines the relative rights of Seller
and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between EIS and Seller, the obligation of EIS, which is
absolute and unconditional, to pay principal of and interest on the Note
in accordance with its terms;
(2) affect the relative rights of Seller and creditors of EIS other than
holders of Senior Debt; or
(3) prevent Seller from exercising their available remedies upon a
Default or Event of Default, subject to the rights of holders of Senior
Debt to receive payments otherwise payable to Seller.
(j) If EIS fails because of this subordination provision to pay
principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
(k) No right of any holder of Senior Debt to enforce the subordination
of the indebtedness evidenced by the Note shall be impaired by any act or
failure to act by EIS or by its failure to comply with this subordination
provision.
CONVERSION OPTION:
- -----------------
At any time after the Closing Date and prior to December 31, 1999 (the
"Final Conversion Date"), if there has been no Initial Public Offering of EIS's
common stock the Seller shall have the right, on written notice to EIS to
convert this Note into common stock of EIS (the "Conversion Option"). If there
has been an Initial Public Offering of EIS's common stock prior to the Final
Conversion Date, this Note shall automatically be canceled and converted into
EIS common stock on the date immediately following the Initial Public Offering
(the "Mandatory Conversion"). If the Seller timely elects the Conversion Option
or there is a Mandatory Conversion, this Note shall be exchanged for FIVE
THOUSAND NINE HUNDRED EIGHTY TWO (5,982) shares of common stock in EIS. The EIS
common stock issued pursuant to either conversion shall be subject to the same
limitations and restriction as the common stock held by the other principal
shareholders of EIS.
REQUIRED PAYMENTS AND LOAN MATURITY:
- -----------------------------------
If there has been no Mandatory Conversion or the Seller fails to timely
exercise the Conversion Option, this Note shall be paid in six (6) equal monthly
installments of principal and interest on the unpaid principal amount by 5:00
p.m. commencing on the first business day of January 2000 and on the first
business day of every month thereafter until June 2000 when the
<PAGE>
principal balance hereof and all accrued and unpaid interest hereunder is paid
in full. If EIS fails to make any payment when due, then Seller shall have the
option, to be exercised in its sole and absolute discretion, to accelerate the
payments due hereunder and declare the unpaid principal amount and all accrued
and unpaid interest immediately due and payable.
LATE CHARGE:
- -----------
If any payment required hereunder is not received by holder when due,
a late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- -----------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
VOLUNTARY PREPAYMENT CLAUSE:
- ---------------------------
This Note may not be prepaid prior to December 31, 1999 and may only
be prepaid thereafter if the Seller has not timely exercised the Conversion
Option. Any permitted prepayment shall be applied to the last principal due
hereunder and no such prepayment shall affect or reduce the amount of any
scheduled payments hereunder.
RIGHT OF SET-OFF:
- ----------------
EIS shall have the right to withhold and set-off against any amount
due hereunder the amount of any claim for indemnification or payment of damages
to which EIS may be entitled as a result of Seller's or the Seller's
Stockholder's breach of the provisions in the Asset Purchase Agreement and/or
the Agreement of Seller Stockholders.
COSTS:
- -----
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
LAWS:
- ----
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflicts of laws, and any applicable laws of the United States of
America and may not be amended except by a written document executed by the
holder and maker.
<PAGE>
PARTIES IN INTEREST:
- -------------------
This Note shall bind EIS and its successors and assigns. This Note
shall not be assigned or transferred by Seller (except to the Seller
Stockholders) without the express prior written consent of EIS, except by will
or in default thereof, by operation of law.
MARGINAL CAPTIONS:
- -----------------
The marginal captions appearing on this Note are for reference
purposes only and shall not in any way limit or otherwise affect the meaning,
content or interpretation of this Note.
LEGEND, RESTRICTIONS AND LIMITATIONS:
- ------------------------------------
THE PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS SUBJECT TO
CERTAIN RECOUPMENT AND OFFSET PROVISIONS SET FORTH IN THE ASSET PURCHASE
AGREEMENT AND AN AGREEMENT WITH SELLER STOCKHOLDERS, EACH DATED AS OF JUNE 12,
1998 AMONG EIS AND CERTAIN OTHER PERSONS. THIS NOTE WAS ORIGINALLY ISSUED ON
AUGUST 24, 1998, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS SET
FORTH IN THE AGREEMENTS REFERRED TO ABOVE. EIS WILL FURNISH A COPY OF THESE
PROVISIONS TO THE HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST.
ELECTRONIC INTEGRATED SOLUTIONS
a California corporation
By: /s/ DONALD J. ESTERS
-------------------------------
Donald J. Esters
Chairman of the Board
<PAGE>
EXHIBIT F TO ASSET PURCHASE AGREEMENT
-------------------------------------
SUBORDINATED CONVERTIBLE PROMISSORY NOTE
----------------------------------------
U.S. $ 179,085.24 Mountain View, California
August 24, 1998
For Value Received, the undersigned ELECTRONIC INTEGRATED SOLUTIONS
(formerly known as EIS, INC.) ("EIS") promises to pay to the order of DIGITAL
NETWORKS CORPORATION ("Seller") at 11 Musick, Irvine, California, or at such
other places as may be designated by Seller (the "Note"), the principal amount
of ONE HUNDRED SEVENTY NINE THOUSAND EIGHTY FIVE DOLLARS AND TWENTY FOUR CENTS
($179,085.24). The outstanding balance on this Note shall bear interest an
annual rate of seven percent (7%). This Note is issued pursuant to the terms of
that certain Asset Purchase Agreement dated as of June 12, 1998, the terms and
conditions of which Asset Purchase Agreement are incorporated fully herein by
this reference. Unless otherwise defined herein, defined terms shall have the
meanings as set forth in the Asset Purchase Agreement.
All interest is calculated daily and shall be paid based upon a 360-day
year.
FORM OF PAYMENT:
- ---------------
Any and all payments of any nature made or required to be made under
this Note shall be made in lawful money of the United States collectable on the
date of payment as provided in the Asset Purchase Agreement.
SUBORDINATION:
- -------------
(a) The Seller agrees that the indebtedness evidenced by this Note is
subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt.
(b) For the purposes of this Note, the following definitions shall
apply:
(1) "Debt" of any person means any indebtedness, contingent or
----
otherwise, in respect of borrowed money (whether or not the recourse of
the lender is to the whole of the assets of such person or only to a
portion thereof), or evidenced by bonds, notes, debentures or similar
instruments or letters of credit, or representing the balance deferred
and unpaid of the purchase price of any property or interest therein,
except any such balance that constitutes a trade payable, if and to the
extent such indebtedness would appear as a liability upon a balance
sheet of such person prepared on a consolidated basis in accordance with
generally accepted accounting principles.
<PAGE>
(2) "Senior Debt" means all Debt (present or future) created, incurred,
-----------
assumed or guaranteed by EIS (and all renewals, extensions or refundings
thereof) with Wells Fargo Bank or any successor or replacement lender,
unless the instrument under which such Debt is created, incurred,
assumed or guaranteed expressly provides that such Debt is not senior or
superior in right of payment to the Seller.
(c) Upon any distribution to creditors of EIS in a liquidation or
dissolution of EIS or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to EIS or its property, holders of Senior Debt
shall be entitled to receive payment in full in cash of the principal of and
interest (including interest accruing after the commencement of any such
proceeding) to the date of payment on the Senior Debt before Seller shall be
entitled to receive any payment of principal of or interest on the Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by EIS or any person
acting on behalf of EIS on account of the principal or interest of the Note.
(e) EIS may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that permits
holders of such Senior Debt to accelerate its maturity, and
(2) the default is the subject of judicial proceedings or EIS receives a
notice of the default from a person who holds Senior Debt. If EIS
receives any such notice, a subsequent notice received within nine
months thereafter relating to the same issue of Senior Debt shall not be
effective for purposes of this provision.
(f) EIS shall resume payments on the Note and may acquire the Note when:
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default is not the
subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
(g) If payment of the Note is accelerated because of an Event of
Default, EIS shall promptly notify holders of Senior Debt of the acceleration.
EIS shall pay the Note when 120 days pass after the acceleration occurs if the
Note permits the payment at that time; provided, however, that if no Senior
Debt is outstanding at the time of such acceleration EIS shall pay the Note in
accordance with the provisions of this Note.
(h) If a payment is made to the Seller that because of this
subordination provision should not have been made to them, the Seller shall hold
such payment in trust for holders of
<PAGE>
Senior Debt and pay it over to them as their interests may appear; provided,
however, that if neither EIS nor the holders of the Senior Debt notify the
Seller within 120 days after the payment is made that such payment should not
have been made, the Seller shall no longer be deemed to be holding such payment
in trust pursuant to this subsection (h).
(i) This subordination provision defines the relative rights of Seller
and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between EIS and Seller, the obligation of EIS, which is
absolute and unconditional, to pay principal of and interest on the Note
in accordance with its terms;
(2) affect the relative rights of Seller and creditors of EIS other than
holders of Senior Debt; or
(3) prevent Seller from exercising their available remedies upon a
Default or Event of Default, subject to the rights of holders of Senior
Debt to receive payments otherwise payable to Seller.
(j) If EIS fails because of this subordination provision to pay
principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
(k) No right of any holder of Senior Debt to enforce the subordination
of the indebtedness evidenced by the Note shall be impaired by any act or
failure to act by EIS or by its failure to comply with this subordination
provision.
CONVERSION OPTION:
- -----------------
At any time after the Closing Date and prior to December 31, 1999 (the
"Final Conversion Date"), if there has been no Initial Public Offering of EIS's
common stock the Seller shall have the right, on written notice to EIS to
convert this Note into common stock of EIS (the "Conversion Option"). If there
has been an Initial Public Offering of EIS's common stock prior to the Final
Conversion Date, this Note shall automatically be canceled and converted into
EIS common stock on the date immediately following the Initial Public Offering
(the "Mandatory Conversion"). If the Seller timely elects the Conversion Option
or there is a Mandatory Conversion, this Note shall be exchanged for FIVE
THOUSAND NINE HUNDRED EIGHTY TWO (5,982) shares of common stock in EIS. The EIS
common stock issued pursuant to either conversion shall be subject to the same
limitations and restriction as the common stock held by the other principal
shareholders of EIS.
REQUIRED PAYMENTS AND LOAN MATURITY:
- -----------------------------------
If there has been no Mandatory Conversion or the Seller fails to timely
exercise the Conversion Option, this Note shall be paid in six (6) equal monthly
installments of principal and interest on the unpaid principal amount by 5:00
p.m. commencing on the first business day of January 2000 and on the first
business day of every month thereafter until June 2000 when the
<PAGE>
principal balance hereof and all accrued and unpaid interest hereunder is paid
in full. If EIS fails to make any payment when due, then Seller shall have the
option, to be exercised in its sole and absolute discretion, to accelerate the
payments due hereunder and declare the unpaid principal amount and all accrued
and unpaid interest immediately due and payable.
LATE CHARGE:
- -----------
If any payment required hereunder is not received by holder when due,
a late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- -----------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
VOLUNTARY PREPAYMENT CLAUSE:
- ---------------------------
This Note may not be prepaid prior to December 31, 1999 and may only
be prepaid thereafter if the Seller has not timely exercised the Conversion
Option. Any permitted prepayment shall be applied to the last principal due
hereunder and no such prepayment shall affect or reduce the amount of any
scheduled payments hereunder.
RIGHT OF SET-OFF:
- ----------------
EIS shall have the right to withhold and set-off against any amount
due hereunder the amount of any claim for indemnification or payment of damages
to which EIS may be entitled as a result of Seller's or the Seller's
Stockholder's breach of the provisions in the Asset Purchase Agreement and/or
the Agreement of Seller Stockholders.
COSTS:
- -----
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
LAWS:
- ----
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without
<PAGE>
regard to the principles thereof regarding conflicts of laws, and any applicable
laws of the United States of America and may not be amended except by a written
document executed by the holder and maker.
PARTIES IN INTEREST:
- -------------------
This Note shall bind EIS and its successors and assigns. This Note shall
not be assigned or transferred by Seller (except to the Seller Stockholders)
without the express prior written consent of EIS, except by will or in default
thereof, by operation of law.
MARGINAL CAPTIONS:
- -----------------
The marginal captions appearing on this Note are for reference purposes
only and shall not in any way limit or otherwise affect the meaning, content or
interpretation of this Note.
LEGEND, RESTRICTIONS AND LIMITATIONS:
- ------------------------------------
THE PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS SUBJECT TO
CERTAIN RECOUPMENT AND OFFSET PROVISIONS SET FORTH IN THE ASSET PURCHASE
AGREEMENT AND AN AGREEMENT WITH SELLER STOCKHOLDERS, EACH DATED AS OF JUNE 12,
1998 AMONG EIS AND CERTAIN OTHER PERSONS. THIS NOTE WAS ORIGINALLY ISSUED ON
AUGUST 24, 1998, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS SET
FORTH IN THE AGREEMENTS REFERRED TO ABOVE. EIS WILL FURNISH A COPY OF THESE
PROVISIONS TO THE HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST.
ELECTRONIC INTEGRATED SOLUTIONS
a California corporation
By: /s/ DONALD J. ESTERS
---------------------------------
Donald J. Esters
Chairman of the Board
<PAGE>
EXHIBIT 10.47
EXHIBIT A TO ASSET PURCHASE AGREEMENT
SUBORDINATED PROMISSORY BUYER NOTE
----------------------------------
U.S. $133,333.33 Mountain View, California
August 24, 1998
For Value Received, the undersigned ELECTRONIC INTEGRATED SOLUTIONS
(formerly known as EIS, INC.) ("EIS") promises to pay to the order of DIGITAL
NETWORKS CORPORATION ("Seller") at 11 Musick, Irvine, California, or at such
other places as may be designated by Seller (the "Note"), the principal amount
of ONE HUNDRED THIRTY THREE THOUSAND DOLLARS AND THIRTY FOUR CENTS
($133,333.34). This Note is issued pursuant to the terms of that certain Asset
Purchase Agreement dated as of June 12, 1998, the terms and conditions of which
Asset Purchase Agreement are incorporated fully herein by this reference.
Unless otherwise defined herein, defined terms shall have the meanings as set
forth in the Asset Purchase Agreement.
The undersigned promises to pay interest on the principal amount
hereof remaining unpaid from time to time at the Applicable Rate.
All interest is calculated daily and shall be paid based upon a 360-
day year.
APPLICABLE RATE:
- ----------------
"Applicable Rate" shall mean, for any day, a fluctuating rate of
interest equal to the rate of interest publicly announced from time to time by
Wells Fargo Bank ("Bank"), or its successor, in San Francisco, California as its
reference rate. It is a rate set by Bank based upon various factors, including
its costs and desired return, general economic conditions and other factors, and
is used as a reference point for pricing some loans, which may be priced at,
above or below such announced rate.
FORM OF PAYMENT:
- ----------------
Any and all payments of any nature made or required to be made under
this Note shall be made in lawful money of the United States collectable on the
date of payment as provided in the Asset Purchase Agreement.
<PAGE>
SUBORDINATION:
- -------------
(a) The Seller agrees that the indebtedness evidenced by this Note is
subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt.
(b) For the purposes of this Note, the following definitions shall
apply:
(1) "Debt" of any person means any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such person or only to
a portion thereof), or evidenced by bonds, notes, debentures or
similar instruments or letters of credit, or representing the balance
deferred and unpaid of the purchase price of any property or interest
therein, except any such balance that constitutes a trade payable, if
and to the extent such indebtedness would appear as a liability upon a
balance sheet of such person prepared on a consolidated basis in
accordance with generally accepted accounting principles.
(2) "Senior Debt" means all Debt (present or future) created,
incurred, assumed or guaranteed by EIS (and all renewals, extensions
or refundings thereof) with WellS Fargo Bank or any successor or
replacement lender, unless the instrument under which such Debt is
created, incurred, assumed or guaranteed expressly provides that such
Debt is not senior or superior in right of payment to the Seller.
(c) Upon any distribution to creditors of EIS in a liquidation or
dissolution of EIS or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to EIS or its property, holders of Senior Debt
shall be entitled to receive payment in full cash of the principal of and
interest (including interest accruing after the commencement of any such
proceeding) to the date of payment on the Senior Debt before Seller shall be
entitled to receive any payment of principal of or interest on the Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by EIS or any person
acting on behalf of EIS on account of the principal or interest of the Note.
(e) EIS may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that permits
holders of such Senior Debt to accelerate its maturity, and
<PAGE>
(2) the default is the subject of judicial proceedings or EIS receives
a notice of the default from a person who holds Senior Debt. If EIS
receives any such notice, a subsequent notice received within nine
months thereafter relating to the same issue of Senior Debt shall not
be effective for purposes of this provision.
(f) EIS shall resume payments on the Note and may acquire the Note
when:
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default is not the
subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
(g) If payment of the Note is accelerated because of an Event of
Default, EIS shall promptly notify holders of Senior Debt of the acceleration.
EIS shall pay the Note when 120 days pass after the acceleration occurs if the
Note permits the payment at that time; provided, however, that if no Senior
Debt is outstanding at the time of such acceleration EIS shall pay the Note in
accordance with the provisions of this Note.
(h) If a payment is made to the Seller that because of this
subordination provision should not have been made to them, the Seller shall hold
such payment in trust for holders of Senior Debt and pay it over to them as
their interests may appear; provided, however, that if neither EIS nor the
holders of the Senior Debt notify the Seller within 120 days after the payment
is made that such payment should not have been made, the Seller shall no longer
be deemed to be holding such payment in trust pursuant to this subsection (h).
(i) This subordination provision defines the relative rights of Seller
and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between EIS and Seller, the obligation of EIS, which is
absolute and unconditional, to pay principal of and interest on the
Note in accordance with its terms;
(2) affect the relative rights of Seller and creditors of EIS other
than holders of Senior Debt; or
(3) prevent Seller from exercising their available remedies upon a
Default or Event of Default, subject to the rights of holders of
Senior Debt to receive payments otherwise payable to Seller.
(j) If EIS fails because of this subordination provision to pay
principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
<PAGE>
(k) No right of any holder of Senior Debt to enforce the subordination
of the indebtedness evidenced by the Note shall be impaired by any act or
failure to act by EIS or by its failure to comply with this subordination
provision.
REQUIRED PAYMENTS AND LOAN MATURITY:
- ------------------------------------
The principal balance hereof and all accrued and unpaid interest
hereunder shall be paid in full on or before six (6) months after the Closing
Date.
LATE CHARGE:
- ------------
If any payment required hereunder is not received by holder when due,
a late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- ------------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
VOLUNTARY PREPAYMENT CLAUSE:
- ----------------------------
This Note may be prepaid at any time in whole or in part.
RIGHT OF SET-OFF:
- -----------------
EIS shall have the right to withhold and set-off against any amount
due hereunder the amount of any claim for indemnification or payment of damages
to which EIS may be entitled as a result of Seller's or the Seller's
Stockholder's breach of the provisions in the Asset Purchase Agreement and/or
the Agreement of Seller Stockholders.
COSTS:
- ------
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
LAWS:
- -----
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflicts of laws, and any
<PAGE>
applicable laws of the United States of America and may not be amended except by
a written document executed by the holder and maker.
PARTIES IN INTEREST:
- --------------------
This Note shall bind EIS and its successor and assigns. This Note
shall not be assigned or transferred by Seller (except to the Seller
Stockholders) without the express prior written consent of EIS, except by will
or, in default thereof, by operation of law.
MARGINAL CAPTIONS:
- ------------------
The marginal captions appearing on this Note are for reference
purposes only and shall not in any way limit or otherwise affect the meaning,
content or interpretation of this Note.
LEGEND, RESTRICTIONS AND LIMITATIONS:
- -------------------------------------
THE PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS SUBJECT TO
CERTAIN RECOUPMENT AND OFFSET PROVISIONS SET FORTH IN THE ASSET PURCHASE
AGREEMENT AND AN AGREEMENT WITH SELLER STOCKHOLDERS, EACH DATED AS OF JUNE 12,
1998 AMONG EIS AND CERTAIN OTHER PERSONS. THIS NOTE WAS ORIGINALLY ISSUED ON
AUGUST 24, 1998, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS SET
FORTH IN THE AGREEMENTS REFERRED TO ABOVE. EIS WILL FURNISH A COPY OF THESE
PROVISIONS TO THE HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST.
ELECTRONIC INTEGRATED SOLUTIONS
a California corporation
By: /s/ DONALD J. ESTERS
-----------------------------------
Donald J. Esters
Chairman of the Board
<PAGE>
EXHIBIT B TO ASSET PURCHASE AGREEMENT
-------------------------------------
SUBORDINATED PROMISSORY BUYER NOTE
----------------------------------
U.S. $ 133,333.33 Mountain View, California
August 24, 1998
For Value Received, the undersigned ELECTRONIC INTEGRATED SOLUTIONS
(formerly known as EIS, INC.) ("EIS") promises to pay to the order of DIGITAL
NETWORKS CORPORATION ("Seller") at 11 Musick, Irvine, California, or at such
other places as may be designated by Seller (the "Note"), the principal amount
of ONE HUNDRED THIRTY THREE THOUSAND DOLLARS AND THIRTY THREE CENTS
($133,333.33). This Note is issued pursuant to the terms of that certain Asset
Purchase Agreement dated as of June 12, 1998, the terms and conditions of which
Asset Purchase Agreement are incorporated fully herein by this reference.
Unless otherwise defined herein, defined terms shall have the meanings as set
forth in the Asset Purchase Agreement.
The undersigned promises to pay interest on the principal amount
hereof remaining unpaid from time to time at the Applicable Rate.
All interest is calculated daily and shall be paid based upon a 360-
day year.
APPLICABLE RATE:
- ----------------
"Applicable Rate" shall mean, for any day, a fluctuating rate of
interest equal to the rate of interest publicly announced from time to time by
Wells Fargo Bank ("Bank"), or its successor, in San Francisco, California as its
reference rate. It is a rate set by Bank based upon various factors, including
its costs and desired return, general economic conditions and other factors, and
is used as a reference point for pricing some loans, which may be priced at,
above or below such announced rate.
FORM OF PAYMENT:
- ---------------
Any and all payments of any nature made or required to be made under
this Note shall be made in lawful money of the United States collectable on the
date of payment as provided in the Asset Purchase Agreement.
<PAGE>
SUBORDINATION:
- -------------
(a) The Seller agrees that the indebtedness evidenced by this Note is
subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt.
(b) For the purposes of this Note, the following definitions shall
apply:
(1) "Debt" of any person means any indebtedness, contingent or
----
otherwise, in respect of borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such person or only to
a portion thereof), or evidenced by bonds, notes, debentures or
similar instruments or letters of credit, or representing the balance
deferred and unpaid of the purchase price of any property or interest
therein, except any such balance that constitutes a trade payable, if
and to the extent such indebtedness would appear as a liability upon a
balance sheet of such person prepared on a consolidated basis in
accordance with generally accepted accounting principles.
(2) "Senior Debt" means all Debt (present or future) created,
-----------
incurred, assumed or guaranteed by EIS (and all renewals, extensions
or refundings thereof) with Wells Fargo Bank or any successor or
replacement lender, unless the instrument under which such Debt is
created, incurred, assumed or guaranteed expressly provides that such
Debt is not senior or superior in right of payment to the Seller.
(c) Upon any distribution to creditors of EIS in a liquidation or
dissolution of EIS or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to EIS or its property, holders of Senior Debt
shall be entitled to receive payment in full in cash of the principal of and
interest (including interest accruing after the commencement of any such
proceeding) to the date of payment on the Senior Debt before Seller shall be
entitled to receive any payment of principal of or interest on the Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by EIS or any person
acting on behalf of EIS on account of the principal or interest of the Note.
(e) EIS may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that
permits holders of such Senior Debt to accelerate its maturity, and
<PAGE>
(2) the default is the subject of judicial proceedings or EIS
receives a notice of the default from a person who holds Senior Debt.
If EIS receives any such notice, a subsequent notice received within
nine months thereafter relating to the same issue of Senior Debt shall
not be effective for purposes of this provision.
(f) EIS shall resume payments on the Note and may acquire the Note
when:
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default is not
the subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
(g) If payment of the Note is accelerated because of an Event of
Default, EIS shall promptly notify holders of Senior Debt of the acceleration.
EIS shall pay the Note when 120 days pass after the acceleration occurs if the
Note permits the payment at that time; provided, however, that if no Senior Debt
is outstanding at the time of such acceleration EIS shall pay the Note in
accordance with the provisions of this Note.
(h) If a payment is made to the Seller that because of this
subordination provision should not have been made to them, the Seller shall hold
such payment in trust for holders of Senior Debt and pay it over to them as
their interests may appear; provided, however, that if neither EIS nor the
holders of the Senior Debt notify the Seller within 120 days after the payment
is made that such payment should not have been made, the Seller shall no longer
be deemed to be holding such payment in trust pursuant to this subsection (h).
(i) This subordination provision defines the relative rights of Seller
and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between EIS and Seller, the obligation of EIS,
which is absolute and unconditional, to pay principal of and interest
on the Note in accordance with its terms;
(2) affect the relative rights of Seller and creditors of EIS
other than holders of Senior Debt; or
(3) prevent Seller from exercising their available remedies upon
a Default or Event of Default, subject to the rights of holders of
Senior Debt to receive payments otherwise payable to Seller.
<PAGE>
(j) If EIS fails because of this subordination provision to pay
principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
(k) No right of any holder of Senior Debt to enforce the subordination
of the indebtedness evidenced by the Note shall be impaired by any act or
failure to act by EIS or by its failure to comply with this subordination
provision.
REQUIRED PAYMENTS AND LOAN MATURITY:
- -----------------------------------
The principal balance hereof and all accrued and unpaid interest
hereunder shall be paid in full on or before six (6) months after the Closing
Date.
LATE CHARGE:
- -----------
If any payment required hereunder is not received by holder when due,
a late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- -----------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
VOLUNTARY PAYMENT CLAUSE:
- ------------------------
This Note may be prepaid at any time in whole or in part.
RIGHT OF SET-OFF:
- ----------------
EIS shall have the right to withhold and set-off against any amount
due hereunder the amount of any claim for indemnification or payment of damages
to which EIS may be entitled as a result of Seller's or the Seller's
Stockholder's breach of the provisions in the Asset Purchase Agreement and/or
the Agreement of Seller Stockholders.
COSTS:
- -----
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
<PAGE>
LAWS:
- ----
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflicts of laws, and any applicable laws of the United States of
America and may not be amended except by a written document executed by the
holder and maker.
PARTIES IN INTEREST:
- -------------------
This Note shall bind EIS and its successor and assigns. This Note
shall not be assigned or transferred by Seller (except to the Seller
Stockholders) without the express prior written consent of EIS, except by will
or, in default thereof, by operation of law.
MARGINAL CAPTIONS:
- -----------------
The marginal captions appearing on this Note are for reference
purposes only and shall not in any way limit or otherwise affect the meaning,
content or interpretation of this Note.
LEGEND, RESTRICTIONS AND LIMITATIONS:
- ------------------------------------
THE PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS SUBJECT TO
CERTAIN RECOUPMENT AND OFFSET PROVISIONS SET FORTH IN THE ASSET PURCHASE
AGREEMENT AND AN AGREEMENT WITH SELLER STOCKHOLDERS, EACH DATED AS OF JUNE 12,
1998 AMONG EIS AND CERTAIN OTHER PERSONS. THIS NOTE WAS ORIGINALLY ISSUED ON
AUGUST 24, 1998, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS SET
FORTH IN THE AGREEMENTS REFERRED TO ABOVE. EIS WILL FURNISH A COPY OF THESE
PROVISIONS TO THE HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST.
ELECTRONIC INTEGRATED SOLUTIONS
a California corporation
By: /s/ DONALD J. ESTERS
-------------------------------------
Donald J. Esters
Chairman of the Board
<PAGE>
EXHIBIT C TO ASSET PURCHASE AGREEMENT
SUBORDINATED PROMISSORY BUYER NOTE
----------------------------------
U.S. $133,333.34 Mountain View, California
August 24, 1998
For Value Received, the undersigned ELECTRONIC INTEGRATED SOLUTIONS
(formerly known as EIS, INC.) ("EIS") promises to pay to the order of DIGITAL
NETWORKS CORPORATION ("Seller") at 11 Musick, Irvine, California, or at such
other places as may be designated by Seller (the "Note"), the principal amount
of ONE HUNDRED THIRTY THREE THOUSAND DOLLARS AND THIRTY FOUR CENTS
($133,333.34). This Note is issued pursuant to the terms of that certain Asset
Purchase Agreement dated as of June 12, 1998, the terms and conditions of which
Asset Purchase Agreement are incorporated fully herein by this reference.
Unless otherwise defined herein, defined terms shall have the meanings as set
forth in the Asset Purchase Agreement.
The undersigned promises to pay interest on the principal amount
hereof remaining unpaid from time to time at the Applicable Rate.
All interest is calculated daily and shall be paid based upon a 360-
day year.
APPLICABLE RATE:
- ----------------
"Applicable Rate" shall mean, for any day, a fluctuating rate of
interest equal to the rate of interest publicly announced from time to time by
Wells Fargo Bank ("Bank"), or its successor, in San Francisco, California as its
reference rate. It is a rate set by Bank based upon various factors, including
its costs and desired return, general economic conditions and other factors, and
is used as a reference point for pricing some loans, which may be priced at,
above or below such announced rate.
FORM OF PAYMENT:
- ----------------
Any and all payments of any nature made or required to be made under
this Note shall be made in lawful money of the United States collectable on the
date of payment as provided in the Asset Purchase Agreement.
<PAGE>
SUBORDINATION:
- --------------
(a) The Seller agrees that the indebtedness evidenced by this Note is
subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt.
(b) For the purposes of this Note, the following definitions shall
apply:
(1) "Debt" of any person means any indebtedness, contingent or
otherwise, in respect of borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such person or only to
a portion thereof), or evidenced by bonds, notes, debentures or
similar instruments or letters of credit, or representing the balance
deferred and unpaid of the purchase price of any property or interest
therein, except any such balance that constitutes a trade payable, if
and to the extent such indebtedness would appear as a liability upon a
balance sheet of such person prepared on a consolidated basis in
accordance with generally accepted accounting principles.
(2) "Senior Debt" means all Debt (present or future) created,
incurred, assumed or guaranteed by EIS (and all renewals, extensions
or refundings thereof) with Wells Fargo Bank or any successor or
replacement lender, unless the instrument under which such Debt is
created, incurred, assumed or guaranteed expressly provides that such
Debt is not senior or superior in right of payment to the Seller.
(c) Upon any distribution to creditors of EIS in a liquidation or
dissolution of EIS or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to EIS or its property, holders of Senior Debt
shall be entitled to receive payment in full cash of the principal of and
interest (including interest accruing after the commencement of any such
proceeding) to the date of payment on the Senior Debt before Seller shall be
entitled to receive any payment of principal of or interest on the Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by EIS or any person
acting on behalf of EIS on account of the principal or interest of the Note.
(e) EIS may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that permits
holders of such Senior Debt to accelerate its maturity, and
<PAGE>
(2) the default is the subject of judicial proceedings or EIS receives
a notice of the default from a person who holds Senior Debt. If EIS
receives any such notice, a subsequent notice received within nine
months thereafter relating to the same issue of Senior Debt shall not
be effective for purposes of this provision.
(f) EIS shall resume payments on the Note and may acquire the Note
when:
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default is not the
subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
(g) If payment of the Note is accelerated because of an Event of
Default, EIS shall promptly notify holders of Senior Debt of the acceleration.
EIS shall pay the Note when 120 days pass after the acceleration occurs if the
Note permits the payment at that time; provided, however, that if no Senior
Debt is outstanding at the time of such acceleration EIS shall pay the Note in
accordance with the provisions of this Note.
(h) If a payment is made to the Seller that because of this
subordination provision should not have been made to them, the Seller shall hold
such payment in trust for holders of Senior Debt and pay it over to them as
their interests may appear; provided, however, that if neither EIS nor the
holders of the Senior Debt notify the Seller within 120 days after the payment
is made that such payment should not have been made, the Seller shall no longer
be deemed to be holding such payment in trust pursuant to this subsection (h).
(i) This subordination provision defines the relative rights of Seller
and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between EIS and Seller, the obligation of EIS, which is
absolute and unconditional, to pay principal of and interest on the
Note in accordance with its terms;
(2) affect the relative rights of Seller and creditors of EIS other
than holders of Senior Debt; or
(3) prevent Seller from exercising their available remedies upon a
Default or Event of Default, subject to the rights of holders of
Senior Debt to receive payments otherwise payable to Seller.
(j) If EIS fails because of this subordination provision to pay
principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
<PAGE>
(k) No right of any holder of Senior Debt to enforce the subordination
of the indebtedness evidenced by the Note shall be impaired by any act or
failure to act by EIS or by its failure to comply with this subordination
provision.
REQUIRED PAYMENTS AND LOAN MATURITY:
- ------------------------------------
The principal balance hereof and all accrued and unpaid interest
hereunder shall be paid in full on or before six (6) months after the Closing
Date.
LATE CHARGE:
- ------------
If any payment required hereunder is not received by holder when due,
a late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- ------------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
VOLUNTARY PREPAYMENT CLAUSE:
- ----------------------------
This Note may be prepaid at any time in whole or in part.
RIGHT OF SET-OFF:
- -----------------
EIS shall have the right to withhold and set-off against any amount
due hereunder the amount of any claim for indemnification or payment of damages
to which EIS may be entitled as a result of Seller's or the Seller's
Stockholder's breach of the provisions in the Asset Purchase Agreement and/or
the Agreement of Seller Stockholders.
COSTS:
- ------
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
LAWS:
- -----
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflicts of laws, and any
<PAGE>
applicable laws of the United States of America and may not be amended except by
a written document executed by the holder and maker.
PARTIES IN INTEREST:
- --------------------
This Note shall bind EIS and its successor and assigns. This Note
shall not be assigned or transferred by Seller (except to the Seller
Stockholders) without the express prior written consent of EIS, except by will
or, in default thereof, by operation of law.
MARGINAL CAPTIONS:
- ------------------
The marginal captions appearing on this Note are for reference
purposes only and shall not in any way limit or otherwise affect the meaning,
content or interpretation of this Note.
LEGEND, RESTRICTIONS AND LIMITATIONS:
- -------------------------------------
THE PAYMENT OF PRINCIPAL AND INTEREST ON THIS NOTE IS SUBJECT TO
CERTAIN RECOUPMENT AND OFFSET PROVISIONS SET FORTH IN THE ASSET PURCHASE
AGREEMENT AND AN AGREEMENT WITH SELLER STOCKHOLDERS, EACH DATED AS OF JUNE 12,
1998 AMONG EIS AND CERTAIN OTHER PERSONS. THIS NOTE WAS ORIGINALLY ISSUED ON
AUGUST 24, 1998, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE TRANSFER OF THIS NOTE IS SUBJECT TO CERTAIN RESTRICTIONS SET
FORTH IN THE AGREEMENTS REFERRED TO ABOVE. EIS WILL FURNISH A COPY OF THESE
PROVISIONS TO THE HOLDER HEREOF WITHOUT CHARGE UPON WRITTEN REQUEST.
ELECTRONIC INTEGRATED SOLUTIONS
a California corporation
By: /s/ DONALD J. ESTERS
------------------------------------
Donald J. Esters
Chairman of the Board
<PAGE>
EXHIBIT 10.48
DEMAND NOTE
April 2, 1996
In return for the sum of $100,000.00 received by bank transfer, I, Donald
Esters, in my capacity as Chairman of The Board of Directors of The Dupuis
Group, L.L.C., agree to repay this note, on demand to Educational Industrial
Sales, Inc. Interest will be payable quarterly at bank prime plus 3/4%.
The Dupuis Group, L.L.C.
/s/ DONALD ESTERS
----------------------------
per Donald Esters
Chairman
<PAGE>
EXHIBIT 10.49
SUBORDINATED PROMISSORY NOTE
----------------------------
U.S. $500,000.00
Mountain View, California
June 29, 1998
For Value Received, the undersigned EISI, INC. ('EISI") promises to
pay to the order of Robert V. Higginbotham ("Seller") at 2126 Vanco Drive,
Irving, Texas 75061, or at such other places as may be designated by Seller
(the "Note"), the principal amount of FIVE HUNDRED THOUSAND DOLLARS ($500,000).
This Note is issued pursuant to the terms of that certain Stock Purchase
Agreement dated as of June 10, 1998, the terms and conditions of which Stock
Purchase Agreement are incorporated fully herein by this reference. Unless
otherwise defined herein, defined terms shall have the meanings as set forth in
the Stock Purchase Agreement.
The outstanding balance on this Note shall not bear any interest until
the Buyer Note Due Date and, from that point forward shall bear interest at a
rate equal to the Applicable Rate.
All interest is calculated daily and shall be paid based upon a 360-
day year.
APPLICABLE RATE:
- ---------------
"Applicable Rate" shall mean, for any day, a fluctuating rate of
interest equal to the rate of interest publicly announced from time to time by
Wells Fargo Bank ("Bank"), or its successor, in San Francisco, California as its
reference rate. It is a rate set by Bank based upon various factors, including
its costs and desired return, general economic conditions and other factors, and
is used as a reference point for pricing some loans, which may be priced at,
above or below such announced rate.
FORM OF PAYMENT:
- ----------------
Any and all payments of any nature or required to be made under this
Note shall be made in lawful money of the United States collectable on the date
of payment as provided in the Stock Purchase Agreement.
SUBORDINATION:
- --------------
(a) The Seller agrees that the indebtedness evidenced by this Note is
subordinated in right of payment, to the extent and in the manner provided
herein, to the prior payment in full of all Senior Debt, and that the
subordination is for the benefit of the holders of Senior Debt.
(b) For the purpose of this Note, the following definition shall
apply:
(1) "Debt" of any person means any indebtedness, contingent or
----
<PAGE>
otherwise, in respect of borrowed money (whether or not the recourse
of the lender is to the whole of the assets of such person or only to
a portion thereof), or evidenced by bonds, notes, debentures or
similar instruments or letters of credit, or representing the balance
deferred and unpaid of the purchase price of any property or interest
therein, except any such balance that constitutes a trade payable, if
and to the extent such indebtedness would appear as a liability upon a
balance sheet of such person prepared on a consolidated basis in
accordance with generally accepted accounting principles.
(2) "Senior Debt" means all Debt (present or future) created,
-----------
incurred, assumed or guaranteed by EISI to any third party financial
institution, equipment lessor or any party having a security interest
in any of the property of Seller (and all renewals, extensions or
refundings thereof), unless the instrument under which such Debt is
created, incurred, assumed or guaranteed expressly provides that such
Debt is not senior or superior in right of payment to the Seller.
(c) Upon any distribution to creditors of EISI in a liquidation or
dissolution of EISI or in a bankruptcy, reorganization, insolvency, receivership
or similar proceeding relating to EISI or its property, holders of Senior Debt
shall be entitled to receive payment in full in cash of the principal of and
interest (including interest accruing after the commencement of any such
proceeding) to the date of payment on the Senior Debt before Seller shall be
entitled to receive any payment of principal of or interest on the Note.
(d) Upon the final maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all such Senior Debt shall first be paid in full, or
such payment duly provided for in cash or in a manner satisfactory to the
holders of such Senior Debt, before any payment is made by EISI or any person
acting on behalf of EISI on account of the principal or interest of the Note.
(e) EISI may not pay principal of or interest on the Note if:
(1) a default on Senior Debt occurs and is continuing that
permits holders of such Senior Debt to accelerate its maturity, and
(2) the default is the subject of judicial proceedings or EISI
receives a notice of the default from a person who holds Senior Debt.
If EISI receives any such notice, a subsequent notice received within
nine months thereafter relating to the same issue of Senior Debt shall
not be effective for purposes of this provision.
(f) EISI shall resume payments on the Note and may acquire the Note
when:
(1) the default is cured or waived, or
(2) 120 days pass after the notice is given if the default is not
the subject of judicial proceedings,
if this Note otherwise permits the payment or acquisition at that time.
2
<PAGE>
(g) If payment of the Note is accelerated because of an Event of
Default, EISI shall promptly notify holders of Senior Debt of the acceleration.
EISI shall pay the Note when 120 days pass after the acceleration occurs if the
Note permits the payment at that time; provided, however, that if no Senior Debt
is outstanding at the time of such acceleration EISI shall pay the Note in
accordance with the provisions of this Note.
(h) If a payment is made to the Seller that because of this
subordination provision should not have been made to them, the Seller shall hold
such payment in trust for holders of Senior Debt and pay it over to them as
their interests may appear.
(i) This subordination provision defines the relative rights of Seller
and holders of Senior Debt. Nothing in this provision shall:
(1) impair, as between EISI and Seller, the obligation of EISI,
which is absolute and unconditional, to pay principal of and interest
on the Note in accordance with its terms;
(2) affect the relative rights of Seller and creditors of EISI
other than holders of Senior Debt; or
(3) prevent Seller from exercising their available remedies upon
a Default or Event of Default, subject to the rights of holders of
Senior Debt to receive payments otherwise payable to Seller.
(j) If EISI fails because of this subordination provision to pay
principal of or interest on the Note on the due date, the failure is still a
Default or Event of Default.
(k) No right of any holder of Senior Debt to enforce the subordination
of the indebtedness evidenced by the Note shall be impaired by any act or
failure to act by EISI or by its failure to comply with this subordination
provision.
REQUIRED PAYMENTS AND LOAN MATURITY:
- ------------------------------------
The principal amount shall be due and payable on January 2, 1999 or
the day immediately following an Initial Public Offering of EISI's common stock,
whichever is earlier, unless EISI elects the Buyer Note Installment Payment
Option. If EISI elects the Buyer Note Installment Payment Option, equal monthly
installments of principal in the amount of Five Hundred Thousand Dollars
($500,000) and interest on the unpaid principal amount shall be paid by EISI by
5:00 p.m. with the first payment to be made on February 1, 1999 and continuing
every month thereafter until July 1, 1999 when the principal balance hereof and
all accrued and unpaid interest hereunder is paid in full. If EISI fails to
make any payment when due, then Seller shall have the option, to be exercised in
its sole and absolute discretion, to accelerate the payments due hereunder and
declare the unpaid principal amount and all accrued and unpaid interest
immediately due and payable.
3
<PAGE>
LATE CHARGE:
- ------------
If any payment required hereunder is not received by holder when due,
a late charge of five percent (5.0%) of each overdue required payment shall be
charged for the purpose of defraying the expenses incident to handling said
delinquent payment(s).
APPLICATION OF PAYMENTS:
- ------------------------
Payments shall be applied first to interest and the remainder to the
principal balance. Payments, if less than the amount required, shall be applied
in the sole discretion of holder and acceptance of such payments shall not be a
waiver of the rights of the holder hereof to require scheduled payments.
VOLUNTARY PREPAYMENT CLAUSE:
- ----------------------------
This Note may be prepaid at any time in whole or in part; provided,
that any such prepayment shall be applied to the last principal due hereunder
and no such prepayment shall affect or reduce the amount of any scheduled
payments hereunder.
RIGHT OF SET-OFF:
- -----------------
EISI shall have the right to withhold and set-off against any amount
due hereunder the amount of any claim for indemnification or payment of damages
to which EISI may be entitled as a result of Seller's breach of the provisions
in the Stock Purchase Agreement.
DEFAULT OF TERMS AND CONDITIONS:
- --------------------------------
It is agreed that time is of the essence of this Note and that in the
event of default of payment of any installment, the holder of this Note may, at
its option, declare all the remainder of said debt due and payable, and any
failure to exercise said option shall not constitute a waiver of the right to
exercise the same at any other time, nor shall such failure to exercise the
option be construed as any form of acceptance of any said default. Notice of
the exercise of said option is hereby waived.
COSTS:
- ------
Undersigned agrees to reimburse holder for all costs and expenses,
including, without limitation, all reasonable attorneys' fees incurred in the
enforcement or collection of this Note or any judgment obtained hereon.
LAWS:
- -----
This Note shall be governed by, and construed and enforced in
accordance with, the laws of the State of California applicable to contracts
made and performed in such state, without regard to the principles thereof
regarding conflicts of laws, and any applicable laws of the United States of
America and may not be amended except by a written document executed by the
holder and maker.
4
<PAGE>
PARTIES IN INTEREST:
- --------------------
This Note shall bind EISI and its successor and assigns. This Note
shall not be assigned or transferred by Seller without the express prior written
consent of EISI, except by will or, in default thereof, by operation of law.
MARGINAL CAPTIONS:
- ------------------
The marginal captions appearing on this Note are for reference
purposes only and shall not in any way limit or otherwise affect the meaning,
content or interpretation of this Note.
EISI, INC.
a California corporation
By: /s/ DONALD J. ESTERS
-------------------------
Donald J. Esters
5
<PAGE>
EXHIBIT 10.50
PROMISSORY NOTE
$10,000.00 November 19, 1997
For value received, the undersigned DURAND COMMUNICATIONS, INC., a California
corporation in organization (the "Promisor") promises to pay to the order of
EDUCATIONAL INDUSTRIAL SALES, INC., a corporation ("Payee"), at 140 EAST DANA
STREET, MOUNTAIN VIEW, CALIFORNIA 94041, (or at such other place as the Payee
may designate in writing) the sum of $10,000.00 with interest from the date
above, on the unpaid principal at the rate of 10.00 percent annually.
Unpaid principal after the Due Date shown below shall accrue interest at a rate
of 10.00 percent annually until paid.
The unpaid principal and interest shall be payable in full on MAY 19, 1998 or
such earlier date upon demand by Payee. Any partial payments on this Note shall
be applied first in payment of accrued interest and any remainder in payment of
principal.
If this Note is not paid when due, the Promisor promises to pay all costs of
collection, including reasonable attorney fees, whether or not a lawsuit is
commenced as part of the collection process.
If any of the following events of default occur, this Note and any other
obligations of the Promisor to the Payee, shall become due immediately, without
demand or notice:
(1) the failure of the Promisor to pay the principal and any accrued interest
in full on or before the Due Date;
(2) the death of the Promisor(s) or Payee(s);
(3) the filing of bankruptcy proceedings involving the Promisor as a Debtor;
(4) the application for appointment of a receiver for the Promisor;
(5) the making of a general assignment for the benefit of the Promisor's
creditors;
(6) the insolvency of the Promisor; or
(7) the misrepresentation by the Promisor to the Payee for the purpose of
obtaining or extending credit.
No renewal or extension of this Note, delay in enforcing any right of the Payee
under this Note, or assignment by Payee of this Note shall affect the liability
of the Promisor. All rights of the Payee under this Note are cumulative and may
be exercised concurrently or consecutively at the Payee's option.
<PAGE>
This Note shall be construed in accordance with the laws of the State of
California.
If any one or more of the provisions of this Note is determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States.
Promisor waives presentment for payment, protest, and notice of protest and
nonpayment of this Note.
Signed this 19TH day of NOVEMBER, 1997 at
147 Castilian Drive, Santa Barbara, California 93117
Durand Communications, Inc.
a California corporation in organization
By: /s/ ANDRE DURAND
------------------------------
Andre Durand, President and
Chief Executive Officer
<PAGE>
EXHIBIT 10.51
SOFTWARE CONSULTING AGREEMENT
THIS AGREEMENT between Frank, Rimerman Consulting LLC, a California
limited liability company having its principal place of business in San Jose, CA
("FRC"), and EIS Inc., a California corporation having its principal place of
business in Mountain View, CA, ("Client"), is entered into and made effective as
of June 1, 1998.
WHEREAS, Client desires to purchase a certain software package
manufactured by Great Plains Software and to engage a software installer to
assist Client to install said package; and
FRC is a value-added reseller for Great Plains Software and also
provides installation and consulting services;
NOW, THEREFORE, Client desires to purchase the software and consulting
services described below from FRC and FRC desires to sell the software and
provide the consulting services to Client in accordance with the terms and
provisions set forth herein;
ARTICLE I - ENGAGEMENT
Client hereby agrees to purchase the software and hereby engages FRC
to render the services (the "Services") described below in accordance with the
terms and specifications provided herein.
A. PROJECT SCOPE.
-------------
1. PURCHASE AND SALE OF SOFTWARE.
FRC shall sell and Client shall purchase the following software
components (referred to as "Dynamics SQL modules") manufactured by Great Plains
Software for the SQL database at the following prices:
SOFTWARE COSTS
The following lists the software necessary to meet your needs, prices
reflect 50 concurrent users for Dynamics SQL:
<TABLE>
<C> <S> <C>
1) GP & Service Advantage System Manager & Report Writer (50
concurrent users) $108,000.00
2) General Ledger w/Frx Advanced $ 17,000.00
3) Intercompany (included in General Ledger) --
4) Multidimensional Analysis (included in General Ledger) --
5) Receivables Management $ 7,500.00
6) Payables Management $ 10,000.00
7) Bank Reconciliation (included in Payables Mgmt.) --
8) Inventory Control $ 10,000.00
9) Purchase Order Processing $ 10,000.00
</TABLE>
1
<PAGE>
<TABLE>
<C> <S> <C>
10) Sales Order Processing with Invoicing $ 10,000.00
11) Project Cost with time and Billing $ 15,000.00
12) Service Call Management $ 15,000.00
13) Preventive Maintenance $ 5,000.00
14) Depot Repair Management $ 15,000.00
15) Returns Management $ 10,000.00
16) Contracts Administration $ 10,000.00
17) GP Dynamics Order $ 10,000.00
18) Dynamics Service Center $ 10,000.00
19) Internet $ 30,000.00
75 Web Connections- No Charge- See Below
20) GP Enhancement Fee SQL $ 43,875.00
Software Subtotal $336,375.00
Trade Discount $ 59,280.31
-----------
Subtotal $277,094.69
Tax (8.25%) $ 22,860.31
Shipping $ 45.00
Grand Total $300,000.00
===========
</TABLE>
ENHANCEMENT PLAN:
- ----------------
The Enhancement Fee is fifteen percent (15%) of the software list
price per year and is required by Great Plains. This Enhancement Program
provides you:
A. Periodic software releases that incorporate minor refinements as
well as significant new product features
B. Access to the Dynamics C/S+ SQL Expert Bulletin Board Service
C. Access to an automated fax-on-demand service
D. Quarterly newsletters and technical bulletins
E. An assigned Customer Satisfaction Manager ("CSM") available at
the customer's discretion to discuss issues, concerns, questions
and upcoming challenges.
F. An orientation meeting with a CSM to familiarize the customer
with our support practices, our development practices, and our
organization.
G. Access to a secure section on Great Plains' Home Page available
to Dynamics C/S+ SQL for Microsoft SQL Server customers and
Partners.
2
<PAGE>
2. IMPLEMENTATION PLANNING.
FRC shall assist Client to design and implement a written
implementation plan which identifies the order of the Dynamics SQL modules to be
installed at the Client's principal place of business, the necessary testing for
each module, the parallel processes/tasks that need to be run, and the training
plan for the client's staff.
3. NETWORK SYSTEM REVIEW.
FRC shall assist Client to perform a systematic review of the
hardware, software and operating system components and shall document the
findings. FRC shall assist Client to correct all deficiencies identified in the
review before implementing client/server applications. The parties agree that
this approach should minimize problems both before and after implementation.
A typical systematic review of the hardware, software and operating
system components includes a review of the following: critical server
initialization files, volume analysis, access and security issues, network
operating system library and driver files, client operating systems and network
shell files, workstation performance, memory, and volume issues, software
management program, virus protection, backup strategies and procedures
4. INSTALLATION AND SETUP.
FRC shall assist Client to install the Great Plains Dynamics SQL
modules onto Client's server. FRC shall initialize the database so that Client
will have a starting point for setting up the Client data designed around the
Client's needs. FRC shall then assist Client to configure all of the Client's
workstations that Client requires be accessible to the Great Plains Dynamics SQL
modules.
5. DATA CONVERSION.
FRC shall assist Client to convert the Client's existing accounting data into
Great Plains Dynamics SQL modules. Some of this may be accomplished
electronically and some may be accomplished manually.
6. MODULE IMPLEMENTATION AND TRAINING.
FRC shall assist Client to install and set up the Dynamics SQL
modules. FRC shall work with the Client to identify and create a coding scheme
for master records (chart of accounts, vendors, customers, etc.) that is
acceptable to Client and shall assist the Client in setting up the master
records. FRC shall train the Client's staff to use the Dynamics SQL modules.
This training shall include how to enter data, perform key processes, print
needed reports and close the modules.
3
<PAGE>
7. SOFTWARE MODIFICATION AND INTEGRATION DETAIL DESIGN.
No software modification or integration with other systems is included
in the Project Scope of this Agreement or the consulting fee estimate.
8. SYSTEM IMPLEMENTATION AND TEST.
FRC shall assist Client to plan, design and document procedures for
testing, training, system test, data conversion and post cutover follow up. FRC
shall train Client's staff computer professionals in the testing procedures. In
order for the system implementation and testing procedures to be effective, FRC
requires Client to communicate its objectives to make Client's staff available
for frequent status and design meetings with the Client to confirm findings and
project approach and to facilitate the decision process on the numerous issues
that will surface.
ARTICLE II. - CLIENT COOPERATION
Client shall assist FRC by promptly providing such equipment necessary
for FRC's Employees to render the Services in a manner which conforms to FRC's
standard practices. If Client is unable to provide such equipment, FRC may
acquire such equipment and add the acquisition cost to its bill to Client.
Client shall also promptly provide information and access to the facilities of
Client to FRC as FRC may reasonably request.
ARTICLE III. - PRICE AND PAYMENT
A. PROFESSIONAL FEES: The fees for FRC's services will be billed as
time is incurred at FRC's standard rates for the personnel assigned to the
project, plus direct expenses. These rates vary from $100 per hour for a staff
consultant to $250 per hour for a principal. Travel time will be charged at $50
per hour. FRC estimates the fees for the tasks described in the Project Scope to
range between $125,000 and 175,000. These fees are impacted by the complexity
and uniqueness of procedures and processes found in the existing systems that
need to be documented, evaluated and incorporated in the new system. We will
gain your approval prior to incurring fees above the estimate.
B. SOFTWARE COSTS: Client shall pay FRC for the Dynamics SQL
Accounting modules as shown above.
C. COSTS: Client shall also reimburse FRC for FRC's costs incurred
in providing the consulting services described herein as enumerated below
("Reimbursable Costs").
1. Reasonable and ordinary direct expenses such as travel, supplies,
communications, etc.
2. Equipment acquisition as described above.
3. Any other expenses as agreed by FRC and Client.
4
<PAGE>
D. PAYMENT: Client shall pay for all software in full in advance
upon the signing of this contract. FRC shall bill Client for fees for Services
and Reimbursable Costs on a weekly basis. Client shall pay said bills net 15
days from the end of the week in which fees were incurred. Unpaid bills are
subject to a 1 percent (1%) per month (12 percent per year) late charge if not
paid within 30 days. In addition to the late charge, FRC reserves the right to
terminate all work if payment is in arrears for more than thirty (30) days.
Client shall also pay FRC a retainer in the amount of ten thousand dollars
($10,000) which shall be held by FRC for Client's account until the project is
complete at which time it shall be applied to payment of Client's final bill.
ARTICLE IV. - OWNERSHIP
Nothing contained herein shall be construed as limiting FRC's rights
to use or market any of its intellectual property, including but not limited to
methodologies, workplans, functional and technical architecture, as well as pre-
existing materials and related documentation, without obligation of any kind to
Client.
FRC shall grant Client an irrevocable, nonexclusive license to use all
original materials created by FRC for Client pursuant to this Agreement.
ARTICLE V. - DOCUMENTATION
The software manufacturer provides documentation which describes the
functions of the software. Client shall create and provide its staff written
procedures describing how Client will use the software on a day to day basis.
These procedures should include coding schemes, which system transactions are
used for specific business events, handling of exceptions and use of specific
data fields including user-defined fields. If requested, FRC will review and
comment on these procedures.
ARTICLE VI. - REPRESENTATIONS AND WARRANTIES
Client should be aware that with respect to the software purchased
herein NO WARRANTIES OF ANY KIND, WHETHER STATUTORY, WRITTEN, ORAL OR IMPLIED
(INCLUDING WARRANTIES OF FITNESS FOR A PARTICULAR PURPOSE OR MERCHANTABILITY),
SHALL APPLY OTHER THAN ANY WARRANTIES WHICH ARE PROVIDED DIRECTLY BY THIRD PARTY
SOFTWARE MANUFACTURER(S).
ARTICLE VII. - COMMUNICATION AND ONGOING PERFORMANCE REQUIREMENTS
FRC shall assist Client run regular status meetings for the duration
of the project. The basic agenda for status meetings may typically include the
following discussion areas: progress vs. the implementation plan and timeline,
personnel & staffing issues, FRC and Client obligations, scope creep, budgeted
cost variances, use of other consultants, facility and equipment discussion, new
project assumptions, review of deliverables, Client communication, change
management, and other project management issues.
5
<PAGE>
ARTICLE VIII. - INDEMNIFICATION
FRC and Client shall each indemnify, defend and hold the other,
including its officers, directors, employees and agents, harmless (except to the
extent the indemnified party is compensated by insurance) against all losses,
claims, damages, or liabilities (including but not limited to interest,
penalties and reasonable attorneys fees) that the other party may suffer or
incur by reason of the Indemnifying Party's acts or omissions related to the
services and software described in this Agreement
ARTICLE IX. - SALES AND USE TAX
Client shall pay for or reimburse FRC for any sales, use, excise,
occupation, privilege, value-added or similar taxes charged to Client or
incurred by FRC as a result of Client's purchase of software and consulting
services hereunder. Client reserves the right to review and dispute any such
taxes.
ARTICLE X. - CONFIDENTIAL INFORMATION
Certain information furnished or disclosed by FRC or Client to the
other in connection with the performance of their respective obligations under
this Agreement may contain or reflect confidential information with respect to
FRC or Client. "Confidential Information," for the purposes of this Agreement,
shall include but shall not be limited to the information identified in ARTICLE
I and such other information as shall, at the time it is furnished to Client or
FRC by the other, be conspicuously marked "CONFIDENTIAL." Neither FRC nor Client
shall designate any information or data as Confidential Information that is not
reasonably and in good faith considered to be confidential and proprietary to
the party making such designation.
Confidential Information provided by either party to the other shall
be used exclusively by the party receiving the confidential information in
connection with the Project. Both parties agree that it will not disclose any
Confidential Information to any third party other than as specifically provided
herein without the other party's prior written consent.
Client shall use its best efforts to furnish FRC, free of
restrictions, the information required to be furnished FRC under this Agreement.
Confidential Information required to be furnished by Client shall be used by FRC
exclusively in connection with the performance of FRC's obligations under this
Agreement. Such information shall not be disclosed to any person other than
FRC's employees, agents or subcontractors without Client's written consent.
The obligations of confidentiality and non-disclosure imposed under
this Article shall not apply to the following data and information:
i. Information that is published or otherwise becomes available to
the general public as part of the public domain without breach of
this Agreement;
6
<PAGE>
ii. Information which has been furnished or made known by a third
party which is not known to involve a breach of the third party's
obligations to FRC or Client;
iii. Information which was in the receiving party's possession
without proprietary restrictions prior to the date of disclosure
to that party;
iv. Information, which the receiving party establishes was developed
independently of Confidential Information, furnished to it;
v. General information of a nonproprietary nature; and
vi. Client's name used only in FRC marketing materials.
ARTICLE XI. - CLIENT CONTROL OVER FRC PERSONNEL
Client shall have the right of reasonable control over the FRC
personnel assigned to the project. "Reasonable control" shall include but shall
not be limited to the ability to request a replacement.
ARTICLE XII. - EMPLOYEE SOLICITATION
During the term of the Agreement and ending two years after all
services to be provided hereunder have been performed, neither party nor its
Affiliates will intentionally offer work to, solicit or induce for employment,
employ, or contract with, personnel of either party assigned to the engagements
covered by this Agreement, without first obtaining the written consent of the
other party. For purposes of this paragraph the term "Affiliate" shall be deemed
to include any person or entity which is directly or indirectly (i) owned or
controlled by the party in question, (ii) owns or controls such party or is
(iii) owned or controlled by any person or entity described in clause (ii) of
this sentence.
ARTICLE XIII. - TERMINATION
In addition to FRC's right to terminate work for non-payment, FRC and
Client shall have the right to terminate this Agreement at any time upon 30 days
prior written notice to the other party. FRC shall cooperate with Client to
provide for an orderly transition of FRC's services to Client at the time of any
such termination. Promptly after the date of any such termination. FRC shall
render a final billing to Client and Client shall pay the same in accordance
with Article III. The terms and conditions herein on Representations and
Warranties, Indemnification, Confidential Information, Employee Solicitation and
Dispute Resolution shall survive termination of this Agreement.
ARTICLE XIV. - DISPUTE RESOLUTION, MEDIATION AND ARBITRATION
A. DISPUTE RESOLUTION: In the event of any dispute between Client
and FRC hereunder, the parties shall first attempt to resolve the dispute at the
department level or their equivalent representing Client and the Project
Manager, or their replacement(s) representing
7
<PAGE>
FRC. If the dispute is not resolved at this level within two (2) business days
of the date the other party is first informed of the dispute in writing, the
parties shall attempt to resolve the dispute at the Vice President level their
equivalent representing the Client and Andrew Wyatt representing FRC. If the
dispute is not resolved at this level within another five (5) business days the
parties shall attempt to resolve the dispute at Senior Management level, with
the President and Chief Executive Officer of Client representing Client and
Andrew Wyatt representing FRC. The use of the foregoing procedure is a condition
precedent to the commencement of any mediation, arbitration or other legal
proceedings hereunder.
B. MEDIATION: Any and all disputes between Client and FRC hereunder
which have not been resolved within thirty (30) days by use of the foregoing
dispute resolution procedures set forth in Subsection A above shall be subject
to mediation in accordance with the Commercial Mediation Rules of the American
Arbitration Association. The use of the foregoing procedure is a condition
precedent to the commencement of any binding arbitration or other legal
proceeding hereunder.
C. ARBITRATION: Any and all disputes between Client and FRC
hereunder which have not been resolved by use of the foregoing dispute
resolution or mediation procedures set forth in Subsections A and B above shall
be resolved by binding arbitration in California under the Expedited Commercial
Rules of the American Arbitration Association, by three arbitrators, each of
whom shall be an attorney at law. Pre-trial discovery rules shall apply to such
arbitration. The arbitrators shall issue a written statement of Findings of Fact
and Conclusions of Law underlying their decision and shall include in their
award the reasonable attorneys' fees, expert fees and costs of the prevailing
party. At the option of either party, proceedings involving third parties and
related subject matters may be consolidated for hearing and award with any
arbitration brought under this provision, and the other party hereby irrevocably
consents to such consolidation. During the pendency of any such dispute,
mediation, or arbitration under Subsections A, B and C herein, FRC may continue
to perform its obligations under this Agreement, provided Client consents. The
use of the foregoing procedure is a condition precedent to the commencement of
any legal proceeding hereunder.
D. INJUNCTIVE RELIEF. Notwithstanding anything else to the contrary
included in this Article, in the event of a dispute between the parties
hereunder, either party hereto may bring a claim for injunctive relief against
the other party.
ARTICLE XV. - MISCELLANEOUS
A. GOVERNING LAW: This Agreement shall be governed by and construed
in accordance with the laws of the State of California as though all acts or
omissions related hereto occurred in such state. This Agreement shall not be
construed against the party preparing it, but shall be construed as if both
parties jointly prepared it. Venue for any dispute resolution including
mediation, arbitration or other method shall be Santa Clara County, California.
B. INTEGRATION AND AMENDMENT: This Agreement contains the complete
agreement between the parties. All previous and collateral agreements (including
letters of intent or purchase orders issued by Client), representations,
warranties, promises and conditions
8
<PAGE>
relating to the subject matter of this Agreement are superseded by this
Agreement. Any understanding, promise, representation, warranty or condition not
incorporated in this Agreement shall not be binding on either party. This
Agreement may only be amended by a writing signed by both parties.
C. WAIVER: Waiver by a party of any default by the other shall not be
deemed a waiver of any other default irrespective of whether such default is
similar.
D. NOTICES: All notices, consents and approvals given under this
Agreement shall be in writing and shall be delivered in person, by first class
or express mail, telegram or other telegraphic means or facsimile addressed as
follows:
If to FRC:
Anthony M Cicoletti
Frank, Rimerman Consulting, LLC
160 West Santa Clara Street, Suite 675
San Jose, CA 95113
If to Client:
Tim McFall
EIS Inc.
140 East Dana St.
Mountain View, CA 94041
Either party may change its address or addressee for the purposes of
this paragraph by notice. Notice given in accordance with this paragraph shall
be deemed given when received.
E. INDEPENDENT CONTRACTOR: Each party to this Agreement shall be
deemed an Independent Contractor with respect to the other. No provision of this
Agreement or any act of the parties pursuant to this Agreement shall be
construed to express or imply a joint venture, partnership, or relationship
other than vendor and purchaser of the Services described in this Agreement. No
employee, agent or other representative of either party shall at any time be
deemed to be under the control or authority of the other party, or under the
joint control of both parties. Each party shall be fully liable for all workers'
compensation premiums and liability, federal, state and local withholding taxes
or charges with respect to its respective employees, and each agrees to save the
other harmless from any claims brought against the other in respect thereto.
9
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as
of the date first above written.
FRANK, RIMERMAN CONSULTING LLC
By: /s/ ANDREW WYATT
---------------------------------
Title: Principal
------------------------------
EIS Inc.
By: /s/ DENNIS KUSHNER
---------------------------------
Title: Vice President Operations
------------------------------
10
<PAGE>
Exhibit 21
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
Name of Subsidiary State of Incorporation Names under which
Subsidiary Does Business
- ----------------------- ------------------------ ------------------------
<S> <C> <C>
Educational Industrial Sales California EIS, Inc.
Incorporated
B. Higginbotham Enterprises, Texas Higginbotham Audio/Visual
Inc. Solutions
Alford Media Sales, Inc. Texas
</TABLE>
<PAGE>
EXHIBIT 23.1
ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
Intellisys Group, Inc.:
We consent to the use of our reports included herein and the references to our
firm under the headings "Selected Consolidated Financial Data" and "Experts" in
the prospectus.
/s/ KPMG PEAT MARWICK LLP
Mountain View, California
October 15, 1998
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors
Proline Industries, Inc.
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ PETERSON SULLIVAN P.L.L.C.
Seattle, Washington
October 16, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-01-1997
<CASH> 122
<SECURITIES> 0
<RECEIVABLES> 9,687
<ALLOWANCES> (101)
<INVENTORY> 3,653
<CURRENT-ASSETS> 442
<PP&E> 2,374
<DEPRECIATION> (1,152)
<TOTAL-ASSETS> 15,257
<CURRENT-LIABILITIES> 11,708
<BONDS> 0
0
0
<COMMON> 38
<OTHER-SE> 3,265
<TOTAL-LIABILITY-AND-EQUITY> 15,257
<SALES> 41,535
<TOTAL-REVENUES> 41,535
<CGS> 30,196
<TOTAL-COSTS> 30,196
<OTHER-EXPENSES> 9,672
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 351
<INCOME-PRETAX> 1,316
<INCOME-TAX> 523
<INCOME-CONTINUING> 793
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 793
<EPS-PRIMARY> .21
<EPS-DILUTED> .20
</TABLE>
