<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
Commission File Number 0-19655
THE KEITH COMPANIES, INC.
--------------
(Exact name of registrant as specified in its charter)
California 33-0203193
--------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2955 REDHILL AVENUE, COSTA MESA, CALIFORNIA 92626
---------------------------------------------------------
(Address of principal executive offices and zip code)
Registrant's telephone number, including area code: (714) 540-0800
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [_]
The number of shares outstanding of the registrant's common stock on
November 9, 1999 was 5,069,489
<PAGE>
THE KEITH COMPANIES,INC. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Condensed Consolidated Statements of Cash Flows 4
Notes to the Condensed Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 3. Qualitative and Quantitative Disclosures about Market Risk 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities and Use of Proceeds 18
Item 3. Defaults Upon Senior Securities 18
Item 4. Submission of Matters to a Vote of Security Holders 18
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
</TABLE>
1
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Condensed Consolidated Balance Sheets (Note 1)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and Cash equivalents $ 1,346,000 $ 457,000
Contracts and trade receivables, net of allowance for doubtful accounts of
$829,000 and $364,000 at September 30, 1999 and December 31, 1998,
respectively 7,271,000 5,582,000
Costs and estimated earnings in excess of billings 5,728,000 3,783,000
Prepaid expenses and other current assets 440,000 534,000
Deferred offering costs - 291,000
Deferred tax assets - 270,000
---------------- ----------------
Total current assets 14,785,000 10,917,000
Equipment and improvements, net 4,508,000 2,862,000
Goodwill, net of accumulated amortization of $62,000 and $10,000 at September
30, 1999 and December 31, 1998, respectively 4,709,000 621,000
Other assets 165,000 130,000
---------------- ----------------
Total assets $24,167,000 $14,530,000
================ ================
Liabilities and Stockholders' Equity (Deficit)
Current liabilities:
Short-term borrowings $ 438,000 $ -
Current portion of long-term debt and capital lease obligations 1,391,000 1,488,000
Trade accounts payable 881,000 1,221,000
Accrued employee compensation 2,858,000 1,720,000
Accrued liabilities to related parties - 185,000
Other accrued liabilities 2,105,000 688,000
Deferred tax liabilities 313,000 -
Billings in excess of costs and estimated earnings 566,000 435,000
---------------- ----------------
Total current liabilities 8,552,000 5,737,000
Long-term debt and capital lease obligations, less current portion 2,499,000 5,778,000
Notes payable to related parties - 2,401,000
Other liabilities 280,000 485,000
Redeemable securities - 430,000
---------------- ----------------
Stockholders' equity (deficit):
Preferred stock, $0.001 par value. Authorized 5,000,000 shares; no shares - -
issued or outstanding
Common stock, $0.001 par value. Authorized 100,000,000 shares at September
30, 1999 and December 31, 1998; issued and outstanding 5,069,119 shares at
September 30, 1999 and 3,485,634 shares at December 31, 1998 5,000 3,000
Additional paid-in capital 12,327,000 652,000
Retained earnings (accumulated deficit) 504,000 (956,000)
---------------- ----------------
Total stockholders' equity (deficit) 12,836,000 (301,000)
---------------- ----------------
Commitments and contingencies (Notes 1, 3 and 5)
Total liabilities and stockholders' equity (deficit) $24,167,000 $14,530,000
================ ================
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Consolidated Statements of Income (Note 1)
(Unaudited)
Three Months Ended Nine Months Ended
----------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
Gross revenue $11,397,000 $9,192,000 $30,867,000 $24,712,000
Subcontractor costs 739,000 1,292,000 2,596,000 3,799,000
------------- ------------- --------------- ------------
Net revenue 10,658,000 7,900,000 28,271,000 20,913,000
Costs of revenue 7,350,000 5,077,000 19,051,000 13,770,000
------------- ------------- --------------- ------------
Gross profit 3,308,000 2,823,000 9,220,000 7,143,000
Selling, general and administrative expenses 2,211,000 1,626,000 5,904,000 4,227,000
------------- ------------- --------------- ------------
Income from operations 1,097,000 1,197,000 3,316,000 2,916,000
Interest expense 149,000 249,000 678,000 714,000
Other expense, net 132,000 18,000 102,000 7,000
------------- ------------- --------------- ------------
Income before provision for income taxes 816,000 930,000 2,536,000 2,195,000
Provision for income taxes 347,000 418,000 1,076,000 986,000
------------- ------------- --------------- ------------
Net income 469,000 512,000 1,460,000 1,209,000
Reversal (accretion) of redeemable securities
to redemption value, net 344,000 (57,000) 230,000 (171,000)
------------- ------------- --------------- ------------
Net income available to common stockholders $ 813,000 $ 455,000 $ 1,690,000 $ 1,038,000
============= ============= =============== ============
Earnings per share:
Basic $ 0.17 $ 0.13 $ 0.43 $ 0.30
============= ============= =============== ============
Diluted $ 0.16 $ 0.12 $ 0.40 $ 0.29
============= ============= =============== ============
Weighted average number of shares outstanding:
Basic 4,807,300 3,485,634 3,931,030 3,485,634
============= ============= =============== ============
Diluted 5,063,349 3,660,639 4,213,751 3,624,724
============= ============= =============== ============
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows (Note 1)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,460,000 $ 1,209,000
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 652,000 410,000
Changes in operating assets and liabilities, net of effects from
acquisitions:
Contracts and trade receivables 564,000 (917,000)
Other receivables 182,000 (23,000)
Costs and estimated earnings in excess of billings and billings in
excess of costs and estimated earnings, net (1,964,000) (1,008,000)
Prepaid expenses (87,000) 348,000
Deferred tax assets and liabilities, net 375,000 1,209,000
Other long-term assets (30,000) (166,000)
Trade accounts payable and accrued liabilities 992,000 (1,060,000)
Accrued liabilities to related parties (185,000) 55,000
----------- -----------
Net cash provided by operating activities 1,959,000 57,000
----------- -----------
Cash flows from investing activities:
Net cash expended in connection with acquisitions (3,659,000) (77,000)
Additions to equipment and improvements, net (840,000) (404,000)
----------- -----------
Net cash used in investing activities (4,499,000) (481,000)
----------- -----------
Cash flows from financing activities:
(Payments on) proceeds from line of credit, net (4,527,000) 1,464,000
Principal payments on long-term and short-term debt and capital leases (989,000) (1,429,000)
Borrowings on notes payable to related parties - 300,000
Payments on notes payable to related parties (2,401,000) (150,000)
Proceeds from issuance of common stock, net 12,447,000 -
Payment of deferred offering costs (1,101,000) (91,000)
----------- -----------
Net cash provided by financing activities 3,429,000 94,000
----------- -----------
Net increase (decrease) in cash and cash equivalents 889,000 (330,000)
Cash and cash equivalents, beginning of period 457,000 587,000
----------- -----------
Cash and cash equivalents, end of period $ 1,346,000 $ 257,000
=========== ===========
See supplemental cash flow information at Note 9
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
The accompanying condensed consolidated financial statements include the
accounts of The Keith Companies, Inc., and its wholly owned subsidiaries
("TKCI" or the "Company"). On August 1, 1998, TKCI acquired all of the
outstanding common stock of Keith Engineering, Inc. ("KEI") (the
"Reorganization") by a contribution to capital of TKCI by KEI's
shareholders of all of the outstanding stock of KEI in exchange for the
issuance by TKCI of an equal number of shares of its stock. On November
30, 1998, KEI, a wholly owned subsidiary of TKCI, was merged with and into
TKCI, and its outstanding shares, all of which were then owned by TKCI,
were cancelled as a result of the merger. Prior to the Reorganization,
TKCI and KEI were under common management and common control as a result of
a contemporaneous written agreement dated July 1992 between their majority
shareholders. This agreement provided for the shareholders to vote in
concert and thus the majority shareholders became a common control group.
The Reorganization was accounted for as a combination of affiliated
entities under common control in a manner similar to a pooling-of-
interests. Under this method, the assets, liabilities and equity of TKCI
and KEI were carried over at their historical book values and their
operations prior to the Reorganization have been recorded on a combined
historical basis. The combination did not require any material adjustments
to conform the accounting policies of the separate entities. As a result
of the Reorganization, the accompanying condensed consolidated financial
statements include the consolidated assets, liabilities, equity and results
of operations of TKCI, and its wholly owned subsidiaries, and KEI effective
August 1, 1998.
On July 15, 1999, TKCI completed an initial public offering of 1,500,000
shares of its common stock. The offering price was $9.00 per share
resulting in proceeds of approximately $11,673,000 to the Company, net of
underwriters' discount and offering costs. The net proceeds were used
primarily to repay related party notes payable and accrued interest of
$2,647,000, to repay notes payable and accrued interest of $251,000, to
repay the bank line of credit of $4,731,000 and to acquire substantially
all of the assets of and assume substantially all of the liabilities of
Thompson-Hysell, Inc. ("Thompson-Hysell") (see Note 3).
The accompanying condensed consolidated balance sheet as of September 30,
1999, the consolidated statements of income for the three and nine months
ended September 30, 1999 and 1998, and the consolidated statements of cash
flows for the nine months ended September 30, 1999 and 1998, are unaudited
and in the opinion of management include all adjustments necessary to
present fairly the information set forth therein, which consist solely of
normal recurring adjustments. The results of operations for these interim
periods are not necessarily indicative of results for the full year. The
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto included in
the Company's Registration Statement on Form S-1 filed with the Securities
and Exchange Commission and declared effective on July 12, 1999.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying condensed consolidated financial statements include the
accounts of the Company. All material intercompany transactions and
balances have been eliminated in consolidation.
Cash and Cash Equivalents
Cash equivalents are comprised of highly liquid instruments with maturities
three months or less when purchased.
Income Taxes
Prior to August 1, 1998, KEI, with the consent of its stockholders, elected
to be taxed as an S corporation under the Internal Revenue Code of 1986, as
amended. As an S corporation, corporate income or loss flows through to
the stockholders who are responsible for including the income, deductions,
losses and credits in their individual income tax returns. The Company's
effective tax rate of approximately 45% for the period ended September 30,
1998 reflects the anticipated conversion of KEI from an S corporation to a
C corporation in August 1998.
5
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
2. Summary of Significant Accounting Policies (continued)
Deferred Offering Costs
In anticipation of its initial public offering, the Company deferred the
related costs incurred and included them in the accompanying condensed
consolidated balance sheet as of December 31, 1998 as deferred offering
costs. The Company completed its initial public offering on July 15, 1999,
at which time these costs were netted against the offering proceeds.
Stock Split
On April 23, 1999, the board of directors authorized a 2.70-for-1 reverse
split of TKCI's common stock, effective April 26, 1999. All share amounts
in the accompanying condensed consolidated financial statements (except for
shares of authorized common stock) have been restated to give effect to the
stock split.
Par Value
On June 22, 1999, TKCI established a par value for its common and preferred
stock of $0.001 per share. Prior to this date, the Company's common and
preferred stock had no par value. All amounts in the accompanying
condensed consolidated financial statements have been restated to give
effect to the $0.001 per share par value.
Use of Estimates
The preparation of these condensed consolidated 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, the disclosure of contingent assets and
liabilities and the amounts of revenue and expenses reported during the
periods. Actual results may differ from the estimates and assumptions used
in preparing these condensed consolidated financial statements.
3. Acquisitions
In conjunction with its initial public offering, on July 15, 1999, the
Company acquired substantially all of the assets and assumed substantially
all of the liabilities of Thompson-Hysell. The Company paid cash at
closing in the amount of $3,333,000. In addition, contingent consideration
consists of (i) cash in the amount of $500,000 related to the net book
value of assets acquired and liabilities assumed, (ii) a promissory note in
the original principal amount of $1,333,000 payable in 2001, and (iii)
shares of common stock with a value equal to $1,333,000, which may be
issuable in 2000 if various conditions are met. TKCI is also obligated to
pay cash related to the income tax effects to the sellers of Thompson-
Hysell, which is estimated to be $525,000. The issuance of common stock and
the principal balance of the promissory note are contingent upon earnings
for the years ended December 31, 1999 and 2000, respectively. The
acquisition was accounted for using the purchase method of accounting.
Goodwill, which represents the excess of the purchase price over the fair
value of the net tangible and identifiable intangible assets acquired and
liabilities assumed, in the amount of $4,200,000 is being amortized over a
period of twenty-five years.
6
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
4. Acquisitions (continued)
The following unaudited pro forma data presents information as if the
acquisition of Thompson-Hysell had occurred at the beginning of the periods
presented. The pro forma data is based on historical information and does
not necessarily reflect the actual results of operations that would have
occurred had Thompson-Hysell and TKCI comprised a single entity during the
periods, nor is it necessarily indicative of future results of operations
of the combined entities.
Pro forma for the periods ended
September 30, 1999
--------------------------------
Three Months Nine Months
Ended Ended
-------------- --------------
Net revenue $11,150,000 $33,655,000
Net income $ 518,000 $ 2,058,000
On August 1, 1998, TKCI acquired all of the outstanding common stock of
John M. Tettemer & Associates, Inc. ("JMTA"). The purchase price was
$700,000, consisting of cash, amortizing and interest only notes payable
and warrants to purchase 55,556 shares of TKCI common stock, exercisable
immediately at a purchase price of $4.73 per share. The acquisition was
accounted for using the purchase method of accounting.
On December 30, 1997, TKCI acquired all of the outstanding common stock of
ESI, Engineering Services, Inc., and its wholly-owned subsidiary Engineered
Systems Integrated, Inc. ("ESI"). The purchase price was $200,000,
consisting of 74,074 shares of TKCI common stock, which are subject to
certain repurchase provisions and stock indemnification rights (see Note
5). The acquisition was accounted for using the purchase method of
accounting.
5. Redeemable Securities and Stock Indemnification Rights
In connection with the acquisition of ESI, TKCI issued to the sellers
74,074 shares of common stock which contained redemption provisions. These
redemption provisions allowed any of the sellers, at their discretion, to
redeem the common shares, for a stated price per share, if the Company did
not complete an initial public offering prior to October 31, 1999. In
connection with the acquisition of ESI, the Company also issued to the
sellers options to purchase 44,444 shares of common stock containing
redemption provisions which provided that in the event that the underlying
shares did not have a fair market value of at least $8.10 per share at some
time during the period between the date of the Company's initial public
offering and October 1, 2002, the holders were entitled to receive, at
their discretion, a stated amount for all unexercised vested options. The
difference between the redemption values and the initial values of the
common stock and options to purchase common stock was accreted over the
respective period through charges to redeemable securities and common
stock. As a result of the Company's completion of its initial public
offering at $9.00 per share on July 15, 1999, the securities are no longer
redeemable and, accordingly, $353,000 of accumulated accretion on
redeemable securities was reclassified to common stock and additional paid-
in capital.
Subsequent to the acquisition of ESI, TKCI agreed to indemnify certain
holders of 40,000 shares of common stock issued in connection with the
acquisition of ESI against a market decline in TKCI's common stock after
the initial public offering of TKCI's common stock. The excess of the
guarantee price over the market value of the 40,000 shares of common stock
was $130,000 on September 30, 1999 and is recorded as other expense and
accrued expenses in the accompanying condensed consolidated financial
statements as of and for the periods ended September 30, 1999.
7
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
6. Per Share Data
Basic EPS is computed by dividing earnings available to common stockholders
during the period by the weighted average number of common shares
outstanding during each period. Diluted EPS is computed by dividing
earnings available to common stockholders during the period by the weighted
average number of shares that would have been outstanding assuming the
issuance of common shares for all dilutive potential common shares
outstanding during the reporting period, net of shares assumed to be
repurchased using the treasury stock method.
The following is a reconciliation of the denominator for the basic EPS
computation to the denominator of the diluted EPS computation. Net income
available to common stockholders is used in the basic and diluted EPS
calculations as the assumed impact of the redeemable securities would be
anti-dilutive.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Weighted average shares used for the basic
EPS computation (deemed outstanding the
entire period) 4,807,300 3,485,634 3,931,030 3,485,634
Incremental shares from the assumed exercise
of dilutive stock options and stock warrants 256,049 175,005 282,721 139,090
---------- ----------- ---------- -----------
Weighted average shares used for the
diluted EPS computation 5,063,349 3,660,639 4,213,751 3,624,724
========== =========== ========== ===========
</TABLE>
Anti-dilutive shares excluded from the above calculations were 336,902 and
147,115 for the three and nine months ended September 30, 1999,
respectively and 13,285 and 40,997 for the three and nine months ended
September 30, 1998, respectively.
7. Indebtedness
On September 1, 1999, the Company entered into a new line of credit
agreement with a bank to fund working capital needs and the acquisition of
equipment. The line of credit has a working capital component with a
maximum outstanding principal balance of $6,000,000 which matures on
September 3, 2001 and an equipment component with a maximum outstanding
principal balance of $3,500,000, which matures on September 3, 2000. The
line of credit bears interest at either the prime rate or, at one and
three-quarters percent above LIBOR. The aggregate outstanding principal
balance of working capital advances and equipment advances can not exceed
$8,500,000. The line of credit is subject to various restrictions and
contains certain financial and nonfinancial related covenants. As of
September 30, 1999, there was no outstanding borrowing on the line of
credit. The Company anticipates borrowing on its line of credit as
appropriate in the future.
In conjunction with the acquisition of substantially all of the assets and
assumption of substantially all of the liabilities of Thompson-Hysell, TKCI
assumed $438,000 related to a portion of the Thompson-Hysell existing bank
debt. TKCI's intent is to pay-off this liability in the fourth quarter of
1999.
Prior to September 1, 1999, the Company maintained a line of credit
agreement with a bank, which allowed us to borrow up to $5,500,000, not to
exceed 80% of our eligible accounts receivable, as defined in the
agreement. On March 5, 1999, the bank amended the agreement to, among
other things, amend some of the financial related covenants effective
December 31, 1998, adjust the interest rate to the bank's prime rate plus a
variable margin tied to financial covenants and extend the maturity on the
line to March 1, 2000. A portion of the proceeds from the Company's initial
public offering on July 15, 1999 were used to repay the outstanding
principal balance of $4,731,000.
8
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
8. Segment and Related Information
The Company evaluates performance and makes resource allocation decisions
based on the overall type of services provided to customers. For financial
reporting purposes, we have grouped our operations into two primary
reportable segments. The Real Estate Development, Public Works and
Wireless Telecommunications ("REPWWT") segment includes engineering,
consulting and technical services for the development of both private
projects, like residential communities, commercial and industrial
properties and recreational projects; public works projects, like
transportation and water/sewage facilities; and site acquisition and
construction management services for wireless telecommunications. The
Industrial Engineering ("IE") segment, which consists of ESI, provides the
technical expertise and management required to design and test
manufacturing facilities and processes.
The following tables set forth certain information regarding the Company's
operating segments for the three and nine months ended September 30, 1999
and 1998:
<TABLE>
<CAPTION>
Three Months Ended September 30, 1999
- -------------------------------------------------------------------------------------------------------------------------
Corporate
REPWWT IE Costs Consolidated
-------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net revenue $ 9,715,000 $ 943,000 $ - $10,658,000
Income (loss) from operations $ 1,549,000 $ 135,000 $ (587,000) $ 1,097,000
Identifiable assets $22,827,000 $1,340,000 $ - $24,167,000
Three Months Ended September 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Corporate
REPWWT IE Costs Consolidated
-------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net revenue $ 6,927,000 $ 973,000 $ - $ 7,900,000
Income (loss) from operations $ 1,564,000 $ 125,000 $ (492,000) $ 1,197,000
Identifiable assets $12,260,000 $1,652,000 $ - $13,912,000
Nine Months Ended September 30, 1999
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Corporate
REPWWT IE Costs Consolidated
-------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net revenue $25,485,000 $2,786,000 $ - $28,271,000
Income (loss) from operations $ 5,012,000 $ 175,000 $(1,871,000) $ 3,316,000
Nine Months Ended September 30, 1998
- -------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Corporate
REPWWT IE Costs Consolidated
-------------- ---------- ----------------- ----------------
<S> <C> <C> <C> <C>
Net revenue $18,108,000 $2,805,000 $ - $20,913,000
Income (loss) from operations $ 4,129,000 $ 263,000 $(1,476,000) $ 2,916,000
</TABLE>
9
<PAGE>
THE KEITH COMPANIES, INC. AND SUBSIDIARIES
Notes to the Condensed Consolidated Financial Statements
(Unaudited)
9. Supplemental Cash Flow Information
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
1999 1998
----------- ----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid for interest $ 856,000 $874,000
=========== ========
Cash paid for income taxes $ 124,000 $ 2,000
=========== ========
Noncash financing and investing activities:
Capital lease obligations recorded in connection with equipment
acquisitions $ 258,000 $608,000
=========== ========
Purchase price adjustment $ 60,000 $ -
=========== ========
Accretion of redeemable securities $(230,000) $114,000
=========== ========
Accrued deferred offering costs $(291,000) $ -
=========== ========
</TABLE>
The acquisition of Thompson-Hysell on July 15, 1999 resulted in the
following:
<TABLE>
<CAPTION>
July 15, 1999
----------------
<S> <C>
Contracts and trade receivables $(2,253,000)
Goodwill (4,200,000)
Equipment and improvements (1,105,000)
Other assets (6,000)
Short-term borrowings 438,000
Long-term debt, including current portion 1,943,000
Billings in excess of cost and estimated earnings 150,000
Other liabilities 1,224,000
Common stock 150,000
----------------
Cash expended for the acquisition $ 3,659,000
================
</TABLE>
10. Subsequent Event
On October 13, 1999, the board of directors of TKCI approved the repurchase
of up to 100,000 shares of the Company's common stock. Through October 31,
1999, the Company acquired 13,700 shares of its common stock at prices
ranging from $5.50 to $6.25 per share. These shares are being held in
treasury by the Company.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with the consolidated
financial statements of TKCI and its subsidiaries and the related notes included
elsewhere in Part I- Item I of this Form 10-Q and in the Form S-1 filed by the
Company. This discussion contains forward-looking statements that involve risks
and uncertainties. Our actual results could differ materially from those
anticipated in these forward-looking statements as a result of any number of
factors, including those set forth under "Risk Factors" included in Form S-1
filed by the Company. In this Management's Discussion and Analysis of Financial
Condition and Results of Operations section, references to "TKCI", "we", "our"
and "us" mean TKCI and its subsidiaries and references to KEI means Keith
Engineering.
Overview
The following discussion includes the operations of TKCI and our wholly-owned
subsidiaries, including KEI. TKCI and KEI have been under common management and
ownership since the inception of TKCI in 1986. TKCI and KEI were under common
control as a result of a contemporaneous written agreement dated July 1992
between their majority shareholders. This agreement provided for the
shareholders to vote in concert and thus the majority shareholders became a
common control group. On August 1, 1998, TKCI was reorganized, so that KEI
became a wholly-owned subsidiary of TKCI. This reorganization was accounted for
as a combination of affiliated entities under common control in a manner similar
to a pooling-of-interests. Under this method, the assets, liabilities and
equity were carried over at their historical book values and the operations of
TKCI and KEI have been recorded on a combined historical basis. The combination
did not require any material adjustments to conform the accounting policies of
the separate entities. On November 30, 1998, KEI was merged with and into TKCI.
In December 1997, TKCI purchased ESI and its wholly-owned subsidiary ESII,
Engineered Systems Integration, Inc., which was subsequently merged into ESI.
In August 1998, TKCI purchased John M. Tettemer and Associates.
On July 15, 1999, TKCI completed an initial public offering of 1.5 million
shares of its common stock. The offering price was $9.00 per share resulting in
proceeds of approximately $11.8 million to the Company, net of underwriters'
discount and unpaid offering costs.
In conjunction with its initial public offering, on July 15, 1999, the Company
acquired substantially all of the assets and assumed substantially all of the
liabilities of Thompson-Hysell, Inc. ("Thompson-Hysell"). The Company paid cash
in the amount of $3.3 million. In addition, contingent consideration consisted
of a promissory note in the original principal amount of $1.3 million payable in
2001 and shares of common stock with a value equal to $1.3 million which may be
issuable in 2000 if various conditions are met. TKCI may also be obligated or
entitled to pay or receive cash related to financial targets being met, related
to the assets acquired and liabilities assumed, and pay cash related to the
income tax effects to the sellers of Thompson-Hysell.
We derive most of our revenue from professional service activities. The
majority of these activities are billed under various types of contracts with
our clients, including fixed fee and time and material contracts. Most of our
time and material contracts have not-to-exceed provisions. Revenue is
recognized on the percentage of completion method of accounting based on the
proportion of actual direct contract costs incurred to total estimated direct
contract costs. We believe that costs incurred are the best available measure
of progress towards completion on the contracts. In the course of providing
services, we sometimes subcontract for various services. These costs are
included in billings to clients and, in accordance with industry practice, are
included in our gross revenue. Because subcontractor services can change
significantly from project to project, changes in gross revenue may not be
indicative of business trends. Accordingly, we also report net revenue, which
is gross revenue less subcontractor costs. Our revenue is generated from a
large number of relatively small contracts.
For the periods presented, a substantial portion of our net revenue was derived
from services rendered in connection with commercial and residential real estate
development projects. The real estate market has historically experienced
pronounced business cycles. Our consolidated results of operations can be
adversely impacted by downturns in the real estate market. Based upon the
number of building permits issued, the last peak of the business cycle in the
southern California real estate market was in 1989 and the last trough was in
1996. A majority of our net revenue for the periods presented, was derived from
services rendered in southern California. Consequently, adverse economic
conditions affecting the southern California economy could also have an adverse
effect on our consolidated results of operations. We anticipate that as we
consummate acquisitions in the future, the concentration of revenue from both
real estate development and southern California will decline.
11
<PAGE>
Costs of revenue include labor, non-reimbursable subcontract costs, materials
and various direct and indirect overhead costs including rent, utilities and
depreciation. Selling, general, and administrative expenses consist primarily
of corporate costs related to finance and accounting, information technology,
contract proposal, executive salaries, provisions for doubtful accounts and
other indirect overhead costs.
Results of Operations
The following table sets forth unaudited historical consolidated operating
results for each of the periods presented as a percentage of net revenue.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1999 1998 1999 1998
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Gross revenue 107% 116% 109% 118%
Subcontractor costs 7% 16% 9% 18%
-------- ------- -------- -------
Net revenue 100% 100% 100% 100%
Costs of revenue 69% 64% 67% 66%
-------- ------- -------- -------
Gross profit 31% 36% 33% 34%
Selling, general and administrative expenses 21% 21% 21% 20%
-------- ------- -------- -------
Income from operations 10% 15% 12% 14%
Interest expense 1% 3% 2% 3%
Other expense, net 1% -% -% -%
-------- ------- -------- -------
Income before provision for income taxes 8% 12% 9% 10%
Provision for income taxes 3% 5% 4% 5%
-------- ------- -------- -------
Net income 4% 6% 5% 6%
======== ======= ======== =======
</TABLE>
Three and Nine Months Ended September 30, 1999 and September 30, 1998
Revenue. Net revenue for the nine months ended September 30, 1999 was $28.3
million compared to $20.9 million for the nine months ended September 30, 1998,
an increase of $7.4 million, or 35%. Net revenue for the three months ended
September 30, 1999 was $10.7 million compared to $7.9 million for the three
months ended September 30, 1998, an increase of $2.8 million, or 35%. Net
revenue increased by $3.6 million and $2.5 million for the nine and three months
ended September 30, 1999, respectively, as a result of the acquisitions of John
M. Tettemer & Associates in August 1998 and Thompson-Hysell in July 1999.
Excluding the revenue from the acquisitions, our net revenue grew $3.8 million,
or 18%, and $275,000, or 4% for the nine and three months ended September 30,
1999, respectively, compared to the nine and three months ended September 30,
1998. The net revenue growth resulted primarily from the overall continued
strengthening of the California and Nevada economies. However, net revenue for
the nine and three months ended September 1999, was negatively impacted by an
increase to the estimated direct contract costs expected to be incurred on
several large projects resulting in a reduction to the estimated percentage of
completion on these contracts and consequently a $600,000 reduction in net
revenue. Subcontractor costs, as a percentage of net revenue, declined to 9% and
7% for the nine and three months ended September 30, 1999, respectively, as
compared to 18% and 16% for the nine and three months ended September 30, 1998,
respectively. The percentage decline in subcontractor costs resulted primarily
from a decrease in services for our primary wireless telecommunications
contract, which was substantially completed by the end of 1998.
Gross Profit. Gross profit for the nine months ended September 30, 1999 was
$9.2 million compared to $7.1 million for the nine months ended September 30,
1998, an increase of $2.1 million, or 29%. Gross profit for the three months
ended September 30, 1999 was $3.3 million compared to $2.8 million for the three
months ended September 30, 1998, an increase of $485,000, or 17%. The gross
profit growth is attributable to both our internal revenue increases as well as
the acquisition of John M. Tettemer & Associates and Thompson-Hysell. As a
percentage of net revenue, gross profit decreased slightly to 33% for the nine
months ended September 30, 1999 compared to 34% for the nine months ended
September 30, 1998. As a percentage of net revenue, gross profit decreased to
31% for the three months ended September 30, 1999 compared to 36% for the three
months ended September 30, 1998. The decrease in gross profit as a percentage of
net revenue for the nine and three months ended September 30, 1999 resulted
primarily from the negative impact to revenue relating to the increase to the
estimated direct contract costs on several large projects previously discussed.
Excluding this revenue impact of $600,000, gross profit as a percentage of net
revenue remained flat at 34% for the nine months ended September 30, 1999
compared to the prior year period and decreased to 35% for the three months
ended September 30, 1999 compared to 36% for the three
12
<PAGE>
months ended September 30, 1998. The gross profit percentage was further reduced
by a decline in the industrial engineering operations of ESI, as a percentage of
net revenue for the nine months ended September 30, 1999.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the nine months ended September 30, 1999 were $5.9
million as compared to $4.2 million for the nine months ended September 30,
1998, an increase of $1.7 million, or 40%. Selling, general and administrative
expenses for the three months ended September 30, 1999 were $2.2 million as
compared to $1.6 million for the three months ended September 30, 1998, an
increase of $585,000, or 36%. As a percentage of net revenue, selling, general
and administrative expenses increased to 21% for the nine months ended September
30, 1999 from 20% for the nine months ended September 30, 1998, while for the
three month period ended September 30, 1999, selling, general and administrative
expenses remained flat at 21% compared to the previous year period. Included in
the nine months ended September 30, 1998 period is a credit to bad debt expense
included in selling, general and administrative expense resulting from the cash
collection of $390,000 related to a receivable written-off in a prior period.
Excluding the $390,000 collection in 1998, selling, general and administrative
expenses, as a percentage of net revenue, declined 1% for the nine months ended
September 30, 1999 compared to the previous year period. The selling, general
and administrative expense percentage of net revenue for the nine and three
months ended September 30, 1999 were also negatively impacted by the decrease to
revenue relating to the increase to the estimated direct contract costs
previously discussed.
Interest expense and other expense, net. Interest expense for the nine months
ended September 30, 1999 was $678,000 as compared to $714,000 for the nine
months ended September 30, 1998, a decrease of $36,000, or 5%. Interest expense
for the three months ended September 30, 1999 was $149,000 as compared to
$249,000 for the three months ended September 30, 1998, a decrease of $100,000,
or 40%. The lower interest expense resulted from the repayment of our line of
credit and various related party notes payable with a portion of the net
proceeds from the initial public offering on July 15, 1999. Other expense, net
for the nine months ended September 30, 1999 was $102,000 as compared to $7,000
for the nine months ended September 30, 1998, an increase of $95,000. Other
expense, net for the three months ended September 30, 1999 was $132,000 as
compared to $18,000 for the three months ended September 30, 1998, an increase
of $114,000. Subsequent to the acquisition of ESI, TKCI agreed to indemnify
certain holders of 40,000 shares of common stock issued in connection with the
acquisition of ESI against a market decline in TKCI's common stock after the
initial public offering of TKCI's common stock. The excess of the guarantee
price over the market value of the 40,000 shares of common stock was $130,000 on
September 30, 1999.
Income Taxes. The provision for income taxes for the nine months ended
September 30, 1999 was $1.1 million compared to $1.0 million for the nine months
ended September 30, 1998. The provision for income taxes for the three months
ended September 30, 1999 was $347,000 compared to $418,000 for the three months
ended September 30, 1998. Our effective income tax rate was approximately 42%
for the nine and three months ended September 30, 1999 compared to an effective
tax rate of 45% for the nine and three months ended September 30, 1998. Our
effective income tax rate of 45% for the periods ended September 30, 1998 was
primarily due to the anticipated conversion of KEI from an S corporation to a C
corporation in August 1998.
Liquidity and Capital Resources
We have financed our working capital needs and capital expenditure requirements
through a combination of internally generated funds, bank borrowings, leases and
the initial public offering of our common stock.
Working capital as of September 30, 1999 was $6.2 million compared to $5.2
million as of December 31, 1998, an increase of $1.1 million, or 20%. The
increase in working capital resulted primarily from higher cash balances
resulting from the initial public offering, the acquisition of substantially all
of the assets and assumption of substantially all of the liabilities of
Thompson-Hysell and growth in contracts and trade receivables and cost and
estimated earnings in excess of billings due to higher revenue volume. Cash
generated from operating activities increased $1.9 million to $2.0 million for
the nine months ended September 30, 1999, compared to $57,000 for the nine
months ended September 30, 1998. The significant growth in operating cash flow
resulted primarily from higher income from operations and the timing of payments
related to prepaid expenses, trade accounts payable and accrued liabilities.
The growth in cash generated from operating activities was used primarily to
fund capital expenditures of $840,000 for the nine months ended September 30,
1999 compared to $404,000 for the nine months ended September 30, 1998 and to
make principal payments on long-term and short-term debt and capital leases.
Capital expenditures consisted primarily of computer equipment and upgrades to
our information systems.
On July 15, 1999, TKCI completed an initial public offering of 1.5 million
shares of its common stock resulting in proceeds net of underwriters' discount
of approximately $12.4 million to the Company. TKCI's cash from operations in
addition to the proceeds from the offering were used to pay approximately $1.1
million in offering costs for the nine months ended September 30, 1999. The
remaining net proceeds were used to fund the $3.7 million cash expended for the
acquisition of
13
<PAGE>
substantially all of the assets and the assumption of substantially all of the
liabilities of Thompson-Hysell, the repayment of the line of credit balance of
$4.5 million, the repayment of related party notes payable of $2.4 million and
notes payable of $250,000.
On September 1, 1999, the Company entered into a new line of credit agreement
with a bank to fund working capital needs and the acquisition of equipment. The
line of credit has a working capital component with a maximum outstanding
principal balance of $6,000,000 which matures on September 3, 2001 and an
equipment component with a maximum outstanding principal balance of $3,500,000,
which matures on September 3, 2000. The aggregate outstanding principal balance
of working capital advances and equipment advances can not exceed $8,500,000.
The line of credit is subject to various restrictions and contains certain
financial and nonfinancial related covenants. As of September 30, 1999, there
was no outstanding borrowing on the line of credit. The Company anticipates
borrowing on its line of credit as appropriate in the future.
In conjunction with the acquisition of substantially all of the assets and
assumption of substantially all of the liabilities of Thompson-Hysell, TKCI
assumed $438,000 related to a portion of the Thompson-Hysell existing bank debt.
TKCI's intent is to pay-off this liability in the fourth quarter of 1999.
Prior to September 30, 1999, TKCI maintained a line of credit agreement with a
bank, which allowed us to borrow up to $5.5 million, not to exceed 80% of our
eligible accounts receivable, as defined in the agreement. On July 15, 1999, a
portion of the net proceeds from the Company's initial public offering was used
to pay off the $4.5 million outstanding line of credit balance. On September 30,
1999 this line of credit agreement was terminated.
We believe existing cash balances, internally generated funds, and availability
under credit facilities will be sufficient to fund our anticipated internal
operating needs for the next twelve months.
Inflation
Although our operations can be influenced by general economic trends, we do not
believe that inflation had a significant impact on our results of operations for
the periods presented. Due to the short-term nature of most of our contracts,
if costs of revenue increase, we attempt to pass these increases to our clients.
Year 2000
We are currently in the final phase of identifying and evaluating the potential
impacts of the Year 2000 on information systems and embedded systems. A Year
2000 Mitigation Committee comprised of senior management and functional managers
is evaluating the following issues:
. State of readiness
. Costs to address Year 2000 issues
. Risk assessment
. Contingency plan
The following is a description of the process we have established and which we
intend to follow to minimize our Year 2000 risk exposure:
State of readiness. Our information technology and non-information technology
systems can be divided into support/administrative and operational/production
systems. The significant systems used to perform our support and administrative
functions as well as our engineering work and the operating systems upon which
these systems function are detailed in the table below. We have surveyed the
system suppliers and have received from each supplier either written assurance
or vendor documentation in the form of information published on a website
stating that these systems are Year 2000 compliant or Year 2000 compliant with
minor issues as indicated below.
<TABLE>
<CAPTION>
Operating System
System Name Description (if applicable) Year 2000 Status
----------- ----------- ---------------- ----------------
<S> <C> <C> <C>
Harper & Shuman CFMS/RD Compliant
V5.0 (Server) Accounting and Project Cost software Open VMS V7.1-1H1 Assurance received
Windows 95,
Windows 98,
Harper & Shuman CFMS/RD Client component that allows access to Windows NT 4.0 Compliant
V5.0 (Client) server data Workstation SP4 Assurance received
Compaq-DEC Open VMS Alpha operating system that supports Compliant
V7.1-1H1 CFMS/RD software N/A Assurance received
Autodesk AutoCAD R14 Engineering CAD design software Windows 95, Compliant
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
Operating System
System Name Description (if applicable) Year 2000 Status
----------- ----------- ---------------- ----------------
<S> <C> <C> <C>
being run on Windows operating system Windows 98, Assurance received
Windows NT 4.0
Workstation SP4
Windows 95,
Office suite includes word processing, Windows 98,
Microsoft Office 97 SR-2 spreadsheet, database, presentation Windows NT 4.0 Compliant
components Workstation SP4 Assurance received
ProBusiness Payroll PowerPay Compliant
v.5.03 Payroll software Windows 95 Assurance received
ProBusiness HRMS Compliant
Powersource II V1.0 Human Resources software Windows 95 Assurance received
Windows 95,
Windows 98,
MicroStation 95 V5.05.01.65 Engineering CAD design software being Windows NT 4.0 Compliant
run on Windows operating system Workstation SP4 Assurance received
Microsoft Windows NT Server 4.0 Server operating system for storing
SP4 engineering drawings and administrative Compliant
documents N/A Assurance received
Microsoft Windows NT Operating system running on workstations Compliant
Workstation 4.0 SP4 and laptops N/A Assurance received
Microsoft Windows 95 Operating system running on workstations Compliant
and laptops N/A Assurance received
Microsoft Windows 98 Operating system running on workstations Compliant
and laptops N/A Assurance received
Microsoft Exchange Server 5.5 E-mail server application running on Compliant
SP2 Windows operating system Windows NT 4.0 SP4 Assurance received
Compliant
Nortel Meridian SL1 (Corporate) Telephone switch N/A Assurance received
Compliant
Nortel Meridian Mail R5.0 Voicemail messaging system N/A Assurance received
(Corporate) Compliant
Toshiba Perception II (Moreno Telephone system N/A Assurance received
Valley Location) Not Compliant
AVT PhoneXpress (Moreno Valley
Location) Voice mail system N/A (see below)
Toshiba Strata DK-424 (Las Compliant
Vegas Location) Telephone system N/A Assurance received
AVT CallXpress3 (Las Vegas Compliant
Location) Voicemail messaging system N/A Assurance received
N/A no feature within
this product is
pertinent to Y2K per
telephone vendor,
Trillium Panther 2064
(Thompson-Hysell) Telephone system N/A O'Leary Telephone &
Data Compliant
Pacific Bell Voice Mail Assurance received
(Thompson-Hysell) Voice message boxes N/A Compliant
Nortel Norstar Plus Model II Integrated telephone and voice mail N/A Assurance received
DR5.1 (John M. Tettemer) system Compliant
Toshiba Strata DK424 (ESI) Telephone system N/A Assurance received
Compliant
AVT PhoneXpress (ESI) Voice message system N/A Assurance received
Toshiba Strata DK96 (Palm Compliant
Desert Location) Voice message system N/A Assurance received
</TABLE>
We are currently in the process of asking the vendors of embedded systems to
provide us with written assurance of Year 2000 compliance. In addition, where
cost effective and appropriate, have performed internal tests on mission
critical and operational production systems and all either passed the Year 2000
testing or require minor manual remediation following the January 1, 2000 date.
Cost to address Year 2000 issues. The only costs we have incurred in connection
with addressing the Year 2000 issues are administrative expenses resulting from
the efforts of our Mitigation Committee and time spent in attempting to identify
and resolve Year 2000 issues in contacting our vendors and subconsultants to
ensure compliance. These costs are included in selling, general and
administrative expense in the consolidated statements of income. All costs
related to Year 2000 issues are paid from cash flows from operations.
15
<PAGE>
We anticipate a cost of $25,000 to $50,000 to upgrade our telephone voice
message system near the end of the fourth quarter 1999 to ensure Year 2000
compliance. This expenditure will be recorded as selling, general and
administrative expense as incurred. Our Mitigation Committee has determined
that the primary computer systems that we use are Year 2000 compliant and
therefore we do not anticipate any additional costs related to the Year 2000
date change that will be material to our business, financial condition or
results of operations.
Risk assessment. Based on the findings of our Mitigation Committee, we believe
that the impact of Year 2000 issues on our internal operations will be minimal.
In order to minimize any adverse effect caused by the Year 2000 date change, our
operational personnel transfer their work to back-up tapes on a daily basis and
store these tapes in an offsite facility. We have not deferred any information
technology projects due to Year 2000 issues.
We have had difficulty estimating the impact of Year 2000 non-compliance by
outside parties with whom we transact business. We have received Year 2000
compliance letters from most of our critical vendors and subcontractors. Based
on theses responses we are not aware of any significant issues relating to third
parties compliance with the Year 2000 date change.
We have also engaged in discussions with other significant third parties, such
as our bank and payroll service, and have received written assurances regarding
Year 2000 compliance from such service providers. Although our client base is
diverse, with no one client making up more than 10% of our gross revenue, we
have had discussions with our major clients regarding their readiness for the
Year 2000 date change and are not aware of any significant issues.
Contingency plan. We have completed our testing and assessment procedures.
Plans for likely scenarios involving Year 2000 failures currently cover only
manual remediation of workstation and/or server computers. Where cost effective
and appropriate, we have performed internal tests on mission critical and
operational production systems to validate Year 2000 compliance, and all either
passed Year 2000 testing or require minor manual intervention on or after the
January 1, 2000 date. Appropriate plans to deal with identified failures are
being developed. If we are unsuccessful in developing or implementing a plan to
correct possible Year 2000 failure, either in our information technology
(software) or non-information technology (microcontrollers in equipment), we may
experience disruptions in operations. Our projection of most serious disruptions
which could occur include:
. the loss of approximately two months' net revenues, an amount of
approximately $7,500,000, if our accounting systems fail and we are
unable to utilize backup information. We would, however, expect
eventually to be able to recover a significant portion of this revenue
by recreating time and cost entries from hard copies of such data.
. the loss of engineering and project data if we are unable to utilize
backup information, resulting in the need to re-input printed data. This
effort could increase operating costs and reduce margins in the first
two quarters of 2000 and might cause the loss of some projects if we are
unable to fulfill our time commitments.
. the loss of the services of subcontractors who are experiencing
disruptions due to Year 2000 risks, resulting in the loss of contracts
because of failure to meet deadlines.
. the loss of net revenues if any of the accounting systems of our clients
experience a Year 2000 failure.
16
<PAGE>
Item 3: Quantitative and Qualitative Disclosures About Market Risk
We are exposed to interest rate changes primarily as a result of our line of
credit, long-term debt and capital leases which are used to maintain liquidity
and to fund capital expenditures and our expansion. Our interest rate risk
management objectives are to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing costs. To achieve our
objectives, we have borrowed at fixed rates and may enter into derivative
financial instruments to mitigate our interest rate risk on variable rate debt.
We do not enter into derivative or interest rate transactions for speculative
purposes.
The table below presents the principal amounts, weighted average interest rates,
fair values and other items required by year of expected maturity to evaluate
the expected cash flows and sensitivity to interest rate changes. Dollars are
expressed in thousands.
<TABLE>
1999 2000 2001 2002 2003 Total Fair Value/(1)/
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed rate debt /(2)/ $ 33 $ 164 $1,501 $ 136 $ 37 $1,871 $1,871
Average interest rate 8.50% 8.40% 9.80% 8.30% 8.00% 9.50% 9.50%
Variable rate debt -- $ 438 -- -- -- $ 438 $ 438
Average interest rate -- 8.25% -- -- -- 8.25% 8.25%
</TABLE>
- ----------------------------
/(1)/ The fair value of fixed rate debt and variable rate debt was determined
based on current rates offered for debt instruments with similar risks and
maturities.
/(2)/ Fixed rate debt excludes notes payable with an aggregate principal amount
of $350,000 as there is no established market for these notes.
As the table incorporates only those exposures that existed as of September 30,
1999, it does not consider those exposures or positions which could arise after
that date. Moreover, because firm commitments are not presented in the table
above, the information presented in the table has limited predictive value. As a
result, our ultimate realized gain or loss with respect to interest rate
fluctuations will depend on those exposures or positions that arise during the
period and interest rates.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
On August 13, 1999, a complaint was filed in the Stanislaus County, California
Superior Court against Thompson-Hysell, Inc. ("Thompson-Hysell"), four
shareholders of Thompson-Hysell (the "Defendant Shareholders"), Thompson-Hysell
Liquidation Corporation, Thompson-Hysell Engineers, Inc. and us. This complaint
was filed by Phillip Kirk Delamare and his wife Catherine A. Delamare who are
shareholders of a corporation named Thompson-Hysell Engineers, Inc. ("T-H
Engineers"), in which the Defendant Shareholders were majority shareholders and
directors. The complaint alleges, among other things, that Thompson-Hysell was
an alter ego of T-H Engineers and as such, when we acquired substantially all of
the assets and assumed substantially all of the liabilities of Thompson-Hysell
(the "Acquisition"), the plaintiffs were fraudulently deprived of any benefit
derived from their ownership interest in the shares of T-H Engineers. The
complaint further alleges that the Defendant Shareholders breached their
fiduciary duties as directors and majority shareholders of T-H Engineers and
that they conspired with Thompson-Hysell and us to defraud T-H Engineers of its
assets and to exclude plaintiffs from any benefit derived from the Acquisition.
The plaintiffs in this action are seeking injunctive relief and general monetary
damages in an unspecified amount, special damages in the amount of $600,000,
interest, costs and punitive and exemplary damages. We believe that the claim
made against us is completely without merit and intend to vigorously defend
ourselves in this action.
Item 2. Changes In Securities and Use of Proceeds
On July 12, 1999, our Registration Statement on Form S-1 (333-77273) pertaining
to our initial public offering of 1,500,000 shares of our common stock, par
value $0.001 per share, was declared effective by the Securities and Exchange
Commission. The managing underwriters in the offering were Wedbush Morgan
Securities.
The offering commenced on July 12, 1999 and closed on July 15, 1999. The
initial public offering price was $9 per share for an aggregate initial public
offering price of $13,500,000.
Of the $13,500,000 in gross proceeds raised in connection with the offering, (i)
$1,080,000 was paid to the managing underwriter in connection with underwriting
discounts and expenses and (ii) approximately $747,000 was paid by us in
connection with expenses, including legal, accounting, printing, filing and
other fees, in connection with the offering. Of the remaining net proceeds, we
have paid cash of $3,333,000 in connection with the acquisition of substantially
all of the assets and assumption of substantially all of the liabilities of
Thompson-Hysell; paid off the outstanding line of credit balance of $4,731,000;
and repaid debts to related parties of $1,407,000 to Aram Keith, our Chief
Executive Officer and Chairman of the Board, $703,000 to Walter Cruttenden III,
one of our directors, $165,000 to Floyd Reid, a former director and executive
officer, and an aggregate of $372,000 to various other related parties. There
were no other direct or indirect payments to any of our officers or directors,
their associates, ten- percent shareholders or any other affiliate of ours. We
are currently investing the remaining net proceeds from the offering for future
use as additional working capital and/or to repay other debt. Our investments
are currently in a government cash fund which invests substantially all of its
assets in high-quality obligations of the U.S. Government, its agencies and
instrumentalities and in repurchase agreements, backed by these obligations.
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to A Vote of Security Holders
None
Item 5. Other Information
None
18
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits
Number Description
------ -----------
10.35 Wells Fargo Bank Line of Credit Note dated September 1, 1999
between The Keith Companies, Inc., John M. Tettemer and
Associated, LTD., and ESI, Engineering Services, Inc. and
Wells Fargo Bank, National Association.
10.36 Wells Fargo Bank Credit Agreement dated September 1, 1999
between The Keith Companies, Inc., John M. Tettemer and
Associated, LTD., and ESI, Engineering Services, Inc. and
Wells Fargo Bank, National Association.
10.37 Facility Lease dated July 29, 1999 between ASP Scripps,
L.L.C. and the Keith Companies, Inc.
10.38 Addendum to Facility Lease dated July 29, 1999 between ASP
Scripps, L.L.C. and the Keith Companies, Inc.
10.39 Sublease Agreement dated July 29, 1999 between Cannon
Computer Systems, Inc. and The Keith Companies, Inc.
10.40 Agreement of non-disturbance and attornment dated July 28,
1999 between ASP Scripps, L.L.C. and The Keith Companies,
Inc.
10.41 Consent to Sublease Agreement dated July 28, 1999 between ASP
Scripps, L.L.C., Canon Computer Systems, Inc. and The Keith
Companies, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
19
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: November 12, 1999 THE KEITH COMPANIES, INC. AND SUBSIDIARIES
By: /s/ ARAM H. KEITH
-----------------------------------
Aram H. Keith
Chairman of the Board of Directors
and Chief Executive Officer
By: /s/ GARY C. CAMPANARO
-----------------------------------
Gary C. Campanaro
Chief Financial Officer and Secretary
20
<PAGE>
EXHIBIT 10.35
LINE OF CREDIT NOTE
$8,500,000.00 Irvine, California
September 1, 1999
FOR VALUE RECEIVED, the undersigned The Keith Companies, Inc., John M.
Tettemer & Associates, Ltd., and ESI, Engineering Services, Inc. ("Borrower")
promises to pay to the order of Wells Fargo Bank, National Association ("Bank")
at its Orange Coast Regional Commercial Banking Office at 2030 Main Street,
Suite 900, Irvine, California 90071, or at such other place as the holder hereof
may designate, in lawful money of the United States of America and in
immediately available funds, the principal sum of Eight Million Five Hundred
Thousand Dollars ($8,500,000.00), or so much thereof as may be advanced and be
outstanding, with interest thereon, to be computed on each advance from the date
of its disbursement as set forth herein.
DEFINITIONS:
As used herein, the following terms shall have the meanings set forth after
each, and any other term defined in this Note shall have the meaning set forth
at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in California are authorized or required by law to
close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for 1, 2, 3, or 6 months, as designated by Borrower, during which all
or a portion of the outstanding principal balance of this Note bears interest
determined in relation to LIBOR; provided however, that no Fixed Rate Term may
be selected for a principal amount less than $100,000.00 with respect to Working
Capital Advances or $100,000.00 with respect to Equipment Advances; and provided
further, that no Fixed Rate Term shall extend beyond the scheduled maturity date
hereof. If any Fixed Rate Term would end on a day which is not a Business Day,
then such Fixed Rate Term shall be extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to the
nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = Base LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for
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the purpose of calculating effective rates of interest for loans making
reference thereto, on the first day of a Fixed Rate Term for delivery of funds
on said date for a period of time approximately equal to the number of days in
such Fixed Rate Term and in an amount approximately equal to the principal
amount to which such Fixed Rate Term applies. Borrower understands and agrees
that Bank may base its quotation of the Inter-Bank Market Offered Rate upon such
offers or other market indicators of the Inter-Bank Market as Bank in its
discretion deems appropriate including, but not limited to, the rate offered for
U.S. dollar deposits on the London Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed by
the Board of Governors of the Federal Reserve System (or any successor) for
"Eurocurrency Liabilities" (as defined in Regulation D of the Federal Reserve
Board, as amended), adjusted by Bank for expected changes in such reserve
percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as the
basis upon which effective rates of interest are calculated for those loans
making reference thereto, and is evidenced by the recording thereof after its
announcement in such internal publication or publications as Bank may designate.
INTEREST:
(a) Interest. The outstanding principal balance of this Note shall bear
--------
interest (computed on the basis of a 360-day year, actual days elapsed) either
(i) at a fluctuating rate per annum equal to the Prime Rate in effect from time
to time, or (ii) with respect to Working Capital Advances, at a fixed rate per
annum determined by Bank to be one and three-quarters percent (1.75%) above
LIBOR in effect on the first day of the applicable Fixed Rate Term, and (iii)
with respect to Equipment Advances, at a fixed rate per annum determined by Bank
to be two percent (2.00%) above LIBOR in effect on the first day of the
applicable Fixed Rate Term. When interest is determined in relation to the
Prime Rate, each change in the rate of interest hereunder shall become effective
on the date each Prime Rate change is announced within Bank. With respect to
each LIBOR selection hereunder, Bank is hereby authorized to note the date,
principal amount, interest rate and Fixed Rate Term applicable thereto and any
payments made thereon on Bank's books and records (either manually or by
electronic entry) and/or on any schedule attached to this Note, which notations
shall be prima facie evidence of the accuracy of the information noted.
(b) Selection of Interest Rate Options. At any time any portion of this
----------------------------------
Note bears interest determined in relation to
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LIBOR, it may be continued by Borrower at the end of the Fixed Rate Term
applicable thereto so that all or a portion thereof bears interest determined in
relation to the Prime Rate or to LIBOR for a new Fixed Rate Term designated by
Borrower. At any time any portion of this Note bears interest determined in
relation to the Prime Rate, Borrower may convert all or a portion thereof so
that it bears interest determined in relation to LIBOR for a Fixed Rate Term
designated by Borrower. At such time as Borrower requests an advance hereunder
or wishes to select a LIBOR option for all or a portion of the outstanding
principal balance hereof, and at the end of each Fixed Rate Term, Borrower shall
give Bank notice specifying: (i) the interest rate option selected by Borrower;
(ii) the principal amount subject thereto; and (iii) for each LIBOR selection,
the length of the applicable Fixed Rate Term. Any such notice may be given by
telephone so long as, with respect to each LIBOR selection, (A) Bank receives
written confirmation from Borrower not later than three (3) Business Days after
such telephone notice is given, and (B) such notice is given to Bank prior to
10:00 a.m., California time, on the first day of the Fixed Rate Term. For each
LIBOR option requested hereunder, Bank will quote the applicable fixed rate to
Borrower at approximately 10:00 a.m., California time, on the first day of the
Fixed Rate Term. If Borrower does not immediately accept the rate quoted by
Bank, any subsequent acceptance by Borrower shall be subject to a
redetermination by Bank of the applicable fixed rate; provided however, that if
Borrower fails to accept any such rate by 11:00 a.m., California time, on the
Business Day such quotation is given, then the quoted rate shall expire and Bank
shall have no obligation to permit a LIBOR option to be selected on such day. If
no specific designation of interest is made at the time any advance is requested
hereunder or at the end of any Fixed Rate Term, Borrower shall be deemed to have
made a Prime Rate interest selection for such advance or the principal amount to
which such Fixed Rate Term applied.
(c) Additional LIBOR Provisions.
---------------------------
(i) If Bank at any time shall determine that for any reason adequate and
reasonable means do not exist for ascertaining LIBOR, then Bank shall promptly
give notice thereof to Borrower. If such notice is given and until such notice
has been withdrawn by Bank, then (A) no new LIBOR option may be selected by
Borrower, and (B) any portion of the outstanding principal balance hereof which
bears interest determined in relation to LIBOR, subsequent to the end of the
Fixed Rate Term applicable thereto, shall bear interest determined in relation
to the Prime Rate.
(ii) If any law, treaty, rule, regulation or determination of a court or
governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options
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available hereunder, or (B) to maintain interest rates based on LIBOR, then in
the former event, any obligation of Bank to make available such unlawful LIBOR
options shall immediately be cancelled, and in the latter event, any such
unlawful LIBOR-based interest rates then outstanding shall be converted, at
Bank's option, so that interest on the portion of the outstanding principal
balance subject thereto is determined in relation to the Prime Rate; provided
however, that if any such Change in Law shall permit any LIBOR-based interest
rates to remain in effect until the expiration of the Fixed Rate Term applicable
thereto, then such permitted LIBOR-based interest rates shall continue in effect
until the expiration of such Fixed Rate Term. Upon the occurrence of any of the
foregoing events, Borrower shall pay to Bank immediately upon demand such
amounts as may be necessary to compensate Bank for any fines, fees, charges,
penalties or other costs incurred or payable by Bank as a result thereof and
which are attributable to any LIBOR options made available to Borrower
hereunder, and any reasonable allocation made by Bank among its operations shall
be conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax, duty or other charge with respect to any
LIBOR options, or change the basis of taxation of payments to Bank of
principal, interest, fees or any other amount payable hereunder
(except for changes in the rate of tax on the overall net income of
Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by any office of Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce any
amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank are attributable to any LIBOR options made available to
Borrower hereunder, any reasonable allocation made by Bank among its operations
shall be conclusive and binding upon Borrower.
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<PAGE>
(d) Payment of Interest. Interest accrued on this Note shall be payable
-------------------
on the third day of each month, commencing October 3, 1999.
(e) Default Interest. From and after the maturity date of this Note, or
----------------
such earlier date as all principal owing hereunder becomes due and payable by
acceleration or otherwise, the outstanding principal balance of this Note shall
bear interest until paid in full at an increased rate per annum (computed on the
basis of a 360-day year, actual days elapsed) equal to two percent (2%) above
the rate of interest from time to time applicable to this Note.
BORROWING AND REPAYMENT:
(a) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of this Note borrow, partially or wholly repay its outstanding borrowings,
and reborrow Working Capital Advances, subject to all of the limitations, terms
and conditions of this Note and of any document executed in connection with or
governing this Note; provided however, that the total outstanding borrowings
under this Note shall not at any time exceed the principal amount stated above.
The unpaid principal balance of this obligation at any time shall be the total
amounts advanced hereunder by the holder hereof less the amount of principal
payments made hereon by or for any Borrower, which balance may be endorsed
hereon from time to time by the holder. The outstanding principal balance of
Equipment Advances on September 3, 2000 shall be due and payable on the third
day of each month in 60 equal consecutive installments, each equal to 1/60th of
such outstanding principal balance, commencing on October 3, 2000 to and
including September 3, 2005. The outstanding principal balance of Working
Capital Advances shall be due and payable in full on September 3, 2001.
(b) Advances. Working Capital Advances, to the total amount of the
--------
principal sum set forth in the Credit Agreement (defined below), may be made by
the holder at the oral or written request of (i) Aram Keith, CEO or Gary
--------------- ----
Campanaro, CFO, any one acting alone, who are authorized to request advances and
- --------------
direct the disposition of any advances until written notice of the revocation of
such authority is received by the holder at the office designated above, or (ii)
any person, with respect to advances deposited to the credit of any account of
any Borrower with the holder, which advances, when so deposited, shall be
conclusively presumed to have been made to or for the benefit of each Borrower
regardless of the fact that persons other than those authorized to request
advances may have authority to draw against such account. The holder shall have
no obligation to determine whether any person requesting an advance is or has
been authorized by any Borrower. Equipment Advances shall be available in the
manner set forth in the Credit Agreement.
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(c) Application of Payments. Each payment made on this Note shall be
-----------------------
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be applied to
Working Capital Advances and/or Equipment Advances as described in the Credit
Agreement, and shall be so applied first, to the outstanding principal balance
of applicable advances which bears interest determined in relation to the Prime
Rate, if any, and second, to the outstanding principal balance of the advances
which bears interest determined in relation to LIBOR, with such payments applied
to the oldest Fixed Rate Term first.
PREPAYMENT:
(a) Prime Rate. Borrower may prepay principal on any portion of this Note
----------
which bears interest determined in relation to the Prime Rate at any time, in
any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note
-----
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of $500,000.00; provided however, that if the outstanding
principal balance of such portion of this Note is less than said amount, the
minimum prepayment amount shall be the entire outstanding principal balance
thereof. In consideration of Bank providing this prepayment option to Borrower,
or if any such portion of this Note shall become due and payable at any time
prior to the last day of the Fixed Rate Term applicable thereto by acceleration
or otherwise, Borrower shall pay to Bank immediately upon demand a fee which is
the sum of the discounted monthly differences for each month from the month of
prepayment through the month in which such Fixed Rate Term matures, calculated
as follows for each such month:
(i) Determine the amount of interest which would have accrued each month
---------
on the amount prepaid at the interest rate applicable to such amount
had it remained outstanding until the last day of the Fixed Rate Term
applicable thereto.
(ii) Subtract from the amount determined in (i) above the amount of
--------
interest which would have accrued for the same month on the amount
prepaid for the remaining term of such Fixed Rate Term at LIBOR in
effect on the date of prepayment for new loans made for such term and
in a principal amount equal to the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or
6
<PAGE>
liabilities, and that it is difficult to ascertain the full extent of such
costs, expenses and/or liabilities. Each Borrower, therefore, agrees to pay the
above-described prepayment fee and agrees that said amount represents a
reasonable estimate of the prepayment costs, expenses and/or liabilities of
Bank. If Borrower fails to pay any prepayment fee when due, the amount of such
prepayment fee shall thereafter bear interest until paid at a rate per annum
2.00% above the Prime Rate in effect from time to time (computed on the basis of
a 360-day year, actual days elapsed). Each change in the rate of interest on any
such past due prepayment fee shall become effective on the date each Prime Rate
change is announced within Bank. Prepayments of principal applied to Equipment
Advances after September 3, 2000 shall be applied to the scheduled installments
in inverse order of maturity.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions of
that certain Credit Agreement between Borrower and Bank dated as of September 1,
1999, as amended from time to time (the "Credit Agreement"). Any default in the
payment or performance of any obligation under this Note, or any defined event
of default under the Credit Agreement, shall constitute an "Event of Default"
under this Note.
MISCELLANEOUS:
(a) Remedies. Upon the occurrence of any Event of Default, the holder of
--------
this Note, at the holder's option, may declare all sums of principal and
interest outstanding hereunder to be immediately due and payable without
presentment, demand, notice of nonperformance, notice of protest, protest or
notice of dishonor, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder shall
immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of the holder's in-house counsel), expended
or incurred by the holder in connection with the enforcement of the holder's
rights and/or the collection of any amounts which become due to the holder under
this Note, and the prosecution or defense of any action in any way related to
this Note, including without limitation, any action for declaratory relief,
whether incurred at the trial or appellate level, in an arbitration proceeding
or otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary proceeding,
contested matter or motion brought by Bank or any other person) relating to any
Borrower or any other person or entity.
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(b) Obligations Joint and Several. Should more than one person or entity
-----------------------------
sign this Note as a Borrower, the obligations of each such Borrower shall be
joint and several.
(c) Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first written above.
THE KEITH COMPANIES, INC.
By: /s/ Gary C. Campanaro
---------------------------------
Title: CFO
------------------------------
JOHN M. TETTEMER & ASSOCIATES, LTD.
By: /s/ Gary C. Campanaro
---------------------------------
Title: CFO
------------------------------
ESI, ENGINEERING SERVICES, INC.
By: /s/ Gary C. Campanaro
---------------------------------
Title: CFO
------------------------------
8
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EXHIBIT 10.36
CREDIT AGREEMENT
THIS AGREEMENT is entered into as of September 1, 1999, by and among The
Keith Companies, Inc., a California corporation, John M. Tettemer & Associates,
Ltd., a California corporation, ESI, Engineering Services, Inc. a California
corporation (individually and collectively "Borrower"), and Wells Fargo Bank,
National Association ("Bank"). Each reference herein to "Borrower" shall mean
each and every party, collectively and individually, defined above as a
Borrower.
RECITAL
-------
Borrower has requested from Bank the credit accommodation described below,
and Bank has agreed to provide said credit accommodation to Borrower on the
terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Bank and Borrower hereby agree as follows:
ARTICLE I
---------
THE CREDIT
----------
SECTION 1.1. LINE OF CREDIT.
(a) Line of Credit. Subject to the terms and conditions of this Agreement,
--------------
Bank hereby agrees to make advances to Borrower from time to time (the "Line of
Credit"), the proceeds of which up to a maximum outstanding principal balance of
$6,000,000.00 shall be used to finance working capital requirements (the
"Working Capital Advances", which shall be available until September 3, 2001),
and which up to a maximum outstanding principal balance of $3,500,000.00 (less
the amount of Lease Obligations) shall be used for equipment purchases
("Equipment Advances", which shall be available until September 3, 2000),
provided, however, that the aggregate outstanding principal balance of Working
- -----------------
Capital Advances and Equipment Advances shall not at any time exceed
$8,500,000.00. Borrower's obligation to repay Working Capital Advances and
Equipment Advances shall be evidenced by a promissory note substantially in the
form of Exhibit A attached hereto ("Line of Credit Note"), all terms of which
are incorporated herein by this reference. The term "Lease Obligations" means
-----------------
the aggregate amount of all lease obligations under leases entered into between
Bank's equipment leasing affiliate or division as lessor and Borrower as lessee
during the period when Equipment Advances are available.
<PAGE>
(b) Borrowing and Repayment. Borrower may from time to time during the
-----------------------
term of the Line of Credit with respect to Working Capital Advances borrow,
partially or wholly repay its outstanding borrowings, and reborrow, and, with
respect to Equipment Advances, borrow, partially or wholly repay its outstanding
borrowings, but not reborrow, subject to all of the limitations, terms and
conditions contained herein or in the Line of Credit Note; provided however,
that the total outstanding borrowings under the Line of Credit shall not at any
time exceed the maximum principal amount available thereunder, as set forth
above. As of and after September 3, 2000, (i) no new Equipment Advances shall be
available, and (ii) the availability for Working Capital Advances shall be
limited to the lesser of (I) $6,000,000.00, or (II) an amount equal to
$8,500,000.00 less the outstanding principal balance of Equipment Advances from
time to time. Repayments of principal received by Bank shall be applied, prior
to September 3, 2000 (unless Bank receives written instructions to the contrary
prior to each payment), first to outstanding Working Capital Advances and then
to outstanding Equipment Advances, and after September 3, 2000, first to the
scheduled installment of the Equipment Advances if such an installment is then
due and payable, second to outstanding Working Capital Advances and then as a
prepayment of Equipment Advances (subject to the prepayment provisions set forth
in the Line of Credit Note).
(c) Advances. Each request for an Equipment Advance shall be in writing,
--------
shall specify the amount and date of the requested advance and shall be
accompanied by an invoice or appraisal (as required below) in form and content
acceptable to Bank. The principal amount of each Equipment Advance shall not
exceed 90% of the purchase price of the applicable equipment (if such equipment
is new or has been acquired within 90 days preceding the date of the requested
advance) as evidenced by invoice delivered to Bank, or 80% of the value of the
applicable equipment (if such equipment is used or has been acquired more than
90 days prior to the date of the requested advance) as evidenced by appraisal
delivered to Bank. Working capital advances shall be available in the manner set
forth in the Line of Credit Note. Bank is hereby authorized to note the original
principal amount of and any payments made on Working capital Advances and
equipment Advances on Bank's books and records (either manually or by electronic
entry) and/or on any schedule attached to this Agreement or to the Line of
Credit Note, which notations shall be prima facie evidence of the accuracy of
the information noted.
SECTION 1.2. INTEREST/FEES.
(a) Interest. The outstanding principal balance of the Line of Credit
--------
shall bear interest at the rate of interest set forth in the Line of Credit
Note.
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(b) Computation and Payment. Interest shall be computed on the basis of a
-----------------------
360-day year, actual days elapsed. Interest shall be payable at the times and
place set forth in the Line of Credit Note.
(c) Unused Commitment Fee. Borrower shall pay to Bank a fee equal to one-
---------------------
eighth percent (0.125%) per annum (computed on the basis of a 360-day year,
actual days elapsed) on the average daily unused amount of the Line of Credit,
which fee shall be calculated on a quarterly basis by Bank and shall be due and
payable by Borrower in arrears on the first day of each March, June, September
and December.
SECTION 1.3. COLLECTION OF PAYMENTS. Borrower authorizes Bank to collect
all interest and fees due under the Line of Credit by charging Borrower's demand
deposit account number 4269-912520 with Bank, or any other demand deposit
account maintained by Borrower with Bank, for the full amount thereof. Should
there be insufficient funds in any such demand deposit account to pay all such
sums when due, the full amount of such deficiency shall be immediately due and
payable by Borrower.
SECTION 1.4. COLLATERAL.
As security for all indebtedness of Borrower to Bank subject hereto,
Borrower hereby grants to Bank, and shall cause the other Borrowers to grant to
Bank, security interests of first priority in all such Borrower's accounts
receivable and other rights to payment, general intangibles and equipment.
All of the foregoing shall be evidenced by and subject to the terms of such
security agreements, financing statements, deeds of trust and other documents as
Bank shall reasonably require, all in form and substance satisfactory to Bank.
Borrower shall reimburse Bank immediately upon demand for all costs and expenses
incurred by Bank in connection with any of the foregoing security, including
without limitation, filing and recording fees and costs of appraisals, audits
and title insurance.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
Borrower makes the following representations and warranties to Bank, which
representations and warranties shall survive the execution of this Agreement and
shall continue in full force and effect until the full and final payment, and
satisfaction and discharge, of all obligations of Borrower to Bank subject to
this Agreement.
-3-
<PAGE>
SECTION 2.1. LEGAL STATUS. The Keith Companies, Inc. is a corporation,
duly organized and existing and in good standing under the laws of the state of
California, and is qualified or licensed to do business (and is in good standing
as a foreign corporation, if applicable) in all jurisdictions in which such
qualification or licensing is required or in which the failure to so qualify or
to be so licensed could have a material adverse effect on Borrower.
John M. Tettemer & Associates, Ltd. is a corporation, duly organized and
existing and in good standing under the laws of the state of California, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
ESI, Engineering Services, Inc. is a corporation, duly organized and
existing and in good standing under the laws of the state of California, and is
qualified or licensed to do business (and is in good standing as a foreign
corporation, if applicable) in all jurisdictions in which such qualification or
licensing is required or in which the failure to so qualify or to be so licensed
could have a material adverse effect on Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Line of
Credit Note, and each other document, contract and instrument required hereby or
at any time hereafter delivered to Bank in connection herewith (collectively,
the "Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal, valid
and binding agreements and obligations of Borrower or the party which executes
the same, enforceable in accordance with their respective terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrower of each of the Loan Documents do not violate any provision of any law
or regulation, or contravene any provision of the Articles of Incorporation or
By-Laws of Borrower, or result in any breach of or default under any contract,
obligation, indenture or other instrument to which Borrower is a party or by
which Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of Borrower other than those disclosed by
Borrower to Bank in writing prior to the date hereof.
-4-
<PAGE>
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. The financial statement
of Borrower dated March 31, 1999, a true copy of which has been delivered by
Borrower to Bank prior to the date hereof, (a) is complete and correct and
presents fairly the financial condition of Borrower, (b) discloses all
liabilities of Borrower that are required to be reflected or reserved against
under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (c) has been prepared in accordance with
generally accepted accounting principles consistently applied. Since the date
of such financial statement there has been no material adverse change in the
financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a
security interest in or otherwise encumbered any of its assets or properties
except in favor of Bank or as otherwise permitted by Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. Borrower has no knowledge of any pending
assessments or adjustments of its income tax payable with respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture, contract
or instrument to which Borrower is a party or by which Borrower may be bound
that requires the subordination in right of payment of any of Borrower's
obligations subject to this Agreement to any other obligation of Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Borrower possesses, and will hereafter
possess, all permits, consents, approvals, franchises and licenses required and
rights to all trademarks, trade names, patents, and fictitious names, if any,
necessary to enable it to conduct the business in which it is now engaged in
compliance with applicable law.
SECTION 2.9. ERISA. Borrower is in compliance in all material respects
with all applicable provisions of the Employee Retirement Income Security Act of
1974, as amended or recodified from time to time ("ERISA"); Borrower has not
violated any provision of any defined employee pension benefit plan (as defined
in ERISA) maintained or contributed to by Borrower (each, a "Plan"); no
Reportable Event as defined in ERISA has occurred and is continuing with respect
to any Plan initiated by Borrower; Borrower has met its minimum funding
requirements under ERISA with respect to each Plan; and each Plan will be able
to fulfill its benefit obligations as they come due in accordance with the Plan
documents and under generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. Borrower is not in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
-5-
<PAGE>
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrower to
Bank in writing prior to the date hereof, Borrower is in compliance in all
material respects with all applicable federal or state environmental, hazardous
waste, health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of Borrower's operations and/or properties,
including without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act of 1986, the Federal Resource Conservation and Recovery Act
of 1976, and the Federal Toxic Substances Control Act, as any of the same may be
amended, modified or supplemented from time to time. None of the operations of
Borrower is the subject of any federal or state investigation evaluating whether
any remedial action involving a material expenditure is needed to respond to a
release of any toxic or hazardous waste or substance into the environment.
Borrower has no material contingent liability in connection with any release of
any toxic or hazardous waste or substance into the environment.
ARTICLE III
-----------
CONDITIONS
----------
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation of
Bank to extend any credit contemplated by this Agreement is subject to the
fulfillment to Bank's satisfaction of all of the following conditions:
(a) Approval of Bank Counsel. All legal matters incidental to the
------------------------
extension of credit by Bank shall be satisfactory to Bank's counsel.
(b) Documentation. Bank shall have received, in form and substance
-------------
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Line of Credit Note.
(ii) Certificate of Incumbency.
(iii) Corporate Resolution: Borrowing.
(iv) Security Agreements: Accounts Receivable and Equipment.
(v) Third Party Security Agreements
(vi) UCC Financing Statement.
(viii) Schedule 1 - UCC Financing Statements.
(ix) Such other documents as Bank may require under any other Section of
this Agreement.
(c) Financial Condition. There shall have been no material adverse change,
-------------------
as determined by Bank, in the financial condition or business of Borrower, nor
any material decline, as determined
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<PAGE>
by Bank, in the market value of any collateral required hereunder or a
substantial or material portion of the assets of Borrower.
(d) Insurance. Borrower shall have delivered to Bank evidence of insurance
---------
coverage on all Borrower's property, in form, substance, amounts, covering risks
and issued by companies satisfactory to Bank, and where required by Bank, with
loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The obligation of
Bank to make each extension of credit requested by Borrower hereunder shall be
subject to the fulfillment to Bank's satisfaction of each of the following
conditions:
(a) Compliance. The representations and warranties contained herein and in
----------
each of the other Loan Documents shall be true on and as of the date of the
signing of this Agreement and on the date of each extension of credit by Bank
pursuant hereto, with the same effect as though such representations and
warranties had been made on and as of each such date, and on each such date, no
Event of Default as defined herein, and no condition, event or act which with
the giving of notice or the passage of time or both would constitute such an
Event of Default, shall have occurred and be continuing or shall exist.
(b) Documentation. Bank shall have received all additional documents which
-------------
may be required in connection with such extension of credit.
ARTICLE IV
----------
AFFIRMATIVE COVENANTS
---------------------
Borrower covenants that so long as Bank remains committed to extend credit
to Borrower pursuant hereto, or any liabilities (whether direct or contingent,
liquidated or unliquidated) of Borrower to Bank under any of the Loan Documents
remain outstanding, and until payment in full of all obligations of Borrower
subject hereto, Borrower shall, unless Bank otherwise consents in writing:
SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal, interest,
fees or other liabilities due under any of the Loan Documents at the times and
place and in the manner specified therein.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records in
accordance with generally accepted accounting principles consistently applied,
and permit any representative of Bank, at any reasonable time, to inspect, audit
and examine such books and records, to make copies of the same, and to inspect
the properties of Borrower.
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<PAGE>
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the following,
in form and detail satisfactory to Bank:
(a) not later than 90 days after and as of the end of each fiscal year, a
consolidated copy of 10K report filed with the Securities Exchange Commission,
prepared by a certified public accountant acceptable to Bank;
(b) not later than 45 days after and as of the end of each fiscal quarter,
a consolidated copy of 10Q report filed with the Securities Exchange Commission,
reviewed by a certified public accountant acceptable to Bank;
(c) not later than 30 days after and as of the end of each fiscal quarter,
a work-in-progress or job status report and an aged listing of accounts
receivable;
(d) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which Borrower is organized and/or which govern Borrower's continued
existence and with the requirements of all laws, rules, regulations and orders
of any governmental authority applicable to Borrower and/or its business.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the types
and in amounts customarily carried in lines of business similar to that of
Borrower, including but not limited to fire, extended coverage, public
liability, flood, property damage and workers' compensation, with all such
insurance carried with companies and in amounts satisfactory to Bank, and
deliver to Bank from time to time at Bank's request schedules setting forth all
insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
Borrower's business in good repair and condition, and from time to time make
necessary repairs, renewals and replacements thereto so that such properties
shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due any
and all indebtedness, obligations, assessments and taxes, both real or personal,
including without limitation federal and state income taxes and state and local
property taxes and assessments, except such (a) as Borrower may in good faith
contest or as to which a bona fide dispute may arise, and (b) for which Borrower
has made provision, to Bank's
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<PAGE>
satisfaction, for eventual payment thereof in the event Borrower is obligated to
make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of any
litigation pending or threatened against Borrower with a claim in excess of
$100,000.00.
SECTION 4.9. FINANCIAL CONDITION. Maintain Borrower's consolidated
financial condition as follows using generally accepted accounting principles
consistently applied and used consistently with prior practices (except to the
extent modified by the definitions herein):
(a) Current Ratio not less than 1.30 to 1.0 determined as of the end of
each fiscal quarter, with "Current Ratio" defined as total current assets
divided by total current liabilities.
(b) Total Liabilities divided by Tangible Net Worth not greater than 1.75
to 1.0 determined as of the end of each fiscal quarter, with "Total Liabilities"
defined as the aggregate of current liabilities and non-current liabilities less
subordinated debt, and with "Tangible Net Worth" defined as the aggregate of
total stockholders' equity plus subordinated debt less any intangible assets.
(c) Net income after taxes not less than $1.00 on a quarterly basis,
determined as of each fiscal quarter end.
(d) EBITDA Coverage Ratio not less than 1.50 to 1.0 determined as of the
end of each fiscal quarter on a rolling four-quarter basis, with "EBITDA"
defined as net profit before tax plus interest expense (net of capitalized
interest expense), depreciation expense and amortization expense, and with
"EBITDA Coverage Ratio" defined as EBITDA divided by the aggregate of total
interest expense plus the prior period current maturity of long-term debt and
the prior period current maturity of subordinated debt. "Current maturity of
long-term debt" shall not include Working Capital Advances under the Line of
Credit notwithstanding the fact that the maturity date thereof may extend more
than 1 year beyond the date of computation.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than five
(5) days after the occurrence of each such event or matter) give written notice
to Bank in reasonable detail of: (a) the occurrence of any Event of Default, or
any condition, event or act which with the giving of notice or the passage of
time or both would constitute an Event of Default; (b) any change in the name or
the organizational structure of Borrower; (c) the occurrence and nature of any
Reportable Event or Prohibited Transaction, each as defined in ERISA, or any
funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which Borrower is required to maintain,
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<PAGE>
or any uninsured or partially uninsured loss through liability or property
damage, or through fire, theft or any other cause affecting Borrower's property.
SECTION 4.11. YEAR 2000 COMPLIANCE. Perform all acts reasonably necessary
to ensure that (a) Borrower and any business in which Borrower holds a
substantial interest, and (b) all customers, suppliers and vendors that are
material to Borrower's business, become Year 2000 Compliant in a timely manner.
Such acts shall include, without limitation, performing a comprehensive review
and assessment of all of Borrower's systems and adopting a detailed plan, with
itemized budget, for the remediation, monitoring and testing of such systems.
As used herein, "Year 2000 Compliant" shall mean, in regard to any entity, that
all software, hardware, firmware, equipment, goods or systems utilized by or
material to the business operations or financial condition of such entity, will
properly perform date sensitive functions before, during and after the year
2000. Borrower shall, immediately upon request, provide to Bank such
certifications or other evidence of Borrower's compliance with the terms hereof
as Bank may from time to time require.
ARTICLE V
---------
NEGATIVE COVENANTS
------------------
Borrower further covenants that so long as Bank remains committed to extend
credit to Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of Borrower to Bank under any of the
Loan Documents remain outstanding, and until payment in full of all obligations
of Borrower subject hereto, Borrower will not without Bank's prior written
consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any credit extended
hereunder except for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make any additional investment in
fixed assets in any fiscal year in excess of an aggregate of $2,750,000.00.
SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to exist
any indebtedness or liabilities resulting from borrowings, loans or advances,
whether secured or unsecured, matured or unmatured, liquidated or unliquidated,
joint or several, except (a) the liabilities of Borrower to Bank, (b) any other
liabilities of Borrower existing as of, and disclosed to Bank prior to, the date
hereof, (c) leases permitted under Section 5.6 below.
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<PAGE>
SECTION 5.4 MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature of
Borrower's business as conducted as of the date hereof; acquire all or
substantially all of the assets of any other entity; nor sell, lease, transfer
or otherwise dispose of all or a substantial or material portion of Borrower's
assets except in the ordinary course of its business.
SECTION 5.5 LOANS, ADVANCES, INVESTMENTS. Make any loans or advances to
or investments in any person or entity, except (a)any of the foregoing existing
as of, and disclosed to Bank prior to, the date hereof, and (b) loans and
advances to, and/or investments in, any Borrower consistent with Borrowers'
prior practices.
SECTION 5.6. LEASE EXPENDITURES. Incur new lease expense in any fiscal
year in excess of an aggregate of $1,400,000.00, of which no more than
$550,000.00 shall be under vehicle leases.
SECTION 5.7. GUARANTIES. Guarantee or become liable in any way as surety,
endorser (other than as endorser of negotiable instruments for deposit or
collection in the ordinary course of business), accommodation endorser or
otherwise for, nor pledge or hypothecate any assets of Borrower as security for,
any liabilities or obligations of any other person or entity, except any of the
foregoing in favor of Bank.
SECTION 5.8. DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend or
distribution either in cash, stock or any other property on Borrower's stock now
or hereafter outstanding, nor redeem, retire, repurchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding.
SECTION 5.9. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to exist
a security interest in, or lien upon, all or any portion of Borrower's assets
now owned or hereafter acquired, except any of the foregoing in favor of Bank or
which is existing as of, and disclosed to Bank in writing prior to, the date
hereof.
ARTICLE VI
----------
EVENTS OF DEFAULT
-----------------
SECTION 6.1. The occurrence of any of the following shall constitute an
"Event of Default" under this Agreement:
(a) Borrower shall fail to pay when due any principal, interest, fees or
other amounts payable under any of the Loan Documents.
-11-
<PAGE>
(b) Any financial statement or certificate furnished to Bank in connection
with, or any representation or warranty made by Borrower or any other party
under this Agreement or any other Loan Document shall prove to be incorrect,
false or misleading in any material respect when furnished or made.
(c) Any default in the performance of or compliance with any obligation,
agreement or other provision contained herein or in any other Loan Document
(other than those referred to in subsections (a) and (b) above), and with
respect to any such default which by its nature can be cured, such default shall
continue for a period of twenty (20) days from its occurrence.
(d) Any default in the payment or performance of any obligation, or any
defined event of default, under the terms of any contract or instrument (other
than any of the Loan Documents) pursuant to which Borrower has incurred any debt
or other liability to any person or entity, including Bank, and, if the debt or
other liability is owed to a party other than Bank, the amount thereof exceeds
$50,000.00.
(e) The filing of a notice of judgment lien against Borrower; or the
recording of any abstract of judgment against Borrower in any county in which
Borrower has an interest in real property; or the service of a notice of levy
and/or of a writ of attachment or execution, or other like process, against the
assets of Borrower; or the entry of a judgment against Borrower.
(f) Borrower shall become insolvent, or shall suffer or consent to or apply
for the appointment of a receiver, trustee, custodian or liquidator of itself or
any of its property, or shall generally fail to pay its debts as they become
due, or shall make a general assignment for the benefit of creditors; Borrower
shall file a voluntary petition in bankruptcy, or seeking reorganization, in
order to effect a plan or other arrangement with creditors or any other relief
under the Bankruptcy Reform Act, Title 11 of the United States Code, as amended
or recodified from time to time ("Bankruptcy Code"), or under any state or
federal law granting relief to debtors, whether now or hereafter in effect; or
any involuntary petition or proceeding pursuant to the Bankruptcy Code or any
other applicable state or federal law relating to bankruptcy, reorganization or
other relief for debtors is filed or commenced against Borrower, or Borrower
shall file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or Borrower shall be adjudicated a
bankrupt, or an order for relief shall be entered against Borrower by any court
of competent jurisdiction under the Bankruptcy Code or any other applicable
state or federal law relating to bankruptcy, reorganization or other relief for
debtors.
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<PAGE>
(g) The dissolution or liquidation of Borrower; or Borrower, or any of
their directors, stockholders or members, shall take action seeking to effect
the dissolution or liquidation of Borrower.
(h) Aram Keith shall for any reason own less than an aggregate of twenty-
five percent (25%) of the common stock of Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of Default: (a)
all indebtedness of Borrower under each of the Loan Documents, any term thereof
to the contrary notwithstanding, shall at Bank's option and without notice
become immediately due and payable without presentment, demand, protest or
notice of dishonor, all of which are hereby expressly waived by each Borrower;
(b) the obligation, if any, of Bank to extend any further credit under any of
the Loan Documents shall immediately cease and terminate; and (c) Bank shall
have all rights, powers and remedies available under each of the Loan Documents,
or accorded by law, including without limitation the right to resort to any or
all security for any credit accommodation from Bank subject hereto and to
exercise any or all of the rights of a beneficiary or secured party pursuant to
applicable law. All rights, powers and remedies of Bank may be exercised at any
time by Bank and from time to time after the occurrence of an Event of Default,
are cumulative and not exclusive, and shall be in addition to any other rights,
powers or remedies provided by law or equity.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive or
otherwise affect any other or further exercise thereof or the exercise of any
other right, power or remedy. Any waiver, permit, consent or approval of any
kind by Bank of any breach of or default under any of the Loan Documents must be
in writing and shall be effective only to the extent set forth in such writing.
SECTION 7.2. NOTICES. All notices, requests and demands which any party
is required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to each party at the following address:
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<PAGE>
BORROWER: The Keith Companies, Inc., John M. Tettemer &
Associates, Ltd. and ESI, Engineering
Services, Inc.
2955 Red Hill Avenue
Costa Mesa, CA 92626
BANK: WELLS FARGO BANK, NATIONAL ASSOCIATION
Orange Coast RCBO
2030 Main Street, Suite 900
Irvine, CA 92614
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit in
the U.S. mail, first class and postage prepaid; and (c) if sent by telecopy,
upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to
Bank immediately upon demand the full amount of all payments, advances, charges,
costs and expenses, including reasonable attorneys' fees (to include outside
counsel fees and all allocated costs of Bank's in-house counsel), expended or
incurred by Bank in connection with (a) the negotiation and preparation of this
Agreement and the other Loan Documents (to a maximum of $2,000.00), Bank's
continued administration hereof and thereof, and the preparation of any
amendments and waivers hereto and thereto, (b) the enforcement of Bank's rights
and/or the collection of any amounts which become due to Bank under any of the
Loan Documents, and (c) the prosecution or defense of any action in any way
related to any of the Loan Documents, including without limitation, any action
for declaratory relief, whether incurred at the trial or appellate level, in an
arbitration proceeding or otherwise, and including any of the foregoing incurred
in connection with any bankruptcy proceeding (including without limitation, any
adversary proceeding, contested matter or motion brought by Bank or any other
person) relating to any Borrower or any other person or entity.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the heirs, executors, administrators, legal
representatives, successors and assigns of the parties; provided however, that
Borrower may not assign or transfer its interest hereunder without Bank's prior
written consent. Bank reserves the right to sell, assign, transfer, negotiate
or grant participations in all or any part of, or any interest in, Bank's rights
and benefits under each of the Loan Documents. In connection therewith, Bank
may disclose all documents and information which Bank now has or may hereafter
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<PAGE>
acquire relating to any credit extended by Bank to Borrower, Borrower or its
business, or any collateral required hereunder.
SECTION 7.5. ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
Loan Documents constitute the entire agreement between Borrower and Bank with
respect to any extension of credit by Bank subject hereto and supersede all
prior negotiations, communications, discussions and correspondence concerning
the subject matter hereof. This Agreement may be amended or modified only in
writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and their
respective permitted successors and assigns, and no other person or entity shall
be a third party beneficiary of, or have any direct or indirect cause of action
or claim in connection with, this Agreement or any other of the Loan Documents
to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision of
this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such provision
shall be ineffective only to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or any remaining provisions
of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which when executed and delivered shall be deemed to be
an original, and all of which when taken together shall constitute one and the
same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
SECTION 7.11 JOINT AND SEVERAL LIABILITY.
(a) Each Borrower has determined and represents to Bank that it is in its
best interests and in pursuance of its legitimate business purposes to induce
Bank to extend credit pursuant to this Agreement. Each Borrower acknowledges
and represents that its business is related to the business of the other
Borrower, the availability of the commitments provided for herein benefits each
Borrower, and advances made hereunder will inure to the benefit of Borrowers,
individually and as a group.
(b) Each Borrower has determined and represents to Bank that it has, and
after giving effect to the transactions
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<PAGE>
contemplated by this Agreement will have, assets having a fair saleable value in
excess of its debts, after giving effect to any rights of contribution or
subrogation which may ultimately be available to such Borrower, and each
Borrower has, and will have, access to adequate capital for the conduct of its
business and the ability to pay its debts as such debts mature.
(c) Each Borrower agrees that it is jointly and severally liable to Bank
for, and each Borrower agrees to pay to Bank when due the full amount of, all
indebtedness of Borrowers to Bank arising under or in connection with this
Agreement, including without limitation all advances disbursed to any or all
Borrowers under the Line of Credit, all interest which accrues thereon and all
fees, costs and expenses chargeable to Borrowers hereunder. Each Borrower
waives any right to require Bank to (1) proceed against any person, including
any other Borrower; (2) proceed against or exhaust any security hold from any
Borrower or any other person, or (3) disclose any information about any
Borrower. Each Borrower waives any defense against its liability to Bank
hereunder based upon (1) any defense of any other Borrower, (2) the cessation or
limitation from any cause of any indebtedness of any other Borrower to Bank, (3)
the lack of authority of any officer, director, agent or other person acting or
purporting to act on behalf of any other Borrower or Guarantor, (4) the release
of any security for any indebtedness of any Borrower to Bank, (5) the
application of payments received by Bank from any other Borrower to indebtedness
of such Borrower to Bank unrelated to the Line of Credit, (6) the release of any
other Borrower of any liability to Bank, (7) the compromise or modification with
any other Borrower of Bank's claims against such Borrower or of such Borrower's
indebtedness to Bank, (8) any breach by any other Borrower of any agreement
herein or in the other Loan Documents, (9) the invalidity, unenforceability or
illegality of this Agreement or any of other Loan Documents as to any other
Borrower, or (10) any election of remedies by Bank which adversely affects,
impairs or destroys a Borrower's subrogation rights or rights to proceed against
any other Borrower for reimbursement. Each Borrower agrees that it will not seek
to exercise any rights of contribution which it may have as a matter of law or
otherwise as against the other Borrowers hereunder or under any of the other
Loan Documents until all indebtedness arising under or in connection herewith
shall have been indefeasibly paid in full, and if by law any right of
contribution may not be postponed, then such right shall be subordinate to the
rights of Bank under this Agreement and the other Loan Documents. Until all
indebtedness arising under or in connection with this Agreement shall have been
indefeasibly paid in full, no Borrower shall be subrogated in whole or in part
to the rights of Bank, and if by law any Borrower is so subrogated, such right
shall be subordinate and junior to the rights of Bank hereunder and under the
other Loan Documents until the indefeasible payment of all indebtedness arising
under or in connection with this Agreement.
-16-
<PAGE>
(d) It is the position of the Borrowers that each Borrower derives
significant, substantial and direct benefits from the credit accommodations that
have been made available by Bank under this Agreement and from each extension of
credit hereunder, regardless of whether such credit is disbursed to a joint
account of Borrowers or to or for the account of any Borrower.
(e) To the extent Borrowers, or any of them, make a payment or payments to
Bank, or Bank receives any collateral proceeds, and such payment or payments or
any part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside, voided or otherwise required to be repaid to Borrowers
or any of them, or to their estate, trustee, receiver or any other party,
including without limitation, under any bankruptcy law, state or federal law,
common law or equitable cause, then to the extent of the payment or repayment
that has been so set aside, the obligation or indebtedness which had been paid,
reduced or satisfied by such payment or repayment shall be reinstated and
continue in full force and effect as of the date such payment, reduction or
satisfaction occurred.
SECTION 7.12. ARBITRATION.
(a) Arbitration. Upon the demand of any party, any Dispute shall be
-----------
resolved by binding arbitration (except as set forth in (e) below) in accordance
with the terms of this Agreement. A "Dispute" shall mean any action, dispute,
claim or controversy of any kind, whether in contract or tort, statutory or
common law, legal or equitable, now existing or hereafter arising under or in
connection with, or in any way pertaining to, any of the Loan Documents, or any
past, present or future extensions of credit and other activities, transactions
or obligations of any kind related directly or indirectly to any of the Loan
Documents, including without limitation, any of the foregoing arising in
connection with the exercise of any self-help, ancillary or other remedies
pursuant to any of the Loan Documents. Any party may by summary proceedings
bring an action in court to compel arbitration of a Dispute. Any party who
fails or refuses to submit to arbitration following a lawful demand by any other
party shall bear all costs and expenses incurred by such other party in
compelling arbitration of any Dispute.
(b) Governing Rules. Arbitration proceedings shall be administered by the
---------------
American Arbitration Association ("AAA") or such other administrator as the
parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved in
accordance with the Federal Arbitration Act (Title 9 of the United States Code),
notwithstanding any conflicting choice of law provision in any of the Loan
Documents. The arbitration shall be conducted at a location in California
selected by the AAA or other administrator. If there is any inconsistency
between the terms
-17-
<PAGE>
hereof and any such rules, the terms and procedures set forth herein shall
control. All statutes of limitation applicable to any Dispute shall apply to any
arbitration proceeding. All discovery activities shall be expressly limited to
matters directly relevant to the Dispute being arbitrated. Judgment upon any
award rendered in an arbitration may be entered in any court having
jurisdiction; provided however, that nothing contained herein shall be deemed to
be a waiver by any party that is a bank of the protections afforded to it under
12 U.S.C. (S)91 or any similar applicable state law.
(c) No Waiver; Provisional Remedies, Self-Help and Foreclosure. No
----------------------------------------------------------
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary remedies,
including without limitation injunctive relief, sequestration, attachment,
garnishment or the appointment of a receiver, from a court of competent
jurisdiction before, after or during the pendency of any arbitration or other
proceeding. The exercise of any such remedy shall not waive the right of any
party to compel arbitration or reference hereunder.
(d) Arbitrator Qualifications and Powers; Awards. Arbitrators must be
--------------------------------------------
active members of the California State Bar or retired judges of the state or
federal judiciary of California, with expertise (to the extent reasonably
practicable, of 10 years or more) in the substantive laws applicable to the
subject matter of the Dispute. Arbitrators are empowered to resolve Disputes by
summary rulings in response to motions filed prior to the final arbitration
hearing. Arbitrators (i) shall resolve all Disputes in accordance with the
substantive law of the state of California, (ii) may grant any remedy or relief
that a court of the state of California could order or grant within the scope
hereof and such ancillary relief as is necessary to make effective any award,
and (iii) shall have the power to award recovery of all costs and fees, to
impose sanctions and to take such other actions as they deem necessary to the
same extent a judge could pursuant to the Federal Rules of Civil Procedure, the
California Rules of Civil Procedure or other applicable law. Any Dispute in
which the amount in controversy is $5,000,000 or less shall be decided by a
single arbitrator who shall not render an award of greater than $5,000,000
(including damages, costs, fees and expenses). By submission to a single
arbitrator, each party expressly waives any right or claim to recover more than
$5,000,000. Any Dispute in which the amount in controversy exceeds $5,000,000
shall be decided by majority vote of a panel of three arbitrators; provided
however, that all three arbitrators must actively participate in all hearings
and deliberations.
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(e) Judicial Review. Notwithstanding anything herein to the contrary, in
---------------
any arbitration in which the amount in controversy exceeds $25,000,000, the
arbitrators shall be required to make specific, written findings of fact and
conclusions of law. In such arbitrations (i) the arbitrators shall not have the
power to make any award which is not supported by substantial evidence or which
is based on legal error, (ii) an award shall not be binding upon the parties
unless the findings of fact are supported by substantial evidence and the
conclusions of law are not erroneous under the substantive law of the state of
California, and (iii) the parties shall have in addition to the grounds referred
to in the Federal Arbitration Act for vacating, modifying or correcting an award
the right to judicial review of (A) whether the findings of fact rendered by the
arbitrators are supported by substantial evidence, and (B) whether the
conclusions of law are erroneous under the substantive law of the state of
California. Judgment confirming an award in such a proceeding may be entered
only if a court determines the award is supported by substantial evidence and
not based on legal error under the substantive law of the state of California.
(f) Real Property Collateral; Judicial Reference. Notwithstanding anything
--------------------------------------------
herein to the contrary, no Dispute shall be submitted to arbitration if the
Dispute concerns indebtedness secured directly or indirectly, in whole or in
part, by any real property unless (i) the holder of the mortgage, lien or
security interest specifically elects in writing to proceed with the
arbitration, or (ii) all parties to the arbitration waive any rights or benefits
that might accrue to them by virtue of the single action rule statute of
California, thereby agreeing that all indebtedness and obligations of the
parties, and all mortgages, liens and security interests securing such
indebtedness and obligations, shall remain fully valid and enforceable. If any
such Dispute is not submitted to arbitration, the Dispute shall be referred to a
referee in accordance with California Code of Civil Procedure Section 638 et
seq., and this general reference agreement is intended to be specifically
enforceable in accordance with said Section 638. A referee with the
qualifications required herein for arbitrators shall be selected pursuant to the
AAA's selection procedures. Judgment upon the decision rendered by a referee
shall be entered in the court in which such proceeding was commenced in
accordance with California Code of Civil Procedure Sections 644 and 645.
(g) Miscellaneous. To the maximum extent practicable, the AAA, the
-------------
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose the
existence, content or results thereof, except for disclosures of information by
a party required in the ordinary course of its
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business, by applicable law or regulation, or to the extent necessary to
exercise any judicial review rights set forth herein. If more than one agreement
for arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the subject
matter of the Dispute shall control. This arbitration provision shall survive
termination, amendment or expiration of any of the Loan Documents or any
relationship between the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK,
THE KEITH COMPANIES, INC. NATIONAL ASSOCIATION
By: GARY C. CAMPANARO By: STEPHANIE JUNEAU
---------------------- -----------------------------
Title: CFO Title: Assistant Vice President
------------------- --------------------------
JOHN M. TETTEMER & ASSOCIATES, LTD.
By: GARY C. CAMPANARO
----------------------
Title: CFO
-------------------
ESI, ENGINEERING SERVICES, INC.
By: GARY C. CAMPANARO
----------------------
Title: CFO
-------------------
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EXHIBIT 10.37
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE--MODIFIED NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO APPEARS HERE]
1. Basic Provisions ("Basic Provisions").
1.1 Parties: This Lease ("Lease") dated for reference purposes only,
July 29, 1999 is made by and between ASP Scripps, L.L.C. ("Lessor") and The
Keith Companies, Inc., a California corporation ("Lessee"), (collectively the
"Parties," or individually a "Party").
1.2(a) Premises: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 2955 Red Hill Avenue, located in the
City of Costa Mesa, County of Orange, State of California, with zip code 92626,
as outlined on Exhibit __ attached hereto ("Premises"). The "Building" is that
certain building containing the Premises and generally described as 16,419
Rentable Square Feet of a larger building commonly known as Suite 100.
In addition to Lessee's rights to use and occupy the Premises as hereinafter
specified, Lessee shall have non-exclusive rights to the Common Areas (as
defined in Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior wells or utility raceways of the Building or to any
other buildings in the Industrial Center. The Premises, the Building, the Common
Areas, the land upon which they are located, along with all other buildings and
improvements thereon, are herein collectively referral to as the "Industrial
Center." (Also see Paragraph 2.) See Addendum Paragraph 62.
1.2(b) Parking: 62 unreserved vehicle parking spaces ("Unreserved Parking
Spaces"); and 4 reserved vehicle parking spaces ("Reserved Parking Spaces").
(Also see Paragraph 2.6.) See Exhibit B.
1.3 Term: 2 years and 57 days ("Original Term") commencing August 1,
1999 ("Commencement Date") and ending September 26, 2001 ("Expiration Date).
(Also see Paragraph 3.) See Addendum Paragraph 49.
1.4 Early Possession: N/A ("Early Possession Date"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 Base Rent: $22,165.65 per month ("Base Rent"), payable on the 1st
day of each month commencing August 1 , 1999 (Also see Paragraph 4.)
[_] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum __ attached hereto.
1.6(a) Base Rent Paid Upon Execution: $22,165.65 as Base Rent for the
period August 1 through 31, 1999.
1.6(b) Lessee's Share of Common Area Operating Expenses: Seven point two
percent (7.2%) ("Lessee's Share") as determined by
[_] prorata square footage of the Premises as compared to the total square
footage of the Building or
[X] other criteria as described in Addendum Paragraph 54.
1.7 Security Deposit: $24,382.22 ("Security Deposit"). (Also see
Paragraph 5.)
1.8 Permitted Use: General office ("Permitted Use") (Also see Paragraph
6.)
1.9 Insuring Party: Lessor is the "Insuring Party." (Also see Paragraph
8.)
1.10(a) Real Estate Broker: The following real estate broker(s)
(collectively, the "Brokers") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[_] _____________________ represents Lessor exclusively ("Lessor's Broker");
[_] _____________________ represents Losses exclusively ("Lessee's Broker"); or
[X] CB Richard Ellis, Inc. represents both Lessor and Lessee ("Dual Agency").
(Also see Paragraph 15.)
1.10(b) Payment to Brokers. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $______
(per separate agreement) for brokerage services rendered by said Broker(s) in
connection with this transaction.
1.11 Guarantor: The obligations of the Lessee under this Lease are to be
guaranteed ("Guarantor"). (Also see Paragraph 37.)
1.12 Addenda and Exhibits: Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 63 and Exhibits A through C, all of which
constitute a part of this Lease.
2. Premises Parking and Common Areas.
2.1 Letting. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
forms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental and/or Common Area Operating
Expenses, is an approximation which Lessor and Lessee agree is reasonable and
the rental and Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is
not subject to revision whether or not the actual square footage is more or
less.
2.2 Condition. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting. air conditioning
and
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heating systems and loading doors, if any, in the Premises, other than those
constructed by Lessee, shall be in good operating condition at the Commencement
Date. If a non-compliance with said warranty exists as of the Commencement Date,
Lessor shall, except as otherwise provided in this Lease, promptly after receipt
of written notice from Lessee, setting forth with specificity the nature and
extent of such non-compliance, rectify same at Lessor's expense. It Lessee does
not give Lessor written notice of a non-compliance with this warranty within
thirty (30) days after the Commencement Date. Correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 Compliance with Covenants, Restrictions and Building Code. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made at to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall. except as otherwise Provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity this nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify trio non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 Acceptance of Premises. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and Compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations and any
covenants or restrictions of record (collectively, "Applicable Laws") and the
present and future suitability of the Premises for Lessee's intended use: (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor. nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease. See Addendum
Paragraph 50.
2.5 Lessee as Prior Owner/Occupant. The warranties made by Lessor in
this Paragraph 2 shall be of no force or affect if immediately prior to the date
set forth in Paragraph 1.1. Lessee was the owner or occupant of the Premises. In
such event, Lessee shall, at Lessee's sole cost and expense correct any non-
compliance of the Premises with said warranties. See Addendum Paragraph 53.
2.6 Vehicle Parking. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than full-
size passenger automobiles or pick-up trucks, herein called "Permitted Size
Vehicles," Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to or
are controlled by Lessee or Lessee's employees, suppliers, shippers, customers,
contractors or invitees to be loaded unloaded, or parked in areas other than
those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6. then Lessor shall have the right without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Dale of this Lease, provide the
parking facilities required by Applicable Law.
2.7 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general non-
exclusive use of Lessor, Lessee and other lessees of the Industrial Center and
their respective employees, suppliers, shippers, customers, contractors and
invitees including parking areas, loading and unloading areas, trash, roadways,
sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 Common Areas - Lessee's Rights. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease. The non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions
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governing the use of the Industrial Center. Under no circumstances shall the
right herein granted to use the Common Areas be deemed to include the right to
store any property, temporarily or permanently in the Common Areas. Any such
storage shall be permitted only by the prior written consent of Lessor or
Lessor's designated agent, which consent may be revoked at any time. In the
event that any unauthorized storage shall occur then Lessor shall have the
right, without notice, in addition to such other rights and remedies that it may
have, to remove the property and charge the cost to Lessee, which cost shall be
immediately payable upon demand by Lessor.
2.9 Common Areas - Rules and Regulations. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 Common Areas - Changes. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways:
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available:
(c) To designate other land outside the boundaries of the Industrial
Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 Early Possession. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises after the
Early Possession Date but prior to the Commencement Date, the obligation to pay
Base Rent shall be abated for the period of such early occupancy. All other
terms of this Lease, however, (including but not limited to the obligations to
pay Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 Delay In Possession. If for any reason Lessor cannot deliver
possession of the Promises to Lessee by the Early Possession Date, if one is
specified in Paragraph 1.4, or if no Early Possession Date is specified, by the
Commencement Date, Lessor shall not be subject to any liability therefor, nor
shall such failure affect the validity of this Lease, or the obligations of
Lessee hereunder, or extend the term hereof, but in such case, Lessee shall not,
except as otherwise provided herein, be obligated to pay rent or perform any
other obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Promises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date. Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. Rent.
4.1 Base Rent. Lessee shall pay Base Rent and other rent or charges, as
the same may be adjusted from time to time, to Lessor in lawful money of the
United States, without offset or deduction, on or before the day on which it is
due under the terms of this Lease. Base Rent and all other rent and charges for
any period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
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4.2 Common Area Operating Expenses. Lessee shall pay to Lessor during
the term hereof, in addition to the Base Rent, Lessee's Share (as specified in
Paragraph 1.6(b)) of all Common Area Operating Expenses, as hereinafter defined,
during each calendar year of the term of this Lease, in accordance with the
following provisions:
(a) "Common Area Operating Expenses" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and root.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security services
and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to be
paid by Lessor for the Building and the Common Areas under Paragraph 10 hereof.
(vi) The cost of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning the
Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense. See
Addendum Paragraph 56
(b) Any Common Area Operating Expenses and Real Property Taxes that
are specifically attributable to the Building or to any other building in the
Industrial Center or to the operation, repair and maintenance thereof, shall be
allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed statement
(the "Statement") of actual expenses is presented to Lessee by Lessor. At
Lessor's option, however, an amount may be estimated by Lessor from time to time
of Lessee's Share of annual Common Area Operating Expenses and the same shall be
payable monthly or quarterly, as Lessor shall designate, during each 12-month
period of the Lease term. On the same day as the Base Rent is due hereunder (the
"Estimated Statement"), Lessor shall deliver to Lessee within sixty (60) days
after the expiration of each calendar year a reasonably detailed statement
showing Lessee's Share of the Common Area Operating Expenses incurred during the
preceding year. If Lessee's payments under this Paragraph 4.2(d) during said
preceding year exceed Lessee's Share as indicated on said statement, Lessee
shall be credited the amount of such over payment against Lessee's Share of
Common Area Operating Expenses next becoming due. If Lessee's payments under
this Paragraph 4.2(d) during said preceding year were less than Lessee's Share
as indicated on said statement. Lessee shall pay to Lessor the amount of the
deficiency within ten (10) days after delivery by Lessor to Lessee of said
statement.
(e) See Addendum Paragraph 57
5. Security Deposit. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise
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expressly agreed in writing by Lessor, no part of the Security Deposit shall be
considered to be held in trust, to bear interest or other increment for its use,
or to be prepayment for any monies to be paid by Lessee under this Lease.
6. Use.
6.1 Permitted Use.
(a) Lessee shall use and occupy the Premises only for the Permitted
Use set forth in Paragraph 1.8, or any other legal use which is reasonably
comparable thereto, and for no other purpose. Lessee shall not use or permit the
use of the Premises in a manner that is unlawful, creates waste or a nuisance,
or that disturbs owners and/or occupants of, or causes damage to the Premises or
neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request, by Lessee. Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 Hazardous Substances.
(a) Reportable Uses Require Consent. The term "Hazardous Substance"
as used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment, or the Premises; (ii) regulated or monitored by any governmental
authority; or (iii) a basis for potential liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory, Hazardous Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products thereof. Lessee
shall not engage in any activity in or about the Premises which constitutes a
Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "Reportable Use" shall mean (i) the installation or use of any
above or below ground storage tank, (ii) the generation, possession, storage,
use, transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority, and (iii) the presence
in, on or about the Premises of a Hazardous Substance with respect to which any
Applicable Laws require that a notice be given to persons entering or occupying
the Premises or neighboring properties, Notwithstanding the foregoing, Lessee
may, without Lessor's prior consent, but upon notice to Lessor and in compliance
with all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the Permitted
Use, so long as such use is not a Reportable Use and does not expose the
Premises or neighboring properties to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may (but
without any obligation to do so) condition its consent to any Reportable Use of
any Hazardous Substance by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefor, including but not limited to
the installation (and, at Lessor's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause
to believe, that a Hazardous Substance has come to be located in, on, under or
about the Premises or the Building, other than as previously consented to by
Lessor, Lessee shall immediately give Lessor written notice thereof, together
with a copy of any statement, report, notice, registration, application, permit,
business plan, license, claim, action, or proceeding given to, or received from,
any governmental authority or private party concerning the presence, spill,
release, discharge of, or exposure to, such Hazardous Substance including but
not limited to all such documents as may be involved in any Reportable Use
involving the Premises. Lessee shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises (including,
without limitation, through the plumbing or sanitary sewer system).
(c) Indemnification. Lessee shall indemnity, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to,
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees
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and testing), removal, remediation, restoration and/or abatement thereof, or of
any contamination therein involved, and shall survive the expiration or earlier
termination of this Lease. No termination, cancellation or release agreement
entered into by Lessor and Lessee shall release Lessee from its obligations
under this Lease with respect to Hazardous Substances, unless specifically so
agreed by Lessor in writing at the time of such agreement.
6.3 Lessee's Compliance with Requirements. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply with all
"Applicable Requirements," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including
but not limited to matters pertaining to (i) industrial hygiene, (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions, and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 Inspection; Compliance with Law. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("Lenders") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. Maintenance, Repairs, Utility Installations, Trade Fixtures and
Alterations.
7.1 Lessee's Obligations.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor, pursuant to
Paragraph 7.2 below. Lessee, in keeping the Premises in good order, condition
and repair, shall exercise and perform good maintenance practices. Lessee's
obligations shall include restorations, replacements or renewals when necessary
to keep the Premises and all improvements thereon or a part thereof in good
order, condition and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 Lessor's Obligations. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good
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order, condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, exterior roof, fire sprinkler and/or
standpipe and hose (if located in the Common Areas) or other automatic fire
extinguishing system including fire alarm and/or smoke detection systems and
equipment, fire hydrants, parking lots, walkways, parkways, driveways,
landscaping, fences, signs and utility systems serving the Common Areas and all
parts thereof, as well as providing the services for which there is a Common
Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not be obligated
to paint the exterior or interior surfaces of exterior walls nor shall Lessor be
obligated to maintain, repair or replace windows, doors or plate glass of the
Premises. Lessee expressly waives the benefit of any statute now or hereafter in
effect which would otherwise afford Lessee the right to make repairs at Lessors
expense or to terminate this Lease because of Lessor's failure to keep the
Building, Industrial Center or Common Areas in good order, condition and repair.
7.3 Utility Installations, Trade Fixtures, Alterations.
(a) Definitions; Consent Required. The term "Utility Installations"
is used in this Lease to refer to all air lines, power panels, electrical
distribution, security, tire protection systems, communications systems,
lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "Trade Fixtures"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "Alterations" shall mean any
modification, of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "Lessee-Owned Alterations end/or Utility Installations" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make non-
structural Utility Installations to the interior of the Premises (excluding the
roof) without Lessor's consent but upon notice to Lessor, so long as they are
not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection Systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$15,000.00.
(b) Consent. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together (with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may, (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $10,000.00 or more upon Lessee providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration Utility Installation. See Addendum Paragraph
58.
(c) Lien Protection. Lessee shall pay when due all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on, or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend and protect itself.
Lessor and the Premises against the same and shall pay and satisfy any such
adverse judgment that may be rendered thereon before the enforcement thereof
against the Lessor or the Premises. If Lessor shall require, Lessee shall
furnish to Lessor a surety bond satisfactory to Lessor in an amount equal to one
and one-half times the amount of such contested lien claim or demand,
indemnifying Lessor against liability for the same, as required by law for the
holding of the Premises free from the effect of such lien or claim. In addition,
Lessor may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best interest
to do so.
7.4 Ownership, Removal, Surrender, and Restoration.
(a) Ownership. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
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(b) Removal. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee-Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding that their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) Surrender/Restoration. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. Insurance; Indemnity.
8.1 Payment of Premiums. The cost of the premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement Date or Expiration
Date.
8.2 Liability Insurance.
(a) Carried by Lessee. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "Insured Contract"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) Carried by Lessor. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 Property Insurance-Building, Improvements and Rental Value.
(a) Building and Improvements. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4, if the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss of damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Building required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered loss, but not
including plate glass insurance. Said policy or policies shall also contain an
agreed valuation provision in lieu of any co-insurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) Rental Value. Lessor shall also obtain and keep in force during
the term of this Lease a policy or policies in the name of Lessor with, loss
payable to Lessor and any Lender(s), insuring the loss of the full rental and
other charges payable by all lessees of the Building to Lessor for one year
including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is
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terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs of
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income. Real
Property Taxes, insurance premium costs and other expenses, if any, otherwise
payable, for the next 12-month period. Common Area Operating Expenses shall
include any deductible amount in the event of such loss.
(c) Adjacent Premises. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas of
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
(d) Lessee's Improvements. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 Lessee's Property Insurance. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures and Lessee-Owned
Alterations and Utility installations in, on, or about the Premises similar in
coverage to that carried by Lessor as the Insuring Party under Paragraph 8.3(a).
Such insurance shall be full replacement cost coverage with a deductible not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property and the restoration of Trade
Fixtures and Lessee-Owned Alterations and Utility installations. Upon request
from Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 Insurance Policies. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises are
located, and maintaining during the policy term a "General Policyholders Rating"
of at least B+, V, or such other rating as may be required by a Lender, as set
forth in the most current issue of "Best's Insurance Guide." Lessee shall not do
or permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 Waiver of Subrogation. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other and waive
their entire right to recover damages (whether in contract or in tort) against
the other, for loss or damage to their property arising out of or incident to
the perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 Indemnity. Except for Lessor's negligence breach of this Lease
and/or breach of express warranties, Lessee shall indemnify, protect, defend and
hold harmless the Premises, Lessor and its agents, Lessor's master or ground
lessor, partners and Lenders, from and against any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, loss of permits, attorneys'
and consultants' fees, expenses and/or liabilities arising out of, involving, or
in connection with, the occupancy of the Premises by Lessee, the conduct of
Lessee's business, any act, omission or neglect of Lessee, its agents,
contractors, employees or invitees, and out of any Default or Breach by Lessee
in the performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee upon
notice from Lessor shall defend the same at Lessee's expense by counsel
reasonably satisfactory to Lessor and Lessor shall cooperate with Lessee in such
defense. Lessor need not have first paid any such claim in order to be so
indemnified.
8.8 Exemption of Lessor from Liability. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or fighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not.
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Lessor shall not be liable for any damages arising from any act or neglect of
any other lessee of Lessor nor from the failure by Lessor to enforce the
provisions of any other lease in the Industrial Center. Notwithstanding Lessor's
negligence or breach of this Lease, Lessor shall under no circumstances be
liable for injury to Lessee's business or for any loss of income or profit
therefrom.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Partial Damage" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "Premises Total Destruction" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is fifty percent (50%) or more of the
then Replacement Cost of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage or
destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "Insured Loss" shall mean damage or destruction to the Premises,
other than Lessee-Owned Alterations and Utility Installations and Trade
Fixtures, which was caused by an event required to be covered by the insurance
described in Paragraph 8.3(a) irrespective of any deductible amounts or coverage
limits involved.
(d) "Replacement Cost" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "Hazardous Substance Condition" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 Premises Partial Damage - Insured Loss. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 Partial Damage - Uninsured Loss. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after
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the required funds are available. If Lessee does not give such notice and
provide the funds or assurance thereof within the times specified above, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 Total Destruction. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 Damage Near End of Term. If at any time during the last three (3)
months of the term of this Lease there is damage for which the cost to repair
exceeds one month's Base Rent, whether or not an Insured Loss, Lessor may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible and
this Lease shall continue in full force and effect. If Lessee fails to exercise
such option and provide such funds or assurance during such period, then this
Lease shall terminate as of the date set forth in the first sentence of this
Paragraph 9.5.
9.6 Abatement of Rent; Lessee's Remedies.
(a) In the event of (i) Promises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue, Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "Commence" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 Hazardous Substance Conditions. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13). Lessor may at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000 whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee of satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required
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funds or assurance thereof within the time period specified above, this Lease
shall terminate as of the date specified in Lessor's notice of termination.
9.8 Termination - Advance Payments. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance payment
made by Lessee to Lessor and so much of Lessee's Security Deposit as has not
been, or is not then required to be, used by Lessor under the terms of this
Lease.
9.9 Waiver of Statutes. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Promises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any such amounts shall be included in the
calculation of Common Area Operating Expenses in accordance with the provisions
of Paragraph 4.2.
10.2 Real Property Tax Definition. As used herein, the term "Real
Property Taxes" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Industrial Center by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage, or other improvement district thereof, levied against any "at or
equitable interest of Lessor in the Industrial Center or any portion thereof,
Lessor's right to rent or other income therefrom, and/or Lessor's business of
leasing the Premises. The term "Real Property Taxes" shall also include any tax,
fee, levy, assessment or charge, or any increase therein, imposed by reason of
events occurring, or changes in Applicable Law taking effect, during the term of
this Lease, including but not limited to a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this Lease,
or any modification, amendment or transfer thereof, and whether or not
contemplated by the Parties. In calculating Real Property Taxes for any calendar
year, the Real Property Taxes for any real estate tax year shall be included in
the calculation of Real Property Taxes for such calendar year based upon the
number of days which such calendar year and tax year have in common.
10.3 Additional Improvements. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Promises by Lessee or at Lessee's request.
10.4 Joint Assessment. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 Lessee's Property Taxes. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center.
When possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. Utilities. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
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(c) See Addendum Paragraph 59
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("Lessor's Notice"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the now
rental bears to the Base Rent in effect immediately prior to the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and/or injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to Any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the monthly Base Rent applicable to
the portion of the Premises which is the subject of the proposed assignment or
sublease, whichever is greater, as reasonable consideration for Lessor's
considering and processing the request for consent Lessee agrees to provide
Lessor with such other or additional information and/or documentation as may be
reasonably requested by Lessor.
(f) Any assignee of, or sublessee under this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment of sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) See Addendum Paragraph 51
(h) See Addendum Paragraph 51
12.3 Additional Terms and Conditions Applicable to Subletting. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
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(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease, Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under
a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. Default; Breach; Remedies.
13.1 Default; Breach. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default for Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "Default" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"Breach" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.1
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
seven (7) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that it the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by
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Lessee if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events; (i) the making by
Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a debtor, as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed; (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 Remedies. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided: and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the immediately preceding
sentence shall be computed by discounting such amount at the discount rate of
the Federal Reserve Bank of San Francisco or the Federal Reserve Bank District
in which the Premises are located at the time of award plus one percent (1%).
Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach of
this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
proceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statue shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
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(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 Inducement Recapture In Event of Breach. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "Inducement Provisions" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance. See Addendum Paragraph 60.
13.5 Breach by Lessor. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion. See Addendum Paragraph
61.
14. Condemnation. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice, of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
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compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. Brokers' Fees.
15.1 (Paragraph Deleted)
15.2 (Paragraph Deleted)
15.3 (Paragraph Deleted)
15.4 Representations and Warranties. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. Tenancy and Financial Statements.
16.1 Tenancy Statement. Each Party (as "Responding Party") shall within
ten (10) days after written notice from the other Party (the "Requesting Party")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "Tenancy Statement" form Published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 Financial Statement. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited to
Lessee's financial statements for the past three (3) years. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
17. Lessor's Liability. The term "Lessor" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises. In the event
of a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. Severability. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-Due Obligations. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10) days
following the date on which it was due, shall bear interest from the date due at
the prime rate charged by the largest State chartered bank in the state in which
the Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. Time of Essence. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease
21. Rent Defined. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. No Prior or other Agreements; Broker Disclaimer. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
23. Notices.
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23.1 Notice Requirements. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given it served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises. The Premises shall constitute Lessee's
address to, the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such Party or Parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 Date of Notice. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day,
24. Waivers. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or any other term, covenant or condition hereof. Lessor's
consent to, or approval of, any such act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any subsequent
or similar act by Lessee, or be construed as the basis of an estoppel to enforce
the provision or provisions of this Lease requiring such consent. Regardless of
Lessor's knowledge of a Default or Breach at the time of accepting rent, the
acceptance of rent by Lessor shall not be a waiver of any Default or Breach by
Lessee of any provision hereof. Any payment given Lessor by Lessee may be
accepted by Lessor on account of moneys or damages due Lessor, notwithstanding
any qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or affect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. No Right To Holdover. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to one hundred fifty (150%)
percent of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. Binding Effect; Choice of Law. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. Subordination; Attornment; Non-Disturbance. See Addendum Paragraph 55.
30.1 (Paragraph Deleted)
30.2 (Paragraph Deleted)
30.3 Non-Disturbance. With respect to Security Devices entered into by
Lessor after the execution of this lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 Self-Executing. The agreements contained in this Paragraph 30 shall
be effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
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31. Attorneys' Fees. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "Prevailing Party" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. Lessor's Access; Showing Premises; Repairs. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable time upon reasonably prior written notice
for the purpose of showing the same to prospective purchasers, lenders, or
lessees, and making such alterations, and/or repairs, improvements or additions
to the Premises or to the Building, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Building any ordinary "For Sale"
and/or "For Lease" signs. All such activities of Lessor shall be without
abatement of rent or liability to Lessee. See Addendum Paragraph 60
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease. Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. Signs. Lessee shall not place any sign upon the exterior of the Premises
or the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs. See Addendum Paragraph 52
35. Termination; Merger. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. Consents.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other party, such consent shall not be unreasonably withhold
or delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent Pertaining to this Lease or the Premises, including but not
limited to consents to an assignment a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the impositions by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. Guarantor.
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37.1 Form of Guaranty. If there are to be any Guarantors of this Lease
per Paragraph 1.11, the form of the guaranty to be executed by each such
Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the same
obligations as Lessee under this lease, including but not limited to the
obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 Additional Obligations of Guarantor. It shall constitute a Default
of the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. Quiet Possession. Upon payment by Lessee of the rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. Options - (section deleted). See Addendum Paragraph 63.
40. Rules and Regulations. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("Rules and Regulations") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. Security Measures. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises. Lessee,
its agents and invitees and their property from the acts of third parties.
42. Reserved. Lessor reserves the right, from time to time, to grant, without
the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, main and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably, requested by Lessor to effectuate any such easement
rights, dedication, map or restrictions.
43. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. Authority. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents, and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, if (30) days after request by Lessor, deliver to
Lessee evidence satisfactory to Lessor of such authority.
45. Conflict. Any conflict between the printed provisions of this Lease and
the typewritten or handwritten provisions shall be controlled by the typewritten
or handwritten provisions.
46. Offer. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. Amendments. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder. Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. Multiple Parties. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligation of such parties shall be the joint and several responsibility of all
persons or entities named herein as such Lessor or Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO, THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS
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OF THIS LEASE ARE COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE
OF LESSOR AND LESSEE WITH RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES: THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the Place and on the dates
specified above their respective signatures.
Executed at: Executed at:
------------------------- ----------------------------
on: on:
---------------------------------- -------------------------------------
By LESSOR: By LESSEE:
ASC Scripps, L.L.C. The Keith Companies
- ------------------------------------- ----------------------------------------
By: /s/ SCOTT R. FITZGERALD By: /s/ ERIC C. NIELSEN
---------------------------------- -------------------------------------
Name Printed: Scott R. Fitzgerald Name Printed: Eric C. Nielsen
------------------------ ---------------------------
Title: Vice President Title: President
------------------------------- ----------------------------------
By: By: /s/ GARY CAMPANARO
---------------------------------- -------------------------------------
Name Printed: Name Printed: Gary Campanaro
------------------------ ---------------------------
Title: Title: Secretary
------------------------------- ----------------------------------
Address: Address: 2955 Red Hill Avenue, Suite 200
----------------------------- --------------------------------
Costa Mesa, CA 92626
- ------------------------------------- ----------------------------------------
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EXHIBIT 10.38
ADDENDUM TO THAT CERTAIN
CERTAIN LEASE
DATED JULY 29, 1999
BY AND BETWEEN
ASP SCRIPPS, L.L.C. ("LESSOR") AND
THE KEITH COMPANIES, INC. ("LESSEE")
Any language contained within this Addendum shall supersede any
conflicting language within the body of the Lease.
49. Notwithstanding Paragraph 1.3 of the Lease, the Lessor retains the right to
cancel this Lease by providing Lessee with at least six months written
notice prior to the effective date of said cancellation (the "Cancellation
Date"). Said right of cancellation may be exercised if and only if the
lessee under that certain lease between Canon Computer System, Inc., a
California corporation, as lessee (the "Expansion Lessee"), and Lessor. as
lessor, dated May 21, 1993 (the "Expansion Lease"), validly exercises its
right to lease the Premises pursuant to the Expansion Lease. Lessor hereby
agrees that the Cancellation Date shall be within the period which is
thirty (30) days prior to the date that Lessor is to deliver the Premises
to the Expansion Lessee. In any event, the earliest date for the
Cancellation Date is August 27, 2000.
50. Notwithstanding Paragraph 2.4, Acceptance of Premises, Lessee acknowledges
to Lessor that it accepts the Premises in its "as-is" condition, except as
specifically provided otherwise in this Lease. Lessor acknowledges that
Lessee currently has an amount equal to Eighteen Thousand Eight Hundred
Sixty-Three and 59/100 Dollars ($18,863.59) (the "Allowance") in the
aggregate available for the costs incurred by Lessee to construct Lessee-
Owned Alterations and/or Utility Installations in the Premises. Lessor
shall disburse the Allowance in accordance with Lessor's standard
disbursement procedure, which procedure includes, without limitation, the
requirements that (a) Lessee deliver to Lessor (i) invoices marked as
having been paid for work performed and materials delivered in connection
with the Lessee-Owned Alterations and/or Utility Installations, and (ii)
properly executed mechanics lien releases in compliance with California
Civil Code Section 3262(d)(2) and either Section 3262(d)(3) or Section
3262(d)(4), (b) Lessor has determined that no substandard work exists which
adversely affects the mechanical, electrical, plumbing, heating,
ventilating and air conditioning, life-safety or other systems of the
Building, the curtain wall of the Building, the structure or exterior
appearance of the Building, or any other lessee's use of such other
lessee's leased premises in the Building and (c) Lessee's architect, if
applicable, delivers to Lessor a certificate, in a form reasonably
acceptable to Lessor, certifying that the construction of the Lessee-Owned
Alterations and/or Utility Installations in the Premises has been
completed, and (d) any other documentation reasonably requested by Lessor.
Any Lessee-Owned Alterations and/or Utility Installations proposed by
Lessee shall be subject to Paragraph 7.3 of the Lease.
51. Notwithstanding Paragraph 12 of the Lease, as a condition to giving
Lessor's consent to an assignment or sublease, which condition the parties
hereby agree is reasonable, Lessee shall pay to Lessor any "Transfer
Premium," as that term is defined hereinbelow, received by Lessee in
connection with any such assignment or sublease. "Transfer Premium" shall
mean all base rent, additional rent or other consideration payable by such
assignee, sublessee or other transferee in excess of the Base Rent and all
other rent and charges, including but not limited to Common Area Operating
Expenses and Real Property Taxes, payable by Lessee under this Lease on a
per rentable square foot basis if less than all of the Premises is
transferred, after deducting the reasonable expenses incurred by Lessee for
(i) changes, alterations and improvements to the Premises in connection
with such transfer (ii) brokerage commissions in connection with such
transfer, and (iii) free
<PAGE>
base rent reasonably provided in connection with the transfer. The Transfer
Premium shall also include, but not be limited to, key money, bonus money
or other cash consideration paid by such assignee, sublessee or other
transferee to Lessee in connection with such transfer, and any payment in
excess of fair market value for services rendered by Lessee to such
assignee, sublessee or other transferee or for assets, fixtures, inventory,
equipment or furniture transferred by Lessee to such assignee, sublessee,
or other transferee in connection with such transfer. The determination of
the amount of the Transfer Premium shall be made on a monthly basis as rent
or other consideration is received by Lessee in connection with the
transfer.
52. Pursuant to Paragraph 34 of the Lease, Lessee shall be entitled to keep its
current building signage, provided the Lease is not cancelled pursuant to
the terms of this Lease and Lessee remains in possession of at least 45,000
square feet of the 2955 Red Hill Building. In any event, Lessee shall be
responsible to remove said sign(s) and repair any and all damage to the
Building caused by such removal, when vacating the Premises.
53. Notwithstanding Paragraph 2.3 of the Lease to the contrary, Lessor shall
comply with all laws, statutes, ordinances or other governmental rules,
regulations or requirements in force as of the Commencement Date
(collectively, "Applicable Laws") relating to the "Base Building," as that
term is defined hereinbelow, and the Common Areas, provided such compliance
is not the responsibility of the Lessee under this Lease, and further
provided that Lessor's failure to comply therewith would (a) prohibit
Lessee from (i) obtaining or maintaining a certificate of occupancy for the
Premises, or (ii) obtaining a building permit from the City of Costa Mesa
Department of Building and Safety for Alterations proposed by Lessee, which
Alterations have otherwise been approved by Lessor and are for general
office use (not for Lessee's particular use of the Premises for non-general
office use), or would unreasonably and materially affect the safety of
Lessee's employees or create a significant health hazard for Lessee's
employees. Lessee, at its sole cost and expense, shall comply with all such
Applicable Laws in force as of the Commencement Date which relate to (i)
Lessee's use of the Premises for non-general office use, (ii) the
Alterations, Utility Installations, or presently existing tenant
improvements in the Premises, or (iii) the Base Building, but as to the
Base Building, only to the extent such obligations are triggered by
Lessee's Alterations, Utility Installations, or tenant improvements which
are related to Lessee's particular use of the Premises for other than
general office use, or Lessee's use of the Premises for non-general office
use. Lessor shall be permitted to include in Common Area Operating Expenses
any costs or expenses incurred by Lessor hereunder, but only to the extent
consistent with the terms of Paragraph 4.2 of this Lease. The "Base
Building" shall include the structural portions of the Building and the
public restrooms and the systems and equipment located in the internal core
of the Building on the floor or floors on which the Premises are located.
54. Pursuant to Paragraph 1.6(b) the project, commonly known as Scripps Center
consists, of three (3) freestanding buildings totaling 229,226 square feet.
55. Paragraph 30 (30.1 and 30.2) shall be replaced by the following:
SUBORDINATION AND ATTORNMENT: Lessee acknowledges that this Lease is
subject and subordinate to all leases in which Lessor is lessee and to any
mortgage or deed of trust now in force against the Building and to all
advances made or hereafter to be made thereunder, or any amendments or
modifications thereof, and shall be subordinate to any future leases in
which Lessor is lessee and to any future mortgage or deed of trust
hereafter in force against the Building and to all advances made or
hereafter to be made thereunder (all such existing and future leases,
mortgages and deeds of trust referred to collectively as "Superior
Instruments"). Lessee also agrees that if the holder of any Superior
Instrument
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<PAGE>
elects to have this Lease superior to its Superior Instrument and gives
notice of its election to Lessee, then this Lease shall be superior to the
lien of any such lease, mortgage or deed of trust and all renewals,
replacements and extensions thereof, whether this Lease is dated before or
after such lease, mortgage or deed of trust. If requested in writing by
Lessor or any first mortgagee or ground lessor of Lessor, Lessee agrees to
execute a subordination agreement required to further affect the provisions
of this paragraph. Lessor shall provide Lessee with a subordination, non-
disturbance and attornment agreement in substantially the form attached
hereto as Exhibit C from Lessor's presently existing lender holding a first
deed of trust on the Building.
In the event of any transfer in lieu of foreclosure or termination of a
lease in which Lessor is lessee or the foreclosure of any Superior
Instrument, or sale of the Property pursuant to any Superior Instrument,
Lessee shall attorn to such purchaser, transferee or lessor and recognize
such party as Lessor under this Lease, provided such party acquires and
accepts the Premises subject to this Lease. The agreement of Lessee attorn
contained in the immediately preceding sentence shall survive any such
foreclosure sale or transfer.
56. 4.2(a)(ix) The cost of any capital improvements or other costs (I) which
are intended as a labor-saving device or to effect other economies in the
operation or maintenance of the Building or any portion thereof to the
extent of the reduction in Common Area Operating Expenses reasonably
anticipated by the Lessor at the time of such expenditure to be incurred in
connection therewith, or (II) made to the Building after the Commencement
Date that are required under any governmental law or regulation, except for
capital improvements or costs to remedy a condition existing as of the
Commencement Date which a federal, state or municipal governmental
authority, if it had knowledge of such condition as of the Commencement
Date, would have then required to be remedied pursuant to governmental laws
or regulations in their form existing as of the Commencement Date;
provided, however, that any such capital expenditure shall be amortized
(including interest on the unamortized cost) over its reasonable useful
life.
Notwithstanding the foregoing, except as set forth in item (ix), above, the
costs of capital repairs and alterations shall not, for purposes of this Lease,
be included in Operating Expenses.
57. 4.2(e) Within one (1) year after receipt of a Statement by Lessee, if
Lessee disputes the amount of Common Area Operating Expenses set forth in
the Statement, an independent certified public accountant (which accountant
is a member of a regionally recognized accounting firm, has previous
experience in reviewing financial operating records of lessors of office
buildings, and is retained by Lessee on a non-contingency fee basis),
designated and paid for by Lessee, may, after reasonable notice to Lessor
and at reasonable times, inspect Lessor's records with respect to the
Statement at Lessor's offices, provided that Lessee is not then in default
under this Lease and Lessee has paid all amounts required to be paid under
the applicable Estimated Statement and Statement, as the case may be. In
connection with such inspection, Lessee and Lessee's agents must agree in
advance to follow Lessor's reasonable rules and procedures regarding
inspections of Lessor's records, and shall execute a commercially
reasonable confidentiality agreement regarding such inspection. Lessee's
failure to dispute the amount of Common Area Operating Expenses set forth
in any Statement within one (1) year following Lessee's receipt of such
Statement shall be deemed to be Lessee's approval of such Statement and
Lessee, thereafter, waives the right or ability to dispute the amounts set
forth in such Statement. If after such inspections, Lessee still disputes
such Common Area Operating Expenses, a determination as to the proper
amount shall be made, at Lessee's expense, by an independent certified
public accountant (the "Accountant") selected by Lessor and subject to
Lessee's reasonable approval; provided that if such certification by the
Accountant proves that Common Area Operating Expenses were overstated by
more than five percent
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<PAGE>
(5.0%), then the cost of the Accountant and the cost of such determination
certification shall be paid for by Lessor. Any reimbursement amounts
determined to be owing by Lessor to Lessee or by Lessee to Lessor shall be
(i) in the case of amounts owing from Lessee to Lessor, paid within thirty
(30) days following such determination, and (ii) in the case of amounts
owing from Lessor to Lessee, credited against the next payments of Base
Rent due Lessor under the terms of this Lease, or if the Term has expired,
paid to Lessee within thirty (30) days following such determination. In no
event shall this Paragraph 57 be deemed to allow any review of any of
Lessor's records by any sublessee of Lessee. Lessee agrees that this
Paragraph 57 shall be the sole method to be used by Lessee to dispute the
amount of any Common Area Operating Expenses payable or not payable by
Lessee pursuant to the terms of this Lease, and Lessee hereby waives any
other rights at law or in equity relating thereto.
58. Notwithstanding anything in Paragraph 7.3(b) to the contrary, for purposes
of the original Lessee named in this Lease (the "Original Lessee") only,
Lessor may (but without the obligation to do so) condition its consent to
any requested Alteration or Utility Installation that costs $25,000.00 or
more upon Lessee's providing Lessor with a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such
Alteration or Utility Installation.
59. 12.1(c) Notwithstanding the provisions of this Paragraph 12 or elsewhere
in the Lease, Lessee may assign or sublet the Premises without Lessor's
consent, to any entity which controls, is controlled by, or is under common
control with Lessee, or to any corporation or entity resulting from the
merger or consolidation with Lessee, or to any person or entity which
acquires all or substantially all of the assets of Lessee as a going
concern of the business that is being conducted on the Premises, or in
connection with an initial public offering of Lessee or Lessee's
subsequently going private (collectively, "Affiliates"); provided that (i)
said assignee or sublessee shall assume in full the obligations of Lessee
under this Lease, (ii) Lessor shall be given a minimum of ten (10) days
prior written notice of such transaction, (iii) Lessee promptly supplies to
Lessor any documents or information reasonably requested by Lessor
regarding such assignment or sublease or such affiliate (excluding any
documentation regarding the economic terms of the merger or sale
transaction, but including documentation regarding the assignment or
subletting), and (iv) such assignment or sublease is not a subterfuge by
Lessee to avoid its obligations under this Lease. Any such assignment,
subletting or transfer shall not, in any way, affect or limit the liability
of Lessee under the terms of this Lease, unless Lessor specifically
releases the original named Lessee from said liability. "Control," as used
in this Paragraph 12.1(c), shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management
and policies of a person or entity, whether by ownership of voting
securities, by contract, or otherwise.
60. Notwithstanding anything in this Paragraph 13.4 to the contrary, with
regards to the first late payment only, if any, by Lessee during the Term,
Lessor shall provide to Lessee a one time written notice (the "Late
Notice") that the installment of rent or other sum due from Lessee has not
been received by Lessor, and if such sum is not received by Lessor from
Lessee within five (5) business days of such Late Notice, then, without any
requirement for any further notice to Lessee, Lessee shall pay to Lessor a
late charge as set forth in Paragraph 13.4.
61. Rent Abatement. Notwithstanding anything in this Lease to the contrary, in
--------------
the event that Lessee is prevented from using, and does not use, the
Premises or any portion thereof, as a result of (i) any repair, maintenance
or alteration performed by Lessor, or which Lessor failed to perform after
the Lease Commencement Date and required by this Lease, which substantially
interferes with Lessee's use of the Premises, or (ii) any failure of Lessor
to provide any services, utilities or access to the Premises, or (ii) any
failure of Lessor to provide an services, utilities or access to the
Premises (either such set of circumstances set forth in items (i) or (ii)
above, to be known as an "Abatement Event"), then Lessee shall give Lessor
notice of
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<PAGE>
such Abatement Event, and if such Abatement Event continues for three (3)
consecutive business days after Lessor's receipt of any such notice (the
"Eligibility Period"), then the Base Rent and Lessee's Share of Common Area
Operating Expenses and Lessee's obligation to pay for parking shall be
abated or reduced, as the case may be, after expiration of the Eligibility
Period for such time that Lessee continues to be so prevented from using,
and does not use, the Premises or a portion thereof, in the proportion that
the rentable area of the portion of the Premises that Lessee is prevented
from using, and does not use, bears to the total rentable area of the
Premises. If, however, Lessee reoccupies any portion of the Premises during
such period, the rent allocable to such reoccupied portion, based on the
proportion that the rentable area of such reoccupied portion of the
Premises bears to the total rentable area of the Premises, shall be payable
by Lessee from the date Lessee reoccupies such portion of the Premises.
Such right to abate Base Rent and Lessee's Share of Common Area Operating
Expenses shall be Lessee's sole and exclusive remedy at law or in equity
for an Abatement Event. Except as provided in this Paragraph 61, nothing
contained herein shall be interpreted to mean that Lessee is excused from
paying rent due hereunder.
62. Right of First Offer. Lessor hereby grants to the Original Lessee and its
--------------------
Affiliates an ongoing right of first offer with respect to any space
located on the ground floor of the Building which is not part of the
Premises (the "First Offer Space"). Notwithstanding the foregoing, such
first offer right of Lessee shall be subordinate to the expansion rights of
the Expansion Lessee set forth in the Expansion Lease (the "Expansion
Rights"), regardless of whether such expansion rights are executed strictly
in accordance with their terms, or pursuant to a lease amendment or a new
lease (the "Superior Right Holder") with respect to such First Offer Space.
Lessee's right of first offer shall be on the terms and conditions set
forth in this Paragraph 62.
------------
62.1 Procedure for Offer. Lessor shall notify Lessee (the "First Offer
-------------------
Notice") from time to time when the First Offer Space or any portion
thereof becomes available for lease to third parties, subject to the rights
of the Superior Right Holder. Pursuant to such First Offer Notice, Lessor
shall offer to lease to Lessee the then available First Offer Space. The
First Offer Notice shall describe the space so offered to Lessee and shall
set forth the "First Offer Rent," as that term is defined in Paragraph 62.3
----
below, and the other economic terms upon which Lessor is willing to lease
such space to Lessee.
62.2 Procedure for Acceptance. If Lessee wishes to exercise Lessee's right
------------------------
of first offer with respect to the space described in the First Offer
Notice, then within five (5) business days of delivery of the First Offer
Notice to Lessee, Lessee shall deliver notice to Lessor of Lessee's
intention to exercise its right of first offer with respect to the entire
space described in the First Offer Notice on the terms contained in such
notice. If Lessee does not so notify Lessor within the five (5) business
day period, then Lessor shall be free to lease the space described in the
First Offer Notice to anyone to whom Lessor desires on any terms Lessor
desires. Notwithstanding anything to the contrary contained herein, Lessee
must elect to exercise its right of first offer, if at all, with respect to
all of the space offered by Lessor to Lessee at any particular time, and
Lessee may not elect to lease only a portion thereof.
62.3 First Offer Space Rent. The rent payable by Lessee for the First Offer
----------------------
Space (the "First Offer Rent") shall be equal to the rent (including
additional rent), including all escalations, at which lessees, as of the
"First Offer Commencement Date," as that term is defined in Paragraph 62.5,
----
below, are leasing non-sublease, non-encumbered, non-equity, non-renewal
space comparable in size, location and quality to the First Offer Space for
a similar lease term, which comparable space is located in the Industrial
center, taking into consideration the following concessions (the "First
Offer Concessions"): (a) rental abatement concessions, if
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<PAGE>
any, being granted such lessees in connection with such comparable space,
(b) tenant improvements or allowances provided or to be provided for such
comparable space, taking into account, and deducting the value of, the
existing improvements in the First Offer Space, such value to be based upon
the age, quality and layout of the improvements and the extent to which the
same could be utilized by a general office user, and (c) any period of
rental abatement, if any, granted to lessees in comparable transactions in
connection with the design, permitting and construction of tenant
improvements in such comparable spaces; provided, however, that in
calculating the First Offer Rent, no consideration shall be given to the
fact that Lessor is or is not required to pay a real estate brokerage
commission in connection with Lessee's lease of the First Offer Space or
the fact that Lessor is or is not paying real estate brokerage commissions
in connection with such comparable space. If there are not a sufficient
number of deals with a comparable lease term at which lessees as of the
First Offer Commencement Date are leasing comparable space in the
Industrial Center, then Lessor shall look at deals in the Industrial Center
at which lessees as of the First Offer Commencement Date are leasing
comparable space for a period of five (5) years, and the Concessions shall
be prorated on a fractional basis, with the numerator being the number of
months of the term of Lessee's lease of the First Offer Space, and the
denominator being the number of months in the term of those leases upon
which the determination of the First Offer Rent is being based.
62.4 Construction In First Offer Space. Lessee shall take the First Offer
---------------------------------
Space in its "as is" condition, and the construction of improvements in the
First Offer Space shall comply with the terms of Paragraph 7 of this Lease.
62.5 Amendment to Lease. If Lessee timely exercises Lessee's right to lease
------------------
the First Offer Space as set forth herein, Lessee shall within fifteen (15)
days after receipt of an amendment to this Lease from Lessor, execute the
same, which amendment shall be upon the terms and conditions as set forth
in the First Offer Notice and this Paragraph 62. Lessee shall commence
------------
payment of rent for the First Offer Space, and the term of Lessee's lease
of the First Offer Space shall commence upon the date of delivery of the
First Offer Space to Lessee (the "First Offer Commencement Date") and shall
expire coterminously with the expiration or earlier termination of this
Lease.
62.6 Termination of Right of First Offer. The rights contained in this
-----------------------------------
Paragraph 62 shall be personal to the Original Lessee and its Affiliates,
------------
and may only be exercised by the Original Lessee and/or its Affiliates (and
not any other assignee, sublessee or transferee of the Original Lessee's
interest in the Lease) if the Original Lessee and/or its Affiliates
occupies the entire Premises. Lessee shall not have the right to lease
First Offer Space, as provided in this Paragraph 62, if, as of the date of
the attempted exercise of any right of first offer by Lessee, or, at
Lessor's option, as of the scheduled date of delivery of such First Offer
Space to Lessee, Lessee is in default under this Lease beyond the
applicable cure period provided in the Lease or Lessee has previously been
in default under this Lease beyond the applicable cure period provided in
this Lease more than once.
63. Option Term.
-----------
63.1 Option Right. Lessor hereby grants to the Original Lessee and/or its
------------
Affiliates one (1) option to extend the Original Term for this Lease
through October 30, 2003 (the "Option Term"), which option shall be
exercisable only by written notice delivered by Lessee to Lessor as
provided below, provided that, as of the date of delivery of such notice,
Lessee is not in default under this Lease beyond any applicable cure period
set forth in the Lease, and Lessee has not previously been in default under
this Lease beyond any applicable cure period set forth in the Lease more
than once. Notwithstanding the foregoing, this option right shall be
subordinate to the Expansion Rights of the Superior Right Holder,
regardless of whether such rights are executed strictly in accordance with
their
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<PAGE>
terms, or pursuant to a lease amendment or a new lease. Upon the proper
exercise of such option to extend, and provided that, at Lessor's option,
as of the end of the Original Term, Lessee is not in default under the
Lease beyond any applicable cure period set forth in the Lease, and Lessee
has not previously been in default under the Lease beyond any applicable
cure period set forth in the Lease more than once, the Original Term, as it
applies to the Premises, shall be extended through October 30, 2003. The
rights contained in this Paragraph 63 shall be personal to the Original
Lessee and its Affiliates and may only be exercised by the Original Lessee
and/or its Affiliates (and not any other assignee, sublessee or transferee
of the Original Lessee's interest in the Lease) if the Original Lessee
and/or its Affiliates occupies the entire Premises.
63.2 Option Rent. The rent payable by Lessee during the Option Term (the
-----------
"Option Rent") shall be equal to the rent, including all escalations, at
which lessees, as of the commencement of the Option Term, are leasing non-
sublease, non-encumbered, non-equity, non-renewal space comparable in size,
location and quality to the Premises for a similar lease term, which
comparable space is located in the Industrial Center, taking into
consideration the following concessions (the "Concessions"): (a) rental
abatement concessions, if any, being granted such lessees in connection
with such comparable space, (b) tenant improvements or allowances provided
or to be provided for such comparable space, taking into account, and
deducting the value of, the existing improvements in the Premises, such
value to be based upon the age, quality and layout of the improvements and
the extent to which the same could be utilized by a general office user,
and (c) all other reasonable monetary concessions being granted such
lessees in connection with such comparable space; provided, however, that
in calculating the Option Rent, no consideration shall be given to (i) the
fact that Lessor is or is not required to pay a real estate brokerage
commission in connection with Lessee's exercise of its right to lease the
Premises during the Option Term or the fact that landlords are or are not
paying real estate brokerage commissions in connection with such comparable
space, and (ii) any period of rental abatement, if any, granted to lessees
in connection with such comparable transactions in connection with the
design, permitting and construction of tenant improvements in such
comparable spaces. If there are not a sufficient number of deals with a
comparable lease term at which lessees as of the commencement date of the
Option Term are leasing comparable space in the Industrial Center, then
Lessor shall look at deals in the Industrial Center at which lessees as of
the commencement date of the Option Term are leasing comparable space for a
period of five (5) years, and the Concessions shall be prorated on a
fractional basis, with the numerator being the number of months of the
Option Term, and the denominator being the number of months in the term of
those leases upon which the determination of the Option Rent is being
based.
[The remainder of this page intentionally left blank]
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<PAGE>
63.3 Exercise of Options. The option contained in this Paragraph 63 shall
-------------------
be exercised by Lessee, if at all, only in the following manner: Lessee
shall deliver written notice to Lessor not more than ten (10) months nor
less than nine (9) months prior to the expiration of the Original Term,
stating that Lessee is interested in exercising its option; (ii) Lessor,
after receipt of Lessee's notice, shall deliver notice (the "Option Rent
Notice") to Lessee not less than seven (7) months prior to the expiration
of the Original Term, setting forth the Option Rent; and (iii) if Lessee
wishes to exercise such option, Lessee shall, on or before the earlier of
(A) the date occurring six (6) months prior to the expiration of the
Original Term, and (B) the date occurring thirty (30) days after Lessee's
receipt of the Option Rent Notice, exercise the option by delivering
written notice thereof to Lessor.
The Lease and this Addendum may be executed in counterparts, each of which
shall be deemed an original, but all of which, together, shall constitute one
and the same instrument.
AGREED & ACCEPTED:
"LESSOR" "LESSEE"
ASP SCRIPPS, L.L.C. THE KEITH COMPANIES, INC.
By: /s/ SCOTT R. FITZGERALD By: /s/ ERIC C. NIELSEN
------------------------- ----------------------
Its: Vice President Its: President
------------------------- ----------------------
By: /s/ GARY CAMPANARO
----------------------
Its: Secretary
----------------------
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<PAGE>
EXHIBIT 10.39
SUBLEASE
THIS SUBLEASE (the "Sublease") is made as of July 29, 1999, by CANON
COMPUTER SYSTEM, INC., a California corporation (the "Sublandlord") and THE
KEITH COMPANIES, INC., a California corporation ("the Subtenant").
BACKGROUND:
A. ASP SCRIPPS, LLC, a California limited liability company as
Landlord ("Landlord"), and Sublandlord, as Tenant, have entered into that
certain Lease dated as of May 21, 1993, as amended, (the "Prime Lease"),
regarding certain premises ("Prime Lease Premises") in the building known as
2955 Red Hill Avenue, Costa Mesa, California 92626 (the "Building"), all as
described in the Prime Lease.
B. Sublandlord and Subtenant have agreed to enter into a sublease for
32,994 rentable square feet of the Prime Lease Premises on the Second Floor of
the Building as described on attached Exhibit A ("Sublease Premises"), upon the
terms and conditions set forth below.
AGREEMENT:
1. Sublease. Subtenant agrees to sublease from Sublandlord, and
Sublandlord agrees to sublease to Subtenant, the Sublease Premises upon the
terms and conditions set forth below.
2. Sublease Term. The term of this Sublease ("Sublease Term")
will commence on August 1, 1999 (the "Commencement Date"), and will continue
until October 30, 2003.
3. Use. Subtenant shall use the Sublease Premises for general
office and other permitted purposes under the Prime Lease, and for no other
purpose.
4. "As Is" Sublease; Alterations; Construction Allowance.
Subtenant agrees to accept the Sublease Premises in "as is" condition, "with all
faults". Sublandlord and Subtenant acknowledge that Subtenant is currently
occupying the Sublease Premises pursuant to a lease between Subtenant and
Landlord set to expire July 31, 1999. Subtenant shall be responsible for the
installation and cost of any and all improvements, alterations or other work
(the "Subtenant Improvements") required in order to accommodate Subtenant's use
of the Subleased Premises or required on or to the Sublease Premises by the
Americans With Disabilities Act of 1990 or any other applicable law, rule or
regulation as a result of Subtenant's use of the Sublease Premises. Subtenant
shall directly employ the general contractor and shall oversee the construction
of the Subtenant Improvements.
<PAGE>
Prior to the commencement of construction of the Subtenant Improvements,
Subtenant shall secure the written approval of the plans for the Subtenant
Improvements from both Landlord and Sublandlord, which consent shall not be
unreasonably withheld or delayed by either Landlord or Sublandlord. All
construction work, including the selection of the space planner, general
contractor and subcontractors, shall be subject to Landlord's prior approval,
which approval shall not be unreasonably withheld or delayed. Subtenant shall
make or install no other improvements, alterations or work on or to the Sublease
Premises or on or to the property and/or Building of which the Sublease Premises
are a part without the prior written consent of Sublandlord and Landlord, which
consent shall withheld by either Landlord or Sublandlord in the reasonable
discretion of Landlord or Sublandlord; provided, however, that Subtenant may
make any nonstructural improvement costing less than Fifty Thousand Dollars
($50,000.00) and no consent shall be required, but Subtenant shall give
Sublandlord and Landlord at least twenty (20) days prior written notice of
Subtenant's intention to make any such improvement, which notice shall include a
reasonable description of the improvement, including marked floor plans where
appropriate.
Sublandlord shall provide Subtenant with a tenant improvement allowance
(the "Tenant improvement Allowance") a maximum of $164,970.00 as a contribution
towards the costs incurred by Subtenant in the completion of the build out of
the Sublease Premises. Subtenant shall be entitled to apply the Tenant
Improvement Allowance toward reimbursement of its architectural fees,
engineering and design fees, demolition costs, city permits and construction
costs. The Tenant Improvement Allowance shall be disbursed by Sublandlord to
Subtenant in accordance with the terms and schedule set forth on the Work Letter
attached as Exhibit B to the First Amendment to Lease between Landlord and
Sublandlord dated July 30, 1999. Sublandlord shall not be allowed to charge
Subtenant for profit, overhead expenses, supervisory expenses, plan review fees
or any similar charge in connection with the construction of the Subtenant
Improvements, nor shall Subtenant be charged by Landlord for parking, elevator
use, or staging areas required by Subtenant's contractor or subcontractors for
completion of the Subtenant Improvements. Within fifteen (15) business days
after Sublandlord receives compensation or reimbursement from Landlord in
accordance with Section 13.15(ii) of the Prime Lease, Sublandlord shall
reimburse Subtenant for costs incurred by Subtenant to correct disintegrating
and/or debonding floor fill for the Sublease Premises and the "Expansion Space
II" pursuant to the provisions of Paragraph 14 below.
5. Rent. Subtenant will pay monthly base rent ("Subrent") for the Sublease
Premises in advance, without abatement, deduction or setoff, on the Commencement
Date and on the first day of each calendar month thereafter during the Sublease
Term, in accordance with the terms set forth on Exhibit B attached hereto (the
"Subrent Schedule"). Subtenant will also pay, as additional rent, Subtenant's
Proportionate Share of the Building and Subtenant's Proportionate Share of the
Project (as defined below) of all other payments due the Landlord under the
Prime Lease, including, without limitation, insurance, real estate taxes, and
all other Project Operating Costs and Building Operating Costs (the "Triple Net
Expenses"), as and when they shall become due in accordance with Section 3.2 of
the Prime Lease. For purposes of this Sublease, "Subtenant's Proportionate Share
of the Building" means the ratio of the rentable area (determined by
Sublandlord's architect in accordance with BOMA standards) of the Sublease
Premises to the
2
<PAGE>
rentable area of the Building, expressed as a percentage rounded to the second
decimal point. "Subtenant's Proportionate Share of the Project" means the ratio
of the rentable area (32,994 square feet) of the Sublease Premises to the
rentable area of the Project, expressed as a percentage rounded to the second
decimal point.
6. Building Real Estate Taxes. In addition to Subtenant's obligation
to pay Subtenant's share of Subtenant's Proportionate Share of real estate
taxes, and in accordance with Section 3.2(a) of the Prime Lease, Subtenant
agrees that it will pay to Sublandlord fifty percent (50%) of the increase in
any real estate taxes which result from the sale or transfer of the Building or
the Project (as defined in the Prime Lease) during the term of this Sublease.
7. Parking. Subtenant shall be entitled to four (4) parking spaces
for every 1000 rentable square feet of space subleased by Subtenant. All parking
shall remain free of charge during the Sublease Term.
8. Performance of Prime Lease by Subtenant. Except as otherwise set
forth in this Sublease, Subtenant assumes and agrees to keep, obey and perform
all of the terms, covenants and conditions of Sublandlord as Tenant under the
Prime Lease with respect to the Sublease Premises, and except for Sections
13.17, 13.18, 13.19, and 13.21 of the Prime Lease, and as otherwise provided
herein, shall enjoy all of the rights and privileges of Sublandlord under the
Prime Lease.
9. Subtenant's Rights as to Prime Landlord. Sublandlord shall not be
liable for any nonperformance of or noncompliance with or breach or failure to
observe any term, covenant or condition of the Prime Lease upon Landlord's part
to be kept, observed, performed or complied with, or for any delay or
interruption in Landlord's performing its obligations thereunder, provided that
Sublandlord shall cooperate with Subtenant in assisting Subtenant in enforcing
the terms of the Prime Lease, to the extent provided below. Sublandlord agrees
to exercise commercially reasonable diligence in attempting to cause Landlord to
perform its obligations under the Prime Lease for the benefit of Subtenant.
10. Insurance; Waivers. Subtenant will, during the Sublease Term,
continuously maintain commercial general liability insurance as required under
the Prime Lease, which insurance policy shall name Sublandlord as an additional
insured party, and a certificate thereof acceptable to Sublandlord shall be
delivered to Sublandlord prior to the delivery of the Sublease Premises to
Subtenant. Subtenant hereby agrees to indemnify and hold harmless Sublandlord
from, and shall reimburse Sublandlord for, all costs and expenses, including
reasonable attorneys' fees, incurred by Sublandlord in connection with the
defense of all claims and demands of third persons, including but not limited to
those for death, personal injuries, or property damage, arising out of any
default of Subtenant in performing or observing any term, covenant, condition or
provision of this Sublease, or out of the use or occupancy of the Sublease
Premises by Subtenant, or out of any of the acts or omissions of the Subtenant,
its agents, representatives, employees, customers, guests, invitees or other
persons who are doing business with Subtenant or who are at the
3
<PAGE>
Sublease Premises with Subtenant's consent. Subtenant, for itself and its
insurers, hereby further expressly waives all claims against Sublandlord for any
and all damages to persons or property caused by or resulting from any thing or
circumstance, excepting any claims arising due to the willful misconduct of
Sublandlord, its agents, representatives, employees, contractors or invitees.
11. Assignment and Subletting. Subtenant shall be allowed to assign
or sublease all or a part of the Sublease Premises subject to and in accordance
with the terms set forth in Section 6.4 of the Prime Lease. In the event
Subtenant assigns or sublets the Sublease Premises for a rental rate which
exceeds the Subrent Schedule set forth on Schedule B, in accordance with the
terms and conditions set forth in Section 6.4 of the Prime Lease Landlord and
Sublandlord shall share equally any rental profit resulting from such further
sublease.
Subtenant may not, without the prior written consent of
Sublandlord (which may be withheld in Sublandlord's sole discretion), allow any
liens to be placed on this Sublease or the Sublease Premises, or suffer this
Sublease or the Sublease Premises or any portion thereof to be attached or taken
upon execution without posting a bond in the statutory amount required to remove
the lien or otherwise providing adequate security to Sublandlord and Landlord if
Subtenant disputes or contests the amount or validity of such lien. Sublandlord
may assign its interest under this Sublease at any time, and in such case
Sublandlord shall be released from any liability arising under this Sublease
after the effective date of such assignment.
12. Termination. This Sublease shall terminate at the end of the
Sublease Term hereof. Subtenant will peacefully and quietly vacate and surrender
the Sublease Premises to Sublandlord at the expiration of the Sublease Term, in
the condition called for under the Prime Lease. The existence of this Sublease
is dependent and conditioned upon the continued existence of the Prime Lease,
and in the event of the cancellation or termination of the Prime Lease, this
Sublease automatically shall be terminated, except to the extent provided in the
Agreement of NonDisturbance and Attornment attached hereto, if any; provided,
however, that this provision shall not be deemed to release Sublandlord of
liability if the Prime Lease is canceled or terminated due to a default by
Sublandlord as Tenant under the Prime Lease, which default did not result, in
whole or in part, from a default by Subtenant under this Sublease. Sublandlord
agrees not to amend, alter or modify any of the provisions of the Prime Lease
affecting Subtenant, or to surrender the Prime Lease, without Subtenant's
consent, which consent will not be unreasonably withheld or delayed. Sublandlord
shall have no liability to Subtenant due to the termination of the Prime Lease
by reason of any default by Subtenant under this Lease, or by reason of any
condemnation or destruction of the Prime Lease Premises, unless such destruction
is due to the gross negligence or willful misconduct of Sublandlord, its agents,
representatives, employees, contractors or invitees. In accordance with the
terms set forth in the Prime Lease, in the event Subtenant fails to surrender
possession of the Sublease Premises at the end of the Sublease Term, Subtenant
shall at Sublandlord's option, be deemed to occupy the Sublease Premises as a
tenant from month to month, which tenancy may be terminated by one month's
written notice. During such tenancy, Subtenant agrees to pay to Sublandlord,
monthly in advance, an amount equal to 200% of all Subrent (based on the Subrent
and Subtenant's pro rata share of Operating Costs payable for the last month of
the Sublease Term,
4
<PAGE>
together with all other amounts payable by Subtenant to Sublandlord under this
Sublease), and to be bound by all of the terms, covenants and conditions herein
specified.
13. Default. If Subtenant defaults in its obligations under this
Sublease, Sublandlord shall have all of the same rights and remedies against
Subtenant as would be available to the Landlord against Sublandlord if
Sublandlord were in default under the Prime Lease, as fully as if such rights
and remedies were set forth in this Sublease.
14. Future Expansion Rights. Subtenant acknowledges that Landlord has
granted Sublandlord an option to expand (the "Option to Expand") onto the first
floor of Building (the "Expansion Space II") in accordance with Section 13.16 of
the Prime Lease. In the event that Sublandlord exercises the Option to Expand
but does not intend to occupy the Expansion Space II, Sublandlord shall notify
Subtenant as soon thereafter as is practicable and in no event later that one
hundred twenty (120) days prior to Landlord's projected availability date for
Expansion Space II of its intention not to occupy the Expansion Space II and
Subtenant agrees to enter into a sublease (the "First Floor Sublease") with
Sublandlord for the entire Expansion Space II. The terms and conditions of the
First Floor Sublease shall be substantially the same as this Sublease,
including, without limitation, the identical base rent per square foot and
scheduled rent increases as set forth in Exhibit B attached hereto. In the event
that Landlord agrees to provide Sublandlord with a Tenant Improvement Allowance
for the Expansion Space 11, and Sublandlord agrees to pass through any Tenant
Improvement Allowance it receives from the Landlord directly to Subtenant up to
an amount equal to $0.098 cents per Subleased square foot multiplied by the term
(measured in number of months) of the First Floor Sublease. Other than the
obligation to enter into the First Floor Sublease as provided above, Subtenant
shall have no rights or obligations with respect to the Expansion Space H.
Subtenant further acknowledges that the commencement date for the First Floor
Sublease shall be some time during the period between September 27, 2000 and
September 26, 2001 as designated by the Sublandlord; provided, however, that the
First Floor Sublease shall commence only after Sublandlord. has exercised the
Option to Expand and notified Subtenant in writing of Subtenant's obligation to
enter into the First Floor Sublease.
15. Notices. Any notice or demand permitted or required hereunder
shall be deemed given or made if, and shall not be deemed to have been given or
made unless, it is in writing and deposited in the United States mails
certified, return receipt requested, postage prepaid, addressed as follows:
If to Sublandlord: Canon Computer Systems, Inc.
2995 Redhill Avenue
Costa Mesa, California 92626
Attn: General Counsel
With a copy to: Dorsey & Whitney LLP
37017 1h Street, Suite 4400
Denver, Colorado 80202
Attn: Kevin P. Hein, Esq.
5
<PAGE>
If to Subtenant: 2955 Redhill Avenue
Costa Mesa, California 92626
With a copy to: Rutan & Tucker, LLP
611 Anton Boulevard
Suite 1400
Costa Mesa, California 92626
Attn: Adam N. Volkert, Esq.
The foregoing addresses may be changed from time to time by notice as above
provided, which change shall be effective 10 days after notice is given.
16. Security Deposit; Submission of Subtenant's Financials. Upon
execution of this Sublease, Subtenant shall pay to Sublandlord the first month's
Subrent and a security deposit equal to the last month's Subrent. Within five
business days of the execution of this Sublease, Subtenant shall submit current
audited financials for review by Landlord and Sublandlord. In the event that
Subtenant enters into the First Floor Sublease, upon execution of the First
Floor Sublease Subtenant shall pay to Sublandlord an additional security deposit
equal to $41,212.50.
17. Directory Board Listing. Subject to Landlord's prior approval, as
provided in the Prime Lease, Subtenant shall be allowed to place an appropriate
listing in the Building directory board.
18. Entire Agreement. This Sublease contains the entire agreement
between Sublandlord and Subtenant regarding the Sublease Premises. Subtenant
agrees that it has not relied on any statement, representation or warranty of
any person except as set out in this Sublease. This Sublease may be modified
only by an agreement in writing signed by Sublandlord and Subtenant. No
surrender of the Sublease Premises, or of the remainder of the Sublease Term,
will be valid unless accepted by Sublandlord in writing.
19. Successors and Assigns. All provisions of this Sublease will be
binding on and for the benefit of the successors and assigns of Sublandlord and
Subtenant, except that no person or entity holding under or through Subtenant in
violation of any provision of this Sublease will have any right or interest in
this Sublease or the Sublease Premises.
20. Commissions. Sublandlord shall pay any commissions due CB Richard
Ellis, Inc. regarding this Sublease and the commission attributable to Expansion
Space II upon the execution of the sublease for the first floor. Sublandlord and
Subtenant shall each indemnify and hold the other harmless from and against any
claims, losses, costs or liability arising from any other parties who may claim
a brokerage commission as a result of the indemnifying party's actions or
agreements in connection with this Sublease.
6
<PAGE>
21. Ground Floor Lease. The execution of this Sublease and
Subtenant's obligations hereunder are expressly conditioned upon Subtenant
entering into a lease with the Landlord for the ground floor of the Building
(the "Ground Floor Lease"). If Subtenant and Landlord have not executed the
Ground Floor Lease within forty-five (45) days after the mutual execution of
this Sublease, Subtenant shall have the right to cancel this Sublease, all
monies previously paid to Sublandlord shall be returned, and the parties shall
have no further rights or obligations hereunder.
The remainder of this page has been intentionally left blank
7
<PAGE>
EXECUTION:
Sublandlord and Subtenant have executed this Sublease as of the date
first stated above.
SUBLANDLORD:
CANNON COMPUTER SYSTEMS, INC., a
California corporation
By: /s/ ^^ILLEGIBLE SIGNATURE ^^
-----------------------------
Its: Vice President, Operations
-----------------------------
SUBTENANT:
THE KEITH COMPANIES, INC.,
a California corporation
By: /s/ ERIC C. NIELSEN
-----------------------------
Its: President
-----------------------------
8
<PAGE>
EXHIBIT A
Sublease Premises Drawing
-------------------------
<PAGE>
EXHIBIT B
Subrent Schedule
----------------
<TABLE>
<CAPTION>
Months Rate per RSF per Month, NNN Monthly Subrent
- --------- --------------------------- ---------------
<S> <C> <C>
1-12 $1.30 $42,892.20
13-24 $1.35 $44,541.90
25-36 $1.40 $46,191.60
37-48 $1.45 $47,841.30
49-51 $1.50 $49,491.00
</TABLE>
<PAGE>
EXHIBIT 10.40
AGREEMENT OF
------------
NON-DISTURBANCE AND ATTORNMENT
------------------------------
This Agreement (the "Agreement") is made is made as of July 28, 1999, by
and among ASP SCRIPPS, L.L.C., a Delaware limited liability company
("Landlord"), and The Keith Companies, Inc., a California corporation
("Subtenant").
RECITALS
--------
WHEREAS, under that certain Lease, dated May 21, 1993, between Scripps
Center Associates, a California general partnership, predecessor-in-interest to
Landlord, and Canon Computer Systems, Inc., a California corporation ("Tenant"),
as amended by that certain First Amendment to Lease, dated July 30, 1999
(collectively, the "Lease"), regarding space in the buildings located at 2995
and 2955 Red Hill Avenue, Costa Mesa, California (collectively, the "Premises"),
as more particularly described in the Lease, Landlord does lease, let, and
demise the Premises to Tenant for the period of time and upon the covenants,
terms, and conditions therein stated; and
WHEREAS, under that certain Sublease dated July 29, 1999, between Tenant
and Subtenant (hereinafter referred to as the "Sublease"), Tenant did sublease,
let, and demise a portion of the Premises (the "Sublease Premises") located in
the 2955 Red Hill Avenue building, to Subtenant for the period of time and upon
the covenants, terms, and conditions therein stated; and
WHEREAS, Landlord has consented to the Sublease; and
WHEREAS, Landlord is willing to agree that in the event Landlord elects to
terminate the Lease due to a default by Tenant, Landlord will succeed to
Tenant's interest in the Sublease, and Subtenant is willing to agree to attorn
to Landlord in that event upon the covenants, terms, and conditions set forth
hereinbelow.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the covenants, terms, conditions and
agreements herein contained, and in consideration of other good and valuable
consideration, each to the other, the sufficiency and receipt of which are
hereby acknowledged, the parties hereto agree, covenant, and warrant as follows:
1. Subject to the observance and performance by Subtenant of all of the
covenants, terms and conditions of the Sublease and in any modification or
amendment specified herein or subsequently approved by Landlord on the part of
Subtenant to be observed and performed, in the event the Lease is terminated due
to a default by Tenant, Landlord hereby covenants that. provided that Subtenant
is not then in default of the Sublease beyond any applicable notice and cure
period provided in the Sublease, the Sublease and any modifications or
amendments specified herein or hereafter approved by Landlord will continue in
full force and effect, and
<PAGE>
Landlord shall recognize the Sublease and any modifications or amendments
specified herein or subsequently approved by Landlord and Subtenant's rights
thereunder, and will thereby establish direct privity of estate and contract
between Landlord and Subtenant with the same force and effect and with the same
relative priority in time and right as though the Sublease and any modification
or amendment specified herein or subsequently approved by Landlord were directly
made from Landlord in favor of Subtenant; provided, however, that
notwithstanding anything in this Agreement to the contrary, in the event of a
termination of the Sublease and the recognition of the Sublease as set forth
herein, the terms of Section 14 of the Sublease have no applicability as between
Landlord and Subtenant.
2. Subtenant agrees that in the event of any act or omission by Tenant
under the Sublease which would give Subtenant the right, either immediately or
after a period of time, to terminate the Sublease, whether or not set forth in
the Sublease, Subtenant will not exercise any such right to terminate until (i)
it shall have given written notice of the act or omission to Landlord, and (ii)
if the default by Tenant is of a nature which can be cured by the Landlord, and
if the Landlord is proceeding with diligence to cure such default, Subtenant
shall have given the Landlord the time periods set forth in the Lease for
Landlord's cure of such default, in order to cure such default, provided that
any such cure period shall not commence to run until Landlord's receipt of
written notice from Subtenant of such default.
3. That in the event the Lease is terminated due to a default by Tenant,
Subtenant hereby covenants and agrees to make full and complete attornment to
Landlord as substitute sublessor upon the same terms, covenants and conditions
as provided in the Sublease and all extensions or renewals thereof, so as to
establish direct privity of estate and contract between the Landlord and
Subtenant with the same force and effect as though the Sublease and all
modifications and amendments thereof specified herein or hereafter consented to
by Landlord, together with all guarantees of Subtenant's obligations under the
Sublease, were originally made directly between Landlord and Subtenant (except
as specifically set forth in this Agreement). Subtenant will thereafter make all
payments directly to Landlord. Subtenant waives all joinder and/or service of
any and all actions at law by Landlord to gain possession of the Premises. It
shall not be necessary, except as required by law, for Landlord to name
Subtenant as a party prosecute any action at law to gain possession of the
Premises, and unless required by law Landlord agrees not to name Subtenant in
any such proceeding.
4. Notwithstanding anything contained herein to the contrary, or anything
to the contrary in the Sublease or in any modifications or amendments thereto
(except as set forth below), in the event the Lease is terminated due to a
default by Tenant, then Landlord and Subtenant hereby covenant and agree that
Landlord and its respective assignees shall not be:
(a) Liable for any act or omission of Tenant, or its successors or
assigns, except in the event that Landlord recognizes the Sublease pursuant to
the non-disturbance provisions of Paragraph I of this Agreement, then Landlord
shall be liable for the performance of the obligations of the Sublandlord under
the Sublease from and after the effective date of such recognition.
-2-
<PAGE>
(b) Subject to any offsets or defenses which Subtenant might have as
to Tenant, or its successors or assigns, or to any claim for damages against
Tenant, or its successors or assigns.
(c) Required or obligated to credit Subtenant with any rent or
additional rent paid by Subtenant to Tenant more than thirty (30) days in
advance.
(d) Bound by any amendments or modifications of the Sublease made at
any time (whether before or after the Lease is terminated) without Landlord's
consent.
(e) Bound to or liable for refund of all or any part of any security
deposit deposited by Subtenant with Tenant for any purpose unless and until such
security deposit shall have been delivered by Tenant to and actually received by
Landlord. In the event of receipt of any such security deposit, Landlord's
obligations with respect thereto shall be limited to the amount of such security
deposit actually received by Landlord, and Landlord shall be entitled to all
rights, privileges and benefits of Tenant set forth in the Sublease with respect
thereto.
(f) Liable to Subtenant under the Sublease or otherwise from and after
such time as the Landlord ceases to be the owner of the Building.
Nothing in this Paragraph 4 shall be intended to waive or impair any
liability Landlord may have to Subtenant pursuant to the non-disturbance
provisions of Paragraph 1 above. In addition, Subtenant reserves its rights to
any and all claims or causes of action against Canon Computer Systems, Inc., a
California corporation, for prior losses or damages.
5. Subtenant covenants and agrees as follows for the benefit and reliance
of Landlord:
that it will not, without the express written consent of Landlord:
(i) Cancel, terminate, modify, alter, amend or surrender the
Sublease, except as may be consented to by Landlord; or
(ii) Enter into any agreement with Tenant, its successors or
assigns, which grants any concession with respect to the Sublease or which
reduces the rent called for thereunder; or
(iii) Make any offset or claim against rents, or prepay rent more
than one (1) month in advance.
6. Landlord and Subtenant hereby agree as follows:
(a) That neither this Agreement, nor anything to the contrary in the
aforesaid Sublease or in any modifications or amendments thereto shall, prior to
Landlord succeeding to the interest of Tenant, its successors or assigns, under
the Sublease, operate to give rise to or create any responsibility or liability
for the control, care, management or repair of the Sublease
-3-
<PAGE>
Premises upon Landlord, or impose responsibility for the carrying out by
Landlord of any of the covenants, terms and conditions of the Sublease or of any
modification or amendment specified herein or hereafter consented to by
Landlord. Notwithstanding anything to the contrary in the Sublease, Landlord,
its successors and assigns, shall be responsible for performance of only those
covenants and obligations of the Sublease accruing after the Lease is terminated
due to a default by Tenant, and Landlord's obligations to Subtenant shall be
further limited as provided in this Agreement. Notwithstanding anything in this
Agreement to the contrary, Landlord acknowledges and agrees that prior to
termination of the Lease by Landlord and the recognition and attornment provided
for herein, Subtenant shall have no right pursuant to the Sublease or this
Agreement to take direct action under any circumstances against Landlord in the
name of Tenant.
(b) That in the event Landlord succeeds to the interest of Tenant, its
successors or assigns, under the Sublease and becomes the substitute sublessor,
it is agreed that Landlord may assign its interest as substitute sublessor
without the consent of Subtenant.
(c) Subtenant hereby acknowledges and agrees that in the event
Landlord succeeds to the interest of Tenant, its successors or assigns, under
the Sublease, that any liability or obligation of the Landlord as sublessor
under the Sublease shall be limited to Landlord's equity interest in the
building in which the Subleased Premises are located and no recourse shall be
had to any other assets of Landlord.
(d) It is specifically agreed that Subtenant shall not, as to
Landlord, require cure of any such default which is personal to Tenant, its
successors or assigns, and therefore not susceptible of cure by Landlord.
(e) Upon Landlord's written request of Subtenant given at any time
after the termination of the Lease by Landlord, Subtenant (as tenant) agrees to
execute a lease of the Sublease Premises with Landlord or its successor (as
landlord) upon the same terms and conditions as the Sublease between Tenant and
Subtenant (except with respect to any provisions eliminated therefrom pursuant
to the terms of this Agreement, which lease shall cover any unexpired term of
the Sublease existing at the time of such termination.
7. Any notices to Subtenant or Landlord hereunder shall be sent by United
States certified or registered mail, postage prepaid, return. receipt requested,
or delivered personally, addressed as follows:
Subtenant: The Keith Companies, Inc.
2955 Redhill Avenue
Costa Mesa, California 92626
With a copy to: Rutan & Tucker, LLP
611 Anton Boulevard, Suite 1400
Costa Mesa, California 92626
Attention: Adam N. Volkert, Esq.
-4-
<PAGE>
Landlord: Amresco, Inc.
700 North Pearl Street, Suite 1700
Dallas, Texas 75201
Attention: Mr. Andy Doughtie
With a copy to: Allen, Matkins, Leck, Gamble & Mallory
1999 Avenue of the Stars, Suite 1800
Los Angeles, California 90067
Attn: Cheryl S. Prell, Esq.
or as to each party, to such other address as the party may designate by a
notice given in accordance with the requirements contained in this Section 7.
8. This Agreement contains the entire agreement between the parties
hereto. No variations, modifications or changes herein or hereof shall be
binding upon any party hereto unless set forth in a document duly executed by or
on behalf of such party.
9. This instrument may be executed in multiple counterparts, all of which
shall be deemed originals and with the same effect as if all parties hereto had
signed the same document All of such counterparts shall be construed together
and shall constitute one instrument, but in making proof, it shall only be
necessary to produce one such counterpart executed by the party against whom it
is being enforced.
10. Whenever used herein, the singular number shall include the plural, the
plural the singular, and the use of any gender shall include all genders. The
words, "Landlord" and "Subtenant" shall include their heirs, executors,
administrators, beneficiaries, successors and assigns.
11. Counterparts. This Agreement may be executed in counterparts, each of
------------
which shall be deemed an original, and all such counterparts, when taken
together, shall constitute one and the same agreement.
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed, sealed and delivered in their respective names and in their behalf; and
if a corporation, by its officers duly authorized, as of the 28th day of July,
1999.
"Landlord":
ASP SCRIPPS, L.L.C.,
a Delaware limited liability company
By: /s/ SCOTT R. FITZGERALD
--------------------------------
Its: Vice President
--------------------------------
"Subtenant":
The Keith Companies, Inc.,
A California corporation
By: /s/ ERIC C. NIELSEN
--------------------------------
Its: President
--------------------------------
By: /s/ GARY CAMPANARO
--------------------------------
Its: Secretary
--------------------------------
-6-
<PAGE>
EXHIBIT 10.41
CONSENT TO SUBLEASE AGREEMENT
-----------------------------
THIS CONSENT TO SUBLEASE AGREEMENT (this "Agreement") is made as of July
28, 1999, by and among ASP SCRIPPS, L.L.C., a Delaware limited liability company
("Landlord"), CANON COMPUTER SYSTEMS, INC., a California corporation ("Tenant"),
and The Keith Companies, Inc., a California corporation ("Subtenant").
RECITALS
--------
A. Reference is hereby made to that certain Lease, dated May 21, 1993,
between Scripps Center Associates, a California general partnership, predecessor
in interest to Landlord, and Tenant, as amended by that certain First Amendment
to Lease dated July 30, 1999 (collectively, the "Lease"), for space in the
buildings located at 2995 and 2955 Red Hill Avenue, Costa Mesa, California
(collectively, the "Premises"), as more particularly described in the Lease.
B. Pursuant to the terms of Article 6.4 of the Lease, Tenant has requested
Landlord's consent to that certain Sublease, dated July 29, 1999, between Tenant
and Subtenant (the "Sublease"), with respect to a subletting by Subtenant of a
portion of the Premises, as more particularly described in the Sublease (the
"Sublet Premises"). The Sublet Premises are located in the building located at
2955 Red Hill Avenue, Costa Mesa, California. A copy of the Sublease is attached
hereto as Exhibit A. Landlord is willing to consent to the Sublease on the terms
and conditions contained herein.
C. All defined terms not otherwise expressly defined herein shall have the
respective meanings given in the Lease.
AGREEMENT
---------
1. Landlord's Consent. Landlord hereby consents to the Sublease; provided
------------------
however, notwithstanding anything contained in the Sublease to the contrary,
such consent is granted by Landlord only upon the terms and conditions set forth
in this Agreement. The Sublease is subject and subordinate to the Lease.
Landlord shall not be bound by any of the terms, covenants, conditions,
provisions or agreements of the Sublease, including, without limitation, the
terms and conditions of Section 4 of the Sublease. The Sublease shall not be
amended or modified without the prior written consent of Landlord, which consent
shall not be unreasonably withheld except in the event of an amendment or
modification of the "Subrent," as that term is defined in Section 5 of the
Sublease, or any other economic term of the Sublease, which shall be subject to
Landlord's prior written consent in Landlord's sole and absolute discretion.
2. Non-Release of Tenant; Further Transfers. Neither the Sublease nor this
----------------------------------------
consent thereto shall release or discharge Tenant from any liability, whether
past, present or future, under the Lease or alter the primary liability of the
Tenant to pay the rent and perform and comply with all of the obligations of
Tenant to be performed under the Lease (including the payment of all
-1-
<PAGE>
bills rendered by Landlord for charges incurred by the Subtenant for services
and materials supplied to the Sublet Premises). Neither the Sublease, including,
without limitation, the terms and conditions of Section 14 of the Sublease, nor
this consent thereto shall be construed as a waiver of Landlord's right to
consent to any further subletting either by Tenant or by the Subtenant or to any
assignment by Tenant of the Lease or assignment by the Subtenant of the
Sublease, or as a consent to any portion of the Sublet Premises being used or
occupied by any other party. Landlord may consent to subsequent sublettings and
assignments of the Sublease or any amendments or modifications thereto without
notifying Tenant nor anyone else liable under the Lease and without obtaining
their consent. No such action by Landlord shall relieve such persons from any
liability to Landlord or otherwise with regard to the Sublet Premises.
3. Relationship With Landlord. Tenant hereby assigns and transfers to
--------------------------
Landlord the Tenant's interest in the Sublease and all rentals and income
arising therefrom, subject to the terms of this Section 3. Landlord, by
---------
consenting to the Sublease agrees that until a default shall occur in the
performance of Tenant's obligations under the Lease, Tenant may receive, collect
and enjoy the rents accruing under the Sublease. In the event Tenant shall
default in the performance of its obligations to Landlord under Section 11.1 of
------------
the Lease (whether or not Landlord terminates the Lease), subject to the terms
of that certain Agreement of Non-Disturbance and Attornment (the "Recognition
Agreement"), dated as of the date hereof, between Landlord and Subtenant,
Landlord may, at its option by notice to Tenant, either (i) terminate the.
Sublease, (ii) elect to receive and collect, directly from Subtenant, all rent
and any other sums owing and to be owed under the Sublease, as further set forth
in Section 4, below, or (iii) elect to succeed to Tenant's interest in the
---------
Sublease and cause Subtenant to attorn to Landlord, as further set forth in the
Recognition Agreement. Nothing in the preceding election shall diminish or alter
Subtenant's non-disturbance protections set forth in Section I of the
Recognition Agreement.
4. Landlord's Election to Receive Rents. Landlord shall not, by reason of
------------------------------------
the Sublease, nor by reason of the collection of rents or any other sums from
the Subtenant pursuant to Section 3(ii), above, be deemed liable to Subtenant
-------------
for any failure of Tenant to perform and comply with any obligation of Tenant,
and Tenant hereby irrevocably authorizes and directs Subtenant, upon receipt of
any written notice from Landlord stating that a default exists in the
performance of Tenant's obligations under the Lease, to pay to Landlord the
rents and any other sums due and to become due under the Sublease. Tenant agrees
that Subtenant shall have the right to rely upon any such statement and request
from Landlord, and that Subtenant shall pay any such rents and any other sums to
Landlord without any obligation or right to inquire as to whether such default
exists and notwithstanding any notice from or claim from Tenant to the contrary.
Tenant shall not have any right or claim against Subtenant for any such rents or
any other sums so paid by Subtenant to Landlord. Landlord shall credit Tenant
with any rent received by Landlord under such assignment but the acceptance of
any payment on account of rent from the Subtenant as the result of any such
default shall in no manner whatsoever be deemed an attornment by the Landlord to
Subtenant or by Subtenant to Landlord, be deemed a waiver by Landlord of any
provision of the Lease or serve to release Tenant from any liability under the
terms, covenants, conditions, provisions or agreements under the Lease.
Notwithstanding the foregoing, any other payment of rent from the Subtenant
directly to
-2-
<PAGE>
Landlord, regardless of the circumstances or reasons therefor, shall in no
manner whatsoever be deemed an attornment by the Subtenant to Landlord in the
absence of a specific written agreement signed by Landlord to such an effect.
5. General Provisions.
------------------
5.1 Consideration for Sublease. Tenant and Subtenant represent
--------------------------
and warrant that there are no additional payments of rent or any other
consideration of any type payable by Subtenant to Tenant with regard to the
Sublet Premises other than as disclosed in the Sublease.
5.2 Brokerage Commission. Tenant and Subtenant covenant and agree
--------------------
that under no circumstances shall Landlord be liable for any brokerage
commission or other charge or expense in connection with the Sublease and Tenant
and Subtenant agree to protect, defend, indemnify and hold Landlord harmless
from the same and from any cost or expense (including but not limited to
attorneys' fees) incurred by Landlord in resisting any claim for any such
brokerage commission.
5.3 Controlling Law. The terms and provisions of this Agreement
---------------
shall be construed in accordance with and governed by the laws of the State of
California.
5.4 Binding Effect. This Agreement shall be binding upon and
--------------
inure to the benefit of the parties hereto, their heirs, successors and assigns.
As used herein, the singular number includes the plural and the masculine gender
includes the feminine and neuter.
5.5 Captions. The paragraph captions utilized herein are in no
--------
way intended to interpret or limit the terms and conditions hereof; rather, they
are intended for purposes of convenience only.
5.6 Partial Invalidity. If any term, provision or condition
------------------
contained in this Agreement shall, to any extent, be invalid or unenforceable,
the remainder of this Agreement, or the application of such term, provision or
condition to persons or circumstances other than those with respect to which it
is invalid or unenforceable, shall not be affected thereby, and each and every
other term, provision and condition of this Agreement shall be valid and
enforceable to the fullest extent possible permitted by law.
5.7 Attorneys' Fees. If any party to this Agreement commences
---------------
litigation against any other party or parties to this Agreement for the specific
performance of this Agreement, for damages for the breach hereof or otherwise
for enforcement of any remedy hereunder, the parties hereto agree to and hereby
do waive any right to a trial by jury and, in the event of any such commencement
of litigation, the prevailing party shall be entitled to recover from the non-
prevailing party or parties such costs and reasonable attorneys' fees as may
have been incurred.
6. Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, and all such counterparts, when taken
together, shall constitute one and the same agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Consent to Sublease
Agreement as of the day and year first above written.
"Landlord":
ASP SCRIPPS, L.L.C.,
a Delaware limited liability company
By: /s/ SCOTT R. FITZGERALD
----------------------------------
Its: Vice President
------------------------------
By:
----------------------------------
Its:
------------------------------
"Tenant":
CANON COMPUTER SYSTEMS, INC.,
a California corporation
By: /s/ ^^ILLEGIBLE SIGNATURE^^
----------------------------------
Its: Vice President and Treasurer
---------------------------------
By: /s/ ^^ILLEGIBLE SIGNATURE^^
----------------------------------
Its: Vice President, Operations
------------------------------
"Subtenant":
The Keith Companies, Inc.,
a California corporation
By: /s/ ERIC C. NIELSEN
----------------------------------
Its: President
---------------------------------
By: /s/ GARY CAMPANARO
----------------------------------
Its: Secretary
------------------------------
-4-
<PAGE>
EXHIBIT A
---------
THE SUBLEASE
------------
[attached]
EXHIBIT A
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-START> JAN-01-1999 JAN-01-1998
<PERIOD-END> SEP-30-1999 SEP-30-1998
<CASH> 1,346,000 457,000
<SECURITIES> 0 0
<RECEIVABLES> 7,271,000 5,582,000
<ALLOWANCES> (829,000) (364,000)
<INVENTORY> 0 0
<CURRENT-ASSETS> 14,785,000 10,917,000
<PP&E> 4,508,000 2,862,000
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 24,167,000 14,530,000
<CURRENT-LIABILITIES> 8,552,000 5,737,000
<BONDS> 0 0
0 0
0 0
<COMMON> 5,000 3,000
<OTHER-SE> 12,327,000 652,000
<TOTAL-LIABILITY-AND-EQUITY> 12,332,000 14,530,000
<SALES> 28,271,000 20,913,000
<TOTAL-REVENUES> 0 0
<CGS> 19,051,000 13,770,000
<TOTAL-COSTS> 0 0
<OTHER-EXPENSES> 5,904,000 4,227,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 678,000 714,000
<INCOME-PRETAX> 2,536,000 2,195,000
<INCOME-TAX> 1,076,000 986,000
<INCOME-CONTINUING> 1,460,000 1,209,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 1,460,000 1,209,000
<EPS-BASIC> 0.43 0.30
<EPS-DILUTED> 0.40 0.29
</TABLE>
