UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to ______________
Commission File Number 1-15161
3Dshopping.com
(Exact name of registrant as specified in its charter)
California 95-4594029
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
308 Washington Boulevard
Marina del Rey, California 90292
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (310) 301-6733
-------------
Securities registered pursuant to Section 12(b) of the Act:
Common Stock
Warrants to Purchase Common Stock
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of each class)
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 [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of September 1, 1999 the aggregate market value of the registrant's
Common Stock held by non affiliates of the registrant was $30,194,506.87. Solely
for purposes of this calculation, the registrant has treated its Board of
Directors and executive officers as affiliates.
As of September 1, 1999, the number of shares of the registrant's Common
Stock outstanding was 4,755,747.
Documents incorporated by reference:
Parts of registrant's Proxy Statement for the 1999 annual meeting of
shareholders are incorporated by reference into Part III of this report.
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3DSHOPPING.COM
TABLE OF CONTENTS
Item Page
No. No.
- ---- ----
Part I
1. BUSINESS...............................................................1
2. PROPERTIES.............................................................8
3. LEGAL PROCEEDINGS......................................................8
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................9
4(a). EXECUTIVE OFFICERS OF THE REGISTRANT...................................9
Part II
5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................................11
6. SELECTED FINANCIAL DATA...............................................14
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.................................15
7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK................................................................19
8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA............................19
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.................................20
Part III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................21
11. EXECUTIVE COMPENSATION................................................21
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..........................................................21
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................21
Part IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K............................................................22
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PART I
ITEM 1. BUSINESS
The 3Dshopping Experience
We have developed proprietary technology and digital photographic
techniques (collectively, the '3Dshopping System(TM)') and support Web sites
that are capable of delivering a complete visual display over the Internet or
comparable private computer networks for purposes of e-commerce or advertising.
We use our technology to design, install and maintain Web sites that display
apparel, jewelry, furniture, flowers, antiques and other products that require a
full visual display to capture buying interest. In contrast to traditional
static Web sites and retail catalogs, our Web sites presently support full
motion digital imaging, and will support in the near future audio presentations
for viewers able to access the Web sites using a broadband connection or willing
to download data at a slower rate. This functionality allows the shopper to view
a model or product through 360 degrees of rotation. It also allows a detailed
examination of the product from several different angles. The technology is also
interactive, allowing the viewer to select a desired angle and freeze the frame.
We have also recently developed technology that allows a viewer to zoom in on
selected details, such as buttons, stitching or other key features or to select
and change colors from a menu that includes all of the colors in which an item
is offered.
For example in the typical apparel Web site that we design, the first page
opens with a selection of 30 to 40 products displayed on models that move slowly
across the screen (a 'panorama'). It is possible to include up to 80 images on
this Web page. The viewer can click on any model in the panorama to go to a
'product' page that features the displayed garment. The product page provides
access to the various visual features selected by the retailer, such as product
rotation, magnified detail photos, colors, etc. It also provides data in
traditional catalog format, such as price, size and other objective information.
At the retailer's option, the page may allow the shopper to add the item to a
"shopping cart" for later purchase. Once the shopper has completed his or her
selection, the Web site supports electronic product purchases by credit card.
Alternatively, it can refer the shopper to a toll-free number from which the
shopper can order the product, or provide the location of the nearest store.
We have also obtained permission to use technologies that allow a 3D
animation of a human head to be placed on our Web sites. We are developing this
technology to create a "cyber-salesperson" that we can use as a salesperson,
explaining the key features of the product being viewed. This new technology
will support a menu of "persona" alternatives, allowing the shopper to choose
from a list of computer generated likenesses of customized and/or well-known
product spokespersons. We expect to make this technology available to our
clients this year.
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Our System
We offer the following services to our clients as part of our marketing and
display system:
Web Site Design and Setup. We will design and build a complete Web site for
our client for a one-time fee, typically ranging from $3,000 to $50,000,
depending on the size and complexity of the site, the number of products to be
displayed, the display features to be employed, and whether the client intends
to use our shopping cart and e-commerce capabilities. The site we develop can be
installed and accessed on our own shopping mall on the Internet at
www.3Dshopping.com, installed on the Internet as a "stand-alone" client Web
site, or installed within the client's existing Web site as an enhancement. We
also offer design and setup services on significantly larger sites for clients
with specialized needs. Clients provide direction as to the size, features and
other characteristics of the desired site and furnish the items that will be
featured and a detailed description of those items. We then create an inventory
database; provide the models, studio facilities and other requirements to create
the visual images and, using our proprietary technology, incorporate these
images into a Web presentation containing the visual features selected by the
client.
As a result of our acquisition of Design Bas Incorporated ("DBLA"),
effective April 1, 1999, we are able to use our own studio facilities and to
take advantage of our relationships with designers, photographers, hairstylists,
models and other participants in the production of photographs for use in our
display system, as well as in catalogs and print advertising. Additional fees
are charged as changes are made to the client's Web site, for example, to add
new items or to change presentation features. We also charge a fee ranging from
5% to 15% of e-commerce sales made by clients from Web sites on our mall. Such
fees are negotiated at the commencement of the relationship and take into
account the size and complexity of the site, the period covered by the contract,
and the amount of the original site design fee.
Web Site Maintenance. We charge a periodic fee for maintaining the
hardware and software that support a client's Web site. In addition to making
minor changes in Web site content, we conduct general site maintenance
functions, review the principal Internet search engines to determine whether our
Web sites are appropriately listed in response to typical inquiries, and perform
other functions designed to make maximum use of the Web sites' potential. Fees
for this service currently range from $100 to $500 per month depending on the
size of the Web site, the number of visitors to the site and the frequency with
which we update the particular Web site. We expect these fees to increase as Web
site volume and traffic increases.
Web Site Traffic Creation. We maintain an online "shopping mall" at
3Dshopping.com, which has been linked to other Web sites, and, as desired by the
clients, linked to our clients' Web sites. The purpose of the mall is to create
shopping communities having shared interests. We believe such online communities
will draw more shoppers than individual Web sites. We plan to include brand name
manufacturers, traditional brand retailers and Web-only retailers with brand
potential in our malls. We believe shoppers eventually will be able to purchase
apparel, jewelry, flowers, housewares, gifts, antiques, ancient art, children's
wear and toys at our malls.
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In addition to our malls, we have agreements with malls operated by other
companies under which those malls include links to our Web sites. Links to our
sites are also included on search engines such as Lycos, Excite and HotBot.
Order Processing. We offer our clients a complete range of electronic order
processing services. Many order processing service providers simply take orders
and credit card information and transmit this data to the retailer by fax or
telephone. These systems have high error rates with respect to the credit card
and other data transmitted, requiring the retailer to sort out the errors by
attempting to contact the shopper. We have developed a fully computerized order
processing service that automatically processes and verifies credit card data
with the issuing bank and runs a fraud detection scan while the shopper is still
online. If the data is not entered correctly or if there is some other problem,
we can ask the shopper to re-enter data. Orders and credit data are transmitted
directly to the client's fulfillment system, resulting in minimal loss of time
and reduced processing errors. Orders can be forwarded to our clients by fax or
e-mail or through a direct link to the client's computer system, depending on
the client's preferences and system capabilities. When the client fills the
orders, our processing software automatically instructs the credit card company
to release the purchase money into the merchant's account. For clients electing
this service, we receive between 7% and 15% of the total value of orders
processed. The actual percentage we charge depends on the size of the client,
the price of the goods being sold and the volume of goods sold. Some clients may
prefer to manage order processing themselves by referring their client to a Web
site managed by them or a toll-free number. For these clients, we will charge a
fee based on the number of site visits. To date, no client has chosen this
option.
In contrast to many Internet companies, we do not offer space for "banner"
advertising. We believe such advertisements detract from the overall appearance
of our Web site, are distracting to shoppers and are therefore inconsistent with
our primary goal of providing an enhanced electronic experience to support our
clients' product presentation needs.
Catalog and Studio Operations
In order to provide a broader, more integrated range of services to clients
and prospects, and to increase our contacts in the mail order catalog industry,
we acquired as of April 1, 1999 the business operations and operating assets of
DBLA in exchange for 10,000 shares of our common stock and the assumption of
substantially all of the known liabilities of DBLA. Our catalog operation
designs and produces direct mail catalogs, brochures and other printed
advertising and promotional materials. Through September 15, 1999, this division
operated from a studio located in North Hollywood, California with a staff of
six full time employees. In supervising the production of a catalog or brochure,
we often increase our staff significantly, depending on the particular project.
Coordinating this production requires hiring and overseeing art directors,
photographers, modeling agencies, hair and makeup artists, set designers,
location managers and other personnel that may be required for any given
production. We believe that having the internal ability and business contacts to
arrange for and oversee such a complex process, rather than contracting
completely with a third party for these services, provides us with a competitive
advantage, both in terms of cost and efficiency, over other potential providers
of display technology on the Internet. In January 1999, we began producing
digital images for our
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Web sites at DBLA's studio facilities, using models selected by DBLA. The
acquisition of DBLA gives us direct access to studio facilities and trained
studio staff for which we believe our requirements will increase substantially
over the next one to three years.
In addition to continuing to operate a traditional hard copy advertising
production business, we believe we can increase our client base by offering to
DBLA's traditional clients the opportunity to produce the digital images
necessary to support a Web site at little additional cost. This is particularly
true with apparel clients where substantially all of the time, and therefore the
cost, of producing a catalog is taken up with the logistics of a photo shoot,
such as overseeing art directors, photographers and set designers, as well as
dressing and otherwise preparing the models for each picture. In a typical
8-hour day, a model can display between 12 and 15 different items of clothing
for a static catalog picture. However, once the model is ready for a static
photo session, it takes only a few more minutes to capture the digital imaging
content for a 3D rotation using our proprietary technology. Because the
additional time involved is relatively minor, the incremental cost of producing
the 3D images is substantially lower than if the images are produced on a
stand-alone basis. We plan to offer to traditional catalog companies the
opportunity to order the additional images so that they will be prepared, either
immediately or in the future, to sell clothing through e-commerce. In this way,
we are creating an integrated catalog-to-Internet selling message for our
clients. We believe this will position us as a "one-stop" source for product
marketing, using the latest technology to create compelling and visually unique
Web sites and mail order catalogs.
Our Clients
We market our Web-based marketing and display system to prospects with
established brand names as well as prospects without brand names. From inception
to June 30, 1999 we have been largely in the early stage of development, except
with respect to the clients of DBLA. Clients who have accounted for sales in
excess of $5,000 during the current fiscal year include Nordstrom's, BioBottoms,
Leavens Awards Company, Provenance, Manx, K-Swiss, SHC Incorporated, Cobra Golf
and Flowers in Hours. In the fiscal year ended June 30, 1999, we derived
approximately 25% of our revenue from Gottschalks and 20% from BioBottoms. We
also have recently begun to provide our system to Nordstrom's to enhance its
existing Web site. Our client base presently consists primarily of retailers and
manufacturers of apparel, antiques, flowers and nutritional supplements. Most of
our clients sell a substantial percentage of their products through mail order
catalogs and have shipping capability in place. Based on our past experiences
with our clients (which allowed us to test and refine our 3Dshopping System(TM))
we expect to attract additional clients with more recognizable brand names. We
believe clients with national name recognition may attract additional attention
to our 3Dshopping System(TM), benefiting our large and small clients alike.
Our clients have the option to use our Web sites for a variety of purposes.
Most of our clients use our system as a fully functional sales channel, offering
products directly to shoppers over the Internet. Some clients use our Web sites
as a marketing medium designed to attract shoppers to other retail channels that
they maintain. For example, Nordstrom's has chosen to use our system to display
clothing offered in its stores but does not presently use our electronic
shopping cart e-commerce capability. Instead, Nordstrom's intends to use its Web
site, which
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will incorporate our 3D display technology, to provide information on products
with a toll-free number that clients can call to order products directly from
Nordstrom's. The toll-free number is serviced and maintained by Nordstrom's
personnel. Our arrangement with Nordstrom's is currently limited to designing a
portion of its Web site to take advantage of our 3D display system. This
arrangement is cancelable on short notice by Nordstrom's.
We also provide Intranet design, implementation and maintenance services to
companies that participate in the Leavens Awards Program, a supplier and
administrator of employee awards programs. For example we are providing our
technology and services to Shell Oil Company and Boeing for their internal
employee benefits programs. We believe our 3D technology is particularly well
suited for displaying product awards under these programs, such as jewelry,
vases, plaques, pens and clothing which need to be understood visually to be
fully appreciated.
We expect that our target client base will continue to be dominated by
manufacturers and retailers of clothing and accessories in the immediate future.
We believe that this market segment has sufficient potential to support
significant growth in our business and that, by concentrating in this area, we
can position ourselves as the leading provider of Web-based marketing and
display systems in this market segment. We also serve clients in other areas and
expect to continue to do so as the opportunity arises.
Largely through our catalog business, we have added Gottschalk's Department
Stores, K-Swiss, Bio Bottoms and House of Almonds as clients. Currently, we
produce catalogs and advertising for these clients and we expect to market our
Web-based display system to them as well. However, we cannot assure you that we
will persuade any of the traditional studio clients to use our Web-based
merchandizing and display system.
Marketing and Sales
We have engaged a public relations firm to help us build our name
recognition both with potential clients and with consumers who visit our Web
sites. We have also entered into cross-marketing relationships with other
companies involved in e-commerce, including MediaOne, Inc. and Nettaxi, and we
work in cooperation with other Web site hosts by putting click-through banners
on each other's Web sites so that traffic generated on one Web site can move
easily to the other cross-marketing partner's Web site by simply clicking on the
banner. Finally, we are gaining recognition within the industry by participating
in various tradeshows.
In addition to the sales efforts of Lawrence Weisdorn, our Chairman and
Chief Executive Officer, Brian A. Smith, our President, Creative Services, and
C. Michael Mellin, our Senior Vice President and Chief Technology Officer, our
in-house sales force identifies and develops potential clients through cold
calling and other direct marketing techniques. As of September 15, 1999, we
employed six staff and one independent contractor to carry out our sales and
marketing support activities.
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Technology
Wherever possible, our products are based on commercially available
software products, which are linked in proprietary and innovative ways. Because
there are a number of alternative software programs that we can use to create
our 3D technology, we are not reliant on a single source of software. For
example, the rotation of our 3D images is created using Java. The 3D image
itself is created using a digital photography system and procedure that we
developed. Compression for low speed Internet connections is produced through
industry standard programs. While we have adapted industry standard technology
to fit our own applications, and expect to continue to do so, we do not
anticipate that the service we provide will require the development of
substantial independently developed computer programs or other technology.
We believe that our use of Java presently provides an advantage over sites
that require multimedia plug-ins. Java requires no plug-ins and therefore does
not require a shopper to download a plug-in file--a process that can take
several minutes. Plug-ins, on the other hand, are awkward and often difficult
and time-consuming to download and use. These difficulties may deter some users
from visiting a site or purchasing any merchandise once there.
Java does have some drawbacks. For example, older browsers and text-based
browsers may not be able to run Java applets and there is no industry-standard
version. In addition Java may even cause a computer to slow down or crash.
However, due to its broad acceptance on the Internet, we believe the benefits
outweigh the drawbacks. In addition, as faster computers become less expensive
and more popular, the limitations of Java may become less pronounced.
Relationship with MediaOne
We have a non-exclusive Web site linking and promotion agreement with
MediaOne, Inc., a cable company with a presence in 22 metropolitan markets
nationwide. MediaOne provides entertainment, education, and information services
as part of its broadband information service on its numerous Web sites on the
Internet. The agreement provides for MediaOne to feature the 3Dshopping.com Web
site prominently in the shopping section of its home pages and to provide links
to our Web site from MediaOne's Web site.
The agreement also provides for MediaOne and us to:
o Use each other's tradenames, service names, servicemarks, and
trademarks for promotional and demonstration purposes; and
o Pursue the development of co-marketing programs that will allow each
of us to access the other's clients and customers.
To view conveniently all of the features we offer and plan to offer in the
future (including full motion digital imaging and virtual reality), a shopper
must have access to the Internet via a broadband connection. Broadband
connections include cable, satellite and a variety of digital subscriber lines,
also known as DSL. Broadband connections are much faster than typical modem
connections over a standard telephone line. For example, a 3.5-megabyte file
takes
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approximately 16 minutes to download using a standard modem operating at 14.4
kbps. The same file will download in a few seconds over a high-speed broadband
connection. Although we have designed our Web sites to accommodate different
connection speeds, we believe the future success of 3D-style e-commerce will be
dependent on the availability of high-speed Internet access.
While download speed depends primarily on the speed of the connection
between the user and the Internet, the practical rate at which data can be
received by a user also depends on a variety of factors within the Internet
itself, including capacity and usage of the host site and the capacity of the
various links in the Internet through which the data passes from the host site
to the user. To deal with the expected dramatic increases in the volume of data
being transmitted over the Internet, various companies including MediaOne are
working on the process of speeding up data delivery by developing "backbones" or
proprietary communication channels that ensure the rapid processing of data
within the Internet itself. Web sites that have direct access to these backbones
will transmit data at very high volumes, permitting the effective use of the
high-speed downloading capabilities offered by broadband connections.
We entered into the agreement with MediaOne in order to take full advantage
of high-speed cable Internet access.
Competition
We compete with a broad range of marketing, Web page design and e-commerce
alternatives available to our clients. We also compete with a broad range of
other shopping alternatives to attract consumers to our Web sites.
Although several of our retail clients use our Web sites as their primary
sales channel, we believe our larger, name-brand clients and potential clients
see us primarily as a marketing solution, competing for a share of the client's
marketing and advertising budget. In that capacity, we compete against all forms
of traditional marketing, including print and other media advertising, mail
order catalogs, in-store displays, coupon and other incentive programs, and
phone-in or computer-based services maintained by the client. In a narrower
sense, we compete more directly against a large number of providers of Web site
design and related Internet services. Competitors for our retail clients
differentiate themselves on the basis of creativity, quality of service,
technical innovation and price. While we believe we are very competitive in all
of these areas, we are one of a multitude of participants in these markets and
many of them may have substantially greater financial resources than we do.
At the consumer level, we and our clients compete for the attention and
budget of consumers for the products that our clients sell. This competition
includes traditional retail stores, mail order catalogs and a growing number of
Internet-based alternatives. While we believe that our system offers significant
marketing advantages over other existing Internet-based systems, many factors
affect competition for Internet consumers, including affiliations with companies
that control or direct access to the Internet or to individual Web sites.
Competition for online shoppers is based largely on the ability to design
attractive Web sites that
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people want to visit. There are many competitors in this market and many of them
have far greater financial resources than we have.
We also compete with other producers of mail order catalogs for retail
clients. Some of these producers are much larger and have greater financial
resources than we do. Participants in this industry differentiate themselves
largely based on creative content and client service. We cannot guarantee that
we will be able maintain our creative distinctiveness and desirability to
clients.
Employees
As of September 21, 1999, we had 27 employees, of whom eight were involved
in Web site design, research and development, nine in sales and marketing, six
in finance and administration and four in catalog operations. We also supplement
our permanent staff with independent contractors and consultants who perform
various skilled and professional level tasks. Our future success depends, in
part, on our continuing ability to attract, train and retain highly qualified
technical, sales and managerial personnel. Competition for such personnel is
intense, and we do not assure you that we will be able to recruit and retain
sufficient numbers of qualified personnel. None of our employees is represented
by a labor union. We have not experienced any work stoppages and consider our
relations with employees to be good.
Forward-Looking Statements
This Form 10-K and our Annual Report include forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934 relating to the Company's goals, plans
and expectations regarding: expansion in existing and new markets, Year 2000
compliance, and capital expenditures. Risk factors related to these forward
looking statements are discussed in "Management's Discussion and Analysis
- -Forward-Looking Statements" on page 19 of this Form 10-K.
ITEM 2. PROPERTIES
Through September 1999 we leased approximately 2,000 square feet of office
space in two office buildings located in Venice, California and approximately
10,000 square feet of office and photography studio space located in North
Hollywood, California. On September 23, 1999 we relocated these operations to a
single 25,000 square foot facility in Marina del Rey, California, pursuant to a
six year lease expiring September 2005. We believe this facility is adequate for
our current operations. The prior leases have either been terminated pursuant to
their terms or will be sublet to others.
ITEM 3. LEGAL PROCEEDINGS
We are not engaged in any legal proceedings that, singly or in the
aggregate, will have a material adverse effect on our business, financial
condition or results of operations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4(a). EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with respect to the
executive officers of the Company as of September 21, 1999.
Name Age Position
---- --- --------
Lawrence Weisdorn 42 Chairman of the Board and Chief Executive
Officer
Robert J. Vitamante 53 President, Chief Operating Officer and
Acting Chief Financial Officer
Brian A. Smith 53 President, Creative Services
C. Michael Mellin 56 Senior Vice President, Technology
Operations
Robert J. Grant 50 Treasurer and Secretary
Lawrence Weisdorn is our founder and has been our Chairman of the Board and
Chief Executive Officer since May 1999. Prior to that time, he served as our
President and a director since our inception in August 1996. From January 1995
to August 1996, Mr. Weisdorn was a founder and served as President and Chief
Executive Officer of Samuel Hamann Graphix, Inc. Samuel Hamann Graphix was
formed in June 1996 to develop technology for high-quality graphics usable in
television commercials and commercial operations. During the eight years before
he joined Samuel Hamann Graphix, Mr. Weisdorn worked as an independent marketing
and sales consultant.
Robert J. Vitamante joined our company in June 1999 and has been our
President, Chief Operating Officer and Acting Chief Financial Officer since July
1999. From September 1994 to July 1999, Mr. Vitamante was self-employed as a
business and financial consultant, assisting clients with strategic planning,
business development, acquisitions and mergers, management and operating
systems, and general business and tax advice. From September 1992 to October
1994, Mr. Vitamante served as Executive Vice President--Finance and
Administration and Chief Financial Officer of Pinkerton's, Inc., a publicly
traded international security services company. In this capacity, Mr. Vitamante
oversaw all financial, informational
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and administrative operations and supported an international acquisition
program. Other experience includes Senior Vice President and Chief Financial
Officer of The Olsten Corporation, a publicly traded temporary services company,
and accounting positions with Columbia Pictures Industries, Inc. and KPMG Peat
Marwick. Mr. Vitamante has been a licensed certified public accountant since
1971.
Brian A. Smith has been our President, Creative Services since May 1999.
From 1993 to 1999, Mr. Smith was President and Chief Executive Officer of DBLA.
He managed DBLA as an independent business from January 1995 until the sale of
its assets to us in May 1999. From 1990 to 1993, Mr. Smith was Vice President of
Nobart, Inc., a catalog design and production company, where he was in charge of
all West Coast operations. From 1987 to 1990, Mr. Smith served as Vice
President, General Merchandise Manager and Creative Director of Life Force
Technologies, a direct mail catalog company. From 1983 to 1987, Mr. Smith served
as Vice President of Creative Services for Harrison Service, a catalog design
and production company.
C. Michael Mellin has been our Senior Vice President, Technology Operations
since June 1999. From March 1998 to June 1999, Mr. Mellin was the Vice
President, Technology for Think New Ideas Inc., a publicly held interactive
media and Internet technology company. He was also the Managing Director of the
San Francisco operations of Think New Ideas Inc. From May 1997 to March 1998,
Mr. Mellin was the Director of New Media and Advance Technology for Times Mirror
Company, where he assisted the company in evaluating technologies for
acquisition and supervised its corporate and subsidiary Web sites. From August
1995 to May 1997, Mr. Mellin was the Director of Technology & System Integration
for Prodigy Services Company, an Internet content and service provider. From
1994 to August 1995, Mr. Mellin was the Director of Engineering for Mosler Inc.,
an alarm and electronic business.
Robert J. Grant has been our Treasurer and Secretary and a director since
August 1996. During this period of time until May 1999, Mr. Grant also served as
our acting Chief Financial Officer. From April 1996 to August 1996, Mr. Grant
served as Office Manager of Samuel Hamann Graphix, Inc. From March 1995 to April
1996, he was a salesperson for two car dealerships. From January 1994 to March
1995, Mr. Grant was a principal of Grant & Associates, an industrial real estate
company. From January 1993 to January 1994, he worked in corporate sales at
Investors Title, a title insurance company. Mr. Grant declared personal
bankruptcy under Chapter 7 of the federal Bankruptcy Code in 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
From June 1997 until July 19, 1999, the Company's common stock was traded
on the NASD OTC Bulletin Board under the Company's former name of Pi Graphix,
Inc. and symbol of PGRX. The Company's Common Stock and Common Stock Warrants
have been traded on the American Stock Exchange since July 20, 1999 under the
symbols THD and THDW, respectively. The following table sets forth the high and
low bid prices for the common stock for the quarters indicated. Prices reflect
bids posted by market makers and may not necessarily reflect actual
transactions.
<TABLE>
<CAPTION>
High Low
------- -------
Year Ended June 30, 1998
<S> <C> <C>
First Quarter.......................................... $1.8750 $1.1875
Second Quarter......................................... 2.2500 1.3750
Third Quarter.......................................... 1.7656 0.9219
Fourth Quarter......................................... 1.8750 0.9531
Year ending June 30, 1999
First Quarter.......................................... 5.5000 1.6250
Second Quarter......................................... 19.7500 4.0625
Third Quarter.......................................... 19.2500 13.0000
Fourth Quarter......................................... 18.0000 8.5000
</TABLE>
At September 22, 1999 there were 53 shareholders of record of the Company's
Common Stock and 4,755,747 shares were outstanding. The Company believes the
number of beneficial owners is substantially greater than the number of record
holders because a large portion of the Company's outstanding Common Stock is
held of record in broker "street names" for the benefit of individual investors.
The Company has never declared or paid cash dividends on its common stock.
Payment of any cash dividends will depend on the results of our operations, our
financial condition and our capital expenditure plans, as well as other factors
our board of directors may consider relevant. We presently intend to retain any
earnings for use in our business and, therefore, do not anticipate paying any
cash dividends in the foreseeable future.
Within the last three years, we have issued and sold the following
unregistered securities on the dates and for the consideration indicated:
In 1996, we issued 2,282,333 shares of common stock to 136 individual
investors for cash and services at prices ranging from $.001 to $.75 a share,
for a total amount of $348,570. These shares of common stock were issued in
reliance on the exemption from registration provided by Rule 504 under Section
3(b) of the Securities Act.
In 1997, we issued 534,933 shares of common stock to 57 individual
investors for cash at prices ranging from $1 to $1.50 a share, for a total
amount of $665,250. These shares of
11
<PAGE>
common stock were issued in reliance on the exemption from registration provided
by Rule 504 under Section 3(b) of the Securities Act.
In 1998, we issued 305,434 shares of common stock to Rick and Louise Emery,
Theodore Tomasovich, and Silhouette Investments Ltd. for cash at prices ranging
from $1 to $1.15 a share, for a total amount of $343,750. These shares of common
stock were issued in reliance on the exemption from registration provided by
Rule 504 under Section 3(b) of the Securities Act.
In 1999, we issued 196,000 shares of common stock to Walter Cruttenden and
Frank Cutler upon conversion of two convertible promissory notes in the
principal amount of $100,000 each issued in November 1998 and June 1998,
respectively. The shares issued were valued at prices ranging from $1 to $1.50 a
share, for a total amount of $217,200. The notes were issued pursuant to Section
4(2) of the Securities Act and the underlying shares of common stock were issued
in reliance on the exemption from registration provided by Section 3(a)(9) of
the Securities Act.
In 1997, we issued 54,000 shares of common stock to Paul Rohde and
Corporate International Services, Inc. at prices ranging from $1.18 to $1.94 a
share in exchange for services, in an aggregate amount of $77,616. These shares
of common stock were issued in reliance on the exemption from registration
provided by Rule 504 under Section 3(b) of the Securities Act.
In 1998, we issued 14,700 shares of common stock to Manghi Nyudoo at a
price of $1.74 a share in exchange for services, in an aggregate amount of
$25,597. These shares of common stock were issued in reliance on the exemption
from registration provided by Rule 504 under Section 3(b) of the Securities Act.
In 1998, we issued 25,000 shares of common stock to Rudy Tapia for cash and
services in an aggregate amount of $306,250. These shares of common stock were
issued in reliance on the exemption for registration provided by Rule 701.
In 1998, we issued 89,346 shares of common stock to Karen Kubeck, Andrew
Schamisso, Jack Kennedy, Christina Kabbash, Douglas Kabbash, Matthew Kabbash and
Shareholder Solutions, Inc. pursuant to the exercise of options and warrants at
an exercise price ranging from $1.25 to $7.75 a share. The options and
underlying shares of common stock were issued in reliance on the exemption from
registration provided by Rule 701.
In 1999, we issued 174,000 shares of common stock to Jack Kennedy, Gordon
McKay, Rudy Tapia, Paul Rohde and Shareholder Solutions, Inc. pursuant to the
exercise of options at an exercise price ranging from $1.25 to $9.00 a share.
The options and underlying shares of common stock were issued in reliance on the
exemption from registration provided by Rule 701.
In 1999, we issued 10,000 shares of common stock to DBLA in exchange for
substantially all the assets and liabilities of DBLA. This stock was issued
under Section 4(2) of the Securities Act.
12
<PAGE>
In 1999, we issued a warrant to purchase a number of shares of common stock
equal to $2 million for a purchase price of $1.5 million to Generation Capital
Associates. The warrant was issued in reliance on the exception from
registration provided by Rule 506 under Section 4(2) of the Securities Act.
On July 20, 1999, our Registration Statement on Form S-1 (File No.
333-74795) registering the offer and sale of 1,000,000 units, each consisting of
one share of common stock and one warrant to purchase one share of common stock,
and the underlying common stock and warrants was declared effective by the
Securities and Exchange Commission. We commenced the offering of units under
that Registration Statement, and under an additional Registration Statement on
Form S-1 (File No. 333-83295) filed under Rule 462(b) to register an additional
100,000 units and underlying securities, on July 21, 1999. The managing
underwriter for the offering was Paulson Investment Company, Inc. All 1,100,000
units offered were sold in the offering for an aggregate price of $13,200,000.
No expenses had been incurred in connection with the offering and no proceeds
had been received as of June 30, 1999. We will provide information regarding use
of proceeds in our Quarterly Report on Form 10-Q for the quarter ended September
30, 1999.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
We derived the following selected statement of operations data for the
eleven months ended June 30, 1997 and the fiscal years ended June 30, 1998 and
1999 and the selected balance sheet data at June 30, 1999 from financial
statements included elsewhere in this report, which have been audited by
Friedman, Minsk, Cole & Fastovsky, independent auditors. The financial
statements included elsewhere in this report contain all material financial
information about us and we urge you to read them carefully. The data shown
below should be read in conjunction with the financial statements and their
related notes and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and other financial information appearing elsewhere
in this report.
Amounts for the eleven months ended June 30, 1997 reflect eleven months of
operations from the date of inception (August 13, 1996) to June 30, 1997.
The line item "Weighted average shares used in computing net loss per
share" is based on the weighted average number of shares of common stock
outstanding for the eleven months ended June 30, 1997 and the years ended June
30, 1998 and 1999. It excludes 0, 32,609, and 32,609 shares, respectively, of
common stock issuable upon exercise of outstanding options, warrants and
convertible debt. Note 1 of Notes to Financial Statements includes an
explanation of the determination of the number of shares used in computing net
loss per share.
<TABLE>
<CAPTION>
Year Ended June 30,
-------------------------------------------------
Statement of Operations Data: 1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Net revenues.................................... $ --- $ 18,404 $ 191,191
Operating expenses:
Sales and marketing........................ 973,283 473,665 682,575
Production and development................. 294,360 170,259 513,382
General and administrative 644,993 460,220 2,992,480
----------- ----------- -----------
Total costs and expenses................... 1,912,636 1,104,144 4,188,437
----------- ----------- -----------
Loss from operations............................ (1,912,636) (1,085,740) (3,997,046)
Interest expense................................ (3,089) (10,373) (436,025)
Other income.................................... 10,000 13,500 4,756
----------- ----------- -----------
Net loss........................................ $(1,905,725) $(1,082,613) $(4,428,515)
=========== =========== ===========
Net loss per share.............................. $ (.59) (.28) $ (1.09)
=========== =========== ===========
Weighted average shares used in computing net
loss per share............................. 3,210,651 3,823,228 4,045,746
</TABLE>
Balance Sheet Data: June 30, 1999
-------------
Cash and cash equivalents...................... $ 116,918
Working capital (deficit)...................... (1,373,253)
Total assets................................... 1,314,186
Accumulated deficit............................ (7,416,853)
Shareholders' equity (deficit)................. (355,438)
14
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis provides information that we believe
is relevant to an assessment and understanding of our results of operations and
financial condition for the eleven months ended June 30, 1997 and the fiscal
years ended June 30, 1998 and 1999. The following discussion should be read in
conjunction with the financial statements and related notes appearing elsewhere
in this report.
Overview
Since beginning operations in August 1996, we have devoted substantially
all of our resources to designing, implementing and introducing our marketing
and display system, the 3Dshopping System(TM). From inception through June 30,
1999 we raised total equity capital in the form of cash of $2,171,000 and had an
accumulated deficit of $7,417,000, including $4,370,000 in non-cash charges for
common stock issued as compensation. While still developing our technology, we
began to receive revenues from sales of services in April 1998. Notwithstanding
these revenues, we operated at a loss from inception to date and we are
continuing to operate at a loss as our expenditures for marketing, product
development and general and administrative costs exceed our gross revenues. We
expect the operating losses to continue and to increase over at least the next
twelve months as we incur increasing levels of expense to market our services
and to support growth.
We believe that our historical operating results are not indicative of
future performance for the following reasons, among others:
o The receipt of the proceeds of our public offering of units on July
20, 1999 and their use to fund our anticipated growth will materially
change expense levels in all major categories. They are also expected
to support substantial increases in revenues from operations in the
next fiscal year;
o The acquisition of DBLA in May 1999 has enhanced and diversified the
scope of our business to include the catalog production business; and
o We have recently emerged from the development stage and anticipate
substantial increases in the number and size of customer orders and
revenues from operations.
Although we expect substantial growth in both revenues and expenses, we
anticipate that increases in expenses will occur more rapidly than corresponding
increases in revenues. Also, while we are committed, at least in the short term,
to substantial increases in expenses, we cannot guarantee that revenues will
increase correspondingly. Like many companies attempting to build an
Internet-based business, we expect to follow a strategy of establishing market
share by
15
<PAGE>
making expenditures for marketing and the development of our infrastructure,
exceeding estimated revenues for at least the next twenty four months, and
resulting in operating losses.
The catalog business, which we acquired through the acquisition of DBLA
effective April 1, 1999, is more traditional than our core Internet business and
it had been fully operational for several years before we acquired it. As a
result, the catalog business recorded larger revenues than our Internet business
in 1997, 1998 and 1999 (approximately $108,000 for the quarter ended June 30,
1999). If our business development plans are successful, we expect that revenues
from Web site services will increase more rapidly than catalog sales. Because
our catalog clients may also be good prospects for Web site services, we may
also develop business involving both aspects of our business for a single
client. As a result of operating synergies and differences between the operation
of a privately owned corporation and a public company, we expect that some
general and administrative expenses attributable to the operation of the catalog
business may decrease in the future. Future income from the catalog business
will contribute to taxable earnings and profits at the corporate level.
On July 23, 1999, we completed a public offering of 1,100,000 units, each
consisting of one share of common stock and one warrant to purchase one share of
common stock. The offering was registered on Registration Statements (SEC File
Nos. 333-74795; 333-83295) that were declared effective by the SEC. As a result
of the offering, we received net proceeds after deducting underwriting discounts
and offering expenses of $11,933,648. We used $200,595 of this amount to repay
principal and interest on outstanding indebtedness.
Results of Operations
Fiscal year 1998 as compared to fiscal year 1997
Revenues for 1998 were $18,404, primarily reflecting billings for test
sites. Expenses for the year ended June 30, 1998 were $1,104,000, consisting of
$170,000 for research and development expenses, $474,000 for sales and marketing
expenses and $460,000 for general and administrative expenses. The decline of
$808,000 in expenses from the preceding fiscal year was due primarily to
decreases in purchases of supplies and reductions in research and development
expenses, reflecting completion of certain prototypes of our system. In
addition, 1997 included a non-cash charge for stock issued at below fair market
value. Other income was $13,500. The net loss for 1998 was $1,083,000, or $0.28
per share of common stock.
Fiscal year 1999 as compared to fiscal year 1998
Revenues for 1999 were $191,191, reflecting the inclusion of fourth quarter
catalog revenues ($108,000) and Internet revenues from Web site development and
billings for maintenance and sales fees. Expenses for the year ended June 30,
1999 were $4,600,000, primarily consisting of $513,382 for research and
development expenses, $682,575 for sales and marketing expenses and $2,992,480
for general and administrative expenses. The increase of $3,084,000 over the
preceding year reflects greater levels of activity as we refined and actively
marketed our Internet service offerings. Of the increase, $2,361,000 was due to
the values ascribed to option grants to employees and consultants under the
Black-Scholes option-pricing model
16
<PAGE>
recommended by the Financial Accounting Standards Board in its Statement of
Financial Accounting Standards 123. The net loss for the fiscal year was
$4,429,000, or $1.09 per share of common stock.
As of June 30, 1999, the Company had net operating loss carryforwards of
approximately $4,528,000 and research and development tax credits of $36,000 for
federal income tax purposes, which amount will expire over a three-year period
beginning 2012 if not used. For state income tax purposes, we had net operating
loss carryforwards of $4,548,000 and research and development tax credits of
$15,000, which will expire beginning in 2012. As a result of changes in
ownership, including changes resulting from our July 1999 unit offering, as
defined in Section 282 of the Internal Revenue Code of 1986, as amended, the
annual deductibility of net operating loss carryforwards is limited. A valuation
allowance has been recorded against total deferred tax assets of $1,738,000
because realization is primarily dependent on generating sufficient taxable
income prior to expiration of the net operating loss carryforwards.
Liquidity and Capital Resources
We have funded our operations primarily through the sale of common
stock and to a lesser extent, by issuing notes and other borrowings. From
inception through June 30, 1999, we raised cash proceeds of approximately
$2,171,000 from sales of common stock. In some cases, we issued common stock in
return for goods or services. As of June 30, 1999, we had a total of $625,000 of
outstanding notes and other obligations for money borrowed (primarily in fiscal
year 1999), cash and cash equivalents of $117,000 and a working capital deficit
of $1,373,000. We did not have any credit arrangements with any banks as of June
30, 1999. As a result of the proceeds from the unit offering on July 20, 1999,
all liabilities for borrowed money as of June 30, 1999 were paid off and the
working capital deficit was eliminated.
Our liquidity and capital needs relate primarily to working capital and
other general corporate requirements. Since inception, we have not received any
significant cash flow from operations or investing activities. Based on our
current plans, we believe the proceeds from our unit offering will provide us
with sufficient capital resources to fund our operations for at least the next
two years. Expectations about our long-term liquidity may prove inaccurate if
our plans change. As we increase sales, we expect increased cash flow from
operations.
On March 18, 1999, we borrowed $500,000 from an institutional lender to
fund expenditures associated with our unit offering and to cover interim
operating expenses pending receipt of the offering proceeds. We also issued to
the lender common stock purchase warrants that, as amended effective the date of
the unit offering, are exercisable during a three-year period beginning on July
20, 2000. The warrants are exercisable to purchase 100,000 units and are
redeemable by us between July 1, 1999 and July 1, 2000 for a price increasing
from $400,000 to $500,000 over the period. The notes and the warrants are
restricted from transfer other than transfers to members of a group under common
control or distributions to fund investors, pursuant to a bona fide pledge or
hypothecation or by will or pursuant to the laws of descent and distribution.
The units issuable on exercise of the warrants or conversion of the new note
will be "restricted securities" under Rule 144 under the Securities Act. On
September 27, 1999 we exercised our option on the warrants and bought them back
at the $400,000.
17
<PAGE>
We also borrowed $100,000 from the Paulson Investment Company, Inc. on June
30, 1999 under an unsecured promissory note, payable on or before August 31,
1999 together with interest at the rate of 7% per annum. This note plus interest
was paid off on July 23, 1999 from the proceeds of the public offering.
Net cash used in operating activities was $442,000 in 1997, $751,000 in
1998 and $1,285,000 in 1999. The net cash used in operating activities in each
year was primarily attributable to our net loss, as adjusted for common stock,
options and warrants issued for services and compensation. Such losses, together
with the increases in prepaid offering costs, accounts receivable, and property
and equipment, and the decrease in accounts payable, were funded principally by
the net proceeds received from the sales of stock (1997 - $532,000; 1998 -
$671,000; 1999 - $934,000) and the balances through additional borrowings under
the shareholders loan and two loans from third parties.
Net cash used in investing activities was $114,000 in 1997, $11,000 in 1998
and $114,000 in 1999, primarily reflecting acquisitions of property and
equipment.
Net cash provided by financing activities was $554,000 in 1997, $909,000 in
1998 and $1,372,000 in 1999, representing the net proceeds from the issuance of
common stock and debt.
Year 2000 Compliance
Our Plan. Our Year 2000 Compliance Plan relies on our third-party vendors'
representation as to their products' Year 2000 compliance. The manufacturers of
the principal software and hardware products on which our system is based have
provided us with statements of Year 2000 Compliance. We have not modified any of
the source code for these products.
We have assumed that basic utilities such as electric and telephone
services will continue to be available for our operations on and after January
1, 2000. If this assumption proves incorrect, our operations would be materially
adversely affected for the duration of the utility interruption. Based on
communications to date, we do not believe material Year 2000 deficiencies by any
of our suppliers exist.
Costs. We believe costs incurred in responding to other parties' Year 2000
computer system deficiencies, together with the cost of any required
modifications to our systems, will not have a material impact on our results of
operations or financial condition. In the ordinary course, we have improved our
Year 2000 readiness through recent system upgrades as part of our usual
improvement efforts. We have devoted management and technical resources to
address Year 2000 matters and expect to continue to do so. To date, however, no
specific material expenditures have been made solely as a result of the Year
2000 issue and we have not identified any specific material future cost
associated with Year 2000 readiness.
Our Most Reasonably Likely Worst Case Scenarios. Although we will continue
to devote resources if and as required to address our Year 2000 issues, these
efforts may not be effective in reducing or eliminating risks associated with
Year 2000 deficiencies. Moreover, our
18
<PAGE>
Web-based display system could contain undetected Year 2000 problems or
third-party products could contain such problems. In addition, our assessment of
third-party suppliers and vendors might not be accurate and we may not have made
inquiry of the appropriate vendor. Year 2000 problems could result in system
failures, data corruption, the generation of erroneous information and other
significant disruptions of business activities. Beyond risks related to product
and vendor non-compliance, it is possible that disruptions to the Internet
itself will occur due to the widespread failure of the Internet's hardware and
software infrastructure. Changes in buying and shopping patterns caused by other
parties' efforts to address Year 2000 problems could also disrupt our business.
Furthermore, it has been widely reported that a significant amount of litigation
surrounding business interruptions may arise out of Year 2000 issues. It is
uncertain whether, or to what extent, we may be affected by any of this
litigation.
Our Contingency Plan. We do not presently have a contingency plan. We are
in the process of evaluating the need for a contingency plan and expect to
finish the evaluation before the end of 1999.
Forward-Looking Statements
Information in "Management's Discussion and Analysis" and elsewhere in our
Annual Report and this Form 10-K about our goals, plans and expectations
regarding Year 2000 compliance and future business operations constitutes
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Factors that
could adversely affect these forward-looking statements include, but are not
limited to, business conditions in the market areas we target, competitive
factors, customer demand for our services, our ability to execute our plans
successfully, unidentified Year 2000 issues in existing programs or
underestimating the resources necessary to make any required modifications or
conversions, our ability to modify and/or convert the necessary systems and
applications timely, the effect of the Year 2000 readiness of suppliers we rely
on, and the continued availability of resources internally and externally to
implement the Year 2000 modifications. Any forward-looking statements should be
considered in light of these factors.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We do not have any financial instruments that are subject to market risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements and supplementary data required by this item are
included in this report commencing on page F-1.
19
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to directors will be included under "Election of
Directors" in our definitive proxy statement for our 1999 annual meeting of
shareholders (the "1999 Proxy Statement") to be filed not later than 120 days
after the end of the fiscal year covered by this report and is incorporated by
reference. Information with respect to our executive officers is included under
Item 4(a) of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to executive compensation will be included under
"Executive Compensation" in our 1999 Proxy Statement and is incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to security ownership of certain beneficial owners
and management will be included under "Security Ownership of Certain Beneficial
Owners and Management" in our 1999 Proxy Statement and is incorporated by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain relationships and related transactions
with management will be included under "Certain Transactions" in our 1999 Proxy
Statement and is incorporated by reference.
21
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1.Financial Statements Page in this Report.
--------------------
Independent Auditors' Report F-2
Balance Sheets as of June 30, 1998 and June 30, 1999 and
Proforma as of June 30, 1999 (unaudited) F-3
Statements of Operations for the period August 1, 1996
(Inception) to June 30, 1997 and the years in the period
ended June 30, 1998 and 1999 F-4
Statements of Shareholders' Equity (Deficit) for the period
August 1, 1996 (Inception) to June 30, 1997 and the years
ended June 30, 1998 and 1999 F-5
Statements of Cash Flows for the period August 1, 1996
(Inception) to June 30, 1997 and the years
ended June 30, 1998 and 1999 F-6
Notes to Financial Statements F-7
2. Financial Statement Schedules
The financial statements of DBLA are incorporated by reference to the
Company's Registration Statement on Form S-1 (SEC File No. 333-74795).
3. Exhibits
The exhibits listed below are filed as part of this report
Exhibit Number Description
2.1 Agreement and Plan of Reorganization dated as of April 1, 1999
between the Registrant, Design Base Los Angeles Inc., Brian
Smith and Todd Hosaka. Incorporated by reference to Exhibit
10.7 to our Registration Statement on Form S-1 (File No.
333-74795).
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<PAGE>
3.1 Amended and Restated Articles of Incorporation of the
Registrant. Incorporated by reference to Exhibit 3.1 to our
Registration Statement on Form S-1 (File No. 333-74795).
3.2 Amended and Restated Bylaws of the Registrant. Incorporated by
reference to Exhibit 3.2 to our Registration Statement on Form
S-1 (File No. 333-74795).
4.1 Specimen Common Stock Certificate. Incorporated by reference to
Exhibit 4.1 to our Registration Statement on Form S-1 (File No.
333-74795).
4.2 Warrant Agreement dated July 20, 1999 among the Registrant and
ChaseMellon Shareholder Services, LLC, as Warrant Agent,
including the form of Warrant.
4.3 Form of Representative's Warrants. Incorporated by reference to
Exhibit 4.3 to our Registration Statement on Form S-1 (File No.
333-74795).
4.4 Purchase Warrant dated March 18, 1999 between the Registrant
and Generation Capital. Incorporated by reference to Exhibit
4.4 to our Registration Statement on Form S-1 (File No.
333-74795).
4.5 Promissory Note dated March 18, 1999 from the Registrant in
favor of Generation Capital Associates. Incorporated by
reference to Exhibit 4.5 to our Registration Statement on Form
S-1 (File No. 333-74795).
4.6 Substitute Purchase Warrant dated March 18, 1999 between the
Registrant and Generation Capital Associates. Incorporated by
reference to Exhibit 4.6 to our Registration Statement on Form
S-1 (File No. 333-74795).
10.1(1) Website Linking and Promotion Agreement dated April 22, 1998
between the Registrant and MediaOne, Inc. Incorporated by
reference to Exhibit 10.1 to our Registration Statement on Form
S-1 (File No. 333-74795).
10.2 Website Design, Build and Maintain Agreement dated September
24, 1998 between the Registrant and Leavens Awards Co., Inc.
Incorporated by reference to Exhibit 10.2 to our Registration
Statement on Form S-1 (File No. 333-74795).
10.3 Contract for Internet Consulting Services dated February 10,
1999 between the Registrant and Fish Interactive. Incorporated
by reference to Exhibit 10.3 to our Registration Statement on
Form S-1 (File No. 333-74795).
10.4 Letter Agreement dated February 5, 1999 between the Registrant
and Shandrick International, Inc. Incorporated by reference to
Exhibit 10.4 to our Registration Statement on Form S-1 (File
No. 333-74795).
10.5 Lease Agreement dated April 16, 1996 between the Registrant and
Perloff/Webster. Incorporated by reference to Exhibit 10.5 to
our Registration Statement on Form S-1 (File No. 333-74795).
10.6 Commercial Sub-Lease Agreement dated December 3, 1998 between
the Registrant and Westland Network. Incorporated by reference
to Exhibit 10.6 to our Registration Statement on Form S-1 (File
No. 333-74795).
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<PAGE>
10.7 Lease Extension and Modification dated as of April 26, 1999
between the Registrant and Perloff/Webster. Incorporated by
reference to Exhibit 10.8 to our Registration Statement on Form
S-1 (File No. 333-74795).
10.8 Employment Letter Agreement dated May 21, 1999 between the
Registrant and Robert J. Vitamante. Incorporated by reference
to Exhibit 10.9 to our Registration Statement on Form S-1 (File
No. 333-74795).
10.9 3Dshopping.com 1999 Stock Option Plan. Incorporated by
reference to Exhibit 10.10 to our Registration Statement on
Form S-1 (File No. 333-74795).
10.10 Letter Agreement dated June 28, 1999 between the Registrant and
Generation Capital Associates. Incorporated by reference to
Exhibit 10.11 to our Registration Statement on Form S-1 (File
No. 333-74795).
10.11 Employment Agreement with C. Michael Mellin, dated July 2,
1999.
10.12 Lease Agreement, dated July 22, 1999 by and between Pacifica
Square, LLC and Registrant.
11.1 Statement re computation of per share earnings.
23.1 Consents of Friedman, Minsk, Cole & Fastovsky, independent
auditors.
24.1 Power of Attorney (see signature page of this report).
27.1 Financial Data Schedule.
- ---------------------------------
(1) Certain portions of this Exhibit have been omitted pursuant to an order of
the SEC granting our request for confidential treatment; such portions have
been filed separately with the SEC.
(b) Reports on Form 8-K
The Company did not file any Reports on Form 8-K during the period covered
by this report.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Venice, California
on September 27, 1999.
3DSHOPPING.COM
By: LAWRENCE WEISDORN
-------------------------------------
Lawrence Weisdorn
Chairman and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Lawrence Weisdorn and Robert J.
Vitamante, and each of them, his attorney-in-fact, with the power of
substitution, for him in any and all capacities, to sign any amendments to this
Report, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that said attorney-in-fact, or his substitute or
substitutes, may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on September 27, 1999 on
behalf of the Registrant and in the capacities indicated:
Signature Title
- --------- -----
LAWRENCE WEISDORN Chairman, Chief Executive Officer and Director
- ------------------------------ (Principal Executive Officer)
Lawrence Weisdorn
ROBERT J. VITAMANTE President, Chief Operating Officer and Acting
- ------------------------------ Chief Financial Officer
Robert J. Vitamante (Principal Financial and Accounting Officer)
ROBERT J. GRANT Treasurer, Secretary and Director
- ------------------------------
Robert J. Grant
DONALD L. HEJMANOWSKI Director
- ------------------------------
Donald L. Hejmanowski
JOEL J. MCINTYRE Director
- ------------------------------
Joel J. McIntyre
25
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
3Dshopping.com
INDEPENDENT AUDITORS' REPORT F-2
Balance Sheets as of June 30, 1998, June 30, 1999 F-3
and Proforma as of June 30, 1999 (unaudited)
Statements of Operations
For the period August 1, 1996 (Inception) to
June 30, 1997 and the years ended June 30, 1998 and 1999 F-4
Statements of Shareholders' Equity (Deficit)
For the period August 1, 1996 (Inception) to
June 30, 1997 and the years ended June 30, 1998 and 1999 F-5
Statements of Cash Flows
For the period August 1, 1996 (Inception) to
June 30, 1997 and the years ended June 30, 1998 and 1999 F-6
NOTES TO FINANCIAL STATEMENTS F-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
3Dshopping.com
We have audited the accompanying Balance Sheets of 3Dshopping.com as of June 30,
1998 and June 30, 1999 and the related Statements of Operations, Stockholders'
Equity (Deficit), and Cash Flows for the period August 1, 1996 (Inception) to
June 30, 1997 and the years ended June 30, 1998 and 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 3Dshopping.com as of June 30,
1998 and June 30, 1999 and the results of its operations and its cash flows for
the period August 1, 1996 (Inception) to June 30, 1997 and the years ended June
30, 1998 and 1999 in conformity with generally accepted accounting principles.
FRIEDMAN, MINSK, COLE & FASTOVSKY
- ---------------------------------
FRIEDMAN, MINSK, COLE & FASTOVSKY
Los Angeles, California
September 2, 1999
F-2
<PAGE>
<TABLE>
<CAPTION>
3Dshopping.com
BALANCE SHEETS
Proforma
June 30, June 30, June 30,
1998 1999 1999
------------ ------------ ------------
(unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 144,564 $ 116,918 $ 11,300,843
Accounts receivable, net of allowances of
$2,991 in 1999 4,999 113,669 113,669
Related party receivable - 25,000 25,000
Other receivables - 12,323 12,323
Prepaid expenses 13,496 16,143 16,143
------------ ------------ ------------
Total current assets 163,059 284,053 11,467,978
Property and equipment, net of accumulated
depreciation of $58,539 and $124,687 66,470 144,004 144,004
Prepaid offering costs - 702,998 -
Goodwill, net - 183,131 183,131
------------ ------------ ------------
Total assets $ 229,529 $ 1,314,186 $ 11,795,113
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 64,567 $ 840,658 $ 840,658
Notes Payable 200,000 625,000 -
Note payable to related parties 60,588 70,723 -
Obligation under Line of Credit - 54,000 -
Customer deposits 3,000 53,846 53,846
Current maturities of capitalized lease obligations - 13,079 13,079
------------ ------------ ------------
Total current liabilities 328,155 1,657,306 907,583
Noncurrent portion of capital lease obligations - 12,318 12,318
Commitments and Contingencies - - -
Shareholders' equity (deficit):
Preferred Stock, no par value: 5,000,000
shares authorized: no shares issued and outstanding. - - -
Common Stock, no par value: 10,000,000 shares
authorized; issued and outstanding: 3,191,400;
3,685,746, and 4,785,746 (Proforma), respectively 2,997,112 7,063,915 18,294,565
Stock subscriptions receivable (107,400) (2,500) (2,500)
Accumulated deficit (2,988,338) (7,416,853) (7,416,853)
------------ ------------ ------------
Total shareholders' equity (deficit) (98,626) (355,438) 10,875,212
------------ ------------ ------------
Total liabilities and shareholders' equity (deficit) $ 229,529 $ 1,314,186 $ 11,795,113
============ ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
3Dshopping.com
STATEMENTS OF OPERATIONS
August 1, 1996 Fiscal Years Ended June 30,
(Inception) to -----------------------------
June 30, 1997 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Revenues, net $ - $ 18,404 $ 191,191
-------------- ------------ ------------
Costs and expenses:
Sales and marketing 973,283 473,665 682,575
Production and development 294,360 170,259 513,382
General and administrative 644,993 460,220 2,992,480
-------------- ------------ ------------
Total costs and expenses 1,912,636 1,104,144 4,188,437
-------------- ------------ ------------
Loss from operations (1,912,636) (1,085,740) (3,997,246)
Interest expense (3,089) (10,373) (436,025)
Other income 10,000 13,500 4,756
-------------- ------------ ------------
Net loss $ (1,905,725) $ (1,082,613) $ (4,428,515)
============== ============ ============
Net loss per share $ (0.59) $ (0.28) $ (1.09)
============== ============ ============
Weighted average number of
shares used in computing
net loss per share 3,210,651 3,823,228 4,045,746
============== ============ ============
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-4
<PAGE>
<TABLE>
<CAPTION>
3Dshopping.com
STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock Stock Stock
------------------------- Subscriptions Subscriptions Accumulated
Shares Amount Receivable in Advance Deficit Total
----------- ----------- ------------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Fiscal Year 1997
Sales of Common Stock 707,333 $ 591,750 $ (83,375) $ 508,375
Issuance of Common Stock
for services 1,820,000 1,365,000 1,365,000
Costs of stock offering (15,931) (15,931)
Stock subscription payments
received in advance $ 39,500 39,500
Net loss for year - - - - $(1,905,725) (1,905,725)
----------- ----------- ------------- ------------- ----------- -----------
Balance at June 30, 1997 2,527,333 1,940,819 (83,375) 39,500 (1,905,725) (8,781)
Fiscal Year 1998
Stock subscription payments received 83,375 83,375
Issuances of Common Stock
in exchange for services 68,700 195,602 195,602
Sales of Common Stock 595,367 763,997 (107,400) (39,500) 617,097
Costs of stock offering (29,374) (29,374)
Fair market value of
stock options granted 126,068 126,068
Net loss for year - - - - (1,082,613) (1,082,613)
----------- ----------- ------------- ------------- ----------- -----------
Balance at June 30, 1998 3,191,400 2,997,112 (107,400) - (2,988,338) (98,626)
Fiscal Year 1999
Stock subscriptions received 107,400 107,400
Stock options exercised 233,000 611,750 (2,500) 609,250
Issuance of Common Stock -
in exchange for services 25,000 306,250 306,250
Exercise of cashless warrants 30,346 - -
Employee stock options granted 2,021,938 2,021,938
Non-employee stock options granted 354,500 354,500
Conversion of notes payable 196,000 217,200 217,200
Amortizaton of Warrants
for interest on debt 399,225 399,225
Issuance of Common Stock on acquisition of
DBLA net assets 10,000 155,940 155,940
Net loss for year - - - - (4,428,515) (4,428,515)
----------- ----------- ------------- ------------- ----------- -----------
Balance at June 30, 1999 3,685,746 $ 7,063,915 $ (2,500) $ - $(7,416,853) $ (355,438)
=========== =========== ============= ============= =========== ===========
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-5
<PAGE>
<TABLE>
<CAPTION>
3Dshopping.com
STATEMENTS OF CASH FLOWS
August 1, 1996 Year Ended June 30,
(Inception) to -------------------------------
June 30, 1997 1998 1999
-------------- ------------- -------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (1,905,725) $ (1,082,613) $ (4,428,515)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 23,253 43,208 82,796
Gain on sale of assets - (1,049) -
Common Stock issued for services 1,365,808 103,213 -
Amortization of value of warrants issued for financing - - 399,225
Options and warrants issued for services and compensation - 218,455 2,682,663
Changes in assets and liabilities, excluding effects
of DBLA acquisition
Accounts receivable, net of allowances - (4,280) (17,342)
Other receivables (719) - (12,323)
Prepaid expenses (6,066) (7,430) 1,201
Contracts in progress - - 17,249
Prepaid offering costs - - (702,998)
Accounts payable and other liabilities 88,162 (20,595) 641,567
Customer deposits - - 50,846
Goodwill (5,306)
Organization costs (1,570) - -
-------------- ------------- -------------
Net cash used in operating activities (442,163) (751,091) (1,285,631)
-------------- ------------- -------------
Cash flows from investing activities, excluding
effects of DBLA acquisition
Acquisition of property and equipment (114,270) (13,250) (114,226)
Proceeds from sale of property - 2,514 -
-------------- ------------- -------------
Net cash used in investing activities (114,270) (10,736) (114,226)
-------------- ------------- -------------
Cash flows from financing activities, excluding
effects of DBLA acquisition
Proceeds from issuance of Common Stock 547,067 700,474 933,875
Costs of issuance of Common Stock (15,931) (29,374) -
Proceeds from issuance of debt 22,728 237,860 425,135
Additions to capitalized lease obligations - 17,758
Payment of capitalized lease obligations - - (4,557)
-------------- ------------- -------------
Net cash provided by financing activities 553,864 908,960 1,372,211
-------------- ------------- -------------
Net change in cash and cash equivalents (2,569) 147,133 (27,646)
Cash and cash equivalents at beginning of period - (2,569) 144,564
-------------- ------------- -------------
Cash and cash equivalents at end of period $ (2,569) $ 144,564 116,918
-------------- ------------- -------------
Cash paid during period for:
Interest $ 2,980 $ 3,001 $ 36,800
Income taxes - 1,600 800
Supplemental schedule of non-cash investing and
financing activities:
The Company acquired the assets of Design Bas,
Incorporated effective April 1, 1999. In conjunction
with the acquisition, assets and liabilities were
assumed as follows:
Fair value of assets acquired $ - $ - $ 166,880
Liabilities assumed 210,720
Value of Common Stock issued in connection with acquisition 155,940
Stock and options issued as compensation and for services 1,365,808 321,668 2,682,663
The accompanying notes are an integral part of these financial statements.
</TABLE>
F-6
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
Note 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
THE COMPANY
3Dshopping.com, formerly Pi Graphix, Inc. (the "Company"), commenced
operations effective August 1, 1996. The Company was formed to design
and develop innovative marketing and display applications for the
Internet using 3D modeling software and interactive databases. The
Company has developed and is beginning to implement and market to
retailers and manufacturers a Web-based marketing, merchandising and
e-commerce system that incorporates sophisticated graphics and other
audio-visual features.
Commencing with the acquisition of Design Bas, Incorporated ("DBLA") on
April 1, 1999, the Company also designs and produces mail order
catalogs, brochures and similar printed media for department stores and
apparel retailers. DBLA also fulfills the digital photographic
requirements of Web site development.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company depreciates its
property and equipment using the straight-line method over the following
periods:
Asset Useful Life
----------------------- -----------
Machinery and equipment 3 - 5 Years
Furniture and fixtures 5 Years
Software 1 - 3 Years
INCOME TAXES
The Company accounts for income taxes in accordance with the provisions
of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (SFAS 109). SFAS 109 requires a company to recognize
deferred tax liabilities and assets for the expected future tax
consequences of temporary differences between the financial statement
carrying amounts and tax basis of assets and liabilities and operating
losses available to offset future taxable income, using enacted tax
rates in effect in the years in which the differences are expected to
reverse.
F-7
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
DEVELOPMENT COSTS
Expenditures during the research and development stage are expensed as
incurred. Development costs, including direct labor, incurred subsequent
to establishing technological feasibility are capitalized. Development
costs for each product are carried on the balance sheet at the lower of
unamortized cost or net realizable value.
ORGANIZATION COSTS
In accordance with the provisions of Statement of Position 98-5, the
Company expensed organization costs in the year ended June 30, 1998. For
the year ended June 30, 1997, the Company amortized organization costs
by the straight-line method over a five-year period. The effect of the
change in accounting is not material.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that directly affect the reported amounts of assets and
liabilities, the disclosures of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
LOSS PER SHARE OF COMMON STOCK
The loss per share of common stock is based on the weighted average
numbers of common shares outstanding during each period, in conformity
with SFAS Statement 128 issued by the Financial Accounting Standards
Board and nominal issuances of potential common shares as required by
the Securities and Exchange Commission. Loss per common share assuming
dilution has not been presented as the effect would be anti-dilutive.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
The Company's revenues from Internet Web site design and operation
services is recognized when an arrangement exists, the fee is
determinable, collectibility is probable, and delivery has occurred.
Revenues from Web site maintenance services are recognized over the
period services are performed. Revenues from mail order catalog design
and production are
F-8
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
recognized upon completion of the project. On certain projects progress
payments are received from clients and such payments are reported as
customer deposits. Costs incurred on projects prior to completion are
reported as contracts in progress.
STOCK-BASED COMPENSATION
The Company has adopted SFAS Statement 123 for stock-based compensation
plans. This statement encourages companies to adopt a fair value
approach to valuing stock options that would require compensation cost
to be recognized based on the fair value of stock options granted.
This statement also establishes fair value as the measurement basis for
transactions in which an entity acquires goods or services from
non-employees in exchange for equity instruments.
Note 2 CONCENTRATIONS OF RISK
Financial instruments, which potentially subject the Company to credit
risk, are trade accounts receivable. Management believes that their
credit risk from Web site sales is not concentrated in any specific
region, activity or economic characteristics of specific industries
because they intend to perform services throughout the country and for
different industries. Receivables arising from catalog production
services have been historically concentrated in the apparel industry.
Bank balances at any one institution are insured by the FDIC up to
$100,000. At June 30, 1999 the Company's uninsured bank balances total
$19,479.
Two customers represented 25% and 20% of revenues for the year ended
June 30, 1999.
Note 3 COMMON STOCK
During fiscal year 1997 the Company issued 1,820,000 shares of common
stock at a price of $0.001 per share on August 5, 1996 to its founder
and certain key employees. The difference between the price paid
($0.001) and the estimated value of this stock ($0.75) was reported as
compensation expense. The Company also issued for cash 462,333 shares of
common stock at $0.75 per share between August 30, 1996 and November 26,
1996, and 245,000 shares of common stock at $1.00 per share between June
24, 1997 and June 27, 1997. The Company also issued 36,000 shares at
$1.00 per share in exchange for financial and advisory business
services. In accordance with recommendation 96-18 of the FASB's Emerging
Issues Task Force, the value of the shares issued was amortized over the
period of the contract at the then current fair value.
F-9
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
During fiscal year 1998 the Company issued 56,600 shares at $1.25 per
share, 233,333 shares at $ 1.50 per share and 50,000 shares at $1.00 per
share for cash, and 32,700 shares in exchange for services at $1.19 to
$1.88 per share. The Company also issued 255,434 shares for $1.15 per
share from February through June 30, 1998 to shareholders who also
received warrants to purchase 127,717 additional common shares at $1.50
per share. The warrants expire in December 1999.
During fiscal year 1999 the Company issued 233,000 shares of common
stock upon exercises of outstanding options at prices ranging from $1.25
to $9.00 per share between November 18, 1998 and January 21, 1999. The
Company also issued 25,000 shares at $.001 per share in exchange for
financial and advisory business services on December 21, 1998, 30,346
shares upon exercises of cashless warrants on December 7, 1998, 196,000
shares at prices ranging from $1.00 to $1.15 per share upon conversion
of notes payable on February 12, 1999, and 10,000 shares for the net
assets of DBLA valued at $15.594 per share.
PREFERRED STOCK
The Company authorized 5,000,000 shares of Preferred Stock during the
year ended June 30, 1999. No shares have been issued.
Note 4 STOCK OPTIONS
(a) EMPLOYEE OPTIONS
During the years ended June 30, 1997, 1998 and 1999 the Company granted
options to employees and recognized compensation expense of $0, $15,378
and $2,021,938, respectively, as the options were granted.
F-10
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
A summary of the status of the Company's stock options as of June 30,
1999, and changes during the year then ended is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
------------ --------------
<S> <C> <C>
Outstanding at Beginning of Year 36,000 $ 1.75
Granted 503,940 7.61
Exercised (60,000) 1.25
Forfeited - -
------------ --------------
Outstanding at End of Year 479,940 $ 7.97
------------ --------------
Options exercisable at year-end 196,000
Weighted average fair value of
options granted during the year
Exercise price at market price $ 5.41
Exercise price above market price -
Exercise price below market price 7.24
</TABLE>
The following summarizes information about stock options at June 30,
1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------- --------------------------------
Weighted-Average Weighted Average
Range of Number Remaining Weighted-Average Number Exercise
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Price
--------------- ------------ ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$ 1.25-1.75 201,000 3.79 years $ 1.340 165,000 $ 1.25
11.00 178,940 9.75 years 11.000 31,000 11.00
15.875 100,000 10.00 years 15.875 - -
</TABLE>
The fair values of option grants were estimated on the dates of grant
using the Black- Scholes option pricing model with the following
assumptions for 1999: Risk-free interest rate of 4.43% to 6.01%;
Dividend yield of 0%; Expected life of 1.0 to 4.0 years; and Volatility
of 61.0% to 61.4%.
On February 21, 1999 the directors authorized the adoption of an
employee stock option plan and reserved a total of 1,000,000 common
shares. A total of 278,940 shares were issued to employees in the year
ended June 30, 1999 under the Plan.
(b) NON-EMPLOYEE OPTIONS
During the years ended June 30, 1997, 1998 and 1999 the Company granted
options and warrants to certain non-employees and recognized $0,
$203,077 and $354,500 of expense, respectively, as the options or
warrants were granted.
F-11
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
A summary of the status of the Company's stock options and warrants as
of June 30, 1999, and changes during the year then ended is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
---------- --------------
<S> <C> <C>
Outstanding at Beginning of Year.................... 497,717 $ 1.85
Granted............................................. 45,000 7.75
Exercised........................................... (173,384) 2.94
Forfeited........................................... - -
---------- --------------
Outstanding at End of Year.......................... 369,333 $ 2.06
---------- --------------
Options and warrants exercisable
at year year-end.................................. 369,333
Weighted-average fair value of
options granted during the year
Exercise price at market price ................. $ -
Exercise price above market price............... -
Exercise price below market price............... 7.88
</TABLE>
The following summarizes information about non-employee stock options
and warrants at June 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------------------------- --------------------------------
Weighted-Average Weighted Average
Range of Number Remaining Weighted-Average Number Exercise
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Price
--------------- ------------ ---------------- ---------------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
$ 1.25-1.75 369,333 0.91 years $ 2.06 369,333 $ 1.51
</TABLE>
The fair values of the options or warrants granted were estimated on the
dates of grant using the Black-Scholes option pricing model with the
following assumptions for 1999: Risk-free interest rate of 4.51%;
Dividend yield of 0%; Expected life of .1667 to .3333 years; and
Volatility of 61.4%.
F-12
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
Note 5 INCOME TAXES
Deferred tax assets are comprised of the following:
<TABLE>
<CAPTION>
June 30, 1998 June 30 1999
------------- ------------
<S> <C> <C>
Federal net operating loss $ 306,250 $ 1,012,811
State net operating loss 123,500 404,084
R & D credit carryforward 47,250 51,000
Property and equipment 2,500 (10,697)
Stock Compensation 4,500 287,600
Other 250 957
------------- ------------
484,250 1,745,155
Less valuation allowance (484,250) (1,745,155)
------------- ------------
Net deferred tax asset $ - $ -
============= ============
</TABLE>
The valuation allowance increased by $ 185,500, $ 298,750 and
$1,260,905for the period August 1, 1996 (Inception) to June 30, 1997 and
for the years ended June 30, 1998 and 1999, respectively.
At June 30, 1999 the Company has incurred loss carryforwards for income
tax purposes and earned research and development credits which expire as
follows:
<TABLE>
<CAPTION>
Federal State
----------- -----------
<S> <C> <C> <C>
Net Operating Losses
Expiring.................................... 2002 $ 531,000
2003 865,000
2004 3,175,000
2012 $ 518,000
2013 858,000
2014 3,176,000
Research and Development Credits
Expiring.................................... 2012 17,000 3,800
2013 17,000 9,400
2014 2,000 1,300
</TABLE>
F-13
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
The Company's provision for income taxes differed from the amount
computed by applying the statutory U.S. federal income tax rate to
losses as follows:
<TABLE>
<CAPTION>
1997 1998 1999
------------- ------------- -------------
<S> <C> <C> <C>
Tax benefit determined by applying the
U.S. statutory rate to loss before
income taxes $ (816,412) $ (772,238) $ (1,912,896)
Change in valuation allowances 185,500 298,750 1,260,905
Stock Compensation 396,998 166,827 73,240
Tax rate differences 233,914 306,157 555,026
Other 0 504 23,725
------------- ------------- -------------
Provision (credit) for income taxes $ 0 $ 0 $ 0
</TABLE>
The Internal Revenue Code contains provisions which may limit the loss
carryforwards available if significant changes in stockholder ownership
of the Company occur.
Note 6 SHORT-TERM BORROWINGS
Unsecured promissory notes payable at June 30, 1998 and 1999 are
comprised of:
<TABLE>
<CAPTION>
June 30
-------------------------
1998 1999
---------- ----------
<S> <C> <C>
Note due December 8, 1998
with interest at 10% per annum. Convertible to
common stock at $1.25 per share.
Converted in February 1999. $ 100,000 $ -
Note due May 22, 1998
with interest at 10% per annum. Convertible to
common stock at $1.00 per share.
Converted in February 1999. 100,000 -
Note due upon completion of
public offering with interest at 7% per annum. - 100,000
Note due on demand with
interest at 12% per annum. - 25,000
Note due August 31, 1999 with
interest at 9% per annum(1) - 500,000
---------- ----------
$ 200,000 $ 625,000
========== ==========
(1) The note holder also received warrants to acquire $2,000,000 of the
Company's Common Stock for $1,500,000. The $500,000 difference
between the value of the stock to be issued and the consideration
to be
F-14
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
paid will be accounted for as loan origination costs and amortized
over the period of the loan. Accordingly, $399,225 is included in
interest expense for the year ended June 30, 1999.
</TABLE>
On April 1, 1999 the Company obtained a $65,000 revolving line of credit
from the shareholders of DBLA which bears interest of 10.25% at June 30,
1999. Minimum monthly interest payments are calculated on the average
daily balance and are due currently. The outstanding principal balance
at June 30, 1999 was $54,000. This loan is guaranteed by a shareholder
for $65,000 and is collateralized by the assets of the Company to a
maximum of $65,000.
Upon completion of the public offering in July 1999, the above notes
were paid in full (Note 16).
Note 7 RELATED PARTY TRANSACTIONS
In 1996, the Company acquired the property and equipment and certain
other prepaid assets and assumed certain payroll and other liabilities
of Samuel Hamann Graphix, Inc. ("Hamann") from the Company's principal
shareholder/president for $18,500. The purchase price was allocated to
the tangible assets at their original cost, with the balance ($5,306)
attributed to goodwill which was amortized over two years.
Hamann, a public company, was a Development Stage Corporation, which had
been in existence for approximately one year. A founder and principal
shareholder of the Company was the principal shareholder of Hamann.
The principal shareholder and a minor shareholder have advanced funds
(including the $18,500 above) to the Company, at 7% per annum interest.
Upon completion of the public offering in July 1999, these notes were
paid in full (Note 16).
Advances by shareholders to the Company were $108,860 and $60,135 at
June 30, 1998 and 1999, respectively, and amounts due to the Company
from shareholders were $71,000 and $50,000 at June 30 1998 and 1999,
respectively.
Interest expense on these advances amounted to $2,972, $2,427, and
$5,447 for the years ended June 30, 1997, 1998, and 1999, respectively.
The balance due on the advances was $60,588 and $70,723 at June 30, 1998
and 1999, respectively.
F-15
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
Note 8 PROPERTIES AND EQUIPMENT
Property and Equipment is comprised of:
<TABLE>
<CAPTION>
June 30, 1998 June 30, 1999
------------- -------------
<S> <C> <C>
Machinery and Equipment $ 69,779 $ 125,576
Furniture and Fixtures 17,057 54,964
Software 38,173 58,197
Leased computers - 29,954
------------- -------------
125,009 268,691
Accumulated Depreciation 58,539 124,687
------------- -------------
Net $ 66,470 $ 144,004
============= =============
</TABLE>
Depreciation expense for the years ended June 30, 1997, 1998, and 1999
amounted to $23,253, $43,208, and $66,148, respectively.
Note 9 CAPITAL LEASE OBLIGATION
At June 30, 1999, the Company leased computers under various capital
leases. Future minimum lease payments required under capital leases is
as follows:
Fiscal year ended 2000 $ 17,518
Fiscal year ended 2001 10,558
Fiscal year ended 2002 2,941
--------
Total 31,017
Less: amount representing interest (at rates
ranging from 12.42% to 25.32%) 5,620
Present value of net minimum lease payments 25,397
Less: Current portion (13,079)
--------
Total $ 12,318
========
Property held under capital leases included with owned property on the
balance sheets at June 30, 1999, consists of leased computers (cost:
$29,954; related accumulated depreciation: $4,222).
Note 10 COMMITMENTS AND CONTINGENT LIABILITIES
LEASES
The Company leases its office facilities under an operating lease, which
expires May 31, 2000. Future minimum lease payments under this lease as
of June 30, 1999, are $31,845.
F-16
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
The monthly rent includes a standard charge for utilities. Rent expense
for the years ended June 30, 1997, 1998 and 1999 amounted to $28,870,
$35,325 and $56,383, respectively.
The Company also rents office and production facilities formerly
occupied by DBLA on a month-to-month lease from an entity owned
principally by an officer and a shareholder. Rent expense for the year
ended June 30, 1999 was $11,410.
LITIGATION
The Company is engaged in legal proceedings incidental to its normal
business activities. In the opinion of management, none of these
proceedings are material in relation to the Company's financial
position.
Note 11 LOSS PER SHARE
The loss per common share is determined by dividing the net loss for
each period by the weighted average number of common shares outstanding
during each period.
<TABLE>
<CAPTION>
August 1, 1996 Years Ended June 30,
(Inception) to -----------------------------
June 30, 1997 1998 1999
-------------- ------------ ------------
<S> <C> <C> <C>
Common Stock Outstanding
Beginning of
Period (1) - 2,432,666 3,119,800
Issued during
the period (1) 2,432,666 687,134 565,946
End of the
Period (1) 2,432,666 3,119,800 3,685,746
Weighted
Average number
of shares 3,210,651 3,823,228 4,045,746
(1) Net of stock subscriptions
</TABLE>
The Securities and Exchange Commission requires nominal issuances of
potential common shares issued within one year prior to an Initial
Public Offering filing date to be included in earnings per share
calculations as if outstanding for all periods presented. These
calculations include all such shares.
F-17
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
Loss per common share assuming dilution has not been presented as the
result would have been anti-dilutive.
Note 12 FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying amounts for cash, receivables, accounts payable and accrued
expenses, notes payable, the line-of-credit and customer deposits
approximate fair value because of the short maturity of these
instruments.
Note 13 NON-CASH FINANCING AND INVESTING ACTIVITIES
Acquisition of DBLA
Effective April 1, 1999, the Company acquired $166,880 in assets of DBLA
in exchange for the assumption of the its debt of $210,720 and the
issuance of 10,000 shares of the Company's common stock valued at
$155,940. The excess of the fair value of the net assets acquired of
$199,780 is being amortized over a three-year term. Amortization for the
year ended June 30, 1999 amounted to $16,648.
Note 14 BRIDGE LOAN
In March 1999 the Company received an unsecured $500,000 bridge loan in
the form of promissory notes due August 31, 1999 with interest at 9%.
That note was paid upon the closing of the Company's public offering in
July 1999. The note holders were allowed by the NASD to retain the right
to receive warrants to acquire $2,000,000 of the Company's Common Stock
for $1,500,000. Therefore, the amendment to that warrant agreement,
listed in the Company's Prospectus dated July 20, 1999 that replaced the
right to receive those warrants with other consideration, was not
implemented.
Note 15 UNAUDITED PROFORMA FINANCIAL INFORMATION
The proforma financial information as of June 30, 1999 is unaudited.
This information represents the effect of completion of the Company's
public offering that closed in July 1999 and payment of certain loans
(see Note 16).
F-18
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
Note 16 SUBSEQUENT EVENTS
PUBLIC OFFERING
On July 26,1999 the Company's public offering on the American Stock
Exchange closed. The following is a summary of those proceeds:
Sales of Shares $ 13,200,000
Underwriting discount (990,000)
Expenses (264,000)
Due diligence (12,352)
Loan Principal
and interest (200,595)
------------
Net Proceeds $ 11,733,053
============
LEASE AGREEMENT
The Company executed a lease agreement on July 22, 1999 for property in
Marina Del Rey , California in order to consolidate its sales and
technology development offices and its studio production facility.
Occupancy should commence in September 1999. The term of the lease is
five years and terminates in July 2005. Monthly rent expense is $48,853
from lease commencement to January 31, 2002; $53,481 from February 1,
2002 to July 31, 2004, and; $55,024 from August 1, 2004 to July 3, 2005.
There is an option to extend the lease for an additional sixty months. A
portion of the leased facility's operating and common area expenses are
shared by the Company.
The lease required the Company provide the lessor an unconditional
irrevocable letter of credit in amounts that decline from $441,671 to
$310,067 during the initial lease term. Subject to various terms and
conditions, upon a material default by the lessee, the lessor may draw
on the letter of credit to satisfy the lease terms.
Future minimum lease payments for the next five years of the lease and
in the aggregate are:
2000 $ 464,104
2001 586,236
2002 609,371
2003 641,760
2004 641,760
Thereafter 658,733
-----------
$ 3,601,964
===========
F-19
<PAGE>
3Dshopping.com
NOTES TO FINANCIAL STATEMENTS-JUNE 30, 1998 AND 1999
----------------------------------------------------
The Company plans to sublease their current office facilities and to
terminate the lease for the studio facility in North Hollywood,
California.
RELATED PARTY TRANSACTIONS
In July and September 1999, the Company loaned $267,000 to two key
Company employees under secured promissory. One promissory note, in the
amount of $225,000, bears interest at 10% per annum, is secured by a
deed of trust on a residential property, and is repayable upon the
earlier of the sale of a principal residence or six months. The other
promissory note, in the amount of $42,000, is secured by shares of
common stock pledged as collateral Payments of interest only are
required until the loans mature at which time the full unpaid principle
are due.
F-20
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description
- -------------- -----------
2.1 Agreement and Plan of Reorganization dated as of April 1, 1999
between the Registrant, Design Base Los Angeles Inc., Brian
Smith and Todd Hosaka. Incorporated by reference to Exhibit
10.7 to our Registration Statement on Form S-1 (File No.
333-74795).
3.1 Amended and Restated Articles of Incorporation of the
Registrant. Incorporated by reference to Exhibit 3.1 to our
Registration Statement on Form S-1 (File No. 333-74795).
3.2 Amended and Restated Bylaws of the Registrant. Incorporated by
reference to Exhibit 3.2 to our Registration Statement on Form
S-1 (File No. 333-74795).
4.1 Specimen Common Stock Certificate. Incorporated by reference to
Exhibit 4.1 to our Registration Statement on Form S-1 (File No.
333-74795).
4.2 Warrant Agreement dated July 20, 1999 among the Registrant and
ChaseMellon Shareholder Services, LLC, as Warrant Agent,
including the form of Warrant.
4.3 Form of Representative's Warrants. Incorporated by reference to
Exhibit 4.3 to our Registration Statement on Form S-1 (File No.
333-74795).
4.4 Purchase Warrant dated March 18, 1999 between the Registrant
and Generation Capital. Incorporated by reference to Exhibit
4.4 to our Registration Statement on Form S-1 (File No.
333-74795)
4.5 Promissory Note dated March 18, 1999 from the Registrant in
favor of Generation Capital Associates. Incorporated by
reference to Exhibit 4.5 to our Registration Statement on Form
S-1 (File No. 333-74795).
4.6 Substitute Purchase Warrant dated March 18, 1999 between the
Registrant and Generation Capital Associates. Incorporated by
reference to Exhibit 4.6 to our Registration Statement on Form
S-1 (File No. 333-74795).
10.1(1) Website Linking and Promotion Agreement dated April 22, 1998
between the Registrant and MediaOne, Inc. Incorporated by
reference to Exhibit 10.1 to our Registration Statement on Form
S-1 (File No. 333-74795).
10.2 Website Design, Build and Maintain Agreement dated September
24, 1998 between the Registrant and Leavens Awards Co., Inc.
Incorporated by reference to Exhibit 10.2 to our Registration
Statement on Form S-1 (File No. 333-74795).
<PAGE>
10.3 Contract for Internet Consulting Services dated February 10,
1999 between the Registrant and Fish Interactive. Incorporated
by reference to Exhibit 10.3 to our Registration Statement on
Form S-1 (File No. 333-74795).
10.4 Letter Agreement dated February 5, 1999 between the Registrant
and Shandrick International, Inc. Incorporated by reference to
Exhibit 10.4 to our Registration Statement on Form S-1 (File
No. 333-74795).
10.5 Lease Agreement dated April 16, 1996 between the Registrant and
Perloff/Webster. Incorporated by reference to Exhibit 10.5 to
our Registration Statement on Form S-1 (File No. 333-74795).
10.6 Commercial Sub-Lease Agreement dated December 3, 1998 between
the Registrant and Westland Network. Incorporated by reference
to Exhibit 10.6 to our Registration Statement on Form S-1 (File
No. 333-74795).
10.7 Lease Extension and Modification dated as of April 26, 1999
between the Registrant and Perloff/Webster. Incorporated by
reference to Exhibit 10.8 to our Registration Statement on Form
S-1 (File No. 333-74795).
10.8 Employment Letter Agreement dated May 21, 1999 between the
Registrant and Robert J. Vitamante. Incorporated by reference
to Exhibit 10.9 to our Registration Statement on Form S-1 (File
No. 333-74795).
10.9 3Dshopping.com 1999 Stock Option Plan. Incorporated by
reference to Exhibit 10.10 to our Registration Statement on
Form S-1 (File No. 333-74795).
10.10 Letter Agreement dated June 28, 1999 between the Registrant and
Generation Capital Associates. Incorporated by reference to
Exhibit 10.11 to our Registration Statement on Form S-1 (File
No. 333-74795).
10.11 Employment Agreement with C. Michael Mellin, dated July 2,
1999.
10.12 Lease Agreement, dated July 22, 1999 by and between Pacifica
Square, LLC and Registrant.
11.1 Statement re computation of per share earnings.
23.1 Consents of Friedman, Minsk, Cole & Fastovsky, independent
auditors.
24.1 Power of Attorney (see signature page of this report).
27.1 Financial Data Schedule.
(1) Certain portions of this Exhibit have been omitted pursuant to an order of
the SEC granting our request for confidential treatment; such portions have
been filed separately with the SEC.
3Dshopping.com
517 Bocaccio Avenue
Venice, California 90291
July 2, 1999
C. Michael Mellin
2939 Surfrider Avenue
Ventura CA 93001
Re: Employment
Dear Mike:
I confirm with pleasure our recent discussions with respect to your
employment as Vice President, Technology Operations and Chief Technology Officer
of 3Dshopping.com ("3D"). As we discussed, you have a commitment to your current
employer that you expect to occupy the majority of your time over the next
thirty days. During that period, you are available on an hourly basis to advise
management of 3D with respect to various matters relating to web site business
and operations. Starting no later that July 15, you expect to be available on a
full-time basis. Based on our discussions, I propose the following arrangements:
1. Subject to confirmation by our Chief Executive Officer, Lawrence Weisdorn,
and completion of our background check and following the successful
offering of 3D common stock presently contemplated, you agree to be
employed and to serve as 3D's Vice President, Technology Operations and
Chief Technology Officer and 3D agrees to employ you in that capacity
beginning as soon as practicable after completion of your current
commitment but, in any event, not later than July 15, 1999. In that
capacity, you will report to me as President, and to Lawrence Weisdorn as
Chief Executive Officer. Your initial employment term will be for a period
of one year. In the event that you are terminated, other than for cause,
prior to expiration of such period, you will be entitled to severance
payments upon early termination equal to your base compensation for the
balance of the term, but in no event less than three months; such severance
payments to be made at such times as they would have been made had you
remained employed by 3D and to be subject to your execution of a release of
claims in a form satisfactory to 3D.
2. You will receive cash compensation at the rate of $200,000 per annum from
the date of your full time employment and will be eligible for such bonuses
and other forms of supplemental compensation as may from time to time be
approved by the CEO and/or the Board of Directors. Your rate of
compensation will be subject to review by the
<PAGE>
Board of Directors not less than annually in connection with the annual
review of officer compensation generally.
3. You will be granted options to purchase up to 100,000 shares of 3D common
stock at the time of the company's offering. The options would be issued
under 3D's Stock Incentive Plan and would have a ten year term (subject to
the limitations described below); the options would vest as follows: 10,000
shares upon commencement of full time employment; and 22,500 shares at each
of July 15, 2000; July 15, 2001; July 15, 2002; and July 15, 2003. The
options would be intended to qualify as Incentive Stock Options under the
Internal Revenue Code of 1986, as amended. Upon termination of employment,
vested options would remain exercisable 60 days and unvested options would
expire. Vesting of options would accelerate in the event of the
consummation of any merger, sale of stock or sale of all or substantially
all of the business of 3D involving a change in control of the 3D business.
The option exercise price would be equal to the fair market value of the
common stock on the date of the grant (July 2, 1999). 3Dshopping.com
expects to file a registration statement on Form S-8 with respect to the
stock issuable on exercise of incentive stock options.
4. In addition to the foregoing items of compensation, you would be eligible
for such benefits as are from time to time made available to other members
of senior management.
5. Commencing as of the date of your acceptance of this letter and until the
commencement of your full-time employment, as described above, you agree to
be employed on a part-time basis as follows: you will perform at the
direction of management such functions related to technology matters as you
and management shall agree. The extent of your duties will be determined by
agreement between you and management from time to time but you shall not be
required to provide more than ten hours of service in any week. You shall
be compensated for such services at the rate of $100/hr. and shall be
reimbursed for out of pocket expenses reasonably incurred by you in
connection with assigned work. You agree that, in performing such services,
you will act as an employee of 3D, subject to the direction of management
of 3D, and that your compensation will be subject to withholding for tax
purposes.
6. In connection with your employment with 3D, you agree to execute and be
bound by 3D's customary agreements relating to nondisclosure,
nonsolicitation and inventions.
<PAGE>
We are delighted to be able to offer you the position described above and
look forward to an exciting and productive relationship. If you are in agreement
with the foregoing, please execute a copy of this letter in the space provided
and return it to me. This offer of employment is void if not accepted by you on
or before the close of business on June 15, 1999.
Very truly yours,
ROBERT J. VITAMANTE
Robert J. Vitamante
Accepted this ____ day of _________________, 1999.
C. MICHAEL MELLIN
- ----------------------------------
C. Michael Mellin
STANDARD OFFICE LEASE - NET
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
1. Basic Lease Provisions ("Basic Lease Provisions")
1.1 Parties: This Lease, dated, for reference purposes only, July 22, 1999,
is made by and between Pacifica Square, LLC, a California Limited Liability
Company, (herein called "Lessor") and 3Dshopping.com, a California Corporation,
doing business under the name of 3Dshopping.com, (herein called "Lessee").
1.2 Premises: Suite Numbers(s) A, ground floors, consisting of
approximately 25,712 square feet, more or less, as defined in paragraph 2 and as
shown on Exhibit "A" hereto (the "Premises"). The usable square footage of the
Premises shall be measured by Lessor's architect in accordance with BOMA
standards and a certificate of such measurement shall be delivered to Lessee.
1.3 Building: Commonly described as being located at 308 Washington
Boulevard, in the City of Los Angeles, County of Los Angeles, State of CA, as
more particularly described in Exhibit A hereto, and as defined in paragraph 2.
1.4 Use: General Office, subject to paragraph 6.
1.5 Term: seventy-two (72) months commencing August 19, 1999 (Commencement
Date") and ending July 3, 2005, as defined in paragraph 3.
1.6 Base Rent: $48,852.8 per month, payable on the 1st day of each month,
per paragraph 4.1
1.7 Base Rent Increase: On February 1, 2002 and August 1, 2004 the monthly
Base Rent payable under paragraph 1.6 above shall be adjusted as provided in
paragraph 50, Rent Adjustment.
1.8 Rent Paid Upon Execution: $48,852.80 for September 1999 rent (see
addendum, paragraph 52.).
1.9 Security Deposit: $48,853 Also see paragraph 53 Letter of Credit.
1.10 Lessee's Share of Operating Expenses: 84.35% as defined in paragraph
4.2.
1.11 Lessee's Share of Common Area Operating Expenses 14.6% as defined in
paragraph 4.2(b)
2. Premises, Parking and Common Areas.
2.1 Premises: The Premises are a portion of a building, herein sometimes
referred to as the "Building" identified in paragraph 1.3 of the Basic Lease
Provisions. "Building" shall include adjacent parking structures used in
connection therewith. The Premises, the Building, the Common Areas, the land
upon which the same are located, along with all other buildings and improvements
thereon or thereunder, are herein collectively referred to as the "Office
Building Project." Lessor hereby leases to Lessee and Lessee leases from Lessor
for the term, at the rental, and upon all of the conditions set forth herein,
the real property referred to in the Basic Lease Provisions, paragraph 1.2, as
the "Premises", including rights to the Common Areas as hereinafter specified.
2.2 Vehicle Parking: So long as Lessee is not in default, and subject to
the rules and regulations attached hereto, and as established by Lessor from
time to time, Lessee shall be entitled to rent and use from month-to-month, in
Lessee's sole discretion 70 parking spaces in the Office Building Project (which
includes all parking surrounding the Building as indicated in Exhibit A) at the
monthly rate applicable from time to time for monthly parking as set by Lessor
and/or its licensee.
2.2.1 If Lessee commits, permits or allows any of the prohibited
activities described in the Lease or the rules then in effect and previously
provided to Lessee in writing, 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 accountable cost
shall be immediately payable upon demand by Lessor.
2.2.2 The monthly parking rate per parking space will be $75 per month
at the commencement of the term of this Lease, and is subject to change upon
thirty (30) days prior written notice to Lessee. Monthly parking fees shall be
payable one month in advance prior to the first day of each calendar month.
2.3 Common Areas - Definition. The term "Common Areas" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Office Building Project that are provided and designated by the Lessor
from time to time for the general non-exclusive use of Lessor, Lessee and of
other lessees of the Office Building Project and their respective employees,
suppliers, shippers, customers and invitees, including but not limited to common
entrances, lobbies, corridors, stairways and stairwells, public restrooms,
elevators, escalators, parking areas to the extent not otherwise prohibited by
this Lease,
FULL SERVICE-NET Initials: LEW
REVISED ----
S.O.
----
Page 1 of 22
<PAGE>
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, ramps, driveways, landscaped areas and decorative walls.
2.4 Common Areas - Rules and Regulations. Lessee agrees to abide by and
conform to the rules and regulations attached hereto as Exhibit B with respect
to the Office Building Project and Common Areas, and to cause its employees,
suppliers, shippers, customers, and invitees to so abide and conform. Lessor or
such other person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time, to
modify, amend and enforce said rules and regulations and agrees to provide such
modified rules and regulations to Lessee in writing. Although Lessor shall
utilize reasonable commercial efforts to obtain compliance, Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees, their agents, employees and invitees of the Office Building
Project.
2.5 Common Areas - Changes. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Building interior and exterior and Common
Areas, including, without limitation, changes in the location, size, shape,
number, and appearance thereof, including but not limited to the lobbies,
windows, stairways, air shafts, elevators, escalators, restrooms, driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, decorative walls, landscaped areas and walkways;
provided, however, Lessor shall at all times provide the parking facilities
required by this Lease and applicable law;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land and improvements outside the boundaries of
the Office Building Project to be a part of the Common Areas, provided that such
other land and improvements have a reasonable and functional relationship to the
Office Building Project;
(d) To add additional buildings and improvements to the Common Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Office Building Project, or any
portion thereof;
(f) To do and perform such other acts and make such other changes in,
to or with respect to the Common Areas and Office Building Project as Lessor
may, in the exercise of sound business judgment deem to be appropriate.
3. Term.
3.1 Term. The term and Commencement Date of this Lease shall be as
specified in paragraph 1.5 of the Basic Lease Provisions.
3.2 Delay in Possession. Notwithstanding said Commencement Date, if for any
reason Lessor cannot deliver possession of the Premises to Lessee on said date
and subject to paragraph 3.2.2, Lessor shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Lease or the
obligations of Lessee hereunder or extend the term hereof; but in such case,
Lessee shall not be obligated to pay rent or perform any other obligation of
Lessee under the terms of this Lease, except as may be otherwise provided in
this Lease, until possession of the Premises is tendered to Lessee, as
hereinafter defined; provided, however, that if Lessor shall not have delivered
possession of the Premises within thirty (30) days following said Commencement
Date, Lessee may, at Lessee's option, by notice in writing to Lessor within ten
(10) days thereafter, cancel this Lease, in which event the parties shall be
discharged from all obligations hereunder; as to Lessor's obligations, Lessor
shall return any money previously deposited by Lessee; and provided further,
that if such written notice by Lessee is not received by Lessor within said ten
(10) day period, Lessee's right to cancel this Lease hereunder shall terminate
and be of no further force or effect.
3.2.1 Possession Tendered - Defined. Possession of the Premises shall
be deemed tendered to Lessee ("Tender of Possession") when (1) the improvements
to be provided by Lessor under this Lease are substantially completed, (2) the
Building utilities are ready for use in the Premises, (3) Lessee has reasonable
access to the Premises, and (4) ten (10) days shall have expired following
advance written notice to Lessee of the occurrence of the matters described in
(1), (2) and (3), above of this paragraph 3.2.1.
3.2.2 Delays Caused by Lessee. There shall be no abatement of rent,
and the thirty (30) day period following the Commencement Date before which
Lessee's right to cancel this Lease accrues under paragraph 3.2, shall be deemed
extended to the extent of any delays caused by acts or omissions of Lessee, its
agents, employees and contractors.
3.3 Early Possession. If Lessee occupies the Premises prior to said
Commencement Date, such occupancy shall be subject to all provisions of this
Lease, such occupancy shall not change the termination date, and Lessee shall
pay rent for such occupancy.
4. Rent.
4.1 Base Rent. Subject to adjustment as hereinafter provided in paragraph
4.3, and except as may be otherwise expressly provided in this Lease, Lessee
shall pay to Lessor the Base Rent for the Premises set
FULL SERVICE-NET Initials: LEW
REVISED ----
S.O.
----
Page 2 of 22
<PAGE>
forth in paragraph 1.6 of the Basic Lease Provisions, without offset or
deduction Lessee shall pay Lessor upon execution hereof the advance Base Rent
described in paragraph 1.8 of the Basic Lease Provisions. Rent for any period
during the term hereof which is for less than one month shall be prorated based
upon the actual number of days of the calendar month involved. Rent shall be
payable in lawful money of the United States to Lessor at the address stated
herein or to such other persons or at such other places as Lessor may designate
in writing.
4.2 Operating Expenses and Common Area Operating Expenses. Lessee shall pay
to Lessor during the term hereof, in addition to the Base Rent, Lessee's Share,
as hereinafter defined, of all Operating Expenses and Common Area Operating
Expenses, as hereinafter defined, during each calendar year of the term of this
Lease, in accordance with the following provisions:
Operating Expenses (a)
(a)(i) "Lessee's Share" is defined, for purposes of Operating
Expenses, as set forth in this Lease, as the percentage set forth in paragraph
1.10 of the Basic Lease Provisions. It is understood and agreed that the square
footage figures set forth in the Basic Lease Provisions are approximations which
Lessor and Lessee agree are reasonable and shall not be subject to revision
except in connection with an actual change in the size of the Premises or a
change in the space available for lease in the Office Building Project.
(a)(ii) "Operating Expenses" is defined, for purposes of this Lease to
include the total costs and expenses for managing, operating and maintaining the
Building including, but not limited to: water and sewer charges; refuse disposal
fees, electricity, gas, premiums for public liability, property damage, fire and
extended coverage casualty and other insurance which Landlord deems reasonably
prudent, or any mortgagee, ground lessor or other encumbrance of the Building,
or any part thereof, requires, with respect to the Building, license, permit and
inspection fees; capital improvements, determined in accordance with generally
accepted accounting principles (and amortized over the useful life thereof with
interest as 10% per annum); charges for gardening and landscape maintenance,
parking lot repairs and maintenance including striping and signing and other
maintenance and repair, whether performed by Landlord or other; wages, salaries
and employee benefits of reasonably necessary personnel engaged in the
management, operation, maintenance or repair of the Building, including payroll
taxes attributable thereto (excluding salaries and benefits of executives or
officers of any corporate successor to Landlord; provided, however, that if
Landlord manages the Building, Landlord may charge to Building Operating Costs a
reasonable management fee not in excess of the fee which would have been charged
by a third party engaged in the business of managing similar properties). In the
event that any operating expenses are billed directly to Lessee for Lessee's pro
rata portion of a Building Operating Expense, the Lessee shall be responsible
for payment of said bill and shall not be responsible for payment of any costs
attributable to this particular expense for the remainder of the Building.
(a)(iii) Exclusions from Operating Expenses
1. Lessor's costs of any service provided to lessees or other
occupants for which Lessor is entitled to be reimbursed as an additional charge
or rental over and above the Base Rent payable under the Lease with such lessee
or other occupant;
2. Any depreciation or amortization on the office building;
3. The cost of replacing an/or adding improvements of a capital
nature, except the cost of replacing and/or adding improvemetns mandated by any
governmental agency and any repairs or removals necessitated thereby, amortized
over its useful life according to Federal income tax guidelines for depreciation
thereof (including interest on the unamortized balance as is then reasonable in
the reasonable good faith business judgment of Lessor's accountant;
4. That portion of the costs, in excess of Six Thousand and No/100
Dollars ($6,000.00) more than Lessor's expense for said sum as of commencement
date per calendar year, incurred in conjunction with the investigation and/or
monitoring of hazardous substances (including asbestos);
5. Overhead and profit increments paid to subsidiaries or affiliates
of Lessor for management or other services provided to the Office Building, or
for supplies or other materials to the extent that the cost of such services,
supplies or materials exceed the cost that would have been paid had the
services, supplies or materials been provided by unaffilitated parties on a
competitive basis;
6. Interest on debt or amortization payments or increases in interest
or debt on any mortgages or changes in deeds of trust or any other debt for
borrowed money;
7. Rent or other payments under any ground lease or underlying lease;
8. Advertising and promotional expenses for the purpose of soliciting
prospective lessees for the Office Building Project;
9. The cost of repairs and other work occasioned by fire, windstorm or
other casualty to the extent of insurance or condemnation proceeds;
10. If a charge, fee or cost is imposed for using the parking
facilities, costs incurred in operating the parking facilities of the Office
Building, but only to the extent of revenues;
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11. Any costs, fines or penalties incurred due to violations by Lessor
of any governmental rule or regulation;
12. In respect to portions of the Office Building Project, other than
the Premises, the cost of correcting any code violations which were violations
prior to the commencement of the term of this Lease;
13. Any other expense that under generally accepted accounting
principles or practices would not be considered reasonable expenses.
14. Any Y2K - related costs & expenses in connection with anything not
on the Premises.
Common Area Operating Expenses 4.2(b)
(b)(i) "Lessee's Share" is defined for purposes of Common Area
Operating Expenses, as set forth in this Lease as the percentage set forth in
paragraph 1.11 of the Basic Lease Provisions. It is understood and agreed that
the square footage figures set forth in the Basic Lease Provisions are
approximations which Lessor and Lessee agree are reasonable and shall not be
subject to revision except in connection with an actual change in the size of
the Premises or a change in the space available for lease in the Office Building
Project.
(b)(ii) The Common Area Operating Costs shall mean all costs and
expenses incurred by Landlord in connection with the maintenance, operation,
replacement, ownership and repair of the common areas of the Office Building
Project, but only to the extent such costs and expenditures are not identifiable
through the operation and maintenance of the Building or any other building
within the Office Building Project. Office Building Project Common Area
Operating Costs shall include, without limitation, all reasonable management and
administrative fees incurred in connection with the operation of the Office
Building Project and for all costs for the repair and maintenance of the
adjacent walks, landscaped areas, common areas, security and the parking
facilities of the Office Building Project. The cost of water, sewer, gas,
electricity, and other publicly mandated services to the Office Building
Project.
(c) Lessee's Audit Rights. Upon Lessee's written request given not
more than ninety (90) days after Lessee's receipt of a statement for a
particular calendar year, and provided that Lessee is not then in default under
this Lease beyond the applicable cure period provided in this Lease, and that
Lessee has paid all amounts required to be paid under the applicable estimate
statement or statement, as the case may be, then Lessor shall provide Lessee
with such reasonable supporting documentation in connection with said building
expenses as Lessee may reasonably request. Lessor shall provide said information
to Lessee within sixty (60) days after Lessee's written request therefore. The
supporting documentation shall contain sufficient detail to enable Lessee to
verify that the terms of exclusions and inclusion with respect to building
direct expenses, as set forth in this Lease, have been adhered to in computing
the building expenses payable by Lessee. Within fifteen (15) days following
Lessee's receipt of such supporting documentation, Lessee and Lessor shall
concurrently be provided with any audit report prepared for Lessee in connection
with Lessee's review of the building expenses, and Lessee shall advise Lessor in
the event Lessee disputes the building expenses and/or Lessee's share thereof as
set forth in the statement for the applicable calendar year. Thereafter, if
Lessor determines that an error has been made, Lessee's sole remedy shall be for
the parties to make such appropriate payments or reimbursements, as the case may
be, to each other as are determined to be owing, provided that any
reimbursements payable by Lessor to Lessee may, at Lessor's option, instead be
credited against the Base Rent next coming due under this Lease unless the lease
term has expired, in which event Lessor shall promptly refund the appropriate
amount to Lessee. Lessee shall keep any information gained from its review of
Lessor's records confidential and shall not disclose it to any other party
except as required by law. If requested by Lessor, Lessee shall require its
employees or agents reviewing Lessor's records to sign a confidentiality
agreement as a condition of Lessor's providing the statement and the supporting
documentation to Lessee.
An amount may be estimated by Lessor from time to time of Lessee's
Share of Common Area Operating Expenses and Building Operating Expenses, annual
Operating Expenses and the same shall be payable monthly or quarterly, as Lessor
shall designate, during each calendar year of the Lease term, on the same day as
the Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate
of Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to
Lessee within sixty (60) days after the expiration of each calendar year a
reasonably detailed statement showing Lessee's Share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
paragraph 4.2(e) during said preceding calendar year exceed Lessee's Share as
indicated on said statement, Lessee shall be entitled to credit the amount of
such overpayment against Lessee's Share of Operating Expenses next falling due.
If Lessee's payments under this paragraph during said preceding calendar 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) business days after
delivery by Lessor to Lessee of said statement.
4.3 Rent Increase.
4.3.1 At the times set forth in paragraph 1.7 of the Basic Lease
Provisions, the monthly Base Rent payable under paragraph 4.1 of this Lease
shall be adjusted by the increase, if any, in the Consumer Price Index of the
Bureau of Labor Statistics of the Department of Labor for All Urban Consumers,
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(1967=100), "All Items," for the city nearest the location of the Building,
herein referred to as "C.P.I.," since the date of this Lease.
4.3.2 The monthly Base Rent payable pursuant to paragraph 4.3.1 shall
be calculated as follows: the Base Rent payable for the first month of the term
of this Lease, as set forth in paragraph 4.1 of this Lease, shall be multiplied
by a fraction the numerator of which shall be the C.P.I. of the calendar month
during which the adjustment is to take effect, and the denominator of which
shall be the C.P.I. for the calendar month in which the original Lease term
commences. The sum so calculated shall constitute the new monthly Base Rent
hereunder, but, in no event, shall such new monthly Base Rent be less than the
Base Rent payable for the month immediately preceding the date for the rent
adjustment.
4.3.3 In the event the compilation and/or publication of the C.P.I.
shall be transferred to any other governmental department or bureau or agency or
shall be discontinued, then the index most nearly the same as the C.P.I. shall
be used to make such calculations. In the event that Lessor and Lessee cannot
agree on such alternative index, then the matter shall be submitted for decision
to the American Arbitration Association in the county in which the Premises are
located, in accordance with the then rules of said association and the decision
of the arbitrators shall be binding upon the parties, notwithstanding one party
failing to appear after due notice of the proceeding. The cost of said
Arbitrators shall be paid equally by Lessor and Lessee.
4.3.4 Lessee shall continue to pay the rent at the rate previously in
effect until the increase, if any, is determined. Within five (5) days following
the date on which the increase is determined, Lessee shall make such payment to
Lessor as will bring the increased rental current, commencing with the effective
date of such increase through the date of any rental installments then due.
Thereafter the rental shall be paid at the increased rate.
4.3.5 At such time as the amount of any change in the rental required
by this Lease is known or determined, Lessor and Lessee shall execute an
amendment to this Lease setting forth such change.
5. Security Deposit. Lessee shall deposit with Lessor upon execution hereof the
security deposit set forth in paragraph 1.9 of the Basic Lease Provisions as
security for Lessee's faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charge in
default for the payment of any other sum to which Lessor may become obligated by
reason of Lessee's default, or to compensate Lessor for any loss or damage which
Lessor may suffer and for which Lessor is entitled to recover under this Lease.
If Lessor so uses or applies all or any portion of said deposit, Lessee shall
within ten (10) business days after written demand therefor deposit cash with
Lessor in an amount sufficient to restore said deposit to the full amount then
required of Lessee. If the monthly Base Rent shall, from time to time, increase
during the term of this Lease, Lessee shall, at the time of such increase,
deposit with Lessor additional money as a security deposit so that the total
amount of the security deposit held by Lessor shall at all times bear the same
proportion to the then current Base Rent as the initial security deposit bears
to the initial Base Rent set forth in paragraph 1.6 of the Basic Lease
Provisions. Lessor shall not be required to keep said security deposit separate
from its general accounts. If Lessee performs all of Lessee's obligations
hereunder, said deposit, or so much thereof as has not heretofore been applied
by Lessor, shall be returned, without payment of interest or other increment for
its use, to Lessee (or, at Lessor's option, to the last assignee, if any, of
Lessee's interest hereunder) at the expiration of the term hereof, and after
Lessee has vacated the Premises. No trust relationship is created herein between
Lessor and Lessee with respect to said Security Deposit. Lessee is also
providing Lessor with a Letter of Credit per paragraph 53 of this Lease.
6. Use.
6.1 Use. The Premises shall be used and occupied only for the purposes set
forth in paragraph 1.4 of the Basic Lease Provisions or any other use which is
reasonably comparable to that use and for no other purpose. The term "reasonably
comparable" shall be deemed to mean a use which does not increase the burden on
the building or the Office Building Project by increasing parking, utility or
security costs, or which causes an increase in the wear and tear.
6.2 Compliance with Law.
(a) Lessor warrants to Lessee that the Premises, in the state existing
on the date that the Lease term commences, but without regard to alterations or
improvements made by Lessee or the use for which Lessee will occupy the
Premises, does not violate any covenants or restrictions of record, or any
applicable building code, regulation or ordinance in effect on such Lease term
Commencement Date. In the event it is determined that this warranty has been
violated, then it shall be the obligation of the Lessor, after written notice
from Lessee, to promptly, at Lessor's sole cost and expense, rectify any such
violation.
(b) Except as provided in paragraph 6.2(a) Lessee shall, at Lessee's
expense, promptly comply with all applicable statutes, ordinances, rules,
regulations, orders, covenants and restrictions of record, and requirements of
any fire insurance underwriters or rating bureaus, now in effect or which may
hereafter come
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into effect, whether or not they reflect a change in policy from that now
existing, during the term or any part of the term hereof, relating in any manner
to the Premises and the occupation and use by Lessee of the Premises. Lessee
shall conduct its business in a lawful manner and shall not use or permit the
use of the Premises or the Common Areas in any manner that will tend to create
waste or a nuisance or shall tend to disturb other occupants of the Office
Building Project.
6.3 Condition of Premises.
(a) Lessor shall deliver the Premises to Lessee in a clean condition
on the Lease Commencement Date (unless Lessee is already in possession) and
Lessor warrants to Lessee that the plumbing, lighting, air conditioning, and
heating system in the Premises shall be in good operating condition. In the
event that it is determined that this warranty has been violated, then it shall
be the obligation of Lessor, after receipt of written notice from Lessee setting
forth with specificity the nature of the violation, to promptly, at Lessor's
sole cost, rectify such violation.
(b) Except as otherwise provided in this Lease, Lessee hereby accepts
the Premises and the Office Building Project in their condition existing as of
the Lease Commencement Date or the date that Lessee takes possession of the
Premises, whichever is earlier, subject to all applicable zoning, municipal,
county and state laws, ordinances and regulations governing and regulating the
use of the Premises, and any easements, covenants or restrictions of record, and
accepts this Lease subject thereto and to all matters disclosed thereby and by
any exhibits attached hereto. Lessee acknowledges that it has satisfied itself
by its own independent investigation that the Premises are suitable for its
intended use, and that neither Lessor nor Lessor's agent or agents has made any
representation or warranty as to the present or future suitability of the
Premises, Common Areas, or Office Building Project for the conduct of Lessee's
business.
7. Maintenance, Repairs, Alterations and Common Area Services.
7.1 Lessor's Obligations. Lessor shall keep the Office Building Project,
limited, however in respect to the Premises, to Premises' foundations and
structure elements of, exterior walls, structural roof, and common areas. Except
as provided in paragraph 9.5, there shall be no abatement of rent or liability
of Lessee on account of any injury or interference with Lessee's business with
respect to any improvements, alterations or repairs made by Lessor to the Office
Building Project or any part thereof. Lessee expressly waives the benefits of
any statute now or hereafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease because of
Lessor's failure to keep the Premises in good order, condition and repair.
7.2 Lessee's Obligations.
(a) Notwithstanding Lessor's obligation to keep the above referenced
portions of the Premises in good condition and repair, Lessee shall be
responsible for payment and maintenance of all other aspects of the subject
Premises (See addendum paragraph 55.) Notwithstanding the above, Lessor shall
maintain the fire sprinkler and fire alarm systems in the Premises, the cost of
which shall be directly billed to Lessee by Lessor.
(b) On the last day of the term hereof, or on any sooner termination,
Lessee shall surrender the Premises to Lessor in the same condition as received,
ordinary wear and tear excepted, clean and free of debris. Any damage or
deterioration of the Premises shall not be deemed ordinary wear and tear if the
same could have been prevented by good maintenance practices by Lessee. Lessee
shall repair any damage to the Premises occasioned by the installation or
removal of Lessee's trade fixtures, alterations, furnishings and equipment.
Except as otherwise stated in this Lease, Lessee shall leave the air lines,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, window coverings, wall coverings, carpets, wall panelling,
ceilings and plumbing on the Premises and in good operating condition.
7.3 Alterations and Additions.
(a) Lessee shall not, without Lessor's prior written consent make any
alterations, improvements, additions, Utility Installations or repairs in, on or
about the Premises or the Office Building Project. As used in this paragraph 7.3
the term "Utility Installation" shall mean carpeting, window and wall coverings,
power panels, electrical distribution systems, lighting fixtures, air
conditioning, plumbing, and telephone and telecommunication wiring and
equipment. At the expiration of the term, Lessor may require the removal of any
or all of said alterations, improvements, additions or Utility Installations,
and the restoration of the Premises and the Office Building Project to their
prior condition, at Lessee's expense. Should Lessor permit Lessee to make its
own alterations, improvements, additions or Utility Installations, Lessee shall
use only such contractor as has been expressly approved by Lessor, and Lessor
may require Lessee to provide Lessor, at Lessee's sole cost and expense in the
event of the estimated cost of such Alteration and/or Addition is in excess of
$20,000, or in the event such Alteration and/or Addition involves a structural
element of the Premises, a lien and completion bond in an amount equal to one
and one-half times the estimated cost of such improvements, to insure Lessor
against any liability for mechanic's and materialmen's liens and to insure
completion of the work. Should Lessee make any alterations, improvements,
additions or Utility Installations without the prior approval of Lessor, or use
a contractor not expressly approved by Lessor, Lessor may, at any time during
the term of this Lease, require that Lessee remove any part or all of the same.
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Notwithstanding the above, Lessee shall be permitted to make such alterations
and utility installations, on, or about the Premises without Lessor's prior
written consent so long as said alterations and installations do not involve the
structural elements of the Premises, are not visible from outside the Premises,
do not involve puncturing, relocating or removing the roof or any bearing walls,
and the cost of which is not estimated to be in excess of Three Thousand and
No/100 Dollars ($3,000.00).
(b) Any alterations, improvements, additions or Utility Installations
in or about the Premises or the Office Building Project that Lessee shall desire
to make shall be presented to Lessor in written form, with proposed detailed
plans. If Lessor shall give its consent to Lessee's making such alteration,
improvement, addition or Utility Installation, the consent shall be deemed
conditioned upon Lessee acquiring a permit to do so from the applicable
governmental agencies, furnishing a copy thereof to Lessor prior to the
commencement of the work, and compliance by Lessee with all conditions of said
permit in a prompt and expeditious manner.
(c) Lessee shall pay, when due, all claims for labor or materials
furnished or alleged to have been furnished to or for Lessee at or for use in
the Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises, the Building or the Office Building
Project, or any interest therein.
(d) Lessee shall give Lessor not less than ten (10) days' notice prior
to the commencement of any work in the Premises by Lessee, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises or the
Building as provided by law. If Lessee shall, in good faith, contest the
validity of any such lien, claim or demand, then Lessee shall, at its sole
expense defend itself and Lessor against the same and shall pay and satisfy any
such adverse judgment that may be rendered thereon before the enforcement
thereof against the Lessor or the Premises, the Building or the Office Building
Project, upon the condition that if Lessor shall require, Lessee shall furnish
to Lessor a surety bond satisfactory to Lessor in an amount equal to such
contested lien claim or demand indemnifying Lessor against liability for the
same and holding the Premises, the Building and the Office Building Project free
from the effect of such lien or claim. In addition, Lessor may require Lessee to
pay Lessor's reasonable outside attorneys' fees and costs in participating in
such action if Lessor shall decide it is to Lessor's best interest so to do.
(e) All alterations, improvements, additions and Utility Installations
(whether or not such Utility Installations constitute trade fixtures of Lessee),
which may be made to the Premises by Lessee, including but not limited to, floor
coverings, panelings, doors, drapes, built-ins, moldings, sound attenuation, and
lighting and telephone or communication systems, conduit, wiring and outlets,
shall be made and done in a good and workmanlike manner and of good and
sufficient quality and materials and shall be the property of Lessor and remain
upon and be surrendered with the Premises at the expiration of the Lease term,
unless Lessor requires their removal pursuant to paragraph 7.3(a). Provided
Lessee is not in default, notwithstanding the provisions of this paragraph
7.3(e), Lessee's personal property and equipment, other than that which is
affixed to the Premises so that it cannot be removed without material damage to
the Premises or the Building, and other than Utility Installations, shall remain
the property of Lessee and may be removed by Lessee subject to the provisions of
paragraph 7.2.
(f) Lessee shall provide Lessor with as-built plans and specifications
for any alterations, improvements, additions or Utility Installations.
7.4 Utility Additions. Lessor reserves the right to install new or
additional utility facilities throughout the Office Building Project for the
benefit of Lessor or Lessee, or any other lessee of the Office Building Project,
including, but not by way of limitation, such utilities as plumbing, electrical
systems, security systems, communication systems, and fire protection and
detection systems, so long as such installations do not unreasonably interfere
with Lessee's use of the Premises.
8. Insurance; Indemnity.
8.1 Liability Insurance - Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease a policy of Comprehensive
General Liability insurance utilizing an Insurance Services Office standard form
with Broad Form General Liability Endorsement (GL0404), or equivalent, in an
amount of not less than $1,000,000 per occurrence of bodily injury and property
damage combined or in a greater amount as reasonably determined by Lessor and
shall insure Lessee with Lessor as an additional insured against liability
arising out of the use, occupancy or maintenance of the Premises. Compliance
with the above requirement shall not, however, limit the liability of Lessee
hereunder.
8.2 Liability Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy of Combined Single Limit Bodily Injury
and Broad Form Property Damage Insurance, plus coverage against such other risks
Lessor deems advisable from time to time, insuring Lessor, but not Lessee,
against liability arising out of the ownership, use, occupancy or maintenance of
the Office Building Project in an amount not less than $5,000,000.00 per
occurrence.
8.3 Property Insurance - Lessee. Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease for the benefit of Lessee,
replacement cost fire and extended coverage insurance, with vandalism and
malicious mischief, sprinkler leakage and earthquake sprinkler leakage
endorsements, in an
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amount sufficient to cover not less than 100% of the full replacement cost, as
the same may exist from time to time, of all of Lessee's personal property,
fixtures, equipment and tenant improvements.
8.4 Property Insurance - Lessor. Lessor shall obtain and keep in force
during the term of this Lease a policy or policies of insurance covering loss or
damage to the Office Building Project improvements, but not Lessee's personal
property, fixtures, equipment or tenant improvements, in the amount of the full
replacement cost thereof, as the same may exist from time to time, utilizing
Insurance Services Office standard form, or equivalent, providing protection
against all perils included within the classification of fire, extended
coverage, vandalism, malicious mischief, plate glass, and such other perils as
Lessor deems advisable or may be required by a lender having a lien on the
Office Building Project. In addition, Lessor shall obtain and keep in force,
during the term of this Lease, a policy of rental value insurance covering a
period of one year, with loss payable to Lessor, which insurance shall also
cover all Operating Expenses for said period. Lessee will not be named in any
such policies carried by Lessor and shall have no right to any proceeds
therefrom. The policies required by these paragraphs 8.2 and 8.4 shall contain
such deductibles as Lessor or the aforesaid lender may determine. In the event
that the Premises shall suffer an insured loss as defined in paragraph 9.1(f)
hereof, the deductible amounts under the applicable insurance policies shall be
deemed an Operating Expense. Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies carried by Lessor. Copies of which
shall be provided to Lessee. Lessee shall pay the entirety of any increase in
the property insurance premium for the Office Building Project over what it was
immediately prior to the commencement of the term of this Lease if the increase
is specified by Lessor's insurance carrier as being caused by the nature of
Lessee's occupancy or any act or omission of Lessee.
8.5 Insurance Policies. Lessee shall deliver to Lessor copies of liability
insurance policies required under paragraph 8.1 or certificates evidencing the
existence and amounts of such insurance within seven (7) business days after the
Commencement Date of this Lease. No such policy shall be cancellable or subject
to reduction of coverage or other modification except after thirty (30) days
prior written notice to Lessor. Lessee shall, at least thirty (30) days prior to
the expiration of such policies, furnish Lessor with renewals thereof.
8.6 Waiver of Subrogation. Lessee and Lessor each hereby release and
relieve the other, and waive their entire right of recovery against the other,
for direct or consequential loss or damage arising out of or incident to the
perils covered by property insurance carried by such party, whether due to the
negligence of Lessor or Lessee or their agents, employees, contractors and/or
invitees. If necessary all property insurance policies required under this Lease
shall be endorsed to so provide.
8.7 Indemnity. Lessee shall indemnify and hold harmless Lessor and its
agents, Lessor's master or ground lessor, partners and lenders, from and against
any and all claims for damage to the person or property of anyone or any entity
arising from Lessee's use of the Office Building Project, or from the conduct of
Lessee's business or from any activity, work or things done, permitted or
suffered by Lessee in or about the Premises or elsewhere and shall further
indemnify and hold harmless Lessor from and against any and all claims, costs
and expenses arising from any breach or default in the performance of any
obligation on Lessee's part to be performed under the terms of this Lease, or
arising from any act or omission of Lessee, or any of Lessee's agents,
contractors, employees or invitees and from and against all reasonably related
costs and expenses, reasonable outside attorney's fees, and liabilities incurred
by Lessor as the result of any such use, conduct, activity, work, things done,
permitted or suffered, breach, default or negligence, and in dealing reasonably
therewith, including but not limited to the defense or pursuit of any claim or
any action or proceeding involved therein; and in case any action or proceeding
be brought against Lessor by reason of any such matter, Lessee upon notice from
Lessor shall defend the same at Lessee's expense by counsel reasonably
satisfactory to Lessor and Lessor shall cooperate with Lessee in such defense.
Lessor need not have first paid any such claim in order to be so indemnified.
Lessee, as a material part of the consideration to Lessor, hereby assumes all
risk of damage to property of Lessee or injury to persons, in, upon or about the
Office Building Project arising from any cause and Lessee hereby waives all
claims in respect thereof against Lessor.
8.8 Exemption of Lessor from Liability. Except for Lessor's gross
negligence or willful misconduct, Lessee hereby agrees that Lessor shall not be
liable for injury to Lessee's business or any loss of income therefrom or for
loss of or damage to the goods, wares, merchandise or other property of Lessee,
Lessee's employees, invitees, customers, or any other person in or about the
Premises or the Office Building Project, nor shall Lessor be liable for injury
to the person of Lessee, Lessee's employees, agents or contractors, whether such
damage or injury is caused by or results from theft, fire, steam, electricity,
gas, water or rain, or from the breakage, leakage, obstruction or other defects
of pipes, sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said damage or injury results from
conditions arising upon the Premises or upon other portions of the Office
Building Project, or from other sources or places, or from new construction or
the repair, alteration or improvement of any part of the Office Building
Project, or of the equipment, fixtures or appurtenances applicable thereto, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is inaccessible, Lessor shall not be liable for any damages
arising from any act of neglect of any other lessee, occupant or user of the
Office Building Project, and notwithstanding that Lessor shall use reasonable
commercial efforts
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to obtain compliance, nor from the failure of Lessor to enforce the provisions
of any other lease of any other lessee of the Office Building Project.
8.9 No Representation of Adequate Coverage. Lessor makes no representation
that the limits or forms of coverage of insurance specified in this paragraph 8
are adequate to cover Lessee's property or obligations under this Lease.
9. Damage or Destruction.
9.1 Definitions.
(a) "Premises Damage" shall mean if the Premises are damaged or
destroyed to any extent.
(b) "Premises Building Partial Damage" shall mean if the Building of
which the Premises are a part is damaged or destroyed to the extent that the
cost of repair is less than fifty percent (50%) of the then Replacement Cost of
the Building.
(c) "Premises Building Total Destruction" shall mean if the Building
of which the Premises are a part is damaged or destroyed to the extent that the
cost of repair if fifty percent (50%) or more of the then Replacement Cost of
the Building.
(d) "Office Building Project Buildings" shall mean all of the
buildings on the Office Building Project site.
(e) "Office Building Project Buildings Total Destruction" shall mean
if the Office Building Project Buildings are damaged or destroyed to the extent
that the cost of repair is fifty percent (50%) or more of the then Replacement
Cost of the Office Building Project Buildings.
(f) "Insured Loss" shall mean damage or destruction which was caused
by an event required to be covered by the insurance described in paragraph 8.
The fact that an Insured Loss has a deductible amount shall not make the loss an
uninsured loss.
(g) "Replacement Cost" shall mean the amount of money necessary to be
spent in order to repair or rebuild the damaged area to the condition that
existed immediately prior to the damage occurring, excluding all improvements
made by lessees, other than those installed by Lessor at Lessee's expense.
9.2 Promises Damage; Premises Building Partial Damage.
(a) Insured Loss: Subject to the provisions of paragraphs 9.4 and 9.5,
if at any time during the term of this Lease there is damage which is an Insured
Loss and which falls into the classification of either Premises Damage or
Premises Building Partial Damage, then Lessor shall, as soon as reasonably
possible and to the extent the required materials and labor are readily
available through usual commercial channels, at Lessor's expense, repair such
damage (but not Lessee's fixtures, equipment or tenant improvements originally
paid for by Lessee) to its condition existing at the time of the damage, and
this Lease shall continue in full force and effect.
(b) Uninsured Loss: Subject to the provisions of paragraphs 9.4 and
9.5, if at any time during the term of this Lease there is damage which is not
an Insured Loss and which falls within the classification of Premises Damage or
Premises Building Partial Damage, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense), which
damage prevents Lessee from making any substantial use of the Premises, Lessor
may at Lessor's option either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in full
force and effect, or (ii) give written notice to Lessee within thirty (30) days
after the date of the occurrence of such damage of Lassoes intention to cancel
and terminate this Lease as of the date of the occurrence of such damage, in
which event this Lease shall terminate as of the date of the occurrence of such
damage.
9.3 Premises Building Total Destruction; Office Building Project Total
Destruction. Subject to the provisions of paragraphs 9.4 and 9.5, if at any time
during the term of this Lease there is damage, whether or not it is an Insured
Loss, which falls into the classifications of either (i) Premises Building Total
Destruction, or (ii) Office Building Project Total Destruction, then Lessor may
at Lessor's option either (i) repair such damage or destruction as soon as
reasonably possible at Lessor's expense (to the extent the required materials
are readily available through usual commercial channels) to its condition
existing at the time of the damage, but not Lessee's fixtures, equipment or
tenant improvements, and this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after the date of
occurrence of such damage of Lessor's intention to cancel and terminate this
Lease, in which case this Lease shall terminate as of the date of the occurrence
of such damage.
9.4 Damage Near End of Term.
(a) Subject to paragraph 9.4(b), if at any time during the last twelve
(12) months of the term of this Lease there is substantial damage to the
Premises, Lessor or Lessee may, at its option cancel and terminate this Lease as
of the date of occurrence of such damage by giving written notice to of its
election to do so within 30 days after the date of occurrence of such damage.
Substantial Damage, for purposes of this paragraph 9.4.a., shall be deemed to be
damage of such an extent as to materially, substantially and adversely affect
both (i) Lessee's profitability and (ii) Lessee's business activities at the
Premises.
(b) Notwithstanding paragraph 9.4(a), in the event that Lessee has an
option to extend or renew this Lease, and the time within which said option may
be exercised has not yet expired, Lessee shall exercise
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such option, if it is to be exercised at all, no later than twenty (20) days
after the occurrence of an Insured Loss falling within the classification of
Premises Damage during the last twelve (12) months of the term of this Lease. If
Lessee duly exercises such option during said twenty (20) day period, Lessor
shall, at Lessor's expense, repair such damage, but not Lessee's fixtures,
equipment or tenant improvements, as soon as reasonably possible and this Lease
shall continue in full force and effect. If Lessee fails to exercise such option
during said twenty (20) day period, then Lessor may at Lessor's option terminate
and cancel this Lease as of the expiration of said twenty (20) day period by
giving written notice to Lessee of Lessor's election to do so within ten (10)
days after the expiration of said twenty (20) day period, notwithstanding any
term or provision in the grant of option to the contrary.
9.5 Abatement of Rent; Lessee's Remedies.
(a) In the event Lessor repairs or restores the Building or Premises
pursuant to the provisions of this paragraph 9, and any part of the Premises are
not usable (including loss of use due to loss of access or essential services),
the rent payable hereunder (including Lessee's Share of Operating Expense) for
the period during which such damage, repair or restoration continues shall be
abated, provided (1) the damage was not the result of the negligence of Lessee,
and (2) such abatement shall only be to the extent the operation and
profitability of Lessee's business as operated from the Premises is adversely
affected. Except for said abatement of rent, if any, Lessee shall have no claim
against Lessor for any damage suffered by reason of any such damage,
destruction, repair or restoration.
(b) If Lessor shall be obligated to repair or restore the Premises or
the Building under the provisions of this Paragraph 9 and shall not commence
such repair or restoration within ninety (90) days after such occurrence, or if
Lessor shall not complete the restoration and repair within six (6) months after
such occurrence, Lessee may at Lessee's option cancel and terminate this Lease
by giving Lessor written notice of Lessee's election to do so at any time prior
to the commencement or completion, respectively, of such repair or restoration.
In such event this Lease shall terminate as of the date of such notice.
(c) Lessee agrees to cooperate with Lessor in connection with any such
restoration and repair, including but not limited to the approval and/or
execution of plans and specifications required.
9.6 Termination - Advance Payments. Upon termination of this Lease pursuant
to this paragraph 9, an equitable adjustment shall be made concerning advance
rent and any advance payments made by Lessee to Lessor. Lessor shall, in
addition, return to Lessee so much of Lessee's security deposit as has not
theretofore been applied by Lessor.
9.7 Waiver. Lessor and Lessee waive the provisions of any statute which
relate to termination of leases when leased property is destroyed and agree that
such event shall be governed by the terms of this Lease.
10. Real Property Taxes.
10.1 Payment of Taxes. Lessor shall pay the real property tax, as defined
in paragraph 10.3, applicable to the Office Building Project subject to
reimbursement by Lessee of Lessee's Share of such taxes in accordance with the
provisions of paragraph 4.2, except as otherwise provided in paragraph 10.2.
10.2 Additional Improvements. Lessee shall not be responsible for paying
any increase in real property tax specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the Office
Building Project by other lessees or by Lessor for the exclusive enjoyment of
any other lessee. Lessee shall, however, pay to Lessor at the time that
Operating Expenses are payable under paragraph 4.2(c) the entirety of any
increase in real property tax if assessed solely by reason of additional
improvements placed upon the Premises by Lessee or at Lessee's request.
10.3 Definition of "Real Property Tax". As used herein, the term "real
property tax" shall include any form of real estate tax or assessment, general,
special, ordinary or extraordinary, and any license fee, commercial rental tax,
improvement bond or bonds, levy or tax (other than inheritance, personal income
or estate taxes) imposed on the Office Building Project or any portion thereof
by any authority having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural, sanitary,
fire, street, drainage or other improvement district thereof, as against any
legal or equitable interest of Lessor in the Office Building Project or in any
portion thereof, as against Lessor's right to rent or other income therefrom,
and as against Lessor's business of leasing the Office Building Project. The
term "real property tax" shall also include any tax, fee, levy, assessment or
charge (i) in substitution of, partially or totally, any tax, fee, levy,
assessment or charge hereinabove included within the definition of "real
property tax", or (ii) the nature of which was hereinbefore included within the
definition of "real property tax", or (iii) which is imposed for a service or
right not charged prior to June 1, 1978 or, if previously charged, has been
increased since June 1, 1978, or (iv) which is imposed as a result of a change
in ownership, as defined by applicable local statutes for property tax purposes,
of the Office Building Project or which is added to a tax or charge hereinbefore
included within the definition of real property tax by reason of such change of
ownership, or (v) which is imposed by reason of this transaction, any
modifications or changes hereto, or any transfers hereof.
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10.4 Joint Assessment. If the improvements or property, the taxes for which
are to be paid separately by Lessee under paragraph 10.2 or 10.5 are not
separately assessed, Lessee's portion of that tax shall be equitably determined
by Lessor from the respective valuations assigned in the assessor's work sheets
or such other information (which may include the cost of construction) as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.5 Personal Property Taxes.
(a) Lessee shall pay prior to delinquency all taxes assessed against
and levied upon trade fixtures, furnishings, equipment and all other personal
property of Lessee contained in the Premises or elsewhere.
(b) If any of Lessee's said personal property shall be assessed with
Lessor's real property, Lessee shall pay to Lessor the taxes attributable to
Lessee within ten (10) business days after receipt of a written statement
setting forth the taxes applicable to Lessee's property.
11. Utilities.
11.1 Services Provided by Lessor. Lessor shall provide (the cost of which
shall be paid per paragraph 4.2) (a), heating, ventilation, air conditioning,
and janitorial service as reasonably required, reasonable amounts of electricity
for normal lighting and office machines, water for reasonable and normal
drinking and lavatory use, and replacement light bulbs and/or fluorescent tubes
and ballasts for standard overhead fixtures.
11.2 Services Exclusive to Lessee. Lessee shall pay for all water, gas,
heat, light, power, telephone and other utilities and services specially or
exclusively supplied and/or metered exclusively to the Premises or to Lessee,
together with any taxes thereon. If any such services are not separately metered
to the Premises, Lessee shall pay at Lessor's option, either Lessee's Share or a
reasonable proportion to be determined by Lessor of all charges jointly metered
with other premises in the Building.
11.3 Hours of Service. Said services and utilities shall be provided during
generally accepted business days and hours or such other days or hours as may
hereafter be set forth. Utilities and services required at other times shall be
subject to advance request and reimbursement by Lessee to Lessor of the cost
thereof.
11.4 Excess Usage by Lessee. Lessee shall not make connection to the
utilities except by or through existing outlets and shall not install or use
machinery or equipment in or about the Premises that uses excess water, lighting
or power, or suffer or permit any act that causes extra burden upon the
utilities or services, including but not limited to security services, over
standard office usage for the Office Building Project. Lessor shall require
Lessee to reimburse Lessor for any excess direct expenses or costs that may
arise out of a breach of this subparagraph by Lessee. Lessor may, in its sole
discretion, install at Lessee's expense supplemental equipment and/or separate
metering applicable to Lessee's excess usage or loading.
11.5 Interruptions. There shall be no abatement of rent and Lessor shall
not be liable in any respect whatsoever for the inadequacy, stoppage,
interruption or discontinuance of any utility or service due to riot, strike,
labor dispute, breakdown, accident, repair or other cause beyond Lessor's
reasonable control or in cooperation with governmental request or directions.
12. Assignment and Subletting.
12.1 Lessor's Consent Required. Lessee shall not voluntarily or by
operation of law assign, transfer, mortgage, sublet, or otherwise transfer or
encumber all or any part of Lessee's interest in the Lease or in the Premises,
without Lessor's prior written consent, which Lessor shall not unreasonably
withhold. Lessor shall respond to Lessee's request for consent hereunder in a
timely manner and any attempted assignment, transfer, mortgage, encumbrance or
subletting without such consent shall be void, and shall constitute a material
default and breach of this Lease without the need for notice to Lessee under
paragraph 13.1. "Transfer" within the meaning of this paragraph 12 shall include
the transfer or transfers aggregating: (a) if Lessee is a corporation, more than
twenty-five percent (25%) of the voting stock of such corporation, or (b) if
Lessee is a partnership, more than twenty-five percent (25%) of the profit and
loss participation in such partnership.
12.2 Lessee Affiliate. Notwithstanding the provisions of paragraph 12.1
hereof, Lessee may assign or sublet the Premises, or any portion thereof,
without Lessor's consent, to any corporation which controls, is controlled by or
is under common control with Lessee, or to any corporation resulting from the
merger or consolidation with Lessee, or to any person or entity which acquires
all the assets of Lessee as a going concern of the business that is being
conducted on the Premises, all of which are referred to as "Lessee Affiliate";
provided that before such assignment shall be effective, (a) said assignee shall
assume, in full, the obligations of Lessee under this Lease, and (b) Lessor
shall be given written notice of such assignment and assumption. Any such
assignment shall not, in any way, affect or limit the liability of Lessee under
the terms of this Lease even if after such assignment or subletting the terms of
this Lease are materially changed or altered without the consent of Lessee, the
consent of whom shall not be necessary.
12.3 Terms and Conditions Applicable to Assignment and Subletting.
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(a) Regardless of Lessor's consent, no assignment or subletting shall
release Lessee of Lessee's obligations hereunder or alter the primary liability
of Lessee to pay the rent and other sums due Lessor hereunder including Lessee's
Share of Operating Expenses, and to perform all other obligations to be
performed by Lessee hereunder.
(b) Lessor may accept rent from any person other than Lessee pending
approval or disapproval of such assignment.
(c) Neither a delay in the approval or disapproval of such assignment
or subletting, nor the acceptance of rent, shall constitute a waiver or estoppel
of Lessor's right to exercise its remedies for the breach of any of the terms or
conditions of this paragraph 12 or this Lease.
(d) If Lessee's obligations under this Lease have been guaranteed by
third parties, then an assignment or sublease, and Lessor's consent thereto,
shall not be effective unless said guarantors give their written consent to such
sublease and the terms thereof.
(e) The consent by Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent and such
action shall not relieve such persons from liability under this Lease or said
sublease; provided, however, such persons shall not be responsible to the extent
any such amendment or modification enlarges or increases the obligations of the
Lessee or sublessee under this Lease or such sublease.
(f) In the event of any default under this Lease, Lessor may proceed
directly against Lessee, any guarantors or anyone else responsible for the
performance of this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(g) Lessor's written consent to any assignment or subletting of the
Premises by Lessee shall not constitute an acknowledgment that no default then
exists under this Lease of the obligations to be performed by Lessee nor shall
such consent be deemed a waiver of any then existing default, except as may be
otherwise stated by Lessor at the time.
(h) The discovery of the fact that any financial statement relied upon
by Lessor in giving its consent to an assignment or subletting was materially
false shall, at Lessor's election, render Lessor's said consent null and void.
12.4 Additional Terms and Conditions Applicable to Subletting. Regardless
of Lessor's consent, the following terms and conditions shall apply to any
subletting by Lessee of all or any part of the Premises and shall be deemed
included in all subleases under this Lease whether or not expressly incorporated
therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease heretofore or
hereafter made by Lessee, and Lessor may collect such rent and income and apply
same toward Lessee's obligations under this Lease; provided, however, that until
a default shall occur in the performance of Lessee's obligations under this
Lease, Lessee may receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of this or any other assignment of such
sublease to Lessor nor by reason of the collection of the rents from a
sublessee, be deemed liable to the sublessee for any failure of Lessee to
perform and comply with any of Lessee's obligations to such sublessee under such
sublease. Lessee hereby irrevocably authorizes and directs any such sublessee,
upon receipt of a written notice from Lessor stating that a default exists in
the performance of Lessee's obligations under this Lease, to pay to Lessor the
rents due and to become due under the sublease. Lessee agrees that such
sublessee shall have the right to rely upon any such statement and request from
Lessor, and that such sublessee shall pay such rents to Lessor without any
obligation or right to inquire as to whether such default exists and
notwithstanding any notice from or claim from Lessee to the contrary, Lessee
shall have no right or claim against said sublessee or Lessor for any such rents
so paid by said sublessee to Lessor.
(b) No sublease entered into by Lessee shall be effective unless and
until it has been approved in writing by Lessor. In entering into any sublease,
Lessee shall use only such form of sublease as is satisfactory to Lessor, and
once approved by Lessor, such sublease shall not be changed or modified without
Lessor's prior written consent. Any sublessee shall, by reason of entering into
a sublease under this Lease, be deemed, for the benefit of Lessor, to have
assumed and agreed to conform and comply with each and every obligation herein
to be performed by Lessee other than such obligations as are contrary to or
inconsistent with provisions contained in a sublease to which Lessor has
expressly consented in writing.
(c) In the event Lessee shall materially default in the performance of
its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of Lessee under such sublease from
the time of the exercise of said option to the termination of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to Lessee or for any other prior defaults of
Lessee under such sublease.
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(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) With respect to any subletting to which Lessor has consented,
Lessor agrees to deliver a copy of any notice of default by Lessee to the
sublessee. Such sublessee shall have the right to cure a default of Lessee
within three (3) business days after service of said notice of default upon such
sublessee, and the sublessee shall have a right of reimbursement and offset from
and against Lessee for any such defaults cured by the sublessee.
12.5 Lessor's Expenses. In the event Lessee shall assign or sublet the
Premises or request the consent of Lessor to any assignment or subletting or if
Lessee shall request the consent of Lessor for any act Lessee proposes to do
then Lessee shall pay Lessor's reasonable costs and expenses incurred in
connection therewith, including reasonable outside attorneys', architects',
engineers' or other consultants' fees.
12.6 Conditions to Consent. Lessor reserves the right to condition any
approval to assign or sublet upon Lessor's determination that (a) the proposed
assignee or sublessee shall conduct a business on the Premises of a quality
substantially equal to that of Lessee and consistent with the general character
of the other occupants of the Office Building Project and not in violation of
any exclusives or rights then held by other tenants, and (b) the proposed
assignee or sublessee be at least as financially responsible as Lessee was
expected to be at the time of the execution of this Lease or of such assignment
or subletting, whichever is greater.
13. Default; Remedies.
13.1 Default. The occurrence of any one or more of the following events
shall constitute a material default of this Lease by Lessee:
(a) The vacation or abandonment of the Premises by Lessee. Vacation of
the Premises shall include the failure to occupy the Premises for a continuous
period of sixty (60) days or more, whether or not the rent is paid.
(b) The breach by Lessee of any of the covenants, conditions or
provisions of paragraphs 7.3(a), (b) or (d) (alterations), 12.1 (assignment or
subletting), 13.1(a) (vacation or abandonment), 13.1(e) (insolvency), 13.1(f)
(false statement), 16(a) (estoppel certificate), 30(b) (subordination), 33
(auctions), or 41.1 (easements), all of which are hereby deemed to be material,
non-curable defaults without the necessity of any notice by Lessor to Lessee
thereof.
(c) The failure by Lessee to make any payment of rent or any other
payment required to be made by Lessee hereunder, as and when due, where such
failure shall continue for a period of three (3) business days after written
notice thereof from Lessor to Lessee. In the event that Lessor serves Lessee
with a Notice to Pay Rent or Quit pursuant to applicable Unlawful Detainer
statutes such Notice to Pay Rent or Quit shall also constitute the notice
required by this subparagraph.
(d) The failure by Lessee to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Lessee
other than those referenced in subparagraphs (b) and (c), above, where such
failure shall continue for a period of thirty (30) days after written notice
thereof from Lessor to Lessee; provided, however, that if the nature of Lessee's
noncompliance is such that more than thirty (30) days are reasonably required
for its cure, then Lessee shall not be deemed to be in default if Lessee
commenced such cure within said thirty (30) day period and thereafter diligently
pursues such cure to completion. To the extent permitted by law, such thirty
(30) day notice shall constitute the sole and exclusive notice required to be
given to Lessee under applicable Unlawful Detainer statutes.
(e) (i) The making by Lessee of any general arrangement or general
assignment for the benefit of creditors; (ii) Lessee becoming a "debtor" as
defined in 11 U.S.C. ss.101 or any successor statute thereto (unless, in the
case of a petition filed against Lessee, the same is dismissed within sixty (60)
days; (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within thirty
(30) days; or (iv) the attachment, execution or other judicial seizure of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where such seizure is not discharged within thirty (30)
days. In the event that any provision of this paragraph 13.1(e) is contrary to
any applicable law, such provision shall be of no force or effect.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee, or its successor in interest or by any guarantor of Lessee's
obligation hereunder, was materially false.
13.2 Remedies. In the event of any material default or breach of this Lease
by Lessee, Lessor may at any time thereafter, with or without notice or demand
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such default:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee all damages incurred by
Lessor by reason of Lessee's default including, but not limited to, the cost of
recovering possession of the Premises; expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable
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outside attorneys' fees, and any real estate commission actually paid; the worth
at the time of award by the court having jurisdiction thereof the amount by
which the unpaid rent for the balance of the term after the time of such award
exceeds the amount of such rental loss for the same period that Lessee proves
could be reasonably avoided; that portion of the leasing commission paid by
Lessor pursuant to paragraph 15 applicable to the unexpired term of this Lease.
(b) Maintain Lessee's right to possession in which case this Lease
shall continue in effect whether or not Lessee shall have vacated or abandoned
the Premises. In such event Lessor shall be entitled to enforce all of Lessors
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
Unpaid installments of rent and other unpaid monetary obligations of Lessee
under the terms of this Lease shall bear interest from the date due at the
maximum rate then allowable by law.
13.3 Default by Lessor. Lessor shall not be in default unless Lessor fails
to perform obligations required of Lessor within a reasonable time, but in no
event later than thirty (30) days after written notice by Lessee to Lessor and
to the holder of any first mortgage or deed of trust covering the Premises whose
name and address shall have theretofore been furnished to Lessee in writing,
specifying wherein Lessor has failed to perform such obligation; provided,
however, that if the nature of Lessor's obligation is such that more than thirty
(30) days are required for performance then Lessor shall not be in default if
Lessor commences performance within such 30-day period and thereafter diligently
pursues the same to completion.
13.4 Late Charges. Lessee hereby acknowledges that late payment by Lessee
to Lessor of Base Rent, Lessee's Share of Operating Expenses or other sums due
hereunder will cause Lessor to incur costs not contemplated by this Lease, the
exact amount of which will be extremely difficult to ascertain. Such costs
include, but are not limited to, processing and accounting charges, and late
charges which may be imposed on Lessor by the terms of any mortgage or trust
deed covering the Office Building Project. Accordingly, if any installment of
Base Rent, Operating Expenses, or any other sum due from Lessee shall not be
received by Lessor or Lessor's designee within ten (10) days after such amount
shall be due, then without any requirement for notice to Lessee, Lessee shall
pay to Lessor a late charge equal to 6% of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable estimate of
the costs Lessor will incur by reason of late payment by Lessee. Acceptance of
such late charge by Lessor shall in no event constitute a waiver of Lessee's
default with respect to such overdue amount, nor prevent Lessor from exercising
any of the other rights and remedies granted hereunder.
14. Condemnation. If the Premises or any portion thereof or the Office Building
Project are taken under the power of eminent domain, or sold under the threat of
the exercise of said power (all of which are herein called "condemnation"), this
Lease shall terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever first occurs; provided that if so
much of the Premises or the Office Building Project are taken by such
condemnation as would substantially and adversely affect the operation and
profitability of Lessee's business conducted from the Premises, Lessee shall
have the option, to be exercised only in writing within thirty (30) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within thirty (30) days after the condemning authority shall
have taken possession), to terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the rent and Lessee's
Share of Operating Expenses shall be reduced in the proportion that the floor
area of the Premises taken bears to the total floor area of the Premises. Common
Areas taken shall be excluded from the Common Areas usable by Lessee and no
reduction of rent shall occur with respect thereto or by reason thereof. Lessor
shall have the option in its sole discretion to terminate this Lease as of the
taking of possession by the condemning authority, by giving written notice to
Lessee of such election within thirty (30) days after receipt of notice of a
taking by condemnation of any part of the Premises or the Office Building
Project. Any award for the taking of all or any part of the Premises or the
Office Building Project under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any separate award for loss of the
damage to Lessee's trade fixtures, removable personal property and unamortized
tenant improvements that have been paid for by Lessee. For that purpose the cost
of such improvements shall be amortized over the original term of this Lease
excluding any options. In the event that this Lease is not terminated by reason
of such condemnation, Lessor shall to the extent of severance damages received
by Lessor in connection with such condemnation, repair any damage to the
Premises caused by such condemnation except to the extent that Lessee has been
reimbursed therefor by the condemning authority. Lessee shall pay any amount in
excess of such severance damages required to complete such repair. In the event
of any condemnation, Lessee shall also be entitled to any compensation
separately awarded to Lessor for Lessee's relocation cost, Lessee's loss
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of goodwill, Lessee's business interruption and any "bonus" market value of
Lessee's leasehold estate. Notwithstanding the immediately preceding sentence,
Lessor shall (i) have no obligation to seek such amounts in any condemnation
proceedings, and, (ii) shall not be liable to Lessee if such amounts are not
awarded.
15. Broker's Fee.
(a) The brokers involved in this transaction are Leonard & Ohren as
"listing broker" and Grubb & Ellis as "cooperating broker", licensed real estate
broker(s). A "cooperating broker" is defined as any broker other than the
listing broker entitled to a share of any commission arising under this Lease.
Upon execution of this Lease by both parties, Lessor shall pay to said brokers
jointly, or in such separate shares as they may mutually designate in writing, a
fee as set forth in a separate agreement between Lessor and said broker(s), or
in the event there is no separate agreement between Lessor and said broker(s),
the sum of $N/A, for brokerage services rendered by said broker(s) to Lessor in
this transaction.
(b) Lessor further agrees that (i) if Lessee exercises any Option, as
defined in paragraph 39.1 of this Lease, which is granted to Lessee under this
Lease, or any subsequently granted option which is substantially similar to an
Option granted to Lessee under this Lease, or (ii) if Lessee acquires any rights
to the Premises or other premises described in this Lease which are
substantially similar to what Lessee would have acquired had an Option herein
granted to Lessee been exercised, or (iii) if Lessee remains in possession of
the Premises after the expiration of the term of this Lease after having failed
to exercise an Option, or (iv) if said broker(s) are the procuring cause of any
other lease or sale entered into between the parties pertaining to the Premises
and/or any adjacent property in which Lessor has an interest, or (v) if the Base
Rent is increased, whether by agreement or operation of an escalation clause
contained herein, then as to any of said transactions or rent increases, Lessor
shall pay said broker(s) a fee in accordance with the schedule of said broker(s)
in effect at the time of execution of this Lease. Said fee shall be paid at the
time of such increased rental is determined.
(c) Lessor agrees to pay said fee not only on behalf of Lessor but also on
behalf of any person, corporation, association, or other entity having an
ownership interest in said real property or any part thereof, when such fee is
due hereunder. Any transferee of Lessor's interest in this Lease, whether such
transfer is by agreement or by operation of law, shall be deemed to have assumed
Lessor's obligation under this paragraph 15. Each listing and cooperating broker
shall be a third party beneficiary of the provisions of this paragraph 15 to the
extent of their interest in any commission arising under this Lease and may
enforce that right directly against Lessor; provided, however, that all brokers
having a right to any part of such total commission shall be a necessary party
to any suit with respect thereto.
(d) Lessee and Lessor each represent and warrant to the other that neither
has had any dealings with any person, firm, broker or finder (other than the
persons(s), if any, whose names are set forth in paragraph 15(a), above) in
connection with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and no other broker or other person, firm or
entity is entitled to any commission or finder's fee in connection with said
transaction and Lessee and Lessor do each hereby indemnify and hold the other
harmless from and against any costs, expenses, attorneys' fees or liability for
compensation or charges which may be claimed by any such unnamed broker, finder
or other similar party by reason of any dealings or actions of the indemnifying
party.
16. Estoppel Certificate.
(a) Each party (as "responding party") shall at any time upon not less than
ten (10) business days' prior written notice from the other party ("requesting
party") execute, acknowledge and deliver to the requesting party a statement in
writing (i) certifying that this Lease is unmodified and in full force and
effect (or, if modified, stating the nature of such modification and certifying
that this Lease, as so modified, is in full force and effect) and the date to
which the rent and other charges are paid in advance, if any, and (ii)
acknowledging that there are not, to the responding party's knowledge, any
uncured defaults on the part of the requesting party, or specifying such
defaults if any are claimed. Any such statement may be conclusively relied upon
by any prospective purchaser or encumbrancer of the Office Building Project or
of the business of Lessee.
(b) At the requesting party's option, the failure to deliver such statement
within such time shall be a material default of this Lease by the party who is
to respond, without any further notice to such party, or it shall be conclusive
upon such party that (i) this Lease is in full force and effect, without
modification except as may be represented by the requesting party, (ii) there
are no uncured defaults in the requesting party's performance, and (iii) if
Lessor is the requesting party, not more than one month's rent has been paid in
advance.
(c) If Lessor desires to finance, refinance, or sell the Office Building
Project, or any part thereof, Lessee hereby agrees to deliver to any lender or
purchaser designated by Lessor such financial statements of Lessee as may be
reasonably required by such lender or purchaser. Such statements shall include
the past three (3) years' financial statements of Lessee. All such financial
statements shall be received by Lessor and such lender or purchaser in
confidence and shall be used only for the purposes herein set forth.
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17. Lessor's Liability. The term "Lessor" as used herein shall mean only the
owner or owners, at the time in question, of the fee title or a lessee's
interest in a ground lease of the Office Building Project, and except as
expressly provided in paragraph 15, in the event of any transfer of such title
or interest, Lessor herein named (and in case of any subsequent transfers then
the grantor) shall be relieved from and after the date of such transfer of all
liability as respects Lessor's obligations thereafter to be performed, provided
that any funds in the hands of Lessor or the then grantor at the time of such
transfer, in which Lessee has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by Lessor shall, subject
as aforesaid, be binding on Lessor's successors and assigns, only during their
respective periods of ownership.
18. Severability. The invalidity of any provision of this Lease as determined by
a court of competent jurisdiction shall in no way affect the validity of any
other provision hereof.
19. Interest on Past-due Obligations. Except as expressly herein provided, any
amount due to Lessor not paid when due shall bear interest at the maximum rate
then allowable by law or judgments from the date due. Payment of such interest
shall not excuse or cure any default by Lessee under this Lease; provided,
however, that interest shall not be payable on late charges incurred by Lessee
nor on any amounts upon which late charges are paid by Lessee.
20. Time of Essence. Time is of the essence with respect to the obligations to
be performed under this Lease.
21. Additional Rent. All monetary obligations of Lessee to Lessor under the
terms of this Lease, including but not limited to Lessee's Share of Operating
Expenses and any other expenses payable by Lessee hereunder shall be deemed to
be rent.
22. Incorporation of Prior Agreements; Amendments. This Lease contains all
agreements of the parties with respect to any matter mention herein. No prior or
contemporaneous agreement or understanding pertaining to any such matter shall
be effective. This Lease may be modified in writing only, signed by the parties
in interest at the time of the modification. Except as otherwise stated in this
Lease, Lessee hereby acknowledges that neither the real estate broker listed in
paragraph 15 hereof nor any cooperating broker on this transaction nor the
Lessor or any employee or agents of any of said persons has made any oral or
written warranties or representations to Lessee relative to the condition or use
by Lessee of the Premises or the Office Building Project and Lessee acknowledges
that Lessee assumes all responsibility regarding the Occupational Safety Health
Act, the legal use and adaptability of the Premises and the compliance thereof
with all applicable laws and regulations in effect during the term of this
Lease.
23. Notices. Any notice required or permitted to be given hereunder shall be in
writing and may be given by personal delivery or by certified or registered
mail, and shall be deemed sufficiently given if delivered or addressed to Lessee
or to Lessor at the address noted below or adjacent to the signature of the
respective parties, as the case may be. Mailed notices shall be deemed given
upon actual receipt at the address required, or forty-eight hours following
deposit in the mail, postage prepaid, provided, if mailed, at least one (1)
business day shall be included in said period, whichever first occurs. Either
party may by notice to the other specify a different address for notice purposes
except that upon Lessee's taking possession of the Premises, the Premises shall
constitute Lessee's address for notice purposes. A copy of all notices required
or permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by notice to Lessee. Notwithstanding the above, and for
courtesy purposes only, without liability each party shall endeavor to transmit
copies of any notices hereunder by faximile to the other party at such faximile
telephone numbers as Such other party may designate from time to time.
24. Waivers. No waiver by Lessor of any provision hereof shall be deemed a
waiver of any other provision hereof or of any subsequent breach by Lessee of
the same or any other provision. Lessor's consent to, or approval of, any act
shall not be deemed to render unnecessary the obtaining of Lessor's consent to
or approval of any subsequent act by Lessee. The acceptance of rent hereunder by
Lessor shall not be a waiver of any preceding breach by Lessee of any provision
hereof, other than the failure of Lessee to pay the particular rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such rent.
25. Recording. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a "short form" memorandum of this
Lease for recording purposes.
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26. Holding Over. If Lessee, with Lessor's consent, remains in possession of the
Premises or any part thereof after the expiration of the term hereof, such
occupancy shall be a tenancy from month to month upon all the provisions of this
Lease pertaining to the obligations of Lessee, except that the rent payable
shall be one hundred fifty percent (150%) of the rent payable immediately
preceding the termination date of this Lease, and all Options, if any, granted
under the terms of this Lease shall be deemed terminated and be of no further
effect during said month to month tenancy.
27. Cumulative Remedies. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. Covenants and Conditions. Each provision of this Lease performable by Lessee
shall be deemed both a covenant and a condition.
29. Binding Effect; Choice of Law. Subject to any provisions hereof restricting
assignment or subletting by Lessee and subject to the provisions of paragraph
17, this Lease shall bind the parties, their personal representatives,
successors and assigns. This Lease shall be governed by the laws of the State
where the Office Building Project is located and any litigation concerning this
Lease between the parties hereto shall be initiated in the county in which the
Office Building Project is located.
30. Subordination.
(a) This Lease, and any Option or right of first refusal granted hereby, at
Lessor's option, shall be subordinate to any ground lease, mortgage, deed of
trust, or any other hypothecation or security now or hereafter placed upon the
Office Building Project and to any and all advances made on the security thereof
and to all renewals, modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Lessee's right to quiet possession
of the Premises shall not be disturbed if Lessee is not in default and so long
as Lessee shall pay the rent and observe and perform all of the provisions of
this Lease, unless this Lease is otherwise terminated pursuant to its terms. If
any mortgagee, trustee or ground lessor shall elect to have this Lease and any
Options granted hereby prior to the lien of its mortgage, deed of trust or
ground lease, and shall give written notice thereof to Lessee, this Lease and
such Options shall be deemed prior to such mortgage, deed of trust or ground
lease, whether this Lease or such Options are dated prior or subsequent to the
date of said mortgage, deed of trust or ground lease or the date of recording
thereof.
(b) Lessee agrees to execute any documents required to effectuate an
attornment, a subordination, or to make this Lease or any Option granted herein
prior to the lien of any mortgage, deed of trust or ground lease, as the case
may be. Lessee's failure to execute such documents within ten (10) business days
after written demand shall constitute a material default by Lessee hereunder
without further notice to Lessee or, at Lessor's option, Lessor shall execute
such documents on behalf of Lessee as Lessee's attorney-in-fact. Lessee does
hereby make, constitute and irrevocably appoint Lessor as Lessee's
attorney-in-fact and in Lessee's name, place and stead, to execute such
documents in accordance with this paragraph 30(b).
31. Attorneys' Fees.
31.1 If either party or the broker(s) named herein bring an action to
enforce the terms hereof or declare rights hereunder, the prevailing party in
any such action, trial, or appeal thereon, shall be entitled to his reasonable
outside attorneys' fees to be paid by the losing party as fixed by the court in
the same or separate suit, and whether or not such action is pursued to decision
or judgment. The provision of this paragraph shall inure to the benefit of the
broker named herein who seeks to enforce a right hereunder.
31.2 The attorneys' fee award shall not be computed in accordance with any
court fee schedule, but shall be such as to fully reimburse all outside
attorneys' fees reasonably incurred in good faith.
31.3 Lessor shall be entitled to reasonable outside attorneys' fees and
all other direct costs and expenses incurred in the preparation and service of
notices of default and consultations in connection therewith, whether or not a
legal action is subsequently commenced in connection with such default.
32. Lessor's Access.
32.1 Lessor and Lessor's agents shall have the right to enter the Premises
at reasonable times for the purposes of inspecting the same, performing any
services required of Lessor, showing the same to prospective purchasers,
lenders, or lessees, taking such safety measures, erecting such scaffolding or
other necessary structures, making such alterations, repairs, improvements or
additions to the Premises or to the Office Building Project as Lessor may
reasonably deem necessary or desirable and the erecting, using and maintaining
of utilities, services, pipes and conduits through the Premises and/or other
premises as long as there is no material adverse effect to Lessee's use of the
Premises. Lessor may at any time place on or about the Premises or the Building
any ordinary "For Sale" signs and Lessor may at any time during the last 120
days of the term hereof place on or about the Premises any ordinary "For Lease"
signs.
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32.2 All activities of Lessor permitted pursuant to this paragraph shall be
without abatement of rent, nor shall Lessor have any liability to Lessee for the
same.
32.3 Lessor shall have the right to retain keys to the Premises and to
unlock all doors in or upon the Premises other than to files, vaults and safes,
and in the case of emergency to enter the Premises by any reasonably appropriate
means, and any such entry shall not be deemed a forcible or unlawful entry or
detainer of the Premises or an eviction. Lessee waives any charges for damages
or injuries or interference with Lessee's property or business in connection
therewith.
33. Auctions. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises or the Common Areas
without first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant such
consent. The holding of any auction on the Premises or Common Areas in violation
of this paragraph shall constitute a material default of this Lease.
34. Signs. Lessee shall not place any sign upon the Premises or the Office
Building Project without Lessor's prior written consent. Under no circumstances
shall Lessee place a sign on any roof of the Office Building Project.
Notwithstanding the above, Lessee's rights to building signage are set forth in
the exhibit entitled "Lessee's Signage" attached hereto.
35. Merger. The voluntary or other surrender of this Lease by Lessee, or a
mutual cancellation thereof, or a termination by Lessor, shall not work a
merger, and shall, at the option of Lessor, terminate all or any existing
subtenancies or may, at the option of Lessor, operate as an assignment to Lessor
of any or all of such subtenancies.
36. Consents and Approvals. Except for paragraphs 33 (auctions) and 34 (signs)
hereof, wherever in this Lease the consent or approval of one party is required
to an act of the other party such consent for approval shall not be unreasonably
withheld or delayed.
37. Guarantor. In the event that there is a guarantor of this Lease, said
guarantor shall have the same obligations as Lessee under this Lease.
38. Quiet Possession. Upon Lessee paying the rent for the Premises and observing
and performing all of the covenants, conditions and provisions on Lessee's part
to be observed and performed hereunder, Lessee shall have quiet possession of
the Premises for the entire term hereof subject to all of the provisions of this
Lease. The individuals executing this Lease on behalf of Lessor represent and
warrant to Lessee that they are fully authorized and legally capable of
executing this Lease on behalf of Lessor and that such execution is binding upon
all parties holding an ownership interest in the Office Building Project.
39. Options.
39.1 Definition. As used in this paragraph the word "Option" has the
following meaning: (1) the right or option to extend the term of this Lease or
to renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (2) the option or right of first refusal to lease the
Premises or the right of first offer to lease the Premises or the right of first
refusal to lease other space within the Office Building Project or other
property of Lessor or the right of first offer to lease other space within the
Office Building Project or other property of Lessor; (3) the right or option to
purchase the Premises or the Office Building Project, or the right of first
refusal to purchase the Premises or the Office Building Project or the right of
first offer to purchase the Premises or the Office Building Project, or the
right or option to purchase other property of Lessor, or the right of first
refusal to purchase other property of Lessor or the right of first offer to
purchase other property of Lessor.
39.2 Options Personal. Each Option granted to Lessee in this Lease is
personal to the original Lessee and may be exercised only by the original Lessee
while occupying the Premises who does so without the intent of thereafter
assigning this Lease or subletting the Premises or any portion thereof, and may
not be exercised or be assigned, voluntarily or involuntarily, by or to any
person or entity other than Lessee; provided, however, that an Option may be
exercised by or assigned to any Lessee Affiliate as defined in paragraph 12.2 of
this Lease. The Options, if any, herein granted to Lessee are not assignable
separate and apart from this Lease, nor may any Option be separated from this
Lease in any manner, either by reservation or otherwise.
39.3 Multiple Options. In the event that Lessee has any multiple options to
extend or renew this Lease a later option cannot be exercised unless the prior
option to extend or renew this Lease has been so exercised.
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39.4 Effect of Default on Options.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary, (i) during the time
commencing from the date Lessor gives to Lessee a notice of default pursuant to
paragraph 13.1(c) or 13.1(d) and continuing until the noncompliance alleged in
said notice of default is cured, or (ii) during the period of time commencing on
the day after a monetary obligation to Lessor is due from Lessee and unpaid and
continuing until the obligation is paid, or (iii) in the event that Lessor has
given to Lessee three or more notices of default under paragraph 13.1(c), or
paragraph 13.1(d), whether or not the defaults are cured, during the 12 month
period of time immediately prior to the time that Lessee attempts to exercise
the subject Option, (iv) if Lessee has committed any non-curable breach,
including without limitation those described in paragraph 13.1(b), or is
otherwise in material default of any of the terms, covenants or conditions of
this Lease.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessee fails to
commence to cure a default specified in paragraph 13.1(d) within thirty (30)
days after the date that Lessor gives notice to Lessee of such default and/or
Lessee fails thereafter to diligently prosecute said cure to completion, (iii)
Lessor gives to Lessee three or more notices of default under paragraph 13.1(c),
or paragraph 13.1(d), whether or not the defaults are cured, or (iv) if Lessee
has committed any non-curable breach, including without limitation those
described in paragraph 13.1(b), or is otherwise in material default of any of
the terms, covenants and conditions of this Lease.
40. Security Measures - Lessor's Reservations.
40.1 Lessee hereby acknowledges that Lessor shall have no obligation
whatsoever to provide guard service or other security measures for the benefit
of the Premises or the Office Building Project. Lessee assumes all
responsibility for the protection of Lessee, its agents, and invitees and the
property of Lessee and of Lessee's agents and invitees from acts of third
parties. Nothing herein contained shall prevent Lessor, at Lessor's sole option,
from providing security protection for the Office Building Project or any part
thereof, in which event the cost thereof shall be included within the definition
of Operating Expenses, as set forth in paragraph 4.2(b).
40.2 Lessor shall have the following rights:
(a) To change the name, address or title of the Office Building
Project or building in which the Premises are located upon not less than 90 days
prior written notice;
(b) To, at Lessee's expense, provide and install Building standard
graphics on the door of the Premises and such portions of the Common Areas as
Lessor shall reasonably deem appropriate, stating Lessee's name;
(c) To permit any lessee the exclusive right to conduct any business
as long as such exclusive does not conflict with any rights expressly given
herein;
(d) To place such signs, notices or displays as Lessor reasonably
deems necessary or advisable upon the roof, exterior of the buildings or the
Office Building Project or on pole signs in the Common Areas;
40.3 Lessee shall not:
(a) Use a representation (photographic or otherwise) of the Building
or the Office Building Project or their name(s) in connection with Lessee's
business without Lessor's consent;
(b) Suffer or permit anyone, except in emergency, to go upon the roof
of the Building.
41. Easements.
41.1 Lessor reserves to itself the right, from time to time, to grant such
easements, rights and dedications that Lessor deems necessary or desirable, and
to cause the recordation of Parcel Maps and restrictions, so long as such
easements, rights, dedications, Maps and restrictions do not unreasonably
interfere with the use of the Premises by Lessee. Lessee shall sign any of the
aforementioned documents upon request of Lessor and failure to do so shall
constitute a material default of this Lease by Lessee without the need for
further notice to Lessee.
41.2 The obstruction of Lessee's view, air, or light by any structure
erected in the vicinity of the Building, whether by Lessor or third parties,
shall in no way affect this Lease or impose any liability upon Lessor.
42. Performance Under Protest. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment, and there shall survive the right on the part
of said party to institute suit
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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. In the event Lessor
shall place such disputed sums in an interest bearing account, although Lessor
shall be under no obligation to do so, and thereafter, as a result of a
determination that such sums shall be returned to Lessee, Lessor shall return,
together with such sums, any interest accruing thereon.
43. Authority. If Lessee is a corporation, trust, or general or limited
partnership, Lessee, and each individual executing this Lease on behalf of such
entity, represent and warrant that such individual is duly authorized to execute
and deliver this Lease on behalf of said entity. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after execution of
this Lease, deliver to Lessor evidence of such authority satisfactory to Lessor.
44. Conflict. Any conflict between the printed provisions, Exhibits or Addenda
of this Lease and the typewritten or handwritten provisions, if any, shall be
controlled by the typewritten or handwritten provisions.
45. No Offer. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to Lessee to lease.
This Lease shall become binding upon Lessor and Lessee only when fully executed
by both parties.
46. Lender Modification. Lessee agrees to make such reasonable modifications to
this Lease as may be reasonably required by an institutional lender in
connection with the obtaining of normal financing or refinancing of the Office
Building Project.
47. Multiple Parties. If more than one person or entity is named as either
Lessor or Lessee herein, except as otherwise expressly provided herein, the
obligations of the Lessor or Lessee herein shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee,
respectively.
48. Work Letter. Intentionally omitted.
49. Attachments. Attached hereto are the following documents which constitute a
part of this Lease:
Exhibit "A" - Floor Plan
Exhibit "B" - Rules and Regulations
Paragraph 50 - Rent Adjustment
Paragraph 51 - Option to Extend Addendum
Paragraphs 52-57
Exhibit "E" - Lessee signage
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN AND, BY EXECUTION OF THIS LEASE, SHOW THEIR INFORMED
AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE TIME THIS
LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE AND
EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN IT HAS BEEN PREPARED FOR SUBMISSION TO
YOUR ATTORNEY FOR HIS APPROVAL. NO REPRESENTATION OR RECOMMENDATION IS MADE
BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE
BROKER OR ITS AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE
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TRANSACTION RELATING THERETO; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE
OF THEIR OWN LEGAL COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS
LEASE.
LESSOR LESSEE
Pacifica Square, LLC 3Dshopping.com
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By --------------------------------- By LAWRENCE WEISDORN
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Its Manager, Steven Ohren Its Chairman, Lawrence Weisdorn
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By STEVE OHREN By
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Its Its
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Executed at Marina Del Rey, CA 90292 Executed at
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on on
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Address 330 Washington Blvd. #300 Address
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<PAGE>
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDSUTRIAL REAL ESTATE
ASSOCIATION, 700 South Flower Street, Suite 600, Los Angeles, CA 90017.
(213) 687-8777.
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<PAGE>
STANDARD OFFICE LEASE
FLOOR PLAN
SEE ATTACHED PLAN FOR EXHIBIT "A"
EXHIBIT A
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[diagram goes here]
<PAGE>
RULES AND REGULATIONS FOR
STANDARD OFFICE LEASE
Dated: July 22, 1999
-----------------------------------
By and Between Pacifica Square, LLC and 3Dshopping.com
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GENERAL RULES
1. Lessee shall not suffer or permit the obstruction of any Common Areas,
including driveways, walkways and stairways.
2. Lessor reserves the right to refuse access to any persons Lessor in good
faith judges to be a threat to the safety, reputation, or property of the Office
Building Project and its occupants.
3. Lessee shall not make or permit any noise or odors that annoy or
interfere with other lessees or persons having business within the Office
Building Project.
4. Lessee shall not keep animals or birds within the Office Building
Project, and shall not bring bicycles, motorcycles or other vehicles into areas
not designated as authorized for same.
5. Lessee shall not make, suffer or permit litter except in appropriate
receptacles for that purpose.
6. Lessee shall not alter any lock or install new or additional locks or
bolts.
7. Lessee shall be responsible for the inappropriate use of any toilet
rooms, plumbing or other utilities. No foreign substances of any kind are to be
inserted therein.
8. Lessee shall not deface the walls, partitions or other surfaces of
the Premises or Office Building Project.
9. Lessee shall not suffer or permit anything in or around the Premises or
Building that causes excessive vibration or floor loading in any part of the
Office Building Project.
10. Furniture, significant freight and equipment shall be moved into or out
of the building only with the Lessor's knowledge and consent, and subject to
such reasonable limitations, techniques and timing, as may be designated by
Lessor. Lessee shall be responsible for any damage to the Office Building
Project arising from any such activity.
11. Lessee shall not employ any service or contractor for services or work
to be performed in the Building, except as approved by Lessor.
12. Lessor reserves the right to close and lock the Building on Saturdays,
Sundays and legal holidays, and on other days between the hours of 8:00 P.M. and
6:00 A.M. of the following day. If Lessee uses the Premises during such periods,
Lessee shall be responsible for securely locking any doors it may have opened
for entry.
13. Lessee shall return all keys at the termination of its tenancy and
shall be responsible for the cost of replacing any keys that are lost.
14. No window coverings, shades or awnings shall be installed or used by
Lessee.
15. No Lessee, employee or invitee shall go upon the roof of the Building.
16. Lessee shall not suffer or permit smoking or carrying of lighted cigars
or cigarettes in areas reasonably designated by Lessor or by applicable
governmental agencies as non-smoking areas.
17. Lessee shall not use any method of heating or air conditioning other
than as provided by Lessor.
18. Lessee shall not install, maintain or operate any vending machines upon
the Premises without Lessor's written consent.
19. The Premises shall not be used for lodging or manufacturing, cooking or
food preparation. Notwithstanding the above, Lessee shall be entitled to provide
employee, shareholder, customer or prospective customer lunches, dinners or
bar-b-ques, provided however, that, in respect to all such activities, Lessee
shall provide adequate security and off-site parking, and shall not interfere
with the rights of any other tenants of the Office Building Project.
20. Lessee shall comply with all safety, fire protection and evacuation
regulations established by Lessor or any applicable governmental agency.
21. Lessor reserves the right to waive any one of these rules or
regulations, and/or as to any particular Lessee, and any such waiver shall not
constitute a waiver of any other rule or regulation or any subsequent
application thereof to such Lessee.
22. Lessee assumes all risks from theft or vandalism and agrees to keep its
Premises locked as may be required.
23. Lessor reserves the right to make such other reasonable rules and
regulations as it may from time to time deem necessary for the appropriate
operation and safety of the Office Building Project and its occupants, which
Lessor shall provide to Lessee in writing. Lessee agrees to abide by these and
such rules and regulations.
EXHIBIT B
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PARKING RULES
1. Parking areas shall be used only for parking by vehicles no longer than
full size, passenger automobiles herein called "Permitted Size Vehicles."
Vehicles other than Permitted Size Vehicles are herein referred to as "Oversized
Vehicles."
2. Lessee shall not permit or allow any vehicles that belong to or are
controlled by Lessee or Lessee's employees, suppliers, shippers, customers, or
invitees to be loaded, unloaded, or parked in areas other than those designated
by Lessor for such activities.
3. Parking stickers or identification devices shall be the property of
Lessor and be returned to Lessor by the holder thereof upon termination of the
holder's parking privileges. Lessee will pay such replacement charge as is
reasonably established by Lessor for the loss of such devices.
4. Lessor reserves the right to refuse the sale of monthly identification
devices to any person or entity that willfully refuses to comply with the
applicable rules, regulations, laws and/or agreements.
5. Lessor reserves the right to relocate all or a part of parking spaces
from floor to floor, within one floor, and/or to reasonably adjacent offsite
location(s), and to reasonably allocate them between compact and standard size
spaces, as long as the same complies with applicable laws, ordinances and
regulations.
6. Users of the parking area will obey all posted signs and park only in
the areas designated for vehicle parking.
7. Unless otherwise instructed, every person using the parking area is
required to park and lock his own vehicle. Lessor will not be responsible for
any damage to vehicles, injury to persons or loss of property, all of which
risks are assumed by the party using the parking area.
8. Validation, if established, will be permissible only by such method or
methods as Lessor and/or its licensee may establish at rates generally
applicable to visitor parking.
9. The maintenance, washing, waxing or cleaning of vehicles in the parking
structure or Common Areas is prohibited.
10. Lessee shall be responsible for seeing that all of its employees,
agents and invitees comply with the applicable parking rules, regulations, laws
and agreements.
11. Lessor reserves the right to modify these rules and/or adopt such other
reasonable and non-discriminatory rules and regulations as it may deem necessary
for the proper operation of the parking area which Lessor shall provide to
Lessee in writing.
12. Such parking use as is herein provided is intended merely as a license
only and no bailment is intended or shall be created hereby.
EXHIBIT B
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RENT ADJUSTMENT(S)
STANDARD LEASE ADDENDUM
Dated July 22, 1999
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By and Between (Lessor) Pacifica Square, LLC
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(Lessee) 3Dshopping.com
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Address of Premises: 308 Washington Blvd.
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Paragraph 50
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A. RENT ADJUSTMENTS:
The monthly rent for each month of the adjustment period(s) specified below
shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
|X| III. Fixed Rental Adjustment(s) (FRA)
The Base Rent shall be increased to the following amounts on the dates set forth
below:
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
February 1, 2002 $53,480.96
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August 1, 2004 $55,023.68
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B. NOTICE:
Unless specified otherwise herein, notice of any such adjustments, other
than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the
Lease.
C. BROKER'S FEE:
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee for
each adjustment specified above in accordance with paragraph 15 of the Lease.
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For this form, write: American Industrial Real Estate Association, 700 S.
Flower Street, Suite 600, Los Angeles, Calif. 90017 (C)1997 - American
Industrial Real Estate Association
REVISED
<PAGE>
OPTION(S) TO EXTEND
STANDARD LEASE ADDENDUM
Dated July 22, 1999
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By and Between (Lessor) Pacifica Square, LLC
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(Lessee 3Dshopping.com
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Address of Premises: 308 Washington Blvd., Marina Del Rey, CA
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Paragraph 51
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A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease for
one (1) additional sixty (60) month period(s) commencing when the prior term
expires upon each and all of the following terms and conditions:
(i) In order to exercise an option to extend, Lessee must give written
notice of such election to Lessor and Lessor must receive the same at least 9
but not more than 6 months prior to the date that the option period would
commence, time being of the essence. If proper notification of the exercise of
an option is not given and/or received, such option shall automatically expire.
Options (if there are more than one) may only be exercised consecutively.
(ii) The provisions of paragraph 39, including those relating to Lessee's
Default set forth in paragraph 39.4 of this Lease, are conditions of this
Option.
(iii) Except for the provisions of this Lease granting an option or options
to extend the term, all of the terms and conditions of this Lease except where
specifically modified by this option shall apply.
(iv) This Option is personal to the original Lessee, and cannot be assigned
or exercised by anyone other than said original Lessee and only while the
original Lessee is in full possession of the Premises and without the intention
of thereafter assigning or subletting.
(v) The monthly rent for each month of the option period shall be
calculated as follows, using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
| | I. Cost of Living Adjustment(s) (COLA)
a. On (Fill in COLA Dates): February 1, 2008
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- --------------------------------------------------------------------------------
the Base Rent shall be adjusted by the change, if any, from the Base Month
specified below, in the Consumer Price Index of the Bureau of Labor Statistics
of the U.S. Department of Labor for (select one): |_| CPI W (Urban Wage Earners
and Clerical Workers) or |X| CPI U (All Urban Consumers), for (Fill in Urban
Area):
- --------------------------------------------------------------------------------
All Items (1982-1984 = 100), herein referred to as "CPI".
b. The monthly rent payable in accordance with paragraph A.I.a of this
Addendum shall be calculated as follows: the Base Rent set forth in paragraph
1.5 of the attached Lease, shall be multiplied by a fraction the numerator of
which shall be the CPI of the calendar month two months prior to the month(s)
specified in paragraph A.I.a. above during which the adjustment is to take
effect, and the denominator of which shall be the CPI of the calendar month
which is two months prior to (select one): |_| the first month of the term of
this Lease as set forth in paragraph 1.3 ("Base Month") or |X| (Fill in Other
"Base Month"): The first month of the option to extend . The sum so calculated
shall constitute the new monthly rent hereunder, but in no event,
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REVISED
<PAGE>
shall any such new monthly rent be less than the rent payable for the month
immediately preceding the rent adjustment.
c. In the event the compilation and/or publication of the CPI shall be
transferred to any other governmental department or bureau or agency or shall be
discontinued, then the index most nearly the same as the CPI shall be used to
make such calculation. In the event that the Parties cannot agree on such
alternative index, then the matter shall be submitted for decision to the
American Arbitration Association in accordance with the then rules of said
Association and the decision of the arbitrators shall be binding upon the
parties. The cost of said Arbitration shall be paid equally by the Parties.
| | II. Market Rental Value Adjustment(s) (MRV)
a. On (Fill in MRV Adjustment Date(s))August 1, 2005
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the Base Rent shall be adjusted to 97% of the "Market Rental Value" of the
property as follows:
1) Four months prior to each Market Rental Value Adjustment Date described
above, the Parties shall attempt to agree upon what the new MRV will be on the
adjustment date. If agreement cannot be reached, within thirty days, then:
(a) Lessor and Lessee shall immediately appoint a mutually acceptable
appraiser or broker to establish the new MRV within the next thirty days. Any
associated costs will be split equally between the Parties, or
(b) Both Lessor and Lessee shall each immediately make a reasonable
determination of the MRV and submit such determination, in writing, to
arbitration in accordance with the following provisions:
(i) Within fifteen days thereafter, Lessor and Lessee shall each
select an |_| appraiser or |X| broker ("Consultant" - check one) of their choice
to act as an arbitrator. The two arbitrators so appointed shall immediately
select a third mutually acceptable Consultant to act as a third arbitrator.
(ii) The three arbitrators shall within thirty days of the
appointment of the third arbitrator reach a decision as to what the actual MRV
for the Premises is, and whether Lessor's or Lessee's submitted MRV is the
closest thereto. The decision of a majority of the arbitrators shall be binding
on the Parties. The submitted MRV which is determined to be the closest to the
actual MRV shall thereafter be used by the Parties.
(iii) If either of the Parties fails to appoint an arbitrator
within the specified fifteen days, the arbitrator timely appointed by one of
them shall reach a decision on his or her own, and said decision shall be
binding on the Parties.
(iv) The entire cost of such arbitration shall be paid by the
party whose submitted MRV is not selected, ie. the one that is NOT the closest
to the actual MRV.
2) Notwithstanding the foregoing, the new MRV shall not be less than the
rent payable for the month immediately preceding the rent adjustment.
b. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose of
calculating any further Adjustments, and
2) the first month of each Market Rental Value term shall become the new
"Base Month" for the purpose of calculating any further Adjustments.
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
B. NOTICE:
Unless specified otherwise herein, notice of any rental adjustments, other
than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the
Lease.
C. BROKER'S FEE:
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee for
each adjustment specified above in accordance with paragraph 15 of the Lease.
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REVISED
<PAGE>
ADDENDUM TO STANDARD OFFICE LEASE-GROSS DATED JULY 22, 1999, BY AND BETWEEN
PACIFICA SQUARE, LLC, LESSOR, AND 3Dshopping.com, LESSEE FOR THE PREMISES
LOCATED AT 308 WASHINGTON BLVD. #508, MARINA DEL REY, CA 90292.
52. RENTAL ABATEMENT: Provided that Lessee is not otherwise in material default
under this Lease, Lessee's obligation for the payment of Base Rent for the first
(1st) month of the Term shall be abated.
53. LETTER OF CREDIT:
53.1 DELIVERY OF LETTER OF CREDIT: In addition to the deposit of a security
deposit with Lessor, Lessee shall, on execution of this Lease, and prior to
Lessee's occupancy of the Premises, deliver to Lessor and cause to be in effect
during the Lease Term (except as otherwise provided in this Article) an
unconditional, irrevocable letter of credit ("L-C") in the amount of Four
Hundred Forty One Thousand Six Hundred Seventy One and No/100 Dollars
($441,671.00) during the first (1st) year of the Term; Four Hundred Eight
Thousand Seven Hundred Seventy and No/100 Dollars ($408,770.00) during the
second (2nd) year of the Term; Three Hundred Seventy Five Thousand Eight Hundred
Sixty Nine and No/100 Dollars ($375,869.00) during the third (3rd) year of the
Term; Three Hundred Forty Two Thousand Nine Hundred Sixty Eight and No/100
Dollars ($342,968.00) during the fourth (4th) year of the Term; Three Hundred
Ten Thousand Sixty Seven and No/100 Dollars ($310,067.00) during the fifth (5th)
year of the Term; and Two Hundred Seventy Seven Thousand One Hundred Sixty Six
and No/100 Dollars ($277,166.00) during the sixth (6th) and any subsequent years
of the Term as it may be extended. The L-C shall be substantially in the form
attached to this Lease as Exhibit "A," issued by an L-C Bank selected by Lessee,
and the L-C Bank and form of L-C shall be acceptable to Lessor. An L-C Bank is a
bank that accepts deposits, maintains accounts, has a Los Angeles office that
will negotiate a letter of credit, and the deposits of which are insured by the
Federal Deposit Insurance Corporation. Lessee shall pay all expenses, points, or
fees incurred by Lessee in obtaining the L-C.
53.1.1 Replacement of Letter of Credit. Lessee may, from time to
time, replace any existing L-C with a new L-C if the new L-C:
(a) Becomes effective at least thirty (30) days before
expiration of the L-C that it replaces;
(b) Is the required L-C amount;
(c) Is issued by an L-C Bank reasonably acceptable to
Lessor; and
(d) Otherwise complies with the requirements of this
Article.
53.1.2 Lessee's Failure to Renew or Replace Letter of Credit. If
Lessee fails to renew or replace the L-C at least thirty (30) days before its
expiration, Lessor may, without prejudice to any other remedy it has, draw on
all of the L-C.
53.1.3 Lessor's Right to Draw on Letter of Credit. Lessor shall
hold the L-C as security for the performance of Lessee's obligations under this
Lease. If, after notice and failure to cure within the applicable period stated
in this Article, or under the Lease, Lessee materially defaults on any provision
of this Lease, Lessor may, without prejudice to any other remedy it has, draw on
that portion of the L-C necessary to:
(a) Pay any Rent or other sum in default;
(b) Pay or reimburse Lessor for any amount that Lessor may
spend or become obligated to spend in exercising Lessor's
rights under the Lease; or
(c) Compensate Lessor for any expense, loss, or damage that
Lessor may suffer because of Lessee's default.
53.1.4 L-C Security Deposit. Any amount of the L-C that is drawn
on by Lessor but not applied by Lessor shall be held by Lessor as a security
deposit ("L-C Security Deposit"),
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53.2. Lessor's Transfer of L-C on Transfer of Real Property. If Lessor
transfers or mortgages its interest in the Premises, Lessor shall transfer or
assign the L-C or the L-C Security Deposit to Lessor's mortgagee or transferee
and thereupon be relieved of further responsibility with respect to the L-C or
the L-C Security Deposit as long as the transferee agrees in writing to hold the
L-C or L-C Security Deposit under the provisions of this section 53.2. If Lessor
fails to transfer or assign the L-C, Lessee shall not be required to replace the
L-C until expiration of the L-C. If Lessor draws on the L-C after a transfer or
an assignment, the mortgagee or transferee shall pay to Lessee within fifteen
(15) days from the date of the draw the amount of the L-C. If the mortgagee or
transferee fails to pay Lessee the amount of the L-C within that period, Lessee
may deduct from Rent payable by Lessee under this Lease the amount of the L-C
Security Deposit.
53.3. Assignment or Encumbrance of Letter of Credit. Lessee may not assign,
mortgage, or encumber the L-C or the L-C Security Deposit without the consent of
the Lessor.
53.4. Restoration of Letter of Credit and L-C Security Deposit. If Lessor
draws on any portion of the L-C, Lessee shall, within five (5) business days
after demand by Lessor, either (a) deposit cash with Lessor in an amount that,
when added to the amount remaining under the L-C and the amount of any L-C
Security Deposit, shall equal the L-C Amount then required under this Article.
If Lessor applied any portion of the L-C Security Deposit, Lessee
shall, within five (5) business days after demand by Lessor, deposit cash with
Lessor in an amount sufficient to restore the L-C Security Deposit to the amount
then required under this section 53.4.
53.5. Interest on L-C and L-C Security Deposit. In the event Lessor shall
place such sums in an interest bearing account, although Lessor shall be under
no obligation to do so, and thereafter, as a result of a determination that such
sums shall be returned to Lessee, Lessor shall return, together with such sums,
any interest accruing thereon.
53.6. Reduction in L-C Balance. Notwithstanding any other term in this
Section 53, in the event Lessee's net current assets, as determined by generally
accepted accounting practices and submitted to lessor with certification of such
matter by Lessee's certified public accountants;
(a) exceed Five Million Five Hundred Thousand and No/100 Dollars
($5,500,000.00), on the first (1st) anniversary of the Lease, Lessee shall be
entitled to reduce the L-C amount then required to be maintained pursuant to
this Section 53, by the sum of Forty Thousand Seven Hundred Eleven and No/100
Dollars ($40,711.00);
(b) exceed Six Million and No/100 ($6,000,000.00), on the second (2nd)
anniversary of the Lease, Lessee shall be entitled to reduce the L-C amount then
required to be maintained pursuant to this Section 53, by the sum of Forty
Thousand Seven Hundred Eleven and No/100 Dollars ($40,711.00).
(c) exceed Six Million Five Hundred Thousand and No/100
($6,500,000.00), on the third (3rd) anniversary of the Lease, Lessee shall be
entitled to reduce the L-C amount then required to be maintained pursuant to
this Section 53, by the sum of Forty Thousand Seven Hundred Eleven and No/100
Dollars ($40,711.00).
(d) exceed Seven Million and No/100 ($7,000,000.00), on the fourth
(4th) anniversary of the Lease, Lessee shall be entitled to reduce the L-C
amount then required to be maintained pursuant to this Section 53, by the sum of
Forty Thousand Seven Hundred Eleven and No/100 Dollars ($40,711.00).
(e) exceed Seven Million Five Hundred Thousand and No/100
($7,500,000.00), on the fifth (5th) anniversary of the Lease, Lessee shall be
entitled to reduce the L-C amount then required to be maintained pursuant to
this Section 53, by the sum of Forty Thousand Seven Hundred Eleven and No/100
Dollars ($40,711.00).
54. INDEMNIFICATION: This Lease has been prepared by Leonard & Ohren, a
California Corporation, at the request of Lessor and Lessee who are herein
referred to as "the Parties" without regard to number or gender. The Parties
have been advised to have this document reviewed by their own independent
counsel, and confirm that in signing this document, they have not relied on any
acts or conduct of Leonard & Ohren, and its agents, with regard to the
interpretation or meaning of this document. The Parties jointly and severally
waive any and all claims, actions, demands, and loss against Leonard & Ohren,
its agents, employees, and each of them, that a party may incur by reason of any
act, error, or omission in the preparation of this document and in its
interpretation and meaning, whether or not the interpretation or meaning is the
result of compromise and settlement among Parties, or the result of
determination by a court
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<PAGE>
or arbitration panel of competent jurisdiction. The preceding waiver provisions
have been negotiated by and between the Parties on the one part, and Leonard &
Ohren on the other part.
55. MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND ALTERATIONS.
LESSEE'S OBLIGATIONS: (a) In General. Subject to the provisions of Paragraph 6.3
(Condition), 6.2 (Compliance), 7.1 (Lessor's Obligations), 9. (Damage or
Destruction), and 14 (Condemnation), Lessee shall, at Lessee's sole expense,
keep the Premises, Utility Installations, and Alterations in good order,
condition and repair (whether or not the portion of the Premises requiring
repairs, 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, but not limited to, all equipment or facilities
such as plumbing, heating, ventilating, air-conditioning, electrical, lighting
facilities, boilers, pressure vessels, fire protection system, fixtures, walls
(interior and exterior), ceilings, roofs, floors, windows, doors, plate glass,
skylights, and signs. Lessee, in keeping the Premises in good order, condition,
and repair, shall exercise and perform good maintenance practices, specifically
including the procurement and maintenance of the service contracts required by
55. (b) below. Lessee's obligations shall include restorations, replacements,
renewals when necessary to keep the Premises and all improvements thereon or a
part thereof in good order, condition and state of repair. Lessee shall during
the term of this Lease, keep the exterior appearance of the Building in a
first-class condition consistent with the exterior appearance of the office
Building project, including, when necessary, the exterior repainting of the
Building. Notwithstanding the above, Lessor will cooperate with Lessee to
provide such access, if the provision of such access is within Lessor's control,
and further provided that it shall be at no cost to Lessor.
(b) Service Contracts. Lessee shall, at Lessee's sole expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in the maintenance of the
following equipment and improvements, if any, if and when installed on the
Premises: (I) HVAC equipment, (ii) boiler, and pressure vessels, (iii) fire
extinguishing systems, including fire alarm and/or smoke detection, (iv) roof
covering and drains, (v) basic utility feed to the perimeter of the Building,
and (vi) any other equipment if reasonably required by Lessor.
(c) Replacement. Subject to Lessee's indemnification of Lessor as set forth in
Paragraph 8.7 and without relieving Lessee of liability resulting from Lessee's
failure to exercise and perform good maintenance practices, if the Basic
Elements described in Paragraph 55 (b) cannot be repaired other than at a cost
which is in excess of 50% of the cost of replacing such Basic Elements, then
such Basic Elements shall be replaced by Lessor, and the cost thereof shall be
prorated between the Parties and Lessee shall only be obligated to pay, each
month during the remainder of the term of this Lease, on the date on which Base
Rent is due, an amount equal to the product of multiplying the cost of such
replacement by a fraction, the numerator of which is one, and the denominator of
which is the number of months of the useful life as such replacement as such
useful life is specified pursuant to Federal income tax regulations or
guidelines for depreciation thereof (including interest on the unamortized
balance as is then commercially reasonable in the judgment of Lessor's
accountants), with Lessee reserving the right to prepay its obligation at any
time.
56. FIRST RIGHT. Lessor grants to Lessee a first right to lease ("First Right")
with respect to all other tenant space in the Building in which the Premises are
located, however at no other location at the Office Building Project ("First
Right Space"). Lessee's First-Right shall be on the terms and conditions set
forth in this section 56.
56.1 No Superior Rights. The First Right shall begin only after the
Commencement Date. Lessor warrants and represents to Lessee that no existing
lessee of premises at the Building has any rights to extend the term of any
existing lease or to otherwise lease other space at the Property existing as of
the Commencement Date, and so long as Lessee's First Right exists, Lessor shall
not grant such rights to any other lessee.
56.2 Procedure for First Right. Lessor shall provide Lessee with written
notice ("First Right Notice") when: (x) Lessor receives notice from any other
lessee of the Property ("Other Tenant") that such Other Tenant will be vacating
any First Right space prior to the normal termination of such Other Tenant's
Lease ("Early Termination Notice"); or (y) within thirty (30) days of the
scheduled availability of any First Right Space.
56.3 Procedure for Lessee's Acceptance. If Lessee wishes to exercise
Lessee's First Right with respect to the First Right Space, Lessee shall, within
ten (10) business days after delivery of the First Right Notice by Lessor to
Lessee, deliver notice to Lessor of Lessee's intention to exercise its First
Right with respect to such First Right Space on identical terms and conditions
as set forth in this Lease. Lessee shall
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execute and return to Lessor, within ten (10) business days of Lessee's receipt,
an amendment to this Lease for the First Right Space.
56.4 Effect of Lessee's Failure to Exercise First Right. If Lessee does not
exercise its First Right within the response period specified in subsection
56.3, or in the event that Lessee shall not execute and return the amendment to
lease for the First Right Space within the ten (10) business days period set for
the in Paragraph 56.3, above, Lessor shall be entitled to offer the specific
First Right space to potential third party lessees without any future obligation
to Lessee under this paragraph 56.
56.5 Restrictions on First Right. Except as to a Transferee which has
acquired its rights pursuant to the requirements of Section 12, above, the First
Right shall be personal to the originally named Lessee and shall be exercisable
only by the originally named Lessee (and not any assignee, sublessee, or other
transferee of Lessee's interest in this Lease). The originally named Lessee may
exercise the First Right only if that Lessee occupies the entire Premises as of
the date of the First Right Notice. Lessee shall not have the right to lease
First Right Space if Lessee is in default under the Lease as of the date of the
attempted exercise of the First Right by Lessee or (at Lessor's option) as of
the scheduled date of delivery of the Specific First Right Space to Lessee.
56.6 Delivery of First Right Space. If Lessee timely and validly exercises
the First Right, Lessor shall deliver the First Right Space to lessee on a date
selected by Lessor ("Delivery Date") that is no later than ninety (90) days
after the date of the First Right Notice. Lessor shall not be liable to Lessee
or otherwise in default under the Lease if Lessor is unable to deliver the First
Right Space to Lessee on the projected Delivery Date due to the failure of any
other tenant to timely vacate and surrender to Lessor the First Right Space or
any portion of it. Lessor agrees to use its commercially reasonable efforts to
enforce its right to possession of the First Right Space against such other
tenant, including the institution of legal proceedings.
56.7 Term of Tenant's Lease of First Right Space. Lessee may elect, in
respect to any First Right Space, to either have the term of the lease of such
First Right Space expire (I) at the time of the expiration of the Term of the
Lease, or (ii) concurrently with the expiration of the Term of this Lease, as
such Term may be extended by the exercise, by Lessee of its option rights under
the Lease.
56.8 Full Expression of Expansion Rights. Lessor and Lessee hereby
expressly agree that this section 56 represents the full expression of Lessee's
expansion rights under the Lease.
57. CONTINGENCY TO LEASE OBLIGATIONS. Notwithstanding any other terms herein,
this Lease shall be null and void, and of no force or effect, unless Lessor
shall obtain, on or before 5:00 p.m., Pacific Daylight Time, on August 31, 1999,
a fully executed release and termination of the current lease agreement between
Lessor and Kovel, Kresser & Partners/Dai-Ichi Kikaku, Inc., the current tenant
of the Premises.
Initials: LEW
-----
S.O.
-----
<PAGE>
EXHIBIT "E"
Statement re: Computation of Earnings Per Share
<TABLE>
<CAPTION>
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
BASIC EPS
- ---------
Net Loss (1,905,725) $ (1,082,613) $ (4,428,515)
Weighted average number of
shares used in computing
net loss per share 3,210,651 3,823,228 4,045,746
------------ ------------ ------------
Net loss per share $ (0.59) $ (0.28) $ (1.09)
============ ============ ============
DILUTED EPS
- -----------
Weighted average number of
shares used in computing
net loss per share 3,210,651 3,823,228 4,045,746
Plus incremental shares from
assumed conversions 0 3,085 29,090
------------ ------------ ------------
Weighted average shares 3,210,651 3,826,313 4,074,836
------------ ------------ ------------
Loss per share assuming
dilution $ (0.59) $ (0.28) $ (1.09)
============ ============ ============
</TABLE>
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
333-85873 of 3Dshopping.com on Form S-8 of our report dated September 2, 1999
included in the Annual Report on Form 10-K of 3Dshopping.com for the year ended
June 30, 1999.
FRIEDMAN, MINSK, COLE & FASTOVSKY
FRIEDMAN, MINSK, COLE & FASTOVSKY
Los Angeles, California
September 27, 1999
<PAGE>
Independent Auditors' Consent
We consent to the incorporation by reference in Registration Statement No.
333-85873 of 3Dshopping.com on Form S-8 of our report dated April 20, 1999
relating to Design Bas, Incorporated, included in the Annual Report on Form 10-K
of 3Dshopping.com for the year ended June 30, 1999.
FRIEDMAN, MINSK, COLE & FASTOVSKY
FRIEDMAN, MINSK, COLE & FASTOVSKY
Los Angeles, California
September 27, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1999 JUN-30-1998
<PERIOD-END> JUN-30-1999 JUN-30-1998
<CASH> 116,918 144,564
<SECURITIES> 0 0
<RECEIVABLES> 116,660 4,999
<ALLOWANCES> 2,991 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 284,053 163,059
<PP&E> 268,691 125,009
<DEPRECIATION> 124,687 58,539
<TOTAL-ASSETS> 1,314,186 229,529
<CURRENT-LIABILITIES> 1,657,306 328,155
<BONDS> 12,318 0
0 0
0 0
<COMMON> 7,063,915 2,997,112
<OTHER-SE> (7,419,353) (3,095,738)
<TOTAL-LIABILITY-AND-EQUITY> 1,314,186 229,529
<SALES> 0 0
<TOTAL-REVENUES> 191,191 18,404
<CGS> 0 0
<TOTAL-COSTS> 682,575 473,665
<OTHER-EXPENSES> 3,505,862 630,479
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 436,025 10,373
<INCOME-PRETAX> (4,482,515) (1,082,613)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (4,482,515) (1,082,613)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (4,482,515) (1,082,613)
<EPS-BASIC> (1.09) (0.28)
<EPS-DILUTED> 0 0
</TABLE>
