<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION
12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
PACIFIC ENGINEERING SYSTEMS, INC.
(Name of small business issuer in its charter)
DELAWARE 65-0720846
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
8101 EAST KAISER BOULEVARD
ANAHEIM, CALIFORNIA 92808
(Address of Principal Executive Offices) (Zip Code)
(714) 777-1000
(Registrant's Telephone Number, Including Area Code)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
(None)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $0.001
Preferred Stock -- Class A, par value $0.001
Title of Class
<PAGE>
TABLE OF CONTENTS
PART I
Item 1 Description of Business.
Item 2 Management's Discussion and Analysis or Plan of Operation.
Item 3 Description of Property.
Item 4 Security Ownership of Certain Beneficial Owners and
Management.
Item 5 Directors, Executive Officers, Promoters and Control
Persons.
Item 6 Executive Compensation.
Item 7 Certain Relationships and Related Transactions.
Item 8 Description of Securities.
PART II
Item 1 Market Price of and Dividends on the Registrant's Common
Equity and Other Shareholder Matters.
Item 2 Legal Proceedings.
Item 3 Changes In and Disagreements With Accountants.
Item 4 Recent Sales of Unregistered Securities.
Item 5 Indemnification of Directors and Officers.
PART F/S
Financial Statements.
PART III
Item 1 Index to Exhibits.
Item 2 Description of Exhibits.
<PAGE>
PART I
ITEM 1 - DESCRIPTION OF BUSINESS
Pacific Engineering Systems, Inc., ("Pacific Engineering" or the "Company")
is a single source provider of design, engineering, construction and
installation services for manufacturing plants and materials processing
facilities. Pacific Engineering also provides installation, commissioning
and start-up of such systems, along with training of systems operators. The
Company provides these services for the Plastics, Petrochemical, Fine
Chemical, and Food industries. The Company was organized as a Delaware
Corporation on August 8, 1985 and is currently based in Anaheim, California.
On May 5, 1998, the Company (which at the time was designated Health
Emporium, Inc., a Delaware corporation ("HEI")) acquired all of the
outstanding common stock of Pacific Engineering Systems, Inc., a California
corporation ("Pacific-California") in a business combination described as a
"reverse acquisition". For accounting purposes, the acquisition has been
treated as the acquisition of HEI (the Company) by Pacific-California.
Immediately prior to the acquisition, HEI had outstanding 5,318,388(1)
shares of Common Stock, 150,000 shares of Preferred Stock, and 1,900,000
Warrants to purchase common stock at an exercise price of $0.50 per share.
As part of the reorganization, the Company issued 10,920,000 shares of its
Common Stock to the shareholders of Pacific-California in exchange for
20,000 shares of Pacific-California Common Stock. Simultaneous with the
merger, HEI changed its name to Pacific Engineering Systems, Inc. HEI had
no significant operations prior to the merger. The Company's common stock
currently trades on the NASD OTC Bulletin Board under the symbol "PFIC".
Business of Company
Pacific Engineering is a world class EPCM (Engineer, Procure, Construct and
Manage) firm with comprehensive expertise in solid and liquid handling in
both continuous and batch processes. The Company has extensive experience
in formulating, reacting, mixing, extruding, blending, packaging and load
out technologies. The Company's scope of work encompasses site demolition
and preparation; facility layout and construction; and the design,
engineering and procurement of the primary process equipment and required
sub-systems. All such services are performed for a fixed price.
The range of the Company's project work includes both the addition of new
production lines and the de-bottlenecking and improvement of existing
operations. The breadth and depth of Pacific Engineering's project
experience includes installation and start-up of precision extrusion lines,
construction of a polyvinyl chloride compounding facilities, and complete
automation of high throughput pasta plants.
Several industry sectors supply similar, if not equivalent, goods and
services. Management believes that by focusing on the Company's experience
in overlapping sectors, growth may be achieved through an acquisition
strategy. For example, an engineering firm such as Pacific Engineering
might team with a direct supplier of heavy processing equipment. The
Company views several sector participants as potential acquisition
candidates due to horizontal and vertical relation.
In the 1970's Arthur Granito founded the beginnings of what was to become
Pacific Engineering when he began to design and build industrial processing
systems at a fixed price. At that time, most projects were handled on a
cost plus basis. The Company helped to pioneer an approach to project
execution which guaranteed the performance of complete systems for a fixed
price. The mission of Pacific Engineering today is to be a market leader in
fixed price projects within the engineering and construction industry.
Industry Overview
The engineering and construction industry is a multi-billion dollar
industry. The primary competitors in this industry are large multi-national
engineering firms and small regional U.S. firms. The industry focuses on
the ability to offer
_________________
1 All references to the Company's Common Stock have been adjusted to
reflect a 2-for-1 forward stock split which occured effective
June 16, 1998.
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cutting edge design processes, engineering resources
and experts, and construction materials procurement along with industrial
development know-how and equipment that facilitates the efficiency of plant
capacity and industrial sites. General economic growth is the primary
factor that fuels the construction of food processing factories,
petrochemical processing facilities, pharmaceutical preparation sites and
other industrial plants required to produce products in demand.
Market Size
The market size in the target North American market is approximately $500
million to $1 billion annually. Market size varies and is dependent upon
certain economic variables including the cost of capital and interest rates.
As the weighted costs of capital decreases, more firms decide to build
and/or improve capacity. In addition, increases in the price of petroleum
derivatives, refined chemicals, and processed food may influence the need to
build or upgrade plants.
The prices for goods manufactured and processed at industrial facilities
engineered and constructed by the Company may rise enough to realize an
increase in revenue from additional capacity. That is, increases in the
value added to processed materials may justify expansion and upgrading;
thereby enlarging the market size for the Company's goods and services.
Technology
The technological variables concerning the engineering and construction of
materials processing facilities include, but are not limited to: 1) computer
aided drafting, 2) factory automation systems, 3) automated process control,
and 4) improved versions of existing processes, materials and/or techniques.
Off-site design, fabrication and modularization may also be considered a
technology driven feature in this industry. The Company continuously
surveys market activities for technology offering beneficial and
cost-reducing processes, procedures and constructions.
Management believes that its automated process control technology offers a
cutting edge approach to plant operations. In addition, Management believes
that the Company's engineering, procurement and construction services supply
an effective approach to the design and building of industrial sites.
However, given the scope and scale of goods and services supplied, Pacific
Engineering acknowledges that continual technological advancements in plant
operations, materials processing, site construction and training procedures
are expected by the customers and the marketplace.
Year 2000 Disclosure
The Company has completed a comprehensive review of its computer systems to
identify all software applications that could be affected by the inability
of many existing computer systems to process time-sensitive data accurately
beyond the year 1999, referred to as the Year 2000 or Y2K issue. The
Company is also continuing to monitor its computer systems and monitoring
the adequacy of the processes and progress of third-party vendors of systems
that may be affected by the Year 2000 issue. The Company is dependent on
third-party computer systems and applications, particularly with respect to
such critical tasks as accounting, billing and buying, planning and paying
for services. The Company also relies on its own computer systems. The
Company expects to complete its Year 2000 compliance program by mid-1999 and
anticipates that its total expenditures on such program will not materially
effect the Company's results of operations and financial position and will
be expensed as incurred. While the Company believes that its procedures are
designed to be successful, because of the complexity of the Year 2000 issue
and the interdependence of organizations using computer systems, the
Company's efforts, or those of third parities with whom the Company
interacts, may not be satisfactorily completed in a timely fashion or may
cost substantially more to remedy than the amount anticipated. Failure to
satisfactorily address the Year 2000 issue could have a material adverse
effect on the Company.
Competition
There is a broad base of competition in the Company's markets. These
competitors consist of two primary types: 1) large multi-national
engineering and construction firms such as Fluor-Daniel and Jacobs
Engineering; and
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2) smaller U.S. regional firms. The large firms are
generally not cost competitive with the Company for the size of projects
typically bid by the Company, but these firms often accept lower margins to
compete with the Company. The smaller regional firms generally do not wish
to execute projects on a true fixed-price basis, especially if the project
involves the entire range of EPCM services offered by Pacific Engineering.
Competition from large and well-financed companies may attract potential
customers away from the Company. There may also be other competitors that
the Company has not identified.
Major Suppliers
Pacific Engineering utilizes a broad range of suppliers for its projects.
These suppliers are primarily located in the U.S., with certain products
manufactured overseas and represented by U.S. vendors.
Pacific Engineering maintains on-going relationships with many vendors, This
helps to facilitate the procurement of items at competitive prices with
reduced delivery times. No product or service procured by Pacific
Engineering is single-sourced, and Pacific Engineering competitively bids
suppliers for each purchase.
Dependence on Key Customers
While Pacific Engineering has repeat business, it is not dependent on any
single firm for a significant portion of its annual sales. Pacific
Engineering's customer base changes from year-to-year as new clients are
added and as existing clients are acquired or merged with other firms.
Pacific Engineering's current thrust is to continually diversify its
customer base in order to ensure that the Company does not become dependent
on any single customer or industry segment. Pacific Engineering has
performed projects for many large clients such as Exxon, Procter & Gamble,
Hershey, Chevron, BASF and British Petroleum.
Patents, Trademarks, Licenses
Pacific Engineering does not depend upon any patents, trademarks, or
licenses to conduct its business; nor does Pacific Engineering hold any such
patents, trademarks, or licenses. Pacific Engineering does hold business
licenses, contractors' licenses and engineering licenses as required to do
business in various jurisdictions. Pacific Engineering acquires the
required licenses for each project.
Effect of Governmental or other Regulatory Approval on Company's Operations
Pacific Engineering's clients are typically responsible for the procurement
of government and regulatory approvals for plant construction and/or
expansion. Virtually all of the Company's work is plant expansions and
clients typically modify existing permits to allow for increased capacity
engendered by Pacific Engineering's projects.
Cost of Compliance with Environmental Regulations
Pacific Engineering's clients typically accept liability for compliance with
environmental regulations. Pacific Engineering does not perform site
remediation, environmental clean-up, or hazardous waste disposal. If such
conditions exist at a site where Pacific Engineering must work then the
client typically performs and is responsible for site remediation,
environmental clean-up, or hazardous waste disposal.
Number of Employees
Pacific Engineering maintains a core staff of experienced managers,
technical experts and professional sales people. This core staff numbers
about fifty (50) people. Pacific Engineering augments this staff with up to
seventy (70) additional employees as needed to satisfy project needs,
particularly in the area of detailed design.
Stock Options
On October 30, 1998, the Company issued options to purchase an aggregate of
2,510,000 shares of the Company's Common Stock at an exercise price of $1.25
to certain of its officers and employees who had previously agreed to a
reduction in salary, as well as to outside consultants.
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion contains certain forward-looking statements that
are subject to business and economic risks and uncertainties, and the
Company's actual results could differ materially from those forward-looking
statements. The following discussion regarding the financial statements of
the Company should be read in conjunction with the financial statements and
notes thereto.
RESULTS OF OPERATIONS
Revenues
Total revenues increased 25% from $26,654,780 for the fiscal year ended
September 30, 1996 to $33,244,687 for the fiscal year ended September 30,
1997. However, in the fiscal year ended September 30, 1998 the Company's
revenues declined by 45% to $18,221,403. This decline was primarily due to
the Asian economic crisis. As a result of the severe economic downturn in
Asia, several of the Company's projects (which were in the final sales
process stage and were expected to begin construction in the fiscal year
ended September 30, 1998) were abruptly canceled. The cancellation of these
orders resulted in the significant reduction in revenues for the fiscal year
ended September 30, 1998, and forced the Company to realign its sales and
marketing efforts.
Cost of Sales
Total cost of sales decreased by $9,652,084 (39%) to $15,005,494 for the
fiscal year ended September 30, 1998 as compared to $24,657,578 for the
fiscal year ended September 30, 1997. This decrease was due to the decline
in revenues. However, cost of sales as a percentage of revenues in 1996 was
86%, which declined to 74% in 1997. As revenues increased, the Company
began operating more efficiently. In the fiscal year ended 1998, even
though the Company's revenues fell well below the 1996 level, Management was
able to effectively control operations such that cost of sales consisted of
82% of revenues.
Gross Profit
Gross profit declined from $8,587,109 for the fiscal year ended September
30, 1997 to $3,215,909 for the fiscal year ended September 30, 1998. This
63% decrease was also due to the decline in revenues as a result of the
Asian Economic Crisis. Gross profit for the fiscal year ended September
30, 1996 was $3,626,372 (14% of revenues), The increase between the fiscal
year ended September 30, 1996 and the fiscal year ended September 30, 1997
was primarily due to the increased efficiencies associated with higher
revenues generated during the fiscal year ended September 30, 1997. In the
fiscal year ended in September 30, 1998, even though gross profit decreased
to $3,215,909, (well below the fiscal year ended September 30, 1997 levels),
Management was able to maintain gross profit at 18% of revenues.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") consist primarily of
sales and marketing related expenses. Additionally, Administrative Expenses
include all of the fixed costs associated with the Company's corporate
headquarters. SG&A expenses were $4,053,080 or 15% of revenues for the
fiscal year ended September 30, 1996. In the fiscal year ended September
30,1997, SG&A grew by 40% to $5,678,870 or 17% of revenues. The increased
costs were reflective of the increased level of business. However in the
fiscal year ended September 30, 1998 these expenses declined 10% to
$5,107,258 or 28% of revenues. With the declining revenues in fiscal year
1998, Management decided to place greater emphasis on the Company's sales
and marketing effort in an attempt to rebuild revenues. This increase in
sales and marketing significantly contributed to the increased percentage of
SG&A to revenues for the fiscal year ended September 30, 1998.
Other Income (expense)
Other income and expenses consist primarily of interest income and expense,
gain or loss on sale of property and other miscellaneous items. This
category increased 167% from an expense of $100,254 for the fiscal year
ended
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September 30,1997 to an income of $67,311 for the fiscal year ended
September 30, 1988. This increase was due primarily to a loss on
investments recorded in the fiscal year ended September 30, 1997 and the
gain on sale of property that occurred in fiscal year ended September 30,
1998.
Net Income (loss)
Net income increased from a loss of $320,036 for the fiscal year ended
September 30, 1996 to an income of $2,809,628 (978%) for the fiscal year
ended September 30, 1997. However with the decrease in revenues due to the
Asian Economic Crisis for the fiscal year ended September 30, 1998, net
income fell 165% to a loss of $1,824,838 for the fiscal year ended September
30, 1998.
Assets and Liabilities
Total assets decreased from $4,487,869 as of the fiscal year ended September
30, 1997 to $1,858,462 for the fiscal year ended September 30, 1998. This
(59%) decrease was due primarily to the decrease in costs and estimated
earnings in excess of billings on contracts in process and a decline in
cash. Accounts receivable increased 39% from $793,982 for the fiscal year
ended September 30, 1997 to $1,107,489 for the fiscal year ended September
30, 1998. This increase in accounts receivable was essentially due to
increased billings that were outstanding by the Company's clients.
Total Liabilities increased 65% from $2,399,771 in the fiscal year ended
September 30, 1977 to $3,952,643 in the fiscal year ended September 30,
1998. This increase was primarily due to the increase in accounts payable
from $677,883 for the fiscal year ended September 30, 1997 to $1,534,196
(126%) for the fiscal year ended September 30, 1998.
Shareholders Equity
Shareholders' Equity decreased from a positive $2,088,098 for the year ended
September 30, 1997 to a deficit of $2,074,181 for the fiscal year ended
September 30, 1998. This 200% decrease reflects the decline in revenues
during the fiscal year ended September 30, 1998, the increased sales and
marketing effort to rebuild revenues for future growth, and distribution to
shareholders.
Results of Operations for the year ended September 30, 1998
The fiscal year ended September 30, 1998 was a year of realignment, cutbacks
and a focusing of the Company's full efforts on sales and marketing in a
concerted effort to secure new contracts. This strategy was necessary to
compensate for the financial blow that the Company sustained due to the
devastating Asian economic crisis and the domestic industrial fall-out that
resulted. The time from the Company's average marketing, sales and bid
process prior to initiating a contract and commencing a project takes
approximately 6 months to 1 year or more. The industrial sectors, which the
Company serves, began to feel the beginnings of the Asian economic downturn
in the latter part of fiscal year 1997. The lengthy process of initiating a
contract is compounded by the fact that the time for completion of an
average job process is in excess of 1 year. Therefore, the Asian economic
downturn did not effect revenues until fiscal year 1998. During the fiscal
year ended September 30, 1998 the Company cut internal costs, enhanced its
sales efforts, and refocused its marketing to ensure more industrial
diversification and a broader client base. As a result, the Company in the
first quarter of 1999 has begun seeing the benefits of these efforts in the
form of increased contracts. Management believes that the downturn in the
fiscal year ended September 30, 1998 can be viewed as a beneficial
experience for the Company. As a result, Management has become more
cost-efficient, the Company's client base is now more diversified, and there
is greater flexibility in working with the client. Management believes that
the Company has become much more competitive. Therefore, the Company
expects to return to, and exceed prior years' initiation of contracts,
booking revenues, and profitability.
Liquidity and Capital Resources
Cash declined from $779,721 for the fiscal year ended September 30, 1997 to
$62,307 in the fiscal year ended September 30, 1998. This 92% decline was
primarily due to the economic downturn, which is discussed more fully above
in Results of Operations. Accounts Receivable increased from $793,982 in
the fiscal year ended
<PAGE>
September 30, 1997 to $1,107,489 in the fiscal year
ended September 30, 1998. This 39% increase was primarily due to more
billings associated with the maturing contract process incurred in the
fiscal year ended September 30,1998.
The Company initiated a revolving line of credit of $1,000,000 in the fiscal
year ended September 30, 1998. As of September 30, 1998 the utilization to
date of $700,000 of this credit facility had given the Company the ability
to bridge its capital requirements.
Capital Expenditures
The Company's capital expenditures and dispositions vary from year to year.
In the fiscal year ended September 30, 1998, the Company sold assets and
incurred a gain on the disposition of $92,921. None of the assets disposed
of were of a material nature to the Company.
ITEM 3 - DESCRIPTION OF PROPERTY
Effective December 1, 1996, the Company began leasing approximately 23,407
square feet of administrative office space in Anaheim, California at a
monthly rental rate of $26,775. This facility serves as the Company's
headquarters and primary place of business. The monthly rental rate
increased to 35,367 on September 1, 1998. The monthly rental rate is set to
increase to $36,881 on July 1, 1999, and $36,880 on April 1, 2000 through
the end of the lease. The lease expires on November 31, 2001. On April 1,
1997, the Company entered into an Addendum to the Lease whereby the Company
agreed to lease an additional 950 square feet of office space at the same
location. As a result of the addendum, the Company's monthly rental rate
increased by $1,377.50 from April 1, 1997 through August 31, 1998; $1,453
from September 1, 1998 through March 31, 2000; and $1,501 from April 1, 2000
through the end of the lease.
The Company does not currently anticipate the need for additional space for
its operations. However, should the need for additional space arise, the
Company believes that such additional space will be available on reasonable
terms.
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ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 15, 1999, certain information
with respect to the Company's equity securities owned of record or
beneficially by (I) each Director of the Company; (ii) each person who owns
beneficially more than 5% of each class of the Company's outstanding equity
securities; and (iii) all Directors and Executive Officers as a group.
<TABLE>
<CAPTION>
Title Percent of
of Class Name and Address of Beneficial Owner Common Stock Outstanding
<S> <C> <C> <C>
Common Stock Greg M. Magda(2) -0- -0-
8101 East Kaiser, Boulevard
Anaheim, California 92808
Common Stock Arthur R. Granito 10,920,000 67%
8101 East Kaiser, Boulevard
Anaheim, California 92808
Common Stock Carol Taylor(3) -0- -0-
8101 East Kaiser, Boulevard
Anaheim, California 92808
All Directors and Officers as a Group (3) 10,920,000 67%
<FN>
2 Does not reflect options to purchase 1,000,000 shares of the Company's
Common Stock at an exercise price of $1.25 vesting 20% per year over five
years granted to Mr. Magda on October 30, 1998.
3 Does not reflect options to purchase 50,000 shares of the Company's
Common Stock at an exercise price of $1.25 vesting 20% per year over five
years granted to Ms. Taylor on October 30, 1998.
</TABLE>
<TABLE>
<CAPTION>
Title Percent of
of Class Name and Address of Beneficial Owner Common Stock Outstanding
<S> <C> <C> <C>
Preferred Blaise Investments Ltd. 150,000 100%
Class A East Wing Second Level
Hadfield House
Post Office Box 583
Library Street
Gibralter, Gibralter Canada
</TABLE>
The Company believes that the beneficial owners of securities listed above,
based on information furnished by such owners, have sole investment and
voting power with respect to such shares, subject to community property laws
where applicable. Beneficial ownership is determined in accordance with the
rules of the Commission and generally includes voting or investment power
with respect to securities. Shares of stock subject to options or warrants
currently exercisable, or exercisable within 60 days, are deemed outstanding
for purposes of computing the percentage of the person holding such options
or warrants, but are not deemed outstanding for purposes of computing the
percentage of any other person.
<PAGE>
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of the current directors
and executive officers of the Company, the principal offices and positions
with the Company held by each person and the date such person became a
director or executive officer of the Company. The executive officers of the
Company are elected annually by the Board of Directors. The directors serve
one year terms and until their successors are elected. The executive
officers serve terms of one year or until their death, resignation or
removal by the Board of Directors. There are no family relationships
between any of the directors and executive officers. In addition, there was
no arrangement or understanding between any executive officer and any other
person pursuant to which any person was selected as an executive officer.
The directors and executive officers of the Company are as follows:
Name Age Positions
Greg M. Magda 49 Chief Executive Officer, President, and
Director (1998)
Arthur R. Granito 56 Chairman of the Board, Director (1998)
Carol Taylor 50 Secretary and Treasurer (1998)
GREG M. MAGDA is currently the Company's Chief Executive Officer, President,
and a member of the Board of Directors. Mr. Magda has over twenty-five
years of diversified business and management experience. Mr. Magda has
managed domestic and international businesses in such diverse industries as
the Services, Manufacturing, Petro-Chemical Engineering, Food Processing,
Plastics and Pharmaceutical Industries. Mr. Magda joined Pacific-California
in 1978 as its Northeast Regional Sales Engineer. Mr. Magda has
continuously been with Pacific Engineering since 1978 and has held several
positions within Pacific Engineering. Mr. Magda became its President in
1997 and its CEO in 1998. Mr. Magda has a Bachelor of Science degree in
Business Administration from Waynesburg College, Waynesburg, PA.
ARTHUR R. GRANITO is currently the Chairman and a member of the Company's
Board of Directors. Mr. Granito founded Pacific Engineering the early
1970's and has worked for Pacific-California since its inception. Since
that time, he has been responsible for the financial, legal, and
administrative functions of Pacific Engineering. Currently, Mr. Granito
administers and directs the professionals within the Company. Mr. Granito
has several years experience in business and financial management.
CAROL TAYLOR is currently the Company's Secretary and Treasurer. Ms. Taylor
has several years of experience in business management in several diverse
industries such as construction, dental, manufacturing, advertising, and
engineering. Ms. Taylor joined Pacific-California in 1988 and has been
continuously with the company from that date. Ms. Taylor is responsible for
the administrative functions of the Company, its infrastructure, and Human
Resource Department.
<PAGE>
ITEM 6 - EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities during each of the prior three (3)
fiscal years. Other than as set forth herein, no executive officer's salary
and bonus exceeded $100,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the
number of stock options granted and certain other compensation, if any,
whether paid or deferred.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Restricted Securities
Name and Other Annual Stock Underlying LTIP All Other
Principal Salary Bonus Compensation Awards Options/SARs Payouts Compensation
Position Year ($) ($) ($) ($) (#) ($) ($)
Greg M. Magda 1998(4) 165,000 -0- -0- -0- -0- -0- -0-
1997 190,000 -0- -0- -0- -0- -0- -0-
1996 185,000 -0- -0- -0- -0- -0- -0-
Arthur R. Granito 1998 1,280,000 -0- -0- -0- -0- -0- -0-
1997 1,204,000 -0- -0- -0- -0- -0- -0-
1996 575,000 -0- -0- -0- -0- -0- -0-
Carol Taylor 1998(5) 90,750 -0- -0- -0- -0- -0- -0-
1997 105,833 -0- -0- -0- -0- -0- -0-
1996 100,000 -0- -0- -0- -0-
<FN>
4 Does not reflect options to purchase 1,000,000 shares of the Company's Common Stock at an exercise price of
$1.25 vesting 20% per year over five years granted to Mr. Magda subsequent to the fiscal year ended September 30, 1998 on
October 30, 1998.
5 Does not reflect options to purchase 50,000 shares of the Company's Common Stock at an exercise price of $1.25 vesting
20% per year over five years granted to Ms. Taylor subsequent to the fiscal year ended September 30, 1998 on October 30, 1998 on
October 30, 1998.
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
NUMBER OF SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS/SAR'S OPTIONS/SAR'S GRANTED TO
GRANTED (#) EMPLOYEES IN FISCAL YEAR EXERCISE OF BASE PRICE
NAME ($/SH) EXPIRATION DATE
Greg M. Magda -0- -0- N/A N/A
Arthur R. Granito -0- -0- N/A N/A
Carol Taylor -0- -0- N/A N/A
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
NUMBER OF UNEXERCISED
SECURITIES UNDERLYING VALUE OF UNEXERCISED
OPTIONS/SARS AT FY-END(#) IN-THE-MONEY OPTION/SARS AT
SHARES ACQUIRED ON EXERCISABLE/UNEXERCISABLE FY-END ($)
NAME EXERCISE (#) VALUE REALIZED($) EXERCISABLE/UNEXERCISABLE
Greg M. Magda -0- -0- -0- -0-
Arthur R. Granito -0- -0- -0- -0-
Carol Taylor -0- -0- -0- -0-
</TABLE>
COMPENSATION OF DIRECTORS
For the fiscal years ended September 30, 1997 and 1998, each Director was
compensated in the amount of $2,500. Directors are also reimbursed for
direct out-of-pocket expenses in connection with attendance at meetings of
the Board of Directors.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 5, 1998, the Company (which at the time was designated Health
Emporium, Inc., a Delaware corporation ("HEI")) acquired all of the
outstanding common stock of Pacific Engineering Systems, Inc., a California
corporation ("Pacific-California") in a business combination described as a
"reverse acquisition" in exchange for 10,920,000 shares of the Company's
Common Stock. At the time of the merger, Arthur Granito was the sole
shareholder of Pacific-California.
Arthur R. Granito, the majority shareholder of the Company and its Chairman
of the Board of Directors, owns 100% of Specialty Assembly, Inc.,
("Specialty") which he purchased in January, 1998. Specialty is a
sub-contractor, and for the years ended September 30, 1998, 1997, and 1996,
Specialty performed $1,685.381, $1,554,216, and $1,449,985, respectively, in
sub-contract work for the Company. For the years ended September 30, 1998
and 1997, respectively, the Company owed Specialty $111,265 and $0.
During January 1997, the Company purchased certain equipment, furniture,
fixtures, and improvements from Mr. Granito for $411,087. The purchase
price of the assets was the equipment's price to Mr. Granito, who purchased
them between December, 1996 and January, 1997.
Immediately prior to the merger between HEI and Pacific-California, the
Company sold certain equipment, autos, furniture, and fixtures to Specialty
for $230,682, which was approximately equal to the federal income tax net
book value of the assets.
The Company subsequently entered into a non-written lease agreement with
Specialty to lease assets from Specialty for $20,000 per month. For the
year ended September 30, 1998, the Company incurred $100,000 in lease
charges from Specialty.
Since the Company's inception, the Company has advanced cash to, and has
received cash advances from its Chairman of the Board, Arthur R. Granito, as
each party would require funds. As of September 30, 1998 and 1997, the
Company owed Mr. Granito $209,356 and $385,051, respectively.
ITEM 8 - DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's Articles of Incorporation authorize the issuance of
24,000,000 shares of Common Stock, $0.001 par value per share, of which
16,238,388 shares were outstanding as of February 1, 1999. On May 16, 1998,
<PAGE>
the Company approved a 2-for-1 stock split of its Common Stock, which became
effective on June 16, 1998. Holders of shares of Common Stock are entitled
to one vote for each share on all matters to be voted on by the
stockholders. Holders of Common Stock have no cumulative voting rights.
Holders of shares of Common Stock are entitled to share ratably in
dividends, if any, as may be declared, from time to time by the Board of
Directors in its discretion, from funds legally available therefor. In the
event of a liquidation, dissolution or winding up of the Company, the
holders of shares of Common Stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Holders of Common Stock
have no preemptive rights to purchase the Company's common stock. There are
no conversion rights or redemption or sinking fund provisions with respect
to the common stock. All of the outstanding shares of Common Stock are, and
the shares offered by the Company pursuant to this Memorandum will be, when
issued and delivered, fully paid and non-assessable.
PREFERRED STOCK
The Company's Articles of Incorporation authorize the issuance of 5,000,000
shares of preferred stock, $0.001 par value. Of the Preferred Stock,
150,000 shares have been designated as Series A Convertible Stock, each
share of which is convertible into three shares of Common Stock at the
expiration of six months from the date of issuance. 150,000 shares of Series
A Preferred Stock are issued and outstanding. Additionally, 500,000 shares
of Preferred Stock has been designated as Series B Convertible Stock, each
share of which is convertible into three shares of Common Stock at a price
of $0.50 per share. In the event of liquidation, dissolution, or other
termination of the Company, each share of Series B convertible Preferred
Stock shall be deemed to have been converted to three shares of Common
Stock, at par value, and shall be entitled to participate therein on the
same basis as the outstanding share of Common Stock. As of February 1,
1999, there were no issued and outstanding shares of Series B Convertible
Preferred Stock. The Company's Board of Directors has authority, without
action by the shareholders, to issue all or any portion of the authorized
but unissued preferred stock in one or more series and to determine the
voting rights, preferences as to dividends and liquidation, conversion
rights, and other rights of such series.
The Company intends to furnish holders of its common stock annual reports
containing audited financial statements and to make public quarterly reports
containing unaudited financial information.
TRANSFER AGENT
The transfer agent for the Common Stock is Florida Atlantic Stock Transfer,
Inc., 7130 Nob Hill Road, Tamarac, Florida 33321. The Company serves as its
own transfer agent for the Preferred Stock.
<PAGE>
PART II
ITEM 1 - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATION
The following table sets forth the high and low bid prices for shares of the
Company Common Stock for the periods noted, as reported by the National
Daily Quotation Service and the NASD Non-NASDAQ Bulletin Board. Quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission
and may not represent actual transactions. The Company merged with HEI in
May, 1998. Prices prior to the merger reflect trading in HEI Common Stock
without the assets of the Company. The Company's Common Stock was not
listed on the Non-NASDAQ Bulletin Board during 1997.
YEAR PERIOD HIGH LOW
1998 First Quarter. . 1.25 0.25
Second Quarter . . . 7 0.375
Third Quarter. . . . 5 1
Fourth Quarter. . . 2.843 0.75
NUMBER OF SHAREHOLDERS
The number of beneficial holders of record of the Common Stock of the
company as of the close of business on February 1, 1999 was approximately 34.
DIVIDEND POLICY
To date, the company has declared no cash dividends on its Common Stock, and
does not expect to pay cash dividends in the next term. The company intends
to retain future earnings, if any, to provide funds for operation of its
business.
ITEM 2 - LEGAL PROCEEDINGS
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of
discrimination, or breach of contract actions incidental to the operation of
its business. The Company is not currently involved in any such litigation
which it believes could have a materially adverse effect on its financial
condition or results of operations.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Effective September, 1998, Singer, Lewak, Greenbaum & Goldstein, Certified
Public Accountants, were engaged by the Company as their principal
accountant to audit the Company's financial statements. There have been no
changes in accountants or disagreements of the type required to be reported
under this Item 3 between the Company and its independent auditors since
their date of engagement.
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
In May, 1998, the Company (which at the time was designated Health Emporium,
Inc., a Delaware corporation ("HEI")) acquired all of the outstanding
common stock of Pacific Engineering Systems, Inc., a California corporation
("Pacific-California") in a business combination described as a "reverse
acquisition". As part of the reorganization, the Company issued 10,920,000
shares of its Common Stock to the shareholders of Pacific-California in
exchange for all of the outstanding shares of Common Stock of
Pacific-California. Such shares include the shares owned by
<PAGE>
officers and
directors of the Company as set forth in the Section "Security Ownership of
Certain Beneficial Owners and Management" hereunder. This issuance was
conducted under an exemption under Section 4(2) of the Securities Act of 1933.
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Corporation Laws of the State of Delaware and the Company's Bylaws
provide for indemnification of the Company's Directors for liabilities and
expenses that they may incur in such capacities. In general, Directors and
Officers are indemnified with respect to actions taken in good faith in a
manner reasonably believed to be in, or not opposed to, the best interests
of the Company, and with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were
unlawful. Furthermore, the personal liability of the Directors is limited
as provided in the Company's Articles of Incorporation.
Beginning on July 17, 1998, the Company maintains a policy of Directors and
Officers Liability Insurance with an aggregate coverage limit of $2,000,000.
<PAGE>
PART F/S
FINANCIAL STATEMENTS
The Financial Statements required by this Item are included at the end of
this report beginning on Page F-1.
PART III
ITEM 1 - INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
(2) Agreement and Plan of Reorganization
(3.1) Certificate of Incorporation of Jacqueline Beauty Products, Inc.
filed with the Delaware Secretary of State on August 8, 1985.
(3.2) Certificate of Correction of Jacqueline Beauty Products, Inc.
filed with the Delaware Secretary of State on August 14, 1995
(3.3) Certificate for Renewal and Revival of Charter filed
with the Delaware Secretary of State on August 24, 1995.
(3.4) Certificate of Amendment of Certificate of
Incorporation of Jacqueline Beauty Products, Ltd.,
filed with the Delaware Secretary of State on
September 12, 1995.
(3.5) Certificate of Amendment of Certificate of
Incorporation of Health Emporium, Inc. filed with
the Delaware Secretary of State on December 13, 1996.
(3.6) Certificate of Merger of Pacific Engineering
Systems, Inc., a California corporation into Health
Emporium, Inc., a Delaware corporation, filed with
the Delaware Secretary of State on May 5, 1998.
(3.7) Certificate of Amendment of Certificate of
Incorporation of Pacific Engineering Systems, Inc.,
a Delaware corporation, filed with the Delaware
Secretary of State on May 15, 1998.
(3.8) Corporate Bylaws of Health Emporium, Inc., dated
December 16, 1996.
(10.1) Standard Commercial Form Lease dated October 28, 1996 for
premises located at 8101 East Kaiser Boulevard, Anaheim, CA.
ITEM 2 - DESCRIPTION OF EXHIBITS
Not applicable
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
PACIFIC ENGINEERING SYSTEMS, INC.
Date: February 15, 1999 By:/s/ Greg M. Magda
Greg M. Magda
Chief Executive Officer
<PAGE>
PACIFIC ENGINEERING SYSTEMS, INC.
FINANCIAL STATEMENTS
FOR THE YEARS ENDED
SEPTEMBER 30, 1998, 1997 AND 1996
<PAGE>
PACIFIC ENGINEERING SYSTEMS, INC.
CONTENTS
SEPTEMBER 30, 1998
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Balance Sheets 2 - 3
Statements of Operations 4
Statements of Shareholders' Equity 5
Statements of Cash Flows 6 - 7
Notes to Financial Statements 8 - 19
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders
Pacific Engineering Systems, Inc.
We have audited the accompanying balance sheets of Pacific Engineering
Systems, Inc. as of September 30, 1998 and 1997, and the related
statements of operations, shareholders' equity, and cash flows for the
three years in the period ended September 30, 1998. 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 Pacific
Engineering Systems, Inc. as of September 30, 1998 and 1997, and the
results of its operations and its cash flows for the three years in the
period ended September 30, 1998 in conformity with generally accepted
accounting principles.
SINGER LEWAK GREENBAUM & GOLDSTEIN LLP
Los Angeles, California
December 18, 1998
<PAGE>
PACIFIC ENGINEERING SYSTEMS, INC.
BALANCE SHEETS
SEPTEMBER 30,1997 AND 1998
ASSETS
1998 1997
CURRENT ASSETS
Cash $ 62,307 $ 779,721
Accounts receivable 1,107,489 793,982
Other receivables - 18,017
Investment - 35,000
Costs and estimated earnings in excess of billings
on contracts in progress 199,831 2,123,001
Prepaid expenses 31,505 56,028
Prepaid income taxes 151,176 84,549
Total current assets 1,552,308 3,890,298
EQUIPMENT, AUTOMOBILES, AND IMPROVEMENTS, net 267,207 558,624
DEPOSITS AND OTHER ASSETS 38,947 38,947
TOTAL ASSETS $ 1,858,462 $ 4,487,869
<PAGE>
PACIFIC ENGINEERING SYSTEMS, INC.
BALANCE SHEETS (CONTINUED)
SEPTEMBER 30,1997 AND 1998
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
1998 1997
CURRENT LIABILITIES
Accounts payable $ 1,534,196 $ 677,883
Accrued liabilitie - 40,297
Billings in excess of costs and estimated earnings
on contracts in progress 1,509,091 1,213,395
Advances payable - Chairman of the Board 209,356 385,051
Current portion of notes payable - 60,420
Line of credit 700,000 -
Income taxes payable - 2,150
Total current liabilities 3,952,643 2,379,196
NOTES PAYABLE, less current portion - 20,575
Total liabilities 3,952,643 2,399,771
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Series A convertible preferred stock, $0.001 par value
150,000 shares authorized, issued, and outstanding
150 150
Series B convertible preferred stock, $0.001 par value
500,000 shares authorized
no shares issued and outstanding
- -
Common stock, $0.001 par value
24,000,000 shares authorized
16,238,000 and 9,178,000 shares issued and outstanding
16,238 9,718
Additional paid-in capital (417,882) (411,362)
Retained earnings (accumulated deficit) (1,692,687) 2,489,592
Total shareholders' equity (deficit) (2,094,181) 2,088,098
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
$1,858,462 $ 4,487,869
<PAGE>
PACIFIC ENGINEERING SYSTEMS, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
1998 1997 1996
REVENUES $18,221,403 $33,244,687 $26,654,780
COST OF SALES 15,005,494 24,657,578 23,028,408
GROSS PROFIT 3,215,909 8,587,109 3,626,372
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
5,107,258 5,672,877 4,053,080
INCOME (LOSS) FROM OPERATIONS
(1,891,349) 2,914,232 (426,708)
OTHER INCOME (EXPENSE)
Directors' fees (5,040) (6,759) -
Discounts earned 7,421 31,381 43,702
Interest expense (31,913) (9,859) (12,181)
Interest income 3,922 130,573 90,589
Gain (loss) on sale of property
92,921 (33,477) (13,333)
Miscellaneous income - 52,887 -
Loss on investment - (265,000) -
Total other income (expense)
67,311 (100,254) 108,777
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES
(1,824,038) 2,813,978 (317,931)
PROVISION FOR INCOME TAXES 800 4,350 2,105
NET INCOME (LOSS) $(1,824,838) $2,809,628 $ (320,036)
BASIC INCOME (LOSS) PER SHARE
$ (0.15) $ 0.30 $ (0.03)
DILUTED INCOME (LOSS) PER SHARE
$ (0.15) $ 0.28 $ (0.03)
WEIGHTED-AVERAGE SHARES OUTSTANDING
12,385,397 9,629,742 9,600,000
<PAGE>
PACIFIC ENGINEERING SYSTEMS, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
Retained
Series A Convertible Additional
Net Earnings
Preferred Stock Common Stock
Paid-In Liabilities of (Accumulated
Shares Amount Shares Amount
Capital Pacific Deficit) Total
BALANCE, SEPTEMBER 30, 1995 - $ - $ - $ - $-
$ (425,044) $ - $ (425,044)
ISSUANCE OF COMMON STOCK
IN EXCHANGE FOR SERVICES 9,600,000 9,600
(429,844) 425,044 4,800
NET LOSS (320,03
) (320,036)
BALANCE, SEPTEMBER 30, 1996 - - 9,600,000 9,600
(429,844) - (320,036) (740,280)
SALE OF COMMON STOCK, net
of costs 118,000 118 9,832
9,950
ISSUANCE OF PREFERRED STOCK
IN EXCHANGE FOR SERVICES,
net of costs 150,000 150 4,850
5,000
SALE OF WARRANTS 3,800
3,800
NET INCOME
2,809,628 2,809,628
BALANCE, SEPTEMBER 30, 1997 150,000 150 9,718,000 9,718
(411,362) - 2,489,592 2,088,098
CANCELLATION OF SHARES BY
PRIOR COMPANY OFFICERS (4,400,000) (4,400) 4,400
-
SHARES ISSUED FOR THE
ACQUISITION OF PACIFIC - - 10,920,000 10,920
(10,920) -
DISTRIBUTIONS TO SHAREHOLDERS
(2,357,441) (2,357,441)
NET LOSS
(1,824,838) (1,824,838)
BALANCE, SEPTEMBER 30, 1998 150,000 $ 150 16,238,000 $ 16,238
$(417,882) $ - $ (1,692,687) $ (2,094,181)
<PAGE>
PACIFIC ENGINEERING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(1,824,838) $2,809,628 $ (320,036)
Adjustments to reconcile net income (loss) to net
cash used in operating activities
Depreciation 110,256 131,622 75,362
Issuance for common stock in exchange for
services - - 4,800
Issuance of preferred stock in exchange for
services - 5,000 -
(Gain) loss on disposition of equipment and
improvements (92,921) 33,477 13,333
Loss on investment - 265,000 -
Provision for loss on contracts - - (96,462)
(Increase) decrease in
Accounts receivable (313,507) 833,640 (1,092,302)
Other receivables 18,017 (3,008) (10,723)
Costs and estimated earnings in excess of
billings on contracts in progress 1,923,170 (53,620) (1,747,513)
Prepaid expenses (42,104) (7,898) (132,679)
Other assets - (18,607) 4,291
Increase (decrease) in
Accounts payable 856,313 3,578 (350,692)
Other accrued liabilities (40,297) (13,097) 26,231
Income taxes payable (2,150) 2,150 (2,515)
Billings in excess of costs and estimated earnings
on contracts in progress 295,696 (2,996,357) 3,991,461
Net cash provided by operating activities 887,635 991,508 362,556
CASH FLOWS FROM INVESTING ACTIVITIES
Advances from (to) Chairman of the Board, net (175,695) 488,587 (133,536)
Purchases of fixed assets - (436,943) (138,416)
Proceeds from sale of fixed assets 230,683 8,000 5,000
Disbursements on investment - (300,000) -
Repayments on investment 35,000 - -
Net cash provided by (used in) investing activities 89,988 (240,35)
(266,952)
<PAGE>
PACIFIC ENGINEERING SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1997 AND 1998
1998 1997 1996
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on notes payable $ (37,596) $(78,968) $ (90,096)
Net borrowings on line of credit 700,000 - -
Proceeds from sale of common stock, net of costs - 9,950 -
Proceeds from the sale of warrants - 3,800 -
Distributions to shareholders (2,357,441) - -
Net cash used in financing activities (1,695,037) (65,218) (90,096)
Net increase (decrease) in cash (717,414) 685,934 5,508
CASH, BEGINNING OF YEAR 779,721 93,787 88,279
CASH, END OF YEAR $ 62,307 $ 779,721 $ 93,787
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
INTEREST PAID $ 31,913 $ 9,859 $ 12,181
INCOME TAXES PAID $ 2,300 $ 2,200 $ 3,400
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the year ended September 30, 1998, the Company sold all of its
equipment for cash and assignment of $43,399 in debt on the equipment.
During the year ended September 30, 1997, the Company issued 150,000
shares of Series A convertible preferred stock for consulting services
valued at $5,000.
During the year ended September 30, 1996, Pacific purchased equipment,
automobiles, and improvements of $388,475 by paying $138,416 and assuming
related debt on the equipment, automobiles, and improvements of $250,059.
During the year ended September 30, 1996, the Company issued 9,600,000
shares of common stock to the founders of the Company in exchange for
expenses incurred in the organization of the Company.
<PAGE>
PACIFIC ENGINEERING SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS
Pacific Engineering Systems, Inc. (the "Company") is a single source
provider of design, engineering, construction, and installation
services for manufacturing plants and materials processing
facilities. The work is performed under fixed price contracts that
vary in length from three months to three years. Because the
Company's contracts vary in length, the Company uses an operating
cycle of one year for financial statement purposes. The Company
grants credit to its credit-worthy customers, who are located
throughout the United States.
The Company's Chairman of the Board, Art Granito, founded the Company
in the 1970's. Pacific Engineering Company, Inc. ("PEC") was
incorporated on November 14, 1990. PEC was engaged in the business
of designing, engineering, and installing bulk material handling
systems. On March 23, 1995, Pacific Engineering Systems, Inc.
("Pacific") was incorporated in the State of California. At the time
Pacific was incorporated, the sole shareholder of PEC was a 95%
shareholder of Pacific. (See related party transactions discussed in
Note 12). At the time Pacific was formed, PEC stopped taking on new
business because the new business was handled by Pacific. In
addition, on October 1, 1995, Pacific assumed the rights and
obligations of three of PEC's large contracts that would not have
been completed as of March 31, 1996, and purchased all of PEC's fixed
assets. PEC was dissolved as of March 31, 1996.
On May 5, 1998, Pacific completed a merger with Health Emporium, Inc.
("HEI"), whereby Pacific merged into HEI by exchanging all of its
common stock for 10,920,000 shares of HEI's common stock. For
accounting purposes, the transaction has been treated as a
recapitalization of Pacific, with Pacific as the accounting acquirer
(reverse acquisition), and therefore, all prior period financial
statements have been restated as if the merger took place at the
beginning of such periods. Simultaneous to the merger, HEI changed
its name to Pacific Engineering Systems, Inc. HEI was incorporated
in the State of Delaware on August 8, 1985 as Jacqueline Beauty
Products, Inc., but changed its name to HEI on September 8, 1995.
HEI had no significant assets or liabilities at the date of the
acquisition and did not have significant operations prior to the
acquisition. Therefore, no pro forma information is provided.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Method of Accounting for Long-Term Construction Contracts
The accompanying financial statements have been prepared using the
percentage-of-completion method of accounting and, therefore, take
into account the cost, estimated earnings, and revenue to date on
fixed-fee and unit-price contracts not yet completed.
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Method of Accounting for Long-Term Construction Contracts (Continued)
The method is used because management considers total cost to be the
best available measure of progress on the contracts. Because of
inherent uncertainties in estimating costs, it is at least reasonably
possible that the estimates used will change within the near term.
Because long-term contracts extend over one or more years, changes in
job performance, changes in job conditions, and revisions in
estimates of cost and earnings during the course of the work are
reflected in the accounting period in which the facts that require
the revision become known. Claims for additional contract revenue
are recognized when realization of the claim is assured and the
amount can reasonably be determined.
At the time a loss on a contract becomes known, the entire amount of
the estimated ultimate loss is recognized in the financial statements.
Contracts that are substantially complete are considered closed for
financial statement purposes. Revenue earned on contracts in
progress in excess of billings (underbillings) is classified as a
current asset. Amounts billed in excess of revenue earned
(overbillings) are classified as current liabilities.
Net Income (Loss) per Share
The computation of the per share amounts for the years ended
September 30, 1998, 1997, and 1996 is based upon the weighted-average
number of common shares and common share equivalents outstanding for
the period, unless anti-dilutive.
Primary and fully diluted earnings (loss) per share were $(0.15) and
$(0.03) for the years ended September 30, 1998 and 1996,
respectively. For the year ended September 30, 1997, primary
earnings per share and fully diluted earnings per share were $0.30
and $0.28, respectively.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the financial statements, as well as the reported amounts
of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Concentration of Credit Risk
For the year ended September 30, 1998, two of the Company's customers
accounted for approximately 42% of the Company's contract revenue.
In addition, two other customers of the Company accounted for
approximately 39% of accounts receivable at September 30, 1998.
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Concentration of Credit Risk (Continued)
For the year ended September 30, 1997, five of the Company's
customers accounted for approximately 87% of the Company's contract
revenue. In addition, one of the customers of the Company also
accounted for approximately 28% of accounts receivable at September
30, 1997.
Stock Split
On May 16, 1998, the Company approved a 2-for-1 stock split of its
common stock, which became effective on June 16, 1998 for its
shareholders of record at May 16, 1998. This split occurred prior to
the issuance of the 10,920,000 shares to the former shareholders of
Pacific. All share and per share data have been retroactively
restated to reflect this stock split.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company considers
all highly-liquid investments purchased with original maturities of
three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable consist of amounts due from customers related to
fixed-price long-term contracts. Accounts receivables are billed in
accordance with the provisions of the related contract which
generally require billing to be either based upon the percentage
completion of the contract or upon certain performance milestones.
It has been the practice of the Company not to bill retainages on
contracts, and therefore, the accounts receivable balance at
September 30, 1998 does not include retainages receivable. Unbilled
retainages were $11,463 and $116,414 as of September 30, 1998 and
1997, respectively. To date, the Company has not experienced
material losses resulting from bad debts. As a result, the Company
has not established an allowance for doubtful accounts.
Equipment, Automobiles, and Improvements
Equipment, automobiles, and improvements are stated at cost. The
Company provides for depreciation and amortization using accelerated
methods over the estimated useful lives or term of the lease,
whichever is shorter, as follows:
Equipment 5 years
Automobiles 5 years
Furniture and fixtures 5 years
Leasehold improvements 7 years
<PAGE>
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently Issued Accounting Pronouncements
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income," is effective for financial
statements with fiscal years beginning after December 15, 1997. SFAS
No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of
general-purpose financial statements. The Company does not believe
the adoption of SFAS No. 130 will have a material impact on its
financial position or results of operations.
SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," is effective for fiscal years beginning after
December 15, 1997. SFAS No. 131 requires a company to report certain
information about its operating segments including factors used to
identify the reportable segments and types of products and services
from which each reportable segment derives its revenues. The Company
has not determined the impact this new standard will have on its
financial statements.
NOTE 3 - CASH
The Company maintains cash deposits at three banks. Deposits at each
bank are insured by the Federal Deposit Insurance Corporation up to
$100,000. As of September 30, 1998 and 1997, the uninsured portions
aggregated to $54,068 and $583,892, respectively. The Company has
not experienced any losses in such accounts and believes it is not
exposed to any significant credit risk on cash and cash equivalents.
NOTE 4 - CONTRACTS IN PROGRESS
For the year ended September 30, 1998, contract amounts, accumulated
costs, estimated earnings, and the related billings to date on
completed contracts and contracts in progress were as follows:
Contract Contract Contract
Gross
Amounts Revenues Costs
Profit
Total construction activity $ 51,071,713 $ 18,221,403
$15,005,494 $3,215,909
Construction contracts
completed during the
year 38,231,335 11,034,451 8,375,025
2,659,426
CONSTRUCTION CONTRACTS
IN PROGRESS AT
SEPTEMBER 30, 1998 $ 12,840,378 $ 7,186,952
$6,630,469 $ 556,483
<PAGE>
NOTE 4 - CONTRACTS IN PROGRESS (CONTINUED)
For the year ended September 30, 1997, contract amounts,
accumulated costs, estimated earnings, and the related billings to
date on completed contracts and contracts in progress were as
follows:
Contract Contract Contract
Gross
Amounts Revenues Costs
Profit
Total construction activity $ 70,163,378 $ 33,244,687
$24,657,578 $8,587,109
Construction contracts
completed during the
year 31,473,336 8,952,042 6,539,533
2,412,509
CONSTRUCTION CONTRACTS
IN PROGRESS AT
SEPTEMBER 30, 1997 $ 38,690,042 $ 24,292,645
$18,118,045 $6 ,147,600
Contracts in progress at September 30 are as follows:
Through September 30
1998
1997
Cumulative costs to date
$6,876,921 $21,265,111
Cumulative gross profit to date
571,899 6,196,991
Cumulative revenue earned
7,448,820 27,462,102
Less progress billings to date
8,758,080 26,552,496
NET CONTRACTS IN PROGRESS
$(1,309,260) $909,606
The following is included in accompanying balance sheet under the
following caption as of September 30:
September 30
1998
1997
Costs, estimated earnings, and prepaid commissions
on contracts in progress in excess of billings
$199,831 $2,123,001
Billings in excess of costs, estimated earnings, and
prepaid commissions on contracts in progress
1,509,091 1,213,395
TOTAL $ (1,309,26
) $ 909,606
<PAGE>
NOTE 5 - EQUIPMENT, AUTOMOBILES, AND IMPROVEMENTS
Equipment, automobiles, and improvements at September 30
consisted of the following:
1998
1997
Equipment $ 92,717
$99,317
Automobiles - 321,856
Furniture and fixtures
166,575 174,575
Leasehold improvements
151,795 151,795
411,087
747,543
Less accumulated deprecation and amortization
143,880 188,919
TOTAL $267,207
$558,624
NOTE 6 - LINE OF CREDIT
As of September 30, 1998, the Company had a $1,000,000 revolving
line of credit agreement with a local bank. Borrowings on the
line bear interest at the bank's reference rate (8.5% at September
30, 1998) which is subject to change from time to time. The
outstanding borrowings are secured by all property of the Company
and a personal guarantee of the Company's Chairman of the Board.
The line of credit agreement gives the lender the right to declare
all unpaid principal and interest immediately due upon default.
Per the agreement, the Company will be in default on the line of
credit agreement under various circumstances, including if certain
events occur with respect to the guarantor. As discussed in Note
13, the line of credit at September 30, 1998 was to expire during
October 1998, but was renewed in October 1998 and then renewed
again in January 1999. The renewed line of credit will expire on
March 15, 1999.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its operating facility in Anaheim, California.
The lease term is 60 months, commencing December 1, 1996 with
monthly payments of $26,775. The monthly lease payments increase
to $36,880 per month over the term of the lease. The Company has
an option to extend the lease for five years at the fair market
rent value at that time. Rent expense for its operating facility
for the year ending September 30, 1998 was $346,571.
<PAGE>
NOTE 7 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
Leases (Continued)
Minimum annual non-cancelable commitments under the leases
described above are as follows:
Year Ending
September 30,
1999 $425,946
2000 436,566
2001 442,560
2002 73,760
TOTAL $ 1,378,832
Employment Agreements
The Company has entered into employment agreements with two of its
key employees that require the Company to pay the employees
severance pay if they are involuntarily terminated. At September
30, 1998, the Company would have owed the employees approximately
$149,000 had these employees been involuntarily terminated by the
Company.
Year 2000 Issue
The Company has completed a comprehensive review of its computer
systems to all software applications that could be affected by the
inability of many existing computer systems to process
time-sensitive data accurately beyond the year 1999, referred to
as the Year 2000 or Y2K Issue. The Company is also continuing to
monitor its computer systems and monitoring the adequacy of the
processes and progress of third-party vendors of systems that may
be affected by the Year 2000 Issue. The Company is dependent on
third-party computer systems and applications, particularly with
respect to such initial tasks as accounting, billing and buying,
planning, and paying for services. The Company also relies on its
own computer systems. The Company expects to complete its Year
2000 compliance program by mid-1999 and anticipates that its total
expenditures on such program will not materially affect the
Company's results of operations and financial position and will be
expensed as incurred.
While the Company believes that its procedures are designed to be
successful, because of the complexity of the Year 2000 Issue and
the interdependence of organizations using computer systems, the
Company's efforts, or those of third parties with whom the Company
interacts, may not be satisfactorily completed in a timely fashion
or may cost substantially more to remedy than the amount
anticipated. Failure to satisfactorily address the Year 2000
issue could have a material adverse effect on the Company.
<PAGE>
NOTE 8 - INCOME TAXES
For the years prior to the year ended September 30, 1997, Pacific
was an "S" corporation and, therefore, was subject to taxation
under the provisions of subchapter "S" of the Internal Revenue
Code. Under these provisions, the Company did not pay federal
corporate income taxes on its taxable income. Instead, the
shareholders were liable for individual federal income taxes on
their respective shares of the Company's taxable income.
Consequently, the provision for income taxes for the years ended
September 30, 1997 and 1996 is the tax expense related to the 1.5%
California state income tax that Pacific was subject to under the
"S" corporation status.
The following table presents the current and deferred income tax
provision for federal and state income taxes for the year ended
September 30, 1998:
Current
Federal $-
State 800
800
Deferred
Federal -
State -
-
PROVISION FOR INCOME TAXES
$800
The tax components of the deferred income tax assets (liabilities
as of September 30, 1998 and the tax effects of temporary
differences which give rise to the deferred tax provision
(benefit) consist of:
State taxes $(23,926)
Net operating losses
611,679
Other 272
588,025
Valuation allowance
588,025
TOTAL $-
<PAGE>
NOTE 8 - INCOME TAXES (CONTINUED)
The provision for (benefit from) income taxes for the year ended
September 30, 1998 differs from the amount that would result from
applying the federal statutory rate as follows:
Statutory regular federal income tax rate
(34.0%
)
State income taxes, net of federal benefit
-
Change in valuation allowance
33.8
Other 0.2
TOTAL -%
NOTE 9 - SHAREHOLDERS' EQUITY
Preferred Stock
The Company is authorized to issue 5,000,000
shares of preferred stock with a par value of
$0.001. The Company has the authority to
provide for the issuance of all or any of the
shares of preferred stock in one or more
series and to fix the number of shares in
each such series. As of September 30, 1998,
the Company had designated two classes of
preferred stock: Series A Convertible
Preferred Stock and Series B Convertible
Preferred Stock.
Series A Convertible Preferred Stock
The Company has designated 150,000
shares of the authorized preferred
shares as Series A Convertible
Preferred Stock. Each share of
Series A Convertible Preferred Stock
is convertible into three shares of
common stock after six months from
the date of issuance. In the event
of liquidation, dissolution, or
other termination of the Company,
each share hereof shall be deemed to
have been so converted, and shall be
entitled to participate therein on
the same basis as the outstanding
shares of common stock.
On August 7, 1997, the Company
issued 150,000 shares of Series A
Convertible Preferred Stock to PR
Sources, Inc. as partial payment for
funds due pursuant to a consulting
agreement and review of the
Company's strategic business goals,
operations promotions, and marketing
strategies.
Series B Convertible Preferred Stock
The Company is authorized to issue
up to 500,000 shares Series B
convertible preferred. Each share of
Series B convertible preferred stock
is convertible at any time into
three shares of common stock at a
price of $0.50 per share. In the
event liquidation, dissolution or
other termination of the Company,
each share of Series B convertible
preferred stock shall be deemed to
have been converted to three shares
of common stock, at par value, and
shall be entitled to participate
therein on the same basis as the
outstanding shares of common stock.
<PAGE>
NOTE 9 - SHAREHOLDERS' EQUITY (CONTINUED)
Series B Convertible Preferred Stock (Continued)
At September 30, 1998, there were no issued
and outstanding shares of Series B
convertible preferred stock.
Common Stock
During the year ended September 30, 1996, the
Company issued 9,600,000 shares of common
stock to the founders of the parent company
in exchange for expenses incurred in the
organization of the Company. An additional
118,000 shares of common stock were sold for
$9,950, net of related costs.
Prior to the merger with Pacific, several
officers of HEI agreed to have an aggregate
of 4,400,000 of their common shares canceled.
As discussed in Note 1, on May 5, 1998,
Pacific merged with HEI, and Pacific
exchanged all of its common stock for
10,920,000 shares of HEI's common stock.
Immediately after the merger, there were
16,238,000 shares of common stock issued and
outstanding.
During the year ended September 30, 1997, the
President of HEI was granted an option to
purchase up to 300,000 shares of common stock
of the Company at a price of $0.50 per share.
However, the option was cancelled during
April 1998, prior to the merger.
Stock Purchase Warrants
During 1997, the Company sold 1,900,000 stock
purchase warrants for total of $3,800. Each
warrant gives the holder the right to
purchase one share of the Company's common
stock at an exercise price of $0.50 per
share. The warrants expire on August 29,
2000. At September 30, 1998, there were
1,900,000 warrants outstanding.
NOTE 10 - BACKLOG
The following schedule summarizes changes in
backlog on contracts during the years ended
September 30, 1998 and 1997. Backlog
represents the amount of revenue the Company
expects to realize from work to be performed
on uncompleted contracts in progress at
September 30, 1998 and from contractual
agreements on which work has not yet begun.
<PAGE>
NOTE 10 - BACKLOG (CONTINUED)
For the Year Ended
September 30,
1998
1997
Backlog balance, beginning of year
$ 11,227,94
$13,316,042
New contracts and contract adjustments during
the year 12,381,67
31,156,585
Sub-total 23,609,615
44,472,627
Less contract revenue earned during the year
18,221,40
33,244,687
BACKLOG BALANCE, END OF YEAR
$ 5,388,21
$11,227,940
NOTE 11 - EMPLOYEE BENEFIT PLAN
Effective January 1, 1996, the Company
adopted a 401(k) profit sharing plan to which
employees may make monthly contributions.
The plan covers all full-time employees who
have completed at least six months of service
and have attained the age of 18 years. The
plan does not allow for employer matching
contributions.
NOTE 12 - RELATED PARTY TRANSACTIONS
As discussed in Note 7, the Company issued
9,600,000 shares of common stock to the
founders of the parent company in exchange
for expenses incurred in the organization of
the Company.
On October 1, 1995, the Company assumed the
rights and obligations of three of PEC's
large contracts that would not have been
completed as of March 31, 1996. At that
time, Art Granito owned 95% of Pacific and
100% of PEC.
On October 1, 1995, the Company purchased all
of the fixed assets of PEC for $388,875,
which was the net book value of the assets on
the books of PEC at that time.
The majority shareholder of the Company, who
is also the Chairman of the Board of the
Company, owns 100% of Specialty Assembly,
Inc. ("Specialty"), which he purchased in
January 1998. Specialty is a sub-contractor,
and for the years ended September 30, 1998,
1997, and 1996, it performed $1,685,381,
$1,554,216, and $1,449,985, respectively, in
sub-contract work for the Company. The
Company owed Specialty $111,265 and $0 at
September 30, 1998 and 1997, respectively.
<PAGE>
NOTE 12 - RELATED PARTY TRANSACTIONS (CONTINUED)
During January 1997, Pacific purchased
certain equipment, furniture and fixtures,
and improvements from the Chairman of the
Board for $411,087. The purchase price of
the assets was the Chairman of the Board's
cost. (The Chairman of the Board purchased
the assets during December 1996 and January
1997.)
Immediately prior to the merger, Pacific sold
certain equipment, autos, and furniture and
fixtures to Specialty for $230,682, which was
approximately equal to the federal income tax
net book value of the assets.
The Company subsequently entered into a
non-written lease agreement with Specialty to
lease assets from Specialty for $20,000 per
month. For the year ended September 30,
1998, the Company incurred $100,000 in lease
charges from Specialty.
Since inception of Pacific, the Company has
advanced cash to, and has received cash
advances from, the Chairman of the Board, as
each party would require funds. At September
30, 1998 and 1997, the Company owed the
Chairman of the Board of the Company $209,356
and $385,051, respectively.
NOTE 13 - SUBSEQUENT EVENTS (UNAUDITED)
The Company renewed the line of credit it had
with a local bank during January 1999. The
new line expires March 15, 1999.
In October 1998, the Company issued 2,510,000
stock options to 17 employees and outside
consultant(s) at an exercise price of $1.25,
vesting in five years or less at 20% ore more
per year. Generally, the options granted
expire the earlier of six years from the date
of grant or the date employment is terminated.
<PAGE>
AGREEMENT AND
PLAN OF REORGANIZATION
DATED APRIL 28, 1998
BETWEEN
HEALTH EMPORIUM, INC.
AND
PACIFIC ENGINEERING SYSTEMS, INC.
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement")
is entered into this 28th day of April, 1998 by and between HEALTH
EMPORIUM, INC., a Delaware corporation ("HEI" and "Surviving
Corporation") and PACIFIC ENGINEERING SYSTEMS, INC., a California
corporation, ("Pacific").
RECITALS
A. Subject to and in accordance with the terms and
conditions of this Agreement and pursuant to the Certificate of
Merger attached hereto as Exhibit A ("Certificate of Merger"), the
parties intend that Pacific will merge with and into HEI (the
"Merger"), whereby at the Effective Time, all of the Pacific Common
Stock will be converted into ten million nine hundred twenty
thousand (10,920,000) shares of common stock of HEI (the "HEI Common
Stock").
B. For federal income tax purposes, it is intended that
the Merger shall qualify as a tax free reorganization within the
meaning of Section368(a)(1)(A) of the Code.
C. The parties hereto desire to set forth certain
representations, warranties and covenants made by each to the other
as an inducement to the consummation of the Merger.
AGREEMENT
NOW, THEREFORE, in reliance on the foregoing recitals and in
and for the consideration and mutual covenants set forth herein, the
parties agree as follows:
1. CERTAIN DEFINITIONS.
1.1 "AFFILIATE" shall have the meaning set forth in the
rules and regulations promulgated by the Commission pursuant to the
Securities Act.
1.2 "CLOSING" shall mean the closing of the transactions
contemplated by this Agreement.
1.3 "CLOSING DATE" shall mean the date of the Closing.
1.4 "CODE" shall mean the United States Internal Revenue
Code of 1986, as amended.
1.5 "COMMISSION" shall mean the United States Securities
and Exchange Commission.
<PAGE>
1.6 "DISSENTING SHARES" shall mean those shares held by
holders who perfect their appraisal rights under the applicable
state laws.
1.7 "EFFECTIVE TIME" shall mean the date and time of the
effectiveness of the Merger under Delaware law.
1.8 "GAAP" shall mean generally accepted accounting
principles.
1.9 "PACIFIC COMMON STOCK" shall mean all of the
outstanding shares of Common Stock of Pacific.
1.10 "MATERIAL ADVERSE EFFECT" shall mean a material
adverse effect on the operations, assets or financial condition
(financial or otherwise) of an entity considered as a whole.
1.11 "SECURITIES ACT" shall mean the Securities Act of
1933, as amended, or any similar federal statute and the rules and
regulations thereunder, all as the same shall be in effect at the time.
1.12 "TRANSACTION DOCUMENTS" shall mean all documents or
agreements attached as an exhibit or schedule hereto, and set forth
on the Table of Contents.
2. PLAN OF REORGANIZATION.
2.1 THE MERGER. Subject to the terms and conditions of
this Agreement and the Certificate of Merger, Pacific shall be
merged with and into HEI in accordance with the applicable
provisions of the laws of the States of Delaware and California, and
with the terms and conditions of this Agreement and the Certificate
of Merger, so that:
(A) At the Effective Time (as defined in Section
2.5 (below)), Pacific shall be merged with and into HEI. As a
result of the Merger, the separate corporate existence of Pacific
shall cease, and HEI shall continue as the surviving corporation,
and shall succeed to and assume all of the rights and obligations of
Pacific in accordance with the laws of Delaware.
(B) The Certificate of Incorporation and Bylaws of
HEI in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation and Bylaws, respectively, of the
Surviving Corporation after the Effective Time unless and until
further amended as provided by law.
(C) Subject to the terms of this Agreement, the
directors and officers of Pacific immediately prior to the Effective
Time shall be the directors and officers of the Surviving
Corporation after the Effective Time. Such directors and officers
shall hold their position until the election and qualification of
their respective successors or until their tenure is otherwise
terminated in accordance with the Bylaws of the Surviving Corporation.
<PAGE>
2.2 CONVERSION OF SHARES. Each share of Pacific Common
Stock, issued and outstanding immediately prior to the Effective
Time, will, by virtue of the Merger, and at the Effective Time, and
without further action on the part of any holder thereof, be
converted into 546 shares of fully paid and nonassessable shares of
HEI Common Stock.
2.3 FRACTIONAL SHARES. No fractional shares of HEI
Common Stock will be issued in connection with the Merger.
2.4 THE CLOSING. Subject to termination of this
Agreement as provided in Section 10 (below), the Closing shall take
place at the offices of M. Richard Cutler, 610 Newport Center Drive,
Suite 800, Newport Beach, CA 92660, as soon as possible upon the
satisfaction or waiver of all conditions set forth in Sections 8 and
9 hereof, or such other time and place as is mutually agreeable to
the parties.
2.5 EFFECTIVE TIME. Simultaneously with the Closing, the
Certificate of Merger shall be filed in the office of the Secretary
of State of the State of Delaware. The Merger shall become
effective immediately upon the filing of the Certificate of Merger
with such office.
2.6 TAX FREE REORGANIZATION. The parties intend to adopt
this Agreement as a tax-free plan of reorganization and to
consummate the Merger in accordance with the provisions of
Section368(a)(1)(A) of the Code. Each party agrees that it will not
take or assert any position on any tax return, report or otherwise
which is inconsistent with the qualification of the Merger as a
reorganization within the meaning of Section368(a) of the Code. HEI
represents now, and as of the Closing Date, that it presently
intends to continue Pacific's historic business or use a significant
portion of Pacific's business assets in a business.
3. REPRESENTATIONS AND WARRANTIES OF PACIFIC. Pacific
represents and warrants to HEI as set forth below. No fact or
circumstance disclosed shall constitute an exception to these
representations and warranties except as may mutually be agreed upon
in writing by the parties hereto.
3.1 ORGANIZATION. Pacific is a corporation duly
organized, validly existing and in good standing under the laws of
the state of California and has the corporate power and authority to
carry on its business as it is now being conducted. Pacific is duly
qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or properties makes
such qualification or licensing necessary except where the failure
to be so qualified would not have a Material Adverse Effect on Pacific.
3.2 CAPITALIZATION.
(A) The authorized capital of Pacific consists of
100,000 shares of Common Stock, par value $1.00 per share, of which
20,000 shares are issued and outstanding.
<PAGE>
(B) Pacific does not have outstanding any
preemptive rights, subscription rights, options, warrants, rights to
convert or exchange, capital stock equivalents, or other rights to
purchase or otherwise acquire any Pacific capital stock or other
securities.
(C) All of the issued and outstanding shares of
Pacific capital stock have been duly authorized, validly issued, are
fully paid and nonassessable, and such capital stock has been issued
in full compliance with all applicable federal and state securities
laws. None of Pacific's issued and outstanding shares of capital
stock are subject to repurchase or redemption rights.
(D) Except for any restrictions imposed by
applicable state and federal securities laws, there is no right of
first refusal, option, or other restriction on transfer applicable
to any shares of Pacific's capital stock.
(E) Pacific is not a party or subject to any
agreement or understanding (and, to Pacific's actual knowledge,
there is no agreement or understanding between or among any persons)
that affects or relates to the voting or giving of written consent
with respect to any security.
3.3 POWER, AUTHORITY AND VALIDITY. Pacific has the
corporate power to enter into this Agreement and the other
Transaction Documents to which it is a party and to carry out its
obligations hereunder and thereunder. The execution and delivery of
this Agreement and the Transaction Documents and the consummation of
the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of Pacific and no other
corporate proceedings on the part of Pacific are necessary to
authorize this Agreement, the other Transaction Documents and the
transactions contemplated herein and therein. Pacific is not
subject to, or obligated under, any charter, bylaw or contract
provision or any license, franchise or permit, or subject to any
order or decree, which would be breached or violated by or in
conflict with its executing and carrying out this Agreement and the
transactions contemplated hereunder and under the Transaction
Documents. Except for (i) the filing of the Certificate of Merger
with the Secretary of State of the State of Delaware and appropriate
documents with the relevant authorities of other states in which
Pacific is qualified to do business, and (ii) filings under
applicable securities laws, no consent of any person who is a party
to a contract which is material to Pacific's business, nor consent
of any governmental authority, is required to be obtained on the
part of Pacific to permit the transactions contemplated herein and
to permit Pacific to continue the business activities of Pacific as
previously conducted by Pacific without a Material Adverse Effect.
This Agreement is, and the other Transaction Documents when executed
and delivered by Pacific shall be, the valid and binding obligations
of Pacific, enforceable in accordance with their respective terms.
3.4 TAX-FREE REORGANIZATION.
(A) Pacific has not taken or agreed to take any
action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section368(a) of
the Code.
<PAGE>
(B) Pacific is not an investment company as
defined in SectionSection368(a)(2)(F)(iii) and (iv) of the Code.
3.5 EXEMPT REORGANIZATION. For purposes of the
transactions contemplated hereunder and in accordance with Section
25103(h) of the California Corporate Securities Code:
(A) Pacific has 35 or fewer security holders, all
of which are equity security holders.
(B) all equity security holders of Pacific have
either a preexisting personal or business relationship with HEI or
any of its officers, directors, or controlling persons or by reason
of their business or financial experience or the business and
financial experience of their financial advisors could be reasonably
assumed to have the capacity to protect their own interest in
connection with the transaction.
(C) all equity security holders of Pacific have
consented in writing to the transaction.
(D) each equity security holder of Pacific has
represented that the acquisition of the HEI Common Stock in the
transaction is for the equity security holder's own account and not
with a view to or for sale in connection with any distribution of
common stock.
3.6 NO BROKERS. Pacific is not obligated for the payment
of fees or expenses of any broker or finder in connection with the
origin, negotiation or execution of this Agreement or the
Certificate of Merger or in connection with any transaction
contemplated hereby or thereby.
4. REPRESENTATIONS AND WARRANTIES OF HEI. HEI
represents and warrants to Pacific as set forth below. No fact or
circumstance disclosed to Pacific shall constitute an exception to
these representations and warranties except as may mutually be
agreed upon in writing by Pacific and HEI.
4.1 ORGANIZATION. HEI is a corporation duly organized,
validly existing and in good standing under the laws of the state of
Delaware and has the corporate power and authority to carry on its
business as it is now being conducted. HEI is duly qualified or
licensed to do business and is in good standing in each jurisdiction
in which the nature of its businesses or properties makes such
qualification or licensing necessary except where the failure to be
so qualified would not have a Material Adverse Effect on HEI.
4.2 CAPITALIZATION.
(A) The authorized capital of HEI consists of
25,000,000 shares of Common Stock, of which 4,930,388 shares are
issued and outstanding (without giving effect to the shares issued
to Pacific hereunder).
<PAGE>
(B) Except with respect to 1,900,000 warrants to
purchase common stock at $.50 per share and 150,000 shares of
Preferred Stock convertible into 450,000 shares of common stock, HEI
has no outstanding preemptive rights, subscription rights, options,
warrants, rights to convert or exchange, capital stock equivalents,
or other rights to purchase or otherwise acquire any HEI capital
stock or other securities.
(C) All of the issued and outstanding shares of
HEI capital stock have been duly authorized, validly issued, are
fully paid and nonassessable, and such capital stock has been issued
in full compliance with all applicable federal and state securities
laws. None of HEI's issued and outstanding shares of capital stock
are subject to repurchase or redemption rights.
(D) Except for any restrictions imposed by
applicable state and federal securities laws, there is no right of
first refusal, option, or other restriction on transfer applicable
to any shares of HEI capital stock.
(E) HEI is not a party or subject to any agreement
or understanding (and, to HEI's actual knowledge, there is no
agreement or understanding between or among any persons) that
affects or relates to the voting or giving of written consent with
respect to any security.
4.3 POWER, AUTHORITY AND VALIDITY. HEI has the corporate
power to enter into this Agreement and the other Transaction
Documents to which they are parties and to carry out their
obligations hereunder and thereunder. The execution and delivery of
this Agreement and the Transaction Documents and the consummation of
the transactions contemplated hereby and thereby have been duly
authorized by the Board of Directors of HEI and no other corporate
proceedings on the part of HEI are necessary to authorize this
Agreement, the other Transaction Documents and the transactions
contemplated herein and therein. HEI is not subject to, or
obligated under, any charter, bylaw or contract provision or any
license, franchise or permit, or subject to any order or decree,
which would be breached or violated by or in conflict with its
executing and carrying out this Agreement and the transactions
contemplated hereunder and under the Transaction Documents. Except
for (i) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware and appropriate documents with the
relevant authorities of other states in which HEI is qualified to do
business, and (ii) filings under applicable securities laws, no
consent of any person who is a party to a contract which is material
to HEI's business, nor consent of any governmental authority, is
required to be obtained on the part of HEI to permit the
transactions contemplated herein and to permit HEI to continue the
business activities of HEI as previously conducted by HEI without a
Material Adverse Effect. This Agreement is, and the other
Transaction Documents when executed and delivered by HEI shall be,
the valid and binding obligations of HEI, enforceable in accordance
with their respective terms.
4.4 TAX-FREE REORGANIZATION.
(A) HEI has not taken or agreed to take any action
that would prevent the Merger from constituting a reorganization
qualifying under the provisions of Section368(a) of the Code.
<PAGE>
(B) HEI is not an investment company as defined in
SectionSection368(a)(2)(F)(iii) and (iv) of the Code.
4.5 EXEMPT REORGANIZATION. For purposes of the
transactions contemplated hereunder and in accordance with Section
25103(h) of the California Corporate Securities Code:
(A) HEI has not earned a majority of its revenue
from investments in the last four years.
(B) The transactions contemplated hereunder have
not been accomplished by the publication of any advertisement.
4.6 NO BROKERS. HEI is not obligated for the payment of
fees or expenses of any broker or finder in connection with the
origin, negotiation or execution of this Agreement or the
Certificate of Merger or in connection with any transaction
contemplated hereby or thereby.
5. PRECLOSING COVENANTS OF PACIFIC.
5.1 NOTICES AND APPROVALS. Pacific agrees: (a) to give
all notices to third parties which may be necessary or deemed
desirable by HEI in connection with this Agreement and the
consummation of the transactions contemplated hereby; (b) to use its
best efforts to obtain all federal and state governmental regulatory
agency approvals, consents, permit, authorizations, and orders
necessary or deemed desirable by HEI in connection with this
Agreement and the consummation of the transaction contemplated
hereby; and (c) to use its best efforts to obtain, and to cause
Pacific to obtain, all consents and authorizations of any other
third parties necessary or deemed desirable by HEI in connection
with this Agreement and the consummation of the transactions
contemplated hereby.
5.2 INFORMATION FOR HEI S STATEMENTS AND APPLICATIONS.
Pacific and its employees, accountants and attorneys shall cooperate
fully with HEI in the preparation of any statements or applications
made by HEI to any federal or state governmental regulatory agency
in connection with this Agreement and the transactions contemplated
hereby and to furnish HEI with all information concerning Pacific
necessary or deemed desirable by HEI for inclusion in such
statements and applications, including, without limitation, all
requisite financial statements and schedules.
6. MUTUAL COVENANTS.
6.1 REGULATORY FILINGS; CONSENTS; REASONABLE EFFORTS.
Subject to the terms and conditions of this Agreement, Pacific and
HEI shall use their respective best efforts to (i) make all
necessary filings with respect to the Merger and this Agreement
under the Securities Act, and applicable blue sky or similar
securities laws and shall use all reasonable efforts to obtain
required approvals and clearances with respect thereto and shall
supply all additional information requested
<PAGE>
in connection therewith;
(ii) make merger notification or other appropriate filings with
federal, state or local governmental bodies or applicable foreign
governmental agencies and shall use all reasonable efforts to obtain
required approvals and clearances with respect thereto and shall
supply all additional information requested in connection therewith;
(iii) obtain all consents, waivers, approvals, authorizations and
orders required in connection with the authorization, execution and
delivery of this Agreement and the consummation of the Merger; and
(iv) take, or cause to be taken, all appropriate action, and do, or
cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement.
6.2 FURTHER ASSURANCES. Prior to and following the
Closing, each party agrees to cooperate fully with the other parties
and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably
requested by any other party to better evidence and reflect the
transactions described herein and contemplated hereby and to carry
into effect the intents and purposes of this Agreement.
7. CLOSING MATTERS.
7.1 FILING OF CERTIFICATE OF MERGER. On the date of the
Closing, but not prior to the Closing, the Certificate of Merger
shall be filed with the offices of the Secretary of State of the
State of Delaware and the merger of Pacific with and into HEI shall
be consummated.
7.2 EXCHANGE OF CERTIFICATES. At or within 30 days of
the Closing, HEI shall deliver and issue to each shareholder of
Pacific a certificate or certificates representing the HEI Common
Stock issuable to such shareholder as consideration in this Merger.
7.3 DELIVERY OF DOCUMENTS. On or before the Closing, the
parties shall deliver the documents, and shall perform the acts,
which are set forth in Sections 8 and 9, as specified in such
Sections, including delivery of the counterpart signature pages of
the Transaction Documents executed by Pacific and/or HEI, as the
case may be. All documents which Pacific shall deliver or cause to
be delivered shall be in form and substance reasonably satisfactory
to HEI. All documents which HEI shall deliver or cause to be
delivered shall be in form and substance reasonably satisfactory to
Pacific.
8. TERMINATION OF AGREEMENT.
8.1 TERMINATION. This Agreement may be terminated at any
time prior to the Closing by the mutual written consent of each of
the parties hereto. This Agreement may also be terminated and
abandoned by either Pacific or HEI, if the Merger is not effected by
June 30, 1998. Any termination of this Agreement under this Section
8.1 shall be effected by the delivery of written notice of the
terminating party to the other parties hereto.
<PAGE>
8.2 LIABILITY FOR TERMINATION. Any termination of this
Agreement pursuant to this Section 8 shall be without further
obligation or liability upon any party in favor of any other party
hereto; provided, that if such termination shall result from the
willful failure of a party to carry out its obligations under this
Agreement, then such party shall be liable for losses incurred by
the other parties as set forth in Section 8.5. The provisions of
this Section 8.2 shall survive termination.
8.3 CERTAIN EFFECTS OF TERMINATION. In the event of the
termination of this Agreement as provided in Section herein, each
party, if so requested by the other party, will (i) return promptly
every document (other than documents publicly available) furnished
to it by the other party (or any subsidiary, division, associate or
affiliate of such other party) in connection with the transactions
contemplated hereby, whether so obtained before or after the
execution of this Agreement, and any copies thereof which may have
been made, and will cause its representatives and any
representatives of financial institutions and investors and others
to whom such documents were furnished promptly to return such
documents and any copies thereof any of them may have made; or (ii)
destroy such documents and cause its representatives and such other
representatives to destroy such documents, and such party shall
deliver a certificate executed by its president or vice president
stating to such effect; and
8.4 REMEDIES. No party shall be limited to the
termination right granted in Section 8.1 hereto by reason of the
nonfulfillment of any condition to such party's closing obligations
but may, in the alternative, elect to do one of the following:
(A) proceed to close despite the nonfulfillment of
any closing condition, it being understood that consummation of the
transactions contemplated hereby shall be deemed a waiver of any
misrepresentation or breach of warranty or covenant and of any
party's rights and remedies with respect thereto to the extent that
the other party shall have actual knowledge of such
misrepresentation or breach and the Closing shall nonetheless take
place; or
(B) decline to close, terminate this Agreement as
provided in Section 8.1 hereof, and thereafter seek damages to the
extent permitted in Section 8.5 hereof.
8.5 ARBITRATION. Any dispute arising out of this
Agreement, or its performance or breach, shall be resolved by
binding arbitration conducted by JAMS/Endispute under the
JAMS/Endispute Rules for Complex Arbitration (the "JAMS Rules").
This arbitration provision is expressly made pursuant to and shall
be governed by the Federal Arbitration Act, 9 U.S.C. Sections 1-14.
The parties hereto agree that pursuant to Section 9 of the Federal
Arbitration Act, a judgment of the United States District Courts for
the Southern District of California shall be entered upon the award
made pursuant to the arbitration. A single arbitrator, who shall
have the authority to allocate the costs of any arbitration
initiated under this paragraph, shall be selected according to the
JAMS Rules within ten (10) days of the submission to JAMS/Endispute
of the response to the statement of claim or the date on which any
such response is due, whichever is earlier. The arbitrator shall
conduct the arbitration in accordance with the Federal Rules of
Evidence. The arbitrator shall decide the amount and extent of
pre-hearing discovery which is appropriate. The arbitrator shall
<PAGE>
have the power to enter any award of monetary and/or injunctive
relief (including the power issue permanent injunctive relief and
also the power to reconsider any prior request for immediate
injunctive relief by either of the parties and any order as to
immediate injunctive relief previously granted or denied by a court
in response to a request therefor by either of the parties),
including the power to render an award as provided in Rule 43 of the
JAMS Rules; provided, however, that the arbitrator shall not have
the power to award punitive damages under any circumstances (whether
styled as punitive, exemplary, or treble damages, or any penalty or
punitive type of damages) regardless of whether such damages may be
available under applicable law, the parties hereby waiving their
rights to recover any such damages. The arbitrator shall award the
prevailing party its costs and reasonable attorneys' fees, and the
losing party shall bear the entire cost of the arbitration,
including the arbitrator's fees. All arbitration shall be held in
Orange County, California. In addition to the above court, the
arbitration award may be enforced in any court having jurisdiction
over the parties and the subject matter of the arbitration.
Notwithstanding the foregoing, the parties irrevocably submit to the
nonexclusive jurisdiction of the state and federal courts situated
where the respondent is domiciled or resides as of the Effective
Date in any action to enforce an arbitration award. With respect to
any request for immediate injunctive relief, that state and federal
courts in Orange County, California shall have exclusive
jurisdiction and venue over any such disputes.
9. MISCELLANEOUS.
9.1 GOVERNING LAWS. It is the intention of the parties
hereto that the internal laws of the State of California
(irrespective of its choice of law principles) shall govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the
parties hereto.
9.2 BINDING UPON SUCCESSORS AND ASSIGNS. Subject to, and
unless otherwise provided in, this Agreement, each and all of the
covenants, terms, provisions, and agreements contained herein shall
be binding upon, and inure to the benefit of, the permitted
successors, executors, heirs, representatives, administrators and
assigns of the parties hereto.
9.3 SEVERABILITY. If any provision of this Agreement, or
the application thereof, shall for any reason and to any extent be
invalid or unenforceable, the remainder of this Agreement and
application of such provision to other persons or circumstances
shall be interpreted so as best to reasonably effect the intent of
the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and
enforceable provision which will achieve, to the extent possible,
the economic, business and other purposes of the void or
unenforceable provision.
9.4 ENTIRE AGREEMENT. This Agreement, the exhibits
hereto, the documents referenced herein, and the exhibits thereto,
constitute the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof and thereof and
supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied,
written or oral, between the parties with respect hereto and
thereto. The express terms hereof control
<PAGE>
and supersede any course
of performance or usage of the trade inconsistent with any of the
terms hereof.
9.5 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be an original as
against any party whose signature appears thereon and all of which
together shall constitute one and the same instrument. This
Agreement shall become binding when one or more counterparts hereof,
individually or taken together, shall bear the signatures of all of
the parties reflected hereon as signatories.
9.6 EXPENSES. Except as provided to the contrary herein,
each party shall pay all of its own costs and expenses incurred with
respect to the negotiation, execution and delivery of this
Agreement, the exhibits hereto, and the other Transaction Documents.
9.7 AMENDMENT AND WAIVERS. Any term or provision of this
Agreement may be amended, and the observance of any term of this
Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a
writing signed by the party to be bound thereby. The waiver by a
party of any breach hereof for default in payment of any amount due
hereunder or default in the performance hereof shall not be deemed
to constitute a waiver of any other default or any succeeding breach
or default.
9.8 SURVIVAL OF AGREEMENTS. All covenants, agreements,
representations and warranties made herein shall survive the
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby notwithstanding any investigation
of the parties hereto and shall terminate on the date one year after
the Closing Date.
9.9 NO WAIVER. The failure of any party to enforce any
of the provisions hereof shall not be construed to be a waiver of
the right of such party thereafter to enforce such provisions.
9.10 ATTORNEYS' FEES. Should suit be brought to enforce
or interpret any part of this Agreement, the prevailing party shall
be entitled to recover, as an element of the costs of suit and not
as damages, reasonable attorneys' fees to be fixed by the court
(including without limitation, costs, expenses and fees on any
appeal). The prevailing party shall be the party entitled to
recover its costs of suit, regardless of whether such suit proceeds
to final judgment. A party not entitled to recover its costs shall
not be entitled to recover attorneys' fees. No sum for attorneys'
fees shall be counted in calculating the amount of a judgment for
purposes of determining if a party is entitled to recover costs or
attorneys' fees.
9.11 NOTICES. Any notice provided for or permitted under
this Agreement will be treated as having been given when (a)
delivered personally, (b) sent by confirmed telex or telecopy, (c)
sent by commercial overnight courier with written verification of
receipt, or (d) mailed postage prepaid by certified or registered
mail, return receipt requested, to the party to be notified, at the
address set forth below, or at such other place of which the other
party has been notified in accordance with the provisions of this
Section 9.11.
<PAGE>
Pacific:
Pacific Engineering Systems, Inc.
8101 East Kaiser Blvd.
Anaheim, CA 92806
Attn. Art Granito
HEI:
Health Emporium, Inc.
c/o The Law Offices of M. Richard Cutler, Esq.
610 Newport Center Drive, Suite 800
Newport Beach, CA 92660
Such notice will be treated as having been received upon actual
receipt.
9.12 TIME. Time is of the essence of this Agreement.
9.13 CONSTRUCTION OF AGREEMENT. This Agreement has been
negotiated by the respective parties hereto and their attorneys and
the language hereof shall not be construed for or against any party.
The titles and headings herein are for reference purposes only and
shall not in any manner limit the construction of this Agreement
which shall be considered as a whole.
9.14 NO JOINT VENTURE. Nothing contained in this
Agreement shall be deemed or construed as creating a joint venture
or partnership between any of the parties hereto. No party is by
virtue of this Agreement authorized as an agent, employee or legal
representative of any other party. No party shall have the power to
control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent
contractors with respect to each other. No party shall have any
power or authority to bind or commit any other. No party shall hold
itself out as having any authority or relationship in contravention
of this Section 9.14.
9.15 PRONOUNS. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine or neuter,
singular or plural, as the identity of the person, persons, entity
or entities may require.
9.16 FURTHER ASSURANCES. Each party agrees to cooperate
fully with the other parties and to execute such further
instruments, documents and agreements and to give such further
written assurances, as may be reasonably requested by any other
party to better evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents
and purposes of this Agreement.
9.17 ABSENCE OF THIRD-PARTY BENEFICIARY RIGHTS. No
provisions of this Agreement are intended, nor shall be interpreted,
to provide or create any third-party beneficiary rights or any other
rights of any kind in any client, customer, affiliate, stockholder,
partner of any party hereto or any other person or entity except
employees and stockholders of Pacific specifically
<PAGE>
referred to
herein, and, except as so provided, all provisions hereof shall be
personal solely between the parties to this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first set forth above.
PACIFIC ENGINEERING SYSTEMS, INC. HEALTH EMPORIUM, INC.
By: /s/ Arthur Granito By: /s/ Kristin S. Moffitt
Arthur Granito Kristin S. Moffitt
President President
ATTEST: ATTEST:
/s/ Carol Taylor /s/ Kristin S. Moffitt
Carol Taylor, Secretary Kristin S. Moffitt, Secretary
<PAGE>
Pacific Engineering Systems, Inc.
Secretary's Certificate
The undersigned, Carol Taylor, Secretary of Pacific
Engineering Systems, Inc., a California corporation and one of the
merging corporations mentioned in the foregoing Agreement and Plan
of Reorganization (the "Agreement"), certifies that the Agreement
has been adopted by the written consent of the shareholders of all
of the outstanding stock of Pacific Engineering Systems, Inc.
entitled to vote thereon in accordance with the provisions of the
General Corporation Law of the State of California.
Dated: April 28, 1998
/s/ Carol Taylor
Carol Taylor
Secretary of Pacific Engineering Systems, Inc.
<PAGE>
Health Emporium, Inc.
Secretary's Certificate
The undersigned, Kristin S. Moffitt, Secretary of Health
Emporium, Inc., a Delaware corporation and one of the merging
corporations mentioned in the foregoing Agreement and Plan of
Reorganization (the "Agreement"), certifies that the Agreement has
been adopted by the affirmative vote of the holders of a majority of
the outstanding Common Stock of Health Emporium, Inc. entitled to
vote thereon at a meeting held pursuant to notice in accordance with
the provisions of the Delaware General Corporation Law.
Dated: April 28, 1998
/s/ Kristin S. Moffitt
Kristin S. Moffitt
Secretary of Health Emporium, Inc.
<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
OF
PACIFIC ENGINEERING SYSTEMS, INC.
(A CALIFORNIA CORPORATION)
INTO
HEALTH EMPORIUM, INC.
(A DELAWARE CORPORATION)
PURSUANT TO SECTION 252(C) OF THE GENERAL CORPORATION LAW OF THE
STATE OF DELAWARE
It is hereby certified, on behalf of each of the constituent
corporations named below, as follows:
1. The names of the constituent corporations are Health
Emporium, Inc., a Delaware corporation ("HEI") and Pacific
Engineering Systems, Inc., a California corporation ("Pacific").
The Certificate of Incorporation of HEI was filed with the Secretary
of State of the State of Delaware on August 8, 1985. The
Certificate of Incorporation of Pacific was filed with the Secretary
of State of the State of California on March 23, 1995.
2. An Agreement and Plan of Reorganization between HEI
and Pacific has been approved, adopted, certified, executed and
acknowledged by HEI and Pacific in accordance with Section 252(c) of
the General Corporation Law of the State of Delaware.
3. HEI is the surviving corporation.
4. The Certificate of Incorporation of HEI, the
surviving corporation, shall be amended to change the name of the
surviving corporation to "Pacific Engineering Systems, Inc.", and
shall constitute the Certificate of Incorporation of the surviving
corporation.
5. The executed Agreement and Plan of Reorganization is
on file at the principal place of business of HEI, the surviving
corporation, at 8101 East Kaiser Blvd., Anaheim, CA 92806. A copy
of the Agreement and Plan of Reorganization will be furnished by
HEI, the surviving corporation, without cost, to any stockholder of
Pacific or HEI who sends a written request therefor to HEI at its
principal place of business indicated above.
6. The authorized capital stock of Pacific preceding the
merger is 100,000 shares of common stock, par value $1.00 per share.
The authorized capital stock of HEI is 25,000,000 shares
<PAGE>
of common
stock, par value $.0001 per share and 5,000,000 shares of preferred
stock, par value $.0001 per share.
PACIFIC ENGINEERING SYSTEMS, INC. HEALTH EMPORIUM, INC.
By: By:
Arthur Granito Kristin S. Moffitt
President President
ATTEST: ATTEST:
____________________________ ____________________________________
Carol Taylor, Secretary Kristin S. Moffitt, Secretary
<PAGE>
BOOK 093 PAGE 268
FILED
August 8, 1985
9am
[Signature]
Secretary of State
Certificate of Incorporation
OF
JACQUELINE BEAUTY PRODUCTS, INC.
FIRST. - The name of this Corporation is JACQUELINE BEAUTY
PRODUCTS, INC.
SECOND. - Its registered office and place of business in the
State of Delaware is to be located at 410 South State Street in the
City of Dover, County of Kent. The Registered Agent in charge
thereof is Incorporating Services, Ltd.
THIRD. - The nature of the business and, the objects and
purposes proposed to be transacted, promoted and carried on, are tod
o any or all of the things herein mentioned, as fully and to the
same extent as natural persons might or could do, and in any part of
the world, viz:
The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the
General Corporation Law of Delaware.
FOURTH. - The corporation shall be authorized to issue Three
Hundred Thousand (300,000) Shares at a $.01 Par Value.
<PAGE>
BOOK S93 PAGE 269
FIFTH. - The name and address of the incorporator is as
follows: Lisa C. Harding, 410 South State Street, Dover, Delaware
19901.
SIXTH. - The Directors shall have power to make and to alter
or amend the By-Laws; to fix the amount to be reserved as working
capital, and to authorize and cause to be executed, mortgages and
liens without limit as to the amount, upon the property and
franchise of this Corporation.
With the consent in writing, and pursuant to a vote of the
holders of a majority of the capital stock issued and outstanding,
the Directors shall have authority to dispose, in any manner, of the
whole property of this corporation.
The By-Laws shall determine whether and to what extent the
accounts and books of this corporation, or any of them, shall be
open to the inspection of the stockholders; and no stockholder shall
have any right of inspecting any account, or book, or document of
this Corporation, except as conferred by the law or the By-laws, or
by resolution of the stockholders.
The stockholders and directors shall have power to hold their
meetings and keep the books, documents and papers of the corporation
outside of the State of Delaware, at such places as may be from time
to time designated by the By-laws or by resolution of the
stockholders or
directors, except as otherwise required by the laws of Delaware.
It is the intention that the objects, purposes and powers
specified in the third paragraph hereof shall, except where
otherwise specified in said paragraph, be nowise limited or
restricted by reference to or inference from the terms of any other
clause or paragraph in this certificate of incorporation, but that
the objects, purposes and powers specified in the third paragraph
and in each of the clauses or paragraphs of this charter shall be
regarded as independent objects, purposes and powers.
SEVENTH. - The corporation shall, to the full extent
permitted by Section 145 of the Delaware General Corporation Law, as
amended from time to time, indemnify all persons whom it may
indemnify pursuant thereto.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
8th day of August, A.D., 1985.
/s/ Lisa C. Harding (SEAL)
LISA C. HARDING
<PAGE>
BOOK S 93 PAGE 196
CERTIFICATE OF CORRECTION
OF
JACQUELINE BEAUTY PRODUCTS, INC.
Pursuant to Section 103(f) of Title 8 of the Delaware
Code of 1953, as amended
FILED
August 14, 1985
9am
[Signature]
Secretary of State
I, the undersigned, being the only Incorporator of JACQUELINE
BEAUTY PRODUCTS, INC., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of
Delaware, DO HEREBY CERTIFY:
RESOLVED, that in the Certificate of Incorporation of this
Corporation the name of the corporation was inadvertantly set forth
incorrectly and t hat Article FIRST should be corrected by changing
it to read as follows:
FIRST: The name of this Corporation is JACQUELINE BEAUTY
PRODUCTS, LTD..
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
14th day of August, A.D., 1985.
/s/ Lisa C. Harding
LISA C. HARDING
<PAGE>
DIVISION OF CORPORATIONS
FILED 09:00 AM 08/24/1995
950192587
CERTIFICATE
FOR RENEWAL AND REVIVAL OF CHARTER
JACQUELINE BEAUTY PRODUCTS, LTD., a corporation organized
under the laws of Delaware, the charter of which was voided for
non-payment of taxes, now desires to procure a restoration, renewal
and revival of its charter, and hereby certifies as follows:
1. The name of the corporation is JACQUELINE BEAUTY
PRODUCTS, LTD.
2. Its registered office in the State of Delaware is
located at 15 East North Street, City of Dover, Zip Code 19901,
County of Kent. The name of its registered agent at that address is
Incorporating Services, Ltd.
3. The date of filing of the original Certificate of
Incorporation was August 8, 1985.
4. The date when restoration, renewal, and revival of
the charter of this company is to commence is the 28th day of
February, same being prior to the date of the expiration of the
charter. This renewal and revival of the charter of this
corporation is to be perpetual.
5. This corporation was duly organized and carried on
the business authorized by its charter until the first day of March
A.D. 1987, at which time its charter became inoperative and void for
non-payment of taxes and this certificate for renewal and revival is
filed by authority of the duly elected directors of the corporation
in accordance with the laws of the State of Delaware.
IN TESTIMONY WHEREOF, and in compliance with the provisions
of Section 312 of the General Corporation Law of the State of
Delaware, as amended, providing for the renewal, extension and
restoration of charters, Sheldon Cohan the last and acting President
of JACQUELINE BEAUTY PRODUCTS, LTD., has hereunto set his/her hand
to this certificate this 28th day of July, 1995.
/s/ Sheldon Cohan
Last and Acting President
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
JACQUELINE BEAUTY PRODUCTS, LTD.
Pursuant to Section 242 of the General Corporation
Law of the State of Delaware
The undersigned, pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify and
set forth as follows:
FIRST: The name of the corporation is Jacqueline Beauty
Products, Ltd.
SECOND: The amendment to the Certificate of Incorporation to
be effected hereby is as follows:
Paragraphs First and Fourth of the Certificate of
Incorporation, relating to the name and stock of the corporation are
amended to read as follows:
"First: The name of the corporation is HEALTH
EMPORIUM, INC."
"Fourth: The corporation shall be authorized to issue
twenty-four million (24,000,000) shares of common stock at one tenth
of a mill (.0001) par value and five million (5,000,000) Convertible
Preferred Shares bearing no Dividends at one tenth of a mill (.0001)
par value."
THIRD: The amendment effected herein was authorized by the
written consent of the holders of all outstanding shares pursuant to
Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
FOURTH: The capital of the corporation will not be reduced
under or by reason of this amendment.
IN WITNESS WHEREOF, we have hereunto set our hands and seal
this 8th day of September, 1995.
By: /s/ Sheldon Cohan
Sheldon Cohan, Acting President
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09/12/1995
950206510-2068461
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 12/13/1996
960366503-2068461
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
HEALTH EMPORIUM, INC.
The undersigned, pursuant to the provisions of the General
Corporation Law of the State of Delaware, does hereby certify and
set forth as follows:
FIRST. The name of this Corporation is: HEALTH EMPORIUM INC.
SECOND. The Amendment to the Certificate of Incorporation to
be effected hereby is as follows:
"Paragraph Fourth of the Certificate of Incorporation
relating to the authorized capitalization of the corporation is
hereby deleted and replaced in its entirety by the following:
FOURTH. This Corporation is authorized to issued THIRTY
MILLION (30,000,000) shares of Capital Stock as follows:
A. FIVE MILLION (5,000,000) shares of which shall be designated as
"Preferred Stock", each share thereof having the par value of One
Mill ($0.001). The board of directors may, from time to time, issue
part or all of said preferred shares on terms and conditions as the
board may determine without further action required by the
stockholders; and such shares may be convertible into shares of
Common Stock, have cumulative dividends, be redeemable by the
corporation, or such other terms and conditions as may be designated
by the board of directors at the time of issuance.
B. TWENTY-FIVE MILLION (25,000,000) shares of which shall be
designated as "Common Stock", having the par value of One Mill
($0.001) per share, and each such share shall have one vote in every
matter required to be submitted to Stockholders for the vote."
THIRD. The amendment effected herein was authorized by the
witted consent of the holders of all of the outstanding shares
pursuant to Sections 228 and 242 of the General Corporation Law of
the State of Delaware.
<PAGE>
FOURTH. The capital of the corporation will not be reduced
under or by reason of this amendment. Each share of presently
issued and outstanding Common Stock will be exchangeable for one
share of the new par value Common Stock. There are presently no
issued and outstanding shares of Preferred Stock.
IN WITNESS WHEREOF, the undersigned has executed this Amendment to
the Certificate of Incorporation this 10th day of December, 1996.
/s/ Robert H. Dohmen
Robert H. Dohmen, President
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/05/1998
981172429-2068461
CERTIFICATE OF MERGER
OF
PACIFIC ENGINEERING SYSTEMS, INC.
(a California corporation)
INTO
HEALTH EMPORIUM, INC.
(a Delaware corporation)
Pursuant to Section 252(c) of the General Corporation Law of
the State of Delaware
It is hereby certified, on behalf of each of the constituent
corporations named below, as follows:
1. The names of the constituent corporations are Health
Emporium, Inc., a Delaware corporation ("HEI") and Pacific
Engineering Systems, Inc., a California corporation ("Pacific").
The Certificate of Incorporation of HEI was filed with the Secretary
of State of the State of Delaware on August 8, 1985. The
Certificate of Incorporation of Pacific was filed with the Secretary
of State of the State of California on March 23, 1995.
2. An Agreement and Plan of Reorganization between HEI
and Pacific has been approved, adopted, certified, executed and
acknowledged by HEI and Pacific in accordance with Section 252(c) of
the General Corporation Law of the State of Delaware.
3. HEI is the surviving corporation.
4. The Certificate of Incorporation of HEI, the
surviving corporation, shall be amended to change the name of the
surviving corporation to "Pacific Engineering Systems, Inc.", and
shall constitute the Certificate of Incorporation of the surviving
corporation.
5. The executed Agreement and Plan of Reorganization is
on file at the principal place of business of HEI, the surviving
corporation, at 8101 East Kaiser Blvd., Anaheim, CA 92806. A copy
of the Agreement and Plan of Reorganization will be furnished by
HEI, the surviving corporation, without cost, to any stockholder of
Pacific or HEI who sends a written request therefor to HEI at its
principal place of business indicated above.
6. The authorized capital stock of Pacific preceding the
merger is 100,000 shares of common stock, par value $1.00 per share.
The authorized capital stock of HEI is 25,000,000
<PAGE>
shares of common
stock, par value $.0001 per share and 5,000,000 shares of preferred
stock, par value $.0001 per share.
PACIFIC ENGINEERING SYSTEMS, INC. HEALTH EMPORIUM, INC.
By: /s/ Arthur Granito By: /s/ Kristin S. Moffitt
Arthur Granito Kristin S. Moffitt
President President
ATTEST: ATTEST:
/s/ Carol Taylor /s/ Kristin S. Moffitt
Carol Taylor, Secretary Kristin S. Moffitt, Secretary
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 05/15/1998
981187865-2068461
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
PACIFIC ENGINEERING SYSTEMS, INC.
(A DELAWARE CORPORATION)
Pacific Engineering Systems, Inc., a corporation duly
organized and existing under and by virtue of the General
Corporation Law of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That pursuant to Unanimous Written Consent of the
Directors of Pacific Engineering Systems, Inc. in Lieu of a Meeting
of the Board of Directors, a resolution was duly adopted setting
forth a proposed amendment to the Certificate of Incorporation of
said Corporation, declaring said amendment to be advisable and
calling for the written consent in lieu of meeting of the
Shareholders of said Corporation for consideration thereof. The
resolution setting forth the proposed amendment is as follows:
RESOLVED, That the Certificate of Incorporation of this
corporation be amended by changing the FOURTH Article thereof
so that, as amended said Article shall be read as follows:
"FOURTH: This corporation is authorized to issue two classes
of shares of stock to be designated respectively "Common
Stock" and "Preferred Stock". The total number of shares
which this Corporation is authorized to issue is Twenty Nine
Million (29,000,000) shares. The total number of shares of
Common Stock this Corporation shall have the authority to
issue is Twenty Four Million (24,000,000), par value $0.0001,
and the total number of shares of Preferred Stock this
Corporation shall have the authority to issue is Five Million
(5,000,000), par value $0.0001. The Common Stock of the
Corporation shall be subject effective upon filing of this
Amendment to a 2 for 1 forward stock split.
Of the Preferred Stock, 150,000 shares shall be designated
as Series A Convertible Preferred Stock, each share of which
shall be convertible into three shares of common stock at the
expiration of six months from the date of issuance.
The remaining shares of Preferred Stock may be issued from
time to time in one or more series. The Board of Directors
of the Corporation (the "Board of Directors") is
<PAGE>
expressly
authorized to provide for the issuance of all or any of the
shares of the Preferred Stock in one or more series, and to
fix the number of shares and to determine or alter for each
such series, such voting powers, full or limited, or no
voting powers, and such designations, preferences, and
relative, participating, optional, or other rights and such
qualifications, limitations, or restrictions thereof, as
shall be stated and expressed in the resolution or
resolutions adopted by the Board of Directors providing for
the issuance of such shares (a "Preferred Stock Designation")
and as may be permitted by the General Corporation Law of the
State of Delaware. The Board of Directors is also expressly
authorized to increase or decrease (but not below the number
of shares of such series then outstanding) the number of
shares of any series subsequent to the issue of shares of
that series. In case the number of shares of any such series
shall be so decreased, the shares constituting such decrease
shall resume the status that they had prior to the adoption
of the resolution originally fixing the number of shares of
such series."
RESOLVED FURTHER, That the Certificate of Incorporation of
this Corporation be amended by adding a EIGHTH Article
thereto so that said Article shall be read as follows:
"EIGHTH: Directors of the corporation shall not be liable
to either the corporation or its stockholders for monetary
damages for a breach of fiduciary duties unless the breach
involves: (1) a director's duty of loyalty to the corporation
or its stockholders; (2) acts or omissions not in good faith
or which involve intentional misconduct or a knowing
violation of law; (3) liability for unlawful payments of
dividends or unlawful stock purchase or redemption by the
corporation; or (4) a transaction from which the director
derived an improper personal benefit."
SECOND: That thereafter, pursuant to resolution of its Board
of Directors the unanimous written consent of the Shareholders of
said corporation was obtained in accordance with Section 228 of the
General Corporation Law of the State of Delaware by which written
consent the necessary number of shares as required by statute were
voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said Pacific Engineering Systems, Inc.
has caused this certificate to be signed by Art Granito, its
President and attested by Carol Taylor, its Secretary this 12th day
of May, 1998.
Pacific Engineering Systems, Inc.,
a Delaware corporation
By: /s/ Art Granito
Art Granito, President
By: /s/ Carol Taylor
Carol Taylor, Secretary
<PAGE>
Secretary's Certification
The undersigned, Margaret V. Dohmen, being the Secretary of Health
Emporium, Inc., a Delaware corporation, does hereby certify that the
following 9 pages of By-Laws represent a true and correct copy of
the By-Laws of the corporation as in effect on the date hereof.
Dated, the 10th day of December, 1996
/s/ Margaret V. Dohmen
Margaret V. Dohmen
Secretary
[corporate seal]
<PAGE>
By Laws
OF
HEALTH EMPORIUM, INC.
Incorporated Under The Laws
Of The State Of Delaware
<PAGE>
CORPORATE BY-LAWS
OF
HEALTH EMPORIUM, INC.
ARTICLE ONE - OFFICES
1.1 The initial principal office of the corporation shall be
established and maintained at 410 South State Street, in the County
of Kent, State of Delaware.
1.2 The corporation may establish and maintain its principal
office, or additional offices at such other places within or without
the State of Delaware, as the Board of Directors (the "Board") may
from time to time establish.
ARTICLE TWO - STOCKHOLDERS
2.1 PLACE OF MEETINGS. Stockholder's meetings shall be held at the
principal office of the corporation, or at such other place, within
or without the State of Delaware, as the Board shall authorize.
2.2 ANNUAL MEETINGS. The annual meeting of Stockholders shall be
held on the 10th day of July, at 2:00 P.M. in each year; however, if
such date falls on a Sunday or a legal holiday, then such meeting
shall be held on the next business day following, at the same time,
whereby the Stockholders shall transact any and all business
properly brought before said meeting. The date, time and place of
the annual meeting may be changed, from time to time by the majority
vote of the Board.
2.3 SPECIAL MEETINGS. Special meetings of the Stockholders, for any
corporate purpose not otherwise proscribed by statute or the
Certificate of Incorporation, may be called by the Board or by the
President, or at the written request of the Stockholders owning a
majority of the stock entitled to vote at such meeting. A meeting
requested by the Stockholders shall be called for a date not less
than ten nor more than fifty days after such request is made. The
Secretary shall issue the call for the meeting unless the President,
the Board or the Stockholders shall designate another to make said
call.
2.4 NOTICE OF MEETINGS. All Notices for Stockholder meetings and
any adjournment therefor, shall be in writing, stating the purposes,
time and place for the meeting. Notice shall be mailed to each
Stockholder having the right and being entitled to vote at such
meetings, at the last address appearing for said Stockholder upon
the records of the corporation, not less than ten nor more than
sixty days prior to the date set for such meeting. In the case of
stock transfers occurring after such notice, no notice to the
transferees shall be required. A Waiver of Notice may be made by any
Stockholder, in writing, either before, during or after the meeting.
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<PAGE>
2.5 RECORD DATE. The Board may fix a record date not more than
thirty days prior to the date set for a meeting of Stockholders as
the date as of which the Stockholders of record who have the right
to and are entitled to notice of and to vote at such meeting and any
adjournment thereof shall be determined. Notice that such date has
been fixed may be published in the city, town or county where the
principal office of the corporation is located and in each city or
town where a transfer agent of the stock of the corporation is located.
2.6 VOTING. Every Stockholder shall be entitled at each meeting,
and upon each proposal presented thereat, to one vote for each share
of voting stock recorded in said Stockholder's name on the books of
the corporation on the record date as fixed by the Board. If no
record date was fixed, on the date of the meeting the Stockholder
Record books shall be produced at the meeting upon the request of
any Stockholder. Upon demand of any Stockholder, the vote for
Directors and the vote upon any question before the meeting, shall
be by written ballot. All elections for Directors shall be decided
by plurality vote; all other questions shall be decided by majority
vote.
2.7 QUORUM. The presence, in person or by proxy, of Stockholders
holding a majority of the stock of the corporation entitled to vote
shall constitute a quorum at all meetings of the Stockholders. In
case a quorum shall not be present at any meeting, a majority in
interest of the Stockholders entitled to vote thereat present in
person or by proxy, shall have power to adjourn the meeting from
time to time, without notice other than by announcement at the
meeting, until the requisite number of shares entitled to vote shall
be represented in person or by proxy. At any such adjourned meeting
at which the requisite number of shares entitled to vote is
represented, any business may be transacted which might have been
transacted at the meeting as originally noticed; but only those
Stockholders entitled to vote at the meeting as originally noticed
shall be entitled to vote at any adjournment or adjournments thereof.
2.8 PROXIES. At any Stockholders' meeting, or any adjournment
thereof, any Stockholder of record having the right to and entitled
to vote thereat may be represented and vote by proxy appointed in a
written instrument. No such proxy shall be voted after three years
from the date of the instrument unless the instrument provides for a
longer period. In the event that any such instrument provides for
two or more persons to act as proxies, a majority of such persons
present at the meeting, or if only one be present, that one shall
have all the powers conferred by the proxy instrument upon all
persons so designated unless the instrument shall provide otherwise.
2.9 STOCKHOLDER LIST. After fixing a record date for a meeting,
the corporation shall prepare an alphabetical list of the names of
all of its Stockholders who are entitled to notice of a Stockholders
meeting. Such list shall be arranged by voting group with the names
and addresses, number and class, and series if any, of shares held
by each. This list shall be available for inspection by any
Stockholder for a period of at least ten business days prior to the
meeting, as well as at the meeting.
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<PAGE>
ARTICLE THREE - DIRECTORS
3.1 BOARD OF DIRECTORS. The business of the corporation shall be
managed and its corporate powers exercised by a Board of at least
Three and no more than Nine Directors, each of whom shall be of full
age. It shall not be necessary for Directors to be Stockholders.
3.2 ELECTION AND TERM OF DIRECTORS. Directors shall be elected at
the annual meeting of Stockholders and each Director shall hold
office until his successor has been elected and qualified, or until
the Director's resignation or removal.
3.3 VACANCIES. If the office of any Director, member of a
committee or other office becomes vacant, the remaining Directors,
whether or not a quorum, may by a majority vote, appoint any
qualified person to fill such vacancy for the unexpired term and
until a successor shall be duly chosen or elected and qualified.
3.4 REMOVAL OF DIRECTORS. Any and all of the Directors may be
removed with or without cause by vote of the holders of a majority
of the stock entitled to vote at a special meeting of Stockholders
called for that purpose. The Board of Directors may, by a majority
vote, remove any director for cause, including such director's
failure to perform the duties of the office.
3.5 NEWLY CREATED DIRECTORSHIPS. The number of Directors may be
increased from time to time by amendment of these By-Laws adopted by
the affirmative vote of the majority of the Directors, or by a
majority of Stockholders entitled to vote at the annual or a special
duly called and held meeting of the Stockholders.
3.6 RESIGNATION. A Director may resign at any time by giving
written notice to the Board, the President or the Secretary of the
corporation. Unless otherwise specified in the notice, the
resignation shall take effect upon receipt thereof by the Board or
such corporate officer, and the formal acceptance of the resignation
by action of the Board shall not be necessary to make it effective.
3.7 QUORUM. A majority of the Directors shall constitute a quorum
for the transaction of business, except in performance under
paragraph 3.3 above. If at any meeting of the Board there shall be
less than a quorum present, a majority of those present may adjourn
the meeting until a quorum is obtained and no further notice thereof
need be given other than by announcement at the meeting which shall
be so adjourned.
3.8 PLACE AND TIME OF BOARD MEETINGS. The Board may hold its
meetings at the office of the corporation or at such other places,
within or without the State of Delaware, as it may from time to time
determine.
3.9 REGULAR ANNUAL MEETING. The regular annual meeting of the
Board shall be held immediately following the annual meeting of the
Stockholders at the place of such annual Stockholders meeting.
3.10 NOTICE OF MEETINGS OF THE BOARD. Regular meetings of
the Board may be held without notice at such time and place as the
Board shall from time to time determine. Special meetings of the
Board shall be held upon notice to the Directors and may be called
by the President upon three days notice delivered to each Director
either personally or by mail,
BL -4
<PAGE>
telephone, or telegram. Upon the written request of at least two
directors, special meetings shall be called by the President or by
the Secretary in like manner. Notice of a meeting need not be given
to any Director who submits a written Waiver of Notice, whether
before, during or after the meeting; nor to a Director who attends
and participates in the meeting without protesting the lack of
notice prior to or upon the commencement of such meeting.
3.11 EXECUTIVE AND OTHER COMMITTEES. The Board may, by
appropriate resolution, designate two or more of their number to one
or more committees, which to the extent provided in said resolution
or these By-Laws, may exercise the powers of the Board in the
management of the business of the corporation.
3.12 COMPENSATION. The Board may provide for compensation to
be paid to outside Directors, i.e., not otherwise employed by the
corporation, for their services as such. Alternatively the Board
may provide each such director with a fixed sum plus reimbursement
of necessary expenses actually incurred for their actual attendance
at the annual, regular and or special meetings of the Board.
3.13 INDEMNIFICATION. The corporation shall indemnify the
members of the Board of Directors to the maximum allowed under and
pursuant to the provisions of the Corporation Laws of the State of
Delaware.
3.14 DUAL CAPACITY. Directors shall not be precluded from
simultaneously serving the corporation in any other capacity nor
from receiving compensation from the corporation for such services.
ARTICLE FOUR - OFFICERS
4.1 OFFICERS, ELECTION AND TERM.
A. The Board may elect or appoint a chairman, a Chief
Executive Officer, a President, a Chief Operating Officer, one or
more Vice Presidents, a Secretary, an Assistant Secretary, a
Treasurer and an Assistant Treasurer and such other officers as it
may determine who shall have duties and powers as hereinafter provided.
B. All officers shall be elected or appointed to hold
office until the next Regular Annual Meeting of the Board and until
their successors have been elected or appointed and qualified.
4.2 REMOVAL, RESIGNATION, COMPENSATION, ETC.
A. Any officer may be removed by the Board with or without
cause.
B. In the event of the death, resignation or removal of an
officer, the Board may in its discretion, elect or appoint a
successor to fill the unexpired term.
C. Any two or more offices may be held by the same person.
D. The Board shall determine the compensation for all
officers.
E. The Directors may require that any officer give security
for the faithful performance of the duties of such office.
4.3 CHAIRMAN. The Chairman of the Board, if one be elected, shall
preside at all meetings of the Board and shall have and perform such
other duties from time to time as may be assigned by the Board or
the Executive Committee.
BL -5
<PAGE>
4.4 PRESIDENT. Unless otherwise determined by the Board, the
President shall be the chief executive officer of the corporation
and shall have the general powers and duties of supervision,
management and control of the business of the corporation as is
usually vested in the office of the President of a corporation,
including presiding at all meetings of the Stockholders, and
presiding at Board meetings in the absence of the Chairman. Unless
the Board provides otherwise, the President shall execute bonds,
mortgages and other contracts in behalf of the corporation, and
shall cause the seal to be affixed to any instrument when so required.
4.5 CHIEF EXECUTIVE OFFICER ("CEO"). From time to time the Board
may elect either the Chairman or the President (or any other
individual) to serve the Corporation as the Chief Executive Officer,
with full responsibilities as the highest elected officer of the
Corporation, for the business operations of the Corporation.
4.6 CHIEF OPERATING OFFICER ("'COO"). From time to time the Board
may elect an individual, or other corporate officer, to serve the
Corporation as its Chief Operating Officer, with full
responsibilities as the administrator of corporate operations, with
all other corporate officers, except for the President, Chief
Executive Officer, and other specifically designated officers,
reporting to the Chief Operating Officer.
4.7 VICE-PRESIDENTS. The Vice-President(s) shall perform such
duties as from time to time the Board shall prescribe or the
President, the CEO or the COO shall assign. During the absence or
disability of the President, the Vice-President, or if there be more
than one, the senior executive Vice-President, shall have all the
powers and functions of the President.
4.8 SECRETARY. The Secretary shall: attend all Stockholder and
Board meetings; record all votes and minutes of all corporate
proceedings; give or cause to be given notice of all Stockholder and
Directors meetings; maintain custody and control of the corporate
seal, affixing it upon instruments when required and authorized to
do so by the Board, the President or the CEO; prepare or cause to be
prepared a certified list of Stockholders, in alphabetical order
indicating the number of shares of each respective class held by
each such Stockholder; keep all documents and corporate records as
required by law and in a proper and safe manner; and to perform such
other duties as may be prescribed by the Board, or assigned by the
President or the CEO.
4.9 ASSISTANT SECRETARY. The assistant-Secretary shall perform
such duties and functions as may be assigned by the Secretary.
During the absence or disability of the Secretary, the
assistant-Secretary, or if there are more than one, the one so
designated by the Secretary or by the Board, shall have all of the
powers and functions of the Secretary.
4.10 TREASURER. The Treasurer shall: have the custody and
control of the corporate funds and securities; keep full and
accurate books of account, including the receipts and disbursements
in the corporate accounts; record and deposit all money and other
valuables in the name and to the credit of the corporation in such
depositories as designated by the Board; disburse the funds of the
corporation as ordered or authorized by the Board, preserving proper
vouchers therefor; render full statements of the books and records,
including income, profit and loss, and the financial condition of
the corporation to the President and at the regular meetings of the
Board. The Treasurer shall render a full and accurate financial
report at the annual meeting of the Stockholders. To ensure the
accuracy of the reports which the Treasurer is
BL -6
<PAGE>
responsible for preparing, all other officers of the corporation
shall provide the Treasurer with such reports and statements as may
be requested from time to time. The Treasurer shall perform such
other duties as may be required from time to time by the Board or as
assigned by the President.
4.11 ASSISTANT-TREASURER. The assistant-Treasurer shall
perform such duties and functions as may be assigned by the
Treasurer. During the absence or disability of the Treasurer, the
assistant-Treasurer, or if there are more than one, the one so
designated by the Treasurer or by the Board, shall have all of the
powers and functions of the Treasurer.
4.12 SURETIES AND BOND. The Board may require any officer or
agent of the corporation to provide the corporation with a surety
bond in such sum and with such surety as the Board may direct, to
assure the faithful performance of duties to the corporation,
including responsibility for negligence and for the accounting for
all assets and property of the corporation for which such officer or
agent may have responsibility.
ARTICLE FIVE - CERTIFICATES FOR SHARES
5.1 CERTIFICATES. The shares of capital stock for which the
corporation is authorized to issue shall be represented by
certificates, which shall be numbered and recorded in the
Stockholders Record and Transfer books upon their issuance. Each
certificate shall: exhibit the holder's name; the number of shares
owned; be duly signed by the President or CEO and Secretary; and
bear the seal of the corporation. By resolution of the Board,
facsimile signatures of such officers may be used. In the event that
the corporation appoints a transfer agent and or registrar, each
certificate will be valid only if it shall exhibit the endorsed
authorized signature of such agent.
5.2 LOST OR DESTROYED CERTIFICATES. The Board may direct that a
new certificate(s) be issued in place of previously issued but lost
or destroyed certificates upon the provision to the corporation of
an affidavit by the Stockholder(s) setting forth the facts
surrounding the lost or destroyed certificates. The Board may in its
discretion and as a condition precedent to the issuance of a
replacement certificate, require that the Stockholder provide a bond
or other security, to indemnify the corporation in the event of a
future claim with respect to the certificate alleged to have been
lost or destroyed.
5.3 TRANSFER OF SHARES. Upon surrender to the corporation (or its
transfer agent) of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the corporation to
issue a new certificate to the person(s) entitled thereto, and the
old certificate shall be canceled upon the Stock Transfer books and
records of the corporation, which shall be kept at its principal
office. Transfers made as collateral security, and not absolutely,
shall be so indicated upon the transfer ledger. No transfer shall
be made during the ten days immediately prior to the annual meeting
of the Stockholders.
5.4 CLOSING TRANSFER BOOKS. The Board shall have the power to
close the share transfer books of, the corporation for a period of
not more than ten days during the thirty day period immediately
preceding: a) any Stockholders meeting; or b) any date upon which
Stockholders shall be called upon to or have a right to take action
without a meeting; or c) any
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<PAGE>
date fixed for the payment of a dividend or any other form of
distribution. Only those Stockholders of record at the time the
transfer books are closed, shall be recognized as such for the
purposes of: receiving Meeting notices, voting at meetings, taking
action without a meeting, or receiving dividends or other
distributions.
ARTICLE SIX - DIVIDENDS
6.1 Out of funds which are legally available, the Board may at any
regular or special meeting, declare cash dividends payable upon the
capital stock of the corporation. Before declaring any such
dividend there may be set apart out of any funds so available, such
sum or sums as the Board from time to time deems proper for working
capital, or as a reserve fund to meet contingencies, or for
equalizing dividends, or for such other purposes as the Board shall
deem in the best interests of the corporation.
ARTICLE SEVEN - CORPORATE SEAL
7.1 DESCRIPTION AND USE. The seal of the corporation shall be
circular in form, and shall bear the name of the corporation, the
year of its organization, and the words, "Corporate Seal, Delaware".
The seal may be used by causing it to be impressed directly upon the
instrument or writing to be sealed, or upon an adhesive substance to
be affixed thereto. The seal on the Certificates for shares, or on
any corporate obligation for the payment of money, may be facsimile,
engraved, or otherwise reproduced.
7.2 CONTROL AND CUSTODY. Except as otherwise directed by the
Board, the President of the corporation shall cause the seal to be
affixed to any corporate instruments, including bonds, mortgages and
other contracts, in behalf of the corporation. When so affixed, the
Secretary or Treasurer of the corporation shall attest thereto. The
Secretary of the corporation shall bear primary responsibility for
maintaining custody and control of the seal at all times.
ARTICLE EIGHT - EXECUTION OF INSTRUMENTS
8.1 All corporate instruments and documents shall be signed or
countersigned, executed, verified or acknowledged by such officer or
officers or other person(s) as the Board may from time to time
designate. All checks, drafts or other orders for the payment of
money, notes or other evidences of indebtedness issued in the name
of the corporation shall be signed by such officer or officers,
agent or agents of the corporation, and in such manner as shall be
determined from time to time by the Board.
ARTICLE NINE -FISCAL YEAR
9.1 The fiscal year of the corporation shall be determined by
resolution of the Board of Directors.
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<PAGE>
ARTICLE TEN - NOTICE AND WAIVER OF NOTICE
10.1 Unless otherwise specifically provided to the contrary, all
notices required by these ByLaws shall be made, in writing and
delivered by depositing same in the United States postal service
mail depository, in a sealed postage-paid wrapper, properly
addressed to the person entitled to notice, at the last known
address, of such person. Such notice shall be deemed to have been
given on the day of such mailing. Delivery by private express mail
carrier shall be deemed sufficient if written proof of delivery is
received and maintained in the appropriate corporate records.
Stockholders not entitled to vote shall not be entitled to receive
any notice of any meetings except as otherwise provided by Statute.
10.2 Before, during or after an event to which a Stockholder
is entitled to notice, any Stockholder may execute a written waiver
of such notice, whether required by these By-Laws, the Certificate
of Incorporation or any applicable statutes.
ARTICLE ELEVEN - CONSTRUCTION
11.1 Whenever a conflict arises between the language of these
By-Laws and the Certificate of Incorporation, the Certificate of
Incorporation shall take precedence.
ARTICLE TWELVE - ACTION BY CONSENT
12.1 Any action taken by the Stockholders, the Directors or a
Committee of the Board may be taken upon written consent, without a
meeting, pursuant to the applicable provisions of the Corporation
Law of the State of Delaware.
ARTICLE THIRTEEN - AMENDMENTS
13.1 These By-Laws may be altered, changed, amended or repealed by
the affirmative vote of a majority of the stock issued and
outstanding and entitled to vote thereon, or the affirmative vote of
a majority of the Board, at any meeting duly called, and for which
proper notice of the meeting and its purpose was given to the
Stockholders or the members of the Board, respectively
ARTICLE FOURTEEN - EMERGENCY BY-LAWS
14.1 Absent statutory provision to the contrary, in the event that a
quorum of the Directors cannot be readily assembled because of a
catastrophic event, any member of the Board may call an emergency
meeting and notify all other Directors using any means of
communication available. In the event of and solely during a
catastrophic event any one member of the Board shall constitute a
quorum for the transaction of the corporation's business. Any
action taken in good faith and acted upon in accordance with these
By-Laws shall bind the corporation; and the corporation shall hold
harmless any Director, officer, employee or agent who undertakes an
action pursuant to these By-Laws.
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<PAGE>
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Grubb & Ellis
SUMMARY OF LEASE
I LANDLORD: 8101 Anaheim Associates, a California general
partnership (Walt Asher)
2 LANDLORD'S ADDRESS: 23945 Calabasas Road, Suite 114
Calabasas, California 91302
3 TENANT'S ADDRESS: 8101 East Kaiser Blvd.
Anaheim, California
4 RENTABLE SQUARE FEET: 23,407
5 USE: General office use.
6 TARGET
COMMENCEMENT DATE: December 1, 1996
7 TERMINATION DATE: November 31, 2001
8 LEASE TERM: 60 Months
9 BASE NET RENT PER RSF:
First Floor Second Floor
Months Rental Rate/RSF Months Rental Rate/RSF
01 Free 01-21 $1.10 FSG
02-31 $ 1.40 FSG 22-40 $1.53 FSG
32-60 $1.55 FSG 41-60 $1.58 FSG
10 TENANT'S
PROPORTIONATE SHARE: 38.8%
I I BASE YEAR: 1997
12 SECURITY DEPOSIT: $32,769.80
13 HOLD OVER: 125% of last months rent.
14 ASSIGNMENT
& SUBLEASING: Landlord shall not unreasonably withhold.
15 PARKING: Free parking for entire term of the
lease. Tenant shall be granted
twenty-two (22) stalls under the
building free in which six (6) shall be
marked reserved.
16 OPTION TO CANCEL: None
Grubb & Ellis Company
4000 MacArthur Boulevard, Suite 1500, Newport Beach CA 92660
(714) 833-2900 Fax (714) 833-8037
Summary Lease
Page 2
17 RENEWAL OPTION: Tenant shall have one (1), five (5) year
option at fair market value. Tenant
must provide at least six (6) months and
not sooner than nine (9) months prior
written notice. (See addendum, Section 62.)
18 TENANT IMPROVEMENTS: Landlord grants Tenant a "Tenant
Improvement Allowance" of Fifteen
Dollars ($15.00) per usable square foot
for the Ist floor. Tenant took the
space on the second floor "as is".
19 SIGNAGE: Tenant, at Tenant's sole cost if
approved by the city, shall be
entitled to Building Top Signage
facing the freeway and monument
signage.
21 KEY PHONE NUMBERS: Asset Management
Mr. Walt Asher
The Asher Companies
23945 Calabasas Road, #114
Calabasas, CA 91302
Phone - (818) 591-2174
Fax - (818) 591-2199
Broker
Mr. Carl Johnson
Grubb & Ellis Company
4000 MacArthur Blvd. Suite 1500
Newport Beach, California 92660
Phone - (714) 833-2900
Fax - (714) 833-8037
Attorney
Mr. Jon Janecek
Snell & Wilmer
1920 Main Street, Suite 1200
Irvine, CA 92714
(714) 253-2700
THE INFORMATION CONTAINED HEREIN WAS OBTAINED FROM THIRD PARTIES,
AND IT HAS BEEN INDEPENDENTLY VERIFIED BY THE REAL ESTATE BROKERS.
BUYERS/TENANTS SHOULD HAVE THE EXPERTS OF THEIR CHOICE INSPECT THE
PROPERTY AND VERIFY ALL INFORMATION. REAL ESTATE BROKERS ARE NOT
QUALIFIED TO ACT AS OR SELECT EXPERTS WITH RESPECT TO LEGAL, TAX,
ENVIRONMENTAL BUILDING CONSTRUCTION, SOILS-DRAINAGE OR OTHER SUCH
MATTERS.
Standard Form Lease
THIS LEASE is made as of the 28th day of October, 1996, by and
between Landlord and Tenant.
WITNESSETH:
1. Terms and Definitions. For the purposes of this Lease, the
following terms shall have the following definitions and meanings:
(a) Landlord: 8101 ANAHEIM ASSOCIATES, A California general
partnership
(b) Landlord's Address: Copy To:
23945 Calabasas Road NONE
Suite 114
Calabasas, California 91302
(c) Tenant: PACIFIC ENGINEERING SYSTEMS, INC., a California
corporation
(d) Tenant's Address: (Prior to Commencement Date) (After
Commencement Date)
(e) Building Address: 8101 East Kaiser Boulevard, Anaheim, California
(f) Suite Number: Suite 200 and Suite 130
(g) Floor(s) upon which Premises are located: First and Second
(h) Premises: Those certain premises defined in Subparagraph 2(a)
below.
(i) Site: The parcel of real property defined in Subparagraph 2(a)
below.
(j) Rentable Square Feet within Premises: Suite 130 - 3,425 Suite
200 - 19,982
(k) Lease Term: Five (5) Years and Zero Months.
(l) Tenant Improvement Work. All work finished or to be done in the
Premises pursuant to the provisions of the Work Letter Agreement
(Exhibit "C").
(m) THIS SECTION INTENTIONALLY DELETED.
(n) THIS SECTION INTENTIONALLY DELETED.
(o) Commencement Date: December 1, 1996
(p) THIS SECTION INTENTIONALLY DELETED.
(q) Monthly Base Rent: $ SEE ADDENDUM per month.
(r) Tenant's Percentage Share: 38.8 %
(s) Security Deposit: $32,769.80
(t) Permitted Use: General Office Use
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(u) Brokers: Commercial & Grubb & Ellis
(v) Landlord-Fiscal Year: Calendar Year End
(w) Lease Year: A period of twelve (12) consecutive months, the
first such period commencing on the Commencement Date and
consecutive periods beginning on each consecutive anniversary thereof.
(x) Exhibits: Exhibits "A" through "J" and the Addendum inclusive
which Exhibits and Addendum are attached to this Lease and are
incorporated herein by this reference.
2. Premises and Common Areas Leased.
(a) Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord, the Premises contained within the suite designated in
Paragraph 1, outlined on the Floor Plan attached hereto and marked
Exhibit "A" and incorporated herein by this reference in the
building at the address designated in Subparagraph 1(e) above (the
"Building"), located on the parcel of real property (the "Site")
upon which the Building is located, outlined on the Site Plan
attached hereto as Exhibit "B" and incorporated herein by this
reference, and improved or to be improved with the Aggregate
Improvements described in the Work Letter Agreement, a copy of which
is attached hereto and marked Exhibit "C" and incorporated herein by
this reference, said Premises being agreed, for the purposes of this
Lease, to have approximately the number of rentable square feel as
designated in Subparagraph 1(j), subject to adjustment pursuant to
the provisions of Exhibit "F" attached to this Lease, and being
situated on the floor(s) designated in Subparagraph 1(g) above.
The parties hereto agree that said letting and hiring is upon and
subject to the terms, covenants, and conditions herein set forth and
Tenant covenants, as a material part of the consideration for this
Lease, to keep and perform each and all of said terms, covenants,
and conditions by it to be kept and performed and that this Lease is
made upon the condition of such performance.
(b) Tenant shall have the nonexclusive right to use in common with
other tenants in the Building, and subject to the Rules and
Regulations referred to in Paragraph 31 below, the following areas
("Common Areas") appurtenant to the Premises, if any;
(i) The common entrances, lobbies, restrooms, elevators,
stairways and access ways, loading docks, ramps, drives and
platforms, and any passageways and serviceways thereto; and the
common pipes, conduits, wires, and appurtenant equipment serving
the Premises, if any;
(ii) Parking areas (subject to the provisions of Paragraph 41
hereinbelow), loading and unloading areas, trash areas, roadways,
sidewalks, walkways, parkways, driveways, and landscaped areas
appurtenant to the Building.
(c) Notwithstanding the foregoing, Landlord reserves the right from
time to time:
(i) to install, use, maintain, repair, and replace pipes, ducts,
conduits, wires, and appurtenant meters and equipment for service
to other parts of the Building above the ceiling surfaces, below
the floor surfaces, within the walls, and in the central core
areas, and to relocate any pipes, ducts, conduits, wires, and
appurtenant meters and equipment included in the Premises which
are located in the Premises or located elsewhere outside the
Premises, and to expand the Building;
(ii) to make changes to the Common Areas, including, without
limitation changes in the location, size, shape, and number of
driveways, entrances, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, and walkways and,
subject to Paragraph 41, parking spaces and parking areas;
(iii) to close temporarily any of the Common Areas for
maintenance purposes so long as reasonable access to the Premises
remains available;
(iv) to use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Building, or any
portion thereof, and
(v) to do and perform such other acts and make such other changes
in, to, or with respect to the Site, Common Areas, and Building
as Landlord may, in the exercise of sound business judgment, deem
to be appropriate.
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(d) Notwithstanding paragraph (c) above, Landlord shall not take
any action under Subparagraph (c) which (i) has a material
adverse impact on Tenant's rights under this Lease (including,
without limitation, Tenant's right of ingress and egress and
rights to receive all utilities and services Landlord is required
to provide under this Lease), or Tenant's ability to operate its
business in and from the Premises, or (ii) would increase
Tenant's Percentage Share.
(e) Landlord shall use it commercially reasonable best efforts to
prohibit third parties (other than Landlord's employees, agents
and invitees) from eating or loitering in the Common Areas in the
first floor of the Building and the exterior portions of the Site
situated in front of the Building.
3. Term. The term of this Lease shall be for the period designated
in Subparagraph 1(k) commencing on the Commencement Date, and ending
on the expiration of such period, unless the term hereby demised
shall be sooner terminated as hereinafter provided.
(a) If Tenant occupies the Premises prior to the Commencement
Date, Tenant's occupancy of the Premises shall be subject to all
of the provisions of this Lease. Early occupancy of the Premises
shall not advance the termination date of this Lease. Tenant
shall pay Base Rent and all other charges specified in this Lease
for the early occupancy period.
4. Possession. Tenant shall be entitled to possession of the
Premises on the Commencement Date. Tenant agrees that in the event
of the inability of Landlord to deliver possession of the Premises
to Tenant on the Commencement Date (or any other date), this Lease
shall not be void or voidable, nor shall Landlord be liable to
Tenant for any loss or damage resulting therefrom, provided however
that if Landlord fails to deliver possession of the Premises to
Tenant on or before December 15, 1996, then Tenant may, by
delivering written notice to Landlord, terminate this Lease.
Notwithstanding any provision to the contrary contained in this
Lease, Landlord shall not tender possession of the Premises to the
Tenant, and Tenant shall not be obligated to accept possession of
the Premises until the Premises are ready for occupancy. The
Premises shall be deemed "Ready for Occupancy", and Landlord may
tender the Premises to Tenant when Landlord (a) has put into
operation all building services reasonably necessary for the
comfortable use and enjoyment of the Premises by Tenant (such
services shall include full Building elevator service); (b) has
provided reasonable access to the Premises for Tenant so that they
may be used without material interference; and (c) has provided
Tenant with all of the parking required by this Lease in the parking
facility appurtenant to the Building. Landlord shall tender
possession of the Premises to Tenant free of any occupancy by any
other tenants.
5. Base Rent.
(a) Tenant agrees to pay Landlord for the Premises the Base Rent
designated in Subparagraph l(q) (subject to adjustment as
hereinafter provided) in advance on the first day of each and
every calendar month during said term, except that the first
month's rent shall be paid upon the execution hereof. In the
event the term of this Lease commences or ends on a day other
than the first day of a calendar month, then the rental for such
periods shall be prorated in the proportion that the number of
days this Lease is in effect during such periods bears to thirty
(30), and such rental shall be paid at the commencement of such
periods. In addition to said Base Rent, Tenant agrees to pay the
amount of the rental adjustments as and when hereinafter provided
in this Lease. Said Base Rent, additional rent, and rental
adjustments shall be paid to Landlord, without any prior demand
therefor and without any deduction or offset whatsoever (except
as expressly provided herein) in lawful money of the United
States of America, which shall be legal tender at the time of
payment, at the address of Landlord designated in Subparagraph
1(b) or to such other person or at such other place as Landlord
may from time to time designate in writing. Further, all charges
to be paid by Tenant hereunder, including, without limitation,
payments for real property taxes, insurance, repairs, and other
Operating Expenses shall be considered additional rent for the
purposes of this Lease, and the words "rent" or "rentals" in this
Lease shall include such additional rent unless the context
specifically or clearly implies that only the Base Rent is
referenced. SEE ADDENDUM
[stricken text]
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6. Operating Expenses. Tenant shall pay to Landlord in accordance
with the provisions of Exhibit "G" attached to this Lease, its share
of Operating Expenses (as defined in said Exhibit "G").
7. Security Deposit. Upon execution of t he Lease by Tenant, Tenant
shall deposit with Landlord the Security Deposit designated in
Subparagraph 1(s). Said deposit shall, be held by Landlord as
security for the faithful performance by Tenant of all of the terms,
covenants, and conditions of this Lease to be kept and performed by
Tenant during the term hereof. If Tenant defaults with respect to
any provision of this Lease (after the expiration of all applicable
cure periods), including but not limited to the provisions relating
to the payment of rent, Landlord may (but shall not be required to)
use, apply, or retain all or any part of this Security Deposit for
the payment of any rent or any other sum in default, or for the
payment of any other amount which Landlord may spend or become
obligated to spend by reason of Tenant's default or to compensate
Landlord for any loss or damage which Landlord may suffer by reason
of Tenant's default. If any portion of said deposit is so used or
applied, Tenant shall, within ten (10) clays after demand therefor,
deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to its original amount and Tenant's failure to do
so shall be a material breach of this Lease. Landlord shall not be
required to keep this Security Deposit separate from its general
funds, and Tenant shall not be entitled to interest on such Security
Deposit. If Tenant shall fully and faithfully perform every
provision of this Lease to be performed by it, the Security Deposit
or any balance thereof shall be returned to Tenant (or, at Tenant's
written request, to the last assignee of Tenant's interests
hereunder) at the expiration of the Lease term. Should Landlord sell
its interest in the Premises during the term hereof and if Landlord
deposits with the purchaser thereof the then unappropriated funds
deposited by Tenant as aforesaid, thereupon Landlord shall be
discharged from any further liability with respect to such Security
Deposit. Each time the Base Rent is increased, Tenant shall, within
ten (10) days following Landlord's request, deposit additional funds
with Landlord to increase the Security Deposit to an amount which
bears the same relationship to the adjusted Base Rent as the
original Security Deposit bore to the original Base Rent.
8. Use.
(a) Tenant shall use the Premises for the uses expressly
permitted in Paragraph 1(t), and shall not use or permit the
Premises to be used for any other purpose without the prior
written consent of Landlord, such consent not to be unreasonably
withheld. Tenant shall not use or occupy the Premises in
violation of any recorded covenants, conditions, and restrictions
affecting the Site or any law or of the certificate of occupancy
issued for the Building of which the Premises are a part, and
shall, upon five (5) clays written notice from Landlord,
discontinue any use of the Premises which is a violation of any
recorded covenants, conditions, or restrictions affecting the
Site or of any law or of said certificate of occupancy. Landlord
represents that as of the date first written above, Landlord
knows of nothing in the recorded covenants, conditions, or
restrictions affecting the Site or of any law or of said
certificate of occupancy which would impair the Tenant's use of
the Premises as intended. Tenant shall comply with any direction
of any governmental authority having jurisdiction which shall, by
reason of the nature of Tenant's use or occupancy of the
Premises, impose any duty upon Tenant or Landlord with respect to
the Premises or with respect to the use or occupancy thereof.
Tenant shall not do or permit to be done anything which will
invalidate or increase the cost of any fire, extended coverage,
or any other insurance policy covering the Site, the Building
and/or property located therein and shall comply with all
reasonable rules, orders, regulations, and requirements of the
Pacific Fire Rating Bureau or any other organization performing a
similar function. Tenant shall promptly upon demand reimburse
Landlord as additional rent for any additional premium charged
for such policy by reason of Tenant's failure to comply with the
provisions of this Paragraph 8. The cost of such compliance shall
not exceed a sum equal to two months Base Rent hereunder. Tenant
shall not do or permit anything to be done in or about the
Premises which will in any way obstruct or interfere with the
rights of other tenants or occupants of the Building, or injure
or unreasonably annoy them, or use or allow the Premises to be
used for any unlawful purpose, nor shall Tenant cause, maintain
or permit any nuisance in, on or about the Premises. Tenant shall
not commit or suffer to be committed any waste in or upon the
Premises and shall keep the Premises in first class repair and
appearance. Tenant shall not place a load upon the Premises
exceeding the average pounds of live load per square foot of
floor area specified for the Building by Landlord's architect,
with the partitions to be considered a part of the live load.
Landlord represents and warrants that the Premises are capable of
supporting a load consistent with the proposed use of the
Premises for general office purposes (including without
limitation the maintenance of file cabinets, computers and other
office equipment). Landlord reserves the right to prescribe the
weight and position of all safes, files, and heavy equipment
which Tenant desires to place in the Premises so as to distribute
properly the weight thereof. Tenant's business machines and
mechanical equipment which cause vibration or noise that may be
transmitted to the Building structure or to any other space in
the Building shall be so installed, maintained, and used by
Tenant as to eliminate such vibration or noise. Subject to the
foregoing, Tenant shall be responsible for all structural
engineering required to determine structural load.
(b) Tenant shall take physical occupancy of the Premises no later
than ten (10) days following the Commencement Date. During the
term of this Lease, Tenant shall furnish and maintain, at its own
cost, all trade fixtures, inventory, and other personal property
reasonably appropriate to conduct Tenant's business.
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(c) Notwithstanding any provision to the contrary contained in
this Paragraph 8 or elsewhere in this Lease and except for the
tenant improvement work to be done by Tenant upon occupancy of
the Premises Tenant shall not be required to undertake the
construction of any additional improvements to or the
retrofitting of any portion of the Building and/or the Premises
that may be required pursuant to any statute, ordinance, rule,
regulation or covenant or restriction of record.
9. Payments and Notices. All rents and other sums payable by Tenant
to Landlord hereunder shall be paid to Landlord at the address
designated by Landlord in Subparagraph 1(b) above or at such other
places as Landlord may hereafter designate in writing. Any notice
required or permitted to be given hereunder must be in writing and
shall be given by personal delivery (including via telecopy during
business hours so long as a copy is deposited in the mail within one
(1) business day), by FedEx, or other similar overnight courier, or
by certified mail, return receipt requested. addressed to Tenant at
the applicable address set forth in Subparagraph 1(b), or to
Landlord at the address(es) designated in Subparagraph 1(b). Notices
shall be effective upon receipt. Either party may, by written notice
to the other, specify a different address for notice purposes. If
more than one person or entity constitutes the "Tenant" under this
Lease, service of any notice upon any one of said persons or
entities shall be deemed as service upon all of said persons or
entities.
10. Brokers. The parties recognize that the brokers who negotiated
this Lease are the brokers whose names are stated in Subparagraph
1(u), and agree that Landlord shall be solely responsible for the
payment of brokerage commissions to said brokers, and that Tenant
shall have no responsibility therefor. As part of the consideration
for the granting of this Lease, Tenant represents and warrants to
Landlord that to Tenant's knowledge no other broker, agent or finder
negotiated or was instrumental in negotiating or consummating this
Lease and that Tenant knows of no other real estate broker, agent or
finder who is, or might be, entitled to a commission or compensation
in connection with this Lease. Any broker, agent or finder of Tenant
whom Tenant has failed to disclose herein shall be paid by Tenant.
Tenant shall hold Landlord harmless from all damages and indemnify
Landlord for all said damages paid or incurred by Landlord resulting
from any claims that may be asserted against Landlord by any broker,
agent or finder undisclosed by Tenant herein. Without limiting the
foregoing, Landlord shall pay Tenant's broker its commission
pursuant to a separate commission agreement between Landlord and
Grubb & Ellis within 30 days of the execution of this Lease.
11. Holding Over. If Tenant holds over after the expiration or
earlier termination of the term hereof without the express written
consent of Landlord, Tenant shall become a tenant at sufferance
only, at a rental rate equal to one hundred twenty five percent
(125%) of the Base Rent which would be applicable to the Premises
upon the date of such expiration (subject to adjustment as provided
in Paragraph 6 hereof and prorated on a daily basis). Acceptance by
Landlord of rent after such expiration or earlier termination shall
not constitute a holdover hereunder or result in a renewal. The
foregoing provisions of this Paragraph 11 are in addition to and do
not affect Landlord's right of re-entry or any rights of Landlord
hereunder or as otherwise provided by law. If Tenant fails to
surrender the Premises upon the expiration of this Lease upon demand
to do so by Landlord, Tenant shall indemnify and hold Landlord
harmless from all loss or liability, including without limitation,
any claim made by any succeeding tenant founded on or resulting from
such failure to surrender.
12. Taxes on Tenant's Property. Tenant shall be liable for and
shall pay at least ten (10) days before delinquency, taxes levied
against any personal property or trade fixtures placed by Tenant in
or about the Premises. If any such taxes on Tenant's personal
property or trade fixtures are levied against Landlord or Landlord's
property or if the assessed value of the Premises is increased by
the inclusion therein of a value placed upon such personal, property
or trade fixtures of Tenant and if Landlord, after written notice to
Tenant, pays the taxes based upon such increased assessments, which
Landlord shall have the right to do regardless of the validity
thereof, but only under proper protest if requested by Tenant,
Tenant shall upon demand repay to Landlord the taxes levied against
Landlord, or the proportion of such taxes resulting from such
increase in the assessment; provided that in any such event, at
Tenant's sole cost and expense, Tenant shall have the right, in the
name of Landlord and with Landlord's full cooperation, to bring suit
in any court of competent jurisdiction to recover the amount of any
such taxes so paid under protest, any amount so recovered to belong
to Tenant.
13. Condition of Premises. Except as expressly provided herein,
Tenant acknowledges that neither Landlord nor any agent of Landlord
has made any representation or warranty with respect to the Premises
or the Building or with respect to the suitability of either for the
conduct of Tenant's business.
14. Alterations.
(a) Tenant may, at any time and from time to time during the term
of this Lease, at its sole cost and expense, make alterations,
additions, installations, substitutions, improvements, and
decorations (hereinafter collectively called "Changes) in and to
the Premises, excluding structural conditions, and providing such
Changes will not result in a violation of or require a change in
the certificate of occupancy applicable to the Premises:
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(i) The outside appearance, character or use of the Building
shall not be affected, and no Changes shall weaken or impair
the structural strength or, in the opinion of Landlord,
lessen the value of the Building or create the potential for
unusual expenses to be incurred upon the removal of Changes
and the restoration of the Premises upon the termination of
this Lease.
(ii) No part of the Building outside of the Premises shall
be physically affected.
(iii) The proper functioning of any of the mechanical,
electrical, sanitary, and other service systems or
installations of the Building (the "Service Facilities")
shall not be adversely affected and there shall be no
construction which might interfere with Landlord's free
access to the Service Facilities or interfere with the
moving of Landlord's equipment to or from the enclosures
containing the Service Facilities.
(iv) In performing the work involved in making such Changes,
Tenant shall be bound by and observe all of the conditions
and covenants contained in this Paragraph.
(v) All work shall be done at such times and in such manner
as Landlord from time to time may designate.
(vi) Tenant shall not be permitted to install and make part
of the Premises any materials, fixtures, or articles which
are subject to liens, conditional sales contracts or chattel
mortgages.
(vii) At the date upon which the term of this Lease shall
end, or the date of any earlier termination of this Lease,
Tenant shall, upon Landlord's written request to Tenant,
restore the Premises to their condition prior to the making
of any Changes permitted by this Paragraph, reasonable wear
and tear excepted.
(b) Before proceeding with any Change (exclusive of changes to
items constituting Tenant's personal property), Tenant shall
submit to Landlord plans and specifications for the work to be
done, which shall require Landlord's written approval. Landlord
shall then prepare or cause to be prepared, at Tenant's expense,
mechanical, electrical, and plumbing drawings and may confer with
consultants in connection with the preparation of such drawings
and may also submit to such consultant(s) any of the plans
prepared by Tenant. Alternatively, Landlord may request that
Tenant prepare any such drawings or plans for submittal, review,
and approval by Landlord. If Landlord or such consultant(s) shall
disapprove of any of the Tenant's plans, Tenant shall be advised
of the reasons of such disapproval. In any event, Tenant agrees
to pay to Landlord, as additional rent, the reasonable cost of
such consultation and review immediately upon receipt of invoices
either from Landlord or such consultant(s). Any Change for which
approval has been received shall be performed strictly in
accordance with the approved plans and specifications, and no
amendments or additions to such plans and specifications shall be
made without the prior written consent of Landlord.
(c) If the proposed Change requires approval by or notice to the
lessor of a superior lease or the holder of a mortgage, no Change
shall be proceeded with until such approval has been received, or
such notice has been given, as the case may be, and all
applicable conditions and provisions of said superior lease or
mortgage with respect to the proposed Change or alteration have
been met or complied with at Tenant's expense.
(d) After Landlord's written approval has been sent to Tenant and
the approval by or notice to the lessor of a superior lease or
the holder of a superior mortgage has been received or given, as
the case may be, Tenant shall enter into an agreement for the
performance of the work to be done pursuant to this Paragraph
with Landlord's contractor or another contractor acceptable to
Landlord. All costs and expenses incurred in constructing Changes
shall be paid by Tenant as additional rent within seven (7) days
after each billing by Landlord or any such contractor or
contractors (payment of which may be a condition to commencing
such work). If Landlord approves the construction of specific
interior improvements in the Premises by other contractors chosen
by Tenant, then Tenant's contractors shall obtain on behalf of
Tenant and at Tenant's sole cost and expense, (i) all necessary
governmental permits and certificates for the commencement and
prosecution of Tenant's Changes and for final approval thereof
upon completion, (ii) a completion and lien indemnity bond, or
other surety, satisfactory to Landlord, for the Changes, and
(iii) insurance acceptable to Landlord (and which shall, without
limitation, name Tenant and Landlord as named insureds
thereunder). In the event Tenant shall request any changes in
the work to be performed after the submission of the plans
referred to in this Paragraph 14, such additional changes shall
be subject to the same approvals and notices as the changes
initially submitted by Tenant. Upon completion of all such work,
Tenant shall supply Landlord with copies of "as-built" plans,
copies of all construction contracts, and proof of payment for
all labor and materials.
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(e) Tenant shall pay to Landlord for Landlord's services in the
event Landlord performs as a general contractor in connection
with the work performed pursuant to this Paragraph 14, a fee for
Landlord's reasonable overhead and profit equal to twelve percent
(12%) of the total cost of the Changes. Such fee shall be two
percent (2%) if Landlord or its agent does not perform as general
contractor, to cover Landlord's reasonable overhead for any
changes for which the Landlord's consent is required.
(f) All Changes and the performance thereof shall at all times
comply with (i) all laws, rules, orders, ordinances, directions,
regulations and requirements of all governmental authorities,
agencies, offices, departments, bureaus, and boards having
jurisdiction thereof, (ii) all rules, orders, directions,
regulations, and requirements of the Pacific Fire Rating Bureau,
or of any similar insurance body or bodies, and (iii) all rules
and regulations of Landlord, and Tenant shall cause Changes to be
performed in compliance therewith and in good and first class
workmanlike manner, using materials and equipment at least equal
in quality and class to the original installations of the
Building. Changes shall be performed in such a manner as not to
interfere with the occupancy of any other tenant in the Building
nor delay or impose any additional expense upon Landlord in
construction, maintenance or operation of the Building, and shall
be performed by contractors or mechanics approved by Landlord,
who shall coordinate their work in cooperation with any other
work being performed with respect to the Building.
(g) Tenant shall give Landlord at least ten (10) days, or such
longer time as necessary, prior written notice of the
commencement of any work on the Premises to permit Landlord to
post and record notices of nonresponsibility. Tenant further
covenants and, agrees that any mechanic's lien filed against the
Premises or against the Building for work claimed to have been
done, or for materials claimed to have been furnished to Tenant,
will be discharged by Tenant, by bond or otherwise, within ten
(10) days after the filing thereof, at the cost and expense of
Tenant. All alternations, additions, or improvements upon the
Premises (other than Tenant's trade fixtures furniture,
equipment, movable partitions or decorations), made by either
party shall, unless Landlord elects otherwise, become the
property of Landlord and shall remain upon, and be surrendered
with the Premises as a part thereof, at the end of the term
hereof, except that Landlord may, by written notice to Tenant,
given at least thirty (30) days prior to the end of the term,
require Tenant to remove all alterations, decorations, additions,
or improvements installed by Tenant, and Tenant shall repair any
damage to the Premises arising from such removal or, at
Landlord's option, shall pay to the Landlord all of Landlord's
cost of such removal.
(h) All articles of personal property and all business and trade
fixtures, machinery and equipment, furniture, and movable
partitions owned by Tenant or installed by Tenant at its expense
in the Premises shall be and remain the property of Tenant and
may be removed by Tenant at any time during the Lease Term
provided Tenant is not in default hereunder, and provided further
that Tenant shall repair any damage caused by such removal. If
Tenant shall fail to remove all of its effects from the Premises
upon termination of this Lease for any cause whatsoever, Landlord
may, at its option, remove the same in any manner that Landlord
shall choose, and store said effects without liability to Tenant
for loss thereof, and Tenant agrees to pay Landlord upon demand
any and all expenses incurred in such removal, including court
costs and attorney's fees and storage charges, on such effects
for any length of time that the same shall be in Landlord's
possession or Landlord may, at its option, without notice, sell
said effects, or any of the same, at private sale and without
legal process, for such price as Landlord may obtain and apply
the proceeds of such sale upon any amounts due under this Lease
from Tenant to Landlord and upon the expense incident to the
removal and sale of said effects.
(i) Subject to Landlord's agreement to minimize any disturbance
of Tenant's use of the Premises and subject to the other
provisions set forth in this Lease, Landlord reserves the right
at any time and from time to time without the same constituting
in actual or constructive eviction and without incurring any
liability to Tenant therefor or otherwise affecting Tenant's
obligations under this Lease, to make such changes, alterations,
additions, improvements, repairs, or replacements in or to the
Site (including the addition or deletion of buildings or other
improvements) or the Building (including the Premises if required
so to do by any law or regulation) and the fixtures and equipment
thereof, as well as in or to the street entrances, halls,
passages, and stairways thereof, to change the Building address
or the name by which the Building is commonly known, as Landlord
may deem necessary or desirable. Tenant shall not use any name,
picture, or representation of the Building in connection with
Tenant's business without the prior written consent of Landlord.
Nothing contained in this Paragraph 14 shall be deemed to relieve
Tenant of any duty, obligation or liability of Tenant with
respect to making any repair, replacement, or improvement or
complying with any law, order, or requirement of any government
or other authority and nothing contained in this Paragraph 14
shall be deemed or construed to impose upon Landlord any
obligation, responsibility or liability whatsoever, for the care,
supervision or repair of the Budding or any part thereof other
than as otherwise provided in this Lease.
Tenant's Initials Landlord's Initials Page 7 JAG 102696
15. Repairs.
(a) By entry hereunder, Tenant accepts the Premises as being in
good and sanitary order, condition, and repair. Subject to
Paragraph 15(b) below, Tenant shall, when and if needed or
whenever requested by Landlord to do so, at Tenant's sole cost
and expense, maintain and make all repairs to the Premises and
every part thereof, to keep, maintain, and preserve the Premises
in first class condition and repair, excepting ordinary wear and
tear. At Landlord's option, any such maintenance and repairs
shall be performed by Landlord's contractor or by another
contractor approved in advance by Landlord. Any costs and
expenses incurred in such maintenance and repair shall be paid by
Tenant within seven (7) days after billing by Landlord or such
contractor or contractors. Tenant shall upon the expiration or
sooner termination of the term hereof surrender the Premises to
Landlord in the same condition as when received, reasonable wear
and tear excepted. Except for HVAC systems and other major
building systems in need of replacement, Landlord shall have no
obligation to alter, remodel, improve, repair, decorate or paint
the Premises or any part thereof and the parties hereto affirm
that Landlord has made no representations to Tenant respecting
the condition of the Premises or the Building except as
specifically herein set forth.
(b) Anything contained in Subparagraph 15(a) above to the
contrary notwithstanding but subject to Exhibit "G", Landlord
shall, as part of the Operating Expenses repair and maintain the
basic plumbing, heating, ventilating, air conditioning and
electrical systems installed or furnished by Landlord, except to
the extent such maintenance and repairs are caused in part or in
whole by the negligence or willful misconduct of Tenant, its
agents, servants, employees, or invitees, in which case Tenant
shall pay to Landlord as additional rent, the reasonable cost of
such maintenance and repairs. Except as provided herein, Landlord
shall not be liable for any failure to make any such repairs, or
to perform any maintenance unless such failure shall persist for
an unreasonable time after written notice of the need of such
repairs or maintenance is given to Landlord by Tenant. Except as
provided in Paragraph 22 hereof or elsewhere in this Lease, there
shall be no abatement of rent and no liability of Landlord by
reason of any injury to or interference with Tenant's business
arising from the making of any repairs, alterations or
improvements in or to any portion of the Building or the Premises
or in or to fixtures, appurtenances, and equipment therein.
Tenant waives the right to make repairs at Landlord's expense
under any law, statute or ordinance now or hereafter in effect.
Notwithstanding anything to the contrary contained in
Subparagraphs (a) and (b) of this Paragraph 15, Tenant shall
maintain and, repair at its sole cost and expense, and with
maintenance contractors approved by Landlord, all non-base
building facilities, including lavatory, shower, toilet,
washbasin, and kitchen facilities, including all plumbing
connected to said facilities or systems installed by Tenant or on
behalf of Tenant or existing in the Premises at the time of
delivery of possession of the Premises to Tenant by Landlord. The
provisions of the immediately preceding sentence shall not apply
to the base central plumbing, heating, air conditioning,
ventilating and electrical systems provided by Landlord to all
tenants of the Building and shall exclude ordinary wear and tear.
16. Liens. Tenant shall not permit any mechanic's, materialmen's or
other liens to be filed against the real property of which the
Premises form a part nor against the Tenant's leasehold interest in
the Premises. Landlord shall have the right at all reasonable times
to post and keep posted on the Premises any notices which it deems
necessary for protection from such liens. If any such liens are
filed, Landlord may, without waiving its rights and remedies based
on such breach of Tenant and without releasing Tenant from any of
its obligations, cause such liens to be released by any means it
shall deem proper, including payment in satisfaction of the claim
giving rise to such lien. Tenant shall pay to Landlord at once, upon
notice by Landlord, any sum paid by Landlord to remove such liens,
together with interest at the maximum rate per annum permitted by
law from the date of such payment by Landlord.
17. Entry by landlord. During normal business hours and after at
least 24 hours notice to Tenant (except in the case of emergency)
and subject to Landlord's agreement to minimize any disturbance of
Tenant's use of the Premises by exercise of the following rights,
Landlord reserves and shall at any and all times have the right to
enter the Premises to inspect the same, to supply any service to be
provided by Landlord to Tenant hereunder, to submit said Premises to
prospective purchasers or, during the last six (6) months of the
Lease Term, to prospective tenants, to post notices of
nonresponsibility, to alter, improve or repair the Premises or any
other portion of the Building and without being deemed guilty of any
eviction of Tenant and Without abatement of rent, and may, in order
to carry out such purposes, erect scaffolding and other necessary
structures where reasonably required by the character of the work to
be performed, provided that the business of Tenant shall be
interfered with as little as is reasonably practicable. Tenant
hereby waives any claim for damages for any injury or inconvenience
to or interference with Tenant's business, any loss of occupancy or
quiet enjoyment of the Premises, and any other loss occasioned
thereby. For each of the aforesaid purposes, Landlord shall at all
times have and retain a key (and, if applicable, alarm codes) with
which to unlock all of the doors in, upon and about the Premises,
excluding Tenant's vaults and safes, and Landlord shall have the
means which Landlord may deem proper to open said doors in an
emergency in order to obtain entry to the Premises, and any entry to
the Premises obtained by Landlord by any of said means, or
otherwise, shall not under any circumstances be or deemed to be a
forcible or unlawful entry into or a detainer of, the Premises, or
an eviction of Tenant from the Premises or any portion thereof, and
any damages caused on account thereof shall be paid by Tenant.
Tenant shall supply Landlord with any alarm codes for the Premises
necessary for Landlord to obtain access. It is understood
Tenant's Initials Landlord's Initials Page 8 JAG 102696
and agreed that no provision of this Lease shall be construed as
obligating Landlord to perform any repairs, alterations or
decorations except as otherwise expressly agreed herein to be
performed by Landlord. Landlord shall attempt in the exercise of its
rights under this Paragraph 17 to minimize any disturbance of Tenant
's use and possession of the Premises and to provide as much time to
Tenant as may be reasonably possible prior to any such exercise of
Landlord's rights under this Paragraph 17.
18. Utilities and Services. Tenant shall pay, directly to the
appropriate supplier, the cost of any utilities or services supplied
to the Premises and directly billed to Tenant or separately metered
to Tenant. Any other utilities or services shall be paid by Landlord
and reimbursed by Tenant as part of the Operating Expenses. Without
limiting the generality of the foregoing and provided that Tenant is
not in default hereunder, Landlord agrees, during the Lease Term, to
furnish to the Premises (as part of the Operating Expenses to be
reimbursed by Tenant) during those hours set forth in the Rules and
Regulations (as defined in Paragraph 31 hereof and as may be amended
by Landlord from time to time) the following: (a) base central
heating, air conditioning and ventilation supplied to Tenant's
individual heating, air conditioning and ventilation system; and (b)
water for lavatory and drinking purposes. Landlord shall not be
liable for, and Tenant shall not be entitled to any abatement or
reduction of rent by reason of Landlord's failure to furnish any of
the foregoing when such failure is caused by accident, breakage,
repairs, strikes, lockouts or other labor disturbances or labor
disputes of any character, or for other causes beyond the reasonable
control of Landlord or which are otherwise not the result of the
negligence or willful misconduct of Landlord. If Tenant requires or
utilizes more water or power than is considered normal or reasonable
by Landlord, or if Tenant uses such services after hours, on
holidays, and on weekends, Landlord may at its option require Tenant
to pay, as additional rent, the cost, as reasonably determined by
Landlord, of such extraordinary usage. Landlord shall have the
option at any time to install separate metering systems for any
utilities or services, the costs of which installation shall either
be billed directly to Tenant, if appropriate, or shall be part of
the Operating Expenses.
19. Indemnification. To the fullest extent permitted by law, except
to the extent of Landlord's acts and omissions, Tenant hereby agrees
to defend, indemnify, protect, and hold Landlord harmless against
and from any and all claims to the extent that such claims arise out
of Tenant's use of the Premises or the conduct of its business or
from any activity, work or thing done by Tenant, its agent,
contractors, employees, or invitees, and hereby agrees to further
defend, indemnify, protect and hold harmless, Landlord against and
from any and all claims to the extent that such claims arise out of
any breach or default in the performance of any obligation on
Tenant's part to be performed under the terms of this Lease, or
arise from the negligent or willful misconduct of Tenant, or of its
agents, employees, licensees, or invitees, and from and against all
costs, attorneys' fees, expenses, and liabilities incurred in or
about such, claim or any action or proceeding brought thereon; and
in case any action or proceeding is brought against Landlord by
reason of any such claim, Tenant upon notice from Landlord hereby
agrees to defend the same at Tenant's expense. To the fullest extent
permitted by law, except to the extent of Tenant's acts
and-omissions, Landlord hereby agrees to defend, indemnify, protect
and hold Tenant harmless against and from any and all claims to the
extent that such claims arise from Landlord's use of the Site or
from any activity, work or thing done by Landlord, its agents,
contractors, employees or invitees, and hereby agrees to further
defend, indemnify, protect and hold harmless Tenant against and from
any and all claims to the extent that such claims arise out of any
breach or default in the performance of any obligation on Landlord's
part to be performed under the terms of this Lease, or arise from
the negligence or willful misconduct of
Landlord, or of its agents, employees, licensees or invitees, and
from and against all costs, attorney's fees, expenses and
liabilities incurred in or about such claim or any action or
proceeding brought thereon; and in case any action or proceeding is
brought against Tenant by reason of such claim, Landlord upon notice
from Tenant, hereby agrees to defend the same at Landlord's expense.
20. Damage to Tenant's Property. Subject to Paragraph 19 above,
Landlord or its agents shall not be liable for any damage to
property entrusted to employees of the Building, nor for loss of or
damage to any property by theft or otherwise, nor for any injury or
damage to persons or property resulting from fire, explosion,
falling plaster, steam, gas, electricity, water or rain which may
leak from any part of the Building or from the pipes, appliances or
plumbing works therein or from the roof, street or sub-surface or
from any other place or resulting from dampness or any other patent
or latent cause whatsoever. Landlord or its agents shall not be
liable for interference with the light or other incorporeal
hereditaments. Tenant shall give prompt notice to Landlord in case
of fire or accidents in the Premises or in the Building or of
defects therein or in the fixtures or equipment located therein.
21. Insurance.
(a) During the term hereof, Tenant, at its sole expense, shall
obtain and keep in force the following insurance:
(i) all risk insurance upon personal property of every
description and kind owned or used by Tenant and located in
the Building, or for which Tenant is responsible or liable,
including, without limitation, furniture, fittings,
installations, wallcoverings, floor coverings, and any other
personal property, in an amount not less than the full
replacement cost of property of like kind and quality. All
such insurance should name Landlord as an additional Loss
Payee to the extent Landlord has an insurable interest in
the property described in this section.
Tenant's Initials Landlord's Initials Page 9 JAG 102696
(ii) commercial general liability insurance coverage,
including but not limited to personal injury, advertising
injury, bodily injury, property damage, owner's protective,
products and completed operations, and contractual liability
(including coverage for indemnity obligations under this
Agreement), in limits not less than $1,000,000 per
occurrence and $2,000,000 aggregate.
(b) All policies shall be issued by insurers that are acceptable
to Landlord and in form satisfactory from time to time to
Landlord. All such insurance shall be written by insurance
companies with a "Best's" rating of AIX or better which are
licensed to do business and admitted in the State of California.
Tenant will deliver certificates of insurance at Tenant's expense
to Landlord as soon as practicable after the placing of the
required insurance, but not later than ten (10) days prior to the
date Tenant takes possession of all or any part of the Premises.
All policies shall provide for notification to Landlord and
Landlord's mortgagees in writing, not less than thirty (30) days
before any reduction in coverage, cancellation, or other
termination thereof. If Tenant fails to provide evidence of
insurance as described, Landlord will have the right, but not the
duty, to provide the insurance requirements for Tenant and such
cost shall become additional rent which Tenant will pay in
accordance with this Agreement.
(c) During the Term, Landlord shall carry All-Risk insurance for
the Building in an amount equal to one hundred percent (100%) of
the actual replacement cost thereof, and shall carry such other
insurance of such types and in such amounts and with such
deductions as are appropriate or advisable, excluding earthquake
insurance. The cost of any insurance carried by Landlord in
accordance with the provisions of this Subparagraph 21(c) shall
be included as a part of the Operating Expenses for the Building,
payable by Tenant in accordance with the provisions of Exhibit
"G" hereto. Notwithstanding any contribution by Tenant to the
cost of insurance premiums, whether directly or as a part of
Operating Expenses, Tenant acknowledges that it has no right to
receive any proceeds from any such insurance policies.
(d) Each party hereby releases the other from any claims for
loss, damage or injury to any person or to the Premises or
Building, or to the fixtures, personal property, or alterations
of Tenant in or to the Premises or Building or to any other
property that are caused by or result from risks required to be
maintained hereunder and/or that are insured against under any
insurance policies in force at the time of any such loss, damage,
or injury. Each party shall obtain a waiver of subrogation rights
from all insurers providing insurance whereby such insurers waive
their entire right of recovery against the other or the other's
insurers for loss, damage or injury arising out of or incident to
any insured perils, whether due to the negligence of either party
and regardless of cause or origin. Each party waives any rights
of recovery against the other for any damage, injury or loss due
to hazards covered by policies of insurance containing such a
waiver of subrogation clause or endorsement.
22. Damage or Destruction.
(a) In the event the Building (including the Aggregate
Improvements or any insured alterations) are damaged by fire or
other perils covered by Landlord's extended coverage insurance to
an extent not exceeding twenty five percent (25%) of the full
insurable value thereof and if the damage thereto is such that
the Building may be repaired, reconstructed, or restored within a
period of ninety (90) days from the date of the happening of such
casualty and Landlord will receive insurance proceeds sufficient
to cover the cost of such repairs (including Landlord's overhead
and a reasonable profit), but excluding any deductible. Landlord
shall commence and proceed diligently with the work of repair,
reconstruction, or restoration and the Lease shall continue in
full force and effect. If such work of repair, reconstruction, or
restoration is such as to require a period longer than ninety
(90) days or exceeds twenty-five percent (25%) of the full
insurable value thereof, or, if said insurance proceeds will, not
be sufficient to cover the cost of such repairs (excluding any
deductible), Landlord either may elect to so repair, reconstruct
or restore the Building and the Lease shall continue in full
force and effect or Landlord may elect not to repair, reconstruct
or restore the Building and the Lease shall in such event
terminate. Under any of the conditions of this Subparagraph
22(a), Landlord shall give written notice to Tenant of its
intention within thirty (30) days from the date of such event of
damage or destruction. In the event Landlord elects not to
restore said Building, this Lease shall be deemed to have
terminated as of the date of such partial destruction.
(b) Upon any termination of this Lease under any of the
provisions of this Paragraph 22, the parties shall be released
thereby without further obligation to the other from the date
possession of the Premises is surrendered to Landlord except for
items which have theretofore accrued and are then unpaid.
(c) In the event of repair, reconstruction, or, restoration by
Landlord as herein provided, the rent provided to be paid under
this Lease shall be abated proportionately with the degree to
which Tenant's use of the Premises is impaired during the period
of such repair, reconstruction or restoration. Tenant shall not
be entitled to any compensation or damages for loss in the use of
the whole or any part of the Premises and for any inconvenience
or annoyance occasioned by, such damage, repair, reconstruction
or restoration.
Tenant's Initials Landlord's Initials Page 10 JAG 102696
(d) In the event that damage is due to any cause other than fire
or other peril covered by extended coverage insurance, Landlord
may elect to terminate this Lease.
(e) It is hereby understood that if Landlord is obligated to or
elects to repair or restore as herein provided, Landlord shall be
obligated to make repairs or restoration only of those portions
of the Building and the Premises which were originally provided
at Landlord's expense or which were insured by either party and
the proceeds of such insurance have been received by Landlord,
and the repair and restoration of items not provided at
Landlord's expense shall be the obligation of Tenant.
(f) Notwithstanding anything to the contrary contained in this
Paragraph 22, Landlord shall not have any obligations whatsoever
to repair, reconstruct or restore the Premises when the damage
resulting from any casualty covered under this Paragraph 22
occurs during the last twelve (12) months of the term of this
Lease or any extension hereof.
(g) The provisions of California Civil Code 1932, Subsection 2,
and 1933, Section 4, and any other similar provisions governing
the rights of tenants in the event of damage or destruction, are
hereby waived by Tenant.
23. Eminent Domain.
(a) In case the whole of the Premises, or, such part thereof as
shall substantially interfere with Tenant's use and occupancy
thereof, shall be taken for any public or quasi-public purpose by
any lawful power or authority by exercise of the right of
appropriation, condemnation or eminent domain, or sold to prevent
such taking, either party shall have the right to terminate this
Lease effective as of the date possession is required to be
surrendered to said authority. Tenant shall not assert any claim
against Landlord or the taking authority for any compensation
because of such taking and Landlord shall be entitled to receive
the entire amount of any award without deduction for any estate
or interest of Tenant. In the event the amount of property or the
type of estate taken shall not substantially interfere with the
conduct of Tenant's business, Landlord shall be entitled to the
entire amount of the award without deduction for any estate or
interest of Tenant, and Landlord at its option may terminate this
Lease. If Landlord does not select, Landlord shall promptly
proceed to restore the Premises to substantially their same
condition prior to such partial taking, and a proportionate
allowance shall be made to Tenant for the rent corresponding to
the time during which, and to the part of the Premises of which,
Tenant shall be so deprived on account of such taking and
restoration. Nothing contained in this Paragraph shall be deemed
to give Landlord any interest in any award separately made to
Tenant for the taking of personal property and trade fixtures
belonging to Tenant or for moving costs incurred by Tenant in
relocating Tenant's business.
(b) In the event of a taking of the Premises or any part thereof
for temporary use, (i) this Lease shall be and remain unaffected
thereby and rent shall not abate, and (ii) Tenant shall be
entitled to receive for itself such portion or portions of any
award made for such use with respect to the period of the taking
which is within the Lease Term, provided that if such taking
shall remain in force at the expiration or earlier termination of
this Lease, Tenant shall then pay to Landlord a sum equal to the
reasonable cost of performing Tenant's obligations under
Paragraph 15 with respect to surrender of the Premises and upon
such payment shall be excused from such obligations. For purpose
of this Subparagraph 23(b), a temporary taking shall be defined
as a taking for a period of seventy (70) days or less.
24. Bankruptcy. If Tenant shall file a petition in bankruptcy under
any Chapter of federal bankruptcy law as then in effect or if Tenant
be adjudicated a bankrupt in involuntary bankruptcy proceedings and
such adjudication shall not have been vacated within ninety (90)
days from the date thereof, or if a receiver or trustee be appointed
with respect to Tenant's property and the order appointing such
receiver or trustee not be set aside or vacated within ninety (90)
days after the entry thereof, or if Tenant shall assign Tenant's
estate or effects for the benefit of creditors, or if this Lease
shall otherwise by operation of law pass to any person or persons
other than Tenant, then and in any such event Landlord may, if
Landlord so elects, with or without notice of such election and with
or without entry or action by Landlord, forthwith terminate this
Lease, and notwithstanding any other provisions of this Lease,
Landlord, in addition to any and all rights and remedies allowed by
law or equity, shall upon such termination be entitled to recover
damages in the amount provided in Subparagraph 25(b) below and
neither Tenant nor any person claiming through or under Tenant or by
virtue of any statute or order of any court shall be entitled to
possession of the Premises but shall forthwith quit and surrender
the Premises to Landlord. Nothing herein contained shall limit or
prejudice the right of Landlord to prove and obtain as damages by
reason of any such termination an amount equal to the maximum
allowed by any statute or rule of law in effect at the time when
such damages are to be proved, whether or not such amount be
greater, equal to, or less than the amount of damages recoverable
under the provisions of this Paragraph.
Tenant's Initials Landlord's Initials Page 11 JAG 102696
25. Defaults and Remedies.
(a) The occurrence of any one or more of the following events
shall constitute a default hereunder by Tenant:
(i) THIS SECTION INTENTIONALLY DELETED.
(ii) The failure by Tenant to make any payment of rent or
additional rent or any other payment required to be made by
Tenant hereunder, as and when due, where such failure shall
continue for a period of five (5) days after written notice
thereof from Landlord to Tenant; provided, however, that any
such notice shall constitute, and not be in addition to, any
notice required under California Code of Civil Procedure 1161.
(iii) The failure by Tenant to observe or perform any of the
express or implied covenants or provisions of this Lease to
be observed or performed by Tenant, other than as specified
in Subparagraph 25(a)(i) or (ii) above, where such failure
shall continue for a period of ten (10) days after written
notice thereof from Landlord to Tenant; provided, however,
that if the nature of Tenant's default is such that more
than ten (10) days are reasonably required for its cure,
then Tenant shall not be deemed to be in default if Tenant
shall commence such cure within said ten-day period and
thereafter diligently prosecute such cure to completion,
which completion shall occur not later than thirty (30) days
from the date of such notice from Landlord.
(iv) (1) The making by Tenant of any general assignment for
the benefit of creditors; (2) the filing by or against
Tenant of a petition to have Tenant 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 Tenant, the same is dismissed within ninety
(90) days); (3) the appointment of a trustee or receiver to
take possession of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this
Lease, where possession is not restored to Tenant within
ninety (90) days; or (4) the attachment, execution, or other
judicial seizure of substantially all of Tenant's assets
located at the Premises or of Tenant's interest in this
Lease where such seizure is not discharged within ninety
(90) days.
(b) In the event of any such default by Tenant, in addition to
any other remedies available to Landlord at law or in equity,
Landlord shall have the immediate option to terminate this Lease
and all rights of Tenant hereunder. In the event that Landlord
shall elect to so terminate this Lease, then Landlord may recover
from Tenant:
(i) the worth at the time of award of any unpaid rent which
had been earned at the time of such termination; plus
(ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of
such rental loss that Tenant proves could have been
reasonably avoided; plus
(iii) the worth at the time of award of the amount by which
the unpaid rent for the balance of the term after the time
of award exceeds the amount of such rental loss that Tenant
proves could have been reasonably avoided; plus
(iv) any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to
perform its obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom.
As used in Subparagraphs 25(b)(i) and (ii) above. the "worth at the
time of award" is computed by allowing interest at the maximum rate
permitted by law per annum. As used in Subparagraph 25(b)(iii)
above, the "worth at the time of 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%).
(c) In the event of any such default by Tenant, Landlord shall
also have the right, with or without terminating this Lease, to
re-enter the Premises and remove all persons and property from
the Premises; such property may be removed and stored in a public
warehouse or elsewhere at the cost of and for the account of
Tenant for such period of time as may be required by applicable
law after which time Landlord may dispose of such property in
accordance with applicable law. No re-entry or taking possession
of the Premises by Landlord pursuant to this Subparagraph 25(c)
shall be construed as an election to terminate this Lease unless
a written
Tenant's Initials Landlord's Initials Page 12 JAG 102696
notice of such intention be given to Tenant or unless the
termination thereof be decreed by a court of competent jurisdiction.
(d) In addition to any other rights or remedies which Landlord may
have under this Lease, or at law or in equity, with respect to a
default by Tenant, Landlord shall have the remedy described in
California Civil Code Section 1951.4 (Landlord may continue the
Lease in effect after Tenant's breach and abandonment and recover
rent as it becomes due, if Tenant has the right to sublet or assign,
subject only to reasonable limitation).
(e) All rights, options, and remedies of Landlord contained in this
Lease shall be construed and held to be cumulative, and no one of
them shall be exclusive of the other, and Landlord shall have the
right to pursue any one or all of such remedies or any other remedy
or relief which may be provided by law, whether or not stated in
this Lease. No waiver of any default of Tenant hereunder shall be
implied from any acceptance by Landlord of any rent or other
payments due hereunder or any omission by Landlord to take any
action on account of such default if such default persists or is
repeated, and no express waiver shall affect defaults other than
specified in said waiver. The consent or approval of Landlord to or
of any act by Tenant requiring Landlord's consent or approval shall
not be deemed to waive or render unnecessary Landlord's consent or
approval to or of any subsequent similar acts by Tenant.
26. Assignment and Subletting. Tenant shall not voluntarily,
involuntarily or by action of law assign or encumber its interest in
this Lease or in the Premises, or sublease all or any part of the
Premises, or allow any other person or entity to occupy or use all
or any part of the Premises without first obtaining Landlord's prior
written consent which shall not be unreasonably withheld. Any
assignment, encumbrance or sublease without Landlord's prior written
consent shall be voidable, at Landlord's election, and shall
constitute a default.
27. Quiet Enjoyment. Landlord covenants and agrees with Tenant that
upon Tenant paying the rent required under this Lease and paying all
other charges and performing all of the covenants and provisions
aforesaid on Tenant's part to be observed and performed under this
Lease, Tenant shall and may peaceably and quietly have, hold and
enjoy the Premises in accordance with this Lease.
28. Subordination. Without the necessity of any additional document
being executed by Tenant for the purpose of effecting a
subordination, and at the election of Landlord or any first
mortgagee with a lien on the Building or any ground lessor with
respect to the Building, this Lease shall be subject and subordinate
at all times to: (a) all ground leases which may now exist or
hereafter be executed affecting the Building or the Site or both,
and (b) the lien of any mortgage or deed of trust which may now
exist or hereafter be executed in any amount for which the Building,
the Site, ground leases or underlying leases, or Landlord's interest
or estate in any of said items is specified as security, and all
modifications, renewals, extensions or advances under or pursuant to
the agreements specified in (a) and (b). Notwithstanding the
foregoing, Landlord shall have the right to subordinate or cause to
be subordinated any such ground leases or underlying leases or any
such liens to this Lease. In the event that any ground lease or
underlying lease terminates for any reason or any mortgage or deed
of trust is foreclosed or a conveyance in lieu of foreclosure is
made for any reason, Tenant shall attorn to and become the Tenant of
the successor in interest to Landlord and in such event Tenant's
right to possession of the Premises shall not be disturbed if Tenant
is not in default and so long as Tenant shall pay the rent and all
other amounts required to be paid to Landlord pursuant to the terms
hereof and observe and perform all of the provisions of this Lease,
unless the Lease is otherwise terminated pursuant to its terms.
Tenant covenants and agrees to execute and deliver, upon demand by
Landlord and in the form reasonably requested by Landlord, any
additional documents (including a subordination, non-disturbance and
attornment agreement) evidencing the subordination or priority of
this Lease with respect to any such ground leases or underlying
leases or the lien of any such mortgage or deed of trust. Should
Tenant fail to sign and return any such documents within five (5)
business days after written request, Landlord may, at Landlord's
option, execute any required documents on behalf of Tenant, and
Tenant hereby appoints Landlord as its attorney-in-fact, pursuant to
an irrevocable power of attorney coupled with an interest for said
purpose.
29. Estoppel Certificate.
(a) Within ten (10) days following any written request which
Landlord may make from time to time, Tenant shall execute and
deliver to Landlord a statement, in a form substantially similar
to the form of Exhibit "D" attached hereto, or as otherwise
reasonably required by a lender, buyer, or ground lessor,
certifying: (i) the Commencement Date of this Lease; (ii) the
fact that this Lease is unmodified and in full force and effect
(or, if there have been modifications hereto, that this Lease is
in full force and effect, as modified, and stating the date and
nature of such modifications); (iii) the date to which the rental
and other sums payable under this Lease have been paid; (iv) the
fact that there are no current defaults under this Lease by
either Landlord or Tenant except as specified in Tenant's
statement; and (v) such other matters requested by Landlord as
specified in Exhibit "D." Landlord and Tenant intend that any,
statement delivered pursuant to this Paragraph may be relied upon
by any mortgagee, beneficiary, purchaser or prospective purchaser
of the Building.
Tenant's Initials Landlord's Initials Page 13 JAG 102696
(b) Tenant's failure to deliver such statement within such time
shall be conclusive upon Tenant (i) that this Lease is in full
force and effect, without modification, except as may be
presented by Landlord, (ii) that there are no uncured defaults in
Landlord's performance, (iii) that not more than one (1) month's
rent has been paid in advance, except as provided in Paragraph 36
hereof, and (iv) that all other statements set forth by Landlord
in the Tenant's statement submitted to Tenant are true and correct.
30. Building Planning. THIS SECTION INTENTIONALLY DELETED.
31. Rules and Regulations. Tenant shall faithfully observe and
comply with the "Rules and Regulations," a copy of which is attached
hereto and marked Exhibit "E", and all reasonable and
nondiscriminatory modifications thereof and additions thereto from
time to time put into effect by Landlord. Landlord shall not be
responsible to Tenant for the violation or nonperformance by any
other tenant or occupant of the Building of any of said Rules and
Regulations.
32. Conflict of Laws. This lease shall be governed by and construed
pursuant to the laws of the State of California.
33. Successors and Assigns. Except as otherwise provided in this
Lease, all of the covenants, conditions and provisions of this Lease
shall be binding upon the shall inure to the benefit of the parties
hereto and their respective heirs, personal representatives,
successors and assigns.
34. Surrender of Premises. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not work a
merger and shall, at the option of Landlord, operate as an
assignment to it of any or all subleases or subtenancies. Upon the
expiration or termination of this Lease, Tenant shall peaceably
surrender the Premises and all alterations and additions thereto
broom-clean, in good order, repair and condition, reasonable wear
and tear excepted, and shall comply with the provisions of
Subparagraphs 14(g) and 14(h). The delivery of keys to any employee
of Landlord or to Landlord's agent or any employee thereof shall not
be sufficient to constitute a termination of this Lease or a
surrender of the Premises.
35. Professional Fees.
(a) In the event that Landlord should bring suit for the
possession of the Premises, for the recovery of any sum due under
this Lease, or because of the breach of any provisions of this
Lease, or for any other relief against Tenant hereunder, or
should either party bring suit against the other with respect to
matters arising from or growing out of this Lease, then all costs
and expenses, including without limitation, its actual
professional fees such as appraisers, accountants and attorneys'
fees, incurred by the prevailing party therein shall be paid by
the other party, which obligation on the part of the other party
shall be deemed to have accrued on the date of the commencement
of such action and shall be enforceable whether or not the action
is prosecuted to judgment.
(b) Except to the extent caused by Landlord's acts or omissions,
should Landlord be named as a defendant in any suit brought
against Tenant in connection with or arising out of Tenant's
occupancy hereunder, Tenant shall pay to Landlord its costs and
expenses incurred in such suit, including without limitation, its
actual professional fees such as appraisers', accountants', and
attorneys' fees.
36. Performance by Tenant; Late Charge; Interest. All covenants and
agreements to be performed by Tenant under any of the terms of this
Lease shall be performed by Tenant at Tenant's sole cost and expense
and without any abatement of rent. Tenant acknowledges that the late
payment by Tenant to Landlord of any sums due under this Lease will
cause Landlord to incur costs not contemplated by this Lease, the
exact amount of such cost being extremely difficult and impractical
to fix. Such costs include, without limitation, processing and
accounting charges, and late charges that may be imposed on Landlord
by the terms of any encumbrance and note secured by any encumbrance
covering the Premises or the Building of which, the Premises are a
part. Therefore if any monthly installment of Base Rent is not
received by Landlord by the date when due, or if Tenant fails to pay
any other sum of money due hereunder and such failure continues for
ten (10) days, after notice thereof by Landlord, Tenant shall pay to
Landlord, as additional rent, the sum of ten percent (10%) of the
overdue amount as a late charge. Such overdue amount shall also bear
interest, as additional rent, at the maximum rate permissible by law
calculated, as appropriate, from the date either (a) the monthly
installment of the Base Rent is due, or (b) of receipt of said
notice, until the date of payment to Landlord. Landlord's acceptance
of any late charge or interest 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 under this Lease or any law now or hereinafter
in effect. Further, in the event such late charge is imposed by
Landlord for two (2) consecutive months for whatever reason,
Landlord shall have the option to require that, beginning with the
first payment of rent due following the imposition of the second
consecutive late charge, rent shall no longer be paid in monthly
installments but shall be payable three (3) months in advance.
Should any rent check be returned for insufficient funds, Tenant
shall pay a $25 fee to Landlord and, thereafter, Landlord may
require that rent be paid by certified check.
Tenant's Initials Landlord's Initials Page 14 JAG 102696
37. Mortgagee and Senior Lessor Protection. No actor failure to act
on the part of Landlord which would entitle Tenant under the terms
of this Lease, or by law, to be relieved of Tenant's obligations
hereunder or to terminate this Lease shall result in a release of
such obligations or a termination of this Lease unless (a) Tenant
has given notice by registered or certified mail to any beneficiary
of a deed of trust or mortgage covering the Premises and to the
lessor under any master or ground lease covering the Building, the
Site or any interest therein whose and address shall have been
furnished to Tenant, and (b) Tenant offers such beneficiary,
mortgagee or lessor a reasonable opportunity to cure the default.
38. Definition of Landlord. The term "Landlord" as used in this
Lease, so far as covenants or obligations on the part of Landlord
are concerned, shall be limited to mean and include only the owner
or owners, at the time in question, of the fee title to, or a
lessor's interest in a ground lease of the Site or master lease of
the Building. In the event of any transfer, assignment or other
conveyance or transfers of any such title or interest, Landlord
herein named (and in case of any subsequent transfers or
conveyances, the then grantor) shall be automatically freed and
relieved from and after the date of such transfer, assignment or
conveyance of all liability with respect to the performance of any
covenants or obligations on the part of Landlord contained in this
Lease thereafter to be performed and, without further agreement, the
transferee of such title or interest shall be deemed to have agreed
to observe and perform any and all obligations of Landlord
hereunder, during its ownership of the Premises. Landlord may
transfer its interest in the Premises without the consent of Tenant
and such transfer or subsequent transfer shall not be deemed a
violation on Landlord's part of any of the terms and conditions of
this Lease.
39. Waiver. The failure of Landlord to seek redress for violation
of, or to insist upon strict performance of, any term, covenant, or
condition of this Lease (including the Rules and Regulations
attached hereto as Exhibit "E") shall not be deemed a waiver of such
violation or prevent a subsequent act which would have originally
constituted a violation from having all the force and effect of an
original violation, nor shall the failure of Landlord to enforce Any
of said Rules and Regulations against any other tenant of the
Building be deemed a waiver of any such Rule or Regulation, nor
shall any custom or practice which may become established between
the parties in the administration of the terms hereof be deemed a
waiver of, or in any way affect, the right of Landlord to insist
upon the performance by Tenant in strict accordance with said terms.
The subsequent acceptance of rent hereunder by Landlord shall not be
deemed to be a waiver of any preceding breach by Tenant of any term,
covenant or condition of this Lease, other than the failure of
Tenant to pay the particular rent so accepted, regardless of
Landlord's knowledge of such preceding breach and the time of
acceptance of such rent.
40. Joint and Several Liability. Unless the provisions of Paragraph
54 hereinbelow are applicable to this Lease, then if more than one
person executes this Lease as Tenant, (a) each of them is jointly
and severally liable for the keeping, observing, and performing of
all of the terms, covenants, conditions, provisions, and agreements
of this Lease to be kept, observed, and performed by Tenant, and (b)
the term "Tenant" as used in this Lease shall mean and include each
of them jointly and severally and the act of or notice from, or
notice or refund to, or the signature of, any one or more of them,
with respect to the tenancy or this Lease, including, but not
limited to, any renewal, extension, expiration, termination or
modification of this Lease, shall be binding upon each and all of
the persons executing this Lease as Tenant with the same force and
effect as if each and all of them had so acted or so given or
received such notice or refund or so signed.
41. Parking. Unless Tenant is in default hereunder, Tenant shall be
entitled on a non-exclusive and unreserved basis to park on those
portions of the Common Areas designated by Landlord for parking at a
ratio of four (4) spaces per thousand (1,000) rentable square feet
which includes Tenant's pro rata share of access cards for
underground parking, with Landlord reserving the right to assign any
unreserved and unassigned parking spaces, charge a reasonable fee
for parking, and/or make all or a portion of such spaces reserved,
if it determines in its sole discretion that it is necessary for
orderly and efficient parking. In the event Landlord has not
assigned specific spaces to Tenant, Tenant shall not use any spaces
which have been so specifically assigned by Landlord to other
tenants or for such other uses as visitor parking or which have been
designated by governmental entities with competent jurisdiction as
being restricted to certain uses. Tenant's use of the parking
facilities shall be in accordance with the following provisions:
(a) Tenant shall not permit or allow any vehicles that belong to
or are controlled by Tenant or Tenant's employees, suppliers,
shippers, customers, or invitees to be loaded, unloaded, or
parked in areas other than those designated by Landlord for such
activities.
(b) If Tenant permits or allows any of the prohibited activities
described in this Paragraph 41, then Landlord shall have the
right, with reasonable notice, in addition to such other rights
and remedies that it may have, to remove or tow away the vehicle
involved and charge the cost to Tenant, which cost shall be
immediately payable upon demand by Landlord.
(c) Landlord reserves the right at any time to relocate parking
spaces and to substitute an equivalent number of parking spaces
in a parking structure or subterranean parking facility or in a
surface parking area within a reasonable distance of the Premises.
Tenant's Initials Landlord's Initials Page 15 JAG 102696
(d) Tenant shall Comply with all Rules and Regulations as set
forth in Exhibit "E". Landlord reserves the right to reasonably
modify, add to, or delete from time to time such Rules and
Regulations as it deems reasonably necessary for the operation of
said parking. Landlord may refuse to permit any person who
violates with unreasonable frequency the Rules and Regulations to
park in the Building parking facility, and any violation of the
rules shall subject the car to removal.
(e) Tenant shall repair or cause to be repaired at its sole cost
and expense any and all damage to the Building parking facility
or any part thereof caused by Tenant or its licensees, invitees,
employees or agents..
42. Security Measures. Tenant hereby acknowledges that the rent
payable by Tenant hereunder does not include the cost of guard
service or other security measures and that Landlord shall have no
obligation whatsoever to provide such services. Landlord may, but
shall not be obligated to, provide security services to the Common
Areas as part of the Operating Expenses for the convenience of
Tenant and other tenants of the Building; provided, however, Tenant
understands and acknowledges that any such services shall only be
for convenience and shall not be for protecting persons or property.
Tenant assumes all responsibility for the protection of Tenant and
its agents, employees, licensees, and invitees from acts of third
parties.
43. Terms and Headings. The words "Landlord" and "Tenant" as used
herein shall include the plural as well as the singular. Words used
in any gender include other genders. If there be more than one
Tenant, i.e., if two or more persons or entities are jointly
referred to in this Lease as "Tenant," the obligations hereunder
imposed upon Tenant shall be joint and several. The Paragraph
headings of this Lease are not a part of this Lease and shall have
no effect upon the construction or interpretation of any part hereof.
44. Time. Time is of the essence with respect to the performance of
every provision of this Lease in which time or performance is a factor.
45. Prior Agreement; Amendments. This Lease contains all of the
agreements of the parties hereto with respect to any matter covered
or mentioned in this Lease, and no prior agreement or understanding,
oral or written, express or implied, pertaining to any such matter
shall be effective for any purpose. No provision of this Lease may
be amended or added to except by an agreement in writing signed by
the parties hereto or their respective successors in interest. The
parties acknowledge that all prior agreements, representations, and
negotiations are deemed superseded by the execution of this Lease to
the extent they are not incorporated herein.
46. Severability. Any provision of this Lease which shall prove to
be invalid, void or illegal in no way affects, impairs, or
invalidates any other, provision hereof, and such other provisions
shall remain in full force and effect.
47. Recording. Tenant shall not record this Lease nor a short form
memorandum thereof without the consent of the Landlord.
48. Limitation on Liability. The obligations of Landlord under this
Lease do not constitute personal obligations of the individual
partners, directors, officers or shareholders of Landlord, and
Tenant shall not seek recourse against the individual partners,
directors, officers, or shareholders of Landlord or any of their
personal assets for satisfaction of any liability with respect to
this Lease. In consideration of the benefits accruing hereunder,
Tenant and all successors and assigns covenant and agree that in the
event of any actual or alleged failure, breach or default hereunder
by Landlord, the sole and exclusive remedy shall be against
Landlord's interest in the Building.
49. Exhibits; Riders. Exhibits, clauses, plats, and riders, if any,
affixed to this Lease are a part hereof.
50. Signs. To maintain the continuity of the architectural and
aesthetic design of the Building and the Project as determined by
Landlord, no sign, name, logo, placard, picture, advertisement, or
notice shall be placed, displayed, installed, or maintained by
Tenant in or on the Premises or the Building without Landlord's
prior written approval and the approval of all required governmental
authorities. Landlord may, at Tenant's expense, remove all
unauthorized signs installed or caused to be installed by Tenant,
and Tenant shall be liable for all damages incurred as a result of
such removal. All approved signs and lettering on the Premises shall
be printed, painted, inscribed, lighted, or affixed at Tenant's
expense by Landlord or by a person selected by Landlord, in the
quantity, size, style, location, content, color, and material
acceptable to Landlord.
51. Modification for Lender. If in connection with obtaining
construction, interim or permanent financing for the Building, the
lender shall request reasonable modifications in this Lease as a
condition to such financing, Tenant will not unreasonably withhold,
delay or defer its consent thereto, provided that such modifications
do not increase the obligations of Tenant hereunder or materially
adversely affect the leasehold interest hereby created or Tenant's
right hereunder.
Tenant's Initials Landlord's Initials Page 16 JAG 102696
52. Accord and Satisfaction. No payment by Tenant or receipt by
Landlord of a lesser amount than the rent payment herein stipulated
shall be deemed to be other than on account of the rent, nor shall
any endorsement or statement on any check or any letter accompanying
any check or payment as rent be deemed an accord and satisfaction
and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such rent or pursue any
other remedy provided in this Lease. Tenant agrees that each of the
foregoing covenants and agreements shall be applicable to any
statute or at common law.
53. [stricken paragraph]
54. Tenant as Corporation or Partnership. If Tenant executes this
Lease as a corporation, then Tenant and the persons executing this
Lease on behalf of Tenant represent and warrant that the individuals
executing this Lease on Tenant's behalf are duly authorized to
execute and deliver this Lease on its behalf in accordance with a
duly adopted resolution of the board of directors of Tenant, a copy
of which is to be delivered to Landlord on execution hereof, and in
accordance with the by-laws of Tenant and that this Lease is binding
upon Tenant in accordance with its terms. If Tenant is a
partnership, each person signing this Lease on behalf of Tenant
represents and warrants that he or she is a general partner of the
partnership and has full authority to bind the partnership
hereunder. In such case, Tenant shall deliver to landlord a copy of
Tenant's recorded statement of partnership or certificate of limited
partnership upon execution of this Lease. Tenant shall give written
notice to Landlord of any transfer of partnership or shareholder
interest.
55. No Partnership or joint Venture. Nothing in this Lease shall be
deemed to constitute Landlord and Tenant as partners or joint
venturers. It is the express intent of the parties hereto that their
relationship with regard to this Lease be and remain that of
landlord and tenant.
56. Hazardous Materials. Tenant shall not (either with or without
negligence) cause or permit the escape, disposal, or release of any
biologically or chemically active or other hazardous substances, or
materials on or about the Premises, the Building, or the Site.
Tenant shall not allow the storage or use of such substances or
materials in any manner not sanctioned by law or by the highest
standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Premises,
the Building, or the Site any such materials or substances except to
use in the ordinary course of Tenant's business, and then only after
written notice is given to Landlord of the identity of such
substances or materials, and Tenant provides to Landlord copies of
all licenses and permits required in connection with handling such
materials. Without limitation, hazardous substances and materials
shall include those described in the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as. amended, 42
U.S.C. Section 9601 et seq., the Resource Conservation and Recovery
Act, as amended, 42 U.S.C. Section 6901 et sec., any applicable
state or local laws, and the regulations adopted under these acts.
If any lender or governmental agency shall ever require testing to
ascertain whether or not there has been any escape, disposal or
release of hazardous materials, then the reasonable costs thereof
shall be reimbursed by Tenant to Landlord upon demand as additional
rent if such requirement applies to the Premises. In all events,
Tenant shall indemnify landlord in the manner elsewhere provided in
the Lease from any release of hazardous materials on the Premises
occurring while Tenant is in possession, or elsewhere if caused by
Tenant or persons acting under Tenant. The within covenants shall
survive the expiration or earlier termination of the term of this
Lease.
57. Discrimination. THIS SECTION INTENTIONALLY DELETED.
58. Other Tenants. Tenant does not rely on, nor does Landlord
represent that: (a.) any specific tenant or number of tenants shall
occupy any space in the Building during the Lease Term; or (b) any
Building feature, facility, or service shall continue to exist if
presently in place or shall be put into place if not presently in
place, except as expressly set. forth in this Lease.
59. Keys. Two (2) keys to the Premises shall be furnished by
Landlord. Additional keys will be furnished upon Tenant paying
Landlord the cost thereof. No additional locks or alarms shall be
placed by Tenant on any door in the Building unless written consent
of Landlord shall have been first obtained; and should such consent
be so obtained, Landlord shall be supplied with keys and alarm
codes, if applicable, to each such lock and only employees of
Landlord or those it has authorized in writing shall work on or
modify any lock or alarm which is part of the Premises. Tenant shall
not cause or allow the duplication of any keys to be made, and
Tenant shall not cause or allow any person who is not an authorized
agent of Tenant to possess any key to the Premises. Tenant agrees to
return all keys to doors to the Premises on termination of the Lease.
Tenant's Initials Landlord's Initials Page 17 JAG 102696
60. Inability to Perform. Landlord shall have no liability
whatsoever to Tenant on account of the inability of Landlord to
fulfill, or delay in fulfilling, any of Landlord's obligations under
this Lease by reason of strike, other Labor trouble, governmental
pre-emption of priorities or other controls in connection with a
national or other public emergency, or shortages of fuel, supplies
or Labor resulting therefrom, or any other cause, whether similar or
dissimilar to the above, beyond Landlord's reasonable control. If
this Lease specifies a time period for performance of an obligation
of Landlord that time period shall be extended by the period of any
delay in performance by Landlord which is mused by any of the events
described above.
61. Submission of Lease. Submission of this instrument for Tenant's
examination or execution does not constitute a reservation of space
or an option to lease. This instrument shall not be effective until
executed by Tenant, personally delivered to Landlord for execution
and an executed copy thereof returned by Landlord to Tenant.
TENANT: LANDLORD:
PACIFIC ENGINEERING SYSTEMS, INC. 8101 ANAHEIM ASSOCIATES
A California corporation A California general partnership
/s/ Art Granito /s/ Walter J. Asher
Name: Art Granito Name: Walter J. Asher
Title: Chief Executive Officer Title: General Partner
Exhibit "A"
Outline of Floor Plan of Premises
Exhibit "B"
Site Plan
Exhibit "C"
Work Letter Agreement
This Work Letter Agreement, is entered into as of the day of
October, 1996, by and between 8101 ANAHEIM ASSOCIATES ("Landlord")
and PACIFIC ENGINEERING SYSTEMS, INC. ("Tenant).
RECITALS
A. Concurrently with execution of this Work Letter Agreement,
Landlord and Tenant have entered into a lease (the "Lease") covering
certain premises (the "Premises") more particularly described in the
Lease.
B. In order to induce Tenant to enter into the Lease (which is
hereby incorporated by reference to the extent that the provisions
of this Work Letter Agreement may apply thereto) and in
consideration of the mutual covenants hereinafter contained,
Landlord and Tenant hereby agree as follows:
1. Tenant Improvements.
(a) Suite 200, Second Floor. Tenant agrees to accept the portion
of the Premises included in Suite 200 in its "as is" condition. The
Landlord shall have no obligation to provide any improvements of any
kind or to pay for any desired changes or improvements thereto
required or desired by Tenant.
(b) Suite 130, First Floor. Landlord agrees to provide Tenant
with an allowance for the purpose of improving the portion of the
Premises included in Suite 130 in an amount equal to $15.00 per
useable square foot for the useable square footage within said
suite. Said allowance shall include the costs of all construction,
permits, fees, space planning and other necessary costs. The useable
square footage within said suite is 3,034. The allowance totals
Forty Five Thousand Five Hundred Ten Dollars ($45,510). Tenant shall
pay any excess costs above the allowance provided by Landlord for
the design and/or construction of such improvements.
2. Tenant Improvement Plan . Tenant shall be responsible for the
preparation of all necessary final architectural drawings and space
plans for Suite 130. Such final working drawings and specifications
may be referred to herein as the "Tenant Improvement Plans." The
Tenant Improvement Plans must be consistent with Landlord's standard
specifications (the "Standards") for tenant improvements in the
Building, as the same may be changed from time to time by Landlord.
Without limitation, the Standards shall require that the Tenant
Improvement Plans (a) be compatible with the Base Building Shell and
with the design, construction, and equipment of the Building; (b)
comply with all applicable laws and ordinances, and the rules and
regulations of all governmental authorities having jurisdiction; and
(c) comply with all applicable insurance requirements.
3. Non-Standard Tenant Improvements. Landlord shall permit Tenant to
deviate from the Standards for the Tenant Improvements, provided
that (a) the deviations shall not be of a lesser quality than the
Standards; (b) the deviations conform to applicable governmental
regulations and necessary governmental permits and approvals have
been secured; (c) the deviations do not require Building service
beyond the level normally provided to other tenants in the Building
and do not overload the floors; and (d) Landlord has determined in
its reasonable discretion that the deviations are of a nature and
quality that are consistent with the overall objectives of Landlord
for the Building.
4. Construction of Tenant Improvements. After the Tenant Improvement
Plans have been prepared and approved, and the final pricing has
been approved and a building permit for the Tenant Improvements has
been issued, Tenant shall enter into construction contract(s) with
its subcontractor(s) for the installation of the Tenant Improvements
in accordance with the Tenant Improvement Plans. All work shall be
performed by subcontractor(s) approved by Landlord. Landlord shall
not be liable for any direct or indirect damages to Tenant as a
result of delays in construction for any reason, including, but not
limited to, acts of God, inability to secure governmental approvals
or permits, governmental restrictions, strikes, availability of
materials or labor, or delays caused by the actions or omissions of
any third party.
5. Use of the Tenant Improvement Allowance.
A. The Tenant Improvement allowance shall be used for the following:
1. Payment of the cost of preparing the space plan and the
final working drawings and specifications, including
mechanical, electrical, plumbing and structural drawings,
for the Tenant Improvement Plans.
Tenant's Initials Landlord's Initials Page C-1 JAG 10594
2. The payment of plan check, permit and license fees
relating to construction of Tenant Improvements, sales and
use taxes, and Title 24 fees.
3. Construction of the Tenant Improvements, including the
following:
(a) Installation within the Premises of partitioning,
doors, floor coverings, ceilings, wall coverings and
painting, millwork and similar items.
(b) Provision of electrical wiring, lighting fixtures,
outlets and switches, and other electrical work to be
installed within the Premises (all UL-approved).
(c) Furnishing and installation of duct work, terminal
boxes, diffusers and accessories required for the
completion of the heating, ventilation, and air
conditioning systems within the Premises, including the
cost of meter and key control for after-hours air
conditioning.
(d) Provision of fire and life safety control systems
such as fire walls, sprinklers, halon, fire alarms,
including piping, wiring, and accessories installed
within the Premises.
(e) Provision of plumbing, fixtures, and accessories to
be installed within the Premises.
(f) Testing and inspection costs.
(g) Overhead and supervision allowance of two percent
(2%) of the work performed, to be paid to Landlord.
B. In the event that the cost of installing the Tenant
Improvements, as established by the final pricing schedule, shall
exceed the Tenant Allowance, or if any of the Tenant Improvements
are not to be paid out of the Tenant Allowance, such costs shall
be paid by Tenant.
C. Any unused portion of the Tenant Allowance upon completion of
the Tenant Improvements shall not be refunded to Tenant or made
available to Tenant as credit against any obligations of Tenant
under the Lease. All Tenant Improvements, whether or not the
cost thereof is covered by the Tenant Allowance, shall become the
property of Landlord upon expiration or earlier termination of
the Lease and shall remain on the Premises at all times during
the Lease Term.
6. Delay in Substantial Completion. Should there be any delay in
substantial completion of the Tenant Improvements for any reason
(other than the act or omissions of the Landlord), the commencement
of the Lease Term shall not be affected.
7. Payment of the Tenant Improvement Allowance. The Tenant
Improvement Allowance shall be paid by Landlord to Tenant in a lump
sum upon demand therefor presented to the Landlord along with a
Certificate of Occupancy for the suite and the general contractor's
release of lien.
8. Inconsistency. In the event that any terms or provisions of this
Work Letter Agreement conflict with the Lease to which it is an
attachment, the terms of this Work Letter Agreement shall control to
the extent of any such inconsistency.
IN WITNESS WHEREOF, this Work Letter Agreement is executed as of the
date written above.
TENANT: LANDLORD:
PACIFIC ENGINEERING SYSTEMS, INC. 8101 ANAHEIM ASSOCIATES
A California corporation A California general partnership
/s/ Art Granito /s/ Walter J. Asher
Name: Art Granito Name: Walter J. Asher
Title: Chief Executive Officer Title: General Partner
Tenant's Initials Landlord's Initials Page C-2 JAG 10594
Exhibit "D"
Sample Form of
Tenant Estoppel Certificate
The undersigned,
("Landlord"), with a mailing address
, and ("Tenant"),
hereby certify to , a
as follows:
1. Attached hereto is a true, correct, and complete copy of that
certain lease dated , 19 between
Landlord and Tenant (the "Lease), which demises premises which are
located at . The
Lease is now in full force and effect and Tenant has no knowledge of
any facts giving rise to a right to terminate the Lease, and the Lease
has not been amended, modified, or supplemented, except as set forth
in Paragraph 4 below.
2. The term of the Lease commenced on , 19 .
3. The term of the Lease shall expire on , 19
.
4. The Lease has: (initial one)
( ) not been amended, modified, supplemented, extended,
renewed or assigned.
( ) been amended, modified, supplemented, extended, renewed
or assigned by the following described agreements, copies of
which are attached hereto:
5. Tenant has accepted, is now in possession of and is now
conducting business in said Premises.
6. Tenant and Landlord acknowledge that the Lease will be
assigned to and that no modification,
adjustment, revision or cancellation of the Lease or amendments
thereto shall be effective unless written consent of
is obtained, and that until further notice, payments
under the Lease may continue as heretofore.
7. The amount of fixed monthly rent is $ and the amount of
security
deposits (if any) is $ . No other security deposits
have been made.
8. Tenant is paying the full lease rental, which has been paid in
full as of the date hereof. No rent under the Lease has been paid
for more than thirty (30) days in advance of its due date.
9. All work required to be performed by Landlord under the Lease
has been completed and all required contributions by Landlord to
Tenant on account of Tenant's improvements have been received.
10. There are no defaults on the part of the Landlord or Tenant
under the Lease and Tenant has no defense as to its obligations
under the Lease and claims no set-off or counterclaim against Landlord.
11. Tenant has no right to any concession (rental or otherwise)
or similar compensation in connection with renting the space it
occupies, except as provided in the Lease.
Tenant's Initials Landlord's Initials Page D-1 JAG 92696
12. Tenant does not have any options or rights to purchase the
Premises except as set forth in the Lease.
13. No actions, whether voluntary or otherwise, are pending
against the Tenant under the bankruptcy laws of the United States or
any state thereof.
14. The Lease, amended as noted in Item 4 above, represents the
entire agreement between Landlord and Tenant as to this leasing. All
provisions of the Lease and the amendments thereto (if any) referred
to above are hereby ratified.
The foregoing certification is made with the knowledge that
is relying upon the
representations herein made in connection with
.
DATED: , 19 .
Tenant: Landlord:
Sample Only
Not for Execution
Exhibit "E"
Rules and Regulations
Office Lease
1. Tenant must use window coverings approved by Landlord in all
exterior or atrium window offices. No awning shall be permitted on
any part of the Premises. Tenant shall not place anything against or
near glass partitions, doors, or windows which may appear unsightly
from outside the Premises.
2. The halls, passages, exits, entrances, elevators, and stairways
are not for the use of the general public. Tenant shall not obstruct
the halls, passages, exits, entrances, elevators or stairways.
Landlord shall in all cases retain the right to control and prevent
access thereto of all persons whose presence in the judgment of
Landlord would be prejudicial to the safety, character, reputation,
or interests of the Building and its tenants; Provided that nothing
contained herein shall be construed to prevent access to persons
with whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal activities. No
tenant and no employee or invitee of any tenant shall go upon the
roof of the Building or into mechanical, electrical, or phone rooms
without Landlord's consent. All common areas and facilities forming
a part of the Building shall be under the sole and absolute control
of Landlord with exclusive right to regulate and control these areas
held by Landlord.
3. Any directory of the Building will be provided, at Tenant's
expense, exclusively for the display of the name and location of
tenants only and Landlord reserves the right to limit the number of
listings and exclude any other names therefrom.
4. All cleaning and janitorial services for the Building and the
Premises shall be provided exclusively through Landlord, at Tenant's
expense, and except with the written consent of Landlord, no person
or person's other than those approved by Landlord shall be employed
by Tenant or permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by
carelessness or indifference to the orderliness and cleanliness of
the Premises. Landlord shall not in any way be responsible to any
Tenant for any loss of property on the Premises, however occurring,
or for any damage to any Tenant's property by the janitor or any
other employee or any other person.
5. If Tenant requires telegraphic, telephonic, burglar alarm, or
similar services, it shall first obtain, and comply with, Landlord's
instructions in their installation.
6. Any freight elevator shall be available for use by all tenant-,
in the Building, subject to such reasonable scheduling as Landlord,
in its sole discretion, shall deem appropriate. No equipment,
materials, furniture, packages, supplies, merchandise, or other
property shall be received in the Building or carried in the
elevators except between such hours and in such elevators as may be
designated by Landlord.
7. Tenant shall not place a load upon any floor Of the Premises
which exceeds the load per square foot which such floor was designed
to carry. Landlord shall have the right to prescribe the weight,
size, and position of all equipment, materials, furniture, or other
property brought into the Building. If heavy objects are deemed
necessary by Tenant, and are pre-approved by Landlord, said objects
shall stand on, platforms to properly distribute the weight, the
size and thickness of which shall be in Landlord's sole discretion.
Any mechanical equipment or business machines which cause noise or
vibration to be transmitted to the structure of the Building or
other tenants space and is objectionable to Landlord shall be placed
on vibration eliminators. or other devices sufficient to eliminate
noise or vibration. Said eliminators shall be installed and
maintained at Tenant's sole expense. The persons employed to move
such equipment in or out of the Building must be acceptable to
Landlord. Landlord will not be responsible for loss of, or damage
to, any such equipment or other affected property or any damage done
to the Building or other tenants by maintaining or moving such
equipment or other property. All such loss or damage shall be
Tenant's responsibility and/or repaired at Tenant's sole expense.
8. Tenant shall not use or keep in the Premises any kerosene,
gasoline, or flammable or combustible fluid or material.
9. Tenant shall not use, or permit to be used, in the Premises any
foul or noxious gas or substance.
Tenant's Initials Landlord's Initials Page E-1 JAG 102696
10. Tenant shall not permit or allow the premises to be occupied or
used in a manner offensive or objectionable to Landlord or other
occupants of the Budding by reason of noise, odors or vibrations.
11. Tenant shall not bring into or keep in or about the Premises any
birds or animals, except seeing-eye dogs when accompanied by their
masters.
12. Landlord shall provide natural gas, water and electricity to the
Premises twenty-four (24) hours a day, seven (7)days a week. The
building systems and HVAC system hours of operation shall be 6:00
a.m. to 7:00 p.m. Monday through Friday, excluding legal holidays.
Tenant shall not use any method of heating or air conditioning other
than that supplied or approved by Landlord. Tenant shall not waste
electricity, water, or air conditioning and agrees to cooperate
fully with Landlord to assure the most effective operation of the
Building's heating and air conditioning and to comply with any
governmental energy-saving rules, laws, or regulations for which
Tenant has actual notice and shall
refrain from attempting to adjust controls. other than room
thermostats installed for Tenant's use. Tenant shall keep corridor
and/or exterior doors closed, and shall close window coverings at
the end of each business day. Tenant agrees to pay for after hours
usage of the HVAC systems within the Premises at the rate of $35 per
hour.
13. Landlord reserves the right to exclude from the Building between
the hours of 6:00 p.m. and 7:00 a.m. the following day, or such
other hours as may be established from time to time by Landlord, and
on Saturdays, Sundays and legal holidays, any persons unless that
person is known to the person or employee in charge of the Building
and has a pass or is properly identified. 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 not
be liable for damages or for any error with regard to the admission
to or exclusion from the Building of any person. Landlord reserves
the right to prevent access to the Building in case of invasion,
mob, riot, public excitement, or other commotion by closing the
doors or by other appropriate action.
14. Tenant shall close and lock the doors of its Premises and
entirely shut off all water faucets or other water apparatus and,
except with regard to Tenant's computers and other equipment which
must be run on a twenty-four hour basis, all electricity, gas or air
outlets before Tenant and its employees leave the Premises. Tenant
shall be responsible for any damage or injuries by other tenants or
occupants of the Building or by Landlord resulting from
noncompliance with this rule.
15. Tenant shall not accept barbering or shoe shine services upon
the Premises.
16. 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. 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.
17. Tenant shall not sell, or permit the sale at retail, of
newspapers, magazines, periodicals, theater tickets or any other
goods or merchandise to the general public in or on the Premises.
Tenant shall not make any suite-to-suite solicitation of business
from other tenants in the Building. Tenant shall not use the
Premises for any business or activity other than that specifically
provided for in Tenant's Lease.
18. Tenant shall not mark, drive nails, screw, or drill into the
partitions, woodwork, or plaster or in any way deface the Premises
or any part thereof, except to install normal wall hangings.
Landlord reserves the right to direct electricians, as to where and
how telephone and telegraph wires are to be introduced to the
Premises. Tenant shall not cut or bore holes for wires. Tenant shall
not affix any floor covering to the floor of the Premises in any
manner except as approved by Landlord. Tenant shall repair any
damage resulting from noncompliance with this rule.
19. Tenant shall not install, maintain, or operate upon the Premises
any vending machine without the written consent of Landlord.
20. Canvassing, soliciting, or distribution of handbills or any
other written material and peddling in the Building or on the Site
are prohibited and each tenant shall cooperate to prevent same.
21. Landlord reserves the right to exclude or expel from the
Building any person who, in Landlord's judgment, is intoxicated or
under the influence of drugs or who is in violation of any of the
Rules and Regulations of the Building.
22. Tenant shall store all its trash and garbage within its Premises
or deposit in outside refuse containers intended for this purpose.
Tenant shall not place in any trash box of receptacle any material
which cannot be disposed of in the
Tenant's Initials Landlord's Initials Page E-2 JAG 102696
ordinary and customary manner of trash and garbage disposal. All
garbage and refuse disposal shall be made in accordance with
directions issued from time to time by Landlord. The outside areas
immediately adjoining the Premises shall be kept clean and free from
rubbish by Tenant to the satisfaction of Landlord, and Tenant shall
not place or permit any obstruction or materials in such areas.
23. The Premises shall not be used for lodging nor shall the
Premises be used for any improper, immoral, objectionable purpose.
No cooking shall be done or permitted by any tenant on the Premises,
except that use by Tenant of Underwriters' Laboratory-approved
equipment for brewing coffee, tea, hot chocolate and similar
beverages shall be permitted and the use of a microwave oven with
all applicable federal, state, county, and city laws, codes,
ordinances, rules and regulations.
24. Tenant shall not use in any space or in the public halls of the
Building any mailcarts or hand trucks except those equipped with
rubber tires and side guards or such other material handling
equipment as Landlord may approve. Tenant shall not bring any other
vehicles of any kind into the Building. Carpet stains caused by
hand trucks shall be cleaned at Tenant's expense.
25. Tenant shall comply with all safety, fire protection, and
evacuation procedures and regulations established by Landlord or any
governmental agency.
26. Tenant assumes any and all responsibility for protecting its
Premises from theft, robber, or pilferage.
27. Tenant shall address repair requests, concerns, etc., in
writing to the office of the Building. Employees of Landlord shall
not perform repairs on behalf of Landlord or Tenant without express
authority from Landlord.
28. Landlord may waive any one or more of these Rules and
Regulations for the benefit of Tenant or any other tenant, but no
such waiver by Landlord shall be construed as a waiver of such Rules
and Regulations in favor of tenant or any other tenant, nor prevent
Landlord from thereafter enforcing any such Rules and Regulations
against any or all of the tenants in the Building.
Parking Rules and Regulations
1. Tenant and authorized users shall not park vehicles in any
parking areas designated by Landlord as areas for parking by
visitors to the Building.
2. Tenant and authorized users shall not leave unauthorized
vehicles in the Building parking areas overnight.
3. Tenant and authorized users shall not park any vehicles in the
Building parking areas other than automobiles, motorcycles, motor
driven or non-motor driven bicycles, or trucks. Landlord may, in
its sole discretion, designate separate areas for bicycles and
motorcycles.
4. Cars must be parked entirely within the painted stall lines.
5. All directional signs and arrows must be observed.
6. The speed limit shall be 5 miles per hour.
7. Parking is prohibited:
a. in areas not striped for parking;
b. in aisles;
Tenant's Initials Landlord's Initials Page E-3 JAG 102696
c. where "No Parking" signs are posted;
d. on ramps;
e. in crosshatched areas; or
f. in such other areas as may be designated by Landlord, its
agent, lessee or licensee.
8. Parking stickers or any other device or form of identification
that may be supplied by Landlord shall remain the property of
Landlord. Such parking identification device must be displayed as
requested and may not be mutilated in any manner. The serial number
of the parking identification device may not be obliterated. Devices
are not transferrable, and any device in the possession of an
unauthorized holder will be void. There will be a replacement charge
to the Tenant or authorized user for loss of any magnetic parking
card or other parking identification device.
9. Parking managers or attendants, if any, are not authorized to
make or allow any exceptions to these Parking Rules and Regulations.
10. Loss or theft of parking identification devices from
automobiles must be reported to the garage manager and/or Landlord
immediately. Any parking identification devices, found on any
unauthorized car will be confiscated. Lost or stolen devices
previously reported and then found must be reported found to the
office of the garage and/or Landlord immediately.
11. Spaces are for the express purpose of one automobile per space.
Washing, waxing, cleaning, or servicing of any vehicle by the
Tenant, authorized user and/or its agents or representatives is
prohibited.
12. The parking management, if any, and/or Landlord reserve the
right to refuse the issuance of monthly stickers or other parking
identification devices to any tenant, authorized user, or person
and/or its agents or representatives who willfully refuse to comply
with the above Parking Rules and Regulations or any City, State, or
Federal ordinance, law, or agreement.
13. Tenant, authorized users or its agents or representatives shall
not load or unload in areas other thin those designated by Landlord
for such activities.
14. Tenant, authorized users or agents or representatives thereof
and unauthorized users parked in prohibited. areas, are subject to
towing at tenant's or owner's expense.
15. These Rules and Regulations are in addition to the terms,
covenants, agreements and conditions of any lease of premises in the
Building. In the event these Rules and Regulations conflict with any
provision of the Lease, the Lease shall govern.
16. Landlord reserves the right to make such other and reasonable
Rules and Regulations as, in its judgment, may from time to time be
needed for safety, security, care, and cleanliness of the Building
and for the preservation of orderliness therein. Tenant agrees to
abide by all such Rules. and Regulations hereinabove stated and any
additional rules and regulations which are adopted.
17. Tenant shall be responsible for the observance of all of the
foregoing rules by Tenant's employees, agents, clients, customers,
invitees, and guests.
Tenant's Initials Landlord's Initials Page E-4 JAG 102696
Exhibit "F"
Definitions of
Rentable/Usable Square Feet
1. The term "Usable Square Footage" shall mean all of the square
footage within the Premises and one half (1/2) the thickness of
demising walls. No reduction shall be made for columns or other
structural portions of the Building, or for recessed fronts or
projections necessary to the Building.
2. The term "Rentable Square Footage" shall mean the Usable Square
Footage increased by a factor of 12.9% to cover the use of the
Common Areas, corridors, mechanical rooms, electrical rooms,
telephone closets, janitorial closets, exit stairs, elevators (if
any), mechanical shaft, restrooms, and other areas within the
Building interior.
3. The approximate square footage of the Premises (set forth in
Subparagraph 1(j) of the Lease) and the Building shall be adjusted
to the final plans as calculated by the architect or space planner
responsible for the building or space plans. If either Landlord or
Tenant disputes the calculation of square footage, it may elect to
have the space remeasured by an architect or space planner of its
own choosing. In the event such remeasuring produces a discrepancy
in the square footage, the two architects and/or space planners
responsible shall meet and resolve said discrepancy so that the
square footage may be finally determined. Base Rent, Tenant's
Percentage Share, the Security Deposit, the Tenant's Allowance, and
any other appropriate rental, or calculation shall be adjusted
accordingly.
Exhibit "G"
Operating Expenses
1. Definitions. For the purposes of this Exhibit "G", the following
terms are defined as follows:
(a) Tenant' s Percentage Share. Tenant's Percentage Share shall
mean that portion of the total rentable area of the Building
occupied by Tenant as set forth as a percentage in Subparagraph
1(r) of the Lease.
(b) Operating Expense Allowance.
(i) Tenant shall pay, as additional rent, Tenant's
Percentage Share of Operating Expenses in excess of the
Base Expense Rate. For purposes hereof, the Base Expense
Rate shall be defined as Calendar Year 1997 Operating
Expenses.
(ii) Operating Expenses, if any, for the first Lease
Year shall, be payable within ten (10) days after the
earlier of (a) the expiration of the first Lease Year
and/or (b) receipt of written notice from Landlord of
the amount of Operating Expenses due. Prior to the
commencement of the second and each subsequent Lease
Year, Landlord shall notify Tenant of the estimated
Operating Expenses for each period and Tenant shall pay
one-twelfth (1/12) of such amount with its monthly
installment of Base Rent. Landlord's estimate shall be
based upon Operating Expenses for the preceding year,
increases in he Index, and any additional factors
reasonably anticipated to affect Operating Expenses and
Landlord shall have the right to change such estimate at
any given time to reflect actual changes in the
Operating Expenses. Any delay or failure by Landlord in
delivering any estimate or statement pursuant to this
Paragraph shall not constitute a waiver of its right to
require an increase in rent nor shall it relieve Tenant
of its obligations pursuant to this Paragraph, except
that Tenant shall not be obligated to make any payments
based on such estimate or statement until ten (10) days
after receipt of such estimate or statement. If any
Lease Year during the Lease Term is less than twelve (
12) months, then the actual cost of Operating Expenses
per rentable Square Foot of the Building shall be
annualized.
(iii) After the end of each Lease Year, Landlord shall
furnish to Tenant a statement showing in reasonable
detail the Operating. Expenses for such period. Tenant
shall pay to Landlord within ten (10) days of receipt of
such statement the amount, if any, by which Operating
Expenses exceeds the amounts paid by Tenant for such
Lease Year. In the event that the estimated amounts paid
by Tenant for Operating Expenses exceeds the cost of
same, the difference shall be credited by Landlord
against the Base Rent next due and owing from Tenant. If
the Lease Term has expired, and Tenant has vacated the
Premises, Tenant shall immediately pay to Landlord any
amount by which the Operating Expenses exceeds amounts
paid by Tenant for such period; conversely, Landlord
shall immediately pay to Tenant any amount by which the
amount paid by Tenant exceeds the Operating Expenses for
such period.
(c) OPERATING EXPENSES. Operating Expenses shall consist of all
direct costs of operation and maintenance of the Building, the
Common Areas, and the Site as determined by standard accounting
practices, grossed-up to 95% occupancy for the Base Year and
any Lease Year where such is necessary, including the following
costs by way of illustration, but not limitation: Real Property
Taxes and Assessments (as defined in Subparagraph (d) below)
and any taxes or assessment's hereafter' imposed in lieu
thereof; rent taxes, gross receipt taxes (whether assessed
against landlord or assessed against Tenant and collected by
landlord, or both); water and sewer charges; the net cost and
expense of insurance for which landlord is responsible
hereunder or which landlord or any first mortgagee with a lien
affecting the Premises reasonably deem necessary in connection
with the operation of the Building, including, without
limitation, full, replacement cost insurance on the Building;
utilities; janitorial services; security; labor; parking
expenses; utilities; surcharges, or any other costs levied,
assessed or imposed by, or at the direction of, or resulting
from statutes or regulations or interpretations thereof,
promulgated by any federal, state, regional, municipal, or
local government authority in connection with the use or
occupancy of the Building or, the Premises or the parking
facilities serving the Building, if any (including supplies,
wages and salaries of employees used in the management,
operation, and maintenance of the Building, and payroll taxes
and similar governmental charges with respect thereto);
Building management office rental if said office is located in
the Building; a management fee; air conditioning; waste
disposal; heating; ventilating; elevator maintenance;
Tenant's Initials Landlord's Initials Page G-1 JAG 102696
supplies; materials; equipment; tools; and maintenance, costs,
and upkeep of all parking and Common Areas, rental of personal
property used in maintenance; costs and expenses of gardening
and landscaping; maintenance of signs (other than Tenant's
signs); personal property taxes levied on or attributable to
personal property used in connection with the Building,
including the Common Areas; reasonable audit or verification
fees; and costs and expenses of repairs, resurfacing,
repairing, maintenance, painting, lighting, cleaning, refuse
removal, security, and similar items, including appropriate
reserves. Operating Expenses shall not include depreciation on
the Building or equipment therein, Landlord's executive
salaries, real estate brokers' commissions or leasing agents
and other costs related to leasing the Building; interest
expense on Building financing; amortization of cost of tenant
improvements in the Building: ground rent; income and franchise
taxes; dividends; and attorneys' fees and expenses which are
not related to the operation of the Building and Landlord's
overhead costs. In addition, Operating Expenses shall not
include: (a) repairs, replacements or improvements made to the
Common Area and the Building prior to the Commencement Date;
(b) repairs arising from defects in the initial construction of
the Building; (c) repairs necessitated by the failure of
Landlord to cure violations of law applicable to the Building
in effect on or before the Commencement Date; (d) the cost of
repairs or replacements incurred by reason of fire or other
casualty or condemnation to the extent that either: (i)
Landlord is compensated therefor through proceeds of insurance
or condemnation awards, or (ii) Landlord failed to obtain
insurance against such fire or casualty as required under this
Lease; (e) any amounts payable by Landlord by way of indemnity
or for damages or which constitute a fine, interest, or
penalty; (f) expenditures made by Landlord which axe in the
nature., of capital improvements or replacements; (g) costs
arising from any cleanup, repair or detoxification of any
Hazardous Substances to the full extent that such action is
attributable directly or indirectly to the presence or use,
generation, storage, release threatened release or disposal of
Hazardous Substance by any person (except Tenant) on, around,
under or in the Building.
(d) Real Property Taxes and Assessments. Real Property Taxes
and Assessments shall mean any form of assessment, license fee,
license tax, business license fee, commercial rental tax, levy,
charge, penalty, tax or similar imposition, imposed by any
authority having direct power to tax, including any city,
county, state or federal government, or any school,
agricultural, lighting, drainage or other improvement or
special assessment district thereof, as against any legal or
equitable interest of landlord in the Building, Common Areas,
or the Site, including, but not limited to the following:
(i) any tax on landlord's "right" to rent or "right" to
other income from the Building or as against Landlord's
business of Leasing the Building;
(ii) any assessment, tax, fee, levy, or charge in
substitution, partially or totally, of any assessment,
tax, fee, levy, or charge previously included within the
definition of real estate tax, it being acknowledged by
Tenant and Landlord that Proposition 13 was adopted by
the voters of the State of California in the June, 1978
Election and that assessments, taxes, fees, levies and
charges may be imposed by governmental agencies for such
services as fire protection, street, sidewalk and road
maintenance, refuse removal and for other governmental
services formerly provided without charge to property
owners or occupants. It is the intention of Tenant and
Landlord that all such new and increased assessments,
taxes, fees, levies and charges be included within the
definition of Real Property Taxes and Assessments for
the purposes of this Lease;
(iii) any assessment, tax, fee, levy or charge allocable
to or measured by the area of the Building or the rent
payable thereon, including without limitation, any gross
income taxes or excise tax levied by the state, city or
federal government, or any political subdivision
thereof, with respect to the receipt of such rent, or
upon or with respect to the possession, leasing,
management, maintenance, alteration, repair, use or
occupancy by Tenant of the Building, Common Areas, Site
or any portion thereof;
(iv) any assessment, tax, fee, levy or charge upon this
transaction or any document to which Tenant is a party,
creating or transferring an interest or an estate in the
Premises;
(v) any assessment, tax, fee, levy or charge by any
governmental agency related to any transportation plan,
fund or system instituted Within the geographic area of
which the Building is a part; or
(vi) reasonable legal and other professional fees,
costs, and disbursements incurred in connection with
proceedings to contest or reduce Real Property Taxes and
Assessments.
Notwithstanding any provision of this Subparagraph 1(d) expressed or
implied to the contrary, Real Property Taxes
Tenant's Initials Landlord's Initials Page G-2 JAG102696
and Assessments shall not include Landlord's federal or state
income, franchise, inheritance or estate taxes or any increase in
Real Property Taxes resulting from a change in ownership of the
Property.
2. Payment as Additional Rent. Beginning on the first anniversary
of the Commencement Date and continuing during the Lease Term,
Tenant shall pay as additional rent, Tenant's Percentage Share of
the Operating Expenses. Operating Expenses shall be estimated by
Landlord and paid by Tenant on the first day of each month of the
Lease Term (together with Tenant's payment of Base Rent), and shall
be prorated for a partial month. Landlord shall periodically adjust
estimates of Operating Expenses to reflect current experience. After
the end of Landlord's Fiscal Year or portion thereof during the
Lease Term (or after the expiration of the Lease Term or the
termination of the Lease), Landlord shall furnish Tenant a statement
showing the actual Operating Expenses for the respective period of
Tenant's occupancy and shall concurrently either bill Tenant for the
balance due (payable ten (10) days following demand by Landlord) or
credit Tenant's account for the excess previously paid. Any delay or
failure by Landlord in delivering any estimate or statement pursuant
to this Paragraph 2 shall not constitute a waiver of its right to
require an increase in additional rent nor shall it relieve Tenant
of its obligations pursuant to this Paragraph 2, except that Tenant
shall not be obligated to make any payments based on such estimate
or statement until ten (10) days after receipt of such estimate or
statement.
3. Audit Rights. In the event Tenant shall dispute the Operating
Expenses as determined by Landlord in accordance with Paragraph 2
above, Tenant shall have the right, not later than one (1) year
following receipt of such Landlord's estimate, to cause Landlord's
books and records with respect to the preceding Landlord's Fiscal
Year to be audited by a certified public accountant mutually
acceptable to Landlord and Tenant. The amounts payable under
Paragraph 2 above by Landlord to Tenant or by Tenant to Landlord as
the case may be shall be appropriately adjusted on the basis of such
audit. If such audit discloses that Landlord overstated Operating
Expenses for such Landlord's Fiscal Year by more than five percent
(5%), the cost of such audit shall be borne by Landlord; otherwise
the cost of such audit shall bee borne by Tenant. If Tenant shall
not request an audit in accordance with the provisions of this
Paragraph 3 within one (1) year of receipt of Landlord's estimate,
such estimate shall be conclusively binding upon Landlord and Tenant.
4. End Of Term. Even though the term has expired and Tenant has
vacated the Premises, when the final determination is made of
Tenant's Percentage Share of Operating Expenses for the year in
which this Lease terminates, Tenant shall immediately pay any
increase over the estimated expenses paid and conversely any
overpayment made in the event said expenses decrease shall be
immediately rebated by Landlord to Tenant.
5. First Lease Year. Tenant shall have no expense pass through for
the first twelve (12) months of the term of the Lease.
Tenant's Initials Landlord's Initials Page G-3 JAG102696
Exhibit "H"
This Exhibit Not Used
Exhibit "I"
Signage
Exhibit "J"
Parking Plan
ADDENDUM
Section 62. Option to Extend. As long as Tenant is not in default
under the terms of the Lease (after the expiration of all applicable
cure periods) and Tenant provides at least six (6) months prior
written notice to Landlord, Landlord hereby grants to Tenant one
option (the "Option") to extend the Lease Term for an additional
term of five (5) years (the "Extension"), on the same terms and
conditions as set forth in the Lease except for the Monthly Base
Rent, which will be set at 95% of its fair market value for the
Premises at, the commencement of the Option period. If Tenant
exercises the Option, the parties shall endeavor, in good faith,
beginning upon Tenant's exercise of the Option, to determine the
fair market value of the Monthly Base Rent for the Premises. If the
parties are not able to agree upon such amount ninety (90) days
prior to the commencement of the Extension, the parties shall no
later than five (5) days thereafter, select a certified MAI
appraiser to finally resolve the matter. If the parties are unable
to select an appraiser, they shall within said five (5) day time
period, each select a certified MAI appraiser who shall no more than
fifty (50) days prior to commencement of the Extension, act only to
select a third certified MAI appraiser to finally resolve the
matter. Each party shall also, at the time the appraiser is
selected, deliver to each other and to the appraiser in writing, its
position as to the fair market value of the Monthly Base Rent for
the Premises for the Extension Period. As soon as possible prior to
the commencement of the Extension, the appraiser selected shall
determine the fair market value of the Monthly Base Rent for the
Premises and shall communicate the results to the parties in
writing. In no event shall the Monthly Base Rent at the beginning of
the Extension decrease from the previous Monthly Base Rent. The
Monthly Base Rent as so determined shall be absolutely binding upon
Landlord and Tenant, and shall be applicable to the first day of the
Extension and shall, if necessary, be retroactive to that date. The
party whose written estimate of the fair market value differs most
from the actual amount determined by the appraiser shall pay for the
costs associated with retaining the appraiser(s) and conducting the
appraisal. The Option shall be exercised only by written notice
delivered to the Landlord at least six (6) months before the
expiration of the Lease Term. Upon giving such notice, the term of
this Lease shall be deemed extended. If Tenant fails to deliver to
Landlord g written notice of the exercise of the Option within the
prescribed time period, said Option shall terminate and there shall
be no further right to extend the Lease Term. The Option may be
exercised by Tenant on the express condition that at the time of
such exercise Tenant shall not be in default under any of the
provisions of this Lease.
Section 63. Base Rent. The Monthly Base Rent payable under Lease
shall be as set forth below for the initial term of the Lease.
(a) Base Rent for Suite 130, First Floor
December 1, 1996 - December 31, 1996 FREE
January 1, 1997 - June 30,1999 $1.40 per rentable
square- foot
July 1, 1999 - November 31, 2001 $1.55 per rentable
square foot
(b) Base Rent for Suite 200, Second Floor
December 1, 1996 - August 31, 1998 $11.10 per rentable
square foot
September 1, 1998 - March 31, 2000 $1.53 per rentable
square foot
April 1, 2000 - November 31, 2001 $1.58 per rentable
square foot.
Tenant's Initials Landlord's Initials
Section 64. Signage. For purposes of this Lease, Landlord hereby
approves of and grant Tenant the right to install and maintain,
subject to any required governmental approval(s), exterior third
floor signage located on the rear of the building. Monument signage
is not currently allowed, but if applicable laws change in the
future, Tenant shall have the first right to obtain such signage. In
addition, Tenant is granted approval to ignage within the first
floor lobby substantially in. accordance with Exhibit of "I".
Landlord agrees to cooperate with Tenant in its' efforts to secure
the required governmental approvals. Landlord makes no
representation regarding the ability of Tenant to secure the
governmental approvals requ - ired. All costs asociated with the
approval, manufacture, installation and maintenance of said sign
shall be the responsibility of the Tenant. In the event that
exterior third floor signage on the front of the Building becomes
available, Tenant is granted the right at Tenant's sole cost and
expense, to swap sign locations. Any costs associated with removing
Tenant's signage on the rear of the Building, repairing and
restoring said portion of the Building and
removing the existing sign on the front of the Building and
relocating Tenant's sign to the front of the Building shall be borne
solely by Tenant. In the event of any conflict or inconsistency
between this Paragraph 64 and Paragraph 50 of the Lease, the terms
of this Paragraph 64 shall govern and control.
Section 65. Parking. Notwithstanding Paragraph 41 of the Lease,
Tenant shall be granted free parking for the term of the Lease.
Tenant shall be granted twenty-two (22) stalls in the underground
parking garage within the Building, six of these stalls shall be
marked "Reserved" and shall be for the exclusive use of Tenant Said
six (6) reserved parking spaces shall be situated substantially as;
depicted in Exhibit "J".
Section 66. Access. Except as provided in this Lease, Tenant shall
be entitled to access the Premises twenty-four (24) hours a day,
seven (7) days a week during the term of the Lease.
Section 67. Landlord's Consent. If Landlord's consent is required
under this Lease, such consent may not be unreasonably withheld,
delayed or conditioned.
Section 68. Landlord's Compliance with Laws. Landlord warrants and
agrees that all of the improvements located at the Site (including,
without limitation, the Premises), comply and during the term of
this Lease shall continue to comply with all building, life/safety,
disability and other laws, codes and regulations of any governmental
or quasi governmental authority. All such compliance, except for
improvements within the Premises to be made by the Tenant at the
commencement of the Lease, shall be accomplished at Landlord's sole
cost and expense.
Section 69. Hazardous Materials. Landlord, to the best of its
knowledge and belief, warrants and agrees that neither Landlord nor
any third party has used, generated, stored or disposed of, or
permitted the use, generation, -storage or disposal of any Hazardous
Material on, under, about or within the She in violation of any law
or regulation. Landlord agrees that it will not use, generate, store
or dispose of any Hazardous Materials on, under, or within the Site
in violation oil any governmental requirements. Landlord agrees to
defend and indemnify the Tenant and Tenant's partners, affiliates,
agents and employees against any and all losses, liabilities, claims
and/or costs (including reasonable attorney's fees, and costs)
arising from any breach of any warranty or agreement contained in
this Paragraph 69.
Section 70. Rent Abatement. Notwithstanding any provision in this
Lease, if any act or omission by Landlord or its employees or agents
renders the Premises untenantable or unreasonably precludes access
to the Premises by Tenant and/or Tenant's employees or customers for
a period of more than four (4) business days, then all rent and
other payments payable by Tenant to Landlord under this Lease shall
be abated in proportion to the portion of the Premises. rende red
Untenantable (or full abatement if Tenant's access to the Premises
is precluded) until the Premises have become tenantable and access
has been restored. If all or any substantial portion of the Premises
are made untenantable, or access to the Premises
Tenant's Initials Landlord's Initials
is precluded, by any acts or omissions of Landlord, or its employees
or agents for a period of more than (i) twenty (20) consecutive
days, or (ii) an aggregate of forty (40) days in any period of
twelve consecutive calendar months, then Tenant shall be entitled to
terminate this Lease by giving Landlord written notice. The terms
and conditions in the immediately preceding sentence are expressly
subject to the terms and conditions of Paragraph 22 of the Lease.
Section 70. Utility Services. Notwithstanding any provision of this
Lease, if any interruption in utility service caused by Landlord
materially affects Tenant's ability to conduct its operations at the
Premises, and such interruption continues for three (3) days, Tenant
shall thereafter be entitled to abate rent hereunder, or Tenant may
make, such repairs as are required to restore service and deduct the
reasonable cost thereof from the rent. If such interruption
continues for ninety (90) days, Tenant shall be entitled to
immediatety terminate this Lease.
Tenant's Initials Landlord's Initials
Grubb & Ellis
CALIFORNIA SALE/LEASE AMERICANS WITH DISABILITIES ACT,
HAZARDOUS MATERIALS AND TAX DISCLOSURE
The Americans With Disabilities Act is intended to make many
business establishments equally accessible to persons with a variety
of disabilities; modifications to real property may be required.
State and local laws also may mandate changes. The real estate
brokers in this transaction are not qualified to advise you as to
what, if any, changes may be required now, or in the future. Owners
and tenants should consult the attomeys and qualified design
professionals of their choice for information regarding these
matters. Real estate brokers cannot determine which attorneys or
design professionals have the appropriate expertise in this area.
Various construction materials may contain items that have been or
may in the future be determined to be hazardous (toxic) or
undesirable and may need to be specifically treated/handled or
removed. For example, some transformers and other electrical
components contain PCB's, and asbestos has been used in components
such as fire-proofing, heating and cooling systems, air duct
insulation, spray-on and tile acoustical materials, linoleum, floor
tiles, roofing, dry wall and plaster. Due to prior or current uses
of the Property or In the area, the Property may have hazardous or
undesirable metals (including lead-based paint), minerals,
chemicals, hydrocarbons, or biological or radioactive items
(including electric and magnetic fields) in soils, water, building
components, above or below-ground containers or elsewhere in areas
that may or may not be accessible or noticeable. Such items may leak
or otherwise be released. Real estate agents have no expertise in
the detection or correction of hazardous or undesirable items.
Expert inspections are necessary. Current or future laws may require
clean up by past present and/or future owners and/or operators. It
is the responsibility of the Setter/Lessor and Buyer/Tenant to
retain qualified experts to detect and correct such matters and to
consult with legal counsel of their choice to determine what
provisions, if any, they may include in transaction documents
regarding the Property.
To the best of Seller/Lessor's knowledge, Seller/Lessor has attached
to this Disclosure copies of all existing surveys and reports known
to Seller/Lessor regarding asbestos and other hazardous materials
and undesirable substances related to the Property. Sellers/Lessors
are required under California Health and Safety Code Section 25915
et seq. to disclose reports and surveys regarding- asbestos to
certain persons, including their employees, contractors, co-owners,
purchasers and tenants'. Buyers/Tenants have similar disclosure
obligations. Sellers/Lessors and Buyers/Tenants have additional
hazardous materials disclosure responsibilities to each other under
California Health and Safety Code Section 25359.7 and other
California laws. Consult your attorney regarding this matter. Grubb
& Ellis Company is not qualified to assist you in this matter or
provide you with other legal or tax advice.
Sale, lease and other transactions can have local, state and federal
tax consequences for the seller/lessor and/or buyerttenant. In the
event of a sale, Internal Revenue Code Section 1445 requires that
all buyers of an interest in any real property located In the United
States must withhold and pay over to the Internal Revenue Service
(IRS) an amount equal to ten percent (10%) of the gross sales price
within ten (10) days of the date of the sale unless the buyer can
adequately establish that the seller was not a foreigner, generally
by having the seller sign a NonForeign Seller Certificate. Note that
depending upon the structure of the transaction, the tax withholding
liability could exceed the not cash proceeds to be paid to the
seller at closing. California poses an additional withholding
requirement equal to three and one-third percent (3 1/3%) of the
gross sales price not only on foreign sellers but also out-of-state
sellers and sellers leaving the state if the sale price exceeds
$100,000. Generally, withholding is required, if the sales proceeds
are disbursed outside of California, if the last known address of
the seller is outside of California or If as financial Intermediary
is used. Consult your tax and legal advisor. Real estate brokers are
not qualified to give legal or tax advice or to determine whether
any other is, property qualified to provide legal or tax advice.
LESSEE LESSOR
By: /s/ Art Granito /s/ Walter J. Asher
Title: CEO Title: General Partner
Date: 10/11/96 Date:
ADDENDM II
This Addendum to that certain Lease dated October 28, 1996 by
and between 8101 ANAHEIM ASSOCIATES, A California general
partnership as "Lessor" and PACIFIC ENGINEERING SYSTEMS INC., A
California corporation as "Lessee" is being executed by the parties
hereto with reference to the following terms and conditions:
Recitals:
The parties hereto agree that the Lease executed by and between the
parties as described above is to be modified, amended and expanded
as hereinafter set forth. If any inconsistencies should arise
between this Addendum and the Lease, the terms and conditions of
this Addendum shall be controlling.
It is agreed as follows:
1. Paragraphs 1(f), 1(j), 1(r) and 1(s) are amended to include the
addition of Suite 150 on the First Floor which contains 950
square feet of Rentable Square feet of space. The Total
Rentable Square Feet within Premises shall be increased to
24,357. The Security Deposit shall be increased by $1,377.50 to
$34,147.30 and the Tenant's Percentage Share shall be increased
to 40.4%. The floor plan for Suite 150 is set forth on Exhibit
"A" attached hereto and made a part hereof.
2. The Lease Term for Suite 150 shall commence on April 1, 1997
and shall end on November 31, 2001.
3. The Base Rent for Suite 150, First Floor shall be $1.45 per
rentable square foot from April 1, 1997 through August 31,
1998, $1.53 per rentable square foot from September 17, 1998
through March 31, 2000 and $1.58 per rentable square foot from
April 1, 2000 through November 31, 2001. Payment of the first
month's rent and the increase in the Security Deposit, as set
forth above, are payable immediately upon the execution of this
Addendum II. Pacific Engineering will receive April 1st, 2000
full month's rent of $1,501 free (37th Rental Payment).
4. The Lessee agrees to occupy Suite 150 in its "as is" condition.
Lessee agrees to repair the finish to the wood panelling in
the following areas: (i) surrounding the exterior entrance door
to the suite; (ii) surrounding the exterior of the elevator;
and (iii) the interior of the elevator cab.
ALL OTHER TERMS AND CONDITIONS OF THE LEASE SHALL REMAIN THE SAME.
"LESSEE" "LESSOR"
PACIFIC ENGINEERING SYSTEMS, INC. 8101 AHAHEIM ASSOCIATES
a California corporation a California general partnership
/s/ Art Granito /s/ Walter Asher
Art Granito Walter Asher
Chief Executive Officer General Partner
RENT.XLS
PACIFIC ENGINEERING SYSTEMS, INC. LAND LORD'S ADDRESS:
FIVE (5) YEARS LEASE-60 MONTHS 8101 ANAHEIM ASSOCIATES
8101 EAST KAISER BLVD. 23945 CALABASAS RD, STE 114
ANAHEIM, CA 92808 CALABASAS, CA 91302
Walt Asher-Phone # 818-591-2174
Fax# 818-591-2199
Vendor# 004800
Account# 710180 1ST Floor
Account# 610180 2ND Floor
MONTH # 1ST FLOOR 2ND FLOOR TOTAL AMOUNT
STATUS/CHECK#
Nov-1996 Security Deposit 32,769.80
17052
Dec-1996 1 Free 21,980.20 21,980.20
17053
Jan-1997 2 4,795.00 21,980.20 26,775.20 17053/17620
Feb-1997 3 4,795.00 21,980.20 26,775.20 17737
Mar-1997 4 4,795.00 21,980.20 26,775.20
Apr-1997 5 4,795.00 21,980.20 26,775.20
May-1997 6 4,795.00 21,980.20 26,775.20
Jun-1997 7 4,795.00 21,980.20 26,775.20
Jul-1997 8 4,795.00 21,980.20 26,775.20
Aug-1997 9 4,795.00 21,980.20 26,775.20
Sept-1997 10 4,795.00 21,980.20 26,775.20
Oct-1997 11 4,795.00 21,980.20 26,775.20
Nov-1997 12 4,795.00 21,980.20 26,775.20
Dec-1997 13 4,795.00 21,980.20 26,775.20
Jan-1998 14 4,795.00 21,980.20 26,775.20
Feb-1998 15 4,795.00 21,980.20 26,775.20
Mar-1998 16 4,795.00 21,980.20 26,775.20
Apr-1998 17 4,795.00 21,980.20 26,775.20
May-1998 18 4,795.00 21,980.20 26,775.20
Jun-1998 19 4,795.00 21,980.20 26,775.20
Jul-1998 20 4,795.00 21,980.20 26,775.20
Aug-1998 21 4,795.00 21,980.20 26,775.20
Sep-1998 22 4,795.00 30,572.46 35,367.46
Oct-1998 23 4,795.00 30,572.46 35,367.46
Nov-1998 24 4,795.00 30,572.46 35,367.46
Dec-1998 25 4,795.00 30,572.46 35,367.46
Jan-1999 26 4,795.00 30,572.46 35,367.46
Feb-1999 27 4,795.00 30,572.46 35,367.46
Mar-1999 28 4,795.00 30,572.46 35,367.46
Apr-1999 29 4,795.00 30,572.46 35,367.46
May-1999 30 4,795.00 30,572.46 35,367.46
Jun-1999 31 4,795.00 30,572.46 35,367.46
Jul-1999 32 5,308.75 30,572.46 35,881.21
Aug-1999 33 5,308.75 30,572.46 35,881.21
Sep-1999 34 5,308.75 30,572.46 35,881.21
Oct-1999 35 5,308.75 30,572.46 35,881.21
Nov-1999 36 5,308.75 30,572.46 35,881.21
Dec-1999 37 5,308.75 30,572.46 35,881.21
Jan-2000 38 5,308.75 30,572.46 35,881.21
RENT.XLS
PACIFIC ENGINEERING SYSTEMS, INC. LAND LORD'S ADDRESS:
FIVE (5) YEARS LEASE-60 MONTHS 8101 ANAHEIM ASSOCIATES
8101 EAST KAISER BLVD. 23945 CALABASAS RD, STE 114
ANAHEIM, CA 92808 CALABASAS, CA 91302
Walt Asher-Phone# 818-591-2174
Fax# 818-591-2199
Vendor# 004800
Account# 710180 1ST Floor
Account# 610180 2ND Floor
MONTH # 1ST FLOOR 2ND FLOOR TOTAL AMOUNT
STATUS/CHECK#
Feb-2000 39 5,308.75 30,572.46 35,881.21
Mar-2000 40 5,308.75 30,572.46 35,881.21
Apr-2000 41 5,308.75 31,571.56 36,880.31
May-2000 42 5,308.75 31,571.56 36,880.31
Jun-2000 43 5,308.75 31,571.56 36,880.31
Jul-2000 44 5,308.75 31,571.56 36,880.31
Aug-2000 45 5,308.75 31,571.56 36,880.31
Sep-2000 46 5,308.75 31,571.56 36,880.31
Oct-2000 47 5,308.75 31,571.56 36,880.31
Nov-2000 48 5,308.75 31,571.56 36,880.31
Dec-2000 49 5,308.75 31,571.56 36,880.31
Jan-2001 50 5,308.75 31,571.56 36,880.31
Feb-2001 51 5,308.75 31,571.56 36,880.31
Mar-2001 52 5,308.75 31,571.56 36,880.31
Apr-2001 53 5,308.75 31,571.56 36,880.31
May-2001 54 5,308.75 31,571.56 36,880.31
Jun-2001 55 5,308.75 31,571.56 36,880.31
Jul-2001 56 5,308.75 31,571.56 36,880.31
Aug-2001 57 5,308.75 31,571.56 36,880.31
Sep-2001 58 5,308.75 31,571.56 36,880.31
Oct-2001 59 5,308.75 31,571.56 36,880.31
Nov-2001 60 5,308.75 31,571.56 36,880.31
$2,004,465.69
FIRST FLOOR SECOND FLOOR
01-Free 01-21-$1.10 FSG -19982 square feet
02-31-$1.40 FSG -3425 square feet 22-40-$1.53 FSG -19982 square feet
32-60-$1.55 FSG -3425 square feet 41-60-$1.58 FSG -19982 square feet
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